UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
----------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended: June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to ________
Commission file number: 0-24531
REALTY INFORMATION GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-2091509
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7475 WISCONSIN AVENUE
BETHESDA, MD 20814
(301) 215-8300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ ] - No [ X ]
As of August 1, 1998, there were 8,302,497 shares outstanding of the
Registrant's Common Stock, par value $.01
<PAGE>
REALTY INFORMATION GROUP, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Operations......................3
Condensed Consolidated Balance Sheets................................4
Condensed Consolidated Statements of Cash Flows......................5
Notes to Condensed Consolidated Financial Statements.................6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations........................8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings...................................................12
Item 2 - Changes in Securities...............................................12
Item 3 - Defaults upon Senior Securities.....................................12
Item 4 - Submission of Matters to a Vote of Security Holders.................12
Item 5 - Other Information...................................................12
Item 6 - Exhibits and Reports on Form 8-K....................................12
Signatures....................................................................13
2
<PAGE>
PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
Realty Information Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------ ----------------------
1998 1997 1998 1997
------------------------ ----------------------
<S> <C> <C> <C> <C>
Revenues $ 3,254 $ 1,858 $ 6,093 $ 3,413
Cost of revenues 968 937 1,872 1,654
------------------------ ----------------------
Gross margin 2,286 921 4,221 1,759
Operating expenses:
Selling and marketing 1,328 1,054 2,592 1,912
Software development 144 111 262 219
General and administrative 1,020 801 1,919 1,473
------------------------ ----------------------
2,492 1,966 4,773 3,604
Loss from operations (206) (1,045) (552) (1,845)
Other income (expense) (40) 17 (78) 48
------------------------ ----------------------
Net loss $ (246) $(1,028) $ (630) $(1,797)
======================== ======================
Net loss per share $ (0.04) $ (0.18) $ (0.11) $ (0.31)
======================== ======================
Weighted average common shares 5,764 5,754 5,759 5,754
======================== ======================
Proforma net loss per share $ (0.03) $ (0.12) $ (0.08) $ (0.22)
======================== ======================
Proforma weighted average common shares 8,264 8,254 8,259 8,254
======================== ======================
</TABLE>
See accompanying notes.
3
<PAGE>
Realty Information Group, Inc.
Condensed Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
Proforma
June 30, June 30, December 31,
1998 1998 1997
-------------------------------------------------------
ASSETS (unaudited) (unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 19,467 $ 1,092 $ 1,069
Accounts receivable, less allowance for doubtful
accounts of $229,000 and $151,000 as of
June 30,1998 and December 31, 1997 1,180 1,180 1,021
Prepaid expenses and other current assets 99 1,199 27
-------------------------------------------------------
Total current assets 20,746 3,471 2,117
Property and equipment 2,351 2,351 2,102
Accumulated depreciation (991) (991) (800)
-------------------------------------------------------
1,360 1,360 1,302
Capitalized product development costs, net of accumulated
amortization of $694,000 and $514,000 as of
June 30, 1998 and December 31, 1997 1,280 1,280 1,262
Other assets 1,718 1,718 1,796
Deposits 97 97 105
-------------------------------------------------------
Total assets $ 25,201 $ 7,926 $ 6,582
=======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 184 $ 1,084 $ 355
Accrued wages and commissions 441 441 369
Accrued expenses 737 737 388
Deferred revenue 1,638 1,638 903
Line of credit - 1,000 1,000
Subordinated debt to stockholder - 650 650
-------------------------------------------------------
Total current liabilities 3,000 5,550 3,665
Stockholders' equity 22,201 2,376 2,917
-------------------------------------------------------
Total liabilities and stockholders' equity $ 25,201 $ 7,926 $ 6,582
=======================================================
</TABLE>
See accompanying notes.
4
<PAGE>
Realty Information Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended
June 30,
------------------------
1998 1997
------------------------
<S> <C> <C>
Operating activities:
Net loss $ (630) $(1,796)
Adjustments to reconcile net loss to net cash
provided by (used) in operating activities:
Depreciation 191 164
Amortization 284 221
Provision for losses on accounts receivable 78 30
Non cash compensation charges 9 153
Changes in operating assets and liabilities 483 359
------------------------
Net cash provided by (used in) operating activities 415 (869)
Investing activities:
Net purchases of property and equipment (249) (379)
Capitalization of product development costs (223) (268)
Acquisitions (net of acquired cash) -- (547)
------------------------
Net cash used in investing activities (472) (1,194)
Financing activities:
Net proceeds from exercised stock options 80 --
------------------------
Net cash provided by financing activities 80 --
Net increase (decrease) in cash and cash equivalents 23 (2,063)
Cash and cash equivalents at beginning of period 1,069 3,326
------------------------
Cash and cash equivalents at end of period $ 1,092 $ 1,263
========================
</TABLE>
See accompanying notes.
5
<PAGE>
REALTY INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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"). In connection with the
Company's Initial Public Offering on July 1, 1998 ("the Offering"), RIGLP and
RIGINC were consolidated 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, the Company owns
(directly or indirectly) all of the capital stock of RIGINC and all the equity
of RIGLP. The transfer of assets and liabilities of RIGLP and RIGINC to the
Company has been recorded at the historical carrying values of RIGLP and RIGINC.
The financial statements are presented as if the Company was in existence
throughout all periods presented.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1998 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. For further information, refer to the
consolidated financial statements and footnotes thereto of the Company, RIGLP
and RIGINC included in the Company's prospectus filed with the Securities and
Exchange Commission on July 1, 1998.
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.
6
<PAGE>
Pro Forma Loss Per Share
The following table sets forth the computation of net loss per share and Pro
Forma net loss per share. The weighted average common shares outstanding reflect
the shares or units of the Company's predecessors as if such shares were
outstanding for the entire period. The Proforma weighted average common shares
outstanding reflect the effect of the issuance of 2,500,000 shares of common
stock upon completion of the Offering. Stock options and warrants outstanding
have been excluded from the calculation because their effect is anti-dilutive.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
1998 1997 1998 1997
-------------------- ------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (246) $(1,028) $ (630) $(1,796)
==================== ======================
Denominator:
Weighted average common shares 5,764 5,754 5,759 5,754
Issuance of common shares in the Offering 2,500 2,500 2,500 2,500
-------------------- ----------------------
Proforma weighted average common shares 8,264 8,254 8,259 8,254
==================== ======================
Net loss per share $ (0.04) $ (0.18) $ (0.11) $ (0.31)
==================== ======================
Proforma net loss per share $ (0.03) $ (0.12) $ (0.08) $ (0.22)
==================== ======================
</TABLE>
2. SUBSEQUENT EVENTS
Initial Public Offering
On July 1, 1998, the Company completed an Initial Public Offering of 2,500,000
shares of common stock for $9.00 per share. Total proceeds of the Offering were
$19,825,000, after deducting underwriting discounts and commissions of
$1,575,000 and estimated offering expenses of $1,100,000. The Company repaid the
line of credit and subordinated debt to stockholder, for a total of $1,650,000,
out of the proceeds of the Offering. The Offering proceeds, repayment of debt
and payment of offering expenses are reflected in the proforma balance sheet at
June 30, 1998.
7
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements, which involve risks
and uncertainties. The Company's actual results could differ materially from
those in such forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" in the Company's Prospectus dated
July 1, 1998. The following discussion should be read in conjunction with the
Prospectus and the unaudited condensed financial statements included herein.
OVERVIEW
The Company is a leading provider of comprehensive, building-specific
information to the United States commercial real estate industry and related
industries. During the period from 1994 through 1997, the Company expanded the
geographical coverage of its products and developed new products. This expansion
included acquisitions made by the Company in 1996 and 1997 in Chicago and San
Francisco, respectively. The Company currently generates positive cash flow from
operations in each region that has operated for at least 18 months ("established
regions.") Costs associated with the introduction of new products into these
established regions may result in net losses in such regions in the future.
Because of the Company's growth strategy, costs incurred in expanding into new
regions ("emerging regions") and introducing new products to existing markets
have resulted in substantial overall net losses and negative cash flow from
operations. As each regional operation and each product becomes established, the
revenue produced generally exceeds operating costs and generates profits and
cash flow from operations. Management expects to continue the rapid expansion
into emerging regions and the development and introduction of new products.
Therefore, while existing regions are expected to grow in profitability and
provide substantial funding for the business, the expansion is expected to
generate substantial losses and negative cash flow from overall operations
through at least the first quarter of 2000.
8
<PAGE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
THREE MONTHS ENDED JUNE 30, 1998
Revenue. Revenue increased 75% from $1,858,000 for the three months ended June
30, 1997 to $3,254,000 for the three months ended June 30, 1998. This increase
in revenue resulted principally from growth in the Company's client base in
established regions of the country and rapid expansion of emerging regions
entered during 1997. Additionally, advertising revenue, generated primarily in
established regions, increased 185% from $78,000 for the three months ended June
30, 1997 to $222,000 for the three months ended June 30, 1998.
Gross margins. Gross margins increased from $921,000 for the three months ended
June 30, 1997 to $2,286,000 for the three months ended June 30, 1998, as gross
margin percentages improved from 50% to 70% of revenue, respectively. This
increase resulted principally from the expanding revenue and profitability of
the established regions coupled with the emerging regions rapid growth. Total
cost of revenue increased 3% from $937,000 for the three months ended June 30,
1997 to $968,000 for the three months ended June 30, 1998 due to the stability
of the cost structure in the established regions.
Selling and marketing expenses. Selling and marketing expenses increased 26%
from $1,054,000 for the three months ended June 30, 1997 to $1,328,000 for the
three months ended June 30, 1998, but decreased as a percentage of revenue from
57% to 41%, respectively. Selling and marketing expenses increased as the
Company expanded its sales organization in emerging regions. Selling expenses
declined as a percent of revenue due to the significant sales growth during the
year and growth in the Company's renewable contract base.
General and administrative expenses. General and administrative expenses
increased 27% from $801,000 for the three months ended June 30, 1997 to
$1,020,000 for the three months ended June 30, 1998, but decreased as a
percentage of revenue from 43% to 31%, respectively. General and administrative
expenses increased due to new hires required to support the expanding
organization and client base and decreased as a percentage of revenue due to the
Company's ability to leverage these expenses over its growing revenue and
operations.
Interest and other income (expense). Interest and other income decreased from
$17,000 for the three months ended June 30, 1997 to an expense of $40,000 for
the three months ended June 30, 1998. This was a direct result of borrowings
against the line of credit and subordinated debt to stockholder to fund the
operations of the Company.
Net loss. Net loss decreased 76% from $1,028,000 for the three months ended June
30, 1997 to $246,000 for the three months ended June 30, 1998. This decrease in
losses was primarily a result of the increase in revenue and gross margin of the
established regions combined with the growth in emerging regions. In addition,
the Company's ability to leverage expenses over its growing client base has
resulted in a decrease in expenses as a percentage of revenue, thus reducing
losses.
9
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO
SIX MONTHS ENDED JUNE 30, 1996
Revenue. Revenue grew 79% from $3,413,000 for the six months ended June 30, 1997
to $6,093,000 for the six months ended June 30, 1998. This increase in revenue
resulted principally from growth in the Company's client base in established
regions of the country and rapid expansion of new regions entered during 1997
("emerging regions.") Additionally, advertising revenue, generated primarily in
established regions, increased 179% from $146,000 for the six months ended June
30, 1997 to $408,000 for the six months ended June 30, 1998.
Gross margins. Gross margins increased from $1,759,000 for the six months ended
June 30, 1997 to $4,221,000 for the six months ended June 30, 1998, as gross
margin percentages improved from 52% to 69% of revenue, respectively. This
increase resulted principally from the expanding revenue and profitability of
the established regions coupled with the emerging regions rapid growth. Total
cost of revenue increased 13% from $1,654,000 for the six months ended June 30,
1997 to $1,872,000 for the six months ended June 30, 1998 due to the stability
of the cost structure in the established regions.
Selling and marketing expenses. Selling and marketing expenses increased 36%
from $1,912,000 for the six months ended June 30, 1997 to $2,592,000 for the six
months ended June 30, 1998, but decreased as a percentage of revenue from 56% to
43%, respectively. Selling and marketing expenses increased as the Company
expanded its sales organization in emerging regions. Selling expenses declined
as a percent of revenue due to the significant sales growth during the year and
growth in the Company's renewable contract base.
General and administrative expenses. General and administrative expenses
increased 30% from $1,473,000 for the six months ended June 30, 1997 to
$1,919,000 for the six months ended June 30, 1998, but decreased as a percentage
of revenue from 43% to 31%, respectively. General and administrative expenses
increased due to new hires required to support the expanding organization and
client base and decreased as a percentage of revenue due to the Company's
ability to leverage these expenses over its growing revenue and operations.
Interest and other income (expense). Interest and other income decreased from
$48,000 for the six months ended June 30, 1997 to an expense of $78,000 for the
six months ended June 30, 1998. This was a direct result of borrowings against
the line of credit and subordinated debt to stockholder to fund the operations
of the Company.
Net loss. Net loss decreased 65% from $1,797,000 for the six months ended June
30, 1997 to $630,000 for the six months ended June 30, 1998. This decrease in
losses was primarily a result of the increase in revenue and gross margin of the
established regions combined with the growth in emerging regions. In addition,
the Company's ability to leverage expenses over its growing client base resulted
in a decrease in expenses as a percentage of revenue, thus reducing losses.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance was $1,092,000 at June 30,1998, an increase of
$23,000 from $1,069,000 at December 31, 1997. The Company's proforma cash was
$19,467,000 at June 30,1998, an increase of $18,375,000 from $1,092,000 at June
30, 1998 due to the net proceeds of the Offering, after deducting underwriting
discounts, commissions and estimated Offering expenses. During 1998, the Company
has financed its operations and growth through cash flow from operating
activities, primarily from the established regions. Net cash provided by
operations for the six months ended June 30, 1998 was $415,000 compared to net
cash used in operating activities of $869,000 for six months ended 1997. This
was a direct result of significant increases in revenues and reduced losses as
of June 30, 1998. Additionally, the Company receives 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 $1,638,000 as of June
30, 1997 and 1998, respectively. The Company continues to experience operating
losses as a result of its recent expansion into new regions, while established
regions continue to generate substantial cash flow from operations.
Net cash used in investing activities amounted to $472,000 for six months ended
June 30, 1998, including capitalized product development and fixed asset
purchases, consisting principally of computer and office equipment. The Company
currently has no material commitments for capital expenditures.
Subsequent to the Offering, the Company repaid the line of credit and
subordinated debt to stockholder, for a total of $1,650,000 out of the proceeds
of the Offering. The Offering proceeds and repayment of debt are reflected in
the proforma balance sheet at June 30, 1998.
To date, the Company has generated substantial growth through the acquisition of
other entities and further growth may also occur through acquisitions.
Acquisitions may vary in size and could be material to the current operations of
the Company. The Company expects that it will use cash, stock issuance, or other
means of funding to effect such transactions.
The Company plans for future growth into new regions and products that may occur
through the acquisition of other entities or through internal development.
Accordingly, the Company anticipates substantial increases in expenditures, as
the Company enters new regions, produces new products and develops the
infrastructure to support the expanding organization and client base. Management
believes that the Company's current resources and commitments for funding are
adequate to support its current operations. Based on its current plans, the
proceeds of the Offering combined with positive cash flow from the Company's
established regions will be sufficient to fund its planned operations and
expansion into new regions and products for at least the next two years.
Prior to June 30, 1998, the Company has operated as either a Subchapter S
corporation or a limited partnership, and has not been subject to corporate
income taxes. Subsequent to June 30, 1998, the Company is a taxable entity.
Although the Company has experienced losses to date, future profitability, to
the extent it is not offset by the benefits of loss carryforwards, would result
in income tax liabilities. The Company does not expect to benefit substantially
from tax loss carry forwards generated prior to its formation.
Management does not believe the impact of inflation has significantly affected
the Company's operations.
Management does not anticipate that the Year 2000 will have a significant impact
on its information systems or result in a significant commitment of resources to
resolve potential problems associated with this event.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGE IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1998 Stock Incentive Plan was approved by the stockholders of the
Company at a special meeting on June 30, 1998 (by a vote of two in favor, none
opposed).
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER: EXHIBIT DESCRIPTION:
3.1 Restated Certificate of Incorporation *
3.2 Amended and Restated By - laws *
10.1 Realty Information Group, Inc. 1998 Stock Incentive Plan *
10.2 Employment Agreement for Andrew C. Florance *
10.3 Employment Agreement for Frank A. Carchedi *
10.4 Employment Agreement for David M. Schaffel *
10.5 Employment Agreement for Curtis M. Ricketts *
10.7 Registration Rights Agreement *
10.8 RIG Contribution Agreement *
21.1 Subsidiaries of the Company *
27 Financial Data Schedule
* Previously filed as an exhibit to the Company's Registration
Statement on Form S-1 (File No. 333-47953) and incorporated
herein by reference.
There were no reports on Form 8-K filed by the Company during the three month
period ended June 30, 1998.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REALTY INFORMATION GROUP, INC.
Date: August 11, 1998 By: /s/ Frank A. Carchedi
---------------------
Frank A. Carchedi
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the condensed
consolidated balance sheet and statement of operations of REALTY INFORMATION
GROUP, INC. as of and for the three months ended June 30, 1998 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-30-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,092,000
<SECURITIES> 0
<RECEIVABLES> 1,409,000
<ALLOWANCES> 229,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,471,000
<PP&E> 2,351,000
<DEPRECIATION> 991,000
<TOTAL-ASSETS> 7,926,000
<CURRENT-LIABILITIES> 5,550,000
<BONDS> 0
0
0
<COMMON> 83,000
<OTHER-SE> 2,293,000
<TOTAL-LIABILITY-AND-EQUITY> 2,376,000
<SALES> 0
<TOTAL-REVENUES> 3,254,000
<CGS> 0
<TOTAL-COSTS> 968,000
<OTHER-EXPENSES> 2,492,000
<LOSS-PROVISION> 78,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (206,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (246,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (246,000)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
