SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
December 31, 1998
Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934--N/A
Commission File No. 0-24205
FACTUAL DATA CORP.
(Exact name of Small Business Issuer in its charter)
Colorado 84-1449911
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5200 Hahns Peak Drive, Loveland, Colorado 80538
(Address of principal executive offices) (Zip code)
(970) 663-5700
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act: None.
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock
and
Warrants to Purchase Common Stock
(Title of Classes)
Check whether the Registrant (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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
The aggregate market value of the voting common equity held by non-affiliates of
the Registrant on March 24, 1999, was approximately $14,000,000 based upon the
reported closing sale price of such shares on the Nasdaq SmallCap Market for
that date. As of March 24, 1999, there were 3,551,346 shares outstanding of
which 1,751,346 are held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE: -NONE-
The exhibit index appears on page E-1.
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FACTUAL DATA CORP.
1998 Annual Report on Form 10-KSB
Table of Contents
Item Description Page
Item 1. Description of Business....................... 1
Item 2. Description of Property....................... 10
Item 3. Legal Proceedings............................. 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Market for Common Equity and Related Stockholder Matters 13
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operation............ 15
Item 7. Financial Statements ......................... 22
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........... 22
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act ................................. 23
Item 10. Executive Compensation........................ 26
Item 11. Security Ownership of Certain Beneficial Owners
and Management................................ 28
Item 12. Certain Relationships and Related Transactions 30
Item 13. Exhibits and Reports on Form 8-K.............. 31
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Item 1. Description of Business.
General
Factual Data Corp. (the "Company" or "FDC") incorporated in 1985 is
headquartered in Loveland, Colorado and is an information services provider to
the mortgage and consumer lending industries, employers, landlords, and other
business customers located throughout the United States. FDC specializes in
preparing mortgage credit reports ("MCRs") that are customized to each mortgage
lender's requirements and transmitted to lenders via modem, network, or
facsimile. As of December 31, 1998, the Company marketed it services through
seven Company-owned offices, 25 franchisees and 29 licensees. The Company's
franchisees and licensees are collectively referred to as "System Affiliates."
The Company is in the process of implementing a consolidation plan in the
mortgage credit report industry. FDC's initial public offering took place in May
1998 and its Common Stock and Warrants trade on the Nasdaq SmallCap Market under
the symbols "FDCC" and "FDCCW," respectively. The Company will be applying for
listing on the Nasdaq National Market System shortly, and management hopes that
the application will be approved in May 1999, although no assurances to that
effect are given.
Credit data provided directly from the three major credit repositories
(i.e., Equifax, Inc.; Experian, Inc.; and TransUnion Corporation ) (the "Credit
Repositories") is often inconsistent, is not presented in a customized or
consolidated format, and may be relatively difficult to interpret. As such, the
Company's services are valuable to the lending industry since MCR users can (i)
obtain credit reports from the Company which contain verified credit information
upon which such lenders can readily rely; and (ii) more easily interpret the
credit data since FDC formats and customizes such data.
Through the expertise it has developed in mortgage credit reporting, the
Company has recently expanded its services to include employment screening
services and tenant screening services. The Company's MCR and other products and
services are fully automated, thereby allowing it to deliver its reports
directly to its customers' computers.
Products
MCRs. FDC provides three types of MCR products to its customers. FDC's
"Bureau Express" report is its most basic, highest selling and fastest growing
MCR. Bureau Express reports provide only the merged credit information obtained
from the Credit Repositories in a user-friendly, integrated report formatted to
the client's specifications. The Company does not verify the information as it
does with respect to its most detailed report, the "Residential Mortgage Credit
Report" ("RMCR"). Bureau Express reports are typically compiled by the Company's
proprietary computer and telecommunications system in less than 60 seconds, free
of duplication. The Company's system also provides a means to resolve
inconsistencies between the Credit Repositories' information. Compared to the
RMCR, a Bureau Express report is more profitable to the Company since it is less
labor intensive.
In preparing the detailed RMCR, FDC merges the credit data provided by the
three Credit Repositories, verifies the credit, employment and other
information, and conducts a complete in-person or telephone interview with the
loan applicant. RMCRs meet all government agency and government sponsored entity
standards, such as those promulgated by Freddie Mac and Fannie Mae.
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The Company's intermediate MCR is its "Merged Plus Report" or "RMCR
Jr.(R)." The RMCR Jr. merges the credit data provided by the three Credit
Repositories and provides prepaid balance updates and/or other items specified
by the customer. In addition, RMCR Jr. reports can include applicant interviews
if so requested by the customer.
The Company is one of five approved information vendors for Freddie Mac's
automated underwriting system; and, in December 1998, the Company was selected
as a direct MCR provider for Fannie Mae's automated underwriting system, making
it one of only 12 such Fannie Mae-approved credit agencies. FDC system
interfaces with Fannie Mae are expected to be complete by the third quarter of
1999. As of the date of this Report, more than 750 lenders are using Fannie
Mae's automated underwriting system network to process more than 30,000 loan
submissions per day. Fannie Mae's recent announcement that loans approved by its
automated underwriting system will qualify for lower private mortgage insurance
premiums is expected to cause an increase in submissions to its automated
underwriting system network, other factors remaining equal.
As the mortgage lending industry continues to move toward automated
underwriting, FDC's relationships with Freddie Mac and Fannie Mae (collectively,
the "Agencies") will be a key factor in its growth since third-party lenders
utilizing the Agencies' automated underwriting systems are required to use
approved credit reporting agencies, such as FDC. As such, (i) large mortgage
originators and lenders who do not portfolio their loans and therefore want to
sell them in the secondary market will not produce MCRs in-house, and (ii) many
small credit reporting agencies who do not have the size and resources to invest
in technology to become Agency-approved may have extreme difficulty remaining
competitive. This latter point has assisted, and should continue to assist, FDC
in its consolidation strategy. See "Acquisition Developments in 1998."
With respect to its MCR products, the Company's larger customers include,
among others, NationsBanc, North American Mortgage, Chase Manhattan Residential,
U.S. Home Mortgage, First Union Mortgage, Regions Mortgage and CTX Mortgage.
Based on publicly reported information concerning mortgage loans originated and
refinanced in the United States, management believes the Company and its System
Affiliates are collectively one of the leading suppliers of MCRs in the United
States.
For the twelve months ended December 31, 1998, the Company and its System
Affiliates delivered approximately 2.8 million MCRs, of which approximately 2.3
million consisted of Bureau Express reports, representing gross billings of
approximately $48.8 million. The average price of the Company's MCRs during 1998
was $16.12.
Employment Screening Services. Employment screening services, along with
tenant screening services, are two of FDC's emerging business lines. Employment
screening services assist employers in determining a job applicant's
productivity potential, tendencies towards theft and excessive worker's
compensation claims. The Company's "EMPfacts" employment screening service
offers state-of-the-art, accurate background checks that verify an applicant's
professional, educational and personal history. EMPfacts offers individual or
bundled screening services in the following areas:
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Substance Abuse Testing Financial Reports
Motor Vehicle Record Property Search
Worker's Compensation History Employment Verification
Public Records Information Social Security Number Search
Public Records Information Professional License Verification
Fraud Searches Psychological Testing
Criminal History
Education Verification
The Company also offers its "QUICKpeek Identifier" employment screening
service. QUICKpeek Identifier enables FDC customers to receive an instant
employment screening report, via Windows compatible software in 60 seconds or
less, which can be viewed on screen or printed. By entering a persons' name,
address and social security number, QUICKpeek Identifier provides employment
information, a public records search, a fraud search, financial summaries and
residence information. For the twelve months ended December 31, 1998, the
Company and its System Affiliates delivered approximately 75,700 EMPfacts
reports and 10,800 QUICKpeek Identifier reports. In December 1998, the average
price of the Company's EMPfacts reports and QUICKpeek Identifier reports was
$25.62 and $10.25, respectively.
Tenant Screening Services. In July 1998, the Company introduced "Tenant
Qualifier," a tenant screening service designed specifically for leasing agents
and landlords that verifies and reports information regarding a proposed tenant
through Credit Repository inquiries, employment history, public records,
residence history, payment habits, and criminal and eviction data. Tenant
Qualifier is unique in that it provides a customizable scoring system to help a
landlord or leasing agent impartially screen applicants and, therefore, comply
with fair housing standards and nondiscriminatory rental practices. For the
twelve months ended December 31, 1998, the Company and its System Affiliates
delivered approximately 34,350 Tenant screening reports. In December 1998, the
average price of the Company's Tenant Qualifier reports was $11.92.
Bundled MCR and Flood Determination Certificate Product
In October 1998, FDC announced the release of the first, multi-vendor
integrated software for requesting credit and flood determinations for the
mortgage industry. This product allows FDC customers to request credit
information and flood determinations from multiple vendors by interfacing via
network or modem with FDC's Technology Center. Both credit and flood services
may be ordered together or in separate communications and are returned to the
client on-line.
The introduction of this product is consistent with FDC's strategy of
increasing revenues and customer convenience by providing one-stop shopping for
its customers through expanded, bundled services. It also enables the Company to
expand its revenue base by providing additional information services, such as
mortgage flood certification information. The United States market for flood
certifications, as derived from 1998 mortgage information from the Department of
Housing and Urban Development and the MBAA, correlates into approximately 20
million flood determination requests annually.
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Acquisition Developments in 1998
The Company has commenced the implementation of a consolidation plan in
the MCR business that is designed to expand its existing business and to take
advantage of its core competencies, including, among other things, (i) its
highly developed customer services program, (ii) its use of sophisticated
technology to achieve efficiencies in the MCR market, (iii) its development of
close working relationships with mortgage lenders, (iv) its knowledge of the MCR
market, and (v) its experienced management team. The Company believes that there
are approximately 1,400 providers in the domestic mortgage credit reporting
industry, of which approximately 70% are small independent organizations and of
such less than 10% generate more than $5.0 million of annual revenues. Moreover,
virtually all the small independent agencies are susceptible to acquisition
since they are not Agency-approved nor have the capital to invest in the
requisite technology needed to garner Agency approval. The Company believes that
a large number of these small independent providers are therefore concerned
about their ability to survive in the industry as it increasingly moves toward
automated Agency underwriting.
FDC focuses on the purchase of unaffiliated companies active in the MCR
market, as well as companies that are presently System Affiliates, and attempts
to structure an acquisition that will be immediately accretive. Targeted
acquisition candidates are those companies that (i) immediately add to FDC's
customer and revenue base; (ii) immediately offer significant economies of scale
through the consolidation of, among other things, their accounting departments,
administration costs, technology costs and owner salaries with those of the
Company; and (iii) recognize the need to associate with an Agency-approved,
technologically sophisticated MCR provider in order to remain competitive. FDC
focuses on a potential acquiree's revenue-generating capability as its primary
interest is to acquire customers and revenues.
The Company consummated 11 acquisitions of mortgage credit reporting
businesses from August 1998 through January 1999 for an aggregate purchase price
of $10 million. Six of the acquisitions were System Affiliates. In addition, as
of the date of this Report, the Company is in negotiations to acquire the
businesses of several other companies, although there are no definitive
agreements with any persons or entities as to any acquisition and no assurances
are given that any additional acquisitions will be effectuated.
The acquisitions were generally asset purchases which included customer
lists, customer agreements, computer equipment, and office furniture.
Non-competition and confidentiality agreements were obtained from appropriate
persons in all acquisitions and employment agreements were entered into in
connection with some acquisitions. The consideration paid by the Company
included an aggregate of approximately $4.2 million cash, $3.4 million in
promissory notes and $2.4 million in FDC Common Stock value. The notes vary but
are generally payable over three to five years and bear interest of up to 8% per
annum. See Note 7 to the Consolidated Financial Statements.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in Item 6 below for information concerning additional
financing.
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Industry Overview and Competitive Factors
The mortgage credit reporting ("MCR") industry is highly fragmented. The
Company faces both direct and indirect competition for its services from a large
number of companies. A significant number of these competitors are small
companies operating on a local scale, while a limited number are large companies
operating on a national scale. Management believes that there are approximately
1,400 companies in the United States providing MCR services, of which
approximately 70% are small independent organizations and of which less than 10%
have revenues in excess of $5.0 million. While the majority of the Company's
competitors are small, certain competitors, including The First American
Financial Corp., CBC Companies, Inc., TransUnion Corporation, and Equifax Credit
Information Services, Inc., are significantly larger and have greater financial
and marketing resources than the Company. The Company and its System Affiliates
combined are believed by management to account for about 15% of national MCRs
delivered annually. The Company also faces intense competition from various
companies engaged in employment and tenant information and verification
services.
The primary competitive factors in the MCR industry, and most of the
Company's other existing and contemplated related service areas, are (i)
customer services, (ii) accuracy, (iii) readability of reports, (iv)
technological sophistication, (v) delivery speed, (vi) price, and (vii) name
recognition. Historically, mortgage credit reporting entities have performed
their services by manual verification in the form of calling creditors, lenders,
employers, landlords, and other businesses directly to verify information, and
reviewing public files and other information sources. However, the industry has
been undergoing significant change in terms of how services are requested, how
information is delivered, and the format in which the data is returned. These
changes have been driven by advances in computer software and hardware, along
with advances in communications technology. Since the mortgage lending industry,
along with other users of credit information, continually expect quick
turnaround of accurate reports in a customized format in order to facilitate its
lending decisions, the Company believes that entities involved in mortgage
credit reporting must continually develop and maintain sophisticated computer
and communication technology to compete. Due to the costs and technical
competence required to keep abreast of technological advances in the industry,
the Company believes that the credit reporting industry will consolidate, and
that the market may be dominated by a handful of companies that have proven
technological capabilities and diversified product lines. The Company believes
that one of its most significant advantages is its software and communications
technology. Management believes that the industry is moving towards an automated
credit reporting system which mandates quick turnaround of reliable,
user-friendly credit reports. The Company believes its state-of-the-art
Technology Center described in Item 2 below will allow it to continue to compete
favorably in the credit reporting industry.
The Company's business is directly influenced by the mortgage lending
industry since its primary services are MCRs used by mortgage lenders. The
mortgage lending industry enjoyed near record years in 1997 and 1998 due to low
interest rates and a robust economy. According to the Mortgage Bankers
Association of America ("MBAA"), mortgage originations (including refinancings)
are estimated to have totaled approximately $870 billion in 1997 and $1.4
trillion in 1998. This loan activity equated to the generation of an estimated
11 million MCRs in 1997 and 20 million MCRs in 1998.
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According to the MBAA, the outlook for 1999 appears relatively stable due
to demographics, particularly the impact of the aging of the baby boom
generation, which is entering its peak earnings period. As of the date of this
Report, home ownership rates are approximately 66.5%. For 1999, the MBAA
projects interest rates to remain at or below 1998 levels and mortgage
originations to total approximately $1.2 trillion. In regard to a longer
outlook, although population growth and household formation rates are projected
to slow during the next 10 years, population growth within the top earning
groups --ages 45-to-54 and 55-to-64 -- is projected to increase. Assuming the
foregoing home ownership and interest rate trends continue, strong demand for
MCRs should continue, although no such assurances are given.
Management also believes the market for tenant information and
verification services will remain strong. In 1998, the rental industry was
composed of over 29 million single and multi-family properties and had an annual
turnover of approximately 65%. This resulted in over 65 million credit checks
and other verifications annually. Assuming these trends continue, this market
will continue to offer opportunities for the Company to grow its tenant
information and verification business, although no such assurances are given.
System Affiliates
From 1989 to 1993, the Company pursued a strategy of franchising its MCR
system. The Company earns fees based on each franchisee's use of its system to
generate reports for the franchisees' customers. In 1993, the Company terminated
its franchise program and began entering into licensing agreements whereby
licensees utilize the Company's systems to service their customers in return for
the payment to the Company of a percentage of their gross billings. The Company
presently markets its services through seven Company owned offices and 54 System
Affiliates, which collectively provide services to lenders. The Company does not
intend to sell either franchises or licenses in the future.
The Company's System Affiliates currently provide significant revenue to
the Company. For the years ended December 31, 1997 and 1998, System Affiliates
provided 40.6% and 22.1% , respectively, of the gross revenues of the Company.
This percentage is expected to be reduced as the Company's consolidation plan
continues.
Suppliers
The Company does not maintain its own consumer credit database. Instead,
the Company obtains consumer credit data from large, national Credit
Repositories such as Experian, Inc., TransUnion Corporation, and Equifax, Inc.
pursuant to "reseller" agreements with these entities. Generally, the reseller
agreements are terminable without cause by either party within a short period of
time upon written notice. While the Company believes its relationships with the
Credit Repositories are good, there can be no assurance that its reseller
agreements with the Credit Repositories will not be terminated for any reason.
Each repository credit file contains the following information which the Company
accesses by computer modem:
Identifying Information -- name, address, former address, social security
number and employment.
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Credit History -- balances and payment history of credit cards, finance
companies, banks, mortgage loans, accounts referred for collection and accounts
written off.
Public Records -- tax liens, civil judgments, bankruptcies, foreclosures.
Inquiries -- credit grantors or authorized parties are listed as inquiries
when they have requested a copy of a credit file.
Government Regulation and Privacy Issues
The Company is a "consumer reporting agency" within the meaning of that
term as used in, and therefore is subject to, the provisions of the Fair Credit
Reporting Act (referred to herein as the "FCRA") and is regulated by the Federal
Trade Commission ("FTC") under the Federal Trade Commission Act. Under the
provisions of the FCRA, a consumer reporting agency may furnish a "consumer
report" in response to the order of a court having jurisdiction or in accordance
with written instructions of the consumer. Such information may also be
furnished to a person the Company has reason to believe intends to use the
information: (i) in connection with a credit transaction; (ii) for employment
purposes; (iii) in connection with the underwriting of insurance; (iv) in
connection with a determination of the consumer's eligibility for a license or
other benefit granted by a governmental instrumentality required by law; (v) as
a potential investor or servicer or current insurer, in connection with a
valuation of, or an assessment of the credit or prepayment risks associated
with, an existing obligation; or (vi) to a person who otherwise has a legitimate
business need for the information. The FCRA prohibits disclosure of obsolete
information concerning a consumer. Obsolete information generally means
information which is more than seven years old.
The FCRA provides for civil liability against a consumer reporting agency
by a consumer for willful or negligent noncompliance with the FCRA and criminal
sanctions against officers and directors thereof who knowingly and willfully
disclose information in a report to a person not authorized to receive the
information.
State laws also impact the Company's business. There are a number of
states which have laws similar to the FCRA, and some states which have human
rights laws much like the Americans with Disabilities Act ("ADA"). In addition,
to the Company's knowledge, at least four states require companies engaged in
investigative reporting, such as EMPfacts, to be licensed in order to conduct
business within those states. A large number of states also regulate the type of
information which can be made available to the public and/or impose conditions
to the release of information. For example some state laws prohibit access to
certain types of information, such as workers' compensation histories or
criminal histories, while others restrict access without a signed release from
the subject of the report. In addition, many privacy and consumer advocates and
federal regulators have become increasingly concerned with the use of personal
information. Attempts have been made and will continue to be made by these
groups to adopt new or additional federal and state legislation to regulate the
use of personal information. Existing federal and/or state laws, future
modifications thereto, or laws enacted in the future regulating consumer
reporting agencies or access and use of personal information, in particular, and
privacy and civil rights, in general, could materially adversely impact the
Company's operations.
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Software Development Costs
The Company incurs research and development costs associated with the
development and improvement of software utilized in its credit information and
delivery system.
The Company adopted the provisions of Statement of Position (SOP) 98-1,
"Accounting for Costs of Computer Software Developed for Internal Use." Direct
costs incurred in the development of software are capitalized once the
preliminary project stage is completed, management has committed to funding the
project and completion and use of the software for its intended purpose are
probable. The Company ceases capitalization of development costs once the
software has been substantially completed and is ready for its intended use.
Software development costs are amortized over their estimated useful lives of
three years. Costs associated with upgrades and enhancements that result in
additional functionality are capitalized. See Note 1 to the Consolidated
Financial Statements for information concerning the Company's accounting
policies for software development costs.
Intellectual Property
The Company has not yet adopted a formal intellectual property protection
program, and currently relies on a combination of trademark, servicemark,
copyright, trade secret and contract protection (licenses) to establish and
protect its proprietary rights in its services and technology. There can be no
assurance that such measures will provide meaningful protection to the Company.
The Company currently maintains approximately 43 trademarks, servicemarks and
copyrights all of which it believes are properly filed and recorded. The Company
does not have any knowledge of infringement of its proprietary rights.
Facilities
The Company relocated its corporate office to a new building in Loveland,
Colorado on April 3, 1998 and commenced a 20 year operating lease at that
facility. The lease calls for annual lease payments of $281,790 during the first
five year term of the lease subject to increases of 15% every five years for the
duration of the lease. The Company anticipates the space will be adequate to
meet the Company's office requirements for the foreseeable future.
In connection with its acquisitions described above under "Developments in
1998," the Company assumed several leases, most of which are not material and
none of which have terms exceeding five years. See Note 11 to the Consolidated
Financial Statements.
Insurance
The Company maintains commercial general liability and property insurance.
The policy provides for a general liability aggregate limit of $2 million. In
addition, the policy also provides for products/completed operations, business
auto and personal property coverage.
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Employees
At February 15, 1999, the Company employed 216 persons full-time and 19
persons on a part-time basis. There are no union or collective bargaining
agreements between the Company and its employees and employee relations are
considered by management to be excellent.
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Item 2. Description of Properties.
The Company's MCR and other information services integrate data obtained
from national credit repositories, criminal records, motor vehicle records and
other public information databases. The integration of this information, and
delivery of its services, is performed by the Company's Technology Center
located at its Loveland, Colorado headquarters. FDC has invested over $1.5
million in its Technology Center, which utilizes proprietary computer software
and state-of-the-art hardware and communication systems. The Company's
information, processing and telecommunications systems are scalable and the
Company believes its systems has sufficient back-up and disaster recovery
capability. As such, the Company has experienced little downtime. The Technology
Center can pull up to 18,000 bureau files an hour and has a call capacity
greater than 30,000 calls per day. The Technology Center processed approximately
225,000 reports per month in 1998 and is believed by management to have an
infrastructure to support three times that volume. In addition, management
believes that the excess capacity it has built into its systems and operations
can be readily augmented to accommodate even greater growth. The Company credits
its success to its technological sophistication and employs 19 persons, eight of
whom are software programmers, who are assigned to the continued development and
maintenance of the Technology Center. The Technology Center has enabled FDC (i)
to become an Agency-approved credit reporting agency, (ii) to provide its
customers with strong support and service, and (iii) to implement its
consolidation plan. The Company is committed to maintaining its technological
competitive advantage, and it intends to continue to devote resources to this
effort.
The Company uses proprietary software developed in-house over the past 13
years. The Company believes its proprietary software allows it to remain
competitive in an increasingly competitive marketplace. The Company's software
was originally written in 1984, and began full production use in 1985. From 1987
through 1997, the Company significantly developed and expanded its software
capability including its ability to completely customize reporting forms to the
various requirements of each customer. The Company has moved to Microsoft Visual
Studio for the majority of its new programs.
Systems in the Technology Center are non-proprietary Windows 95 or Windows
NT based Intel platforms. Each system has at least one backup, and can be
repaired or replaced easily and cheaply. The server platform is Windows NT with
a mirrored server that can replace the primary server in minutes if necessary.
Backup power is available to the servers to ensure up to 45 minutes of
uninterrupted power. Networking is achieved through four 100Base-TX backbone
connections to four 3COM Network switches.
The Company's operations are dependent upon its ability to protect its
Technology Center against damage from fire, power loss, telecommunications
failure, natural disasters or a similar event. The Company moved into a new
facility in Loveland, Colorado in April 1998, which is outfitted with backup
power and duplicate telecommunication facilities. Nonetheless, the Company could
experience a natural disaster, hardware or software malfunction, or other
interruption of its Technology Center operations. Extended interruptions in the
Company's services could be significantly detrimental, and the Company's
insurance may not be adequate to compensate the Company for all resulting losses
that may occur.
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The Company's business is also dependent upon various computer software
programs and operating systems that utilize dates and process data beyond the
year 1999. If the actions taken by the Company to mitigate its risks associated
with year 2000 are inadequate, there could be a material adverse effect on the
financial condition and results of operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 6 below.
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Item 3. Legal Proceedings.
The Company has disputed charges by AT&T Corp. for telecommunication
services. In November 1998, AT&T brought suit claiming damages for services,
disconnect fees and other items of $547,000. The Company has responded stating
that it believes it owes either nothing or substantially less than the amount
claimed by AT&T. The case is in an early stage and no discovery has taken place.
Management intends to contest the case vigorously, however litigation counsel is
unable to provide an evaluation of the likelihood of the outcome.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted by the Company to a vote of its security holders
during the fourth quarter of its fiscal year ended December 31, 1998.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock and Warrants have been quoted on the Nasdaq
SmallCap Market under the symbols "FDCC" and "FDCCW," respectively, since
completion of its initial public offering on May 13, 1998. The following table
sets forth for the periods indicated the high and low bid prices of the Common
Stock and Warrants as reported on the Nasdaq SmallCap Market:
Common Stock Warrants
1998 Bid Price Bid Price
High Low High Low
Second Quarter(from
May 13) $9-5/8 $5-1/2 $3-5/8 $0-1/2
Third Quarter 9-1/2 6-1/2 3-3/8 1-3/8
Fourth Quarter 8-3/8 6-3/8 2-13/16 1-1/4
Dividends. The Company has not paid or declared cash distributions or
dividends on its Common Stock and does not intend to pay cash dividends in the
foreseeable future. Future cash dividends will be determined by the Board of
Directors based on the Company's earnings, financial condition, capital
requirements and other relevant factors.
On March 24, 1999, the last reported bid price of the Common Stock and
Warrants reported on the Nasdaq SmallCap Market was $7.88 per share and $1.88
per Warrant. As of March 24, 1999, there were only a few holders of record of
the Common Stock and record holders of its Warrants and the Company estimates,
based upon information provided by brokers and repositories, that it has in
excess of 600 beneficial owners of its Common Stock and 600 beneficial owners of
its Warrants.
- 12 -
<PAGE>
In connection with, and as part of the consideration for, the acquisition
of the assets of three companies and the acquisition of all equity voting
securities of a fourth company during 1998, the Company issued shares of its
Common Stock as follows:
Date Acquisition Number of Shares
July 31, 1998 Heritage Credit Reporting, Inc. 11,595
July 31, 1998 American Credit Connection, Inc. 8,635
September 30, 1998 Landmark Financial Services, Inc. 53,782
December 16, 1998 Mortgage Credit Services, Inc. 297,334*
- ------------------
* These shares were issued into escrow at an arbitrary price of $6.00 per share;
the actual number to be distributed from the escrow will be determined at the
first and second anniversaries after the acquisition and will be based on the
price of the Common Stock at that time (i.e., if the price is $12 per share,
only one-half of the shares will be distributed and the other half returned to
the Company).
All shares listed above are "restricted securities" as that term is
defined under the Securities Act of 1933 ("'33 Act"); no underwriters were
involved in the issuances. The shares were issued in reliance on Section 4(2) of
the '33 Act as transactions not involving public offerings. The offerees were
knowledgeable in the mortgage credit reporting business, able to fend for
themselves and agreed to take the shares for investment and not with a view to
distribution. All certificates were appropriately legended and stop transfer
instructions were entered by the Company with its transfer agent.
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
This Report contains certain forward-looking statements within the meaning
of 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 specializes in preparing mortgage credit reports that are
customized to meet each lender's individual needs. The Company also provides a
broad range of credit, employment and other information services to mortgage
lenders, consumer lenders, employers, landlords, and other businesses. See Item
1.
- 13 -
<PAGE>
The Company provides its services in two different fashions. 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 its System Affiliates. The Company currently has 25 franchisees
and 29 licensees. The System Affiliates provide information services to
customers using the Company's technology and pay royalty, license and other fees
to the Company. The Company does not intend to license or franchise territories
to third parties in the foreseeable future.
During 1997 and 1998, the Company's primary emphasis, in addition to
expanding its market, was the completion and expansion of its technology center.
This center was necessary for the Company to provide its Bureau Express reports
and other on-line services to both third party users and System Affiliates. The
Company funded these expenditures principally from the proceeds from the sale of
certain Company operated territories and income from operations.
In order to expand information services, the Company has devised a
consolidation plan whereby it has identified both competitors and System
Affiliates as potential acquisition candidates. See Item 1. As the Company
implements its consolidation plan, it expects information services revenue and
gross profit to increase and System Affiliates revenue to decrease as System
Affiliates are either acquired or their agreements with the Company expire. The
Company also expects that revenue from the sale or licensing of Company operated
territories will substantially decrease or be eliminated in future periods.
Selected Financial Data
The following consolidated selected financial data should be read in
conjunction with the Consolidated Financial Statements and related Notes thereto
appearing elsewhere in this Report. The consolidated statements of income data
for the years ended December 31, 1997 and 1998 and the consolidated balance
sheet data as of December 31, 1997 and 1998 are derived from the consolidated
financial statements of the Company which have been audited by Ehrhardt Keefe
Steiner & Hottman PC, the Company's independent auditors, as indicated in their
report included herein. The selected financial data provided below is not
necessarily indicative of the future results of operations or financial
performance of the Company.
- 14 -
<PAGE>
For the Years Ended
December 31,
------------------------------
1997 1998
----------- -------------
(in thousands, except
per share data)
Statements of Income Data:
Revenue
Information services .................. $ 606 $ 6,236
Ancillary income ...................... 651 1,451
System Affiliates ..................... 1,429 2,198
Proceeds from the sale of Company
operated territories .................. 714 --
Training, license and other ........... 120 59
----------- -----------
Total revenue ........................ 3,520 9,944
----------- -----------
Operating Expenses
Costs of services provided ............ 1,301 4,986
Costs of Company operated territories . 506 --
Selling, general and administrative ... 917 2,604
----------- -----------
Total operating expenses ............. 2,724 7,590
----------- -----------
Income from operations .................. 796 2,354
Other income ............................ 28 185
Interest expense ........................ (77) (152)
----------- -----------
Income before income taxes .............. 747 2,387
Income tax expense (benefit) ............ 244 810
----------- -----------
Net income .............................. $ 503 $ 1,577
=========== ===========
Basic earnings per share ................ $ .28 $ .59
=========== ===========
Basic weighted average shares
outstanding............................. 1,800,000 2,680,753
=========== ===========
Diluted earnings per share .............. $ .28 $ .57
=========== ===========
Diluted weighted average shares
outstanding............................. 1,800,000 2,769,214
=========== ===========
- 15 -
<PAGE>
For the Years Ended
December 31,
------------------------------
1997 1998
----------- -------------
(in thousands, except
per share data)
Balance Sheet Data:
Working capital ............................... $ 116 $ 1,786
Total assets .................................. 2,864 18,177
Total liabilities ............................. 2,217 7,341
Shareholders' equity........................... 647 10,836
Results of Operations
The following table sets forth for the periods indicated, as a percentage
of total revenues, those items included in the Company's Consolidated Statements
of Income:
Years Ended
December 31,
----------------------
1997 1998
----------- ---------
Revenue
Information services ................ 17.2% 62.7%
Ancillary income .................... 18.5 14.6
System Affiliates ................... 40.6 22.1
Proceeds from the sale of Company
operated territories ............... 20.3 --
Training, license and other ......... 3.4 .6
----- -----
Total revenue ...................... 100.0% 100.0%
----- -----
Operating Expenses
Costs of services provided .......... 37.0 50.1
Costs of Company operated territories 14.4 --
Selling, general and administrative . 26.0 26.2
----- -----
Total operating expenses ........... 77.4% 76.3
----- -----
Income (loss) from operations ......... 22.6% 23.7%
Other income .......................... .8 1.9
Interest expense ...................... (2.2) (1.5)
----- -----
Income (loss) before income taxes ..... 21.2% 24.1%
----- -----
Income tax (expense) benefit .......... (6.9)% 8.1%
----- -----
Net income (loss) ..................... 14.3% 16.0%
===== =====
- 16 -
<PAGE>
Comparison of Operating Results for Years Ended December 31, 1998 and
1997
Company information services revenue increased $5.63 million, or 929% from
$606,000 in 1997 to $6.24 million in 1998. The increase was primarily a result
of the Company's third and fourth quarter acquisitions (See Note 2 to the
consolidated financial statements). These acquisitions produced a total of
$5,677,000 in revenues for the year ended December 31, 1998. Increased volume
of credit reports generated and additional service offerings accounted for the
remaining increase.
Ancillary income represents fees paid by system affiliates for various
additional products and services provided to them. Ancillary income increased by
$800,000 or 123%, from $651,000 in 1997 to $1,451,000 in 1998. The increase is
primarily a result of the Company providing additional services to its system
affiliates for a full year in 1998 compared to only two months in 1997.
System affiliates revenues increased $770,000 or 54%, from $1.43 million
in 1997 to $2.2 million in 1998. The increase is due to additional billing
volume by system affiliates and resultant royalty, license and other fees.
The Company did not sell any Company-operated territories during 1998;
thus it did not generate any proceeds from the sale of Company operated
territories during 1998 compared to proceeds of $714,000 in 1997.
Training, license and other revenue decreased $61,000 or 51%, from
$120,000 in 1997 to $59,000 in 1998. The majority of this decrease was due to a
one-time charge for a marketing software interface in 1997.
Costs of services increased $3.69 million or 284%, from $1.3 million in
1997 to $4.99 million in 1998. The increase in costs of services is directly
related to the Company's acquisitions during the third and fourth quarters of
1998 which resulted in an overall decrease in margins from 52% in 1997 to 50% in
1998. Margins for the nine month ended September 30, 1998 had increased over
1997 to 58%, however, during the last three months of the year eight
acquisitions which had been added during the third and fourth quarters of 1998
were not fully integrated into the Company's operations. It generally takes
between sixty and one hundred and eighty days to reduce duplicate personnel
costs, integrate the acquisitions credit reporting systems into the Company's
technology center where necessary, incur training costs to ensure Company
quality standards, and to eliminate other duplications in costs. The Company's
margins are also impacted by the seasonality of home buying which is
traditionally slower in November and December.
Selling, general and administrative expenses increased $1.7 million, or
185%, from $917,000 in 1997 to $2.60 million in 1998. This increase is related
to costs associated with the Company's growth in 1998, including increased
personnel costs, rents, and depreciation and amortization.
Total operating costs increased $4.87 million, or 179%, from $2.72 million
in 1997 to $7.59 million in 1998 with a resulting increase in operating income
of $1.55 million, or 195%, from $796,000 in 1997 to $2.35 million in 1998.
- 17 -
<PAGE>
Interest expense increased $75,000, or 97% from $77,000 in 1997 to
$152,000 in 1998. This increase is due to additional notes payable issued in
connection with the Company's business acquisitions in third and fourth quarter
1998.
Income taxes increased $566,000, or 232%, from $244,000 in 1997 to
$810,000 in 1998. The Company's effective tax rate remained at approximately
34%.
As a result of the foregoing factors, net income increased $1,074,000, or
214%, from $503,000 in 1997 to $1,577,000 in 1998.
Liquidity and Capital Resources
The Company had cash balances of $1,093,295 and short-term investments of
$2,212,386 at December 31, 1998. The Company was able to manage the net impact
of accounts receivable, accounts payable and accrued expenses on cash flows from
operations, which with net income of $1,576,734 and depreciation and
amortization of $776,094 resulted in cash flow provided from operations of
$2,658,575.
The Company used cash of $711,862 and $892,579 of capital lease and notes
payable financing to purchase additional equipment and furniture to furnish its
Loveland offices and in renovating certain branch locations acquired in 1998.
The Company also used cash to fund $494,562 of additions to capitalized software
development costs in 1998. The Company successfully completed its initial public
offering in May of 1998 which resulted in net cash provided of $6,289,696 (net
of offering costs of $1,438,304). The Company invested a portion of the offering
proceeds in high quality corporate and Government debt securities which resulted
in an increase to short term investments of $2,212,386. The offering proceeds
received by the Company allowed it to close on eight acquisitions which were
funded by paying cash of $3,604,900, issuance of notes payable of $2,899,790 and
restricted common stock of $2,359,000. In connection with these acquisitions the
Company acquired primarily fixed assets and intangibles in addition to access to
certain key operating markets.
Inflation
Although the Company cannot accurately anticipate the effect of inflation
on its operations, the Company does not believe that inflation has had, or is
likely in the foreseeable future to have, a material effect on its results of
operations or financial condition.
- 18 -
<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 was completed January 31,
1999. Modification of current hardware and low-level system software for Year
2000 compliance is 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 and the MBAA.
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, of which approximately $80,000 was incurred in 1998.
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 by the end of June 1999. The Company
believes that it has 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.
- 19 -
<PAGE>
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 the new Company
generated Windows software is considered a contingency plan for the failure of
the existing DOS or 16-bit Windows software running with Year 2000 modifications
that interpret the century. Those modifications are currently in place, and were
tested for Y2K compliance as of January 31, 1999. Contingency plans for vendor
supplied systems are still being developed, and should be complete by end of
first quarter 1999.
All of the Company's systems used in the servicing of customer requests,
customer billing, accounting, and payroll have all been upgraded or replaced to
meet Year 2000 requirements, and have completed internal compliance testing. All
newly purchased systems are being implemented meeting Year 2000 requirements.
Most of the employee desktop machines have been either upgraded or replaced to
meet Year 2000 requirements, and the remaining employee desktop machines that
have not already been upgraded or replaced are scheduled to be either upgraded
or replaced by June of 1999.
Internal compliance testing has been completed successfully, and the
Company is now participating in external testing with clients and vendors, both
on an individual basis and as part of the MBA Year 2000 Readiness test, in order
to ensure client and vendor readiness for the Year 2000. Testing will continue
into June of 1999.
Item 7. Financial Statements.
FACTUAL DATA CORP.
Consolidated Financial Statements
December 31, 1998
<PAGE>
FACTUAL DATA, CORP.
Table of Contents
Independent Auditors' Report......................................F - 1
Consolidated Financial Statements
Consolidated Balance Sheet....................................F - 2
Consolidated Statements of Income.............................F - 3
Consolidated Statement of Changes in Shareholders' Equity.....F - 4
Consolidated Statements of Cash Flows.........................F - 5
Notes to Consolidated Financial Statements........................F - 7
<PAGE>
F - 1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Factual Data Corp.
Fort Collins, Colorado
We have audited the accompanying consolidated balance sheet of Factual Data
Corp. and Subsidiaries as of December 31, 1998, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
years ended December 31, 1997 and 1998. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Factual Data Corp.
and Subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for the years ended December 31, 1997 and 1998 in conformity
with generally accepted accounting principles.
/s/ Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
February 10, 1999
Denver, Colorado
<PAGE>
FACTUAL DATA CORP.
Consolidated Balance Sheet
December 31, 1998
Assets
Current assets
Cash ................................................. $ 1,093,295
Short-term investments (Note 4) ...................... 2,212,386
Prepaid expenses and other ........................... 105,964
Accounts receivable, net (Note 7) .................... 2,919,578
-----------
Total current assets .............................. 6,331,223
Property and equipment, net (Notes 5 and 7) ............ 2,976,419
Other assets (Notes 2 and 6) ........................... 8,869,259
-----------
$18,176,901
Liabilities and Shareholders' Equity
Current liabilities
Current portion of long-term debt (Note 7) ........... $ 1,304,953
Accounts payable ..................................... 2,225,685
Accrued payroll and expenses ......................... 431,441
Income taxes payable ................................. 524,186
Deferred income taxes (Note 10) ...................... 59,291
-----------
Total current liabilities ......................... 4,545,556
Long-term debt (Note 7) ................................ 2,492,571
Deferred income taxes (Note 10) ........................ 302,762
Commitments and contingency (Note 11)
Shareholders' equity (Note 8)
Preferred stock, 1,000,000 shares authorized;
none issued and outstanding .......................... --
Common stock, 10,000,000 shares authorized;
3,551,346 issued and outstanding ..................... 8,614,705
Retained earnings .................................... 2,221,307
-----------
Total shareholders' equity ........................ 10,836,012
-----------
$18,176,901
See notes to consolidated financial statements.
F - 2
<PAGE>
FACTUAL DATA CORP.
Consolidated Statements of Income
For the Years Ended
December 31,
----------------------------
1997 1998
----------- -----------
Revenue
Information services ..................... $ 606,211 $ 6,235,604
Ancillary income ......................... 650,592 1,451,104
System affiliates ........................ 1,428,811 2,198,260
Proceeds from the sale of Company
operated territories (Note 12) .......... 714,365 --
Training, license and other .............. 119,692 58,578
----------- -----------
Total revenue ......................... 3,519,671 9,943,546
----------- -----------
Operating Expenses
Costs of services provided ............... 1,301,085 4,986,064
Costs of Company operated territories sold 506,101 --
Selling, general and administrative ...... 916,521 2,603,589
----------- -----------
Total operating expenses .............. 2,723,707 7,589,653
----------- -----------
Income from operations ..................... 795,964 2,353,893
Other income (expense)
Other income ............................. 28,806 185,262
Interest expense ......................... (77,497) (152,421)
----------- -----------
Total other expense ................... (48,691) 32,841
----------- -----------
Income before income taxes ................. 747,273 2,386,734
Income tax expense (Note 10) ............... 244,339 810,000
----------- -----------
Net income ................................. $ 502,934 $ 1,576,734
=========== ===========
Basic earnings per share ................... $ .28 $ .59
=========== ===========
Basic weighted average shares
outstanding (Note 13) ..................... 1,800,000 2,680,753
=========== ===========
Diluted earnings per share ................. $ .28 $ .57
=========== ===========
Diluted weighted average shares
outstanding (Note 13) ..................... 1,800,000 2,769,214
See notes to consolidated financial statements.
F - 3
<PAGE>
FACTUAL DATA CORP.
Consolidated Statement of Changes in Shareholders' Equity
For the Years Ended December 31, 1997 and 1998
<TABLE>
<CAPTION>
Common Stock Stock Total
--------------------------- Subscriptions Retained Shareholders'
Shares Amount Receivable Earnings Equity
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ......... 1,800,000 $ 2,500 $ (500) $ 141,639 $ 143,639
Collection of stock subscription ..... -- -- 500 -- 500
Net income for the year ended
December 31, 1997 ................... -- -- -- 502,934 502,934
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 ......... 1,800,000 2,500 -- 644,573 647,073
Net proceeds of initial public
offering (net of offering costs
of $1,474,795) ...................... 1,380,000 6,253,205 -- -- 6,253,205
Common stock issued in connection with
business acquisitions (Note 2) ...... 371,346 2,359,000 -- -- 2,359,000
Net income for the year ended
December 31, 1998 ................... -- -- -- 1,576,734 1,576,734
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 ......... 3,551,346 $ 8,614,705 $ -- $ 2,221,307 $10,836,012
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
FACTUAL DATA CORP.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income ................................... $ 502,934 $ 1,576,734
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization .............. 355,084 776,094
Loss on sale of fixed assets ............... -- 25,454
Deferred income taxes ...................... 128,867 240,276
Basis of non-current assets of territories . 391,330 --
sold
Changes in operating assets and
liabilities
Accounts receivable ...................... (325,503) (1,920,392)
Prepaid expenses and other ............... 10,217 (67,089)
Other assets ............................. (23,460) (37,604)
Accounts payable ......................... 111,590 1,323,142
Accrued payroll, payroll taxes and
expenses ................................ 24,275 125,973
Accrued taxes and other .................. 30,017 615,987
----------- -----------
702,417 1,081,841
----------- -----------
Net cash provided by operating
activities ............................ 1,205,351 2,658,575
----------- -----------
Cash flows from investing activities
Purchases of property and equipment .......... (592,868) (1,206,424)
Purchases of short-term investments .......... -- (2,212,386)
Proceeds from sale of property and equipment . 29,504 --
Purchase of intangibles ...................... -- (123,809)
Payments received on note receivable ......... 185,000 45,000
Increase in note receivable .................. (72,160) --
Net cash used in the acquisition of businesses (50,000) (3,604,900)
----------- -----------
Net cash used in investing activities .. (500,524) (7,102,519)
----------- -----------
Cash flows from financing activities
Line-of-credit, net .......................... (66,000) --
Principal payments on long-term debt ......... (255,078) (1,149,209)
Collection of common stock subscription ...... 500 --
Deferred offering costs incurred net of
accounts payable ............................ (36,491) --
Net proceeds in initial public offering
(net of offering expenses paid of
$1,438,304) ................................ -- 6,289,696
----------- ------------
Net cash (used in) provided by
financing activities ................... (357,069) 5,140,487
----------- ------------
Net increase in cash and cash equivalents ...... 347,758 696,543
Cash and cash equivalents, at
beginning of period ........................... 48,994 396,752
----------- -----------
Cash and cash equivalents, at
end of period ................................ $ 396,752 $ 1,093,295
=========== ===========
</TABLE>
Continued on following page.
See notes to consolidated financial statements.
F - 5
<PAGE>
FACTUAL DATA CORP.
Consolidated 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 1998
was $108,919 and $131,731, respectively.
Cash paid for income taxes for the years ended December 31, 1997 and 1998
was $36,516 and $155,138, respectively.
Supplemental disclosure of non-cash investing and financing activities:
During 1997 and 1998, the Company financed fixed assets purchases totaling
$50,918 and $892,579, respectively, with notes payable and capital leases.
During 1997, the Company incurred $61,739 in offering costs that were
included in accounts payable.
During 1997, the Company acquired a business for $50,000 cash and a note
payable of $469,419 (Note 2). During 1998, the Company acquired eight
companies for $3,604,900 cash, notes payable of $2,899,790 and the
issuance of restricted stock of $2,359,000 (Note 2).
See notes to consolidated financial statements.
F - 6
<PAGE>
FACTUAL DATA CORP.
Notes to Consolidated Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
Factual Data Corp was incorporated in the state of Colorado in 1985. The company
was established for the purpose of providing information services nationally to
financial lending institutions primarily in the mortgage lending industry. In
April of 1997, the shareholders of Factual Data Corp and Lenders Resources,
Incorporated exchanged all of their outstanding shares of common stock in
exchange for 1.8 million shares of common stock in a newly formed holding
company called Factual Data Corp. (the Company).
The Company provides information services to lenders from its Company operated
offices and 54 franchised and licensed offices. Franchised and licensed offices
of the Company are referred to as system affiliates and related revenue derived
from such system affiliates is referred to as system affiliate revenues.
In exchange for system affiliate revenue from its system affiliates, the Company
provides certain on-going services that include sophisticated technology
systems, training, marketing/sales assistance, management, techniques, and
policy and procedure manuals.
The Company's sophisticated technology platforms used to develop new products
and services allowed the Company to begin providing employee background
information under EMPfactsSM QuickPeek IdentifierSM, and Tenant Qualifer reports
for employers and landlords.
Principles of Consolidation
The Company's consolidated financial statements include the accounts of Lenders
Resources Incorporated, FDC Group, Inc. and FDC Acquisition, Inc. All
intercompany accounts and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid
short-term investments with an original maturity of three months or less to be
cash equivalents. As of the balance sheet date, balances of cash and cash
equivalents at financial banking institutions exceeded the federally insured
limit by approximately $627,000. The Company has not experienced any losses in
such accounts and believes it is not exposed to any significant credit risk on
cash and cash equivalents.
F - 7
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Accounts Receivable
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers and system affiliates related to providing
information services. The Company's customers and system affiliates are located
throughout the United States.
Because of the credit risks involved, management has provided an allowance for
doubtful accounts of approximately $25,000 which reflects its opinion of amounts
which will eventually become uncollectible. In the event of a complete default
by the Company's customers or system affiliates, the maximum exposure to the
Company is the outstanding accounts receivable balance at the date of default.
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 39 years.
Intangible Assets
Intangible assets are stated at cost, and consist of goodwill, customer lists,
covenants not-to-compete and deferred acquisition costs. Goodwill and customer
lists are amortized using the straight-line method over fifteen years. Covenants
not-to-compete are amortized over the life of the agreements, which extend up to
five years.
Deferred acquisition costs consist of costs associated with the Company's
investigation of potential future acquisitions. These costs will be capitalized
upon completion of the acquisition or charged to expense if the acquisition is
unsuccessful.
Software Development Costs
The Company adopted the provisions of Statement of Position 98-1, "Accounting
for Costs of Computer Software Developed for Internal Use." Direct costs
incurred in the development of software are capitalized once the preliminary
project stage is completed, management has committed to funding the project and
completion and use of the software for its intended purpose are probable. The
Company ceases capitalization of development costs once the software has been
substantially completed and is ready for its intended use. Software development
costs are amortized over their estimated useful lives of three years. Costs
associated with upgrades and enhancements that result in additional
functionality are capitalized.
F - 8
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Income Taxes
Deferred income taxes result from temporary timing differences. Temporary timing
differences are differences between the tax basis of assets and liabilities and
their reported amounts in the financial statements that will result in taxable
or deductible amounts in future years. The Company's temporary differences
result primarily from depreciation of fixed assets, amortization of intangibles
and accrued vacation.
Revenue Recognition
Information Services
The Company 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. The services represent
revenue earned through Company owned locations.
Ancillary Income
Ancillary income consists of fees charged to licenses and franchises for
additional products and services provided to them.
System Affiliate
Pursuant to the various franchise and license agreements, system affiliates are
required to pay the Company royalties based on a percentage of sales. In
addition, system affiliates providing EMPfactsSM services are required to pay
$100 per month for national advertising conducted by the Company.
Royalties as allowed by the franchise and license agreements are accrued based
on the percentage of adjusted gross billings, as reported by system affiliates
and are included in accounts receivable.
Advertising fees paid to the Company are included in the Company's balance
sheet. At December 31, 1998, the Company had collected fees in excess of the
amount expended for advertising by approximately $24,000.
Software License Fees
The Company recognizes revenue from the licensing of computer software when the
customer accepts the configured master. Subsequent to customer acceptance, the
Company has no significant post contract support obligations.
F - 9
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Advertising Costs
The Company expenses advertising and promotional expenses as incurred.
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, including goodwill and other intangible assets, 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 and cash
equivalents, receivables, prepaid expenses, accounts payable and accrued
expenses approximate their fair values as of December 31, 1998 because of the
relatively short maturity of these instruments.
The carrying amounts of notes payable and debt outstanding also approximate
their fair values as of December 31, 1998 because interest rates on these
instruments approximate the interest rate on debt with similar terms available
to the Company.
Earnings Per Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standard No. 128. Basic earnings per share is computed
based on the weighted average number of common shares outstanding. Diluted
earnings per share is computed based on the weighted average number of common
shares plus potential dilutive common shares outstanding which includes common
stock options granted under the Company's stock option plan and warrants issued
in connection with the Company's IPO.
F - 10
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Short-Term Investments
The Company follows Statement of Financial Accounting Standards No.
115 (SFAS 115) to account for investments. Under SFAS No. 115,
equity securities which have readily determinable fair values and all
investments in debt securities are classified into three categories
and accounted for as follows:
o Debt securities that the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity and reported at
amortized cost.
o Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading
securities and reported at fair value, with unrealized gains and losses
included in earnings.
o Debt and equity securities not classified as either held-to-maturity
securities or trading securities are classified as available-for-sale
securities and reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of
stockholders' equity net of deferred income taxes.
The Company classifies its investments in corporate debt securities with
original maturities in excess of three months as short-term investments
available for sale. The Company has the ability and intent to sell these
securities as needed.
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.
F - 11
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies
(continued)
Recently Issued Accounting Pronouncements (continued)
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.
SFAS No.'s 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.
In February of 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits" (SFAS No. 132), which supercedes
SFAS No.'s 87, 88, and 106. SFAS No. 132 addresses disclosure only
and is effective for fiscal years beginning after December 15, 1997.
Restatement of disclosures for prior periods is required. The
adoption of SFAS No. 132 will have no current impact on the Company's
financial statements, as no prior disclosures under SFAS No. 87, 88,
or 106 were applicable.
In June of 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"(SFAS No.
133). SFAS No. 133 addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15,1999. Initial application of SFAS No. 133
shall be as of the beginning of an entity's fiscal quarter, on that date,
hedging relationships shall be designated anew and documented under the
provisions of this statement. The adoption of SFAS No. 133 shall not be
retroactively applied. This statement currently has no impact on the financial
statements of the Company, as the Company does not hold any derivative
instruments or participate in any hedging activities.
Reclassifications
Certain amounts in the 1997 financial statements haven been reclassified to
conform with the 1998 presentation.
F - 12
<PAGE>
Note 2 - Acquisition of Assets
During the third and forth quarters of 1998, the Company purchased the assets of
seven businesses and acquired another Company in a merger transaction through
its wholly owned subsidiary FDC Acquisition, Inc. These transactions have been
accounted for as purchases. Amortization of acquired covenants not to compete
are over the life of the agreements of two to five years. Customer lists
acquired are amortized over fifteen years. Subsequent to December 31, 1998, the
Company acquired the assets of three businesses.
The aggregate purchase price of the Company's 1998 acquisitions has been
allocated to the assets purchased based on the fair market values on the date of
acquisition, as follows:
Accounts receivable..................... $366,169
Computer equipment, furniture and fixtures 463,150
Prepaid expenses and other assets....... 45,942
Non-compete agreements.................. 450,000
Customer lists.......................... 7,924,744
Liabilities assumed..................... (386,315)
----------
Subtotal............................ 8,863,690
Notes payable less imputed discount..... (2,899,790)
Common stock issued (2,359,000)
----------
Cash paid, net.......................... $3,604,900
==========
The following table depicts the unaudited pro forma results of the Company
giving effect to its 1998 and January 1999 acquisitions as if they occurred on
January 1, 1997. The unaudited pro forma information is not necessarily
indicative of the results of operations of the Company had these acquisitions
occurred at the beginning of the years presented, nor is it necessarily
indicative of future results.
Year Ended
December 31,
-----------------------
1997 1998
------- --------
Revenue..................... $17,422,753 $23,970,038
=========== ===========
Net income after taxes...... $ 373,146 $ 2,993,917
=========== ===========
Basic earnings per share.... $ .18 $ 1.02
=========== ===========
Diluted earnings per share.. $ .18 $ .99
=========== ===========
F - 13
<PAGE>
Note 2 - Acquisition of Assets (continued)
The Company pays an entity owned by a stockholder a commission on all
successfully completed business acquisitions in which the entity is actively
involved. During the year ended December 31, 1998, the Company paid related
commissions on successful business acquisitions of approximately $70,000.
Note 3 - Employee Benefit Plan
The Company adopted a 401(k) plan effective November 1, 1998. Participation is
voluntary and employees are eligible to participate at age 21 and after one
month of employment with the Company. The Company matches 50% of the employees
contribution up to 4% of the employee's salary.
A participant's vested benefits if fairly distributed upon death or disability
and is distributed upon termination of employment according to the following
vesting schedule:
Years of Service Percentage
---------------- ----------
1 20%
2 40%
3 60%
4 80%
5 100%
The Company contributed $9,031 to the Plan for the year ended December 31, 1998.
Note 4 - Investment Securities
Due to the types of investments, the fair market values approximate the carrying
value as of December 31, 1998, therefore, no unrealized gain or loss has been
recorded.
The Company's investments are classified as available-for-sale and include the
following:
Corporate debt securities $ 743,688
U.S. Government debt securities 1,468,698
----------
$2,212,386
==========
F - 14
<PAGE>
Note 5 - Property and Equipment
Property and equipment consists of the following:
December 31,
1998
-----------
Computer equipment and software.................... $1,895,551
Furniture and fixtures............................. 1,853,048
Software development costs......................... 947,477
Leasehold improvements............................. 198,402
Vehicles........................................... 149,626
----------
5,044,104
Less accumulated depreciation................... (2,067,685)
----------
$2,976,419
==========
Note 6 - Other Assets
Other assets consist of the following:
December 31,
1998
------------
Deposits and other................................. $ 91,385
Customer lists (Note 2)............................ 8,370,673
Goodwill........................................... 8,771
Covenants not to compete (Note 2).................. 498,750
License agreement.................................. 75,000
Deferred acquisition costs and other............... 48,810
----------
9,093,389
Less accumulated amortization................... (224,130)
----------
$8,869,259
==========
F - 15
<PAGE>
Note 7 - Long-Term Debt
Long-Term Obligations
December 31,
1998
------------
Long-term debt obligations consist of the following:
Unsecured note payable to a corporation incurred in the
acquisition of a business. Note is payable in monthly
installments of $9,667. Note is non interest bearing and
matures May 2000...................................... $155,042
Unsecured note payable to a corporation, monthly principal
and interest payments of $6,000 through November 1999.
Interest at 9.5%...................................... 90,655
Unsecured note payable to a individual, monthly principal
payments are the greater of $750 or 5% of gross billable
revenue of a certain corporate-owned franchise with the
balance due August 31, 2002. Interest at 8.5%........ 57,640
Various notes payable to financial institutions. Monthly
principal and interest payments ranging from $394 to
$855. Interest rates vary from 7.7% to 8.15%. Notes
mature at various times ranging from May 2001 to October
2003. Notes are collateralized by certain fixed assets
and automobiles....................................... 65,039
Note payable to a corporation incurred in an acquisition of
a business. Quarterly principal and interest payments of
$95,450 through June 2003. Interest at 8%. Note is
collateralized by a security agreement and assets acquired
in the acquisition.................................... 1,430,991
Notes payable to two individuals and a related corporation
incurred in the acquisition of a business. The Notes are
payable by the following terms: lump sum payment due
January 1, 1999 in the amount of $61,500 and monthly
principal payments of $12,501 through August 2000. Notes
are non-interest bearing and are secured by a security
agreement and assets acquired in the acquisition...... 343,135
Various notes payable to corporations incurred in several
acquisitions. Quarterly principal payments totaling
$52,500. Notes are non interest bearing and are beginning
September 2000 to October 2000. Notes are secured by a
382,691 security agreement and assets acquired in the
acquisitions.......................................... 382,691
F - 16
<PAGE>
Note 7- Long-Term Debt (continued)
December 31,
1998
------------
Notes payable to a corporation incurred in acquisitions.
Monthly principal payments totaling $9,027. Notes are non
interest bearing and expires September 2000.
Collateralized by security agreement and assets acquired
in the acquisition.................................... 456,029
Various capital leases with monthly payments totaling
$18,285, including interest and expiring through December
2003. Collateralized by office furniture and equipment.
The net book value at December 31, 1998 for the fixed
assets leased amounte to $811,795.................... 816,302
--------
3,797,524
Less current portion (1,304,953)
$2,492,571
==========
As of December 31, 1998, future maturities of long-term obligations are as
follows:
Long-term Capital
Year ending December 31, Debt Leases Total
------------ ----------- -----------
1999............. $1,165,510 $ 216,194 $1,381,704
2000............. 884,035 219,961 1,103,996
2001............. 341,399 219,961 561,360
2002............. 360,705 219,961 580,666
2003............. 216,933 159,874 376,807
Thereafter....... 12,640 - 12,640
---------- ---------- ----------
2,981,222 1,035,951 4,017,173
Less amount
representing interest. - (219,649) (219,649)
---------- ---------- ----------
Total principal.. 2,981,222 816,302 3,797,524
Less current portion (1,165,510) (139,443) (1,304,953)
---------- ---------- ----------
$1,815,712 $ 676,859 $2,492,571
========== ========== ==========
F - 17
<PAGE>
Note 8 - Shareholders' Equity
Warrants
The Company has reserved (i) 1.5 million shares of Common Stock for issuance on
exercise of 1.5 million warrants issued with respect to its initial public
offering, (ii) 120,000 shares of Common Stock for issuance on exercise of
options granted to the Company's underwriters of its initial public offering,
and (iii) 200,000 shares of Common Stock for issuance on exercise of options
issued under the Company's 1997 Stock Incentive Plan (the "ISOs"), of which
options to purchase 31,500 shares had been granted as of December 31, 1998. With
respect to the Warrants, (a) 1.38 million have an exercise price of $7.15 per
share and do not expire until May 13, 2001 (the "Redeemable Warrants"); and (b)
120,000 have an exercise price of $9.15 per share and do not expire until May
13, 2002. Commencing on May 13, 1999, the Redeemable Warrants may be redeemed by
the Company, in whole but not in part, at a price of $.05 per Redeemable Warrant
at such time as the closing bid price of the Common Stock equals or exceeds
$10.73 (150% of the exercise price) for 20 consecutive trading days. The
Underwriter Options have an exercise price of $7.04 per share and do not expire
until May 13, 2004.
Stock Option Plan
Management of the Company has adopted a stock option plan whereby the Board of
Directors can issue both tax qualified and nonqualified options to officers,
employees, consultants and others. Under the plan, 200,000 shares of the
Company's stock is reserved for options to be issued in the future. The Company
issued 22,000 shares to employees under the plan in connection with its IPO of
which 21,500 shares were outstanding at December 31, 1998. These shares vest
equally over three years from the date of grant. The following summarizes the
activity under the Company's stock option plan:
Number of Exercise
Shares Price Expiration
--------- ----------- ------------
Balance at January 1, 1997
and 1998 - -
Stock options granted 32,000 $5.50 - 6.50 May 2001-June 2001
Stock options cancelled (500) 5.50 May 2001
-------- ------------
Balance at December 31,
1998 31,500 $5.50 - 6.50 May 2001-June 2001
======== ============
F - 18
<PAGE>
Note 8 - Shareholders' Equity (continued)
Stock Option Plan (continued)
The weighted average exercise price at December 31, 1998 was $5.74 and the
weighted average remaining contractual life of the Company's options was 2.42
years.
The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123). Had the Company determined compensation cost based on the fair value at
the grant date for its stock options under SFAS No. 123, there would not be a
material effect on 1998 net income. The fair value of each grant option is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions used for grants: dividend yield of
0%; expected volatility of 35%; discount rate of 5.5% and expected lives of 3
years.
Note 9 - Business Segments
Operating results and other financial data are presented for the principal
business segments of the Company for the years ended December 31, 1997 and 1998.
Total revenue in one business segment includes information services which
represent sales by Company operated territories, in another segment, ancillary
revenues, the third segment consists of system affiliate revenue and training,
license, and other revenues with the fourth segment being sales of Company
operated territories, as reported in the Company's consolidated financial
statements.
Identifiable assets by business segment are those assets used in the Company's
operation of each segment.
<TABLE>
<CAPTION>
System
Affiliates Sales of
and License, Company
Information Ancillary Training and Operated
Services Income Other Territories Totals
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1997
Net sales ............ $ 606,211 $ 650,592 $1,548,503 $ 714,365 $3,519,671
Cost of services and
territory sales ..... $ 236,640 $ -- $1,064,445 $ 506,101 $1,807,186
Gross profit ......... $ 369,571 $ 650,592 $ 484,058 $ 208,264 $1,712,485
Total assets ....... $1,364,049 $ -- $1,500,036 $ -- $2,864,085
Depreciation and
amortization ........ $ 111,100 $ -- $ 214,824 $ 29,160 $ 355,084
Capital expenditures . $ 2,069 $ -- $ 590,799 $ -- $ 592,868
</TABLE>
F - 19
<PAGE>
Note 9 - Business Segments (continued)
<TABLE>
<CAPTION>
System
Affiliates Sales of
and License, Company
Information Ancillary Training and Operated
Services Income Other Territories Totals
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1998
Net sales ............. $ 6,235,604 $ 1,451,104 $ 2,256,838 $-- $ 9,943,546
Cost of services and
territory sales ...... $ 3,988,948 $ -- $ 997,116 $-- $ 4,986,064
Gross profit .......... $ 2,246,656 $ 1,451,104 $ 1,259,722 $-- $ 4,957,482
Total assets .......... $17,006,221 $ -- $ 1,170,680 $-- $18,176,904
Depreciation and
amortization ......... $ 671,484 $ -- $ 104,610 $-- $ 776,094
Capital expenditures . $ 1,833,284 $ -- $ 265,719 $-- $ 2,099,003
</TABLE>
Note 10 - Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement assets and liabilities and tax basis assets and
liabilities using the tax rates in effect for the year in which the differences
occur. The measurement of deferred tax assets is reduced, if necessary, by the
amount of any tax benefits that based on available evidence, are not expected to
be realized.
The components of the provision for income tax expense for the year ended
December 31, 1997 and 1998 are as follows:
December 31,
-----------------------
1997 1998
----------- ---------
Current................................. $115,472 $661,236
Deferred................................ 128,867 148,764
-------- --------
$244,339 $810,000
======== ========
The deferred income tax assets and liabilities result primarily from differing
depreciation and amortization periods of certain assets, research and
development credits, and the recognition of certain expenses for financial
statement purposes and not for tax purposes.
<PAGE>
Note 10 - Income Taxes (continued)
The net current and long-term deferred tax liabilities in the accompanying
balance sheet include the following items:
December 31,
1998
---------------
Current deferred tax asset.............. $ 48,090
Current deferred tax liability.......... (107,381)
----------
$ (59,291)
==========
Long-term deferred tax asset............ $ 30,529
Long-term deferred tax liability........ (333,291)
----------
$ (302,762)
==========
Rate Reconciliation
The reconciliation of income tax expense by applying the Federal statutory tax
rates to the Company's effective income tax rate is as follows:
December 31,
-----------------------
1997 1998
----------- ---------
Federal statutory rate..................... 34.0% 34.0%
State tax on income, net of federal income tax 3.3 3.3
benefit..................................
Research tax credits....................... (3.6) (1.0)
Other, net................................. (1.0) (2.4)
--------- --------
32.7% 33.9%
======== ========
Note 11 - Commitments
During 1998, the Company relocated its corporate office and began a new 20 year
lease. The lease is an operating lease agreement which provides for the monthly
payment of $23,483 and expires March 2018. Rent expense under this operating
lease and the previous corporate office lease totaled $147,452 and $276,053 for
the years ended December 31, 1997 and 1998, respectively.
<PAGE>
Note 11 - Commitments (continued)
The Company assumed various other operating leases for equipment and office
space in connection with its business acquisitions described in Note 2. The
leases have expiration dates ranging from 1999 to 2003. Payments on these leases
totaled $139,222 in 1998. In addition, the Company signed two new leases in 1998
for office space to consolidate several acquired offices within the same cities.
These leases expire in 2008 and 2009. Payments on these leases totaled $21,658
in 1998.
Future minimum annual lease payments are as follows:
Year Ended December 31,
1999.......................... $1,026,585
2000.......................... 887,348
2001.......................... 871,129
2002.......................... 850,934
2003.......................... 793,341
Thereafter.................... 7,715,507
----------
$12,144,844
===========
The Company is subject from time to time to legal proceedings and claims which
arise in the ordinary course of its business. The Company believes that the
final disposition of such matters will not have a material adverse effect on the
financial position or results of operations of the Company.
The Company maintains a self-insured medical insurance program for its
employees. The Company reimburses employees for qualified medical services up to
$10,000 per employee per plan year. The reimbursement owed to employees as of
December 31, 1998 amounted to approximately $42,000.
Note 12 - Sale of Territories
In January 1997, the Company sold its Texas territories which were reacquired by
the Company from certain franchisees from 1990 to 1995. The sales price was
$714,000 which was paid in cash. The purchaser acquired accounts receivable of
$115,000, net intangibles of $276,000, and net fixed assets of $115,000. In the
third quarter of 1998, the Company repurchased these territories for
approximately $1,600,000 (Note 2).
<PAGE>
Note 13 - Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations:
For the Year Ended December 31, 1998
------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ----------- ----------
Net income $ 1,576,734
Basic EPS
Weighted average beginning
shares outstanding - 1,800,000
Weighted average IPO shares
issued - 850,220
Weighted average shares issued
in business acquisitions - 30,534
----------- ----------
Income available to common
stockholders 1,576,734 2,680,753 $ .59
=========
Effect of Dilutive Common Stock
Options 11,897
Warrants - 76,564
Diluted EPS
Income available to common
stockholders plus assumed
conversions $ 1,576,734 2,769,214 $ .57
=========== ========= =========
F - 23
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not applicable.
- 20 -
<PAGE>
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act.
Executive Officers and Directors
The executive officers and directors of the Company are as follows:
Name Age Position
Jerald H. Donnan 53 Chairman of the Board, Chief
Executive Officer and President
Marcia R. Donnan 54 Executive Vice President
Todd A. Neiberger 34 Chief Financial Officer and
a Director
Russell E. Donnan 34 Vice President
James N. Donnan 27 Vice President and a Director
Robert J. Terry 58 Director
Abdul H. Rajput 51 Director
The Company's Articles of Incorporation provide for a Board of Directors,
the size of which is set by the Board of Directors. The current Board of
Directors consists of five members. All directors hold office until the next
annual meeting of shareholders, or until their successors have been elected.
Officers serve at the discretion of the Board of Directors, except for Jerald H.
Donnan and Marcia R. Donnan who are employed pursuant to employment agreements.
Jerald H. Donnan, Chairman of the Board, Chief Executive Officer and
President, has been with the Company since its incorporation in January 1985. He
is responsible for oversight of corporate development and services, and is
responsible for operations, technical development and policies and procedures.
Mr. Donnan's early career experience includes 15 years with Avco Financial
Services, Inc. where he was responsible for lending and collecting a
multi-hundred million dollar portfolio and managing geographically diverse
branches with many employees. Mr. Donnan was a founding member and past
president of the National Credit Reporting Association, a trade association
founded to promote ethical standards and fair competition within the credit
reporting industry.
- 21 -
<PAGE>
Marcia R. Donnan, Executive Vice President, has been with the Company
since its incorporation in January 1985. She is responsible for compliance with
the FCRA and all other federal, state and local laws as they apply to the
gathering, processing and distribution of credit information. Staff training and
education are also areas of her primary responsibility. Ms. Donnan spent 15
years in credit reporting with Credit Information Systems (formerly Credit
Bureau of Council Bluffs, Inc.) as operations manager, prior to co-founding
Factual Data Corp. in 1985. Ms. Donnan is active in Associated Credit Bureaus,
Inc., a credit reporting association, and she concluded a second term as
director in January 1997.
Todd A. Neiberger, Chief Financial Officer and a Director, joined the
Company in March 1995. Mr. Neiberger graduated from the University of Northern
Colorado in 1987 with a degree in accounting. Mr. Neiberger has 10 years
experience in staff, senior and management level positions with various public
accounting firms. From 1994 through 1995, he served as the audit manager of
Rickards & Co. P.C., and from 1991 through 1993 he served as the tax manager for
Krutchen & Co., both Fort Collins, Colorado based certified public accounting
firms. From 1988 through 1990 he was employed with Lemke, Feis & Co., P.C., a
certified public accounting firm, as a staff and senior level accountant in the
audit and tax department. Mr. Neiberger is a Certified Public Accountant and a
member of the Colorado Society of Certified Public Accountants and the American
Institute of Certified Public Accountants.
Russell E. Donnan, Vice President, has been employed by the Company since
August 1993. He is responsible for technical project management for software and
support services. Before coming to Factual Data Corp., he was a senior design
engineer at Apple Computer in the Power Book division from February 1992 to
August 1993. He is experienced in the super computer field and was previously
employed by Convex Computer (1990-1992) and as a founding member and employee of
Key Computer (1988-1990), now a subsidiary of Amdahl Corporation. Mr. Donnan
graduated from Ohio State University in 1987 with a degree in electrical
engineering.
James N. Donnan, Vice President and a Director, has been employed by the
Company on a full-time basis since 1994, and prior to that, on a part-time basis
since 1986. He is responsible for management of Company operated mortgage credit
reporting production offices and EMPfacts employment screening operations. His
duties also include overall sales, growth and customer service development. Mr.
Donnan graduated from Colorado State University in 1994 with a degree in
history.
Robert J. Terry has been a Director since February 1998. From February
1994 to his retirement in January 1998, Mr. Terry served as a director,
president and chief operating officer of Mail-Well, Inc., a publicly traded
envelope manufacturer and printing company. From January 1992 to February 1994,
Mr. Terry served as executive vice president of Mail-Well Envelope, a subsidiary
of Georgia Pacific. From June 1989 to December 1991, Mr. Terry served as
regional vice president for Butler Paper in Englewood, Colorado. Mr. Terry
obtained a Bachelor of Science degree in Business from DePaul University in 1963
and attended the Executive Program at the University of Michigan in 1988.
- 22 -
<PAGE>
Abdul H. Rajput has been a Director since February 1998. From 1991 to
September 1998, Mr. Rajput was employed in San Diego, California, by Bank of
America, a federal savings bank and a subsidiary of Bank America Corp., where he
held the position of executive vice president, administrative services.
Presently, Mr. Rajput is executive vice president of national operations of
GreenPoint Credit Corp. From 1990 and until its acquisition by the Company in
August, 1998, Mr. Rajput owned and operated Factual Data Minnesota, Inc., one of
the Company's now former franchises which operates in Minnesota and Iowa. From
1980 to 1989, Mr. Rajput was employed by Green Tree Financial Corp., St. Paul,
Minnesota, initially as vice president and then senior vice president for
administration. Mr. Rajput also serves on the board of directors of GreenPoint
Credit Corp. Mr. Rajput obtained a Bachelor of Science degree in Mathematics and
a Master of Science degree in Statistics from the University of Sind, Pakistan,
in 1968 and 1970, respectively.
Russell and James Donnan are sons of Jerald and Marcia Donnan who are
husband and wife.
Director Compensation
Employee directors of the Company do not receive any fixed compensation
for their services as directors while non-employee directors presently receive
compensation of $7,500 annually plus a $500 travel allowance per calendar
quarter.
Board Committees
The Company has two Committees, an Audit Committee and
Compensation Committee. Messrs. Terry and Rajput, the two
independent directors, serve on each committee. Mr. Jerald Donnan,
President of the Company, also serves on each committee.
The primary function of the Compensation Committee is to review and make
recommendations to the Board with respect to the compensation, including
bonuses, of the Company's officers and to administer the Stock Incentive Plan.
The function of the Audit Committee is to review and approve the scope of audit
procedures employed by the Company's independent auditors, to review and approve
the audit reports rendered by the Company's independent auditors and to approve
the audit fee charged by the independent auditors. The Audit Committee reports
to the Board of Directors with respect to such matters and recommends the
selection of independent auditors.
Section 16(a) Beneficial Ownership Reporting Compliance
Based on a review of the record, the Company believes that all reports
required to be filed by its officers, directors and principal shareholders under
Section 16(a) of the Securities Exchange Act of 1934 have been duly filed.
- 23 -
<PAGE>
Item 10. Executive Compensation.
The following table sets forth compensation awarded by the Company to
Jerald H. Donnan, its Chief Executive Officer and President, and Marcia R.
Donnan, its Executive Vice President, for services rendered during fiscal 1995,
1996 and 1997. Jerald H. Donnan and Marcia R. Donnan are husband and wife. No
other persons serving as an executive officer during the reported years received
compensation in excess of $100,000 during any of those years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
---------------------------- --------------------- --------
Restricted Securities
Other Stock Underlying LTIP All Other
Name and Fiscal Salary Bonus Annual Award(s) Options/ Payouts Compensation
Principal Position Year ($) (&) ($) Compensation ($) SARs ($) ($)
- ------------------ ------ ------- ------- ----- ------------ --------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jerald H. Donnan 1998 105,100 9,300 -- -- -- -- -- 3,061
President, Chief 1997 82,445 -- -- -- -- -- -- 10,265
Executive Officer 1996 48,031 -- -- -- -- -- -- 10,220
Marcia R. Donnan 1998 105,100 9,300 -- -- -- -- -- 4,107
Executive Vice 1997 93,773 -- -- -- -- -- -- 6,093
President 1996 89,217 -- -- -- -- -- -- 8,137
- ------------------
</TABLE>
*Consists of certain health and accident insurance benefits and automobile
expense reimbursements.
Employment Agreements
Jerald H. Donnan and Marcia R. Donnan are parties to three year employment
agreements with the Company effective July 1, 1997. Each of Mr. and Ms. Donnan
is entitled to health and accident insurance benefits and certain automobile
reimbursements. Both employment agreements also provide that if the employee is
terminated due to a change in control of the Company, then they are entitled to
severance pay equal to the product of 2.99 times the previous year's pay
(including bonuses). The employment agreements contain customary provisions as
to death, disability and termination for cause.
Stock Incentive Plan
In April 1997, the Company adopted the 1997 Stock Incentive Plan (the
"Stock Incentive Plan"). The purpose of the Stock Incentive Plan is to provide
continuing incentives to the Company's key employees, which may include officers
and members of the Board of Directors. The Stock Incentive Plan provides for an
authorization of 200,000 shares of Common Stock for issuance thereunder. Under
the Stock Incentive Plan, the Company may grant to participants awards of stock
options and restricted stock or any combination thereof.
- 24 -
<PAGE>
The Stock Incentive Plan is to be administered by the Compensation
Committee of the Board of Directors composed of at least one disinterested
member. Subject to the terms of the Stock Incentive Plan, the Compensation
Committee determines, among other matters, the persons to whom awards are
granted, the type of award granted, the number of shares granted, the vesting
schedule, employment requirements or performance goals relating to restricted
stock awards, the type of consideration to be paid to the Company upon exercise
of options and the terms of any option (which cannot exceed ten years).
Under the stock option component of the Stock Incentive Plan, the Company
may grant both incentive stock options ("incentive stock options") intended to
qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and options which are not qualified as incentive stock options;
provided that incentive stock options cannot be granted to any participant who
is not an employee of the Company. Stock options may not be granted at an
exercise price of less than the fair market value of the Common Stock on the
date of grant. The exercise price of incentive stock options granted to holders
of more than 10% of the Common Stock must be at least 110% of the fair market
value of the Common Stock on the date of grant, and the term of these options
cannot exceed five years. Options granted under the Stock Incentive Plan are not
transferable otherwise than by will or the laws of descent and distribution and,
during the lifetime of the optionholder, options are exercisable only by such
optionholder. In addition, outstanding options may not be exercised more than
three months (but in no event beyond the expiration date of the option) after
the optionholder ceases to be an employee of the Company, except that in the
event of the death or permanent and total disability of the optionholder, the
option may be exercised by the holder (or his estate, as the case may be) until
the first to occur of the expiration of the option period or the expiration of
one year after the date of death or permanent or total disability. The exercise
price may be paid in cash, in shares of Common Stock (valued at fair market
value at the date of exercise) by delivery of a promissory note or by a
combination of such means of payment, as may be determined by the Compensation
Committee.
Upon a change in control (as defined in the Stock Incentive Plan) of the
Company, all stock options granted under the Stock Incentive Plan will become
exercisable in full, and all restricted stock grants will become immediately
vested and any applicable restrictions will lapse. Also, in the event the number
of outstanding shares of Common Stock is increased or decreased or changed into
or exchanged for a different number or kind of shares of stock or other
securities of the Company or of another company whether as the result of stock
split, stock dividend, combination or exchange of shares, merger or otherwise,
each share subject to an unexercised option shall be substituted for the number
and kind of shares of stock into which each share of the outstanding Common
Stock is to be changed for which each such share is to be exchanged and the
option price shall be increased or decreased proportionately.
As of March 24, 1999, options to purchase 31,500 shares of Common Stock
had been granted to certain employees and two non-executive directors of the
Company (26,500 shares at an exercise price of $5.50 per share and 5,000 shares
at $6.50 per share).
- 25 -
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of March 24, 1999 by (i)
each person who is known by the Company to own beneficially more than 5% of the
Company's outstanding Common Stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers and directors as a
group. Common Stock not outstanding but deemed beneficially owned by virtue of
the right of an individual to acquire shares within 60 days are treated as
outstanding only when determining the amount and percentage of Common Stock
owned by such individual. Each person has sole voting and sole investment power
with respect to the shares shown except as noted.
Shares Beneficially
Owned
-------------------
Percent of
Number Outstanding
------- ------------
Executive Officers & Directors(1)
Jerald H. Donnan(2)......................... 630,000 17.7%
Marcia R. Donnan(2)......................... 630,000 17.7
Russell E. Donnan(2)........................ 270,000 7.6
James N. Donnan(2).......................... 270,000 7.6
Todd A. Neiberger(3)........................ 5,000 *
Robert J. Terry(4).......................... 5,000 *
Abdul H. Rajput(4).......................... 5,000 *
All officers and directors as a group
(seven persons)............................ 1,815,000 51.1
Other Beneficial Owners(5)
Kennedy Capital Management.................. 126,650 5.3%
Quilcap Corp. (shared voting & investment
power).................................... 264,800 7.5
- ------------------
*Less than 1%
(1)The address for each of the Donnans and Mr. Neiberger is 5200 Hahns Peak
Drive, Loveland, Colorado 80538; the address for Mr. Terry is 5402 South
Cottonwood Court, Greenwood Village, Colorado 80121; and the address for
Mr. Rajput is Post Office Box 8310, Rancho Santa Fe, California 82067.
(2)Shares beneficially owned include an aggregate of 500,000 shares of Common
Stock held in custody and subject to release to the Company's shareholders
in 2003 or earlier upon the Company reaching certain performance
objectives. For further information regarding the terms of such custody
arrangement, see immediately below.
(3)Represents options to purchase shares of Common Stock at $6.50 per share
which are presently exercisable.
(4)Represents options to purchase shares of Common Stock at $5.50 per share
which are presently exercisable.
(5)The address for Kennedy Capital Management is 10829 Olive Boulevard, St.
Louis, Missouri 63141 and for Quilcap Corp. is 375 Park Avenue, Suite 1404,
New York, New York 10152.
As a condition to its initial public offering, the four Donanns listed in
the ownership table above were required to deposit an aggregate of 500,000
shares of Common Stock of the Company owned by such shareholders (on a pro-rata
basis) in custody pursuant to a custody agreement with American Securities
Transfer & Trust, Inc. and the representative of the underwriters. The Common
Stock deposited in the custody account will be subject to release to the
shareholders upon the earlier of: (i) the Company achieving pre-tax net income
(excluding extraordinary items) of $3,000,000 in the four complete calendar
quarters immediately subsequent to May 13, 1998; (ii) the Company achieving
pre-tax net income (but excluding extraordinary items) of $8,000,000 in the four
complete calendar quarters commencing one year after May 13, 1998; (iii) a
merger or sale of all or substantially all of the Company's assets if such
transaction is approved by the holders of a majority of the Company's
outstanding shares not including shares held by parties to the custody
agreement; or (iv) seven years after May 13, 1998. The determination of net
income will be made in accordance with generally accepted accounting principles
and will be based upon the audited financial statements of the Company. The
shares held in custody are not transferable or assignable, although they may be
voted by the holder.
- 26 -
<PAGE>
Item 12. Certain Relationships and Related Transactions.
Jerald H. Donnan and Marcia R. Donnan personally guaranteed a $500,000
loan from a financial institution in 1995. No separate consideration was paid
for such guarantee. The balance of the loan of $435,000 was paid using a portion
of the proceeds from the Company's initial public offering completed May 13,
1998.
On September 16,1998, the Company closed its acquisition of the assets of
Factual Data Minnesota, Inc. ("FD Minnesota") pursuant to an Asset Purchase
Agreement (the "Agreement"). Since 1990, FD Minnesota had been a franchisee of
the Company located in the Saint Paul, Minnesota area and operating in Minnesota
and Iowa. Pursuant to the Agreement, the Company acquired the fixed assets,
contract rights, intellectual property rights to trade names and computer
software, personnel files, books and records, deposits, prepaid assets and the
goodwill of FD Minnesota in exchange for $353,243 cash paid at closing and a
non-interest bearing promissory note in the principal amount of $353,243 payable
in twenty-four equal monthly installments commencing September 1, 1998. The note
is secured by a lien on all of the assets purchased pursuant to the Agreement.
The Company also assumed the lease obligations on the FD Minnesota facility and
continues operations of FD Minnesota at such facility. In connection with the
purchase, the Company entered into two year non-competition agreements with the
two shareholders of FD Minnesota.
Abdul Rajput, one of the shareholders of FD Minnesota, has been a director
of the Company since February 1998. Mr. Rajput disclosed all of the material
facts as to his relationship and interest in FD Minnesota and abstained from
voting on the acquisition. The acquisition was approved by all of the remaining
directors of the Company and the acquisition was made on terms believed by the
Board to be no less favorable than could have been obtained from an unaffiliated
party. The Company retained an independent firm of certified public accountants
to appraise the fair market value of the operating assets, excluding cash and
accounts receivable, of FD Minnesota. Based on such firm's study and analytical
review procedures such firm concluded that a reasonable estimate of the fair
market value of the operating assets, excluding cash and accounts receivable, of
FD Minnesota as of May 31, 1998 was $720,000.
The Company has adopted a policy that all transactions between the Company
and its officers, directors and 5% or more shareholders are subject to approval
by a majority of the disinterested independent directors of the Company. Any
such transactions will be on terms believed to be no less favorable than could
be obtained from unaffiliated parties.
- 27 -
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits Filed Herewith or Incorporated by Reference to
Previous Filings with the Securities and Exchange
Commission:
(1) The following exhibits were included with the initial filing of the
Company's Registration Statement #333-47051, or amendments thereto,
effective May 13, 1998 and are hereby incorporated by reference:
Exhibit
Number Exhibit
1.1 -- Revised form of Underwriting Agreement.
1.3 -- Form of Selected Dealers Agreement.
1.4 -- Revised form of Warrant Exercise Fee Agreement.
1.5 -- Form of Custody Agreement.
3.1 -- Restated and Amended Articles of Incorporation.
3.2 -- Amended Bylaws of the Registrant.
4.1 -- Specimen Common Stock Certificate of the
Registrant.
4.2 -- Specimen Warrant Certificate of the Registrant.
4.3 -- Form of Representative's Option for the Purchase
of Common Stock.
4.3A -- Revised form of Representative's Option for
the Purchase of Warrants.
4.4 -- Form of Warrant Agreement.
10.1 -- Office Lease between FDC Office I, LLC and
Lenders Resource Incorporated dated August 14,
1997 and as amended December 26, 1997.
10.2 -- Registrant's 1997 Stock Incentive Plan, as amended, with
form of Stock Option Agreement.
10.3 -- Employment Agreement with Jerald H. Donnan.
10.3A -- Amendment to Employment Agreement of Jerald H.
Donnan dated March 31, 1998.
10.4 -- Employment Agreement with Marcia R. Donnan.
10.4A -- Amendment to Employment Agreement of Marcia R.
Donnan dated March 31, 1998.
10.5 -- Form of Indemnification Agreement.
10.6A -- Form of Franchise Agreement.
10.6B -- Form of License Agreement.
10.6C -- Credit Reporting Service Agreement with Trans
Union Corporation.
10.6D -- Agreement for Service--Consumer Reporting
Agencies with Equifax Credit Information
Services, Inc.
10.6E -- Reseller Services Agreement with Experian
Information Solutions, Inc.
10.6F -- Asset Purchase Agreement between the Company and
Mirocon, Inc. dated December 1, 1997.
- 28 -
<PAGE>
10.6H -- Asset Purchase Agreement between Factual Data
Corp and C B Unlimited, Inc. regarding the
Indiana territory.
10.6I -- Purchase Agreement by and between Landmark
Financial Services, Inc. and Factual Data Corp.
regarding the Texas territories.
(2) Filed as exhibits to Reports on Form 8-K of the Company are the
following, which are incorporated by reference:
Date of
Filing Exhibit
August 25, 1998 Asset Purchase Agreement--FD Northwest, Inc.
August 25, 1998 AssetPurchase Agreement--American Credit
Connection, Inc.
August 25, 1998 Asset Purchase Agreement--Heritage Credit
Reporting, Inc.
September 16, 1998 Asset Purchase Agreement--Factual Data
Minnesota, Inc.
October 15, 1998 Asset Purchase Agreement--Landmark Financial
Services, Inc.
October 31, 1998 Asset Purchase Agreement--ARI of Minnetonka,
Inc.
December 16, 1998 Plan and Agreement of Merger--Mortgage Credit
Services, Inc.
January 5, 1999 Asset Purchase Agreement--Oxbow Enterprises,
Inc.
January 19, 1999 Asset Purchase Agreement--Premier Mortgage
Services, Inc.
(3) Filed herewith:
Exhibit
Number Description
21 List of Subsidiaries
27 Financial Data Schedule
- 29 -
<PAGE>
(b) Reports on Form 8-K Filed During the Quarter Ended December
31, 1998:
Date of Report Item Reported Financial Statements Filed
September 16, 1998 Item 2--Factual Yes *
Data Minnesota, Inc.
October 15, 1998 Item 2--Landmark Yes *
Financial Services, Inc.
October 31, 1998 Item 2--ARI of No **
Minnetonka, Inc.
December 16, 1998 Item 2--Mortgage Credit Yes ***
Services, Inc.
- ----------------
* Filed on Form 8-K/A on November 24, 1998.
** Immaterail acquisition, hence no financial statements filed.
***Filed on Form 8-K/A dated February 25, 1999.
- 30 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FACTUAL DATA CORP.
Date: March 25, 1999 By:/s/ Jerald H. Donnan
--------------------------
Jerald H. Donnan, Chairman,
President and Chief Executive
Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
- 31 -
<PAGE>
Signature Title Date
/s/Jerald H. Donnan Chairman of the Board March 25, 1999
Jerald H. Donna of Directors, President
and Chief Executive
Officer (Principal
Executive Officer)
/s/Todd A. Neiberger Chief Financial March 25, 1999
Todd A. Neiberger Officer and a Director
(PrincipalFinancial
and Accounting Officer)
/s/James N. Donnan Vice President and a March 25, 1999
James N. Donnan Director
/s/ Robert J. Terry Director March 25, 1999
Robert J. Terry
/s/ Abdul H. Rajput Director March 25, 1999
Abdul H. Rajput
- 32 -
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
21 Subsidiaries of Registrant
27 Financial Data Schedule
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Percentage Consolidated
State of of in Financial
Name Incorporation Ownership Statements
- ---------------------- ------------- ---------- -------------
Lenders Resources, Inc. Colorado 100% Yes
FDC Group, Inc. Colorado 100% Yes
FDC Acquisition, Inc. Texas 100% Yes
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,093,295
<SECURITIES> 2,212,386
<RECEIVABLES> 2,919,578
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,331,223
<PP&E> 5,044,104
<DEPRECIATION> (2,067,685)
<TOTAL-ASSETS> 18,176,901
<CURRENT-LIABILITIES> 4,545,556
<BONDS> 0
0
0
<COMMON> 8,614,705
<OTHER-SE> 2,221,307
<TOTAL-LIABILITY-AND-EQUITY> 18,176,901
<SALES> 0
<TOTAL-REVENUES> 9,943,546
<CGS> 0
<TOTAL-COSTS> 4,986,064
<OTHER-EXPENSES> 2,603,589
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 152,421
<INCOME-PRETAX> 2,386,734
<INCOME-TAX> 810,000
<INCOME-CONTINUING> 1,576,734
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,576,734
<EPS-PRIMARY> .59
<EPS-DILUTED> .57
</TABLE>
