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, 2000
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 14, 2000.
Class Number of Shares
----------------------- ----------------------------------
Common Stock 5,384,417
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, 2000
(Unaudited) and December 31, 1999 3
Unaudited Consolidated Statements of Income -- For the
Three Months Ended September 30, 2000 and September 30,
1999 and For the Nine Months Ended September 30, 2000
and September 30, 1999 4
Unaudited Consolidated Statements of Cash Flows -- For the
Nine Months Ended September 30, 2000 and September 30,
1999 5
Notes to Unaudited Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
PART II. Other Information
Item 1. Legal Proceedings 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, December 31,
1999 2000
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents ........................ $ 265,865 $ 1,023,945
Prepaid expenses and other ....................... 618,102 949,542
Accounts receivable, net ......................... 4,623,432 3,663,094
----------- -----------
Total current assets ......................... 5,507,399 5,636,581
Property and equipment, net ........................... 6,816,450 5,998,532
Intangibles ........................................... 36,278,198 27,756,373
Other assets .......................................... 224,976 300,989
----------- -----------
$48,827,023 $39,692,475
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Line-of-credit ................................... $ 1,881,395 $ 500,000
Current portion of long-term debt and
obligations ..................................... 2,976,775 3,432,526
Accounts payable ................................. 3,686,311 3,099,678
Accrued payroll, taxes and expenses ............. 737,544 968,691
Deferred income taxes ............................ 13,386 13,386
----------- -----------
Total current liabilities .................... 9,295,411 8,014,281
Long-term debt and obligations ........................ 13,735,088 5,908,584
Deferred income taxes ................................. 478,990 410,645
Shareholders' equity
Preferred stock, 1,000,000 shares authorized; none
issued and outstanding .......................... -- --
Common stock, 10,000,000 shares authorized;
5,382,818 at September 30, 2000; 5,380,103
at December 31, 1999 issued and outstanding ..... 22,514,989 22,478,244
Retained earnings ................................ 2,802,545 2,880,721
----------- -----------
Total shareholders' equity ................... 25,317,534 25,358,965
----------- -----------
$48,827,023 $39,692,475
=========== ===========
</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 Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue
Information services .............. $ 7,153,358 $ 5,738,915 $ 21,404,851 $ 16,156,499
Ancillary income .................. 370,175 764,019 1,305,459 1,771,214
System affiliates ................. 295,602 387,284 924,423 1,311,432
------------ ------------ ------------ ------------
Total revenue .................. 7,819,135 6,890,218 23,634,733 19,239,145
------------ ------------ ------------ ------------
Operating Expenses
Costs of services provided ........ 4,497,085 3,677,128 13,439,670 10,725,163
Consolidation costs ............... 162,370 384,541 488,078 1,011,876
Selling, general and administrative 2,112,168 1,480,373 5,983,821 3,539,702
Depreciation and amortization ..... 1,074,599 782,184 2,965,532 1,862,997
------------ ------------ ------------ ------------
Total operating expenses ....... 7,846,222 6,324,226 22,877,101 17,139,738
------------ ------------ ------------ ------------
Income from operations ................. (27,087) 565,992 757,632 2,099,407
Other income (expense)
Other income ...................... 78,027 127,090 238,445 351,193
Interest expense .................. (455,990) (160,446) (1,040,987) (383,676)
------------ ------------ ------------ ------------
Total other income (expense) ... (377,963) (33,356) (802,542) (32,483)
------------ ------------ ------------ ------------
Income before income taxes ............. (405,050) 532,636 (44,910) 2,066,924
Income tax expense ..................... (127,701) 219,860 33,268 822,393
------------ ------------ ------------ ------------
Net income and comprehensive income .... $ (277,349) $ 312,776 $ (78,178) $ 1,244,531
============ ============ ============ ============
Basic earnings per share ............... $ (.05) $ .06 $ (.01) $ .26
============ ============ ============ ============
Weighted average basic shares
outstanding ........................... 5,382,775 5,380,103 5,381,449 4,788,696
============ ============ ============ ============
Diluted earnings per share ............. $ (.05) $ .05 $ (.01) $ .24
============ ============ ============ ============
Weighted average diluted shares
outstanding ........................... 5,696,460 5,721,856 5,624,520 5,134,859
============ ============ ============ ============
EBITDA (a) $ 1,125,539 $ 1,475,266 $ 3,961,609 $ 4,313,597
</TABLE>
(a) EDITDA is defined as earnings before interest, income taxes, depreciation
and amortization. EBITDA should not be considered as an alternative to net
income (as an indicator of operating performance) or as an alternative to
cash flow (as a measure of liquidity or ability to service debt
obligations) and is not in accordance with, nor superior to, generally
accepted accounting principles, but provides additional information for
evaluating Factual Data Corp.
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
----------------------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income ................................................... $ (78,178) $ 1,244,531
------------ ------------
Adjustments to reconcile net (loss) income to net cash provided by
operating activities
Depreciation and amortization .................................... 2,965,532 1,862,997
Gain on sale of fixed assets ..................................... (3,619) --
Deferred income taxes ............................................ 68,345 47,489
Changes in operating assets and liabilities
Accounts receivable .......................................... (960,338) (1,634,548)
Prepaid expenses and other.................................... 326,894 (522,956)
Other assets ................................................. 47,099 (169,649)
Accounts payable ............................................. 586,633 (123,168)
Accrued payroll, taxes and expenses .......................... (302,740) (286,978)
------------ ------------
2,727,806 (826,813)
------------ ------------
Net cash provided by operating activities ................. 2,649,628 417,718
------------ ------------
Cash flow from investing activities
Purchase of property and equipment .................................. (1,032,221) (2,050,203)
Capitalized software costs .......................................... (592,704) --
Net cash used in the acquisition of businesses ...................... (1,371,604) (12,336,254)
Proceeds from sale of fixed assets .................................. 12,406 --
Sales of short-term investments ..................................... -- 2,212,386
------------ ------------
Net cash (used) in investing activities ................... (2,984,123) (12,174,071)
------------ ------------
Cash flows from financing activities
Principal payments on long-term debt ................................ (5,822,063) (2,048,222)
Proceeds from issuance of long-term debt ............................ 4,000,000 --
Net activity on line of credit ...................................... 1,361,733 --
Net proceeds from employee stock option/purchase plan ............... 36,745 --
Net proceeds in private placement offering
(net of offering expenses paid of $1,514,576) -- 13,981,783
------------ ------------
Net cash provided (used) by financing activities .......... (423,585) 11,933,561
------------ ------------
Net (decrease) increase in cash and cash equivalents ..................... (758,080) 177,208
Cash and cash equivalents, at beginning of period ........................ 1,023,945 1,093,295
------------ ------------
Cash and cash equivalents, at end of period .............................. $ 265,865 $ 1,270,503
============ ============
</TABLE>
Supplemental disclosure of cash flow information:
Interest paid on borrowings for the nine months ended September 30,
2000 and September 30, 1999 was $1,027,730 and, $383,676
respectively.
Cash paid for income taxes for the nine months ended September 30,
2000 and September 30, 1999 was $181,271 and $1,559,390
respectively.
Supplemental disclosure of non-cash investing and financing activities:
During the nine months ended September 30, 2000 and September 30,
1999, the Company financed fixed asset purchases totaling
$324,383 and $446,901, respectively, with notes payable and
capital leases.
During the nine months ended September 30, 2000 and September 30,
1999, the Company incurred $-0- and $1,018,685, respectively, in
offering costs that were included in accounts payable.
During the nine months ended September 30, 2000, the Company acquired
a license agreement with a long-term obligation of $8.7 million
(See Note 4).
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.
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>
FACTUAL DATA CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Summary of Significant Accounting Policies
The consolidated financial statements are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim periods. The consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Company's Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission March 30, 2000, which includes audited
financial statements for the years ended December 31, 1999 and 1998. The results
of operations for the nine months ended September 30, 2000, may not be
indicative of the results of operations for the year ended December 31, 2000.
The Company's diluted earnings per share take 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 one acquisition in the first nine months of 2000. The
acquisition has been accounted for using the purchase method and the results of
operations are reflected in the consolidated financial statements from the date
of the acquisition. The purchase price allocation and consideration paid were as
follows:
<TABLE>
<CAPTION>
Consideration Purchase Price Allocation
-------------------------------------------- ---------------------------------------
<S> <C> <C> <C>
Notes payable $ 125,000 Property and equipment $ 60,000
---------- ----------
Subtotal non-cash portion 125,000 Other assets 1,962
----------
Intangibles 1,063,038
----------
Cash payments 1,000,000 $1,125,000
Acquisition costs 0 ==========
----------
Subtotal cash portion 1,000,000
----------
Total consideration $1,125,000
==========
</TABLE>
The amortization periods for the intangibles, which are customer lists, contract
rights, and non-compete agreements, are fifteen years, fifteen years, and three
years, respectively.
The Company has also incurred additional acquistion costs related to system
conversion and other related matters of $371,604 from 1999 acquisitions.
Note 3: Line-of-Credit
The Company refinanced its line-of-credit during the second quarter of 2000. The
facility is now a $6,000,000 line-of-credit with interest payable at prime plus
25 basis points, or LIBOR plus 275 basis points. Principal and unpaid interest
is due April 2001. The line-of-credit requires the Company to meet certain
financial covenants and is collateralized by substantially all the assets of the
Company.
Note 4: Stockholders' Equity
The Company sold 1,599 shares of stock to employees valued at $12,592 in
connection with the Company's Employee Stock Purchase Plan during the third
quarter of 2000.
Note 5: Long-term Debt and Obligations
The Company refinanced seller notes from acquisitions and a portion of the
previous line-of-credit with a $4 million term loan through Wells Fargo bank.
The term loan is a 5-year amortization with interest at prime plus 25 basis
points, or LIBOR plus 275 basis points. A fixed swap agreement was negotiated in
which the all-in-one interest rate is now locked at 10.10%.
On April 29, 2000 the Company entered into a 10-year lease agreement, with a
5-year payback period, as the Experian affiliate for the state of Colorado. The
agreement has been recorded as long-term debt on the balance sheet. The Company
may only terminate this agreement without penalty or future obligation under
limited circumstances. For details please refer to our 8-K filed on August 17,
2000.
As of September 30, 2000, the future maturities of this long-term obligation are
as follows:
Year Ending December 31,
2000.............................$ 202,237
2001............................. 861,148
2002............................. 1,695,246
2003............................. 2,280,038
2004............................. 2,543,751
2005............................. 908,519
-----------
$8,490,939
===========
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, the success of the Company's
consolidation plan, its ability to manage growth, and the Company's ability to
successfully develop and market new report services.
Overview
Factual Data Corp. is a Loveland, Colorado-based information service provider to
the mortgage and consumer lending industries, employers, landlords and other
business customers located throughout the United States. The Company markets its
services through its website, www.factualdata.com, and nationally through 44
combined locations, including eight franchisees and eight licensees.
Factual Data Corp. was formed in 1985 to provide customized credit reports to
mortgage lenders. In the past fifteen years, we have greatly expanded our
business by developing a wide range of information services and sophisticated
technology to deliver those services. We were among the pioneers in delivering
business-to-business information services via electronic commerce. For over
seven years, our customers have been able to reap the benefits of our
information services by way of electronic order and delivery with the touch of a
few buttons from their PC. Today, nearly all of our customers receive our
customized reports by modem or network delivery directly to their computers.
Factual Data became a publicly traded company in 1998 and its common stock and
warrants trade on the NASDAQ National Market under the symbols FDCC and FDCCW.
In the third quarter of 2000, Factual Data's portfolio of services included
fully automated consumer credit reports, employee screening, resident screening,
and similar information services for businesses and government-sponsored
enterprises. Items of note in the third quarter included new agreements with
AMS's NetCredit, Colonial Savings of Texas, Ellie Mae, John H. Harland Company,
Mortgage Net Technologies, Myers Internet and Vlender.com. Also of note was the
acquisition of C.B. Unlimited, primarily a mortgage credit-reporting firm
previously affiliated with Factual Data Corp., and active in the Indiana, West
Virginia and western Pennsylvania markets.
Factual Data Corp. announced record revenues for the 3rd quarter and
year-to-date 2000, becoming the tenth consecutive announcement of record
quarterly revenues. Also of note was the 212% increase in non-mortgage revenue
as compared to the third quarter 1999.
For more information about our services, or items of note to investors, please
visit our website at www.factualdata.com. The website shall not be deemed to be
part of this report.
<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:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30 September 30
------------------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Revenue
Information services 91.5 % 83.3 % 90.6 % 84.0 %
Ancillary income 4.7 % 11.1 % 5.5 % 9.2 %
System affiliates 3.8 % 5.6 % 3.9 % 6.8 %
----------- ----------- --------- ---------
Total revenue 100.0 % 100.0 % 100.0 % 100.0 %
----------- ----------- --------- ---------
Operating expenses
Costs of services provided 57.5 % 53.4 % 56.9 % 55.7 %
Consolidation costs 2.1 % 5.5 % 2.1 % 5.3 %
Selling, general and administrative 27.0 % 21.5 % 25.3 % 18.4 %
Depreciation and amortization 13.7 % 11.4 % 12.5 % 9.7 %
----------- ----------- --------- ---------
Total operating expenses 100.3 % 91.8 % 96.8 % 89.1 %
----------- ----------- --------- ---------
Income from operations (0.3) % 8.2 % 3.2 % 10.9 %
Other income 1.0 % 1.8 % 1.0 % 1.8 %
Interest expense (5.8) % (2.3) % (4.4) % (2.0) %
----------- ----------- --------- ---------
Income before income taxes (5.1) % 7.7 % (0.2) % 10.7 %
----------- ----------- --------- ---------
Income tax expense 1.6 % (3.2) % (0.1) % (4.3) %
----------- ----------- --------- ---------
Net income and comprehensive income (3.5) % 4.5 % (0.3) % 6.4 %
=========== =========== ========= =========
</TABLE>
Comparison of three months ended September 30, 2000 and September 30, 1999
Revenue for the third quarter 2000 increased 13% to $7.8 million compared
with $6.9 million reported for the third quarter of 1999 despite a decline in
the mortgage origination market of over 34%. Information services revenue
increased $1.41 million, or 25%, from $5.74 million in the third quarter 1999 to
$7.15 million in the third quarter 2000. The increase was primarily a result of
our acquisitions. We completed twenty-nine acquisitions through the third
quarter 2000 of which twenty-six of these acquisitions had been completed
through the third quarter 1999. We continued to diversify in the
business-to-business information services sector, with employment screening and
resident qualifier services. Diversification into non-first mortgage lending
with new e-commerce clients such as AMS's NetCredit contributed to increased
revenues in the third quarter 2000.
Ancillary income represents fees paid by System Affiliates for various
additional products and services provided to them. Ancillary income decreased by
$394,000, or 52%, from $764,000 in the third quarter 1999 to $370,000 in the
third quarter 2000. This decrease was due to the acquisition of nine system
affiliates as part of our consolidation plan.
System Affiliates revenues decreased $92,000, or 24%, from $387,000 in the
third quarter 1999 to $296,000 in the third quarter 2000. The decrease was due
to our acquisition of nine System Affiliates as well as the significant
reduction in mortgage originations in 2000 versus 1999. The reduction in System
Affiliates revenues is expected to continue as we acquire additional System
Affiliates and since we have discontinued further franchising and licensing
programs.
Costs of services increased $820,000, or 22%, from $3.68 million in the
third quarter 1999 to $4.50 million in the third quarter 2000. The increase in
costs of services is related to our changing technology and product mix.
Historically, the largest cost of service was personnel expense. Since first
quarter 2000, data expense has become the highest cost of service. Personnel
expenses have actually decreased as a percentage of revenue, and data expenses
have increased as a percentage of revenue. The reason for this shift is due to a
significant increase in lower-priced, technology-driven products, as opposed to
higher-priced, labor-intensive products. Data expense is a much higher
percentage of revenue on these lower priced products, thereby increasing data
costs.
Consolidation costs for the third quarter 2000 were $162,000, as compared
to $385,000 for the third quarter 1999. These costs include one-time
consolidation charges for items such as recruiting fees, salaries for terminated
owners and managers of acquired businesses, and travel costs for the
consolidation and relocation of our regional processing centers.
Selling, general and administrative expenses increased $632,000, or 43%,
from $1.48 million in the third quarter 1999 to $2.11 million in the third
quarter 2000. As previously stated in prior quarters, we have expanded our
corporate infrastructure in preparation of continued sales and acquisition
expansion.
Depreciation and Amortization expense increased $292,000, or 37%, from
$782,000 in the third quarter 1999 to $1.07 million in the third quarter 2000.
This increase reflects the amortization expense of our twenty-nine acquisitions
through the third quarter 2000 compared to twenty-six of these acquisitions we
had made through the third quarter 1999. As we continue the amortization of
intangible assets, we will continue to incur these non-cash expenses.
Interest expense increased $296,000, or 185%, from $160,000 in the third
quarter 1999 to $456,000 in the third quarter 2000. This increase is due to
additional notes payable issued in connection with our new acquisitions, as well
as the newly restructured debt facility.
As a result of the foregoing, net loss for the third quarter 2000 was
($277,000), or ($0.05) per diluted share, based on 5,696,460 shares compared to
net income of $313,000, or $0.05 per diluted share, based on 5,721,856 shares
for the third quarter 1999. This earnings per share calculation takes into
account consolidation costs of $162,000 or $0.03 per diluted share for the third
quarter 2000.
Our third quarter 2000 EBITDA (earnings before interest, taxes,
depreciation and amortization) was $1.13 million, or $0.20 per diluted share
based on 5,696,460 shares, as compared to $1.48 million, or $0.26 per diluted
share based on 5,721,856 shares in the third quarter 1999. In the third quarter
2000, this EBITDA per share calculation takes into account consolidation costs
of $162,000, or $0.03 per diluted share, as a result of acquisitions, through
the third quarter 2000. Excluding the consolidation costs we would have reported
EBITDA for the third quarter 2000 and 1999 of $1.29 million and $1.86 million,
or $0.23 and $0.33 per diluted share, respectively. As the depreciation and
amortization costs continue to negatively impact net income, we will continue to
report EBITDA as additional information for evaluation.
Comparison of nine months ended September 30, 2000 and September 30, 1999
Revenue for the nine months ended September 30, 2000 increased 23% to
$23.63 million from $19.23 million reported for the nine months ended September
30, 1999, despite a decline in the mortgage origination market. Information
services revenue increased $5.25 million, or 32% from $16.16 million for the
nine months ended September 30, 1999 to $21.40 million for the nine months ended
September 30, 2000. The increase was primarily a result of our acquisitions. We
completed 29 acquisitions through the third quarter 2000, of which 26 of these
acquisitions had been completed through third quarter 1999. For the nine months
ended September 30, 2000 non-mortgage revenue increased 212% to $1.88 million
from $602,000 for the nine months ended September 30, 1999. Diversification into
non-first mortgage lending with new e-commerce clients such as AMS's Net Credit
contributed to increased revenues in the third quarter 2000.
Ancillary income represents fees paid by System Affiliates for various
additional products and services provided to them. Ancillary income decreased by
$466,000, or 26%, from $1.77 million for the nine months ended September 30,
1999 to $1.31 million for the nine months ended September 30, 2000. This
decrease was due to the acquisition of nine system affiliates as part of our
consolidation plan.
System Affiliates revenues decreased by $387,000, or 30%, from $1.31
million for the nine months ended September 30, 1999 to $924,000 for the nine
months ended September 30, 2000. This decrease was due to the acquisition of
nine System Affiliates as part of our consolidation plan.
Costs of services increased $2.71 million or 25%, from $10.73 million for
the nine months ended September 30, 1999 to $13.44 million for the nine months
ended September 30, 2000. As previously stated, the increase in costs of
services is related to our changing technology and product mix. Historically,
the largest cost of service was personnel expense. In recent times, however,
that has shifted and data expense is now the highest cost of service. Personnel
expenses have actually decreased as a percentage of revenue, and data expenses
have increased as a percentage of revenue. The reason for this shift is due to a
significant increase in lower-priced, technology-driven products, as opposed to
higher-priced, labor-intensive products. Data expense is a much higher
percentage of revenue on these lower priced products, thereby increasing data
costs.
Selling, general and administrative expenses increased $2.44 million, or
69%, from $3.54 million for the nine months ended September 30, 1999 to $5.98
million for the nine months ended September 30, 2000. As a percentage of sales,
selling, general and administrative costs increased from 18.4% for the nine
months ended September 30, 1999 to 25.3% for the nine months ended September 30,
2000. As stated in prior quarters, we have expanded our corporate infrastructure
in preparation of continued sales and acquisition expansion.
Depreciation and Amortization expense increased $1.1 million, or 59% from
$1.86 million for the nine months ended September 30, 1999 to $2.97 million for
the nine months ended September 30, 2000. This increase reflects the
amortization expense of our twenty-nine acquisitions through the third quarter
2000 compared to twenty-six of these acquisitions we had made through the third
quarter 1999. As we continue the amortization of intangible assets created by
the acquisitions, we will continue to incur these non-cash but tax-deductible
expenses.
Interest expense increased $657,000, or 171% from $384,000 for the nine
months ended September 30, 1999 to $1.04 million for the nine months ended
September 30, 2000. The increase is due to additional notes payable issued in
connection with our new acquisitions, as well as the newly restructured debt
facility.
Income taxes decreased $789,000, or 96%, from $822,000 for the nine months
ended September 30, 1999 to $33,000 for the nine months ended September 30,
2000. Our effective tax rate was approximately 40% for the nine months ended
September 30, 1999. For the nine months ended September 30, 2000 income tax
expense was $33,000 even though pre-tax income was negative. This was a direct
result of non-deductible expenses from a December 1998 acquisition.
For the nine months ended September 30, 2000 we had 5,624,520 diluted
weighted average shares outstanding as compared to 5,134,859 diluted weighted
average shares outstanding for the nine months ended September 30, 1999.
Diluted earnings per share decreased by $0.25 per share, from $0.24 per
share for the nine months ended September 30, 1999 to ($0.01) per share for the
nine months ended September 30, 2000. This earnings per share comparison takes
into effect a 10% increase in weighted average number of diluted shares
outstanding, from 5,134,859 for the nine months ended September 30, 1999 to
5,624,520 for the nine months ended September 30, 2000.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for
the nine months ended September 30, 2000, were $3.96 million as compared to
$4.31 million for the nine months ended September 30, 1999. Diluted earnings
before interest, taxes, depreciation and amortization (EBITDA) per share for the
nine months ended September 30, 2000, were $0.70 as compared to $0.84 for the
nine months ended September 30, 1999. Again this per share comparison takes into
effect a 10% increase in weighted average number of diluted shares outstanding.
As depreciation and amortization costs from acquisitions continue to negatively
impact net income, we will continue to report EBITDA as additional information
for evaluation.
Liquidity and Capital Resources
We had cash and cash equivalents of $266,000 at September 30, 2000. We were
able to manage the net impact of accounts receivable, accounts payable, and
accrued expenses on cash flows from operations, which with depreciation and
amortization of $2,966,000 resulted in cash flow provided from operations of
$2,461,000.
We used cash and cash equivalents of $1 million to purchase additional
equipment and furniture to build the infrastructure for our corporate and
regional centers. We also used cash to make $5.82 million of principal payments
on long-term debt. Net cash used for the continuing acquisition costs was $1.4
million, and net activity on the line of credit was $1.36 million. We also
received cash proceeds of $4.0 million for the restructuring of debt, which
resulted in a gain of $189,000.
Management believes that our anticipated cash requirements for the
immediate future will be met from internally generated funds as well as the $6.0
million line-of-credit currently available through Wells Fargo (See Note 3). We
are continuing to pursue acquisitions and looking at favorable alternatives to
finance these acquisitions.
<PAGE>
II - OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of the registrant's annual report on Form 10-KSB/A for the
year ended December 31, 1999.
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 of Form 8-K during the quarter
ended September 30, 2000.
Filing Date Items
----------- ------------------------------------------------
August 17, 2000 Item 5, reporting the lease expansion agreement
with Experian International Solutions, Inc.
September 20, 2000 Item 2, reporting the acquisition of the assets
of C B Unlimited, Inc.
<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 14, 2000
FACTUAL DATA CORP.
(Registrant)
/s/ J. H. Donnan
----------------
J. H. Donnan
Chief Executive Officer
(Principal Executive Officer)
/s/ Todd A. Neiberger
Todd A. Neiberger
Chief Financial Officer
(Principal Financial and
Accounting Officer)
