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 JUNE 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 or organization) (I.R.S. Employer 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. [ ] Yes [ X] No*
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of August 12, 1998.
Common Stock 3,180,000
------------- ---------
Class Number of Shares
Transitional Small Business Disclosure Format: [ ] Yes [X] No
* The issuer became subject to filing requirements on May 13, 1998.
<PAGE>
FACTUAL DATA CORP.
------------------
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE NO.
---------------------- ---------
Item 1. Financial Statements
Consolidated Balance Sheets - June 30,
1998 (Unaudited) and December 31, 1997 3
Unaudited Consolidated Statements of
Income -- For the Three Months
Ended June 30, 1998 and June 30, 1997
and For the Six Months Ended
June 30, 1998 and June 30, 1997 4
Unaudited Consolidated Statements of
Cash Flows -- For the Six Months
Ended June 30, 1998 and June 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 1. Legal Proceedings 13
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>
June 30, 1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 3,360,149 $ 396,752
Short term investments 3,510,847 -
Accounts receivable, net 1,282,065 633,017
Note receivable 128,616 117,160
Prepaid expenses 92,454 7,438
Deferred tax asset 64,577 64,577
----------- ----------
Total current assets 8,438,708 1,218,944
Property and equipment, net 1,519,481 995,907
Other assets 517,481 649, 234
$ 10,475,670 $ 2,864,085
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable $ 21,600 $ 16,140
Current portion of long-term debt 231,466 282,396
Accounts payable 1,293,813 590,467
Accrued payroll and expenses 94,953 152,513
Income taxes payable 412,093 61,154
--------------- -----------
Total current liabilities 2,053,925 1,102,670
Long-term debt 396,236 927,988
Deferred income taxes 243,215 186,354
Commitments and contingency
Shareholders' equity
Common stock, 10,000,000 shares
authorized; 3,180,000 at 6/30;
1,800,000 at 12/31 issued and
outstanding 6,387,279 2,500
Retained earnings 1,395,015 644,573
-------------- -----------
Total shareholders' equity 7,782,294 647,073
-------------- -----------
$ 10,475,670 $ 2,864,085
=============== ==============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
1998 1997 1998 1997
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue
System affiliates $ 911,058 $ 466,977 $1,926,933 $ 897,166
Information services 475,858 138,846 1,044,054 291,321
Proceeds from the
sale of Company
operated territories - 50,000 - 759,679
Training, license
and other - - 1,005 -
---------- ---------- ---------- ----------
Total revenue 1,386,916 655,823 2,971,992 1,948,166
---------- ---------- ---------- ----------
Operating Expenses
Costs of services
provided 499,771 324,092 984,227 626,325
Costs of Company
operated territories
sold - - - 506,415
Selling, general and
administrative 456,048 216,398 810,991 530,070
----------- ---------- --------- ---------
Total operating
expenses 955,819 540,490 1,795,218 1,662,810
----------- ---------- --------- ---------
Income from
operations 431,097 115,333 1,176,774 285,356
Other income (expense)
Other income 48,240 27,404 58,476 37,357
Interest expense (25,104) (21,406) (44,073) 943,471)
------------ ---------- --------- --------
Total other
income (expense) 23,136 5,998 14,403 (6,114)
------------ ---------- --------- --------
Income before
income taxes 454,233 121,331 1,191,177 279,242
Income tax expense 168,066 43,092 440,735 94,942
------------ ---------- --------- --------
Net income and
comprehensive income $ 286,167 $ 78,239 $ 750,442 $ 184,300
=========== ========== =========== ==========
Basic earnings
per share $ .12 $ .04 $ .35 $ .10
=========== ========== =========== ==========
Weighted average
shares outstanding 2,460,000 1,800,000 2,130,000 1,800,000
=========== ========== =========== ==========
Diluted earnings
per share $ .09 $ .04 $ .30 $ .10
=========== =========== =========== ==========
Weighted average
shares outstanding 3,127,500 1,800,000 2,463,750 1,800,000
========== =========== =========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
------------------------
1998 1997
--------- ------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 750,442 $ 184,300
------------ ----------
Adjustments to reconcile net income
to net cash provided by operating activities
Depreciation and amortization 236,810 194,605
Deferred income taxes 56,861 84,096
Basis of non-current assets of
territories sold - 391,330
Changes in operating assets
and liabilities
Accounts receivable (649,048) 71,771
Prepaid expenses (85,016) (7,116)
Other assets 17,710 2,094
Accounts payable 703,346 (121,733)
Accrued payroll, payroll taxes
and expenses (35,961) (64,199)
Accrued taxes and other 350,939 (8,304)
------------ ----------
595,641 542,544
Net cash provided by operating
activities 1,346,083 726,844
------------ ----------
Cash flow from investing activities
Purchase of property and equipment (547,998) (302,264)
Increase in note receivable (11,456) (72,336)
Investment in short-term securities (3,510,847) -
------------ ----------
Net cash used in investing
activities (4,070,301) (374,600)
------------ ----------
Cash flows from financing activities
Line-of-credit, net - (66,000)
Principal payments on long-term debt (791,426) (81,996)
Collection from common stock subscription - 500
Deferred offering costs incurred net
of accounts payable - (85,468)
Issuance of common stock-IPO, net 6,479,041 -
Net cash provided by (used in)
financing activities 5,687,615 (232,964)
------------ -----------
Net increase in cash and cash equivalents 2,963,397 119,280
Cash and cash equivalents, at beginning of period 396,752 48,994
Cash and cash equivalents, at end of period $ 3,360,149 $ 168,274
============ ============
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the six months ended June 30, 1998 and 1997
was $44,073 and $43,471, 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 $94,262 of previous deferred offering
costs as a reduction to common stock.
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
-8-
<PAGE>
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 six months ended June 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 June 30, 1998 there were no unrealized gains
and losses on the Company's investments in marketable debt securities as fair
market value approximated amortized cost.
The Companies diluted earnings per share takes into account warrants issued on
the Companies IPO and over allotment.
NOTE 2: RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 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 June 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 requires comparative information for
earlier periods to be restated.
<PAGE>
-13-
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, 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 currently has 29 franchisees and 35 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 addition to completing an IPO during the second quarter 1998, the
Company relocated its corporate headquarters to a new facility in Loveland,
Colorado. In this same time, the Company moved Mirocon, Inc. a franchise
acquired in December 1997, into the new corporate headquarters.
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.
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:
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended June 30, For the Six Months Ended
June 30, June 30,
----------------------------------- ------------------------
1998 1997 1998 1997
----------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenue
System affiliates 65.7% 71.2% 64.8% 46.1%
Information services 34.3 21.2 35.1 15.0
Proceeds from the
sale of Company
operated territories - 7.6 - 38.9
Training, license
and other - - 0.1 -
----- ----- ----- ----
Total revenue 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Operating expenses
Costs of services
provided 36.0 49.4 33.1 32.1
Costs of Company
operated
territories sold - - - 26.0
Selling, general
and administrative 32.9 33.0 27.3 27.2
Total operating
expenses 68.9% 82.4% 60.4% 85.3%
---- ---- ---- ----
Income from
operations 31.1 17.6 39.6 14.7
Other income 3.5 4.2 2.0 1.9
Interest expense (1.8) (3.3) (1.5) (2.2)
----- ---- ---- ----
Income before
income taxes 32.8% 18.5% 40.1% 14.4%
----- ----- ----- -----
Income tax expense (12.1)% 6.5% (14.8)% (4.9)%
----- ----- ----- -----
Net income and
comprehensive
income 20.7% 12.0% 25.3% 9.5%
===== ==== ==== =====
</TABLE>
Comparison of three months ended June 30, 1998 and June 30, 1997
Competitive mortgage interest rates, increasing demand for the Company's
core mortgage credit report services, additional aggressive marketing efforts
and positive response to the Company's emerging employee screening business
contributed to the financial performance for the second quarter 1998.
Furthermore, the Company's information services revenue increased due to the
contribution of Mirocon, Inc., a franchise acquired in December of 1997,
pursuant to the Company's consolidation strategy.
Management believes that the improved 1998 second quarter results,
compared to second quarter 1997, are partly due to the enhanced capabilities
of its technology center, ongoing software development and the increasing
demand for the fully automated, thirty to sixty second reporting service.
Revenue from System Affiliates, which consists of royalties, license fees
and ancillary service fees from the Company's franchisees and licensees,
increased 95%, from $466,977 in the second quarter 1997 to $911,058 in the
second quarter 1998. This increase generally reflects the current economy and
growth in the mortgage industry. Ancillary services contributed $174,389 to
revenue in second quarter 1998, as compared with $0 in second quarter 1997.
Company information services revenue increased 243% from $138,846 in
second quarter 1997 to $475,858 in second quarter 1998. Included in this
increase is $291,661 from Mirocon, Inc., a franchise acquired in December
1997. Same location sales growth excluding Mirocon, increased 33% between
second quarter 1997 and second quarter 1998.
Proceeds from the sale of Company operated territories decreased by
$50,000, or 100%, from second quarter 1997 to second quarter 1998. Revenue
generated in second quarter 1997 represented the sale of three remote company
owned territories. No territory sales occurred in the second quarter 1998.
The Company does not intend to sell Company operated territories in the
foreseeable future.
Costs of services provided increased $175,679 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. 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 second quarter, 1998, management is
highly encouraged by the profit margins shown by the Mirocon, Inc. acquisition
as compared to the similar period in 1997. As indicated in the table above,
cost of services as a percentage of total revenue decreased by 13.4% in
comparison to the 13.1% increase in information services revenue for the
second quarter 1998.
Selling, general and administrative expenses increased 111% from $216,398
in second quarter 1997 to $456,048 in second quarter 1998. This increase was
due to the additional development and integration of the Company's technology
center at its new location. Technology center expenses increased over the
same period in the prior year by $58,957. Additional factors that contributed
to this increase were rent, depreciation and amortization, relocation of the
corporate office and the integration of Mirocon into the corporate
headquarters.
Other income increased by $20,836 for the three months ended June 30,
1998, this increase was due to the interest income earned on short-term
investments from the IPO proceeds.
Interest expense increased by $3,698 due to the acquisition of Mirocon
and fixed asset purchases totaling $192,604 with notes payable, which was
partially offset by the reduction of long-term debt of $585,000.
The Company's income taxes increased $124,974, from $43,092 for the
second quarter 1997 to $168,066 for the second quarter 1998. The Company's
effective tax rate increased from 35% to 37% for the second quarter of 1998.
As a result of the above-mentioned factors, net income and comprehensive
income increased $207,928, or 266%, from $78,239 in the second quarter 1997 to
$286,167 for the second quarter 1998. Basic earnings rose to $0.12 per share
for the quarter from the prior years quarter of $0.04 per share, a 200 %
increase. This basic earnings per share comparison takes into account a 37%
increase in weighted average number of shares outstanding, from 1,800,000 in
the second quarter 1997 to 2,460,000 in the second quarter 1998. Diluted
earnings rose to $0.09 per share for the quarter from the prior years quarter
of $0.04 per share, a 125% increase. This diluted earnings per share
comparison takes into account a 74% increase in weighted average number of
shares outstanding, from 1,800,000 in the second quarter 1997 to 3,127,500 in
the second quarter 1998.
Comparison of six months ended June 30, 1998 and June 30, 1997
Revenue from System Affiliates, which consists of royalties, license fees
and ancillary fees from the Company's franchisees and licensees, increased
115%, from $897,166 for the six months ended June 30, 1997 to $1,926,933 for
the six months ended June 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 $422,421 for the six
months ended June 30, 1998, as compared with $0 for the six months ended June
30, 1997.
Company information services revenue increased 258% from $291,321 for the
six months ended June 30, 1997 to $1,044,054 for the six months ended June 30,
1998. Mirocon, Inc., a franchise acquired in December 1997, contributed to
83% of the $752,733 increase. The remaining 17% increase in information
services is a result of same location sales growth and national account
development.
For the six months ended June 30, 1998 and the six months ended June 30,
1997, training, license and other revenue was immaterial.
Proceeds from the sale of Company operated territories decreased by
$759,679, or 100%, for the six months ended June 30, 1997. Revenue generated
for the six months ended June 30, 1997 represented the territory sales of
Texas, Virginia, and the Colorado Western slope. This $759,679 represented
38.9% of total revenue for the six months ended June 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 six months ended June 30, 1998. The Company
does not intend to sell Company operated territories in the foreseeable
future.
Costs of services provided increased $357,902 for the six months ended
June 30, 1998, when compared with the same six months of the prior year. This
change directly relates to the increase in information services revenue
associated with the Mirocon, Inc. acquisition in December of 1997. 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 six months ended June 30, 1998, profit margins continue to grow due
the acquisition of Mirocon, Inc. As indicated in the previous table, cost of
services as a percentage of total revenue increased by 1% in comparison to the
20.1% increase in information services revenue for the six months ended June
30, 1998.
Selling, general and administrative expenses increased 53% from $530,070
for the six months ended June 30, 1997 to $810,991 for the six months ended
June 30, 1998, or by $280,921. The expenses for maintenance and development of
the Company's technology center increased over the same period in the prior
year by $108,857. Depreciation and amortization expense, rent and the
acquisition of Mirocon, Inc. accounted for the remaining increase.
Other income increased to $58,476 for the six months ended June 30,
1998, or 57% as compared to $37,357 for the six months ended June 30, 1997.
This increase was due to the interest income earned on short term investments
from the IPO proceeds.
For the six months ended June 30, 1998 and the six months ended June 30,
1997, the change in interest expense was immaterial.
The Company's income taxes increased $345,793, from $94,942 for the six
months ended June 30, 1997 to $440,735 for the six months ended June 30, 1998.
The Company's effective tax rate increased from 35% to 37% for the six months
ended June 30, 1998.
As a result of the above-mentioned factors, net income and comprehensive
income increased $566,142 from $184,300 for the six months ended June 30, 1997
to $750,442 for the six months ended June 30, 1998. Basic earnings rose to
$0.35 per share for the six months ended June 30, 1998 from $0.10 per share
for the six months ended June 30, 1997. The basic earnings per share
comparison takes into account a 18% increase in weighted average number of
shares outstanding, from 1,800,000 for the six months ended June 30, 1997 to
2,130,000 for the six months ended June 30, 1998. Diluted earnings rose to
$0.30 per share for the for the six months ended June 30, 1998 from the six
months ended June 30, 1997 of $0.10 per share, a 200% increase. The diluted
earnings per share comparison takes into account a 37 % increase in weighted
average number of shares outstanding, from 1,800,000 for the six months ended
June 30, 1997 to 2,463,750 for the six months ended June 30, 1998.
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.
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 $100,000
line of credit, which had no outstanding balance at June 30, 1998. The total
cash and cash equivalents increased $2,963,397 in the six months ended June
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 and repayment of
debt. The Company also had an increase in its accounts receivable of
$649,048. The Company's cash balances at June 30, 1998 was $3,360,149; its
short-term investments were $3,510,847.
For the six months ended June 30, 1998 net cash provided by operating
activities was $1,346,083. Net cash used in investing activities was
$4,070,301, and net cash provided by financing activities was $5,687,615.
Capital expenditures accounted for $547,998, which included $250,012 for the
capitalized software costs. Investment in short-term securities accounted for
$3,510,847. Cash used for the repayment of long-term debt amounted to
$791,426 and the issuance of common stock from the IPO amounted to $6,479,041.
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.
Year 2000 Compliance
- ----------------------
The Company has completed its Year 2000 (Y2K) assessment for software and
hardware compliance. This assessment concluded with a schedule for Y2K
equipment and software updates as necessary, and testing for Y2K compliance.
The Company Y2K Project has been broken down into two distinct categories: one
category for hardware and one for software.
Hardware Project
The Company's primary systems are Intel-based PCs running either Windows
95 or Windows NT 4.0. Additionally, the Company uses and maintains switches
and routers from 3 Com and Cisco Systems. All hardware problems have been
identified by second quarter 1998. These problems include, but are not
limited to: PC BIOS incompatibility, router and switch incompatibility, and PC
operating system incompatibility. The Company is on track to complete all
necessary PC BIOS upgrades and operating system patches by fourth quarter
1998. Additionally, all necessary systems will be replaced to be Y2K
compliant by fourth quarter 1998.
In the first quarter 1999, the Company will begin implementing Windows 98
and Windows NT 5.0 for all of its major systems. The Company believes that
these operating systems are fully Y2K compliant without the need for operating
system patches.
Software Project
The Company currently maintains a combination of DOS, 16-bit Windows, and
32-bit Windows software that was developed in-house for use by the Company and
its customers. The Company's 32-bit Windows software is believed to be fully
Y2K compliant today. Additionally, the Company's DOS and 16-bit Windows
software currently uses either 4-digit years, or wherever necessary is using a
2-digit windowing technology as follows:
Years ranging from 00 - 49 interpreted as century 20
Years ranging from 50 - 99 interpreted as century 19
All new software developed by the Company is 32-bit Windows software and
is Y2K 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.
By fourth quarter 1998, the Company will implement a test bed for Y2K
compliance. This test bed will be used to fully test all of the Company's
software. Testing of software and systems will begin immediately by setting
all of the dates at and past the year 2000.
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 Y2K versions. This project is material, but unnecessary for
Y2K compliance as the Company already interprets the 2-digit year
representations of these vendors using windowing technology.
Beginning first quarter 1999, the Company expects to begin testing for
Y2K compliance with key vendors and customers in an industry-wide effort
sponsored by Federal Home Loan Mortgage Corp.
-15-
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 27, 1998, the Company received a letter from Venture Funding,
Ltd. ("VFL") alleging, among other things, the existence of a compensation
arrangement between VFL, through its authorized representative, and the
Company. VFL has alleged the existence of a valid, enforceable agreement
between the Company and VFL for unspecified services rendered by VFL. Prior
to April 2, 1997, the Company and its representatives had engaged in certain
correspondence with persons believed to be associated with VFL, and with VFL
itself, concerning a possible finder's fee arrangement between the Company and
VFL. In a private placement memorandum issued by the Company in August 1997,
which was reviewed by representatives of VFL, no disclosure of any finder's
arrangement was provided, consistent with the Company's understanding that no
such arrangement had been made or entered into.
Prior to April 27, 1998, the Company had received no demand for
compensation from VFL. Based solely upon a review of the correspondence by
and between VFL and its representative, on the one hand, and the Company on
the other, and certificates of Company officers, the Company's counsel
believes the claim is without foundation or merit. The Company intends to
vigorously contest any action brought, or claim asserted, by VFL, and intends
to assert any and all counterclaims as may be appropriate in any action
initiated by VFL.
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 June 30, 1998, the Company used proceeds
from the offering for repayment of indebtedness. The repayments were made in
the amount of $425,000 to retire a note payable and $160,000 on the required
payment incurred in the Microcon, Inc. acquisition.
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
No reports on Form 8-K were filed during the quarter ended June 30, 1998.
<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: August 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)
<PAGE>
INDEX TO EXHIBITS
27. Financial data schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,360,149
<SECURITIES> 3,510,847
<RECEIVABLES> 1,282,065
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,438,708
<PP&E> 1,519,481
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,475,670
<CURRENT-LIABILITIES> 2,053,925
<BONDS> 0
0
0
<COMMON> 6,387,279
<OTHER-SE> 1,395,015
<TOTAL-LIABILITY-AND-EQUITY> 10,475,670
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 984,227
<OTHER-EXPENSES> 819,991
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,073
<INCOME-PRETAX> 1,191,171
<INCOME-TAX> 440,735
<INCOME-CONTINUING> 750,442
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 750,442
<EPS-PRIMARY> .35
<EPS-DILUTED> .31
</TABLE>
