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

¨For the quarterly period ended September 30, 2011
or
o

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

For the transition period fromto.

For the transition period fromto.

Commission File Number001-12917001-12917

REIS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 
Maryland                               (Exact Name of Registrant as Specified in Its Charter)                                13-3926898

Maryland

 

13-3926898

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

530 Fifth Avenue, New York, NY

 10036
 

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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yesþ      Noo¨

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 ¨

 
Large accelerated filero
Accelerated fileroþ Non-accelerated filero¨ Smaller reporting companyþ¨
  (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.

2012.

 


TABLE OF CONTENTS

   Page
Number
Number
PART I. FINANCIAL INFORMATION:
  

Item 1.

 Financial Statements  
 
Item 1.

  3
 

  4
 

  5
 

  6
 

  7

Item 2.

 
Item 2.

  2019

Item 3.

 

  3329

Item 4.4T.

 

  3429
PART II. OTHER INFORMATION:
  

Item 1.

 

Legal Proceedings

  29

Item 1A.

 

Item 1.Risk Factors

  31

Item 2.

 34
Item 1A.34
Item 2.

  3531

Item 3.

 

  3531

Item 4.

 

  3531

Item 5.

 

  3531

Item 6.

 

  3531
 

Signatures

  36
EX-31.1
EX-31.2
EX-32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT32

2


Part I. Financial Information

Item 1.  Financial Statements.

REIS, INC.
AND SUBSIDIARIES

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


REIS, INC.
AND SUBSIDIARIES

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


REIS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2011

MARCH 31, 2012

(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


REIS, INC.
AND SUBSIDIARIES

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


REIS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Organization and Business

Reis, Inc. (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.
Discontinued Operations – Residential Development Activities
The Company was originally formed on January 8, 1997. Reis acquired the Reis Services business by merger in May 2007 (the “Merger”). Prior to May 2007, Reis operated as Wellsford Real Properties, Inc. (“Wellsford”). Wellsford’s primary operating activities immediately prior to the Merger 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.

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

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

7

Basis of Presentation


Principles of Consolidation

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

Summary of Significant Accounting Policies (continued)
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, 2010, as filed with the SEC on March 11, 2011. The consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 and consolidated statements of changes in cash flows for the nine months ended September 30, 2011 and 2010 are not necessarily indicative of full year results.
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.
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. Although the outcome of any litigation is uncertain, management does not believe that 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.
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 any of the periods presented to conform to the current period presentation; however, the computation of the denominator for determining net income per common share on a fully diluted basis for the nine months ended September 30, 2010 is different than previously presented. This difference, in conformity with existing accounting literature for the computation of earnings per share, is based upon the utilization of a different number of diluted shares as dictated by the loss from continuing operations.

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     
 

 

 

  

 

 

  

 

 

  

 

 

 
     

  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 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)  (B)

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

9


REIS, INC.
AND SUBSIDIARIES

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


REIS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) (continued)

Segment Information (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 
         
(A)Includes the results of the Company’s discontinued Residential Development Activities segment, to the extent that such operations existed during the period presented.
(B)Includes interest and other income, depreciation expense and general and administrative expenses that have not been allocated to the operating segments.
Reis Services
See Note 1 for a description of Reis Services’s business and products at September 30, 2011.
No individual customer accounted for more than 4.9% and 2.5% of Reis Services’s revenues for the nine months ended September 30, 2011 and 2010, respectively.

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:

0000000000000000
(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.
Segment Information (continued)
The balance of outstanding accounts receivable of Reis Services at September 30, 2011 and December 31, 2010, follows:
         
  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 
     
Eight subscribers accounted for an aggregate of approximately 40.8% of Reis Services’s accounts receivable at September 30, 2011, with the largest representing 13.0%. As of October 31, 2011, the Company had received payments of approximately $1,307,000, or 28.8%, against the September 30, 2011 accounts receivable balance.
At September 30, 2011, no subscriber accounted for more than 4.4% of deferred revenue.
Discontinued Operations – Residential Development Activities
Income (loss) from discontinued operations is comprised of the following:
(amounts in thousands)
                 
  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 
         
East Lyme
Prior to its sale in April 2011, the Company’s last remaining residential development was The Orchards, a single family home development in East Lyme, Connecticut, zoned for 161 single family homes on 224 acres (“East Lyme”).
The East Lyme project was sold in a bulk transaction for a gross sales price of $1,800,000 for the remaining 119 lots in inventory, plus the release of approximately $792,000 of project-related deposits and escrows held as restricted cash. Net cash received at closing, after selling expenses and closing adjustments, and including the cash received upon release of the deposits and escrows, aggregated approximately $2,600,000. As a result of this transaction, the Company recorded a gain in the second quarter of 2011 of approximately $1,242,000, which is included in income from discontinued operations. The Company sold two lots during the three months ended September 30, 2010 and sold two lots and one home during the nine months ended September 30, 2010.
Certain of the lots at East Lyme required remediation of pesticides which were used on the property when it was an apple orchard. Remediation would have been 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. The estimated remediation cost was recognized in prior years and was reflected in liabilities attributable to discontinued operations in the December 31, 2010 consolidated balance sheet. As a result of the sale, the Company was indemnified from any financial obligation related to the environmental remediation and reversed this liability, which amount is included in the gain reported in the second quarter of 2011, as referred to above.

12


REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Segment Information (continued)
Claverack
Prior to its sale in February 2010, the Company owned approximately 235 acres in Claverack, New York, which was subdivided into 48 developable single family home lots. In February 2010, the Company sold the Claverack project in a bulk transaction for a gross sales price of $2,750,000, which included two model homes, amenities, 46 additional lots and $450,000 of cash collateralizing certain road completion obligations. Net cash received at closing, after expenses, aggregated approximately $2,187,000. The remaining $450,000 of the purchase price was payable by the purchaser in February 2011 and had been secured by the outstanding road bond and a mortgage on the property. As a result of this transaction, the Company recorded a gain of approximately $263,000 in the first quarter of 2010, which is included in income from discontinued operations. In February 2011, the Company received cash of approximately $455,000 in full satisfaction of the mortgage note and accrued interest thereon.
Real Estate Contingencies
Reis has purchased insurance with respect to construction defect and completed operations at its past real estate projects, including those projects described above. Reis is, from time to time, exposed to various claims associated with the development, construction and sale of condominium units, single family homes or lots. The impact of these claims on the Company has not been material to date. However, 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.
In October 2010, the homeowners’ association at the Company’s former Gold Peak condominium project (located outside of Denver, Colorado), brought suit against the Company, two of its subsidiaries, and other contractors and individuals alleging design and construction defects. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19 million. Trial is scheduled for February 2012. In connection with the development of Gold Peak, the Company purchased a commercial general liability “wrap” insurance policy covering the Company, the general contractor and the subcontractors. The Company is taking action to ensure that all applicable insurance policies maintained by co-defendants or others are brought into the case. The Company believes that it and its co-defendants have valid defenses to some or all 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 than the Company will likely be liable for some or all of any remaining settlement judgment amount.
At this time, based on advice of counsel and the Company’s experience with similar prior actions, the low end of the expected range of exposure is believed to be equal to the amount of the Company’s SIRs plus other costs. Accordingly, the Company is maintaining a reserve of approximately $280,000, which liability is included in liabilities attributable to discontinued operations on the September 30, 2011 balance sheet. Although the Company does not believe that it will be required to pay any amount above the reserved amount, it is possible that a settlement or judgment in this matter could involve the payment by the Company of an amount that could be material to the Company’s reportable discontinued operating income (loss), its consolidated financial position or cash flows. It would not have any effect on the Company’s income from continuing operations.
4.

Restricted Cash and Investments

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

5.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 $215,000 and $214,000 at September 30, 2011 and December 31, 2010, respectively.
In addition, the Company had approximately $791,000 of deposits and escrows related to residential development activities at December 31, 2010, which amount was included in assets attributable to discontinued operations in the consolidated balance sheet at that date. As a result of the April 2011 sale of the East Lyme project, the balance of deposits and escrows related to residential development activities was released and converted to cash, and accordingly, there was no balance at September 30, 2011.

Intangible Assets

13

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


               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)

5.6.
Intangible Assets
The amount of identified intangible assets, including the respective amounts of accumulated amortization, are as follows:
         
  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 
     
The Company capitalized approximately $512,000 and $383,000 during the three months ended September 30, 2011 and 2010, respectively, and $1,427,000 and $949,000 during the nine months ended September 30, 2011 and 2010, respectively, to the database intangible asset. The Company capitalized approximately $421,000 and $351,000 during the three months ended September 30, 2011 and 2010, respectively, and $1,171,000 and $936,000 during the nine months ended September 30, 2011 and 2010, respectively, to the web site intangible asset.
Amortization expense for intangible assets aggregated approximately $1,232,000 and $3,549,000 for the three and nine months ended September 30, 2011, of which approximately $601,000 and $1,778,000 related to the database, which is charged to cost of sales, approximately $247,000 and $744,000 related to customer relationships, which is charged to sales and marketing expense, approximately $308,000 and $800,000 related to web site development, which is charged to product development expense, and approximately $76,000 and $227,000 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 $1,030,000 and $3,297,000 for the three and nine months ended September 30, 2010, of which approximately $526,000 and $1,681,000 related to the database, approximately $250,000 and $751,000 related to customer relationships, approximately $178,000 and $638,000 related to web site development, and approximately $76,000 and $227,000 related to the value ascribed to the below market terms of the office lease.
6.

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.At September 30, 2011 and December 31, 2010, the Company’s debt consisted of the following:
                 
      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


REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Debt (continued)
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 September 30, 2011 and December 31, 2010 (LIBOR was 0.24% and 0.26% at September 30, 2011 and December 31, 2010, respectively).
Reis Services is required to (1) make principal payments on the term loan on a quarterly basis commencing on June 30, 2007 in increasing amounts pursuant to the payment schedule provided in the credit agreement and (2) permanently reduce the revolving loan commitments on a quarterly basis, which commenced on March 31, 2010. Additional principal payments are payable if Reis Services’s annual cash flow exceeds certain amounts, or if certain defined operating ratios are not met, all of which are defined in the credit agreement. The final maturity date of all amounts borrowed pursuant to the credit agreement is September 30, 2012. At September 30, 2011 and December 31, 2010, the Company did not have the ability to borrow any additional amounts under the Bank Loan.
In accordance with the terms of the credit agreement, beginning January 1, 2010 and through the maturity of the Bank Loan, the required leverage ratio was reduced to a maximum of 2.00 to 1.00 from a maximum of 2.50 to 1.00. In order to be in compliance with the leverage ratio test, management made a payment of $3,000,000 at March 31, 2010 in addition to the contractual minimum repayment of $1,000,000 due at that time. Although not required to do so, the Company made additional prepayments of $500,000 at the end of the second, third and fourth quarters of 2010 (aggregating $1,500,000), each of which was in excess of the minimum repayments due at such dates. All of the 2010 prepayments ratably reduced Reis Services’s future quarterly contractual minimum payments through maturity. No additional prepayments, in excess of minimum repayments, were made during the nine months ended September 30, 2011.
7.

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       $—    
   

 

 

  

 

 

 
The components of the income tax expense (benefit) are as follows:
                 
  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)

  Represents the impact of

(A)

Includes income taxes attributable to income from discontinued operations.

(B)

 This amount reflects

Reflects the tax expense (benefit) from continuing operations as reported on the consolidated statementstatements of operationsincome for the periods presented.

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 liability was approximately $67,000 at September 30, 2011 and December 31, 2010, respectively, and is reflected as a non-current liability in the accompanying consolidated balance sheets. The significant portion of the deferred tax items relates to: (1) the tax benefit of impairment charges before allowances at December 31, 2010; (2) net operating loss (“NOL”) carryforwards; (3) Federal alternative minimum tax (“AMT”) credit carryforwards; and (4) stock based compensation, 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 as it relates to deferred tax liabilities.

15

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset was approximately $4,003,000 and $4,008,000 at March 31, 2012 and December 31, 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 asset in the accompanying consolidated balance sheets, respectively. The significant portion of the deferred tax items primarily relates to: (1) NOL carryforwards; (2) Federal AMT credit carryforwards; (3) stock based compensation; and (4) 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, losses from Private Reis prior to the Merger, losses obtained from the Company’s 1998 merger with Value Property Trust (“VLP”) and the Company’s operating losses prior to the Merger. Approximately $27,259,000 of these Federal NOLs are subject to an annual limitation, 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

REIS, INC.
AND SUBSIDIARIES

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.

Income Taxes (continued)Stockholders’ Equity

A valuation allowance is required to reduce the 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 $7,550,000 and $8,254,000 at September 30, 2011 and December 31, 2010, respectively, was necessary. The allowance at September 30, 2011 and December 31, 2010 relates primarily to 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. The reduction in the allowance during the nine months ended September 30, 2011 results from the realization of a portion 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.

8.Stockholders’ Equity

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
stock.

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

2011:


   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      
  

 

 

   

 

 

   

 

 

   

 

 

 

REIS, INC.
AND SUBSIDIARIES

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     
  

 

 

   

 

 

 

 

    

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 operations.
At September 30, 2011, the liability for option cancellations was approximately $287,000 based upon the difference in the closing stock price of the Company at September 30, 2011 of $8.86 per share and the individual exercise prices of the outstanding 70,896 “in-the-money” options that were accounted for as liability awards at that date. At December 31, 2010, the liability for option cancellations was approximately $158,000 based upon the difference in the closing stock price of the Company at December 31, 2010 of $7.03 per share and the individual exercise prices of the outstanding 70,896 “in-the-money” options that were accounted for as liability awards at that date. The Company recorded a reduction to compensation expense of approximately $76,000 for the three months ended September 30, 2011 and compensation expense of $7,000 for the three months ended September 30, 2010, and compensation expense of $130,000 and $21,000 for the nine months ended September 30, 2011 and 2010, 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 nine months ended September 30, 2011 and 2010:
         
  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 (i)74,149 shares which were used to settle minimum employee withholding tax obligations for 16 employees of approximately $751,000 in the first quarter of 2012. A net of 115,402 shares of common stock were delivered in the first quarter of 2012.

(B)

Includes 33,758 shares which were used to settle minimum employee withholding tax obligations for 14 employees of approximately $251,000 in the first quarter of 2011 (ii) 9,054 shares which were used to settle minimum employee withholding tax obligations for two employees of approximately $90,000 in the second quarter of 2011 and (iii) 1,207 shares which were used to settle minimum employee withholding tax obligations for one employee of approximately $11,000 in the third quarter of 2011. A net of 2,126 and 133,809115,738 shares of common stock were delivered in the three and nine months ended September 30, 2011, respectively.
(B)Includes (i) 17,431 shares which were used to settle minimum employee withholding tax obligations for 12 employees of approximately $105,000 in the first quarter of 2010, (ii) 16,870 shares which were used to settle minimum employee withholding tax obligations for 63 employees of approximately $105,000 in the second quarter of 2010 and (iii) 1,207 shares which were used to settle minimum employee withholding tax obligations for one employee of approximately $8,000 in the third quarter of 2010. A net of 2,126 and 240,051 shares of common stock were delivered in the three and nine months ended September 30, 2010, respectively.2011.

(C)

  For purposes of this calculation, the Company’s closing stock prices were $8.86$8.91 and $6.39$7.89 per share on September 30,March 31, 2012 and 2011, and 2010, respectively.


17

In February 2012, an aggregate of 143,783 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a weighted average grant date fair value of $10.05 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). In March 2011, an aggregate of 214,135 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a weighted average grant date fair value of $7.41 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). The awards granted to employees in the first quarter of 2012 and 2011 are treated as equity awards and the grant date fair value is charged to compensation expense at the corporate level on a straight-line basis over the vesting periods.


In January 2012, an aggregate of 7,560 RSUs were granted to non-employee directors (with an average grant date fair value of $9.12 per RSU) related to the equity component of their compensation. In January 2011, an aggregate of 11,445 RSUs were granted to non-employee directors (with a grant date fair value of $7.03 per RSU) related to the equity component of their compensation. In each case, the grant date fair value was determined as of the last trading day of the quarter for which the RSUs

REIS, INC.
AND SUBSIDIARIES

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.

Stock Plans and Other Incentives (continued)Earnings Per Common Share

In March 2011, an aggregate of 214,135 RSUs were granted to employees, which RSUs vest one-third a year over three years and had a weighted average grant date fair value of $7.41 per RSU (which was determined based on the closing stock price of the Company’s common stock on the applicable date of grant). In February and July 2010, an aggregate of 185,500 RSUs and 75,000 RSUs respectively, were granted to employees which vest one-third a year over three years and have a grant date fair value of $5.97 and $6.52 respectively, per RSU (which was determined based on the closing price of the Company’s common stock on the applicable date of grant). The awards granted in 2011 and 2010 are treated as equity awards and the grant date fair value is charged to compensation expense at the corporate level on a straight-line basis over the vesting periods.
During the nine months ended September 30, 2011, an aggregate of 29,364 RSUs were granted to non-employee directors (with an average grant date fair value of $8.09 per RSU) related to the equity component of their compensation for the three months ended December 31, 2010, March 31, 2011 and June 30, 2011. During the nine months ended September 30, 2010, an aggregate of 23,355 RSUs were granted to non-employee directors (with an average grant date fair value of $6.07 per RSU) related to the equity component of their compensation for the three months ended December 31, 2009, March 31, 2010 and June 30, 2010. In each case, the grant date fair value was determined as of the last trading day of the quarter for which the RSUs were being received as compensation. The RSUs are immediately vested, but are not deliverable to non-employee directors until six months after termination of their service as a director.
Option and RSU Expense Information
The Company recorded non-cash compensation expense of approximately $522,000 and $409,000, including approximately $69,000 and $63,000 related to non-employee director equity compensation, for the three months ended September 30, 2011 and 2010, respectively, related to all stock options and RSUs accounted for as equity awards, as a component of general and administrative expenses in the statement of operations. For the nine months ended September 30, 2011 and 2010, the Company recorded non-cash compensation expense of approximately $1,537,000 and $1,180,000, respectively, including approximately $226,000 and $159,000, respectively, related to non-employee director equity compensation.

10.Earnings Per Common Share
Basic earnings per common share are computed based upon the weighted average number of common shares outstanding during the period. Diluted earnings per common share are

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)         $—       
  

 

 

   

 

 

 

REIS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (continued)
Earnings Per Common Share (continued)
                 
  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   $ 
         
Potentially dilutive securities include all stock based awards. For the three months ended September 30, 2011, onlyMarch 31, 2012, certain equity awards were antidilutive. For the ninethree months ended September 30,March 31, 2011, and the three and nine months ended September 30, 2010, certain equity awards, in addition to the option awards accounted for under the liability method, were antidilutive.

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 judgment, or post significant cash with the court, it would have a material impact on the Company’s consolidated financial position and cash flows.

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


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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;

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.

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


Proprietary Databases

Reis’s commercial real estate databases contain information on competitive, income-producing properties in the U.S. apartment, retail, office, warehouse/distribution and flex/research & development 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):

currently covered by Reis:

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.

In June 2011, segments at March 31, 2012.

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.

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

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


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

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.

Other significant elements of

Reis SEinclude:

property comparables that allow users to identify buildings or new construction projects with similar characteristics (such as square footage, rents or sales price);
quarterly “First Glance” reports that provide an early assessment of the apartment, office and retail sectors across the U.S. and preliminary commentary on new construction activity;
“Quarterly Briefings” — two conference calls each quarter attended by hundreds of subscribers, during which Reis provides an overview of its latest high-level findings and forecasts for the commercial real estate space and capital markets;
real estate news stories chosen by Reis analysts to provide information relevant to a particular market and property type; and
customizable email alerts that let users receive proactive updates on only those reports and markets that they designate.
During 2010, Reis completed the development of and launchedalso has a product tailored to the needs of smaller enterprises and individuals, professional investors, brokers and appraisers, which we refer to asReisReports, available atwww.ReisReports.com.ReisReportsutilizes the same proprietary database of information that supports ourReis SEsubscribers. Depending on the package chosen by theReisReportssubscriber, a set number of market reports is available on a monthly basis at an affordable price point.

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.

most recently, Bloomberg, and we continue to speak to additional potential partners.

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.

subscriber, or if desired, annual pricing options are also available.

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

8, 2012.


Discontinued Operations Residential Development Activities
The Company

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.

Additional Segment Financial Information
See Note 3 of the consolidated financial statements included in this filing for additional information regarding 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, 2010 and Note 2 of the consolidated financial statements included in this filing.
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.

statements for all periods presented.

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).

(amounts in thousands, excluding percentages)
                 
  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 Services’s revenue for the three months ended September 30, 2011March 31, 2012 of $6,747,000$7,298,000 was achieved as a result of a strong sales environment which has supported gainsthe highest for any quarter in renewal rates and increased new business.the Company’s history. Reis Services’s revenue increased by approximately $734,000,$681,000, or 12.2%10.3%, from the thirdfirst quarter of 20102011 to the thirdfirst quarter of 2011.2012. This revenue increase over the corresponding prior quarterly period is the sixth consecutiveeighth consecutively quarterly increase in revenue over the prior year’s quarter. For the nine months ended September 30, 2011, Reis Services’sIn addition, revenue wasincreased by approximately $20,201,000, an increase of approximately $2,170,000,$319,000 or 12.0%4.6%, from the nine months ended September 30, 2010. Thesefourth quarter of 2011 to the first quarter of 2012. In general, these revenue increases reflect: (1) positive improvements in overall renewal rates as the trailing twelve month renewal rate improved to 93%92% at September 30, 2011March 31, 2012 as compared to 90% for the trailing twelve months ended September 30, 2010 and, forMarch 31, 2011 (for institutional subscribers, the renewal rates improved to 95%94% at September 30, 2011March 31, 2012 from 92%93% at September 30, 2010;March 31, 2011); (2) additional new business; (3) salesrevenue growth fromReisReports; (4) revenue growth from our data redistribution initiatives; and (4)(5) the cumulative impact of the strengthincreased volume of contract signings from the third and fourth quarters of 2010in 2011 and into 2011.
On a consecutive quarter basis, Reis Services had a modest revenue decrease of approximately $90,000, or 1.3%, from the second quarter of 2011 to the third quarter of 2011. Though total revenue declined, core recurring revenue, comprised of subscription fees forReis SEand monthly credit card payments forReisReports, grew by 1.3% in the third quarter. The total revenue decrease, on a consecutive quarter basis, was fully attributable to a below-average amount of custom revenue in the third quarter of 2011 after posting above-average custom revenue in the second quarter of 2011, accounting for a $173,000 negative swing in consecutive quarter custom revenue. While custom revenue typically only accounts for a small portion of total Reis Services revenue in a fiscal year, contracts and revenue related to custom projects are not realized in a predictable, linear fashion; by nature, they are dependent upon timing and client need. If a normalized level of custom revenue had been generated in both of these quarters, total revenue would have increased on a consecutive quarter basis by 1.3%.
2012.

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

2011 balances, as a greater percentage of renewals occur in the fourth quarter of each year and would distort the analysis.


               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 in the twelve month period subsequent to September 30March 31 of each year and represent (i) non-cancellable contracts for subscribers with multi-year subscriptions where the future years are not yet billable, or (ii) subscribers with non-cancellable annual subscriptions with interim billing terms.

(B)Included in Aggregate Revenue Under Contract at September 30, 2011 was approximately $18,508,000 related to amounts under contract for the forward twelve month period through September 30, 2012. The remainder reflects amounts under contract beyond September 30, 2012. The forward twelve month Aggregate Revenue Under Contract amount is approximately 70% of revenue on a trailing twelve month basis at September 30, 2011 of approximately $26,368,000.

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.

and a 10.1% increase in deferred revenue from March 31, 2011 to March 31, 2012.

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.

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

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%    
 

 

 

   

 

 

 

(amounts in thousands)
             
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


(amounts in thousands)
             
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 (loss) from continuing operations, the effects of the discontinued operations (residential development activities)(Residential Development Activities) are excluded from these reconciliations for all periods presented.

(B)

Reflects an adjusted EBITDA margin on the Reis Services segment and on a consolidated basis, both of which 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.

2011 period and an increase in amortization expense of $70,000 for additions to the database intangible asset.

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.

2011.

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


months ended September 30, 2010 include current period expenses of $1,985,000, depreciation and amortization expense of $159,000 for lease value and furniture, fixtures and equipment, and approximately $416,000$546,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $409,000 and$557,000, offset by an approximate $7,000 increase$11,000 decrease in the liability for option cancellations due to an increasea decrease in the market price of the Company’s common stock from $6.31$9.12 per share at June 30, 2010December 31, 2011 to $6.39$8.91 per share at September 30, 2010. Excluding the non-cash items, the modest net increase in generalMarch 31, 2012. General and administrative expenses of $39,000 is a result of increased rent related costs for additional office space and higher benefit costs and compensation increases over the 2010 period, offset by reduced professional fees.
Interest expense of $65,000approximately $2,775,000 for the three months ended September 30, 2011 primarily includes interest and cost amortization on the Reis Services debt, which we refer to as the Bank Loan. Interest expense of $96,000 for the three months ended September 30, 2010 includes interest and cost amortization on the Bank Loan of $94,000 and interest from other debt of $2,000. The lower expense in 2011 is the result of lower outstanding balances in the 2011 period.
The income tax benefit from continuing operations during the three months ended September 30, 2010 of $79,000 reflects deferred Federal tax expense of $63,000 and deferred state and local tax expense of $16,000 as a result of a pre-tax income from continuing operations in the period. 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.
Comparison of the Results of Operations for the Nine Months Ended September 30, 2011 and 2010
Subscription revenues and related cost of sales were approximately $20,201,000 and $4,623,000, respectively, for the nine months ended September 30, 2011, resulting in a gross profit for the Reis Services segment of approximately $15,578,000. Amortization expense included in cost of sales (for the database intangible asset) was approximately $1,778,000 during this period. Subscription revenues and related cost of sales were approximately $18,031,000 and $4,402,000, respectively, for the nine months ended September 30, 2010, resulting in a gross profit for the Reis Services segment of approximately $13,629,000. Amortization expense included in cost of sales was approximately $1,681,000 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 $221,000 is primarily a result of increased database amortization expense and higher employment related costs from hiring during 2010 and 2011, coupled with related benefits and wage increases over the 2010 period.
Sales and marketing expenses were approximately $4,989,000 and $4,360,000 for the nine months ended September 30, 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 $744,000 and $751,000 during the nine months ended September 30, 2011 and 2010, respectively. The expense increase for sales and marketing expenses between the two periods of approximately $629,000 generally reflects increased commissions and employment related costs from hiring during 2010 and 2011, coupled with related benefits and wage increases over the 2010 period.
Product development expenses were approximately $1,562,000 and $1,353,000 for the nine months ended September 30, 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 $800,000 and $638,000 during the nine months ended September 30, 2011 and 2010, respectively. Product development costs increased $209,000, primarily due to a net increase in amortization expense of $162,000 from web site costs capitalized and amortization expense commencing in the period for theReisReportsweb site and other significant product introductions and improvements in 2010 and 2011, in excess of Merger related purchase price allocations becoming fully amortized in 2010.
General and administrative expenses of $8,385,000 for the nine months ended September 30,March 31, 2011 include current period expenses of $6,236,000,approximately $2,070,000, depreciation and amortization expense of $482,000approximately $159,000 for lease value and furniture, fixtures and equipment, and approximately $1,667,000$546,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,537,000$485,000 and by an approximate $130,000$61,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $7.03 per share at December 31, 2010 to $8.86$7.89 per share at September 30,March 31, 2011. General and administrative expenses of $7,862,000 for the nine months ended September 30, 2010 include current period expenses of $6,179,000, depreciation and amortization expense of $482,000 for lease value and furniture, fixtures and equipment, and approximately $1,201,000 of net non-cash compensation expense. The net non-cash compensation expense is comprised of compensation expense resulting from equity awards for employees and directors of approximately $1,180,000 and by an approximate $21,000 increase in the liability for option cancellations due to an increase in the market price of the Company’s common stock from $6.15 per share at December 31, 2009 to $6.39 per share at September 30, 2010.

28


Excluding the non-cash items,expenses, the increase in general and administrative expenses of $57,000$176,000 is primarily a result of increased rent related costs for additional office space, increased professional fees, compensation increases and higher benefit costs and compensation increases over the 20102011 period.

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.

$1,000.

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 from discontinued operations, net of income tax expense, was approximately $1,253,000 and $143,000 during the nine months ended September 30, 2011 and 2010, respectively.$79,000. The 2011 net amount primarily includes the sale ofoperating expenses from the East Lyme project in a bulk transaction inproperty, prior to its April 2011 for a gain of $1,242,000 and net other income of $11,000. The 2010 income from discontinued operations primarily reflects the sale of the Claverack project in a bulk transaction in February 2010 for a gain of $263,000, the sale of one home and two lots at East Lyme in 2010 and the reversal of certain employment related contractual obligations for amounts less than prior period accruals, offset by operating expenses and related general and administrative expenses and a $97,000 deferred tax provision.
sale.

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.

is expected that the use of NOLs will not be limited by expiration.

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.

future taxable income.

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 September 30, 2011,judgment, or post significant cash with the court, it would have a material impact on the Company’s consolidated financial position and cash flows. The Company is seeking recovery under all available insurance policies, including the ACE policy, and is pursuing appropriate additional actions, and will continue discussions to settle this matter on terms favorable to the Company. For additional information on the Gold Peak litigation, see Note 11 included in the unaudited financial statements in Item 1 of this quarterly report on Form 10-Q.

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


$612,000 remained available at September 30, 2011 pursuant to the August 2011 Board authorization) and the potential settlement of certain outstanding stock options in cash (the liability for which was approximately $287,000$229,000 at September 30, 2011March 31, 2012 based upon the closing stock price of the Company at September 30, 2011March 31, 2012 of $8.86$8.91 per share).; and the payment of employee taxes on vested options, for which the employee used shares to settle his/her minimum withholding tax obligations with the Company. The Company expects to meet these short-term liquidity requirements generally through the use of available cash and cash generated from subscription revenue of Reis Services.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 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.

Reis Services Bank Loan
In connection with the Merger agreement, Private Reis entered into a credit agreement, dated October 11, 2006, with the Bank of Montreal, Chicago Branch, as administrative agent, and BMO Capital Markets, as lead arranger, which provided for a term loan of up to an aggregate of $20,000,000 and revolving loans up to an aggregate of $7,000,000. Loan proceeds were used to finance $25,000,000 of the cash portion of the Merger consideration. The balance of the Bank Loan was $7,074,000 and $11,222,000 at September 30, 2011 and December 31, 2010, respectively. The interest rate was LIBOR + 1.50% at September 30, 2011 and December 31, 2010 (LIBOR was 0.24% and 0.26% at September 30, 2011 and December 31, 2010, respectively).
Reis Services is required to (1) make principal payments on the term loan on a quarterly basis commencing on June 30, 2007 in increasing amounts pursuant to the payment schedule provided in the credit agreement and (2) permanently reduce the revolving loan commitments on a quarterly basis, which commenced on March 31, 2010. Additional principal payments are payable if Reis Services’s annual cash flow exceeds certain amounts, or if certain defined operating ratios are not met, all of which are defined in the credit agreement. The final maturity date of all amounts borrowed pursuant to the credit agreement is September 30, 2012. At September 30, 2011 and December 31, 2010, the Company did not have the ability to borrow any additional amounts under the Bank Loan.
In accordance with the terms of the credit agreement, beginning January 1, 2010 and through the maturity of the Bank Loan, the required leverage ratio was reduced to a maximum of 2.00 to 1.00 from a maximum of 2.50 to 1.00. In order to be in compliance with the leverage ratio test, management made a payment of $3,000,000 at March 31, 2010 in addition to the contractual minimum repayment of $1,000,000 due at that time. Although not required to do so, the Company made additional prepayments of $500,000 at the end of the second, third and fourth quarters of 2010 (aggregating $1,500,000), each of which was in excess of the minimum repayments due at such dates. All of the 2010 prepayments ratably reduced Reis Services’s future quarterly contractual minimum payments through maturity. No additional prepayments, in excess of minimum repayments, were made during the nine months ended September 30, 2011.
Discontinued Operations Impact on Liquidity
Cash flows from discontinued operations during 2010 and in the nine months ended September 30, 2011 were primarily related to the sales of assets and the operating costs and related expenses through the dates of sales. Cash flows from discontinued operations were included in the consolidated statement of cash flows in the operating activities section in accordance with the applicable accounting literature. Future cash flows will be limited to the settlement of liabilities and real estate contingencies as described below.
East Lyme
Prior to its sale in April 2011, the Company’s last remaining residential development was The Orchards, a single family home development in East Lyme, Connecticut, zoned for 161 single family homes on 224 acres, which we refer to as East Lyme.
The East Lyme project was sold in a bulk transaction for a gross sales price of $1,800,000 for the remaining 119 lots in inventory, plus the release of approximately $792,000 of project-related deposits and escrows held as restricted cash. Net cash received at closing,

30


after selling expenses and closing adjustments, and including the cash received upon release of the deposits and escrows, aggregated approximately $2,600,000. As a result of this transaction, the Company recorded a gain in the second quarter of 2011 of approximately $1,242,000, which is included in income from discontinued operations. The Company sold two lots during the three months ended September 30, 2010 and sold two lots and one home during the nine months ended September 30, 2010.
Certain of the lots at East Lyme required remediation of pesticides which were used on the property when it was an apple orchard. Remediation would have been 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. The estimated remediation cost was recognized in prior years and was reflected in liabilities attributable to discontinued operations in the December 31, 2010 consolidated balance sheet. As a result of the sale, the Company was indemnified from any financial obligation related to the environmental remediation and reversed this liability, which amount is included in the gain reported in the second quarter of 2011, as referred to above.
Claverack
Prior to its sale in February 2010, the Company owned approximately 235 acres in Claverack, New York, which was subdivided into 48 developable single family home lots. In February 2010, the Company sold the Claverack project in a bulk transaction for a gross sales price of $2,750,000, which included two model homes, amenities, 46 additional lots and $450,000 of cash collateralizing certain road completion obligations. Net cash received at closing, after expenses, aggregated approximately $2,187,000. The remaining $450,000 of the purchase price was payable by the purchaser in February 2011 and had been secured by the outstanding road bond and a mortgage on the property. As a result of this transaction, the Company recorded a gain of approximately $263,000 in the first quarter of 2010, which is included in income from discontinued operations. In February 2011, the Company received cash of approximately $455,000 in full satisfaction of the mortgage note and accrued interest thereon.
Real Estate Contingencies
Reis has purchased insurance with respect to construction defect and completed operations at its past real estate projects, including those projects described above. Reis is, from time to time, exposed to various claims associated with the development, construction and sale of condominium units, single family homes or lots. The impact of these claims on the Company has not been material to date. However, 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.
In October 2010, the homeowners’ association at the Company’s former Gold Peak condominium project (located outside of Denver, Colorado), brought suit against the Company, two of its subsidiaries, and other contractors and individuals alleging design and construction defects. In October 2011, experts for the plaintiff delivered a report alleging a cost to repair of approximately $19 million. Trial is scheduled for February 2012. In connection with the development of Gold Peak, the Company purchased a commercial general liability “wrap” insurance policy covering the Company, the general contractor and the subcontractors. The Company is taking action to ensure that all applicable insurance policies maintained by co-defendants or others are brought into the case. The Company believes that it and its co-defendants have valid defenses to some or all 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 than the Company will likely be liable for some or all of any remaining settlement judgment amount.
At this time, based on advice of counsel and the Company’s experience with similar prior actions, the low end of the expected range of exposure is believed to be equal to the amount of the Company’s SIRs plus other costs. Accordingly, the Company is maintaining a reserve of approximately $280,000, which liability is included in liabilities attributable to discontinued operations on the September 30, 2011 balance sheet. Although the Company does not believe that it will be required to pay any amount above the reserved amount, it is possible that a settlement or judgment in this matter could involve the payment by the Company of an amount that could be material to the Company’s reportable discontinued operating income (loss), its consolidated financial position or cash flows. It would not have any effect on the Company’s income from continuing operations.

31


Changes in Cash Flows

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.

2012 period.

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.

initiatives.

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 services and product development of the Reis Services segment;
statements relating to future business prospects, potential acquisitions, 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.

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;


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

competition;

inability to attract and retain sales and senior management personnel;

revenues may be lower than expected;
inability to retain and increase the Company’s subscriber base;
inability to execute properly on new product or service initiatives, or failure of subscribers to accept these products and services;
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; and
the risk factors listed under “Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2010, which was filed with the Securities and Exchange Commission on March 11, 2011.

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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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)
         
March 31, 2012:

(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.

Management is assessing the need, if any, for replacement financing upon full repayment of the Bank Loan.

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


Item 4.4T. Controls and Procedures.

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.

Part II. Other Information

Item 1. Legal Proceedings.

The Company

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.

an aggregate of $18,200,000.

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.

including Reis’s directors’ and officers’ insurance policy. The Company believes that ithas also brought separate claims against the architect and its co-defendants have valid defenses to some or alla third party inspector engaged at Gold Peak.

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.

At this time,December 31, 2011, based on advicethe best available information at that time, the Company recorded a charge of counsel and the Company’s experience with similar prior actions,approximately $4,460,000 in discontinued operations, representing the low end of the Company’s expected range of exposure is believednet exposure. This amount reflected an aggregate minimum liability of approximately $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 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.

Neither the Company nor any of its subsidiaries is a party to any other litigation that could reasonably be foreseen to be material to the Company.

Item 1A. Risk Factors.

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.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

Between December 2008 and June 2010,

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 
stock.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Reserved.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibits filed with this Form 10-Q:

Exhibit
No.
 
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).*
* 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.

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.

SIGNATURES

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 REIS, INC. 
REIS, INC.
 

By:

 By:  

/s/   Mark P. Cantaluppi

 

Mark P. Cantaluppi

 

Vice President, Chief Financial Officer

 

Dated: NovemberMay 3, 2011

2012

36

32