SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-24205
FACTUAL DATA CORP.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1449911
- -------------------------------------- -----------------------------------
(State or other jurisdiction of (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
(Issuer's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of August 13, 1999.
Class Number of Shares
-------------- -------------------
Common Stock 5,463,897
Transitional Small Business Disclosure Format: [ ] Yes [X] No
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<PAGE>
FACTUAL DATA CORP.
INDEX
PART I. Financial Information Page No.
----------
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999
(Unaudited) and December 31, 1998 3
Unaudited Consolidated Statements of
Income -- For the Three Months Ended
June 30, 1999 and June 30, 1998 and For the
Six Months Ended June 30, 1999 and June 30, 1998 4
Unaudited Consolidated Statements of Cash
Flows -- For the Six Months Ended June 30,
1999 and June 30, 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
PART II. Other Information
Item 2. Changes in Securities and Use of Proceeds 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Index to Exhibits 14
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<PAGE>
FACTUAL DATA CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ............................ $ 7,293,843 $ 1,093,295
Short-term investments ............................... -- 2,212,386
Prepaid expenses and other ........................... 634,862 105,964
Accounts receivable, net ............................. 4,296,692 2,919,578
----------- -----------
Total current assets ............................... 12,225,397 6,331,223
Property and equipment, net ........................... 4,613,362 2,976,419
Intangibles and other assets .......................... 19,925,863 8,869,259
----------- -----------
$36,764,622 $18,176,901
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt .................... $ 2,596,673 $ 1,304,953
Accounts payable ..................................... 3,256,561 2,225,685
Accrued payroll and expenses ......................... 621,197 431,441
Income taxes payable ................................. -- 524,186
Deferred income taxes ................................ 59,291 59,291
----------- -----------
Total current liabilities .......................... 6,533,722 4,545,556
Long-term debt ........................................ 4,157,288 2,492,571
Deferred income taxes ................................. 320,418 302,762
Shareholders' equity
Preferred stock, 1,000,000 shares authorized;
none issued and outstanding ....................... -- --
Common stock, 10,000,000 shares authorized;
5,334,083 at June 30, 1999; 3,551,346 at
December 31, 1998 issued and outstanding ............ 22,600,129 8,614,705
Retained earnings ................................. 3,153,065 2,221,307
----------- -----------
Total shareholders' equity ...................... 25,753,194 10,836,012
----------- -----------
$36,764,622 $18,176,901
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
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<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Information services ......... $ 6,026,287 $ 475,858 $ 10,417,585 $ 1,044,054
Ancillary income ............. 529,482 354,742 1,007,196 784,063
System affiliates ............ 440,279 556,316 924,148 1,142,870
Training, license and other .. -- -- -- 1,005
------------ ------------ ------------ ------------
Total revenue ............. 6,996,048 1,386,916 12,348,929 2,971,992
------------ ------------ ------------ ------------
Operating Expenses
Costs of services provided .. 4,478,844 499,771 7,678,506 984,227
Selling, general and
administrative ............. 1,843,600 456,048 3,137,006 810,991
------------ ------------ ------------ ------------
Total operating expenses .. 6,322,444 955,819 10,815,512 1,795,218
------------ ------------ ------------ ------------
Income from operations ........ 673,604 431,097 1,533,417 1,176,774
Other income (expense)
Other income ................. 164,307 48,240 224,104 58,476
Interest expense ............. (137,377) (25,104) (223,230) (44,073)
------------ ------------ ------------ ------------
Total other income ........ 26,930 23,136 874 14,403
------------ ------------ ------------ ------------
Income before income taxes .... 700,534 454,233 1,534,291 1,191,177
Income tax expense ............ 277,310 168,066 602,533 440,735
------------ ------------ ------------ ------------
Net income and comprehensive
income ....................... $ 423,224 $ 286,167 $ 931,758 $ 750,442
============ ============ ============ ============
Basic earnings per share ...... $ .08 $ .12 $ .21 $ .35
============ ============ ============ ============
Weighted average basic shares
outstanding .................. 5,328,908 2,460,000 4,441,971 2,130,000
============ ============ ============ ============
Diluted earnings per share .... $ .07 $ .09 $ .19 $ .30
============ ============ ============ ============
Weighted average diluted shares
outstanding .................. 5,813,198 3,127,500 4,790,637 2,463,750
============ ============ ============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated statements.
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<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
June 30
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income ..................................... $ 931,758 $ 750,442
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ................. 1,080,813 236,810
Deferred income taxes ......................... 17,656 56,861
Changes in operating assets and liabilities
Accounts receivable .......................... (1,377,114) (649,048)
Prepaid expenses ............................. (528,898) (85,016)
Other assets ................................. (125,600) 17,710
Accounts payable ............................. 472,876 703,346
Accrued payroll, payroll taxes and expenses .. 189,756 (35,961)
Accrued taxes and other ...................... (524,186) 350,939
------------ ------------
(794,697) 595,641
------------ ------------
Net cash provided by operating activities . 137,061 1,346,083
------------ ------------
Cash flow from investing activities
Purchase of property and equipment ............. (1,499,818) (547,998)
Increase in note receivable .................... -- (11,456)
Net cash used in the acquisition of businesses . (7,522,780) --
Sales of short-term investments ................ 2,212,386 --
Investment in short-term securities ............ -- (3,510,847)
------------ ------------
Net cash used in investing activities ..... (6,810,212) (4,070,301)
------------ ------------
Cash flows from financing activities
Principal payments on long-term debt ........... (1,111,725) (791,426)
Net proceeds in common stock - IPO ............. -- 6,479,041
Net proceeds in private placement offering
(net of offering expenses paid of $1,514,576) . 13,985,424 --
------------ ------------
Net cash provided by financing activities . 12,873,699 5,687,615
------------ ------------
Net increase in cash and cash equivalents ....... 6,200,548 2,963,397
Cash and cash equivalents, at beginning of period 1,093,295 396,752
------------ ------------
Cash and cash equivalents, at end of period ..... $ 7,293,843 $ 3,360,149
============ ============
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the six months ended June 30, 1999 and 1998
was $223,230 and, $44,073 respectively.
Cash paid for income taxes for the six months ended June 30, 1999 and 1998
was $1,323,636 and $109,718 respectively.
Supplemental disclosure of non-cash investing and financing activities:
During the six months ended June 30, 1999 and 1998, the Company financed
fixed asset purchases totaling $335,356 and $192,604, respectively, with
notes payable and capital leases.
During the six months ended June 30, 1999, the Company acquired thirteen
companies for $7,522,780 cash and notes payable and other liabilities of
$4,107,778. (See Note 2)
During the six months ended June 30, 1999, the Company assumed other
liabilities with prior acquisitions totaling $183,028.
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated statements.
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<PAGE>
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
The consolidated financial statements are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto contained in the Company's Annual Report
on Form 10-KSB filed with the Securities and Exchange Commission March 31, 1999,
which includes audited financial statements for the years ended December 31,
1998 and 1997. The results of operations for the six months ended June 30, 1999,
may not be indicative of the results of operations for the year ended December
31, 1999.
The Company's diluted earnings per share takes into account warrants
issued in the Company's IPO, the private equity offering and other outstanding
stock options.
Note 2: Business Acquisitions
The Company consummated thirteen acquisitions in the first six months of
1999. The acquisitions have been accounted for using the purchase method and the
results of operations are reflected in the consolidated financial statements
from the dates of acquisitions.
The assets were allocated as follows:
Consideration Purchase Price Allocation
- ------------------------------ -------------------------------
Notes payable $3,549,778 Property and equipment $310,450
Holdback payable 558,000 Other assets 27,374
----------- Intangibles 11,292,734
Subtotal non-cash -----------
portion 4,107,778
Total $11,630,558
Cash payments 7,014,516 ===========
Acquisition costs 508,264
-----------
Subtotal cash
portion 7,522,780
-----------
Total
consideration $11,630,558
===========
The amortization periods for the intangibles, which are customer lists and
non-compete agreements, are fifteen years and two to five years, respectively.
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<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This filing contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 and the Company intends that such
forward-looking statements be subject to the safe harbors created thereby. These
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to services offered
by and future economic performance of the Company.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties that might
adversely affect the Company's operating results in the future in a material
way. Such risks and uncertainties include, but are not limited to; changes in
interest rates, the effectiveness of the Company's marketing campaign, the
response of the mortgage industry, continued market demand for the Company's
services, the effects of seasonality in the housing market, competition,
contingencies associated with year 2000 compliance, the success of the Company's
consolidation plan, and its ability to manage growth.
Overview
The Company provides a broad range of credit, employment and other
information services to mortgage lenders, consumer lenders, employers,
landlords, and other businesses. The Company specializes in preparing mortgage
credit reports that are customized to meet each lender's individual needs.
The Company provides its services through two different methods. The
first involves services sold directly by the Company to third party customers
such as mortgage lenders, financial institutions, private enterprises, and
individuals (referred to as "information services"). Secondly, the Company sells
its services through franchisees and licensees ("System Affiliates"). The
Company markets its services nationally through 45 combined locations, including
Company operated offices, franchisees and licensees. The System Affiliates
provide information services to customers using the Company's technology and pay
royalty, license and other fees to the Company. This area will continue to
decline as the Company acquires System Affiliates.
Movement in interest rates back to higher levels, slowed the mortgage
industry from its pace a year ago. In the second quarter 1999, the percent of
refinances as a portion of total loan applications was down 11% as compared to
the second quarter 1998, according to a weekly survey from the Mortgage Bankers
Association. Momentum from the Company's industry consolidation strategy
combined with increased report volume from the employment and tenant screening
services resulted in higher revenues for the second quarter 1999 and the six
months ended June 30, 1999.
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<PAGE>
Results of Operations
The following table sets forth for the periods indicated, as a percentage
of total revenue, those items included in the Company's Unaudited Consolidated
Statements of Income:
For the Three Months For the Six
Ended Months Ended
June 30 June 30
---------------------- ------------------
1999 1998 1999 1998
------- ------- ----- -----
Revenue
Information services 86.1 % 34.3 % 84.3 % 35.1 %
Ancillary income 7.6 % 25.6 % 8.2 % 26.4 %
System affiliates 6.3 % 40.1 % 7.5 % 38.5 %
Training, license
and other 0.0 % 0.0 % 0.0 % 0.0 %
------- -------- -------- -------
Total revenue 100.0 % 100.0 % 100.0 % 100.0%
------- -------- -------- -------
Operating expenses
Costs of services
provided 64.0 % 36.0 % 62.2 % 33.1 %
Selling, general and
administrative 26.4 % 32.9 % 25.4 % 27.3 %
------- -------- -------- -------
Total operating
expenses 90.4 % 68.9 % 87.6 % 60.4 %
------- -------- -------- -------
Income from operations 9.6 % 31.1 % 12.4 % 39.6 %
Other income 2.3 % 3.5 % 1.8 % 2.0 %
Interest expense (1.9)% (1.8)% (1.8)% (1.5)%
------- -------- -------- -------
Income before income
taxes 10.0 % 32.8 % 12.4 % 40.1 %
Income tax expense (4.0)% (12.1)% (4.9)% (14.8)%
------- -------- -------- -------
Net income and
comprehensive income 6.0 % 20.7 % 7.5 % 25.3 %
======= ======== ======= =======
Comparison of three months ended June 30, 1999 and June 30, 1998
Company information services revenue increased $5.55 million, or 1,166%
from $476,000 in the second quarter 1998 to $6.03 million in the second quarter
1999. The increase was primarily a result of the twenty-one acquisitions
completed by the Company from August 1, 1998 through June 30, 1999. Eight
acquisitions completed in the second quarter of 1999 contributed $1.63 million
to information services revenue. The Company continues to see growth in the
employment and tenant services. Combined employment and tenant revenue increased
with two small employment screening acquisitions from $149,000 in the second
quarter 1998 to $567,000 or 281%, in the second quarter 1999. The Company
delivered 88,000 combined EMPFacts and Tenant Qualifier reports for the second
quarter 1999 as compared to 24,000 combined reports for the second quarter 1998.
Ancillary income represents fees paid by system affiliates for various
additional products and services provided by the Company. Ancillary income
increased $174,000 or 49%, from $355,000 in 1998 to $529,000 in 1999. The
increase is primarily a result of the Company providing additional information
and credit services to its system affiliates.
System affiliates revenue decreased $116,000 or 21%, from $556,000 in the
second quarter 1998 to $440,000 in the second quarter 1999. This decrease is due
to the acquisition of two system affiliates as part of the consolidation plan.
Costs of services increased $3.98 million or 796%, from $500,000 in the
second quarter 1998 to $4.48 million in the second quarter 1999. The increase in
cost of services is directly related to increased volume from the Company's
acquisitions which resulted in an overall decrease in operating margins from 64%
in the second quarter 1998 to 36% in the second quarter 1999. This decrease in
operating margin results from the direct costs of salaries, bureau costs,
telecommunication costs and conversion costs associated with the consolidation
of acquisitions. During the second quarter 1999 eight acquisitions were
completed with $14.5 million in trailing twelve months revenues as compared to
zero acquisitions completed in the second quarter 1998. These direct conversion
costs tied to the eight acquisitions in the second quarter of 1999, tend to
negatively impact the Company's operating margin during the conversion process.
Selling, general and administrative expenses increased $1.38 million, or
303%, from $456,000 in the second quarter 1998 to $1.84 million in the second
quarter 1999. This increase is related to costs associated with the Company's
acquisitions and growth in late 1998 and through the second quarter 1999. As a
percentage of sales, selling, general and administrative costs decreased from
32.9% for the second quarter 1998 to 26.4% for the second quarter 1999.
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<PAGE>
Total operating costs increased $5.36 million, or 561%, from $956,000 in
the second quarter 1998 to $6.32 million in the second quarter 1999. This large
increase is due to the consolidation of the company's acquisitions. Income from
operations increased $243,000 or 56%, from $431,000 in the second quarter 1998
to $674,000 in the second quarter 1999.
Interest expense increased $112,000, or 448% from $25,000 in the second
quarter 1998 to $137,000 in the second quarter 1999. This increase is due to
additional notes payable issued in connection with the Company's acquisitions.
Income taxes increased $109,000, or 65%, from $168,000 in the second
quarter 1998 to $277,000 in the second quarter 1999. The Company's effective tax
rate is approximately 37% for the second quarter 1998 compared to 39% for the
second quarter 1999.
As a result of the foregoing factors, net income increased $137,000, or
48%, from $286,000 in the second quarter 1998 to $423,000 in the second quarter
1999.
For the second quarter 1998 the Company had 3,127,500 diluted weighted
average shares outstanding as compared to 5,813,198 diluted weighted average
shares outstanding for the second quarter 1999.
Diluted earnings per share decreased by $0.02 per share, or 22%, from
$0.09 per share for the second quarter of 1998 to $0.07 per share for the second
quarter 1999. This decrease was primarily due to an 86% increase in weighted
average number of diluted shares outstanding from second quarter 1998 to second
quarter 1999. Earnings before interest, taxes, depreciation and amortization
(EBITDA) for the second quarter 1999, were $1.49 million as compared to $607,000
for the second quarter 1998.
Comparison of six months ended June 30, 1999 and June 30, 1998
Company information services revenue increased $9.36 million, or 898% from
$1.04 million for the six months ended June 30, 1998 to $10.4 million for the
six months ended June 30, 1999. The increase was primarily a result of the
twenty-one acquisitions completed by the Company through June 30, 1999. The
thirteen acquisitions completed for the six months ended June 30, 1999
contributed $2.14 million to information service revenue. For the six months
ended June 30, 1999 revenue from EMPFacts and Tenant Qualifier services
increased 275% to $964,000 from $257,000 for the six months ended June 30, 1998.
This increase includes same store sales growth and revenue from two small
employment screening acquisitions.
Ancillary income represents fees paid by system affiliates for various
additional products and services provided to them. Ancillary income increased by
$226,000, from $784,000 for the six months ended June 30, 1998 to $1.01 million
for the six months ended June 30, 1999. The increase is primarily a result of
the Company providing additional services to its system affiliates.
System affiliates revenues decreased $216,000 or 19%, from $1.14 million
for the six months ended June 30, 1998 to $924,000 for the six months ended June
30, 1999. This decrease is due to the acquisition of eight system affiliates as
part of the consolidation plan.
Costs of services increased $6.70 million or 681%, from $984,000 for the
six months ended June 30, 1998 to $7.68 million for the six months ended June
30, 1999. The increase in cost of services is directly related to the Company's
acquisitions which resulted in an overall decrease in operating margins from 67%
for the six months ended June 30, 1998 to 38% for the six months ended June 30,
1999. This decrease in operating margin results from the direct costs of
salaries, bureau costs and telecommunication costs incurred in connection with
the consolidation of acquisitions. For the six months ended June 30, 1999
thirteen acquisitions were completed with $16.6 million in trailing twelve
months revenues as compared to zero acquisitions completed for the six months
ended June 30, 1998. For the six months ended June 30, 1999 salary expense was
increased by 15% due to four large acquisitions completed during the second
quarter of 1999. These direct operational costs tend to negatively impact the
Company's operating margin during the conversion process.
Selling, general and administrative expenses increased $2.33 million, or
287%, from $811,000 for the six months ended June 30, 1998 to $3.14 million for
the six months ended June 30, 1999. This increase is related to costs associated
with the Company's growth in 1998 and 1999. As a percentage of sales, selling,
general and administrative costs decreased slightly from 27.3% for the six
months ended June 30, 1998 to 25.4% for the six months ended June 30, 1999.
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Total operating costs increased $9.0 million, or 500%, from $1.8 million
for the six months ended June 30, 1998 to $10.8 million for the six months ended
June 30, 1999. Operating income increased $350,000 or 30%, from $1.18 million
for the six months ended June 30, 1998 to $1.53 million for the six months ended
June 30, 1999.
Interest expense increased $179,000, or 407% from $44,000 for the six
months ended June 30, 1998 to $223,000 for the six months ended June 30, 1999.
The increase is due to additional notes payable issued in connection with the
Company's acquisitions.
Income taxes increased $162,000, or 37%, from $441,000 for the six months
ended June 30, 1998 to $603,000 for the six months ended June 30, 1999. The
Company's effective tax rate is approximately 37% for the six months ended June
30, 1998 compared to 39% for the six months ended June 30, 1999.
As a result of the foregoing factors, net income increased $182,000, or
24%, from $750,000 for the six months ended June 30, 1998 to $932,000 for the
six months ended June 30, 1999.
For the six months ended June 30, 1998 the Company had 2,463,750 diluted
weighted average shares outstanding as compared to 4,790,637 diluted weighted
average shares outstanding for the six months ended June 30, 1999. As a result
of the private placement completed in March and April 1999, there were an
additional 1,912,451 shares outstanding for the six months ended June 30, 1999.
Diluted earnings per share decreased by $0.11 per share, or 37%, from
$0.30 per share for the six months ended June 30, 1998 to $0.19 per share for
the six months ended June 30, 1999. This earnings per share comparison takes
into effect a 94% increase in weighted average number of diluted shares
outstanding, from 2,463,750 for the six months ended June 30, 1998 to 4,790,637
for the six months ended June 30, 1999. Earnings before interest, taxes,
depreciation and amortization (EBITDA) for the six months ended June 30, 1999,
were $2.85 million as compared to $1.47 million for the six months ended June
30, 1998.
As discussed above, the Company incurs certain operational inefficiencies
and duplication of certain costs for approximately 60 to 180 days after making
an acquisition, the effect of which will reduce earnings per share while the
acquisition is being converted into the Company's operational systems.
Liquidity and Capital Resources
The Company continues to meet its capital requirements through cash flows
provided by operations, the sale of short-term investments and the proceeds from
the private placement in March and April 1999. The total cash and cash
equivalents increased $6.2 million for the six months ended June 30, 1999.
For the six months ended June 30, 1999 net cash provided by operating
activities was $137,000. Net cash used in investing activities was $6.8 million
and net cash provided by financing activities was $12.9 million. The purchase of
property and equipment accounted for $1.5 million and cash used for acquisitions
was $7.5 million. Cash used for the repayment of long-term debt amounted to $1.1
million. The private placement raised $15.5 million in gross proceeds of which
net proceeds to the Company were $13.9 million.
Management believes that its anticipated cash requirements for the
immediate future will be met from internally generated funds and the proceeds
from the private placement with the institutional investors. The Company will
continue to invest in short-term securities with maturities being met to
continue the use of these proceeds for the consolidation plan. This funding will
not complete the consolidation plan and, therefore, the Company will be required
to obtain additional public, private or debt financing or a combination of the
foregoing to complete the plan.
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<PAGE>
Year 2000 Compliance
The Company utilizes a significant number of computer systems across its
entire organization. The Company therefore must assess those systems for 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. The Company has completed testing for Year 2000
compliance with key information vendors and customers in an industry-wide effort
sponsored by Freddie Mac, and is continuing to offer testing with customers
throughout 1999.
Costs for Year 2000 compliance include administration of the 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
and $30,000 was incurred through June 30, 1999. 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.
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 the fourth quarter 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 have been developed, and are being tested through September of 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 July of 1999.
Internal compliance testing has been completed successfully, and the
Company has participated in external testing with clients and vendors, both on
an individual basis and as part of the Mortgage Bankers Association Year 2000
Readiness test, in order to ensure client and vendor readiness for the Year
2000. Customer testing will continue throughout 1999.
- 11 -
<PAGE>
II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
In the second quarter of 1999, the Company used substantially all of the
remaining portion of the proceeds from its initial public offering (Registration
Statement No. 333-47051), about $2.2 million, in connection with its acquisition
program. In March and April of 1999, the Company completed a private placement
of 1,912,451 shares of its common stock and raised $15.5 million gross, about
$13.9 million net, to be used in its continuing acquisition program. The
placement was made to six accredited investors within the definition set forth
in Rule 501(a) adopted under the Securities Act of 1933 in reliance on Section
4(2) of that Act and Rule 506 adopted thereunder. U.S. Bancorp, Piper Jaffray
acted as the selling agent in the placement.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - The following exhibits are filed herewith:
No. Description
---- -----------------------
27 Financial Data Schedule
b. Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter ended
June 30, 1999
Filing Date Items
-------------------- ------------------------------------------------
April 12, 1999 Item 2, reporting the acquisition of the assets
of Imfax, Inc.
April 12, 1999 Item 2, reporting the acquisition of the assets
of United Data Services, Inc.
May 13, 1999 Item 7, financial statements re: United Data
Services, Inc.
May 18, 1999 Item 2, reporting the acquisition of the assets
of F.D.D., Inc. and F.D.S.C., Inc.
- 12 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1999
FACTUAL DATA CORP.
(Registrant)
/s/ J. H. Donnan
-----------------
J. H. Donnan
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Todd A. Neiberger
Todd A. Neiberger
Chief Financial Officer
(Principal Financial and Accounting Officer)
- 13 -
<PAGE>
INDEX TO EXHIBITS
27 Financial Data Schedule
- 14 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,293,843
<SECURITIES> 0
<RECEIVABLES> 4,296,692
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,225,397
<PP&E> 4,613,362
<DEPRECIATION> 0
<TOTAL-ASSETS> 36,764,622
<CURRENT-LIABILITIES> 6,533,722
<BONDS> 0
0
0
<COMMON> 22,600,129
<OTHER-SE> 3,153,065
<TOTAL-LIABILITY-AND-EQUITY> 36,764,622
<SALES> 0
<TOTAL-REVENUES> 12,348,929
<CGS> 0
<TOTAL-COSTS> 7,678,506
<OTHER-EXPENSES> 3,137,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 223,230
<INCOME-PRETAX> 1,534,291
<INCOME-TAX> 602,533
<INCOME-CONTINUING> 931,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 931,758
<EPS-BASIC> .21
<EPS-DILUTED> .19
</TABLE>
