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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 fiscal quarter ended March 31, 1999
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: 0-25913
COMPS.COM, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 33-0645337
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9888 CARROLL CENTRE ROAD, SUITE 100
SAN DIEGO, CA 92126-4581
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 578-3000
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.
(1) Yes [X] No [_] (2) Yes [_] No [X]
The number of shares outstanding of the Registrant's common stock as of May 10,
1999, was 11,797,853.
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COMPS.COM, Inc.
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Balance Sheets at March 31, 1999 and
December 31, 1998.............................................. 1
Condensed Statements of Operations for the three
months ended March 31, 1999 and 1998........................... 2
Condensed Statements of Cash Flows for the three
months ended March 31, 1999 and 1998........................... 3
Notes to Condensed Financial Statements.......................... 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 6
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk.................................................... 17
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings................................................ 18
ITEM 2. Changes in Securities and Use of Proceeds........................ 18
ITEM 3. Defaults upon Senior Securities.................................. 18
ITEM 4. Submission of Matters to a Vote of Security Holders.............. 19
ITEM 5. Other Information................................................ 19
ITEM 6. Exhibits and Reports on Form 8-K................................. 19
Signatures................................................................. 20
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PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPS.COM, INC.
CONDENSED BALANCE SHEETS
(in thousands)
MARCH 31, DECEMBER 31,
1999 1998
-------- --------
(UNAUDITED) (NOTE)
Current assets:
Cash and cash equivalents $ 126 $ 378
Accounts receivable 2,328 3,166
Prepaid expenses 150 184
-------- --------
Total current assets 2,604 3,728
Furniture and equipment, net 1,574 1,471
Intangible assets, net 3,216 3,179
Deposits and other assets 370 36
-------- --------
Total assets $ 7,764 $ 8,414
======== ========
Current liabilities:
Accounts payable 770 531
Accrued liabilities 980 1,020
Current portion of capital lease
obligations 42 49
Current portion of long-term debt 1,042 979
Deferred subscription revenue 5,768 5,503
-------- --------
Total current liabilities 8,602 8,082
Long-term debt, less current portion 1,273 1,101
Capital lease obligations, less current
portion 15 22
Deferred rent 63 71
-------- --------
Total liabilities 9,953 9,276
Redeemable convertible preferred stock 7,036 7,009
Stockholders' deficit:
Common stock 30 30
Additional paid-in capital 7,713 7,745
Warrants 398 398
Deferred compensation (4,154) (4,487)
Accumulated deficit (13,212) (11,557)
-------- --------
Total stockholders' deficit (9,225) (7,871)
Total liabilities and stockholders' deficit $ 7,764 $ 8,414
======== ========
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See Notes to Condensed Financial Statements.
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COMPS.COM, INC.
Condensed Statements of Operations - Unaudited
(in thousands, except per share data)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
---------- ----------
Net revenues $ 3,515 $ 3,025
Cost of revenues 1,811 1,287
---------- ----------
Gross profit 1,704 1,738
Operating expenses:
Selling and marketing 1,592 909
Product development and engineering 500 212
General and administrative 1,200 708
---------- ----------
Total operating expenses 3,292 1,829
Loss from operations (1,588) (91)
Other expense, net (67) (82)
---------- ----------
Net loss (1,655) (173)
Dividend accretion on preferred stock 92 87
Net loss attributable to common stockholders $ (1,747) $ (260)
========== ==========
Net loss per share attributable to common
stockholders, basic and diluted $ (0.49) $ (0.07)
========== ==========
Shares used in computing net loss per share,
basic and diluted 3,533,533 3,501,626
========== ==========
See Notes to Condensed Financial Statements.
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COMPS.COM, INC.
CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
------- ------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,655) $ (173)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 340 184
Compensation expense related to stock options 328 1
Provision for bad debts 64 78
Interest imputed on note payable to TRW REDI 8 10
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable 774 1,137
Prepaid expenses 34 18
Deposits and other assets (344) 1
Accounts payable 239 (92)
Accrued liabilities (40) 15
Deferred subscription revenue 265 (292)
Deferred rent (8) (22)
------- ------
Net cash provided by operating activities 5 865
------- ------
INVESTING ACTIVITIES
Purchases of furniture and equipment (260) (212)
Acquired databases (219) -
Loans to officers and employees, net of repayments 9 2
------- ------
Net cash used in investing activities (470) (210)
------- ------
FINANCING ACTIVITIES
Proceeds from notes payable 400 -
Payment of notes payable (173) (167)
Payments of capital lease obligations (14) (19)
Proceeds from sale of preferred stock, net of issuance
costs - 1,137
------- ------
Net cash provided by financing activities 213 951
------- ------
Net (decrease) increase in cash (252) 1,606
Cash at beginning of period 378 352
------- ------
Cash at end of period $ 126 $1,958
======= ======
</TABLE>
See Notes to Condensed Financial Statements.
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COMPS.COM, Inc.
NOTES TO CONDENSED FINANCIAL STATEMENTS - Unaudited
MARCH 31, 1999
1) Basis of Presentation - The accompanying unaudited condensed financial
statements of COMPS.COM, Inc. (the "Company") 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-month
period ended March 31, 1999 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999. These financial
statements should be read in conjunction with the financial statements and
notes thereto, together with management's discussion and analysis of
financial condition and results of operations, contained in the Company's
Registration Statement on Form S-1.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect amounts reported in the condensed financial statements and
related notes. Changes in those estimates may affect amounts reported in
future periods. Certain reclassifications have been made to amounts included
in the prior year's financial statements to conform to the financial
statement presentation for the three-month period ended March 31, 1999.
2) Revenue Recognition - The Company recognizes product and related services
revenue at the time of shipment or performance of services. A substantial
portion of the Company's revenues come from subscription sales. Subscriptions
are recorded as accounts receivable and as deferred revenues at the time the
customer is invoiced. The Company provides an allowance for bad debts and
cancellations when accounts receivable and deferred revenues are recorded.
Subscription revenue, net of reserve for cancellations, is recognized over
the subscription term.
In addition, the Company obtains fixed fees from its transaction support
services. The services provided include the development and hosting of a
specific Web site for a listed property and sending announcements via fax and
e-mail to potential buyers. The revenue from these services is recognized
ratably over the hosting period, which typically is one to four months.
Revenue from sponsors whose messages and links are located on the Company's
Web site or contained in the broadcast e-mail or fax to potential buyers is
recognized ratably over the period that the messages or links are displayed
or broadcast, provided that no significant Company obligations remain. In
certain circumstances, the Company may be obligated to provide a minimum
number of broadcasts or impressions. In these circumstances, the Company
recognizes revenue at the lesser of the ratio of impressions or broadcasts
delivered over the total guaranteed impressions or broadcasts or the
straight-line basis over the term of the agreements.
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3) Segment Information - The Company's reportable segments are business units
that offer different products and services. The Company's transaction support
activity began in the third quarter of 1998, and therefore only the
information for the quarter ended March 31, 1999 is included below.
Three Months
Ended March 31, 1999
----------------------------
Segment
Transaction
Information Support
Services Services
----------- -----------
In Thousands
Revenues from external customers $ 3,458 $ 57
Intersegment revenues - -
Segment net loss (1,203) (452)
Segment assets 1,761 3,029
4) Loss Per Share Data - Basic and diluted net loss per share are computed using
the weighted average number of Class A and Class B common shares outstanding.
The Class B non-voting common stock automatically converted into Class A
common stock upon the closing of the Company's initial public offering.
Options, warrants and preferred stock were not included in the computation of
diluted net loss per share because the effect would be antidilutive.
Upon the closing of the Company's initial public offering, all of the
redeemable convertible preferred stock outstanding as of the closing date was
automatically converted into an aggregate of 3,600,110 shares of common
stock.
5) Subsequent Event - On May 10, 1999, the Company closed its initial public
offering by selling to the underwriters 4,500,000 shares of its common stock
for aggregate net proceeds of approximately $62,200,000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion may contain forward-looking statements that involve risks
and uncertainties. Our actual results may differ materially from the results
discussed in such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risks and
Uncertainties" below. We undertake no obligation to release publicly the results
of any revisions to these forward-looking statements to reflect events or
circumstances arising after the date hereof.
RECENT DEVELOPMENTS
In May 1999, we completed our initial public offering of 4,500,000 shares
of common stock, providing us with proceeds, net of underwriting fees and
estimated offering expenses, of approximately $62.2 million.
OVERVIEW
In January 1982, we first began providing sales information on commercial
properties in San Diego County. From 1982 through 1985, we expanded our coverage
throughout Southern California to Orange, Riverside, San Bernardino and Los
Angeles counties and to Phoenix and Tucson, Arizona. We continued our geographic
expansion from 1987 through 1992 with coverage of Northern California, Las Vegas
and Seattle. During the period from June 1994 through March 1999, we further
broadened our geographic reach to cover additional key markets including
Washington D.C., New York, Chicago, Boston, Atlanta, Denver, Baltimore,
Dallas/Fort Worth, Miami, Austin and Portland. This expansion was driven by both
internal growth and acquisitions.
We originally offered paper-based commercial real estate transaction
information. In 1986, we introduced our CallCOMPS service, which permitted
customers to call in and obtain sales transaction information, and, in 1990, we
introduced a DOS-based subscription product. Through 1996, the majority of our
revenues continued to come from print subscriptions. In October 1996, we began
to offer our services on CD-ROM, allowing for the computerized manipulation of
data to provide more customized reports. During 1997, we discontinued almost all
of our print subscriptions and converted our customers to our CD-ROM services.
As a result, we provided a larger provision for cancellations in 1997 than in
1996. In 1998, our provision for cancellations was reduced to a level that was
more in line with our historical experience. Most recently, in January 1998, we
began to offer our information services on the Internet. This has allowed our
customers to receive updated commercial real estate transaction information more
frequently and analyze the data more quickly and easily. Delivery of our
information on the Internet and other electronic media has provided additional
value to customers, resulting in increased revenues from subscriptions and one-
time, fee-based transactions. For the quarter ended March 31, 1999,
approximately 22% of revenues were a result of services and products ordered or
delivered on the Internet as compared to approximately 2% in the same period of
1998. In addition, for the quarter ended March 31, 1999 approximately 13% of
revenues were derived from Internet-related file transfer protocol (FTP)
downloading, resulting in total Internet-related revenues of 35% of net revenues
for the first quarter of 1999. We expect this percentage to increase as more of
our customers transition to using our services and products on the Internet.
In November 1998, we acquired the assets of REALBID, LLC, a real estate
marketing services company which supports commercial real estate transactions on
the Internet. As a result of this acquisition, our 1998 pro forma net revenues
were $13.1 million and our pro forma operating expenses were $9.4 million,
compared to our 1998 actual net revenues of $12.9 million and our actual
operating expenses of $8.5 million. The purchase price of the acquisition
totaled approximately $3.4 million, which consisted of $163,000 in cash, stock
options granted to the principals valued at approximately $3.1 million and
acquisition costs of $54,000. Intangible assets of $3.3 million were recorded as
a result of this acquisition. These intangible assets will be amortized over
their estimated useful lives, ranging from three to five years, and will be
primarily allocated to general and administrative expenses. In the first quarter
of 1999, we amortized $176,000 relating to the intangible assets of REALBID,
LLC. We currently expect to amortize the following amounts relating to the
intangible assets of REALBID, LLC in the future: the remainder of 1999--
$528,000; 2000--$704,000; 2001--$688,000; 2002--$600,000; and 2003--$483,000.
Substantially all of our revenues have been derived from licensing our
sales comparable information, either on a subscription or a per use basis, both
offline and, to a lesser extent, on the Internet. In the first quarter of
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1999, approximately 75% of our information licensing revenue was derived from
subscription contracts and approximately 25% was derived from fees paid on a per
use basis. The subscription licenses range from one to three years and generally
renew automatically for successive one-year terms. Many of the license rates
increase at the time of renewal. Subscribers pay contract license fees on an
annual, semi-annual, quarterly or monthly basis in advance of their license
term. We recognize this revenue on a straight line basis over the life of the
contract. Accordingly, contract license fees which are invoiced from a new
contract or upon contract renewal result in deferred revenue.
Since our November 1998 acquisition of REALBID, LLC, we have also begun to
derive revenues from our transaction support products. In the first quarter of
1999, these revenues totaled approximately $57,000. We derive all of our
transaction support product revenues from the delivery of products on the
Internet. We recognize these revenues as products are provided.
In order to expand our operations, we anticipate incurring additional
expenses to:
. implement new Internet-related products;
. develop new databases;
. continue the integration of our REALBID services with our database;
. further automate our data collection process;
. acquire other companies; and
. integrate acquired databases into our standardized format.
We also intend to hire additional programmers and research employees as
needed to implement our product development efforts and to continue to expand
our database of commercial real estate. In addition, we intend to further expand
our sales force and marketing team to develop new and existing strategic
relationships and strengthen our brand name as we enter new markets. Lastly, we
anticipate incurring additional costs related to being a public company,
including director's and officer's liability insurance, investor relation
programs and professional service fees. As a result of these expenditures and
other related factors, we expect to continue to incur losses for the foreseeable
future.
We have incurred significant net losses since our inception. As of March
31, 1999, we had an accumulated deficit of $13.2 million. Also, in connection
with the grant of 744,200 stock options to employees from February through
November 1998, we recorded deferred compensation of approximately $4.7 million
for the year ended December 31, 1998, representing the difference between the
fair value of our common stock for accounting purposes and the exercise price of
such options at the date of grant. Such amount is presented as a reduction of
stockholders' equity and amortized over the vesting period of the applicable
options, which is generally five years. In the first quarter of 1999, we
recorded $263,000 in compensation expense and expect to record the following
amounts in the future: the remainder of 1999--$777,000; 2000--$1,036,000; 2001--
$1,036,000; 2002--$939,000; and 2003--$363,000.
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RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data
expressed as a percentage of net revenues for the periods indicated:
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
Statement of Operations Data:
Net revenues.............................. 100% 100%
Cost of revenues.......................... 52% 43%
---- ----
Gross profit.............................. 48% 57%
Operating expenses:
Selling and marketing.................... 45% 30%
Product development and 14% 7%
engineering..............................
General and administrative............... 34% 23%
---- ----
Total operating expenses................ 93% 60%
---- ----
Loss from operations...................... (45)% (3)%
Other expense, net........................ (2)% (3)%
---- ----
Net loss.................................. (47)% (6)%
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND 1998
NET REVENUES
Our net revenues for three months ended March 31, 1999 were $3.5 million,
an increase of $490,000 or 16% from the same period in 1998. The increase was
primarily due to an increase in subscriptions as a result of geographic
expansion and further penetration of our existing markets. We had no customer
that accounted for more than 10% of our net revenues in the three months ended
March 31, 1999 or 1998.
COST OF REVENUES
Cost of revenues consists of compensation and benefits for research
personnel and research supplies. Our cost of revenues for the quarter ended
March 31, 1999 was $1.8 million, an increase of approximately $524,000 or 41%
from the same period in 1998. Payroll and related costs contributed to
approximately 89% of the dollar increase in the first quarter of 1999 as
compared to the first quarter of 1998. The increase in dollar amount was due to
an increase in sales transaction volume, geographic expansion and the hiring of
additional research employees. Cost of revenues as a percentage of net revenues
increased to 52% for the quarter ended March 31, 1999 from 43% for the quarter
ended March 31, 1998. The percentage increase was due to hiring of additional
personnel for expansion into new markets.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses consist of compensation and benefits for
sales and marketing personnel, as well as sales commissions to our direct sales
force. Our selling and marketing expenses for the three months ended March 31,
1999 were $1.6 million, an increase of approximately $683,000 or 75% from the
same period in 1998. Approximately 88% of the dollar increase was attributable
to salaries and wages for additional sales and marketing employees and
compensation expense relating to the RealBid acquisition. As a percentage of
net revenues, such expenses increased to 45% for the quarter ended March 31,
1999 from 30% for the quarter ended March 31, 1998. The percentage increase in
1999 was primarily due to increased compensation expense relating to the REALBID
acquisition and salaries and wages for additional sales and marketing employees.
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PRODUCT DEVELOPMENT AND ENGINEERING EXPENSES
Product development and engineering expenses consist primarily of
compensation and benefits for software engineers and quality assurance personnel
and expenses for contract programmers and developers. Our product development
and engineering expenses for the three months ended March 31, 1999 were
$500,000, an increase of approximately $288,000 or 136% from the same period in
1998. As a percentage of net revenues, product development and engineering
expenses increased to 14% for the quarter ended March 31, 1999 from 7% for the
quarter ended March 31, 1998. The dollar and percentage increases were
primarily due to the hiring of additional software engineers and quality
assurance personnel for development of new Internet-related products.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of compensation and
benefits for finance and administrative personnel, professional fees,
amortization expense, insurance expenses and charges relating to merchant credit
card fees and bad debts. Our general and administrative expenses for the quarter
ended March 31, 1999 were $1.2 million, an increase of approximately $492,000 or
69% from the same period in 1998. This dollar increase in general and
administrative expenses was due to the hiring of additional personnel,
compensation expense related to stock options, and an increase in professional
fees related to accounting services. As a percentage of net revenues, such
expenses increased to 34% for the quarter ended March 31, 1999 from 23% for the
quarter ended March 31, 1998. The increases in dollar expenses and expenses as
a percentage of net revenues were primarily due to increases in payroll expense,
compensation expense related to stock options and professional fees.
OTHER EXPENSE, NET
Other expense, net consists primarily of interest expense on our debt less
the amount of interest we earn on our cash and short-term investments. Total
other expense, net for the three months ended March 31, 1999 was $67,000, a
decrease of $15,000 or 18% from the same period in 1998. The decrease in other
expense was primarily due to a decrease in interest expense under loan
agreements.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through the
private placement of equity securities, borrowing arrangements and cash flow
from operations. As of March 31, 1999, we had approximately $126,000 in cash and
cash equivalents.
Our capital requirements depend on numerous factors, including our
geographic and product expansions, investments in our Web site and other
factors. We have experienced a substantial increase in our capital expenditures
and operating expenses since our inception consistent with our growth in
operations and staffing, and anticipate that this trend will continue for the
foreseeable future. As of March 31, 1999, our capital commitments for the
remainder of 1999 included approximately $380,000 for operating leases, $42,000
in capital leases and $1,042,000 for current debt. We do not expect our capital
commitments to exceed $2.5 million in the next 12 months. We expect our
expenses to continue to increase as we continue to evaluate possible strategic
acquisitions, products and technologies, expand our sales and marketing programs
and conduct aggressive brand promotions. Selling and marketing expenses and
research and development expenses are expected to increase in 1999 as a
percentage of net revenues.
In September 1996, we entered into a $3.0 million loan agreement with
Venture Lending & Leasing, Inc. This agreement provides $1.5 million for fixed
asset acquisition and $1.5 million for working capital. Borrowings for fixed
asset acquisition are due 48 months from the date of disbursement. Borrowings
for working capital are due 36 months from the date of disbursement. This loan
agreement requires payment of 8.75% interest during the term and a one-time 15%
interest balloon payment is due upon completion of the term. The notes issued
under this loan agreement are secured by either all of our fixed assets or all
of our business assets. In connection with this loan agreement, we issued to
Venture Lending & Leasing, Inc. a warrant to purchase 156,285 shares of our
common stock at an exercise price of $2.40 per share, subject to antidilutive
adjustments. The warrant may be
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exercised in whole or in part at any time. The warrant expires on September 24,
2003. At March 31, 1999, approximately $141,800 was available for working
capital and none was available for fixed asset acquisition. The loan agreement
originally was set to expire on June 30, 1998, but was extended during 1998 to
June 30, 1999.
In February 1999, we entered into an additional $1.8 million loan agreement
with Venture Lending & Leasing, Inc. This agreement permits the use of funds for
either fixed asset acquisition or working capital. Under this loan agreement,
borrowings for fixed assets acquisition are due 48 months from the date of
disbursement and borrowings for working capital are due 36 months from the date
of disbursement. This loan agreement requires payment of 8.75% interest during
the term and a one-time 15% interest balloon payment upon completion of the
term. The notes issued under this loan agreement are secured by either all of
our fixed assets or all of our business assets. In connection with this loan
agreement, we issued a warrant to Venture Lending & Leasing, Inc. exercisable
for 25,773 shares of common stock at an exercise price of $8.73 per share. The
warrant was valued at $215,720. This amount will be amortized to interest
expense over the debt service period. The warrant may be exercised in whole or
in part at any time. The warrant expires on February 14, 2008. At March 31,
1999, $1.8 million was available under this loan agreement. This loan agreement
expires on March 31, 2000.
In April 1999, we entered into a $3.0 million loan agreement with Silicon
Valley Bank. This agreement provides $3.0 million for working capital.
Borrowings under this agreement were repaid on the closing of our initial public
offering. In connection with this loan, we issued warrants exercisable for
14,670 shares of common stock with an exercise price of $6.82 per share. The
warrants expire on April 9, 2006.
We currently anticipate that the net proceeds of our recently completed
initial public offering, together with available funds, will be sufficient to
meet our anticipated needs and strategy until at least the end of 2000. After
such time, we may need to raise additional funds in order to fund more
aggressive brand name promotions or more rapid expansion, to develop new or
enhanced services and products, to respond to competitive pressures or to
acquire complementary businesses, technologies or services. Additional financing
may not be available on terms favorable to us, if at all. If adequate funds are
not available or not available on acceptable terms, we may be unable to fund our
expansion, successfully promote our brand name, take advantage of unanticipated
acquisition opportunities, develop or enhance services and products or respond
to competitive pressures. Any such inability could have a material adverse
effect on our business.
IMPACT OF THE YEAR 2000
We have not fully completed tests to assure that our information technology
systems will function properly in the year 2000. The computer systems and
software programs of many companies and governmental agencies are currently
coded to accept or recognize only two digit entries in the date code field.
These systems may recognize a date using "00" as the year 1900 rather than the
year 2000. As a result, these computer systems and/or software programs may need
to be upgraded to comply with such year 2000 requirements or risk system failure
or miscalculations causing disruptions of normal business activities.
STATE OF READINESS. We have made an assessment of the year 2000 readiness
of our information technology systems, including the hardware and software that
operate our Web site and our non-information technology systems. We are in the
process of a year 2000 simulation to test our information technology systems'
readiness which we expect to complete by the end of June 1999. Based on the
results of our year 2000 simulation test, we intend to revise our proprietary
software as necessary to improve our year 2000 compliance. We believe that
substantially all of our applications, databases and infrastructure are year
2000 compliant. We have been informed by many of our vendors of material
hardware and software components of our information technology systems that
substantially all of the products we use are currently year 2000 compliant. We
will request vendors of the material hardware and software components of our
information technology systems to provide assurances of their year 2000
compliance. We plan to complete this process during the first half of 1999. We
are currently assessing our material non-information technology systems and will
seek assurances of year 2000 compliance from providers of these systems. Until
such testing is complete and such vendors and providers are contacted, we will
not be able to completely evaluate whether our information technology systems or
non-information technology systems will need to be revised or replaced. If our
efforts to address year 2000 risks are not successful, or if suppliers or other
third parties with whom we conduct business do not successfully address such
risks, it could have a material adverse effect on our business.
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COSTS. We have identified approximately $300,000 in capital equipment and
software that required upgrading or replacement for year 2000 compliance. We
expended $260,000 prior to March 31, 1999 and still have an outstanding balance
of $40,000 in capital equipment and software to replace. These costs have been
included in our operating capital budget.
RISKS. We are not currently aware of any year 2000 compliance problems
relating to our proprietary software or our information technology or non-
information technology systems that would have a material adverse effect on our
business. We cannot assure that we will not discover year 2000 compliance
problems in our proprietary software that will require substantial revisions.
In addition, we cannot assure you that third-party software, hardware or
services incorporated into our material information technology and non-
information technology systems will not need to be revised or replaced, all of
which could be time consuming and expensive. Our failure to fix our proprietary
software or to fix or replace third-party software, hardware or services on a
timely basis could result in lost revenues, increased operating costs, the loss
of customers and other business interruptions, any of which could have a
material adverse effect on our business. Moreover, the failure to adequately
address year 2000 compliance issues in our proprietary software and our
information technology and non-information technology systems could result in
claims of mismanagement, misrepresentation or breach of contract and related
litigation, which could be costly and time-consuming to defend.
In addition, we cannot assure you that governmental agencies, utility
companies, Internet access companies, third-party service providers and others
outside our control will be year 2000 compliant. The failure by such entities to
be year 2000 compliant could result in a systemic failure beyond our control,
such as a prolonged Internet, telecommunications or electrical failure, which
could prevent us from delivering our Web site, could decrease the use of the
Internet or prevent users from accessing our Web site, which could have a
material adverse effect on our business.
CONTINGENCY PLAN. In the event that year 2000-related problems materialize,
we have the ability to revert to a set of manual methods previously utilized in
the collection and distribution of data if necessary. We also maintain
relationships with several suppliers of services and products to mitigate the
risks associated with suppliers who are not year 2000 compliant.
RISKS AND UNCERTAINTIES
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this quarterly report, before you decide
to buy our common stock. If any of the following risks actually occur, our
business would likely suffer. In such case, the trading price of our common
stock could decline, and you may lose all or part of the money you paid to buy
our common stock.
WE MAY NOT ACHIEVE FUTURE PROFITABILITY DUE TO CONTINUED OPERATING LOSSES
AND NEGATIVE CASH FLOWS. We have incurred significant net losses since our
inception. As of March 31, 1999, we had an accumulated deficit of $13.2 million.
We have incurred substantial costs to expand into new markets, develop new
products and create, introduce and enhance our Web site. We expect operating
losses and negative cash flows to continue for the foreseeable future as we
continue to incur significant expenses. As a result, we will need to generate
significant revenues to achieve profitability. Even if we do become profitable,
we cannot assure you that we can sustain or increase profitability on a
quarterly or annual basis. If revenues grow more slowly than we anticipate, or
if operating expenses exceed our expectations or cannot be adjusted in response
to slower revenue growth, our business will be materially adversely affected.
Please see "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements for detailed information
related to our uncertain profitability.
WE HAVE ONLY BEEN OPERATING ON THE INTERNET SINCE 1998 AND CANNOT ASSURE
YOU THAT OUR INTERNET PRODUCTS WILL ACHIEVE MARKET ACCEPTANCE. We only recently
began offering our services on the Internet. During the first quarter of 1999,
approximately 22% of revenues were a result of services and products ordered or
delivered on the Internet. In addition, for the quarter ended March 31, 1999,
approximately 13% of revenues were derived from Internet-related file transfer
protocol (FTP) downloading, resulting in total Internet-related revenues
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of 35% of net revenues for the first quarter of 1999. We intend to continue to
increase our reliance on the Internet for delivery of our services and products.
As a result, our future profitability will increasingly rely upon the use of our
information services and transaction support products on the Internet. Our
ability to obtain market acceptance for our Internet products will depend on the
following factors:
. our ability to transition our customers from the use of our services
and products on CD-ROM to the use of these services and products on the
Internet in a timely and efficient manner;
. our customers' acceptance of, and their ability to adapt to the use of,
our existing and future services and products on the Internet; and
. our ability to anticipate and adapt to the changing Internet market.
If our Internet-based information services or transaction support products
are not received favorably by our current customers, it may negatively affect
their use of our other products or cause new customers to choose a competitive
service over ours.
IF WE DO NOT SUCCESSFULLY DEVELOP NEW AND ENHANCED SERVICES AND PRODUCTS,
OUR REVENUES COULD DECREASE. We will not be financially successful if we are
unable to meet the increasingly sophisticated needs of our customers through
timely developments and new and enhanced versions of our services and products.
Our planned development and enhancement efforts have inherent risks. We may
experience financial or technical difficulties that could prevent us from
introducing new or enhanced information services or transaction support
products. Furthermore, these new or enhanced services and products may contain
problems that are discovered after the products are introduced. We may need to
significantly modify the design of these products to correct problems. Our
business could be materially adversely affected if we experience difficulties in
introducing new or enhanced services and products or if these services or
products are not received favorably by our customers. Finally, development and
enhancement of our services and products will require significant additional
expenses and could strain our management, financial and operational resources.
The lack of market acceptance of our services or products or our inability to
generate satisfactory revenues from such development or enhancements to offset
their costs could have a material adverse effect on our business.
FLUCTUATIONS IN OUR OPERATING RESULTS MAY NEGATIVELY AFFECT OUR STOCK
PRICE. Our quarterly operating results have fluctuated significantly and are
expected to continue to fluctuate in the future due to a variety of factors,
many of which are outside of our control. It is possible that in some future
periods our results of operations may be below the expectations of public market
analysts and investors. In this event, the price of our common stock is likely
to fall. Quarterly operating results may vary due to risks discussed in this
Risks and Uncertainties section. Due to all of these risks, you should not rely
on quarter-to-quarter comparisons of our results of operations as an indication
of our future performance.
IF WE DO NOT EXPAND OUR GEOGRAPHIC COVERAGE, OUR SERVICES AND PRODUCTS
COULD BECOME LESS DESIRABLE. We believe our success is highly dependent on our
ability to increase the geographic coverage of our database. Currently our
proprietary database contains comprehensive sales comparable records in 35 of
the 74 largest markets in the U.S. If we are not able to expand the geographic
coverage of our database into other markets, our business could be materially
adversely affected. We also plan to expand into selected international markets.
We expect this geographic expansion effort to impose additional burdens on our
research, sales and administrative resources.
IF WE CANNOT MAINTAIN THE INTEGRITY AND RELIABILITY OF OUR PROPRIETARY
DATABASE, WE MAY NOT BE SUCCESSFUL. We cannot assure you that the information
in our database will be comprehensive, accurate or timely, particularly as we
grow. Our success is highly dependent on our customers' confidence in the
comprehensiveness, accuracy and timeliness of our proprietary database of
commercial real estate transactions and the software used to access our
database. We expect the task of establishing and maintaining such
comprehensiveness, accuracy and timeliness during the growth of our business to
require substantial effort and expense.
CYCLICAL ECONOMIC SWINGS IN THE REAL ESTATE MARKET COULD DECREASE DEMAND
FOR OUR SERVICES AND PRODUCTS. The real estate industry traditionally has been
subject to cyclical economic swings which could materially adversely affect our
business. Our business is dependent on the real estate industry and related
industries that supply goods or services to, or invest in, the real estate
industry. Changes in the real estate market may affect
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demand for our services and products. These cyclical economic swings may be
caused by various factors, such as changes in interest rates and changes in
economic conditions.
When interest rates are high or general economic conditions are weak, there
may be less sales activity in commercial real estate and on the part of mortgage
brokers and lenders. These cyclical economic swings could materially adversely
affect our business.
CONSOLIDATION OF THE REAL ESTATE INDUSTRY COULD NEGATIVELY IMPACT OUR
BUSINESS. The real estate industry is undergoing a period of consolidation,
motivated in part by a desire to reduce expenses. Such consolidation poses a
number of risks and could materially adversely affect our business. These risks
include:
. a decrease in our client base;
. reduction in the size of our target market;
. creation of competitors with sufficiently greater bargaining power
which could cause price erosion;
. creation of competitors with access or rights to, or ownership of,
sources that provide the data we need for our proprietary database; and
. reduction in the number of sources from whom we obtain data for our
proprietary database.
IF WE ARE NOT ABLE TO SUCCESSFULLY DEVELOP OUR "COMPS.COM" BRAND NAME, IT
COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS. We believe that establishing
and maintaining our brand name is critical to attracting and expanding our
target Internet audience. The importance of developing our brand name will
increase due to the growing number of Internet services. In order to build our
brand name, we must succeed in our marketing efforts, provide high-quality
services and products and increase the number of visitors to our Web site. If
our marketing efforts are not successful or if we cannot increase awareness of
our brand name, we will not be able to attract and retain Internet users and our
business would be materially adversely affected.
IF WE ARE UNABLE TO CONTINUE TO DEVELOP OUR DIRECT SALES FORCE, IT COULD
MATERIALLY ADVERSELY AFFECT OUR BUSINESS. In order to support our growth, we
need to substantially increase the size of our direct sales force. Our ability
to increase our direct sales force involves a number of risks, including:
. the competition we face from other companies in hiring and retaining
sales personnel;
. our ability to integrate and motivate additional sales and sales
support personnel;
. our ability to manage a multi-location sales organization; and
. the length of time it takes new sales personnel to become productive.
There would be a material adverse effect on our business if we do not
continue to develop and maintain an effective direct sales force.
INTENSE COMPETITION MAY RENDER OUR SERVICES AND PRODUCTS UNCOMPETITIVE OR
OBSOLETE. The market for our Internet-related and non-Internet-related
information services and transaction support products is competitive. We cannot
assure you that our competitors will not develop services or products that are
equal or superior to ours or that achieve greater market acceptance. We
anticipate that the number of direct and indirect competitors will increase in
the future and could result in price reductions, reduced margins, greater
operating losses or loss of market share, any of which would materially
adversely affect our business.
IF WE FAIL TO BE YEAR 2000 COMPLIANT, IT COULD HARM OUR BUSINESS. We have
not fully completed tests to assure that our information technology systems will
function properly in the year 2000. Our computer systems and software programs
may need to be upgraded in order to comply with year 2000 requirements, or we
risk system failure or miscalculations causing disruptions of normal business
activities. We estimate expenses to achieve year 2000 readiness will be
$300,000, $260,000 of which was expended prior to March 31, 1999. Until our
testing is complete, we will not be able to completely evaluate whether our
information technology systems or non-information technology systems will need
to be revised or replaced. If our efforts to address year 2000 risks are not
successful, or if suppliers or other third parties with whom we conduct business
do not successfully address such risks, it could have a material adverse effect
on our business. Please see "Management's Discussion and Analysis of
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Financial Condition and Results of Operations--Impact of the Year 2000" for
detailed information on our state of readiness, potential risks and contingency
plans regarding the year 2000 issue.
IF WE DO NOT EFFECTIVELY MANAGE OUR GROWTH, IT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS. We have experienced growth in our business,
which we expect to continue. Such growth has placed, and will continue to place,
a significant strain on our management systems and resources. We will also need
to continue to improve our operational and financial systems and managerial
controls and procedures. We will need to continue to expand, train and manage
our workforce. We expect that our workforce will continue to increase for the
foreseeable future. We will have to maintain close coordination among our
technical, accounting, finance, marketing, sales and research departments. If we
fail to effectively manage our growth and address the above concerns, it could
have a material adverse effect on our business. If we do not successfully
integrate acquired businesses with our business, it could have a material
adverse effect on our business. Since October 1993, we have acquired seven
businesses and three product lines. We may not be able to integrate our recent
or any future acquisitions successfully with our existing operations without
substantial costs, delays or other problems. As we integrate acquired businesses
or product lines, we could have difficulty in assimilating personnel and
operations. In addition, the key personnel of acquired companies may decide not
to work for us. We could also have difficulty in assimilating the acquired
products, services or technologies into our operations. These difficulties could
disrupt our ongoing business, distract our management and employees, increase
our expenses and materially adversely affect our results of operations due to
accounting requirements such as amortization of goodwill or other purchased
intangibles.
IF WE ACQUIRE OTHER COMPANIES BY ISSUING EQUITY SECURITIES, YOU MAY
EXPERIENCE DILUTION OF YOUR EQUITY INTEREST. We may acquire other companies by
issuing equity securities. As a result, you may experience dilution of your
ownership interest and the newly issued securities may have rights superior to
those of the common stock.
IF WE ARE UNABLE TO RETAIN KEY PERSONNEL OR ATTRACT NEW PERSONNEL, IT COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. The loss of the services of any
of our key personnel or our inability to successfully attract and retain
qualified personnel in the future would have a material adverse effect on our
business. Our future success depends on the continued service of our key
personnel including Christopher A. Crane, our President and Chief Executive
Officer, Emmett R. De Moss, our Vice President and the Chairman of our REALBID
division, Karen Goodrum, our Vice President of Finance and Administration, Chief
Financial Officer and Secretary, Walter W. Papciak, our Executive Vice President
of Sales, Marketing and Product Development, and Michael Arabe, our Senior Vice
President of Sales. Mr. Crane is the only key person for whom we maintain life
insurance. The policy on Mr. Crane has a face value of $2,000,000. Our future
success also depends on our ability to attract, retain, integrate and motivate
highly skilled researchers and other employees. Competition for researchers and
other employees in our industry is intense, particularly in the San Diego area,
where our headquarters are located.
INCREASED USAGE COULD STRAIN OUR SYSTEMS AND CAUSE SYSTEMS MALFUNCTIONS
WHICH COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS. The performance of our
Web site is critical to our reputation, our ability to attract customers and
market acceptance of our Web site. All of our communications and network
infrastructure is hosted at our headquarters in San Diego. We have, in the past,
experienced system failures, including network, software and hardware failures,
that have interrupted or increased the response time of our online services.
Although, to date, none of our systems failures have been material to our
results of operations, in the future, the capacity of our software and hardware
could be strained by an increase in the use of our products on the Internet as
we migrate our customers to the Internet. Our ability to provide uninterrupted,
secure online services depends on our ability to protect our facilities and
equipment against damage from fire, earthquakes, power loss, water damage,
telecommunications failures, vandalism, computer viruses, hacker attacks and
other malicious acts, and similar unexpected material adverse events. Customers
may become dissatisfied if a system failure interrupts our ability to provide
access to our Web site. Because our insurance policies have low coverage limits,
our insurance may not adequately compensate us for any losses that may occur due
to system failures or interruptions.
ANY PROBLEMS WITH THE INTEGRITY OF THE INTERNET'S INFRASTRUCTURE OR WITH
THIRD PARTY SERVICE PROVIDERS COULD HAVE A MATERIALLY ADVERSE EFFECT ON OUR
BUSINESS. Our customers also depend on Internet service providers, online
service providers and other Web site operators for access to our Web site. Each
of them has experienced significant outages in the past, and could experience
outages, delays and other difficulties due to system failures
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unrelated to our systems. Moreover, the Internet infrastructure may not be able
to support continued growth in its use. Any of these problems could materially
adversely affect our business.
IF WE DO NOT ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, IT COULD HARM OUR
BUSINESS OR COMPETITIVE POSITION. It may be difficult to protect our
proprietary rights. We regard our database of commercial real estate
transactions and the software used to operate our Web site, as well as our
various trademarks and copyrights, as proprietary. We will continue to attempt
to protect them under a combination of copyright, trade secret and trademark
laws, as well as by contractual restrictions on employees and third parties.
Despite these precautions, it may be possible for unauthorized parties to copy
our services or otherwise obtain and use information that we regard as
proprietary. Existing trade secrets and copyright laws provide only limited
protection. Other license and distribution agreements that we intend to use
include provisions protecting against unauthorized use, copying, transfer and
disclosure, which may be unenforceable under the laws of some jurisdictions.
Furthermore, we may be required to negotiate limits on these provisions from
time to time. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as do the laws of the U.S. The steps we
take may not be adequate to deter misappropriation of proprietary information.
We also may not be able to detect unauthorized use and take appropriate steps to
enforce our intellectual property rights. Significant and protracted litigation
may be necessary to protect our intellectual property rights, to determine the
scope of the proprietary rights of others or to defend against claims of
infringement.
VARIOUS PARTIES MAY ACCUSE US OF INFRINGING ON THEIR INTELLECTUAL PROPERTY
RIGHTS, AND ANY RELATED LITIGATION COULD HARM OUR BUSINESS REGARDLESS OF ITS
MERIT. Third parties may assert claims against us alleging infringement,
misappropriations or other violations of proprietary rights, whether or not such
claims have merit. Such claims can be time consuming and expensive to defend and
could require us to cease the use and sale of allegedly infringing services and
products, incur significant litigation costs and expenses, develop or acquire
non-infringing technology or obtain licenses to the alleged infringing
technology. We may not be able to develop or acquire alternative technologies or
obtain such licenses on commercially acceptable terms.
WE COULD BE HELD LIABLE FOR PROVIDING INACCURATE OR INCOMPLETE INFORMATION,
WHICH COULD HARM OUR BUSINESS. If our services or products yield inaccurate or
incomplete information which has a material adverse impact on a customer, the
customer might bring a claim for damages against us, even if we are not
responsible for such failure. The limitations of liability set forth in customer
contracts may not be enforceable and may not otherwise protect us from liability
for damages. The successful assertion of one or more large claims against us
that exceed available insurance coverages, or changes in our insurance policies,
such as premium increases or the imposition of large deductibles or co-insurance
requirements could materially adversely affect our business.
IF INTERNET USAGE DOES NOT CONTINUE TO GROW, IT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS. The Internet is relatively new and rapidly
evolving. Our business would be materially adversely affected if Internet usage
does not continue to grow.
WE MAY NOT BE ABLE TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGES TO THE
INTERNET AND INTERNET PRODUCTS. To be successful, we must adapt to the rapid
technological changes to the Internet and Internet products by continually
enhancing our Web site and introducing and integrating new services and products
to capitalize on the technological advances in the Internet. This process is
costly and we cannot assure you that we will be able to successfully integrate
our services and products with the Internet's technological advances. The
collection, storage, management and dissemination of commercial real estate
information from a centralized database on the Internet is a recent and evolving
development. Our market is characterized by rapidly changing technologies,
evolving industry standards, increasingly sophisticated customer needs and
frequent new product introductions. These factors are exacerbated by the rapid
technological change experienced by the computer and software industries. We
could incur substantial costs if we need to modify our services or
infrastructure in order to adapt to these changes. If we incurred significant
costs without adequate results or we were unable to adapt to rapid technological
changes, it could have a material adverse effect on our business.
ADOPTION OF NEW LAWS AND GOVERNMENT REGULATIONS RELATING TO THE INTERNET
COULD HARM OUR BUSINESS. Our business could be materially adversely affected by
the adoption or modification of laws or regulations in the U.S. or abroad
relating to the Internet. Laws and regulations directly applicable to Internet
communications and commerce are becoming more prevalent. Such legislation could
dampen the growth in use of the Internet generally
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and decrease the acceptance of the Internet as a communications and commercial
medium. The governments of states or foreign countries might attempt to regulate
our transmissions or levy sales or other taxes relating to our activities. The
laws governing the Internet, however, remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy, libel and taxation apply to the Internet and Internet commerce. In
addition, the growth and development of the market for Internet commerce may
prompt calls for more stringent consumer protection laws, both in the U.S. and
abroad, that may impose additional burdens on companies conducting business over
the Internet. The growth and development of the market for Internet commerce may
also prompt calls for widening access on the Internet to public records,
including records concerning the commercial real estate industry.
INTERNET SECURITY CONCERNS COULD HINDER INTERNET COMMERCE AND MATERIALLY
ADVERSELY AFFECT OUR BUSINESS. We may be required to expend significant capital
and other resources to protect against security breaches on our Web site or to
alleviate problems caused by such breaches. If any compromise of our security
were to occur, it could damage our reputation and expose us to a risk of loss,
litigation and possible liability. A significant barrier to online commerce and
communications is the need for secure transmission of confidential information
over public networks. Concerns over the security of transactions conducted on
the Internet and other online services, as well as user's desires for privacy,
may also inhibit the growth of the Internet and other online services,
especially as a means of conducting commercial transactions. Our services
involve the storage and transmission of proprietary information, such as credit
card numbers and other confidential information. We cannot assure you that our
security measures will prevent security breaches or that our failure to prevent
such security breaches will not have a material adverse effect on our business.
Credit card companies and others are in the process of developing anti-theft and
anti-fraud protections, and we are continually monitoring this problem. However,
at the present time, the real or perceived risk of theft and fraud could have a
material adverse effect on us. We cannot assure you that advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments will not result in a compromise or breach of the algorithms used by
us to protect customer transaction data. A party who is able to circumvent our
security measures could misappropriate confidential information or cause
interruptions in our operations.
WE MAY BE SUBJECT TO LEGAL LIABILITY FOR DISPLAYING OR DISTRIBUTING
INFORMATION ON THE INTERNET. Because content on our Web site is distributed to
others, we may be subject to claims for defamation, negligence or copyright or
trademark infringement or claims based on other theories. These types of claims
have been brought, sometimes successfully, against Internet services in the
past. We could also be subject to claims based upon the content that is
accessible from our Web site through links to other web sites or information on
our Web site supplied by third parties. Our insurance may not adequately protect
us against these types of claims. Even to the extent such claims do not result
in liability to us, we could incur significant costs in investigating and
defending against such claims. Our potential liability for information carried
on or disseminated through our Web site could require us to implement measures
to reduce our exposure to such liability, which may require the expenditure of
substantial resources and limit the attractiveness of our service to users.
OUR FEE ARRANGEMENTS IN VARIOUS INDUSTRIES COULD LEAD TO ADDITIONAL
REGULATION AND RELATED LIABILITIES. We also enter into agreements with
customers under which we are entitled to receive fees related to the support of
commercial real estate transactions through our Web site using REALBID or other
transaction support products that we offer. We plan to increase our reliance on
this aspect of our business. Such arrangements may expose us to additional legal
risks and uncertainties, including regulation by local, state, federal and
foreign authorities in the real estate, financing, and insurance industries, as
well as other industries which our business could impact. The application of
such regulation to our industry is currently uncertain. However, it could lead
to additional potential liabilities to property buyers, even if we are not
selling such properties. In addition, we could, for example, be required to
register for a license, pay fees, assume environmental, property-related or
other similar responsibilities. The indemnification provided to us in our
agreements with these parties, if available, may not be adequate to address such
potential regulatory expansion.
THE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR STOCK PRICE
TO DECLINE. The market price of our common stock could decline as a result of
sales of a large number of shares of our common stock in the market or the
perception that such sales could occur. Such sales also might make it more
difficult for us to sell equity securities in the future at a price that we deem
appropriate.
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THE LIQUIDITY OF OUR STOCK IS UNCERTAIN, AND IT COULD BE DIFFICULT TO SELL
YOUR SHARES. We only recently completed our initial public offering. Prior to
that offering, there was no public market for our common stock. We cannot
predict if an active trading market in our common stock will develop or how
liquid that market might become.
THE MARKET PRICE OF OUR STOCK MAY BE MATERIALLY ADVERSELY AFFECTED BY
MARKET VOLATILITY. The market prices of the securities of Internet-related
companies have been especially volatile and have experienced extreme volume
fluctuations. Volatility in the market price of our stock could lead to claims
against us. If we were the object of such litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
The trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including:
. our quarterly results of operations;
. changes in earnings estimates by analysts and whether our earnings meet
or exceed such estimates;
. announcements of technological innovations by us or our competitors;
. additions or departures of key personnel;
. other matters discussed elsewhere in this quarterly report and our
other filings with the SEC; and
. other events or factors, which may be beyond our control.
OUR CONTROLLING STOCKHOLDERS MAY MAKE DECISIONS WHICH YOU DO NOT CONSIDER
TO BE IN YOUR BEST INTEREST. We anticipate that the executive officers,
directors and entities affiliated with them beneficially own approximately 64.2%
of our outstanding common stock following the completion of our initial public
offering. These stockholders will be able to exercise control over all matters
requiring approval by our stockholders, including the election of directors and
approval of significant corporate transactions. This concentration of ownership
may also have the effect of delaying or preventing a change in control of us.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD
DELAY, DEFER OR PREVENT A TENDER OFFER OR TAKEOVER ATTEMPT THAT YOU CONSIDER TO
BE IN YOUR BEST INTEREST. Certain anti-takeover provisions of our restated
certificate of incorporation, our restated bylaws and Delaware law could make it
more difficult for a third party to acquire us. As a result, we could delay,
defer or prevent a takeover attempt or third party acquisition that our
stockholders consider in their best interest, including an attempt that might
result in a premium over the market price for the shares held by our
stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the usual course of business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) None
(b) None
(c) During the three month period ended March 31, 1999, we issued the
following unregistered securities:
(1) See Part I - Item 1 "Liquidity and Capital Resources" for a
description of warrants issued in the first quarter of 1999 to Venture
Lending & Leasing, Inc. and Silicon Valley Bank in consideration for
entering into loan agreements.
(2) On February 19, 1999, we granted stock options to employees,
directors and consultants exercisable into 69,686 shares of common stock at
an exercise price of $11.18 per share.
The above securities were offered and sold by the registrant in reliance
upon exemptions from registration pursuant to either (1) Section 4(2) of the
Securities Act of 1933 as transactions not involving any public offering, or (2)
Rule 701 promulgated under the Securities Act of 1933. No underwriters were
involved in connection with the sales of securities referred to in this Item 2.
(d) On May 10, 1999, we completed the sale of 4,500,000 shares of common
stock priced at $15.00 per share for an aggregate offering price of $67.5
million in an initial public offering led by an underwriting group consisting of
Volpe Brown Whelan & Company, EVEREN Securities, Inc. and Needham & Company,
Inc. The proceeds of the offering to us, net of underwriting fees and estimated
offering expenses, were approximately $62.2 million. The Registration Statement
on Form S-1 filed by us with the SEC in connection with the offering (File No.
333-72901), as amended, was declared effective by the Commission on May 4, 1999.
Because all of the proceeds from the offering were generated after March 31,
1999, none of these proceeds were used during the three-month period covered by
this report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 19, 1999, our stockholders, represented by all shares of Class
A common stock outstanding and 4,894,261 shares out of 4,908,126 shares of
preferred stock, by written consent, approved (1) conditioned upon the
execution of the underwriting agreement, the adoption of our 1999 Stock
Incentive Plan, (2) conditioned upon the execution of the underwriting
agreement, the adoption of our 1999 Employee Stock Purchase Plan, (3) the
restatement of our certificate of incorporation effective immediately prior to
the closing of our initial public offering to, among other things, eliminate
provisions which would permit procedural advantages in favor of a hostile
acquiror, delete the existing preferred stock provisions which are unnecessary
following the conversion of the preferred stock immediately prior to the closing
of the initial public offering, change the authorized number of shares of common
stock to 75 million, authorize 5 million of undesignated preferred stock and
adopt indemnification provisions for officers and directors, (4) the adoption of
forms of indemnity agreements providing for indemnification of our directors and
officers.
On March 31, 1999, our stockholders, represented by all shares of Class A
common stock outstanding and 4,894,261 shares out of 4,908,126 shares of
preferred stock outstanding, by written consent, approved an amendment to our
Certificate of Incorporation to increase the number of authorized shares of
preferred stock. On each date, there were 4,773,860 shares of Class A common
stock, 43,500 shares of non-voting Class B common stock and 4,908,126 shares of
preferred stock outstanding.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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<C> <S>
3.1 (1) Second Restated Certificate of Incorporation (Exhibit 3.2)
3.2 (1) Restated Bylaws (Exhibit 3.4)
10.1 (1) Office Building Lease between us and Comps Plaza Associates, L.P., dated January 31, 1999
(Exhibit 10.14).
10.2 (1) First Amendment to Lease dated March 22, 1999 (Exhibit 10.14.1).
10.3 (1) Form of Non-Competition and Non-Disclosure Agreement between us and the parties listed on
the attached schedule, dated January 7, 1999 (Exhibit 10.20).
10.4 (1) Loan and Security Agreement between us and Venture Lending & Leasing II, Inc., dated
February 12, 1999 (Exhibit 10.46).
10.5 (1) Patent Collateral Assignment Agreement between us and Venture Lending & Leasing II, Inc.,
dated February 12, 1999 (Exhibit 10.47).
10.6 (1) Trademark Collateral Assignment Agreement between us and Venture Lending & Leasing II,
Inc., dated February 12, 1999 (Exhibit 10.48).
10.7 (1) Warrant to Purchase an aggregate of $225,000 of Class B shares of Common Stock between us
and Venture Lending & Leasing II, Inc., dated February 12, 1999 (Exhibit 10.49).
10.8 (1) Loan and Security Agreement between us and Silicon Valley Bank, dated April 9, 1999
(Exhibit 10.50).
10.9 (1) Intellectual Property Security Agreement between us and Silicon Valley Bank, dated April 9,
1999 (Exhibit 10.51).
10.10 (1) Warrant Subscription Agreement between us, Silicon Valley Bank and shareholders listed on
signature page, dated April 9, 1999 (Exhibit 10.52).
10.11 (1) Warrant Subscription Agreement between us, Silicon Valley Bank and shareholders listed on
signature page, dated April 9, 1999 (Exhibit 10.53).
10.12 (1) Warrant to Purchase Stock issued April 9, 1999 (Exhibit 10.54).
10.13 (1) Warrant to Purchase Stock issued April 9, 1999 (Exhibit 10.55).
10.14 (1) Amendment No. 1 to Amended and Restated Investor Rights Agreement between us, Silicon
Valley Bank and each of the individuals and entities listed on Schedule A, dated April 9,
1999
</TABLE>
19
<PAGE>
<TABLE>
<C> <S>
(Exhibit 10.56).
27.1 Financial Data Schedule
</TABLE>
_______________________
(1) Filed as an exhibit to Registrant's Registration Statement on Form S-1, as
amended, and incorporated herein by reference.
(b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter
ended March 31, 1999.
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.
Dated: May 17, 1999
COMPS.COM, Inc.
(Registrant)
/s/ KAREN GOODRUM
--------------------------------------------
(Karen Goodrum)
Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM COMPS.COM,
INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 378 126
<SECURITIES> 0 0
<RECEIVABLES> 4,631 3,793
<ALLOWANCES> 1,465 1,465
<INVENTORY> 0 0
<CURRENT-ASSETS> 3,728 2,604
<PP&E> 3,569 3,827
<DEPRECIATION> (2,098) (2,253)
<TOTAL-ASSETS> 8,414 7,764
<CURRENT-LIABILITIES> 8,082 8,602
<BONDS> 0 0
7,009 7,036
0 0
<COMMON> 30 30
<OTHER-SE> (7,901) (9,255)
<TOTAL-LIABILITY-AND-EQUITY> 8,414 7,764
<SALES> 3,025 3,515
<TOTAL-REVENUES> 3,025 3,515
<CGS> 1,287 1,811
<TOTAL-COSTS> 3,116 5,103
<OTHER-EXPENSES> 82 67
<LOSS-PROVISION> 78 64
<INTEREST-EXPENSE> 85 69
<INCOME-PRETAX> (173) (1,655)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (173) (1,655)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (173) (1,655)
<EPS-PRIMARY> (.07) (.49)
<EPS-DILUTED> (.07) (.49)
</TABLE>
