SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 November 12, 1999.
Class Number of Shares
Common Stock 5,380,203
Transitional Small Business Disclosure Format: [ ] Yes [X] No
<PAGE>
FACTUAL DATA CORP.
INDEX
PART I. Financial Information Page No.
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1999
(Unaudited) and December 31, 1998 3
Unaudited Consolidated Statements of Income -- For the
Three Months Ended September 30, 1999 and
September 30, 1998 and For the Nine Months Ended
September 30, 1999 and September 30, 1998 4
Unaudited Consolidated Statements of Cash Flows -- For
the Nine Months Ended September 30, 1999 and
September 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
<PAGE>
FACTUAL DATA CORP.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30,
1999 December 31,
(Unaudited) 1998
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents ............................ $ 1,270,503 $ 1,093,295
Short-term investments ............................... -- 2,212,386
Prepaid expenses and other ........................... 628,920 105,964
Accounts receivable, net ............................. 4,654,044 2,919,578
----------- -----------
Total current assets ............................... 6,553,467 6,331,223
Property and equipment, net .............................. 5,257,279 2,976,419
Intangibles and other assets ............................. 27,404,213 8,869,259
----------- -----------
$39,214,959 $18,176,901
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt .................... $ 3,376,620 $ 1,304,953
Accounts payable ..................................... 2,680,501 2,225,685
Accrued payroll and expenses ......................... 668,649 431,441
Income taxes payable ................................. -- 524,186
Deferred income taxes ................................ 59,291 59,291
----------- -----------
Total current liabilities .......................... 6,785,061 4,545,556
Long-term debt ........................................... 6,017,324 2,492,571
Deferred income taxes .................................... 350,251 302,762
Shareholders' equity
Preferred stock, 1,000,000 shares authorized;
none issued and outstanding .......................... -- --
Common stock, 10,000,000 shares authorized;
5,380,203 at September 30, 1999; 3,551,346
at December 31, 1998 issued and outstanding ............ 22,596,488 8,614,705
Retained earnings .................................... 3,465,835 2,221,307
----------- -----------
Total shareholders' equity ......................... 26,062,323 10,836,012
----------- -----------
$39,214,959 $18,176,901
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these consolidated statements.
- 3 -
<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C
Revenue
Information services .......... $ 5,738,915 $ 1,756,516 $ 16,156,499 $ 2,800,570
Ancillary income .............. 764,019 341,260 1,771,214 1,125,323
System affiliates ............. 387,284 558,519 1,311,432 1,701,389
Training, license and other ... -- -- -- 1,005
------------ ------------ ------------ ------------
Total revenue ............... 6,890,218 2,656,295 19,239,145 5,628,287
------------ ------------ ------------ ------------
Operating Expenses
Costs of services provided .... 4,016,853 1,388,484 11,496,315 2,206,678
Selling, general and
administrative ............... 1,525,189 393,317 3,780,426 1,133,531
Depreciation and amortization . 782,184 196,474 1,862,997 433,284
------------ ------------ ------------ ------------
Total operating expenses .... 6,324,226 1,978,275 17,139,738 3,773,493
------------ ------------ ------------ ------------
Income from operations ............ 565,992 678,020 2,099,407 1,854,794
Other income (expense)
Other income .................. 127,090 106,992 351,193 165,468
Interest expense .............. (160,446) (15,172) (383,676) (59,245)
------------ ------------ ------------ ------------
Total other income .......... (33,356) 91,820 (32,483) 106,223
------------ ------------ ------------ ------------
Income before income taxes ........ 532,636 769,840 2,066,924 1,961,017
Income tax expense ................ 219,860 284,841 822,393 725,576
------------ ------------ ------------ ------------
Net income and comprehensive income $ 312,776 $ 484,999 $ 1,244,531 $ 1,235,441
============ ============ ============ ============
Basic earnings per share .......... $ .06 $ .15 $ .26 $ .50
============ ============ ============ ============
Weighted average basic shares
outstanding ....................... 5,380,103 3,193,487 4,788,696 2,484,496
============ ============ ============ ============
Diluted earnings per share ........ $ .05 $ .14 $ .24 $ .49
============ ============ ============ ============
Weighted average diluted shares
outstanding ....................... 5,721,856 3,351,791 5,134,859 2,515,749
============ ============ ============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements are an
integral part of these consolidated statements.
- 4 -
<PAGE>
FACTUAL DATA CORP.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net income .................................... $ 1,244,531 $ 1,235,441
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ............... 1,862,997 433,284
Deferred income taxes ....................... 47,489 58,525
Changes in operating assets and liabilities
Accounts receivable ........................ (1,634,548)
Prepaid expenses ........................... (522,956) (113,757)
Other assets ............................... (169,649) 8,817
Accounts payable ........................... (123,168) 1,653,277
Accrued payroll, payroll taxes and
expenses .................................. 237,208 91,602
Accrued taxes and other ................... (524,186) 634,116
------------ ------------
(826,813) 890,364
------------ ------------
Net cash provided by operating activities 417,718 2,125,805
------------ ------------
Cash flow from investing activities
Purchase of property and equipment ............ (2,050,203)
Increase in note receivable ................... -- 33,544
Net cash used in the acquisition of businesses (12,336,254) (1,413,496)
Sales of short-term investments ............... 2,212,386 --
Investment in short-term securities ........... -- (2,044,254)
------------ ------------
Net cash used in investing activities .... (12,174,071) (4,159,087)
------------ ------------
Cash flows from financing activities
Principal payments on long-term debt .......... (2,048,222) (881,476)
Issuance of common stock-IPO, net ............. -- 6,363,935
Deferred acquisition costs .................... -- (38,635)
Net proceeds in private placement offering
(net of offering expenses paid of $1,518,217) . 13,981,783 --
------------ ------------
Net cash provided by financing activities 11,933,561 5,443,824
------------ ------------
Net increase in cash and cash equivalents ......... 177,208 3,410,542
Cash and cash equivalents, at beginning of period . 1,093,295 396,752
============ ============
Cash and cash equivalents, at end of period ....... $ 1,270,503 $ 3,807,294
============ ============
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the nine months ended September 30, 1999 and
1998 was $383,676 and, $59,245 respectively.
Cash paid for income taxes for the nine months ended September 30,
1999 and 1998 was $1,559,390 and $132,428 respectively.
Supplemental disclosure of non-cash investing and financing activities:
During the nine months ended September 30, 1999 and 1998, the Company
financed fixed asset purchases totaling $446,901 and $192,604,
respectively, with notes payable and capital leases.
During the nine months ended September 30, 1999, the Company acquired
eighteen companies for $12,336,254 cash and notes payable and other
liabilities of $7,565,262. (See Note 2)
During the nine months ended September 30, 1999, the Company assumed other
liabilities with prior acquisitions totaling $210,463.
The accompanying notes to unaudited consolidated financial
statements are an integral part of these consolidated statements
- 5 -.
<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 on March 31,
1999, which includes audited financial statements for the years ended
December 31, 1998 and 1997. The results of operations for the nine months ended
September 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 eighteen acquisitions in the first nine 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 purchase price allocation and consideration
paid were as follows:
Consideration Purchase Price Allocation
- ------------------------------ -------------------------------
Notes payable $6,987,278 Accounts receivable $99,918
Holdback payable 577,984 Property and equipment 603,375
-----------
Subtotal Other assets 36,820
non-cash portion 7,565,262
Cash payments 11,631,951 Intangibles 19,161,403
-----------
Acquisition costs 704,303
-----------
Subtotal cash 12,336,254 Total $ 19,901,516
portion ===========
Total
consideration $ 19,901,516
===========
The amortization periods for the intangibles, which are customer lists
and non-compete agreements, are fifteen years and two to five years,
respectively.
- 6 -
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
This filing contains certain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and the Company intends that such forward-looking
statements be subject to the safe harbors created thereby. These forward-looking
statements include the plans and objectives of management for future operations,
including plans and objectives relating to services offered by and future
economic performance of the Company.
The forward-looking statements included herein are based on current
expectations that involve a number of risks and uncertainties that might
adversely affect the Company's operating results in the future in a material
way. Such risks and uncertainties include, but are not limited to; 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 segment will continue to
decline as the Company acquires System Affiliates.
During the third quarter of 1999, the Company completed enhancements to its
overall infrastructure to support increased report volume, explore new marketing
areas and establish regional processing centers. Increased revenues, despite an
estimated 20 % decrease in mortgage originations, as reported by Mortgage
Bankers Association forecasts for the third quarter of 1998 and 1999, increased
conversion costs from acquisitions and increased depreciation and amortization
affected the Company's third quarter earnings.
The Company's business plan called for significant growth through
acquisitions of other companies. During the past eighteen months, the Company
has expended a significant amount of money to develop its infrastructure to
support this growth. During the same period of time the Company has acquired 26
companies and anticipates growing in the future through more acquisitions.
The Company believes the bulk of its infrastructure is complete and will
be able to acquire additional companies without significant costs to its
infrastructure.
<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 Nine
Ended Months Ended
September 30 September 30
---------------------- ------------------
1999 1998 1999 1998
------- ------- ------- -------
Revenue
Information services 83.3 % 66.1 % 84.0 % 49.8 %
Ancillary income 11.1 12.8 9.2 20.0
System affiliates 5.6 21.1 6.8 30.2
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 58.3 52.3 59.8 39.2
Selling, general
and administrative 22.1 14.8 19.6 20.1
Depreciation and
amortization 11.4 7.4 9.7 7.7
------- ------- ------- -------
Total operating
expenses 91.8 74.5 89.1 67.0
------- ------- ------- -------
Income from operations 8.2 25.5 10.9 33.0
Other income 1.8 4.0 1.8 2.9
Interest expense (2.3) (0.5) (2.0) (1.0)
------- ------- ----- -----
Income before income
taxes 7.7 29.0 10.7 34.9
------- ------- ------- -------
Income tax expense (3.2) (10.7) (4.3) (12.9)
------- ------- ------- -------
Net income and
comprehensive income 4.5 % 18.3 % 6.4 % 22.0%
======= ======= ======= =======
Comparison of three months ended September 30, 1999 and September 30,
1998
Company information services revenue increased $3.98 million, or 226% from
$1.76 million in the third quarter 1998 to $5.74 million in the third quarter
1999, despite increased mortgage interest rates. The increase was primarily a
result of the twenty-six acquisitions completed by the Company from August 1,
1998 through September 30, 1999. Two acquisitions completed in August of 1999
and three acquisitions completed in September of 1999 contributed $652,000 to
information services revenue. New national accounts and a direct connection to
Fannie Mae's MORNET Plus automated underwriting system also contributed to
information services revenue in the third quarter 1999. Revenue from the
Company's emerging EMPFacts employment screening and Tenant Qualifier services
contributed $602,000 or a 47% increase, in the third quarter 1999 compared to
$409,000 in the third quarter 1998.
Ancillary income represents fees paid by System Affiliates for various
additional products and services provided by the Company. Ancillary income
increased $423,000 or 124%, from $341,000 in 1998 to $764,000 in 1999. Included
in this increase is a one time fee of $330,000 charged to the System Affiliates
for access to Fannie Mae. The fee charged was designed to recoup a portion of
the costs incurred by the Company for development of the Fannie Mae interface.
Other factors contributing to the increase in ancillary income include
additional information and credit services sold to the System Affiliates.
System Affiliates' revenue decreased $172,000 or 31%, from $559,000 in the
third quarter 1998 to $387,000 in the third quarter 1999. The acquisitions of
nine System Affiliates, resulting in reduced royalties, and increasing interest
rates contributed to the decrease.
Costs of services increased $2.63 million, or 189%, from $1.39 million in
the third quarter 1998 to $4.02 million in the third quarter 1999. Additions to
the programming staff for system enhancements, new service development and
custom client interfaces contributed to the increase in cost of services. The
added staff provides needed resources for national account development and the
connection to Fannie Mae while increasing the Company's ability to integrate new
services from acquisitions. Longer acquisition conversion periods of 90 to 150
days were realized in the third quarter 1999 compared to the estimated
conversion periods of 30 to 90 days in the third quarter 1998, and thereby
contributed to an increase in cost of services. In the third quarter 1998 the
Company incurred conversion costs from five acquisitions as compared to the
third quarter 1999, where the Company incurred conversion costs from five
acquisitions completed in the third quarter and ten acquisitions completed in
the second quarter 1999.
Selling, general and administrative expenses increased $1.14 million, or
290%, from $393,000 in the third quarter 1998 to $1.53 million in the third
quarter 1999. This increase is related to costs associated with the development
of the Company's fifteen regional processing centers, enhancements to the
corporate infrastructure and the addition of a back-up technology center in
Denver Colorado. By combining the resources of the regional processing centers,
the niche marketing representatives and support staff enhancements with the new
technology center in Denver, the Company believes it is poised to market,
process and service up to six times its current volume of reports.
Depreciation and amortization for the three months ended September 30,
1999 was $782,000 compared to $196,000 for the third quarter of 1998. This
$586,000 increase, or 299 %, is primarily due to the amortization of intangible
assets from acquisitions.
Interest expense increased $145,000, or 967% from $15,000 in the third
quarter 1998 to $160,000 in the third quarter 1999. This increase is due to
additional notes payable issued in connection with the Company's acquisitions.
Income taxes decreased $65,000, or 23%, from $285,000 in the third quarter
1998 to $220,000 in the third quarter 1999. The Company's effective tax rate is
approximately 37% for the third quarter 1998 compared to 41% for the third
quarter 1999.
Net income for the three months ended September 30, 1999, was $313,000, or
$0.05 per diluted share, compared to $485,000, or $0.14 per diluted share for
the third quarter of 1998. This earnings per share comparison takes into effect
a 71% increase in weighted average number of diluted shares outstanding, from
3,351,791 for third quarter 1998 to 5,721,856 for the third quarter 1999.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the
third quarter 1999, were $1.48 million as compared to $981,000 for the third
quarter 1998.
Comparison of nine months ended September 30, 1999 and September 30, 1998
Company information services revenue increased $13.4 million, or 479% from
$2.80 million for the nine months ended September 30, 1998, to $16.2 million for
the nine months ended September 30, 1999. The increase was primarily a result of
the twenty-six acquisitions completed by the Company through September 30, 1999.
The addition of national accounts and the Fannie Mae connection, all in the
third quarter, provided little contribution to information services revenue for
the nine months ended September 30, 1999. Contributions from EMPFacts and tenant
qualifier increased 136% to $1.57 million from $666,000 for the nine months
ended September 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
$640,000, from $1.13 million for the nine months ended September 30, 1998, to
$1.77 million for the nine months ended September 30, 1999. A one time fee of
$330,000 charged to the Company's System Affiliates, during the third quarter
1999, for access to Fannie Mae is included in this increase. Additional services
sold to the System Affiliates also contributed to the increase.
System Affiliates revenues decreased $390,000, or 23%, from $1.70 million
for the nine months ended September 30, 1998 to $1.31 million for the nine
months ended September 30, 1999. Reduced royalties as a result of the
acquisition of nine System Affiliates, as part of the consolidation plan,
largely contributed to the decrease.
Costs of services increased $9.29 million, or 420%, from $2.21 million for
the nine months ended September 30, 1998, to $11.5 million for the nine months
ended September 30, 1999. In addition to the enhanced programming staff and
longer conversion periods, the increase in cost of services is directly related
to the salaries, bureau costs and telecommunication costs incurred in connection
with the consolidation of acquisitions. For the nine months ended September 30,
1999, eighteen acquisitions were completed as compared to five acquisitions
completed for the nine months ended September 30, 1998. These direct operational
costs tend to negatively impact the Company's operating margin during the
conversion process.
Selling, general and administrative expenses increased $2.65 million, or
235%, from $1.13 million for the nine months ended September 30, 1998, to $3.78
million for the nine months ended September 30, 1999. This increase is related
to costs associated with building the Company's corporate, regional processing
and technology infrastructures. These costs include the addition of a Chief
Sales Officer and personnel in the accounting, human resources and marketing
departments.
Depreciation and amortization for the nine months ended September 30,
1999, was $1.86 million compared to $433,000 for the same period in 1998. This
increase of $1.43 million, or 330%, reflects the amortization expense for the 26
acquisitions completed through September 30, 1999, in comparison to the five
acquisitions completed through September 30, 1998.
Interest expense increased $325,000, or 551% from $59,000 for the nine
months ended September 30, 1998, to $384,000 for the nine months ended September
30, 1999. The increase is due to additional notes payable issued in connection
with the Company's acquisitions.
Income taxes increased $96,000, or 14%, from $726,000 for the nine months
ended September 30, 1998, to $822,000 for the nine months ended September 30,
1999. The Company's effective tax rate is approximately 37% for the nine months
ended September 30, 1998, compared to 40% for the nine months ended September
30, 1999.
Net income for the nine months ended September 30, 1999, was $1.25
million, or $0.24 per diluted share, compared to $1.24 million, or $0.49 per
diluted share, reported for the same period in 1998. This earning per share
comparison takes into effect an 104% increase in weighted average number of
diluted shares outstanding, from 2,515,749 for the nine months ended September
30, 1998, to 5,134,859 for the same period in 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 nine months ended September 30, 1999. The change in
net income is related to an increase in depreciation and amortization from the
capitalization of intangibles for the purchase of 26 companies since August
1998. Earnings before interest, taxes, depreciation and amortization (EBITDA)
for the nine months ended September 30, 1999, were $4.31 million as compared to
$2.45 million for the nine months ended September 30, 1998.
As discussed above, three key items have a direct effect on the Company's
operating results during the consolidation and roll up period. First is the
investment made in building the Company's corporate and regional infrastructures
to support added clients, additional employees and future acquisitions. Second
is the additional amortization expense for capitalization of intangibles from
the acquisitions. Third is the conversion period of 90 to 150 days, doubling the
time of conversion and thereby increasing costs.
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 $177,000 for the nine months ended September 30, 1999.
For the nine months ended September 30, 1999 net cash provided by
operating activities was $418,000. Net cash used in investing activities was
$12.2 million and net cash provided by financing activities was $11.9 million.
The purchase of property and equipment accounted for $2.05 million and cash used
for acquisitions was $12.3 million. Cash used for the repayment of long-term
debt amounted to $2.05 million. The private placement raised $15.5 million in
gross proceeds of which net proceeds to the Company were $14.0 million.
Management believes that its anticipated cash requirements for the
immediate future will be met from internally generated funds. The Company has
been looking at many sources of equity funding and with current market
conditions have decided to look at debt financing to continue its 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.
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 $45,000 was incurred through September 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 third quarter 1999. Time
extensions are being primarily attributed to the impact of acquisitions and
vendor delays. 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 have been tested.
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.
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.
II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
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 $14.0
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. In the second and third quarters of 1999, the
Company used substantially all of the proceeds from its private placement, about
$12.3 million, in connection with its acquisition program.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - The following exhibits are filed herewith:
No. Description
-------- ------------
27 Financial Data Schedule
b.Reports on Form 8-K
The Company filed the following reports on Form 8-K during the quarter
ended September 30, 1999
Filing Date Items
------------- ---------
July 16, 1999 Item 7, financial statements
re: F.D.D., Inc. and F.D.S.C., Inc.
Sept. 23, 1999 Item 2, reporting the acquisition
of the assets of Credit Bureau
Services, Inc.
Sept. 24, 1999 Item 2, reporting the acquisition
of the assets of Datapower
Information Services
- 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: November 12, 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,270,503
<SECURITIES> 0
<RECEIVABLES> 4,654,044
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,553,467
<PP&E> 5,257,279
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,214,959
<CURRENT-LIABILITIES> 6,785,061
<BONDS> 6,017,324
0
0
<COMMON> 22,596,488
<OTHER-SE> 3,465,835
<TOTAL-LIABILITY-AND-EQUITY> 39,214,959
<SALES> 0
<TOTAL-REVENUES> 19,239,145
<CGS> 0
<TOTAL-COSTS> 17,139,738
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 383,676
<INCOME-PRETAX> 2,066,924
<INCOME-TAX> 822,393
<INCOME-CONTINUING> 1,244,531
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,244,531
<EPS-BASIC> .26
<EPS-DILUTED> .24
</TABLE>
