<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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: MARCH 31, 2000
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
COSTAR 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)
2 BETHESDA METRO CENTER
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 [ X ] - No [ ]
As of April 1, 2000, there were 15,375,748 shares outstanding of the
Registrant's Common Stock, par value $.01.
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COSTAR 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....................9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk........12
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.................................................13
Item 6 - Exhibits and Reports on Form 8-K..................................13
Signatures..................................................................14
2
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PART 1 FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
CoStar Group, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------------
2000 1999
----------------------------
<S> <C> <C>
Revenues $ 11,372 $ 6,127
Cost of revenues 5,977 2,594
----------------------------
Gross margin 5,395 3,533
Operating expenses:
Selling and marketing 8,402 3,083
Software development 718 240
General and administrative 5,421 1,936
Purchase amortization 1,737 500
Acquired in-process development 5,812 -
----------------------------
22,090 5,759
----------------------------
Loss from operations (16,695) (2,226)
Other income, net 1,026 62
----------------------------
Net loss before income taxes (15,669) (2,164)
Income tax benefit 565 -
----------------------------
Net loss $(15,104) $(2,164)
============================
Basic and diluted net loss per share $ (1.06) $ (0.22)
============================
Weighted average common shares 14,254 9,624
============================
</TABLE>
See accompanying notes.
3
<PAGE> 4
CoStar Group, Inc.
Condensed Consolidated Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 76,851 $ 94,074
Accounts receivable, less allowance for doubtful
accounts of $993 and $756 as of
March 31, 2000 and December 31, 1999 8,887 2,841
Prepaid expenses and other current assets 4,957 2,458
----------------------------
Total current assets 90,695 99,373
Property and equipment 14,294 8,259
Accumulated depreciation (2,821) (2,377)
----------------------------
11,473 5,882
Intangible and other assets 101,397 31,222
Deposits 787 428
----------------------------
Total assets $204,352 $136,905
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,234 $ 7,585
Deferred revenue 8,927 2,635
----------------------------
Total current liabilities 24,161 10,220
Long term liabilities 1,891 -
Deferred taxes 18,984 6,988
Stockholders' equity 159,316 119,697
----------------------------
Total liabilities and stockholders' equity $204,352 $136,905
============================
</TABLE>
See accompanying notes.
4
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CoStar Group, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Operating activities:
Net loss $(15,104) $ (2,164)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 444 206
Amortization 2,593 845
Acquired in-process development 5,812 -
Provision for losses on accounts receivable 237 98
Income tax benefit (565) -
Non-cash charges - 4
Changes in operating assets and liabilities (1,746) (313)
---------------------------
Net cash used in operating activities (8,329) (1,324)
Investing activities:
Net purchases of property and equipment (1,986) ( 889)
Intangible and other assets (2,799) ( 410)
Acquisitions (net of acquired cash) (2,407) (9,993)
---------------------------
Net cash used in investing activities (7,192) (11,292)
Financing activities:
Proceeds from line of credit - 3,000
Payment of long term liability (2,640) -
Net proceeds from exercise of stock options 938 -
---------------------------
Net cash (used in) provided by financing activities (1,702) 3,000
Net increase in cash and cash equivalents (17,223) (9,616)
Cash and cash equivalents at beginning of period 94,074 19,667
---------------------------
Cash and cash equivalents at end of period $ 76,851 $ 10,051
===========================
</TABLE>
See accompanying notes.
5
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COSTAR GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
CoStar Group, Inc. (the "Company" or the "Registrant") 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
CoStar Group, Inc. 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 was an operating entity, while
RIGINC was 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 owned
(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 maintained 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. ("CoStar
Realty"), a wholly owned subsidiary of the Company.
Additionally, the consolidated financial statements of the Company
include the accounts of New Market Systems ("NMS") acquired on March 1, 1997, C
Data Services, Inc. ("CDS") acquired on August 14, 1998, LeaseTrend, Inc.
("LeaseTrend") acquired on January 8, 1999, Jamison Research, Inc. ("Jamison")
acquired on January 22, 1999, ARES Development Group, LLC ("ARES") acquired on
September 15, 1999, and COMPS.COM, Inc. ("Comps") acquired on February 10, 2000.
CDS was merged into CoStar Realty on January 1, 1999, and LeaseTrend and Jamison
were merged into CoStar Realty on December 31, 1999.
CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries after elimination of all significant intercompany
transactions.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain previously reported amounts have been reclassified to conform
to the Company's current presentation.
6
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3. ACQUISITIONS
On August 14, 1998, the Company acquired Houston-based commercial real
estate information provider, C Data Services, Inc. CDS was acquired in a
transaction in which the former stockholders of CDS received 93,530 shares of
common stock of the Company and approximately $9,000 in cash. The transaction
was accounted for as a purchase and the consideration was valued for accounting
purposes at approximately $617,000 including acquisition expenses.
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 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
Jamison Research, Inc., an Atlanta based provider of commercial real estate
information, for $5,284,000 in cash and 446,637 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.
On September 15, 1999, the Company acquired all of the membership
interests of ARES Development Group, LLC, Los Angeles based developers and
distributors of ARES for ACT!, for $250,000 in cash and 33,208 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 $1,265,000
including acquisition expenses. In addition, the acquisition agreement provides
for $1,000,000 of additional consideration (in a combination of cash and stock)
that may be paid by the Company upon the achievement of certain operating goals
by the members of ARES. In February 2000, the Company issued 2,140 shares of its
common stock and paid $437,500 in cash to the members of ARES for the
achievement of the first operating goal by the members of ARES.
On February 10, 2000, the Company completed the acquisition of Comps
under a merger agreement, dated as of November 3, 1999, among the Company, Comps
and Acq Sub, Inc. ("Acq Sub"), a wholly owned subsidiary of the Company. Comps'
primary asset is a database of commercial real estate sales information. In
connection with the transaction, Comps was merged with and into Acq Sub, which
was the surviving corporation in the merger. Immediately after the merger, Acq
Sub changed its name to Comps, Inc. The aggregate consideration included
$49,015,905 in cash paid to former holders of Comps common stock (excluding cash
paid for fractional shares), and 2,258,738 shares of the Company's common stock
(including shares issued to former warrant holders of Comps). The transaction
was accounted for as a purchase and the consideration was valued for accounting
purposes at approximately $101,379,000 including acquisition expenses.
The operations of all acquired businesses were included in the
Company's statement of operations after the respective date of acquisitions.
Except for the portion of the purchase price of acquisitions acquired with cash,
these transactions have been excluded from the statements of cash flows.
The Company's unaudited pro forma condensed consolidated statements of
operations for the three month period ended March 31, 1999 and 2000, assuming
the acquisition of LeaseTrend, Jamison, ARES and Comps had been consummated as
of January 1 of each period, is summarized as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
For the Three Month Period
Ended March 31,
2000 1999
------------------------
<S> <C> <C>
Revenues $ 13,126 $ 9,954
-------- --------
Net loss $(18,163) $ (3,963)
======== ========
Weighted average shares 15,272 12,045
======== ========
Net loss per share - basic and diluted $ (1.19) $ (0.33)
======== ========
</TABLE>
7
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4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consists of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------- --------
<S> <C> <C>
Capitalized product development costs $ 1,435 $ 1,435
Accumulated amortization (688) (617)
-------- --------
747 818
-------- --------
Building photography 3,530 3,118
Acquired technology 19,831 3,552
Customer base 31,523 19,347
Tradename 4,198 -
Goodwill 49,596 9,894
Accumulated amortization (8,028) (5,507)
-------- --------
100,650 30,404
-------- --------
Intangible and other assets $101,397 $ 31,222
======== ========
</TABLE>
5. COMMITMENTS
The Company leases office space and equipment under operating lease
agreements that expire at various dates through the year 2010. Lease agreements
provide for various renewal terms and reimbursement of taxes, maintenance,
insurance and other occupancy expenses applicable to the leased premises or
property.
At March 31, 2000 minimum lease payments under operating leases are as
follows (in thousands):
<TABLE>
<S> <C>
2000 .............................................. $ 4,342
2001 .............................................. 4,405
2002 .............................................. 4,074
2003 .............................................. 3,575
2004 and thereafter ............................... 15,878
-------
$32,274
=======
</TABLE>
8
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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. Our actual results could differ materially from
those in such forward-looking statements as a result of certain factors,
including those set forth in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, and the Company's other filings with the
Securities and Exchange Commission. The following discussion should be read in
conjunction with the Company's filings with the Securities and Exchange
Commission and the unaudited condensed consolidated financial statements
included herein.
OVERVIEW
The Company is the leading provider of information services to the U.S.
commercial real estate industry. 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, comparable
sales information, decision support, tenant information, property marketing, and
industry news. Substantially all of our current services are digitally delivered
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. In
May 1999, we completed a follow-on public offering and received net proceeds of
approximately $97.4 million. We used a portion of those net proceeds to fund the
acquisition of Comps, and we expect to use the remainder of the proceeds
primarily for development and distribution of new services, expansion of all
existing services across our current markets, geographic expansion in the U.S.
and international markets, strategic acquisitions and working capital and
general corporate purposes.
From 1994 through March 2000, 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
1998, we expanded into the Houston region through the acquisition of
Houston-based real estate information provider C Data Services, Inc. In January
1999, we expanded further into the Midwest and Florida by acquiring LeaseTrend,
and into Atlanta and Dallas/Fort Worth by acquiring Jamison. In September 1999,
we acquired ARES, a Los Angeles based developer and distributor of ARES for
ACT!. In February 2000, we acquired Comps.
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 established regions. As of March 31, 2000, the following regions
are those that have been in operation for more than 18 months and that we
consider to be established: Washington, New York, Los Angeles, Chicago, San
Francisco, Philadelphia and Boston. These regions provide us with substantial
cash flow, which we reinvest into the business. Since our 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 continued development and distribution of new services,
expansion of all existing services across current markets and geographic
expansion in the United States 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 during the next 18
months.
Although our services are expanding rapidly, our CoStar Property and
CoStar Tenant services currently generate the largest portion of our revenue.
The CoStar Property and CoStar Tenant 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 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, the company's
business focus, 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.
9
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THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO
THREE MONTHS ENDED MARCH 31, 2000
REVENUES. Revenues increased 86% from $6,127,000 for the three months ended
March 31, 1999 to $11,372,000 for the three months ended March 31, 2000. The
increase resulted primarily from growth in the Company's client base in
established regions, expansion of emerging regions entered during 1999 and
revenues from the acquisition of Comps.
GROSS MARGINS. Gross margins increased 53% from $3,533,000 for the three months
ended March 31, 1999 to $5,395,000 for the three months ended March 31, 2000,
while gross margin percentages were 58% and 47% of revenue, respectively. The
increase in gross margins resulted principally from significant revenue growth
from established regions. The decline in gross margin percentages resulted from
expansion of services in established regions, an increase in the number of
emerging regions and lower gross margins in the recently acquired Comps.
Furthermore, our cost of revenues for the three months ended March 31, 2000
includes purchase price amortization from the LeaseTrend, Jamison, ARES and
Comps acquisitions of approximately $844,000 compared to approximately $203,000
for the same period in 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased 173%
from $3,083,000 for the three months ended March 31, 1999 to $8,402,000 for the
three months ended March 31, 2000. Selling and marketing expenses increased as a
result of the cost of the acquired regions during the past 12 months as well as
new service initiatives. In addition, continued expansion of the sales
organization and marketing efforts required for growth, particularly in emerging
regions, including Phoenix, Houston, Tampa, Miami, Denver, and the Midwest,
contributed to the increased expenses.
SOFTWARE DEVELOPMENT. Software development expenses increased 199% from $240,000
for three months ended March 31, 1999 to $718,000 for the three months ended
March 31, 2000 reflecting development costs for the expansion of services for
emerging and established regions and new service initiatives.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 180% from $1,936,000 for the three months ended March 31, 1999 to
$5,421,000 for the three months ended March 31, 2000. General and administrative
expenses increased due to the hiring of new employees to support the expanding
scope of our operations and client base and also the increase in employees due
to the acquisition of Comps.
PURCHASE AMORTIZATION. Purchase amortization increased 247% from $500,000 for
the three months ended March 31, 1999 to $1,737,000 for the three months ended
March 31, 2000. Purchase amortization increased primarily due to the acquisition
of Comps.
ACQUIRED IN-PROCESS DEVELOPMENT. Acquired in-process development costs of
$5,812,000 for the three months ended March 31, 2000 consist of in-process
development costs written off as part of the Comps acquisition.
OTHER INCOME, NET. Interest and other income increased from $62,000 for the
three months ended March 31, 1999 to $1,026,000 for the three months ended March
31, 2000. This increase was a direct result of interest earned on the proceeds
from the follow-on public offering.
INCOME TAX BENEFIT. An income tax benefit of $565,000 for the three months ended
March 31, 2000 is a result of the impact of the reversal of the deferred tax
liability in connection with the amortization of identified intangible assets
established during recent acquisitions.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents balance was $76,851,000 at March 31,
2000, a decrease of $17,223,000 from $94,074,000 at December 31, 1999. This
decrease was due principally to the $2,407,000 (net of acquired cash) used for
the acquisition of Comps on February 10, 2000, cash used in operating
activities, $1,986,000 in purchases of property and equipment and $412,000 in
purchased building photography. During the first quarter of 2000, we financed
our operations and growth through cash flow from the established regions and the
proceeds of the follow-on offering. Net cash used in operations for the three
months ended March 31, 2000 was $8,329,000 compared to net cash used by
operating activities of $1,324,000 for the three months ended March 31, 1999.
This was a direct result of increased expansion in the emerging and acquired
regions. 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 $8,927,000 and $2,635,000 as of March 31, 2000 and December 31,
1999, respectively. This increase in deferred revenues was a result of the
acquisition of Comps as well as a large number of annual contracts billed in the
first quarter of 2000. We continue to experience overall operating losses as a
result of our recent expansion into emerging and acquired regions, while
established regions continue to generate substantial cash flow from operations.
Net cash used in investing activities amounted to $7,192,000 for the
three months ended March 31, 2000, including $2,407,000 (net of acquired cash)
for the acquisition of Comps. Additional investing activities included purchased
building photography and purchase of property and equipment, consisting
principally of computer and office equipment. As a result of our expansion, we
have entered into numerous operating leases for office space throughout the
country, including the Company's and Comps headquarters and have commitments for
rent payments ranging from $2,436,000 to $4,405,000 annually over the next ten
years. Other than such leases and related commitments for leasehold
improvements, we currently have no material commitments for capital
expenditures.
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.
We expect to incur significantly higher costs, particularly as we
introduce new and upgraded services, expand geographically, and develop the
infrastructure to support the expanding organization and client base. Based on
current plans, we believe that our available cash combined with positive cash
flow from our established regions should be sufficient to fund our operations
for at least the next two years.
Through September 30, 1998, we operated as either a Subchapter S
corporation or a limited partnership, and we were not subject to corporate
income taxes. After September 30, 1998, we became a 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. Further, the reversal of deferred taxes of approximately $19.0
million at March 31, 2000, recorded in connection with the purchase of acquired
intangibles, will result in a non-cash income tax benefit in future periods.
We do not believe the impact of inflation has significantly affected
our operations.
11
<PAGE> 12
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have significant exposure to market risks
associated with the changes in interest rates related to its cash equivalent
securities held as of March 31, 2000.
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On November 5, 1999, a suit was filed in the Court of Chancery of the
State of Delaware in and for New Castle County under the caption Morris v. Avis,
et al (C.A. 197554). The suit alleged breaches of fiduciary duties by the former
members of the board of directors of Comps and Summit Partners. On November 8,
1999, a suit was filed in the Superior Court of the State of California of and
for the County of San Diego captioned Berghoff v. Comps.com et al (case no. GIC
738362). The allegations in the California lawsuit are similar to the
allegations in the Delaware suit. The plaintiffs in both of these lawsuits had
requested monetary damages and injunctive relief to prevent the consummation of
the merger between Comps and the Company. On January 6, 2000, the Delaware suit
was voluntarily dismissed by the plaintiff. On February 4, 2000, the parties to
the California lawsuit entered into a Memorandum of Understanding that sets
forth their agreement to settle the lawsuit. The parties subsequently negotiated
and executed a more detailed Joint Stipulation and Agreement of Compromise,
Settlement and Release ("Joint Stipulation"). On April 7, 2000, the Court
entered an Order of Preliminary Class Action Settlement, consistent with the
terms of the Joint Stipulation. The Court tentatively scheduled a final
settlement hearing for September 15, 2000, to follow appropriate notice to the
class members.
ITEM 2 CHANGES IN SECURITIES
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of its security
holders during the quarter ended March 31, 2000.
12
<PAGE> 13
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
A current report on Form 8-K was filed by the Company on February 25,
2000 with respect to the closing of the acquisition of COMPS.COM, Inc. by the
Company.
EXHIBIT NUMBER: EXHIBIT DESCRIPTION:
2.1 Agreement and Plan of Merger by and among CoStar Group, Inc.,
COMPS.COM, Inc., and Acq Sub, Inc., dated as of November 3,
1999 (Incorporated by reference to Exhibit 2.1 to the report
of the Company on Form 8-K (File No. 0-24531) filed with the
Commission on November 17, 1999).
2.2 Side Letter, dated February 10, 2000, by and between CoStar
Group, Inc. and Christopher Crane.
27 Financial Data Schedule
13
<PAGE> 14
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.
COSTAR GROUP, INC.
Date: May 15, 2000 By: /s/ Frank A. Carchedi
-------------------------------
Frank A. Carchedi
Chief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer)
14
<PAGE> 1
EXHIBIT 2.2
February 10, 2000
Mr. Andrew C. Florance
Chief Executive Officer
CoStar Group, Inc.
7475 Wisconsin Avenue, Suite 600
Bethesda, MD 20814
Dear Andy:
I am writing to you in reference to the settlement of the stockholder
class action suit brought against COMPS.COM, Inc. ("COMPS") in connection with
the Agreement and Plan of Merger, dated as of November 3, 1999 (the "Merger
Agreement"), by and among COMPS, CoStar Group, Inc. ("CoStar"), and Acq Sub,
Inc. Terms used herein and not otherwise defined shall have the meanings set
forth in the Merger Agreement.
This letter memorializes an agreement that I understand was reached
between you and Greg Avis, a member of the board of directors of COMPS.
1. The legal fees of plaintiffs' counsel, up to a maximum of $300,000,
to be paid by COMPS, whether paid or accrued, will not be included in the
calculation of the Cash Shortfall.
2. Christopher A. Crane, Summit Investors II, L.P. and Summit Ventures,
III, L.P. shall not be required, pursuant to the Pledge Agreement, dated as of
November 3, 1999 (the "Pledge Agreement"), to reimburse CoStar for amounts of
Cash Shortfall (up to a maximum of $500,000) between $1 million and $1.5 million
(e.g. if the Cash Shortfall were $1.2 million, the reimbursable Cash Shortfall
would be $1 million and if the Cash Shortfall were $1.6 million, the
reimbursable Cash Shortfall would be $1.1 million ($1 million plus the excess of
the actual Cash Shortfall over $1.5 million)).
If the foregoing correctly sets forth our agreement, please sign and
return one copy of this letter indicating your acceptance thereof.
Very truly yours,
/s/ Christopher A. Crane
Christopher A. Crane
Chairman of the Board, President
and Chief Executive Officer
ACCEPTED AND AGREED
CoStar Group, Inc.
By: /s/ Andrew C. Florance
-----------------------------------
Title: CEO
--------------------------------
cc: Stephen I. Glover
Richard S. Chernicoff
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated balance sheet and statement of operations of COSTAR GROUP, INC. as
of and for the three months ended March 31, 2000 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 76,851
<SECURITIES> 0
<RECEIVABLES> 9,880
<ALLOWANCES> 993
<INVENTORY> 0
<CURRENT-ASSETS> 90,695
<PP&E> 14,294
<DEPRECIATION> 2,821
<TOTAL-ASSETS> 204,352
<CURRENT-LIABILITIES> 24,161
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 159,162
<TOTAL-LIABILITY-AND-EQUITY> 204,352
<SALES> 0
<TOTAL-REVENUES> 11,372
<CGS> 0
<TOTAL-COSTS> 5,977
<OTHER-EXPENSES> 22,090
<LOSS-PROVISION> 237
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16,695)
<INCOME-TAX> (565)
<INCOME-CONTINUING> (15,104)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,104)
<EPS-BASIC> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
