UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24205
FACTUAL DATA CORP.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1449911
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
5200 Hahns Peak Drive, Loveland Colorado 80538
(Address of principal executive offices) (Zip Code)
(970) 663-5700
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of November 12, 1998.
Common Stock 3,232,499
Class Number of Shares
Transitional Small Business Disclosure Format: [ ] Yes [X] No
<PAGE>
FACTUAL DATA CORP.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - September 30,
1998 (Unaudited) and December 31, 1997 .....................3
Unaudited Consolidated Statements of Income --
For the Three Months Ended September 30, 1998
and September 30, 1997 and For the Nine
Months Ended September 30, 1998 and September 30,
1997 .......................................................4
Unaudited Consolidated Statements of Cash Flows --
For the Nine Months Ended September 30, 1998
and September 30, 1997 .....................................5
Notes to Unaudited Consolidated Financial Statements ........6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................7-12
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds .................13
Item 6. Exhibits and Reports on Form 8-K ..........................13
SIGNATURES .............................................................14
Index to Exhibits ......................................................15
<PAGE>
FACTUAL DATA CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ............................ $ 3,807,294 $ 396,752
Short term investments ............................... 2,044,254 --
Accounts receivable, net ............................. 2,508,518 633,017
Note receivable ...................................... -- 117,160
Prepaid expenses ..................................... 121,195 7,438
Deferred tax asset ................................... 64,577 64,577
----------- -----------
Total current assets ............................... 8,545,838 1,218,944
Property and equipment, net .............................. 1,796,285 995,907
Intangible assets ........................................ 4,328,328 499,228
Other assets ............................................. 78,952 150,006
----------- -----------
$14,749,403 $ 2,864,085
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable ........................................ $ 19,070 $ 16,140
Current portion of long-term debt .................... 1,008,417 282,396
Accounts payable ..................................... 2,243,744 590,467
Accrued payroll and expenses ........................ 225,037 152,513
Income taxes payable ................................. 695,270 61,154
----------- -----------
Total current liabilities .......................... 4,191,546 1,102,670
Long-term debt ........................................... 2,002,258 927,988
Deferred income taxes .................................... 244,879 186,354
Commitments and contingency
Shareholders' equity
Common stock, 10,000,000 shares authorized; 3,200,230
at September 30; 1,800,000 at December 31 issued
and outstanding ........................................ 6,430,705 2,500
Retained earnings ....................................... 1,880,015 644,573
----------- -----------
Total shareholders' equity ......................... 8,310,720 647,073
----------- -----------
$14,749,403 $ 2,864,085
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
- 3 -
<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
System affiliates ................... $ 899,779 $ 536,940 $ 2,826,712 $ 1,434,106
Information services ................ 1,756,516 116,263 2,800,570 407,584
Proceeds from the sale of Company
operated territories ............... -- 15,000 -- 774,679
Training, license and other ......... -- 154,503 1,005 154,503
----------- ----------- ----------- -----------
Total revenue .................... 2,656,295 822,706 5,628,287 2,770,872
----------- ----------- ----------- -----------
Operating Expenses
Costs of services provided .......... 1,463,144 397,549 2,371,885 1,023,874
Costs of Company operated territories
sold ............................... -- -- -- 506,415
Selling, general and administrative . 515,131 172,086 1,401,608 702,156
----------- ----------- ----------- -----------
Total operating expenses ......... 1,978,275 569,635 3,773,493 2,232,445
----------- ----------- ----------- -----------
Income from operations ............... 678,020 253,071 1,854,794 538,427
Other income (expense)
Other income ........................ 106,992 12,830 165,468 50,187
Interest expense .................... (15,172) (20,225) (59,245) (63,696)
----------- ----------- ----------- -----------
Total other income (expense) ...... 91,820 (7,395) 106,223 (13,509)
----------- ----------- ----------- -----------
Income before income taxes ........... 769,840 245,676 1,961,017 524,918
Income tax expense ................... 284,841 83,597 725,576 178,539
----------- ----------- ----------- -----------
Net income and comprehensive income .. $ 484,999 $ 162,079 $ 1,235,441 $ 346,379
=========== =========== =========== ===========
Basic earnings per share ............. $ .15 $ .09 $ .50 $ .19
=========== =========== =========== ===========
Weighted average shares outstanding .. 3,193,487 1,800,000 2,484,496 1,800,000
=========== =========== =========== ===========
Diluted earnings per share ........... $ .11 $ .09 $ .39 $ .19
=========== =========== =========== ===========
Weighted average shares outstanding .. 4,588,487 1,800,000 3,171,996 1,800,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
- 4 -
<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income .................................................. $ 1,235,441 $ 346,379
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization ........................... 433,284 283,942
Deferred income taxes ................................... 58,525 136,685
Basis of non-current assets of territories sold ......... -- 391,330
Changes in operating assets and liabilities
Accounts receivable .................................... (1,875,500) (36,581)
Prepaid expenses ....................................... (113,757) (9,490)
Other assets ........................................... 8,817 (11,872)
Accounts payable ....................................... 1,653,277 (77,644)
Accrued payroll, payroll taxes and expenses ............ 91,602 (68,719)
Accrued taxes and other ................................ 634,116 22,849
----------- -----------
890,364 630,500
----------- -----------
Net cash provided by operating activities ......... 2,125,805 976,879
----------- -----------
Cash flow from investing activities
Investment in business acquisitions ......................... (1,413,496) --
Purchase of property and equipment .......................... (734,881) (432,952)
Change in note receivable ................................... 33,544 (75,682)
Investment in short-term securities ......................... (2,044,254) --
----------- -----------
Net cash used in investing activities ............. (4,159,087) (508,634)
----------- -----------
Cash flows from financing activities
Line-of-credit, net ......................................... -- (66,000)
Principal payments on long-term debt ........................ (881,476) (118,808)
Collection from common stock subscription ................... -- 500
Deferred offering costs incurred net of
accounts payable ........................................... -- (105,344)
Deferred acquisition costs .................................. (38,635) --
Issuance of common stock-IPO, net ........................ 6,363,935 --
----------- -----------
Net cash provided by (used in) financing activities 5,443,824 (289,652)
----------- -----------
Net increase in cash and cash equivalents .................... 3,410,542 178,593
Cash and cash equivalents, at beginning of period ............ 396,752 48,994
----------- -----------
Cash and cash equivalents, at end of period .................. $ 3,807,294 $ 227,587
=========== ===========
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the nine months ended September 30, 1998
and 1997 was $59,245 and $63,696, respectively.
Supplemental disclosure of non-cash investing and financing activities:
During 1998, the Company financed fixed asset purchases totaling $192,604
with notes payable.
During 1998, the Company recorded $110,730 of previous deferred offering
costs as a reduction to common stock.
During 1998, the Company consummated five acquisitions. (see table below)
Non-Cash Consideration Purchase Price Allocation
-------------------------------- -----------------------------------
Notes payable .... $2,549,481 Property and equipment $ 229,000
Common stock
issued .......... 175,000 Other assets 14,505
Note receivable .. 68,239 Intangibles 3,962,711
--------- ----------
Subtotal .... 2,792,720 Total $4,206,216
==========
Cash payment ..... 1,258,524
Acquisition costs 154,972
----------
Subtotal
cash portion 1,413,496
----------
Total
consideration ... $4,206,216
==========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
- 5 -
FACTUAL DATA CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
The consolidated financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's Registration Statement on Form SB-2 effective May 13,
1998, which includes audited financial statements for the years ended December
31, 1997 and 1996. The results of operations for the nine months ended September
30, 1998, may not be indicative of the results of operations for the year ended
December 31, 1998.
The Company's short-term investments consist principally of marketable debt
securities which management has classified as available for sale. The Company
invested in short-term government, government guaranteed and investment grade
securities. Unrealized gains and losses are reported as a separate component of
stockholders' equity. As of September 30, 1998 there were no unrealized gains or
losses on the Company's investments in marketable debt securities as fair market
value approximated amortized cost.
The Company's diluted earnings per share takes into account warrants issued in
the Company's IPO and related over allotment exercised by the underwriters.
Note 2: Recently Issued Accounting Pronouncements
In September 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
standards for reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all items that are
required to be recognized under current accounting standards as components of
comprehensive income, be reported in a financial statement that is displayed
with the same prominence as other financial statements. Currently the Company's
only component, which would comprise comprehensive income, is its results of
operations.
Also, in September 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), which supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business Enterprise."
SFAS 131 establishes standards for the way that public companies report
information about operating segments in annual financial statements and requires
reporting of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas and major customers. SFAS 131
defines operating segments as components of a company about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Management believes that SFAS 131 will not have a significant
impact on the Company's disclosure of segment information in the future.
SFAS 130 and 131 are effective for financial statements for periods beginning
after December 15, 1997, and require comparative information for earlier periods
to be restated.
Note 3: Business Acquisitions
The Company consummated five acquisitions in the third quarter 1998. The
acquisitions have been accounted for using the purchase method and the results
of operations are reflected in the consolidated financial statements from the
date of acquisition's forward. The acquisitions have been filed with the
Securities and Exchange Commission on Forms 8-K and the related pro forma
financial statements on Form 8-K/A.
- 6 -
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This filing contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future operations,
including plans and objectives relating to services offered by and future
economic performance of the Company.
The forward-looking statements included herein are based on current expectations
that involve a number of risks and uncertainties that might adversely affect the
Company's operating results in the future in a material way. Such risks and
uncertainties include but are not limited to the following: interest rate
fluctuations, effects of national and regional economic and market conditions,
seasonal housing market fluctuations, labor and marketing costs, operating costs
such as telephone and repositories costs, intensity of competition, success of
the Company's consolidation plan, legal claims and the contingencies associated
with year 2000 compliance.
Overview
The Company provides a broad range of credit, employment and other information
services to mortgage lenders, consumer lenders, employers, landlords, and other
businesses. The Company specializes in preparing mortgage credit reports that
are customized to meet each lender's individual needs.
The Company provides its services through two different methods. The first
involves services sold directly by the Company to third party customers such as
mortgage lenders, financial institutions, private enterprises, and individuals
(referred to as "information services"). Secondly, the Company sells its
services through franchisees and licensees ("System Affiliates"). The Company
markets its services nationally through 45 combined locations, including Company
operated offices, franchisees and licensees. The System Affiliates provide
information services to customers using the Company's technology and pay
royalty, license and other fees to the Company.
In the third quarter 1998 the Company acquired two Factual Data franchises, two
licensees and one competitor with combined trailing 12 month revenues of $9.5
million. In addition to acquisitions the Company launched its third service,
Tenant Qualifier, addressing the demand for tenant screening. The Company became
the first to provide software for mortgage services via Freddie Mac's
Goldworks(R) web site and released the first multi- vendor integrated software
for credit and flood determinations.
The Company's mortgage credit reporting business is subject to fluctuation due
to seasonal effects, which influence the public's home buying tendencies.
Various seasonal events such as holidays and school calendars impact the
mortgage industry overall, particularly as it relates to new and existing home
sales. Seasonality is expected to continue to influence the Company's results of
operations.
- 7 -
<PAGE>
Results of Operations
The following table sets forth for the periods indicated, as a percentage of
total revenue, those items included in the Company's Unaudited Consolidated
Statements of Income:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
------ ------ ------ -------
<S> <C> <C> <C> <C>
Revenue
System affiliates ................. 33.9% 65.3% 50.2% 51.7%
Information services .............. 66.1 14.1 49.8 14.7
Proceeds from the sale of Company
operated territories ............. 0.0 1.8 0.0 28.0
Training, license and other ....... 0.0 18.8 0.0 5.6
----- ----- ----- -----
Total revenue ................... 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating expenses
Costs of services provided ........ 55.1 48.3 42.1 37.0
Costs of Company operated
territories sold ................. 0.0 0.0 0.0 18.3
Selling, general and administrative 19.4 20.9 24.9 25.3
----- ----- ----- -----
Total operating expenses ........ 74.5% 69.2% 67.0% 80.6%
----- ----- ----- -----
Income from operations ................ 25.5 30.8 33.0 19.4
Other income ...................... 4.0 1.6 2.9 1.8
Interest expense .................. (0.5) (2.5) (1.0) (2.3)
----- ----- ----- -----
Income before income taxes ............ 29.0% 29.9% 34.9% 18.9%
----- ----- ----- -----
Income tax expense .................... 10.7% 10.2% 12.9% 6.4%
----- ----- ----- -----
Net income and comprehensive income ... 18.3% 19.7% 22.0% 12.5%
===== ===== ===== =====
</TABLE>
Comparison of three months ended September 30, 1998 and September 30, 1997
Continued momentum in the real estate market, partial contributions from year to
date acquisitions, the introduction of Tenant Qualifier services and the
increased demand for EMPFacts, the Company's emerging service line addressing
the demand for employee screening, contributed to the financial performance for
the third quarter 1998.
In comparing the improved 1998 third quarter results to third quarter 1997,
management attributes the growth in part to enhancements to the Company's core
mortgage services, the introduction of new services, acquiring offices in active
markets and continued increased demand for the fully automated, thirty to ninety
second reporting services.
- 8 -
<PAGE>
Revenue from System Affiliates, which consists of royalties, license fees and
ancillary service fees from the Company's franchisees and licensees, increased
68%, from $536,940 in the third quarter 1997 to $899,779 in the third quarter
1998. This increase generally reflects the current economy and growth in the
mortgage industry. Ancillary services contributed $172,372 to revenue in third
quarter 1998, as compared with $18,503 in third quarter 1997.
Company information services revenue increased 1414% from $116,263 in third
quarter 1997 to $1,756,516 in third quarter 1998. Included in this increase is a
three month contribution from Mirocon, Inc. a franchise acquired in December,
1997, two month contributions from Heritage Credit Reporting, Inc., American
Credit Connection and FDC Northwest, acquired in August 1998, and one month
contributions from FDC Minnesota and Residential Reporting, Inc. acquired in
September 1998.
Proceeds from the sale of Company operated territories decreased by $15,000, or
100%, from third quarter 1997 to third quarter 1998. Revenue generated in third
quarter 1997 represented a transfer fee for the sale of one franchise office to
another franchise office. No territory sales occurred in the third quarter 1998.
The Company does not intend to sell Company operated territories in the
foreseeable future.
Training license and other revenue decreased 100% or $154,503 from third quarter
1997. The decrease is attributed to a one-time fee, to System Affiliates, for
technical development costs for a interface with an automated underwriting
system.
Costs of services provided increased $1,065,595 when compared with the same
period of the prior year. This increase directly relates to the costs of
information services revenue associated with the Mirocon, Inc. acquisition in
December of 1997, and the five acquisitions made in the third quarter of 1998.
Included in the costs of services are direct costs such as salaries, employment
taxes, telephone, rent and repository costs. Although costs of services
increased during the third quarter, 1998, management is highly encouraged by the
profit margins shown by these acquisitions. The improved profit margins are a
result of increased economy's of scale in the technology center and
insignificant increases to fixed costs. As indicated in the table above, cost of
services as a percentage of total revenue increased by 6.8% in comparison to the
52.0% increase in information services revenue as a percentage of total revenue
for the third quarter 1998.
Selling, general and administrative expenses increased 199% from $172,086 in
third quarter 1997 to $515,131 in third quarter 1998. This increase was due to
the integration of the five acquisitions made in the third quarter of 1998.
These costs include rent, travel, depreciation, amortization and additional
office expenses.
Other income increased by $94,162 for the three months ended September 30, 1998,
this increase was due to the interest income earned on short-term investments
from the IPO proceeds.
- 9 -
<PAGE>
Interest expense decreased by $5,053 due to the reduction of long-term debt of
$425,000 to retire a note payable to a financial institution.
The Company's income taxes increased $201,244, from $83,597 for the third
quarter 1997 to $284,841 for the third quarter 1998.
As a result of the above-mentioned factors, net income and comprehensive income
increased $322,920, 199%, from $162,079 in the third quarter 1997 to $484,999
for the third quarter 1998. Basic earnings rose to $0.15 per share for the
quarter from the prior years quarter of $0.09 per share, a 67 % increase. This
basic earnings per share comparison takes into account a 77% increase in
weighted average number of shares outstanding, from 1,800,000 in the third
quarter 1997 to 3,193,487 in the third quarter 1998. Diluted earnings rose to
$0.11 per share for the quarter from the prior years quarter of $0.09 per share,
a 22% increase. This diluted earnings per share comparison takes into account a
155% increase in weighted average number of shares outstanding, from 1,800,000
in the third quarter 1997 to 4,588,487 equivalent shares (giving effect to
warrants) in the third quarter 1998.
Comparison of nine months ended September 30, 1998 and September 30, 1997
Revenue from System Affiliates, which consists of royalties, license fees and
ancillary fees from the Company's franchisees and licensees, increased 97%, from
$1,434,106 for the nine months ended September 30, 1997 to $2,826,712 for the
nine months ended September 30, 1998. This increase is attributed to increased
market share in the mortgage and employment screening industries and the
continued growth of several system affiliates. New ancillary services,
introduced by the Company in October of 1997, contributed $594,793 for the nine
months ended September 30, 1998, as compared with $18,503 for the nine months
ended September 30, 1997.
Company information services revenue increased 587% from $407,584 for the nine
months ended September 30, 1997 to $2,800,570 for the nine months ended
September 30, 1998. The acquisitions of Mirocon, Inc. in December 1997, Heritage
Credit Reporting, Inc., American Credit Connection and FDC Northwest, in August
1998, FDC Minnesota and Residential Reporting, Inc. in September 1998
contributed largely to the $2,392,986 increase. The remaining increase in
information services is a result of same location sales growth and increased
demand for the Company's emerging services.
Training, license and other revenue decreased $153,498, or 153% for the nine
months ended September 30, 1998 compared to the nine months ended September 30,
1997. The majority of this decrease was a one-time charge to System Affiliates
for a marketing software interface.
Proceeds from the sale of Company operated territories decreased by $774,679, or
100%, for the nine months ended September 30, 1998 compared to the nine months
ended September 30, 1997. Revenue generated for the nine months ended September
30, 1997 represented the territory sales of Texas, Virginia, and the Colorado
Western slope. This $774,679 represented 28% of total revenue for the nine
months ended September 30, 1997. The decrease of $506,415 in cost of Company
operated territories sold is in direct relation to the sale of the Texas
territory formerly operated by the Company. No territory sales occurred in the
nine months ended September 30, 1998. The Company does not intend to sell
Company operated territories in the foreseeable future.
- 10 -
<PAGE>
Costs of services provided increased $1,348,011 for the nine months ended
September 30, 1998, when compared with the same nine months of the prior year.
This change directly relates to the increase in information services revenue
associated with Mirocon, Inc. and the five acquisitions in the third quarter of
1998. Included in the costs of services are direct costs such as salaries,
employment taxes, telephone, rent and repositories costs. Although costs of
services increased during the nine months ended September 30, 1998, profit
margins continue to grow due to the acquisitions. As indicated in the previous
table, cost of services as a percentage of total revenue increased by 5.1% in
comparison to the 35.1% increase in information services revenue as a percentage
of total revenue for the nine months ended September 30, 1998.
Selling, general and administrative expenses increased 100% from $702,156 for
the nine months ended September 30, 1997 to $1,401,608 for the nine months ended
September 30, 1998, or by $699,452. This increase was due to the integration of
Mirocon Inc, and the five acquisitions made in the third quarter of 1998. These
costs include rent, travel, depreciation, amortization and additional office
expenses.
Other income increased to $165,468 for the nine months ended September 30, 1998,
or 230% as compared to $50,187 for the nine months ended September 30, 1997.
This increase was due to the interest income earned on short term investments
from the IPO proceeds.
The Company's income taxes increased $547,037, from $178,539 for the nine months
ended September 30, 1997 to $725,576 for the nine months ended September 30,
1998.
As a result of the above-mentioned factors, net income and comprehensive income
increased $889,062 from $346,379 for the nine months ended September 30, 1997 to
$1,235,441 for the nine months ended September 30, 1998. Basic earnings rose to
$0.50 per share for the nine months ended September 30, 1998 from $0.19 per
share for the nine months ended September 30, 1997. The basic earnings per share
comparison takes into account a 38% increase in weighted average number of
shares outstanding, from 1,800,000 for the nine months ended September 30, 1997
to 2,484,496 for the nine months ended September 30, 1998. Diluted earnings rose
to $0.39 per share for the nine months ended September 30, 1998 from the nine
months ended September 30, 1997 of $0.19 per share, a 105% increase. The diluted
earnings per share comparison takes into account a 76% increase in weighted
average number of shares outstanding, from 1,800,000 for the nine months ended
September 30, 1997 to 3,171,996 for the nine months ended September 30, 1998
primarily due to warrants.
The Company's mortgage credit reporting business is subject to fluctuation due
to seasonal effects, which influence the public's home buying tendencies.
Various seasonal events such as holidays and school calendars impact the
mortgage industry overall, particularly as it relates to new and existing home
sales. Seasonality is expected to continue to influence the Company's results of
operations.
- 11 -
<PAGE>
Liquidity and Capital Resources
The Company continues to meet its capital requirements through cash flows
provided by operations, funds provided from its May 1998, IPO, and a $500,000
line of credit, which had no outstanding balance at September 30, 1998. The
total cash and cash equivalents increased $3,410,542 in the nine months ended
September 30, 1998. The increase for the current period was primarily due to
cash generated by operating activities and the closing of the IPO, offset in
part by capital expenditures, investment in short-term securities, repayment of
debt and the investments in business acquisitions. The Company also had an
increase in its accounts receivable of $1,875,500. The Company's cash and cash
equivalents balance at September 30, 1998 was $3,807,294; its short-term
investments were $2,044,254.
For the nine months ended September 30, 1998 net cash provided by operating
activities was $2,125,805. Net cash used in investing activities was $4,159,087,
and net cash provided by financing activities was $5,443,824. Capital
expenditures accounted for $734,881, which included $361,900 for the capitalized
software costs. Investment in short-term securities accounted for $2,044,254.
Cash used for the repayment of long-term debt amounted to $881,476, cash used
for acquisitions amounted to $1,413,496 and the issuance of common stock from
the IPO amounted to $6,363,935.
In connection with the acquisition of Mirocon, Inc. in December of 1997 the
Company made a payment of $160,000 on the note upon completion of the IPO. Upon
the closing of the IPO the Company made a payment of $425,000 on long term debt.
Management believes that its anticipated cash requirements for the immediate
future will be met from internally generated funds and the proceeds from the
IPO. The Company's current consolidation plan calls for use of proceeds from the
IPO of $3.0 million for acquisitions. This funding will not complete the
consolidation plan and, therefore, the Company will be required to obtain
additional public, private or debt financing or a combination of the foregoing
to complete the plan. As of September 30, 1998, the Company has used cash in the
amount of $1,413,496 for the acquisitions. The remaining purchase price was
funded with the Company's common stock and notes payable.
- 12 -
<PAGE>
Year 2000 Compliance
The Company utilizes a significant number of computer systems across its entire
organization. The Company therefore must assess those systems' Year 2000
compliance and then correct or replace systems as needed. The Company has
completed its Year 2000 compliance assessment for software and hardware
compliance. This assessment concluded with a schedule for Year 2000 equipment
and software updates as necessary, and schedule for confirming compliance via
testing. The Company has prioritized the updating and testing of its systems.
Software for customer use has the highest priority, followed by internal systems
critical to operations. Modification of Company generated software for Year 2000
compliance is complete, and testing of compliance has begun, with an expected
completion during 1999. Modification of current hardware and low-level system
software for Year 2000 compliance is mostly complete, with operating system
patches or upgrades being applied as they become available. Updates of vendor
supplied systems with either Year 2000 compliant patches or upgrades are in
progress. All new software developed by the Company is 32-bit Windows software
and is Year 2000 compliant to the standards set forth by Microsoft Corporation's
published guidelines. All of the Company's customers will be required to upgrade
to 32-bit Window's software by December 31, 1999. Beginning first quarter 1999,
the Company expects to begin testing for Year 2000 compliance with key
information vendors and customers in an industry-wide effort sponsored by
Freddie Mac.
Costs for Year 2000 compliance include administration of Year 2000 compliance
plan, modifications to existing software, updating of systems, a percentage of
new software development, and testing costs. Total Year 2000 costs are estimated
at $200,000. Although the Company is developing, and will, if necessary,
implement appropriate contingency plans to mitigate to the extent possible the
effects of any significant Year 2000 noncompliance, such plans may not be
adequate and the cost of Year 2000 compliance may be higher than $200,000.
Vendors for facilities such as telephone and electricity have indicated that
they will be Year 2000 compliant in 1999. By fourth quarter 1998, the Company
believes that it will have completed all software updates necessary to upgrade
its information source vendors to their proprietary Year 2000 versions. This
project is material, but may be unnecessary for Year 2000 compliance as the
Company already interprets the 2 digit year representations of these vendors.
The Company's results of operations and financial condition could be materially
adversely affected by the failure of outside vendors to achieve Year 2000
compliance in a timely manner.
With the exception of software installed at customer sites, all Company
generated software is available to Company staff for immediate modification and
update, should Year 2000 compliance problems be discovered. Current customer
software has a capability for the customer to automatically update the software,
via normal communications with the Company, should any problems be found after
the software is installed at the customer site. A worst case scenario would
involve a fallback to legacy software that has been modified to use available
century information or wherever necessary to interpret the century using
windowing technology. The Company's results of operations and financial
condition could be materially adversely affected by the failure of both original
and contingency plans to achieve Year 2000 compliance in a timely manner.
The Company's development of new 32-bit, Year 2000 compliant Windows software
for systems that are now running DOS or 16-bit Windows software is currently
scheduled for completion during 1999. The use of existing DOS or 16-bit Windows
software with Year 2000 modifications that interpret the century is considered
the contingency plan for Company generated software. Those modifications are
currently in place, and will be tested for Y2K compliance by the end of 1998.
Contingency plans for vendor supplied systems are still being developed, and
should be complete by end of first quarter 1999.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
As discussed in Note 3 to the Financial Information contained in Part I to this
Form 10-QSB, the Company completed the IPO of 1,380,000 units on May 18, 1998.
During the quarter ended September 30, 1998, the Company used proceeds from the
offering for acquisitions. The five acquisitions made in the third quarter of
1998 were purchased for $4,051,244 of which $1,413,496 was cash, with the
remaining balance funded with the Company's common stock and notes payable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - The following exhibits are filed herewith:
No. Description
------ --------------------
27 Financial Data
Schedule
b. Reports on Form 8-K
The Company filed the following reports on Form 8-K during the
quarter ended September 30, 1998:
Filing Date Items
------------------- ----------------------------------------------
August 10, 1998 Item 2, reporting the acquisition of
the assets of American Credit Connection, Inc.
August 10, 1998 Item 2, reporting the acquisition of
the assets of FD Northwest, Inc.
August 11, 1998 Item 2, reporting the acquisition of
the assets of Heritage Credit Reporting, Inc.
September 16, 1998 Item 2, reporting the acquisition of
the assets of Factual Data Minnesota, Inc.
October 9, 1998 Item 7, of Form 8-K/A, containing
financial statements and related pro forma's
amending Form 8-K's filed on August 10 and 11,
1998.
- 13 -
<PAGE>
SIGNATURES
In accordance with 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.
Dated: November 12, 1998
FACTUAL DATA CORP.
(Registrant)
/s/ Jerald H. Donnan
Jerald H. Donnan
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Todd A. Neiberger
Todd A. Neiberger
Chief Financial Officer
(Principal Financial and Accounting Officer)
- 14 -
<PAGE>
INDEX TO EXHIBITS
27. Financial data schedule
- 15 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,807,294
<SECURITIES> 0
<RECEIVABLES> 2,508,518
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,545,838
<PP&E> 1,796,285
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,749,403
<CURRENT-LIABILITIES> 4,191,546
<BONDS> 0
0
0
<COMMON> 6,430,705
<OTHER-SE> 1,880,015
<TOTAL-LIABILITY-AND-EQUITY> 14,749,403
<SALES> 0
<TOTAL-REVENUES> 5,628,287
<CGS> 0
<TOTAL-COSTS> 2,371,885
<OTHER-EXPENSES> 1,401,608
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,245
<INCOME-PRETAX> 1,961,017
<INCOME-TAX> 725,576
<INCOME-CONTINUING> 1,235,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,234,441
<EPS-PRIMARY> .50
<EPS-DILUTED> .39
</TABLE>
