UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

 

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

For the fiscal year ended December 31, 2012

or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto.

For the transition period fromto.

Commission File Number001-12917

REIS, INC.

Maryland

 

13-3926898

(State    (State or Other Jurisdiction of Incorporation or Organization)  (I.R.S. Employer Identification No.)

530 Fifth Avenue, New York, NY

 

10036

(Address of Principal Executive Offices) (Zip Code)

                                                 (212) 921-1122                                                 

(Registrant’s Telephone Number, Including Area Code)

 

(212) 921-1122

        (Registrant’s Telephone Number, Including Area Code)         

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, $0.02 par value per share The NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ¨    No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ¨    No þ

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 þ    No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K10-K.  ¨þ

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer¨

  

Accelerated filerþ

  

Non-accelerated filer¨

  

Smaller reporting company¨

    (Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes¨    No þ

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was approximately $83,500,000$81,000,000 based on the closing price on the NASDAQ Global Market for such shares on June 30, 2011.2012. (Please see “Calculation of Aggregate Market Value of Non-Affiliate Shares” within Item 5 of this report for a statement of assumptions upon which this calculation is based.)

The number of the Registrant’s shares of common stock outstanding was 10,684,16210,889,724 as of March 6, 2012.4, 2013.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for the 20122013 annual stockholders’ meeting are incorporated by reference into Part III of this Annual Report on Form 10-K.

 

 


TABLEOFTABLE OF CONTENTS

 

Item
No.
     Page
No.
  PART I  
1.  Business  3
1A.  Risk Factors  8
1B.  Unresolved Staff Comments  16
2.  Properties  16
3.  Legal Proceedings  16
4.  Reserved  17
  PART II  
5.  

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

  18
6.  Selected Financial Data  20
7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations  21
7A.  Quantitative and Qualitative Disclosures About Market Risk  36
8.  Financial Statements and Supplementary Data  37
9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure  37
9A.  Controls and Procedures  37
9B.  Other Information  38
  PART III  
10.  Directors, Executive Officers and Corporate Governance  39
11.  Executive Compensation  39
12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters  39
13.  Certain Relationships and Related Transactions, and Director Independence  39
14.  Principal Accountant Fees and Services  39
  PART IV  
15.  Exhibits and Financial Statement Schedules  40
  Signatures  42
  FINANCIAL STATEMENTS  
  Consolidated Balance Sheets at December 31, 2011 and 2010  F-4
  Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009  F-5
  

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December  31, 2011, 2010 and 2009

  F-6
  Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009  F-7
  Notes to Consolidated Financial Statements  F-8

FINANCIAL STATEMENT SCHEDULES

Item

         No.        

             Page           
 No.
 PART I

1.

 

Business

 3

1A.

 

Risk Factors

 9

1B.

 

Unresolved Staff Comments

 16

2.

 

Properties

 16

3.

 

Legal Proceedings

 16

4.

 

Mine Safety Disclosures

 17
 PART II

5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities

 18

6.

 

Selected Financial Data

 20

7.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 21

7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 37

8.

 

Financial Statements and Supplementary Data

 37

9.

 

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 37

9A.

 

Controls and Procedures

 37

9B.

 

Other Information

 38
 PART III

10.

 

Directors, Executive Officers and Corporate Governance

 39

11.

 

Executive Compensation

 39

12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 39

13.

 

Certain Relationships and Related Transactions, and Director Independence

 39

14.

 

Principal Accountant Fees and Services

 39
 PART IV

15.

 

Exhibits and Financial Statement Schedules

 40
 

Signatures

 42
 FINANCIAL STATEMENTS
 

Consolidated Balance Sheets at December 31, 2012 and 2011

 F-4
 

Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010

 F-5
 

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December  31, 2012, 2011 and 2010

 F-6
 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010

 F-7
 

Notes to Consolidated Financial Statements

 F-8
FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because the required information for such schedules is not present, is not present in amounts sufficient to require submission of the schedule or because the required information is included in the consolidated financial statements.


PART I

Item 1. Business.

Organization

Reis, Inc. is a Maryland corporation. When we refer to “Reis” or the “Company,” we are referring to Reis, Inc. and its consolidated subsidiaries. The Company’s primary business is providing commercial real estate market information and analytical tools for its subscribers, through its Reis Services subsidiary. For disclosure and financial reporting purposes, this business is referred to as the Reis Services segment.

Business

Reis Services

Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary database containing detailed information on commercial properties in metropolitan markets and neighborhoods throughout the U.S. The database contains information on apartment, office, retail, warehouse/distribution, and flex/research & development and self storage properties, and is used by real estate investors, lenders and other professionals to make informed buying, selling and financing decisions. In addition, Reis data is used by debt and equity investors to assess, quantify and manage the risks of default and loss associated with individual mortgages, properties, portfolios and real estate backed securities. Reis currently provides its information services to many of the nation’s leading lending institutions, equity investors, brokers and appraisers.

Reis, through its flagship institutional product,Reis SE, and through its new small business product,ReisReports,provides online access to a proprietary database of commercial real estate information and analytical tools designed to facilitate debt and equity transactions as well as ongoing asset and portfolio evaluations. Depending on the product, users have access to trendmarket trends and forecast analysisforecasts at metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific information such as rents, vacancy rates, lease terms, property sales, new construction listings and property valuation estimates. Reis’s products are designed to meet the demand for timely and accurate information to support the decision-making of property owners, developers, builders, banks and non-bank lenders, equity investors and equity investors.service providers. These real estate professionals require access to timely information on both the performance and pricing of assets, including detailed data on market transactions, supply, absorption, rents and sale prices. This information is critical to all aspects of valuing assets and financing their acquisition, development and construction.

Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly.

Industry Background

Commercial real estate capital flows in 2011 reflected the uneven nature of overall economic recovery. According to the Urban Land Institute, the value of total capital shrank from $4.06 trillion (as of the second quarter 2010) to $3.93 trillion (as of the second quarter 2011), largely the result of deleveraging. The value of debt capital declined from $2.94 trillion to $2.78 trillion, while equity capital increased from $1.12 trillion to $1.15 trillion. The increase in equity capital reflected greater interest in U.S. real estate from foreign investors, private equity firms and pension funds, even as lenders continued to pull back.

Commercial real estate market fundamentals began to recover, albeit it at a slow pace.improved in 2012, but the pace of recovery varied across property types. According to Reis data, the national office market recovery continued at a slow pace, as vacancies began fallingfell 30 basis points (bps) to 17.1%. Occupied space increased by 17.4 million square feet, roughly the same as last year. The first signs of a recovery were observed in early 2011the retail sector, as shopping center vacancies fell for the first time in over three years. Occupied space for retail properties increasedsince early 2005, declining by over 4 million square feet,30 bps. The multifamily sector, however, experienced another strong year of occupancy improvements and rent growth. The vacancy rate ended the first improvement in occupancy since 2007. Apartment vacancies, benefiting from the continuing woes of the for-sale housing market, ended 2011year at 5.2%4.5%, the lowest level in ten years.figure since 2001. For property types that Reis covers, the dollar volume of commercial real estate transactions in the U.S. increasedrose by 12%10% over 2011. Despite modest increases in 2011, representing approximatelytransaction activity over the last three years, volume remains at about one-third of the peak volume recordedlevels observed in 2007.

Varied participants in U.S. commercial real estate demand timely and accurate information to support all aspects of decision-making throughout the commercial real estate transaction lifecycle. These participants can range in size from the large domestic and international investment and financial institutions to individual real estate investors. Participants in the asset market, such as property owners, developers and builders, banks and non-bank lenders, and equityproviders of professional services to commercial real estate investors, require access to information on both the performance and pricing of assets, including detailed data on market transactions, supply and absorption. This information is critical to all aspects of valuing assets and financing their acquisition, development and construction. Additionally, brokers, operators and lessors

require access to detailed information concerning current and historical rents, vacancies, concessions, operating expenses, and other market specific and property specific performance measures.

In recent years, corporate governance and other regulatory requirements (such as mark-to-market requirements, the Basel Capital Accord (Basel II and III), guidance from the Federal Reserve System, the Office of the Comptroller of the Currency, and the Federal

Deposit Insurance Corporation (FDIC), as well as actions undertaken by U.S. and international accounting standard setters) have increased the need for market and portfolio monitoring, generating demand for appropriate commercial real estate market information and analytical tools. From mid-2008 through 2011,Since the middle of 2008, the commercial banking and investment banking industries have undergone a wave of mergers, reorganizations, FDIC-arranged takeovers and other dislocations, similar to the consolidations which occurred following the savings & loan collapses of the late 1980s and early 1990s. Looking towards the future, approximately $300 billion of commercial real estate debt will mature each year for nearly the next decade. ItWhile supply and demand fundamentals, as well as capital flows, improved in many geographic markets during 2012, it is still expected that replacement financing may not be readily available because of declines in values of the underlying real estate, tighter credit requirements and a significant reduction in the number of lenders willing to lend on commercial real estate. For those lenders who do extend credit, as well as for borrowers seeking commitments, the demand for accurate and timely information as well as access to analytics, valuation tools and support will be necessary to properly evaluate the underlying real estate collateral.

Operations

As commercial real estate markets have growncontinue to grow in size and complexity, Reis, over the last 3132 years, has invested in the areasdatabases, technologies and personnel critical to supporting the information needs of commercial real estate professionals in both the asset market and the space leasing market. In particular,professionals. Specifically, Reis has:

 

developed expertise in data collection across multiple markets and property types;

 

invested in the analytical expertise to develop decision support systems aroundthat generate market trends and forecasts, property valuation,valuations, credit analytics, transaction support and risk management;

 

created product development expertise to collect market feedback and translate it into new products and reports; and

 

invested in a robust technology infrastructure to disseminate these tools to the wide variety of market participants.

These investments have established Reis as a leading provider of commercial real estate information and analytical tools to the investment community. Reis continues to develop and introduce new products, expand and add new markets and data, and find new ways to deliver existing information to meet and anticipate client demand, as more fully described below under “— Products and Services.” The depth and breadth of Reis’s data and expertise are critical in allowing Reis to grow its business.

Proprietary Databases

Reis’s commercial real estate databases contain information on competitive, income-producing properties in the U.S. apartment, retail, office, warehouse/distribution, and flex/research & development and self storage sectors. On an ongoing basis, Reis surveys and receives data downloads from building owners, leasing agents and managers which include key building performance statistics including, among others: occupancy rates; rents; rent discounts and other concessions; tenant improvement allowances; lease terms; and operating expenses. In addition, Reis processes multiple data sources on commercial real estate, including: public filings databases; tax assessor records; deed transfers; planning boards; and numerous local, regional and national publications and commercial real estate web sites. Reis screens and assembles large volumes of data into integrated supply and demand trends on a monthly basis at the neighborhood (submarket) and metropolitan market levels. All collected data are subjected to a rigorous quality assurance and validation process developed over many years. At the property level, surveyors compare the data collected in the current period with data previously collected on that property and similar properties. If any unusual changes in rents and vacancies are identified, follow-up procedures are performed for verification or clarification of the results. All aggregate market data at the submarket and market levels are also subjected to comprehensive quality controls. The following table lists the number of metropolitan markets for each of the fivesix types of commercial real estate currently covered by Reis:Reis at December 31, 2012:

 

Number of metropolitan markets:

  

Apartment

   200  

Retail

   190  

Office

   132190  

Warehouse/distribution

   47  

Flex/research & development

   47  

Self storage

30

IncludingReis programmatically expands its programmatic expansionproperty level and market coverage by geography and property type, most recently of retail shopping centers, warehouse/distributiontype. During 2012, Reis expanded its geographic coverage for the office sector and flex/research & developmentinitiated coverage on the self storage sector. Reis monitors over 6,3006,600 market areas and segments at December 31, 2011.2012.

Reis entered into an exclusive market data agreement with the Self Storage Association in June 2011 and will introduceintroduced coverage of theon 30 U.S. self storage marketmarkets in September 2012. This will beis the sixth major property type for which Reis will provideprovides market data and analytics. In February 2013, Reis added 20 additional self storage markets, bringing our coverage to 50 markets in the U.S.

In addition to theits core property database, Reis develops and maintains a new construction database that identifies and monitors projects that are being added to our covered markets. Detailed tracking of the supply side of the commercial real estate market is critical to projecting performance changes at the market and submarket levels. This database is updated weekly and reports relevant criteriainformation such as project size, property type and location for projects that are planned, proposed or under construction.

Reis also maintains a sales comparables database containing transactions in 203202 metropolitan markets. The database captures key information on each transaction, such as buyer, seller, purchase price, capitalization rate and financing details, where available. Prior to March 31, 2011, this database included transactions valued at $2,000,000 or greater. In April 2011, we expanded the coverage to includeavailable, for transactions valued at greater than $250,000 in each market we cover, for our covered markets. Additionally, during March 2011, we addedsix property types, as well as for hotel transactions to our sales comparables coverage.

In October 2011, Reis introduced a new suite of reports focusing on two industrial property types: warehouse/distribution and flex/research & development. This launch disaggregates our industrial product offering to cover nearly 350 submarkets in 47 of the top metropolitan centers for each of these property types. For each metropolitan area, Reis provides a full suite of metro and submarket reports, including forecasts, and property-level rent, sales and construction comparables.properties.

Products and Services

Reis SE, available through thewww.reis.com web site, serves as athe primary delivery platform for the thousands of reports containing Reis’s primary research data and forecasts, as well as a number of analytical tools. Access toReis SE is by secure password only and can be customized to accommodate the needs of subscribers. For example, the product can be tailored to provide access to all or only selected markets, property types and report combinations. TheReis SEinterface has been refined over the past several years, with a major redesign in 2012, to accommodate real estate professionals who need to perform market-based trend analysis, property specific research, comparable property analysis, and valuation and credit analysis estimates at the single property and portfolio levels.

On a monthly and quarterly basis, Reis updates thousands of neighborhood and city level reports that cover historical trends and current conditions. In all of theour primary markets, five year forecasts are updated quarterly on all key real estate market indicators. Monthly and quarterly updates are supported by property, neighborhood and city data collected during the priorrelevant reporting periods.

Reports are retrievable by street address, property type (apartment, office, retail, warehouse/distribution, and flex/research & development)development and self storage) or market/submarket and are available as full color, presentation quality documents or in spreadsheet formats. These reports are used by Reis’s subscribers to assist in due diligence and to support commercial real estate transactions, including loan originations, underwriting, acquisitions, risk assessment (such as loan loss reserves and impairment analyses), portfolio monitoring and management, asset management, appraisal and market analysis.

Other significant elements ofReis SEinclude:

 

property comparables that allow users to identify buildings or new construction projects with similar characteristics (such as square footage, rents or sales price);

 

quarterly “First Glance” reports that provide an early assessment of the apartment, office, retail and retailindustrial sectors across the U.S. and preliminary commentary on new construction activity;

 

“Quarterly Briefings” — two conference calls each quarter attended by hundreds of Reis subscribers, plus members of the media, during which Reis providesour economists provide an overview of itsour latest high-level findings and forecasts for the commercial real estate space and capital markets;

 

real estate news stories chosen by Reis analysts to provide information relevant to a particular market and property type; and

 

customizable email alerts that let users receive proactive updates on only those reports and markets that they designate.

During 2010, Reis completed the development of and launchedalso has a product tailored to the needs of smaller enterprises and individuals, professional investors, brokers and appraisers, which we refer to asReisReports, available atwww.ReisReports.com.ReisReportsutilizes the same proprietary database of information that supports ourReis SEsubscribers. Depending on the package chosen by theReisReportssubscriber, a set number of market reportscontent is available on a monthly or annual subscription basis at an affordable price point.points.

Reis continues to develop new products and applications. Current initiatives includeIn the launchsecond quarter of 2012, we launched the next generation of our flagship product,Reis SE 2.0,. This major upgrade provides users with more tools and further expansion of bothfeatures to better service their transactional and management needs. In September 2012, we initiated coverage on the self storage sector and on 58 additional metropolitan office markets (bringing our geographic markettotal coverage to 190 office markets). For 2013, we intend to add additional markets to our apartment coverage and introduce coverage on an additional property types and broadeningtype.

We are also expanding our revenue streams through licensing portions of our data to major business information vendors. To date, we have entered into data redistribution relationships with other business information vendors. Data redistribution agreements were executed withSNL Financial, FactSet, Capital IQ, and Thomson Reuters during 2011.and Bloomberg, and we continue to engage these partners to potentially expand the existing relationships, while seeking to add additional partners.

In the past, Reis has performed portfolio credit risk and valuation reviews for debt and equity investors. We are developing enhancements to our portfolio analytics services as heightened regulatory scrutiny increases the demand among lenders to assess the risk profile of their mortgage assets. In 2013, we plan to introduce Mobiuss Portfolio CRE. Mobiuss Portfolio CRE has been developed in conjunction with, and will be co-marketed with, Opera Solutions. The product combines Reis’s unparalleled commercial real estate market information and forecasts with Opera Solutions’s cutting edge risk analytics and web-based technologies. Mobiuss Portfolio CRE will provide property and loan valuation, credit risk analytics, stress testing and benchmarking, and will be available to new and existing customers as an add on toReis SE.

Cost of Service

Reis’s data is made available in five primary ways: (1) annual and multi-year subscriptions toReis SE; (2) cappedReis SEsubscriptions allowing subscribersways, with price points that are reflective of the level of content being made available:

annual and multi-year subscriptions toReis SEranging in price from $1,000 to over $1,000,000, depending upon the subscriber’s line of business and the combination of markets, property types and reports subscribed to, for which the subscriber is typically allowed to download an unlimited number of reports over the subscription period; renewals forReis SE are negotiated in advance of the expiration of an existing contract based on factors such as a subscriber’s historical and projected report consumption;

cappedReis SEsubscriptions generally ranging in price from $1,000 to $25,000, allowing clients to download a fixed retail value of reports over a period of up to twelve months;

individual reports, which can be purchased with a limited retail value of reports; (3) online single report credit card, purchases; (4) custom data requests; and (5) monthly subscriptionshaving retail prices up toReisReports, charged to a credit card. Annual subscription fees forReis SErange from $1,000 to over $1,000,000 depending upon the subscriber’s line of business, and the combination of markets, property types and reports subscribed to, for which the subscriber is typically allowed to download an unlimited number of reports over a twelve month period. Capped subscriptions generally range from $1,000 to $25,000 and allow clients to download a fixed retail value of reports over a twelve month period. Sales of individual reports typically range from $150 to $695 $999 per report, and are available to anyone who visits Reis’s retail web site or contacts Reis via telephone, fax or email. However,email; however, certain reports are only available by awith an annual subscription or capped subscription account. Customaccount;

custom data deliverables rangeranging in price from $1,000 for a specific data element to hundreds of thousands of dollars for custom portfolio valuation and credit analysis. Renewals are negotiated in advance of the expiration of an existing contract. Important factors in determining contract renewal rates include a subscriber’s historicalanalysis; and projected report consumption. The monthly fee forReisReports is currently $75 or $125 depending on the package chosen by the subscriber.

subscriptions toReisReports, which are charged to a credit card on a monthly basis, having a retail price ranging up to $150 per month depending on the package chosen by the subscriber; or if desired, annual pricing options are also available.

Subscribers

At December 31, 2011,2012, Reis had 726 companies and government entities844 subscribers under signed contracts for its coreReis SE product offerings. Generally, eachA subscribing company has multipleentity may have one or many users entitled to accessReis SE. These numbers do not include users who pay for individual reports by credit card, nor do they include subscribers to ourReisReports product.product or users of information available on third party platforms through our data redistribution relationships.

The majority of our subscription revenues derivederives from capital providers, such as banks, other financial institutions, investment funds and equity owners and regulators, with the remainder from service providers including(including brokers, appraisers and appraisers.consultants) and regulators.

Customer Service and Training

Reis focuses intensively on proactive training and customer support. Reis’s dedicated customer service team offers customized on-site training and web-based and telephonic support, as well as weekly web-based training seminars open to allReis SEsubscribers. The corporate training team also meets regularlyvisits with a large proportion of Reis’s subscribers.subscribers on an ongoing basis. Additional points of subscriber contact include mid-year service reviews, a web-based subscriber feedback program and account manager visits. All of these contacts are used to assist subscribers with their utilization ofReis SEand identify opportunities for product adoption and increased usage and to solicit subscriber input for future product enhancements.

Proprietary Rights

To protect our proprietary rights, we rely upon a combination of:

 

trade secret, copyright, trademark, database protection and other laws at the Federal, state and local levels;

 

non-disclosure, non-competition and other contractual provisions with employees, vendors and consultants;

 

restrictive license agreements with subscribers; and

 

other technical measures.

We protect our software’s source code and our databasedatabases as either trade secrets or under copyright law. We license our services under license agreements that restrict the disclosure and use of our proprietary information and prohibit the unauthorized reproduction, re-engineering or transfer of the information in our products and services.

We also protect the secrecy of our proprietary database,databases, our trade secrets and our proprietary information through confidentiality and noncompetitionnon-competition agreements with our employees, vendors and consultants. Our services also include technical measures designed to deter and detect unauthorized copying of our intellectual property.

We have registered the trademarks for “Reis,” “Reis Reports,” the Reis logo and “Your Window Onto the Real Estate Market.”

Competition

Real estate transactions involve multiple participants who require accurate historical and current market information. Key factors that influence the competitive position of commercial real estate information vendors include: the depth and breadth of underlying databases; price; ease of use, flexibility and functionality of the software;customer interface; the ability to keep the data up to date and accurate; frequency of reporting; scope of coverage by geography and property type; customer training and support; adoption of the service by industry leaders; consistent product innovation; and recognition by general business and trade media.

Reis’s senior management believes that, on a national level, only a small number of firms serve the propertymarket information needs of U.S. commercial real estate investors and lenders. Reis competes directly and indirectly for subscribers with online services or web sites targeted to commercial real estate professionals such as CoStar Group, Inc. (or CoStar) (including its Property and Portfolio Research business)and LoopNet businesses), Real Capital Analytics, Inc., and CBRE Econometric Advisors (formerly known as Torto Wheaton Research), a wholly-owned subsidiary of CB Richard Ellis, and formerly known as Torto Wheaton Research, and LoopNet, Inc. (which has agreed to be acquired by CoStar), as well as with various local and regional data providers covering selected markets and in-house real estate research departments.

Discontinued Operations – Residential Development Activities

Reis was originally formed on January 8, 1997. Reis1997 as Wellsford Real Properties, Inc., which we refer to as Wellsford. Wellsford acquired the Reis Services business by merger in May 2007, which we refer to as the Merger. Prior to May 2007, Reis operated as Wellsford Real Properties, Inc., which we refer to as Wellsford. Wellsford’s primary operating activities immediately prior to the Merger, and conducted through its subsidiaries, were the development, construction and sale of its three residential projects and its approximate 23% ownership interest in the Reis Services business. The Company completed the sale of the remaining units at its Colorado project in September 2009, sold its Claverack, New York project in bulk in February 2010, and sold its remaining project in East Lyme, Connecticut in bulk in April 2011. See “Item 3. Legal Proceedings.”2011, and settled construction defect litigation at the aforementioned Colorado project in 2012.

The Company has determined, as a result of the April 2011 bulk sale of property in East Lyme, Connecticut, that the Residential Development Activities segment, including certain general and administrative costs that supported that segment’s operations, should be presented as a discontinued operation. As a result of this determination and the fact that the historic operations and cash flows can be clearly distinguished, the operating results of the Residential Development Activities segment and related general and administrative costs are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements for all periods presented.

Additional Segment Financial Information

See the consolidated financial statements, included in this filing, for information regarding the Company’s segments.

Corporate Information

The Company’s executive offices are located at 530 Fifth Avenue, Fifth Floor, New York, New York 10036; telephone: (212) 921-1122; web site:www.reis.com;www.reis.com; email:investorrelations@reis.com. Please note that information on the Company’s web site is not part of this Form 10-K filing.

The reports we file with or furnish to the Securities and Exchange Commission, or SEC, including our annual report, quarterly reports and current reports, are available free of charge on our investor relations web site(www.reis.com/investors) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. You may review and copy any of the information we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information regarding the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site(www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

The Company had approximately 160190 employees as of December 31, 2011.2012.

The Company is a Federal government contractor and is an equal opportunity employer. When we have a position opening, it is our policy to hire the best qualified applicant for the position, without regard to race, color, religion, sex, national origin, disability, veteran status or other category protected by applicable law. We welcome applications from qualified persons with disabilities, covered veterans, minorities, women and other qualified applicants.

Cautionary Statement Regarding Forward-Looking Statements

This annual report on Form 10-K contains “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements may relate to the Company’s or management’s outlook or expectations for earnings, revenues, expenses, asset quality, or other future financial or business performance, strategies, prospects or expectations, or the impact of legal, regulatory or supervisory matters on our business, operations or performance. Specifically, forward-looking statements may include:

 

statements relating to future services and product development of the Reis Services segment;

 

statements relating to future business prospects, potential acquisitions, uses of cash, revenue, expenses, income (loss), cash flows, valuation of assets and liabilities and other business metrics of the Company and its businesses, including EBITDA, Adjusted EBITDA and Aggregate Revenue Under Contract; and

 

statements preceded by, followed by or that include the words “estimate,” “plan,” “project,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions relating to future periods.

Forward-looking statements reflect management’s judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made certain assumptions. Future performance cannot be assured. Actual results may differ materially from those contemplated by the forward-looking statements. Some factors that could cause actual results to differ include:

 

revenues and other performance measures such as income from continuing operations, EBITDA and Adjusted EBITDA may be lower than expected;

 

inability to retain and increase the Company’s subscriber base;

 

inability to execute properly on new products and services, or failure of subscribers to accept these products and services;

 

competition;

 

inability to attract and retain sales and senior management personnel;

 

inability to access adequate capital to fund operations and investments in our business;

difficulties in protecting the security, confidentiality, integrity and reliability of the Company’s data;

changes in accounting policies or practices;

 

legal and regulatory issues;

 

the results of pending, threatening or future litigation; and

 

the risk factors listed under “Item 1A. Risk Factors” of this annual report on Form 10-K.

You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this annual report on Form 10-K. Except as required by law, the Company undertakes no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this annual report on Form 10-K or to reflect the occurrence of unanticipated events.

Item 1A. Risk Factors.

The following is a discussion of the risk factors that Reis’s management believes are material to Reis at this time. These risks and uncertainties are not the only ones facing Reis and there may be additional matters that Reis is unaware of or that Reis currently considers immaterial. Any or all of these could adversely affect Reis’s business, results of operations, profitability, financial condition and cash flows.

Risks Related to the Reis Services Business and the Information Services Industry Generally

A failure to attract and retain subscribers could harm our business.

We must acquire new subscribers and expand our business with our current subscribers in order to grow our business.Our ability to grow our business will be adversely impacted to the extent that current subscribers reduce or discontinue the use of our products and web sites, includingReis SEandReisReports, or if we are unable to locate and have prospects subscribe toReis SEandReisReports. This may occur due to budgetary constraints, which was particularly true during the height of the economic downturn that began in 2008 and 2009, or if our product offering is less competitive with those of other companies in our industry. Prior to the economic downturn in 2008, our overall trailing twelve month renewal rates were above 94% for many years. In the latter part of 2008 and in 2009, we experienced an overall decrease in the total number of our subscribers and a reduction in our trailing twelve month renewal rates. The overall trailing twelve month renewal rate fell to itsa low point of 83% at September 30, 2009 and has shown steady improvement since that date, reaching 93% for the2009. The trailing twelve months endedmonth renewal rate at December 31, 2011.2012 was 91%. There can be no assurance that we will be successful in continuing to identify and sell to additional subscribers, expand business from our existing subscribers and experience continuing improvements in our renewal rates to pre-recession levels.

Our revenues are concentrated among certain key subscribers.

Our commercial real estate information services business had 844 and 726 subscribers at December 31, 2011.2012 and 2011, respectively. The largest subscriber accounted for 4.2% and 4.9% of Reis Services’s revenues for the yearyears ended December 31, 2011.2012 and 2011, respectively. If we were to experience a reduction or loss of business from a number of our largest subscribers, it could have a material adverse effect on our revenues and, depending on the significance of the loss, our profitability, financial condition and cash flows and profitability.flows. In addition, although we generally impose contractual restrictions limiting our immediate exposure to revenue reductions due to mergers and consolidations and our pricing model is based on actual and projected usage, we may be impacted by consolidation among our subscribers and potential subscribers, as a result of their reduced usage on a combined basis or greater bargaining power.

We may be unable to compete successfully with our current or future competitors.

We compete with (i) local companies that offer commercial real estate research with respect to their specific geographic areas and (ii) national companies that offer national commercial real estate research. Specifically, certain of our products compete with those of CoStar (including both its Property and Portfolio Research business)and LoopNet businesses), Real Capital Analytics and CBRE Econometric Advisors and LoopNet (which has agreed to be acquired by CoStar).Advisors. Some of our competitors, either alone or with affiliated entities, may have greater access to resources than we do. Competition could negatively impact our revenues, profitability, financial condition and profitability.cash flows.

We may not be able to maintain Reis Services’s historical rates of growth in revenues, or EBITDA.

Historically, Reis Services has experienced revenue and EBITDA (whichgrowth (EBITDA is GAAP net income (loss), before interest, taxes, depreciation and amortization) growth.. Reis Services’s annual revenue grew by 1.3% from 2009 to 2010 and by 12.3% from 2010 to 2011.2011 and by 14.9% from 2011 to 2012. The fourth quarter and annual 20112012 revenue was the highest quarterly and annual revenue for the Reis Services business in its history. It also marks the seventh11th consecutive quarterly increase in revenue over the prior year’s corresponding quarter. There can be no

assurance that our revenues will continue to grow at thisor in excess of our recent performance pace, on a consecutive quarter and annual basis, on a year over year basis, or at all.

Reis Services annual EBITDA grew by 14.0% from 2010 to 2011 and by 17.8% from 2011 to 2012. We will increase our expenses in the future, such as for content maintenance, marketing and product development expenses, with the expectation that these expense increases will drive future revenue growth; however, such additional expenses could result in reduced margins or profitability or negatively impact liquidity in the near term, and if not successful, may negatively impact margins, profitability and liquidity in the long term. There can be no assurance that our EBITDA will continue to grow at or in excess of our recent performance pace, on a consecutive quarter and annual basis, on a year over year basis, or at all in the future.

Our annual EBITDA declined by 11.4% from 2009 to 2010 due to additional investments in our business during 2010; it subsequently grew by 14.0% from 2010 to 2011. We may continue to incur additional expenses in the future, such as marketing and product development expenses, with the expectation that it will result in revenue growth in the future; however, such additional expenses could result in reduced profitability or margins or negatively impact liquidity in the near term, and if not successful, may negatively impact margins and liquidity in the long term. There can be no assurance that we will be able to maintain or growexpand our EBITDA or EBITDA margins in the future.

If our growth rates decline, or if revenue and/or EBITDA decline, investors’ perceptions of our business may be adversely affected and the market price of our common stock could decline.

We must continue to obtain information from multiple sources.

The quality of our databases supporting ourReis SEandReisReportsproduct offerings depends substantially on information provided by a large number of sources, including commercial real estate brokers, agents and property owners, as well as from public sources, such as tax assessors, deed recorders, planning and zoning boards, corporate websites,web sites, the business and trade press, and selected third

party vendors of business information. If we are unable to collect information from a significant number of these sources, chooses not to continue providing information to us, our product could be negatively affected, potentially resulting in an increase in subscriber cancellations and a failure to acquire new subscribers.

Our revenues, expenses and operating results could be affected by general economic conditions or by changes in commercial real estate markets, which are cyclical.

Our business is sensitive to trends in the general economy and trends in local, regional and national commercial real estate markets, which are unpredictable. Therefore, operating results, to the extent they reflect changes in the broader commercial real estate industry, may be subject to significant fluctuations. A number of factors could have an effect on our revenues, expenses, operating resultsprofitability or cash flows, such as:

 

periods of economic slowdown or recession in the U.S. or locally;

 

budgetary and financial burdens on our subscribers and potential subscribers;

 

merger, acquisition, failure or government takeover of our subscribers and potential subscribers;

 

governmental intervention in economic policy;

 

inflation;

 

flows of capital into or out of real estate investment in the U.S. or various regions of the U.S.;

 

changes to the manner in which transactions are financed;

 

changes in the risk profile of real estate assets and collateral for financings;

 

changes in levels of rent or appreciation of asset values;

 

changing interest rates;

 

tax and accounting policies;

 

the cost of capital;

 

costs of construction;

 

lower consumer confidence;

war, terrorist attacks or natural disasters; or

 

the public perception that any of these conditions may occur.

If our subscribers choose not to useReis SE orReisReportsbecause of any of these factors, and we are not successful in attracting new subscribers, our revenues, expenses, operating results,profitability, cash flows or stock price could be negatively affected.

Our success depends on our ability to introduce new or upgraded services or products.

To continue to attract new subscribers, we may need to introduce new products or services. We may choose to develop new products and services independently or to license or otherwise integrate content and data from or with third parties. The introduction of new products and services could impose costs on our business and require the use of resources, and there is no guarantee that we will continue to be able to access new content and technologies on commercially reasonable terms or at all. If subscribers or potential subscribers do not recognize the value of our new services or enhancements to existing services, operating results could be negatively affected. We may incur significant costs and experience difficulties in developing and delivering these new or upgraded services or products.

Efforts to enhance and improve the ease of use, responsiveness, functionality and features of our existing and newly developed products and services have inherent risks, and we may not be able to manage these product developments and enhancements successfully or in a cost effective manner. If we are unable to continue to develop new or upgraded services or products, then subscribers may choose not to use our products and services. Our growth and results of operations would be negatively impacted if we were unable to successfully market and sell any new services or upgrades.

Our ReisReports offering may not be successful or may not result in increased revenues, which may negatively impact our business, results of operations and financial position.

OurReisReports product offering could impose additional burdens on our product development, systems development, sales, marketing and general management resources. During 2012, weWe expect to continue to expand this product.ourReisReports product offering during 2013, which could increase expenses. If we are unable to manage this expansion effectively or if our costs for this effort exceed our expectations, our profitability and financial position could be adversely affected. In addition, if we incur additional costs to expand this product and we are not successful in marketing or selling these expanded services, this could have a materialan adverse effect on our financial position by increasing our expenses without increasing our revenues, adversely affecting our profitability.impacting margins, profitability and cash flows.

If we fail to protect confidential information against security breaches, or if subscribers are reluctant to use products because of privacy concerns, we might experience a loss in profitability.

Pursuant to the terms and conditions of use on our web sites, as part of our subscriber registration process, we collect and use personally identifiable information. Industry-wide incidents or incidents with respect to our web sites, including theft, alteration, deletion or misappropriation of information, security breaches, computer hackers, viruses (or anything else that may contaminate or cause destruction to our systems), or changes in industry standards, regulations or laws could deter people from using the Internet or our web sites to conduct transactions that involve the transmission of confidential information, which could harm our business. Under the laws of certain jurisdictions, if there is a breach of our computer systems and we know or suspect that unencrypted personal subscriber data has been stolen, we may be required to inform any subscribers whose data was stolen and we may be subjected to liability, which could harm our reputation and business.

Our business could be harmed if we are unable to maintain the integrity and reliability of our data and forecasts.

Our success depends on our subscribers’ confidence in the comprehensiveness, accuracy, and reliability of the data and forecasts we provide. We believe that we take adequate precautions to safeguard the completeness and accuracy of our data and that the information is generally current, comprehensive and accurate. Nevertheless, we depend to a large degree on information provided to us on a voluntary basis by third parties, including commercial real estate brokers, agents and property owners. We are in the process of developing a product which would involve the delivery of portfolio analytics derived from the combined expertise of Reis and a third party; we are not in control of the third party’s technology, intellectual property or economic or financial models in connection with the delivery of its portion of this portfolio analytics product. Further, data is susceptible to electronic malfeasance including theft, alteration, deletion, viruses and computer hackers. In addition, our reports and conference calls for subscribers may contain forecasts with respect to real estate trends. Although our contracts contain language limiting our liability if any of our data or forecasts are inaccurate or are later not borne out by actual results, for any of the above reasons, demand for our services could diminish and we may be exposed to lawsuits claiming damages resulting from inaccurate data and forecasts.

We may be unable to enforce or defend our ownership or use of intellectual property.

Our business depends in large measure on the intellectual property utilized in our methodologies, software and database. We rely on a combination of trademark, trade secret and copyright laws, registered domain names, contracts which include non-disclosure provisions, work-for-hire provisions, and technical security measures to protect our intellectual property rights. However, we do not hold Federal registrations covering all of our trademarks and copyrightable materials. We also do not own any patents or patent applications. Our business could be significantly harmed if we do not continue to protect our intellectual property. The same would be true if claims are made against us alleging infringement of the intellectual property rights of others. Any intellectual property claims, regardless of merit, could be expensive to litigate or settle, and could require the expenditure of substantial amounts of time and/or money.

If our web sites or other services experience system failures or malicious attacks, our subscribers may be dissatisfied and our operations could be impaired.

Our business depends upon the satisfactory performance, reliability and availability of our web sites. Problems with the web sites could result in reduced demand for our services. Furthermore, the software underlying our services is complex and may contain undetected errors. Despite testing, we cannot be certain that errors will not be found in our software. Any errors could result in adverse publicity, impaired use of our services, loss of revenues, cost increases or legal claims by subscribers.

Additionally, our services substantially depend on systems provided by third parties, over whom we have little control. Interruptions in service could result from the failure of data providers, telecommunications providers, or other third parties, including due to the actionsbreak-ins, unauthorized access, computer viruses, vandalism, fire, floods, severe weather, earthquakes, power loss, telecommunications failures, terrorism, acts of computer hackers.war, and other similarly damaging events. We depend on these third-partythird party providers of Internet communication services to provide continuous and uninterrupted service. We also depend on Internet service providers that provide access to our services. Any disruption in the Internet access provided by third-partythird party providers or any failure of third-partythird party providers to handle higher volumes of user traffic could harm our business.

Our internal network infrastructure could be disrupted or penetrated, which could materially impact both our ability to provide services and subscribers’ confidence in our services.

Our operations depend upon our ability to maintain and protect our computer systems. While we believe that our systems, most of which are redundant and independent systems in separate locations, are adequate to support our operations, our systems may be vulnerable to damage from break-ins, unauthorized access, computer viruses, vandalism, fire, floods, severe weather, earthquakes, power loss, telecommunications failures, terrorism, acts of war, and other similarly damaging events. Although we maintain insurance against fires, floods, and general business interruptions, the amount of coverage may not be adequate in any particular case. Furthermore, any damage or disruption could materially impair or block our ability to provide services, which could significantly impact our business.

Experienced computer programmers, or hackers, may attempt to penetrate our network security from time to time. Although we have not experienced any security breaches to date and we maintain a firewall, a hacker who penetrates network security could misappropriate proprietary information or cause interruptions in our services. We might be required to further expend significant capital and resources to protect against, or to alleviate, problems caused by hackers. We also may not have a timely remedy against a hacker who is able to penetrate our network security. In addition to purposeful security breaches, the inadvertent transmission of computer viruses or anything else manifesting contaminating or destructive properties could expose us to litigation or to a material risk of loss. Any of these incidents could materially impact our ability to provide services as well as materially impact the confidence of our subscribers in our services, either of which could significantly and adversely impact our business.

We may be subject to regulation of advertising and subscriber solicitation or other newly-adopted laws and regulations.

As part of our subscriber registration process, our subscribers agree to receive emails and other communications from us. In addition, we use email and other online marketing techniques to reach potential subscribers, particularly for ourReisReports product. We may be subject to restrictions on our ability to communicate through email and phone calls, even with existing subscribers. SeveralThe U.S. and other jurisdictions have proposed or adopted privacy-related laws that restrict or prohibit unsolicited email or spam. These laws may impose significant monetary penalties for violations. In addition, laws or regulations that could harm our business could be adopted, or reinterpreted so as to affect our activities, by Federal and state governments, regulatory agencies or by foreign governments or agencies. This could include, for example, laws regulating the source, content or form of information provided on our web sites, the information or services we provide, or our transmissions over the Internet. Violations or new interpretations of these laws or regulations may result in penalties, or damage our reputation, or could increase our costs or make our services less attractive.

Our revenue, expenses, operating results, margins, financial condition and cash flows are subject to fluctuations.

Our revenues, expenses, operating results, margins, financial condition and cash flows have fluctuated in the past and are likely to continue to do so in the future. These fluctuations could negatively affect our results of operations during that period and future periods. Our revenues, expenses, operating results, margins, financial condition and cash flows may fluctuate from quarter to quarter due to factors including, among others, those described below:

 

obtaining new subscribers and retaining existing subscribers;

 

changes in our marketing or other corporate strategies;

 

our introduction of new products and services or changes to existing products and services;

 

the amount and timing of our operating expenses and capital expenditures;

 

changes in the volume, timing or price of custom data deliverables;

 

costs related to acquisitions of businesses or technologies; and

 

other factors outside of our control.

Our business depends on retaining and attracting capable management and operating personnel.

The implementation and development of Reis’s business plan require the skills and knowledge of our senior executives, as well as our sales, technology and operational personnel. Reis may not be able to offset the impact of the loss of the services of these individuals or other key officers or employees because our business requires skilled management, as well as technical, product and technology, and sales and marketing personnel, who are in high demand and are often subject to competing offers. Competition for qualified employees is intense in the information industry, and the loss of a substantial number of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees, could have a material adverse impact on Reis.

Although Reis uses various incentive programs to retain and attract key personnel, these measures may not be sufficient to either attract or retain, as applicable, the personnel required to ensure our success. In addition, grants and issuances pursuant to our equity incentive plans may result in dilution to Reis stockholders.

The loss of one or more of our senior executives, or our sales, technology or operational personnel, could have a material adverse impact on the continuing operations of Reis and could adversely affect the market price of Reis’s common stock.

We may be subject to tax audits or other procedures concerning our tax collection policies.

We do not collect sales or other similar taxes in states other than New York. However, one or more states (other than New York) may seek to impose sales tax collection obligations on out-of-state companies, such as Reis, which engage in online commerce. A successful assertion that we should collect sales, use or other taxes on the sale of products or services into these states could subject us to liability for current or past taxes due, and could increase the effective price of our products and services, which could harm our business.

If we are not able to successfully identify or integrate future acquisitions, our business operations and financial condition could be adversely affected, and future acquisitions may divert management’s attention and consume significant resources.

We may in the future attempt to further expand our markets and services in part through acquisitions of complementary businesses, services, databases and technologies. Mergers and acquisitions are inherently risky, and we cannot assure you that future acquisitions, if any, will be successful. The successful execution of any future acquisition strategy will depend on our ability to identify, negotiate, complete and integrate such acquisitions and, if necessary, obtain satisfactory debt or equity financing to fund those acquisitions, to the extent that the Company requires cash in excess of amounts it may then have on its balance sheet at that time. Any such acquired businesses would generally be subject to the other risks described under this “Risks Related to the Reis Services Business and the Information Services Industry Generally” section.

Failure to manage and successfully integrate acquired businesses could harm our business. In addition, if we finance acquisitions by incurring additional debt, our financial condition or liquidity could be adversely impacted. If we finance or otherwise complete acquisitions by issuing equity or convertible debt securities, existing stockholders’ ownership may be diluted.

Risks Related to Our Discontinued Operations (Residential Development Activities)

We may be exposed to risks associated with the development, construction and sale of residential units, and the ownership of real property generally.

Reis has been exposed to losses and other expenses associated with construction defect litigation at its Colorado condominium project during 2012. Reis may be exposed in the future to variousother claims associated with its discontinued residential development activities, including its involvement in the development, construction and sale of condominium units, single family homes or lots. Claimslots, or claims related to environmental remediation, dissatisfaction by homeowners and homeowners’ associations with the construction of condominiums, homes and amenities by us and/or our developer partners, in any condominium or subdivision development, or other matters, maywhich could result in litigation costs, remediation costs, warranty expenses or settlement costs which could be material to Reis’s results ofreported discontinued operations, financial condition and financial condition.cash flows. See “Item 3. Legal Proceedings” for information on current litigation relating to the Company’s Gold Peak condominium project.

project in Colorado.

We may be unable to recover any cash from insurance companies or other potentially responsible parties.

We continue to evaluate the cost and benefits of pursuing cash recovery efforts from insurance providers, subcontractors, other professionals, our partners or other potentially responsible parties related to the Gold Peak project. During 2012, Reis settled with, and used $17,000,000 of cash on the balance sheet to pay the Gold Peak homeowners association. No portion of the $17,000,000 was provided by any of the other defendants, potentially responsible parties or insurance companies. Our recovery efforts may include litigation, mediation, settlement or trials. Recovery efforts through December 31, 2012 resulted in cash collections of $712,500. During 2013, we may incur additional legal and expert costs and allocate resources to our recovery efforts, which may not result in any cash recoveries. The amount of incurred costs, without any cash recoveries, could negatively affect our discontinued operating results, financial condition and cash flow.

Risks Related to Ownership of Our Common Stock, Our Capital Structure and Reis Generally

Our common stock is thinly traded and there may continue to be little or no liquidity for shares of our common stock.

Historically, our common stock has been thinly traded, and an active trading market for our common stock may not develop. In the absence of an active public trading market, investors trying to sell their shares may find it difficult to find buyers for their shares at prices quoted in the market or at all.

Our board of directors, or Board, may authorize transactions with respect to our common stock. These transactions may include a reverse stock split or odd-lot or other share repurchase programs. Between December 2008 and August 2011, ourthe Board authorized the repurchase of up to an aggregate amount of $5,000,000 of our common stock. Repurchases through December 31, 20112012 resulted in the cumulative repurchase of approximately 8.1% of the common shares outstanding at the time of the Board’s initial authorization in December 2008. At December 31, 2011,2012, approximately $551,000 remained available for repurchases under the existing authorizations. All decisions regarding any such authorizations to repurchase stock will be at the discretion of our Board and will be evaluated from time to time in light of the Company’s liquidity and anticipated cash needs, the price per share of our common stock, the number of shares of our common stock outstanding, applicable NASDAQ rules, applicable law and other factors deemed relevant. If we effect any such repurchases, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding. In addition, a share repurchase program requires the payment of cash by Reis to stockholders, which could adversely impact our liquidity. If we effect a reverse stock split, there can be no assurance that the market price per share of our common stock after the reverse stock split will rise or remain constant in proportion to the reduction in the number of shares of our common stock outstanding before the reverse stock split.

Our executive officers and directors own a significant percentage of our stock and have significant control of our management and affairs, and they may take actions which may not be in the best interest of other stockholders.

The executive officers and directors of Reis in the aggregate beneficially owned approximately 23.3%22.6% of Reis’s outstanding common stock as of December 31, 2011.2012. Of this total, Lloyd Lynford and Jonathan Garfield, each of whom is a founder, an executive officer and a director of the Company, beneficially owned 11.6% and 7.9%, respectively. ThisA significant concentration of share ownership may adversely affect the trading price of oura company’s common stock because investors may perceive disadvantages in owning stock in companies where management holds a significant percentage of the voting power. ThisA concentration of ownership may have the effect

of delaying or preventing a change of control, including a merger, consolidation or other business combination involving Reis, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if such a change of control might be seen as beneficial to other Reis stockholders.

Our business depends on retaining and attracting capable management and operating personnel.

The implementation and development of Reis’s business plan require the skills and knowledge of our senior executives, as well as our sales, technology and operational personnel. Reis may not be able to offset the impact of the loss of the services of these individuals or other key officers or employees because its business requires skilled management, as well as technical, product and technology, and sales and marketing personnel, who are in high demand and are often subject to competing offers. Competition for qualified employees is intense in the information industry, and the loss of a substantial number of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees, could have a material adverse impact on Reis.

Although Reis uses various incentive programs to retain and attract key personnel, these measures may not be sufficient to either attract or retain, as applicable, the personnel required to ensure our success. In addition, grants and issuances pursuant to our equity incentive plans may result in dilution to Reis stockholders.

The loss of one or more of our senior executives, or our sales, technology or operational personnel, could have a material adverse impact on the continuing operations of Reis and could adversely affect the market price of Reis’s common stock.

Our governing documents and Maryland law contain anti-takeover provisions that may discourage acquisition bids or merger proposals, which may adversely affect the market price of our common stock.

Reis’s articles of amendment and restatement contain provisions designed to discourage attempts to acquire control of Reis by merger, tender offer, proxy contest, or removal of incumbent management without the approval of our Board. These provisions may make it more difficult or expensive for a third party to acquire control of Reis even if a change of control might be seen as beneficial by other Reis stockholders. This could discourage potential takeover attempts and could adversely affect the market price of Reis’s common stock. Reis’s governing documents:

provide for a classified board of directors, which could discourage potential acquisition proposals and could delay or prevent a change of control; and

 

authorize the issuance of blank check stock that could be issued by Reis’s Board to thwart a takeover attempt.

In addition, under Maryland law, certain “business combinations” (including certain issuances of equity securities) between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation’s shares or an affiliate thereof are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder, unless waived by the then existing board. TheOur Board may approve certain transactions or exempt certain interested stockholders at any time prior to a party becoming an interested stockholder. At December 31, 2011,2012 and through the date of this annual report on Form 10-K, there were no exemptions from the Maryland statute.

Increases in interest rates wouldcould increase our interest expense.

In October 2012, Reis Services, as borrower, and the Company, as guarantor, entered into a loan and security agreement with Capital One, National Association, as lender, for a $10,000,000 revolving credit facility, which we refer to as the Revolver. The Revolver has a three year term expiring on October 16, 2015, and any borrowings bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans) or the greater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans) and is subject to an unused facility fee of 0.25% per annum.

As of December 31, 2011,2012, we had approximately $5,691,000 of variable rateno debt outstanding. Duringoutstanding; however, we may borrow amounts under the year ended December 31, 2011, the interest rate on our debt was LIBOR + 1.50% and ranged from a low of 1.69% to a high of 1.85% during the year, based upon changes in the 30 day LIBOR. The 30 day LIBOR was 0.30% at December 31, 2011.

We may incur additional indebtednessRevolver in the future. IfThere have been instances in the past when we purchased interest rates increase, so will our interest costs, which may have a material adverse effectrate caps on our business, results of operations, cash flows and financial condition. In the past, we limitedoutstanding debt to limit our exposure to significant interest rate increases by purchasing interest rate caps.increases. In deciding whether to purchase interest rate caps or other hedging instruments, we weigh the value of protection against significant increases in interest rates against the cost of such instruments. Based on theThe Company does not have any interest rate caps or other hedging instruments at December 31, 2011 debt balance,2012. Therefore, if interest rates increase, our interest costs on any outstanding borrowings would also increase, which may have a 1% increase in the base interest ratematerial adverse effect on our variable rate debt would result in approximately $57,000results of additional interest being incurred on an annualized basis.operations, financial condition and cash flows.

Declines in operational performance could cause financial covenants to be violated on our outstanding debt.

At December 31, 2011, the outstanding balance of the Reis Services Bank Loan was approximately $5,691,000. Provisions in the Bank LoanRevolver may impose restrictions on Reis Services’sthe Company’s ability to, among other things:

 

incur additional debt;

 

amend its organizational documents;

 

pay for public company costs;

pay dividends and make distributions to the Company;distributions;

 

redeem or repurchase outstanding equity;

 

make certain investments;investments or enter into transactions to acquire assets or businesses;

 

create certain liens;

 

enter into transactions with stockholders and affiliates;

undergo a change of control; and

 

make certain fundamental changes, including engaging in a merger or consolidation.

The credit agreementRevolver also contains other customary covenants, including covenants which require Reis Servicesthe Company to meet specified financial ratios and financial tests. If Reis Servicesthe Company were not able to comply with these covenants in the future, the failure to do so may result in the declaration of an event of default. Furthermore, certain events, such as the delisting of our common stock from a national stock exchange or the voluntary or involuntary filing by Reis under any bankruptcy, insolvency or similar law (which is not stayed or dismissed within certain time periods), will cause an event of default. In addition, an event of default, if not cured or waived, may result in the acceleration of the maturity of indebtedness outstanding under this agreement, which would require Reis Servicesthe Company to pay all amounts outstanding. If an event of default occurs, Reis Servicesthe Company may not be able to cure it within any applicable cure period, if at

all. If the maturity of this indebtedness is accelerated, Reis Services or Reis may not have the ability to borrow or obtain sufficient funds to replace the accelerated indebtedness on terms acceptable to us, or at all. In particular, the interest rate under the Bank Loan is significantly lower than the interest rate the Company would likely be able to obtain on new financing. Furthermore, the Bank LoanRevolver is secured by Reis Services’s assets and, therefore, these assets would not be available to secure additional credit.

Our ability to use our net tax operating loss carryforwards will be subject to limitation and the generation of taxable income in the future.

The Company has aggregate net operating loss, or NOL, carryfowards aggregating approximately $56,014,000$67,994,000 at December 31, 2011.2012. These NOLs include NOLs generated subsequent to the Merger, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property Trust (VLP) and the Company’s operating losses prior to the Merger. Approximately $27,259,000 of these Federal NOLs are subject to an annual limitation of $2,779,000 per year, whereas the remaining balance of approximately $28,755,000$40,735,000 is not subject to such a limitation. All of these losses may be utilized against consolidated Federal taxable income in the future. The actual ability to utilize the tax benefit of any existing NOLs will be dependent upon the Company’s ability to generate taxable income in the future, if at all. Under applicable tax regulations, these NOLs may not be usable in New York for state and city purposes in years that these NOLs are used for Federal purposes. This lack of symmetry could result in paying taxes on income in New York State and New York City in 2013 and 2014.

Federal, state and local tax audits may result in the payment of additional taxes, penalties and interest.

Our tax returns are subject to audit by federal, state and local tax authorities. Currently, Reis’s federal tax returns are open (subject to audit) for 2010 and 2011. Reis’s and a subsidiary’s New York State tax returns are under audit for 2001 to 2003 and open for 2004 to 2011. Reis’s and a subsidiary’s New York City tax returns are open for 2001 to 2011. The tax returns of another Reis subsidiary are open in a different state for 2008 to 2011. All other tax years are closed. However, prior year tax returns giving rise to an NOL may be reviewable in connection with the audit of a later tax year when such loss is utilized. The ultimate resolution of the current audits and open tax years for New York State and New York City could result in the payment of additional tax, penalties and interest, which amounts could negatively affect our profitability and cash flows.

Item 1B.  Unresolved Staff Comments.

None.

Item 2.  Properties.

As of December 31, 2011,2012, the Company leases approximately 38,000 square feet of space in New York, New York under two leases, both of which expire in September 2016.

Item 3.  Legal Proceedings.

Reis, Inc. and two of its subsidiaries (Gold Peak at Palomino Park, LLC (“GP LLC”) and Wellsford Park Highlands Corp. (“WPHC”)) arewere the subject of a suit brought by the homeowners’homeowners association at the Company’s former 259-unit Gold Peak condominium project outside of Denver, Colorado. This suit was filed in District Court in Douglas County, Colorado on October 19, 2010, seeking monetary damages (not quantified at the time) relating to alleged design and construction defects at the Gold Peak project. TheTri-Star Construction West, LLC (“Tri-Star”), the construction manager/general contractor for the project (not affiliated with Reis) and two former senior officers of Reis, Inc. (one of whom(Jeffrey H. Lynford, who was also previously a director) havedirector of the Company, and David M. Strong) were also been named as defendants in the suit. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19 million.$19,000,000. Trial commenced on February 21, 2012 and a jury rendered its verdict is expected in mid-March 2012.on March 13,

2012 finding Reis, its subsidiary, Gold Peak at Palomino Park, LLC (“GP LLC”), the former officers and Tri-Star jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000.

In connection with the development of Gold Peak, the Company purchased a commercial general liability “WRAP” insurance policy that coversfrom a predecessor of ACE Westchester (“ACE”) covering the Company (including its subsidiaries) and its former officers, the construction manager/general contractorTri-Star and theTri-Star’s subcontractors. The Company, upon advice of counsel and based on a reading of the policy, has taken the position that a total of $9 million$9,000,000 (and possibly $12 million)$12,000,000) of coverage is available for this claim. The insurerACE has taken the position that only $3 million$3,000,000 of coverage is(including defense costs) was provided. The Company has filed suit against this insurer,ACE, alleging failure to cover this claim, bad faith and other related causes of action. In particular, the Gold Peak litigation could have been settled for $12,000,000 or less prior to the trial. The Company takes the position that ACE is liable for all damages stemming from this failure to engage and settle. Additionally, the Company has added claims against multiple additional insurance companies under policies maintained by the Company, including Reis’s directors’ and officers’ insurance policy, and against Reis’s former insurance broker. The Company has also brought a separate claimclaims against Tri-Star, the subcontractors, the architect and a third party inspector engaged at Gold Peak, and is also seeking coverage under additional applicable insurance policies maintained by the Company, co-defendants or others.

Neither GP LLC nor WPHC has substantial assets or other abilityrelating to pay (other than the “WRAP” insurance policy described above). The plaintiff is seeking to hold Reis, Inc. directly liable as the developer ofthose parties’ actions on the project, and if successful against one or moreis considering other recovery actions.

As of GP LLC or WPHC, will seek to hold Reis, Inc. indirectly liable through a “piercingDecember 31, 2011, based on the corporate veil” theory. Separately, Reis, Inc. would likely have indemnification obligations to its former officers/directors, to the extent either or both of these individuals is held liable.

The Company believesbest available information at that it and its co-defendants have valid defenses to some or all of the plaintiff’s allegations (including attempts to hold Reis, Inc. directly or indirectly liable), that insurance will cover some or all of any eventual settlement or judgment, and that the defendants other than Reis, Inc., GP LLC, WPHC and the former officers, are likely to be liable for some of any remaining settlement judgment amount. Although not factored into the Company’s assessment of this case for purposes of reserves, in the event of an adverse judgment,time, the Company would expect to appeal, and would continue to pursue all available remedies against applicable insurers or other parties at fault.

Based on pre-trial disclosures and the positionsrecorded a charge of the parties’ experts, it is likely that a judgment of at least $6.7 million (plus approximately $1 million of the plaintiff’s costs) will be entered against GP LLC. In the event of such a judgment against GP LLC and/or WPHC (but without a finding of liability against Reis, Inc. or the former officers), the Company would be under no obligation to fund any shortfall by GP LLC or WPHC.

At this time,$4,460,000 in discontinued operations, representing the low end of the Company’s expected range of net exposure is believed to be approximately $4,740,000. The Company has recorded a chargeexposure. This amount reflected an aggregate minimum liability of approximately $4,460,000 in discontinued operations at December 31, 2011. The $4,740,000 amount reflects$7,740,000, less the $7,740,000 minimum exposure referred to above, net ofthen minimum expected insurance recovery of $3,000,000 alland other previously reserved amounts. At March 31, 2012, as a result of which isthe verdict, the Company recorded an additional charge of $14,216,000 in discontinued operations in the first quarter of 2012, to bring the Company’s liability up to the $18,200,000 judgment, plus other costs of approximately $756,000. As of March 31, 2012, the Company, in accordance with the applicable accounting literature, could no longer conclude that $3,000,000 of insurance was probable of being recovered. These charges were reflected in discontinued operations on the December 31, 2011 balance sheet. It is possible that a settlement or judgment in this matter could involve the payment by the Company of an amount that could be material to the Company’s reportableand negatively impacted consolidated net income (loss) from discontinued operations, net income, its consolidated financial position or cash flows. It would, but did not have any effect on the Company’simpact income from continuing operations.

On June 20, 2012, following denial of all of the defendant’s post-trial motions, Reis reached a settlement with the plaintiff, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. In reaching the decision to settle, Reis’s management and Board considered, among other factors: (1) the amount of the settlement versus the potential for an ultimately greater judgment after appeal, including additional costs and post-judgment interest; (2) the benefits of the clarity of settling the case at this time versus continuing uncertainty; and (3) the strong cash flow generation of Reis Service’s core business. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the year ended December 31, 2012 of approximately $11,547,000.

Reis continues to consider its options with respect to contribution or other actions against potentially responsible third parties and/or co-defendants in the lawsuit, and will pursue all reasonable efforts to mitigate the effects of this settlement. There is no assurance that the Company will be successful in these additional recovery efforts.

The Company is not a party to any other litigation that could reasonably be foreseen to be material to the Company.

Item 4.   [Reserved.]Mine Safety Disclosures.

Not applicable.

PART II

Item 5.   Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The Company’s common shares trade on the NASDAQ Global Market under the symbol “REIS.” As of December 31, 2011,2012, there were approximately 362350 holders of record of our common stock. This number does not reflect beneficial holders of our common stock through accounts maintained at participants in The Depository Trust Company.

The high and low sales prices per share for our common stock for each quarter in the years ended December 31, 2011 and 2010 are as follows:

 

  2011   2010  

2012

 

2011

Quarter

  High   Low   High   Low  

        High        

 

        Low        

 

        High        

 

        Low        

First

  $7.92    $6.40    $6.49    $5.52   $    12.49   $      8.55   $      7.92   $    6.40  

Second

  $9.97    $7.44    $6.94    $5.30   $      9.75   $      7.74   $      9.97   $    7.44  

Third

  $10.96    $8.43    $6.95    $5.80   $    11.94   $      8.58   $    10.96   $    8.43  

Fourth

  $    10.00    $    8.26    $    7.25    $    6.09   $    13.49   $    10.08   $    10.00   $    8.26  

Common Stock Price Performance Graph

The following graph compares the cumulative total stockholder return on Reis’s common stock, which is represented below by “REIS,” for the period commencing December 31, 20062007 through December 31, 2011,2012, with the cumulative total return on the Russell 2000 Index, which we refer to as the Russell 2000, and the S&P 500 Index, which we refer to as the S&P 500, for the same period. Reis has chosen the Russell 2000 based on the market capitalization of the issuers contained in that index. Reis has not identified a peer group, due to the limited number of issuers in businesses similar to ours. Total return values were calculated based on cumulative total return assuming (1) the investment of $100 in the Russell 2000, the S&P 500 and Reis common stock on December 31, 2006,2007, and (2) reinvestment of dividends. The total return for Reis common stock from December 31, 20062007 to December 31, 20112012 was a gain of approximately 21.3%69.6% versus a gain of approximately 0.7%19.0% for the Russell 2000 and a lossgain of 1.2%approximately 8.6% for the S&P 500.

 

Dividends

The Company did not declare or distribute any dividends during the years ended December 31, 20112012 or 2010.2011.

Reis does not currently intend to declare or distribute any dividends. All decisions regarding the declaration and payment of dividends will be at the discretion of the Board and will be evaluated from time to time by the Board in light of the Company’s financial condition, earnings, cash flows, growth prospects, restrictions under the Company’s credit agreement,Revolver, applicable law and other factors that the Board deems relevant.

Recent Sales of Unregistered Securities

The Company has not sold any unregistered securities within the past three years.

Issuer Purchases of Equity Securities

Between December 2008 and June 2010,August 2011, the Board authorized the repurchase of up to an aggregate amount of $4,000,000$5,000,000 of the Company’s common stock, which authorizations were fully utilized by December 2010. In August 2011, the Board authorized an additional $1,000,000 to make stock repurchases (ofof which approximately $551,000 remained available for repurchases as of December 31, 2011).2012. The stock repurchases are permitted from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, additional amounts may be authorized by the Board whereby future purchases could be commenced or suspended at any time, or from time to time, without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market purchases of common stock during blackout periods consistent with the Company’s “Policies for Transactions in Reis Stock and Insider Trading and Tipping.” During the fourth quarter and year ended December 31, of 2011,2012, the Company repurchased the followingdid not repurchase any shares of common stock:stock.

Period

 Total Number of
Shares Purchased
  Average Price
Paid per Share
  Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
  Maximum Dollar
Value of Shares

That May Yet Be
Purchased Under
the Plans or
Programs
 

October 1, 2011 to October 31, 2011

  6,000   $8.82    6,000   $559,000  

November 1, 2011 to November 30, 2011

  —     $—      —     $559,000  

December 1, 2011 to December 31, 2011

  811   $8.93    811   $551,000  

From the inception of the share repurchase programs in December 2008 through December 31, 2011,2012, the Company purchased an aggregate of 888,136 shares of common stock at an average price of $5.01 per share, for an aggregate of approximately $4,449,000. Cumulatively, the Company has repurchased approximately 8.1% of the common shares outstanding at the time of the Board’s initial authorization in December 2008.

Other Security Information

For additional information concerning the Company’s capitalization, see Note 108 to the Company’s consolidated financial statements.

Calculation of Aggregate Market Value of Non-Affiliate Shares

For purposes of calculating the aggregate market value of those common shares of the Company held by non-affiliates, as shown on the cover page of this annual report on Form 10-K, it has been assumed that all of the outstanding shares at June 30, 20112012 were held by non-affiliates except for shares held by directors and officers of the Company. However, this should not be deemed to constitute an admission that all of such directors and officers are, in fact, affiliates of the Company, or that there are not other persons who may be deemed to be affiliates of the Company. For further information concerning shareholdings of officers, directors and principal stockholders, see “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Item 6.   Selected Financial Data.

The following table presents selected financial data for the Company and should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the consolidated financial statements included herein starting at Page F-1. For the periods presented, this information conforms with the current financial statement presentation which segregates the assets and liabilities, as well as the operating results of the Company’s Residential Development Activities segment, and other related costs, as a discontinued operation.

Consolidated information related to the operations or cash flows for year ended December 31, 2007 has been excluded from the table as during that year, from the period January 1, 2007 to May 31, 2007, the Company was reporting under the liquidation basis of accounting. As a result of the Merger, the Company commenced reporting on the going concern basis of accounting for the period June 1, 2007 to December 31, 2007. Inclusion of the information for 2007 would not provide any meaningful historic or trend information of the continuing business of the Company for this form requirement.

(amounts in thousands, except per share data)       
   For the Years Ended December 31,    

Consolidated Statements of Income:

  2011  2010  2009  2008    

Subscription revenue

  $27,180   $24,198   $23,892   $25,851   

Income from continuing operations (A)

  $4,861   $465   $1,028   $2,599   

Net income (loss) (A)(B)

  $1,886   $668   $1,004   $(7,480 

Per share amounts – basic:

      

Income from continuing operations

  $0.46   $0.04   $0.10   $0.24   

Net income (loss)

  $0.18   $0.06   $0.09   $(0.68 

Per share amounts – diluted:

      

Income from continuing operations

  $0.45   $0.04   $0.09   $0.17   

Net income (loss)

  $0.17   $0.06   $0.09   $(0.70 
   December 31, 

Consolidated Balance Sheets:

  2011  2010  2009  2008  2007 

Cash

  $22,153   $20,164   $22,735   $24,152   $23,238  

Total assets

  $111,218   $106,688   $112,204   $120,438   $144,848  

Total debt from continuing operations (C)

  $5,691   $11,250   $19,463   $23,153   $24,828  

Total stockholders’ equity

  $77,510   $74,292   $73,321   $73,667   $79,699  
   December 31,    

Consolidated Statements of Cash Flows:

  2011  2010  2009  2008    

Net cash provided by (used in):

      

Operating activities

  $11,961   $9,665   $11,638   $15,277   

Investing activities

  $(3,623 $(2,647 $(1,438 $(4,318 

Financing activities

  $(6,349 $(9,589 $(11,617 $(10,045 

                                                                           
(amounts in thousands, except per share data)   
  For the Years Ended December 31, 

                    Consolidated Statements of Operations:

 2012  2011  2010  2009  2008 

Subscription revenue

 $    31,229     $    27,180     $    24,198     $    23,892     $    25,851     

Income from continuing operations (A)

 $8,013     $4,861     $465     $1,028     $2,599     

Net (loss) income (A)(B)(C)

 $(4,284)    $1,886     $668     $1,004     $(7,480)    

Per share amounts – basic:

     

  Income from continuing operations

 $0.75     $0.46     $0.04     $0.10     $0.24     

  Net (loss) income

 $(0.40)    $0.18     $0.06     $0.09     $(0.68)    

Per share amounts – diluted:

     

  Income from continuing operations

 $0.73     $0.45     $0.04     $0.09     $0.19     

  Net (loss) income

 $(0.39)    $0.17     $0.06     $0.09     $(0.70)    

Cash dividends per share

 $—     $—     $—     $—     $—    
  December 31, 

Consolidated Balance Sheets:                    

 2012  2011  2010  2009  2008 

Cash (D)

 $4,961     $22,153     $20,164     $22,735     $24,152    

Total assets

 $98,034     $111,218     $106,688     $112,204     $120,438    

Total debt from continuing operations (E)

 $—     $5,691     $11,250     $19,463     $23,153    

Total stockholders’ equity

 $74,557     $77,510     $74,292     $73,321     $73,667    
  December 31, 

                    Consolidated Statements of Cash Flows:

 2012  2011  2010  2009  2008 

Net cash provided by (used in):

     

    Operating activities (D)

 $(6,555)    $11,961     $9,665     $11,638     $15,277     

    Investing activities

 $(4,037)    $(3,623)    $(2,647)    $(1,438)    $(4,318)    

    Financing activities

 $(6,600)    $(6,349)    $(9,589)    $(11,617)    $(10,045)    
      
 (A)

The 2012 and 2011 amounts reflect a net tax benefit of $5,427 and $4,075, respectively, in both income from continuing operations and net (loss) income, from the reversal of a valuation allowanceallowances recorded against a portion of the Company’s net operating loss carryforwards.

 (B)

The 2012 net (loss) and related per share amounts reflect a net litigation charge of $11,547, which was recorded in income (loss) from discontinued operations in 2012. See “Item 3. Legal Proceedings” for information relating to the Company’s Gold Peak condominium project.

(C)    The 2011 amount reflectsnet income and related per share amounts reflect a net litigation charge of $4,460, which was recorded in income (loss) from discontinued operations at December 31, 2011. See “Item 3. Legal Proceedings” for information on current litigation relating to the Company’s Gold Peak condominium project.

Proceedings.”
 (C)(D)    

The Company’s cash balance at December 31, 2012 and cash flows from operating activities was negatively impacted by the $17,000,000 cash settlement paid in 2012 in connection with the Gold Peak litigation. See “Item 3. Legal Proceedings.”

(E)    Reductions in total debt from continuing operations reflects repayments made in each period. This debt expires in September 2012.

See Note 6 of the consolidated financial statements for information about the Company’s debt.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.Operations.

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K.

Organization and Business

Reis, Inc. is a Maryland corporation. The Company’s primary business is providing commercial real estate market information and analytical tools for its subscribers, through its Reis Services subsidiary. For disclosure and financial reporting purposes, this business is referred to as the Reis Services segment.

Reis Services

Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary database containing detailed information on commercial properties in metropolitan markets and neighborhoods throughout the U.S. The database contains information on apartment, office, retail, warehouse/distribution, and flex/research & development and self storage properties, and is used by real estate investors, lenders and other professionals to make informed buying, selling and financing decisions. In addition, Reis data is used by debt and equity investors to assess, quantify and manage the risks of default and loss associated with individual mortgages, properties, portfolios and real estate backed securities. Reis currently provides its information services to many of the nation’s leading lending institutions, equity investors, brokers and appraisers.

Reis, through its flagship institutional product,Reis SE, and through its new small business product,ReisReports,provides online access to a proprietary database of commercial real estate information and analytical tools designed to facilitate debt and equity transactions as well as ongoing asset and portfolio evaluations. Depending on the product, users have access to trendmarket trends and forecast analysisforecasts at metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific information such as rents, vacancy rates, lease terms, property sales, new construction listings and property valuation estimates. Reis’s products are designed to meet the demand for timely and accurate information to support the decision-making of property owners, developers, builders, banks and non-bank lenders, equity investors and equity investors.service providers. These real estate professionals require access to timely information on both the performance and pricing of assets, including detailed data on market transactions, supply, absorption, rents and sale prices. This information is critical to all aspects of valuing assets and financing their acquisition, development and construction.

Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly.

Discontinued Operations – Residential Development Activities

Reis was originally formed on January 8, 1997. Reis1997 as Wellsford Real Properties, Inc., which we refer to as Wellsford. Wellsford acquired the Reis Services business by merger in May 2007, which we refer to as the Merger. Prior to May 2007, Reis operated as Wellsford Real Properties, Inc., which we refer to as Wellsford. Wellsford’s primary operating activities immediately prior to the Merger, and conducted through its subsidiaries, were the development, construction and sale of its three residential projects and its approximate 23% ownership interest in the Reis Services business. The Company completed the sale of the remaining units at its Colorado project in September 2009, sold its Claverack, New York project in bulk in February 2010 and sold its remaining project in East Lyme, Connecticut in bulk in April 2011. See “Item 3. Legal Proceedings.”2011, and settled construction defect litigation at the aforementioned Colorado project in 2012.

The Company has determined, as a result of the April 2011 bulk sale of property in East Lyme, Connecticut, that the Residential Development Activities segment, including certain general and administrative costs that supported that segment’s operations, should be presented as a discontinued operation. As a result of this determination and the fact that the historic operations and cash flows can be clearly distinguished, the operating results of the Residential Development Activities segment and related general and administrative costs are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements for all periods presented.

Management Overview

During 2012, we continued to execute on our business plan of growing revenue and EBITDA of the Reis Services business at an accelerating rate over 2011. Our 2012 growth was the result of contributions from three products:Reis SE,the Company’s core offering; and to a lesser but still meaningful extent, from our data redistribution relationships and our small business offering,ReisReports. ForReis SE, we continue to maintain an overall trailing twelve month renewal rate of approximately 91%, while

achieving record levels of new business and total contract signings during 2012. We increased the number ofReis SEsubscribers to 844, including selling to 68 new banks that were not previously customers. Our data redistribution initiative continues to provide additional opportunities to sell Reis’s proprietary content through the platforms of financial information vendors with whom we have existing relationships, and we are looking to expand these relationships further in 2013. We continue to refine ourReisReports product, including recruiting senior management with significant experience in relevant aspects of web marketing, and we expect further acceleration in the growth of this product in 2013.

To sustain our robust growth, our team is focused on providing must-have, quality data and analytics. The cornerstones of our business model include the consistent introduction of new content in the form of new geographic markets and property types, and the roll out of powerful analytic modules that help our customers make superior business and investment decisions. By making investments in our databases and web sites during 2012, we are positioned to launch new content, functionality and analytics that we can deliver across our multiple distribution platforms, further distancing Reis’s product offerings from those of our competitors.

Reis continues to demonstrate high levels of revenue visibility, strong EBITDA margins and significant cash generation ability, attributes that we believe will result in meaningful value creation for our shareholders. Our multi-year business plan recognizes that our core assets include our databases, our premier brand, a subscriber base comprised of the world’s leading institutional investors, our superior technology, and the human capital within the Reis organization. We have made prudent capital investments in our business and expect to continue to do so in 2013 as we look to continue to grow revenue and EBITDA in 2013 and beyond.

Our cash balance, which was reduced substantially in 2012 due to the $17,000,000 aggregate litigation settlement payments and $5,691,000 final debt repayments, was approximately $4,961,000 at December 31, 2012. We expect that balance to grow during 2013 as we retain the cash generated by our high-margin, recurring revenue information business.

The following information provides additional insight into our 2012 performance.

Critical Business Metrics of the Reis Services Business

Management considers certain metrics in evaluating the performance of the Reis Services business. These metrics are revenue, EBITDA (which is defined as earnings before interest, taxes, depreciation and amortization) and EBITDA margin. Following is a presentation of these historical metrics for the Reis Services business (for(see below for a reconciliation of income (loss) from continuing operations to EBITDA and Adjusted EBITDA for both the Reis Services segment and on a consolidated basis for each of the periods presented here, see below)here).

 

0000000000000000000000000000
(amounts in thousands, excluding percentages)(amounts in thousands, excluding percentages) (amounts in thousands, excluding percentages)       
  For the Three Months Ended      For the Three Months Ended     
  December 31,   Percentage  December 31,   Percentage 
  2011 2010 Increase Increase   2012 2011 Increase Increase 

Revenue

  $6,979   $6,167   $812    13.2  $                    8,581             $                    6,979             $                     1,602                                     23.0%           

EBITDA

  $2,748   $2,407   $341    14.2  $                    3,543             $                    2,748             $                        795             28.9%          

EBITDA margin

   39.4  39.0    41.3%         39.4%         
  For the Three Months Ended      For the Three Months Ended     
  December 31,
2011
 September 30,
2011
 Increase Percentage
Increase
   December 31,
 2012
 September 30,
2012
 Increase Percentage
Increase
 

Revenue

  $6,979   $6,747   $232    3.4  $                    8,581     ��       $                    7,827             $                        754             9.6%          

EBITDA

  $2,748   $2,722   $26    1.0  $                    3,543             $                    3,228             $                        315             9.8%          

EBITDA margin

   39.4  40.3    41.3%         41.2%         
  For the Years Ended      For the Years Ended     
  December 31,   Percentage  December 31,   Percentage 
  2011 2010 Increase Increase   2012 2011 Increase Increase 

Revenue

  $27,180   $24,198   $2,982    12.3  $                  31,229            $                  27,180            $                    4,049             14.9%          

EBITDA

  $10,837   $9,503   $1,334    14.0  $                  12,762            $                  10,837            $                    1,925             17.8%          

EBITDA margin

   39.9  39.3    40.9%         39.9%         
  For the Years Ended   Percentage 
  December 31, Increase Increase 
  2010 2009 (Decrease) (Decrease) 

Revenue

  $24,198   $23,892   $306    1.3

EBITDA

  $9,503   $10,721   $(1,218  (11.4%) 

EBITDA margin

   39.3  44.9  

(amounts in thousands, excluding percentages) 
   For the Years Ended         
   December 31,       Percentage 
   2011   2010   Increase   Increase 

Revenue

   $                    27,180             $                    24,198             $                    2,982                                  12.3%           

EBITDA

   $                    10,837             $                      9,503             $                    1,334              14.0%          

EBITDA margin

   39.9%         39.3%          

Reis Services’s revenue for both the three months and year ended December 31, 2011 represents the highest quarterly and annual revenue for the business. Reis Services’s quarterly revenue increased by approximately $812,000,$1,602,000, or 13.2%23.0%, from the fourth quarter of 20102011 to the fourth quarter of 2011. This2012 and $4,049,000, or 14.9%, for the year ended December 31, 2012 over the comparable 2011 annual period. The revenue increase over the corresponding prior quarterly period is the seventh11th consecutive quarterly increase in revenue over the prior year’s quarter. In addition, revenue increased by approximately $754,000, or 9.6%, from the third quarter of 2012 to the fourth quarter of 2012. These revenue increases reflect: (1) incremental new business as the 2012 fourth quarter and year produced the highest level of new contract signings in the Company’s history (reflected in the growth in the number ofReis SE subscribers from 726 at December 31, 2011 to 844 subscribers at December 31, 2012); (2) revenue growth from our data redistribution initiatives; (3) revenue growth fromReisReports; (4) custom project revenue in 2012 in excess of 2011 amounts (as more fully described below) and (5) the cumulative impact of the increased volume of contract signings in 2011 and throughout 2012. The Company’s overall renewal rate for the trailing twelve months ended December 31, 2012 was 91%, as compared to 93% for the corresponding quarter. period in 2011 (for institutional subscribers, the renewal rates were 93% and 95% at December 31, 2012 and 2011, respectively).

The revenue growth for the fourth quarter and annual 2012 periods reflected incremental revenue from one specific custom project of $427,000 and $569,000, respectively. Excluding this custom project from our reported revenue would result, on a pro forma basis, in revenue growth of 16.8% in the fourth quarter of 2012 and 12.8% for the 2012 annual period (in contrast with our reported amounts of growth of 23.0% and 14.9%, respectively). We do not expect to have custom work of this magnitude in the first quarter of 2013, and therefore, we expect that revenue and EBITDA will decrease from the fourth quarter of 2012 to the first quarter of 2013. However, on a pro forma basis, excluding the custom revenue referred to above, we expect revenue and EBITDA to grow in those consecutive periods. We do not expect an interruption in revenue and EBITDA growth in the first quarter of 2013 over the first quarter of 2012.

The increase in 2011 annual revenue was approximately $2,982,000, or 12.3%, from the year ended December 31, 2010. The fourth quarter and2011 annual revenue increases reflect:reflected: (1) positive improvements in overall renewal rates as the trailing twelve month renewal rate improved to 93% at December 31, 2011 as compared to 91% for the trailing twelve months ended December 31, 2010 (for institutional subscribers, the renewal rates improved to 95% at December 31, 2011 from 93% at December 31, 2010); (2) additional new business; (3) sales fromReisReports; and (4) the cumulative impact of the strength of contract signings in 2010 and throughout 2011. Regarding contract signings, both the fourth quarter and annual 2011 periods represent the highest dollar value of contracts booked for a quarter and for a year in the Company’s history.

Revenue increased by approximately $306,000, or 1.3%, from the year ended December 31, 2009 to December 31, 2010. In general, the improving revenue results in the 2010 period over the 2009 annual period reflect (1) positive improvements in overall renewal rates as the trailing twelve month renewal rate improved to 91% at December 31, 2010 as compared to 86% at December 31, 2009; (2) reduced budgeting constraints by current and prospective subscribers, which during 2008 and 2009 negatively impacted renewal rates and pricing on subscription contracts entered into at that time; and (3) the cumulative impact of the strength of contract signings beginning in the fourth quarter of 2009 and continuing throughout 2010.

Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly. Therefore, increases in the dollar value of new contracts are spread evenly over the life of a contract, thereby moderating an immediate impact on revenue. Historically, the largest percentage of our contracts are executed in the fourth quarter of each year. As a result, in times of favorable pricing, larger consecutive quarter revenue growth occurs in the fourth and first quarters.

Our contract pricing model is based on actual and projected report consumption; we believe it is generally not as susceptible to economic downturns and personnel reductions at our subscribers as a model based upon individual user licenses. We typically impose contractual restrictions limiting our immediate exposure (during existing contract terms) to revenue reductions due to mergers and consolidations. However, we have been, and we may in the future be impacted by consolidation among our subscribers and potential subscribers, or in the event that subscribers enter bankruptcy or otherwise go out of business.

Two additional metrics management utilizes in understanding the business and future performance are deferred revenue and Aggregate Revenue Under Contract. Analyzing these amounts can provide additional insight into Reis Services’s financial performance. Deferred revenue, which is a GAAP basis accounting concept and is reported by the Company on the consolidated balance sheet, represents revenue from annual or longer term contracts for which we have billed and/or received payments from our subscribers related to services we will be providing over the remaining contract period. It does not include future revenue under non-cancellable contracts for which we do not yet have the contractual right to bill; this aggregate number we refer to as Aggregate Revenue Under Contract. Deferred revenue will be recognized as revenue ratably over the remaining life of a contract. The following table reconciles deferred revenue to Aggregate Revenue Under Contract at December 31, 2012 and 2011, and 2010, respectively.

000000000000000000000000000000000000000000000000000000000000
        Percentage 
  December 31,   Increase
(Decrease)
  Increase
(Decrease)
 
2011   2010      December 31, 
2012   2011 

Deferred revenue (GAAP basis)

  $15,707,000    $15,446,000    $261,000    1.7  $            18,230,000      $            15,707,000    

Amounts under non-cancellable contracts for which the Company does not yet have the contractual right to bill at the period end (A)

   10,871,000     11,707,000     (836,000  (7.1)%    18,179,000       10,871,000    
  

 

   

 

   

 

    

 

   

 

 

Aggregate Revenue Under Contract

  $26,578,000    $27,153,000    $(575,000  (2.1)%   $            36,409,000      $            26,578,000    
  

 

   

 

   

 

    

 

   

 

 
             

 

(A)

Amounts are billable subsequent to December 31 of each year and represent (i) non-cancellable contracts for subscribers with multi-year subscriptions where the future years are not yet billable, or (ii) subscribers with non-cancellable annual subscriptions with interim billing terms.

Included in Aggregate Revenue Under Contract at December 31, 20112012 was approximately $20,064,000$23,947,000 related to amounts under contract for the forward twelve month period through December 31, 2012.2013. The remainder reflects amounts under contract beyond December 31, 2012.2013. The forward twelve month Aggregate Revenue Under Contract amount is approximately 74%77% of revenue on a trailing twelve month basis at December 31, 2011 of approximately $27,180,000.2012. For comparison purposes, at December 31, 20102011 and 2009,2010, the forward twelve month Aggregate Revenue Under Contract of $20,064,000 and $19,527,000, respectively, and $16,127,000, respectively, as a percentage of that year’s revenue was approximately 81%74% and 68%81%, respectively.

Both deferred revenue and Aggregate Revenue Under Contract are influenced by: (1) the timing and dollar value of contracts signed;signed and billed; (2) the quantity and timing of contracts that are multiyear;multi-year; and (3) the impact of recording revenue ratably over the life of a multi-year contract, which moderates the effect of price increases after the first year. Coupled with record new business and contract signings in 2012, the Company signed more multi-year contracts (in both number of contracts and gross dollar value) in 2012 than in any previous annual period. These influencesfactors resulted in a minor 2.1% reductionthe increase in both deferred revenue and Aggregate Revenue Under Contract and a modest 1.7% increase in deferred revenue from December 31, 2010 to December 31, 2011.2012.

EBITDA of Reis Services for the three months ended December 31, 20112012 was $2,748,000,$3,543,000, an increase of $341,000,$795,000, or 14.2%28.9%, over the fourth quarter 2010 amount. 2011 amount and increased $1,925,000, or 17.8%, in the year ended December 31, 2012 over the comparable 2011 annual period. On a consecutive quarter basis, EBITDA increased $315,000 or 9.8% in the fourth quarter 2012 over the third quarter 2012. These EBITDA increases were driven by the revenue growth as described above, offset by increasing employment related costs in 2012 over 2011, the net effect of which improved our EBITDA margins over the prior year periods to 41.3% and 40.9% for the three and twelve months ended December 31, 2012, respectively. EBITDA in the fourth quarter and annual 2012 periods was similarly impacted from the aforementioned incremental custom work. Excluding only that incremental custom revenue from our reported EBITDA, would result, on a pro forma basis, in EBITDA growth of 13.4% in the fourth quarter of 2012 and 12.5% for the 2012 annual period (in contrast with our reported amounts of growth of 28.9% and 17.8%, respectively).

EBITDA of Reis Services for the year ended December 31, 2011 was $10,837,000, an increase of $1,334,000, or 14.0%, over the corresponding 2010 period. These increases areThis increase was directly influenced by the 13.2% and 12.3% increasesincrease in revenue for the three months and year ended December 31, 2011 over 2010, respectively, as described above, while maintaining EBITDA margins for the Reis Services segment at approximately 40%. On a consecutive quarter basis, EBITDA of Reis Services increased $26,000, or 1.0%, in the fourth quarter 2011 from the third quarter 2011. This increase is attributable to $232,000 of revenue growth on a consecutive quarter basis, partially offset by increased compensation expense for sales commissions in the fourth quarter which is consistent with the timing of increased contracts in the fourth quarter.

EBITDA decreased $1,218,000 from the year ended December 31, 2009 to the year ended December 31, 2010. This is primarily a result of (1) cost increases, primarily in sales and marketing expenses for increases in commissions in 2010 over 2009, (2) salary and benefit increases in 2010 from hiring for product development and enhancement initiatives, (3) wage increases for existing employees, (4) increased marketing expenses related to ourReisReports offering and (5) the continuing increase in the cost of employee benefits,

primarily for medical insurance. EBITDA for the fourth quarter of 2010 modestly improved $28,000 over the fourth quarter of 2009, primarily from a revenue increase, in excess of cost increases.

Reconciliations of Income from Continuing Operations to EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization and stock based compensation. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with GAAP, senior management uses EBITDA and Adjusted EBITDA to measure operational and management performance. Management believes that EBITDA and Adjusted EBITDA are appropriate metrics that may be used by investors as supplemental financial measures to be considered in addition to the reported GAAP basis financial information to assist investors in evaluating and understanding (1) the performance of the Reis Services segment, the primary business of the Company and (2) the Company’s continuing consolidated results, from year to year or period to period, as applicable. Further, these measures provide the reader with the ability to understand our operational performance while isolating non-cash charges, such as depreciation and amortization expenses, as well as other non-operating items, such as interest income, interest expense and income taxes and, in the case of Adjusted EBITDA, isolates non-cash charges for stock based compensation. Management also believes that disclosing EBITDA and Adjusted EBITDA will provide better comparability to other companies in the information services sector. EBITDA and Adjusted EBITDA are presented both for the Reis Services business and on a consolidated basis. We believe that these metrics, for Reis Services, provide the reader with valuable information for evaluating the financial performance of the core Reis Services business, excluding public company costs, and to make assessments about the intrinsic value of that stand-alone business to a potential acquirer. Management primarily monitors and measures its performance, and is compensated, based on the results of the

Reis Services business. EBITDA and Adjusted EBITDA, on a consolidated basis, allow the reader to make assessments about the current trading value of the Company’s common stock, including expenses related to operating as a public company. However, investors should not consider these measures in isolation or as substitutes for net income (loss), income from continuing operations, operating income, or any other measure for determining operating performance that is calculated in accordance with GAAP. In addition, because EBITDA and Adjusted EBITDA are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies.

Reconciliations of EBITDA and Adjusted EBITDA to the most comparable GAAP financial measure, income from continuing operations, follow for each identified period on a segment basis (including the Reis Services segment), as well as on a consolidated basis:

 

(amounts in thousands)        
Reconciliation of Income from Continuing Operations to EBITDA and  By Segment     

Adjusted EBITDA for the Three Months Ended December 31, 2011

  Reis Services   Other (A)   Consolidated 

Income from continuing operations

      $4,372    

Income tax (benefit)

       (4,075)   
      

 

 

 

Income (loss) before income taxes and discontinued operations

  $1,370      $(1,073)      297    

Add back:

      

Depreciation and amortization expense

   1,334       2       1,336    

Interest expense, net

   44       —       44    
  

 

 

   

 

 

   

 

 

 

EBITDA

   2,748       (1,071)      1,677    

Add back:

      

Stock based compensation expense, net

   —       537       537    
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $2,748      $(534)     $2,214    
  

 

 

   

 

 

   

 

 

 
Reconciliation of Income from Continuing Operations to EBITDA and  By Segment     

Adjusted EBITDA for the Year Ended December 31, 2011

  Reis Services   Other (A)   Consolidated 

Income from continuing operations

      $4,861    

Income tax (benefit)

       (4,075)   
      

 

 

 

Income (loss) before income taxes and discontinued operations

  $5,500      $(4,714)      786    

Add back:

      

Depreciation and amortization expense

   5,135       4       5,139    

Interest expense (income), net

   202       (5)      197    
  

 

 

   

 

 

   

 

 

 

EBITDA

   10,837       (4,715)      6,122    

Add back:

      

Stock based compensation expense, net

   —       2,204       2,204    
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $10,837      $(2,511)     $8,326    
  

 

 

   

 

 

   

 

 

 

(amounts in thousands)         
Reconciliation of Income from Continuing Operations to EBITDA and  By Segment     

Adjusted EBITDA for the Three Months Ended December 31, 2010

  Reis Services   Other (A)   Consolidated 

Reconciliation of Income from Continuing Operations to EBITDA and

Adjusted EBITDA for the Three Months Ended December 31, 2012

 By Segment   
  Reis Services       Other (A)         Consolidated     

Income from continuing operations

      $564       $6,519       

Income tax (benefit)

       (157)       (5,427)      
      

 

    

 

 

Income (loss) before income taxes and discontinued operations

  $1,117      $(710)      407     $2,337        $(1,245)      1,092       

Add back:

         

Depreciation and amortization expense

   1,220       —       1,220      1,182         2       1,184       

Interest expense (income), net

   70       (2)      68      24         —       24       
  

 

   

 

   

 

  

 

  

 

  

 

 

EBITDA

   2,407       (712)      1,695      3,543         (1,243)      2,300       

Add back:

         

Stock based compensation expense, net

   —       511       511      —         505       505       
  

 

   

 

   

 

  

 

  

 

  

 

 

Adjusted EBITDA

  $2,407      $(201)     $2,206     $3,543        $(738)     $2,805       
  

 

   

 

   

 

  

 

  

 

  

 

 

Adjusted EBITDA margin – Reis Services and consolidated (B)

  41.3%       32.7%    
 

 

   

 

 
Reconciliation of Income from Continuing Operations to EBITDA and  By Segment     

Adjusted EBITDA for the Year Ended December 31, 2010

  Reis Services   Other (A)   Consolidated 

Reconciliation of Income from Continuing Operations to EBITDA and

Adjusted EBITDA for the Year Ended December 31, 2012

 By Segment   
  Reis Services       Other (A)         Consolidated     

Income from continuing operations

      $465       $8,013       

Income tax (benefit)

       (220)       (5,427)      
      

 

    

 

 

Income (loss) before income taxes and discontinued operations

  $4,433      $(4,188)      245     $7,683        $(5,097)      2,586       

Add back:

         

Depreciation and amortization expense

   4,769       4       4,773      4,974         9       4,983       

Interest expense (income), net

   301       (17)      284      105         (1)      104       
  

 

   

 

   

 

  

 

  

 

  

 

 

EBITDA

   9,503       (4,201)      5,302      12,762         (5,089)      7,673       

Add back:

         

Stock based compensation expense, net

   —       1,712       1,712      —         2,295       2,295       
  

 

   

 

   

 

  

 

  

 

  

 

 

Adjusted EBITDA

  $9,503      $(2,489)     $7,014     $12,762        $(2,794)     $9,968       
  

 

   

 

   

 

  

 

  

 

  

 

 

Adjusted EBITDA margin – Reis Services and consolidated (B)

  40.9%       31.9 %    
 

 

   

 

 

Reconciliation of Income from Continuing Operations to EBITDA and

Adjusted EBITDA for the Three Months Ended December 31, 2011

     By Segment       
  Reis Services       Other (A)         Consolidated     

Income from continuing operations

   $4,372       

Income tax (benefit)

    (4,075)      
   

 

 

Income (loss) before income taxes and discontinued operations

 $1,370        $(1,073)      297       

Add back:

   

Depreciation and amortization expense

  1,334         2       1,336       

Interest expense, net

  44         —       44       
 

 

  

 

  

 

 

EBITDA

  2,748         (1,071)      1,677       

Add back:

   

Stock based compensation expense, net

  —         537       537       
 

 

  

 

  

 

 

Adjusted EBITDA

 $2,748        $(534)     $2,214       
 

 

  

 

  

 

 

Adjusted EBITDA margin – Reis Services and consolidated (B)

  39.4%       31.7%    
 

 

   

 

 

 

Reconciliation of Income from Continuing Operations to EBITDA and  By Segment     

Adjusted EBITDA for the Year Ended December 31, 2009

  Reis Services   Other (A)   Consolidated 

Income from continuing operations

      $1,028    

Income tax expense

       6    
      

 

 

 

Income (loss) before income taxes and discontinued operations

  $5,397      $(4,363)      1,034    

Add back:

      

Depreciation and amortization expense

   4,916       50       4,966    

Interest expense (income), net

   408       (13)      395    
  

 

 

   

 

 

   

 

 

 

EBITDA

   10,721       (4,326)      6,395    

Add back:

      

Stock based compensation expense, net

   —       1,570       1,570    
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $10,721      $(2,756)     $7,965    
  

 

 

   

 

 

   

 

 

 
Reconciliation of Income from Continuing Operations to EBITDA and  By Segment     

Adjusted EBITDA for the Three Months Ended September 30, 2011

  Reis Services   Other (A)   Consolidated 

Income from continuing operations

      $289    

Income tax expense

       —    
      

 

 

 

Income (loss) before income taxes and discontinued operations

  $1,357      $(1,068)      289    

Add back:

      

Depreciation and amortization expense

   1,318       1       1,319    

Interest expense (income), net

   47       (2)      45    
  

 

 

   

 

 

   

 

 

 

EBITDA

   2,722       (1,069)      1,653    

Add back:

      

Stock based compensation expense, net

   —             446        446    
  

 

 

   

 

 

   

 

 

 

Adjusted EBITDA

  $2,722      $(623)     $2,099    
  

 

 

   

 

 

   

 

 

 
                

See footnotes on next page.

(amounts in thousands)

  Reconciliation of Income from Continuing Operations to EBITDA and  

  Adjusted EBITDA for the Year Ended December 31, 2011  

 

By Segment

  
 

  Reis Services  

 

    Other (A)    

 

    Consolidated    

Income from continuing operations

   $              4,861     

Income tax (benefit)

   (4,075)    
   

 

Income (loss) before income taxes and discontinued operations

 $            5,500      $        (4,714)   786     

Add back:

   

Depreciation and amortization expense

 5,135      4    5,139     

Interest expense (income), net

 202      (5)   197     
 

 

 

 

 

 

EBITDA

 10,837      (4,715)   6,122     

Add back:

   

Stock based compensation expense, net

 —      2,204    2,204     
 

 

 

 

 

 

Adjusted EBITDA

 $          10,837      $        (2,511)   $              8,326     
 

 

 

 

 

 

Adjusted EBITDA margin – Reis Services and consolidated (B)

 39.9%    30.6%  
 

 

  

 

  Reconciliation of Income from Continuing Operations to EBITDA and  

  Adjusted EBITDA for the Year Ended December 31, 2010  

 

By Segment

  
 

  Reis Services  

 

    Other (A)    

 

    Consolidated    

Income from continuing operations

   $          465     

Income tax (benefit)

   (220)    
   

 

Income (loss) before income taxes and discontinued operations

 $        4,433      $        (4,188)   245     

Add back:

   

Depreciation and amortization expense

 4,769      4    4,773     

Interest expense (income), net

 301      (17)   284     
 

 

 

 

 

 

EBITDA

 9,503      (4,201)   5,302     

Add back:

   

Stock based compensation expense, net

 —      1,712    1,712     
 

 

 

 

 

 

Adjusted EBITDA

 $        9,503      $        (2,489)   $          7,014     
 

 

 

 

 

 

Adjusted EBITDA margin – Reis Services and consolidated (B)

 39.3%    29.0%  
 

 

  

 

  Reconciliation of Income from Continuing Operations to EBITDA and  

  Adjusted EBITDA for the Three Months Ended September 30, 2012  

 

By Segment

  
 

  Reis Services  

 

    Other (A)    

 

    Consolidated    

Income from continuing operations

   $           860     

Income tax expense

   —     
   

 

Income (loss) before income taxes and discontinued operations

 $        2,106      $        (1,246)   860     

Add back:

   

Depreciation and amortization expense

 1,137      3    1,140     

Interest expense (income), net

 (15)      —    (15)    
 

 

 

 

 

 

EBITDA

 3,228      (1,243)   1,985     

Add back:

   

Stock based compensation expense, net

 —      598    598     
 

 

 

 

 

 

Adjusted EBITDA

 $        3,228      $          (645)   $        2,583     
 

 

 

 

 

 

Adjusted EBITDA margin – Reis Services and consolidated (B)

 41.2%    33.0%  
 

 

  

 

 

(A)

Includes interest and other income, depreciation expense and general and administrative expenses (including public company related costs) that are not associated with the Reis Services segment. Since the reconciliations start with income from continuing operations, the effects of the discontinued operations (residential development activities)(Residential Development Activities) are excluded from these reconciliations for all periods presented.

(B)Reflects an Adjusted EBITDA margin on the Reis Services segment and on a consolidated basis, both of which exclude the impact of discontinued operations.

Results of Operations

Comparison of the Results of Operations for the Year Ended December 31, 2012 and 2011

Subscription revenues and related cost of sales were approximately $31,229,000 and $6,617,000, respectively, for the year ended December 31, 2012, resulting in a gross profit for the Reis Services segment of approximately $24,612,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $1,907,000 during this period. Subscription revenues and related cost of sales were approximately $27,180,000 and $6,305,000, respectively, for the year ended December 31, 2011, resulting in a gross profit for the Reis Services segment of approximately $20,875,000. Amortization expense included in cost of sales was approximately $2,410,000 during this period. See “— Critical Business Metrics of the Reis Services Business” for a discussion of the variances and trends in revenue and EBITDA of the Reis Services segment. The increase in cost of sales of $312,000 is primarily a result of employment related costs from hiring during 2011 and throughout 2012, coupled with wage and benefit increases over the 2011 period aggregating $815,000, offset by a net decrease in amortization expense of $503,000 from the Merger related purchase price allocations for the database intangible asset becoming fully amortized in the 2012 second quarter.

Sales and marketing expenses were approximately $7,643,000 and $6,704,000 for the year ended December 31, 2012 and 2011, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in sales and marketing expenses (for the customer relationships intangible asset) was approximately $982,000 and $992,000 during the year ended December 31, 2012 and 2011, respectively. The increase in sales and marketing expenses between the two periods of approximately $939,000 reflects increased commissions and employment related costs from hiring during 2011 and throughout 2012, coupled with wage and benefit increases over the 2011 period.

Product development expenses were approximately $2,485,000 and $2,093,000 for the year ended December 31, 2012 and 2011, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in product development expenses (for the web site intangible asset) was approximately $1,436,000 and $1,084,000 during the year ended December 31, 2012 and 2011, respectively. Product development costs increased $392,000, primarily due to an increase in amortization expense for web site costs capitalized and amortization expense commencing in the period for significant product introductions and improvements in 2011 and 2012, as well as increased employment related costs over the 2011 period.

General and administrative expenses of approximately $11,793,000 for the year ended December 31, 2012 include current period expenses of approximately $8,840,000, depreciation and amortization expense of approximately $658,000 for lease value and furniture, fixtures and equipment, and approximately $2,295,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $2,181,000 and by an approximate $114,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $9.12 per share at December 31, 2011 to $13.03 per share at December 31, 2012. General and administrative expenses of approximately $11,095,000 for the year ended December 31, 2011 include current period expenses of approximately $8,237,000, depreciation and amortization expense of approximately $654,000 for lease value and furniture, fixtures and equipment, and approximately $2,204,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $2,083,000 and by an approximate $121,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $7.03 per share at December 31, 2010 to $9.12 per share at December 31, 2011. Excluding the non-cash expenses, the increase in general and administrative expenses of $603,000 is primarily a result of increased rent related costs for additional office space, increased professional fees, compensation increases and higher benefit costs over the 2011 period.

Interest expense of $155,000 for the year ended December 31, 2012 is comprised of interest and cost amortization of $128,000 and $27,000 on the Bank Loan and Revolver, respectively. Interest expense of $274,000 for the year ended December 31, 2011 includes interest and cost amortization on the Bank Loan of $272,000 and interest from other debt of $2,000. In the second quarter of 2012, the Bank Loan was repaid and that obligation was cancelled. In October 2012, the Company obtained a $10,000,000 Revolver, as more fully described in “— Debt.”

During the year ended December 31, 2012, the net income tax benefit from continuing operations of $5,427,000 includes the aggregate deferred Federal, state and local income tax benefit of $5,614,000 as a result of the partial release of the valuation allowance against certain deferred tax assets, offset by current state and local tax expense of $187,000 arising from the Company’s current treatment of NOLs reflected on certain state and local tax returns. The income tax benefit from continuing operations during the year ended December 31, 2011 of $4,075,000 reflects an aggregate deferred Federal, state and local income tax benefit as a result of the partial release of the Company’s valuation allowance against certain deferred tax assets. In the fourth quarters of 2012 and 2011, the Company reduced the valuation allowance recorded against a portion of its NOL carryforwards. The decision to reduce the valuation

allowance in each period was made after management determined, based on an assessment of continuing operations, profitability and forecasts of future taxable income, that these deferred tax assets would be realized.

The loss from discontinued operations of $(12,297,000) for the year ended December 31, 2012 primarily is comprised of a net charge of $12,260,000 related to the June 2012 settlement of the Gold Peak litigation for $17,000,000, plus other professional fees and expenses of $750,000, offset by $712,500 of recoveries in December 2012. The 2011 loss from discontinued operations of $(2,975,000) reflects a charge of $4,460,000 recorded at December 31, 2011 in connection with the construction defect litigation at our Gold Peak development project, offset by a gain on the sale of the East Lyme project in a bulk transaction in April 2011 of $1,242,000 and net other income of $243,000, primarily from the release of unused warranty accruals on home sales at the East Lyme project.

Comparison of the Results of Operations for the Years Ended December 31, 2011 and 2010

Subscription revenues and related cost of sales were approximately $27,180,000 and $6,305,000, respectively, for the year ended December 31, 2011, resulting in a gross profit for the Reis Services segment of approximately $20,875,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $2,410,000 during this period. Subscription revenues and related cost of sales were approximately $24,198,000 and $5,845,000, respectively, for the year ended December 31, 2010, resulting in a gross profit for the Reis Services segment of approximately $18,353,000. Amortization expense included in cost of sales was approximately $2,259,000 during this period. See “— Critical Business Metrics of the Reis Services Business” for a discussion of the variances and trends in revenue and EBITDA of the Reis Services segment. The increase in cost of sales of $460,000 is primarily a result of increased database amortization expense of $151,000 and higher employment related costs from hiring during 2010 and 2011, coupled with wage and benefit cost increases over the 2010 period.

Sales and marketing expenses were approximately $6,704,000 and $6,057,000 for the years ended December 31, 2011 and 2010, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in sales and marketing expenses (for the customer relationships intangible asset) was approximately $992,000 and $1,001,000 during the years ended December 31, 2011 and 2010, respectively. The increase in sales and marketing expenses between the two periods of approximately $647,000 generally reflects increased commissions and employment related costs from hiring during 2010 and 2011, coupled with wage and benefit cost increases over the 2010 period.

Product development expenses were approximately $2,093,000 and $1,811,000 for the years ended December 31, 2011 and 2010, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in product development expenses (for the web site intangible asset) was approximately $1,084,000 and $874,000 during the year ended December 31, 2011 and 2010, respectively. Product development expenses increased approximately $282,000, primarily due to a net increase in amortization expense of approximately $210,000 from web site costs capitalized and amortization expense commencing in the period for theReisReportsweb site and other significant product introductions and improvements in 2010 and 2011, in excess of Merger related purchase price allocations that were fully amortized in 2010.

General and administrative expenses of approximately $11,095,000 for the year ended December 31, 2011 include current period expenses of approximately $8,237,000, depreciation and amortization expense of approximately $654,000 for lease value and furniture, fixtures and equipment, and approximately $2,204,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $2,083,000 and an approximate $121,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $7.03 per share at December 31, 2010 to $9.12 per share at December 31, 2011. General and administrative expenses of approximately $9,956,000 for the year ended December 31, 2010 include current period expenses of approximately $7,605,000, depreciation and amortization expense of approximately $639,000 for lease value and furniture, fixtures and equipment, and approximately $1,712,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,658,000 and an approximate $54,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $6.15 per share at December 31, 2009 to $7.03 per share at December 31, 2010. Excluding the non-cash expenses, the increase in general and administrative expenses of approximately $632,000 is primarily a result of increased rent related costs for additional office space, compensation increases and higher benefit costs over the 2010 period.

Interest expense of approximately $274,000 for the year ended December 31, 2011 includes interest and cost amortization on the Bank Loan of approximately $272,000 and interest on other debt of $2,000. Interest expense of approximately $407,000 for the year ended December 31, 2010 includes interest and cost amortization on the Bank Loan of approximately $394,000 and interest on other debt of approximately $13,000. The lower expense in 2011 is the result of lower outstanding balances in the 2011 period.

The income tax benefit from continuing operations during the year ended December 31, 2011 of $4,075,000 reflects aan aggregate deferred Federal, benefit of approximately $3,606,000state and a deferred statelocal income tax benefit of approximately $469,000 as a result of the partial release of the Company’s valuation allowance against certain deferred tax assets. In the fourth quarter of 2011, the Company reversed the valuation allowance recorded against a portion of its NOL carryforwards. The decision to reverse this amount of the valuation allowance was made after management determined, based on an assessment of continuing operations, profitability and forecasts of future taxable income, that these deferred tax assets would be realized. The income tax benefit from continuing operations during the year ended December 31, 2010 of $220,000 reflects the resolution of an unrecognized tax benefit as a result of the expiration of the applicable state’s statute of limitations.

The 2011 (loss) from discontinued operations of $(2,975,000) reflects a charge of $4,460,000 recorded at December 31, 2011 in connection with the construction defect litigation at our Gold Peak development project (as more fully described in “Item 3. Legal Proceedings”), offset by a gain on the sale of the East Lyme project in a bulk transaction in April 2011 of $1,242,000 and net other income of $243,000, primarily from the release of unused warranty accruals on home sales at the East Lyme project. The 2010 income from discontinued operations of $203,000 primarily reflects the sale of the Claverack project in a bulk transaction in February 2010 for a gain of $263,000, the sale of one home and two lots at East Lyme in 2010 and the reversal of certain employment related contractual obligations for amounts less than prior period accruals, offset by operating expenses and related general and administrative expenses.

Comparison of the Results of Operations for the Years Ended December 31, 2010 and 2009

Subscription revenues and related cost of sales were approximately $24,198,000 and $5,845,000, respectively, for the year ended December 31, 2010, resulting in a gross profit for the Reis Services segment of approximately $18,353,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $2,259,000 during this period. Subscription revenues and related cost of sales were approximately $23,892,000 and $5,568,000, respectively, for the year ended December 31, 2009, resulting in a gross profit for the Reis Services segment of approximately $18,324,000. Amortization expense included in cost of sales was approximately $2,172,000 during this period. See “— Critical Business Metrics of the Reis Services Business” for a discussion of the variances and trends in revenue and EBITDA of the Reis Services segment. The increase in cost of sales of $277,000 is primarily a result of: (1) additional amortization expense for the database intangible asset; (2) the effect of increased employee benefits costs; (3) wage increases for existing employees, as 2009 wages were frozen and bonus levels were reduced, and a return in 2010 expenses to base salary increases and a normalized employee bonus level; (4) hiring during 2010; and (5) an increase in bad debt expense over the prior period.

Sales and marketing expenses were approximately $6,057,000 and $5,306,000 for the years ended December 31, 2010 and 2009, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in sales and marketing expenses (for the customer relationships intangible asset) was approximately $1,001,000 and $1,008,000 during the years ended December 31, 2010 and 2009, respectively. The increase in sales and marketing expenses between the two periods of approximately $751,000 generally reflects a larger sales force in the 2010 period and increased commissions in 2010 over 2009 consistent with the increase in sales activity in the 2010 period. Additionally, the increase in 2010 expenses over 2009 expenses reflects wage increases for existing employees, as 2009 wages were frozen and bonus levels were reduced, and 2010 expenses reflect a return to base salary increases and a normalized employee bonus level. Also, the 2010 balance includes the effect of increased employee benefit costs and marketing forReisReports.

Product development expenses were approximately $1,811,000 and $1,818,000 for the years ended December 31, 2010 and 2009, respectively, and solely represent costs of the Reis Services segment. Amortization expense included in product development expenses (for the web site intangible asset) was approximately $874,000 and $990,000 during the years ended December 31, 2010 and 2009, respectively. Product development expenses decreased $7,000, primarily due to a net reduction in amortization expense from web site costs capitalized at the time of the Merger as part of the purchase price allocation that were fully amortized in 2010, accounting for $116,000 of the decrease, offset by cost increases from new product initiatives, coupled with compensation and benefit cost increases as described above.

General and administrative expenses of $9,956,000 for the year ended December 31, 2010 include current period expenses of $7,605,000, depreciation and amortization expense of $639,000 for lease value and furniture, fixtures and equipment, and approximately $1,712,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,658,000 and an approximate $54,000 increase in the reserve for option liability due to an increase in the market price of the Company’s common stock from $6.15 per share at December 31, 2009 to $7.03 per share at December 31, 2010. General and administrative expenses of $9,769,000 for the year ended December 31, 2009 include current period expenses of $7,402,000, depreciation and amortization expense of $797,000 for lease value and furniture, fixtures and equipment, and approximately $1,570,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,431,000 and an approximate $139,000 increase in the reserve for option liability due to an increase in the market price of the Company’s common stock from $5.00 per share at December 31, 2008 to $6.15 per share at December 31, 2009. Excluding the non-cash items, the increase in general and administrative expenses of $203,000 is primarily the result of a return to base salary increases and normalized employee bonus levels in 2010.

Interest and other income was $123,000 and $156,000 for the years ended December 31, 2010 and 2009, respectively, and primarily reflects interest earned on cash. Interest rates in the 2010 period were significantly lower than in the 2009 period and the Company

had a lower average cash balance in 2010 as compared to 2009, due in part to mandatory amortization and discretionary prepayments on the Bank Loan.

Interest expense of $407,000 for the year ended December 31, 2010 includes interest and cost amortization on the Bank Loan of $394,000 and interest on other debt of $13,000. Interest expense of $552,000 for the year ended December 31, 2009 includes interest and cost amortization on the Bank Loan of $524,000 and interest on other debt of $28,000. The reduction in interest expense reflects the reduction in the outstanding debt balance in the 2010 period as compared to the 2009 period.

The income tax benefit from continuing operations during the year ended December 31, 2010 of $220,000 reflects the resolution of an unrecognized tax benefit as a result of the expiration of the applicable state’s statute of limitations. The income tax expense for the year ended December 31, 2009 of $6,000 results from current state and local taxes of $31,000, offset by a net current Federal alternative minimum tax, or AMT, benefit of $25,000.

Income (loss) from discontinued operations, net of income tax expense, was approximately $203,000 and ($24,000) during the years ended December 31, 2010 and 2009, respectively. The 2010 income from discontinued operations primarily reflects the sale of the Claverack project in a bulk transaction in February 2010 for a gain of $263,000, the sale of one home and two lots at East Lyme in 2010 and the reversal of certain employment related contractual obligations for amounts less than prior period accruals, offset by operating expenses and related general and administrative expenses. The 2009 (loss) from discontinued operations primarily reflects operating costs of the Residential Development Activities segment and related general and administrative costs in excess of gains from sales of homes or lots at East Lyme or condominium units at the Gold Peak projects.

Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset was approximately $9,622,000 and $4,008,000 at December 31, 2012 and 2011, respectively, of which $1,065,000 and $323,000 is reflected as a net current asset and $8,557,000 and $3,685,000 is reflected as a net non-current asset in the accompanying consolidated balance sheets. The net deferred tax liability was approximately $67,000sheets at December 31, 2010 and was reflected as a non-current liability in the accompanying consolidated balance sheets.respective dates. The significant portion of the deferred tax items primarily relates to: (1) NOL carryforwards; (2) Federal AMT credit carryforwards; and (3) stock based compensation, as they relate to 2011compensation; and 2010; (4) liability reserves, at December 31, 2011; (5) the tax benefit of impairment charges before allowances at December 31, 2010, all as they relate to deferred tax assets; and (6)(5) the deferred tax liability resulting from the intangible assets recorded at the time of the Merger.

The Company has aggregate Federal, state and local NOL carryfowardscarryforwards aggregating approximately $56,014,000$67,994,000 and $46,586,000$55,957,000 at December 31, 20112012 and 2010,2011, respectively. These NOLs include NOLs generated subsequent to the Merger, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property TrustVLP and the Company’s operating losses prior to the Merger. At December 31, 2011 and 2010,2012, approximately $27,259,000 of these Federal NOLs are subject to an annual limitation, whereas the remaining balance of approximately $28,755,000 and $19,327,000, respectively,$40,735,000 is not subject to such a limitation. There is an annual limitation on the use of NOLs after an ownership change, pursuant to Section 382 of the Internal Revenue Code. As a result of the Merger, the Company experienced such an ownership change which resulted in a new annual limitation of $2,779,000. However, because of the accumulation of annual limitations, it is expected that the use of NOLs will not be limited by expiration. A substantial NOL was realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement discussed in Note 10.

A further requirement of the tax rules is that after a corporation experiences an ownership change, it must satisfy the continuity of business enterprise, or COBE, requirement (which generally requires that a corporation continue its historic business or use a significant portion of its historic business assets in its business for the two year period beginning on the date of the ownership change) to be able to utilize NOLs generated prior to such ownership change. The Company believes that the COBE requirement was met through the required two year period subsequent to the ownership change, and utilized an aggregate of approximately $5,760,000 of these pre-Merger NOLs in its Federal tax return filings for 2008 and 2009, with appropriate disclosure.

The In February 2012, the Internal Revenue Service (“IRS”) recently completed an audit of the Company’s 2009 Federal income tax return. The 2009 tax year included the end of the two year period subsequent to the Merger. The IRS issued a no change letter related to the Company’s 2009 tax return, thereby accepting the Company’s position that the two year COBE requirement was met. Consequently, atas of December 31, 2010, the Company hashad restored approximately $33,019,000 of NOLs, the tax benefit of which iswas approximately $13,631,000 with an equal amount of valuation allowance. There was no impact to the December 31, 2010 consolidated balance sheet or consolidated statements of income as a result of this event.

The Company does not have any near-term expirations of NOLs; the next NOL expiration is in 2017 for approximately $5,500,000 of Federal NOLs. Included in Federal and state NOLs at December 31, 2012 is approximately $388,000$1,723,000 attributable to excess tax deductions from the issuance

of common shares as non-cash compensation. The tax benefits attributable to those NOLs will be credited directly to additional paid in capital when utilized to offset taxes payable.

A valuation allowance is required to reduce deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, management has determined that a valuation allowance of approximately $17,092,000$15,217,000 and $21,884,000$17,092,000 at December 31, 20112012 and 2010,2011, respectively, was necessary. The allowance at December 31, 2012 and 2011 relates primarily to NOL carryforwards, AMT credits and, in 2011, liability reserves, and atreserves. The decrease in

the allowance in 2012 is primarily attributable to the $5,614,000 increase in deferred tax assets expected to be realized in the years subsequent to December 31, 2010, relates primarily2012, offset in part by the litigation settlement payments made in 2012, net of recoveries, which resulted in an increase to NOL carryforwards, AMT credits and the excess of a portion of the tax basis of certain real estate development assets over their respective financial statement basis.2012 NOL. The decrease in the allowance in 2011 is primarily attributable to the release of valuation allowance against deferred assets expected to be utilized in the next three years subsequent to December 31, 2011, as discussed above, of $4,075,000, a reduction in the effective tax rate utilized by the Company (approximately $1,850,000), and utilizing the tax loss on the sale of the Company’s East Lyme project for which an allowance was provided for, related to the net liability in 2010, offset by the allowance provided for the net litigation liability at December 31, 2011.

As part of its assessment to reduce a portion of the valuation allowance and reflect deferred tax assets on the consolidated balance sheet at December 31, 2011, management considered many factors, including: the completion of sales in 2011 of assets in its Residential Development Activities segment; the trend of pre-tax income from both continuing operations and income before taxes, on a consolidated basis (without consideration of discontinued operations reporting); and the predictability of future pre-tax income for the next three years. The Company re-assessed these factors at December 31, 2012, including the predictability of future pre-tax income for the next five years. Based upon these factors, and consideration of uncertainties that could affect the ultimate usability of the deferred tax assets, management has concluded to record an aggregate deferred tax asset of $9,622,000 and $4,008,000 at December 31, 2011.2012 and 2011, respectively. In order to be able to realize the deferred tax assets in the future, the Company considered its historic trend in revenue and EBITDA growth rates, the expected level of future amortization and depreciation expense and the expectation that there should be minimal financial impact from the discontinued operations. If revenue and EBITDA growth is not achieved to the extent expected, or at all, if EBITDA margins materially decline, or if material losses occur as a result of litigation from any of our former development projects,discontinued operations, the ability to fully utilize these assets in the next threefuture years could be affected. There is no expectation of future taxable income being derived from a source other than ordinary and recurring operations of the Company’s business to be able to utilize deferred tax assets. Management was unable to conclude that all of its deferred tax assets would be realized, and therefore has maintained a valuation allowance of approximately $15,217,000 and $17,092,000 at December 31, 2011.2012 and 2011, respectively. The Company will continue to evaluate the amount of valuation allowance on deferred tax assets during 20122013 and subsequent years based on such factors as historic profitability levels and forecasts of future taxable income.

The Company’s reserve for unrecognized tax benefits, including estimated interest, and penalties, was approximately$345,000 and $145,000 at December 31, 2012 and 2011, and 2010. The reserve reductions in 2010 primarily resulted from the resolution of unrecognized tax benefits and the related estimate for interest and penalties, offset by interest accruals on other unrecognized items.respectively. Interest and penalties related to these tax provisions werewas included in general and administrative expenses and included aexpenses. In 2010, the benefit of $199,000 in 2010, forrelated to the resolution of related unrecognized tax benefitsbenefits. The Company recorded an additional provision, including interest, of $200,000 in 2010,2012 as a result of a determination that the Company would be liable for additional taxes in New York City for any years that are open and an expense of $80,000 in 2009.under audit by New York State. No additional expense was recorded in 2011.

Liquidity and Capital ResourcesDebt

Cash and cash equivalents aggregated approximately $22,153,000 at December 31, 2011, including approximately $18,505,000 in the Reis Services segment. Management considers such amounts to be adequate and expects its cash balances to continue to be adequate to meet operating, product development and enhancement initiatives and debt service requirements in both the short and long terms, at both the Reis Services segment and on a consolidated basis. At December 31, 2011, the Company, on a consolidated basis and at the Reis Services segment level, was net cash positive (defined as cash and cash equivalents, minus total debt) by approximately $16,462,000 and $12,814,000, respectively. At December 31, 2010, the Company, on a consolidated basis and at the Reis Services segment level, was net cash positive by approximately $8,914,000 and $4,662,000, respectively. Net cash on a consolidated basis and at the Reis Services level grew by approximately $7,548,000 and $8,152,000, respectively, from December 31, 2010 to December 31, 2011, which management believes is a strong indicator of the cash generation power of the Reis Services business model.

At December 31, 2011, the Company’s short-term liquidity requirements include: current operating and capitalizable costs; near-term product development and enhancement of the web site and databases; the current portion of long-term debt (solely comprised of scheduled principal payments of approximately $5,691,000 on the Bank Loan which will be paid in full by its September 30, 2012 maturity date); operating leases; remaining warranty costs, insurance deductibles and settlements or judgments related to real estate construction from our discontinued operations; other costs, including public company expenses not included in the Reis Services segment; repurchases of shares of Reis common stock (of which approximately $551,000 remained available at December 31, 2011 pursuant to the August 2011 Board authorization); the potential settlement of certain outstanding stock options in cash (the liability for which was approximately $241,000 at December 31, 2011 based upon the closing stock price of the Company at December 31, 2011

of $9.12 per share); and the payment of employee taxes on vested options, for which the employee used shares to settle his/her minimum withholding tax obligations with the Company. The Company expects to meet these short-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services. The Company expects that in the short term, it will be able to utilize its NOLs and that taxes to be paid will be for alternative state and local taxes, and possibly AMT, but not for Federal income taxes.

If, in connection with the construction defect litigation at our Gold Peak development project (as more fully described in “Item 3. Legal Proceedings”), it is determined that an amount materially in excess of our estimated net reserve of $4,740,000 at December 31, 2011 (aggregate minimum exposure of $7,740,000, net of minimum expected insurance recovery of $3,000,000) is required as a result of settlement or judgment, the Company could, among other alternatives, utilize its available cash and would consider if additional borrowing or bonding is required to satisfy such cash settlement or judgment. Although not factored into the Company’s assessment of this case for purposes of reserves, in the event of an adverse judgment, the Company would expect to appeal, and would continue to pursue all available remedies against applicable insurers or other parties at fault.

The Company’s long-term liquidity requirements include: future operating and capitalizable costs; long-term product development and enhancements of the web sites and databases; operating leases and other capital expenditures; remaining warranty costs and insurance deductibles related to real estate construction from our discontinued operations; other costs, including public company expenses not included in the Reis Services segment; and repurchases of additional shares of Reis common stock. The Company expects to meet these long-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services. The Company has NOLs that it expects to be able to use beyond the next few years against future Federal, state and local taxable income, if any. Tax payments during the next few years are expected to be for alternative state and local taxes and AMT, but not for Federal income taxes.

Reis Services Bank Loan

In connection with the Merger agreement, Private Reis entered into a credit agreement, dated October 11, 2006, with the Bank of Montreal, Chicago Branch, as administrative agent, and BMO Capital Markets, as lead arranger, which provided for a term loan of up to an aggregate of $20,000,000 and revolving loans up to an aggregate of $7,000,000. Loan proceeds were used to finance $25,000,000 of the cash portion of the Merger consideration. The balance of the Bank Loan was $5,691,000 and $11,222,000 at December 31, 2011 and 2010, respectively. The interest rate was LIBOR + 1.50% at December 31, 2011 and 2010 (LIBOR was 0.30% and 0.26% at December 31, 2011 and 2010, respectively).

Reis Services is required to make principal payments on the term loan on a quarterly basis in increasing amounts pursuant to the payment schedule provided in the credit agreement. Additional principal payments are payable if Reis Services’s annual cash flow exceeds certain amounts, or if certain defined operating ratios are not met, all of which are defined in the credit agreement. The final scheduled maturity date of all amounts borrowed pursuant to the credit agreement iswas September 30, 2012. At December 31,During the second quarter of 2012, the Company repaid the remaining outstanding balance and this obligation was cancelled. The interest rate during 2011 and 2010,up to the revolving loan portion had expired2012 final repayment was LIBOR + 1.50%. The LIBOR spread was based on a leverage ratio, as defined in the credit agreement. Reis Services paid an annual administration fee of $25,000.

Revolver

In October 2012, Reis Services, as borrower, and the Company, did not haveas guarantor, entered into a loan and security agreement with Capital One, National Association, as lender, for a $10,000,000 revolving credit facility (the “Revolver”). The Revolver has a three year term expiring on October 16, 2015, and any borrowings bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans) or the abilitygreater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans) and is subject to borrow any other additional amounts under the Bank Loan.

In accordancean unused facility fee of 0.25% per annum. The Company paid a commitment fee of $50,000 in connection with the terms of the credit agreement, beginning January 1, 2010 and through the maturity of the Bank Loan, the required leverage ratio was reduced to a maximum of 2.00 to 1.00 from a maximum of 2.50 to 1.00. In order to be in compliance with the leverage ratio test, management made a payment of $3,000,000 at March 31, 2010 in addition to the contractual minimum repayment of $1,000,000 due at that time. Although not required to do so, the Company made additional discretionary prepayments of $500,000 at the end of the second, third and fourth quarters of 2010 (aggregating $1,500,000). All of the 2010 prepayments ratably reduced Reis Services’s future quarterly contractual minimum payments through maturity. No discretionary additional prepayments, in excess of minimum repayments, were made during the year ended December 31, 2011.

closing. The loans areRevolver is secured by a security interest in substantially all of the tangible and intangible assets of Reis Services and a pledge by the Company of its membership interestinterests in Reis Services. The Bank Loan restricts the flow of cash from Reis Services up to the Company. However, commencing in 2009, the Bank Loan allows for a portion of the cash of Reis Services to be distributed to the Company for qualifying operating expenses of the Company if certain ratios are met,Revolver also contains customary affirmative and negative covenants, including minimum financial covenants, as defined in the credit agreement. These ratios have been met; however, no distributions from Reis Services up toNo borrowings were made on the Revolver during 2012.

Liquidity and Capital Resources

Cash and cash equivalents aggregated approximately $4,961,000 at December 31, 2012. During the second quarter of 2012, the Company were made during 2011, 2010 or 2009.

The Bank Loan required interest rate protection in an aggregate notional principal amount of not less than 50% ofrepaid the remaining outstanding balance ofon the Bank Loan and this obligation was cancelled. The Company had no outstanding debt at December 31, 2012.

The Company’s significant short-term liquidity requirement was the payment of the $17,000,000 settlement of the Gold Peak litigation, of which $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012. In anticipation of those payments and the significant decrease in our cash, the Company evaluated its short term cash needs. The core Reis Services business has traditionally generated significant cash annually; and we expect it to continue to do so. In addition, on October 16, 2012, the Company obtained the three year $10,000,000 Revolver to provide working capital flexibility. Separately, the Company is seeking recovery under all available insurance policies, including the ACE policy, and is pursuing appropriate additional actions against other potentially responsible parties. To date, these efforts have resulted in the recovery of $712,500 of cash; however, there can be no assurance that the Company will recover any additional amounts in the short or long term. For additional information on the Gold Peak litigation, see Item 3. “Legal Proceedings.”

At December 31, 2012, the Company’s other short-term liquidity requirements include: current operating and capitalizable costs; near-term product development and enhancement of the web site and databases; operating leases; insurance deductibles and legal costs related to discontinued operations; other costs, including public company expenses not included in the Reis Services segment; the potential settlement of certain outstanding stock options in cash (the liability for which was approximately $297,000 at December 31, 2012 based upon the closing stock price of the Company at December 31, 2012 of $13.03 per share); and the payment of employee taxes on vested options, for which the employee used shares to settle his/her minimum withholding tax obligations with the Company. The Company expects to meet these short-term liquidity requirements generally through June 30, 2010. An interest rate cap was purchasedthe use of available cash and cash generated from subscription revenue of Reis Services and possibly with borrowings under the Revolver. There could be additional cash inflows from insurance recoveries, or from other potentially responsible parties, both related to the Gold Peak litigation; however, there can be no assurance that the Company will recover any additional amounts in the short or long term. The Company expects that in 2013, it will be able to utilize its NOLs for $109,000Federal income tax purposes and that taxes to be paid will be for state and local income taxes and AMT.

The Company’s long-term liquidity requirements include: future operating and capitalizable costs; long-term product development and enhancements of the web sites and databases; operating leases and other capital expenditures; other costs, including public company expenses not included in June 2007, which capped LIBOR at 5.50%the Reis Services segment; and repurchases of additional shares of Reis common stock. The Company expects to meet these long-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services and possibly with borrowings under the Revolver. There could be additional cash inflows from insurance recoveries, or from other potentially responsible parties, both related to the Gold Peak litigation; however, there can be no assurance that the Company will recover any additional amounts in the short or long term. The Company has NOLs that it expects to be able to use beyond the next few years against future Federal, state and local taxable income, if any. Tax payments in 2013 and 2014 are expected to be for alternative state and local taxes, state and local taxes on $15,000,000 from June 2007income and AMT, but not for Federal taxes. Subsequent to June 2010. The cap expired with no value at June 30, 2010.2014, tax payments are expected to be for alternative state and local taxes and AMT, but not for Federal, state or local taxes on income.

Material Contractual Obligations

The following table summarizes material contractual obligations as of December 31, 2011:2012:

 

00000000000000000000000000000000000000000000000000
(amounts in thousands)  Payments Due 
   For the Years Ended December 31,     

Contractual Obligations

  2012   2013 and 2014   2015 and 2016   Aggregate 

Principal and interest payments for all debt obligations (A)

  $5,744      $—      $—      $5,744    

Future minimum lease payments

   1,594       3,290       2,978       7,862    
    

 

 

   

 

 

   

 

 

   

 

 

 

Total contractual obligations

  $7,338      $3,290      $2,978      $13,606    
    

 

 

   

 

 

   

 

 

   

 

 

 

(A)

Includes interest, assuming LIBOR of 0.35% plus 1.50% spread in 2011.

(amounts in thousands) 

Payments Due

  

For the Years Ended December 31,

  

Contractual Obligations

 

2013

 

2014 and 2015

 

2016 and 2017

 

Aggregate

Principal and interest payments for the Revolver

  $                  25      $               45      $                 —      $                   70    

Future contractual minimum lease payments

 1,628     3,354     1,286     6,268    
 

 

 

 

 

 

 

 

Total contractual obligations

  $             1,653      $          3,399      $            1,286      $              6,338    
 

 

 

 

 

 

 

 

Discontinued Operations Impact on Liquidity

Cash flows from discontinued operations during the years ended December 31, 2012, 2011 2010 and 2009 were primarily related to the sales of assets and the operating costs and related expenses through the dates of sales. Cash flows from discontinued operations2010 were included in the consolidated statementstatements of cash flows in the operating activities section in accordance with the applicable accounting literature. Cash flows during 2012 primarily were comprised of the $17,000,000 of settlement payments, plus legal costs paid, offset by $712,500 of recoveries. In 2011 and 2010, cash flows from discontinued operations were primarily related to the sales of assets, net of the

operating costs and related expenses through the dates of sales. Future cash flows from discontinued operations will be solely comprised of expenditures incurred as part of our cash recovery efforts from insurance companies and other potentially responsible parties and, to the settlement of liabilities and real estate contingencies as described below.extent that we are successful in these efforts, cash inflows from any future recoveries; however, there can be no assurance that the Company will recover any amounts in the short or long term.

East Lyme

Prior to its sale in April 2011, the Company’s last remaining residential development was The Orchards, a single family home development in East Lyme, Connecticut, zoned for 161 single family homes on 224 acres, which we refer to as East Lyme.

The East Lyme project was sold in a bulk transaction for a gross sales price of $1,800,000 for the remaining 119 lots in inventory, plus the release of approximately $792,000 of project-related deposits and escrows held as restricted cash. Net cash received at closing, after selling expenses and closing adjustments, and including the cash received upon release of the deposits and escrows, aggregated approximately $2,600,000. Certain of the lots at East Lyme required remediation of pesticides which were used on the property when it was an apple orchard. The remediation plan, the cost of which was estimated by management to be approximately $1,000,000, had been approved by the health inspector for the municipality and the town planner. The estimated remediation cost was recognized in prior years and was reflected in liabilities attributable to discontinued operations in the December 31, 2010 consolidated balance sheet. As a result of the April 2011 bulk sale, the Company was indemnified from any financial obligation related to the environmental remediation and reversed this liability. The Company recorded a gain on this transaction in the second quarter of 2011 of approximately $1,242,000, which is included in income (loss) from discontinued operations.

The Company sold two lots and one home at East Lyme during the year ended December 31, 2010 for gross sales proceeds of approximately $628,000, and sold three lots and three homes during the year ended December 31, 2009 for gross sale proceeds of approximately $2,087,000, which areis included in income (loss) from discontinued operations in the respective periods.that period.

Claverack

Prior to its sale in February 2010, the Company owned approximately 235 acres in Claverack, New York, which was subdivided into 48 developable single family home lots. In February 2010, the Company sold the Claverack project in a bulk transaction for a gross sales price of $2,750,000, which included two model homes, amenities, 46 additional lots and $450,000 of cash collateralizing certain road completion obligations. Net cash received at closing, after expenses, aggregated approximately $2,187,000. The remaining $450,000 of the purchase price was payable by the purchaser in February 2011 and had been secured by the outstanding road bond and a mortgage on the property. As a result of this transaction, the Company recorded a gain of approximately $263,000 in the first quarter of 2010, which is included in income (loss) from discontinued operations. In February 2011, the Company received cash of approximately $455,000 in full satisfaction of the mortgage note and accrued interest thereon.

Gold Peak

In September 2009, the Company sold the final unit at Gold Peak, the final phase of Palomino Park, a five phase multifamily residential development in Highlands Ranch, Colorado. Gold Peak was a 259 unit condominium project on the remaining 29 acre land parcel at Palomino Park. DuringOn March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project, a jury rendered its verdict, whereby Reis, GP LLC, two former senior officers of Reis (Jeffrey H. Lynford, who was also previously a director of the Company, and David M. Strong) and the construction manager/general contractor for the project (Tri-Star) were found jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. The Company recorded a charge of $14,216,000 during the first quarter of 2012. On June 20, 2012, following denial of all of the defendant’s post-trial motions, Reis reached a settlement with the plaintiff, the Gold Peak homeowners association, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the year ended December 31, 2009,2012 of approximately $11,547,000. For additional information pertaining to the Company sold 20 Gold Peak condominium units for gross sales proceeds of approximately $4,973,000. Sales proceeds, cost of sales and any other income or expense from Gold Peak was included in income from discontinued operations.litigation, see Item 3. “Legal Proceedings.”

Real Estate Contingencies

Reis has purchased insurance with respect to construction defect and completed operations at its past real estate projects, including those projects described above. Reis has, from time to time, been exposed to various claims associated with the development, construction and sale of condominium units, single family homes or lots. The impact of these claims on the Company hashad not been material prior to date.2012; however, during 2012, there was a material negative impact to the Company’s financial position and cash flows related to the settlement of Gold Peak litigation. However, claims related to dissatisfaction by homeowners and homeowners’ associations with the construction of condominiums, homes and amenities by us and/or our developer partners in any condominium or subdivision development, or other matters, may

result in litigation costs, remediation costs, warranty expenses or settlement costs which could be material to the Company’s reportable discontinued operating income (loss), or its consolidated financial position or cash flows. It would not have any effect on the Company’s income from continuing operations. See “Item 3. Legal Proceedings” for information on current litigation relating to the Company’s Gold Peak condominium project.Proceedings.”

Other Items Impacting Liquidity

Issuer Purchases of Equity Securities

Between December 2008 and June 2010,August 2011, the Board authorized the repurchase of up to an aggregate amount of $4,000,000$5,000,000 of the Company’s common stock, which authorizations were fully utilized by December 2010. In August 2011, the Board authorized an additional $1,000,000 to make stock repurchases (ofof which approximately $551,000 remained available for repurchases as of December 31, 2011).2012. The stock repurchases are permitted from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, additional amounts may be authorized by the Board whereby future purchases could be commenced or suspended at any time, or from time to time, without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market purchases of common stock during blackout periods consistent with the Company’s “Policies for Transactions in Reis Stock and Insider Trading and Tipping.”

During the year ended December 31, 2012, the Company did not repurchase any shares of common stock. During the year ended December 31, 2011, the Company repurchased 50,060 shares of common stock at an average price of $8.96 per share. During the year ended December 31, 2010, the Company purchasedrepurchased 175,232 shares of common stock at an average price of $6.71 per share. During 2009, the Company repurchased 660,444 shares of common stock at an average price of $4.26 per share. From the inception of the share repurchase programs in December 2008 through December 31, 2011,2012, the Company purchased an aggregate of 888,136 shares of common stock at an average price of $5.01 per share, for an aggregate of approximately $4,449,000. Cumulatively, the Company has repurchased approximately 8.1% of the common shares outstanding at the time of the Board’s initial authorization in December 2008.

Stock Plans and Options Accounted for Asas Liability Awards

The Company has adopted certain incentive plans for the purpose of attracting and retaining the Company’s directors, officers and employees by having the ability to issue options, restricted stock units, or RSUs, or stock awards. Awards granted under the Company’s incentive plans expire ten years from the date of grant and vest over periods ranging generally from three to five years for employees.

Certain outstanding options allow the option holder to receive from the Company, in cancellation of the holder’s option, a cash payment with respect to each cancelled option equal to the amount, if any, by which the fair market value of the share of stock underlying the option exceeds the exercise price of such option. The Company accounts for these options as liability awards. This liability is adjusted at the end of each reporting period to reflectreflect: (1) the net cash payments to option holders made during each period,period; (2) the impact of the exercise and expiration of optionsoptions; and (3) changes in the market price of the Company’s common stock. Changes in the settlement value of option awards treated under the liability method are reflected as income or expense in the statements of income.operations.

At December 31, 2012, the liability for option cancellations was approximately $297,000 based upon the difference in the closing stock price of the Company at December 31, 2012 of $13.03 per share and the individual exercise prices of the outstanding 35,448 “in-the-money” options that were accounted for as liability awards at that date. At December 31, 2011, the liability for option cancellations was approximately $241,000 based upon the difference in the closing stock price of the Company at December 31, 2011 of $9.12 per share and the individual exercise prices of the outstanding 53,172 “in-the-money” options that were accounted for as liability awards at that date. At December 31, 2010, the liability for option cancellations was approximately $158,000 based upon the difference in the closing stock price of the Company at December 31, 2010 of $7.03 per share and the individual exercise prices of the outstanding 70,896 “in-the-money” options that were accounted for as liability awards at that date. The Company recorded compensation expense of approximately $114,000, $121,000 $54,000 and $139,000$54,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, in general and administrative expenses in the consolidated statements of incomeoperations related to the respective changes in the amount of the liability for option cancellations.

In each of the years ended December 31, 2012, 2011 2010 and 2009,2010, a total of 8,862 options were settled with net cash payments aggregating approximately $58,000, $38,000 and $22,000, and $14,000, respectively.

The liability for option cancellations could materially change from period to period based uponupon: (1) an option holder either (a) exercising the options in a traditional manner, or (b) electing the net cash settlement alternativealternative; and (2) changes in the market price of the Company’s common stock. At each period end, an increase in the Company’s common stock price would result in an increase in compensation expense, whereas a decline in the stock price would reduce compensation expense. In December 2012,2013, an aggregate of 17,724 options accounted for as liability awards are scheduled to expire.expire, with the remaining 17,724 of these options scheduled to expire during 2014.

Changes in Cash Flows

Cash flows for the years ended December 31, 2012, 2011, 2010 and 20092010 are summarized as follows:

 

  For the Years Ended December 31,  

For the Years Ended December 31,

  2011   2010   2009  

2012

 

2011

 

2010

Net cash provided by operating activities

  $11,960,940      $9,665,189      $11,638,181    

Net cash (used in) provided by operating activities

 $                  (6,554,862)   $                11,960,940   $                  9,665,189   

Net cash (used in) investing activities

   (3,623,162)      (2,647,161)      (1,437,633)    (4,036,929)   (3,623,162)  (2,647,161)  

Net cash (used in) financing activities

   (6,348,763)      (9,589,481)      (11,617,028)    (6,600,161)   (6,348,763)  (9,589,481)  
  

 

   

 

   

 

  

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

  $1,989,015      $(2,571,453)     $(1,416,480)   

Net (decrease) increase in cash and cash
equivalents

 $                (17,191,952)   $                  1,989,015   $                (2,571,453)  
  

 

   

 

   

 

  

 

 

 

 

 

Comparison of Cash Flows for the Years Ended December 31, 2012 and 2011

Cash flows used in operating activities changed $18,516,000 from $11,961,000 provided in the 2011 period to $6,555,000 used in the 2012 period. The operating cash flow decrease was primarily the result of: (1) the payment of the $17,000,000 settlement of the Gold Peak litigation; (2) cash proceeds received in 2011 from the sale of the East Lyme property and the related escrow releases; (3) the February 2011 collection of approximately $455,000 in satisfaction of a mortgage note and accrued interest thereon from the prior sale of property in Claverack, New York; and (4) increased spending on professional fees in the 2012 period, all primarily related to discontinued operations. These decreases were partially offset by an increase in cash flow from the Reis Services segment of $1,379,000 from $11,730,000 provided in the 2011 period to $13,109,000 provided in the 2012 period. The property sale, the satisfaction of the mortgage note and the Gold Peak settlement payment all were cash flows related to the Company’s discontinued operations. Cash flows from discontinued operations in future periods will include any additional legal costs in connection with recovery efforts against potentially responsible third parties and/or co-defendants in the lawsuit. Although the Company recovered $712,500 in December 2012, there is no assurance that the Company will be successful in any additional recovery efforts.

Cash flows used in investing activities increased $414,000 from $3,623,000 used in the 2011 period to $4,037,000 used in the 2012 period. This change primarily resulted from: (1) a $440,000 increase of cash used in the 2012 period as compared to the 2011 period for web site and database development costs for continuing product development and enhancement initiatives, including the additional property type, self storage, and the launch of the next generation of our flagship product,Reis SE 2.0; offset by (2) a $26,000 decrease in spending on furniture, fixtures and equipment, as during the 2011 period the Company added additional office space.

Cash flows used in financing activities increased $251,000 from $6,349,000 used in the 2011 period to $6,600,000 used in the 2012 period. During the 2012 period, $5,691,000 was repaid on the Bank Loan whereas $5,531,000 was repaid in the 2011 period. Other debt repayments in the 2011 period were $28,000, with no such payments in the 2012 period. Payments for restricted stock unit settlements were approximately $909,000 and $389,000 in the 2012 and 2011 periods, respectively. In the 2011 period, the Company repurchased 50,060 shares of outstanding common stock for approximately $449,000, with no stock repurchases in the 2012 period. Proceeds from option exercises in 2011 were $48,000, with no such proceeds from exercise in the 2012 period.

Comparison of Cash Flows for the Years Ended December 31, 2011 and 2010

Cash flows provided by operating activities increased $2,296,000 from $9,665,000 provided in the 2010 period to $11,961,000 provided in the 2011 period. The increase resulted from: (1) increased collections, driven by revenue growth, while maintaining EBITDA margins at approximately 40% for the Reis Services business; and (2) cash from the sale proceeds of the East Lyme property, mortgage note receivable repayment and escrow releases in 2011 in excess of the 2010 real estate sales and operating activities.

Cash flows used in investing activities increased $976,000 from $2,647,000 used in the 2010 period to $3,623,000 used in the 2011 period. This change primarily resulted from an increase of $770,000 for cash used in the 2011 period as compared to the 2010 period for web site and database development costs from continuing product development and enhancement initiatives and $196,000 of furniture, fixture and equipment additions in 2011 in excess of 2010 additions.

Cash flows used in financing activities decreased $3,240,000 from $9,589,000 used in the 2010 period to $6,349,000 used in the 2011 period. During the 2010 period, $8,028,000 was repaid on the Bank Loan whereas $5,531,000 was repaid in the 2011 period. In the 2010 period, the Company repurchased 175,232 shares of its outstanding common stock for approximately $1,175,000 as compared to 50,060 shares being repurchased in the 2011 period for approximately $449,000. Other debt repayments in the 2010 period exceeded

the payments in the 2011 period by $158,000. Payments for option cancellations and restricted stock unit settlements were approximately $389,000 and $240,000 in the 2011 and 2010 periods, respectively. Proceeds from option exercises in the 2011 period exceed the amount in the 2010 period by $8,000, due to a higher exercise price in the 2011 period.

Comparison of Cash Flows for the Years Ended December 31, 2010 and 2009

Cash flows provided by operating activities decreased $1,973,000 from $11,638,000 provided in the 2009 period to $9,665,000 provided in the 2010 period. The decrease in cash flows from operating activities is a function of increased uses of cash in the 2010 period related to accrued expenses due to the timing of payments and settlement of employment and other contractual obligations previously accrued for and a decrease in real estate sales between the two periods. These decreases were offset by an increase in the cash flows from operating activities of the Reis Services segment of $1,910,000, from $9,243,000 provided in the 2009 period to $11,153,000 provided in the 2010 period primarily due to an increase in contract signings in the 2010 period.

Cash flows used in investing activities increased $1,209,000 from $1,438,000 used in the 2009 period to $2,647,000 used in the 2010 period. This change primarily resulted from an increase in cash used in the 2010 period as compared to the 2009 period for web site and database development costs of $870,000 and furniture, fixtures and equipment additions of $17,000, coupled with the 2009 proceeds from the sale of an investment in a variable interest entity of $332,000, offset by $10,000 of furniture, fixtures and equipment dispositions in 2010.

Cash flows used in financing activities decreased $2,028,000 from $11,617,000 used in the 2009 period to $9,589,000 used in the 2010 period. During the 2010 period, $8,028,000 was repaid on the Bank Loan (including $4,500,000 of payments in excess of scheduled payments), whereas only $3,500,000 of scheduled payments were made in the 2009 period. During the 2009 period, $5,077,000 was repaid on the East Lyme construction loan to satisfy that obligation. During the year ended December 31, 2009, the

Company repurchased 660,444 shares of its outstanding common stock for approximately $2,816,000 as compared to the 2010 period where the Company repurchased 175,232 shares of its outstanding common stock for approximately $1,175,000. Other debt repayments in the 2009 period exceeded the payments in the 2010 period by $4,000. Payments for option cancellations and restricted stock unit settlements were approximately $240,000 and $35,000 in the 2010 and 2009 periods, respectively. The 2010 period included proceeds received from option exercises of $39,000, with no corresponding exercise in the 2009 period.

Selected Significant Accounting Policies

Management has identified the following accounting policies which it believes are significant in understanding the Company’s activities, financial position and operating results.

BasisPrinciples of PresentationConsolidation

The accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. Investments in entities where the Company does not have a controlling interest are accounted for under the equity method of accounting. These investments were initially recorded at cost and were subsequently adjusted for the Company’s proportionate share of the investment’s income (loss) and additional contributions or distributions. All significant inter-companyintercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.

Discontinued Operations

The Company has determined, as a result of the April 2011 sale of property in East Lyme, Connecticut, that the Residential Development Activities segment, including certain general and administrative costs that supported that segment’s operations, should be presented as a discontinued operation. As a result of this determination and the fact that the historic operations and cash flows can be clearly distinguished, the operating results of the Residential Development Activities segment and related general and administrative costs are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements for all periods presented.

Intangible Assets, Amortization and Impairment

Web Site Development Costs

The Company expenses all internet web site costs incurred during the preliminary project stage. Thereafter, all direct external and internal development and implementation costs are capitalized and amortized using the straight-line method over their remaining estimated useful lives, not exceeding three years. The value ascribed to the web site intangible asset acquired at the time of the Merger was amortized on a straight-line basis over three years, and during 2010, this ascribed value was fully amortized. Amortization of all capitalized web site development costs is charged to product development expense.

Database Costs

The Company capitalizes costs for the development of its database in connection with the identification and addition of new real estate properties and sale transactions which provide a future economic benefit. Amortization is calculated on a straight-line basis over a three or five year period. Costs of updating and maintaining information on existing properties in the database are expensed as incurred. The value ascribed to the database intangible asset acquired at the time of the Merger iswas amortized on a straight-line basis over three or five years, and during 2010, thisyears. The ascribed value which hadhaving a three and five year amortizable life was fully amortized.amortized in 2010 and 2012, respectively. Amortization of all capitalized database costs is charged to cost of sales.

Customer Relationships

The value ascribed to customer relationships acquired at the time of the Merger is amortized over 15 years on an accelerated basis and is charged to sales and marketing expense.

Lease Value

The value ascribed to the below market terms of the office lease existing at the time of the Merger is amortized over the remaining term of the acquired office lease which was approximately nine years. Amortization is charged to general and administrative expenses.

Goodwill and Intangible Asset Impairment

Goodwill and a major portion of the other intangible assets were recorded at the time of the Merger. As a result of the tax treatment of the Merger, goodwill and the acquired intangible assets are not deductible for income tax purposes.

Goodwill is not amortized and is tested for impairment at least annually, or after a triggering event has occurred, requiring such a calculation. A qualitative assessment can be utilized to determine if a more detailed two step calculation is required. If the qualitative assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then no further evaluation would be necessary. If, after performing the qualitative assessment, the Company determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then the first step of the two step test would be necessary. The first step is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit’s carrying value. The fair values used in this evaluation are estimatedwould be estimates based upon market projections for the reporting unit. These market projections would utilize a number of estimates and assumptions, such as EBITDAearnings before interest, taxes, depreciation and amortization (EBITDA) multiples, market comparisons, and quoted market prices. If the fair value of the reporting unit exceedswere to exceed its carrying value, goodwill iswould not be deemed to be impaired. If the fair value of the reporting unit is less than its carrying value, a second step iswould be required to calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. There was no goodwill impairment identified in 2011, 2010 or 2009. The Company early adopted the qualitative assessment guidance for goodwill in 2011, which did not impact the consolidated financial statements, other than disclosure.disclosure, and utilized the qualitative assessment for its 2012 evaluation. There was no goodwill impairment identified in 2012, 2011 or 2010.

IntagibleIntangible assets, with determinable useful lives, are amortized over their respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up. In addition, the carrying amount of amortizable intangible assets are reviewed when indicators of impairment are present. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset would be considered impaired. An impairment charge would be determined by comparing the estimated fair value of the intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period. There was no intangible asset impairment identified in 2012, 2011 2010 or 2009.2010.

Revenue Recognition and Related Items

The Company’s subscription revenue is derived principally from subscriptions to its web-based services for itsReis SE product and is recognized as revenue ratably over the related contractual period, which is typically one year but can be as long as 48 months. Revenues from ad-hoc and custom reports or projects are recognized as completed and delivered to the customers, provided that no significant Company obligations remain. Revenues from theReisReportsproduct are recognized monthly as billed.billed for monthly subscribers, or recognized as revenue ratably over the related contractual period for subscriptions in excess of one month. Deferred revenue represents the portion of a subscription billed or collected in advance under the terms of the respective contract, which will be recognized in future periods. If a customer does not meet the payment obligations of a contract, any related accounts receivable and deferred revenue are written off at that time and the net amount, after considering any recovery of accounts receivable, is charged to cost of sales.

Cost of sales of subscription revenue principally consists of salaries and related expenses for the Company’s researchers who collect and analyze the commercial real estate data that is the basis for the Company’s information services. Additionally, cost of sales includes the amortization of the database technology.technology intangible asset.

Revenue from sales of real estate in 2011 and 2010, including condominium units, single family homes and sales of lots individually or in bulk, were recognized at closing subject to receipt of down payments and other requirements in accordance with applicable accounting guidelines. The percentage of completion method was not used for recording sales on condominium units as downpayments were nominal and collectability of the sales price from such a deposit was not reasonably assured until closing.

Interest revenue is recorded on an accrual basis.

Income Taxes

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting basis and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are estimated to be in effect when the differences are expected to reverse. Valuation allowances with respect to deferred income tax assets are recorded when deemed appropriate and adjusted based upon periodic evaluations.

The Company evaluates its tax positions in accordance with applicable current accounting literature. Recognition of uncertain tax positions (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than

not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more likely than not will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained or there is a satisfactory resolution of the tax position.

Share Based Compensation

The fair market value as of the grant date of awards of stock, restricted stock units or certain stock options is recognized as compensation expense by the Company over the respective vesting periods.

The Company estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model. The following table includes the assumptions that were made and the estimated fair value for option grants in 2010 (no option awards were granted during 2011 or 2009):

2010 Grant

Stock price on grant date

$6.42    

Exercise price

$8.03    

Dividend yield

—    

Risk-free interest rate

1.70%

Expected life

5.2 years    

Estimated volatility

60.9%

Fair value of options granted (per option)

$3.08    

Although the initial fair value of stock options is not adjusted after the grant date, changes in the Company’s assumptions may change the value of, and therefore the expense related to, future stock option grants. The assumptions that cause the greatest variation in fair value are the expected volatility and expected life of the option. Increases or decreases in either the expected volatility or expected life of the option will cause the fair value to increase or decrease, respectively. The volatility assumption of approximately 61% considers both historical and implied volatility and may be impacted by the Company’s performance as well as changes in economic and market conditions. The expected life of 5.2 years for the options was determined based upon historical exercise patterns and a probability weighted exercise analysis. If the estimated volatility used by the Company during 2010 was increased to 66% and the expected life used by the Company during 2010 was increased to 5.6 years, the fair value of the options would have increased to $3.46 per option, or 12.3%. If the estimated volatility used by the Company during 2010 was decreased to 56% and the expected life used by the Company during 2010 was decreased to 4.8 years, the fair value of the options would have decreased to $2.68 per option, or 13.0%.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

The Company’s primary market risk exposure has been to changes in interest rates. This risk may be managed by limiting the Company’s financing exposures, to the extent possible, by purchasing interest rate caps when deemed appropriate.

At December 31, 20112012 and 2010,2011, the Company’s only exposure to interest rates was variable rate based debt. This exposure has historically been minimized through the use of interest rate caps. The interest rate cap on the Bank Loan expired at June 30, 2010.2010 and the Company has not purchased any additional interest rate caps subsequent to that expiration. The following tables presenttable presents the effect of a 1% increase in the applicable base rates of outstanding variable rate debt at December 31, 2011 and 2010, respectively:2011; no debt was outstanding at December 31, 2012.

 

(amounts in thousands)  Balance at
December 31,
2011
   LIBOR at
December 31,
2011
   Additional
Interest
Incurred
 

Variable rate debt:

      

Bank Loan

  $5,691       0.30%    $57 (A) 
  

 

 

     

 

 

 

(amounts in thousands)  

Balance at
    December 31,    

2011

  

LIBOR at

    December 31,    

2011

  

      Additional      

Interest
Incurred

Variable rate debt:

       

Bank Loan

  $                        5,691  0.30%  $              57 (A)
  

 

    

 

 
  Balance at
December 31,
2010
   LIBOR at
December 31,
2010
   Additional
Interest
Incurred
 
       

Variable rate debt:

      

Bank Loan

  $11,222       0.26%    $112 (A) 
  

 

     

 

 

 

 (A)

Reflects additional interest which could be incurred annually on the then outstanding loan balance amount as a result of a 1% increase in LIBOR. It does not take into consideration future periodic repayments.

Although the interest rate cap expired at June 30, 2010, our interest rate exposure on the Bank Loan has beenwas limited and will continue to diminishdiminished significantly as a result of increased scheduled principal repayments during 2012 through its maturity at September 30,final repayment in June 2012. Management is assessing the need, if any, forobtained replacement financing upon full repayment ofin October 2012, but no amounts have been drawn under the Bank Loan.Revolver during 2012.

Reis holds cash and cash equivalents at various regional and national banking institutions. Management monitors the institutions that hold our cash and cash equivalents. Management’s emphasis is primarily on safety of principal. Management, in its discretion, has diversified Reis’s cash and cash equivalents among banking institutions to potentially minimize exposure to any one of these entities. To date, we have experienced no loss or lack of access to our invested cash or cash equivalents; however, we can provide no assurances that access to invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

Cash balances held at banking institutions with which we do business may exceed the Federal Deposit Insurance Corporation insurance limits. While management monitors the cash balances in these bank accounts, such cash balances could be impacted if the underlying banks fail or could be subject to other adverse conditions in the financial markets.

Item 8.  Financial Statements and Supplementary Data.

The response to this Item 8 is included as a separate section of this annual report on Form 10-K starting at page F-1 and is incorporated by reference herein.

Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

As of December 31, 2011,2012, the Company carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and

procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of December 31, 20112012 were designed at a reasonable assurance level and were effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. There were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during the fourth quarter of 2011.2012.

Management’s Report Onon Internal Control Over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. The Company’s internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011.2012. In making this assessment, management used the criteria set forth by Committee of Sponsoring Organizations of

the Treadway Commission in “Internal Control - Integrated Framework.” Based upon this assessment, management concluded that, as of December 31, 2011,2012, our internal control over financial reporting is effective in accordance with those criteria.

The effectiveness of our internal control over financial reporting as of December 31, 20112012 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included on page F-3 herein.

Item 9B.  Other Information.

None.

PART III

Item 10.  Directors, Executive Officers and Corporate Governance.

The executive officers and directors of the Company, their ages and their positions are as follows:

 

Name

  Age  

Positions and Offices Held

Edward LowenthalM. Christian Mitchell

  6758  Chairman of the Board and Director**

Lloyd Lynford

  5657  Chief Executive Officer, President and Director***

Jonathan Garfield

  5556  Executive Vice President and Director***

Mark P. Cantaluppi

  4142  Vice President, Chief Financial Officer

William Sander

  4445  Chief Operating Officer, Reis Services

Thomas J. Clarke Jr.

  5556  Director**

Michael J. Del Giudice

  6970  Director**

Meyer S. Frucher

65Director*

M. Christian Mitchell

57Director***

Byron C. Vielehr

  4849  Director***

 

 *

Term expires during 2012.

2013.
 **

Term expires during 2013.

2014.
 ***

Term expires during 2014.

2015.

To the extent responsive to the requirements of this item, information contained in the Company’s definitive proxy statement for the 20122013 annual meeting of stockholders is incorporated herein by reference.

Item 11.  Executive Compensation.

To the extent responsive to the requirements of this item, information contained in the Company’s definitive proxy statement for the 20122013 annual meeting of stockholders is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

To the extent responsive to the requirements of this item, information contained in the Company’s definitive proxy statement for the 20122013 annual meeting of stockholders is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions, and Director Independence.

To the extent responsive to the requirements of this item, information contained in the Company’s definitive proxy statement for the 20122013 annual meeting of stockholders is incorporated herein by reference.

Item 14.  Principal Accountant Fees and Services.

To the extent responsive to the requirements of this item, information contained in the Company’s definitive proxy statement for the 20122013 annual meeting of stockholders is incorporated herein by reference.

PART IV

Item 15.   Exhibits and Financial Statement Schedules.

(a)(a) (1) Financial Statements

Consolidated Balance Sheets at December 31, 2012 and 2011

Consolidated Statements of Operations for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2012, 2011 and 2010

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 and 2010

Notes to Consolidated Financial Statements

 

Consolidated Balance Sheets at December 31, 2011 and 2010(a)

 

Consolidated Statements of Income for the Years Ended December 31, 2011, 2010 and 2009

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December  31, 2011, 2010 and 2009

Consolidated Statements of Cash Flows for the Years Ended December 31, 2011, 2010 and 2009

Notes to Consolidated(2) Financial StatementsStatement Schedules

(a) (2) Financial Statement Schedules

All schedules have been omitted because the required information for such schedules is not present, is not present in amounts sufficient to require submission of the schedule or because the required information is included in the consolidated financial statements.

(a)  (3) Exhibits

 

Exhibit No.

  

Description

3.1  

Articles of Amendment and Restatement filed on May 30, 1997 (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-11 (File No. 333-32445) filed on July 30, 1997).

3.2  

Articles Supplementary (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 21, 2006).

3.3  

Articles of Amendment (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 4, 2007).

3.4  

Articles Supplementary (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 30, 2008).

3.5  

Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on June 30, 2008).

4.1  

The rights of the Company’s equity security holders are defined in Articles V and VI of Exhibit 3.1 above.

4.2  

Specimen certificate for common stock (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed on November 29, 2007).

4.3  

Registration Rights Agreement dated as of May 30, 2007 among Wellsford, Lloyd Lynford and Jonathan Garfield (incorporated by reference to Exhibit 3 to the Schedule 13D filed by Jonathan Garfield with respect to the Company on June 8, 2007).

10.1  

CreditLoan and Security Agreement, dated as of October 11, 2006,16, 2012, by and among Reis Services, LLC, as Borrower, Reis, Inc. (a Delaware corporation), as Borrower, the Lenders listed therein,Guarantor, and Capital One, National Association, as Lenders, Bank of Montreal, Chicago Branch, as Administrative Agent, and BMO Capital Markets, as Lead ArrangerLender (incorporated by reference to Exhibit 10.34 to Amendment No. 110.1 to the Company’s Registration StatementCurrent Report on Form S-4 (File No. 333-139705)8-K filed on March 9, 2007)October 18, 2012).

    10.2  

Trademark Collateral Security Agreement, dated as of October 16, 2012, by and between Reis Services, LLC, as Borrower, and Capital One, National Association, as Lender (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 18, 2012).

    10.3

Pledge Agreement, dated as of October 16, 2012, between Capital One, National Association, as Pledgee, and Reis, Inc., as Pledgor (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 18, 2012).

    10.4

Trademark Assignment of Security, dated as of October 16, 2012, between Reis Services, LLC, as Borrower, and Capital One, National Association, as Lender (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2012, filed on November 8, 2012).

    10.5  

Amended and Restated Wellsford Real Properties, Inc. 1998 Management Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006). *

10.3    10.6  

Amendment to Amended and Restated Wellsford Real Properties, Inc. 1998 Management Incentive Plan (incorporated by reference to page F-13 of Annex F to the Company’s proxy statement/prospectus (File No. 333-139705) filed on May 2, 2007).*

10.4    10.7  

Reis, Inc. 2008 Omnibus Incentive Plan (incorporated by reference to Annex A to the Company’s proxy statement filed on April 25, 2008). *

10.5    10.8  

Amended and Restated Reis, Inc. 2011 Omnibus Incentive Compensation Plan (incorporated by reference to Annex A to the Company’s proxy statement filed on April 28, 2011). *

10.6
    10.9  

Employment Agreement dated as of July 29, 2010, among Reis, Inc., Reis Services, LLC and Lloyd Lynford (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 5, 2010).*

10.7    10.10  

Employment Agreement dated as of July 29, 2010, among Reis, Inc., Reis Services, LLC and Jonathan Garfield (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 5, 2010).*

10.8    10.11  

Employment Agreement dated as of July 30, 2010, among Reis, Inc., Reis Services, LLC and Mark P. Cantaluppi (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on August 5, 2010).*

10.9    10.12  

Employment Agreement dated as of July 29, 2010, between Reis Services, LLC and William Sander (with Reis, Inc. a party thereto for limited purposes) (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on August 5, 2010).*

10.10

    10.13
  

Form of Employee Restricted Stock Unit Agreement Under Amended and Restated Reis, Inc. 2011 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2011, filed on August 4, 2011).*

10.11

    10.14
  

Form of Director Restricted Stock Unit Agreement Under Amended and Restated Reis, Inc. 2011 Omnibus Incentive Plan.Plan (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2011).*

    10.15

Abbreviated Enforceable Mutual Settlement Agreement dated June 30, 2012 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 26, 2012).

14.1

  

Reis, Inc. Code of Business Conduct and Ethics for Directors, Senior Financial Officers, Other Officers and All Other Employees (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2007).

21.1

  

Subsidiaries of the RegistrantRegistrant.

23.1

  

Consent of Ernst & Young LLPLLP.

31.1

  

Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.

31.2

  

Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.

32.1

  

Chief Executive Officer and Chief Financial Officer Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.

101

  

Interactive Data Files, formatted in extensible Business Reporting Language (XBRL).**

 

*

This document is either a management contract or compensatory plan.

**

    **              Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included as Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

(b)

Those exhibits listed in Item 15(a)(3) above and not indicated as “incorporated by reference” are filed as exhibits to this Form 10-K.

 

(c)

Not applicable.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

 

REIS, INC.
By: 

/s/  Mark P. Cantaluppi

 Mark P. Cantaluppi
 Vice President, Chief Financial Officer

Dated: March 8, 201213, 2013

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

Name

 

Title

 

Date

/s/  Lloyd Lynford

Lloyd Lynford

 

Chief Executive Officer, President and Director

(Principal Executive Officer)

 March 8, 2012

Lloyd Lynford

13, 2013        

/s/  Mark P. Cantaluppi

Mark P. Cantaluppi

 

Vice President, Chief Financial Officer

(Principal Financial and Accounting Officer)

 March 8, 2012

Mark P. Cantaluppi

13, 2013

/s/  Edward LowenthalM. Christian Mitchell

M. Christian Mitchell

 Chairman of the Board and Director March 8, 2012

Edward Lowenthal

13, 2013

/s/  Thomas J. Clarke Jr.

DirectorMarch 8, 2012

Thomas J. Clarke Jr.

 DirectorMarch 13, 2013

/s/  Michael J. Del Giudice

DirectorMarch 8, 2012

Michael J. Del Giudice

 

/s/    Meyer S. Frucher

Director March 8, 2012

Meyer S. Frucher

13, 2013

/s/  Jonathan Garfield

DirectorMarch 8, 2012

Jonathan Garfield

/s/    M. Christian Mitchell

 Director March 8, 2012

M. Christian Mitchell

13, 2013

/s/  Byron C. Vielehr

Byron C. Vielehr

 Director March 8, 2012

Byron C. Vielehr

13, 2013

REIS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Reports of Independent Registered Public Accounting Firm

   F-2  

Consolidated Balance Sheets at December 31, 20112012 and 20102011

   F-4  

Consolidated Statements of IncomeOperations for the Years Ended December 31, 2012, 2011 2010 and 20092010

   F-5  

Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December  31, 2012, 2011 2010 and 20092010

   F-6  

Consolidated Statements of Cash Flows for the Years Ended December 31, 2012, 2011 2010 and 20092010

   F-7  

Notes to Consolidated Financial Statements

   F-8  

FINANCIAL STATEMENT SCHEDULES

All schedules have been omitted because the required information for such schedules is not present, is not present in amounts sufficient to require submission of the schedule or because the required information is included in the consolidated financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Reis, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Reis, Inc. and Subsidiaries (the “Company”) as of December 31, 20112012 and 2010,2011, and the related consolidated statements of income,operations, changes in stockholders’ equity, and cash flows for the three years in the period ended December 31, 2011.2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20112012 and 2010,2011, and the consolidated results of its operations and its cash flows for the three years in the period ended December 31, 2011,2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011,2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 8, 201213, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 8, 201213, 2013

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Reis, Inc. and Subsidiaries

We have audited Reis, Inc. and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2011,2012, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Assessment of Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011,2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 20112012 and 20102011 and the related consolidated statements of income,operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011,2012, and our report dated March 8, 201213, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Chicago, Illinois

March 8, 201213, 2013

REIS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

  December 31, 
2011   2010   December 31, 
  2012 2011 

ASSETS

       

Current assets:

       

Cash and cash equivalents

  $22,152,802      $20,163,787      $4,960,850     $22,152,802    

Restricted cash and investments

   215,405       214,298       216,125      215,405    

Accounts receivable, net

   8,597,464       8,961,623       10,694,201      8,597,464    

Prepaid and other assets

   625,451       384,384       1,438,829      625,451    

Assets attributable to discontinued operations

   3,000,000       2,438,240       —      3,000,000    
  

 

   

 

   

 

  

 

 

Total current assets

   34,591,122       32,162,332       17,310,005      34,591,122    

Furniture, fixtures and equipment, net

   863,309       958,505    

Intangible assets, net of accumulated amortization of $19,437,856 and $14,891,406, respectively

   17,155,195       18,576,606    

Furniture, fixtures and equipment, net of accumulated depreciation of $1,828,199 and $1,556,022, respectively

   738,490      863,309    

Intangible assets, net of accumulated amortization of $24,067,250 and $19,437,856, respectively

   16,332,596      17,155,195    

Deferred tax asset, net

   3,685,420       —       8,557,420      3,685,420    

Goodwill

   54,824,648       54,824,648       54,824,648      54,824,648    

Other assets

   98,412       165,868       271,257      98,412    
  

 

   

 

   

 

  

 

 

Total assets

  $111,218,106      $106,687,959      $      98,034,416     $111,218,106    
  

 

   

 

   

 

  

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

       

Current liabilities:

       

Current portion of Bank Loan

  $5,690,940      $5,531,050    

Current portion of other debt

   —       27,851    

Current portion of debt

  $—     $5,690,940    

Accrued expenses and other liabilities

   3,352,445       2,818,496       3,902,206      3,352,445    

Liability for option cancellations

   240,515       157,744       296,523      240,515    

Deferred revenue

   15,706,851       15,446,248       18,230,332      15,706,851    

Liabilities attributable to discontinued operations

   8,048,568       1,963,530       460,251      8,048,568    
  

 

   

 

   

 

  

 

 

Total current liabilities

   33,039,319       25,944,919       22,889,312      33,039,319    

Non-current portion of Bank Loan

   —       5,690,940    

Other long-term liabilities

   668,456       693,092       588,484      668,456    

Deferred tax liability, net

   —       66,580    
  

 

   

 

   

 

  

 

 

Total liabilities

   33,707,775       32,395,531       23,477,796      33,707,775    
  

 

   

 

   

 

  

 

 

Commitments and contingencies

       

Stockholders’ equity:

       

Common stock, $0.02 par value per share, 101,000,000 shares authorized, 10,570,891 and 10,472,010 shares issued and outstanding, respectively

   211,417       209,440    

Common stock, $0.02 par value per share, 101,000,000 shares authorized, 10,782,643 and 10,570,891 shares issued and outstanding, respectively

   215,652      211,417    

Additional paid in capital

   100,677,336       99,347,837       102,002,972      100,677,336    

Retained earnings (deficit)

   (23,378,422)      (25,264,849)      (27,662,004)     (23,378,422)   
  

 

   

 

   

 

  

 

 

Total stockholders’ equity

   77,510,331       74,292,428       74,556,620      77,510,331    
  

 

   

 

   

 

  

 

 

Total liabilities and stockholders’ equity

  $    111,218,106      $    106,687,959      $98,034,416     $      111,218,106    
  

 

   

 

   

 

  

 

 

See Notes to Consolidated Financial Statements

REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS

 

  For the Years Ended December 31,   

For the Years Ended December 31,

  2011   2010   2009   

2012

  

2011

  

2010

Subscription revenue

  $27,180,479      $24,198,271      $23,891,683      $              31,228,644    $        27,180,479    $        24,198,271  

Cost of sales of subscription revenue

   6,304,597       5,844,888       5,568,431      6,616,931    6,304,597    5,844,888  
  

 

   

 

   

 

   

 

  

 

  

 

Gross profit

   20,875,882       18,353,383       18,323,252      24,611,713    20,875,882    18,353,383  
  

 

   

 

   

 

   

 

  

 

  

 

Operating expenses:

            

Sales and marketing

   6,704,106       6,057,149       5,306,481      7,643,303    6,704,106    6,057,149  

Product development

   2,093,303       1,810,845       1,818,269      2,485,168    2,093,303    1,810,845  

General and administrative expenses

   11,095,425       9,956,321       9,768,783      11,793,441    11,095,425    9,956,321  
  

 

   

 

   

 

   

 

  

 

  

 

Total operating expenses

   19,892,834       17,824,315       16,893,533      21,921,912    19,892,834    17,824,315  
  

 

   

 

   

 

   

 

  

 

  

 

Other income (expenses):

            

Interest and other income

   77,515       123,302       156,182      51,972    77,515    123,302  

Interest expense

   (274,178)      (407,054)      (551,891)     (155,443)   (274,178)   (407,054) 
  

 

   

 

   

 

   

 

  

 

  

 

Total other income (expenses)

   (196,663)      (283,752)      (395,709)     (103,471)   (196,663)   (283,752) 
  

 

   

 

   

 

   

 

  

 

  

 

Income before income taxes and discontinued operations

   786,385       245,316       1,034,010      2,586,330    786,385    245,316  

Income tax (benefit) expense

   (4,075,000)      (220,000)      6,000    

Income tax (benefit)

  (5,427,000)   (4,075,000)   (220,000) 
  

 

   

 

   

 

   

 

  

 

  

 

Income from continuing operations

   4,861,385       465,316       1,028,010      8,013,330    4,861,385    465,316  

(Loss) income from discontinued operations, net of income tax expense of $—, $— and $—, respectively

   (2,974,958)      202,537       (23,898)     (12,296,912)   (2,974,958)   202,537  
  

 

   

 

   

 

   

 

  

 

  

 

Net income

  $1,886,427      $667,853      $1,004,112    

Net (loss) income

  $              (4,283,582)   $          1,886,427    $             667,853  
  

 

   

 

   

 

   

 

  

 

  

 

Per share amounts – basic:

            

Income from continuing operations

  $0.46      $0.04      $0.10      $                         0.75     $                   0.46    $                   0.04  
  

 

   

 

   

 

   

 

  

 

  

 

Net income

  $0.18      $0.06      $0.09    

Net (loss) income

  $                       (0.40)   $                   0.18    $                   0.06  
  

 

   

 

   

 

   

 

  

 

  

 

Per share amounts – diluted:

            

Income from continuing operations

  $0.45      $0.04      $0.09      $                         0.73     $                   0.45    $                   0.04  
  

 

   

 

   

 

   

 

  

 

  

 

Net income

  $0.17      $0.06      $0.09    

Net (loss) income

  $                       (0.39)   $                   0.17    $                   0.06  
  

 

   

 

   

 

   

 

  

 

  

 

Weighted average number of common shares outstanding:

            

Basic

   10,569,805       10,510,699       10,693,249      10,685,333    10,569,805    10,510,699  
  

 

   

 

   

 

   

 

  

 

  

 

Diluted

       10,876,876           10,756,482           10,920,822      11,034,082    10,876,876    10,756,482  
  

 

   

 

   

 

   

 

  

 

  

 

See Notes to Consolidated Financial Statements

REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

 

           Retained
Earnings
(Deficit)
   Total
Stockholders’
Equity
 
   Common Shares   Paid in
Capital
     
   Shares   Amount       

Balance, January 1, 2009

   10,988,623      $219,772      $100,384,302      $(26,936,814)     $73,667,260    

Shares issued for vested employee restricted stock units

   26,087       522       (522)      —       —    

Shares issued for settlement of vested director restricted stock units

   34,816       696       (696)      —       —    

Option exercises

   9,247       185       55,297       —       55,482    

Stock based compensation, net

   —       —       1,409,495       —       1,409,495    

Stock repurchases

   (660,444)      (13,209)      (2,802,330)      —       (2,815,539)   

Net income

   —       —       —       1,004,112       1,004,112    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2009

   10,398,329       207,966       99,045,546       (25,932,702)      73,320,810    

Shares issued for vested employee restricted stock units

   240,051       4,801       (4,801)      —       —    

Option exercises

   8,862       177       39,081       —       39,258    

Stock based compensation, net

   —       —       1,439,997       —       1,439,997    

Stock repurchases

   (175,232)      (3,504)      (1,171,986)      —       (1,175,490)   

Net income

   —       —       —       667,853       667,853    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2010

   10,472,010       209,440       99,347,837       (25,264,849)      74,292,428    

Shares issued for vested employee restricted stock units

   133,809       2,676       (2,676)      —       —    

Shares issued for settlement of vested director restricted stock units

   6,270       125       (125)      —       —    

Option exercises

   8,862       177       47,943       —       48,120    

Stock based compensation, net

   —       —       1,731,877       —       1,731,877    

Stock repurchases

   (50,060)      (1,001)      (447,520)      —       (448,521)   

Net income

   —       —       —       1,886,427       1,886,427    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, December 31, 2011

   10,570,891      $211,417      $100,677,336      $(23,378,422)     $77,510,331    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See Notes to Consolidated Financial Statements

REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

  

Common Shares

 Paid in Retained
Earnings
 Total
Stockholders’
  

        Shares        

 

Amount

 

      Capital      

 

      (Deficit)      

 

Equity

Balance, January 1, 2010

 10,398,329   $              207,966   $      99,045,546   $      (25,932,702)  $    73,320,810  

Shares issued for vested employees restricted   stock units

 240,051   4,801   (4,801)  —    —  

Option exercises

 8,862   177   39,081   —    39,258  

Stock based compensation, net

 —    —    1,439,997   —    1,439,997  

Stock repurchases

 (175,232)  (3,504)  (1,171,986)  —    (1,175,490) 

Net income

 —    —    —    667,853   667,853  
 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2010

 10,472,010   209,440   99,347,837   (25,264,849)  74,292,428  

Shares issued for vested employees restricted   stock units

 133,809   2,676   (2,676)  —    —  

Shares issued for settlement of vested director   restricted stock units

 6,270   125   (125)  —    —  

Option exercises

 8,862   177   47,943   —    48,120  

Stock based compensation, net

 —    —    1,731,877   —    1,731,877  

Stock repurchases

 (50,060)  (1,001)  (447,520)  —    (448,521) 

Net income

 —    —    —    1,886,427   1,886,427  
 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2011

 10,570,891   211,417   100,677,336   (23,378,422)  77,510,331  

Shares issued for vested employees restricted   stock units

 133,518   2,671   (2,671)  —    —  

Shares issued for settlement of vested director   restricted stock units

 72,410   1,448   (1,448)  —    —  

Option exercises

 5,824   116   (116)  —    —  

Stock based compensation, net

 —    —    1,329,871   —    1,329,871  

Net (loss)

 —    —    —    (4,283,582)  (4,283,582) 
 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2012

 10,782,643   $              215,652   $    102,002,972   $      (27,662,004)  $    74,556,620  
 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

F-6


REIS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

  For the Years Ended December 31,  

For the Years Ended December 31,

  2011   2010   2009  

2012

 

2011

 

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

         

Net income

  $1,886,427      $667,853      $1,004,112    

Net (loss) income

 $        (4,283,582) $        1,886,427  $              667,853 

Adjustments to reconcile to net cash provided by operating activities:

         

Gain on sale of underlying investment in a consolidated variable interest entity

   —       —       (100,519)   

Deferred tax (benefit)

   (4,075,000)      —       —    

Deferred tax (benefit), net

 (5,427,000) (4,075,000) — 

Depreciation

   351,595       359,519       512,212     354,953  351,595  359,519 

Amortization of intangible assets

   4,788,174       4,436,877       4,472,568     4,629,394  4,788,174  4,436,877 

Stock based compensation charges

   2,083,497       1,657,875       1,430,533     2,181,135  2,083,497  1,657,875 

Changes in assets and liabilities:

         

Restricted cash and investments

   790,078       51,710       1,574,276     (720) 790,078  51,710 

Accounts receivable, net

   364,159       (1,778,693)      (1,579,903)    (2,096,737) 364,159  (1,778,693)

Prepaid and other assets

   (2,500,801)      110,843       179,009     2,755,777  (2,500,801) 110,843 

Real estate assets

   1,297,245       2,411,921       3,138,119     —  1,297,245  2,411,921 

Accrued expenses and other liabilities

   6,594,351      (1,559,961)      796,668     (7,305,528) 6,594,351  (1,559,961)

Liability for option cancellations

   120,612       53,748       139,352     113,965  120,612  53,748��

Deferred revenue

   260,603       3,253,497       71,754     2,523,481  260,603  3,253,497 
  

 

   

 

   

 

  

 

 

 

 

 

Net cash provided by operating activities

   11,960,940       9,665,189       11,638,181     (6,554,862) 11,960,940  9,665,189 
  

 

   

 

   

 

  

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

         

Web site and database development costs

   (3,366,763)      (2,597,098)      (1,727,258)    (3,806,795) (3,366,763) (2,597,098)

Furniture, fixtures and equipment additions

   (256,399)      (59,969)      (42,743)    (230,134) (256,399) (59,969)

Proceeds from sale of underlying investment in a consolidated variable interest entity

   —       —       332,368    

Furniture, fixtures and equipment disposition

   —       9,906       —     —  —  9,906 
  

 

   

 

   

 

  

 

 

 

 

 

Net cash (used in) investing activities

   (3,623,162)      (2,647,161)      (1,437,633)     (4,036,929) (3,623,162) (2,647,161)
  

 

   

 

   

 

  

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

         

Repayment of Bank Loan

   (5,531,050)      (8,028,010)      (3,500,000)    (5,690,940) (5,531,050) (8,028,010)

Repayments on capitalized equipment leases

   (27,851)      (185,517)      (189,258)    —  (27,851) (185,517)

Repayments of construction loans payable

   —       —       (5,077,333)   

Payments for option cancellations and restricted stock units

   (389,461)      (239,722)      (34,898)    (909,221) (389,461) (239,722)

Proceeds from option exercises

   48,120       39,258       —     —  48,120  39,258 

Stock repurchases

   (448,521)      (1,175,490)      (2,815,539)    —  (448,521) (1,175,490)
  

 

   

 

   

 

  

 

 

 

 

 

Net cash (used in) financing activities

   (6,348,763)      (9,589,481)      (11,617,028)    (6,600,161) (6,348,763) (9,589,481)
  

 

   

 

   

 

  

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

   1,989,015       (2,571,453)      (1,416,480)   

Net (decrease) increase in cash and cash equivalents

 (17,191,952) 1,989,015  (2,571,453)

Cash and cash equivalents, beginning of year

   20,163,787       22,735,240       24,151,720     22,152,802  20,163,787  22,735,240 
  

 

   

 

   

 

  

 

 

 

 

 

Cash and cash equivalents, end of year

  $22,152,802      $20,163,787      $22,735,240     $        4,960,850  $      22,152,802  $         20,163,787 
  

 

   

 

   

 

  

 

 

 

 

 

SUPPLEMENTAL INFORMATION:

         

Cash paid during the year for interest

  $191,425      $323,843      $509,510     $             42,008  $           191,425  $              323,843 
  

 

   

 

   

 

  

 

 

 

 

 

Cash paid during the year for income taxes, net of refunds

  $48,559      $26,071      $75,838     $             77,856  $             48,559  $                26,071 
  

 

   

 

   

 

  

 

 

 

 

 

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

         

Shares issued for vested employee restricted stock units

  $2,676      $4,801      $522     $               2,671  $               2,676  $                  4,801 
  

 

   

 

   

 

  

 

 

 

 

 

Shares issued for settlement of vested director restricted stock units

 $               1,448  $                  125  
 

 

 

 

 

Exercise of stock options through the receipt of tendered shares

 $             39,524   
 

 

  

Disposal of fully amortized intangible assets

  $241,724          $           241,724  
  

 

       

 

 

Disposal of fully depreciated furniture, fixtures and equipment

  $51,731         $             82,776  $             51,731  
  

 

      

 

 

 

 

Release of accrued remediation liability obligation upon sale of real estate

  $1,000,000          $        1,000,000  
  

 

       

 

 

Shares issued for settlement of vested director restricted stock units

  $125        $696    
  

 

     

 

 

Mortgage receivable on sale of real estate

    $450,000         $              450,000 
    

 

      

 

Exercise of stock options through the receipt of tendered shares

      $55,473    
      

 

 

See Notes to Consolidated Financial Statements

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.

Organization and Business

Organization and Business

Reis, Inc. is a Maryland corporation. The primary business of Reis, Inc. and its consolidated subsidiaries (“Reis” or the “Company”) is providing commercial real estate market information and analytical tools for its subscribers, through its Reis Services subsidiary. For disclosure and financial reporting purposes, this business is referred to as the Reis Services segment.

Reis Services

Reis Services, including its predecessors, was founded in 1980. Reis maintains a proprietary database containing detailed information on commercial properties in metropolitan markets and neighborhoods throughout the U.S. The database contains information on apartment, office, retail, warehouse/distribution, and flex/research & development and self storage properties, and is used by real estate investors, lenders and other professionals to make informed buying, selling and financing decisions. In addition, Reis data is used by debt and equity investors to assess, quantify and manage the risks of default and loss associated with individual mortgages, properties, portfolios and real estate backed securities. Reis currently provides its information services to many of the nation’s leading lending institutions, equity investors, brokers and appraisers.

Reis, through its flagship institutional product,Reis SE, and through its small business product,ReisReports,provides online access to a proprietary database of commercial real estate information and analytical tools designed to facilitate debt and equity transactions as well as ongoing asset and portfolio evaluations. Depending on the product, users have access to trendmarket trends and forecast analysisforecasts at metropolitan and neighborhood levels throughout the U.S. and/or detailed building-specific information such as rents, vacancy rates, lease terms, property sales, new construction listings and property valuation estimates. Reis’s products are designed to meet the demand for timely and accurate information to support the decision-making of property owners, developers, builders, banks and non-bank lenders, equity investors and equity investors.service providers. These real estate professionals require access to timely information on both the performance and pricing of assets, including detailed data on market transactions, supply, absorption, rents and sale prices. This information is critical to all aspects of valuing assets and financing their acquisition, development and construction.

Reis’s revenue model is based primarily on annual subscriptions that are paid in accordance with contractual billing terms. Reis recognizes revenue from its contracts on a ratable basis; for example, one-twelfth of the value of a one-year contract is recognized monthly.

Discontinued Operations – Residential Development Activities

Reis was originally formed on January 8, 1997. Reis1997 as Wellsford Real Properties, Inc. (“Wellsford”). Wellsford acquired the Reis Services business by merger in May 2007 (the “Merger”). Prior to May 2007, Reis operated as Wellsford Real Properties, Inc. (“Wellsford”). Wellsford’s primary operating activities immediately prior to the Merger, and conducted through its subsidiaries, were the development, construction and sale of its three residential projects and its approximate 23% ownership interest in the Reis Services business. The Company completed the sale of the remaining units at its Colorado project in September 2009, sold its Claverack, New York project in bulk in February 2010, and sold its remaining project in East Lyme, Connecticut in bulk in April 2011.2011, and settled construction defect litigation at its aforementioned Colorado project in 2012.

See Note 3 for additional information regarding the Company’s segments.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

2.

Summary of Significant Accounting Policies

Basis of Presentation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries. Investments in entities where the Company does not have a controlling interest are accounted for under the equity method of accounting. These investments were initially recorded at cost and were subsequently adjusted for the Company’s proportionate share of the investment’s income (loss) and additional contributions or distributions. All inter-companyintercompany accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.

Codification and the Hierarchy of Generally Accepted Accounting Principles

Effective July 1, 2009, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) guidance related to the Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”). This guidance identifies the sources of accepted accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP in the United States (the GAAP hierarchy). The Codification superseded all then-existing non-SEC accounting and reporting standards upon the effective date. The adoption of this standard changed how the Company references various elements of GAAP when preparing its financial statement disclosures, but has had no impact on the Company’s consolidated financial statements.

Discontinued Operations

The Company has determined, as a result of the April 2011 sale of property in East Lyme, Connecticut, that the Residential Development Activities segment, including certain general and administrative costs that supported that segment’s operations, should be presented as a discontinued operation. As a result of this determination and the fact that the historic operations and cash flows can be clearly distinguished, the operating results of the Residential Development Activities segment and related general and administrative costs are aggregated for separate presentation apart from continuing operating results of the Company in the consolidated financial statements for all periods presented.

Variable Interests

The Company evaluates its investments and subsidiaries to determine if an entity is a voting interest entity or a variable interest entity (“VIE”). An entity is a VIE when (1) the equity investment at risk is not sufficient to permit the entity from financing its activities without additional subordinated financial support from other parties or (2) equity holders either (a) lack direct or indirect ability to make decisions about the entity, (b) are not obligated to absorb expected losses of the entity or (c) do not have the right to receive expected residual returns of the entity if they occur. If an entity or investment is deemed to be a VIE, an enterprise that absorbs a majority of the expected losses of the VIE or receives a majority of the residual returns is considered the primary beneficiary and must consolidate the VIE. Subsequent to January 1, 2010, as a result of the adoption of the new guidance for VIE’s, theThe Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company performs this analysis on an ongoing basis.basis, or as circumstances change. The Company had one VIE, which was consolidated untildoes not have any VIEs in the assets of the VIE were sold duringyears ended December 2009. Consequently, the Company no longer has any VIEs.31, 2012, 2011 and 2010.

Cash and Cash Equivalents

The Company considers all demand and money market accounts and short term investments in government funds with a maturity of three months or less at the date of purchase to be cash and cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivables are recorded at invoiced amounts and do not bear interest. The allowance for doubtful accounts reflects the Company’s assessment of collectability of outstanding receivables after consideration of the age of a receivable, customer payment history and other current events or economic factors that could affect a customer’s ability to make payments.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Summary of Significant Accounting Policies (continued)

 

Furniture, Fixtures and Equipment

The Company capitalizes costs for the purchase of furniture, fixtures and equipment that have an expected useful life beyond one year. Depreciation expense is calculated on a straight-line basis over the determined useful life of the asset, generally three to ten years. Depreciation expense was approximately $355,000, $352,000 $360,000 and $512,000$360,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.

Intangible Assets, Amortization and Impairment

Web Site Development Costs

The Company expenses all internet web site costs incurred during the preliminary project stage. Thereafter, all direct external and internal development and implementation costs are capitalized and amortized using the straight-line method over their remaining estimated useful lives, not exceeding three years. The value ascribed to the web site intangible asset acquired at the time of the Merger was amortized on a straight-line basis over three years, and during 2010, this ascribed value was fully amortized. Amortization of all capitalized web site development costs is charged to product development expense.

Database Costs

The Company capitalizes costs for the development of its database in connection with the identification and addition of new real estate properties and sale transactions which provide a future economic benefit. Amortization is calculated on a straight-line basis over a three or five year period. Costs of updating and maintaining information on existing properties in the database are expensed as incurred. The value ascribed to the database intangible asset acquired at the time of the Merger iswas amortized on a straight-line basis over three or five years, and during 2010, thisyears. The ascribed value which hadhaving a three and five year amortizable life was fully amortized.amortized in 2010 and 2012, respectively. Amortization of all capitalized database costs is charged to cost of sales.

Customer Relationships

The value ascribed to customer relationships acquired at the time of the Merger is amortized over 15 years on an accelerated basis and is charged to sales and marketing expense.

Lease Value

The value ascribed to the below market terms of the office lease existing at the time of the Merger is amortized over the remaining term of the acquired office lease which was approximately nine years. Amortization is charged to general and administrative expenses.

Goodwill and Intangible Asset Impairment

Goodwill and a major portion of the other intangible assets were recorded at the time of the Merger. As a result of the tax treatment of the Merger, goodwill and the acquired intangible assets are not deductible for income tax purposes.

Goodwill is not amortized and is tested for impairment at least annually, or after a triggering event has occurred, requiring such a calculation. A qualitative assessment can be utilized to determine if a more detailed two step calculation is required. If the qualitative assessment results in a determination that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then no further evaluation would be necessary. If, after performing the qualitative assessment, the Company determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then the first step of the two step test would be necessary. The first step is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill has been assigned with the reporting unit’s carrying value. The fair values used in this evaluation are estimatedwould be estimates based upon market projections for the reporting unit. These market projections would utilize a number of estimates and assumptions, such as earnings before interest, taxes, depreciation and amortization (EBITDA) multiples, market comparisons, and quoted market prices. If the fair value of the reporting unit exceedswere to exceed its carrying value, goodwill would not be deemed to be impaired. If the fair value of the reporting unit is less than its

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Summary of Significant Accounting Policies (continued)

 

value, goodwill is not deemed to be impaired. If the fair value of the reporting unit is less than its carrying value, a second step iswould be required to calculate the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit. There was no goodwill impairment identified in 2011, 2010 or 2009. The Company early adopted the qualitative assessment guidance for goodwill in 2011, which did not impact the consolidated financial statements, other than disclosure.disclosure, and utilized the qualitative assessment for its 2012 evaluation. There was no goodwill impairment identified in 2012, 2011 or 2010.

Intangible assets, with determinable useful lives, are amortized over their respective estimated useful lives using a method of amortization that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used up. In addition, the carrying amount of amortizable intangible assets are reviewed when indicators of impairment are present. If estimated future undiscounted net cash flows are less than the carrying amount of the asset, the asset would be considered impaired. An impairment charge would be determined by comparing the estimated fair value of the intangible asset to its carrying value, with any shortfall from fair value recognized as an expense in the current period. There was no intangible asset impairment identified in 2012, 2011 2010 or 2009.2010.

Real Estate and Impairment

Costs directly related to the acquisition, development and improvement of real estate were capitalized, including interest and other costs incurred during the construction period. Ordinary repairs, maintenance and project operating costs were expensed as incurred. The Company historically reviewed its real estate assets for impairmentimpairment: (1) whenever events or changes in circumstances indicated that the carrying amount of an asset may not be recoverable for assets held for useuse; and (2) when a determination was made to sell an asset or investment. If estimated cash flows on an undiscounted basis were insufficient to recover the carrying amount of an asset, an impairment loss equal to the excess of the carrying amount over estimated fair value would be recognized. No impairment charges were recorded during 2011 2010 or 20092010 related to the Company’s real estate assets. The Company did not have any real estate assets during 2012.

Deferred Financing Costs

Deferred financing costs consist of costs incurred to obtain financing or financing commitments. Such costs are amortized by the Company over the expected term of the respective agreements or, in the case of the Company’s development assets, was included in the basis of the project to be expensed as homes/units were sold.agreements.

Fair Value Measurements

The current accounting literature provides for a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:

 

Level 1 - inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 - inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; and

Level 3 - inputs to the valuation methodology are unobservable and significant to the fair value measurement.

During 2009 and throughThrough its June 30, 2010 expiration, the Company’s interest rate cap was valued using models, developed internally by the respective counterparty, that use as their basis readily observable market parameters and was classified within Level 2 of the valuation hierarchy.

Revenue Recognition and Related Items

The Company’s subscription revenue is derived principally from subscriptions to its web-based services for itsReis SE product and is recognized as revenue ratably over the related contractual period, which is typically one year but can be as long as 48 months. Revenues from ad-hoc and custom reports or projects are recognized as completed and delivered to the customers, provided that no significant Company obligations remain. Revenues from theReisReportsproduct are recognized monthly as billed for

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Summary of Significant Accounting Policies (continued)

 

billed.monthly subscribers, or recognized as revenue ratably over the related contractual period for subscriptions in excess of one month. Deferred revenue represents the portion of a subscription billed or collected in advance under the terms of the respective contract, which will be recognized in future periods. If a customer does not meet the payment obligations of a contract, any related accounts receivable and deferred revenue are written off at that time and the net amount, after considering any recovery of accounts receivable, is charged to cost of sales.

Cost of sales of subscription revenue principally consists of salaries and related expenses for the Company’s researchers who collect and analyze the commercial real estate data that is the basis for the Company’s information services. Additionally, cost of sales includes the amortization of the database technology.technology intangible asset.

Revenue from sales of real estate in 2011 and 2010, including condominium units, single family homes and sales of lots individually or in bulk, were recognized at closing subject to receipt of down payments and other requirements in accordance with applicable accounting guidelines. The percentage of completion method was not used for recording sales on condominium units as downpayments were nominal and collectability of the sales price from such a deposit was not reasonably assured until closing.

Interest revenue is recorded on an accrual basis.

Share Based Compensation

Equity Awards

The fair market value as of the grant date of awards of stock, restricted stock units or certain stock options is recognized as compensation expense by the Company over the respective vesting periods.

Liability Awards

The Company accrues a liability for cash payments that could be made to option holders for the amount of the market value of the Company’s common stock in excess of the exercise prices of outstanding options accounted for as a liability award. This liability is adjusted at the end of each reporting period to reflectreflect: (1) the net cash payments to option holders made during each period,period; (2) the impact of the exercise and expiration of optionsoptions; and (3) the changes in the market price of the Company’s common stock.

Changes in the settlement value of option awards treated under the liability method are reflected as income or expense in the consolidated statements of income.operations. At December 31, 2011,2012, of the 663,172645,448 outstanding options, 53,17235,448 options are accounted for as a liability as these awards provide for settlement in cash or in stock at the election of the option holder. At December 31, 2010,2011, of the 680,896663,172 outstanding options, 70,89653,172 options were accounted for as a liability award. The liability for option cancellations was approximately $241,000$297,000 and $158,000$241,000 at December 31, 20112012 and 2010,2011, respectively.

The liability for option cancellations could materially change from period to period based upon (1) an option holder either (a) exercising the options in a traditional manner or (b) electing the net cash settlement alternative and (2) changes in the market price of the Company’s common stock. At each period end, an increase in the Company’s common stock price would result in an increase in compensation expense, whereas a decline in the stock price would reduce compensation expense.

See Note 109 for activity with respect to stock options and restricted stock units.

Income Taxes

Deferred income tax assets and liabilities are determined based upon differences between the financial reporting basis and the tax basis of assets and liabilities, and are measured using the enacted tax rates and laws that are estimated to be in effect when the differences are expected to reverse. Valuation allowances with respect to deferred income tax assets are recorded when deemed appropriate and adjusted based upon periodic evaluations.

The Company evaluates its tax positions in accordance with applicable current accounting literature. Recognition of uncertain tax positions (step one) occurs when an enterprise concludes that a tax position, based solely on its technical merits, is more likely than not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more likely than not

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Summary of Significant Accounting Policies (continued)

 

will be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more likely than not threshold of being sustained or there is a satisfactory resolution of the tax position.

See Note 7 for more information regarding income taxes.

Per Share Data

Basic earnings per common share is computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share is based upon the increased number of common shares that would be outstanding assuming the exercise of dilutive common share options and the consideration of restricted stock awards. The following table details the computation of earnings per common share, basic and diluted:

 

  For the Years Ended December 31,  

For the Years Ended December 31,

  2011   2010   2009  

2012

 

2011

 

2010

Numerator for basic per share calculation:

         

Income from continuing operations for basic calculation

  $4,861,385        $465,316        $1,028,010       $              8,013,330        $            4,861,385        $            465,316      

(Loss) income from discontinued operations, net of income tax expense

   (2,974,958)        202,537         (23,898)      (12,296,912)       (2,974,958)       202,537      
  

 

   

 

   

 

  

 

 

 

 

 

Net income for basic calculation

  $1,886,427        $667,853        $1,004,112      

Net income (loss) for basic calculation

 $            (4,283,582)       $            1,886,427        $            667,853      
 

 

 

 

 

 

  

 

   

 

   

 

 

Numerator for diluted per share calculation:

         

Income from continuing operations

  $4,861,385 ��      $465,316        $1,028,010       $              8,013,330        $            4,861,385        $            465,316      

Adjustments to income from continuing operations for the income statement impact of dilutive securities

   —         —         —       —        —        —      
  

 

   

 

   

 

  

 

 

 

 

 

Income from continuing operations for dilution calculation

   4,861,385         465,316         1,028,010       8,013,330        4,861,385        465,316      

(Loss) income from discontinued operations, net of income tax expense

   (2,974,958)        202,537         (23,898)      (12,296,912)       (2,974,958)       202,537      
  

 

   

 

   

 

  

 

 

 

 

 

Net income for dilution calculation

  $1,886,427        $667,853        $1,004,112      

Net income (loss) for dilution calculation

 $            (4,283,582)       $            1,886,427        $            667,853      
 

 

 

 

 

 

  

 

   

 

   

 

 

Denominator:

         

Weighted average common shares – basic

   10,569,805         10,510,699         10,693,249       10,685,333        10,569,805        10,510,699      

Effect of dilutive securities:

         

RSUs

   301,956         245,783         227,573       305,033        301,956        245,783      

Stock options

   5,115         —         —       43,716        5,115        —      
  

 

   

 

   

 

  

 

 

 

 

 

Weighted average common shares – diluted

   10,876,876         10,756,482         10,920,822       11,034,082        10,876,876        10,756,482      
  

 

   

 

   

 

  

 

 

 

 

 

Per common share amounts – basic:

         

Income from continuing operations

  $0.46        $0.04        $0.10       $                       0.75         $                     0.46         $                  0.04      

(Loss) income from discontinued operations

   (0.28)        0.02         (0.01)      (1.15)       (0.28)       0.02      
  

 

   

 

   

 

  

 

 

 

 

 

Net income

  $0.18        $0.06        $0.09      

Net (loss) income

 $                     (0.40)        $                     0.18         $                  0.06      
 

 

 

 

 

 

  

 

   

 

   

 

 

Per common share amounts – diluted:

         

Income from continuing operations

  $0.45        $0.04        $0.09       $                       0.73         $                     0.45         $                  0.04      

(Loss) income from discontinued operations

   (0.28)        0.02         —       (1.12)       (0.28)       0.02      
  

 

   

 

   

 

  

 

 

 

 

 

Net income

  $0.17        $0.06        $0.09      

Net (loss) income

 $                     (0.39)        $                     0.17         $                  0.06      
  

 

   

 

   

 

  

 

 

 

 

 

Potentially dilutive securities include all stock based awards. For the years ended December 31, 2012, 2011 2010 and 2009,2010, certain equity awards, in addition to the option awards accounted for under the liability method, were antidilutive.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Summary of Significant Accounting Policies (continued)

 

From time to time, the Company has been, is or may in the future be a defendant in various legal actions arising in the normal course of business. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. The outcome of any litigation is uncertain; it is possible that a judgment in any legal actions to which the Company is a party, or which are proposed or threatened, couldwill have a material adverse effect on the consolidated financial statements. See Note 11.10.

Reclassification

Amounts in certain accounts, as presented in the consolidated financial statements and footnotes,condensed balance sheet data in Note 3, have been reclassified to reflect discontinued operations. These reclassifications do not result in a change to the previously reported net income for any of the periods presented on the consolidated statements of income, or in Note 13, in order to conform to the current period presentation; however, the computation of the denominator for determining net income per common share on a fully diluted basis for the three months ended June 30, 2010, which is included in Note 13, is different than previously presented. This difference, in conformity with existing accounting literature for the computation of earnings per share, is based upon the utilization of a different number of diluted shares as dictated by the loss from continuing operations in that quarterly period.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

presentation.

 

3.

Segment Information

The Company is organized into two separately managed segments: the Reis Services segment and the discontinued Residential Development Activities segment. The following tables present condensed balance sheet and operating data for these segments:

 

0000000000000000000000000000000000000000
(amounts in thousands)                 

Condensed Balance Sheet Data

December 31, 2011

  Reis
Services
  ��Discontinued
Operations (A)
   Other (B)   Consolidated 

Condensed Balance Sheet Data

December 31, 2012

 

 Reis
     Services      

 

      Discontinued      
Operations (A)

 

        Other (B)        

 

    Consolidated    

Assets

            

Current assets:

            

Cash and cash equivalents

  $18,505        $—        $3,648        $22,153       $                  4,212   $                       —   $                    749   $                  4,961  

Restricted cash and investments

   215         —         —         215       216   —   —   216  

Receivables, prepaid and other assets

   8,795         —         428         9,223      

Accounts receivable, net

 10,694   —   —   10,694  

Prepaid and other assets

 219   —   1,220   1,439  

Assets attributable to discontinued operations

   —         3,000         —         3,000       —   —   —   —  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total current assets

   27,515         3,000         4,076         34,591       15,341   —   1,969   17,310  

Furniture, fixtures and equipment, net

   821         —         42         863       705   —   33   738  

Intangible assets, net

   17,155         —         —         17,155       16,333   —   —   16,333  

Deferred tax asset, net

   —         —         3,685         3,685       —   —   8,557   8,557  

Goodwill

   57,203         —         (2,378)        54,825       57,203   —   (2,378) 54,825  

Other assets

   99         —         —         99       271   —   —   271  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total assets

  $102,793        $3,000        $5,425        $111,218       $                89,853   $                         —   $                8,181   $                98,034  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

            

Current liabilities:

            

Current portion of Bank Loan and other debt

  $5,691        $—        $—        $5,691      

Current portion of debt

 $                       —   $                         —   $                      —   $                       —  

Accrued expenses and other liabilities

   2,257         —         1,336         3,593       2,556   —   1,346   3,902  

Liability for option cancellations

 —   —   297   297  

Deferred revenue

   15,707         —         —         15,707       18,230   —   —   18,230  

Liabilities attributable to discontinued operations

   —         8,049         —         8,049       —   271   189   460  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total current liabilities

   23,655         8,049         1,336         33,040       20,786   271   1,832   22,889  

Other long-term liabilities

   668         —         —         668       588   —   —   588  

Deferred tax liability, net

   13,151         —         (13,151)        —       15,786   —   (15,786) —  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total liabilities

   37,474         8,049         (11,815)        33,708       37,160   271   (13,954) 23,477  

Total stockholders’ equity

   65,319         (5,049)        17,240         77,510       52,693   (271) 22,135   74,557  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

  $102,793        $3,000        $5,425        $111,218       $                89,853   $                         —   $                  8,181   $                98,034  
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Condensed Balance Sheet Data

December 31, 2010

  Reis
Services
   Discontinued
Operations (A)
   Other (B)   Consolidated 

Assets

        

Current assets:

        

Cash and cash equivalents

  $15,912        $21        $4,231        $20,164      

Restricted cash and investments

   214         —         —         214      

Receivables, prepaid and other assets

   9,230         —         116         9,346      

Assets attributable to discontinued operations

   —         2,438         —         2,438      
  

 

   

 

   

 

   

 

 

Total current assets

   25,356         2,459         4,347         32,162      

Furniture, fixtures and equipment, net

   957         —         1         958      

Intangible assets, net

   18,577         —         —         18,577      

Goodwill

   57,203         —         (2,378)        54,825      

Other assets

   166         —         —         166      
  

 

   

 

   

 

   

 

 

Total assets

  $102,259        $2,459        $1,970        $106,688      
  

 

   

 

   

 

   

 

 

Liabilities and stockholders’ equity

        

Current liabilities:

        

Current portion of Bank Loan and other debt

  $5,559        $—        $—        $5,559      

Accrued expenses and other liabilities

   1,900         —         1,077         2,977      

Deferred revenue

   15,446         —         —         15,446      

Liabilities attributable to discontinued operations

   —         1,964         —         1,964      
  

 

   

 

   

 

   

 

 

Total current liabilities

   22,905         1,964         1,077         25,946      

Non-current portion of Bank Loan

   5,691         —         —         5,691      

Other long-term liabilities

   693         —         —         693      

Deferred tax liability, net

   11,785         —         (11,719)        66      
  

 

   

 

   

 

   

 

 

Total liabilities

   41,074         1,964         (10,642)        32,396      

Total stockholders’ equity

   61,185         495         12,612         74,292      
  

 

   

 

   

 

   

 

 

Total liabilities and stockholders’ equity

  $102,259        $2,459        $1,970        $106,688      
  

 

   

 

   

 

   

 

 
                

   (A)

Includes the assets and liabilities of the Company’s discontinued Residential Development Activities segment, to the extent that such assets and liabilities existed at the date presented.

   (B)

Includes cash, other assets and liabilities not specifically attributable to or allocable to a specific operating segment.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Segment Information (continued)

 

(amounts in thousands)                

Condensed Operating Data for the

Year Ended December 31, 2011

  Reis
Services
   Discontinued
Operations (A)
   Other (B)   Consolidated 

Subscription revenue

  $27,180        $—        $—        $27,180      

Cost of sales of subscription revenue

   6,305         —         —         6,305      
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   20,875         —         —         20,875      
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Sales and marketing

   6,704         —         —         6,704      

Product development

   2,093         —         —         2,093      

General and administrative expenses

   6,376         —         4,719         11,095      
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   15,173         —         4,719         19,892      

Other income (expenses):

        

Interest and other income

   72         —         5         77      

Interest expense

   (274)        —         —         (274)     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expenses)

   (202)        —         5         (197)     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and discontinued operations

  $5,500        $—        $    (4,714)       $786      
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) from discontinued operations, before income taxes

  $—        $(2,975)       $—        $(2,975)     
  

 

 

   

 

 

   

 

 

   

 

 

 

Condensed Operating Data for the

Year Ended December 31, 2010

  Reis
Services
   Discontinued
Operations (A)
   Other (B)   Consolidated 

Subscription revenue

  $    24,198        $—        $—        $24,198      

Cost of sales of subscription revenue

   5,845         —         —         5,845      
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

   18,353         —         —         18,353      
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Sales and marketing

   6,057         —         —         6,057      

Product development

   1,811         —         —         1,811      

General and administrative expenses

   5,751         —         4,205         9,956      
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

   13,619         —         4,205         17,824      

Other income (expenses):

        

Interest and other income

   106         —         17         123      

Interest expense

   (407)        —         —         (407)     
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expenses)

   (301)        —         17         (284)     
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes and discontinued operations

  $4,433        $—        $(4,188)       $245      
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from discontinued operations, before income taxes

  $—        $474        $(271)       $203      
  

 

 

   

 

 

   

 

 

   

 

 

 
                     
                                                                                                                    
(amounts in thousands)   

Condensed Balance Sheet Data

December 31, 2011

 Reis
Services
  Discontinued
Operations (A)
  Other (B)  Consolidated 

Assets

    

Current assets:

    

Cash and cash equivalents

 $18,505     $—     $3,648     $22,153    

Restricted cash and investments

  215      —      —      215    

Accounts receivable, net

  8,597      —      —      8,597    

Prepaid and other assets

  198      —      428      626    

Assets attributable to discontinued operations

  —      3,000      —      3,000    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total current assets

  27,515      3,000      4,076      34,591    

Furniture, fixtures and equipment, net

  821      —      42      863    

Intangible assets, net

  17,155      —      —      17,155    

Deferred tax asset, net

  —      —      3,685      3,685    

Goodwill

  57,203      —      (2,378)     54,825    

Other assets

  99      —      —      99    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total assets

 $102,793     $3,000     $5,425     $111,218    
 

 

 

  

 

 

  

 

 

  

 

 

 

Liabilities and stockholders’ equity

    

Current liabilities:

    

Current portion of debt

 $5,691     $—     $—     $5,691    

Accrued expenses and other liabilities

  2,257      —      1,095      3,352    

Liability for option cancellations

  —      —      241      241    

Deferred revenue

  15,707      —      —      15,707    

Liabilities attributable to discontinued operations

  —      8,032      17      8,049    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total current liabilities

  23,655      8,032      1,353      33,040    

Other long-term liabilities

  668      —      —      668    

Deferred tax liability, net

  13,151      —      (13,151)     —    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities

  37,474      8,032      (11,798)     33,708    

Total stockholders’ equity

  65,319      (5,032)     17,223      77,510    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

 $102,793     $3,000     $5,425     $111,218    
 

 

 

  

 

 

  

 

 

  

 

 

 

 

(A)

Includes the resultsassets and liabilities of the Company’s discontinued Residential Development Activities segment, to the extent that such operationsassets and liabilities existed duringat the perioddate presented.

(B)

Includes interestcash, other assets and other income, depreciation expense and general and administrative expenses that haveliabilities not been allocatedspecifically attributable to theor allocable to a specific operating segments.

segment.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Segment Information (continued)

 

(amounts in thousands)(amounts in thousands)                    

Condensed Operating Data for the

Year Ended December 31, 2009

  Reis
Services
   Discontinued
Operations (A)
      Other (B)      Consolidated 

Condensed Operating Data for the

Year Ended December 31, 2012

 

Reis

Services

 

Discontinued
Operations (A)

 

Other (B)

 

Consolidated

Subscription revenue

Subscription revenue

  $    23,892        $—        $—        $23,892       $                31,229  $                      —  $                      —  $                31,229 

Cost of sales of subscription revenue

Cost of sales of subscription revenue

   5,568         —         —         5,568       6,617  —  —  6,617 
    

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Gross profit

Gross profit

   18,324         —         —         18,324       24,612  —  —  24,612 
    

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Operating expenses:

              

Sales and marketing

Sales and marketing

   5,306         —         —         5,306       7,643  —  —  7,643 

Product development

Product development

   1,818         —         —         1,818       2,485  —  —  2,485 

General and administrative expenses

General and administrative expenses

   5,395         —         4,376         9,771       6,696  —  5,098  11,794 
    

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total operating expenses

Total operating expenses

   12,519         —         4,376         16,895       16,824  —  5,098  21,922 

Other income (expenses):

              

Interest and other income

Interest and other income

   144         —         13         157       50  —   51 

Interest expense

Interest expense

   (552)        —         —         (552)       (155) —  —  (155)
    

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Total other income (expenses)

Total other income (expenses)

   (408)        —         13         (395)      (105) —   (104)
    

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Income (loss) before income taxes and discontinued operations

Income (loss) before income taxes and discontinued operations

  $5,397        $—        $(4,363)       $1,034       $                  7,683  $                       —  $                (5,097) $                  2,586 
    

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

Income (loss) from discontinued operations, before income taxes

  $—        $733        $(757)       $(24)     

(Loss) from discontinued operations, before income taxes

 $                       —  $                   (393) $              (11,904) $              (12,297)
  

 

   

 

   

 

   

 

  

 

 

 

 

 

 

 

                

Condensed Operating Data for the

Year Ended December 31, 2011

 

Reis

Services

 

Discontinued
Operations (A)

 

Other (B)

 

Consolidated

Subscription revenue

 $                27,180  $                       —  $                       —  $                27,180 

Cost of sales of subscription revenue

 6,305  —  —  6,305 
 

 

 

 

 

 

 

 

Gross profit

 20,875  —  —  20,875 
 

 

 

 

 

 

 

 

Operating expenses:

    

Sales and marketing

 6,704   —  —  6,704 

Product development

 2,093  —  —  2,093 

General and administrative expenses

 6,376  —  4,719  11,095 
 

 

 

 

 

 

 

 

Total operating expenses

 15,173  —  4,719  19,892 

Other income (expenses):

    

Interest and other income

 72  —   77 

Interest expense

 (274) —  —  (274)
 

 

 

 

 

 

 

 

Total other income (expenses)

 (202) —   (197)
 

 

 

 

 

 

 

 

Income (loss) before income taxes and discontinued operations

 $                  5,500  $                       —  $                (4,714) $                     786 
 

 

 

 

 

 

 

 

(Loss) from discontinued operations, before income taxes

 $                       —  $                (2,975) $                       —  $                (2,975)
 

 

 

 

 

 

 

 

    

 

 (A)

Includes the results of the Company’s discontinued Residential Development Activities segment, to the extent that such operations existed during the period presented.

 (B)

Includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the operating segments.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Segment Information (continued)

(amounts in thousands)            

Condensed Operating Data for the

Year Ended December 31, 2010

 Reis
Services
  Discontinued
Operations (A)
  Other (B)  Consolidated 

Subscription revenue

  $                    24,198      $                    —      $                    —      $                    24,198    

Cost of sales of subscription revenue

  5,845      —      —      5,845    
 

 

 

  

 

 

  

 

 

  

 

 

 

Gross profit

  18,353      —      —      18,353    
 

 

 

  

 

 

  

 

 

  

 

 

 

Operating expenses:

    

Sales and marketing

  6,057      —      —      6,057    

Product development

  1,811      —      —      1,811    

General and administrative expenses

  5,751      —      4,205      9,956    
 

 

 

  

 

 

  

 

 

  

 

 

 

Total operating expenses

  13,619      —      4,205      17,824    

Other income (expenses):

    

Interest and other income

  106      —      17      123    

Interest expense

  (407)     —      —      (407)   
 

 

 

  

 

 

  

 

 

  

 

 

 

Total other income (expenses)

  (301)     —      17      (284)   
 

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes and discontinued operations

  $4,433      $—      $(4,188)     $245    
 

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from discontinued operations, before income taxes

  $—      $474      $(271)     $203    
 

 

 

  

 

 

  

 

 

  

 

 

 

 

    

  (A)Includes the results of the Company’s discontinued Residential Development Activities segment, to the extent that such operations existed during the period presented.
  (B)Includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the operating segments.

Reis Services

See Note 1 for a description of Reis Services’s business and products at December 31, 2011.2012.

No individual subscriber accounted for more than 4.9%4.2%, 2.5%4.9% and 2.7%2.5% of Reis Services’s revenue for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.

The balance of outstanding accounts receivable of Reis Services at December 31, 20112012 and 2010,2011, are as follows:

 

   December 31, 
   2011   2010 

Accounts receivables

  $8,629,000        $9,065,000      

Allowance for doubtful accounts

   (32,000)        (103,000)     
  

 

 

   

 

 

 

Accounts receivables, net

  $    8,597,000        $    8,962,000      
  

 

 

   

 

 

 
   December 31,    
   2012   2011   
      

Accounts receivable

   $                10,763,000        $                8,629,000       

Allowance for doubtful accounts

   (69,000)       (32,000)      
  

 

 

   

 

 

   

Accounts receivable, net

   $10,694,000        $8,597,000       
  

 

 

   

 

 

   

Twenty-four subscribers accounted for an aggregate of approximately 58.2% of Reis Services’s accounts receivable at December 31, 2012, including two subscribers in excess of 5.0% with the largest representing 11.1%. As of March 4, 2013, the Company had received payments of approximately $7,428,000, or 69.0% against the December 31, 2012 accounts receivable balance. Eighteen subscribers accounted for an aggregate of approximately 59.6% of Reis Services’s accounts receivable at December 31, 2011, including three subscribers in excess of 4.0% with the largest representing 15.4%. As of March 5, 2012, the Company had received payments of approximately $6,846,000, or 79.3% against the December 31, 2011 accounts receivable balance. Twenty-three subscribers accounted for an aggregate of approximately 64.5% of Reis Services’s accounts receivable at December 31, 2010, including four subscribers in excess of 4.0% with the largest representing 12.6%.

At December 31, 20112012 and 2010,2011, no subscriber accounted for more than 8.4%6.6% and 7.8%8.4%, respectively, of deferred revenue.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Segment Information (continued)

Discontinued Operations – Residential Development Activities

Income (loss) from discontinued operations is comprised of the following:

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Segment Information (continued)

 

000000000000000000000000000000
(amounts in thousands)  For the Years Ended December 31,        
  2011   2010   2009  For the Years Ended December 31, 
 2012 2011 2010 

Revenue from sales of real estate

  $1,800        $3,378        $7,059        $—       $1,800       $3,378     

Cost of sales of real estate

   (288)        (2,801)        (4,987)       —       (288)      (2,801)    

Litigation charge (see Note 11)

   (4,460)        —         —      

Litigation charge, net of recoveries (see Note 10)

  (11,547)      (4,460)      —     

Other income (expense), net

   (27)        (374)        (2,096)       (750)      (27)      (374)    
  

 

   

 

   

 

  

 

  

 

  

 

 

(Loss) income from discontinued operations before income tax

   (2,975)        203         (24)       (12,297)      (2,975)      203     

Income tax expense on discontinued operations

   —         —         —        —       —       —     
  

 

   

 

   

 

  

 

  

 

  

 

 

(Loss) income from discontinued operations, net of income tax expense

  $(2,975)       $203        $(24)       $                    (12,297)      $                    (2,975)      $                       203     
  

 

   

 

   

 

  

 

  

 

  

 

 

East Lyme

Prior to its sale in April 2011, the Company’s last remaining residential development was The Orchards, a single family home development in East Lyme, Connecticut, zoned for 161 single family homes on 224 acres (“East Lyme”).

The East Lyme project was sold in a bulk transaction for a gross sales price of $1,800,000 for the remaining 119 lots in inventory, plus the release of approximately $792,000 of project-related deposits and escrows held as restricted cash. Net cash received at closing, after selling expenses and closing adjustments, and including the cash received upon release of the deposits and escrows, aggregated approximately $2,600,000. Certain of the lots at East Lyme required remediation of pesticides which were used on the property when it was an apple orchard. The remediation plan, the cost of which was estimated by management to be approximately $1,000,000, had been approved by the health inspector for the municipality and the town planner. The estimated remediation cost was recognized in prior years and was reflected in liabilities attributable to discontinued operations in the December 31, 2010 consolidated balance sheet. As a result of the April 2011 bulk sale, the Company was indemnified from any financial obligation related to the environmental remediation and reversed this liability. The Company recorded a gain on this transaction in the second quarter of 2011 of approximately $1,242,000, which is included in income (loss) from discontinued operations.

The Company sold two lots and one home at East Lyme during the year ended December 31, 2010 for gross sales proceeds of approximately $628,000, and sold three lots and three homes during the year ended December 31, 2009 for gross sales proceeds of approximately $2,087,000, which areis included in income (loss) from discontinued operations in the respective periods.that period.

After the initial land purchase at East Lyme, the Company executed an agreement with a homebuilder to construct the homes for this project. The homebuilder was a 5% partner in the project and received other consideration. In March 2009, the Company and the homebuilder/partner terminated the partnership agreement and the related development agreement. As a result of the terminations, the Company paid approximately $343,000 to its partner to satisfy all remaining compensation under the development agreement and to purchase the 5% interest.

In December 2004, the Company obtained revolving development and construction financing for East Lyme in the aggregate amount of approximately $21,177,000, which was extended, with term modifications, in April 2008 (the “East Lyme Construction Loan”). The interest rate for the East Lyme Construction Loan increased from LIBOR + 2.15% to LIBOR + 2.50% over the extension period which matured in June 2009. During 2009, the Company made principal repayments of approximately $5,077,000, including the final payment of approximately $4,177,000 in April 2009, thereby retiring the outstanding balance of the East Lyme Construction Loan and eliminating the minimum liquidity requirement.

The lender for the East Lyme Construction LoanA bank initially provided a $3,000,000 letter of credit to a municipality in connection with the construction of public roads at the East Lyme project. By December 31, 2010, the municipality reduced the letter of credit requirement to $400,000, and the cash collateral requirement was reduced in a corresponding amount (with the excess cash being released to the Company). In connection with the April 2011 sale of East Lyme, the Company was released from the letter of credit by the municipality and the cash collateral was fully released.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Segment Information (continued)

Claverack

Prior to its sale in February 2010, the Company owned approximately 235 acres in Claverack, New York, which was subdivided into 48 developable single family home lots. In February 2010, the Company sold the Claverack project in a bulk transaction for a gross sales price of $2,750,000, which included two model homes, amenities, 46 additional lots and $450,000 of cash collateralizing certain road completion obligations. Net cash received at closing, after expenses, aggregated approximately $2,187,000. The remaining $450,000 of the purchase price was payable by the purchaser in February 2011 and had been secured by the outstanding road bond and a mortgage on the property. As a result of this transaction, the Company recorded a gain of approximately $263,000 in the first quarter of 2010, which is included in income (loss) from discontinued operations. In February 2011, the Company received cash of approximately $455,000 in full satisfaction of the mortgage note and accrued interest thereon.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Segment Information (continued)

Gold Peak

In September 2009, the Company sold the final unit at Gold Peak, the final phase of Palomino Park, a five phase multifamily residential development in Highlands Ranch, Colorado. Gold Peak was a 259 unit condominium project on the remaining 29 acre land parcel at Palomino Park. DuringOn March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project, a jury rendered its verdict, whereby Reis, one of its subsidiaries (Gold Peak at Palomino Park LLC, the developer of the project (“GP LLC”)), two former senior officers of Reis (Jeffrey H. Lynford, who was also previously a director of the Company, and David M. Strong) and the construction manager/general contractor for the project (Tri-Star Construction West, LLC (“Tri-Star”)) were found jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. The Company recorded a charge of $14,216,000 during the first quarter of 2012. On June 20, 2012, following denial of all of the defendant’s post-trial motions, Reis reached a settlement with the plaintiff, the Gold Peak homeowners association, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the year ended December 31, 2009, the Company sold 20 Gold Peak condominium units for gross sales proceeds2012 of approximately $4,973,000. Sales proceeds, cost of sales and any other income or expense from Gold Peak was included in income from discontinued operations.$11,547,000. For additional information pertaining to the Gold Peak litigation, and the $4,460,000 charge recorded at December 31, 2011, see Note 11. Commitments and Contingencies.

Wellsford Mantua

In November 2003, the Company made an initial $330,000 investment in the form of a loan, in a company organized to purchase land parcels for rezoning, subdivision and creation of environmental mitigation credits. The loan was secured by a lien on a leasehold interest in a 154 acre parcel in West Deptford, New Jersey which included at least 64.5 acres of wetlands and a maximum of 71 acres of developable land. The Company consolidated Wellsford Mantua at December 31, 2008 and its investment in Wellsford Mantua was approximately $290,000 at that date. In December 2009, the land was sold and the Company received proceeds of approximately $332,000 for the remaining loan balance plus accrued interest and fees.10.

 

4.

Restricted Cash and Investments

Restricted cash and investments represents a security deposit for the 530 Fifth Avenue corporate office space. The Company provided the lessor a bank-issued letter of credit, which is fully collateralized by a certificate of deposit issued by that bank. The balance of the restricted cash balance was approximately $215,000$216,000 and $214,000$215,000 at December 31, 2012 and 2011, and December 31, 2010, respectively.

In addition, the Company had approximately $791,000 of deposits and escrows related to residential development activities at December 31, 2010, which amount was included in assets attributable to discontinued operations in the consolidated balance sheet at that date. As a result of the April 2011 sale of the East Lyme project, the balance of deposits and escrows related to residential development activities was released and converted to cash, and accordingly, there was no balance at December 31, 2011.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

5.

Intangible Assets

The amount of identified intangible assets, including the respective amounts of accumulated amortization, are as follows:

 

  December 31, 
  2011   2010  December 31, 
                 2012                                  2011                  

Database

   $        13,223,000        $        11,395,000      $15,175,000      $13,223,000     

Accumulated amortization

   (9,784,000)       (7,374,000)      (11,691,000)      (9,784,000)    
  

 

   

 

  

 

  

 

 

Database, net

   3,439,000        4,021,000       3,484,000       3,439,000     
  

 

   

 

  

 

  

 

 

Customer relationships

   14,100,000        14,100,000       14,100,000       14,100,000     

Accumulated amortization

   (4,462,000)       (3,470,000)      (5,444,000)      (4,462,000)    
  

 

   

 

  

 

  

 

 

Customer relationships, net

   9,638,000        10,630,000       8,656,000       9,638,000     
  

 

   

 

  

 

  

 

 

Web site

   6,470,000        5,173,000       8,325,000       6,470,000     

Accumulated amortization

   (3,784,000)       (2,941,000)      (5,220,000)      (3,784,000)    
  

 

   

 

  

 

  

 

 

Web site, net

   2,686,000        2,232,000       3,105,000       2,686,000     
  

 

   

 

  

 

  

 

 

Acquired below market lease

   2,800,000        2,800,000       2,800,000       2,800,000     

Accumulated amortization

   (1,408,000)       (1,106,000)      (1,712,000)      (1,408,000)    
  

 

   

 

  

 

  

 

 

Acquired below market lease, net

   1,392,000        1,694,000       1,088,000       1,392,000     
  

 

   

 

  

 

  

 

 

Intangibles, net

   $17,155,000        $18,577,000      $16,333,000      $17,155,000     
  

 

   

 

  

 

  

 

 

The Company capitalized approximately $1,828,000$1,952,000 and $1,311,000$1,828,000 to the database intangible asset and $1,538,000$1,855,000 and $1,286,000$1,538,000 to the web site intangible asset during the years ended December 31, 20112012 and 2010,2011, respectively.

Amortization expense for intangible assets aggregated approximately $4,788,000$4,629,000 for the year ended December 31, 2011,2012, of which approximately $2,410,000$1,907,000 related to the database, which is charged to cost of sales, approximately $992,000$982,000 related to customer relationships, which is charged to sales and marketing expense, approximately $1,084,000$1,436,000 related to web site development, which is charged to product development expense, and approximately $302,000$304,000 related to the value ascribed to the below market terms of the office lease, which is charged to general and administrative expense, all in the Reis Services segment. Amortization expense for intangible assets aggregated approximately $4,788,000 for the year ended December 31, 2011, of which approximately $2,410,000 related to the database, approximately $992,000 related to customer relationships, approximately $1,084,000 related to web site development, and approximately $302,000 related to the value ascribed to the below market terms of the office lease.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Intangible Assets (continued)

Amortization expense for intangible assets aggregated approximately $4,436,000 for the year ended December 31, 2010, of which approximately $2,259,000 related to the database, approximately $1,001,000 related to customer relationships, approximately $874,000 related to web site development, and approximately $302,000 related to the value ascribed to the below market terms of the office lease. Amortization expense for intangibles and other assets aggregated approximately $4,473,000 for the year ended December 31, 2009, of which approximately $2,172,000 related to the database, approximately $1,008,000 related to customer relationships, approximately $990,000 related to web site development, and approximately $303,000 related to the value ascribed to the below market terms of the office lease.

The Company’s future amortization expense related to the net intangible asset balance at December 31, 20112012 follows:

 

$0000000
(amounts in thousands)    

For the Year Ended December 31,

  Amount   Amount 
2012   $        4,174      
2013   3,109        $4,193,000      
2014   2,186         3,306,000      
2015   1,583         2,340,000      
2016   1,275         1,523,000      

2017

   1,059,000      
Thereafter   4,828         3,912,000      
  

 

   

 

 
Total   $17,155        $            16,333,000      
  

 

   

 

 

 

6.Debt

At December 31, 20112012 and 2010,2011, the Company’s debt consisted of the following:

 

      Stated Interest Rate at   
   Maturity Date  December 31, 2011
and 2010
 December 31, 
     2011   2010 

Reis Services Bank Loan

  September 2012      LIBOR + 1.50%   $5,691,000        $11,222,000    

Other Reis Services debt

  Various  Fixed/Various  -       28,000    
     

 

 

   

 

 

 

Total debt

       $5,691,000        $11,250,000    
     

 

 

   

 

 

 

Total assets of Reis Services as a security interest for the Bank Loan

       $    102,793,000        $    102,259,000    
     

 

 

   

 

 

 

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Debt (continued)

   

          Maturity Date           

 

December 31,

  
   

2012

 

2011

 

Bank Loan

  September 2012   $                     —   $          5,691,000   

Revolver

  October 2015 —   NA   
   

 

 

 

 

Total debt

     $                     —   $          5,691,000   
   

 

 

 

 

Total assets of Reis Services as a security interest

     $        89,853,000   $        102,793,000   
   

 

 

 

 

Reis Services Bank Loan

In connection with the Merger agreement, Private Reis entered into a credit agreement, dated October 11, 2006, with the Bank of Montreal, Chicago Branch, as administrative agent, and BMO Capital Markets, as lead arranger, which provided for a term loan of up to an aggregate of $20,000,000 and revolving loans up to an aggregate of $7,000,000. Loan proceeds were used to finance $25,000,000 of the cash portion of the Merger consideration. The final scheduled maturity date of all amounts borrowed pursuant to the credit agreement was September 30, 2012. During the second quarter of 2012, the Company repaid the remaining outstanding balance and this obligation was cancelled. The interest rate during 2011 and up to the 2012 final repayment was LIBOR + 1.50% at December 31, 2011 and 2010 (LIBOR was 0.30% and 0.26% at December 31, 2011 and 2010, respectively). The LIBOR spread iswas based on a leverage ratio, as defined in the credit agreement. The interest spread could range from a high of LIBOR + 3.00% (if the leverage ratio is greater than or equal to 4.50 to 1.00) to a low of LIBOR + 1.50% (if the leverage ratio is less than 2.75 to 1.00). Reis Services also payspaid an annual administration fee of $25,000.

Reis Services iswas required to make principal payments on the term loan on a quarterly basis in increasing amounts pursuant to the payment schedule provided in the credit agreement. Additional principal payments arewere payable if Reis Services’s annual cash flow exceeds certain amounts, or if certain defined operating ratios arewere not met, all of which arewere defined in the credit agreement. The final maturity date of all amounts borrowed pursuant to the credit agreement is September 30, 2012. At December 31,In 2011 and 2010,through the revolving loan portion2012 final repayment, no additional borrowings had expired and the Company did not have the ability to borrow any other additional amountsbeen permitted under the Bank Loan.

Revolver

In accordanceOctober 2012, Reis Services, as borrower, and the Company, as guarantor, entered into a loan and security agreement with Capital One, National Association, as lender, for a $10,000,000 revolving credit facility (the “Revolver”). The Revolver has a three year term expiring on October 16, 2015, and any borrowings bear interest at a rate of LIBOR + 2.00% per annum (for LIBOR loans) or the greater of 1.00% or the bank’s prime rate minus 0.50% per annum (for base rate loans) and is subject to an unused facility fee of 0.25% per annum. The Company paid a commitment fee of $50,000 in connection with the terms of the credit agreement, beginning January 1, 2010 and through the maturity of the Bank Loan, the required leverage ratio was reduced to a maximum of 2.00 to 1.00 from a maximum of 2.50 to 1.00. In order to be in compliance with the leverage ratio test, management made a payment of $3,000,000 at March 31, 2010 in addition to the contractual minimum repayment of $1,000,000 due at that time. Although not required to do so, the Company made additional discretionary prepayments of $500,000 at the end of the second, third and fourth quarters of 2010 (aggregating $1,500,000). All of the 2010 prepayments ratably reduced Reis Services’s future quarterly contractual minimum payments through maturity. No discretionary additional prepayments, in excess of minimum repayments, were made during the year ended December 31, 2011.

closing. The loans areRevolver is secured by a security interest in substantially all of the tangible and intangible assets of Reis Services and a pledge by the Company of its membership interestinterests in Reis Services. The Bank Loan restricts the flow of cash from Reis Services up to the Company. However, commencing in 2009, the Bank Loan allows for a portion of the cash of Reis Services to be distributed to the Company for qualifying operating expenses of the Company if certain ratios are met,Revolver also contains customary affirmative and negative covenants, including minimum financial covenants, as defined in the credit agreement. These ratios have been met; however, no distributions from Reis Services up to the CompanyNo borrowings were made on the Revolver during 2011, 2010 or 2009.

The Bank Loan required interest rate protection in an aggregate notional principal amount of not less than 50% of the outstanding balance of the Bank Loan through June 30, 2010. An interest rate cap was purchased for $109,000 in June 2007, which capped LIBOR at 5.50% on $15,000,000 from June 2007 to June 2010. The cap expired with no value at June 30, 2010.

Residential Development Debt

For information regarding debt related to the Residential Development Activities segment, see Note 3. The Company had no real estate related debt at December 31, 2011 and 2010.2012.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

7.

Income Taxes

The components of income tax expense (benefit) are as follows:

 

   For the Years Ended December 31, 
   2011   2010   2009 

Current state and local tax (benefit) expense

   $—        $        (220,000)      $31,000     

Current Federal alternative minimum tax (“AMT”) (benefit) expense

   —        —                    (25,000)   

Deferred Federal tax expense (benefit)

   (3,606,000)      —        —     

Deferred state and local tax expense (benefit)

   (469,000)      —        —     
  

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense, including taxes attributable to discontinued operations (A)

   (4,075,000)      (220,000)      6,000     

Less income tax attributable to discontinued operations

   —        —        —     
  

 

 

   

 

 

   

 

 

 

Income tax (benefit) expense (B)

   $            (4,075,000)      $            (220,000)      $6,000     
  

 

 

   

 

 

   

 

 

 

  

For the Years Ended December 31,

  

            2012                 

 

            2011             

 

            2010             

Current state and local tax expense (benefit)

 $                    187,000   $                        —    $               (220,000) 

Deferred Federal tax expense (benefit)

 (5,279,000)  (3,606,000)  —  

Deferred state and local tax expense (benefit)

 (335,000)  (469,000)  —  
 

 

 

 

 

 

Income tax (benefit) (A)

 $                (5,427,000)  $            (4,075,000)  $               (220,000) 
 

 

 

 

 

 

    
 (A)

IncludesThere were no income taxes attributable to income (loss) from discontinued operations.

(B)

Reflectsoperations in any of the tax (benefit) expense from continuing operations as reported on the consolidated statements of income for the yearsperiods presented.

The reconciliation of income tax computed at the U.S. Federal statutory rate to income tax expense (benefit) for continuing operations is as follows:

 

                                                                                                                                    
  For the Years Ended December 31,   For the Years Ended December 31, 
  2011   2010   2009   2012   2011   2010 
  Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent   Amount   Percent 

Tax (benefit) expense at U.S. statutory rate

   $(766,000)     (35.00%)      $157,000        35.00%       $    354,000        35.00%       $(3,399,000)      (35.00%)      $(766,000)      (35.00%)      $157,000       35.00%    

State and local tax (benefit), net of Federal impact

   (61,000)     (2.80%)      30,000        6.72%       20,000        1.99%       (96,000)      (0.99%)      (61,000)      (2.80%)      30,000       6.72%    

Impact of state and local tax rate change net of Federal impact

   67,000     3.08%       —        —         —        —        6,000       0.06%       67,000       3.08%       —       —       

(Benefit) cost attributable to valuation allowance, net

   754,000     34.44%       (283,000)      (63.31%)      (347,000)      (34.35%)   

AMT (benefit)

   —       —         —        —         (25,000)      (2.47%)   

Cost (benefit) attributable to valuation allowance, net

   3,671,000       37.80%       754,000       34.44%       (283,000)      (63.31%)   

Other state tax benefit

   —       —         (220,000)      (49.12%)      —        —         —       —          —       —          (220,000)      (49.12%)   

Taxes on other state tax benefit

   —       —         91,000        20.39%       —        —         —       —          —       —          91,000       20.39%    

Non-deductible items

   6,000     0.28%       5,000        1.20%       4,000        0.42%       5,000       0.05%       6,000       0.28%       5,000       1.20%    

Benefit attributable to reduction in allowance against certain deferred tax assets

   (4,075,000)     (186.19%)      —        —        —        —        (5,614,000)      (57.81%)      (4,075,000)      (186.19%)      —       —       
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 
  $    (4,075,000)         (186.19%)      $    (220,000)          (49.12%)      $6,000            0.59%       $(5,427,000)      (55.89%)      $(4,075,000)      (186.19%)      $(220,000)      (49.12%)   
  

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

   

 

 

During 2012 and 2011, the Company recorded an aggregate deferred Federal, state and local income tax benefit of $5,614,000 and $4,075,000, resultedrespectively, from the partial release of the valuation allowance against certain deferred tax assets. In the fourth quarterquarters of 2012 and 2011, the Company reversed the valuation allowance recorded against a portion of its net operating loss (“NOL”) carryforwards. The decision to reverse this amount ofreduce the valuation allowance in each period was made after management determined, based on an assessment of continuing operations, profitability and forecasts of future taxable income, that these deferred tax assets would be realized. In addition, during the fourth quarter of 2012, the Company recorded current state and local tax expense of $187,000. This amount reflects the Company’s current treatment of NOLs reflected on certain state and local tax returns.

AlsoSeparately, in the fourth quarter of 2011, the Company revised its annual effective tax rate. The change resulted from a review of the Company’s operations since the Merger and the adoption by New York City of a 100% revenue apportionment factor which is being implemented over a number of years through 2017. As a result of the reduction in the effective tax rate, the deferred tax benefit was reduced by approximately $339,000 for the 2011 year.year ended December 31, 2011.

The $220,000 income tax benefit during the year ended December 31, 2010 reflects the resolution of an unrecognized tax benefit as a result of the expiration of the applicable state’s statute of limitations.

Due to the amount of its NOL and credit carryforwards, the Company does not anticipate paying Federal state and local income taxes for the foreseeable future. The Company expects, in the near term, that it will be subject to cash payments for state and local income taxes, Federal AMTalternative minimum tax (“AMT”) and alternative taxes for state and local taxes based on capital.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset was approximately $9,622,000 and $4,008,000 at December 31, 2012 and 2011, respectively, of which $1,065,000 and $323,000 is reflected as a net

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Income Taxes (continued)

 

$4,008,000 at December 31, 2011, of which $323,000 is reflected as a net current asset and $8,557,000 and $3,685,000 is reflected as a net non-current asset in the accompanying consolidated balance sheets. The net deferred tax liability was approximately $67,000sheets at December 31, 2010 and was reflected as a non-current liability in the accompanying consolidated balance sheets.respective dates. The significant portion of the deferred tax items primarily relates to: (1) NOL carryforwards; (2) Federal AMT credit carryforwards; and (3) stock based compensation, as they relate to 2011compensation; and 2010; (4) liability reserves at December 31, 2011; (5) the tax benefit of impairment charges before allowances at December 31, 2010,(in 2011), all as they relate to deferred tax assets; and (6)(5) the deferred tax liability resulting from the intangible assets recorded at the time of the Merger.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

                                                        
 December 31,  December 31, 
 2011 2010                  2012                                  2011                  

Deferred Tax Assets

      

Net operating loss carryforwards

  $21,026,747       $19,012,309       $24,807,803      $21,026,747    

Asset basis differences — tax amount greater than book value

  285,411       6,511,295     

Asset basis differences – tax amount greater than book value

  276,365      285,411    

Liability reserves

  1,944,943       20,974       658,713      1,944,943    

Reserve for option cancellations

  90,915       65,464       111,878      90,915    

Stock compensation plans

  1,367,099       1,160,506       1,514,453      1,367,099    

AMT credit carryforwards

  1,139,392       1,139,392       1,139,392      1,139,392    

Other

  25,547       75,476       25,871      25,547    
 

 

  

 

  

 

  

 

 
  25,880,054       27,985,416       28,534,475      25,880,054    

Valuation allowance

          (17,092,236)             (21,884,461)     (15,217,496)     (17,092,236)   
 

 

  

 

  

 

  

 

 

Total deferred tax assets

  8,787,818       6,100,955       13,316,979      8,787,818    
 

 

  

 

  

 

  

 

 

Deferred Tax Liabilities

      

Acquired asset differences – book value greater than tax

  (4,382,602)     (5,715,045)     (3,676,472)     (4,382,602)   

Asset basis differences — carrying amount value greater than tax

  (396,796)     (452,490)   

Asset basis differences – carrying amount value greater than tax

  (18,087)     (396,796)   
 

 

  

 

  

 

  

 

 

Total deferred tax liabilities

  (4,779,398)     (6,167,535)     (3,694,559)     (4,779,398)   
 

 

  

 

  

 

  

 

 

Net deferred tax asset (liability)

  $4,008,420       $(66,580)     $9,622,420      $4,008,420    
 

 

  

 

  

 

  

 

 

The Company has aggregate Federal, state and local NOL carryfowardscarryforwards aggregating approximately $56,014,000$67,994,000 and $46,586,000$55,957,000 at December 31, 20112012 and 2010,2011, respectively. These NOLs include NOLs generated subsequent to the Merger, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property Trust (“VLP”) and the Company’s operating losses prior to the Merger. At December 31, 2011 and 2010,2012, approximately $27,259,000 of these Federal NOLs are subject to an annual limitation, whereas the remaining balance of approximately $28,755,000 and $19,327,000, respectively,$40,735,000 is not subject to such a limitation. There is an annual limitation on the use of NOLs after an ownership change, pursuant to Section 382 of the Internal Revenue Code. As a result of the Merger, the Company experienced such an ownership change which resulted in a new annual limitation of $2,779,000. However, because of the accumulation of annual limitations, it is expected that the use of NOLs will not be limited by expiration. A substantial NOL was realized during the year ended December 31, 2012 as a result of the Gold Peak litigation settlement discussed in Note 10.

A further requirement of the tax rules is that after a corporation experiences an ownership change, it must satisfy the continuity of business enterprise, or COBE, requirement (which generally requires that a corporation continue its historic business or use a significant portion of its historic business assets in its business for the two year period beginning on the date of the ownership change) to be able to utilize NOLs generated prior to such ownership change. The Company believes that the COBE requirement was met through the required two year period subsequent to the ownership change, and utilized an aggregate of approximately $5,760,000 of these pre-Merger NOLs in its Federal tax return filings for 2008 and 2009, with appropriate disclosure.

The In February 2012, the Internal Revenue Service (“IRS”) recently completed an audit of the Company’s 2009 Federal income tax return. The 2009 tax year included the end of the two year period subsequent to the Merger. The IRS issued a no change letter related to the Company’s 2009 tax return, thereby accepting the Company’s position that the two year COBE requirement was met. Consequently, atas of December 31, 2010, the Company hashad restored approximately $33,019,000 of NOLs, the tax benefit of which iswas approximately $13,631,000 with an equal amount of valuation allowance. There was no impact to the December 31, 2010 consolidated balance sheet or consolidated statements of income as a result of this event.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Income Taxes (continued)

 

The Company does not have any near-term expirations of NOLs; the next NOL expiration is in 2017 for approximately $5,500,000 of Federal NOLs. Included in Federal and state NOLs at December 31, 2012 is approximately $388,000$1,723,000 attributable to excess tax deductions from the issuance of common shares as non-cash compensation. The tax benefits attributable to those NOLs will be credited directly to additional paid in capital when utilized to offset taxes payable.

A valuation allowance is required to reduce deferred tax assets if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, management has determined that a valuation allowance of approximately $17,092,000$15,217,000 and $21,884,000$17,092,000 at December 31, 20112012 and 2010,2011, respectively, was necessary. The allowance at December 31, 2012 and 2011 relates primarily to NOL carryforwards, AMT credits and, in 2011, liability reserves, and atreserves. The decrease in the allowance in 2012 is primarily attributable to the $5,614,000 increase in deferred tax assets expected to be realized in the years subsequent to December 31, 2010, relates primarily2012, offset in part by the litigation settlement payments made in 2012, net of recoveries, which resulted in an increase to NOL carryforwards, AMT credits and the excess of a portion of the tax basis of certain real estate development assets over their respective financial statement basis.2012 NOL. The decrease in the allowance in 2011 is primarily attributable to the release of valuation allowance against deferred assets expected to be utilized in the next three years subsequent to December 31, 2011, as discussed above, of $4,075,000, a reduction in the effective tax rate utilized by the Company (approximately $1,850,000), and utilizing the tax loss on the sale of the Company’s East Lyme project for which an allowance was provided for, related to the net liability in 2010, offset by the allowance provided for the net litigation liability at December 31, 2011. The Company will continue to evaluate the amount of valuation allowance on deferred tax assets during 20122013 and subsequent years based on such factors as historic profitability levels and forecasts of future taxable income.

The Company’s reserve for unrecognized tax benefits, including estimated interest and penalties, was approximately $145,000 at December 31, 2011 and 2010. The reserve reductions in 2010 primarily resulted from the resolution of unrecognized tax benefits and the related estimate for interest and penalties, offset by interest accruals on other unrecognized items. Interest and penalties related to these tax provisions were included in general and administrative expenses and included a benefit of $199,000 in 2010, for the resolution of related unrecognized tax benefits in 2010, and an expense of $80,000 in 2009. No additional expense was recorded in 2011. A reconciliation of the unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009 follows:

   For the Years Ended December 31, 
   2011   2010   2009 

Balance at beginning of period

   $145,000        $435,000        $510,000     

Additions for provisions related to prior years

   7,700        15,000        20,000     

Resolution of matters during the period

   (7,700)                (305,000)                (95,000)   
  

 

 

   

 

 

   

 

 

 

Balance at end of period

   $          145,000        $145,000        $435,000     
  

 

 

   

 

 

   

 

 

 

The Company expects that a substantial portion of the 2011 balance could be resolved in 2012.

The Company and its subsidiaries have been audited by the Federal tax authorities for 2009 and Federal tax returns are open for 20082010 and 2010;2011; all prior Federal periods are closed, except to the extent that NOLs were generated in certain years (1998, 2004, 2006 and 2007).a given year. The acquired VLP net operating loss carryforward is open for 1997 and 1998 for the NOLNOLs generated during that year.those years. Private Reis has beenwas audited by the Federal tax authoritiesIRS for tax years ending October 31, 2005 and 2006. In addition, tax returns are open from 2000 to 2002 and 2007, to the extent that NOLs were generated during these periods by Private Reis.

Tax returns for the parent company and a subsidiary are under audit by one state tax authoritythe State of New York for the years 2001 to 2003 and are open with that state for the years 2004 to 2010, as well as with several other states and2011. As a local tax authorityresult of the New York State audit, New York City returns are open for the years 20082001 to 2010.2011 as well. The tax years for another subsidiary, operating in a different state, are open from 20072008 to 2010.2011.

The Company’s reserve for unrecognized tax benefits, including estimated interest, was $345,000 and $145,000 at December 31, 2012 and 2011, respectively. The unrecognized tax benefits as well as related interest was included in general and administrative expenses. In 2010, the benefit of $199,000 related to the resolution of related unrecognized tax benefits. The Company recorded an additional provision, including interest, of $200,000 in 2012 as a result of a determination that the Company would be liable for additional taxes in New York City for any years that are open and under audit by New York State. No additional expense was recorded in 2011. A reconciliation of the unrecognized tax benefits for the years ended December 31, 2012, 2011 and 2010 follows:

                                                                              
  For the Years Ended December 31, 
  2012  2011  2010 

Balance at beginning of period

  $145,000        $145,000        $435,000      

Additional provisions and interest related to prior years

  200,000        7,700        15,000      

Resolution of matters during the period

  —        (7,700)       (305,000)     
 

 

 

  

 

 

  

 

 

 

Balance at end of period

  $345,000        $145,000        $145,000      
 

 

 

  

 

 

  

 

 

 

The Company expects that a substantial portion of the 2012 balance could be resolved in 2013.

 

8.

Transactions With Affiliates

The homebuilder at East Lyme was a 5% partner in the project and received other consideration. In March 2009, the Company and the homebuilder/partner terminated the partnership agreement and the related development agreement. As a result of the terminations, the Company paid approximately $343,000 to its partner to satisfy all remaining compensation under the development agreement and to purchase the 5% interest.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

9.

Stockholders’ Equity

Between December 2008 and June 2010,August 2011, the Company’s board of directors (the “Board”) authorized the repurchase of up to an aggregate amount of $4,000,000$5,000,000 of the Company’s common stock, which authorizations were fully utilized by December 2010. In August 2011, the Board authorized an additional $1,000,000 to make stock repurchases (ofof which approximately $551,000 remained available for repurchases as of December 31, 2011).2012. The stock repurchases are permitted from time to time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, additional amounts

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Stockholders’ Equity (continued)

may be authorized by the Board whereby future purchases could be commenced or suspended at any time, or from time to time, without prior notice. The Company may make purchases pursuant to a trading plan under Securities Exchange Act Rule 10b5-1, permitting open market purchases of common stock during blackout periods consistent with the Company’s “Policies for Transactions in Reis Stock and Insider Trading and Tipping.”

During the year ended December 31, 2012, the Company did not repurchase any shares of common stock. During the year ended December 31, 2011, the Company repurchased 50,060 shares of common stock at an average price of $8.96 per share. During the year ended December 31, 2010, the Company repurchased 175,232 shares of common stock at an average price of $6.71 per share. During 2009, the Company repurchased 660,444 shares of common stock at an average price of $4.26 per share. From the inception of the share repurchase programs in December 2008 through December 31, 2011,2012, the Company purchased an aggregate of 888,136 shares of common stock at an average price of $5.01 per share, for an aggregate of approximately $4,449,000. Cumulatively, the Company has repurchased approximately 8.1% of the common shares outstanding at the time of the Board’s initial authorization in December 2008.

The Company did not declare or distribute any dividends during the years ended December 31, 2012, 2011 2010 or 2009.2010.

 

10.9.

Stock Plans and Other Incentives

The Company has adopted certain incentive plans for the purpose of attracting and retaining the Company’s directors, officers and employees by having the ability to issue options, restricted stock units (“RSUs”), or stock awards. Awards granted under the Company’s incentive plans expire ten years from the date of grant and vest over periods ranging generally from three to five years for employees.

Option Awards

The following table presents option activity and other plan data for the years ended December 31, 2012, 2011 2010 and 2009:2010:

 

  For the Years Ended December 31, 
  2011   2010   2009  For the Years Ended December 31, 
  Options   Weighted-
Average
Exercise Price
   Options   Weighted-
Average
Exercise Price
   Options   Weighted-
Average
Exercise Price
  2012 2011 2010 
         Options         Weighted-
Average
     Exercise Price    
         Options         Weighted-
Average
     Exercise Price    
         Options         Weighted-
Average
     Exercise Price    
 

Outstanding at beginning of period

   680,896     $8.73        473,620        $8.91        528,473        $8.53       663,172    $8.82       680,896    $8.73    473,620       $8.91     

Granted

   —      $—             225,000        $8.03        —        $—           $—           $    225,000       $8.03     

Exercised

   (8,862)     $            (5.43)      (8,862)      $            (4.43)      (38,991)      $            (4.58)     (8,862)    $(4.46)      (8,862)    $(5.43)    (8,862)      $(4.43)    

Cancelled through cash settlement

   (8,862)     $(5.43)      (8,862)      $(4.43)      (8,862)      $(4.60)     (8,862)    $(4.46)      (8,862)    $(5.43)    (8,862)      $(4.43)    

Forfeited/cancelled/expired

   —      $—             —        $—        (7,000)      $(9.57)         $—           $    —       $—     
  

 

     

 

     

 

    

 

   

 

   

 

  

Outstanding at end of period

   663,172     $8.82        680,896        $8.73                    473,620        $8.91       645,448    $8.94       663,172    $8.82    680,896       $8.73     
  

 

     

 

     

 

    

 

   

 

   

 

  

Options exercisable at end of period

               361,172     $9.10        301,896        $8.68        242,620        $7.99       420,448    $9.43       361,172    $9.10    301,896       $8.68     
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Options exercisable which can be settled in cash

   53,172     $4.60        70,896        $4.81        88,620        $4.73       35,448    $4.67       53,172    $4.60    70,896       $4.81     
  

 

   

 

   

 

   

 

   

 

   

 

  

 

  

 

  

 

  

 

  

 

  

 

 

Weighted average fair value of options granted per year (per option)

   $—        $3.08         $—         $—       $—       $3.08      
  

 

     

 

     

 

    

 

   

 

   

 

  

Weighted average remaining contractual life at end of period

   6.2 years       7.1 years       6.6 years      5.3 years       6.2 years       7.1 years     

Certain outstanding options allow the option holder to receive from the Company, in cancellation of the holder’s option, a cash payment with respect to each cancelled option equal to the amount, if any, by which the fair market value of the share of stock underlying the option exceeds the exercise price of such option. The Company accounts for these options as liability awards. This liability is adjusted at the end of each reporting period to reflectreflect: (1) the net cash payments to option holders made during each

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Stock Plans and Other Incentives (continued)

period, period; (2) the impact of the exercise and expiration of optionsoptions; and (3) changes in the market price of the Company’s common stock. Changes in the settlement value of option awards treated under the liability method are reflected as income or expense in the statements of income.operations.

At December 31, 2012, the liability for option cancellations was approximately $297,000 based upon the difference in the closing stock price of the Company at December 31, 2012 of $13.03 per share and the individual exercise prices of the outstanding 35,448 “in-the-money” options that were accounted for as liability awards at that date. At December 31, 2011, the liability for

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Stock Plans and Other Incentives (continued)

option cancellations was approximately $241,000 based upon the difference in the closing stock price of the Company at December 31, 2011 of $9.12 per share and the individual exercise prices of the outstanding 53,172 “in-the-money” options that were accounted for as liability awards at that date. At December 31, 2010, the liability for option cancellations was approximately $158,000 based upon the difference in the closing stock price of the Company at December 31, 2010 of $7.03 per share and the individual exercise prices of the outstanding 70,896 “in-the-money” options that were accounted for as liability awards at that date. The Company recorded compensation expense of approximately $114,000, $121,000 $54,000 and $139,000$54,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, in general and administrative expenses in the consolidated statements of incomeoperations related to the respective changes in the amount of the liability for option cancellations.

In each of the years ended December 31, 2012, 2011 2010 and 2009,2010, a total of 8,862 options were settled with net cash payments aggregating approximately $58,000, $38,000 $22,000 and $14,000,$22,000, respectively.

The following table presents additional option details at December 31, 20112012 and 2010:2011:

 

   Options Outstanding and Exercisable
at December 31, 2011
   Options Outstanding and Exercisable
at December 31, 2010
 

Range of Exercise Prices

  Outstanding   Remaining
Contractual
Life (Years)
   Weighted
Average
Exercise
Price
   Intrinsic
Value (A)
   Outstanding   Remaining
Contractual
Life (Years)
   Weighted
Average
Exercise
Price
   Intrinsic
Value (A)
 

$ 4.09 to $4.46 (B)

   35,448       1.86      $4.28      $171,746       35,448       2.86      $4.28      $97,659    

$ 5.24 to $5.43 (B)

   17,724       2.00       5.24       68,769       35,448       1.97       5.34       60,085    

$ 7.50

   70,000       5.63       7.50       113,400       70,000       6.63       7.50       —    

$ 8.03

   225,000       8.50       8.03       246,375       225,000       9.59       8.03       —    

$ 10.40

   315,000       5.41       10.40       —       315,000       6.41       10.40       —    
  

 

 

       

 

 

   

 

 

       

 

 

 
   663,172       6.20       8.82      $600,290       680,896       7.07       8.73      $157,744    
  

 

 

       

 

 

   

 

 

       

 

 

 
  Options Outstanding and Exercisable
at December 31, 2012
  Options Outstanding and Exercisable
at December 31, 2011
 

    Range of Exercise Prices    

   Outstanding    Remaining
  Contractual  

Life (Years)
 Weighted
Average
    Exercise    
Price
  Intrinsic
    Value (A)    
    Outstanding    Remaining
  Contractual  

Life (Years)
 Weighted
Average
    Exercise    
Price
  Intrinsic
    Value (A)    
 

$ 4.09 to $4.46 (B)

  17,724    1.72  $4.09        $158,453     35,448    1.86  $4.28        $171,746   

$5.24 (B)

  17,724    1.00  5.24        138,070     17,724    2.00  5.24        68,769   

$7.50

  70,000    4.62  7.50        387,100     70,000    5.63  7.50        113,400   

$8.03

  225,000    7.50  8.03        1,126,125     225,000    8.50  8.03        246,375   

$10.40

  315,000    4.41  10.40        828,450     315,000    5.41  10.40        —   
 

 

 

    

 

 

  

 

 

    

 

 

 
  645,448    5.34  8.94        $2,638,198     663,172    6.20  8.82        $600,290   
 

 

 

    

 

 

  

 

 

    

 

 

 

 

 (A)

The intrinsic value is the amount by which the fair value of the Company’s stock price exceeds the exercise price of an option at December 31, 20112012 and 2010,2011, respectively. For purposes of this calculation, the Company’s closing stock prices were $9.12$13.03 and $7.03$9.12 per share on December 31, 2012 and 2011, and 2010, respectively.

 (B)

These options are the remaining options accounted for as liability awards at December 31, 20112012 and 2010,2011, respectively. In December 2012,2013, an additional 17,724 options with an exercise price of $4.46$5.24 are scheduled to expire.

The Company estimated the fair value of each option granted on the date of grant using the Black-Scholes option-pricing model. The following table includes the assumptions that were made and the estimated fair value for option grants in 2010 (no option awards were granted during 20112012 or 2009)2011):

 

   

2010 Grant

Stock price on grant date

  $6.42         

Exercise price

  $8.03         

Dividend yield

          

Risk-free interest rate

  1.70%     

Expected life

  5.2 years        

Estimated volatility

  60.9%     

Fair value of options granted (per option)

  $3.08         

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Stock Plans and Other Incentives (continued)

 

RSU Awards

The following table presents the changes in RSUs outstanding for the years ended December 31, 2012, 2011 2010 and 2009:2010:

 

  For the Years Ended December 31,                                                                                                                     
  2011   2010   2009  For the Years Ended December 31,  
 2012 2011 2010  

Outstanding at beginning of period

   523,479         507,668         343,320        590,662        523,479        507,668       

Granted

   251,281         293,170         238,896        169,481        251,281        293,170       

Common stock delivered (A) (B) (C)

   (184,098)        (275,559)        (66,148)       (290,295)       (184,098)       (275,559)      

Forfeited

   —         (1,800)        (8,400)       —        —        (1,800)      
  

 

   

 

   

 

  

 

  

 

  

 

  

Outstanding at end of period

   590,662         523,479         507,668        469,848        590,662        523,479       
  

 

   

 

   

 

  

 

  

 

  

 

  

Intrinsic value (D)

    $5,386,800          $3,680,100          $3,122,200        $6,122,000        $5,386,800        $3,680,100       
  

 

   

 

   

 

  

 

  

 

  

 

  

  (A)Includes 84,367 shares which were used to settle minimum employee withholding tax obligations for 16 employees of approximately $851,000 in 2012. A net of 133,518 shares of common stock were delivered at that time.

(A)

 

 (B)

Includes 44,019 shares which were used to settle minimum employee withholding tax obligations for 14 employees of approximately $352,000 in 2011. A net of 133,809 shares of common stock were delivered in the year ended December 31, 2011.

(B) (C)Includes 35,508 shares which were used to settle minimum employee withholding tax obligations for over 60 employees of approximately $218,000 in 2010. A net of 240,051 shares of common stock were delivered in the year ended December 31, 2010.
(C) Includes 5,245 shares which were used to settle employee withholding tax obligations for three employees of approximately $21,000 in 2009. A net of 26,087 shares of common stock were delivered at that time.
(D)For purposes of this calculation, the Company’s closing stock prices were $13.03, $9.12 $7.03 and $6.15$7.03 per share on December 31, 2012, 2011 2010 and 2009,2010, respectively.

In February 2012, an aggregate of 143,783 RSUs were granted to employees which vest one-third a year over three years and had a grant date fair value of $10.05 per RSU (which was determined based on the closing price of the Company’s common stock on the applicable date of grant). In March 2011, an aggregate of 214,135 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a weighted average grant date fair value of $7.41 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). In February and July 2010, an aggregate of 185,000 RSUs and 75,000 RSUs, respectively, were granted to employees which vest one-third a year over three years and had a weighted average grant date fair value of $5.97 and $6.52, respectively, per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). In February and September 2009, an aggregate of 169,500 RSUs and 10,000 RSUs, respectively, were granted to employees which vest one-third a year over three years and had a grant date fair value of $4.76 and $5.55, respectively, per RSU (which was determined based on the closing price of the Company’s common stock on the applicable date of grant). The awards granted to employees in 2012, 2011 2010 and 20092010 are treated as equity awards and the grant date fair value is charged to compensation expense at the corporate level on a straight-line basis over the vesting periods.

During the years ended December 31, 2012, 2011 2010 and 2009,2010, an aggregate of 25,698 RSUs, 37,146 RSUs 33,170 RSUs, and 59,39633,170 RSUs, respectively, were granted to non-employee directors (with an average grant date fair value of $9.54, $8.25 $6.17 and $4.19$6.17 per RSU, respectively) related to the equity component of their compensation. In each case, the grant date fair value was determined as of the last trading day of the quarter for which the RSUs were being received as compensation. The RSUs are immediately vested, but are not deliverable to non-employee directors until six months after termination of their service as a director. The Company issued 6,27072,410 and 34,8166,270 shares in December 20112012 and 2009,2011, respectively, to satisfy the settlement of RSUs related to directors that retired from the Board during those years.

Option and RSU Expense Information

The Company recorded non-cash compensation expense of approximately $2,181,000, $2,083,000 $1,658,000 and $1,431,000,$1,658,000, including approximately $222,000, $295,000 $239,000 and $226,000$239,000 related to non-employee director equity compensation, for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, related to all stock options and RSUs accounted for as equity awards, as a component of general and administrative expenses in the statements of income.operations.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Stock Plans and Other Incentives (continued)

 

At December 31, 2011,2012, the total compensation cost related to outstanding, non-vested equity awards of options and RSUs that is expected to be recognized as compensation cost in the future aggregates approximately $2,287,000.$1,874,000. It does not include any awards granted subsequent to December 31, 2011.2012.

 

000000000000000                                                                                                

For the Year Ended December 31,

    Options     RSUs     Total   Options   RSUs   Total 

2012

    $358,000          $1,060,000          $1,418,000      

2013

     119,000           664,000           783,000         $119,000         $1,160,000         $1,279,000      

2014

     —           86,000           86,000         —         556,000         556,000      

2015

   —         39,000         39,000      
    

 

     

 

     

 

   

 

   

 

   

 

 
    $    477,000          $    1,810,000          $    2,287,000         $119,000         $1,755,000         $1,874,000      
    

 

     

 

     

 

   

 

   

 

   

 

 

 

11.10.

Commitments and Contingencies

Litigation

From time to time, the Company has been, is or may in the future be a defendant in various legal actions arising in the normal course of business. The Company records a provision for a liability when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated.

Reis has purchased insurance with respect to construction defect and completed operations at its past real estate projects, including those projects described above.projects. Reis has, from time to time, been exposed to various claims associated with the development, construction and sale of condominium units, single family homes or lots. The impact of these claims on the Company has not been material to date. However, claimsClaims related to dissatisfaction by homeowners and homeowners’homeowners associations with the construction of condominiums, homes and amenities by us and/or our developer partners in any condominium or subdivision development, or other matters, may result in litigation costs, remediation costs, warranty expenses or settlement costs which could be material to the Company’s reportable discontinued operating income (loss), or its consolidated financial position or cash flows. It would not have any effect on the Company’s income from continuing operations.

Reis, Inc. and two of its subsidiaries (Gold Peak at Palomino Park,(GP LLC (“GP LLC”) and Wellsford Park Highlands Corp. (“WPHC”)) arewere the subject of a suit brought by the homeowners’homeowners association at the Company’s former 259-unit Gold Peak condominium project outside of Denver, Colorado. This suit was filed in District Court in Douglas County, Colorado on October 19, 2010, seeking monetary damages (not quantified at the time) relating to alleged design and construction defects at the Gold Peak project. TheTri-Star, the construction manager/general contractor for the project (not affiliated with Reis) and two former senior officers of Reis, Inc. (one of whom(Jeffrey H. Lynford, who was also previously a director) havedirector of the Company, and David M. Strong) were also been named as defendants in the suit. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19 million.$19,000,000. Trial commenced on February 21, 2012 and a jury rendered its verdict is expected in mid-March 2012.on March 13, 2012 finding Reis, GP LLC, the former officers and Tri-Star jointly and severally liable for an aggregate of $18,200,000, plus other costs of approximately $756,000.

In connection with the development of Gold Peak, the Company purchased a commercial general liability “WRAP” insurance policy that coversfrom a predecessor of ACE Westchester (“ACE”) covering the Company (including its subsidiaries) and its former officers, the construction manager/general contractorTri-Star and theTri-Star’s subcontractors. The Company, upon advice of counsel and based on a reading of the policy, has taken the position that a total of $9 million$9,000,000 (and possibly $12 million)$12,000,000) of coverage is available for this claim. The insurerACE has taken the position that only $3 million$3,000,000 of coverage is(including defense costs) was provided. The Company has filed suit against this insurer,ACE, alleging failure to cover this claim, bad faith and other related causes of action. In particular, the Gold Peak litigation could have been settled for $12,000,000 or less prior to the trial. The Company takes the position that ACE is liable for all damages stemming from this failure to engage and settle. Additionally, the Company has added claims against multiple additional insurance companies under policies maintained by the Company, including Reis’s directors’ and officers’ insurance policy, and against Reis’s former insurance broker. The Company has also brought a separate claimclaims against Tri-Star, the subcontractors, the architect and a third party inspector engaged at Gold Peak, and is also seeking coverage under additional applicable insurance policies maintained by the Company, co-defendants or others.

Neither GP LLC nor WPHC has substantial assets or other abilityrelating to pay (other than the “WRAP” insurance policy described above). The plaintiff is seeking to hold Reis, Inc. directly liable as the developer ofthose parties’ actions on the project, and if successful against one or moreis considering other recovery actions.

As of GP LLC or WPHC, will seek to hold Reis, Inc. indirectly liable throughDecember 31, 2011, based on the best available information at that time, the Company recorded a “piercingcharge of approximately $4,460,000 in discontinued operations, representing the corporate veil” theory. Separately, Reis, Inc. would likely have indemnification obligations to its former officers/directors, tolow end of the extent either or bothCompany’s expected range of these individuals is held liable.net exposure. This amount reflected an aggregate minimum liability of approximately $7,740,000, less the then minimum expected insurance recovery of

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

Commitments and Contingencies (continued)

 

The Company believes that it$3,000,000 and its co-defendants have valid defenses to some or allother previously reserved amounts. At March 31, 2012, as a result of the plaintiff’s allegations (including attempts to hold Reis, Inc. directly or indirectly liable), that insurance will cover some or all of any eventual settlement or judgment, and that the defendants other than Reis, Inc., GP LLC, WPHC and the former officers, are likely to be liable for some of any remaining settlement judgment amount. Although not factored into the Company’s assessment of this case for purposes of reserves, in the event of an adverse judgment,verdict, the Company would expect to appeal, and would continue to pursue all available remedies against applicable insurers or other parties at fault.

Based on pre-trial disclosures and the positions of the parties’ experts, it is likely that a judgment of at least $6.7 million (plus approximately $1 million of the plaintiff’s costs) will be entered against GP LLC. In the event of such a judgment against GP LLC and/or WPHC (but without a finding of liability against Reis, Inc. or the former officers), the Company would be under no obligation to fund any shortfall by GP LLC or WPHC.

At this time, the low end of the Company’s expected range of net exposure is believed to be approximately $4,740,000. The Company has recorded aan additional charge of approximately $4,460,000$14,216,000 in discontinued operations at Decemberin the first quarter of 2012, to bring the Company’s liability up to the $18,200,000 judgment, plus other costs of approximately $756,000. As of March 31, 2011. The $4,740,000 amount reflects2012, the $7,740,000 minimum exposure referred to above, netCompany, in accordance with the applicable accounting literature, could no longer conclude that $3,000,000 of minimum expected insurance recoverywas probable of $3,000,000, all of which isbeing recovered. These charges were reflected in discontinued operations on the December 31, 2011 balance sheet. It is possible that a settlement or judgment in this matter could involve the payment by the Company of an amount that could be material to the Company’s reportableand negatively impacted consolidated net income (loss) from discontinued operations, net income, its consolidated financial position or cash flows. It would, but did not have any effect on the Company’simpact income from continuing operations.

On June 20, 2012, following denial of all of the defendants’ post-trial motions, Reis reached a settlement with the plaintiff, providing for a total payment by Reis of $17,000,000. Of this amount, $5,000,000 was paid on August 3, 2012 and the remaining $12,000,000 was paid on October 15, 2012, in accordance with the settlement terms. In reaching the decision to settle, Reis’s management and Board considered, among other factors: (1) the amount of the settlement versus the potential for an ultimately greater judgment after appeal, including additional costs and post-judgment interest; (2) the benefits of the clarity of settling the case at this time versus continuing uncertainty; and (3) the strong cash flow generation of Reis Services’s core business. As a result of the settlement, in the second quarter of 2012 the Company reversed $1,956,000 of the previously recorded charge. In December 2012, the Company recovered $712,500, which offset a portion of the previously recorded charge, resulting in the net litigation charge for the year ended December 31, 2012 of approximately $11,547,000.

Reis continues to consider its options with respect to contribution or other actions against potentially responsible third parties and/or co-defendants in the lawsuit, and will pursue all reasonable efforts to mitigate the effects of this settlement. There is no assurance that the Company will be successful in these additional recovery efforts.

The Company is not a party to any other litigation that could reasonably be foreseen to be material to the Company.

Other Operating Commitments

The Company is a tenant under two operating leases for office space in New York which both expire in September 2016. Rent expense was approximately $1,793,000, $1,738,000 $1,610,000 and $1,592,000$1,610,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively, which includes base rent plus other charges including, but not limited to, real estate taxes and maintenance costs in excess of base year amounts. In connection with one lease, the Company provided a letter of credit through a bank, to the lessor. The letter of credit requirement is approximately $212,000 which is collateralized by a certificate of deposit issued by that bank.

The certificate of deposit is included in restricted cash and investments in the consolidated balance sheets at December 31, 20112012 and 2010.2011.

Future minimum lease payments under operating leases at December 31, 20112012 are as follows:

 

                             

For the Year Ended December 31,

  Amount   Amount 

2012

  $1,594,000      

2013

   1,628,000         $1,628,000      

2014

   1,662,000         1,662,000      

2015

   1,692,000         1,692,000      

2016

   1,286,000         1,286,000      
  

 

   

 

 

Total

  $    7,862,000         $6,268,000      
  

 

   

 

 

Through December 31, 2009, theThe Company had two separatehas a defined contribution savings plans pursuant to Section 401 of the Internal Revenue Code. For the historic Wellsford plan, employer contributions, if any, were made based upon a discretionary amount determined by the Company’s management. The Company made contributions to this plan of approximately $13,000 for the year ended December 31, 2009. As of the end of 2009, the Company terminated the historic Wellsford plan and all employees that had been participating in the Wellsford plan were transferred to the historic Private Reis plan. For the historic Private Reis plan, or the continuing plan, the Company matches contributions up to 2% of employees’ salaries, as then defined, for 2012 and 2011 (calculated as 50% of the employee’s contribution, capped at 4% of the employee’s salary) and up to 1% of employees’ salaries, as then defined, for 2010 and 2009 (calculated as 25% of the employee’s contribution, capped at 4% of the employee’s salary). The Company made contributions to this plan of approximately $159,000, $148,000 $70,000 and $64,000$70,000 for the years ended December 31, 2012, 2011 2010 and 2009,2010, respectively.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

 

12.11.

Fair Value of Financial Instruments

At December 31, 20112012 and 2010,2011, the Company’s financial instruments included receivables, payables, accrued expenses, other liabilities and debt. The fair values of these financial instruments, excluding the Bank Loan,debt, were not materially different from their recorded values at December 31, 20112012 and 2010. Other than capital leases at December 31, 2010, all2011. All of the Company’s debt at December 31, 2011 and 2010 was floating rate based. There was no balance outstanding under the Revolver at December 31, 2012. Regarding the Bank Loan, the fair value of this debt iswas estimated to be approximately $5,628,000 and $10,905,000 at December 31, 2011, and 2010, respectively, which is lower than the recorded amountsamount of $5,691,000 and $11,222,000 at December 31, 2011 and 2010, respectively.that date. The estimated fair value of the Bank Loan reflects the effect of higher interest rate spreads on debt being issued under current market conditions, as compared to the conditions that existed when the Bank Loan was obtained. See Note 6 for more information about the Company’s debt.

 

13.12.

Summarized Consolidated Quarterly Information (Unaudited)

Summarized consolidated and condensed quarterly financial information is as follows:

 

(amounts in thousands) 2012 
    For the Three Months  
Ended March 31
    For the Three Months  
Ended June 30
    For the Three Months  
Ended September 30
    For the Three Months  
Ended December 31
 

Subscription revenue

  $7,298      $7,522      $7,827      $8,581      
 

 

 

  

 

 

  

 

 

  

 

 

 

Income from continuing operations (A)

  $136      $498      $860      $6,519      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income (A)(B)

  $(14,209)    $2,193      $666      $7,066      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – basic (C):

    

Income from continuing operations

  $0.01      $0.05      $0.08      $0.61      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income

  $(1.34)    $0.21      $0.06      $0.66      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – diluted (C):

    

Income from continuing operations

  $0.01      $0.05      $0.08      $0.58      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net (loss) income

  $(1.29)    $0.20      $0.06      $0.63      
 

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average number of common shares outstanding:

    

Basic

  10,624      10,686      10,703      10,728      
 

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

  11,011      10,950      11,094      11,233      
 

 

 

  

 

 

  

 

 

  

 

 

 
  2011 
  For the Three Months
Ended March 31
  For the Three Months
Ended June 30
  For the Three Months
Ended September 30
  For the Three Months
Ended December 31
 

Subscription revenue

  $6,617      $6,837      $6,747      $6,979      
 

 

 

  

 

 

  

 

 

  

 

 

 

Income from continuing operations (A)

  $100      $100      $289      $4,372      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income (A)(D)

  $10      $1,443      $290      $143      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – basic (C):

    

Income from continuing operations

  $0.01      $0.01      $0.03      $0.41      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income

  $—      $0.14      $0.03      $0.01      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – diluted (C):

    

Income from continuing operations

  $0.01      $0.01      $0.02      $0.40      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income

  $—      $0.13      $0.02      $0.01      
 

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average number of common shares outstanding:

    

Basic

  10,529      10,588      10,599      10,562      
 

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

  10,795      10,914      10,997      10,979      
 

 

 

  

 

 

  

 

 

  

 

 

 

See footnotes on next page.

REIS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Summarized Consolidated Quarterly Information (Unaudited)(continued)

(A) 

(amounts in thousands)

$6,013$6,013$6,013$6,013
   2011 
  For the Three Months
Ended March 31
  For the Three Months
Ended June 30
  For the Three Months
Ended September 30
  For the Three Months
Ended December 31
 

Subscription revenue

 $6,617       $6,837       $6,747       $6,979      
 

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from continuing operations (A)

 $100       $100       $289       $4,372      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income (A)(B)

 $10       $1,443       $290       $143      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – basic (C):

    

Income (loss) from continuing operations

 $0.01       $0.01       $0.03       $0.41      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $—       $0.14       $0.03       $0.01      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – diluted (C):

    

Income (loss) from continuing operations

 $0.01       $0.01       $0.02       $0.40      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

 $—       $0.13       $0.02       $0.01      
 

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average number of common shares outstanding:

    

Basic

  10,529        10,588        10,599        10,562      
 

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

  10,795        10,914        10,997        10,979      
 

 

 

  

 

 

  

 

 

  

 

 

 

   2010 
  For the Three Months
Ended March 31
  For the Three Months
Ended June 30
  For the Three Months
Ended September 30
  For the Three Months
Ended December 31
 

Subscription revenue

 $6,014       $6,004       $6,013       $6,167      
 

 

 

  

 

 

  

 

 

  

 

 

 

Income (loss) from continuing operations

 $(156)      $(58)      $115       $564      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $(177)      $106       $115       $624      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – basic (C):

    

Income (loss) from continuing operations

 $(0.02)      $(0.01)      $0.01       $0.05      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income

 $(0.02)      $0.01       $0.01       $0.06      
 

 

 

  

 

 

  

 

 

  

 

 

 

Per share amounts – diluted (C):

    

Income (loss) from continuing operations

 $(0.02)      $(0.01)      $0.01       $0.05      
 

 

 

  

 

 

  

 

 

  

 

 

 

Net income (loss)

 $(0.02)      $0.01       $0.01       $0.06      
 

 

 

  

 

 

  

 

 

  

 

 

 

Weighted average number of common shares outstanding:

    

Basic

  10,421        10,495        10,594        10,530      
 

 

 

  

 

 

  

 

 

  

 

 

 

Diluted

  10,490        10,495        10,816        10,806      
 

 

 

  

 

 

  

 

 

  

 

 

 

(A)

The fourth quarter of 2012 and 2011 amounts reflect a net tax benefit of $4,075.$5,427 and $4,075, respectively. See Note 7.

(B)

The fourth quarter 2011 amount2012 net (loss) income reflects a litigation chargethe following events, all of $4,460, which waswere recorded in income (loss) from discontinued operations at December 31, 2011.in the respective quarterly periods pertaining to the Gold Peak project (see Note 10):

- the first quarter of 2012 charge of $14,216, based upon the March 2012 verdict;

- the second quarter of 2012 reversal of $1,956 of previously recorded litigation charges, based upon the June 2012 settlement; and

- the fourth quarter of 2012 recoveries of approximately $713, which offset a portion of the previously recorded charges.

(C) (C)

Aggregate quarterly per share amounts may not equal annual or period to date amounts presented elsewhere in these consolidated financial statements due to rounding differences.

(D)The fourth quarter 2011 amount reflects a litigation charge of $4,460, which was recorded in income (loss) from discontinued operations at December 31, 2011. See Note 10.

 

F-30