UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM 10-Q
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
|||
For
the quarterly period ended September 30, 2009
|
|||
or
|
|||
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
|||
For
the transition period
from _______________________ to ________________________.
|
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Commission File Number 001-12917 |
REIS,
INC.
|
||
(Exact
Name of Registrant as Specified in Its Charter)
|
Maryland
|
13-3926898
|
|||
(State
or Other Jurisdiction of Incorporation or Organization)
|
(I.R.S.
Employer Identification No.)
|
|||
530
Fifth Avenue, New York, NY
|
10036
|
|||
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(212) 921-1122
|
||
(Registrant’s
Telephone Number, Including Area Code)
|
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 and (2) has been subject to
such filing requirements for the past
90 days. Yes No
Indicate by
check mark whether the Registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files). Yes No
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 definition of “large accelerated filer”, “accelerated filer”
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
|
Large
accelerated filer
|
Accelerated
filer
|
Non-accelerated
filer
|
Smaller
reporting company
|
||||
(Do
not check if a smaller reporting company)
|
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No | ||
The number of
the Registrant’s shares of common stock outstanding was 10,373,040 as
of October 31, 2009.
|
TABLE OF CONTENTS | ||||
Page
Number
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||||
PART I.
FINANCIAL INFORMATION:
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||||
Item 1.
|
||||
|
||||
Item 2.
|
21 | |||
Item 3.
|
35 | |||
Item 4T.
|
36 | |||
PART II.
OTHER INFORMATION:
|
||||
Item 1.
|
37 | |||
Item 1A.
|
37 | |||
Item
2.
|
37 | |||
Item
3.
|
37 | |||
Item
4.
|
37 | |||
Item
5.
|
37 | |||
Item 6.
|
38 | |||
39 |
Part
I. Financial Information
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||
REIS,
INC.
|
|
September
30,
2009
|
December 31,
2008
|
||||||||
(Unaudited)
|
||||||||||
ASSETS
|
||||||||||
Current
assets:
|
||||||||||
Cash
and cash
equivalents
|
$ | 21,509,344 | $ | 24,151,720 | ||||||
Restricted
cash and
investments
|
1,546,332 | 3,081,469 | ||||||||
Receivables,
prepaid and other
assets
|
5,989,580 | 5,944,607 | ||||||||
Real
estate
assets
|
4,278,499 | 7,137,636 | ||||||||
Total
current assets
|
33,323,755 | 40,315,432 | ||||||||
Furniture,
fixtures and equipment, net
|
1,377,545 | 1,737,430 | ||||||||
Intangible
assets, net of accumulated amortization of $9,317,665 and $5,981,961,
respectively
|
21,136,164 | 23,161,695 | ||||||||
Goodwill
|
54,824,648 | 54,824,648 | ||||||||
Other
assets
|
334,359 | 398,334 | ||||||||
Total
assets
|
$ | 110,996,471 | $ | 120,437,539 | ||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||||
Current
liabilities:
|
||||||||||
Current
portion of loans and other
debt
|
$ | 200,266 | $ | 189,136 | ||||||
Current
portion of Bank
Loan
|
5,624,999 | 3,500,000 | ||||||||
Construction
payables
|
18,346 | 156,653 | ||||||||
Construction
loans
payable
|
— | 5,077,333 | ||||||||
Accrued
expenses and other
liabilities
|
6,501,954 | 5,365,034 | ||||||||
Reserve
for option
liability
|
122,030 | 55,830 | ||||||||
Deferred
revenue
|
9,912,010 | 12,120,997 | ||||||||
Total
current liabilities
|
22,379,605 | 26,464,983 | ||||||||
Non-current
portion of Bank Loan
|
14,500,001 | 19,250,000 | ||||||||
Other
long-term liabilities
|
843,197 | 988,716 | ||||||||
Deferred
tax liability, net
|
528,580 | 66,580 | ||||||||
Total
liabilities
|
38,251,383 | 46,770,279 | ||||||||
Commitments
and contingencies
|
||||||||||
Stockholders’
equity:
|
||||||||||
Common
stock, $0.02 par value per share, 101,000,000 shares authorized,
10,383,871 and 10,988,623 shares issued and outstanding,
respectively
|
207,677 | 219,772 | ||||||||
Additional
paid in
capital
|
98,828,610 | 100,384,302 | ||||||||
Retained
earnings
(deficit)
|
(26,291,199 | ) | (26,936,814 | ) | ||||||
Total
stockholders’ equity
|
72,745,088 | 73,667,260 | ||||||||
Total
liabilities and stockholders’ equity
|
$ | 110,996,471 | $ | 120,437,539 |
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
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||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||
Revenue:
|
||||||||||||||||||
Subscription
revenue
|
$ | 5,801,078 | $ | 6,524,346 | $ | 18,065,398 | $ | 19,440,153 | ||||||||||
Revenue
from sales of residential units
|
898,555 | 5,039,456 | 6,707,239 | 19,821,996 | ||||||||||||||
Total revenue
|
6,699,633 | 11,563,802 | 24,772,637 | 39,262,149 | ||||||||||||||
Cost
of sales:
|
||||||||||||||||||
Cost
of sales of subscription revenue
|
1,385,711 | 1,413,573 | 4,153,990 | 4,119,221 | ||||||||||||||
Cost
of sales of residential units
|
654,588 | 4,553,641 | 4,655,557 | 17,005,326 | ||||||||||||||
Total cost of sales
|
2,040,299 | 5,967,214 | 8,809,547 | 21,124,547 | ||||||||||||||
Gross
profit
|
4,659,334 | 5,596,588 | 15,963,090 | 18,137,602 | ||||||||||||||
Operating
expenses:
|
||||||||||||||||||
Sales
and marketing
|
1,293,824 | 1,260,167 | 3,817,133 | 3,996,307 | ||||||||||||||
Product
development
|
431,009 | 473,491 | 1,361,796 | 1,436,201 | ||||||||||||||
Property
operating expenses
|
169,753 | 267,800 | 654,971 | 801,631 | ||||||||||||||
General
and administrative expenses, inclusive of costs (reductions) attributable
to stock based liability amounts of $177,503, $79,544, $121,673 and
$(272,219), respectively
|
2,899,314 | 3,775,683 | 8,689,845 | 11,157,848 | ||||||||||||||
Total
operating expenses
|
4,793,900 | 5,777,141 | 14,523,745 | 17,391,987 | ||||||||||||||
Other
income (expenses):
|
||||||||||||||||||
Interest
and other income
|
34,351 | 173,666 | 182,285 | 496,155 | ||||||||||||||
Interest
expense
|
(132,320 | ) | (275,223 | ) | (463,015 | ) | (843,444 | ) | ||||||||||
Total
other income (expenses)
|
(97,969 | ) | (101,557 | ) | (280,730 | ) | (347,289 | ) | ||||||||||
(Loss)
income before income taxes
|
(232,535 | ) | (282,110 | ) | 1,158,615 | 398,326 | ||||||||||||
Income
tax (benefit) expense
|
(70,000 | ) | (73,000 | ) | 513,000 | (865,000 | ) | |||||||||||
Net
(loss) income
|
$ | (162,535 | ) | $ | (209,110 | ) | $ | 645,615 | $ | 1,263,326 | ||||||||
Net
(loss) income per common share:
|
||||||||||||||||||
Basic
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | 0.06 | $ | 0.12 | ||||||||
Diluted
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | 0.06 | $ | 0.09 | ||||||||
Weighted
average number of common shares outstanding:
|
||||||||||||||||||
Basic
|
10,660,758 | 10,984,517 | 10,798,841 | 10,984,517 | ||||||||||||||
Diluted
|
10,660,758 | 10,984,517 | 10,993,089 | 11,196,660 |
Paid
in Capital |
Retained
Earnings (Deficit) |
Total Stockholders’ |
||||||||||||||||||||
Common
Shares
|
||||||||||||||||||||||
Shares
|
Amount
|
|||||||||||||||||||||
Balance,
January 1, 2009
|
10,988,623 | $ | 219,772 | $ | 100,384,302 | $ | (26,936,814 | ) | $ | 73,667,260 | ||||||||||||
Shares
issued for vested employees restricted stock units
|
26,087 | 522 | (522 | ) | — | — | ||||||||||||||||
Option
exercises
|
9,247 | 185 | 55,297 | — | 55,482 | |||||||||||||||||
Stock
based compensation, net
|
— | — | 1,070,446 | — | 1,070,446 | |||||||||||||||||
Stock
repurchases
|
(640,086 | ) | (12,802 | ) | (2,680,913 | ) | — | (2,693,715 | ) | |||||||||||||
Net
income
|
— | — | — | 645,615 | 645,615 | |||||||||||||||||
Balance,
September 30, 2009
|
10,383,871 | $ | 207,677 | $ | 98,828,610 | $ | (26,291,199 | ) | $ | 72,745,088 |
For
the Nine Months Ended
September
30,
|
||||||||||
2009
|
2008
|
|||||||||
cash
flows from operating activities:
|
||||||||||
Net
income
|
$ | 645,615 | $ | 1,263,326 | ||||||
Adjustments
to reconcile to net cash provided by operating activities:
|
||||||||||
Deferred
tax provision (benefit)
|
462,000 | (997,000 | ) | |||||||
Depreciation
|
389,971 | 543,430 | ||||||||
Amortization
of intangible assets
|
3,335,703 | 2,946,444 | ||||||||
Change
in fair value of interest rate cap
|
— | 8,913 | ||||||||
Stock
based compensation charges
|
1,091,484 | 1,158,801 | ||||||||
Changes
in assets and liabilities:
|
||||||||||
Restricted
cash and investments
|
1,535,137 | 582,411 | ||||||||
Real
estate assets
|
2,859,137 | 11,762,496 | ||||||||
Receivables,
prepaid and other assets
|
19,002 | 4,239,315 | ||||||||
Accrued
expenses and other liabilities
|
1,143,108 | (544,639 | ) | |||||||
Reserve
for option liability
|
121,673 | (272,219 | ) | |||||||
Deferred
revenue
|
(2,208,987 | ) | (2,502,373 | ) | ||||||
Construction
payables
|
(138,307 | ) | (2,517,446 | ) | ||||||
Net
cash provided by operating activities
|
9,255,536 | 15,671,459 | ||||||||
cash
flows from investing activities:
|
||||||||||
Web
site and database development costs
|
(1,310,172 | ) | (1,380,305 | ) | ||||||
Furniture,
fixtures and equipment additions
|
(30,086 | ) | (196,313 | ) | ||||||
Proceeds
from sale of furniture, fixtures and equipment
|
— | 21,800 | ||||||||
Investments
in other real estate assets
|
— | (2,465,276 | ) | |||||||
Return
of capital from investments in joint ventures
|
— | 229,091 | ||||||||
Net
cash (used in) investing
activities
|
(1,340,258 | ) | (3,791,003 | ) |
cash
flows from financing activities:
|
||||||||||
Borrowings
from construction loans
payable
|
— | 5,169,470 | ||||||||
Repayments
of construction loans
payable
|
(5,077,333 | ) | (13,120,841 | ) | ||||||
Repayment
of Bank
Loan
|
(2,625,000 | ) | (1,125,000 | ) | ||||||
Repayments
on capitalized equipment
leases
|
(140,577 | ) | (130,478 | ) | ||||||
Payments
for option cancellations and restricted stock units
|
(21,029 | ) | (55,476 | ) | ||||||
Stock
repurchases
|
(2,693,715 | ) | — | |||||||
Net
cash (used in) financing
activities
|
(10,557,654 | ) | (9,262,325 | ) | ||||||
Net
(decrease) increase in cash and cash equivalents
|
(2,642,376 | ) | 2,618,131 | |||||||
Cash
and cash equivalents, beginning of
period
|
24,151,720 | 23,238,490 | ||||||||
Cash
and cash equivalents, end of
period
|
$ | 21,509,344 | $ | 25,856,621 | ||||||
supplemental
information:
|
||||||||||
Cash
paid during the period for interest
|
$ | 384,097 | $ | 1,394,203 | ||||||
Cash
paid during the period for income taxes, net of refunds
|
$ | 70,808 | $ | 85,990 | ||||||
supplemental
schedule of non-cash investing and financing activities:
|
||||||||||
Shares
issued for settlement of vested employee restricted stock
units
|
$ | 522 | ||||||||
Exercise
of stock options through the receipt of tendered shares
|
$ | 55,473 | ||||||||
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 customers, through its Reis Services subsidiary. For disclosure and financial reporting purposes, this business is referred to as the Reis Services segment. | |||
Reis Services’s
Historic Business
|
|||
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
and industrial 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’s
flagship product is Reis
SE, which provides web-browser based online access to information
and analytical tools designed to facilitate debt and equity transactions
as well as ongoing evaluations. In addition to trend and forecast analysis
at metropolitan and neighborhood levels, the product offers detailed
building-specific information such as rents, vacancy rates, lease terms,
property sales, new construction listings and property valuation
estimates. Reis
SE is designed to meet the demand for timely and accurate
information to support the decision-making of property owners, developers
and builders, banks and non-bank lenders, and equity investors, all of
whom require access to 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.
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.
|
|||
Wellsford’s Historic
Business
|
|||
The
Company was originally formed on January 8, 1997. Reis acquired the
Reis Services business in the May 2007 merger (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 has completed the sale of the remaining units at its
Gold Peak project and is seeking to exit the residential development
business by selling its remaining two projects in bulk, in order to focus
solely on the Reis Services business.
See
Note 3 for additional information regarding the Company’s operating
activities by segment.
|
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 were 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. | |||
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 (“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, 2008, as filed with the SEC on March 13, 2009. The consolidated statements of operations for the three and nine months ended September 30, 2009 and changes in cash flows for the nine months ended September 30, 2009, 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. 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 statements of
operations, as well as in Note 3, have been reclassified. This
reclassification does not result in a change to the previously reported
net income (loss) or net income (loss) per share for any of the periods
presented to conform to the current period presentation.
|
|||
Accounting Pronouncements Recently Adopted | |||
The
Company adopted the provisions of the Financial Accounting Standards Board
(“FASB”) guidance related to the Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles in the current
quarter. This guidance identifies the sources of accepted accounting
principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP in the United States (the GAAP
hierarchy). The Codification superseded all then-existing non-SEC
accounting and reporting standards upon the effective date. The adoption
of this standard changed how the Company references various elements of
GAAP when preparing its financial statement disclosures, but has had no
impact on the Company’s consolidated financial statements.
|
Summary of Significant Accounting Policies (continued) | |||
In December 2007, the FASB issued a
pronouncement to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. The
pronouncement establishes principles and requirements for how the acquirer
recognizes and measures in its financial statements the determination of
purchase price, the identifiable assets acquired, the liabilities assumed,
and any noncontrolling interest in the acquiree, recognizes and measures
the goodwill acquired in the business combination or a gain from a bargain
purchase and determines what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of
the business combination. The pronouncement is to be applied
prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning
on or after December 15, 2008. The Company’s adoption of this
pronouncement did not have an impact on the consolidated financial
statements.
In December 2007, the FASB issued a
pronouncement to improve the relevance, comparability, and transparency of
the financial information that a reporting entity provides in its
consolidated financial statements by establishing accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. This pronouncement is effective for
fiscal years, and interim periods within those fiscal years, beginning on
or after December 15, 2008. The Company’s adoption of this
pronouncement did not have an impact on the consolidated financial
statements.
In March 2008, the FASB issued a
pronouncement amending and expanding derivative disclosure requirements,
with the intent to provide users of financial statements with an enhanced
understanding of how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for and how
derivative instruments and related hedged items affect an entity’s
financial position, financial performance, and cash flows. This
pronouncement is effective for fiscal years, and interim periods within
those fiscal years, beginning on or after November 15, 2008. The
Company’s adoption of this pronouncement did not have an impact on the
consolidated financial statements.
In April 2009, the FASB issued positions
relating to the determination of fair value when the volume and level of
activity for the asset and liability have significantly decreased and the
identification of transactions that are not orderly. These
requirements are effective for interim and annual reporting periods ending
after June 15, 2009. The Company’s adoption of this position did not
have an impact on the consolidated financial statements.
In April 2009, the FASB issued a position
regarding interim disclosures about the fair value of financial
instruments which extends the disclosure requirements to interim financial
statements of publicly traded companies. This position is effective
for interim reporting periods ending after June 15, 2009. The
Company’s adoption of this position did not have a material effect on the
consolidated financial statements.
In May 2009, the FASB issued a
pronouncement which establishes principles and requirements for
evaluating, recognizing and disclosing subsequent events. This
pronouncement is effective for interim or annual financial periods ending
after June 15, 2009. The Company’s adoption of this pronouncement
did not have an impact on the consolidated financial statements.
|
|||
Subsequent Events | |||
The Company has evaluated all events through November 6, 2009, the date the financial statements were issued, and determined that no events have occurred which would require additional disclosure. | |||
3.
|
Segment
Information
|
||
The Company is organized into two separately managed segments: the Reis Services segment and the Residential Development Activities segment. The Company has further separated the significant components of the Residential Development Activities for Palomino Park (Gold Peak), East Lyme and Other Developments. The following tables present condensed balance sheet and operating data for these segments: |
Segment Information (continued) |
(amounts in thousands) | |||||||||||||||||||||||||||
Residential
Development Activities
|
|||||||||||||||||||||||||||
Condensed
Balance Sheet Data
September
30, 2009
|
Reis
Services
|
Palomino
Park
|
East
Lyme
|
Other
Developments
|
Other*
|
Consolidated
|
|||||||||||||||||||||
Assets
|
|||||||||||||||||||||||||||
Current
assets:
|
|||||||||||||||||||||||||||
Cash and cash
equivalents
|
$ | 13,443 | $ | 10 | $ | 86 | $ | 461 | $ | 7,509 | $ | 21,509 | |||||||||||||||
Restricted cash and
investments
|
243 | 12 | 841 | 450 | — | 1,546 | |||||||||||||||||||||
Receivables, prepaid
and other assets
|
5,821 | 6 | 9 | (82 | ) | 236 | 5,990 | ||||||||||||||||||||
Real estate
assets
|
— | — | 2,077 | 2,201 | — | 4,278 | |||||||||||||||||||||
Total current
assets
|
19,507 | 28 | 3,013 | 3,030 | 7,745 | 33,323 | |||||||||||||||||||||
Furniture, fixtures
and equipment, net
|
1,331 | — | — | 15 | 32 | 1,378 | |||||||||||||||||||||
Intangible assets,
net
|
21,136 | — | — | — | — | 21,136 | |||||||||||||||||||||
Goodwill
|
57,203 | — | — | — | (2,378 | ) | 54,825 | ||||||||||||||||||||
Other assets
|
334 | — | — | — | — | 334 | |||||||||||||||||||||
Total assets
|
$ | 99,511 | $ | 28 | $ | 3,013 | $ | 3,045 | $ | 5,399 | $ | 110,996 | |||||||||||||||
Liabilities
and stockholders’ equity
|
|||||||||||||||||||||||||||
Current
liabilities:
|
|||||||||||||||||||||||||||
Current
portion of Bank Loan and other debt
|
$ | 5,825 | $ | — | $ | — | $ | — | $ | — | $ | 5,825 | |||||||||||||||
Construction
payables
|
— | 14 | 4 | — | — | 18 | |||||||||||||||||||||
Accrued expenses and
other liabilities
|
946 | 1,103 | 1,406 | 484 | 2,684 | 6,623 | |||||||||||||||||||||
Deferred revenue
|
9,912 | — | — | — | — | 9,912 | |||||||||||||||||||||
Total current
liabilities
|
16,683 | 1,117 | 1,410 | 484 | 2,684 | 22,378 | |||||||||||||||||||||
Non-current portion
of Bank Loan
|
14,500 | — | — | — | — | 14,500 | |||||||||||||||||||||
Other long-term
liabilities
|
784 | — | — | 60 | — | 844 | |||||||||||||||||||||
Deferred tax
liability, net
|
9,589 | — | — | — | (9,060 | ) | 529 | ||||||||||||||||||||
Total
liabilities
|
41,556 | 1,117 | 1,410 | 544 | (6,376 | ) | 38,251 | ||||||||||||||||||||
Total stockholders’
equity (deficit)
|
57,955 | (1,089 | ) | 1,603 | 2,501 | 11,775 | 72,745 | ||||||||||||||||||||
Total liabilities and
stockholders’ equity
|
$ | 99,511 | $ | 28 | $ | 3,013 | $ | 3,045 | $ | 5,399 | $ | 110,996 |
Residential
Development Activities
|
||||||||||||||||||||||||||||
Condensed
Balance Sheet Data
December
31, 2008
|
Reis
Services
|
Palomino
Park
|
East
Lyme
|
Other
Developments
|
Other*
|
Consolidated
|
||||||||||||||||||||||
Assets
|
||||||||||||||||||||||||||||
Current
assets:
|
||||||||||||||||||||||||||||
Cash and cash
equivalents
|
$ | 11,846 | $ | 6 | $ | 356 | $ | 68 | $ | 11,876 | $ | 24,152 | ||||||||||||||||
Restricted cash and
investments
|
241 | 45 | 1,835 | 960 | — | 3,081 | ||||||||||||||||||||||
Receivables, prepaid
and other assets
|
5,791 | — | — | (61 | ) | 215 | 5,945 | |||||||||||||||||||||
Real estate
assets
|
— | 2,533 | 2,403 | 2,202 | — | 7,138 | ||||||||||||||||||||||
Total current
assets
|
17,878 | 2,584 | 4,594 | 3,169 | 12,091 | 40,316 | ||||||||||||||||||||||
Furniture, fixtures
and equipment, net
|
1,631 | 29 | 3 | 28 | 46 | 1,737 | ||||||||||||||||||||||
Intangible assets,
net
|
23,161 | — | — | — | — | 23,161 | ||||||||||||||||||||||
Goodwill
|
57,203 | — | — | — | (2,378 | ) | 54,825 | |||||||||||||||||||||
Other assets
|
398 | — | — | 1 | — | 399 | ||||||||||||||||||||||
Total assets
|
$ | 100,271 | $ | 2,613 | $ | 4,597 | $ | 3,198 | $ | 9,759 | $ | 120,438 | ||||||||||||||||
Liabilities
and stockholders’ equity
|
||||||||||||||||||||||||||||
Current
liabilities:
|
||||||||||||||||||||||||||||
Current
portion of Bank Loan and other debt
|
$ | 3,689 | $ | — | $ | — | $ | — | $ | — | $ | 3,689 | ||||||||||||||||
Construction
payables
|
— | 41 | 109 | 7 | — | 157 | ||||||||||||||||||||||
Construction loans
payable
|
— | — | 5,077 | — | — | 5,077 | ||||||||||||||||||||||
Accrued expenses and
other liabilities
|
1,090 | 837 | 1,354 | 207 | 1,933 | 5,421 | ||||||||||||||||||||||
Deferred revenue
|
12,121 | — | — | — | — | 12,121 | ||||||||||||||||||||||
Total current
liabilities
|
16,900 | 878 | 6,540 | 214 | 1,933 | 26,465 | ||||||||||||||||||||||
Non-current portion
of Bank Loan
|
19,250 | — | — | — | — | 19,250 | ||||||||||||||||||||||
Other long-term
liabilities
|
929 | — | — | 60 | — | 989 | ||||||||||||||||||||||
Deferred tax
liability, net
|
7,821 | — | — | — | (7,754 | ) | 67 | |||||||||||||||||||||
Total
liabilities
|
44,900 | 878 | 6,540 | 274 | (5,821 | ) | 46,771 | |||||||||||||||||||||
Total stockholders’
equity (deficit)
|
55,371 | 1,735 | (1,943 | ) | 2,924 | 15,580 | 73,667 | |||||||||||||||||||||
Total liabilities and
stockholders’ equity
|
$ | 100,271 | $ | 2,613 | $ | 4,597 | $ | 3,198 | $ | 9,759 | $ | 120,438 | ||||||||||||||||
*
|
Includes
cash, other assets and liabilities not specifically attributable to or
allocable to a specific operating segment.
|
Segment Information (continued) |
(amounts in thousands) | |||||||||||||||||||||||||||
Residential
Development Activities
|
|||||||||||||||||||||||||||
Condensed
Operating Data for the
Three
Months Ended September 30, 2009
|
Reis
Services
|
Palomino
Park
|
East
Lyme
|
Other
Developments
|
Other*
|
Consolidated
|
|||||||||||||||||||||
Revenue:
|
|||||||||||||||||||||||||||
Subscription
revenue
|
$ | 5,801 | $ | — | $ | — | $ | — | $ | — | $ | 5,801 | |||||||||||||||
Revenue from sales of
residential units
|
— | 898 | — | — | — | 898 | |||||||||||||||||||||
Total revenue
|
5,801 | 898 | — | — | — | 6,699 | |||||||||||||||||||||
Cost
of sales:
|
|||||||||||||||||||||||||||
Cost of sales of
subscription revenue
|
1,386 | — | — | — | — | 1,386 | |||||||||||||||||||||
Cost of sales of
residential units
|
— | 654 | — | — | — | 654 | |||||||||||||||||||||
Total cost of
sales
|
1,386 | 654 | — | — | — | 2,040 | |||||||||||||||||||||
Gross profit
|
4,415 | 244 | — | — | — | 4,659 | |||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||
Sales and
marketing
|
1,294 | — | — | — | — | 1,294 | |||||||||||||||||||||
Product
development
|
431 | — | — | — | — | 431 | |||||||||||||||||||||
Property operating
expenses
|
— | 135 | 11 | 24 | — | 170 | |||||||||||||||||||||
General and
administrative expenses
|
1,321 | 38 | 26 | 30 | 1,483 | 2,898 | |||||||||||||||||||||
Total operating
expenses
|
3,046 | 173 | 37 | 54 | 1,483 | 4,793 | |||||||||||||||||||||
Other
income (expenses):
|
|||||||||||||||||||||||||||
Interest and other
income
|
26 | 3 | 1 | — | 4 | 34 | |||||||||||||||||||||
Interest
(expense)
|
(132 | ) | — | — | — | — | (132 | ) | |||||||||||||||||||
Total other income
(expense)
|
(106 | ) | 3 | 1 | — | 4 | (98 | ) | |||||||||||||||||||
Income (loss) before
income taxes
|
$ | 1,263 | $ | 74 | $ | (36 | ) | $ | (54 | ) | $ | (1,479 | ) | $ | (232 | ) |
Residential
Development Activities
|
||||||||||||||||||||||||||||
Condensed
Operating Data for the
Three
Months Ended September 30, 2008
|
Reis
Services
|
Palomino
Park
|
East
Lyme
|
Other
Developments
|
Other*
|
Consolidated
|
||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||
Subscription
revenue
|
$ | 6,524 | $ | — | $ | — | $ | — | $ | — | $ | 6,524 | ||||||||||||||||
Revenue from sales of
residential units
|
— | 3,479 | 1,560 | — | — | 5,039 | ||||||||||||||||||||||
Total revenue
|
6,524 | 3,479 | 1,560 | — | — | 11,563 | ||||||||||||||||||||||
Cost
of sales:
|
||||||||||||||||||||||||||||
Cost of sales of
subscription revenue
|
1,413 | — | — | — | — | 1,413 | ||||||||||||||||||||||
Cost of sales of
residential units
|
— | 2,996 | 1,557 | — | — | 4,553 | ||||||||||||||||||||||
Total cost of
sales
|
1,413 | 2,996 | 1,557 | — | — | 5,966 | ||||||||||||||||||||||
Gross profit
|
5,111 | 483 | 3 | — | — | 5,597 | ||||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||
Sales and
marketing
|
1,260 | — | — | — | — | 1,260 | ||||||||||||||||||||||
Product
development
|
473 | — | — | — | — | 473 | ||||||||||||||||||||||
Property operating
expenses
|
— | 199 | 44 | 24 | — | 267 | ||||||||||||||||||||||
General and
administrative expenses
|
1,574 | 57 | 27 | 4 | 2,115 | 3,777 | ||||||||||||||||||||||
Total operating
expenses
|
3,307 | 256 | 71 | 28 | 2,115 | 5,777 | ||||||||||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||||||||||
Interest and other
income
|
62 | 54 | — | — | 58 | 174 | ||||||||||||||||||||||
Interest
(expense)
|
(302 | ) | — | (32 | ) | — | 58 | (276 | ) | |||||||||||||||||||
Total other income
(expense)
|
(240 | ) | 54 | (32 | ) | — | 116 | (102 | ) | |||||||||||||||||||
Income (loss) before
income taxes
|
$ | 1,564 | $ | 281 | $ | (100 | ) | $ | (28 | ) | $ | (1,999 | ) | $ | (282 | ) | ||||||||||||
* |
Includes
interest and other income, depreciation and amortization expense and
general and administrative expenses that have not been allocated to the
operating segments.
|
Segment Information (continued) |
(amounts in thousands) | |||||||||||||||||||||||||||
Residential
Development Activities
|
|||||||||||||||||||||||||||
Condensed
Operating Data for the
Nine
Months Ended September 30, 2009
|
Reis
Services
|
Palomino
Park
|
East
Lyme
|
Other
Developments
|
Other*
|
Consolidated
|
|||||||||||||||||||||
Revenue:
|
|||||||||||||||||||||||||||
Subscription
revenue
|
$ | 18,065 | $ | — | $ | — | $ | — | $ | — | $ | 18,065 | |||||||||||||||
Revenue from sales of
residential units
|
— | 4,965 | 1,742 | — | — | 6,707 | |||||||||||||||||||||
Total revenue
|
18,065 | 4,965 | 1,742 | — | — | 24,772 | |||||||||||||||||||||
Cost
of sales:
|
|||||||||||||||||||||||||||
Cost of sales of
subscription revenue
|
4,154 | — | — | — | — | 4,154 | |||||||||||||||||||||
Cost of sales of
residential units
|
— | 3,267 | 1,388 | — | — | 4,655 | |||||||||||||||||||||
Total cost of
sales
|
4,154 | 3,267 | 1,388 | — | — | 8,809 | |||||||||||||||||||||
Gross profit
|
13,911 | 1,698 | 354 | — | — | 15,963 | |||||||||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||||||||
Sales and
marketing
|
3,817 | — | — | — | — | 3,817 | |||||||||||||||||||||
Product
development
|
1,362 | — | — | — | — | 1,362 | |||||||||||||||||||||
Property operating
expenses
|
— | 542 | 51 | 62 | — | 655 | |||||||||||||||||||||
General and
administrative expenses
|
4,056 | 186 | 82 | 93 | 4,272 | 8,689 | |||||||||||||||||||||
Total operating
expenses
|
9,235 | 728 | 133 | 155 | 4,272 | 14,523 | |||||||||||||||||||||
Other
income (expenses):
|
|||||||||||||||||||||||||||
Interest and other
income
|
124 | 30 | 19 | 1 | 8 | 182 | |||||||||||||||||||||
Interest
(expense)
|
(423 | ) | — | (40 | ) | — | — | (463 | ) | ||||||||||||||||||
Total other income
(expense)
|
(299 | ) | 30 | (21 | ) | 1 | 8 | (281 | ) | ||||||||||||||||||
Income (loss) before
income taxes
|
$ | 4,377 | $ | 1,000 | $ | 200 | $ | (154 | ) | $ | (4,264 | ) | $ | 1,159 |
Residential
Development Activities
|
||||||||||||||||||||||||||||
Condensed
Operating Data for the
Nine
Months Ended September 30, 2008
|
Reis
Services
|
Palomino
Park
|
East
Lyme
|
Other
Developments
|
Other*
|
Consolidated
|
||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||
Subscription
revenue
|
$ | 19,440 | $ | — | $ | — | $ | — | $ | — | $ | 19,440 | ||||||||||||||||
Revenue from sales of
residential units
|
— | 14,522 | 5,300 | — | — | 19,822 | ||||||||||||||||||||||
Total revenue
|
19,440 | 14,522 | 5,300 | — | — | 39,262 | ||||||||||||||||||||||
Cost
of sales:
|
||||||||||||||||||||||||||||
Cost of sales of
subscription revenue
|
4,119 | — | — | — | — | 4,119 | ||||||||||||||||||||||
Cost of sales of
residential units
|
— | 12,167 | 4,838 | — | — | 17,005 | ||||||||||||||||||||||
Total cost of
sales
|
4,119 | 12,167 | 4,838 | — | — | 21,124 | ||||||||||||||||||||||
Gross profit
|
15,321 | 2,355 | 462 | — | — | 18,138 | ||||||||||||||||||||||
Operating
expenses:
|
||||||||||||||||||||||||||||
Sales and
marketing
|
3,996 | — | — | — | — | 3,996 | ||||||||||||||||||||||
Product
development
|
1,436 | — | — | — | — | 1,436 | ||||||||||||||||||||||
Property operating
expenses
|
— | 689 | 76 | 36 | — | 801 | ||||||||||||||||||||||
General and
administrative expenses
|
4,682 | 169 | 81 | 8 | 6,219 | 11,159 | ||||||||||||||||||||||
Total operating
expenses
|
10,114 | 858 | 157 | 44 | 6,219 | 17,392 | ||||||||||||||||||||||
Other
income (expenses):
|
||||||||||||||||||||||||||||
Interest and other
income
|
165 | 107 | 3 | 23 | 198 | 496 | ||||||||||||||||||||||
Interest
(expense)
|
(1,027 | ) | — | (78 | ) | — | 261 | (844 | ) | |||||||||||||||||||
Total other income
(expense)
|
(862 | ) | 107 | (75 | ) | 23 | 459 | (348 | ) | |||||||||||||||||||
Income (loss) before
income taxes
|
$ | 4,345 | $ | 1,604 | $ | 230 | $ | (21 | ) | $ | (5,760 | ) | $ | 398 | ||||||||||||||
*
|
Includes
interest and other income, depreciation and amortization 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, 2009.
Our
largest customer accounted for 2.7% and 2.4% of Reis Services’s revenue
for the nine months ended September 30, 2009 and 2008,
respectively. Our 14 largest customers, each of which accounted
for greater than 1.0% of our revenue, aggregated 25.3% of Reis Services’s
revenue for the nine months ended September 30, 2009.
|
Segment Information (continued) | |||
The balances of outstanding customer receivables of Reis Services, which are included in receivables, prepaid and other assets on the Consolidated Balance Sheets at September 30, 2009 and December 31, 2008, were as follows: |
September
30,
2009
|
December
31,
2008
|
|||||||||
Customer
receivables
|
$ | 5,676,000 | $ | 5,641,000 | ||||||
Allowance
for doubtful accounts
|
(40,000 | ) | (38,000 | ) | ||||||
Customer
receivables, net
|
$ | 5,636,000 | $ | 5,603,000 |
Twelve
customers accounted for an aggregate of approximately 58.5% of Reis
Services’s accounts receivable at September 30, 2009, including
four customers in excess of 5.0% with the largest representing
10.7%. As of the date of this report, the Company had received
payments from the customers with the three largest receivable balances,
which aggregated approximately $1,431,000 or 25.2%.
At
September 30, 2009, no customer accounted for more than 4.2% of Reis
Services’s deferred revenue.
|
|||
Residential Development Activities | |||
At September 30, 2009, the Company’s residential development activities were comprised primarily of the following: |
▪ |
The
259 unit Gold Peak condominium development in Highlands Ranch,
Colorado (“Gold Peak”). Sales commenced in January 2006 and all of the
Gold Peak units were sold as of September 30, 2009.
|
|||
▪ |
The
Orchards, a single family home development in East Lyme, Connecticut, upon
which the Company could build 161 single family homes on 224 acres
(“East Lyme”). Sales commenced in June 2006 and an aggregate of 36 homes
and lots (28 homes and eight lots) were sold as of September 30,
2009. At September 30, 2009, there were one East Lyme home,
five improved lots and 119 fully approved lots in
inventory.
|
|||
▪ |
The
Stewardship, a single family home development in Claverack, New York,
which is subdivided into 48 developable single family home lots on
235 acres and includes two model homes and substantially completed
infrastructure and amenities (“Claverack”).
|
Palomino Park | |||
Gold
Peak
In
2004, the Company commenced the development of Gold Peak, the final phase
of Palomino Park. Gold Peak is 259 condominium units on the remaining
29 acre land parcel at Palomino Park. Gold Peak unit sales commenced
in January 2006 and during September 2009, the final unit was sold. The
following table provides information regarding Gold Peak
sales:
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
Project
Total Through
September
30,
|
|||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||||||||
Number
of units sold
|
4 | 12 | 20 | 47 | 259 | ||||||||||||||||||
Gross
sales proceeds
|
$ | 898,000 | $ | 3,479,000 | $ | 4,965,000 | $ | 14,522,000 | $ | 77,402,000 |
Segment
Information (continued)
East
Lyme
|
|||
The
Company had a 95% ownership interest as managing member of a venture which
originally owned 101 single family home lots situated on 139 acres of
land in East Lyme, Connecticut, upon which it was constructing houses for
sale. At the time of the initial land purchase, the Company executed an
option to purchase a contiguous 85 acre parcel of land which can be
used to develop 60 single family homes (the “East Lyme
Land”). The Company subsequently acquired the East Lyme Land in
November 2005.
After
the initial land purchase, the Company executed an agreement with a
homebuilder to construct the homes for this project. The
homebuilder was a 5% partner in the project and received other
consideration. In March 2009, the Company and the homebuilder/partner
terminated the partnership agreement and the related development
agreement. As a result of the terminations, the Company paid
approximately $343,000 to its partner to satisfy all remaining
compensation under the development agreement and to purchase its 5%
interest.
Home
sales at East Lyme commenced in June 2006. At September 30, 2009, there
were one East Lyme home, five improved lots and 119 fully approved lots in
inventory. The following table provides information regarding East Lyme
sales:
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
Project
Total Through
September
30,
|
|||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||||||||
Number
of homes and lots sold
|
— | 9 | 3 | 14 | 36 | ||||||||||||||||||
Gross
sales proceeds
|
$ | — | $ | 1,560,000 | $ | 1,742,000 | $ | 5,300,000 | $ | 20,429,000 |
Certain
of the lots at East Lyme require remediation of pesticides which were used
on the property when it was an apple orchard. Remediation is required
prior to the development of those lots. The remediation plan,
the cost of which is estimated by management to be approximately
$1,000,000, has been approved by the health inspector for the
municipality, and we are awaiting final approval from the town
planner. The estimated remediation cost is recognized as a
liability in the September 30, 2009 and December 31, 2008 balance sheets.
This estimate could change in the future as plans for the remediation are
finalized and if the bulk sale of lots, as described above, were to occur.
An expected time frame for the remediation has not been established as of
the date of this report.
The
Company is continuing to work with a broker to sell the remaining lots
(which are comprised of improved lots with roads and infrastructure in
place and unimproved lots without roads and infrastructure in place).
There can be no assurance that the Company will be able to sell the one
remaining house in inventory or the remaining lots at East Lyme
individually or in bulk, at acceptable prices, or within a specific time
period, or at all.
|
|||
Other Developments | |||
Claverack
The
Company owns approximately 235 acres in Claverack, New York, known as
The Stewardship, which is subdivided into 48 developable single family
home lots. Construction of two model homes (which commenced in 2007), the
infrastructure and amenities for The Stewardship were substantially
completed during the third quarter of 2008. The Company is continuing to
work with local and regional brokers to sell the improved lots and two
model homes in a bulk sale transaction. There can be no
assurance that the Company will be able to sell the improved lots and the
model homes at Claverack in bulk, at acceptable prices, or within a
specific time period, or at all.
|
4. | Restricted Cash and Investments | ||
Restricted cash and investments are comprised of the following: |
September
30,
|
December
31,
|
||||||||||
2009
|
2008
|
||||||||||
Deposits
and escrows related to residential development activities
|
$ | 1,303,000 | $ | 2,840,000 | |||||||
Certificate
of deposit/security for office lease (A)
|
243,000 | 241,000 | |||||||||
$ | 1,546,000 | $ | 3,081,000 | ||||||||
(A) | In connection with the lease for the 530 Fifth Avenue corporate office space, the Company provided a letter of credit through a bank to the lessor. The letter of credit is supported by the certificate of deposit issued by that bank. |
The net escrow balance was reduced by approximately $594,000 and $1,535,000 during the three and nine months ended September 30, 2009, respectively, related primarily to the completion of road work and other construction requirements. | |||
5. | Intangibles and Other Assets | ||
The amount of identified intangibles and other assets, including the respective amounts of accumulated amortization, are as follows: |
September
30,
|
December
31,
|
|||||||||
|
2009
|
2008
|
||||||||
Database
|
$ | 9,869,000 | $ | 9,178,000 | ||||||
Accumulated
amortization
|
(4,549,000 | ) | (2,943,000 | ) | ||||||
Database,
net
|
5,320,000 | 6,235,000 | ||||||||
Customer
relationships
|
14,100,000 | 14,100,000 | ||||||||
Accumulated
amortization
|
(2,218,000 | ) | (1,461,000 | ) | ||||||
Customer
relationships, net
|
11,882,000 | 12,639,000 | ||||||||
Web
site
|
3,685,000 | 3,065,000 | ||||||||
Accumulated
amortization
|
(1,823,000 | ) | (1,077,000 | ) | ||||||
Web
site, net
|
1,862,000 | 1,988,000 | ||||||||
Acquired
below market lease
|
2,800,000 | 2,800,000 | ||||||||
Accumulated
amortization
|
(728,000 | ) | (501,000 | ) | ||||||
Acquired
below market lease, net
|
2,072,000 | 2,299,000 | ||||||||
Intangibles,
net
|
$ | 21,136,000 | $ | 23,161,000 |
The
Company capitalized approximately $223,000 and $224,000 during the three
months ended September 30, 2009 and 2008, respectively, and $691,000 and
$724,000 during the nine months ended September 30, 2009 and 2008,
respectively, to the database intangible assets. The Company capitalized
approximately $197,000 and $238,000 during the three months ended
September 30, 2009 and 2008, respectively, and $620,000 and $656,000
during the nine months ended September 30, 2009 and 2008, respectively, to
the web site intangible asset.
Amortization
expense for intangibles and other assets aggregated approximately
$1,109,000 and $3,336,000 for the three and nine months ended September
30, 2009, respectively, of which approximately $551,000 and $1,606,000,
respectively, related to the database, which is charged to cost of sales,
approximately $252,000 and $757,000, respectively, related to customer
relationships, which is charged to sales and marketing expense,
approximately $230,000 and $746,000, respectively, related to web site
development, which is charged to product development expense, and
approximately $76,000 and $227,000, respectively, related to the value
ascribed to the below market terms of the office lease, which is charged
to general and administrative expenses, all in the Reis Services segment.
Amortization expense for intangibles and other assets aggregated
approximately $1,046,000 and $2,946,000 for the three and nine months
ended September 30, 2008, respectively, of which approximately $487,000
and $1,413,000, respectively, related to the database, approximately
$254,000 and $763,000, respectively, related to customer relationships,
approximately $229,000 and $543,000, respectively, related to web site
development and approximately $76,000 and $227,000, respectively, related
to the value ascribed to the below market terms of the office lease, all
in the Reis Services segment.
|
|||
6. | Debt | ||
At September 30, 2009 and December 31, 2008, the Company’s debt consisted of the following: |
Debt/Project
|
Maturity
Date
|
Stated
Interest Rate at
September
30, 2009
|
September
30, 2009 |
December
31, 2008 |
|||||||||||||
Debt:
|
|||||||||||||||||
Reis
Services Bank Loan
|
September
2012
|
LIBOR
+ 1.50%(A)
|
$ | 20,125,000 | $ | 22,750,000 | |||||||||||
East
Lyme Construction Loan
|
June
2009
|
— | — | 5,077,000 | |||||||||||||
Other
Reis Services debt
|
Various
|
Fixed/Various
|
262,000 | 403,000 | |||||||||||||
Total
debt
|
20,387,000 | 28,230,000 | |||||||||||||||
Less
current portion
|
5,825,000 | 8,767,000 | |||||||||||||||
Long-term
portion
|
$ | 14,562,000 | $ | 19,463,000 | |||||||||||||
Total
construction loans payable
|
$ | — | $ | 5,077,000 | |||||||||||||
Carrying
amount of real estate assets collateralizing construction loans
payable
|
$ | — | $ | 876,000 | |||||||||||||
Total
assets of Reis Services as a security interest for the Bank
Loan
|
$ | 99,511,000 | $ | 100,271,000 | |||||||||||||
(A) |
Depending
upon the leverage ratio, as defined in the Bank Loan agreement, the spread
to LIBOR may range from 3.00% to 1.50% as described below.
|
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 and
the remaining $2,000,000 may be utilized for future working capital needs
of Reis Services. The loans are secured by a security interest in
substantially all of the assets, tangible and intangible, of Reis Services
and a pledge by the Company of its membership interest in Reis Services.
The Bank Loan restricts the flow of cash from Reis Services up to the
Company. However, commencing in 2009, the Bank Loan allows for
a portion of the cash of Reis Services to be distributed to the Company
for qualifying operating expenses of the Company if certain ratios are
met, as defined in the credit agreement.
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 commencing on March 31, 2010. Additional principal
payments are payable if Reis Services’s annual cash flow exceeds certain
amounts, as defined in the credit agreement. No additional
payments were required during the three and nine months ended September
30, 2009 and 2008. The final maturity date of all amounts
borrowed pursuant to the credit agreement is September 30,
2012.
The
interest rate was LIBOR + 1.50% at September 30, 2009 and December 31,
2008 (LIBOR was 0.25% and 0.44% at September 30, 2009 and December 31,
2008, respectively). The LIBOR spread under the Bank Loan is based on a
leverage ratio, as defined in the credit agreement. The interest spread
could range from a high of LIBOR + 3.00% (if the leverage ratio is greater
than or equal to 4.50 to 1.00) to a low of LIBOR + 1.50% (if the leverage
ratio is less than 2.75 to 1.00). Reis Services also pays a fee on the
unused $2,000,000 portion of the revolving loan of 0.50% per annum, as
well as an annual administration fee of $25,000.
The
Bank Loan requires interest rate protection in an aggregate notional
principal amount of not less than 50% of the outstanding balance of the
Bank Loan for a minimum of three years. An interest rate cap was purchased
for $109,000 in June 2007, which caps LIBOR at 5.50% on $15,000,000 from
June 2007 to June 2010. The cap had no value at September 30,
2009 and December 31, 2008. The increase in the fair value of
the interest rate cap of approximately $9,000 during the nine months ended
September 30, 2008 was recorded as a benefit to interest
expense.
|
Debt
(continued)
Residential
Development Debt
|
|||
In
December 2004, the Company obtained revolving development and construction
financing for East Lyme in the aggregate amount of approximately
$21,177,000 (the “East Lyme Construction Loan”). The East Lyme
Construction Loan was extended, with term modifications, in April 2008.
The interest rate for the East Lyme Construction Loan increased from LIBOR
+ 2.15% to LIBOR + 2.50% over the extension period which matured in June
2009. The extension terms also required periodic minimum principal
repayments if repayments from sales proceeds were not sufficient to meet
required repayment amounts. During
April 2009, the Company made principal repayments of approximately
$4,177,000, thereby retiring the outstanding balance of the East Lyme
Construction Loan and eliminating the minimum liquidity
requirement.
The
lender for the East Lyme Construction Loan initially provided a $3,000,000
letter of credit to a municipality in connection with the construction of
public roads at the East Lyme project. In January 2008, the letter of
credit requirement was reduced to $1,750,000 by the
municipality. The Company initially posted $1,300,000 of
restricted cash as collateral for this letter of credit and in April 2009,
posted an additional $406,000 of restricted cash to fully collateralize
the letter of credit at $1,750,000. In June 2009, the
municipality reduced the letter of credit requirement from $1,750,000 to
$1,000,000 and in July 2009, further reduced the requirement to $450,000,
at which times, the cash collateral requirement was reduced in a
corresponding amount (with the excess cash being distributed to the
Company). The Company continues to work with the municipality
to further reduce other bonding and escrow requirements. There
can be no assurance that the Company will be able to successfully have
these amounts reduced in the near future.
As
a result of the retirement of the East Lyme Construction Loan and the
additional cash collateralization of the letter of credit in April 2009,
all of the Company’s remaining residential real estate is unencumbered by
debt.
The
Company capitalizes interest related to the development of single family
homes and condominiums under construction to the extent such assets
qualify for capitalization. Approximately $106,000 and $533,000 was
capitalized during the three and nine months ended
September 30, 2008, respectively. No interest was
capitalized to the projects for the three and nine months ended
September 30, 2009.
|
|||
7. | Income Taxes | ||
The components of the income tax (benefit) expense are as follows: |
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||
Current
state and local tax (benefit) expense
|
$ | (4,000 | ) | $ | 4,000 | $ | 26,000 | $ | 42,000 | |||||||||
Current
Federal alternative minimum tax (“AMT”) expense
|
25,000 | 30,000 | 25,000 | 90,000 | ||||||||||||||
Deferred
Federal tax (benefit) expense
|
(72,000 | ) | (85,000 | ) | 368,000 | (797,000 | ) | |||||||||||
Deferred
state and local tax (benefit) expense
|
(19,000 | ) | (22,000 | ) | 94,000 | (200,000 | ) | |||||||||||
Income
tax (benefit) expense
|
$ | (70,000 | ) | $ | (73,000 | ) | $ | 513,000 | $ | (865,000 | ) |
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 $529,000 and $67,000 at September 30, 2009
and December 31, 2008, 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 the tax benefit
of impairment charges before allowances and net operating loss (“NOL”)
carryforwards as they relate to deferred tax assets and the deferred tax
liability resulting from the intangible assets recorded at the time of the
Merger.
During the seven-month period subsequent to the Merger, the Company
generated an NOL of approximately $4,600,000 which may be utilized against
consolidated taxable income through 2027 and is not subject to an annual
limitation. Private Reis had NOL carryforwards aggregating
approximately $9,900,000 at December 31, 2008, expiring in the years
2019 to 2026. The Private Reis NOLs may be utilized against consolidated
taxable income, subject to a $5,300,000 annual limitation.
|
Income Taxes (continued) | |||
In accordance with the applicable accounting literature, 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 $9,205,000 at September 30, 2009 and December 31, 2008, was necessary. The allowance at September 30, 2009 and December 31, 2008 relates primarily to AMT credits and to the excess of a portion of the tax basis of certain real estate development assets over their respective financial statement basis. Separately, the Company is not aware of any new uncertain tax positions to be considered in its reserve for the nine months ended September 30, 2009. | |||
8. | Stockholders’ Equity | ||
In December 2008, the Company’s board of
directors (“Board”) authorized a repurchase program of shares of the
Company’s common stock up to an aggregate amount of $1,500,000 and in
August 2009, the Board authorized an increase in the repurchase program to
an aggregate amount of $3,000,000. Purchases under the program may
be made from time-to-time in the open market or through privately
negotiated transactions. Depending on market conditions, financial
developments and other factors, these purchases may be commenced or
suspended at any time, or from time-to-time, without prior notice and may
be expanded with 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 three and nine months ended
September 30, 2009, the Company purchased an aggregate of 385,029 and
640,086 shares of common stock, respectively, at an average price of $4.98
and $4.21 per share, respectively. From the inception of the share
repurchase program in December 2008 through October 31, 2009, the Company
purchased an aggregate of 653,317 shares of common stock at an average
price of $4.23 per share, for an aggregate of approximately $2,765,000
(leaving approximately $235,000 that may be used to purchase additional
shares under the program). During 2008, no repurchases were made prior to
December 15, 2008.
The
Company did not declare or distribute any dividends during the three and
nine months ended September 30, 2009 and 2008.
|
|||
9. |
Stock Plans and Other
Incentives
Option
Awards
|
||
The following table presents changes in options outstanding for the nine months ended September 30, 2009 and 2008, as well as other plan data: |
For
the Nine Months Ended September 30,
|
||||||||||||||||||
2009
|
2008
|
|||||||||||||||||
|
Options
|
Weighted-Average
Exercise
Price
|
Options
|
Weighted-Average
Exercise
Price
|
||||||||||||||
Outstanding
at beginning of period
|
528,473 | $ | 8.53 | 615,848 | $ | 8.34 | ||||||||||||
Exercised
|
(38,991 | ) | $ | (4.58 | ) | — | $ | — | ||||||||||
Cancelled
through cash settlement
|
— | $ | — | (22,155 | ) | $ | (4.72 | ) | ||||||||||
Forfeited/cancelled/expired
|
(7,000 | ) | $ | (9.57 | ) | (17,724 | ) | $ | (8.89 | ) | ||||||||
Outstanding
at end of period
|
482,482 | $ | 8.83 | 575,969 | $ | 8.46 | ||||||||||||
Options
exercisable at end of period
|
251,482 | $ | 7.87 | 239,969 | $ | 6.52 | ||||||||||||
Options
exercisable which can be settled in cash
|
97,482 | $ | 4.72 | 155,969 | $ | 4.72 |
In
January 2006, the Board authorized amendments to the then outstanding
options, to allow an 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 by which the fair market value of the
share of stock underlying the option exceeds the exercise price of such
option. The Company
|
Stock Plans and Other Incentives (continued) | |||
accounts
for these options as liability awards. The 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 of options and (3) the changes in the market price of the
Company’s common stock.
At
September 30, 2009, the option liability was approximately $122,000, as
the closing stock price of the Company at September 30, 2009 of $5.97 per
share was in excess of the individual exercise prices of the outstanding
97,482 “in-the-money” options that were accounted for as a liability award
at that date. At December 31, 2008, the option liability was approximately
$56,000 based upon the difference in the closing stock price of the
Company at December 31, 2008 of $5.00 per share and the individual
exercise prices of the outstanding 101,025 “in-the-money” options that are
accounted for as a liability award at that date. Changes in the settlement
value of option awards treated under the liability method of accounting
are reflected as income or expense in the statements of operations. The
Company recorded compensation expense of approximately $178,000 and
$122,000 in the three and nine months ended September 30, 2009,
respectively, in general and administrative expenses in the statements of
operations as a result of the stock price changes from each measurement
date. The Company recorded compensation expense of
approximately $79,000 in the three months ended September 30, 2008 and a
compensation benefit of approximately $272,000 in the nine months ended
September 30, 2008 in general and administrative expenses in the
statements of operations as a result of the stock price changes from each
measurement date. No options were settled with a net cash
payment during the three and nine months ended September 30,
2009. During the nine months ended September 30, 2008, an
aggregate of 22,155 options were settled with net cash payments
aggregating approximately $55,000, none of which occurred in the three
months ended September 30, 2008.
|
|||
Restricted Stock Units (“RSUs”) Awards | |||
The following table presents the changes in RSUs outstanding for the nine months ended September 30, 2009 and 2008: |
For
the Nine Months Ended
September
30,
|
|||||||||||
2009
|
2008
|
||||||||||
Outstanding
at beginning of period
|
343,320 | 208,400 | |||||||||
Granted
|
231,192 | 149,730 | |||||||||
Common
stock delivered (A)
|
(31,332 | ) | — | ||||||||
Forfeited
|
(8,400 | ) | (12,600 | ) | |||||||
Outstanding
at end of period
|
534,780 | 345,530 | |||||||||
Intrinsic
value at September 30, 2009 (B)
|
$ | 3,193,000 | |||||||||
(A)
|
Includes
5,245 shares which were used to settle employee withholding tax
obligations for three employees of approximately $21,000. A net of 26,087
shares of common stock were delivered.
|
||||||||||
(B) |
For
purposes of this calculation, the Company’s closing stock price of $5.97
per share on September 30, 2009 was used.
|
In
September 2009, an aggregate of 10,000 RSUs were granted to employees and
have a grant date fair value of $5.55 per RSU (which was determined based
on the closing price of the Company’s common stock on September 22, 2009).
In February 2009, an aggregate of 169,500 RSUs were granted to employees
and have a grant date fair value of $4.76 per RSU (which was determined
based on the closing price of the Company’s common stock on February 4,
2009). In February 2008, an aggregate of 100,000 RSUs were granted to
employees and had a grant date fair value of $7.20 per RSU (which was
determined based on the closing price of the Company’s common stock on
February 28, 2008). These awards 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 three year vesting
period.
During
the nine months ended September 30, 2009, an aggregate 51,692 RSUs were
granted to non-employee directors (with an average grant date fair value
of $3.93 per RSU) related to the equity component of their compensation
for the three months ended December 31, 2008, March 31, 2009 and June 30,
2009. During the nine months ended September 30, 2008, an
aggregate of 49,730 RSUs were granted to non-employee directors (with an
average grant date fair value of $6.44 per RSU) related to the equity
component of their compensation for the period June 1, 2007 to June 30,
2008. In each case, the grant date fair value was determined as
of the trading day immediately prior to grant (the last 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.
|
Stock
Plans and Other Incentives (continued)
Option and RSU Expense
Information
|
|||
For the three months ended September 30, 2009 and 2008, the Company recorded non-cash compensation expense of approximately $381,000 and $323,000, respectively (including approximately $46,000 and $69,000, respectively, related to non-employee director equity compensation), and for the nine months ended September 30, 2009 and 2008, recorded non-cash compensation expense of approximately $1,091,000 and $1,159,000, respectively (including approximately $180,000 and $226,000, respectively, related to non-employee director equity compensation). The non-cash compensation expense is related to all stock options and RSUs accounted for as equity awards and is a component of general and administrative expenses in the statement of operations. | |||
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 based upon the increased number of common shares that would be outstanding assuming the exercise of dilutive common share options and the consideration of restricted stock awards. The following table details the computation of earnings per common share, basic and diluted: |
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||
Numerator:
|
||||||||||||||||||
Net
(loss) income for basic calculation
|
$ | (162,535 | ) | $ | (209,110 | ) | $ | 645,615 | $ | 1,263,326 | ||||||||
Adjustments
to net (loss) income for the income statement impact of dilutive
securities
|
—
|
— | — | (272,219 | ) | |||||||||||||
Net
(loss) income for dilution calculation
|
$ | (162,535 | ) | $ | (209,110 | ) | $ | 645,615 | $ | 991,107 | ||||||||
Denominator:
|
||||||||||||||||||
Denominator
for net (loss) income per common share, basic — weighted average
common shares
|
10,660,758 | 10,984,517 | 10,798,841 | 10,984,517 | ||||||||||||||
Effect
of dilutive securities:
|
||||||||||||||||||
RSUs
|
— | — | 194,248 | 86,597 | ||||||||||||||
Stock
options
|
— | — | — | 125,546 | ||||||||||||||
Denominator
for net (loss) income per common share, diluted — weighted
average common shares
|
10,660,758 | 10,984,517 | 10,993,089 | 11,196,660 | ||||||||||||||
Net
(loss) income per common share:
|
||||||||||||||||||
Basic
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | 0.06 | $ | 0.12 | ||||||||
Diluted
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | 0.06 | $ | 0.09 |
Potentially dilutive securities include all stock based awards. For the three and nine months ended September 30, 2009, certain equity awards, in addition to the option awards accounted for under the liability method, were antidilutive. | |||
11. | Fair Value of Financial Instruments | ||
At September 30, 2009 and December 31, 2008, the Company’s financial instruments included receivables, payables, accrued expenses, other liabilities and debt. The fair values of these financial instruments, excluding the debt, were not materially different from their recorded values at September 30, 2009 and December 31, 2008. Other than capital leases, all of the Company’s debt at September 30, 2009 and December 31, 2008 was floating rate based. Regarding the Bank Loan, the fair value of this debt is estimated to be approximately $18,600,000 and $20,800,000 at September 30, 2009 and December 31, 2008, respectively, which is lower than the recorded amounts of $20,125,000 and $22,750,000 at September 30, 2009 and December 31, 2008, respectively. The estimated fair value reflects the effect of higher interest rate spreads and interest rate floors on debt being issued under current market conditions, as compared to the conditions that existed when the Bank Loan was obtained. Regarding the East Lyme Construction Loan, this debt was retired in April 2009. The Company determined that the recorded amount of this debt was equal to its fair value at December 31, 2008. The Company’s interest rate cap had no value at September 30, 2009 and December 31, 2008. See Note 6 for more information about the Company’s debt. |
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. (which we refer to as either 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 customers, through
its Reis Services subsidiary. For disclosure and financial
reporting purposes, this business is referred to as the Reis Services
segment.
Reis
Services’s Historic Business
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
and industrial 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’s
flagship product is Reis
SE, which provides web based online access to information and
analytical tools designed to facilitate debt and equity transactions as
well as ongoing evaluations. In addition to trend and forecast analysis at
metropolitan and neighborhood levels, the product offers detailed
building-specific information such as rents, vacancy rates, lease terms,
property sales, new construction listings and property valuation
estimates. Reis
SE is designed to meet the demand for timely and accurate
information to support the decision-making of property owners, developers
and builders, banks and non-bank lenders, and equity investors, all of
whom require access to 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 29 years, has invested in the areas critical to supporting
the information needs of real estate professionals in both the asset
market and the space leasing market. In particular, Reis
has:
|
▪ |
developed
expertise in data collection across multiple markets and property
types;
|
|||
▪ |
invested
in the analytical expertise to develop decision support systems around
property valuations, credit analytics, transaction support and risk
management;
|
|||
▪ |
created
product development expertise to collect market feedback and translate it
into new products and reports; and
|
|||
▪ |
invested
in a robust technology infrastructure to disseminate these tools to the
wide variety of market participants.
|
These investments have established Reis as a leading provider of commercial real estate information and analytical tools to the investment community. Reis continues to develop and introduce new products, expand and add new markets and data, and find new |
ways
to deliver existing information to meet and anticipate client demand, as
more fully described below under “Products and Services.” The
depth and breadth of Reis’s data and expertise are critical in allowing
Reis to grow its business.
Proprietary
Databases
Reis
has expertise in collecting, screening and organizing volumes of data into
its proprietary databases. Each quarter, a rotating sample of building
owners, leasing agents, and managers are surveyed to obtain key building
performance statistics including, among others, occupancy rates, rents,
rent discounts, free rent allowances, tenant improvement allowances, lease
terms and operating expenses. All survey responses are subjected to an
established quality assurance and validation process. At the property
level, surveyors compare the data reported by building contacts with the
previous record for the property and question any unusual changes in rents
and vacancies. Whenever necessary, follow-up calls are placed to building
contacts for verification or clarification of the results. All aggregate
market data at the neighborhood (submarket) and city (market) levels are
also subjected to comprehensive quality controls. The following table
lists the number of metropolitan markets covered by Reis for each of four
types of commercial real estate at September 30, 2009:
|
Number
of metropolitan markets:
|
||||||
Apartment
|
169 | |||||
Office
|
132 | |||||
Retail
|
140 | |||||
Industrial
|
44 |
These
metropolitan markets are further sub-divided into approximately 1,800
competitive submarkets based on property type at September 30,
2009.
In
addition to the core property database, Reis develops and maintains a new
construction database that 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, under construction, or nearing
completion.
Reis
also maintains a sales comparables database containing transactions over
$2,000,000 in 172 of our largest covered markets. The database captures
key information on each transaction such as buyer, seller, purchase price,
capitalization rate and financing details, where available. Because
capitalization rates are so important, and Reis has been tracking
performance information on many of these properties for years, we are able
to provide detailed pro forma capitalization rates, in a customizable
format, for a significant number of the transactions in the
database.
Products
and Services
Reis SE, available
through the www.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 to the core system is by secure password only
and can be customized to accommodate the needs of various customers. For
example, the product can be tailored to provide access to all or only
certain markets, property types and report combinations. The Reis SE interface 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 generate valuation
and credit analysis estimates at the single property and portfolio
levels. These analytical tools may increase in significance
over the next few years as investors study opportunities in the secondary
market for commercial mortgage backed securities.
On
a quarterly basis, Reis updates thousands of neighborhood and city level
reports that cover historical trends, current observations and, in a
majority of its markets, five year forecasts on all key real estate market
indicators. These updates are supported by property, neighborhood and city
data gathered during the prior quarter.
Reports
are retrievable by street address, property type (apartment, office,
retail and industrial) or market/submarket and are available as full color
presentation quality documents or in spreadsheet formats. These reports
are used by Reis’s customers to assist in due diligence and to support
commercial real estate transactions such as loan originations,
underwriting, acquisitions, risk assessment (including loan loss reserves
and impairment analyses), portfolio monitoring and management, asset
management, appraisal and market analysis.
|
Other significant elements of Reis SE include: |
▪ |
real
estate news stories chosen by Reis analysts to provide information
relevant to a particular market and property type;
|
|||
▪ |
customizable
email alerts that let users receive proactive updates on only those
reports or markets that they are interested in;
|
|||
▪ |
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; and
|
|||
▪ | the “Quarterly Briefing” — a conference call during which Reis provides an analysis of its latest findings and forecasts. |
Reis is continuously enhancing Reis SE by developing new products and applications. Examples of recent enhancements include: |
▪ |
the
October 2008 launch of Transaction AnalyticsSM,
a tool that empowers commercial real estate investors and portfolio
managers to identify sales and capital markets trends that are directly
impacting the value of their assets. The resulting precision
supports more informed valuations and decisions with regard to troubled
debt and associated commercial real estate collateral. For all
of Reis’s metro areas and regions, users of Transaction AnalyticsSM
can obtain, on demand, a customized read on historical, current and
forecasted capital market conditions, offering key measurements of sales
transaction activity, including mean, median, and 12-month rolling cap
rates, total sales price, price per unit or square foot, and total
transaction volume. The user may refine this analysis by
including only properties that meet specified sales transaction
characteristics (price or capitalization rate), or physical
characteristics (size, age or class).
|
|||
▪ |
the
February 2009 launch of Value AlertSM,
an analytical tool that provides a quick measure of how previous
commercial real estate value assumptions may need to be modified to
reflect current economic realities. The tool can be applied to
a portfolio as an initial screen to identify assets that may warrant
further scrutiny.
|
|||
▪ |
the
August 2009 enhancement of Reis’s Single Property Valuation module and its
Asset and Portfolio AnalysisSM
service, which are designed to help clients better quantify the
value and risk associated with their commercial real estate
holdings.
|
Reis
also expanded its coverage of retail markets during 2009. In
May 2009, Reis initiated coverage of neighborhood and community shopping
centers in 27 additional markets and in August 2009, Reis expanded retail
coverage by 35 additional markets. Separately, Reis expanded
its coverage of commercial real estate sale transactions by adding 90
additional markets in August 2009. As with the addition of
apartment markets in 2007 and office markets in 2008, the expanded retail
coverage is available for an additional fee to our customers.
Cost
of Service
Reis’s
data is available to customers in four primary ways: (1) annual and
multi-year subscriptions to Reis SE;
(2) capped subscriptions allowing customers to download a limited
number of reports; (3) online credit card purchases; and
(4) custom data requests. Annual subscription fees range from $1,000
to over $600,000, depending on the combination of markets, property types
and reports subscribed to and allow the client to download an unlimited
number of reports over a 12-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 12-month period. Individual report sales 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. Finally, 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
usage pattern.
Customer
Service and Training
Reis
focuses heavily on proactive training and customer support. Reis’s
dedicated customer service team offers customized on-site training and
web-based and telephonic support, as well as weekly web-based training
seminars open to all customers. The corporate training team
also meets regularly with a large proportion of Reis’s
customers. Additional points of customer contact include
mid-year service reviews, a web-based customer feedback program and
account manager visits. All of these contacts are used to
assist
|
customers
with their usage of Reis
SE (including by maximizing their knowledge of the product), to
identify opportunities for product adoption and increased usage and to
solicit customer input for future product enhancements. In
2009, Reis’s customer service group began offering training videos through
the Reis SE
platform.
Proprietary
Rights
To
protect our proprietary rights, we rely upon a combination
of:
|
▪ |
trade
secret, copyright, trademark, database protection and other laws at the
Federal, state and local level;
|
|||
▪ |
nondisclosure,
non-competition and other contractual provisions with employees, vendors
and consultants;
|
|||
▪ |
restrictive
license agreements with customers; and
|
|||
▪ | other technical measures. |
We
protect our software’s source code and our database as either trade
secrets or under copyright law. We license our services under license
agreements that restrict the disclosure and use of our proprietary
information and prohibit the unauthorized reproduction, re-engineering or
transfer of the information in the products and/or services we
provide.
We
also protect the secrecy of our proprietary database, our trade secrets
and our proprietary information through confidentiality and noncompetition
agreements with our employees, vendors and consultants. Our services also
include technical measures designed to deter and detect unauthorized
copying of our intellectual property.
We
have registered the trademarks for the Reis logo and “Your Window Onto the
Real Estate Market.”
Competition
Real
estate transactions involve multiple participants who require accurate
historical and current market information. Key factors that influence the
competitive position of commercial real estate information vendors
include: the depth and breadth of underlying databases; price; ease of
use, flexibility and functionality of the software; the ability to keep
the data up to date; scope of coverage by geography and property type;
customer training and support; adoption of the service by industry
leaders; consistent product innovation; and recognition by business trade
publications.
Reis’s
senior management believes that, on a national level, only a small number
of firms serve the property information needs of commercial real estate
investors and lenders. Reis competes directly and indirectly for customers
with online services or web sites targeted to commercial real estate
professionals such as CoStar Group, Inc., Real Capital Analytics, Inc.,
Torto Wheaton Research, a wholly-owned subsidiary of CB Richard Ellis, and
LoopNet, Inc., as well as with in-house real estate research
departments.
Wellsford’s
Historic Business
The
Company was originally formed on January 8, 1997. Reis acquired the
Reis Services business in the May 2007 merger, 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 were the development,
construction and sale of its three residential projects and its
approximate 23% ownership interest in the Reis Services business. The
Company has completed the sale of the remaining units at its Gold Peak
project and is seeking to exit the residential development business by
selling its remaining two projects in bulk, in order to focus solely on
the Reis Services business.
At
September 30, 2009, the Company’s residential development activities were
comprised primarily of the following:
|
▪ |
The
259 unit Gold Peak condominium development in Highlands Ranch,
Colorado, which we refer to as Gold Peak. Sales commenced in January 2006
and all of the Gold Peak units were sold as of September 30,
2009.
|
|||
▪ |
The
Orchards, a single family home development in East Lyme, Connecticut, upon
which the Company could build 161 single family homes on 224 acres,
which we refer to as East Lyme. Sales commenced in June 2006 and an
aggregate of 36
|
homes
and lots (28 homes and eight lots) were sold as of September 30,
2009. At September 30, 2009, there were one East Lyme home,
five improved lots and 119 fully approved lots in
inventory.
|
||||
▪ |
The
Stewardship, a single family home development in Claverack, New York,
which is subdivided into 48 developable single family home lots on
235 acres and includes two model homes and substantially completed
infrastructure and amenities, which we refer to as
Claverack.
|
The
Company is actively working with local and regional brokers related to the
East Lyme and Claverack bulk sale initiatives. There can be no
assurance that the Company will be able to sell any or all of the homes in
inventory or the remaining lots, individually or in bulk, at acceptable
prices, or within a specific time period, or at all.
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, 2008.
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
GAAP net income to EBITDA for the Reis Services segment and to Adjusted
EBITDA 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
|
|||||||||||||||||
2009
|
2008
|
(Decrease)
|
(Decrease)
|
|||||||||||||||
Revenue
|
$ | 5,801 | $ | 6,524 | $ | (723 | ) | (11.1 | )% | |||||||||
EBITDA
|
$ | 2,586 | $ | 2,965 | $ | (379 | ) | (12.8 | )% | |||||||||
EBITDA
margin
|
44.6 | % | 45.4 | % |
For
the Nine Months Ended
|
|
|||||||||||||||||
September
30,
|
Percentage
|
|||||||||||||||||
2009
|
2008
|
(Decrease)
|
(Decrease)
|
|||||||||||||||
Revenue
|
$ | 18,065 | $ | 19,440 | $ | (1,375 | ) | (7.1 | )% | |||||||||
EBITDA
|
$ | 8,342 | $ | 8,515 | $ | (173 | ) | (2.0 | )% | |||||||||
EBITDA
margin
|
46.2 | % | 43.8 | % |
For
the Three Months Ended
|
||||||||||||||||||
September
30,
2009
|
June
30,
2009
|
(Decrease)
|
Percentage
(Decrease)
|
|||||||||||||||
Revenue
|
$ | 5,801 | $ | 5,909 | $ | (108 | ) | (1.8 | )% | |||||||||
EBITDA
|
$ | 2,586 | $ | 2,740 | $ | (154 | ) | (5.6 | )% | |||||||||
EBITDA
margin
|
44.6 | % | 46.4 | % |
Reis
Services’s EBITDA decreased $379,000 from the third quarter of 2008 to the
third quarter of 2009, primarily as a result of a revenue reduction
between the two periods of $723,000. For the nine months ended
September 30, 2009, EBITDA decreased $173,000, primarily as a result of a
revenue reduction between the two periods of $1,375,000. The
$154,000 decline in EBITDA in consecutive quarters (second quarter 2009 to
third quarter 2009) is primarily the result of a decline in revenue of
$108,000. We have
|
been
able to maintain our EBITDA margins through the significant cost control
measures initiated in the fourth quarter of 2008 and in place during the
2009 periods.
The
revenue decreases referred to above are driven by the cumulative impact of
declines in Reis Services’s renewal rates over the trailing twelve month
period. Our overall renewal rate was 83% for the trailing
twelve months ended September 30, 2009, down from 84% for the twelve
months ended June 30, 2009 and 88% for the year ended December 31,
2008. Although the trailing twelve month renewal rate continued
to decline through September 30, 2009, the rate of decline slowed
dramatically. This is attributable to the fact that our renewal
rates during the third quarter of 2009 increased significantly to 88%
overall and 89% for institutional customers, up from 80% and 83%,
respectively, during the second quarter of 2009. This was our
first sequential quarter over quarter increase in renewal rates since the
beginning of the market downturn in 2008.
Separately,
the net effect of price increases and decreases upon renewals has also
negatively impacted revenue. During the past twelve months,
contract price increases on renewals were constrained due to usage
reductions at certain customers as well as budgetary pressures at our
customers, predominantly in the banking industry, but also impacting other
of our customers. Our pricing model is based on actual and
projected usage, and we believe it is generally not as susceptible to
downturns and personnel reductions at our customers as would be a model
based upon individual user licenses. We generally impose
contractual restrictions limiting our immediate exposure to revenue
reductions due to mergers and consolidations. However, we have
been and we may in the future be impacted by consolidation among our
customers and potential customers, or in the event that customers enter
bankruptcy or otherwise go out of business. During the nine
months ended September 30, 2009, our bad debt expense aggregated $27,000
or only 0.1% of revenue during that period.
Our
largest customer accounted for 2.7% of Reis Services’s revenue for the
nine months ended September 30, 2009. Our 14 largest customers, each of
which accounted for greater than 1.0% of our revenue, aggregated 25.3% of
Reis Services’s revenue for the nine months ended September 30,
2009.
Reconciliations of Net
(Loss) Income 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, impairment losses on real estate assets 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 the Company’s business 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 impairment losses on real estate assets and
stock based compensation. Management also believes that disclosing EBITDA
and Adjusted EBITDA will provide better comparability to other companies
in Reis Services’s type of business. However, investors should not
consider these measures in isolation or as substitutes for net income
(loss), 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, net income
(loss), follow for each identified period:
|
(amounts
in thousands)
Reconciliation
of Net (Loss) to EBITDA and Adjusted EBITDA
for
the Three Months Ended September 30, 2009
|
Reis
Services
|
Residential
Development
Activities
and
Other*
|
Consolidated
|
|||||||||||
Net
(loss)
|
$ | (162 | ) | |||||||||||
Income
tax (benefit)
|
(70 | ) | ||||||||||||
Income
(loss) before income taxes
|
$ | 1,263 | $ | (1,495 | ) | (232 | ) | |||||||
Add
back:
|
||||||||||||||
Depreciation
and amortization expense
|
1,217 | 8 | 1,225 | |||||||||||
Interest
expense (income), net
|
106 | (8 | ) | 98 | ||||||||||
EBITDA
|
2,586 | (1,495 | ) | 1,091 | ||||||||||
Add
back:
|
||||||||||||||
Stock
based compensation expense, net
|
— | 559 | 559 | |||||||||||
Adjusted
EBITDA
|
$ | 2,586 | $ | (936 | ) | $ | 1,650 |
(amounts
in thousands)
Reconciliation
of Net Income to EBITDA and Adjusted EBITDA
for
the Nine Months Ended September 30, 2009
|
Reis
Services
|
Residential
Development
Activities
and
Other*
|
Consolidated
|
|||||||||||
Net
income
|
$ | 646 | ||||||||||||
Income
tax expense
|
513 | |||||||||||||
Income
(loss) before income taxes
|
$ | 4,377 | $ | (3,218 | ) | 1,159 | ||||||||
Add
back:
|
||||||||||||||
Depreciation
and amortization expense
|
3,666 | 60 | 3,726 | |||||||||||
Interest
expense (income), net
|
299 | (18 | ) | 281 | ||||||||||
EBITDA
|
8,342 | (3,176 | ) | 5,166 | ||||||||||
Add
back:
|
||||||||||||||
Stock
based compensation expense, net
|
— | 1,213 | 1,213 | |||||||||||
Adjusted
EBITDA
|
$ | 8,342 | $ | (1,963 | ) | $ | 6,379 |
Reconciliation
of Net (Loss) to EBITDA and Adjusted EBITDA
for
the Three Months Ended September 30, 2008
|
Reis
Services
|
Residential
Development
Activities
and
Other*
|
Consolidated
|
|||||||||||
Net
(loss)
|
$ | (209 | ) | |||||||||||
Income
tax (benefit)
|
(73 | ) | ||||||||||||
Income
(loss) before income taxes
|
$ | 1,564 | $ | (1,846 | ) | (282 | ) | |||||||
Add
back:
|
||||||||||||||
Depreciation
and amortization expense
|
1,161 | 53 | 1,214 | |||||||||||
Interest
expense (income), net
|
240 | (138 | ) | 102 | ||||||||||
EBITDA
|
2,965 | (1,931 | ) | 1,034 | ||||||||||
Add
back:
|
||||||||||||||
Stock
based compensation expense, net
|
— | 402 | 402 | |||||||||||
Adjusted
EBITDA
|
$ | 2,965 | $ | (1,529 | ) | $ | 1,436 |
Reconciliation
of Net Income to EBITDA and Adjusted EBITDA
for
the Nine Months Ended September 30, 2008
|
Reis
Services
|
Residential
Development
Activities
and
Other*
|
Consolidated
|
|||||||||||
Net
income
|
$ | 1,263 | ||||||||||||
Income
tax (benefit)
|
(865 | ) | ||||||||||||
Income
(loss) before income taxes
|
$ | 4,345 | $ | (3,947 | ) | 398 | ||||||||
Add
back:
|
||||||||||||||
Depreciation
and amortization expense
|
3,308 | 182 | 3,490 | |||||||||||
Interest
expense (income), net
|
862 | (491 | ) | 371 | ||||||||||
EBITDA
|
8,515 | (4,256 | ) | 4,259 | ||||||||||
Add
back:
|
||||||||||||||
Stock
based compensation expense, net
|
— | 887 | 887 | |||||||||||
Adjusted
EBITDA
|
$ | 8,515 | $ | (3,369 | ) | $ | 5,146 |
Reconciliation
of Net Income to EBITDA and Adjusted EBITDA
for
the Three Months Ended June 30, 2009
|
Reis
Services
|
Residential
Development
Activities
and
Other*
|
Consolidated
|
||||||||||||
Net
income
|
$ | 531 | |||||||||||||
Income
tax expense
|
378 | ||||||||||||||
Income
(loss) before income taxes
|
$ | 1,449 | $ | (540 | ) | 909 | |||||||||
Add
back:
|
|||||||||||||||
Depreciation
and amortization expense
|
1,192 | 29 | 1,221 | ||||||||||||
Interest
expense, net
|
99 | (35 | ) | 64 | |||||||||||
EBITDA
|
2,740 | (546 | ) | 2,194 | |||||||||||
Add
back:
|
|||||||||||||||
Stock
based compensation expense, net
|
— | 353 | 353 | ||||||||||||
Adjusted
EBITDA
|
$ | 2,740 | $ | (193 | ) | $ | 2,547 | ||||||||
*
|
Includes Gold Peak, East Lyme, the Company’s other residential developments and corporate level income and expenses. |
Results of
Operations
Comparison
of the Results of Operations for the Three Months Ended September 30, 2009
and 2008
Subscription
revenues and related cost of sales were approximately $5,801,000 and
$1,386,000, respectively, for the three months ended September 30, 2009,
resulting in a gross profit for the Reis Services segment of approximately
$4,415,000. Amortization expense included in cost of sales for
the database intangible asset was approximately $551,000 during this
period. Subscription revenues and related cost of sales were approximately
$6,524,000 and $1,413,000, respectively, for the three months ended
September 30, 2008, resulting in a gross profit for the Reis
Services segment of approximately $5,111,000. Amortization expense
included in cost of sales for the database intangible asset was
approximately $487,000 during this period. See the disclosure
on the prior pages for variances and the current market impact on revenue
and EBITDA of the Reis Services segment.
Revenue
and cost of sales of residential units were approximately $898,000 and
$654,000, respectively, for the three months ended September 30, 2009 with
respect to the sale of the remaining four condominium units at the Gold
Peak development in the 2009 period, thereby completing our sales
activities for that project. Revenue and cost of sales of residential
units were approximately $5,039,000 and $4,553,000, respectively, for the
three months ended September 30, 2008 with respect to the sale of 12
condominium units at the Gold Peak development and one home and eight lots
at East Lyme during the 2008 period.
Sales
and marketing expenses and product development expenses were approximately
$1,294,000 and $431,000, respectively, for the three months ended
September 30, 2009 and solely represent the costs of the Reis Services
segment. Amortization expense included in sales and marketing expenses
(for the customer relationships intangible asset) and product development
expenses (for the web site intangible asset) was approximately $252,000
and $230,000, respectively, during this period. Sales and marketing
expenses and product development expenses were approximately $1,260,000
and $473,000, respectively, for the three months ended September 30, 2008.
Amortization expense included in sales and marketing expenses and product
development expenses during this period were approximately $254,000 and
$229,000, respectively.
Property
operating expenses were $170,000 and $267,000 for the three months ended
September 30, 2009 and 2008, respectively, and represent the
non-capitalizable project costs and other period expenses related to the
Company’s residential development projects. These costs
decreased as a result of the Gold Peak sell out in September 2009 and the
efforts to reduce operating costs at our other projects in anticipation of
selling them in bulk transactions.
General
and administrative expenses of $2,898,000 for the three months ended
September 30, 2009 include current period expenses and accruals of
$2,147,000, depreciation and amortization expense of $192,000 for lease
value and furniture, fixtures and equipment, and approximately $559,000 of
net non-cash compensation expense. The net non-cash compensation expense
is comprised of (i) compensation expense resulting from equity awards for
employees and directors of approximately $381,000 and (ii) additional
expense of approximately $178,000 from the increase in the reserve for the
option liability due to an increase in the market price of the Company’s
common stock from $3.91 per share at June 30, 2009 to $5.97 per share at
September 30, 2009. General and administrative expenses of
$3,777,000 for the three months ended September 30, 2008 include current
period expenses and accruals of $3,132,000, depreciation and amortization
expense of $243,000 for lease value and furniture, fixtures and equipment,
and approximately $402,000 of non-cash compensation expense. The non-cash
compensation expense is comprised of (i) compensation expense resulting
from equity awards for employees and directors of approximately $323,000
and (ii) an approximate $79,000 increase in the reserve for the option
liability due to an increase in the market price of the Company’s common
stock from $5.49 per share at June 30, 2008 to $6.00 per share
at September 30, 2008. Excluding the non-cash items, the reduction in
general and administrative expenses is a result of concerted efforts to
reduce public company and other administrative costs, the termination of
the lease for the Wellsford corporate office space in the third quarter of
2008 and other cost saving measures.
Interest
and other income was $34,000 and $174,000 for the three months ended
September 30, 2009 and 2008, respectively, and primarily reflects interest
earned on cash. Interest rates and invested cash balances in
the 2009 period were significantly lower than in the 2008
period.
Interest
expense of $132,000 for the three months ended September 30, 2009 includes
interest and cost amortization on the Bank Loan of $127,000 and interest
from other debt of $5,000. Interest expense of $276,000 for the
three months ended September 30, 2008 includes interest and cost
amortization on the Bank Loan of $279,000, non-capitalized interest from
residential development activities of $32,000, a decrease in the fair
value of the interest rate cap for the Bank Loan of $14,000 and interest
from other debt of $9,000, offset by the effect of the capitalization of
interest of $58,000 from the Bank Loan to residential developments in
accordance with existing accounting rules.
|
The
income tax benefit for the three months ended September 30, 2009 of
$70,000 results from deferred Federal and state tax benefits of $91,000
and current state and local tax benefits of $4,000, offset by current
Federal alternative minimum tax (“AMT”) of $25,000. The income
tax benefit during the three months ended September 30, 2008 of $73,000
results from a deferred Federal, state and local tax benefit of $107,000
related to the pre-tax loss for the three months ended September 30, 2008,
offset by current Federal AMT of $30,000 and a current state and local
provision of $4,000.
Comparison
of the Results of Operations for the Nine Months Ended September 30, 2009
and 2008
Subscription
revenues and related cost of sales were approximately $18,065,000 and
$4,154,000, respectively, for the nine months ended September 30, 2009,
resulting in a gross profit for the Reis Services segment of approximately
$13,911,000. Amortization expense included in cost of sales for
the database intangible asset was approximately $1,606,000 during this
period. Subscription revenues and related cost of sales were approximately
$19,440,000 and $4,119,000, respectively, for the nine months ended
September 30, 2008 resulting in a gross profit for the Reis Services
segment of approximately $15,321,000. Amortization expense included in
cost of sales for the database intangible asset was approximately
$1,413,000 during this period. See the disclosure on the prior
pages for variances and the current market impact on revenue and EBITDA of
the Reis Services segment.
Revenue
and cost of sales of residential units were approximately $6,707,000 and
$4,655,000, respectively, for the nine months ended September 30, 2009
with respect to the sale of the remaining 20 condominium units at the Gold
Peak development in the 2009 period, thereby completing our sales activity
for that project, and three East Lyme home sales in the 2009 period.
Revenue and cost of sales of residential units were approximately
$19,822,000 and $17,005,000, respectively, for the nine months ended
September 30, 2008 with respect to the sale of 47 condominium units at the
Gold Peak development and six homes and eight lots at East Lyme during the
period.
Sales
and marketing expenses and product development expenses were approximately
$3,817,000 and $1,362,000, respectively, for the nine months ended
September 30, 2009 and solely represent the costs of the Reis Services
segment. Amortization expense included in sales and marketing expenses
(for the customer relationships intangible asset) and product development
expenses (for the web site intangible asset) was approximately $757,000
and $746,000, respectively, during this period. Sales and marketing
expenses and product development expenses were approximately $3,996,000
and $1,436,000, respectively, for the nine months ended September 30,
2008. Amortization expense included in sales and marketing expenses and
product development expenses was approximately $763,000 and $543,000,
respectively during this period. Decreases in the current
period reflect the effect of lower commissions in the 2009 period for
sales and marketing expenses as a result of lower revenues, coupled with
company-wide cost cutting measures.
Property
operating expenses were $655,000 and $801,000 for the nine months ended
September 30, 2009 and 2008, respectively, and represent the
non-capitalizable project costs and other period expenses related to the
Company’s residential development projects. These costs
decreased as a result of the Gold Peak sell out in September 2009 and the
efforts to reduce operating costs at our other projects in anticipation of
selling them in bulk transactions.
General
and administrative expenses of $8,689,000 for the nine months ended
September 30, 2009 include current period expenses and accruals of
$6,859,000, depreciation and amortization expense of $617,000 for lease
value and furniture, fixtures and equipment, and approximately $1,213,000
of net non-cash compensation expense. The net non-cash compensation
expense is comprised of (i) compensation expense resulting from equity
awards for employees and directors of approximately $1,091,000 and (ii)
additional expense of approximately $122,000 from the increase in the
reserve for option liability due to an increase in the market price of the
Company’s common stock from $5.00 per share at December 31, 2008 to
$5.97 per share at September 30, 2009. General and
administrative expenses of $11,159,000 for the nine months ended September
30, 2008 include current period expenses and accruals of $9,501,000,
depreciation and amortization expense of $771,000 for lease value and
furniture, fixtures and equipment, and approximately $887,000 of net
non-cash compensation expense. The net non-cash compensation expense is
comprised of (i) compensation expense resulting from equity awards for
employees and directors of approximately $1,159,000, offset by (ii) an
approximate $272,000 decrease in the reserve for option liability due to a
decrease in the market price of the Company’s common stock from $7.68 per
share at December 31, 2007 to $6.00 per share at September 30, 2008
and options settled at an amount less than $7.68 per share during the
period. Also included in current period expenses for the nine
months ended September 30, 2008 is approximately $453,000 of legal and
investment banking fees incurred with regards to assessing and responding
to the unsolicited offers to acquire Reis and assessing strategic
alternatives. Excluding the non-cash items, the reduction in
general and administrative expenses is a result of concerted efforts to
reduce public company and other administrative costs, the termination of
the lease for the Wellsford corporate office space in the third quarter of
2008 and other cost saving measures.
|
Interest
and other income was $182,000 and $496,000 for the nine months ended
September 30, 2009 and 2008, respectively, and primarily
reflects interest earned on cash. Interest rates in the 2009
period were significantly lower than in the 2008 period.
Interest
expense of $463,000 for the nine months ended September 30, 2009 includes
interest and cost amortization on the Bank Loan of $404,000,
non-capitalized interest relating to residential development activities of
$40,000 and interest from other debt of $19,000. Interest
expense of $844,000 for the nine months ended September 30, 2008 includes
interest and cost amortization on the Bank Loan of $989,000,
non-capitalized interest from residential development activities of
$78,000, interest from other debt of $29,000, and a decrease in the fair
value of the interest rate cap for the Bank Loan of $9,000, offset by the
effect of the capitalization of interest of $261,000 from the Bank Loan to
residential developments in accordance with existing accounting
rules.
The
income tax expense for the nine months ended September 30, 2009 of
$513,000 results from a deferred Federal and state tax provision of
$462,000, current Federal AMT of $25,000 and current state and local taxes
of $26,000. The income tax benefit during the nine months ended
September 30, 2008 of $865,000 results from a change in estimate of NOLs
allocable for income tax purposes to the fiscal 2007 period subsequent to
the Merger of $1,165,000, offset by current state and local taxes of
$42,000, current Federal AMT of $90,000 and deferred taxes aggregating
$168,000.
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 liability was approximately $529,000 and $67,000 at September
30, 2009 and December 31, 2008, 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 the tax benefit of impairment charges before allowances and net
operating loss (“NOL”) carryforwards as they relate to deferred tax assets
and the deferred tax liability resulting from the intangible assets
recorded at the time of the Merger.
During
the seven-month period subsequent to the Merger, the Company generated an
NOL of approximately $4,600,000 which may be utilized against consolidated
taxable income through 2027 and is not subject to an annual
limitation. Private Reis had NOL carryforwards aggregating
approximately $9,900,000 at December 31, 2008, expiring in the years 2019
to 2026. The Private Reis NOLs may be utilized against consolidated
taxable income, subject to a $5,300,000 annual limitation.
In
accordance with the applicable accounting literature, 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
$9,205,000 at September 30, 2009 and December 31, 2008, was necessary. The
allowance at September 30, 2009 and December 31, 2008 relates primarily to
AMT credits and to the excess of a portion of the tax basis of certain
real estate development assets over their respective financial statement
basis. Separately, the Company is not aware of any new uncertain tax
positions to be considered in its reserve for the nine months ended
September 30, 2009.
Liquidity and Capital
Resources
At
September 30, 2009, the Company expects to meet its short-term liquidity
requirements such as current operating and capitalizable costs, near-term
product development and enhancements of the web site and databases, the
current portion of long-term debt (including $5,625,000 on the Bank Loan,
payable by September 30, 2010), operating and capital leases, warranty
costs related to construction, development costs, other capital
expenditures, potential settlement of certain outstanding stock options in
cash (the liability for which was approximately $122,000 at September 30,
2009 based upon the closing stock price of the Company at September 30,
2009 of $5.97 per share), and repurchases of up to approximately $298,000
of additional Reis stock pursuant to currently authorized programs,
generally through the use of available cash, cash generated from the
operations of Reis Services, sales of single family homes and single
family home lots either individually or in bulk transactions, the sale or
realization of other assets, releases from escrow reserves and accounts,
interest revenue and the availability of $2,000,000 for working capital
purposes of Reis Services under the Bank Loan.
The
Company expects to meet its long-term liquidity requirements such as
future operating and capitalizable costs, long-term product
development and enhancements of the web site and databases, the
non-current portion of long-term debt, operating and capital leases and
other capital expenditures generally through the use of available cash,
cash generated from the operations of Reis Services, sales of single
family homes and single family home lots either individually or in bulk
transactions (to the extent that any remain unsold),
|
releases
from escrow reserves and accounts, interest revenue and the availability
of $2,000,000 for working capital purposes of Reis Services under the Bank
Loan.
Cash
and cash equivalents aggregated approximately $21,509,000 at September 30,
2009. Management considers such amount to be adequate and expects it to
continue to be adequate to meet operating requirements in both the short
and long terms.
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 and
the remaining $2,000,000 may be utilized for future working capital needs
of Reis Services. The Bank Loan restricts the flow of cash from Reis
Services up to the Company, However, commencing in 2009, the Bank Loan
allows for a portion of the cash of Reis Services to be distributed to the
Company for qualifying operating expenses of the Company if certain ratios
are met, as defined in the credit agreement. The balance of the
Bank Loan was $20,125,000 and $22,750,000 at September 30, 2009 and
December 31, 2008, 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 commencing on March 31, 2010. Additional principal
payments are payable if Reis Services’s annual cash flow exceeds certain
amounts, as defined in the credit agreement. No additional
payments were required during the three and nine months ended September
30, 2009 and 2008. The final maturity date of all amounts
borrowed pursuant to the credit agreement is September 30,
2012.
The
interest rate was LIBOR + 1.50% at September 30, 2009 and December 31,
2008 (LIBOR was 0.25% and 0.44% at September 30, 2009 and December 31,
2008, respectively). The LIBOR spread under the Bank Loan is based on a
leverage ratio, as defined in the credit agreement. The interest spread
could range from a high of LIBOR + 3.00% (if the leverage ratio is greater
than or equal to 4.50 to 1.00) to a low of LIBOR + 1.50% (if the leverage
ratio is less than 2.75 to 1.00).
See
Note 6 of the consolidated financial statements included in this filing
for additional information regarding the Bank Loan.
Residential
Development Debt
In
December 2004, the Company obtained revolving development and construction
financing for East Lyme in the aggregate amount of approximately
$21,177,000, which we refer to as the East Lyme Construction
Loan. During April 2009, the Company made principal repayments
of approximately $4,177,000, thereby retiring the outstanding balance of
the East Lyme Construction Loan and eliminating the minimum liquidity
requirement.
The
lender for the East Lyme Construction Loan initially provided a $3,000,000
letter of credit to a municipality in connection with the construction of
public roads at the East Lyme project. In January 2008, the letter of
credit requirement was reduced to $1,750,000 by the
municipality. The Company initially posted $1,300,000 of
restricted cash as collateral for this letter of credit and in April 2009,
posted an additional $406,000 of restricted cash to fully collateralize
the letter of credit at $1,750,000. In June 2009, the
municipality reduced the letter of credit requirement from $1,750,000 to
$1,000,000 and in July 2009, further reduced the requirement to $450,000,
at which times, the cash collateral requirement was reduced in a
corresponding amount (with the excess cash being distributed to the
Company). The Company continues to work with the municipality
to further reduce other bonding and escrow requirements. There
can be no assurance that the Company will be able to successfully have
these amounts reduced in the near future.
As
a result of the retirement of the East Lyme Construction Loan and the
additional cash collateralization of the letter of credit in April 2009,
all of the Company’s remaining residential real estate is unencumbered by
debt.
See
Note 6 of the consolidated financial statements included in this filing
for additional information regarding the East Lyme Construction
Loan.
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Other
Items Impacting Liquidity
Palomino
Park
Gold
Peak
In
2004, the Company commenced the development of Gold Peak, the final phase
of Palomino Park. Gold Peak is 259 condominium units on the remaining
29 acre land parcel at Palomino Park. Gold Peak unit sales commenced
in January 2006 and during September 2009, the final unit was
sold. The following table provides information regarding Gold
Peak sales:
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
Project
Total Through September
30,
2009
|
||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||||||||
Number
of units sold
|
4 | 12 | 20 | 47 | 259 | |||||||||||||||||
Gross
sales proceeds
|
$ | 898,000 | $ | 3,479,000 | $ | 4,965,000 | $ | 14,522,000 | $ | 77,402,000 |
East
Lyme
The
Company had a 95% ownership interest as managing member of a venture which
originally owned 101 single family home lots situated on 139 acres of
land in East Lyme, Connecticut, upon which it was constructing houses for
sale. At the time of the initial land purchase, the Company executed an
option to purchase a contiguous 85 acre parcel of land which can be
used to develop 60 single family homes, which we refer to as the East Lyme
Land. The Company subsequently acquired the East Lyme Land in
November 2005.
After
the initial land purchase, the Company executed an agreement with a
homebuilder to construct the homes for this project. The
homebuilder was a 5% partner in the project and received other
consideration. In March 2009, the Company and the homebuilder/partner
terminated the partnership agreement and the related development
agreement. As a result of the terminations, the Company paid
approximately $343,000 to its partner to satisfy all remaining
compensation under the development agreement and to purchase its 5%
interest.
Home
sales at East Lyme commenced in June 2006. At September 30, 2009, there
were one East Lyme home, five improved lots and 119 fully approved lots in
inventory. The following table provides information regarding
East Lyme sales:
|
For
the Three Months Ended
September
30,
|
For
the Nine Months Ended
September
30,
|
Project
Total Through
September
30,
|
|||||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2009
|
|||||||||||||||||||
Number
of homes and lots sold
|
— | 9 | 3 | 14 | 36 | ||||||||||||||||||
Gross
sales proceeds
|
$ | — | $ | 1,560,000 | $ | 1,742,000 | $ | 5,300,000 | $ | 20,429,000 |
Certain
of the lots at East Lyme require remediation of pesticides which were used
on the property when it was an apple orchard. Remediation is
required prior to the development of those lots. The
remediation plan, the cost of which is estimated by management to be
approximately $1,000,000, has been approved by the health inspector for
the municipality, and we are awaiting final approval from the town
planner. The estimated remediation cost is recognized as a
liability in the September 30, 2009 and December 31, 2008 balance sheets.
This estimate could change in the future as plans for the remediation are
finalized and if the bulk sale of lots, as described above, were to occur.
An expected time frame for the remediation has not been established as of
the date of this report.
The Company
is continuing to work with a broker to sell the remaining lots (which are
comprised of improved lots with roads and infrastructure in place and
unimproved lots without roads and infrastructure in place). There can be
no assurance that the Company will be able to sell the one remaining house
in inventory or the remaining lots at East Lyme individually or in bulk,
at acceptable prices, or within a specific time period, or at all.
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Other
Developments
Claverack
The
Company owns approximately 235 acres in Claverack, New York, known as
The Stewardship, which is subdivided into 48 developable single family
home lots. Construction of two model homes (which commenced in 2007), the
infrastructure and amenities for The Stewardship were substantially
completed during the third quarter of 2008. The Company is
continuing to work with local and regional brokers to sell the improved
lots and two model homes in a bulk sale transaction. There can
be no assurance that the Company will be able to sell the improved lots
and the model homes at Claverack in bulk, at acceptable prices, or within
a specific time period, or at all.
Issuer
Purchases of Equity Securities
In
December 2008, the Board authorized a repurchase program of shares of the
Company’s common stock up to an aggregate amount of $1,500,000 and in
August 2009, the Board authorized an increase in the repurchase program to
an aggregate amount of $3,000,000. Purchases under the program
may be made from time-to-time in the open market or through privately
negotiated transactions. Depending on market conditions,
financial developments and other factors, these purchases may be commenced
or suspended at any time, or from time-to-time, without prior notice and
may be expanded with 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 three and nine months ended September 30, 2009, the Company purchased
an aggregate of 385,029 and 640,086 shares of common stock, respectively,
at an average price of $4.98 and $4.21 per share,
respectively. From the inception of the share repurchase
program in December 2008 through October 31, 2009, the Company purchased
an aggregate of 653,317 shares of common stock at an average price of
$4.23 per share, for an aggregate of approximately $2,765,000 (leaving
approximately $235,000 that may be used to purchase additional shares
under the program). During 2008, no repurchases were made prior to
December 15, 2008.
The Effects of
Inflation/Declining Prices and Trends
Reis
Services
The
Company monitors commercial real estate industry and market trends to
determine their potential impact on its products and product development
initiatives. The continuing volatility and uncertainty in the
U.S. and global economy, including the credit markets and real estate
markets, has continued to affect renewal rates, with the greatest impact
on the Company being felt since the beginning of the fourth quarter of
2008 and continuing into the second quarter of 2009. Because of
budget constraints at certain customers and potential customers, the
effective shutdown of the CMBS markets and the flurry of mergers and
bankruptcies of financial institutions in the fall of 2008 (some of which
were customers of the Company), the Company has been negatively impacted
as exhibited by our overall renewal rate (which is based on annual dollars
renewed and reflects price increases, decreases and
non-renewals). Although the trailing twelve month overall
annual renewal rate declined to 83% at September 30, 2009, as compared to
the year ended December 31, 2008 rate of 88%, there has been significant
improvement in the quarterly renewal rate as the third quarter 2009
renewal rate was 88% overall as compared to 80% for the second quarter of
2009.
To
date, the Company mitigates market pressures by continuing to add new
customers, selling new products (such as our tertiary apartment, office
and retail markets, rolled out in 2007, 2008 and 2009, respectively) and
identifying additional and/or alternative users within the organizations
and institutions that are current customers. Historically,
during periods of economic and commercial real estate market volatility,
we generally experienced stable demand for our market information and an
increase in demand for our portfolio products as investors placed greater
emphasis on assessing portfolio risk. We cannot
assure you that the level of demand for Reis Services’s products will be
sustained or increase during the remainder of 2009 or in the
future.
Home
and Lot Sales
The
Company’s operations relating to residential development and the sale of
homes and lots have been negatively impacted by poor national, regional
and local market conditions where the Company owns property. Demand at the
Company’s projects and sales of home and lot inventory are lower and
slower than previous expectations resulting in price concessions,
increased broker incentives and/or additional incentives being offered to
buyers. Illiquidity in the residential mortgage and
construction/development loan markets has negatively impacted our
marketing efforts and the ability of buyers to afford and/or finance the
purchase of our homes or lots,
|
causing
us to offer increased concessions and/or sale price reductions. The number
and timing of future sales of the remaining homes, individual lots or bulk
land by the Company could be adversely impacted by the lack of
availability of credit to potential buyers and, in the case of a buyer of
our homes in inventory or buying a lot to build for their own use, the
inability of potential buyers to sell their existing
homes. During September 2009, the Company sold the remaining
unit at its Gold Peak project and only one home and five improved lots
remain in inventory at the East Lyme project. We intend to sell
the remaining East Lyme lots and Claverack project in bulk
transactions. Changes in Cash
Flows
Comparison
of the Nine Months Ended September 30, 2009 to the Nine Months Ended
September 30, 2008
Cash
flows for the nine months ended September 30, 2009 and 2008 are summarized
as follows:
|
For
the Nine Months Ended September 30,
|
||||||||||||||
2009
|
2008
|
(Decrease)
Increase
|
||||||||||||
Net
cash provided by operating activities
|
$ | 9,256,000 | $ | 15,671,000 | $ | (6,415,000 | ) | |||||||
Net
cash (used in) investing activities
|
(1,340,000 | ) | (3,791,000 | ) | 2,451,000 | |||||||||
Net
cash (used in) financing activities
|
(10,558,000 | ) | (9,262,000 | ) | (1,296,000 | ) | ||||||||
Net
(decrease) increase in cash and cash equivalents
|
$ | (2,642,000 | ) | $ | 2,618,000 | $ | (5,260,000 | ) |
Cash
flows from operating activities decreased $6,415,000 from $15,671,000
provided in the 2008 period to $9,256,000 provided in the 2009 period. The
significant components of this decrease related to a reduction in the cash
provided by sales of the Company’s real estate assets, which in 2008,
included 47 Gold Peak condominium units and six homes and eight lots at
our East Lyme project whereas in the 2009 period, the Company’s Gold Peak
project sold out its remaining 20 units in inventory and the East Lyme
project only produced three home sales.
Cash
flows used in investing activities increased $2,451,000 from $3,791,000
used in the 2008 period to $1,340,000 used in the 2009 period. This change
primarily resulted from a reduction in cash used in the 2009 period as
compared to the 2008 period for additional investments in other real
estate assets of $2,465,000, a reduction in cash used for furniture,
fixture and equipment additions of $166,000 and web site and database
development cost of $70,000, offset by a return of capital from a joint
venture in 2008 of $229,000 and proceeds from the 2008 sale of furniture,
fixtures and equipment of $21,000.
Cash
flows from financing activities decreased $1,296,000 from $9,262,000 used
in the 2008 period to $10,558,000 used in the 2009 period primarily from
the net effect of borrowings and repayments. Borrowings on the East Lyme
and Gold Peak construction loans aggregated $5,169,000 during the 2008
period, with no borrowings during the 2009 period. During the 2008 period,
approximately $8,313,000 was repaid on the Gold Peak Construction Loan
from unit sales to retire this debt and $4,808,000 was repaid on the East
Lyme Construction Loan from six home and eight lot sales. During the 2009
period, $5,077,000 was repaid on the East Lyme Construction Loan to retire
this debt. During the 2008 period, $1,125,000 was repaid on the Bank Loan
whereas $2,625,000 was repaid in the 2009 period, all of which were
scheduled repayments. Other debt repayments in the 2009 period
were greater than payments in the 2008 period by $11,000. In the nine
months ended September 30, 2009, the Company repurchased 640,086 shares of
its outstanding common stock for approximately $2,694,000. No stock
repurchases were made in the corresponding 2008
period. Payments for option cancellations and restricted stock
unit settlements were approximately $55,000 in the 2008 period and $21,000
in the 2009 period.
Cautionary Statement
Regarding Forward-Looking Statements
The
Company makes forward-looking statements in this quarterly report on
Form 10-Q. 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 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 sales of the Company’s real estate; |
▪ |
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 and Adjusted EBITDA; and
|
|||
▪ |
statements
preceded by, followed by or that include the words “estimate,” “plan,”
“project,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target”
or similar expressions.
|
These 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 in the forward-looking statements. Some factors that could cause actual results to differ include: |
▪ |
revenues
may be lower than expected;
|
|||
▪ |
the
inability to retain and increase the Company’s customer
base;
|
|||
▪ |
additional
adverse changes in the real estate industry and the markets in which the
Company has property;
|
|||
▪ |
the
inability to dispose of existing residential real estate development
projects at expected prices or at all;
|
|||
▪ |
competition;
|
|||
▪ |
the
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 “Part I, Item 1A. Risk Factors” of our
annual report on Form 10-K for the year ended December 31, 2008, which was
filed with the Securities and Exchange Commission on March 13,
2009.
|
You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this quarterly report on Form 10-Q. Except as required by law, the Company undertakes no obligation to publicly update or release any revisions to these forward-looking statements to reflect any events or circumstances after the date of this quarterly report on Form 10-Q or to reflect the occurrence of unanticipated events. |
The
Company’s primary market risk exposure has been to changes in interest
rates. This risk is generally managed by limiting the Company’s financing
exposures, to the extent possible, by purchasing interest rate caps when
deemed appropriate.
At
September 30, 2009, the Company’s only exposure to interest rates was the
variable rate on the Bank Loan. This exposure has been
minimized through the use of an interest rate cap. The interest rate cap
on the Bank Loan expires in June 2010. The following table presents the
effect of a 1% increase in the base interest rate at September 30,
2009:
|
(amounts in
thousands)
|
Balance
at
September
30,
2009
|
Notional
Amount
at
September
30,
2009
|
LIBOR
Cap
|
LIBOR
at
September
30,
2009
|
Additional
Interest
Incurred
|
||||||||||||||||||
Variable
rate debt with interest rate caps:
|
|||||||||||||||||||||||
Bank Loan
|
$ | 20,125 | $ | 15,000 | 5.50 | % | 0.25 | % | $ | 201 | (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.
|
Reis
holds cash and cash equivalents at various regional and national banking
institutions. 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 (“FDIC”) insurance limits. While
management monitors the cash balances in these bank accounts, such cash
balances could be impacted if one or more of these institutions were to
fail or could be subject to other adverse conditions in the financial
markets.
|
Item 4T. | Controls and Procedures. |
As
of September 30, 2009, 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, 2009 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 and its subsidiaries are not presently party to any material
litigation.
|
|||
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, 2008, which was filed with the SEC on March 13, 2009, to be the most significant. Additional risks identified subsequently to that filing include: the possibility that another person or entity may in the future make proposals to acquire all or a portion of Reis or take other actions which may create uncertainty for our employees and customers; the possibility of incurring significant costs for defense related to any unsolicited future proposals; and the possibility of the loss of cash held at regional and national banking institutions in excess of FDIC insured amounts if such banking institutions were to fail. 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. | |||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | ||
Issuer
Purchases of Equity Securities
In December 2008, the Board authorized a repurchase program of shares of the Company’s common stock up to an aggregate amount of $1,500,000 and in August 2009, the Board authorized an increase in the repurchase program to an aggregate amount of $3,000,000. Purchases under the program may be made from time-to-time in the open market or through privately negotiated transactions. Depending on market conditions, financial developments and other factors, these purchases may be commenced or suspended at any time, or from time-to-time, without prior notice and may be expanded with 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.” The Company repurchased the following shares of Common Stock during the three months ended September 30, 2009: |
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Dollar Value of Shares That May Yet Be Purchased Under the Plans or
Programs
|
||||||||||||||||
July
1, 2009 to July 31, 2009
|
21,050 | $ | 4.18 | 21,050 | $ | 626,000 | ||||||||||||||
August
1, 2009 to August 31, 2009
|
1,823 | $ | 4.84 | 1,823 | $ | 2,117,000 | (A) | |||||||||||||
September
1, 2009 to September 30, 2009
|
362,156 | $ | 5.02 | 362,156 | $ | 298,000 | ||||||||||||||
(A) |
Increase
reflects additional authorization in August 2009 of
$1,500,000.
|
Item 3. | Defaults Upon Senior Securities. | ||
None. | |||
Item 4. | Submission of Matters to a Vote of Security Holders. | ||
None. | |||
Item 5. | Other Information. | ||
None.
|
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
|
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
REIS, INC. | ||||
By: | /s/ Mark P. Cantaluppi | |||
Mark P. Cantaluppi | ||||
Vice President, Chief Financial Officer | ||||
Dated: November 6, 2009 |
Exhibit 31.1 | ||
CERTIFICATION
PURSUANT TO
17
CFR 240.13a-14(a),
AS
ADOPTED PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
|
||
I, Lloyd Lynford, certify that: |
1. | I have reviewed this quarterly report on Form 10-Q of Reis, Inc.; | |||
2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|||
3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|||
4. |
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a. |
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|||||
b. |
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|||||
c. |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such
evaluation; and
|
|||||
d. |
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|||||
5. |
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|||||
a. |
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial
information; and
|
|||||
b. |
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: November 6,
2009
|
||||||
By:
|
/s/ Lloyd
Lynford
|
|||||
Lloyd
Lynford
|
||||||
Chief
Executive Officer
|
Exhibit 31.2 | ||
CERTIFICATION
PURSUANT TO
17
CFR 240.13a-14(a),
AS
ADOPTED PURSUANT TO
SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
|
||
I, Mark P. Cantaluppi, certify that: |
1. | I have reviewed this quarterly report on Form 10-Q of Reis, Inc.; | |||
2. |
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|||
3. |
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|||
4. |
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a. |
designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
|||||
b. |
designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|||||
c. |
evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such
evaluation; and
|
|||||
d. |
disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
|||||
5. |
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|||||
a. |
all
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial
information; and
|
|||||
b. |
any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: November 6,
2009
|
||||||
By:
|
/s/ Mark
P. Cantaluppi
|
|||||
Mark
P. Cantaluppi
|
||||||
Chief
Financial Officer
|
Exhibit 32.1
|
|
|
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
|
||
In connection with
the quarterly report on Form 10-Q of Reis, Inc. (the “Company”) for
the period ended September 30, 2009 as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), we, Lloyd Lynford,
Chief Executive Officer of the Company, and Mark P. Cantaluppi, Chief
Financial Officer of the Company, each certify, to the best of our
knowledge, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
|
1. |
The
Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
|
||
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Lloyd
Lynford
|
|||
Lloyd
Lynford
Chief
Executive Officer
Reis,
Inc.
|
|||
/s/ Mark
P. Cantaluppi
|
|||
Mark
P. Cantaluppi
Chief
Financial Officer
Reis,
Inc.
|
|||
November
6, 2009
|
A
signed original of this written statement required by Section 906 has
been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon
request.
|