UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2012
or
¨ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
For the transition period fromto.
Commission File Number001-12917001-12917
REIS, INC.
Maryland | 13-3926898 | |||
(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) |
(Registrant’s Telephone Number, Including Area Code)
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). Yesþ Noo¨
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 filer | 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). Yeso¨ Noþ
The number of the Registrant’s shares of common stock outstanding was 10,556,57010,686,293 as of NovemberMay 1, 2011.
Page | Number | ||||||||||
PART I. FINANCIAL INFORMATION: | |||||||||||
Item 1. | Financial Statements | ||||||||||
3 | |||||||||||
4 | |||||||||||
5 | |||||||||||
6 | |||||||||||
7 | |||||||||||
Item 2. | |||||||||||
19 | |||||||||||
Item 3. | 29 | ||||||||||
Item | 29 | ||||||||||
PART II. OTHER INFORMATION: | |||||||||||
Item 1. | 29 | ||||||||||
Item 1A. | |||||||||||
31 | |||||||||||
Item 2. | |||||||||||
31 | |||||||||||
Item 3. | 31 | ||||||||||
Item 4. | 31 | ||||||||||
Item 5. | 31 | ||||||||||
Item 6. | 31 | ||||||||||
2
CONSOLIDATED BALANCE SHEETS(Unaudited)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 22,267,925 | $ | 20,163,787 | ||||
Restricted cash and investments | 215,190 | 214,298 | ||||||
Accounts receivable, net | 4,489,892 | 8,961,623 | ||||||
Prepaid and other assets | 443,937 | 384,384 | ||||||
Assets attributable to discontinued operations | — | 2,438,240 | ||||||
Total current assets | 27,416,944 | 32,162,332 | ||||||
Furniture, fixtures and equipment, net | 945,938 | 958,505 | ||||||
Intangible assets, net of accumulated amortization of $18,198,744 and $14,891,406, respectively | 17,625,641 | 18,576,606 | ||||||
Goodwill | 54,824,648 | 54,824,648 | ||||||
Other assets | 123,478 | 165,868 | ||||||
Total assets | $ | 100,936,649 | $ | 106,687,959 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of Bank Loan | $ | 7,073,703 | $ | 5,531,050 | ||||
Current portion of other debt | 6,055 | 27,851 | ||||||
Accrued expenses and other liabilities | 2,770,188 | 2,818,496 | ||||||
Liability for option cancellations | 287,483 | 157,744 | ||||||
Deferred revenue | 12,368,132 | 15,446,248 | ||||||
Liabilities attributable to discontinued operations | 845,753 | 1,963,530 | ||||||
Total current liabilities | 23,351,314 | 25,944,919 | ||||||
Non-current portion of Bank Loan | — | 5,690,940 | ||||||
Other long-term liabilities | 686,656 | 693,092 | ||||||
Deferred tax liability, net | 66,580 | 66,580 | ||||||
Total liabilities | 24,104,550 | 32,395,531 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.02 par value per share, 101,000,000 shares authorized, 10,562,570 and 10,472,010 shares issued and outstanding, respectively | 211,251 | 209,440 | ||||||
Additional paid in capital | 100,143,091 | 99,347,837 | ||||||
Retained earnings (deficit) | (23,522,243 | ) | (25,264,849 | ) | ||||
Total stockholders’ equity | 76,832,099 | 74,292,428 | ||||||
Total liabilities and stockholders’ equity | $ | 100,936,649 | $ | 106,687,959 | ||||
March 31, | December 31, | |||||||
2012 | 2011 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 21,318,869 | $ | 22,152,802 | ||||
Restricted cash and investments | 215,619 | 215,405 | ||||||
Accounts receivable, net | 5,249,225 | 8,597,464 | ||||||
Prepaid and other assets | 510,741 | 625,451 | ||||||
Assets attributable to discontinued operations | — | 3,000,000 | ||||||
|
|
|
| |||||
Total current assets | 27,294,454 | 34,591,122 | ||||||
Furniture, fixtures and equipment, net of accumulated depreciation of $1,621,115 and $1,556,022, respectively | 814,700 | 863,309 | ||||||
Intangible assets, net of accumulated amortization of $20,710,377 and $19,437,856, respectively | 16,821,195 | 17,155,195 | ||||||
Deferred tax asset, net | 3,814,420 | 3,685,420 | ||||||
Goodwill | 54,824,648 | 54,824,648 | ||||||
Other assets | 77,442 | 98,412 | ||||||
|
|
|
| |||||
Total assets | $ | 103,646,859 | $ | 111,218,106 | ||||
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of Bank Loan | $ | 3,793,961 | $ | 5,690,940 | ||||
Accrued expenses and other liabilities | 1,733,439 | 3,352,445 | ||||||
Liability for option cancellations | 229,349 | 240,515 | ||||||
Deferred revenue | 14,757,772 | 15,706,851 | ||||||
Liabilities attributable to discontinued operations | 19,374,447 | 8,048,568 | ||||||
|
|
|
| |||||
Total current liabilities | 39,888,968 | 33,039,319 | ||||||
Other long-term liabilities | 650,256 | 668,456 | ||||||
|
|
|
| |||||
Total liabilities | 40,539,224 | 33,707,775 | ||||||
|
|
|
| |||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Common stock, $0.02 par value per share, 101,000,000 shares authorized, 10,686,293 and 10,570,891 shares issued and outstanding, respectively | 213,725 | 211,417 | ||||||
Additional paid in capital | 100,481,208 | 100,677,336 | ||||||
Retained earnings (deficit) | (37,587,298) | (23,378,422) | ||||||
|
|
|
| |||||
Total stockholders’ equity | 63,107,635 | 77,510,331 | ||||||
|
|
|
| |||||
Total liabilities and stockholders’ equity | $ | 103,646,859 | $ | 111,218,106 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Subscription revenue | $ | 6,747,585 | $ | 6,013,122 | $ | 20,201,463 | $ | 18,031,664 | ||||||||
Cost of sales of subscription revenue | 1,550,435 | 1,402,455 | 4,623,673 | 4,402,204 | ||||||||||||
Gross profit | 5,197,150 | 4,610,667 | 15,577,790 | 13,629,460 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,656,187 | 1,369,201 | 4,988,681 | 4,360,152 | ||||||||||||
Product development | 574,066 | 419,015 | 1,562,224 | 1,353,046 | ||||||||||||
General and administrative expenses | 2,632,106 | 2,560,233 | 8,384,599 | 7,861,733 | ||||||||||||
Total operating expenses | 4,862,359 | 4,348,449 | 14,935,504 | 13,574,931 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 19,321 | 28,132 | 61,646 | 101,400 | ||||||||||||
Interest expense | (65,145 | ) | (95,993 | ) | (214,807 | ) | (317,801 | ) | ||||||||
Total other income (expenses) | (45,824 | ) | (67,861 | ) | (153,161 | ) | (216,401 | ) | ||||||||
Income (loss) before income taxes and discontinued operations | 288,967 | 194,357 | 489,125 | (161,872 | ) | |||||||||||
Income tax expense (benefit) | — | 79,000 | — | (63,000 | ) | |||||||||||
Income (loss) from continuing operations | 288,967 | 115,357 | 489,125 | (98,872 | ) | |||||||||||
Income (loss) from discontinued operations, net of income tax expense of $—, $—, $—, and $97,000, respectively | 1,231 | (319 | ) | 1,253,481 | 143,237 | |||||||||||
Net income | $ | 290,198 | $ | 115,038 | $ | 1,742,606 | $ | 44,365 | ||||||||
Per share amounts – basic: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.03 | $ | 0.01 | $ | 0.05 | $ | (0.01 | ) | |||||||
Net income | $ | 0.03 | $ | 0.01 | $ | 0.16 | $ | — | ||||||||
Per share amounts – diluted: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.02 | $ | 0.01 | $ | 0.05 | $ | (0.01 | ) | |||||||
Net income | $ | 0.02 | $ | 0.01 | $ | 0.16 | $ | — | ||||||||
Weighted average number of common shares outstanding: | ||||||||||||||||
Basic | 10,599,031 | 10,594,443 | 10,572,288 | 10,504,098 | ||||||||||||
Diluted | 10,997,157 | 10,815,890 | 10,835,602 | 10,504,098 | ||||||||||||
For the Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Subscription revenue | $ | 7,298,372 | $ | 6,617,368 | ||||
Cost of sales of subscription revenue | 1,845,714 | 1,550,384 | ||||||
|
|
|
| |||||
Gross profit | 5,452,658 | 5,066,984 | ||||||
|
|
|
| |||||
Operating expenses: | ||||||||
Sales and marketing | 1,729,319 | 1,652,414 | ||||||
Product development | 513,594 | 481,097 | ||||||
General and administrative expenses | 2,952,268 | 2,775,805 | ||||||
|
|
|
| |||||
Total operating expenses | 5,195,181 | 4,909,316 | ||||||
|
|
|
| |||||
Other income (expenses): | ||||||||
Interest and other income | 16,065 | 20,224 | ||||||
Interest expense | (53,163) | (78,363) | ||||||
|
|
|
| |||||
Total other income (expenses) | (37,098) | (58,139) | ||||||
|
|
|
| |||||
Income before income taxes and discontinued operations | 220,379 | 99,529 | ||||||
Income tax expense | 84,000 | — | ||||||
|
|
|
| |||||
Income from continuing operations | 136,379 | 99,529 | ||||||
(Loss) from discontinued operations, net of income tax (benefit) of $(79,000) and $—, respectively | (14,345,255) | (89,730) | ||||||
|
|
|
| |||||
Net (loss) income | $ | (14,208,876) | $ | 9,799 | ||||
|
|
|
| |||||
Per share amounts – basic: | ||||||||
Income from continuing operations | $ | 0.01 | $ | 0.01 | ||||
|
|
|
| |||||
Net (loss) income | $ | (1.34) | $ | — | ||||
|
|
|
| |||||
Per share amounts – diluted: | ||||||||
Income from continuing operations | $ | 0.01 | $ | 0.01 | ||||
|
|
|
| |||||
Net (loss) income | $ | (1.29) | $ | — | ||||
|
|
|
| |||||
Weighted average number of common shares outstanding: | ||||||||
Basic | 10,623,575 | 10,529,141 | ||||||
|
|
|
| |||||
Diluted | 11,011,394 | 10,795,246 | ||||||
|
|
|
|
See Notes to Consolidated Financial Statements
4
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2011
(Unaudited)
Retained | Total | |||||||||||||||||||
Common Shares | Paid in | Earnings | Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||
Balance, January 1, 2011 | 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 | ) | — | — | ||||||||||||||
Stock based compensation, net | — | — | 1,185,454 | — | 1,185,454 | |||||||||||||||
Stock repurchases | (43,249 | ) | (865 | ) | (387,524 | ) | — | (388,389 | ) | |||||||||||
Net income | — | — | — | 1,742,606 | 1,742,606 | |||||||||||||||
Balance, September 30, 2011 | 10,562,570 | $ | 211,251 | $ | 100,143,091 | $ | (23,522,243 | ) | $ | 76,832,099 | ||||||||||
Common Shares | Paid in | Retained Earnings | Total Stockholders’ | |||||||||||||||||
Shares | Amount | Capital | (Deficit) | Equity | ||||||||||||||||
Balance, January 1, 2012 | 10,570,891 | $ | 211,417 | $ | 100,677,336 | $ | (23,378,422) | $ | 77,510,331 | |||||||||||
Shares issued for vested employees restricted stock units | 115,402 | 2,308 | (2,308) | — | — | |||||||||||||||
Stock based compensation, net | — | — | (193,820) | — | (193,820) | |||||||||||||||
Net (loss) | — | — | — | (14,208,876) | (14,208,876) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance, March 31, 2012 | 10,686,293 | $ | 213,725 | $ | 100,481,208 | $ | (37,587,298) | $ | 63,107,635 | |||||||||||
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
cash flows from operating activities: | ||||||||
Net income | $ | 1,742,606 | $ | 44,365 | ||||
Adjustments to reconcile to net cash provided by operating activities: | ||||||||
Deferred tax (benefit) provision | — | 34,000 | ||||||
Depreciation | 254,624 | 277,818 | ||||||
Amortization of intangible assets | 3,549,062 | 3,297,599 | ||||||
Stock based compensation charges | 1,537,074 | 1,180,434 | ||||||
Changes in assets and liabilities: | ||||||||
Restricted cash and investments | 790,293 | 52,771 | ||||||
Accounts receivable, net | 4,471,731 | 1,948,854 | ||||||
Prepaid and other assets | 332,647 | 52,792 | ||||||
Real estate assets | 1,297,245 | 2,184,015 | ||||||
Accrued expenses and other liabilities | (1,172,521 | ) | (1,170,109 | ) | ||||
Liability for option cancellations | 129,739 | 21,269 | ||||||
Deferred revenue | (3,078,116 | ) | (1,917,878 | ) | ||||
Net cash provided by operating activities | 9,854,384 | 6,005,930 | ||||||
cash flows from investing activities: | ||||||||
Web site and database development costs | (2,598,097 | ) | (1,885,204 | ) | ||||
Furniture, fixtures and equipment additions | (242,057 | ) | (43,879 | ) | ||||
Furniture, fixtures and equipment disposition | — | 9,906 | ||||||
Net cash (used in) investing activities | (2,840,154 | ) | (1,919,177 | ) | ||||
cash flows from financing activities: | ||||||||
Repayment of Bank Loan | (4,148,287 | ) | (6,506,354 | ) | ||||
Repayments on capitalized equipment leases | (21,796 | ) | (158,998 | ) | ||||
Payments for restricted stock units | (351,620 | ) | (217,878 | ) | ||||
Stock repurchases | (388,389 | ) | (307,574 | ) | ||||
Net cash (used in) financing activities | (4,910,092 | ) | (7,190,804 | ) | ||||
Net increase (decrease) in cash and cash equivalents | 2,104,138 | (3,104,051 | ) | |||||
Cash and cash equivalents, beginning of period | 20,163,787 | 22,735,240 | ||||||
Cash and cash equivalents, end of period | $ | 22,267,925 | $ | 19,631,189 | ||||
supplemental information: | ||||||||
Cash paid during the period for interest | $ | 134,517 | $ | 237,637 | ||||
Cash paid during the period for income taxes, net of refunds | $ | 39,434 | $ | 26,071 | ||||
supplemental schedule of non-cash investing and financing activities: | ||||||||
Shares issued for vested employees restricted stock units | $ | 2,676 | $ | 4,801 | ||||
Disposal of fully amortized intangible assets | $ | 241,724 | ||||||
Disposal of fully depreciated furniture, fixtures and equipment | $ | 45,988 | ||||||
Release of accrued remediation liability obligation upon sale of real estate | $ | 1,000,000 | ||||||
Mortgage receivable on sale of real estate | $ | 450,000 | ||||||
For the Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (14,208,876) | $ | 9,799 | ||||
Adjustments to reconcile to net cash provided by operating activities: | ||||||||
Deferred tax provision | 5,000 | — | ||||||
Depreciation | 84,731 | 83,528 | ||||||
Amortization of intangible assets | 1,272,521 | 1,151,509 | ||||||
Stock based compensation charges | 557,557 | 485,385 | ||||||
Changes in assets and liabilities: | ||||||||
Restricted cash and investments | (214) | (623) | ||||||
Accounts receivable, net | 3,348,239 | 4,953,643 | ||||||
Prepaid and other assets | 3,001,680 | 480,002 | ||||||
Accrued expenses and other liabilities | 9,688,673 | (1,154,155) | ||||||
Liability for option cancellations | (11,166) | 60,970 | ||||||
Deferred revenue | (949,079) | (2,039,720) | ||||||
|
|
|
| |||||
Net cash provided by operating activities | 2,789,066 | 4,030,338 | ||||||
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Web site and database development costs | (938,521) | (794,673) | ||||||
Furniture, fixtures and equipment additions | (36,122) | (7,462) | ||||||
|
|
|
| |||||
Net cash (used in) investing activities | (974,643) | (802,135) | ||||||
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Repayment of Bank Loan | (1,896,979) | (1,382,762) | ||||||
Repayments on capitalized equipment leases | — | (10,071) | ||||||
Payments for restricted stock units | (751,377) | (250,939) | ||||||
|
|
|
| �� | ||||
Net cash (used in) financing activities | (2,648,356) | (1,643,772) | ||||||
|
|
|
| |||||
Net (decrease) increase in cash and cash equivalents | (833,933) | 1,584,431 | ||||||
Cash and cash equivalents, beginning of period | 22,152,802 | 20,163,787 | ||||||
|
|
|
| |||||
Cash and cash equivalents, end of period | $ | 21,318,869 | $ | 21,748,218 | ||||
|
|
|
| |||||
SUPPLEMENTAL INFORMATION: | ||||||||
Cash paid during the period for interest | $ | 26,527 | $ | 52,304 | ||||
|
|
|
| |||||
Cash paid during the period for income taxes, net of refunds | $ | 9,639 | $ | — | ||||
|
|
|
| |||||
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
Shares issued for vested employee restricted stock units | $ | 2,308 | $ | 2,315 | ||||
|
|
|
| |||||
Disposal of fully amortized intangible assets | $ | 185,896 | ||||||
|
| |||||||
Disposal of fully depreciated furniture, fixtures and equipment | $ | 19,638 | $ | 36,714 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | 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 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 evaluations. Depending on the product, users have access to trend and forecast analysis 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, and equity investors. 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 as Wellsford Real Properties, Inc. (“Wellsford”). Wellsford acquired the Reis Services business by merger in May 2007 (the “Merger”). 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 Note 3 for additional information regarding the Company’s segments.
2. | Summary of Significant Accounting Policies | |
7
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-company accounts and transactions among the Company and its subsidiaries have been eliminated in consolidation.
REIS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
8
Summary of Significant Accounting Policies (continued)
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.
Quarterly Reporting
The accompanying consolidated financial statements and notes of the Company have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared under Generally Accepted Accounting Principles in the United States (“GAAP”) have been condensed or omitted pursuant to such rules. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s balance sheets, statements of operations, statement of changes in stockholders’ equity and statements of cash flows have been included and are of a normal and recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2011, as filed with the SEC on March 8, 2012. The consolidated statements of operations and changes in cash flows for the three months ended March 31, 2012 and 2011 are not necessarily indicative of full year results.
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.
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, will have a material adverse effect on the consolidated financial statements. See Note 11.
Reclassification
Amounts in certain accounts, as presented in the consolidated financial statements and footnotes, have been reclassified to reflect discontinued operations. These reclassifications do not result in a change to the previously reported net income for the first quarter of 2011 in order to conform to the current period presentation.
REIS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
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:
(amounts in thousands) | ||||||||||||||||
Condensed Balance Sheet Data March 31, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 19,688 | $ | — | $ | 1,631 | $ | 21,319 | ||||||||
Restricted cash and investments | 216 | — | — | 216 | ||||||||||||
Receivables, prepaid and other assets | 5,486 | — | 274 | 5,760 | ||||||||||||
Assets attributable to discontinued operations | — | — | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total current assets | 25,390 | — | 1,905 | 27,295 | ||||||||||||
Furniture, fixtures and equipment, net | 775 | — | 40 | 815 | ||||||||||||
Intangible assets, net | 16,821 | — | — | 16,821 | ||||||||||||
Deferred tax asset, net | — | — | 3,814 | 3,814 | ||||||||||||
Goodwill | 57,203 | — | (2,378) | 54,825 | ||||||||||||
Other assets | 77 | — | — | 77 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total assets | $ | 100,266 | $ | — | $ | 3,381 | $ | 103,647 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of Bank Loan and other debt | $ | 3,794 | $ | — | $ | — | $ | 3,794 | ||||||||
Accrued expenses and other liabilities | 1,065 | — | 898 | 1,963 | ||||||||||||
Deferred revenue | 14,758 | — | — | 14,758 | ||||||||||||
Liabilities attributable to discontinued operations | — | 19,359 | 15 | 19,374 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total current liabilities | 19,617 | 19,359 | 913 | 39,889 | ||||||||||||
Other long-term liabilities | 650 | — | — | 650 | ||||||||||||
Deferred tax liability, net | 13,729 | — | (13,729) | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities | 33,996 | 19,359 | (12,816) | 40,539 | ||||||||||||
Total stockholders’ equity | 66,270 | (19,359) | 16,197 | 63,108 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total liabilities and stockholders’ equity | $ | 100,266 | $ | — | $ | 3,381 | $ | 103,647 | ||||||||
|
|
|
|
|
|
|
| |||||||||
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 | ||||||||||||
Receivables, prepaid and other assets | 8,795 | — | 428 | 9,223 | ||||||||||||
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 Bank Loan and other debt | $ | 5,691 | $ | — | $ | — | $ | 5,691 | ||||||||
Accrued expenses and other liabilities | 2,257 | — | 1,336 | 3,593 | ||||||||||||
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 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(amounts in thousands) | ||||||||||||||||
Condensed Balance Sheet Data | Reis | Discontinued | ||||||||||||||
September 30, 2011 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 18,227 | $ | — | $ | 4,041 | $ | 22,268 | ||||||||
Restricted cash and investments | 215 | — | — | 215 | ||||||||||||
Receivables, prepaid and other assets | 4,777 | — | 157 | 4,934 | ||||||||||||
Assets attributable to discontinued operations | — | — | — | — | ||||||||||||
Total current assets | 23,219 | — | 4,198 | 27,417 | ||||||||||||
Furniture, fixtures and equipment, net | 901 | — | 45 | 946 | ||||||||||||
Intangible assets, net | 17,626 | — | — | 17,626 | ||||||||||||
Goodwill | 57,203 | — | (2,378 | ) | 54,825 | |||||||||||
Other assets | 123 | — | — | 123 | ||||||||||||
Total assets | $ | 99,072 | $ | — | $ | 1,865 | $ | 100,937 | ||||||||
Liabilities and stockholders’ equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Current portion of Bank Loan and other debt | $ | 7,080 | $ | — | $ | — | $ | 7,080 | ||||||||
Accrued expenses and other liabilities | 1,837 | — | 1,221 | 3,058 | ||||||||||||
Deferred revenue | 12,368 | �� | — | — | 12,368 | |||||||||||
Liabilities attributable to discontinued operations | — | 846 | — | 846 | ||||||||||||
Total current liabilities | 21,285 | 846 | 1,221 | 23,352 | ||||||||||||
Other long-term liabilities | 687 | — | — | 687 | ||||||||||||
Deferred tax liability, net | 13,450 | — | (13,384 | ) | 66 | |||||||||||
Total liabilities | 35,422 | 846 | (12,163 | ) | 24,105 | |||||||||||
Total stockholders’ equity | 63,650 | (846 | ) | 14,028 | 76,832 | |||||||||||
Total liabilities and stockholders’ equity | $ | 99,072 | $ | — | $ | 1,865 | $ | 100,937 | ||||||||
Condensed Balance Sheet Data | Reis | Discontinued | ||||||||||||||
December 31, 2010 | Services | 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. |
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
(amounts in thousands) | ||||||||||||||||
Condensed Operating Data for the Three Months Ended March 31, 2012 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 7,298 | $ | — | $ | — | $ | 7,298 | ||||||||
Cost of sales of subscription revenue | 1,846 | — | — | 1,846 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 5,452 | — | — | 5,452 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,729 | — | — | 1,729 | ||||||||||||
Product development | 514 | — | — | 514 | ||||||||||||
General and administrative expenses | 1,643 | — | 1,309 | 2,952 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 3,886 | — | 1,309 | 5,195 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 15 | — | 1 | 16 | ||||||||||||
Interest expense | (53) | — | — | (53) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (38) | — | 1 | (37) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,528 | $ | — | $ | (1,308) | $ | 220 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) from discontinued operations, before income taxes | $ | — | $ | (14,424) | $ | — | $ | (14,424) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Condensed Operating Data for the Three Months Ended March 31, 2011 | Reis Services | Discontinued Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 6,617 | $ | — | $ | — | $ | 6,617 | ||||||||
Cost of sales of subscription revenue | 1,550 | — | — | 1,550 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Gross profit | 5,067 | — | — | 5,067 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,652 | — | — | 1,652 | ||||||||||||
Product development | 481 | — | — | 481 | ||||||||||||
General and administrative expenses | 1,549 | — | 1,226 | 2,775 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total operating expenses | 3,682 | — | 1,226 | 4,908 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 18 | — | 1 | 19 | ||||||||||||
Interest expense | (78) | — | — | (78) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other income (expenses) | (60) | — | 1 | (59) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,325 | $ | — | $ | (1,225) | $ | 100 | ||||||||
|
|
|
|
|
|
|
| |||||||||
(Loss) from discontinued operations, before income taxes | $ | — | $ | (90) | $ | — | $ | (90) | ||||||||
|
|
|
|
|
|
|
| |||||||||
(amounts in thousands) | ||||||||||||||||
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Three Months Ended September 30, 2011 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 6,747 | $ | — | $ | — | $ | 6,747 | ||||||||
Cost of sales of subscription revenue | 1,550 | — | — | 1,550 | ||||||||||||
Gross profit | 5,197 | — | — | 5,197 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,656 | — | — | 1,656 | ||||||||||||
Product development | 574 | — | — | 574 | ||||||||||||
General and administrative expenses | 1,563 | — | 1,070 | 2,633 | ||||||||||||
Total operating expenses | 3,793 | — | 1,070 | 4,863 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 18 | — | 2 | 20 | ||||||||||||
Interest expense | (65 | ) | — | — | (65 | ) | ||||||||||
Total other income (expenses) | (47 | ) | — | 2 | (45 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,357 | $ | — | $ | (1,068 | ) | $ | 289 | |||||||
Income from discontinued operations, before income taxes | $ | — | $ | 1 | $ | — | $ | 1 | ||||||||
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Three Months Ended September 30, 2010 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 6,013 | $ | — | $ | — | $ | 6,013 | ||||||||
Cost of sales of subscription revenue | 1,403 | — | — | 1,403 | ||||||||||||
Gross profit | 4,610 | — | — | 4,610 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,369 | — | — | 1,369 | ||||||||||||
Product development | 419 | — | — | 419 | ||||||||||||
General and administrative expenses | 1,496 | — | 1,064 | 2,560 | ||||||||||||
Total operating expenses | 3,284 | — | 1,064 | 4,348 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 24 | — | 5 | 29 | ||||||||||||
Interest expense | (96 | ) | — | — | (96 | ) | ||||||||||
Total other income (expenses) | (72 | ) | — | 5 | (67 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,254 | $ | — | $ | (1,059 | ) | $ | 195 | |||||||
Income (loss) from discontinued operations, before income taxes | $ | — | $ | 1 | $ | (2 | ) | $ | (1 | ) | ||||||
(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. |
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
(amounts in thousands) | ||||||||||||||||
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Nine Months Ended September 30, 2011 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 20,201 | $ | — | $ | — | $ | 20,201 | ||||||||
Cost of sales of subscription revenue | 4,623 | — | — | 4,623 | ||||||||||||
Gross profit | 15,578 | — | — | 15,578 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 4,989 | — | — | 4,989 | ||||||||||||
Product development | 1,562 | — | — | 1,562 | ||||||||||||
General and administrative expenses | 4,739 | — | 3,646 | 8,385 | ||||||||||||
Total operating expenses | 11,290 | — | 3,646 | 14,936 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 57 | — | 5 | 62 | ||||||||||||
Interest expense | (215 | ) | — | — | (215 | ) | ||||||||||
Total other income (expenses) | (158 | ) | — | 5 | (153 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations | $ | 4,130 | $ | — | $ | (3,641 | ) | $ | 489 | |||||||
Income from discontinued operations, before income taxes | $ | — | $ | 1,253 | $ | — | $ | 1,253 | ||||||||
Condensed Operating Data for the | Reis | Discontinued | ||||||||||||||
Nine Months Ended September 30, 2010 | Services | Operations (A) | Other (B) | Consolidated | ||||||||||||
Subscription revenue | $ | 18,031 | $ | — | $ | — | $ | 18,031 | ||||||||
Cost of sales of subscription revenue | 4,402 | — | — | 4,402 | ||||||||||||
Gross profit | 13,629 | — | — | 13,629 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 4,360 | — | — | 4,360 | ||||||||||||
Product development | 1,353 | — | — | 1,353 | ||||||||||||
General and administrative expenses | 4,369 | — | 3,493 | 7,862 | ||||||||||||
Total operating expenses | 10,082 | — | 3,493 | 13,575 | ||||||||||||
Other income (expenses): | ||||||||||||||||
Interest and other income | 87 | — | 15 | 102 | ||||||||||||
Interest expense | (318 | ) | — | — | (318 | ) | ||||||||||
Total other income (expenses) | (231 | ) | — | 15 | (216 | ) | ||||||||||
Income (loss) before income taxes and discontinued operations | $ | 3,316 | $ | — | $ | (3,478 | ) | $ | (162 | ) | ||||||
Income (loss) from discontinued operations, before income taxes | $ | — | $ | 512 | $ | (272 | ) | $ | 240 | |||||||
11
Segment Information (continued)
Reis Services
See Note 1 for a description of Reis Services’s business and products at March 31, 2012.
No individual customer accounted for more than 4.5% and 4.7% of Reis Services’s revenues for the three months ended March 31, 2012 and 2011, respectively.
The balance of outstanding accounts receivables of Reis Services at March 31, 2012 and December 31, 2011 follows:
March 31, 2012 | December 31, 2011 | |||||||
Accounts receivables | $ | 5,317,000 | $ | 8,629,000 | ||||
Allowance for doubtful accounts | (68,000) | (32,000) | ||||||
|
|
|
| |||||
Accounts receivables, net | $ | 5,249,000 | $ | 8,597,000 | ||||
|
|
|
|
Seven subscribers accounted for an aggregate of approximately 32.7% of Reis Services’s accounts receivable at March 31, 2012, including four subscribers in excess of 4.0% with the largest representing 7.8%. Through April 30, 2012, the Company had received payments of approximately $2,769,000 or 52.1% against the March 31, 2012 accounts receivable balance.
At March 31, 2012, no subscribers accounted for more than 6.7% of deferred revenue.
Discontinued Operations – Residential Development Activities
(Loss) from discontinued operations is comprised of the following:
00000000 | 00000000 | |||||||
(amounts in thousands) | ||||||||
For the Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Revenue from sales of real estate | $ | — | $ | — | ||||
Cost of sales of real estate | — | — | ||||||
Litigation charge | (14,216) | — | ||||||
Other income (expense), net | (208) | (90) | ||||||
|
|
|
| |||||
(Loss) from discontinued operations before income tax | (14,424) | (90) | ||||||
Income tax (benefit) on discontinued operations | (79) | — | ||||||
|
|
|
| |||||
(Loss) from discontinued operations, net of income tax expense | $ | (14,345) | $ | (90) | ||||
|
|
|
|
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. On March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project, a jury rendered its verdict, whereby Reis, jointly and severally with Gold Peak at Palomino Park LLC, the developer of the project (“GP LLC”) and two former officers, was found liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. For additional information pertaining to the Gold Peak litigation and the $14,216,000 charge recorded in the first quarter of 2012, see Note 11. Commitments and Contingencies.
REIS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
Completed Real Estate Projects
In April 2011, the Company sold The Orchards, a single family home development in East Lyme, Connecticut (“East Lyme”), in a bulk transaction for a gross sales price of $1,800,000 for the 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. Remediation was required prior to the development of those lots. 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. As a result of the sale, the Company was indemnified from any financial obligation related to the environmental remediation.
In February 2011, the Company received cash of approximately $455,000 in satisfaction of a mortgage note and accrued interest thereon from the sale of property in Claverack, New York in February 2010.
4. |
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Accounts receivable | $ | 4,534,000 | $ | 9,065,000 | ||||
Allowance for doubtful accounts | (44,000 | ) | (103,000 | ) | ||||
Accounts receivable, net | $ | 4,490,000 | $ | 8,962,000 | ||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenue from sales of real estate | $ | — | $ | 160 | $ | 1,800 | $ | 3,378 | ||||||||
Cost of sales of real estate | — | (96 | ) | (558 | ) | (3,051 | ) | |||||||||
Other income (expense), net | 1 | (65 | ) | 11 | (87 | ) | ||||||||||
Income (loss) from discontinued operations before income tax | 1 | (1 | ) | 1,253 | 240 | |||||||||||
Income tax expense on discontinued operations | — | — | — | 97 | ||||||||||||
Income (loss) from discontinued operations, net of income tax expense | $ | 1 | $ | (1 | ) | $ | 1,253 | $ | 143 | |||||||
12
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 was approximately $216,000 and $215,000 at March 31, 2012 and December 31, 2011, respectively.
5. | ||
Intangible Assets |
13
March 31, 2012 | December 31, 2011 | |||||||
Database | $ | 13,672,000 | $ | 13,223,000 | ||||
Accumulated amortization | (10,439,000) | (9,784,000) | ||||||
|
|
|
| |||||
Database, net | 3,233,000 | 3,439,000 | ||||||
|
|
|
| |||||
Customer relationships | 14,100,000 | 14,100,000 | ||||||
Accumulated amortization | (4,708,000) | (4,462,000) | ||||||
|
|
|
| |||||
Customer relationships, net | 9,392,000 | 9,638,000 | ||||||
|
|
|
| |||||
Web site | 6,960,000 | 6,470,000 | ||||||
Accumulated amortization | (4,079,000) | (3,784,000) | ||||||
|
|
|
| |||||
Web site, net | 2,881,000 | 2,686,000 | ||||||
|
|
|
| |||||
Acquired below market lease | 2,800,000 | 2,800,000 | ||||||
Accumulated amortization | (1,485,000) | (1,408,000) | ||||||
|
|
|
| |||||
Acquired below market lease, net | 1,315,000 | 1,392,000 | ||||||
|
|
|
| |||||
Intangibles, net | $ | 16,821,000 | $ | 17,155,000 | ||||
|
|
|
|
The Company capitalized approximately $448,000 and $451,000 to the database intangible asset and $490,000 and $344,000 to the web site intangible asset during the three months ended March 31, 2012 and 2011, respectively.
Amortization expense for intangible assets aggregated approximately $1,273,000 for the three months ended March 31, 2012, of which approximately $655,000 related to the database, which is charged to cost of sales, approximately $246,000 related to customer relationships, which is charged to sales and marketing expense, approximately $295,000 related to web site development, which is charged to product development expense, and approximately $77,000 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 $1,152,000 for the three months ended March 31, 2011, of which approximately $585,000 related to the database, approximately $249,000 related to customer relationships, approximately $242,000 related to web site development, and approximately $76,000 related to the value ascribed to the below market terms of the office lease.
REIS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
September 30, | December 31, | |||||||
2011 | 2010 | |||||||
Database | $ | 12,822,000 | $ | 11,395,000 | ||||
Accumulated amortization | (9,152,000 | ) | (7,374,000 | ) | ||||
Database, net | 3,670,000 | 4,021,000 | ||||||
Customer relationships | 14,100,000 | 14,100,000 | ||||||
Accumulated amortization | (4,214,000 | ) | (3,470,000 | ) | ||||
Customer relationships, net | 9,886,000 | 10,630,000 | ||||||
Web site | 6,102,000 | 5,173,000 | ||||||
Accumulated amortization | (3,499,000 | ) | (2,941,000 | ) | ||||
Web site, net | 2,603,000 | 2,232,000 | ||||||
Acquired below market lease | 2,800,000 | 2,800,000 | ||||||
Accumulated amortization | (1,333,000 | ) | (1,106,000 | ) | ||||
Acquired below market lease, net | 1,467,000 | 1,694,000 | ||||||
Intangible assets, net | $ | 17,626,000 | $ | 18,577,000 | ||||
Debt |
At March 31, 2012 and December 31, 2011, the Company’s debt consisted of the following:
Maturity Date | Stated Interest Rate at March 31, 2012 | March 31, 2012 | December 31, 2011 | |||||||||
Reis Services Bank Loan | September 2012 | LIBOR + 1.50% | $ | 3,794,000 | $ | 5,691,000 | ||||||
|
|
|
| |||||||||
Total assets of Reis Services as a security interest for the Bank Loan | $ | 100,266,000 | $ | 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 interest rate was LIBOR + 1.50% at March 31, 2012 and December 31, 2011 (LIBOR was 0.24% and 0.30% at March 31, 2012 and December 31, 2011, 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. The final maturity date of all amounts borrowed pursuant to the credit agreement is September 30, 2012. At March 31, 2012 and December 31, 2011, the revolving loan portion had expired and the Company did not have the ability to borrow any other additional amounts under the Bank Loan.
7. |
Stated Interest Rate at | September 30, | December 31, | ||||||||||||||
Maturity Date | September 30, 2011 | 2011 | 2010 | |||||||||||||
Reis Services Bank Loan | September 2012 | LIBOR + 1.50% | $ | 7,074,000 | $ | 11,222,000 | ||||||||||
Other Reis Services debt | Various | Fixed/Various | 6,000 | 28,000 | ||||||||||||
Total debt | $ | 7,080,000 | $ | 11,250,000 | ||||||||||||
Total assets of Reis Services as a security interest for the Bank Loan | $ | 99,072,000 | $ | 102,259,000 | ||||||||||||
14
Income Taxes |
The components of the income tax expense (benefit) are as follows:
$84,000 | $84,000 | $84,000 | ||||||||
For the Three Months Ended March 31, | ||||||||||
2012 | 2011 | |||||||||
Current Federal alternative minimum tax (“AMT”) expense | $ | — | $ | — | ||||||
Deferred Federal tax expense | 4,000 | — | ||||||||
Deferred state and local tax expense | 1,000 | — | ||||||||
|
|
|
| |||||||
Consolidated income tax expense, including taxes attributable to discontinued operations (A) | 5,000 | — | ||||||||
Less income tax (benefit) attributable to discontinued operations | (79,000) | — | ||||||||
|
|
|
| |||||||
Income tax expense (B) | $ | 84,000 | $ | — | ||||||
|
|
|
|
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Current state and local tax expense | $ | — | $ | — | $ | — | $ | — | ||||||||
Deferred Federal tax expense | — | 63,000 | — | 27,000 | ||||||||||||
Deferred state and local tax expense | — | 16,000 | — | 7,000 | ||||||||||||
Income tax expense, including taxes attributable to discontinued operations | — | 79,000 | — | 34,000 | ||||||||||||
Less income tax expense attributable to discontinued operations (A) | — | — | — | (97,000 | ) | |||||||||||
Income tax expense (benefit) (B) | $ | — | $ | 79,000 | $ | — | $ | (63,000 | ) | |||||||
(A) | Includes income taxes attributable to income from discontinued operations. | |||||
(B) | Reflects the tax expense |
15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Income Taxes (continued)
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 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 $22,466,000 and $17,092,000 at March 31, 2012 and December 31, 2011, respectively, was necessary. The allowance relates primarily to NOL carryforwards, AMT credits and liability reserves. The increase in the valuation allowance in the first quarter of 2012 is attributable to providing a full allowance for the Gold Peak litigation charge recorded during March 2012. The Company will continue to evaluate the amount of valuation allowance on deferred tax assets during 2012 and subsequent years based on such factors as historic profitability levels and forecasts of future taxable income.
8. |
| |
Between December 2008 and June 2010, the BoardCompany’s board of directors (the “Board”) authorized the repurchase of up to an aggregate amount of $4,000,000 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 (of which $612,000approximately $551,000 remained available as of September 30,March 31, 2012 and December 31, 2011). 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 threefirst quarter of 2012 and nine months ended September 30, 2011, the Company repurchased 43,249did not repurchase any shares of common stock at an average price of $8.98 per share. During the three and nine months ended September 30, 2010, the Company purchased an aggregate of 20,250 and 49,191 shares of common stock, respectively, at an average price of $6.50 and $6.25 per share, respectively. From the inception of the share repurchase programs in December 2008 through September 30, 2011, the Company purchased an aggregate of 881,325 shares of common stock at an average price of $4.98 per share, for an aggregate of $4,388,000. Cumulatively, the Company repurchased approximately 8.02% of the common shares outstanding at the time of the Board’s initial authorization in December 2008.
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 ninethree months ended September 30, 2011March 31, 2012 and 2010:
For the Nine Months Ended September 30, | ||||||||||||||||
2011 | 2010 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Options | Price | Options | Price | |||||||||||||
Outstanding at beginning of period | 680,896 | $ | 8.73 | 473,620 | $ | 8.91 | ||||||||||
Granted | — | $ | — | 225,000 | $ | 8.03 | ||||||||||
Cancelled through cash settlement | — | $ | — | — | $ | — | ||||||||||
Forfeited/cancelled/expired | — | $ | — | — | $ | — | ||||||||||
Outstanding at end of period | 680,896 | $ | 8.73 | 698,620 | $ | 8.63 | ||||||||||
Options exercisable at end of period | 378,896 | $ | 8.92 | 319,620 | $ | 8.45 | ||||||||||
Options exercisable which can be settled in cash | 70,896 | $ | 4.81 | 88,620 | $ | 4.73 | ||||||||||
16
For the Three Months Ended March 31, | ||||||||||||||||
2012 | 2011 | |||||||||||||||
Options | Weighted- Average Exercise Price | Options | Weighted- Average Exercise Price | |||||||||||||
Outstanding at beginning of period | 663,172 | $ | 8.82 | 680,896 | $ | 8.73 | ||||||||||
Cancelled through cash settlement | — | $ | — | — | $ | — | ||||||||||
Forfeited/cancelled/expired | — | $ | — | — | $ | — | ||||||||||
|
|
|
| |||||||||||||
Outstanding at end of period | 663,172 | $ | 8.82 | 680,896 | $ | 8.73 | ||||||||||
|
|
|
| |||||||||||||
Options exercisable at end of period | 361,172 | $ | 9.10 | 301,896 | $ | 8.68 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Options exercisable which can be settled in cash | 53,172 | $ | 4.60 | 70,896 | $ | 4.81 | ||||||||||
|
|
|
|
|
|
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stock Plans and Other Incentives (continued)
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 reflect (1) the net cash payments to option holders made during each period, (2) the impact of the exercise and expiration of options 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.
At March 31, 2012, the liability for option cancellations was approximately $229,000 based upon the difference in the closing stock price of the Company at March 31, 2012 of $8.91 per share and the individual exercise prices of the outstanding 53,172 “in-the-money” options that were accounted for as a liability award 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 a liability award at that date. The Company recorded a compensation (benefit) expense of approximately $(11,000) and $61,000 for the three months ended March 31, 2012 and 2011, respectively, in general and administrative expenses in the statements of operations related to the respective changes in the amount of the liability for option cancellations.
RSU Awards
The following table presents the changes in RSUs outstanding for the three months ended March 31, 2012 and 2011:
For the Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Outstanding at beginning of period | 590,662 | 523,479 | ||||||
Granted | 151,343 | 225,580 | ||||||
Common stock delivered (A)(B) | (189,551) | (149,496) | ||||||
Forfeited | — | — | ||||||
|
|
|
| |||||
Outstanding at end of period | 552,454 | 599,563 | ||||||
|
|
|
| |||||
Intrinsic value at March 31, 2012 and 2011, respectively (C) | $ | 4,922,000 | $ | 4,731,000 | ||||
|
|
|
| |||||
|
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Outstanding at beginning of period | 523,479 | 507,668 | ||||||
Granted | 243,499 | 283,355 | ||||||
Common stock delivered (A)(B) | (177,828 | ) | (275,559 | ) | ||||
Forfeited | — | (1,800 | ) | |||||
Outstanding at end of period | 589,150 | 513,664 | ||||||
Intrinsic value at September 30, 2011 and 2010, respectively (C) | $ | 5,220,000 | $ | 3,282,000 | ||||
(A) | Includes | |||
(B) | Includes 33,758 shares which were used to settle minimum employee withholding tax obligations for 14 employees of approximately $251,000 in | |||
(C) | For purposes of this calculation, the Company’s closing stock prices were |
17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Stock Plans and Other Incentives (continued)
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.
Option and RSU Expense Information
The Company recorded non-cash compensation expense of approximately $557,000 and $485,000, including approximately $69,000 and $81,000 related to non-employee director equity compensation, for the three months ended March 31, 2012 and 2011, 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 operations.
10. |
| |
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: |
18
For the Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Numerator for basic per share calculation: | ||||||||
Income from continuing operations for basic calculation | $ | 136,379 | $ | 99,529 | ||||
(Loss) from discontinued operations, net of income tax expense | (14,345,255) | (89,730) | ||||||
|
|
|
| |||||
Net (loss) income for basic calculation | $ | (14,208,876) | $ | 9,799 | ||||
|
|
|
| |||||
Numerator for diluted per share calculation: | ||||||||
Income from continuing operations | $ | 136,379 | $ | 99,529 | ||||
Adjustments to income from continuing operations for the income statement impact of dilutive securities | (11,166) | — | ||||||
|
|
|
| |||||
Income from continuing operations for dilution calculation | 125,213 | 99,529 | ||||||
(Loss) from discontinued operations, net of income tax expense | (14,345,255) | (89,730) | ||||||
|
|
|
| |||||
Net (loss) income for dilution calculation | $ | (14,220,042) | $ | 9,799 | ||||
|
|
|
| |||||
Denominator: | ||||||||
Weighted average common shares – basic | 10,623,575 | 10,529,141 | ||||||
Effect of dilutive securities: | ||||||||
RSUs | 341,011 | 266,105 | ||||||
Stock options | 46,808 | — | ||||||
|
|
|
| |||||
Weighted average common shares – diluted | 11,011,394 | 10,795,246 | ||||||
|
|
|
| |||||
Per common share amounts – basic: | ||||||||
Income from continuing operations | $ | 0.01 | $ | 0.01 | ||||
(Loss) from discontinued operations | (1.35) | (0.01) | ||||||
|
|
|
| |||||
Net (loss) income | $ | (1.34) | $ | — | ||||
|
|
|
| |||||
Per common share amounts – diluted: | ||||||||
Income from continuing operations | $ | 0.01 | $ | 0.01 | ||||
(Loss) from discontinued operations | (1.30) | (0.01) | ||||||
|
|
|
| |||||
Net (loss) income | $ | (1.29) | $ | — | ||||
|
|
|
|
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Numerator for basic per share calculation: | ||||||||||||||||
Income (loss) from continuing operations for basic calculation | $ | 288,967 | $ | 115,357 | $ | 489,125 | $ | (98,872 | ) | |||||||
Income (loss) from discontinued operations, net of income tax expense | 1,231 | (319 | ) | 1,253,481 | 143,237 | |||||||||||
Net income for basic calculation | $ | 290,198 | $ | 115,038 | $ | 1,742,606 | $ | 44,365 | ||||||||
Numerator for diluted per share calculation | ||||||||||||||||
Income (loss) from continuing operations | $ | 288,967 | $ | 115,357 | $ | 489,125 | $ | (98,872 | ) | |||||||
Adjustments to income (loss) from continuing operations for the income statement impact of dilutive securities | (75,859 | ) | — | — | — | |||||||||||
Income (loss) from continuing operations for dilution calculation | 213,108 | 115,357 | 489,125 | (98,872 | ) | |||||||||||
Income (loss) from discontinued operations, net of income tax expense | 1,231 | (319 | ) | 1,253,481 | 143,237 | |||||||||||
Net income for dilution calculation | $ | 214,339 | $ | 115,038 | $ | 1,742,606 | $ | 44,365 | ||||||||
Denominator: | ||||||||||||||||
Weighted average common shares – basic | 10,599,031 | 10,594,443 | 10,572,288 | 10,504,098 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||
RSUs | 351,274 | 221,447 | 259,561 | — | ||||||||||||
Stock options | 46,852 | — | 3,753 | — | ||||||||||||
Weighted average common shares – diluted | 10,997,157 | 10,815,890 | 10,835,602 | 10,504,098 | ||||||||||||
Per common share amounts – basic: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.03 | $ | 0.01 | $ | 0.05 | $ | (0.01 | ) | |||||||
Income (loss) from discontinued operations | — | — | 0.11 | 0.01 | ||||||||||||
Net income | $ | 0.03 | $ | 0.01 | $ | 0.16 | $ | — | ||||||||
Per common share amounts – diluted: | ||||||||||||||||
Income (loss) from continuing operations | $ | 0.02 | $ | 0.01 | $ | 0.05 | $ | (0.01 | ) | |||||||
Income (loss) from discontinued operations | — | — | 0.11 | 0.01 | ||||||||||||
Net income | $ | 0.02 | $ | 0.01 | $ | 0.16 | $ | — | ||||||||
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
11. | Commitments and Contingencies |
11.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. 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. 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.
Reis, Inc. and two of its subsidiaries (GP LLC and Wellsford Park Highlands Corp. (“WPHC”)) were the subject of a suit brought by the 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. Tri-Star Construction, the construction manager/general contractor for the project (not affiliated with Reis) (“Tri-Star”) and two former officers of Reis, Inc. (one of whom was also a director) were named as defendants in the suit. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19,000,000. Trial commenced on February 21, 2012 and a jury rendered its verdict on March 13, 2012. The jury found Reis, jointly and severally with GP LLC and the former officers, liable for an aggregate of $18,200,000.
In connection with the development of Gold Peak, the Company purchased a commercial general liability “WRAP” insurance policy from ACE Westchester (“ACE”) that covers the Company (including its subsidiaries) and its former officers, Tri-Star and Tri-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 $9,000,000 (and possibly $12,000,000) of coverage is available for this claim. ACE has taken the position that only $3,000,000 of coverage (including defense costs) was provided. The Company has filed suit against 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 additional 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, co-defendants or others, including Reis’s directors’ and officers’ insurance policy. The Company has also brought separate claims against the architect and a third party inspector engaged at Gold Peak.
As a result of the 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 to be recovered. As of December 31, 2011, based on the best available information at that time, the Company recorded a charge of approximately $4,460,000 in discontinued operations, representing the low end of the Company’s expected range of net exposure. This amount reflected an aggregate minimum liability of $7,740,000, less the then minimum expected insurance recovery of $3,000,000 and other previously reserved amounts. These charges are reflected in discontinued operations and negatively impact net income (loss), but do not impact income from continuing operations.
On April 12, 2012, the Company, other defendants and the plaintiff homeowners’ association filed various post-trial motions which could result in increases or decreases in the final judgment, a new trial or no change from the jury verdict. Following the court’s ruling on these post-trial motions, the Company will have an additional period of time to file an appeal of the judgment. In order to appeal the judgment, the Company will be required to post cash or a bond with the court and may need to obtain additional financing. There can be no assurance that the Company will be able to obtain sufficient financing, on terms favorable to the Company, or at all. If this matter is appealed, a final resolution would likely be deferred into 2013, although the Company may pursue settlement of this matter sooner.
REIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Fair ValueCommitments and Contingencies (continued)
If Reis is required to pay all or substantially all of Financial Instruments
The Company is not a party to any other litigation that could reasonably be foreseen to be material to the Company.
12. | Fair Value of Financial Instruments |
At September 30, 2011March 31, 2012 and December 31, 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, were not materially different from their recorded values at September 30, 2011March 31, 2012 and December 31, 2010. Other than capital leases, all2011. All of the Company’s debt at September 30, 2011March 31, 2012 and December 31, 20102011 was floating rate based. Regarding the Bank Loan, the fair value of this debt is estimated to be approximately $6,960,000$3,764,000 and $10,905,000$5,628,000 at September 30, 2011March 31, 2012 and December 31, 2010,2011, respectively, which is lower than the recorded amounts of $7,074,000$3,794,000 and $11,222,000$5,691,000 at September 30, 2011March 31, 2012 and December 31, 2010,2011, respectively. The estimated fair value 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.
19
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Organization and Business
Reis, Inc., is a Maryland corporation. The primary business of Reis, Inc. and its consolidated subsidiaries, which we refer to as eitherReis or the Company, or Reis, 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 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 evaluations. Depending on the product, users have access to trend and forecast analysis 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, and equity investors. 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.
Operations
As commercial real estate markets have grown in size and complexity, Reis, over the last 3032 years, has invested in the areas critical to supporting the information needs of real estate professionals in both the asset market and the space leasing market. In particular, Reis has:
developed expertise in data collection across multiple markets and property types;
invested in the analytical expertise to develop decision support systems around property valuation, 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.
20
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 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 covered by Reis for each of the five types of commercial real estate (after the announced expansion of coverage in October 2011):
Number of metropolitan markets: | ||||
Apartment | 200 | |||
Retail | 190 | |||
Office | 132 | |||
Warehouse/distribution | 47 | |||
Flex/research & development | 47 |
Including its programmatic expansion by geography and property type, most recently of retail shopping centers, warehouse/distribution and flex/research & development coverage, Reis monitors over 6,300 market areas and segments.
Reis entered into an exclusive market data agreement with the Self Storage Association in June 2011 and will introduce coverage of the U.S. self storage market in 2012. This will be the sixth major property type for which Reis will provide market data and analytics.
In addition to the 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 criteria 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 204 of our covered203 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. Beginning in April 2011, we have expanded the coverage to includeavailable, for transactions valued at greater than $250,000 in the covered markets of our covered markets. Additionally, during March 2011, we addedfive property types, as well as for hotel transactions to our sales comparables coverage.
Products and Services
Reis SE, available through thewww.reis.com web site, serves as a 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 SEis 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 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.
21
Reports are retrievable by street address, property type (apartment, office, retail, warehouse/distribution and flex/research & development) 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.
Reis SEinclude:
Reis continues to develop new products and applications. CurrentOur current initiatives include the launch of the next generation of our flagship product,Reis SE 2.0, and further expansion of both our geographic market coverage and property types and broadeningtypes. We are also actively seeking to expand our revenue streams through licensing of portions of our data to major business information vendors. We have, to date, entered into data redistribution relationships with other business information vendors. During 2011, data redistribution agreements were executed withSNL Financial, FactSet, Capital IQ, Thomson Reuters and, Thomson Reuters.
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 subscribers to download a limited retail value of reports,reports; (3) online single report credit card purchases,purchases; (4) custom data requestsrequests; and (5) monthly subscriptions 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 per report and are available to anyone who visits Reis’s retail web site or contacts Reis via telephone, fax or email. However, certain reports are only available by a subscription or capped subscription account. Custom data deliverables range 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 historical and projected report consumption. The monthly fee forReisReportsis currently $75 or $125 depending on the package chosen by the subscriber.
Other Reis Services Information
For additional information on the Reis Services business, refer to the Company’s annual report on Form 10-K for the year ended December 31, 2010,2011, which was filed with the Securities and Exchange Commission on March 11, 2011.
22
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.
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.
On March 13, 2012, in connection with litigation regarding construction defects at the Gold Peak project, a jury rendered its verdict, whereby Reis, jointly and severally with Gold Peak at Palomino Park LLC, the developer of the project, which we refer to as GP LLC, and two former officers, was found liable for an aggregate of $18,200,000, plus other costs of approximately $756,000. For additional information pertaining to the Gold Peak litigation and the $14,216,000 charge recorded in the first quarter of 2012, see Note 11 included in the unaudited financial statements in Item 1 of this quarterly report on Form 10-Q.
Additional Segment Financial Information
See Note 3 of the consolidated financial statements included in this filing for additional information regarding all of the Company’s segments.
Selected Significant Accounting Policies
For a description of our selected significant accounting policies and estimates, see our Annual Report on Form 10-K for the year ended December 31, 2011.
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 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).
For the Three Months Ended | ||||||||||||||||
September 30, | Percentage | |||||||||||||||
2011 | 2010 | Increase | Increase | |||||||||||||
Revenue | $ | 6,747 | $ | 6,013 | $ | 734 | 12.2 | % | ||||||||
EBITDA | $ | 2,722 | $ | 2,440 | $ | 282 | 11.6 | % | ||||||||
EBITDA margin | 40.3 | % | 40.6 | % | ||||||||||||
For the Nine Months Ended | ||||||||||||||||
September 30, | Percentage | |||||||||||||||
2011 | 2010 | Increase | Increase | |||||||||||||
Revenue | $ | 20,201 | $ | 18,031 | $ | 2,170 | 12.0 | % | ||||||||
EBITDA | $ | 8,089 | $ | 7,096 | $ | 993 | 14.0 | % | ||||||||
EBITDA margin | 40.0 | % | 39.4 | % | ||||||||||||
For the Three Months Ended | ||||||||||||||||
September 30, | June 30, | Percentage | ||||||||||||||
2011 | 2011 | (Decrease) | (Decrease) | |||||||||||||
Revenue | $ | 6,747 | $ | 6,837 | $ | (90 | ) | (1.3 | )% | |||||||
EBITDA | $ | 2,722 | $ | 2,748 | $ | (26 | ) | (0.9 | )% | |||||||
EBITDA margin | 40.3 | % | 40.2 | % |
23
(amounts in thousands, excluding percentages) | ||||||||||||||||
For the Three Months Ended March 31, | Increase | Percentage Increase | ||||||||||||||
2012 | 2011 | |||||||||||||||
Revenue | $ | 7,298 | $ | 6,617 | $ | 681 | 10.3% | |||||||||
EBITDA | $ | 2,921 | $ | 2,619 | $ | 302 | 11.5% | |||||||||
EBITDA margin | 40.0% | 39.6% | ||||||||||||||
For the Three Months Ended | ||||||||||||||||
March 31, 2012 | December 31, 2011 | Increase | Percentage Increase | |||||||||||||
Revenue | $ | 7,298 | $ | 6,979 | $ | 319 | 4.6% | |||||||||
EBITDA | $ | 2,921 | $ | 2,748 | $ | 173 | 6.3% | |||||||||
EBITDA margin | 40.0% | 39.4% |
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 generallytypically 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 believes are criticalutilizes 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 September 30,March 31, 2012 and 2011, and 2010, respectively. A comparison of these balances at September 30March 31 of each year is more meaningful than a comparison to the December 31, 2010 balances.
24
Percentage Increase (Decrease) | ||||||||||||||||
March 31, | Increase (Decrease) | |||||||||||||||
2012 | 2011 | |||||||||||||||
Deferred revenue (GAAP basis) | $ | 14,758,000 | $ | 13,407,000 | $ | 1,351,000 | 10.1% | |||||||||
Amounts under non-cancellable contracts for which the Company does not yet have the contractual right to bill at the period end (A) | 11,212,000 | 11,656,000 | (444,000) | (3.8)% | ||||||||||||
|
|
|
|
|
| |||||||||||
Aggregate Revenue Under Contract | $ | 25,970,000 | $ | 25,063,000 | $ | 907,000 | 3.6% | |||||||||
|
|
|
|
|
| |||||||||||
|
September 30, | Percentage | |||||||||||||||
2011 | 2010 | Increase | Increase | |||||||||||||
Deferred revenue (GAAP basis) | $ | 12,368,000 | $ | 10,275,000 | $ | 2,093,000 | 20.4 | % | ||||||||
Amounts under non-cancellable contracts for which the Company does not yet have the contractual right to bill at the period end (A) | 12,263,000 | 11,681,000 | 582,000 | 5.0 | % | |||||||||||
Aggregate Revenue Under Contract (B) | $ | 24,631,000 | $ | 21,956,000 | $ | 2,675,000 | 12.2 | % | ||||||||
(A) | Amounts are billable | |
Included in Aggregate Revenue Under Contract at March 31, 2012 was approximately $19,756,000 related to amounts under contract for the forward twelve month period through March 31, 2013. The increases in bothremainder reflects amounts under contract beyond March 31, 2013. The forward twelve month Aggregate Revenue Under Contract amount is approximately 70.9% of revenue on a trailing twelve month basis at March 31, 2012 of approximately $27,862,000. For comparison purposes, at March 31, 2011, the forward twelve month Aggregate Revenue Under Contract of $18,343,000 was approximately 74.0% of revenue on a trailing twelve month basis at March 31, 2011.
Both deferred revenue and Aggregate Revenue Under Contract are influenced by: (1) the resulttiming and dollar value of an improved sales environment for renewals (by consistent improvementcontracts signed; (2) the quantity and timing of contracts that are multiyear; and (3) the impact of recording revenue ratably over the life of a contract, which moderates the effect of price increases after the first year. These influences resulted in renewal rates) and increased new business, as described abovea 3.6% increase in the revenue discussion. As we enter our heavy renewal period for the year both deferred revenue and Aggregate Revenue Under Contract will be replenished.
EBITDA of Reis Services for the three months ended September 30, 2011March 31, 2012 was $2,722,000,$2,921,000, an increase of $282,000,$302,000, or 11.6%11.5%, over the thirdfirst quarter 20102011 amount. On a consecutive quarter basis, EBITDA of Reis Services forincreased $173,000 or 6.3% in the nine months ended September 30, 2011 was $8,089,000, an increase of $993,000, or 14.0%,first quarter 2012 over the corresponding 2010 period.fourth quarter 2011. These increases are directly impactedwere primarily derived by the corresponding increases in revenue, as described above, whileand maintaining EBITDA margins for the Reis Services segment at approximately 40%. On a consecutive quarter basis, EBITDA of Reis Services decreased $26,000, or 0.9%, in the third quarter 2011 from the second quarter 2011. This decrease is directly attributable to the $90,000 revenue decline previously described in this section.
Reconciliations of Income (Loss) 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 (loss) from continuing operations,
operating income, (loss), 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.
25
(amounts in thousands) | ||||||||||||
Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended March 31, 2012 | By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Income from continuing operations | $ | 136 | ||||||||||
Income tax expense | 84 | |||||||||||
|
| |||||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,528 | $ | (1,308) | 220 | |||||||
Add back: | ||||||||||||
Depreciation and amortization expense | 1,355 | 1 | 1,356 | |||||||||
Interest expense (income), net | 38 | (1) | 37 | |||||||||
|
|
|
|
|
| |||||||
EBITDA | 2,921 | (1,308) | 1,613 | |||||||||
Add back: | ||||||||||||
Stock based compensation expense, net | — | 546 | 546 | |||||||||
|
|
|
|
|
| |||||||
Adjusted EBITDA | $ | 2,921 | $ | (762) | $ | 2,159 | ||||||
|
|
|
|
|
| |||||||
Adjusted EBITDA margin – Reis Services and consolidated (B) | 40.0% | 29.6% | ||||||||||
|
|
|
| |||||||||
Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA for the Three Months Ended March 31, 2011 | By Segment | |||||||||||
Reis Services | Other (A) | Consolidated | ||||||||||
Income from continuing operations | $ | 100 | ||||||||||
Income tax expense | — | |||||||||||
|
| |||||||||||
Income (loss) before income taxes and discontinued operations | $ | 1,325 | $ | (1,225) | 100 | |||||||
Add back: | ||||||||||||
Depreciation and amortization expense | 1,234 | 1 | 1,235 | |||||||||
Interest expense (income), net | 60 | (1) | 59 | |||||||||
|
|
|
|
|
| |||||||
EBITDA | 2,619 | (1,225) | 1,394 | |||||||||
Add back: | ||||||||||||
Stock based compensation expense, net | — | 546 | 546 | |||||||||
|
|
|
|
|
| |||||||
Adjusted EBITDA | $ | 2,619 | $ | (679) | $ | 1,940 | ||||||
|
|
|
|
|
| |||||||
Adjusted EBITDA margin – Reis Services and consolidated (B) | 39.6% | 29.3% | ||||||||||
|
|
|
| |||||||||
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 Three Months Ended September 30, 2011 | Reis Services | Other (A) | Consolidated | |||||||||
Income from continuing operations | $ | 289 | ||||||||||
Income tax expense | — | |||||||||||
Income (loss) before income taxes | $ | 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 | |||||
Reconciliation of Income from Continuing Operations to EBITDA and | By Segment | |||||||||||
Adjusted EBITDA for the Nine Months Ended September 30, 2011 | Reis Services | Other (A) | Consolidated | |||||||||
Income from continuing operations | $ | 489 | ||||||||||
Income tax expense | — | |||||||||||
Income (loss) before income taxes and discontinued operations | $ | 4,130 | $ | (3,641 | ) | 489 | ||||||
Add back: | ||||||||||||
Depreciation and amortization expense | 3,801 | 2 | 3,803 | |||||||||
Interest expense, net | 158 | (5 | ) | 153 | ||||||||
EBITDA | 8,089 | (3,644 | ) | 4,445 | ||||||||
Add back: | ||||||||||||
Stock based compensation expense, net | — | 1,667 | 1,667 | |||||||||
Adjusted EBITDA | $ | 8,089 | $ | (1,977 | ) | $ | 6,112 | |||||
Reconciliation of Income from Continuing Operations to EBITDA and | By Segment | |||||||||||
Adjusted EBITDA for the Three Months Ended September 30, 2010 | Reis Services | Other (A) | Consolidated | |||||||||
Income from continuing operations | $ | 116 | ||||||||||
Income tax expense | 79 | |||||||||||
Income (loss) before income taxes | $ | 1,254 | $ | (1,059 | ) | 195 | ||||||
Add back: | ||||||||||||
Depreciation and amortization expense | 1,114 | 1 | 1,115 | |||||||||
Interest expense (income), net | 72 | (5 | ) | 67 | ||||||||
EBITDA | 2,440 | (1,063 | ) | 1,377 | ||||||||
Add back: | ||||||||||||
Stock based compensation expense, net | — | 416 | 416 | |||||||||
Adjusted EBITDA | $ | 2,440 | $ | (647 | ) | $ | 1,793 | |||||
Reconciliation of (Loss) from Continuing Operations to EBITDA and | By Segment | |||||||||||
Adjusted EBITDA for the Nine Months Ended September 30, 2010 | Reis Services | Other (A) | Consolidated | |||||||||
(Loss) from continuing operations | $ | (99 | ) | |||||||||
Income tax (benefit) | (63 | ) | ||||||||||
Income (loss) before income taxes | $ | 3,316 | $ | (3,478 | ) | (162 | ) | |||||
Add back: | ||||||||||||
Depreciation and amortization expense | 3,549 | 4 | 3,553 | |||||||||
Interest expense (income), net | 231 | (15 | ) | 216 | ||||||||
EBITDA | 7,096 | (3,489 | ) | 3,607 | ||||||||
Add back: | ||||||||||||
Stock based compensation expense, net | — | 1,201 | 1,201 | |||||||||
Adjusted EBITDA | $ | 7,096 | $ | (2,288 | ) | $ | 4,808 | |||||
26
Reconciliation of Income from Continuing Operations to EBITDA and | By Segment | |||||||||||
Adjusted EBITDA for the Three Months Ended June 30, 2011 | Reis Services | Other (A) | Consolidated | |||||||||
Income from continuing operations | $ | 100 | ||||||||||
Income tax expense | — | |||||||||||
Income (loss) before income taxes | $ | 1,448 | $ | (1,348 | ) | 100 | ||||||
Add back: | ||||||||||||
Depreciation and amortization expense | 1,249 | — | 1,249 | |||||||||
Interest expense (income), net | 51 | (2 | ) | 49 | ||||||||
EBITDA | 2,748 | (1,350 | ) | 1,398 | ||||||||
Add back: | ||||||||||||
Stock based compensation expense, net | — | 675 | 675 | |||||||||
Adjusted EBITDA | $ | 2,748 | $ | (675 | ) | $ | 2,073 | |||||
(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 |
(B) | Reflects an adjusted EBITDA margin on the Reis Services segment and on a consolidated basis, both of which excludes the impact of discontinued operations. |
Results of Operations
Comparison of the Results of Operations for the Three Months Ended September 30,March 31, 2012 and 2011 and 2010
Subscription revenues and related cost of sales were approximately $6,747,000$7,298,000 and $1,550,000,$1,846,000, respectively, for the three months ended September 30, 2011,March 31, 2012, resulting in a gross profit for the Reis Services segment of approximately $5,197,000.$5,452,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $601,000$655,000 during this period. Subscription revenues and related cost of sales were approximately $6,013,000$6,617,000 and $1,403,000,$1,550,000, respectively, for the three months ended September 30, 2010,March 31, 2011, resulting in a gross profit for the Reis Services segment of approximately $4,610,000.$5,067,000. Amortization expense included in cost of sales was approximately $526,000$585,000 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 $147,000$296,000 is primarily a result of increased database amortization expense and higher employment related costs from hiring during 20102011 and 2011,2012, coupled with related benefitswage and wagebenefit increases over the 2010 period.
Sales and marketing expenses were approximately $1,656,000$1,729,000 and $1,369,000$1,652,000 for the three months ended September 30,March 31, 2012 and 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 $247,000$246,000 and $250,000$249,000 during the three months ended September 30,March 31, 2012 and 2011, and 2010, respectively. The expense increase forin sales and marketing expenses between the two periods of approximately $287,000$77,000 generally reflects increased commissions and employment related costs from hiring during 20102011 and 2011,2012, coupled with related benefitswage and wagebenefit increases over the 20102011 period.
Product development expenses were approximately $574,000$514,000 and $419,000$481,000 for the three months ended September 30,March 31, 2012 and 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 $308,000$295,000 and $178,000$242,000 during the three months ended September 30,March 31, 2012 and 2011, and 2010, respectively. Product development costs increased $155,000,$33,000, primarily due to a net increase in amortization expense of $130,000 fromfor web site costs capitalized and amortization expense commencing in the second quarter of 2011period for theReisReportsweb site and other significant product introductions and improvements in 2010 and 2011, in excess of Merger related purchase price allocations becoming fully amortized in 2010.
General and administrative expenses of $2,633,000approximately $2,952,000 for the three months ended September 30, 2011March 31, 2012 include current period expenses of $2,024,000,approximately $2,246,000, depreciation and amortization expense of $163,000approximately $160,000 for lease value and furniture, fixtures and equipment, and approximately $446,000 of non-cash compensation expense. The non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $522,000, offset by an approximate $76,000 decrease in the liability for option cancellations due to a decrease in the market price of the Company’s common stock from $9.93 per share at June 30, 2011 to $8.86 per share at September 30, 2011. General and administrative expenses of $2,560,000 for the three
27
28
Interest expense of $215,000$53,000 for the ninethree months ended September 30,March 31, 2012 is comprised of interest and cost amortization on the Reis Services debt, which we refer to as the Bank Loan. Interest expense of $78,000 for the three months ended March 31, 2011 includes interest and cost amortization on the Bank Loan of $213,000$77,000 and interest from other debt of $2,000. Interest expense of $318,000 for the nine months ended September 30, 2010 includes interest and cost amortization on the Bank Loan of $309,000 and interest from other debt of $9,000. The lower expense in 2011 is the result of lower outstanding balances in the 2011 period.
The income tax benefit from continuing operationsexpense of $84,000 during the ninethree months ended September 30, 2010 of $63,000March 31, 2012 reflects a deferred Federal benefittax expense of $51,000$74,000 and a deferred state and local tax expense of $10,000. There was no income tax expense recorded in the first quarter of 2011.
The loss from discontinued operations was $14,345,000 and $90,000 for the three months ended March 31, 2012 and 2011, respectively. The loss in the 2012 period primarily is comprised of a charge of $14,216,000 related to the March 13, 2012 jury verdict rendered in the Gold Peak litigation, plus other costs, and is after an income tax benefit of $12,000 as a result of the pre-tax loss from continuing operations in the first nine months of 2010. No provision was recorded by the Company in 2011 as a result of the corresponding reduction in the Company’s allowance for deferred tax assets.
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 liabilityasset was approximately $67,000$4,003,000 and $4,008,000 at September 30, 2011March 31, 2012 and December 31, 2010,2011, respectively, of which $189,000 and $323,000 is reflected as a net current asset and $3,814,000 and $3,685,000 is reflected as a net non-current liabilityasset in the accompanying consolidated balance sheets.sheets, respectively. The significant portion of the deferred tax items primarily relates to: (1) the tax benefit of impairment charges before allowances at December 31, 2010; (2) net operating loss, or NOL carryforwards; (3)(2) Federal alternative minimum tax (“AMT”)AMT credit carryforwards; (3) stock based compensation; and (4) stock based compensation,liability reserves, all as they relate to deferred tax assets; and (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 carryfowards aggregating approximately $56,014,000 at March 31, 2012 and December 31, 2011. These NOLs include NOLs generated subsequent to the Merger, aslosses 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, whereas the remaining balance of approximately $28,755,000 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 relates to deferred tax liabilities.
A valuation allowance is required to reduce the deferred tax assets if, based on the weight of the evidence, it is more-likely-than-notmore 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 $7,550,000$22,466,000 and $8,254,000$17,092,000 at September 30, 2011March 31, 2012 and December 31, 2010,2011, respectively, was necessary. The allowance at September 30, 2011 and December 31, 2010 relates primarily to NOL carryforwards, AMT credits and existing and expected NOL carryforwards, and in 2010, the excess of a portion of the tax basis of certain real estate development assets over their respective financial statement basis.liability reserves. The reductionincrease in the valuation allowance in the first quarter of 2012 is attributable to providing a full allowance for the Gold Peak litigation charge recorded during March 2012. The Company will continue to evaluate the nine months ended September 30, 2011 results from the realizationamount of a portionvaluation allowance on deferred tax assets during 2012 and subsequent years based on such factors as historic profitability levels and forecasts of the excess tax basis upon the sale of the East Lyme project, which was used to offset the Company’s pre-tax income in this period.
Liquidity and Capital Resources
Cash and cash equivalents aggregated approximately $22,268,000$21,319,000 at September 30, 2011, including approximately $18,227,000 in the Reis Services segment. Management considers such amounts to be adequateMarch 31, 2012, 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 September 30, 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 $15,188,000 and $11,147,000, respectively. At December 31, 2010,$17,525,000.
The significant liquidity requirement that the Company is currently addressing is related to the timing and amount of posting cash or a bond with the Colorado court related to the $18,200,000 Gold Peak judgment, plus other costs of approximately $756,000. The Company is evaluating its options with respect to cash, bonding and borrowing. The Company filed post-trial motions on a consolidated basisApril 12, 2012 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 $6,274,000 and $6,485,000, respectively, from December 31, 2010will have an additional period of time to September 30, 2011, which management believes is a strong indicatorfile an appeal of the judgment. In order to appeal the judgment, the Company will be required to post cash generation poweror a bond with the court and may need to obtain additional financing. There can be no assurance that the Company will be able to obtain sufficient financing, on terms favorable to the Company, or at all. If this matter is appealed, a final resolution would likely be deferred into 2013, although the Company may pursue settlement of this matter sooner. If Reis is required to pay all or substantially all of the Reis Services business model.
At March 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; the current portion of long-term debt (comprised(solely comprised of scheduled principal payments of approximately $7,074,000$3,794,000 on the Bank Loan, payablewhich will be paid in full by its September 30, 2012)2012 maturity date); operating and capital leases; remaining warranty costs, and 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
29
favorable to the Company, or at all. 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.
The Company’s long-term liquidity requirements include: future operating and capitalizable costs; long-term product development and enhancements of the web sitesites 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.Services and, if a significant cash outflow is necessary to either bond or settle the Gold Peak judgment, through borrowings. There can be no assurance that the Company will be able to obtain sufficient financing, on terms favorable to the Company, or at all. The Company has NOLs that it expects to be able to use inbeyond the next few years against future taxable income for Federal, state and local tax purposes (to the extent that taxable income, is generated).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.
30
31
Comparison of Cash Flows for the NineThree Months Ended September 30,March 31, 2012 and 2011 and 2010
Cash flows for the ninethree months ended September 30,March 31, 2012 and 2011 and 2010 are summarized as follows:
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2011 | 2010 | |||||||
Net cash provided by operating activities | $ | 9,854,384 | $ | 6,005,930 | ||||
Net cash (used in) investing activities | (2,840,154 | ) | (1,919,177 | ) | ||||
Net cash (used in) financing activities | (4,910,092 | ) | (7,190,804 | ) | ||||
Net increase (decrease) in cash and cash equivalents | $ | 2,104,138 | $ | (3,104,051 | ) | |||
For the Three Months Ended March 31, | ||||||||
2012 | 2011 | |||||||
Net cash provided by operating activities | $ | 2,789,066 | $ | 4,030,338 | ||||
Net cash (used in) investing activities | (974,643) | (802,135) | ||||||
Net cash (used in) financing activities | (2,648,356) | (1,643,772) | ||||||
|
|
|
| |||||
Net (decrease) increase in cash and cash equivalents | $ | (833,933) | $ | 1,584,431 | ||||
|
|
|
|
Cash flows provided by operating activities increased $3,848,000decreased $1,241,000 from $6,006,000 provided in the 2010 period to $9,854,000$4,030,000 provided in the 2011 period to $2,789,000 provided in the 2012 period. The increase resultedThis decrease was primarily the result of (1) decreased cash flow from (1) increased cash flows from operating activities of the Reis Services segment of $2,380,000$597,000 from $6,900,000 provided in the 2010 period to $9,280,000$4,651,000 provided in the 2011 period primarilyto $4,054,000 provided in the 2012 period due to increased collections in the 2011 period (on a highertiming of accounts receivable balance at December 31, 2010 thancollections, (2) the December 31, 2009 amount)February 2011 collection of approximately $455,000 in satisfaction of a mortgage note and (2) cashaccrued interest thereon from the sale proceeds of property in Claverack, New York in February 2010, and (3) increased professional fees in the East Lyme property, mortgage note receivable repayment and escrow releases in 2011 in excess of the 2010 real estate sales activities.
Cash flows used in investing activities increased $921,000$173,000 from $1,919,000 used in the 2010 period to $2,840,000$802,000 used in the 2011 period to $975,000 used in the 2012 period. This change primarily resulted from an increase of $713,000 for cash used in the 20112012 period as compared to the 20102011 period for web site and database development costs fromfor continuing product development and enhancement initiatives and $198,000 of furniture, fixture and equipment additions in 2011 in excess of 2010 additions.
Cash flows used in financing activities decreased $2,281,000increased $1,004,000 from $7,191,000 used in the 2010 period to $4,910,000$1,644,000 used in the 2011 period to $2,648,000 used in the 2012 period. During the 20102012 period, $6,506,000$1,897,000 was repaid on the Bank Loan whereas $4,148,000$1,383,000 was repaid in the 2011 period. In the 2010 period, the Company repurchased 49,191 shares of its outstanding common stock for approximately $308,000 as compared to 43,249 shares being repurchased in the 2011 period for approximately $388,000. Other debt repayments in the 20102011 period exceeded thewere $10,000, with no such payments in the 2011 period by $137,000.2012 period. Payments for restricted stock unit settlements were approximately $352,000$751,000 and $218,000$251,000 in the 20112012 and 20102011 periods, respectively.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q 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 may be lower than expected;
32
inability to retain and increase the Company’s subscriber base;
competition;
inability to attract and retain sales and senior management personnel;
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 (including difficulty or inability to finance any adverse judgments, bonding or settlement); and
the risk factors listed under “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2011, which was filed with the Securities and Exchange Commission on March 8, 2012.
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report on Form 10-Q. 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 quarterly report on Form 10-Q or to reflect the occurrence of unanticipated events.
The Company’s primary market risk exposure has been to changes in interest rates. This risk ismay be generally managed by limiting the Company’s financing exposures, to the extent possible, by purchasing interest rate caps when and if deemed appropriate.
At September 30, 2011,March 31, 2012, 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. The following table presents the effect of a 1% increase in the applicable base rates of variable rate debt at September 30, 2011:
(amounts in thousands) | Balance at | LIBOR at | Additional | |||||||||
September 30, | September 30, | Interest | ||||||||||
2011 | 2011 | Incurred | ||||||||||
Variable rate debt: | ||||||||||||
Bank Loan | $ | 7,074 | 0.24 | % | $ | 71 | (A) | |||||
(amounts in thousands) | Balance at March 31, 2012 | LIBOR at March 31, 2012 | Additional Interest Incurred | |||||||||
Variable rate debt: | ||||||||||||
Bank Loan | $ | 3,794 | 0.24% | $ | 38(A) | |||||||
|
|
|
| |||||||||
|
(A) | Reflects additional interest which could be incurred annually on the 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 been limited and will continue to diminish significantly as a result of continuingincreased scheduled principal repayments during 2011 and2012 through its maturity at September 30, 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.
33
As of September 30, 2011,March 31, 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. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures as of September 30, 2011March 31, 2012 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 Securities Exchange Act of 1934, as amended, 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.
There has been no change in the Company’s internal control over financial reporting during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Reis, Inc. and two of its subsidiaries are(Gold Peak at Palomino Park, LLC (“GP LLC”) and Wellsford Park Highlands Corp. (“WPHC”)) were the subject of a suit brought by the 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 the alleged design and construction defects at the Gold Peak project. The construction manager/general contractor, the individual owner ofTri-Star Construction, the construction manager/general contractor and the civil engineer for the Gold Peak project have(not affiliated with Reis) (“Tri-Star”) and two former
officers of Reis, Inc. (one of whom was also beena director) were 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 is scheduledcommenced on February 21, 2012 and a jury rendered its verdict on March 13, 2012. The jury found Reis, jointly and severally with GP LLC and the former officers, liable for February 2012.
In connection with the development of Gold Peak, the Company purchased a commercial general liability “wrap”“WRAP” insurance policy coveringfrom ACE Westchester (“ACE”) that covers the Company the general contractor(including its subsidiaries) and theits former officers, Tri-Star and Tri-Star’s subcontractors. The Company, upon advice of counsel and based on a reading of the policy, as written, has taken the position that a total of $9 million$9,000,000 (and possibly $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 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 taking actionliable for all additional damages stemming from this failure to ensure that all applicableengage and settle. Additionally, the Company has added claims against multiple additional insurance companies under policies maintained by the Company, co-defendants or others, are brought into the case.
As a result of the plaintiff’s allegations, that insurance (subject to limited self insurance retainage/deductibles (“SIRs”)) will cover some or all of any eventual settlement or judgment, and that the defendants other thanverdict, the Company will likelyrecorded 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 to be liable for some or allrecovered. As of any remaining settlement judgment amount.
On April 12, 2012, the Company, other defendants and the plaintiff homeowners’ association filed various post-trial motions which could result in increases or decreases in the final judgment, a new trial or no change from the jury verdict. Following the court’s ruling on these post-trial motions, the Company will have an additional period of time to be equal to the amountfile an appeal of the Company’s SIRs plus other costs. Accordingly,judgment. In order to appeal the Company is maintaining a reserve of approximately $280,000, which liability is included in liabilities attributable to discontinued operations onjudgment, the September 30, 2011 balance sheet. Although the Company does not believe that it will be required to pay any amount abovepost cash or a bond with the reserved amount, it is possiblecourt and may need to obtain additional financing. There can be no assurance that a settlementthe Company will be able to obtain sufficient financing, on terms favorable to the Company, or judgment inat all. If this matter could involve the payment byis appealed, a final resolution would likely be deferred into 2013, although the Company may pursue settlement of an amount that could bethis matter sooner.
If Reis is required to pay all or substantially all of the judgment, or post significant cash with the court, it would have a material toimpact on the Company’s reportable discontinued operating income (loss), its consolidated financial position orand cash flows. It would
The Company is not have any effect on the Company’s income from continuing operations.
A wide range of risks may affect our business and financial results, now and in the future; however, we consider the risks described under “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2010,2011, which was filed with the SEC on March 11, 2011,8, 2012, to be the most significant. There may be other currently unknown or unpredictable economic, business, competitive, governmental or other factors that could have material adverse effects on our business or future results.
34 See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statement Regarding Forward-Looking Statements” for additional information.
Issuer Purchases of Equity Securities
During the Board authorizedfirst quarter of 2012, the Company did not repurchase of up to an aggregate amount of $4,000,000 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 (of which $612,000 remained available as of September 30, 2011). 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 purchasesshares of common stock during blackout periods consistent with the Company’s “Policies for Transactions in Reis Stock and Insider Trading and Tipping.” During the third quarter of 2011, the Company repurchased the following common shares:
Maximum Dollar | ||||||||||||||||
Total Number of | Value of Shares | |||||||||||||||
Shares Purchased | That May Yet Be | |||||||||||||||
as Part of Publicly | Purchased Under | |||||||||||||||
Total Number of | Average Price | Announced Plans | the Plans or | |||||||||||||
Period | Shares Purchased | Paid per Share | or Programs | Programs | ||||||||||||
July 1, 2011 to July 31, 2011 | — | $ | — | — | $ | — | ||||||||||
August 1, 2011 to August 31, 2011 | 1,249 | $ | 9.11 | 1,249 | $ | 989,000 | ||||||||||
September 1, 2011 to September 30, 2011 | 42,000 | $ | 8.98 | 42,000 | $ | 612,000 |
None.
None.
Exhibits filed with this Form 10-Q:
Exhibit No. | ||||
Description | ||||
31.1 | Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
31.2 | Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
32.1 | Chief Executive Officer and Chief Financial Officer Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
101 | Interactive Data Files, formatted in extensible Business Reporting Language (XBRL).* |
35
* | 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. |
REIS, INC. | ||||||
By: | /s/ Mark P. Cantaluppi | |||||
Mark P. Cantaluppi | ||||||
Vice President, Chief Financial Officer | ||||||
Dated: NovemberMay 3, 2011
36
32