UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported)
March 31, 1999
FACTUAL DATA CORP.
(Exact name of registrant as specified in its charter)
Colorado 0-24205 84-1449911
(State of incorporation) (Commission File (I.R.S. Employer
Number) Identification No.)
5200 Hahns Peak Drive
Fort Collins, Colorado 80538
(Address of principal executive offices)
(970) 663-5700
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) The registrant is filing the required financial statements in
connection with its acquisition of United Data Services, Inc. on
March 31, 1999, on this amendment to Form 8-K.
(b) The registrant is also filing the required pro forma information in
connection with the acquisition described in Item 7a above on this
amendment to Form 8-K.
<PAGE>
SIGNATURES
Pursuant to 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 hereunto duly authorized.
FACTUAL DATA CORP.
Date: May 10, 1999 By: /s/ Jerald H. Donnan
--------------------------------
Jerald H. Donnan,
Chief Executive Officer
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF
INCOME (LOSS) AND UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
The following unaudited pro forma combined statements of income for the years
ended December 31, 1998 and 1997 and the unaudited pro forma combined balance
sheet as of December 31, 1998 give effect to the business combination of Factual
Data Corp. and United Data Services, Inc. The transaction between Factual Data
Corp., and United Data Services, Inc. has been accounted for as a combination of
companies under the purchase method. The unaudited pro forma statements of
income have been prepared as if the proposed transaction occurred on January 1,
1997. The unaudited pro forma balance sheet has been prepared as if the proposed
transaction occurred December 31, 1998. These pro forma statements are not
necessarily indicative of the results of operations or the financial position as
they may be in the future or as they might have been had the transactions become
effective on the above mentioned date.
The unaudited pro forma combined statements of income for the year ended
December 31, 1998 and the 1997 includes the results of operations of Factual
Data Corp., and United Data Services, Inc.
The unaudited pro forma combined statements of income and the unaudited pro
forma combined balance sheet should be read in conjunction with the separate
historical financial statements and notes thereto of Factual Data Corp. and
United Data Services, Inc.
<PAGE>
Notes to Unaudited Pro Forma Combined Financial Statements
The following notes and adjustments are related to the business
combination between Factual Data Corp. (FDC), and United Data
Services, Inc. (UDS).
1. Reflects the Consolidated balances of FDC as reported in Form 10-KSB as of
December 31, 1998 and for the years ended December 31, 1998 and 1997,
respectively.
2. Eliminates assets and liabilities not acquired by FDC in connection with
its acquisition of UDS.
3. Records the acquisition of UDS for $4,500,000. To finance the acquisition,
FDC paid $3,400,000 in cash at closing and issued a $1,100,000 note
payable bearing interest at 8% per annum. The purchase price has been
allocated as follows:
Asset Category
Valuation
Property and equipment $ 14,000
Deposits 9,109
Non-compete agreement 25,000
Customer lists 4,451,891
----------
$4,500,000
==========
4. To eliminate interest and depreciation and amortization expense which will
not continue following the business combination.
5. To record depreciation and amortization on fixed assets and intangibles
acquired. Fixed assets are depreciated over a five year life, non-compete
agreements over the life of the agreements and customer lists over fifteen
years.
6. To eliminate officers salaries and bonuses previously recorded and record
amounts payable based on the employment agreements entered into with such
officers in conjunction with the acquisition.
7. To record interest expense on acquisition debt at 8% per annum.
8. Pro forma income tax adjustment at the statutory rate of 37% for federal
and state income taxes.
<PAGE>
Unaudited Pro Forma Combined Balance Sheet
As of December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
----------------------------------
FDC (1) UDS Total Debit Credit Combined
------------ ------------ ------------ ------------ --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cash ........................ $ 1,093,295 $ 454,184 $ 1,547,479 $ -- $ (454,184)(2) $ (94,319)
(1,187,614)(3)
Short-term investments ...... 2,212,386 -- 2,212,386 -- (2,212,386)(3) --
Accounts receivable, net .... 2,919,578 697,314 3,616,892 -- (697,314)(2) 2,919,578
Prepaid expenses and
other ...................... 105,964 10,815 116,779 -- (10,815)(2) 105,964
------------ ------------ ------------ ------------ ------------ ------------
Total current assets ..... 6,331,223 1,162,313 7,493,536 -- (4,562,313) 2,931,223
------------ ------------ ------------ ------------ ------------ ------------
Property and equipment,
net ........................ 2,976,419 70,012 3,046,431 -- (56,012)(2) 2,990,419
Other assets ................ 8,869,259 9,109 8,878,368 4,476,891(3) -- 13,355,259
------------ ------------ ------------ ------------ ------------ ------------
$ 18,176,901 $ 1,241,434 $ 19,418,335 $ 4,476,891 $ (4,618,325) $ 19,276,901
============ ============ ============ ============ ============ ============
Current portion of long-term
debt ....................... $ 1,304,953 $ 160,730 $ 1,465,683 $ 160,730(2) $ (275,000)(3) $ 1,579,953
Accounts payable ............ 2,225,685 101,077 2,326,762 101,077(2) -- 2,225,685
Accrued payroll and
expenses ................... 431,441 102,426 533,867 102,426(2) -- 431,441
Income taxes payable ........ 524,186 -- 524,186 -- -- 524,186
Deferred income taxes ....... 59,291 -- 59,291 -- -- 59,291
------------ ------------ ------------ ------------ ------------ ------------
Total current liabilities 4,545,556 364,233 4,909,789 364,233 (275,000) 4,820,556
------------ ------------ ------------ ------------ ------------ ------------
Long-term debt .............. 2,492,571 -- 2,492,571 -- (825,000)(3) 3,317,571
Deferred income taxes ....... 302,762 -- 302,762 -- -- 302,762
Commitments and contingencies
Shareholders' equity
Common stock ............. 8,614,705 42,500 8,657,205 42,500(2) -- 8,614,705
Retained earnings ........ 2,221,307 834,701 3,056,008 834,701(2) -- 2,221,307
------------ ------------ ------------ ------------ ------------ ------------
10,836,012 877,201 11,713,213 877,201 -- 10,836,012
------------ ------------ ------------ ------------ ------------ ------------
$ 18,176,901 $ 1,241,434 $ 19,418,335 $ 1,241,434 $ (1,100,000) $ 19,276,901
============ ============ ============ ============ ============ ============
</TABLE>
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Pro Forma Adjustments
-------------------------------
FDC(1) UDS Total Debit Credit Combined
------------ ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Information systems ...... $ 6,235,604 $ 6,995,419 $ 13,231,023 $ -- $ -- $ 13,231,023
Ancillary income ......... 1,451,104 -- 1,451,104 -- -- 1,451,104
System affiliates ........ 2,198,260 -- 2,198,260 -- -- 2,198,260
Training, license and
other ................... 58,578 -- 58,578 -- -- 58,578
------------ ------------ ------------ ------------ ------------ ------------
Total revenue .......... 9,943,546 6,995,419 16,938,965 -- -- 16,938,965
------------ ------------ ------------ ------------ ------------ ------------
Operating expenses
Cost of services
provided .............. 4,986,064 3,808,868 8,794,932 376,600(6) (137,500)(6) 9,034,032
Selling, general and
administration ........ 2,603,589 2,300,141 4,903,730 304,593(5) (25,200 (4) 4,104,023
128,400(6) (1,207,500)(6) --
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses 7,589,653 6,109,009 13,698,662 809,593 (1,370,200) 13,138,055
------------ ------------ ------------ ------------ ------------ ------------
Income from operations ... 2,353,893 886,410 3,240,303 809,593 (1,370,200) 3,800,910
------------ ------------ ------------ ------------ ------------ ------------
Other income, net ........ 185,262 1,253 186,515 -- -- 186,515
Interest expense ......... (152,421) (2,319) (154,740) 88,000(7) (2,319)(4) (240,421)
------------ ------------ ------------ ------------ ------------ ------------
Income before taxes ...... 2,386,734 885,344 3,272,078 897,593 (1,372,519) 3,747,004
Income tax expense
(benefit) ............... 810,000 327,577 1,137,577 507,832(8) (332,109)(8) 1,313,300
------------ ------------ ------------ ------------ ------------ ------------
Net income ............... $ 1,576,734 $ 557,767 $ 2,134,501 $ 1,405,425 $ (1,704,268) $ 2,433,704
============ ============ ============ ============ ============ ============
Basic earnings per share $ .59 $ .91
============ ============
Weighted average pro
forma shares outstanding
- basic 2,680,753 2,680,753
============ ============
Diluted earnings per share $ .57 $ .88
============ ============
Weighted average pro
forma shares outstanding - 2,769,214 2,769,214
diluted ============ ============
</TABLE>
<PAGE>
Unaudited Pro Forma Combined Statement of Income
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------
FDC (1) UDS Total Debit Credit Combined
----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Information systems ...... $ 606,211 $ 4,073,845 $ 4,680,056 $ -- $ -- $ 4,680,056
Ancillary income ......... 650,592 -- 650,592 -- -- 650,592
System affiliates ........ 1,428,811 -- 1,428,811 -- -- 1,428,811
Proceeds from sale of
territories ............. 714,365 -- 714,365 -- -- 714,365
Training, license and
other ................... 119,692 -- 119,692 -- -- 119,692
----------- ----------- ----------- ----------- ----------- -----------
Total revenue .......... 3,519,671 4,073,845 7,593,516 -- -- 7,593,516
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses
Cost of services provided 1,301,085 2,479,000 3,780,085 376,600(6) (320,800)(6) 3,835,885
Cost of sale of
terrotories ........... 506,101 -- 506,101 -- -- 506,101
Selling, general and
administration ........ 916,521 1,279,396 2,195,917 304,593(5) (23,714)(4) 2,085,996
128,400(6) (519,200)(6) --
----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses .............. 2,723,707 3,758,396 6,482,103 809,593 (863,714) 6,427,982
----------- ----------- ----------- ----------- ----------- -----------
Income from operations ... 795,964 315,449 1,111,413 809,593 (863,714) 1,165,534
----------- ----------- ----------- ----------- ----------- -----------
Other income, net ........ 28,806 1,848 30,654 -- -- 30,654
Interest expense ......... (77,497) (1,171) (78,668) 88,000(7) (1,171)(4) (165,497)
----------- ----------- ----------- ----------- ----------- -----------
Income before taxes ...... 747,273 316,126 1,063,399 897,593 (864,885) 1,030,691
Income tax expense
(benefit) ............... 244,339 116,967 361,306 320,007(8) (332,109)(8) 349,204
----------- ----------- ----------- ----------- ----------- -----------
Net income ............... $ 502,934 $ 199,159 $ 702,093 $ 1,217,600 $(1,196,994) $ 681,487
=========== =========== =========== =========== =========== ===========
Basic earnings per share $ .28 $ .38
=========== ===========
Weighted average pro
forma shares
outstanding - basic 1,800,000 1,800,000
=========== ===========
Diluted earnings per
share $ .28 $ .38
=========== ===========
Weighted average pro
forma shares
outstanding - diluted 1,800,000 1,800,000
=========== ===========
</TABLE>
<PAGE>
UNITED DATA SERVICES, INC.
Table of Contents
Independent Auditors' Report......................................F - 1
Financial Statements
Balance Sheet.................................................F - 2
Statements of Income..........................................F - 3
Statement of Changes in Stockholders' Equity..................F - 4
Statements of Cash Flows......................................F - 5
Notes to Financial Statements.....................................F - 6
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
United Data Services, Inc.
Burlington, Massachusettes
We have audited the accompanying balance sheet of United Data Services, Inc. as
of December 31, 1998, and the related statements of income, changes in
stockholders' equity and cash flows for each of the years in the two year period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of United Data Services, Inc. as
of December 31, 1998 and the results of its operations and its cash flows for
each of the years in the two year period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/Ehrhardt Keefe Steiner & Hottman PC
Ehrhardt Keefe Steiner & Hottman PC
April 16, 1999
Denver, Colorado
F - 1
<PAGE>
UNITED DATA SERVICES, INC.
Balance Sheet
December 31, 1998
Assets (Note 3)
Current assets
Cash ........................................ $ 454,184
Accounts receivable - trade (net of allowance
for doubtful accounts of $31,500 ........... 697,314
Prepaids .................................... 10,815
----------
Total current assets ..................... 1,162,313
Property and equipment, net (Note 2) .......... 70,012
Deposits ...................................... 9,109
----------
$1,241,434
==========
Liabilities and Stockholders' Equity
Current liabilities
Line-of-credit (Note 3) ..................... $ 150,000
Note payable (Note 3) ....................... 10,730
Accounts payable ............................ 101,077
Accrued payroll and taxes ................... 102,426
----------
Total current liabilities ................ 364,233
Commitments (Notes 4 and 5)
Stockholders' equity
Common stock, no par value, 200,000 shares
authorized, 1,000 issued and outstanding ... 42,500
Retained earnings ........................... 834,701
Total stockholders' equity ............... 877,201
----------
$1,241,434
==========
<PAGE>
UNITED DATA SERVICES, INC.
Statements of Income
For the Years Ended
December 31,
----------------------------
1998 1997
----------- -----------
Revenues (Note 6) ........................... $ 6,995,419 $ 4,073,845
Costs of services provided .................. 3,808,868 2,479,000
----------- -----------
Gross margin ................................ 3,186,551 1,594,845
Selling, general and administrative expenses 2,300,149 1,279,396
Operating income ....................... 886,410 315,449
Other income ................................ 1,253 1,848
Interest expense ............................ (2,319) (1,171)
----------- -----------
(1,066) 677
----------- -----------
Net income .................................. 885,344 316,126
Pro forma adjustment - provision for income
taxes (Note 1) ............................. (327,577) (116,967)
Pro forma net income ........................ $ 557,767 $ 199,159
=========== ===========
Pro forma basic earnings per share .......... $ 558 $ 199
=========== ===========
Weighted average number of shares outstanding 1,000 1,000
=========== ===========
See notes to consolidated financial statements.
F - 4
<PAGE>
UNITED DATA SERVICES, INC.
Statement of Changes in Stockholders' Equity
For the Years Ended December 31, 1998 and 1997
Common Stock Total
-------------------- Retained Stockholders'
Shares Amount Earnings Equity
--------- -------- -------- ---------
Balance at December 31, 1996 1,000 $ 42,500 $422,692 $ 465,192
Net income for the year - - 316,125 316,125
--------- -------- -------- ---------
Balance at December 31, 1997 1,000 42,500 738,817 781,317
Distributions - - (789,460) (789,460)
Net income for the year - - 885,344 885,344
--------- -------- -------- ---------
Balance at December 31, 1998 1,000 $ 42,500 $834,701 $ 877,201
========= ======== ======== =========
See notes to consolidated financial statements.
F - 5
<PAGE>
UNITED DATA SERVICES, INC.
Statements of Cash Flows
For the Years Ended
December 31,
------------------------
1998 1997
--------- ---------
Cash flows from operating activities
Net income .................................. $ 885,344 $ 316,126
--------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities
Allowance for doubtful accounts ............ 31,500 --
Depreciation and amortization .............. 25,200 23,714
Changes in operating assets and liabilities
Accounts receivable ....................... (53,174) (351,283)
Deposits and other assets ................. 618 (4,409)
Accounts payable .......................... 9,748 65,390
Accrued liabilities ....................... 65,304 13,860
--------- ---------
79,196 (252,728)
Net cash provided by operating activities 964,540 63,398
--------- ---------
Cash flows from investing activities
Purchase of property and equipment .......... (27,172) (26,109)
--------- ---------
Net cash used in investing activities ... (27,172) (26,109)
--------- ---------
Cash flows from financing activities
Line-of-credit, net ......................... -- 50,000
Notes payable, net .......................... 1,663 975
Distributions to stockholders' .............. (789,460) --
--------- ---------
Net cash (used in) provided by financing
activities ............................. (787,797) 50,975
--------- ---------
Net increase in cash ......................... 149,571 88,264
Cash, at beginning of period ................. 304,613 216,349
--------- ---------
Cash, at end of period ....................... $ 454,184 $ 304,613
========= =========
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the years ended December 31, 1998 and 1997
was $2,319 and $1,171, respectively.
See notes to consolidated financial statements.
F - 6
<PAGE>
UNITED DATA SERVICES, INC.
Notes to Financial Statements
Note 1 - Organization and Summary of Significant Accounting Policies
Organization
United Data Services, Inc. (the Company) was incorporated in the state of
Massachusetts in 1994. The Company was established for the purpose of providing
information services, to financial lending institutions primarily in the
mortgage lending industry, in addition to performing housing appraisals and
title searches. The Company provides these services predominately in
Massachusetts, Connecticut, Maine and Rhode Island.
Concentration of Credit Risk
In the normal course of business, the Company extends unsecured credit to
virtually all of its customers related to providing information services. The
Company's customers are located in Massachusetts, Connecticut, Maine and Rhode
Island. Additionally, the Company's cash balances exceeded FDIC limits by
approximately $55,000 at December 31, 1998.
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 seven years.
Advertising Costs
Advertising costs are expensed as incurred.
Income Taxes
The Company has elected to be taxed under Subchapter S of the Internal Revenue
Code. Under these provisions, the Company is not subject to income taxes as a
separate entity. Income or loss of the Company is required to be included in the
income tax returns of the stockholders.
Included in the statement of operations are pro forma income tax adjustments
computed using the statutory rates in effect, which represent the federal and
state tax provisions that would have been required had the Company been taxed as
a C-Corporation. The Company's effective statutory rate based on pretax income
was 37% for both the years ended December 31, 1998 and 1997.
Revenue Recognition
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.
<PAGE>
Note 1 - Organization and Summary of Significant Accounting Policies (continued)
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, receivables,
accounts payable and accrued liabilities approximate their fair values as of
December 31, 1998 and 1997 because of the relatively short maturity of these
instruments.
The carrying amount of the line-of-credit and note payable outstanding
approximates their fair values as of December 31, 1998 and 1997 because the
interest rates approximate the interest rates on debt with similar terms
available to the Company.
Basic Earnings Per Common Share
The Company computes earnings per share in accordance with Statement of
Financial Accounting Standard No. 128. The Company has presented only basic
earnings per share as the Company has no dilutive potential common shares. Basic
earnings per share has been computed based on the weighted average number of
shares outstanding.
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 compromise comprehensive income, is its results of
operations.
<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 if
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.
<PAGE>
Note 2 - Property and Equipment
Property and equipment consist of the following:
December 31,
1998
------------
Equipment $ 115,320
Furniture and fixtures 20,736
Software 19,042
----------
155,098
Less accumulated depreciation (85,086)
$ 70,012
==========
Note 3 - Notes Payable
Line-of-Credit
The Company maintains a $150,000 line-of-credit with a bank of which $150,000
was outstanding at December 31, 1998 and 1997. The line-of-credit is due on
demand by the financial institution. The line accrues interest at the bank's
prime rate plus 2% (9.5% at December 31, 1998). The line is collateralized by
substantially all the assets of the Company and is personally guaranteed by
stockholders of the Company.
December 31,
1998
------------
Note payable to an insurance company, interest
at 8.5%, monthly principal and interest
payments of $1,125 through September 1999.
The note is unsecured. $ 10,730
==========
Note 4 - Commitments
Operating Leases
The Company leases office space under an operating lease agreement which
provides for the payment of rent of approximately $4,409 per month and expires
in June 2000. Rent expense under this operating lease, totaled $68,553 and
$33,577 during the years ended December 31, 1998 and 1997, respectively.
<PAGE>
Note 4 - Commitments (continued)
Operating Leases (continued)
Future minimum annual office space lease payments are as follows:
Year Ended December 31,
1999 $ 52,908
2000 26,454
--------
$ 79,362
========
Note 5 - 401(k) Plan
On January 1, 1998, the Company implemented a profit sharing plan and trust
under section 401(k) of the Internal Revenue Code. All employees of age 21 or
older and who have been employed for ninety days are eligible for the plan.
Employees have an option to contribute compensation up to the ceiling set by the
Internal Revenue Service (20% of their compensation up to a maximum of $10,000
in 1998). The Company may elect to match the 401(k) contributions. For the year
ended December 31, 1998, the Company matched 25% of employee contributions up to
6% of their salary which totaled $14,400 for the year ended December 31, 1998.
Note 6 - Significant Customer
Major Customer
Revenues from one major customer amounted to $773,428 or 11% and $666,813 or 16%
of total revenues for the years ended December 31, 1998 and 1997, respectively.
One customer also accounted for approximately 11% of accounts receivable at
December 31, 1998.
