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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1998 Commission file number 0-24531
Realty Information Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1543845
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7475 Wisconsin Avenue, Bethesda, Maryland 20814
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (301) 215-8300
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:Common Stock
($.01 par value)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 of 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 of the past 90
days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
statement to this Form 10-K. [ ]
As of March 19, 1999, the aggregate market value of registrant's
common stock held by non-affiliates was $109 million.
As of March 19, 1999, there were 9,785,729 shares of registrant's
common stock outstanding.
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INDEX
PART I
Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4 Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6 Selected Consolidated Financial and Operating Data . . . . . . . . . . . . . . . . . .
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . .
Item 7A Quantitative and Qualitative Disclosures
About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . .
Item 9 Changes in and Disagreements with Accountants,
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . .
Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12 Security Ownership of Certain
Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Index To Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . F1
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ITEM 1 BUSINESS
(In this report, the words "we", "our" , "us" or "the Company" refer
to Realty Information Group, Inc. and its subsidiaries. This report also
refers to our Web site, but information contained on that site is not part of
this report. This report contains statements about the future regarding
business strategies, market potential, future financial performance, and other
matters. We also use in this report the words "intends to", "anticipates",
"expects", and similar expressions to identify these types of forward-looking
statements. Many risks and uncertainties, including those arising from
fluctuations in operating results, timing of geographic expansion or new
service introductions, acquisitions of other companies or assets, cyclical
downturns or changes in the real estate industry or client budgets, the
performance and regulation of the Internet, the integrity and reliability of
our data ,competition in our businesses, or software problems, could cause our
actual results to differ materially from our forward looking statements.)
Realty Information Group is the nation's largest digital provider of
commercial real estate information and analysis. We are creating a digital
marketplace where the members of the commercial real estate and related business
community can continuously interact and facilitate transactions by efficiently
exchanging accurate and standardized information. According to our estimates, in
1998, we facilitated 100,000 commercial lease and sales transactions aggregating
over $100 billion in value. Our wide array of digital service offerings includes
a leasing marketplace, a selling marketplace, decision support, tenant
information, property marketing, and industry news. Substantially all our
current services are digitally delivered and a majority of our clients receive
daily service updates over the Internet.
We have three assets that provide a unique foundation for this
marketplace: the only comprehensive, proprietary, national database in the
industry; the largest research department in the industry; and, the largest
number of participating organizations. Our database has been constructed over
more than a decade by a research department that now makes over 1.8 million
updates each year to the database. In addition to our internal efforts, we have
obtained and assimilated over 50 proprietary databases. The database now covers
35 of the top 40 commercial real estate markets in the United States. It tracks
over 13 billion square feet in over 272,000 properties, including more than $25
billion in properties for sale, and over 310,000 tenants. We estimate that
36,000 participating companies use our marketplace to distribute information on
their properties. Of these participating companies, approximately 2,800 are
clients, representing 20,000 end-users, who subscribe to our services to
facilitate transactions, market services and properties, and conduct market
research.
INDUSTRY OVERVIEW
We believe that the market for commercial real estate information is
vast based on the variety, volume, and value of transactions related to
commercial real estate. We believe that in 1998, the U.S. commercial real
estate market had hundreds of thousands of leasing transactions, with an
aggregate value of more than $200 billion, and had tens of thousands of sales
transactions, with an aggregate value of $285 billion. In the same year,
lenders provided tens of thousands of commercial real estate loans, with an
aggregate net value of more than $110 billion, according to the Federal Reserve
Board. F.W. Dodge reports that during 1998, construction commenced on 766
million square feet of commercial properties with an aggregate value of $52
billion. Finally, last year, vendors made $10 billion in sales to tenants who
were moving to new facilities, according to the Corporate Realty Design and
Management Institute.
To facilitate transactions, industry participants must have extensive,
accurate, and current information. Members of the commercial real estate and
related business community require daily access to current data such as rental
rates, vacancy rates, tenant movements, supply, new construction, absorption
rates, and other important market developments to carry out their businesses
effectively. Such data collection is time-consuming, as shown by a 1996 study
we commissioned, which found that commercial real estate professionals spent
40% of their workday collecting and analyzing information on the real estate
market. Therefore, there is a need to develop an efficient marketplace, where
members of the commercial real estate and related business community can
exchange information, evaluate opportunities using national standardized data,
and interact with each other on a continuous basis.
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A large number of parties involved in the commercial real estate and
related business community require extensive information, including:
- Sales and leasing brokers - Government agencies
- Property owners - Mortgage-backed security issuers
- Property management firms - Appraisers
- Design and construction firms - Media
- Real estate developers - Tenant vendors
- Real estate investment trusts - Building services vendors
- Investment banks - Communications providers
- Commercial banks - Insurance companies
- Investors and asset managers - Institutional advisors
The commercial real estate and related business community has yet to
develop an efficient marketplace because of the fragmented approach to
gathering and exchanging information within the marketplace. Various
organizations, including hundreds of brokerage firms, directory publishers, and
local research companies, have attempted to collect data on specific
territories and to develop software to analyze the information they had
independently gathered. This fragmented approach resulted in duplication of
effort in the collection and analysis of information, excessive internal cost,
non-standardized data with varying degrees of accuracy and comprehensiveness,
and a large information gap.
The creation of an efficient digital marketplace for commercial real
estate will require an infrastructure of a national, standardized database,
accurate and comprehensive research capabilities, and intensive, real-time
participant interaction. The Internet can help maximize interaction among
participants in a marketplace. The Internet has emerged as a mass
communications and commerce medium enabling millions of people worldwide to
share information, create community among individuals with similar interests,
and conduct business electronically. International Data Corporation projects
that the number of Internet users will grow from 100 million in 1998 to 320
million in 2002. In addition to its emergence as a mass communications medium,
the Internet has features and functions that are unavailable in traditional
media, which enable users to:
- communicate or access enormous amounts of information at low cost and
without geographic limitation;
- access dynamic and interactive content on a real-time basis; and
- communicate and interact instantaneously with a single individual or with
entire groups of individuals.
Along with the impressive overall growth of the Internet,
business-to-business usage is also growing rapidly, as businesses are
increasingly leveraging the Internet's ability to reach clients globally,
deliver personalized content, and open new distribution channels.
Business-to-business electronic commerce, according to Forrester Research, is
projected to grow from $17 billion in 1998 to $327 billion in 2002.
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THE REALTY INFORMATION GROUP SOLUTION
The CoStar Marketplace. We are creating a digital commercial real
estate marketplace through CoStar, our Website, and our other related services.
We estimate that approximately 36,000 participating companies use our
marketplace to distribute information on their properties. Of these
participating companies, approximately 2,800 are clients, representing 20,000
end-users, who subscribe to CoStar and our related services to facilitate
transactions, market services and properties, and conduct market research. We,
our clients, and other members of the commercial real estate and related
business community continuously update the marketplace data. Each day
approximately 7,200 updates to the marketplace database are made. Each night,
the resulting information is distributed via the Internet, creating a more
dynamic and efficient market for transactions involving the commercial real
estate and related business community.
Comprehensive Service Offering. We have been able to capitalize on
the information accumulated in the CoStar marketplace to create a high
value-added, full-service solution for our clients. We have been able to
package the knowledge and resources of a nationwide commercial real estate and
related business community in a way that is accessible, interactive,
standardized, and comprehensive. As a result, we believe we are the only entity
now capable of providing the depth and breadth of the following services:
- Digital leasing marketplace -- provides the information required to
efficiently conduct commercial real estate leasing transactions, both
between brokers and between owners and brokers. We deliver this service
through CoStar and CoStar Tenant, which benefit our clients by providing
a more comprehensive solution with much higher data quality, at
substantially less time and cost.
- Digital selling marketplace -- provides the information required to
efficiently and securely conduct commercial real estate buy and sell
transactions. We currently deliver this service through CoStar and will
enhance this service through CoStar Exchange. This service benefits our
clients by allowing purchasers to make more-informed investments and
sellers to maximize realized property values.
- On-line decision support services -- allow members of the community to
perform analysis of underlying market conditions and trends when making
investment, leasing, purchase, sale, build, and marketing decisions
involving commercial real estate. We currently deliver these services
through Jamison Advisory, CoStar, and CoStar Tenant and will enhance
these services through CoStar Analytic and CoStar Comparables. These
services benefit our clients by providing more powerful, flexible,
time-efficient, and accurate analytic capabilities.
- Tenant information services -- enable members of the commercial real
estate and related business community to identify and market to the
tenants who are the most likely prospects for their goods and services.
We deliver these services primarily through CoStar Tenant. These services
benefit our clients by more precisely identifying and capturing viable
prospects at a lower cost.
- On-line property marketing -- provides a unique on-line means for the
commercial real estate and related business community to direct
advertising to the appropriate decision-makers. We currently deliver this
service through CoStar and via our Website and will enhance this offering
through a new service, E-Brochure. This service benefits our clients by
providing them increased distribution, higher visibility, and a more
cost-effective way to reach their targeted audience.
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- On-line industry news -- allows members of the commercial real estate and
related business community to remain current with developments in the
industry. We deliver these services through CoStar, www.rig.com, and
Real-E News, which benefit our clients by providing more timely and
in-depth news.
Internet and Web Access to CoStar Services. Substantially all our
current services are digitally delivered. About 65% of our clients currently
receive their CoStar data via the Internet. We are in the process of making our
services accessible through a standard Web-browser format. As a result, we
expect to generate an increasing portion of our revenues from Web-based
services. The increased availability of our services from a Web-based platform
will allow the commercial real estate and related business community real-time
access to the CoStar marketplace data and provide the opportunity for increased
interaction among community members. We believe this will lead to the
development of a more efficient commercial real estate marketplace.
Leveraging Leading Edge Technology. We use the latest technology to
continuously improve our data collection, enhance our sales efforts and our
service capabilities, and control costs as we build upon the CoStar marketplace
framework. For example:
- We use global satellite positioning and the Internet to coordinate
remote field research vehicles equipped with GPS transponders,
laptop computers, cellular communications, and laser measurement
devices, to provide the most precise and timely inventory of
available buildings.
- We are integrating a proprietary enterprise-wide client and property
information management system with our telecommunications system
and our database, to allow the sales force, research staff,
client-service staff, and accounting department to develop a
coordinated sales, research, and account management effort. This
enterprise-wide system will also assist management in improving
quality control and training.
- We now collect our architectural photographs digitally so that we
can move the images into our database substantially faster and at
lower cost.
National, Standardized Presence. We are creating the first national
and standardized source for commercial real estate metrics that are comparable
between geographic territories. For example, the definitions of vacancy rates
and building classifications have varied among the different providers of real
estate information. Our national presence and the uniformity of our services
and data across all of our markets provides a foundation for members of the
commercial real estate and related business community to do business on a
national basis. Leading firms within the community conduct business efficiently
in multiple local markets by standardizing their internal systems on our
proprietary database. Currently 20% of our clients subscribe to services in
multiple markets.
THE COSTAR STRATEGY
Our objective is to complete the development of the CoStar digital
marketplace for the commercial real estate and related business community
across the United States and to introduce it in select international markets.
The principal components of our strategy to accomplish this are:
- Introduce New and Upgraded Services. We believe the CoStar
marketplace contains a wealth of information that we can enhance
and package into an array of new services. We intend to introduce
the following new and upgraded services over the course of the next
18 months:
- CoStar Exchange will be a Web-based marketplace to more
efficiently and securely facilitate the buying and selling of
commercial properties.
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- CoStar Comparables will be a Web-based service enabling our clients
to track and analyze sales comparables in a more timely and
comprehensive manner than is currently possible.
- E-Brochure will provide members of the commercial real estate and
related business community with more cost-effective Web-based and
CD/ROM-based brochures, replacing the millions of paper brochures
currently used to advertise buildings.
- CoStar Analytic will provide a Web-based analytic tool that will
assist the commercial real estate and related business community in
analyzing the important changing trends in market metrics such as
vacancy rates, rental rates, tenant demographics, new construction,
and absorption rates.
- Real-E News will be a free customized Internet-delivered and
Web-based service that will provide the subscriber's pre-selected
preference categories via spot news and analytical articles about
the commercial real estate industry. We plan to generate advertising
revenue from banner ads, mostly about available properties, that are
placed around the news stories.
The introduction of these new services, along with the expansion of our
CoStar Tenant service, will allow us to cross-sell a comprehensive suite
of services to our existing clients across the country. By contrast, to
date, we have primarily offered only one or two of our services in each
of our markets.
- Increase Penetration in Current Markets. We believe that we can
significantly expand our client base and increase revenues in our
established markets. Initially upon penetrating a new market, we
typically sign up leading commercial real estate brokerage firms within
six months of entry, which allows us to gain a strategic position in that
market's information flow. From there, we significantly expand our sales
and marketing efforts in these markets so that we can further penetrate
the broader client base. In 1998, for example, we doubled our sales force
in our established markets, which helped to increase revenues in those
markets by 66%. We intend to continue to significantly expand our sales
force and open new field sales offices to further penetrate established
markets.
- Enter New U.S. Markets and Develop National Accounts. We intend to
broaden our potential client base by entering new U.S. markets. Many of
our existing clients have offices in these targeted markets which will
enable us to accelerate our rate of market acceptance in these new
regions. This geographic expansion should also broaden our base of
national accounts. To date, we have been able to sell 30 national
accounts, which we believe constitutes a small portion of the universe.
By completing our geographic expansion within the U.S., we believe our
services will be more attractive to a much larger number of national
accounts who require comprehensive coverage of the major U.S. commercial
real estate markets.
- Expand Internationally. We plan to enter select international markets,
including Canada, the United Kingdom and Europe. Either independently or
in connection with strategic acquisitions, we intend to gain a foothold
in each new target market with one of our services developed for the
local market. Then, over time, we plan to develop all of our services for
that market. We also believe that there is significant demand in these
international markets for U.S. commercial real estate information.
- Improve and Enhance the CoStar Marketplace. We believe that CoStar is
the most comprehensive marketplace of information about the commercial
real estate and related business community. We intend to maintain that
leading position by continuously improving
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CoStar's comprehensiveness and quality. Our efforts will include adding
additional buildings to our database and improving our model for
collecting the data underlying CoStar. We also intend to continue our
technological leadership by continuing to move the distribution of our
services to the Internet and the Web, by increasing the interactivity of
our services with our clients, by continuing our evolution as the digital
marketplace for real estate transactions, and by increasing our community
presence via our Website.
- Pursue Strategic Acquisitions. We intend to continue making strategic
acquisitions to broaden our service offerings and to further expand our
geographic coverage. We actively search for services that complement our
existing suite of services. Additionally, we intend to actively explore
acquisitions abroad to help penetrate international markets.
SERVICES
Our various services are described in detail in the following
paragraphs.
CoStar. CoStar has fostered the development of the digital leasing
marketplace. Clients use CoStar to research leasing options, analyze market
conditions and competitive property positions, and produce multimedia client
presentations. Members of the broader commercial real estate community,
including non-CoStar subscribers, utilize CoStar extensively to market their
properties. The subscriber can query CoStar with any combination of pertinent
criteria, combining any of approximately one hundred data fields from
categories such as building size, location, building characteristics, space
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availability, ownership, or sales comparables. CoStar's search engine scans
through hundreds of millions of square feet of space in a specified market in
seconds to find all the properties meeting the search criteria. The user can
select from over 50 customizable reports, presenting space availability,
comparable sales, tenant activity, market statistics, photographs, and floor
plans. The user can export and edit reports, photos, and floor plans to help
determine feasibility of a specific space. Our clients also use CoStar to
analyze market conditions by calculating current vacancy rates, absorption
rates, or average rental rates. About 65% of our clients currently receive daily
service updates via the Internet.
CoStar Tenant. CoStar Tenant delivers detailed information profiling
the tenants occupying commercial buildings by tracking over 310,000 tenants in
23 U.S. markets. We expect to expand that coverage to more than 1 million
tenants over the next two years. A key service feature is accurate lease
expiration information. Clients use CoStar Tenant to:
- find information about particular tenants;
- identify and target the most likely tenants to lease space;
- identify all tenants in a particular building;
- understand trends and the underlying demand for commercial real
estate;
- identify and target the tenants most likely to need representation
for their real estate requirements; and
- identify and target the tenants most likely to buy a particular
vendor's goods and services.
CoStar Exchange. We have developed a database of over 25,000
commercial properties for sale with a combined asset value in excess of $25
billion. We will distribute that information through a secure Web service, to
be known as CoStar Exchange. Sellers of properties will be able to list
extensive information about their properties for sale on the site at no cost.
The site will afford an efficient means for these sellers to reach a large
universe of potential buyers. Potential buyers will pay a subscription fee to
access the system. Sellers of investment-grade properties will have the
additional option of selecting limited, secure distribution of their properties
in order to address confidentiality requirements.
CoStar Analytic. We currently provide a full line of detailed
analytical tools and reports through Jamison Advisory, CoStar, and CoStar
Tenant. These tools provide strategic insight into the changing trends in
vacancy rates, tenant movements, supply, new construction, absorption rates,
and other important market metrics. We are enhancing these services through
CoStar Analytic. CoStar Analytic will provide a Web-based analytic tool that
will allow users to perform more sophisticated analyses of underlying market
conditions and trends when making investment, leasing, purchase, sale,
construction, and marketing decisions involving commercial real estate. We may
also provide fee-based customized reports and advisory services.
CoStar Comparables. We currently track tens of thousands of
commercial real estate sales. CoStar Comparables will be an enhanced Web-based
service providing confirmed commercial real estate sales information on
properties which have recently sold. We believe that CoStar currently contains
more major office and industrial properties for sale than any other single
information source. As transactions involving these properties in CoStar are
consummated, frequently we can obtain details of the transaction weeks before
most traditional comparable sale providers have access to the information. In
addition, we are uniquely comparable sale price, such as leasing information,
detailed tenant rent rolls, positioned to provide other valuable information
beyond the basic confirmed and local market conditions.
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CoStar Advertising. We estimate that the participants in the CoStar
marketplace will directly influence approximately $100 billion in leasing and
sales each year. We currently provide digital marketing opportunities to reach
this audience through premium high-exposure banner ads on CoStar and on our
Website. In addition, our new E-Brochure service will allow commercial real
estate professionals to replace the millions of costly print fliers produced
each year to direct market their properties with a cost-effective digital
version. We will distribute these E-Brochures via the Web, CoStar, and CD/ROM
distribution.
CoStar News. Our Website, CoStar, and our e-mail news dispatches have
become an accepted source of reliable industry news. In 1998, we authored over
3,000 news stories. These articles have been cited by numerous major news
organizations. Our newswire feature keeps clients informed of late-breaking
commercial real estate news such as deals signed, acquisitions, ground
breakings and other features. Web banner ads are prominently displayed on the
site, generating significant revenues. We plan to develop and deliver a free
e-mail system built around customized client profiles, with highly-targeted
banner advertising attached.
THE DATABASE BEHIND COSTAR
We believe that our proprietary database, actively tracking over 13
billion square feet of U.S. commercial properties, is one of the largest in
existence. On an annual basis, over 270 researchers make 1.8 million updates to
the database. This highly complex database is comprised of hundreds of data
fields, tracking such categories as:
- - Location - Mortgage and deed information
- - Site and zoning information - For-sale information
- - Building characteristics - Income and expense histories
- - Space availability - Tenant names
- - Tax assessments - Lease expirations
- - Ownership - Contact information
- - Sales comparables - Historical trends
The database includes over 262,000 high-resolution digital images,
including building photographs, aerial photographs, and floor plans. The
database tracks approximately 310,000 tenants occupying office and industrial
space in 23 U.S. markets. We expect to expand coverage to more than 1 million
tenants over the next two years, which will generate additional revenues and
create significant additional barriers to entry.
CLIENTS
We draw clients from across the commercial real estate and related
business community. Commercial real estate brokers have traditionally been the
largest portion of our clients, but recently,
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the fastest growing segments have been owners, lenders, and vendors. The
following chart provides representative clients in various categories.
BROKERAGE OWNERS, DEVELOPERS PROPERTY MANAGERS
- --------- ------------------ -----------------
CB Richard Ellis Gale & Wentworth Kennedy-Wilson Properties
Grubb & Ellis Hines Leggat McCall Properties
Insignia/ESG Manulife Financial Lincoln Property Company
Julien J. Studley Trammel Crow Company PM Realty Group
The Staubach Company TrizecHahn Corporation U.S. Equities Realty
REITs LENDERS, INVESTMENT BANKERS VENDORS
- ----- --------------------------- -------
Boston Properties Bankers Trust IntelliSpace
CarrAmerica Donaldson, Lufkin & Jenrette Kastle Systems
Cornerstone Properties GMAC Commercial Mortgage RCN Corporation
Equity Office Properties Merrill Lynch Teligent
Prentiss Properties NationsBank WinStar Communications
INSTITUTIONAL ADVISORS,
GOVERNMENT AGENCIES APPRAISERS, ACCOUNTANTS ASSET MANAGERS
- ------------------- ----------------------- -----------------------
County of Los Angeles Arthur Andersen AEW Capital Management
Fairfax County Development Authority E & Y Kenneth Leventhal Real Jones Lang LaSalle
Montgomery County Office of Economic Estate Group Legg Mason
Development Koeppel Tener Real Estate Services Lend Lease Real Estate
NYC Economic Development Corp. KPMG Investments
U.S. General Services Administration PricewaterhouseCoopers USAA Real Estate Company
We currently have over 2,800 clients, including the majority of the
national commercial real estate brokerage firms. These national firms have
offices in markets we are expanding into, which enables us to accelerate our
rate of market acceptance in these new regions. No single client accounts for
more than 5% of our revenues. During the past five years, our contract renewal
rate has exceeded 90%.
SALES AND MARKETING
We have 55 sales and marketing employees, with the majority of our
direct sales force located in the field. Our sales teams are geographically
focused and located in 14 field sales offices in our largest U.S. markets. Our
offices typically serve as the platform for our in-market sales, client
service, and field research operations for their respective regions. The field
sales offices also work with our headquarters operation to coordinate sales to
our multi-market and national clients. In addition, we have 24 client service
staff members with responsibility for installing and training our client base,
ensuring high client satisfaction, renewing existing client contracts, and
identifying cross-selling opportunities. We use a proprietary enterprise-wide
client management system integrated with our database and telecommunications
system. This integrated system allows the sales force, research staff, client
service, and accounting department to develop a coordinated sales and account
management effort.
Our field sales people focus in one of two areas, Information
Solutions or Marketing Solutions. The Information Solutions sales personnel
focus on existing information services such as CoStar and CoStar Tenant, as
well as new information services such as CoStar Exchange and CoStar Analytic.
The majority have significant commercial real estate experience, allowing them
to take a consultative sales approach. The Marketing Solutions sales personnel
sell on-line advertising and new services such as E-Brochure. The majority have
an advertising sales background or experience in commercial real estate.
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Our sales strategy is to aggressively attract new clients, while
providing ongoing incentives for existing clients to subscribe to our newer
services. To help drive rapid growth in our sales force, we have established an
in-house team that is responsible solely for seeking out and recruiting quality
sales people.
We seek to make our services essential to our clients' businesses. To
encourage clients to use our services regularly, we charge fixed monthly
amounts rather than fees based on actual system usage. Our clients' monthly
charges are based on the number of sites, organization size, and the number of
services to which a client subscribes.
Our primary marketing methods include: service demonstrations, direct
marketing, trade show and industry events, print advertising, and client
referrals. Direct marketing is the most cost effective means for us to find
prospective clients. Once we have identified a prospective client, we have
found the most effective sales method is a service demonstration. Our direct
marketing efforts include direct mail, e-mail, and telemarketing, and make
extensive use of our unique, proprietary database. Our advertising includes
Internet banners, private network banners, and traditional print advertising.
This form of advertising is used for brand identity, message reinforcement, and
potential client identification.
DATA COLLECTION
We have developed a sophisticated data collection organization, made
up of a combination of researchers, management systems, computer and
communications hardware, and software systems.
Research. We employ over 270 researchers to collect and analyze
office and industrial real estate information through over 400,000 phone calls
and faxes a year, in addition to e-mails, field inspections, news monitoring,
and direct mail. Every new research employee undergoes an extensive training
program to maintain a consistent research process. Because of the importance
commercial real estate professionals place on our data and our prominent
position in the industry, they frequently take the initiative to report
transactions to our researchers.
Management and Quality Control Systems. We use both automated and
non-automated controls to ensure the integrity of the data collection process.
A large number of automated data quality tests check for potential errors
including occupancy date conflicts, available square footage greater than
building area, typical floor greater than land area, and expired leases. Our
non-automated quality control procedures include:
- calling our information sources on recently-updated properties to
re-verify information;
- reviewing commercial real estate periodicals for transactions to
cross-check our research; and
- performing field checks to determine if we correctly canvassed all
buildings.
Finally, one of the most important and effective quality control measures is
feedback, garnered through regular client surveys taken from the commercial real
estate professionals using our data every day.
Computer and Communications Hardware. We maintain Novell and Windows
NT servers in support of the database and a national internal frame relay
network to allow remote researchers real-time access to the database. We store
full data back-ups off site.
13
Software Systems. We use client-server software to manage our
internal data collection. In addition, over the past decade we have developed
and refined our own software systems. This software has four primary functions:
- collection of building-specific data;
- tracking of commercial real estate companies and individuals;
- facilitating our operations; and
- distribution of data.
COMPETITION
The market for information systems and services generally is
competitive and rapidly changing. The principal competitive factors for
commercial real estate information are:
- the quality, depth, and timeliness of the underlying databases;
- the ease of use, flexibility, and functionality of the software;
- the perception that the service offered is the industry standard;
- the proprietary nature of methodologies and databases;
- the effectiveness of marketing and sales efforts;
- client service and support;
- breadth of geographic coverage and services offered;
- technical resources;
- capital resources; and
- price.
We do not believe that we presently face competition from any other
company on a national basis for our existing services. We do face competition
on a regional basis. For example, ReLocate, Inc. provides a product that
competes with us in New York City, Philadelphia, Dallas, and Boston. In a few
jurisdictions, third-party databases or print publications compete with us on a
purely local basis. Our primary competition comes indirectly, however, from the
in-house research departments still operated by some commercial real estate
brokers.
The new services that we are developing may bring us into competition
from various sources. For example, our E-Brochure and our other enhanced CoStar
Advertising services will compete for property marketing revenues with
Web-based bulletin boards such as Loopnet Venture, Inc. Our CoStar Comparables
service will compete with services from companies like Comps.com, Inc., which
provide enhanced versions of generally-available public record data.
As a digital real estate marketplace develops, additional competitors
(including companies having greater financial, product development, technical,
and marketing resources than we do) may enter the market and competition may
intensify. While we believe that we have successfully differentiated ourselves
from existing or potential competitors, competition could materially harm our
business.
14
PROPRIETARY RIGHTS
To protect our proprietary rights in our methodologies, database, and
software, we depend upon a combination of:
- trade secret and copyright laws;
- nondisclosure and other contractual provisions; and
- technical measures.
We have not filed any patent applications covering our methodologies and
software.
We seek to protect our software's source code and our database as
trade secrets and under copyright law. Although copyright registration is not a
prerequisite for copyright protection, we have filed for copyright registration
for our CoStar software and user manuals. We have also filed for copyright
registration of the CoStar database. Under current law, the arrangement and
selection of data may be protected, but the actual data itself may not be.
Moreover, other people are free to try to independently create databases that
perform the same function as ours. We believe, however, that they would find it
very time-consuming and costly to create a competing database. We also intend
to take appropriate measures to protect our intellectual property rights in the
data and software obtained through our recent acquisitions of LeaseTrend, Inc.
and Jamison Research, Inc.
We distribute our software and services under agreements that grant
our clients non-exclusive licenses. These agreements restrict the disclosure
and use of our data and software. They prohibit the unauthorized reproduction
or transfer of the information and software we provide. In addition, we attempt
to protect the secrecy of our proprietary database and other trade secrets and
proprietary information through agreements with our employees and consultants.
Our services also include technical measures to discourage unauthorized
copying.
We have filed applications to register the "CoStar" mark in the United
States, Canada, and the United Kingdom. We believe that we have developed
substantial goodwill in connection with this mark as an indicator of the
quality of our services.
EMPLOYEES
As of March 15, 1999, we employed 419 employees, including 272
researchers and 55 sales and marketing employees. None of our employees is
represented by a labor union. We have experienced no work stoppages. We believe
that our employee relations are excellent.
15
ITEM 2 PROPERTIES
Our corporate offices occupy approximately 48,000 square feet in
Bethesda, Maryland, under leases and subleases expiring June 30, 2000. We also
lease office space in the following cities: New York; Los Angeles; Elmhurst,
Illinois; San Francisco; Boston; Newport Beach; Philadelphia; Houston;
Cincinnati; Atlanta; Phoenix; San Diego and Dallas. Our aggregate lease
payments for 1998, adjusted to include on a pro forma basis the lease payments
made by LeaseTrend and Jamison Research, were approximately $1.4 million.
ITEM 3 LEGAL PROCEEDINGS
From time to time, we have been involved in lawsuits incidental to our
business. We are not currently subject to, and none of our properties is
subject to, any material legal proceedings.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The registrant did not submit any matters to a vote of its security
holders during the fourth quarter of the fiscal year covered by this report.
16
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Price Range of Common Stock. Our common stock is traded on the Nasdaq National
Market under the symbol "RIGX." Public trading of our common stock began on
July 1, 1998. Prior to that, there was no public market for the common stock.
The following table sets forth, for the periods indicated, the high and low
sale price per share of our common stock on the Nasdaq National Market.
HIGH LOW
---- ---
YEAR ENDED DECEMBER 31, 1998
Third Quarter (from July 1, 1998)......................... $10 7/8 $ 5 1/2
Fourth Quarter............................................ $14 $ 6
YEAR ENDED DECEMBER 31, 1999
First Quarter (through March 19, 1999).................... $25 1/8 $12 5/8
As of March 15, 1999, there were 82 holders of record of our common
stock. On March 19, 1999, the last sale price reported on the Nasdaq National
Market for our common stock was $24 per share.
Dividend Policy. We have never declared or paid any dividends on our common
stock. We do not plan to do so for the foreseeable future. Instead, we intend
to invest any earnings in our business. The holders of our common stock are
entitled to receive ratably any dividends that the Board of Directors declares.
The Board will determine the payment of future dividends on the common stock
and the rate of dividends, if any, in light of:
- any applicable contractual restrictions limiting our ability to pay
dividends;
- our earnings;
- our financial condition;
- our capital requirements; and
- other factors that the Board deems relevant.
17
Recent Issues of Unregistered Securities. During 1998, we made
certain issues of shares of our common stock without registration under the
Securities Act of 1933 (the "Securities Act"). On July 7, 1998, we issued
5,754,017 shares of Common Stock to the limited partners and stockholders of
our predecessors. We received as consideration all of the outstanding equity
interests of these entities at a ratio of 3.03 shares of Common Stock for each
unit or share. The shares of Common Stock obtained by partners and
stockholders of our predecessors upon the exchange of their units and shares
continued to be held for investment purposes. The issuance of such shares was
effected in reliance on the exemption from registration under Section 4(2) of
the Securities Act. On August 14, 1998, we acquired C Data Services, Inc.
("Core") through a transaction in which John G. Redford, Keenan L. Reiney and
Stuart Schube (the shareholders and representative of Core) received 93,530
shares of Common Stock and approximately $9,000 in cash. These shares were
purchased for investment purposes. The issuance of these shares was effected
in reliance on the exemption from registration under Section 4(2) of the
Securities Act.
Application of Proceeds of Initial Public Offering. We registered an
initial public offering of 2,875,000 shares of our common stock including
375,000 shares subject to an underwriters' over-allotment option. The
registration statement for the offering (No. 333-47953) became effective on
July 1, 1998. The managing underwriters for the offering were Allen & Company
Incorporated and Needham & Company, Inc. All shares registered were sold in
the offering, which was completed on August 11, 1998 with the closing on the
underwriters' exercise of their over-allotment option for all shares covered by
the option. The total offering price of the shares registered and sold was
$25,875,000. The net proceeds we received from the offering amounted to
approximately $22.7 million, after deducting underwriting discounts of
$1,811,250, underwriters expenses of approximately $150,000, and other expenses
of approximately $1.2 million. Of these amounts, Allen & Company Incorporated,
of which John Simon, one of our directors, is a managing director, received
$496,125 in underwriting discounts and also reimbursement of its expenses for
the offering, while a law firm of which Michael R. Klein, the chairman of our
board of directors, is a partner received approximately $435,000 in legal fees
in connection with the offering. Under the policies of his firm, Mr. Klein did
not play any role in providing the legal services in connection with the
offering. All other payments of fees and expenses in connection with the
offering were to persons not affiliated with our officers, directors, or
principal securityholders.
Of the net proceeds we received from the offering, we used $1 million
to repay the principal on a loan from Silicon Valley Bank to the partnership
which previously operated our business and its corporate general partner; and
$650,000 to repay indebtedness from the partnership to its general partner,
which sum had been lent to the general partner by Mr. Klein. We used
approximately $9.8 million of the proceeds of the offering in connection with
our January, 1999 acquisitions of LeaseTrend, Inc. and Jamison Research, Inc.,
which acquisitions expanded the geographic reach and product offerings of the
Company. The remaining proceeds of the offering were used for internal
expansion, including expansion of our sales and marketing organization,
working capital, and general corporate purposes.
18
ITEM 6 SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OTHER OPERATING DATA)
The following table provides selected financial data for the five years
ended December 31, 1998 and certain pro forma financial data for the year ended
December 31, 1998. The Statement of Operations Data and Balance Sheet Data we
show below for 1996 through 1998 derives from audited financial statements that
we include later in this report. The financial data for 1994 and 1995
derives from audited financial statements for those years, which do not appear
in this report. As explained in the Notes to the Consolidated Financial
Statements that appear later in this report, the financial data for 1994
through 1998 is derived from the audited financial statements of us and of our
predecessor companies for those years. The 1998 pro forma data reflects our
January 1999 Jamison and LeaseTrend acquisitions.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
------ ------ ------- ------- ------- -----------
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues........................... $1,420 $2,062 $ 4,336 $ 7,900 $13,900 $21,923
Cost of revenues................... 591 931 2,188 3,413 4,562 8,210
------ ------ ------- ------- ------- -------
Gross margin....................... 829 1,131 2,148 4,487 9,338 13,713
Operating expenses................. 990 1,994 4,829 7,786 12,864 20,465
------ ------ ------- ------- ------- -------
Loss from operations............... (161) (863) (2,681) (3,299) (3,526) (6,752)
Other income (expense), net........ (76) 79 49 33 341 96
------ ------ ------- ------- ------- -------
Net loss........................... $ (237) $ (784) $(2,632) $(3,266) $(3,185) $(6,656)
====== ====== ======= ======= ======= =======
Net loss per share - basic and
diluted......................... $(0.09) $(0.22) $ (0.60) $ (0.57) $ (0.44) $ (0.76)
====== ====== ======= ======= ======= =======
Weighted average shares
outstanding..................... 2,609 3,635 4,388 5,722 7,213 8,771
====== ====== ======= ======= ======= =======
AS OF DECEMBER 31,
----------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
----- ------ ------ ------- ------- -----------
(UNAUDITED)
BALANCE SHEET DATA:
Cash............................... $ 132 $1,328 $3,326 $ 1,069 $19,667 $ 9,664
Working capital.................... (332) 1,017 2,248 (1,547) 16,900 5,561
Total assets....................... 790 3,015 7,670 6,581 27,541 38,439
Total liabilities.................. 727 688 2,000 3,664 4,338 5,726
Stockholders'equity................ 63 2,327 5,670 2,917 23,203 32,713
AS OF DECEMBER 31,
--------------------------------------------------------
PRO FORMA
1994 1995 1996 1997 1998 1998
------ ------ ------ -------- -------- ---------
OTHER OPERATING DATA:
Markets Covered by Database.......... 3 4 9 14 19 40
Counties Covered by Database......... 16 42 56 120 136 302
Number of Clients.................... 88 204 542 1,123 1,731 2,441
Billions of Square Feet in
Database.......................... 1.3 2.2 3.3 6.5 9.1 12.7
Buildings in Database................ 12,775 24,822 43,520 112,335 175,471 261,108
Images in Database................... 15,459 24,926 47,308 90,545 178,827 227,598
19
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This and other sections of this report contain statements about the
future regarding business strategies, market potential, future financial
performance, and other matters. We also use in this report the words
"intends", "anticipates", "expects", and similar expressions to identify these
types of "forward-looking" statements. Many risks and uncertainties, including
those described below, could cause our actual results to differ materially from
our forward-looking statements.
OVERVIEW
Realty Information Group is the nation's largest digital provider of
commercial real estate information and analysis. We are creating a digital
marketplace where the members of the commercial real estate and related
business community can continuously interact and facilitate transactions by
efficiently exchanging accurate and standardized information. Our wide array of
digital service offerings includes a leasing marketplace, a selling
marketplace, decision support, tenant information, property marketing, and
industry news. Substantially all our current services are digitally delivered
and a majority of our clients receive daily service updates over the Internet.
We completed our initial public offering in July 1998 and received net
proceeds of approximately $22.7 million. We primarily used those net proceeds
to fund the geographic and service expansion of our business, including three
strategic acquisitions, and to expand our sales and marketing organization.
From 1994 through 1998, we expanded the geographical coverage of our
existing services and developed new services. In addition to internal growth,
this expansion included the acquisitions of Chicago ReSource, Inc. in Chicago in
1996 and New Market Systems, Inc. in San Francisco in 1997. In August of 1998,
we expanded into the Houston region through the acquisition of Houston-based
real estate information provider C Data Services, Inc. In January of 1999, we
expanded further by acquiring LeaseTrend, Inc. and Jamison Research, Inc.,
discussed in detail later in this section.
We consider regions that have had ongoing operations for at least 18
months to be established, and we currently generate positive cash flow from our
operations in each established region. As of December 31, 1998, the following
regions are those that have been in operation for more than 18 months and that
we consider to be established: Washington (includes Baltimore), Chicago, New
York (includes Northern New Jersey, Long Island, Westchester, and Connecticut),
Los Angeles (includes Orange County), San Francisco, and Philadelphia. These
regions provide us with substantial cash flow which we reinvest into the
business. Since its inception, the development of our business has required
substantial investments for the expansion of services and the establishment of
operating regions, which has resulted in substantial net losses on an overall
basis.
The incremental cost of introducing new services in an established
region in the future may reduce the profitability of a region or cause it to
incur losses. We expect to use a significant portion of the proceeds of this
offering for development and distribution of new services, expansion of all
existing services across current markets, and geographic expansion in the U.S.
and international markets. Therefore, while we expect operations in existing
established regions to remain profitable and provide substantial funding, we
expect our overall expansion plans to generate significant losses and negative
cash flow from operations for at least the next two years.
Although our services are expanding rapidly, our CoStar service
currently generates the largest portion of our revenue. The CoStar contracts
range from terms of one to three years and generally renew automatically. Upon
renewal, many of the contract rates increase automatically in accordance with
contract provisions or as a result of renegotiations. To encourage clients to
use our services
20
regularly, we charge fixed amounts rather than fees based on actual system
usage. We charge our clients based on the number of sites, organization size,
and the number of services to which a client subscribes. Our contract renewal
rate currently exceeds 90% on an annual basis. Our clients pay contract fees on
an annual, quarterly, or monthly basis. We recognize this revenue over the life
of the contract on a straight line basis beginning with the installation or
renewal date. Annual and quarterly advance payments result in deferred revenue,
substantially reducing the working capital requirements generated by the growth
in our accounts receivable.
As explained in the Notes to the Consolidated Financial Statements
that appear later in this report, the financial data for 1996 through 1998
is derived from the audited financial statements of us and of our predecessor
companies for those years.
CONSOLIDATED RESULTS OF OPERATIONS
The following table provides our selected consolidated results of
operations (in thousands of dollars and as a percentage of total revenue) for
the indicated periods:
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
Revenues................................. $ 4,336 100% $ 7,900 100% $13,900 100%
Cost of revenues......................... 2,188 50 3,413 43 4,562 33
------- --- ------- --- ------- ---
Gross margin............................. 2,148 50 4,487 57 9,338 67
Operating expenses
Selling and marketing............... 2,712 63 4,374 55 7,240 52
Software development................ 254 6 395 5 704 5
General and administrative.......... 1,863 43 3,017 38 4,920 35
------- --- ------- --- ------- ---
Total operating expenses....... 4,829 112 7,786 98 12,864 92
------- --- ------- --- ------- ---
Loss from operations..................... (2,681) (62) (3,299) (41) (3,526) (25)
Other income (expense), net.............. 49 1 33 0 341 2
------- --- ------- --- ------- ---
Net loss................................. $(2,632) (61)% $(3,266) (41)% $(3,185) (23)%
======= === ======= === ======= ===
COMPARISON OF 1998 AND 1997
Revenues. Revenues grew 76% from $7.9 million in 1997 to $13.9
million in 1998. This increase resulted principally from growth in our client
base in all regions we served, expansion into new regions, and expansion of our
services in existing regions. Revenues from regions we considered established
as of December 31, 1998 grew from $7.9 million in 1997 to $13.1 million in
1998, an increase of 66%. During 1998, we also expanded into Houston,
Sacramento, Phoenix, and San Diego. Our advertising revenues, which we
generated primarily in our established regions, increased 139% from $405,000 in
1997 to $969,000 in 1998.
Gross Margin. Gross margin increased from $4.5 million in 1997 to
$9.3 million in 1998. This increase represented an improvement from 57% to 67%
of revenues. The increase resulted principally in established regions, where
revenue growth exceeded the growth of cost of revenues, which remained
relatively constant.
Selling and Marketing Expenses. Selling and marketing expenses
increased 66% from $4.4 million in 1997 to $7.2 million in 1998, but decreased
as a percentage of revenues from 55% in 1997 to 52% in 1998. Selling and
marketing expenses increased as we expanded our sales organization into new
regions and began to enhance our selling and marketing capabilities on a
national basis.
21
Selling expenses declined as a percent of revenues due to sales growth during
the year and the growing renewable contract base.
General and Administrative Expenses. General and administrative
expenses increased 63% from $3.0 million in 1997 to $4.9 million in 1998, but
decreased as a percentage of revenues from 38% in 1997 to 35% in 1998. General
and administrative expenses increased because we hired new employees to support
our expanding organization and client base, and also in response to increases
in our occupancy and communication costs. General and administrative expenses
decreased as a percentage of revenues due to the continued leveraging of
corporate overhead costs over a larger organization with an expanding client
base.
Other Income. Other income increased from $33,000 in 1997 to $341,000
in 1998. This increase resulted from an increase in interest income due to our
higher average cash balances in 1998, reflecting the net proceeds from our
initial public offering in July 1998.
COMPARISON OF 1997 AND 1996
Revenues. Revenues grew 82% from $4.3 million in 1996 to $7.9 million
in 1997. This increase in revenues resulted principally from growth in our
client base in all regions of the country, expansion into new regions, and
expansion of services into existing regions. Revenues from regions we
considered established as of December 31, 1997 grew from $4.3 million in 1996
to $7.3 million in 1997, an increase of 70%. A portion of this growth resulted
from a full year of operation in the Chicago region in 1997, which we entered
on April 1, 1996, by acquiring Chicago Resource, Inc. In 1997, we entered San
Francisco through the purchase of 99.3% of the capital stock of NMS, Inc. We
also entered Philadelphia in the first quarter of the year and Boston in the
fourth quarter. Our advertising revenues, which we generated primarily in our
established regions, increased 232% from $122,000 in 1996 to $405,000 in 1997.
Gross Margin. Gross margin increased from $2.1 million in 1996 to
$4.5 million in 1997, improving from 50% to 57% of revenues. This increase
resulted principally from the expanding revenues and profitability of
established regions, including Washington, D.C., New York, Los Angeles, and
Chicago.
Selling and Marketing Expenses. Selling and marketing expenses
increased 61% from $2.7 million in 1996 to $4.4 million in 1997, but decreased
as a percentage of revenues from 63% in 1996 to 55% in 1997. Selling and
marketing expenses increased as we expanded our sales organization into new
markets and we invested in the development of advertising sales. Selling
expenses declined as a percentage of revenues due to sales growth during the
year and the growing renewable contract base.
General and Administrative Expenses. General and administrative
expenses increased 62% from $1.9 million in 1996 to $3.0 million in 1997, but
decreased as a percentage of revenues from 43% in 1996 to 38% in 1997. General
and administrative expenses increased as we hired new employees to support our
expanding organization and client base, and as our occupancy and communication
costs increased. General and administrative expenses decreased as a percentage
of revenues due to the continued leveraging of corporate overhead costs over a
larger organization with an expanding client base.
22
CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS
The following tables summarize our consolidated results of operations
on a quarterly basis for the indicated periods:
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 30
------- ------- -------- ------- ------- ------- -------- -------
(IN THOUSANDS)
Revenues................................. $1,555 $ 1,858 $2,074 $2,413 $2,839 $3,254 $ 3,659 $ 4,148
Cost of revenues......................... 717 937 890 869 904 968 1,248 1,442
------ ------- ------ ------ ------ ------ ------- -------
Gross margin............................. 838 921 1,184 1,544 1,935 2,286 2,411 2,706
Operating expenses....................... 1,638 1,966 1,998 2,184 2,281 2,492 3,650 4,442
------ ------- ------ ------ ------ ------ ------- -------
Loss from operations..................... (800) (1,045) (814) (640) (346) (206) (1,239) (1,736)
Other income (expense), net.............. 31 17 3 (18) (38) (40) 202 218
------ ------- ------ ------ ------ ------ ------- -------
Net loss................................. $ (769) $(1,028) $ (811) $ (658) $ (384) $ (246) $(1,037) $(1,518)
====== ======= ====== ====== ====== ====== ======= =======
1997 1998
-------------------------------------- --------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 30
------- ------- -------- ------- ------- ------- -------- -------
(AS A PERCENTAGE OF TOTAL REVENUE)
Revenues................................. 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues......................... 46 50 43 36 32 30 34 35
--- --- --- --- --- --- --- ---
Gross margin............................. 54 50 57 64 68 70 66 65
Operating expenses....................... 105 106 96 91 81 77 100 107
--- --- --- --- --- --- --- ---
Loss from operations..................... (51) (56) (39) (27) (13) (7) (34) (42)
Other income (expense), net.............. 2 1 0 (1) (1) (0) 6 5
--- --- --- --- --- --- --- ---
Net loss................................. (49)% (55)% (39)% (28)% (14)% (7)% (28)% (37)%
=== === === === === === === ===
LEASETREND, INC. ACQUISITION
On January 8, 1999, we acquired LeaseTrend, Inc., a Cincinnati-based
provider of commercial real estate information, in exchange for $4.5 million in
cash and 566,671 shares of our common stock. LeaseTrend provides information in
18 markets throughout the West, Midwest, and Florida. At the time we acquired
it, LeaseTrend served approximately 300 client firms and 3,000 users. Two
members of LeaseTrend's senior management have now joined us as Senior Vice
President and Vice President. The audited financial statements of LeaseTrend
appear later in this report. For the year ended December 31, 1998,
LeaseTrend generated cash from operating activities of $211,000.
As a result of acquiring LeaseTrend, we will allocate $9.8 million of
the LeaseTrend purchase price to capitalized product development costs and
intangible assets, which we will amortize using estimated useful lives of two
to ten years. The estimated charges for amortization of the LeaseTrend
capitalized product development and intangible assets are approximately $1.3
million for each of the first two years. We expect them to decline to
approximately $1.0 million or less in subsequent years. Approximately $300,000
of the amortization in each of the first two years relates to capitalized
product development, and we will charge this to cost of sales, reducing gross
margins.
23
We will make significant investments to integrate LeaseTrend into our
organization, including costs to:
- upgrade computer systems;
- establish network connections;
- convert database structures;
- train personnel; and
- migrate LeaseTrend clients to our services.
Results of LeaseTrend Operations
The following table provides LeaseTrend's selected results of
operations (in thousands of dollars and as a percentage of total revenue) for
the indicated periods:
YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1998
------------------- -------------------
Revenues.................................................... $2,549 100% $3,445 100%
Cost of revenues............................................ 908 36 1,311 38
------ --- ------ ---
Gross margin................................................ 1,641 64 2,134 62
Operating expenses
Selling, general and administrative.................... 1,750 69 2,433 71
------ --- ------ ---
Total operating expenses.......................... 1,750 69 2,433 71
------ --- ------ ---
Loss from operations........................................ (109) (5) (299) (9)
Other income (expense), net................................. (369) (14) (433) (12)
------ --- ------ ---
Net loss.................................................... $ (478) (19)% $ (732) (21)%
====== === ====== ===
Comparison of 1998 and 1997 -- LeaseTrend
Revenues. LeaseTrend's revenues grew 35% from $2.5 million in 1997 to
$3.4 million in 1998. This increase in revenues resulted principally from
growth in LeaseTrend's client base and expansion into new regions, including
Denver, Florida, and Raleigh.
Gross Margin. Gross margin increased from $1.6 million in 1997 to
$2.1 million in 1998 due to substantial revenue growth, but declined from 64%
to 62% of revenues as a result of additional research costs for new markets.
Selling, General, and Administrative. Selling, general, and
administrative expenses increased 39% from $1.8 million in 1997 to $2.4 million
in 1998, and increased from 69% to 71% of revenues. Selling and marketing
expenses increased as LeaseTrend expanded its sales organization into new
markets.
JAMISON RESEARCH, INC. ACQUISITION
January 22, 1999, we acquired Jamison Research, Inc., an Atlanta-based
provider of commercial real estate information, for $5.3 million in cash and
448,031 shares of our common stock. Jamison provides commercial real estate
information in the Atlanta and Dallas/Fort Worth areas.
24
Jamison's audited financial statements appear later in this report. In 1998,
Jamison generated cash from operating activities of $1.2 million before
compensation to stockholders.
As a result of acquiring Jamison, we will allocate the purchase price
of $10.7 million to capitalized product development costs and intangible
assets, which we will amortize using estimated useful lives of two to ten
years. The estimated charges for amortization of the Jamison capitalized
product development and intangible assets are approximately $1.4 million for
each of the first two years. We expect them to decline to approximately $1.1
million or less in subsequent years. Approximately $400,000 of the amortization
in each of the first two years relates to capitalized product development, and
we will charge this to cost of sales, reducing gross margins.
We will make investments to integrate Jamison into our organization,
including costs to:
- upgrade computer systems;
- establish network connections;
- convert database structures;
- train personnel; and
- migrate Jamison clients to our services.
We anticipate that during this period, the positive cash flow we expect from the
Jamison operations will partially offset the costs of this conversion process.
Results of Jamison Operations
The following table provides Jamison's selected results of operations (in
thousands of dollars and as a percentage of total revenues) for the indicated
periods:
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998
------------------- -------------------
Revenues.................................................... $3,664 100% $4,578 100%
Cost of revenues............................................ 1,379 38 1,658 36
------ --- ------ ---
Gross margin................................................ 2,285 62 2,920 64
Operating expenses
Compensation to stockholders........................... 570 15 1,190 26
Selling, general and administrative.................... 1,682 46 1,887 41
------ --- ------ ---
Total operating expenses.......................... 2,252 61 3,077 67
------ --- ------ ---
Income (loss) from operations............................... 33 1 (157) (3)
Other income (expense), net................................. (35) (1) (10) (0)
Provision for income taxes.................................. (3) (0) 48 0
------ --- ------ ---
Net loss.................................................... $ (5) (0)% $ (119) (3)%
====== === ====== ===
Comparison of 1998 and 1997 -- Jamison Research, Inc.
Revenues. Revenues grew 25% from $3.7 million in 1997 to $4.6 million
in 1998. This increase in revenues resulted principally from growth in
Jamison's client base, primarily in the Dallas region.
25
Gross Margin. Gross margin increased from $2.3 million in 1997 to
$2.9 million in 1998, improving from 62% to 64% of revenues. This increase
resulted principally from the expanding revenues in Dallas, where revenue
growth exceeded the growth of costs, which are primarily fixed.
Selling, General, and Administrative. Selling, general, and
administrative expenses increased 12% from $1.7 million in 1997 to $1.9 million
in 1998, but decreased as a percentage of revenues from 46% in 1997 to 41% in
1998. Selling, general, and administrative expenses increased as Jamison
completed its expansion into Dallas, and added sales and supporting staff to
the market. Due to the expanding revenues, this declined as a percentage of
sales.
LIQUIDITY AND CAPITAL RESOURCES
Our cash balance was $19.7 million as of December 31, 1998. This
represented an increase of $18.6 million over our cash balance of $1.1 million
as of December 31, 1997. Our increased cash balance resulted principally from
the net proceeds of our initial public offering in July 1998. During 1998, we
financed our operations and growth through cash flow from operating activities,
primarily from the established regions, short-term credit lines, and the
proceeds of our initial public offering. Net cash used in operations for 1998
was $293,000, compared to net cash used in operations of $2.2 million for 1997.
This change resulted from significant increases in revenues and profitability
in our established markets as of December 31, 1998. Additionally, we received
advance payments from clients on a number of contracts, resulting in the
generation of cash as reflected in deferred revenue balances of $903,000, and
$1.6 million as of December 31, 1997 and December 31, 1998, respectively. We
continue to experience overall operating losses as a result of our recent
expansion into new regions, while our established regions continue to generate
substantial cash flow from operations.
Net cash used in investing activities amounted to $2.3 million for
1998, including capitalized product development costs, consisting principally
of building photography, and fixed-asset purchases, consisting principally of
computer and office equipment. We currently have no material commitments for
capital expenditures. During the third quarter of 1998, we acquired
Houston-based C Data Services, Inc. in exchange for 93,530 shares of our common
stock and $9,000 in cash. Also, as we described above, in January 1999, we
acquired LeaseTrend, Inc. and Jamison Research, Inc. for a total of $9.8
million in cash and 1,014,702 shares of our common stock.
On July 8, 1998, we repaid the amount we owed on our line of credit
and on subordinated debt to a stockholder, for a total of $1.7 million out of
the proceeds of our initial public offering. Effective October 5, 1998, we
renewed our line of credit and increased it from $1.0 million to $5.0 million.
The line of credit contains certain restrictive and financial covenants,
including minimum net worth and current ratio requirements. As of December 31,
1998, we had no borrowings outstanding against the line of credit.
To date, we have grown in part by acquiring other companies, and we may
continue to make acquisitions. Our acquisitions may vary in size and could be
material to our current operations. We expect to use cash, stock, or other
means of funding to make these acquisitions.
Based on current operations, we believe that our available cash combined
with our line of credit and positive cash flow from our established regions
should be sufficient to fund our operations for at least the next two years.
On March 24, 1999, we filed a registration statement to register common stock
of the Company for an offering which would raise substantial additional funds
for operations. If the offering is successful, we would expand our plans to
introduce new and upgraded services and expand geographically, and we expect to
incur significantly higher operating costs. We believe that the proceeds of
the offering combined with available cash and positive cash flow from our
established regions would be sufficient to fund that expanded operating plan
for at least the next two years.
Through June 30, 1998, we operated as either a Subchapter S
corporation or a limited partnership, and we were not subject to corporate
income taxes. After June 30, 1998, we became a
26
taxable entity. Although we have experienced losses to date, future profits, to
the extent not offset by the benefits of loss carryforwards, would result in
income tax liabilities. We do not expect to benefit substantially from tax loss
carryforwards generated prior to July 1998.
We do not believe the impact of inflation has significantly affected
our operations.
IMPACT OF THE YEAR 2000
We believe that we may be affected by computer problems associated
with the Year 2000. The Year 2000 issue arises because some computer hardware
and software will not work properly after 1999. That failure occurs because
many older systems express dates in a two-digit format. For example, under this
format the year 1999 is expressed as 99. As a result, these older systems may
be unable to distinguish between the year 1900 and the year 2000. That
inability may cause hardware system failures, software miscalculations, and
disruptions of data transmissions.
Our plans to resolve the Year 2000 issue involve the following steps:
assessment, remediation, and confirmation through testing. To date, we have
completed our preliminary assessment of the issue and approximately 60% of the
remediation phase. We have undertaken testing as particular aspects of the
remediation phase are completed.
Assessment
Our Year 2000 assessment has included:
- cataloging and evaluating internal hardware and software systems
obtained from third parties;
- testing the software we have developed ourselves; and
- contacting our clients, suppliers, and service providers.
Remediation and Testing Efforts
We have identified three areas that require evaluation and
remediation: internal infrastructure, our proprietary software, and impacts
from systems of vendors and our clients.
Internal Infrastructure. We are currently cataloging and evaluating
our hardware to determine its Year 2000 compliance. Our workstation supplier
has informed us that all workstations we have obtained from it are compliant.
We have successfully completed testing on 20% of those workstations. We have
purchased new, compliant servers to replace older hardware and expect those
servers to be operational by June 1999. We have scheduled our laptops for
compliance testing by June 1999.
We are also in the process of making the software used in our internal
infrastructure Year 2000 compliant. We have already installed a new, compliant
enterprise accounting system. We expect to convert all of our network server
operating systems to compliant software and to replace our non-compliant phone
and voice mail systems with compliant systems by August 1999.
Proprietary Software and Databases. Our commercial real estate
information systems use extensive proprietary software and databases. We
performed Year 2000 compliance measures for much of this software in prior
years since various fields, like tenant lease expirations, required compliance
in the early 1990's to accommodate post-2000 dates. Since that time, we have
assessed all our proprietary commercial real estate information software to
identify areas vulnerable to these problems. This led us to recode common date
routines, functions, and methods so they would interpret both entered and
stored dates with a compliant approach. We believe that our proprietary
27
systems are now compliant, but we might still encounter additional Year 2000
defects. In addition, we are upgrading our older internal software applications
with newer systems to provide greater assurance of Year 2000 compliance.
We have identified additional potential Year 2000 risks with respect
to our recently-acquired LeaseTrend and Jamison subsidiaries. We believe that a
significant percentage of their hardware and internal proprietary software are
non-compliant. We are currently upgrading these computer systems and are
converting the acquired databases into our centralized system to replace the
non-compliant products we acquired used by those subsidiaries. We plan to
complete this process in the next several months in the normal course of
business.
Client and Vendor Issues. Our assessment has also revealed that some
of our clients use hardware and software that is not Year 2000 compliant. As a
result, our clients' systems may not support the use of our software. We have
notified our clients of this potential issue. Where we have uncovered such
problems, we have attempted to ensure compatibility by coding our own
alternatives or replacements. Despite these efforts, our clients' success in
continuing to install and use our services depends significantly on their own
compliance efforts, which we do not control. If necessary, we will develop in
the next several months a contingency plan to address problems arising from our
clients' failure to have compliant computer equipment and software.
Third party Year 2000 compliance problems may also affect us by
interrupting services which we need to conduct our business. For example, most
of our data updates are delivered via the Internet. If Year 2000 problems
result in disruption of the Internet as a delivery system, we believe we could
use alternative delivery systems, which would mitigate to some extent the
impact of this disruption. We also rely on telecommunications providers for
communication services and distribution of our product data updates. Any
compliance problems by these providers could lead to extended loss of their
services and significant unanticipated expenses to remedy the situation.
Compliance Costs
Our incremental costs expended to date in connection with Year 2000
compliance have not been significant, as we have undertaken most of our
activities in the normal course of business. We estimate, however, that during
the remainder of 1999 we will spend $1,000,000 in connection with Year 2000
compliance. A large part of this cost will result from upgrading LeaseTrend and
Jamison equipment and software, much of which was planned independently of the
Year 2000 issue.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have significant exposure to market risks
associated with changes in interest rates related to its cash equivalent
securities held as of December 31, 1998.
28
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements meeting the requirements of Regulation S-X are
set forth beginning at page F-1. The registrant is not subject to the
provisions of Item 302 of Regulation S-K concerning supplementary financial
data.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS, ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
Our executive officers, key employees, and directors are as follows:
YEARS
NAME AGE OF SERVICE POSITION
---- --- ---------- --------
Michael R. Klein.................. 57 12 Chairman of the Board of Directors
Andrew C. Florance*............... 35 12 Chief Executive Officer, President, and
Director
Frank A. Carchedi*................ 41 2 Chief Financial Officer
Curtis M. Ricketts*............... 36 4 Senior Vice President of Sales and Marketing
David M. Schaffel*................ 38 10 Vice President of Product Development
Fred A. Heitzman III*............. 49 10** Senior Vice President
Henry D. Jamison IV............... 42 18** President of Jamison Research, Inc.***
Dean Violagis..................... 32 9 Vice President of Research
Robert J. Caulfield, Jr. ......... 43 1 Vice President of Sales
Gregory Benkert................... 43 10* Vice President
David Bonderman................... 56 12 Director
Warren H. Haber................... 58 4 Director
John Simon........................ 56 3 Director
Lanning Macfarland III............ 46 3 Director
- -------------------------
* Executive Officer
** Includes years of service with acquired companies.
*** Jamison Research, Inc. is one of our wholly-owned subsidiaries.
Michael R. Klein is one of our founders and has been Chairman of our
Board of Directors since 1987. He has been, since 1974, a partner of the law
firm Wilmer, Cutler & Pickering, based in Washington, D.C., and was a member of
its five-person management committee until July 1998. Over the past five years
Mr. Klein has served as a member of the board of directors (and Audit Committee
Chairman) of both National Education Corporation and Steck-Vaughn Publishing
Corporation, and as a director (and member of the Executive Committee) of
Perini Corporation. He is also a director of SRA International, Inc. In 1990 to
1991, on leave from his law firm, he served as the Chief Administrative Officer
and Vice Chairman of the Board of Directors of Republic Waste Industries, Inc.
(now known as Republic Industries, Inc.).
Andrew C. Florance is also one of our founders and has served as our
President and as a Director since 1987 and as our Chief Executive Officer since
1995. Prior to founding Realty Information Group, Inc., Mr. Florance was
President of a predecessor company, Real Estate Infonet, a real estate public
records publishing operation, from 1985 to 1987. Mr. Florance held primary
responsibility for developing the first generation software products for
Federal Filings, a SEC form 13-D tracking service, which was later acquired by
Dow Jones. Mr. Florance was a co-founder of a commercial real estate
information trade association (REI-NEX) and served on its board from 1993-96.
Mr. Florance served on the focus group responsible for developing the concepts
related to the Federal government's use of real estate in Vice President Gore's
National Performance Review. He received a B.A. in economics from Princeton
University.
Frank A. Carchedi, our Chief Financial Officer, joined us in May 1997
from ITC Learning Corporation, a publicly held publisher and distributor of
multi-media training products, where he had been Vice President, Treasurer and
Chief Financial Officer since 1995. Prior to that, Mr. Carchedi was with Ernst
& Young, LLP for ten years, most recently as a consultant in the firm's New
York
29
Merger and Acquisitions Group and its Entrepreneurial Services Group in
Washington, D.C. He received a B.S. in accounting from Wake Forest University.
Curtis M. Ricketts, our Senior Vice President of Sales and Marketing,
joined us as the Vice President of Sales and Marketing in December 1994. Prior
to joining us, Mr. Ricketts spent six years as an officer of the Carey Winston
Company, the largest office and industrial real estate services firm in the
Washington-Baltimore region. Mr. Ricketts served as a broker and as the chief
financial analyst for the firm's office and industrial brokerage and advisory
divisions, but was also responsible for new technology. Mr. Ricketts majored in
business at the University of Maryland.
David M. Schaffel, our Vice President of Product Development, has been
with us since 1989. Mr. Schaffel is responsible for the design, development,
and maintenance of our software services and products as well as any new
services. From 1987 until joining us, Mr. Schaffel was president of Biscayne
Technical Services, Inc., where he developed a logistics tracking application
for the United States Air Force. Mr. Schaffel received a M.S. -- Operations
Research/Statistics from the University of Miami and a B.S. in business from
the University of Florida.
Fred A. Heitzman III, Senior Vice President, joined us upon the
acquisition of LeaseTrend, Inc. in January 1999, where he had served as
President since he founded the company in 1988. Prior to that, he was the
President of Ameristate, Inc., a real estate information company providing
ownership and comparable sales information, which he founded in 1978. Mr.
Heitzman is a member of the Cincinnati Real Estate Roundtable, REEAC, CEO
Roundtable, and a director of Enerfab, Inc. Mr. Heitzman received a B.A. in
economics from Denison University.
Henry D. Jamison IV, President of our Jamison Research, Inc.
subsidiary, joined us in January 1999 when we acquired Jamison Research, Inc.,
where he had been Chairman since founding the firm in 1981. Prior to that, Mr.
Jamison was employed as a national accounts manager with his family's
Nashville-based manufacturing firm, Jamison Bedding and Furniture, Inc. Mr.
Jamison majored in business at the University of Colorado.
Dean Violagis, our Vice President of Research, is responsible for our
research department, of which he has been a manager since 1989. Mr. Violagis
received a B.A. in real estate finance from the American University in
Washington, D.C.
Robert J. Caulfield, Jr. serves as Vice President of Sales. Prior to
joining us in 1998, Mr. Caulfield was Director of Sales and Business Manager of
the Southeast District of Reuters America, Inc. from 1988 to 1998, where he
managed a media sales unit. Prior to joining Reuters, he was a marketing
manager of Southern California Technology Executives Network. Mr. Caulfield
received a B.S. in marketing from Villanova University and his M.B.A. in
international marketing from The George Washington University.
Gregory Benkert, who serves as Vice President, joined us upon the
acquisition of LeaseTrend, Inc. in January 1999, where he had been Vice
President since 1991. Prior to that, he was Vice President and Chief Financial
Officer of Ameristate, Inc. for five years, and prior to that an Audit Manager
with Arthur Andersen & Co. Mr. Benkert is a Certified Public Accountant and
received a B.A. and an M.B.A from Xavier University.
David Bonderman is principal of Texas Pacific Group and an indirect
general partner of TPG Partners I, L.P. and TPG Partners II, L.P. Prior to
forming Texas Pacific Group, Inc., Mr. Bonderman served as Vice President and
Chief Operating Officer of Keystone, Inc. (formerly the Robert M. Bass Group,
Inc.) from July 1983 to August 1992. Mr. Bonderman was a partner in the law
firm of Arnold & Porter from 1971 to 1983. Mr. Bonderman currently serves on
the boards of directors of Continental Airlines, Inc., Bell and Howell Company,
Ducati Motorcycles S.p.A.,
30
Beringer Wine Estates, Denbury Resources, Inc., Ryanair, P.L.C., Washington
Mutual, Inc., Oxford Health Plans, Inc., and Virgin Entertainment, Ltd. He has
been one of our Directors since 1987.
Warren H. Haber has been, for more than twenty-five years, Chairman of
the Board and Chief Executive of Founders Equity, Inc. and its affiliates,
private investment concerns engaged in the business of identifying businesses
for acquisition in principal transactions and managing such businesses for
their own accounts. Mr. Haber currently serves on the boards of directors of
Beverly Glen Medical Systems, American Lifecare, Grand Charter, Ltd. and Warnex
Pharma. He has served as one of our Directors since 1995.
John Simon is a Managing Director of the investment banking firm Allen
& Company Incorporated, with which he has been associated for over 20 years.
Mr. Simon currently serves on the board of directors of The Immune Response
Corporation, Neurogen Corporation, and Advanced Technical Products, Inc. Mr.
Simon has sat on our Board of Directors since 1996.
Lanning Macfarland III has been associated with the Law Bulletin
Publishing Company of Chicago since 1983, from which we acquired ReSource in
March 1996. He is currently the General Operations Officer of LBPC and is its
publisher for all real estate trade publications and is responsible for all new
product development and on-line legal services. Prior to his association with
LBPC, Mr. Macfarland held sales and publishing positions with The New Yorker,
Time, Inc. and Bradley Printing. He has served as one of our Directors since
1996.
ELECTION OF DIRECTORS
All of our current directors serve for one-year terms or until their
successors are elected and qualified. Stockholders' agreements that included
provisions governing the composition, power, and election of the Board of
Directors terminated following our initial public offering in July 1998.
COMMITTEES OF THE BOARD OF DIRECTORS
Our Board of Directors has an Audit Committee that reviews the results
and scope of the annual audit and other services provided by our independent
public accountants. It also has a Compensation Committee that makes
recommendations concerning salaries and incentive compensation for our
employees. The Board of Directors has designated the Compensation Committee as
the administrator of the Stock Option Plan described below.
DIRECTOR COMPENSATION
Those members of our Board of Directors who do not also serve as an
officer or employee with us are entitled to their expenses for attending each
meeting of the Board of Directors and each meeting of any committee. Until May
1998, Founders Equity Inc. received a monthly fee of $10,000 and Mr. Klein a
monthly fee of $6,667, but those fee arrangements have terminated. Since our
initial public offering last year, our non-employee directors have been
entitled to $15,000 annually payable in shares of our common stock.
SECTION 16(A) BENEFICIAL OWERSHIP REPORTING COMPLIANCE
A Form 3 reporting the initial holdings of options on our common stock
held by Fred A. Heitzman III, who became one of our Senior Vice Presidents on
December 14, 1998, and a Form 4 reporting the common stock he received from us
in connection with our January 8, 1999 acquisition of LeaseTrend, Inc. were not
timely filed with the SEC. The required reports were made in filings with the
SEC on March 4, 1999.
31
ITEM 11 EXECUTIVE COMPENSATION
The following table provides the annual salary, bonuses, and all other
compensation awards and payouts to our Chief Executive Officer and President
and to our most highly compensated executive officers who earned more than
$100,000 in salary and bonus in 1998 (collectively, the "Named Executive
Officers") for 1996 through 1998.
SUMMARY COMPENSATION TABLE
LONG-TERM ALL OTHER
ANNUAL COMPENSATION COMPENSATION AWARDS COMPENSATION
- -------------------------------------------------------------------------------------- --------------------- ------------
FISCAL OTHER ANNUAL SECURITIES UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- --------------------------- ------ -------- -------- ------------ ---------------------
Andrew C. Florance.................... 1998 $166,346 -- -- 65,000 $ 2,309
Chief Executive Officer & President 1997 150,000 $100,000 $150,000(1) -- 2,122
1996 150,000 100,000 150,000(1) -- --
Frank A. Carchedi..................... 1998 117,096 27,029 -- 40,000 865
Chief Financial Officer 1997 70,654(2) 20,000 -- 15,150 --
1996 -- -- -- -- --
Curtis M. Ricketts.................... 1998 104,362 47,126 -- 25,000 2,108
Senior Vice President 1997 83,077 46,166 -- -- 1,700
of Sales and Marketing 1996 64,481 37,012 -- -- --
David M. Schaffel..................... 1998 136,871 3,044 -- 40,000 19,097
Vice President of 1997 117,898 3,000 -- -- 9,478
Product Development 1996 96,941 3,000 -- -- --
- -------------------------
(1) In 1997, we paid Mr. Florance additional compensation in the form of shares
of a predecessor company valued at the equivalent of $4.62 per share for our
common stock.
(2) Mr. Carchedi joined us as Chief Financial Officer in May 1997. On an
annualized basis, his base salary was $110,000 per year in 1997.
EMPLOYMENT AGREEMENTS
We have employment agreements with Messrs. Florance, Carchedi,
Ricketts, and Schaffel. Each of these agreements is effective as of January 1,
1998. Each entitles the executive to a specified base salary, a bonus award up
to a specified percentage of base compensation based upon achievement of
performance objectives, and an award of stock options vesting over time. The
executive also may participate in any insurance, medical, disability or pension
plan generally made available to our senior executive officers.
The agreements are for initial terms of two years (three in the case
of Mr. Florance) and are automatically renewable for successive one-year terms
unless we or the executive terminate the agreement. Each agreement contains a
covenant not to compete with us for the two years immediately following
termination, but applicable law may limit the term or scope of this covenant.
The agreements generally provide that, if we terminate the executive's
employment without good cause, the executive is entitled to his base salary for
the greater of six months or whatever period remains under the agreement, to a
prorated share of his bonus for the year in which termination occurred, and to
the immediate vesting of all stock options due to vest within the following 12
months.
The termination provisions of Mr. Florance's agreement differ in that
they also apply if he terminates the agreement for good cause; in that his
termination payments will be for the greater of 12 months or the remaining
period under the agreement; that he will receive a gross-up payment to cover
any taxes assessed under Section 4999 of the Internal Revenue Code; and in that
all his unvested stock options will vest.
32
The following table gives specific economic terms of these agreements.
MAXIMUM BONUS NUMBER AND
AS PERCENTAGE OF EXERCISE PRICE OF
NAME INITIAL BASE SALARY BASE COMPENSATION STOCK OPTIONS
---- -------------------- ----------------- -----------------
Andrew C. Florance.................................. $175,000 100% 65,000
at $9
Frank A. Carchedi................................... 125,000 75 40,000
(as of July 1, 1998) at $9
Curtis M. Ricketts.................................. 110,000 100 25,000
(as of July 1, 1998) at $9
David M. Schaffel................................... 120,000 50 40,000
(as of July 1, 1998) at $9
- ------------------
25% of the options vest on each of the following dates: July 1, 1998, and
December 31, 1998, 1999, and 2000.
OPTION GRANTS
The following table provides certain information regarding grants of
stock options to the Named Executive Officers during 1998.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
--------------------------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTION EMPLOYEES IN PRICE EXPIRATION GRANT DATE
NAME GRANTED FISCAL YEAR ($/SHARE) DATE PRESENT VALUE(1)
---- ---------- ------------- --------- ---------- ----------------
Andrew C. Florance................ 65,000 12.0% $9 6/30/2008 $430,300
Frank A. Carchedi................. 40,000 7.4 9 6/30/2008 264,800
Curtis M. Ricketts................ 25,000 4.6 9 6/30/2008 165,500
David A. Schaffel................. 40,000 7.4 9 6/30/2008 264,800
- ------------------
(1) The grant date present value is computed using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of
94%, dividend yield of 0%, risk-free interest rate of 5%, and expected life
of 5 years.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides certain information regarding fiscal 1998
stock option exercises by, and unexercised options held as of December 31, 1998
by, the Named Executive Officers.
33
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END 1998 OPTION VALUES
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNEXERCISED IN THE MONEY
SHARES OPTIONS HELD OPTIONS AT FISCAL YEAR-
ACQUIRED AT DECEMBER 31, 1998 END(2)
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
Andrew C. Florance.......................... -- -- 200,604 32,500 1,660,361 117,813
Frank A. Carchedi........................... -- -- 25,050 30,100 118,840 165,179
Curtis M. Ricketts.......................... 48,480(1) $283,608(1) 24,620 12,500 156,528 45,313
David M. Schaffel........................... -- -- 32,120 20,000 183,715 72,500
- ---------------
(1) In June 1998, Mr. Ricketts exercised unit options of one of our predecessors
equivalent to 48,480 shares of our common stock. The value realized by this
exercise is computed by subtracting the exercise price per equivalent share
of our common stock from our estimate of the fair value.
(2) Calculated based on the amount by which the fair market value of the
underlying security (assumed to be equal to its year-end closing price of
$12 5/8 per share) exceeds the option exercise price.
STOCK OPTION PLAN
Our Board of Directors adopted our 1998 Stock Option Plan prior to our
initial public offering. Our stockholders approved the plan at a specially
called meeting in June 1998. We have reserved 1,450,000 shares of our common
stock for issuance under the Stock Option Plan. Unless terminated sooner by the
Board of Directors, the Stock Option Plan will terminate in 2008.
Our Board of Directors' Compensation Committee administers the Stock
Option Plan. Subject to provisions of the Stock Option Plan the Committee can:
- select to whom to grant the options;
- designate the number of shares to be covered by options;
- specify the type of consideration someone exercising an option must
pay us; and
- establish all other terms and conditions of each option.
The Stock Option Plan provides for the grant of stock options to our
officers and employees including those of subsidiaries. Options granted under
the Plan may be incentive or non-qualified stock options. The exercise price
for an option may not be less than the fair market value of our common stock on
the date of grant. Options granted under the plan may not be transferred other
than by will or by the laws of descent and distribution. If a "change of
control" as defined in the Stock Option Plan occurs (essentially, if our
ownership changes in a certain way), all outstanding unexercisable options
under the Stock Option Plan immediately become exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors
during 1998 were David Bonderman, Warren H. Haber, and Michael R. Klein, each
of whom serves as one of our non-employee directors.
From time to time, these directors, or entities with which they are
affiliated, have engaged in certain transactions with us and our predecessors,
OLD RIG, Inc. and a partnership, Realty Information Group, L.P., to provide
additional equity or debt financing to fund our growth. OLD RIG operated our
business until November 1994. At that point, the partnership was organized to
hold and operate our business. Pursuant to a contribution agreement consummated
following our initial public offering in July 1998, the limited partners of the
partnership (other than OLD RIG) and all
34
the stockholders of OLD RIG received our common stock in exchange for their
limited partnership units or OLD RIG shares.
Mr. Haber is chairman and chief executive officer of Founders Equity,
Inc. ("Founders"). On May 15, 1995, Founders/RIG, LLC ("FR LLC"), an affiliate
of Founders, acquired units of the limited partnership for a total purchase
price of $3.1 million, equivalent to 898,856 shares of our common stock at an
effective price per share of $3.45. As part of the contractual arrangements
that accompanied this investment, Mr. Haber became a director and we agreed to
register the securities FR LLC received for resale upon its demand at a future
date. On December 3, 1996, FR LLC and certain of its affiliates acquired
additional units of the partnership for an aggregate purchase price of $1.06
million, equivalent to 259,521 shares of our common stock at an effective price
per share of $4.08. In addition, pursuant to the contribution agreement, FR
LLC's registration rights were amended. See "Description of Capital Stock --
Registration Rights." FR LLC's right to designate a director terminated upon
consummation of the contribution agreement.
At the time of the Founders' investment in OLD RIG and the partnership
in May 1995, those entities were indebted to Mr. Klein for loans he had
extended with a then balance of $751,961. In connection with Founders'
investment, $426,693 was repaid and the remaining balance of $325,268 was
converted into units of the partnership equivalent to 94,312 shares of our
common stock at an effective price per share of $3.45, the same effective price
at which FR LLC purchased its interest in that transaction. In connection with
that same transaction, our predecessors agreed to pay monthly fees to Founders
of $10,000 and to Mr. Klein of $6,667. Both of those fee arrangements
terminated in May 1998. During 1997, Mr. Klein committed to extend up to $1.0
million of credit to OLD RIG, which in turn agreed to loan such amounts to the
partnership to support a $1.0 million credit facility the partnership secured
with Silicon Valley Bank. The OLD RIG loan to the partnership was contractually
subordinated, and Mr. Klein's loans to OLD RIG were structurally subordinated,
to the bank loan, interest on the balance was payable to OLD RIG and Mr. Klein
at the same rate (2% over prime) as the bank loan, and no principal could be
repaid until the bank loan was paid. This bank loan and the OLD RIG/Klein loan
were repaid with part of the proceeds of our initial public offering. As
consideration for Mr. Klein's commitment, a committee of three independent
directors authorized the issuance to Mr. Klein of warrants to purchase units of
the partnership equivalent to 45,450 shares of our stock at a price 10% less
than the price at which shares were offered in our initial public offering,
exercisable during the two years following the closing of that offering. We
have, in the past, paid legal fees to the law firm of which Mr. Klein is a
partner. Under the policies of his firm, Mr. Klein was not the partner
responsible for supervising or billing for the services provided to us.
Effective as of March 5, 1998, all of the limited and general partners
of the partnership and all of the stockholders of OLD RIG entered into the
contribution agreement. Pursuant to this agreement, each limited partner of the
partnership (other than OLD RIG) agreed to contribute all of its limited
partnership units to us, and all of the stockholders of OLD RIG agreed to
contribute all of their shares of OLD RIG to us, all in exchange for 3.03
shares of our common stock for each limited partnership unit or share of common
stock. Consummation of the contribution agreement occurred in July, 1998,
following our initial public offering.
35
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table provides certain information regarding the
beneficial ownership of our shares as of March 15, 1999, by:
- each person we know to be the beneficial owner of more than 5% of
the outstanding common stock;
- each of our Directors;
- each Named Executive Officer; and
- all of our executive officers and directors as a group.
Except as indicated in the footnotes to the table, we believe that the persons
named in the table have sole voting and investment power with respect to the
indicated shares of stock:
SHARES BENEFICIALLY
OWNED
----------------------
NAME & ADDRESS(1) NUMBER PERCENT
----------------- ----------- --------
Michael R. Klein(2).................... 2,123,385 21.6%
Andrew C. Florance(3).................. 516,762 5.2
Frank A. Carchedi(4)................... 34,100 *
Curtis M. Ricketts(5).................. 73,100 *
David M. Schaffel(6)................... 62,420 *
David Bonderman........................ 444,704 4.5
Warren Haber(7)........................ 1,286,460 13.1
John Simon(8).......................... 92,278 *
Lanning Macfarland III(9).............. 413,365 4.2
All Ten Executive Officers and
Directors as a group(10)............. 5,247,297 51.7
Founders/RIG, L.L.C.................... 1,158,375 11.8
- ---------------
* Less than one percent.
(1) Unless otherwise noted, each listed person's address is c/o Realty
Information Group, Inc., 7475 Wisconsin Avenue, Bethesda, Maryland 20814.
(2) Includes 14,496 shares held as trustee for his nieces and 14,496 shares
held by others as trustee for his children. Also includes warrants for the
purchase of 45,450 shares of common stock. See "Certain Transactions."
(3) Includes 200,604 shares issuable upon options exercisable within 60 days.
Excludes 32,500 shares issuable upon options not exercisable within 60
days.
(4) Includes 30,100 shares issuable upon options exercisable within 60 days.
Excludes 25,050 shares issuable upon options not exercisable within 60
days.
(5) Includes 24,620 shares issuable upon options exercisable within 60 days.
Excludes 12,500 shares issuable upon options not exercisable within 60
days.
(6) Includes 32,120 shares issuable upon options exercisable within 60 days.
Excludes 20,000 shares issuable upon options not exercisable within 60
days.
(7) Includes 1,158,375 held by Mr. Haber and others as members of Founders/RIG,
L.L.C.
(8) Excludes 177,752 shares held by Allen & Company Incorporated (of which Mr.
Simon is a Managing Director) and certain of its other officers and
affiliates; Mr. Simon disclaims personal beneficial ownership of such
shares. See "Certain Transactions." Mr. Simon's address is c/o Allen &
Company Incorporated, 711 Fifth Avenue, New York, New York 10022.
(9) Includes 410,335 shares held by Law Bulletin Publishing Company.
(10) Includes 308,644 shares issuable upon options exercisable within 60 days.
Excludes 173,700 shares issuable upon options not exercisable within 60
days.
36
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Since January 1, 1996, some of our executive officers or directors
have engaged in the following transactions with us in addition to those
described above under "Management -- Compensation Committee Interlocks and
Insider Participation."
John Simon is a managing director of Allen & Company Incorporated (one
of the underwriters of this offering) and is one of our directors. On December
3, 1996, RIG Holdings, LLC ("RH LLC") acquired units of Realty Information
Group L.P. (the predecessor partnership that previously operated our business),
for an aggregate purchase price of $2.9 million, equivalent to 710,388 shares
of our common stock at an effective price per share of $4.08. RH LLC was
granted the right to designate one member of the board of directors of OLD RIG
(a partner in RIG LP), as well as certain registration rights in regards to the
units it purchased. Pursuant to the contribution agreement, RH LLC's
registration rights were amended. See "Description of Capital Stock --
Registration Rights." Prior to our initial public offering, Allen & Company
Incorporated was the Member- Manager of RH LLC and, together with certain of
its officers and affiliates, was the owner of approximately 26% of RH LLC; as
Member-Manager, Allen & Company Incorporated was entitled to exercise voting
power over all of the limited partnership units of the partnership then held by
RH LLC. For these reasons, RH LLC may be deemed to have been an affiliate of
Allen & Company Incorporated. RH LLC's (and its members') right to designate a
director of OLD RIG terminated upon consummation of the contribution agreement,
at which time RH LLC was dissolved and its ownership interests (and the
associated registration rights) distributed pro rata to its members. At that
time, Allen & Company Incorporated, together with certain of its officers and
affiliates, became the beneficial owner of 183,721 shares of our stock. Prior
to making this investment, on November 5, 1996, Allen & Company Incorporated
had loaned the partnership $250,000, bearing interest at a rate of 8.5% per
year. This loan was paid off in connection with RH LLC's investment.
Lanning Macfarland III is head of real estate publications at Law
Bulletin Publishing Company ("LBPC") and one of our directors. On March 29,
1996, the partnership acquired all of the assets of Chicago ReSource from LBPC
for units of the partnership valued nominally at a price equivalent to 347,361
shares of our common stock at an effective price per share of $3.45. Chicago
ReSource was a real estate information provider in the Chicago, Illinois area.
On December 3, 1996, LBPC and certain of its affiliates acquired additional
units of the partnership for an aggregate purchase price of $288,000,
equivalent to 70,548 shares of our common stock at an effective price per share
of $4.08.
Fred A. Heitzman III was an officer, director, and beneficial
stockholder of LeaseTrend, Inc., which merged, effective January 8, 1999, with
a subsidiary we formed for that purpose. The total consideration we paid to
LeaseTrend stockholders in connection with the merger was $4.5 million in cash
and 566,671 shares of our common stock. Of this consideration, a trust of which
Mr. Heitzman was the sole beneficiary received $1,684,074 in cash and 174,503
shares of our common stock.
37
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following financial statements are filed as a part of
this report:
Realty Information Group Inc. Unaudited Pro Forma
Condensed Consolidated Financial Statements
Realty Information Group, Inc. Consolidated Financial
Statements
LeaseTrend, Inc. Financial Statements
Jamison Research, Inc. Financial Statements
(a)(2) No financial statement schedules are required to be filed.
(b) The registrant did not file any reports on Form 8-K during
the last quarter of the period covered by this report .
(c) The exhibits filed as a part of this report are listed in the
index to exhibits.
38
REALTY INFORMATION GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REALTY INFORMATION GROUP, INC. UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Introduction to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... F-2
Unaudited Pro Forma Condensed Consolidated Statement of
Operations................................................ F-3
Unaudited Pro Forma Condensed Consolidated Balance Sheet.... F-4
Notes to Unaudited Pro Forma Condensed Consolidated
Financial Statements...................................... F-5
REALTY INFORMATION GROUP, INC.
Report of Independent Auditors.............................. F-7
Consolidated Statements of Operations....................... F-8
Consolidated Balance Sheets................................. F-9
Consolidated Statements of Stockholders' Equity............. F-10
Consolidated Statements of Cash Flows....................... F-11
Notes to Consolidated Financial Statements.................. F-12
LEASETREND, INC.
Report of Independent Auditors.............................. F-23
Statements of Operations.................................... F-24
Balance Sheets.............................................. F-25
Statements of Stockholders' Equity (Deficit)................ F-26
Statements of Cash Flows.................................... F-27
Notes to Consolidated Financial Statements.................. F-28
JAMISON RESEARCH, INC.
Report of Independent Auditors.............................. F-32
Statements of Operations.................................... F-33
Balance Sheets.............................................. F-34
Statements of Stockholders' Equity (Deficit)................ F-35
Statements of Cash Flows.................................... F-36
Notes to Consolidated Financial Statements.................. F-37
F-1
39
REALTY INFORMATION GROUP, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
statements give effect to the acquisitions subsequent to December 31, 1998 by
Realty Information Group, Inc. (the "Company") of the common stock of
LeaseTrend, Inc. ("LTI") and Jamison Research, Inc. ("JRI") in exchange for
cash raised by the Company in its initial public offering on July 1, 1998 and
common stock of the Company.
The unaudited pro forma condensed consolidated balance sheet gives
effect to the acquisitions as if they had occurred on December 31, 1998. The
unaudited pro forma condensed consolidated statement of operations gives effect
to the acquisitions as if they had occurred on January 1, 1998.
The pro forma adjustments are based on estimates, available
information and certain assumptions and may be revised, as additional
information becomes available. The pro forma financial information does not
necessarily represent what the Company's financial position or results of
operations would actually have been if such transactions in fact had occurred
on those dates or the results of operations for any future period. The
unaudited pro forma condensed consolidated financial statements should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the other financial statements and notes thereto
included elsewhere in this Report.
F-2
40
REALTY INFORMATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AS OF DECEMBER 31, 1998
REALTY PRO FORMA
INFORMATION LEASETREND, JAMISON ADJUSTMENTS PRO FORMA
GROUP, INC. INC. RESEARCH, INC. (SEE NOTE 3) COMBINED
----------- ----------- -------------- ------------ -----------
Revenues............................... $13,900,165 $3,444,969 $4,577,927 -- $21,923,061
Cost of revenues....................... 4,561,619 1,310,994 1,658,072 $ 680,000(a) 8,210,685
----------- ---------- ---------- ----------- -----------
Gross margin......................... 9,338,546 2,133,975 2,919,855 (680,000) 13,712,376
Operating expenses..................... 12,864,612 2,432,767 3,077,494 2,090,000(a) 20,464,873
----------- ---------- ---------- ----------- -----------
Income (loss) from operations........ (3,526,066) (298,792) (157,639) (2,770,000) (6,752,497)
Other income (expense)................. 340,653 (433,689) (9,263) 198,622(b) 96,323
Benefit from income taxes.............. -- -- 47,700 (47,700)(c) --
----------- ---------- ---------- ----------- -----------
Net loss............................. $(3,185,413) $ (732,481) $ (119,202) $(2,619,078) $(6,656,174)
=========== ========== ========== =========== ===========
Net loss per share -- basic and
diluted.............................. $ (0.44) $ (0.76)
=========== ===========
Weighted average shares outstanding.... 7,213,037 8,771,072
=========== ===========
See accompanying notes.
F-3
41
REALTY INFORMATION GROUP, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1998
REALTY JAMISON PRO FORMA
INFORMATION LEASETREND, RESEARCH, ADJUSTMENTS PRO FORMA
GROUP, INC. INC. INC. (SEE NOTE 3) COMBINED
----------- ----------- -------------- ------------ -----------
ASSETS
Cash and cash equivalents.... $19,666,887 $ 18,266 $ 50,548 $(10,071,409)(d) $ 9,664,292
Accounts receivable, net..... 1,245,579 12,316 32,426 -- 1,290,321
Prepaid expenses and other
current assets............. 325,629 6,786 173,900 (173,800)(d) 332,515
----------- ----------- -------- ------------ -----------
Total current
assets........... 21,238,095 37,368 256,874 (10,245,209) 11,287,128
Property and equipment,
net........................ 2,156,928 142,967 201,617 -- 2,501,512
Capitalized product
development costs, net..... 1,856,873 157,867 59,484 2,582,649(d) 4,656,873
Other assets, net............ 2,097,656 117,615 -- 17,582,385(d) 19,797,656
Deposits..................... 192,060 2,805 474 -- 195,339
----------- ----------- -------- ------------ -----------
Total assets....... $27,541,612 $ 458,622 $518,449 $ 9,919,825 $38,438,508
=========== =========== ======== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued
expenses................... $ 2,691,143 $ 291,958 $130,319 -- $ 3,113,420
Deferred revenue............. 1,647,165 560,463 404,741 -- 2,612,369
Accrued fees and
interest-related parties... -- 1,229,861 -- $ (1,229,861)(d) --
Line of credit............... -- -- 114,912 (114,912)(d) --
Subordinated debt to
partner.................... -- -- -- --
Advances from stockholders... -- 1,428,521 -- (1,428,521)(d) --
Current portion of long-term
debt....................... -- 66,401 26,114 (92,515)(d) --
----------- ----------- -------- ------------ -----------
Total current
liabilities...... 4,338,308 3,577,204 676,086 (2,865,809) 5,725,789
Long-term debt, net of
current portion............ -- -- 10,603 (10,603)(d) --
3,286,822(d)
Stockholders' equity......... 23,203,304 (3,118,582) (168,240) 9,509,415(d) 32,712,719
----------- ----------- -------- ------------ -----------
Total liabilities
and stockholders'
equity........... $27,541,612 $ 458,622 $518,449 $ 9,919,825 $38,438,508
=========== =========== ======== ============ ===========
See accompanying notes.
F-4
42
REALTY INFORMATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The historical financial statements included in the unaudited pro
forma condensed consolidated balance sheet and statement of operations were
derived from the separate financial statements of the Company and its
subsidiaries LTI and JRI as of December 31, 1998 and for the year then ended.
The related audited historical financial statements are included elsewhere
herein and should be read in conjunction with these unaudited pro forma
condensed consolidated financial statements.
2. ACQUISITION OF LTI AND JRI
On January 8, 1999, the Company acquired all of the common stock of
LTI, a Cincinnati based provider of commercial real estate information, for
$4,500,000 in cash and 566,671 shares of the Company's Common Stock. The
transaction was accounted for as a purchase and the consideration was valued
for accounting purposes at approximately $9,200,000 including acquisition
expenses. On January 22, 1999, the Company acquired all of the common stock of
JRI, an Atlanta based provider of commercial real estate information, for
$5,284,000 in cash and 448,031 shares of the Company's common stock. The
transaction was accounted for as a purchase and the consideration was valued
for accounting purposes at approximately $10,300,000 including acquisition
expenses.
The Company will adjust the historical carrying value of the acquired
assets and liabilities of LTI and JRI to fair market value as discussed below.
The allocation amounts and classifications are estimates, based on the current
operations of LTI and JRI and the recorded book values of assets and
liabilities at December 31, 1998. The actual allocations may vary based on the
carrying value of the acquired assets and liabilities at the respective closing
dates. Working capital and property and equipment accounts of LTI and JRI are
recorded at book value, and represent an increase in amounts allocated to the
accounts shown below of approximately $600,000 and $400,000, respectively. The
approximate allocation of purchase price to capitalized product development
costs and intangible assets (including amounts previously capitalized by LTI
and JRI) is as follows:
ESTIMATED VALUE
-------------------------------------- ESTIMATED
LTI JRI TOTALS LIFE
---------- ----------- ----------- ---------
Capitalized product development
Developed software products......... $ 200,000 $ 200,000 $ 400,000 2 years
Proprietary databases............... 1,100,000 1,300,000 2,400,000 5 years
Customer base............................ 8,100,000 8,800,000 16,900,000 10 years
Other intangible assets.................. 400,000 400,000 800,000 2 years
---------- ----------- -----------
Total.......................... $9,800,000 $10,700,000 $20,500,000
========== =========== ===========
Capitalized product development includes those developed software
products and proprietary databases which are expected to produce revenues
currently, until their conversion by the Company into products with a format
consistent with the Company's products. This effort is expected to take up to 2
years. The underlying proprietary databases are expected to continue in use
beyond the conversion period.
F-5
43
REALTY INFORMATION GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. PRO FORMA ADJUSTMENTS
The pro forma adjustments reflect the consolidation of the Company and
its subsidiaries, LTI and JRI. The adjustments are as follows:
Pro forma condensed consolidated statement of operations:
(a) Estimated charges for amortization of the assets noted above,
amounting to $680,000 to cost of sales for product amortization and
$2,090,000 to operating expenses for the year ended December 31, 1998.
(b) Interest expense on borrowings of the subsidiaries of $448,622 is
eliminated as a result of the repayment of all current and long term debt.
Interest income of $250,000 is eliminated as a result of the cash used to
purchase LTI and JRI from the initial public offering proceeds on July 1,
1997.
(c) Tax benefits of JRI are eliminated due to ongoing operating losses
of the Company.
Pro forma condensed combined balance sheet:
(d) - Cash and cash equivalents. Reduction of cash for a total of
$10,071,409 comprised of amounts paid in cash for LTI and JRI
totalling $9,784,000, expenses of $135,780 and repayment of JRI
debt totalling $151,629;
- Prepaid expenses and other current assets. Deferred tax assets
totalling $173,800 are eliminated;
- Capitalized product development costs, net. Allocation of
$2,800,000 of capitalized product development, less amounts
recorded on LTI and JRI of $157,867 and $59,484;
- Other assets, net. Allocation of $17,700,000 for customer base
and other intangible assets of LTI and JRI, less amounts
recorded on LTI of $117,615.
- Accrued fees and interest and short and long term debt. Accrued
fees and interest, advances from stockholders, and current
portion of long term debt of LTI are repaid by the former
shareholders of LTI from the consideration of the acquisition.
Line of credit, current portion of long term debt and long term
debt of JRI are repaid by the Company at closing.
- Stockholders' equity. The deficits of LTI and JRI, totalling
$3,118,582 and $168,240, respectively, are eliminated for a
total increase in stockholders' equity of $3,286,822. The stock
portion of the consideration totalling $9,509,415 for both LTI
and JRI is recorded.
4. PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
Pro forma weighted average shares include 1,014,702 shares assumed
outstanding for the full year in connection with the LTI and JRI acquisitions
and 543,333 weighted average shares which reflects the assumed effect of using
cash raised in the initial public offering to acquire these entities on January
1, 1998. Stock options and warrants outstanding have been excluded from the
calculation because their effect is anti-dilutive.
F-6
44
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying consolidated balance sheets of Realty
Information Group. Inc. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the 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 consolidated financial position of Realty Information
Group, Inc. at December 31, 1997 and 1998, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Washington, D.C.
February 12, 1999
F-7
45
REALTY INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
Revenues........................................... $ 4,335,966 $ 7,899,940 $13,900,165
Cost of revenues................................... 2,188,136 3,412,593 4,561,619
----------- ----------- -----------
Gross margin....................................... 2,147,830 4,487,347 9,338,546
Operating expenses:
Selling and marketing.............................. 2,711,823 4,373,914 7,240,442
Software development............................... 254,177 395,077 704,194
General and administrative......................... 1,863,236 3,017,439 4,919,976
----------- ----------- -----------
4,829,236 7,786,430 12,864,612
----------- ----------- -----------
Loss from operations............................... (2,681,406) (3,299,083) (3,526,066)
Other income (expense):
Interest expense................................... (2,323) (26,421) (119,716)
Interest income.................................... 29,642 48,743 460,369
Other income....................................... 21,858 11,215 --
----------- ----------- -----------
Loss before income taxes........................... (2,632,229) (3,265,546) (3,185,413)
Provision for income taxes......................... -- -- --
----------- ----------- -----------
Net loss........................................... $(2,632,229) $(3,265,546) $(3,185,413)
=========== =========== ===========
Net loss per share -- basic and diluted............ $ (0.60) $ (0.57) $ (0.44)
=========== =========== ===========
Weighted average common shares..................... 4,387,590 5,722,432 7,213,037
=========== =========== ===========
See accompanying notes.
F-8
46
REALTY INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
---------------------------
1997 1998
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,068,835 $ 19,666,887
Accounts receivable, less allowance for doubtful accounts
of $151,000 and $326,000 as of December 31, 1997 and
1998................................................... 1,021,345 1,245,579
Prepaid expenses and other current assets................. 26,601 325,629
------------ ------------
Total current assets........................................ 2,116,781 21,238,095
Property and equipment:
Leasehold improvements.................................... 111,623 125,895
Furniture and equipment................................... 623,417 1,031,332
Computer hardware and software............................ 1,366,687 2,228,166
------------ ------------
2,101,727 3,385,393
Accumulated depreciation.................................... (799,763) (1,228,465)
------------ ------------
1,301,964 2,156,928
Capitalized product development costs, net of accumulated
amortization of $514,000 and $990,000 as of December 31,
1997 and 1998............................................. 1,261,974 1,856,873
Other assets................................................ 1,796,356 2,097,656
Deposits.................................................... 104,510 192,060
------------ ------------
Total assets................................................ $ 6,581,585 $ 27,541,612
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 355,416 $ 800,941
Accrued wages and commissions............................. 368,667 1,077,952
Accrued expenses.......................................... 387,428 812,250
Deferred revenue.......................................... 902,575 1,647,165
Line of credit............................................ 1,000,000 --
Subordinated debt to stockholder.......................... 650,000 --
------------ ------------
Total current liabilities................................... 3,664,086 4,338,308
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none outstanding........................... -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 5,754,017 and 8,771,027 issued and
outstanding as of December 31, 1997 and 1998........... 57,540 87,710
Additional paid-in capital................................ 14,286,297 37,727,345
Retained earnings (deficit)............................... (11,426,338) (14,611,751)
------------ ------------
Total stockholders' equity.................................. 2,917,499 23,203,304
------------ ------------
Total liabilities and stockholders' equity.................. $ 6,581,585 $ 27,541,612
============ ============
See accompanying notes.
F-9
47
REALTY INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL RETAINED TOTAL
------------------- PAID-IN EARNINGS STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------- ----------- ------------ -------------
Balance at December 31, 1995.... 4,031,657 $40,317 $ 7,814,987 $ (5,528,563) $ 2,326,741
Stock issued for
acquisition................ 347,361 3,473 1,196,527 1,200,000
Exercise of stock options for
note receivable............ 30,300 303 (45,974) (45,671)
Shares issued................. 1,235,201 12,352 4,808,454 4,820,806
Net loss...................... -- -- -- (2,632,229) (2,632,229)
--------- ------- ----------- ------------ -----------
Balance at December 31, 1996.... 5,644,519 56,445 13,773,994 (8,160,792) 5,669,647
Stock issued for
acquisition................ 44,571 446 205,494 205,940
Stock issued for
compensation............... 64,927 649 299,351 -- 300,000
Reduction of note receivable
from stockholder........... -- -- 7,458 -- 7,458
Net loss...................... -- -- -- (3,265,546) (3,265,546)
--------- ------- ----------- ------------ -----------
Balance at December 31, 1997.... 5,754,017 57,540 14,286,297 (11,426,338) 2,917,499
Exercise of stock options..... 48,480 485 79,515 -- 80,000
Stock issued for initial
public offering............ 2,875,000 28,750 22,708,689 -- 22,737,439
Stock issued for
acquisition................ 93,530 935 584,398 -- 585,333
Warrants...................... -- -- 50,000 -- 50,000
Reduction of note receivable
from stockholder........... -- -- 18,446 -- 18,446
Net loss...................... -- -- -- (3,185,413) (3,185,413)
--------- ------- ----------- ------------ -----------
Balance at December 31, 1998.... 8,771,027 $87,710 $37,727,345 $(14,611,751) $23,203,304
========= ======= =========== ============ ===========
See accompanying notes.
F-10
48
REALTY INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1997 1998
----------- ----------- -----------
Operating activities:
Net loss........................................... $(2,632,229) $(3,265,546) $(3,185,413)
Adjustments to reconcile net loss to net cash
provided by (used in) in operating activities:
Depreciation..................................... 212,030 353,333 428,702
Amortization..................................... 266,986 487,144 705,806
Provision for losses on accounts receivable...... 30,000 61,343 174,720
Non cash compensation charges.................... -- 157,459 68,446
Changes in operating assets and liabilities:
Accounts receivable.............................. (470,117) (217,153) (398,955)
Prepaid expenses and other current assets........ (22,942) 29,838 (323,405)
Deposits......................................... (33,152) (6,691) (87,550)
Accounts payable and accrued expenses............ 667,649 230,530 1,579,633
Deferred revenue................................. 157,410 (66,668) 744,590
----------- ----------- -----------
Net cash used in operating activities............ (1,824,365) (2,236,411) (293,426)
Investing activities:
Purchases of property and equipment, net........... (631,385) (522,592) (1,283,666)
Capitalization of product development costs........ (347,065) (600,670) (985,262)
Acquisitions, net of acquired cash................. 25,924 (547,859) (7,033)
----------- ----------- -----------
Net cash used in investing activities............ (952,526) (1,671,121) (2,275,961)
Financing activities:
Net proceeds from capital contributions............ 4,775,135 -- --
Proceeds from (payment of) line of credit.......... -- 1,000,000 (1,000,000)
Proceeds from (payment of) subordinated debt to
stockholder...................................... -- 650,000 (650,000)
Net proceeds from initial public offering.......... -- -- 22,737,439
Net proceeds from exercise of stock options........ -- -- 80,000
----------- ----------- -----------
Net cash provided by financing activities........ 4,775,135 1,650,000 21,167,439
Net increase (decrease) in cash and cash
equivalents...................................... 1,998,244 (2,257,532) 18,598,052
Cash and cash equivalents at beginning of year..... 1,328,123 3,326,367 1,068,835
----------- ----------- -----------
Cash and cash equivalents at end of year........... $ 3,326,367 $ 1,068,835 $19,666,887
=========== =========== ===========
See accompanying notes.
F-11
49
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Realty Information Group, Inc. (the "Company") has created a
comprehensive, proprietary, national database of commercial real estate
information for metropolitan areas throughout the United States. Based on its
unique database, the Company provides information to the commercial real estate
and related business community and operates within one reportable business
segment. The information is distributed to its clients under license
agreements, which are typically one to three years in duration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Realty Information Group, Inc. ("the Company") is a Delaware
corporation and was incorporated in February 1998 to succeed its predecessors,
Realty Information Group L.P. ("RIGLP") and OLD RIG, Inc. ("RIGINC"). RIGLP is
an operating entity, while RIGINC is a shell holding entity. In connection with
the Company's Initial Public Offering on July 1, 1998 ("the Offering"), RIGLP
and RIGINC merged with the Company pursuant to the RIG Contribution Agreement
dated March 5, 1998. The limited partners of RIGLP (other than RIGINC) and all
of the stockholders of RIGINC received 3.03 shares of Common Stock of the
Company per each limited partnership unit or share of common stock exchanged,
for a total of 5,754,017 shares. As a result of the reorganization of these
entities, the Company owns (directly or indirectly) all of the capital stock of
RIGINC and all the equity of RIGLP.
The merger has been accounted for as a reorganization of entities
under common control similar to a pooling of interests. Following the merger,
each shareholder of the Company maintains their exact same ownership of the
operating entity, RIGLP, as before the merger. The transfer of assets and
liabilities of RIGLP and RIGINC have been recorded at the historical carrying
values. The financial statements are presented as if the Company was in
existence throughout all periods presented, as one operating entity. All share
amounts have been restated to reflect the conversion of partnership units to
common stock of the Company. On January 1, 1999, RIGLP and RIGINC were merged
into a newly formed corporation, CoStar Realty Information, Inc. a wholly owned
subsidiary of the Company.
Additionally, the consolidated financial statements of the Company
include the accounts of New Market Systems, Inc. ("NMS") acquired on March 1,
1997 (Note 3) and C Data Services, Inc. ("CDS") acquired on August 14, 1998
(Note 3). CDS was merged into Costar Realty Information, Inc. on January 1,
1999.
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 at the
date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.
Revenue Recognition
Revenue from the sale of licenses for information is recognized on a
straight-line basis over the term of the license, which is typically from one
to three years.
F-12
50
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
The Company's cash and cash equivalents include highly liquid
instruments purchased with an original maturity of less than three months. The
cash is held in several large financial institutions. At December 31, 1998,
cash of $100,000 and $500,000 was held in escrow accounts under the conditions
of a certain data licensing agreement and the LeaseTrend, Inc. acquisition
agreement (Note 12), respectively. Both amounts were paid out of escrow
subsequent to December 31, 1998.
Property and Equipment
Property and equipment, including leasehold improvements, are stated at
cost and depreciated using the straight-line method over estimated useful lives
of three to seven years. Leasehold improvements are amortized over the lesser of
the related lease term or the useful life.
Capitalized Product Development Costs
Initial costs to develop and produce the Company's database and
software products, including direct labor, contractors and applicable overhead
are capitalized from the time technological feasibility is determined until
initial product release. Prior to technological feasibility, such costs are
classified as software development and expensed as incurred. Ongoing
significant enhancements of the product are capitalized subsequent to initial
product release. Amortization of capitalized costs is based on the greater of
the amount computed using (a) the ratio of current gross revenues to the sum of
current and anticipated gross revenues, or (b) the straight-line method over
the remaining estimated economic life of the product, typically five years
after initial product release. Included in amortization is approximately
$181,000, $287,000 and $476,000 of expense related to the capitalized product
development costs for the years ended December 31, 1996, 1997 and 1998,
respectively.
Intangible Assets
The value assigned to the customer base acquired through the purchase
of CDS, NMS and Chicago Resource, Inc., and goodwill, resulting from the
purchase of Space Datagraphics Systems, Inc., in December 1994, are being
amortized on a straight-line basis over ten years. The Company continuously
evaluates and adjusts, if necessary, the net realizable value of these assets.
Income Taxes
Through June 30, 1998, the Company operated as a partnership for
federal income tax purposes under which income, losses, deductions and credits
were allocated to and reported by the partners on their individual income tax
returns. Accordingly, no provision for income tax was recorded in the financial
statements. Upon the effectiveness of the Registration Statement on Form S-1 in
connection with the Company's initial public offering, the partnership became
part of the Company and its taxable income (loss) flowed through to the
Company. Had the Company operated as a C-Corporation for the years ended
December 31, 1996, 1997 and 1998, there would be no income taxes recorded as a
result of the losses for the periods. NMS and CDS are corporations, which
provide for income taxes under the provisions of Statement of Financial
Accounting Standards No. 109. As of December 31, 1998, the Company, including
NMS and CDS had net loss carryforwards totaling approximately $2,200,000. A
valuation allowance has been established against the related net deferred tax
assets in their entirety.
F-13
51
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation" which is effective for the Company's financial
statements after 1995. SFAS No. 123 allows companies to account for stock-based
compensation under the provisions of either SFAS No. 123 or Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", with pro forma disclosure as if the measurement provision of SFAS
No. 123 had been adopted. The Company applies these principles and accounts for
its unit-based compensation in accordance with the provisions of APB No. 25. As
such, the adoption of SFAS No. 123 does not impact the financial position or
results of operations of the Company.
Advertising Costs
Advertising costs are expensed as incurred. Such costs included in
selling and marketing expense totaled approximately $203,700, $398,000, and
$904,600 for the years ended December 31, 1996, 1997, and 1998, respectively.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral. The Company
maintains reserves for credit losses, and such losses have been within
management's expectations. The credit risk in accounts receivable is mitigated
by the large and widespread customer base and lack of dependence on individual
customers. The carrying amount of the accounts receivable approximates their
net realizable value.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Comprehensive Income", which is required to be adopted for the year ended
December 31, 1998. SFAS 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the Statements of
Stockholders' Equity. For all periods presented, the Company had no items of
comprehensive income and, accordingly, the Statement has no effect on the
Company.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related Information", which is required to
be adopted for the year ended December 31, 1998. SFAS 131 changes the way
public companies report segment information in annual financial statements and
also require those companies to report selected segment information in interim
financial reports to stockholders. The adoption of SFAS 131 did not have any
impact on the Company's financial statements as the Company has determined that
it has only one reportable segment.
In October 1997, the AICPA issued SOP 97-2, Software Revenue
Recognition, which changes the requirements for revenue recognition effective
for transactions that the Company will enter into beginning January 1, 1998.
The implementation of SOP 97-2 is not expected to have a material effect on the
financial statements of the Company. As of January 1, 1998 the Company adopted
AICPA SOP 97-2, Software Revenue Recognition, which was effective for
transactions that the Company
F-14
52
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
entered into in 1998. Prior years were not restated. The effect of adopting SOP
97-2 was not material in the financial statements of the Company. In March 1998,
AcSEC issued SOP 98-4, which defers for one year the implementation of certain
provision of SOP 97-2. The issuance of SOP 98-4 had no effect on the Company. In
December 1998, the AICPA issued SOP 98-9, which extends the deferral date of
implementation of certain provisions of SOP 97-2 to 2000 for the Company and
amends the method of revenue recognition in some circumstances. The Company does
not anticipate the adoption of this SOP will have a significant effect on its
results of operations or financial position.
Loss Per Share
Loss per share information is presented as if the Company had operated
as a C-Corporation for all periods presented. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128, "Earnings Per Share". All
earnings per share amounts for all periods have been presented to conform to
the Statement 128 requirements.
3. ACQUISITIONS
On April 1, 1996, the Company expanded to the Chicago area by
purchasing substantially all of the assets and liabilities of Chicago ReSource,
Inc. ("CRI"), through the issuance of 347,361 shares of Common Stock valued at
$1,200,000. On March 1, 1997 the Company expanded to the San Francisco area
through a purchase of 99.3% of the outstanding shares of New Market Systems,
Inc. ("NMS"), a California corporation, through the exchange of 44,571 shares
of Common Stock valued at $206,000 and payment of $550,000 in cash. On August
14, 1998, the Company expanded to the Houston area by purchasing the stock of C
Data Services, Inc. ("CDS") through the exchange of 93,530 shares of
unregistered Common Stock and approximately $9,000 in cash. The accompanying
statements of operations reflect the operating results of CRI, NMS and CDS
since the effective date of the acquisition. Except for cash acquired, these
transactions have been excluded from the statements of cash flows and have been
accounted for using purchase accounting.
The pro forma unaudited results of operations for the years ended
December 31, 1997 and 1998, assuming the purchase of NMS and CDS had been
consummated as of January 1 of each year, respectively, are as follows:
1997 1998
----------- -----------
Revenues............................................. $ 7,960,000 $13,972,000
=========== ===========
Net loss............................................. $(3,386,000) $(3,248,000)
=========== ===========
Net loss per share................................... $ (0.58) $ (0.45)
=========== ===========
F-15
53
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. OTHER ASSETS
Other assets consists of intangible assets as follows:
1997 1998
---------- ----------
Acquired contracts................................... $2,041,289 $2,545,717
Accumulated amortization............................. 301,912 498,406
---------- ----------
1,739,377 2,047,311
---------- ----------
Goodwill............................................. 79,979 79,979
Accumulated amortization............................. 23,000 29,634
---------- ----------
56,979 50,345
---------- ----------
$1,796,356 $2,097,656
========== ==========
5. LINE OF CREDIT
In October 1997, the Company entered into a line of credit agreement
with Silicon Valley East (a Division of Silicon Valley Bank), and renewed the
line in October 1998. The new line provides for a total of $5,000,000 in
borrowing bearing an interest rate at the bank's prime rate plus 1%, and has a
one-year term. Borrowings of up to 50% of the cash portion of acquisitions may
be converted to long term borrowings with terms of 30 months. The assets of the
Company and its subsidiaries secure borrowings under the line. The Company is
in compliance at December 31, 1998, with the terms of the line of credit
agreement, which includes covenants requiring minimum working capital and
equity amounts. At December 31, 1998, no borrowings were outstanding under the
line. Interest paid in 1997 and 1998 totaled $17,760 and $63,263, respectively.
6. RELATED PARTY TRANSACTIONS
During 1997, the general partner of RIGLP obtained a commitment from a
partner for an additional $1,000,000 of subordinated, unsecured credit, bearing
interest at a rate equal to that of the line of credit. In connection with the
commitment, the individual contributing partner has received warrants for the
purchase of 45,450 shares of Common Stock. The warrants have a two-year term
beyond the Company's initial public offering and provide for the purchase of an
equivalent number of shares at a price of 10% less than the price of the stock
sold in the initial public offering. At December 31, 1998, no borrowings were
outstanding under the commitment. Interest paid in 1997 and 1998 totaled $8,055
and $28,235, respectively.
Commencing in May 1995 the Company agreed to pay an investor $10,000
per month and the Chairman of the Company $6,667 per month for consulting
services. During 1996, 1997 and 1998, the Company incurred fees of
approximately $200,000, $200,000 and $82,912, respectively, related to such
consulting services. These agreements were terminated in connection with the
Company's initial public offering.
7. INCOME TAXES
The Company accounts for taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109,
deferred tax liabilities and assets are determined based on the difference
between financial statement and tax basis of assets and liabilities using
enacted rates expected to be in effect during the year in which the differences
reverse. Deferred
F-16
54
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and tax
purposes. Through June 30, 1998 the Company operated as a partnership for
federal income tax purposes. The Company paid no income taxes in 1997 or 1998.
DECEMBER 31,
1998
------------
Deferred tax assets:
Reserve for bad debts.................................. $ 125,000
Accrued compensation................................... 414,000
Net operating losses................................... 927,000
Other liabilities...................................... 51,000
----------
Total deferred tax assets......................... 1,517,000
----------
Deferred tax liabilities:
Depreciation........................................... (299,000)
Product development costs.............................. (260,000)
----------
Total deferred tax liabilities.................... (559,000)
----------
Net deferred tax asset................................. 958,000
Valuation allowance.................................... (958,000)
----------
Net deferred tax assets..................................... $ --
==========
The Company's provision for income taxes resulted in effective tax
rates that varied from the statutory federal income tax rate as follows:
DECEMBER 31,
1998
------------
Expected federal income tax provision (benefit) at 34%...... $ (1,083,000)
State income taxes, net of federal benefit.................. (147,000)
Change in valuation allowance............................... 958,000
Expenses not deductible for tax purposes.................... 277,000
Other....................................................... (5,000)
------------
$ --
============
8. COMMITMENTS
The Company leases office space and equipment under operating lease
agreements that expire at various dates through the year 2003. Lease agreements
provide for various renewal terms and reimbursement of taxes, maintenance,
insurance and other occupancy expenses applicable to the leased premises or
property.
F-17
55
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1998, future minimum lease payments under operating
leases are as follows:
1999........................................................ $ 830,302
2000........................................................ 546,964
2001........................................................ 180,906
2002........................................................ 124,541
2003 and thereafter......................................... 52,285
----------
$1,734,998
==========
Rent expense was approximately $525,000, $766,000 and $1,031,000 for
the years ended December 31, 1996, 1997 and 1998, respectively.
9. SALES OF COMMON STOCK
On December 3, 1996, the Company completed a private placement (the
"Private Placement") in which the Company raised approximately $5.0 million
through the sale of 1,235,000 shares of Common Stock. The proceeds of the
transaction were used to fund Company's working capital needs and the NMS
acquisitions.
In May 1997, the Company issued 65,000 shares of common stock valued
at $300,000 to provide compensation to an officer, $150,000 of which had been
accrued at December 31, 1996.
On July 1, 1998, the Company completed an Initial Public Offering of
2,500,000 shares of common stock for $9.00 per share, and on August 9, 1998,
the Company's underwriter exercised its over-allotment option to purchase an
additional 375,000 shares of common stock (together, the "Offering"). Total
proceeds of the Offering including shares issued pursuant to the over-allotment
option were $22,737,000, after deducting underwriting discounts and commissions
of $1,811,000 and offering expenses of $1,326,000. The Company repaid the
amount owed on its line of credit and subordinated debt to stockholder, for a
total $1,650,000, out of the proceeds of the Offering.
10. NET LOSS PER SHARE
The following tables sets forth the computation of basic and diluted
net loss per share:
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
----------- ----------- -----------
Numerator:
Net loss.............................. $(2,632,229) $(3,265,546) $(3,185,413)
=========== =========== ===========
Denominator:
Denominator for basic earnings per
share -- weighted-average shares.... 4,387,590 5,722,432 7,213,037
Effect of dilutive securities:
Dilutive potential common shares...... -- -- --
----------- ----------- -----------
Denominator for diluted earnings per
share -- adjusted weighted-average
shares.............................. 4,387,590 5,722,432 7,213,037
=========== =========== ===========
Basic and diluted net loss per
share............................... $ (0.60) $ (0.57) $ (0.44)
=========== =========== ===========
F-18
56
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average number of shares does not include stock options
and warrants outstanding of 343,844, 398,384 and 922,944 as of December 1996,
1997 and 1998, respectively, as their effect would be anti-dilutive for the
periods presented.
11. EMPLOYEE BENEFIT PLANS
Option Plan
In March 1996 the Company adopted the 1996 Option and Purchase Plan
(the "1996 Plan"), under which 606,000 shares of Common Stock were reserved for
issuance upon the exercise of options granted to officers, executive personnel,
directors and key employees. Certain options previously granted were included
in the 1996 Plan. The Board of Directors of the Company administers the option
plan. Options are granted at prices, which the Board of believes approximate
the fair market value of its shares of Common Stock. Individual grants become
exercisable over a period of three years from the date of grant. The
contractual term of the options range from three to ten years from the date of
grant.
In June 1998 the Company's Board of Directors adopted the Stock Option
Plan (the "1998 Plan") prior to consummation of the Offering. The 1998 Plan
provides for the grant of stock options to officers and employees of the
Company or its subsidiaries. Options granted under the 1998 Plan may be
incentive or non-qualified stock options. The exercise price for a stock option
may not be less than the fair market value of the Company's Common Stock on the
date of grant. Stock options granted under the 1998 Plan may not be transferred
other than by will or by the laws of descent and distribution. Upon the
occurrence of a Change of Control, as defined in the 1998 Plan, all outstanding
unexercisable options under the 1998 Plan immediately become exercisable. The
Company has reserved 1,450,000 shares of Common Stock for issuance under the
1998 Plan. Unless terminated sooner by the Board of Directors, the 1998 Plan
will terminate in 2008.
F-19
57
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Option activity was as follows:
WEIGHTED-
NUMBER OF PRICE PER AVERAGE
SHARES SHARE EXERCISE PRICE
---------------- --------------- ----------------
Outstanding at December 31, 1995............... 246,884 $2.87
Granted...................................... 127,260 $3.45 $3.45
Exercised.................................... (30,300) $1.65 $1.65
Canceled or expired.......................... --
-------
Outstanding at December 31, 1996............... 343,844 $3.19
Granted...................................... 69,690 $4.07-$ 4.62 $4.38
Exercised.................................... --
Canceled or expired.......................... (15,150) $3.45 $3.45
-------
Outstanding at December 31, 1997............... 398,384 $3.39
Granted...................................... 540,900 $5.63-$13.75 $8.70
Exercised.................................... (48,480) $1.65 $1.65
Canceled or expired.......................... (13,310) $9.00 $9.00
-------
Outstanding at December 31, 1998............... 877,494 $6.77
=======
Exercisable at December 31, 1998............... 425,944
=======
Exercisable at December 31, 1997............... 249,299
=======
Exercisable at December 31, 1996............... 174,952
=======
During 1996 the Company adopted the disclosure provisions of SFAS No.
123. Accordingly, no compensation cost has been recognized for the Plan. Had
compensation expense related to the Plan been determined based on the fair
value at the grant date for options granted consistent with the provisions of
SFAS No. 123, Company's pro forma net loss and net loss per share would have
been $2,690,009, $3,337,420 and $3,912,472, and $0.61, $0.58 and $0.54 as of
December 31, 1996, 1997 and 1998, respectively. Such pro forma results are not
representative of the effects on operations for future years.
The fair value of the options granted during 1996 are estimated on the
date of grant using the minimum value option-pricing model with the following
assumptions: dividend yield 0%, risk-free interest rate of 6.00%, and expected
life of four years. The fair value of the options granted during 1997 are
estimated on the date of grant using the minimum value option-pricing model
with the following assumptions: dividend yield 0%, risk-free interest rate of
6.00%, expected life of five years. The fair value of the options granted
during 1998 are estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: expected volatility of
94%; dividend yield 0%, risk-free interest rate of 5.7%, and expected life of
five years.
F-20
58
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information regarding options
outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- --------------------------
WEIGHTED-
AVERAGE
REMAINING WEIGHTED- WEIGHTED-
NUMBER OF CONTRACTUAL LIFE AVERAGE NUMBER OF AVERAGE
EXERCISE PRICE SHARES (IN YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
-------------- --------- ---------------- -------------- --------- --------------
$ 3.45 - $ 4.62............ 349,904 4.9 $ 3.61 303,444 $3.52
$ 5.63 - $ 7.44............ 16,000 9.7 6.46 -- --
$ 8.13 - $ 9.00............ 508,090 9.6 8.91 122,500 8.92
$10.06 - $13.75............ 3,500 9.8 12.17 -- --
--------- --------
877,494 7.7 $ 6.77 425,944 $5.07
========= ========
Employee 401(k) Plan
Effective January 1, 1997, the Company established a 401(k) Plan (the
"401(k)") to provide retirement benefits for eligible employees. The 401(k)
provides for tax deferred contributions of between l% and 15% of employees'
salaries, limited to a maximum annual amount as established by the Internal
Revenue Service. The Company matches 25% (50% after January 1, 1999) of
employee contributions up to a maximum of 6% of total compensation. Amounts
contributed to the 401(k) by the Company to match employee contributions were
$27,808 and $39,354 in 1997 and 1998, respectively.
12. SUBSEQUENT EVENTS
On January 8, 1999, the Company acquired all of the common stock of
LeaseTrend, Inc., a Cincinnati based provider of commercial real estate
information, for $4,500,000 in cash and 566,671 shares of the Company's Common
Stock. The purchase has been accounted for using purchase accounting and has
been valued at $9,200,000 for accounting purposes. The purchase price was
allocated primarily to capitalized product development costs and intangibles and
is being amortized over 2 - 10 years.
On January 22, 1999, the Company acquired all of the common stock of
Jamison Research, Inc., an Atlanta based provider of commercial real estate
information, for $5,284,000 in cash and 448,031 shares of the Company's Common
Stock. The purchase has been accounted for using purchase accounting and has
been valued at $10,300,000 for accounting purposes. The purchase price was
allocated primarily to capitalized product development costs and intangibles
and is being amortized over 2 - 10 years. Such purchase price is subject to
adjustment based on the final audit of the net worth.
The pro forma unaudited results of operations for the year ended
December 31, 1998 assuming the purchase of LeaseTrend and Jamison had been
consummated as of January 1, 1998 and as
F-21
59
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
adjusted for the amortization of intangibles and the elimination of interest
charges, would be as follows:
1998
-----------
Revenues................................... $21,923,061
===========
Net loss................................... $(6,656,174)
===========
Net loss per share......................... $ (0.76)
===========
F-22
60
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying balance sheets of LeaseTrend, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. 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 LeaseTrend, Inc., at December
31, 1997 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Washington, DC
February 5, 1999
F-23
61
LEASETREND, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
Revenues.................................................... $2,548,576 $3,444,969
Costs of revenues........................................... 908,258 1,310,994
---------- ----------
Gross margin................................................ 1,640,318 2,133,975
Selling, general and administrative expenses................ 1,749,372 2,432,767
---------- ----------
Loss from operations........................................ (109,054) (298,792)
Other income (expense):
Interest expense.......................................... (369,794) (435,385)
Other income.............................................. 1,303 1,696
---------- ----------
Net loss.................................................... $ (477,545) $ (732,481)
========== ==========
Net loss per share -- basic and diluted..................... $ (562.68) $ (863.06)
========== ==========
Weighted average common shares.............................. 848.7 848.7
========== ==========
See accompanying notes.
F-24
62
LEASETREND, INC.
BALANCE SHEETS
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
ASSETS
Current assets:
Cash........................................................ $ -- $ 18,266
Accounts receivable, less allowance for doubtful accounts of
$23,100 and $16,900 as of December 31, 1997 and 1998,
respectively.............................................. 20,914 12,316
Prepaid expenses and other current assets................... 7,681 6,786
----------- -----------
Total current assets...................................... 28,595 37,368
Property and equipment:
Furniture and equipment................................... 121,046 152,499
Computer hardware and software............................ 175,500 234,369
----------- -----------
296,546 386,868
Accumulated depreciation.................................... (172,826) (243,901)
----------- -----------
123,720 142,967
Capitalized product development cost, net of accumulated
amortization of $141,230 and $207,960 as of December 31,
1997 and 1998, respectively............................... 177,137 157,867
Goodwill, net of accumulated amortization of $26,730 and
$42,768 as of December 31, 1997 and 1998, respectively.... 133,653 117,615
Deposits and other assets................................... 1,680 2,805
----------- -----------
Total assets.............................................. $ 464,785 $ 458,622
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft.............................................. $ 4,786 $ --
Accounts payable and accrued expenses....................... 259,028 291,958
Deferred revenue............................................ 297,635 560,463
Accrued consulting fees -- related parties.................. 215,007 295,011
Accrued interest -- related parties......................... 616,241 934,850
Notes payable, in default -- related parties................ 1,336,766 1,428,521
Note payable................................................ 121,423 66,401
----------- -----------
Total current liabilities................................. 2,850,886 3,577,204
Stockholders' deficit:
Common stock, no par value; 1,500 shares authorized; 848.7
issued and outstanding as of December 31, 1997 and 1998... -- --
Paid-in capital............................................. 581,862 581,862
Accumulated deficit......................................... (2,967,963) (3,700,444)
----------- -----------
Total stockholders' deficit............................... (2,386,101) (3,118,582)
----------- -----------
Total liabilities and stockholders' deficit............... $ 464,785 $ 458,622
=========== ===========
See accompanying notes.
F-25
63
LEASETREND, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON TOTAL
STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES CAPITAL DEFICIT DEFICIT
------ -------- ----------- -------------
Balance at December 31, 1996........... 848.7 $581,862 $(2,490,418) $(1,908,556)
Net loss............................... -- -- (477,545) (477,545)
------ -------- ----------- -----------
Balance at December 31, 1997........... 848.7 581,862 (2,967,963) (2,386,101)
Net loss............................... -- -- (732,481) (732,481)
------ -------- ----------- -----------
Balance at December 31, 1998........... 848.7 $581,862 $(3,700,444) $(3,118,582)
====== ======== =========== ===========
See accompanying notes.
F-26
64
LEASETREND, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
Operating activities:
Net loss.................................................... $(477,545) $(732,481)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 60,940 71,075
Amortization.............................................. 73,331 82,767
Provision for losses on accounts receivable............... 16,084 (6,224)
Amortization of debt discount............................. 91,756 91,756
Changes in operating assets and liabilities:
Accounts receivable....................................... (11,640) 14,822
Prepaid expenses and other current assets................. 1,629 895
Other assets.............................................. (121) (1,125)
Bank overdraft............................................ 4,786 (4,786)
Accounts payable and accrued expenses..................... 50,138 32,931
Accrued consulting fees -- related parties................ 80,004 80,004
Accrued interest -- related parties....................... 257,163 318,609
Deferred revenue.......................................... (4,635) 262,828
--------- ---------
Net cash provided by operating activities.............. 141,890 211,071
Investing activities:
Purchase of property and equipment.......................... (78,387) (90,323)
Capitalized product development cost........................ (55,090) (47,460)
--------- ---------
Net cash used in investing activities.................. (133,477) (137,783)
Financing activities:
Payments on note payable.................................... (13,037) (55,022)
--------- ---------
Net cash used in financing activities.................. (13,037) (55,022)
--------- ---------
Net increase (decrease) in cash............................. (4,624) 18,266
Cash at beginning of year................................... 4,624 --
--------- ---------
Cash at end of year......................................... $ -- $ 18,266
========= =========
See accompanying notes.
F-27
65
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1998
1. ORGANIZATION
LEASETREND, INC. (the "Company"), incorporated in the state of Ohio on
August 17, 1988, develops and maintains a proprietary database of comprehensive
office, industrial and retail real estate information in eighteen metropolitan
areas primarily in the Midwestern United States and Florida. In addition, the
Company has developed multimedia software products that allow clients to access
the database. The database and software products are distributed to its clients
under license agreements which are typically one year in duration.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the 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 at
the date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of licenses to the
proprietary software and database on a straight-line basis over the term of the
license agreement which is typically one year or less.
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated
at cost and depreciated using the straight-line method over estimated useful
lives of three to seven years. Leasehold improvements are amortized over the
lesser of the related lease term or the useful life.
CAPITALIZED PRODUCT DEVELOPMENT COSTS
Initial costs to develop and produce proprietary software and database
products, including direct labor, contractors, and applicable overhead are
capitalized from the time technological feasibility is determined until product
release. Prior to technological feasibility, such costs are expensed as
incurred. Amortization of capitalized costs is based on the greater of the
amount computed using (a) the ratio of current gross revenues to the sum of
current and anticipated future gross revenues for a product, or (b) the
straight-line method over the remaining estimated economic life of the product,
typically five years, after product release.
GOODWILL
The excess of the $150,000 purchase price over the fair value of net
assets acquired resulting from a purchase in 1996 is being amortized on a
straight-line basis over ten years. The Company continuously evaluates and
adjusts, if necessary, the net realizable value of these assets. (See Note 4).
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral. The Company
maintains reserves for credit losses, and such
F-28
66
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
losses have been within management's expectations. The credit risk in accounts
receivable is mitigated by the large customer base and lack of dependence on
individual customers. The carrying amount of the accounts receivable
approximates their fair value.
INCOME TAXES
The Company is an S corporation for federal income tax purposes under
which income, losses, deductions and credits are allocated to and reported by
the shareholders on their individual income tax returns. Accordingly, no
provision for income tax has been recorded in the financial statements.
LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." All earnings per share amounts for all
periods have been presented to conform to the Statement 128 requirements. The
effect of the options outstanding are not included as their effect would be
anti-dilutive for all the periods presented.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Such costs included in
selling and marketing expense totaled approximately $21,200 and $48,900 for the
years ended December 31, 1997 and 1998, respectively.
RECENT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Comprehensive Income", which is required to be adopted for the year ended
December 31, 1998. SFAS 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the Statements of
Stockholders' Deficit. For all periods presented, the Company had no items of
comprehensive income and, accordingly, the Statement has no effect on the
Company.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related Information", which is required to
be adopted for the year ended December 31, 1998. SFAS 131 changes the way
public companies report segment information in annual financial statements and
also require those companies to report selected segment information in interim
financial reports to stockholders. The adoption of SFAS 131 did not have any
impact on the Company's financial statements as the Company has determined that
it has only one reportable segment.
In October 1997, the AICPA issued SOP 97-2, Software Revenue
Recognition, which changes the requirements for revenue recognition effective
for transactions that the Company will enter into beginning January 1, 1998.
The implementation of SOP 97-2 is not expected to have a material effect on the
financial statements of the Company. As of January 1, 1998 the Company adopted
AICPA SOP 97-2, Software Revenue Recognition, which was effective for
transactions that the Company entered into in 1998. Prior years were not
restated. The effect of adopting SOP 97-2 was not material in the financial
statements of the Company. In March 1998, AcSEC issued SOP 98-4, which defers
F-29
67
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
for one year the implementation of certain provision of SOP 97-2. The issuance
of SOP 98-4 had no effect on the Company. In December 1998, the AICPA issued SOP
98-9, which extends the deferral date of implementation of certain provisions of
SOP 97-2 to 2000 for the Company and amends the method of revenue recognition in
some circumstances. The Company does not anticipate the adoption of this SOP
will have a significant effect on its results of operations or financial
position.
3. COMMITMENTS
The Company leases office space in various locations under
non-cancelable operating lease agreements. The leases generally provide for
renewal terms and the Company is required to pay a portion of common area
expenses including maintenance, real estate taxes and other expenses. Rent
expense for the years ended December 31, 1997 and 1998 was $94,716 and
$109,914, respectively. As of December 31, 1998, payments due under
non-cancelable operating leases are as follows:
1999........................................................ $ 98,400
2000........................................................ 98,400
2001........................................................ 98,400
2002........................................................ 98,400
2003 and thereafter......................................... 20,500
--------
$414,100
========
4. RELATED PARTY TRANSACTIONS
At December 31, 1997 and 1998, the Company had notes payable to a
venture capital fund (the "Venture Fund") of $1,094,765 and $1,186,521,
respectively. The notes bear interest at 15.15% per annum, 17.15% per annum in
the event of default as defined in the notes. The notes were in default during
1998 and accrued interest at 17.15%. The notes called for payments of principal
and interest beginning in 1997 through December 1999. During 1997 and 1998, no
such payments of principal or interest were made. As part of this transaction,
the Company entered into a consulting agreement with an affiliate of the
Venture Fund that called for the Company to pay a quarterly fee for consulting
services which has been accrued since the beginning of the agreement. All notes
and accrued consulting fees were paid January 8, 1999. (Note 5)
At the time of the Venture Fund financing, the stockholders of the
Company personally entered into an option agreement with the Venture Fund
whereby they agreed to grant an option to the Venture Fund to purchase an
aggregate of 300.27 shares of their personal shares in the Company at $1.00 per
share, for total of $290,000 paid to the stockholders. Seventy-two thousand
dollars of this amount was then loaned by the shareholders back to the Company.
The Company recorded a discount to the debt financing of approximately $459,000
(representing the fair value allocated to the options) to be amortized as
interest expense over the term of the debt, with a corresponding entry to
additional paid-in capital.
The Company had notes payable to stockholders totaling $242,000 as of
December 31, 1997 and 1998. The notes are subordinated in right of payment to
the Venture Fund notes and bear interest at prime plus 1.5%, or 9.25% at
December 31, 1998.
The Company had a note payable to a former partner in a joint venture
that started the Company's Florida operations. The note arose from the purchase
by the Company of the partner's
F-30
68
LEASETREND, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
50% interest in the venture. The note bears interest at 8%. As of December 31,
1997 and 1998, the unpaid principal balance on this note was $121,423 and
$66,401, respectively.
5. SUBSEQUENT EVENTS
On January 8, 1999, the Company was acquired by Realty Information
Group, Inc. in exchange for $4.5 million in cash and 566,671 shares of Realty
Information Group, Inc. common stock. All notes payable and related interest of
the Company were repaid from the proceeds on January 8, 1999.
F-31
69
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Realty Information Group, Inc.
We have audited the accompanying balance sheets of Jamison Research, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. 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 Jamison Research, Inc., at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Washington, D.C.
February 5, 1999
F-32
70
JAMISON RESEARCH, INC.
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
Revenues.................................................... $3,664,198 $4,577,927
Costs of revenues........................................... 1,378,946 1,658,072
---------- ----------
Gross margin................................................ 2,285,252 2,919,855
Operating expenses:
Compensation to shareholders................................ 570,476 1,190,384
Selling, general and administrative expenses................ 1,681,687 1,887,110
---------- ----------
2,252,163 3,077,494
---------- ----------
Income (loss) from operations............................... 33,089 (157,639)
Other income (expense):
Interest income............................................. 1,755 --
Other income................................................ 5,883 3,974
Interest expenses........................................... (23,758) (13,237)
Other expense............................................... (18,670) --
---------- ----------
Loss before income taxes.................................... (1,701) (166,902)
Benefit (provision) for income taxes........................ (3,700) 47,700
---------- ----------
Net loss.................................................. $ (5,401) $ (119,202)
========== ==========
Net loss per share -- basic and diluted..................... $ (0.60) $ (13.24)
========== ==========
Weighted average common shares.............................. 9,000 9,000
========== ==========
F-33
71
JAMISON RESEARCH, INC.
BALANCE SHEETS
DECEMBER 31,
---------------------
1997 1998
-------- ---------
ASSETS
Current assets:
Cash........................................................ $118,550 $ 50,548
Accounts receivable, less allowance for doubtful accounts of
$9,700 and $4,000 as of December 31, 1997 and 1998,
respectively.............................................. 84,730 32,426
Refundable income taxes..................................... 5,600 2,800
Prepaid expenses and other current assets................... 19,205 100
Deferred tax asset.......................................... 126,500 171,000
-------- ---------
Total current assets...................................... 354,585 256,874
Property and equipment:
Furniture and equipment..................................... 239,889 271,881
Computer hardware and software.............................. 265,494 302,063
-------- ---------
505,383 573,944
Accumulated depreciation.................................... (280,949) (372,327)
-------- ---------
224,434 201,617
Capitalized product development cost, net of accumulated
amortization of $61,580 and $91,846 as of December 31,
1997 and 1998, respectively............................... 89,750 59,484
Deposits.................................................... 474 474
-------- ---------
Total assets.............................................. $669,243 $ 518,449
======== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses....................... $217,133 $ 130,319
Accrued income taxes payable................................ 3,200 --
Deferred revenue............................................ 320,385 404,741
Advances from stockholders.................................. 110,672 --
Bank line of credit......................................... -- 114,912
Current portion of long-term debt........................... 29,442 26,114
-------- ---------
Total current liabilities................................. 680,832 676,086
Long-term debt, net of current portion...................... 37,449 10,603
Stockholders' deficit:
Common stock, $0.10 par value; 500,000 shares authorized;
9,000 issued and outstanding as of December 31, 1997 and
1998...................................................... 900 900
Retained deficit............................................ (49,938) (169,140)
-------- ---------
Total stockholders' deficit............................... (49,038) (168,240)
-------- ---------
Total liabilities and stockholders' deficit............... $669,243 $ 518,449
======== =========
See accompanying notes.
F-34
72
JAMISON RESEARCH, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
COMMON STOCK TOTAL
---------------- RETAINED STOCKHOLDERS'
SHARES AMOUNT DEFICIT DEFICIT
------ ------ --------- -------------
Balance at December 31, 1996................... 9,000 $900 $ (44,537) $ (43,637)
Net loss..................................... -- -- (5,401) (5,401)
----- ---- --------- ---------
Balance at December 31, 1997................... 9,000 900 (49,938) (49,038)
Net loss..................................... -- -- (119,202) (119,202)
----- ---- --------- ---------
Balance at December 31, 1998................... 9,000 $900 $(169,140) $(168,240)
===== ==== ========= =========
See accompanying notes.
F-35
73
JAMISON RESEARCH, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
------------------------
1997 1998
---------- ----------
Operating Activities:
Net loss.................................................... $ (5,401) $(119,202)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 113,681 93,991
Amortization.............................................. 30,266 30,266
Gain on sale of asset..................................... -- (2,709)
Provision for losses on accounts receivable............... 9,686 --
Deferred income taxes..................................... 500 (44,500)
Non-cash compensation to stockholders..................... 27,036 --
Changes in operating assets and liabilities:
Accounts receivable....................................... (10,237) 52,304
Prepaid expenses and other current assets................. (19,205) 19,105
Refundable income taxes................................... 3,200 (400)
Accounts payable and accrued expenses..................... 72,274 (86,815)
Deferred revenue.......................................... 44,518 84,356
--------- ---------
Net cash provided by operating activities.............. 266,318 26,396
Investing Activities:
Purchase of property and equipment.......................... (76,772) (71,919)
Proceeds from disposal of property.......................... -- 3,455
--------- ---------
Net cash used in investing activities.................. (76,772) (68,464)
Financing Activities:
Re-payments of advances from stockholders................... (69,418) (110,672)
Proceeds from bank line of credit........................... -- 114,912
Re-payments of long-term debt............................... (64,864) (30,174)
--------- ---------
Net cash used in financing activities.................. (134,282) (25,934)
--------- ---------
Net increase (decrease) in cash and cash equivalents........ 55,264 (68,002)
Cash at beginning of year................................... 63,286 118,550
--------- ---------
Cash at end of year......................................... $ 118,550 $ 50,548
========= =========
See accompanying notes.
F-36
74
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
1. ORGANIZATION
Jamison Research, Inc. (the "Company") was incorporated in the state
of Georgia on January 19, 1984. The Company develops and maintains a
proprietary database of commercial real estate information in the Atlanta and
Dallas metropolitan areas using proprietary software that permits access to its
database in the form of a multiple listing directory with sorting and reporting
capabilities. The database and software are distributed to its clients
principally under annual license agreements. The Company also provides various
market specific reports using its database of information which are sold on an
individual and subscription basis.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the 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 at
the date of the financial statements and the associated amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition
The Company recognizes revenue from the sale of licenses to the
database on a straight line basis over the term of the license agreement which
is typically one year or less. Revenue from market specific reports are
recognized when delivered to the customer.
Property and Equipment
Property and equipment, including leasehold improvements, are stated
at cost and depreciated using the straight-line method over estimated useful
lives of three to seven years. Leasehold improvements are amortized over the
lesser of the related lease term or the useful life.
Capitalized Product Development Costs
Initial costs to develop and produce proprietary software and database
products, including direct labor, contractors, and applicable overhead are
capitalized from the time technological feasibility is determined until product
release. Prior to technological feasibility, such costs are classified as
software development and expensed as incurred. Amortization of capitalized
costs is based on the greater of (a) the ratio of current gross revenues to the
sum of current and anticipated gross revenues, or (b) the straight-line method
over the remaining estimated economic life of the product, typically five
years, after product release.
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers'
financial condition and generally does not require collateral. The Company
maintains reserves for credit losses, and such losses have been within
management's expectations. The credit risk in accounts receivable is mitigated
by the large customer base and lack of dependence on individual customers. The
carrying amount of the accounts receivable approximates their fair value.
F-37
75
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The company provides for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires recognition of deferred tax assets and liabilities for
expected future tax consequences of events that have been included in the
financial statements or income tax returns. Under this method, deferred tax
assets and liabilities are determined based upon the difference between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The company recognizes revenue and expenses on a cash basis purpose for tax
purposes while using the accrual method for book purposes.
Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share." Jamison has no dilutive options,
warrants or convertible securities. All earnings per share amounts for all
periods have been presented to conform to the Statement 128 requirements.
Recent Pronouncements
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 ("SFAS 130"),
"Comprehensive Income", which is required to be adopted for the year ended
December 31, 1998. SFAS 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the Statements of
Stockholders' Deficit. For all periods presented, the Company had no items of
comprehensive income and, accordingly, the Statement has no effect on the
Company.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosures
about Segments of an Enterprise and Related Information", which is required to
be adopted for the year ended December 31, 1998. SFAS 131 changes the way
public companies report segment information in annual financial statements and
also require those companies to report selected segment information in interim
financial reports to stockholders. The adoption of SFAS 131 did not have any
impact on the Company's financial statements as the Company has determined that
it has only one reportable segment.
In October 1997, the AICPA issued SOP 97-2, Software Revenue
Recognition, which changes the requirements for revenue recognition effective
for transactions that the Company will enter into beginning January 1, 1998.
The implementation of SOP 97-2 is not expected to have a material effect on the
financial statements of the Company. As of January 1, 1998 the Company adopted
AICPA SOP 97-2, Software Revenue Recognition, which was effective for
transactions that the Company entered into in 1998. Prior years were not
restated. The effect of adopting SOP 97-2 was not material in the financial
statements of the Company. In March 1998, AcSEC issued SOP 98-4, which defers
for one year the implementation of certain provision of SOP 97-2. The issuance
of SOP 98-4 had no effect on the Company. In December 1998, the AICPA issued
SOP 98-9, which extends the deferral date of implementation of certain
provisions of SOP 97-2 to 2000 for the Company and amends the method of revenue
recognition in some circumstances. The Company does not anticipate the adoption
of this SOP will have a significant effect on its results of operations or
financial position.
F-38
76
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. COMMITMENTS
Operating Leases
The Company leases equipment and office space in Atlanta, Georgia and
Dallas, Texas under non-cancelable operating lease agreements. The leases
generally provide for renewal terms and the Company is required to pay a
portion of common area expenses including maintenance, real estate taxes and
other expense. Rent expense for the years ended December 31, 1997 and 1998 was
$128,529 and $235,014, respectively. As of December 31, 1998, payments due
under non-cancelable operating leases are as follows:
1999........................................................ $235,809
2000........................................................ 166,981
2001........................................................ 142,416
2002........................................................ 3,081
2003 and thereafter......................................... 3,081
--------
$551,368
========
Employment Agreements
During 1991 the Company entered in an employment service termination
agreement with a former employee of the Company whereby the Company is required
to pay the former employee up to $25,000 upon a change in ownership of the
Company. As of December 31, 1998, no amount has been recorded in the financial
statements for this contingency.
In December 1997, the Company entered into a one year employment
agreement with an employee of the Company. Pursuant to this agreement, upon the
sale of a majority of the Company's outstanding shares to a third party, the
Company is required to pay the employee 5.25 % of the amount of the sales price
exceeding $7,500,000 less certain expenses. As of December 31, 1998, no amount
has been recorded in the financial statements for this contingency.
4. RELATED PARTY TRANSACTIONS
During 1996 the Company's two stockholders entered into a personal
line of credit agreement with a bank. During 1996 and 1997 the stockholders
used the proceeds from the line of credit agreement to advance the Company cash
to support operations and expansion. As of December 31, 1997 outstanding
advances due to the stockholders were approximately $111,000. The Company
repays principal and interest (approximately 8.25% annually), directly to the
bank on behalf of the stockholders. In December 1998, the Company repaid the
advances with proceeds from the line of credit (Note 5).
In December 1997, the Company transferred title of two vehicles with a
net book value of approximately $27,000 to the stockholders and recorded
non-cash compensation.
The Company paid interest of approximately $23,800 and $13,237 in 1997
and 1998, respectively.
5. LINE OF CREDIT
In December 1998, the Company entered into a $462,000 line of credit
agreement with a financial institution. The line of credit bears interest at
the bank's prime rate plus 1% (8.75% at
F-39
77
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1998) and has a maturity date of November 30, 1999. Borrowings
under the line are secured by the personal assets and guarantee of the Company's
stockholder's and all business assets of the Company. At December 31, 1998, the
Company is in compliance with the terms and covenants of the line of credit
agreement. At December 31, 1998, approximately $115,000 was outstanding under
the line of credit.
6. INCOME TAXES
The Company accounts for taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS 109,
deferred tax liabilities and assets are determined based on the difference
between financial statement and tax basis of assets and liabilities using
enacted rates expected to be in effect during the year in which the differences
reverse. Deferred taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and tax purposes. These differences relate principally to reporting on
the cash basis for tax purposes. The Company paid no income taxes in 1997 or
1998.
DECEMBER 31,
--------------------
1997 1998
-------- --------
Deferred tax assets:
Accrual to cash adjustments....................... $154,000 $176,000
Capitalized product development cost.............. (33,500) (24,000)
Other liabilities................................. 6,000 19,000
-------- --------
Net deferred tax assets...................... $126,500 $171,000
======== ========
The provision for income taxes at December 31 consisted of the
following:
1997 1998
------ --------
Current................................................ $3,200 $ (3,200)
Deferred............................................... 500 (44,500)
------ --------
Total............................................. $3,700 $(47,700)
====== ========
The Company's provision for income taxes resulted in effective tax
rates that varied from the statutory federal income tax rate as follows:
1997 1998
------- --------
Expected federal income tax benefit at 34%............. $ (600) $(56,800)
State income taxes, net of federal benefit............. (100) (7,600)
Expenses not deductible for tax purposes............... 7,100 16,700
Graduated tax rate difference.......................... (2,700) --
------- --------
$ 3,700 $(47,700)
======= ========
7. NON CASH TRANSACTIONS
The Company enters into arrangements with various vendors and service
providers whereby they provide various office equipment, office space and
services in exchange for licenses to access the Company's commercial real
estate database. As a result of these transactions, the Company recorded
property and equipment of approximately $52,000 and $25,500 in 1997 and 1998,
with a
F-40
78
JAMISON RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
corresponding credit to deferred revenue to be recognized in accordance with the
Company's revenue recognition policies. Further, the Company recognized service
revenues and expenses of approximately $53,000 and $117,064 in 1997 and 1998.
The value of the licenses has been determined to equal the fair value of the
equipment or services received and office space used.
8. SUBSEQUENT EVENTS
On January 22, 1999, the Company was acquired by Realty Information
Group, Inc., in exchange for $5.28 million in cash and 448,031 shares of Realty
Information Group, Inc. Common stock.
F-41
79
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Bethesda, State of Maryland, on the 30th day of March, 1999.
REALTY INFORMATION GROUP, INC.
By: /s/
----------------------------------------------
Andrew C. Florance
Chief Executive Officer and
President
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose
signature appears below constitutes and appoints Andrew C. Florance an Frank A.
Carchedi power of substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this report, and to
file the same, with all exhibits thereto and to all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to confirming all that said attorneys-in-fact
and agents or any of them, or his or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed by the following persons in the
capacities indicated on the dates indicate.
SIGNATURE CAPACITY DATE
--------- -------- ----
Chairman of the Board March 30, 1999
- -------------------------------
Michael R. Klein
/s/ Chief Executive Officer and March 30, 1999
- ------------------------------- President, and a Director
Andrew C. Florance (Principal Executive Officer)
/s/
- ------------------------------- Chief Financial Officer (Chief March 30, 1999
Frank A. Carchedi Financial and Accounting
Officer)
/s/ Director March 30, 1999
- -------------------------------
David Bonderman
/s/ Director March 30, 1999
- -------------------------------
Warren H. Haber
/s/ Director March 30, 1999
- -------------------------------
John Simon
Director March 30, 1999
- -------------------------------
Lanning Macfarland III
80
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ---------- -----------
2.1 -- Acquisition and Reorganization Agreement by and among
Realty Information Group, Inc. and LeaseTrend, Inc. and the
Shareholder of LeaseTrend, Inc. dated January 8, 1999
(Incorporated by reference to Exhibit 2.1 to the report of
the Registrant on Form 8-K (File No. 0-24531) filed with
the Commission on January 22, 1999).
2.2 -- Agreement and Plan of Merger between LeaseTrend, Inc. and
LTI Acquisition Corp., dated January 8, 1999 (Incorporated
by reference to Exhibit 2.2 to the report of the
Registration on Form 8-K (File No. 0-24531) filed with the
Commission on January 22, 1999).
2.3 -- Agreement and Plan of Merger by and among Realty
Information Group, Inc., Jamison Research, Inc., Henry D.
Jamison IV and Leslie Lees Jamison dated January 6, 1999
(Incorporated by reference to Exhibit 2.3 to the report of
the Registrant on Form 8-K (File No. 0-24531) filed with
the Commission on February 2, 1999).
2.4 -- Amendment to Agreement and Plan of Merger by and among
Realty Information Group, Inc., Jamison Research, Inc.,
Jamison Acquisition Corp., Henry D. Jamison IV and Leslie
Lees Jamison dated January 14, 1999 (Incorporated by
reference to Exhibit 2.4 to the report of the Registrant on
Form 8-K (File No. 0-24531) filed with the Commission on
February 2, 1999).
3.1 -- Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to Amendment No. 4 to the
Registration Statement on Form S-1 of the Registrant (Reg.
No. 333-47953) filed with the Commission on June 30, 1998
(the "1998 Form S-1").
3.2 -- Amended and Restated By-Laws (Incorporated by reference to
Exhibit 3.2 to the 1998 Form S-1).
4.1 -- Specimen Common Stock Certificate (Incorporated by
reference to Exhibit 4.1 to the 1998 Form S-1).
*10.1 -- Realty Information Group, Inc. 1998 Stock Incentive Plan
(Incorporated by reference to Exhibit 10.1 to the 1998 Form
S-1).
*10.2 -- Employment Agreement for Andrew C. Florance (Incorporated
by reference to Exhibit 10.2 to the 1998 Form S-1).
*10.3 -- Employment Agreement for Frank A. Carchedi (Incorporated by
reference to Exhibit 10.3 to the 1998 Form S-1).
81
*10.4 -- Employment Agreement for David M. Schaffel (Incorporated by
reference to Exhibit 10.4 to the 1998 Form S-1).
*10.5 -- Employment Agreement for Curtis M. Ricketts (Incorporated
by reference to Exhibit 10.5 to the 1998 Form S-1).
*10.6 -- Employment Agreement for Fred A. Heitzman III (Incorporated
by reference to Exhibit 10.6 to the Registration Statement
of the Registrant on Form S-1) (Reg. No. 333-74953) filed
with the Commission on March 24, 1999 (the "1999 Form
S-1").
10.7 -- Registration Rights Agreement (Incorporated by reference to
Exhibit 10.7 to the 1998 Form S-1).
21.1. -- Subsidiaries of the Company (Incorporated by reference to
Exhibit 21.1 of the 1999 Form S-1).
24.1 -- Powers of Attorney (Included in the Signature Pages to the
Report).
- -----------------------
* Management Contract or Compensatory Plan or Arrangement