UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
September 30, 2007
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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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)
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Maryland
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13-3926898
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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530 Fifth Avenue,
New York, NY
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10036
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(Address of Principal Executive
Offices)
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(Zip Code)
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(212) 921-1122
(Registrants Telephone Number, Including Area Code)
Wellsford
Real Properties, Inc.
535 Madison Avenue
New York, NY 10022
(Former Name, Former Address and Former Fiscal Year, if
Changed Since Last Report)
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
þ
No
o
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in
Rule 12b-2
of the Exchange Act. (Check one):
Large accelerated
filer
o
Accelerated
filer
o
Non-accelerated
filer
þ
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
o
No
þ
The number of the Registrants shares of common stock
outstanding was 10,984,517 as of November 12, 2007.
Part I.
Financial Information
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Item 1.
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Financial
Statements.
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REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED BALANCE SHEET
(GOING CONCERN BASIS)
(Unaudited)
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September 30,
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2007
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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23,446,424
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Restricted cash and investments
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3,825,830
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Receivables, prepaid and other assets
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6,475,316
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Real estate assets under development
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25,147,386
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Total current assets
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58,894,956
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Furniture, fixtures and equipment, net
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2,433,712
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Other real estate assets
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6,547,458
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Intangible assets, net
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18,139,057
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Goodwill
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61,892,682
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Other assets
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775,897
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Total assets
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$
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148,683,762
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Current portion of loans and other debt
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$
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172,384
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Current portion of Bank Loan
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1,375,000
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Construction payables
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3,573,846
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Construction loans payable
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14,860,338
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Accrued expenses and other liabilities
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8,227,676
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Reserve for option cancellations
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781,955
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Deferred revenues
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11,177,343
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Total current liabilities
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40,168,542
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Non-current portion of Bank Loan
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23,125,000
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Other long-term liabilities
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793,344
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Deferred tax liability, net
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2,360,180
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Total liabilities
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66,447,066
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Minority interest
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612,473
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Commitments and contingencies
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Stockholders equity:
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Common stock, $.02 par value per share,
101,000,000 shares authorized, 10,984,517 shares
issued and outstanding
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219,690
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Additional paid in capital
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98,419,558
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Retained earnings (deficit)
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(17,015,025
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)
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Total stockholders equity
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81,624,223
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Total liabilities and stockholders equity
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$
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148,683,762
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See Notes to Consolidated Financial Statements
1
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED STATEMENT OF NET ASSETS IN
LIQUIDATION
(LIQUIDATION BASIS)
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December 31,
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2006
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ASSETS
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Real estate assets under development
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$
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41,159,400
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Investment in Reis
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20,000,000
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Investments in joint ventures
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423,000
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Total real estate and investments
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61,582,400
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Cash and cash equivalents
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39,050,333
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Restricted cash and investments
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2,936,978
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Receivables, prepaid and other assets
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2,230,008
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Deferred merger costs
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2,677,764
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Total assets
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108,477,483
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LIABILITIES AND NET ASSETS IN LIQUIDATION
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Liabilities:
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Construction loans payable
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20,129,461
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Construction payables
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2,987,502
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Accrued expenses and other liabilities (including merger costs
of $654,860 at December 31, 2006)
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5,151,288
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Reserve for estimated costs during the liquidation period
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18,301,885
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Reserve for option cancellations
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2,633,408
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Total liabilities
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49,203,544
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Minority interest at estimated value
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1,678,378
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Total liabilities and minority interest
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50,881,922
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Commitments and contingencies Net assets in liquidation
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$
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57,595,561
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See Notes to Consolidated Financial Statements
2
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(GOING CONCERN BASIS)
(Unaudited)
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For the Three
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For the Period
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Months Ended
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June 1, 2007 to
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September 30,
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September 30,
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2007
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2007
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Revenue:
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Subscription revenue
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$
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6,342,771
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$
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8,216,705
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Revenue from sales of residential units
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12,826,987
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13,984,254
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Total revenue
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19,169,758
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22,200,959
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Cost of sales:
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Cost of sales of subscription revenue
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1,254,907
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1,659,569
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Cost of sales of residential units
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11,208,359
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12,158,236
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Total cost of sales
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12,463,266
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13,817,805
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Gross profit
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6,706,492
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8,383,154
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Operating expenses:
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Sales and marketing
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1,313,937
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1,761,870
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Product development
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412,845
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517,721
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Property operating expenses
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366,733
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436,010
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General and administrative expenses (net of reduction
attributable to stock based liability amounts of $609,950 and
$1,791,430, respectively)
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3,794,509
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3,905,167
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Total operating expenses
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5,888,024
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6,620,768
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Other income (expenses):
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(Loss) from joint ventures
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(3,586
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)
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(4,661
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)
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Interest and other income
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331,518
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423,615
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Interest expense
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(421,057
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)
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(617,331
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)
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Minority interest
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(76,777
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)
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|
(76,777
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)
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Total other income (expenses)
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(169,902
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)
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(275,154
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)
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Income before income taxes
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648,566
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1,487,232
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|
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Income tax expense
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|
332,000
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336,000
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Net income
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|
$
|
316,566
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$
|
1,151,232
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Net income (loss) per common share:
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Basic
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$
|
0.03
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$
|
0.10
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Diluted
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$
|
(0.03
|
)
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|
$
|
(0.06
|
)
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|
Weighted average number of common shares outstanding:
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Basic
|
|
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10,984,517
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10,982,779
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Diluted
|
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|
11,258,605
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11,259,648
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See Notes to Consolidated Financial Statements
3
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN
LIQUIDATION
(LIQUIDATION BASIS)
(Unaudited)
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|
|
|
|
|
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For the Three
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For the Period
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For the Nine
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Months Ended
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January 1, 2007 to
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Months Ended
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September 30, 2006
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May 31, 2007
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September 30, 2006
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Net assets in liquidation beginning of period
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$
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55,844,106
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$
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57,595,561
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$
|
56,569,414
|
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Operating income
|
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|
441,917
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|
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767,534
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1,272,765
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Changes in net real estate assets under development, net of
minority interest and estimated income taxes
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393,765
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(1,804,889
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)
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1,747,042
|
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Provision for option cancellation reserve
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|
|
|
|
|
|
|
|
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(4,226,938
|
)
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Change in option cancellation reserve
|
|
|
(469,154
|
)
|
|
|
(4,635,589
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)
|
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|
848,351
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Net change in net assets in liquidation
|
|
|
366,528
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|
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(5,672,944
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)
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(358,780
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)
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Net assets in liquidation end of period
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$
|
56,210,634
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|
|
|
51,922,617
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$
|
56,210,634
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Adjustments relating to the change from the liquidation basis of
accounting to the going concern basis of accounting:
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|
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|
|
|
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|
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Adjustment of real estate investments and other assets from net
realizable value to lower of historical cost or market value
|
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(17,764,502
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)
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Reversal of previously accrued liquidation costs net of accrued
liabilities
|
|
|
|
|
|
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14,667,431
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Stockholders equity May 31, 2007 (going
concern basis) (prior to Merger)
|
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|
$
|
48,825,546
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|
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|
See Notes to Consolidated Financial Statements
4
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS
EQUITY
For the Period May 31, 2007 to September 30, 2007
(Going Concern Basis)
(Unaudited)
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|
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|
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|
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|
|
|
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|
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|
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Retained
|
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|
Total
|
|
|
|
Common Shares
|
|
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Paid in
|
|
|
Earnings
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
Equity
|
|
|
Balance at May 31, 2007 (prior to Merger)
|
|
|
6,695,246
|
|
|
$
|
133,905
|
|
|
$
|
66,857,898
|
|
|
$
|
(18,166,257
|
)
|
|
$
|
48,825,546
|
|
Stock issuance for Merger consideration, net
|
|
|
4,077,201
|
|
|
|
81,544
|
|
|
|
28,697,109
|
|
|
|
|
|
|
|
28,778,653
|
|
Option exercises
|
|
|
212,070
|
|
|
|
4,241
|
|
|
|
2,258,546
|
|
|
|
|
|
|
|
2,262,787
|
|
Issuance of stock options and restricted stock units
|
|
|
|
|
|
|
|
|
|
|
606,005
|
|
|
|
|
|
|
|
606,005
|
|
Net income for the period June 1, 2007 to
September 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,151,232
|
|
|
|
1,151,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
10,984,517
|
|
|
$
|
219,690
|
|
|
$
|
98,419,558
|
|
|
$
|
(17,015,025
|
)
|
|
$
|
81,624,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
5
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
For the Period
|
|
|
For the Period
|
|
|
Months Ended
|
|
|
|
June 1, 2007 to
|
|
|
January 1, 2007
|
|
|
September 30,
|
|
|
|
September 30, 2007
|
|
|
to May 31, 2007
|
|
|
2006
|
|
|
|
Going Concern Basis
|
|
|
Liquidation Basis
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net assets in liquidation from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income and expense, net
|
|
|
|
|
|
$
|
767,534
|
|
|
$
|
1,272,765
|
|
Operating activities of real estate assets under development, net
|
|
|
|
|
|
|
(2,086,720
|
)
|
|
|
1,747,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,319,186
|
)
|
|
|
3,019,807
|
|
Net income (period subsequent to liquidation accounting)
|
|
$
|
1,151,232
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile to net cash provided by (used in)
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
247,356
|
|
|
|
|
|
|
|
512
|
|
Amortization of intangible assets
|
|
|
1,062,211
|
|
|
|
|
|
|
|
|
|
Change in fair value of interest rate cap
|
|
|
55,954
|
|
|
|
|
|
|
|
|
|
Stock based compensation charges
|
|
|
606,005
|
|
|
|
|
|
|
|
|
|
Undistributed minority interest (benefit)
|
|
|
76,777
|
|
|
|
363,427
|
|
|
|
(66,895
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash and investments
|
|
|
31,484
|
|
|
|
(692,030
|
)
|
|
|
1,265,062
|
|
Real estate assets under development
|
|
|
2,888,113
|
|
|
|
3,833,599
|
|
|
|
(6,326,379
|
)
|
Receivables, prepaid and other assets
|
|
|
(2,008,955
|
)
|
|
|
1,082,090
|
|
|
|
824
|
|
Accrued expenses and other liabilities
|
|
|
1,728,492
|
|
|
|
(553,153
|
)
|
|
|
(2,707,944
|
)
|
Reserve for estimated costs during the liquidation period
|
|
|
|
|
|
|
(3,634,454
|
)
|
|
|
(3,219,597
|
)
|
Reserve for option liability
|
|
|
(1,791,430
|
)
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
665,178
|
|
|
|
|
|
|
|
|
|
Construction payables
|
|
|
(460,931
|
)
|
|
|
1,047,275
|
|
|
|
247,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
4,251,486
|
|
|
|
127,568
|
|
|
|
(7,787,465
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash portion of Reis merger consideration, net of cash acquired
|
|
|
(6,526,981
|
)
|
|
|
|
|
|
|
|
|
Investment in other real estate assets
|
|
|
(1,117,148
|
)
|
|
|
|
|
|
|
|
|
Web site and database development costs
|
|
|
(596,118
|
)
|
|
|
|
|
|
|
|
|
Furniture, fixtures, and equipment additions
|
|
|
(64,305
|
)
|
|
|
|
|
|
|
|
|
Proceeds from sale of real estate
|
|
|
|
|
|
|
|
|
|
|
1,296,883
|
|
Purchase of minority partners interest in subsidiary
|
|
|
(1,200,000
|
)
|
|
|
|
|
|
|
|
|
Merger costs
|
|
|
(1,775,563
|
)
|
|
|
(728,167
|
)
|
|
|
(330,112
|
)
|
Return of capital from investments in joint ventures
|
|
|
|
|
|
|
120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(11,280,115
|
)
|
|
|
(608,167
|
)
|
|
|
966,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
|
|
|
|
For the Period
|
|
|
For the Period
|
|
|
Months Ended
|
|
|
|
June 1, 2007 to
|
|
|
January 1, 2007
|
|
|
September 30,
|
|
|
|
September 30, 2007
|
|
|
to May 31, 2007
|
|
|
2006
|
|
|
|
Going Concern Basis
|
|
|
Liquidation Basis
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowing from mortgage notes and construction loans payable
|
|
|
7,446,764
|
|
|
|
6,441,798
|
|
|
|
21,671,058
|
|
Repayments of mortgage notes and construction loans payable
|
|
|
(10,430,902
|
)
|
|
|
(8,726,783
|
)
|
|
|
(17,337,148
|
)
|
Repayment of Bank Loan
|
|
|
(500,000
|
)
|
|
|
|
|
|
|
|
|
Repayments on capitalized equipment leases and other debt
|
|
|
(65,564
|
)
|
|
|
|
|
|
|
|
|
Purchase of interest rate cap
|
|
|
(109,000
|
)
|
|
|
|
|
|
|
|
|
Minority interest investment
|
|
|
|
|
|
|
|
|
|
|
175,176
|
|
Distributions to minority interest
|
|
|
|
|
|
|
|
|
|
|
(47,250
|
)
|
Exercise of stock options
|
|
|
|
|
|
|
281,831
|
|
|
|
|
|
Payments for option cancellations
|
|
|
(2,432,825
|
)
|
|
|
|
|
|
|
(667,587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(6,091,527
|
)
|
|
|
(2,003,154
|
)
|
|
|
3,794,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(13,120,156
|
)
|
|
|
(2,483,753
|
)
|
|
|
(3,026,445
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
36,566,580
|
|
|
|
39,050,333
|
|
|
|
41,027,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
23,446,424
|
|
|
$
|
36,566,580
|
|
|
$
|
38,000,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for interest, excluding interest
funded by construction loans
|
|
$
|
962,654
|
|
|
$
|
118,715
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for income taxes, net of refunds
|
|
$
|
187,081
|
|
|
$
|
185,075
|
|
|
$
|
100,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Release of shares held in deferred compensation plan
|
|
|
|
|
|
|
|
|
|
$
|
5,181,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for option cancellation reserve
|
|
|
|
|
|
|
|
|
|
$
|
4,226,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (reduction) in option cancellation reserve
|
|
|
|
|
|
$
|
4,635,589
|
|
|
$
|
(848,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfer of deferred compensation assets and related
liability
|
|
|
|
|
|
|
|
|
|
$
|
14,720,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual for unpaid merger costs
|
|
|
|
|
|
$
|
1,075,563
|
|
|
$
|
1,135,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock for merger consideration, net (see
Note 1 for assets acquired and liabilities assumed in the
merger)
|
|
$
|
28,778,653
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options through receipt of tendered shares
|
|
$
|
2,262,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of other assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash
|
|
|
|
|
|
|
|
|
|
$
|
1,642,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
|
$
|
(694,700
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses and other liabilities
|
|
|
|
|
|
|
|
|
|
$
|
(947,698
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
7
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
|
|
1.
|
Organization,
Business, Merger and Terminated Plan of
Liquidation
|
Organization
and Business
Reis, Inc. and subsidiaries, collectively, the
Company or Reis (formerly Wellsford Real
Properties, Inc. (Wellsford)) is a Maryland
corporation. The name change from Wellsford to Reis occurred in
June 2007 after the completion of the merger of the privately
held company, Reis, Inc. (Private Reis) with and
into Reis Services, LLC (Reis Services), a
wholly-owned subsidiary of Wellsford (the Merger).
Private
Reiss Historic Business
Private Reis was founded in 1980 as a provider of commercial
real estate market information and today is a leader in that
field. Reis maintains a proprietary database containing detailed
information on commercial real properties in neighborhoods and
metropolitan markets throughout the U.S. The database
contains information on apartment, retail, office and industrial
properties and is used by real estate investors, lenders and
other professionals to make informed buying, selling and
financing decisions. Reis currently provides its information
services to many of the nations leading lending
institutions, equity investors, brokers and appraisers.
Reiss flagship product is Reis SE, which provides online
access to information and analytical tools designed to
facilitate both debt and equity transactions. In addition to
trend and forecast analysis at neighborhood and metropolitan
levels, the product offers detailed building-specific
information such as rents, vacancy rate and lease terms,
property sale information, 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 and absorption. This information is
critical to all aspects of valuing assets and financing their
acquisition, development, and construction.
Reiss 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 data, and
find new ways to deliver existing information to meet and
anticipate client demand.
Wellsfords
Historic Business
The Company was originally formed as a Maryland corporation on
January 8, 1997 as a corporate subsidiary of Wellsford
Residential Property Trust (the Residential Trust).
On May 30, 1997, Residential Trust merged (the EQR
Merger) with Equity Residential (EQR) at which
time Residential Trust contributed certain of its assets to the
Company and the Company assumed certain liabilities of
Residential Trust and distributed to its common stockholders all
of its outstanding shares of the Company. Prior to the Merger,
the Company was operating as a real estate merchant banking firm
which acquired, developed, financed and operated real properties
and invested in private and public real estate companies. The
Companys primary operating activities immediately prior to
the Merger were the development, construction and sale of three
residential projects and its approximate 23% ownership interest
in Private Reis. The Company continues to develop, construct and
sell these existing residential projects.
See Note 3 for additional information regarding the
Companys operating activities by segment.
8
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
1.
|
Organization,
Business, Merger and Terminated Plan of Liquidation
(Continued)
|
Merger
with Private Reis
On October 11, 2006, the Company announced that it and Reis
Services entered into a definitive merger agreement with Private
Reis to acquire Private Reis and that the Merger was approved by
the independent members of the Companys board of directors
(the Board). The Merger was approved by the
stockholders of both the Company and Private Reis on
May 30, 2007 and was completed later that day. The
previously announced Plan of Liquidation (the Plan)
(see below) of the Company was terminated as a result of the
Merger and the Company returned to the going concern basis of
accounting from the liquidation basis of accounting. For
accounting purposes, the Merger was deemed to have occurred at
the close of business on May 31, 2007 and the statements of
operations include the operations of Reis Services effective
June 1, 2007.
The merger agreement provided for half of the aggregate
consideration to be paid in Company stock and the remaining half
to be paid in cash to Private Reis stockholders, except
Wellsford Capital, the Companys subsidiary which owned a
23% preferred interest and which received only Company stock.
The Company issued 4,237,074 shares of common stock to
Private Reis stockholders, other than Wellsford Capital, with
$25,000,000 of the cash consideration being funded by a
$27,000,000 bank loan (the Bank Loan), the
commitment for which was obtained by Private Reis in October
2006 and was drawn upon just prior to the Merger, and
approximately $9,573,000 provided by the Company. The per share
value of the Companys common stock, for purposes of the
exchange of stock interests in the Merger, had been previously
established at $8.16 per common share.
The Companys acquisition costs, excluding assumed
liabilities, is summarized as follows:
|
|
|
|
|
Value of shares of Company stock
|
|
$
|
30,083,225
|
|
Cash paid for Private Reis shares
|
|
|
9,573,452
|
|
Capitalized merger costs
|
|
|
5,231,494
|
|
Historical cost of Companys 23% interest in Private Reis
|
|
|
6,790,978
|
|
|
|
|
|
|
Total before officer loan settlement
|
|
|
51,679,149
|
|
Officer loan settlement (see below)
|
|
|
(1,304,572
|
)
|
|
|
|
|
|
Total
|
|
$
|
50,374,577
|
|
|
|
|
|
|
The value of the Companys stock for purposes of recording
the acquisition was based upon the average closing price of the
Companys stock for a short period near the date that the
merger agreement was executed of $7.10 per common share, as
provided for under relevant accounting literature.
Upon the completion of the Merger and the settlement of certain
outstanding loans, Lloyd Lynford and Jonathan Garfield, both
executive officers and directors of Private Reis, became the
Chief Executive Officer and Executive Vice President,
respectively, of the Company and both became directors of the
Company. The Companys former Chief Executive Officer and
Chairman, Jeffrey Lynford, remained Chairman of the Company. The
merger agreement provided that the outstanding loans to Lloyd
Lynford and Mr. Garfield aggregating approximately
$1,305,000 be simultaneously satisfied with 159,873 of the
Companys shares received by them in the Merger. Lloyd
Lynford and Jeffrey Lynford are brothers.
As the Company is the acquirer for accounting purposes, the
acquisition of the remaining interests in Private Reis not owned
by the Company prior to the Merger has been accounted for as a
purchase by the Company. Accordingly, the acquisition price of
the remainder of Private Reis acquired in this transaction
combined with the historical cost basis of the Companys
historical investment in Private Reis has been allocated to the
tangible and intangible assets acquired and liabilities assumed
based on respective fair values.
9
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
1.
|
Organization,
Business, Merger and Terminated Plan of Liquidation
(Continued)
|
The following summarizes managements preliminary
allocation of the fair value of the assets acquired and
liabilities assumed at the date of the acquisition (May 31,
2007) after the settlement of the officer loans. The
Company expects to finalize the purchase price allocation with
the filing of the December 31, 2007 financial statements on
Form 10-K,
which is within the permitted time period for completing such an
assessment under the existing accounting rules.
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,046,471
|
|
Accounts receivable and other current assets
|
|
|
3,773,109
|
|
|
|
|
|
|
Total current assets
|
|
|
6,819,580
|
|
Non-current assets:
|
|
|
|
|
Furniture, fixtures and equipment
|
|
|
2,211,683
|
|
Leasehold value
|
|
|
3,400,000
|
|
Database
|
|
|
7,900,006
|
|
Web site
|
|
|
1,705,144
|
|
Customer relationships
|
|
|
5,600,000
|
|
Goodwill
|
|
|
61,892,682
|
|
Other assets
|
|
|
719,215
|
|
|
|
|
|
|
Total assets
|
|
|
90,248,310
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
1,608,863
|
|
Current portion of long term debt
|
|
|
1,304,061
|
|
Deferred revenues
|
|
|
10,512,165
|
|
|
|
|
|
|
Total current liabilities
|
|
|
13,425,089
|
|
Long term debt:
|
|
|
|
|
Bank Loan payable
|
|
|
23,875,000
|
|
Other long term debt obligations
|
|
|
506,644
|
|
Deferred income taxes, net
|
|
|
2,067,000
|
|
|
|
|
|
|
Total liabilities
|
|
|
39,873,733
|
|
|
|
|
|
|
Net acquisition cost
|
|
$
|
50,374,577
|
|
|
|
|
|
|
10
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
1.
|
Organization,
Business, Merger and Terminated Plan of Liquidation
(Continued)
|
The following unaudited pro forma combined statements of
operations are presented as if the Merger had been consummated,
the proceeds from the Bank Loan had been received, and the Plan
had been terminated as of January 1, 2006. The pro forma
combined statements of operations are unaudited and are not
necessarily indicative of what the actual financial results
would have been had the Merger been consummated, the proceeds
from the Bank Loan had been received and the Plan had been
terminated as of January 1, 2006, nor does it purport to
represent the future results of operations.
|
|
|
|
|
|
|
|
|
|
|
Unaudited Pro Forma
|
|
|
|
For the Nine Months Ended September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Subscription revenue
|
|
$
|
17,269,217
|
|
|
$
|
14,189,810
|
|
Revenue from sales of residential units
|
|
|
26,455,216
|
|
|
|
21,670,178
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
43,724,433
|
|
|
|
35,859,988
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Cost of sales of subscription revenue
|
|
|
3,902,696
|
|
|
|
3,646,882
|
|
Cost of sales of residential units
|
|
|
23,053,126
|
|
|
|
18,388,381
|
|
Impairment loss on real estate assets under development
|
|
|
2,740,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
29,696,206
|
|
|
|
22,035,263
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
14,028,227
|
|
|
|
13,824,725
|
|
|
|
|
|
|
|
|
|
|
Operating costs and expenses:
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
4,062,420
|
|
|
|
3,072,469
|
|
Product development
|
|
|
1,263,132
|
|
|
|
1,249,736
|
|
Property operating expenses
|
|
|
771,990
|
|
|
|
516,458
|
|
General and administrative
|
|
|
16,119,334
|
|
|
|
13,963,633
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
22,216,876
|
|
|
|
18,802,296
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses)
|
|
|
(1,349,993
|
)
|
|
|
(955,424
|
)
|
|
|
|
|
|
|
|
|
|
(Loss) before income taxes and discontinued operations
|
|
|
(9,538,642
|
)
|
|
|
(5,932,995
|
)
|
Income tax expense
|
|
|
105,711
|
|
|
|
28,750
|
|
|
|
|
|
|
|
|
|
|
(Loss) from continuing operations
|
|
|
(9,644,353
|
)
|
|
|
(5,961,745
|
)
|
Income from discontinued operations, net of taxes
|
|
|
|
|
|
|
803,014
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(9,644,353
|
)
|
|
$
|
(5,158,731
|
)
|
|
|
|
|
|
|
|
|
|
Per share amounts, basic and diluted:
|
|
|
|
|
|
|
|
|
(Loss) from continuing operations
|
|
$
|
(0.89
|
)
|
|
$
|
(0.57
|
)
|
Income from discontinued operations
|
|
|
|
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(0.89
|
)
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
10,844,942
|
|
|
|
10,548,380
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
10,844,942
|
|
|
|
10,548,380
|
|
|
|
|
|
|
|
|
|
|
11
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
1.
|
Organization,
Business, Merger and Terminated Plan of Liquidation
(Continued)
|
Plan of
Liquidation and Return to Going Concern Accounting
On May 19, 2005, the Board approved the Plan and on
November 17, 2005, the Companys stockholders ratified
the Plan. The Plan contemplated the orderly sale of each of the
Companys remaining assets, which are either owned directly
or through the Companys joint ventures, the collection of
all outstanding loans from third parties, the orderly
disposition or completion of construction of development
properties, the discharge of all outstanding liabilities to
third parties and, after the establishment of appropriate
reserves, the distribution of all remaining cash to
stockholders. The Plan also permitted the Board to acquire more
Private Reis shares
and/or
discontinue the Plan without further stockholder approval. The
initial liquidating distribution of $14.00 per share was made on
December 14, 2005 to stockholders of record on
December 2, 2005. Upon consummation of the Merger, the Plan
was terminated. Consequently, it was necessary to recharacterize
$1.15 of the December 14, 2005 cash distribution of $14.00
per share from what may have been characterized at that time as
a return of capital for Company stockholders to taxable dividend
income.
For all periods preceding stockholder approval of the Plan on
November 17, 2005, the Companys financial statements
were presented on the going concern basis of accounting. As
required by Generally Accepted Accounting Principles
(GAAP), the Company adopted the liquidation basis of
accounting as of the close of business on November 17,
2005. Under the liquidation basis of accounting, assets are
stated at their estimated net realizable value and liabilities
are stated at their estimated settlement amounts, which
estimates have been periodically reviewed and adjusted as
appropriate.
The Companys net assets in liquidation at May 31,
2007 (prior to the Merger and the return to going concern
accounting), and December 31, 2006 were:
|
|
|
|
|
|
|
|
|
|
|
May 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
Net assets in liquidation
|
|
$
|
51,922,617
|
|
|
$
|
57,595,561
|
|
Per share
|
|
$
|
7.76
|
|
|
$
|
8.67
|
|
Common stock outstanding at each respective date
|
|
|
6,695,246
|
|
|
|
6,646,738
|
|
The reported amounts for net assets in liquidation presented
development projects at estimated net realizable values at each
respective date after giving effect to the present value
discounting of estimated net proceeds therefrom. All other
assets were presented at estimated net realizable value on an
undiscounted basis. The amount also included reserves for future
estimated general and administrative expenses and other costs
and for cash payments on outstanding stock options during the
liquidation. The primary reasons for the decline in net assets
in liquidation of approximately $5,673,000 from
December 31, 2006 to May 31, 2007 are the increase in
the reserve for stock options due to the increase in the price
of the Companys stock from $7.52 to $11.00 per share,
representing approximately $4,636,000 of the decrease, and the
decline in the value of real estate assets under development.
The Company has returned to the going concern basis of
accounting effective at the close of business on May 31,
2007.
12
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
Liquidation
Basis of Accounting
With the approval of the Plan by the stockholders, the Company
adopted the liquidation basis of accounting effective as of the
close of business on November 17, 2005. The liquidation
basis of accounting was used through May 31, 2007 when the
Merger was completed and at the same time the Plan was
terminated.
Under the liquidation basis of accounting, assets are stated at
their estimated net realizable value and liabilities are stated
at their estimated settlement amounts, which estimates will be
periodically reviewed and adjusted as appropriate. The Statement
of Net Assets in Liquidation and a Statement of Changes in Net
Assets in Liquidation are the principal financial statements
presented under the liquidation basis of accounting. The
valuation of assets at their net realizable value and
liabilities at their anticipated settlement amounts represented
estimates, based on present facts and circumstances, of the net
realizable values of assets and the costs associated with
carrying out the Plan and dissolution based on the assumptions
set forth below. The actual values and costs associated with
carrying out the Plan were expected to differ from the amounts
shown herein because of the inherent uncertainty and would be
greater than or less than the amounts recorded. In particular,
the estimates of the Companys costs vary with the length
of time it operated under the Plan. In addition, the estimate of
net assets in liquidation per share, except for projects under
development, did not incorporate a present value discount.
Valuation
Assumptions
Under the liquidation basis of accounting, (i) the carrying
amounts of assets as of the close of business on
November 17, 2005 (the date of the approval of the Plan by
the Companys stockholders) were adjusted to their
estimated net realizable values and (ii) the carrying
amounts of liabilities, including the estimated costs associated
with implementing the Plan, were adjusted to estimated
settlement amounts. Value estimates were updated by the Company
as of May 31, 2007 and December 31, 2006, as well as
for each reporting period since the Plan was adopted. The
following are the significant assumptions utilized by management
in assessing the value of assets and the expected settlement
amounts of liabilities included in Net Assets in Liquidation at
May 31, 2007 (prior to the Merger) and December 31,
2006.
Net
Assets in Liquidation
Real estate assets under development were primarily reflected at
net realizable value, which was based upon the Companys
budgets for constructing and selling the respective project in
the orderly course of business. Sales prices were based upon
contracts signed to date and budgeted sales prices for the
unsold units, homes or lots. Sales prices were determined in
consultation with the respective third party companies who were
the sales agent for the project, where applicable. Costs and
expenses were based upon the Companys budgets. In certain
cases, construction costs were subject to binding contracts. The
Company assumed that existing construction financing would
remain in place during the respective projects planned
construction and sell out. Anticipated future cost increases for
construction were assumed to be funded by the existing
construction lenders and the Company at the present structured
debt to equity capitalization ratios. The Company would be
required to make additional equity contributions. For one
project, the Company assumed that construction loans would be
obtained at then currently existing LIBOR spreads and customary
industry debt to equity capitalization levels. With respect to
another project, it was expected that existing loan extensions
would be granted by the bank even though minimum home sales
requirements would not be met. The expected net sales proceeds
were discounted on a quarterly basis at 17.5% to 26% annual
rates to determine the estimated net realizable value of
13
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting
Policies (Continued)
|
the Companys equity investment. The effect of changes in
values of real estate assets under development was a net
decrease of approximately $2,661,000 from December 31, 2006
to May 31, 2007. The net decreases resulted primarily from
changes in the projected timing of sales, actual sale proceeds
from condominium units and homes and changes in the values of
real estate under development, partially offset by the
shortening of the discount period due to the passage of time.
The Company reported operating income on the Consolidated
Statements of Changes in Net Assets in Liquidation which is
comprised primarily of interest and other income earned on
invested cash during the reporting periods through May 31,
2007.
The estimated net realizable value of the Companys
interest in Private Reis for valuation purposes at May 31,
2007 and December 31, 2006 was derived from an approximate
$90,000,000 equity value of Private Reis, based upon the Merger
terms and offers Private Reis received from potential purchasers
during prior reporting periods.
Cash, deposits and escrow accounts were presented at face value.
The Companys remaining assets were stated at estimated net
realizable value which was the expected selling price or
contractual payment to be received, less applicable direct costs
or expenses, if any. The assets that were valued on this basis
included receivables, certain joint venture investments and
other investments.
Mortgage notes and construction loans payable, construction
payables, accrued expenses and other liabilities and minority
interests were stated at settlement amounts.
Reserve
for Estimated Costs During the Liquidation Period
Under the liquidation basis of accounting, the Company was
required to estimate and accrue the costs associated with
implementing and completing the Plan. These amounts could vary
significantly due to, among other things, the timing and
realized proceeds from sales of the projects under development
and sale of other assets, the costs of retaining personnel and
others to oversee the liquidation, including the cost of
insurance, the timing and amounts associated with discharging
known and contingent liabilities and the costs associated with
cessation of the Companys operations including an estimate
of costs subsequent to that date (which would include reserve
contingencies for the appropriate statutory periods). As a
result, the Company accrued the projected costs, including
corporate overhead and specific liquidation costs of severance
and retention bonuses, professional fees, and other
miscellaneous wind-down costs, expected to be incurred during
the projected period required to complete the liquidation of the
Companys remaining assets. Also, the Company did not
record any liability for any cash operating shortfall that could
result at the projects under development during the anticipated
holding period because management expected that projected
operating shortfalls could be funded from the overall operating
profits derived from the sale of homes, condominium units and
lots and interest earned on invested cash. These projections
could have changed materially based on the timing of any such
anticipated sales, the performance of the underlying assets and
changes in the underlying assumptions of the cash flow amounts
projected as well as other market factors. These accruals were
adjusted from time to time as projections and assumptions
changed.
14
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting
Policies (Continued)
|
The following is a summary of the changes in the Reserve for
Estimated Costs During the Liquidation Period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Five Months Ended May 31, 2007
|
|
|
|
Balance at
|
|
|
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
Adjustments and
|
|
|
May 31,
|
|
|
|
2006
|
|
|
Payments
|
|
|
2007(A)
|
|
|
Payroll, benefits, severance and retention costs
|
|
$
|
8,982,000
|
|
|
$
|
(2,260,000
|
)
|
|
$
|
6,722,000
|
|
Professional fees
|
|
|
3,560,000
|
|
|
|
(689,000
|
)
|
|
|
2,871,000
|
|
Other general and administrative costs
|
|
|
5,760,000
|
|
|
|
(686,000
|
)
|
|
|
5,074,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,302,000
|
|
|
$
|
(3,635,000
|
)
|
|
$
|
14,667,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Excludes approximately $1,770,000 remaining as a liability upon
return to the going concern basis of accounting. This amount is
included in the adjustments and payments for the five months
ended May 31, 2007 above.
|
Going
Concern Basis of Accounting
Effective with the close of business on May 31, 2007, the
Company returned to the going concern basis of accounting
whereby (1) assets were stated at the lower of historical
cost or market value, (2) the reserve for estimated costs,
net of liabilities requiring accrual under the going concern
basis of accounting, was reversed and (3) liabilities were
stated on a going concern basis.
The adjustments to net assets in liquidation as of May 31,
2007 is summarized as follows:
|
|
|
|
|
Balance of net assets in liquidation as of May 31, 2007
|
|
$
|
51,922,617
|
|
Adjustment of the Companys investment in Private Reis from
$20,000,000 on a liquidation basis to historical cost of
$6,790,978 on a going concern basis
|
|
|
(13,209,022
|
)
|
Adjustment of real estate investments and other assets from net
realizable value to lower of historical cost or market value
(primarily for the Gold Peak project)
|
|
|
(4,555,480
|
)
|
Reversal of previously accrued liquidation costs net of accrued
liabilities
|
|
|
14,667,431
|
|
|
|
|
|
|
Balance of total stockholders equity, going concern basis,
as of May 31, 2007, prior to Merger
|
|
$
|
48,825,546
|
|
|
|
|
|
|
Total stockholders equity prior to the Merger is comprised
of the following components:
|
|
|
|
|
Common stock, $.02 par value per share,
101,000,000 shares authorized, 6,695,246 shares issued
and outstanding
|
|
$
|
133,905
|
|
Additional paid in capital
|
|
|
66,857,898
|
|
Retained earnings (deficit)
|
|
|
(18,166,257
|
)
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
48,825,546
|
|
|
|
|
|
|
Reserve
for Option Cancellations
At March 31, 2006, the Company accrued a liability for cash
payments that could be made to option holders for the amount of
the market value of the Companys common stock in excess of
the adjusted exercise prices of outstanding options as of
March 31, 2006. This liability has been adjusted to reflect
(1) the net cash payments to option holders made during
each period subsequent to March 31, 2006, (2) the
impact of the exercise of
15
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting
Policies (Continued)
|
options and (3) the changes in the market price of the
Companys common stock during those periods. The remaining
reserve for option cancellations was approximately $782,000,
$1,459,000, $7,269,000 and $2,633,000 at September 30,
2007, June 30, 2007, May 31, 2007 and
December 31, 2006, respectively.
At September 30, 2007, of the 1,046,880 outstanding
options, 382,949 options are accounted for as a liability as
these awards provide for settlement in cash or in stock at the
election of the option holder. The liability for option
cancellations could materially change from period to period
based upon (1) an option holder either (a) exercising
the options in a traditional manner or (b) electing the net
cash settlement alternative and (2) the changes in the
market price of the Companys common stock. At each period
end, an increase in the Companys common stock price would
result in an increase in compensation expense, whereas a decline
in the stock price would reduce compensation expense.
See Note 9 for activity with respect to stock options.
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 Companys
proportionate share of the investments income (loss) and
additional contributions or distributions through the date of
adoption of the liquidation basis of accounting. Investments in
entities where the Company does not have the ability to exercise
significant influence are accounted for under the cost method.
All significant inter-company accounts and transactions among
the Company and its subsidiaries have been eliminated in
consolidation.
Variable
Interests
During 2003, the Financial Accounting Standards Board
(FASB) issued Interpretation No. 46R
Consolidation of Variable Interest Entities
(FIN 46R). The Company evaluates its investments
and subsidiaries to determine if an entity is a voting interest
entity or a variable interest entity (VIE) under the
provisions of FIN 46R. An entity is a VIE when (1) the
equity investment at risk is not sufficient to permit the entity
from financing its activities without additional subordinated
financial support from other parties or (2) equity holders
either (a) lack direct or indirect ability to make
decisions about the entity, (b) are not obligated to absorb
expected losses of the entity or (c) do not have the right
to receive expected residual returns of the entity if they
occur. If an entity or investment is deemed to be a VIE, an
enterprise that absorbs a majority of the expected losses of the
VIE or receives a majority of the residual returns is considered
the primary beneficiary and must consolidate the VIE. The
Company has investments in two VIEs which were consolidated at
September 30, 2007 and had investments in three VIEs of
which two were consolidated at December 31, 2006.
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.
Accordingly, certain information and footnote disclosures
normally included in financial statements prepared under 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 Companys balance sheet,
statements of operations, net assets in liquidation, changes in
net assets in liquidation, statement of changes in
stockholders equity and cash flows have been included and
are of a normal and recurring nature. These consolidated
financial statements should
16
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting
Policies (Continued)
|
be read in conjunction with the consolidated financial
statements and notes thereto included in the Companys
annual report on
Form 10-K/A
for the year ended December 31, 2006, as filed with the
Securities and Exchange Commission on April 30, 2007. The
net income for the three and four months ended
September 30, 2007, changes in cash flows for the four and
nine months ended September 30, 2007 and 2006 and five
months ended May 31, 2007 are not necessarily indicative of
a full year results.
Summary
of Significant Accounting Policies of the Acquired
Business
The following are the significant accounting policies with
respect to the Reis Services segment:
Revenue
Recognition and Related Items
The Companys subscription revenue is derived principally
from subscriptions to its web-based services and is recognized
as revenue ratably over the related contractual period, which is
typically one year, but can be as long as 36 months.
Revenues from ad-hoc and custom reports are recognized as
completed and delivered to the customers, provided that no
significant Company obligations remain.
Deferred revenues represent the portion of a subscription billed
or collected in advance under the terms of the respective
contract, which will be recognized in future periods. If a
customer does not meet the payment obligations of a contract,
any related accounts receivable and deferred revenue are written
off at that time and the net amount, after considering any
recovery of accounts receivable, is charged to cost of sales.
Cost of
Sales of Subscription Revenue
Cost of sales of subscription revenue principally consists of
salaries and related expenses for the Companys researchers
who collect and analyze the commercial real estate data that is
the basis for the Companys information services.
Additionally, cost of sales includes the amortization of
database technology.
Web Site
Development Costs
The Company follows Emerging Issues Task Force
(EITF) Issue No.
00-2,
Accounting for Web Site Development Costs,
which requires that costs of developing a web site should be
accounted for in accordance with AICPA Statement of Position
98-1,
Accounting for the Costs of Computer Software Developed
for Internal Use
(SOP 98-1)
.
The Company expenses all internet web site costs incurred during
the preliminary project stage. All direct external and internal
development and implementation costs are capitalized and
amortized using the straight-line method over their remaining
estimated useful lives, not exceeding three years. The value
ascribed to the web site development intangible asset at
the time of the Merger is amortized on a straight-line basis
over three years and is charged to product development expense.
Database
The Company capitalizes costs for the development of its
database in connection with the identification and addition of
new real estate properties and sale transactions which provide a
future economic benefit. Amortization is calculated on a
straight-line basis over a three or five year period. The
Company capitalized approximately $256,000 and $307,000 during
the three and four months ended September 30, 2007 related to
the database.
17
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting
Policies (Continued)
|
The fair value ascribed to the database intangible asset
acquired at the time of the Merger is amortized on a
straight-line basis over five years.
Customer
Relationships
The value ascribed to customer relationships acquired at the
time of the Merger is amortized over a ten-year period and is
charged to sales and marketing expense.
Lease
Value
The value ascribed to the below market terms of the office lease
existing at the time of the Merger is amortized over the
remaining term of the acquired office lease which was
approximately nine years. Amortization is charged to general and
administrative expenses.
Goodwill
Goodwill is tested for impairment at least annually or after a
triggering event has occurred requiring such a calculation in
accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142). An impairment loss is
recognized to the extent that the carrying amount exceeds the
assets fair value. SFAS No. 142 also requires
that intangible assets with estimable useful lives that arose
from the acquisitions be amortized over their respective
estimated useful lives using a method of amortization that
reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise used up, and that
such intangible assets be reviewed for impairment in accordance
with SFAS No. 144
Accounting for Impairment
or Disposal of Long-Lived Assets
(SFAS No. 144).
Income
Taxes
In July 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN 48). This interpretation, among other
things, creates a two step approach for evaluating uncertain tax
positions. Recognition (step one) occurs when an enterprise
concludes that a tax position, based solely on its technical
merits, is more-likely-than-not to be sustained upon
examination. Measurement (step two) determines the amount of
benefit that more-likely-than-not will be realized upon
settlement. Derecognition of a tax position that was previously
recognized would occur when a company subsequently determines
that a tax position no longer meets the more-likely-than-not
threshold of being sustained. FIN 48 specifically prohibits
the use of a valuation allowance as a substitute for
derecognition of tax positions, and it has expanded disclosure
requirements. FIN 48 is effective for fiscal years
beginning after December 15, 2006, in which the impact of
adoption should be accounted for as a cumulative-effect
adjustment to the beginning balance of retained earnings. There
was no financial statement impact upon the adoption of
FIN 48, effective January 1, 2007.
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.
18
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
2.
|
Summary
of Significant Accounting
Policies (Continued)
|
Accounting
Pronouncements Not Yet Adopted
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). SFAS No. 157
provides guidance for using fair value to measure financial
assets and liabilities. This statement clarifies the principle
that fair value should be based on the assumptions that market
participants would use when pricing the asset or liability.
SFAS No. 157 establishes a fair value hierarchy,
giving the highest priority to quoted prices in active markets
and the lowest priority to unobservable data.
SFAS No. 157 applies whenever other standards require
assets or liabilities to be measured at fair value. This
statement is effective in fiscal years beginning after
November 15, 2007. The Company is evaluating
SFAS No. 157 and has not determined the impact the
adoption will have on the consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and
Financial Liabilities
(SFAS No. 159). SFAS No. 159
provides companies with an option to report selected financial
assets and liabilities at fair value. The Statements
objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by
measuring related assets and liabilities differently. The FASB
believes that SFAS No. 159 helps to mitigate this type
of accounting-induced volatility by enabling companies to report
related assets and liabilities at fair value, which would likely
reduce the need for companies to comply with detailed rules for
hedge accounting. SFAS No. 159 also establishes
presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities.
SFAS No. 159 is effective as of the beginning of an
entitys first fiscal year beginning after
November 15, 2007. Early adoption is permitted as of the
beginning of the previous fiscal year provided that the entity
makes that choice in the first 120 days of that fiscal year
and also elects to apply the provisions of
SFAS No. 157. The Company is evaluating
SFAS No. 159 and has not determined the impact the
adoption will have on the consolidated financial statements.
19
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Upon completion of the Merger and the resulting change in
accounting from the liquidation basis to the going concern
basis, the Company organized into two separately managed
segments: Reis Services and Residential Development Activities.
The Company has further separated the significant components of
the Residential Development Activities for Palomino Park (Gold
Peak), East Lyme and all other developments. The following
tables present condensed balance sheet and operating data for
these segments for the periods reported on a going concern basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Balance Sheet Data
|
|
|
|
|
Residential Development Activities
|
|
|
|
|
|
|
|
September 30, 2007
|
|
|
|
|
Palomino
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Going Concern Basis)
|
|
Reis Services
|
|
|
Park
|
|
|
East Lyme
|
|
|
Developments
|
|
|
Other*
|
|
|
Consolidated
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,445
|
|
|
$
|
104
|
|
|
$
|
420
|
|
|
$
|
5
|
|
|
$
|
19,472
|
|
|
$
|
23,446
|
|
Restricted cash and investments
|
|
|
231
|
|
|
|
119
|
|
|
|
2,457
|
|
|
|
1,019
|
|
|
|
|
|
|
|
3,826
|
|
Receivables, prepaid and other assets
|
|
|
5,570
|
|
|
|
212
|
|
|
|
|
|
|
|
103
|
|
|
|
591
|
|
|
|
6,476
|
|
Real estate assets under development
|
|
|
|
|
|
|
16,412
|
|
|
|
8,447
|
|
|
|
288
|
|
|
|
|
|
|
|
25,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
9,246
|
|
|
|
16,847
|
|
|
|
11,324
|
|
|
|
1,415
|
|
|
|
20,063
|
|
|
|
58,895
|
|
Furniture, fixtures and equipment, net
|
|
|
2,101
|
|
|
|
84
|
|
|
|
121
|
|
|
|
14
|
|
|
|
114
|
|
|
|
2,434
|
|
Other real estate assets
|
|
|
|
|
|
|
|
|
|
|
3,418
|
|
|
|
3,129
|
|
|
|
|
|
|
|
6,547
|
|
Intangible assets, net
|
|
|
18,139
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,139
|
|
Goodwill
|
|
|
61,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,893
|
|
Other assets
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
211
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
91,943
|
|
|
$
|
16,931
|
|
|
$
|
14,863
|
|
|
$
|
4,559
|
|
|
$
|
20,388
|
|
|
$
|
148,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of loans and other debt
|
|
$
|
172
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
172
|
|
Current portion of Bank Loan
|
|
|
1,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,375
|
|
Construction payables
|
|
|
|
|
|
|
2,655
|
|
|
|
666
|
|
|
|
253
|
|
|
|
|
|
|
|
3,574
|
|
Construction loans payable
|
|
|
|
|
|
|
7,791
|
|
|
|
7,070
|
|
|
|
|
|
|
|
|
|
|
|
14,861
|
|
Accrued expenses and other liabilities
|
|
|
1,627
|
|
|
|
1,262
|
|
|
|
1,637
|
|
|
|
287
|
|
|
|
3,415
|
|
|
|
8,228
|
|
Reserve for option cancellations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
782
|
|
|
|
782
|
|
Deferred revenues
|
|
|
11,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,351
|
|
|
|
11,708
|
|
|
|
9,373
|
|
|
|
540
|
|
|
|
4,197
|
|
|
|
40,169
|
|
Non-current portion of Bank Loan
|
|
|
23,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,125
|
|
Other long-term liabilities
|
|
|
793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
793
|
|
Deferred tax liability, net
|
|
|
2,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262
|
)
|
|
|
2,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
40,891
|
|
|
|
11,708
|
|
|
|
9,373
|
|
|
|
540
|
|
|
|
3,935
|
|
|
|
66,447
|
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613
|
|
|
|
|
|
|
|
613
|
|
Total stockholders equity
|
|
|
51,052
|
|
|
|
5,223
|
|
|
|
5,490
|
|
|
|
3,406
|
|
|
|
16,453
|
|
|
|
81,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
91,943
|
|
|
$
|
16,931
|
|
|
$
|
14,863
|
|
|
$
|
4,559
|
|
|
$
|
20,388
|
|
|
$
|
148,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes cash, other assets and liabilities not specifically
attributable to or allocable to a specific operating segment.
|
20
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
3.
|
Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Operating Data for the
|
|
|
|
|
Residential Development Activities
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2007
|
|
|
|
|
Palomino
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
(Going Concern Basis)
|
|
Reis Services
|
|
|
Park
|
|
|
East Lyme
|
|
|
Developments
|
|
|
Other*
|
|
|
Consolidated
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenue
|
|
$
|
6,343
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,343
|
|
Revenue from sales of residential units
|
|
|
|
|
|
|
7,412
|
|
|
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
12,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
6,343
|
|
|
|
7,412
|
|
|
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
19,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of subscription revenue
|
|
|
1,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,256
|
|
Cost of sales of residential units
|
|
|
|
|
|
|
6,254
|
|
|
|
4,954
|
|
|
|
|
|
|
|
|
|
|
|
11,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,256
|
|
|
|
6,254
|
|
|
|
4,954
|
|
|
|
|
|
|
|
|
|
|
|
12,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
5,087
|
|
|
|
1,158
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
6,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,314
|
|
Product development
|
|
|
413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
413
|
|
Property operating expenses
|
|
|
|
|
|
|
304
|
|
|
|
3
|
|
|
|
60
|
|
|
|
|
|
|
|
367
|
|
General and administrative
|
|
|
1,735
|
|
|
|
11
|
|
|
|
27
|
|
|
|
2
|
|
|
|
2,019
|
|
|
|
3,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
3,462
|
|
|
|
315
|
|
|
|
30
|
|
|
|
62
|
|
|
|
2,019
|
|
|
|
5,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
(4
|
)
|
Interest and other income
|
|
|
29
|
|
|
|
26
|
|
|
|
2
|
|
|
|
|
|
|
|
275
|
|
|
|
332
|
|
Interest (expense)
|
|
|
(638
|
)
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
250
|
|
|
|
(421
|
)
|
Minority interest
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
1,016
|
|
|
$
|
792
|
|
|
$
|
400
|
|
|
$
|
(66
|
)
|
|
$
|
(1,494
|
)
|
|
$
|
648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes interest and other income, depreciation and
amortization expense and general administrative expenses that
have not been allocated to the operating segments.
|
21
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
3.
|
Segment
Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Operating Data for the
|
|
|
|
|
Residential Development Activities
|
|
|
|
|
|
|
|
Period June 1, 2007 to September 30, 2007
|
|
|
|
|
|
|
|
East
|
|
|
Other
|
|
|
|
|
|
|
|
(Going Concern Basis)
|
|
Reis Services
|
|
|
Palomino Park
|
|
|
Lyme
|
|
|
Developments
|
|
|
Other*
|
|
|
Consolidated
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription revenue
|
|
$
|
8,217
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,217
|
|
Revenue from sales of residential units
|
|
|
|
|
|
|
8,569
|
|
|
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
13,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
8,217
|
|
|
|
8,569
|
|
|
|
5,415
|
|
|
|
|
|
|
|
|
|
|
|
22,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales of subscription revenue
|
|
|
1,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,660
|
|
Cost of sales of residential units
|
|
|
|
|
|
|
7,204
|
|
|
|
4,954
|
|
|
|
|
|
|
|
|
|
|
|
12,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of sales
|
|
|
1,660
|
|
|
|
7,204
|
|
|
|
4,954
|
|
|
|
|
|
|
|
|
|
|
|
13,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,557
|
|
|
|
1,365
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
8,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and marketing
|
|
|
1,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,762
|
|
Product development
|
|
|
518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
518
|
|
Property operating expenses
|
|
|
|
|
|
|
365
|
|
|
|
9
|
|
|
|
62
|
|
|
|
|
|
|
|
436
|
|
General and administrative
|
|
|
2,256
|
|
|
|
15
|
|
|
|
36
|
|
|
|
3
|
|
|
|
1,595
|
|
|
|
3,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
4,536
|
|
|
|
380
|
|
|
|
45
|
|
|
|
65
|
|
|
|
1,595
|
|
|
|
6,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) from joint ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
Interest and other income
|
|
|
36
|
|
|
|
30
|
|
|
|
2
|
|
|
|
|
|
|
|
356
|
|
|
|
424
|
|
Interest (expense)
|
|
|
(824
|
)
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
250
|
|
|
|
(617
|
)
|
Minority interest
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
1,233
|
|
|
$
|
938
|
|
|
$
|
375
|
|
|
$
|
(70
|
)
|
|
$
|
(989
|
)
|
|
$
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
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 Segment
See Note 1 for a description of Reiss business and
products at September 30, 2007 and for a description of the
Merger.
Through the date of the Merger, the Company had a preferred
equity investment in Private Reis through Wellsford Capital. At
May 31, 2007 and December 31, 2006, the carrying
amount of the Companys aggregate investment in Private
Reis was $20,000,000 prior to the Merger on a liquidation basis,
as described below. The Companys investment represented
approximately 23% of Private Reiss equity on an as
converted to common stock basis. The Companys cash
investment on a historical cost basis was approximately
$6,791,000 which was the amount recorded as Wellsford
Capitals investment at the Merger date.
22
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
3.
|
Segment
Information (Continued)
|
Edward Lowenthal, the Companys former President and Chief
Executive Officer, who currently serves on the Companys
board of directors, was selected by the Company to also serve as
the Companys representative on the board of directors of
Private Reis and had done so from the third quarter of 2000
through the Merger. Jeffrey Lynford and Mr. Lowenthal
recused themselves from any investment decisions made by the
Company pertaining to Private Reis, including the
authorization by the Companys board of directors to
approve the Merger.
In the first quarter of 2006, Private Reis was considering
offers from potential purchasers, ranging between $90,000,000
and $100,000,000, to acquire 100% of its capital stock. Based on
these offers, in estimating the net proceeds in valuing its
investment if Private Reis were to be sold at that amount, the
Company would have received approximately $20,000,000 of
proceeds, subject to escrow holdbacks.
After considering a range of values, including the current
market price for the Companys stock on the stock portion
of the consideration and the per share price as established for
the Merger agreement, the Company determined that it was
appropriate to continue to value its investment in Private Reis
at $20,000,000 on a liquidation basis at May 31, 2007
(prior to the Merger) and December 31, 2006.
Residential
Development Activities Segment
At September 30, 2007, the Companys residential
development activities and other investments 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 167 Gold Peak units were sold as of
September 30, 2007.
|
|
|
|
|
|
The Orchards, a single family home development in East Lyme,
Connecticut, upon which the Company could build 101 single
family homes on 139 acres. An additional 60 homes could be
built on a contiguous 85 acre parcel of land also owned by
the Company (East Lyme Land and collectively with
the 139 acres, East Lyme). Sales commenced in
June 2006 and 17 homes were sold as of September 30, 2007.
|
|
|
|
|
|
The Stewardship, a single family home development in Claverack,
New York (Claverack), which is subdivided into 48
developable single family home lots on 235 acres.
|
Gold
Peak
In 2004, the Company commenced the development of Gold Peak, the
final phase of Palomino Park, a 1,707 unit multifamily
residential development in Highlands Ranch, a southern suburb of
Denver, Colorado (Palomino Park). Gold Peak will be
comprised of 259 condominium units on the remaining 29 acre
land parcel at Palomino Park.
23
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
3.
|
Segment
Information (Continued)
|
Gold Peak unit sales commenced in January 2006. At
September 30, 2007, there were 29 Gold Peak units under
contract with nominal down payments. The following table
provides information regarding Gold Peak sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Project
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Total
|
|
|
Number of units sold
|
|
|
24
|
|
|
|
34
|
|
|
|
59
|
|
|
|
75
|
|
|
|
108
|
|
|
|
167
|
|
Gross sales proceeds
|
|
$
|
7,412,000
|
|
|
$
|
9,266,000
|
|
|
$
|
17,988,000
|
|
|
$
|
21,021,000
|
|
|
$
|
31,742,000
|
|
|
$
|
49,730,000
|
|
Principal paydown on Gold Peak Construction Loan
|
|
$
|
4,920,000
|
|
|
$
|
6,890,000
|
|
|
$
|
11,732,000
|
|
|
$
|
16,753,000
|
|
|
$
|
24,528,000
|
|
|
$
|
36,260,000
|
|
On September 30, 2007, the Company purchased EQRs
remaining 7.075% interest in the corporation that owns the
remaining Palomino Park assets for $1,200,000.
In September 2006, the Company sold its Palomino Park
telecommunication assets, service contracts and operations and
in November 2006 it received a net amount of approximately
$988,000. At that time, the buyer held back approximately
$396,000, of which approximately $208,000, including $16,000 of
accrued interest, was received by the Company in September 2007
with the remaining receivable of approximately $204,000 expected
to be released in September 2008. The Company believes the
remaining balance will be collected and has recorded such amount
at full value at September 30, 2007.
East
Lyme
The Company has 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 is constructing houses for sale. The Company
purchased the land for $6,200,000 in June 2004.
After purchasing the land, the Company executed an agreement
with a homebuilder (the Homebuilder) who will
construct and sell the homes for this project and is a 5%
partner in the project along with receiving other consideration.
During the fourth quarter of 2005, the model home was completed
and home sales commenced in June 2006. At September 30,
2007, four East Lyme homes were under contract for which
deposits of 10% of the contract sales price are provided by the
buyer. The following table provides information regarding East
Lyme sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Project
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Total
|
|
|
Number of homes sold
|
|
|
8
|
|
|
|
|
|
|
|
12
|
|
|
|
1
|
|
|
|
5
|
|
|
|
17
|
|
Gross sales proceeds
|
|
$
|
5,415,000
|
|
|
$
|
|
|
|
$
|
8,267,000
|
|
|
$
|
649,000
|
|
|
$
|
3,590,000
|
|
|
$
|
11,857,000
|
|
Principal paydown on East Lyme Construction Loan
|
|
$
|
4,869,000
|
|
|
$
|
|
|
|
$
|
7,426,000
|
|
|
$
|
584,000
|
|
|
$
|
3,246,000
|
|
|
$
|
10,672,000
|
|
The Company executed an option to purchase the East Lyme Land, a
contiguous 85 acre parcel of land which can be used to
develop 60 single family homes and subsequently acquired the
East Lyme Land in November 2005 for $3,720,000, including future
costs which were the obligation of the seller. The East Lyme
Land requires remediation of pesticides used on the property
when it was an apple orchard at a cost of approximately
$1,000,000. Remediation costs were considered in evaluating the
value of the property for liquidation basis
24
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
3.
|
Segment
Information (Continued)
|
purposes at May 31, 2007 and December 31, 2006. This
estimate continues to be recognized as a liability in the going
concern balance sheet at September 30, 2007.
Claverack
Through September 30, 2007, the Company had a 75% ownership
interest in a joint venture that owned two land parcels
aggregating approximately 300 acres in Claverack, New York.
The Company acquired its interest in the joint venture for
$2,250,000 in November 2004. One land parcel was subdivided into
seven single family home lots on approximately 65 acres.
The remaining 235 acres, known as The Stewardship, which
was originally subdivided into six single family home lots, now
is subdivided into 48 developable single family home lots.
During July 2006, the initial home on one lot of the seven lot
parcel was completed and in October 2006, the home and a
contiguous lot were sold for approximately $1,200,000 and the
related outstanding debt of approximately $690,000 was repaid to
the bank. At December 31, 2006, there were no additional
houses under construction on either parcel. In February 2007,
Claverack sold one lot to the venture partner, leaving four lots
of the original seven lots available for sale. In October 2007,
the Company redeemed the joint venture partners interest
in the joint venture in exchange for the remaining four lots,
representing the remaining approximate 45 acres of the
original 65 acres. This resulted in the Company being the
sole owner of The Stewardship.
Other
Investments
The Company has the following other investments included in
other developments:
|
|
|
|
|
Approximately $103,000 and $423,000 at September 30, 2007
(going concern basis) and December 31, 2006 (liquidation
basis), respectively, in Clairborne Fordham, a company which
currently owns and is selling the remaining unsold residential
unit of a 50-story, 277 unit, luxury condominium apartment
project in Chicago, Illinois. One unit was sold in March 2007
and the Company received $120,000 of proceeds, net of cash
requirements for the venture.
|
|
|
|
Approximately $288,000 and $291,000 at September 30, 2007
(going concern basis) and December 31, 2006 (liquidation
basis), respectively, in Wellsford Mantua, a company organized
to purchase land parcels for rezoning, subdivision and creation
of environmental mitigation credits.
|
Beekman
In February 2005, the Company acquired a 10 acre parcel in
Beekman, New York for a purchase price of $650,000. The Company
also entered into a contract to acquire a contiguous
14 acre parcel, the acquisition of which was conditioned
upon site plan approval to build a minimum of 60 residential
condominium units (together, these land parcels are referred to
as Beekman). The Companys $300,000 deposit in
connection with this contract was secured by a first mortgage
lien on the property.
As a result of various uncertainties, including that
governmental approvals and development processes may take an
indeterminate period and extend beyond December 31, 2008,
the Board authorized the sale of the Beekman interests to
Jeffrey Lynford and Mr. Lowenthal, or a company in which
they have ownership interests, at the greater of the
Companys aggregate costs or the appraised values. In
January 2006, a company which was owned by Jeffrey Lynford and
Mr. Lowenthal, the principal of the Companys joint
venture partner in the East Lyme project, and others acquired
the Beekman project at the Companys aggregate cost of
approximately $1,297,000 in cash. This was accomplished through
a sale of the entities that owned the Beekman assets. In
connection with this transaction, the Companys subsidiary
holding the approximate
25
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
3.
|
Segment
Information (Continued)
|
$14,721,000 balance of deferred compensation assets and related
liabilities, which were payable to Jeffrey Lynford and
Mr. Lowenthal, was acquired by a company which is owned by
these individuals and others.
|
|
4.
|
Restricted
Cash and Investments
|
Restricted cash related to deposits for development projects and
cash restricted for use by joint ventures was approximately
$3,826,000 and $2,937,000 at September 30, 2007 and
December 31, 2006, respectively.
|
|
5.
|
Intangibles
and Other Assets
|
The amount of identified intangibles and other assets, based
upon the preliminary allocation of the purchase price of Private
Reis and additional capitalized costs since the Merger,
including the respective amounts of accumulated amortization,
are as follows:
|
|
|
|
|
|
|
September 30, 2007
|
|
|
Database
|
|
$
|
8,207,000
|
|
Accumulated amortization
|
|
|
(589,000
|
)
|
|
|
|
|
|
Database, net
|
|
|
7,618,000
|
|
|
|
|
|
|
Customer relationships
|
|
|
5,600,000
|
|
Accumulated amortization
|
|
|
(187,000
|
)
|
|
|
|
|
|
Customer relationships, net
|
|
|
5,413,000
|
|
|
|
|
|
|
Web site
|
|
|
1,994,000
|
|
Accumulated amortization
|
|
|
(163,000
|
)
|
|
|
|
|
|
Web site, net
|
|
|
1,831,000
|
|
|
|
|
|
|
Acquired below market lease
|
|
|
3,400,000
|
|
Accumulated amortization
|
|
|
(123,000
|
)
|
|
|
|
|
|
Acquired below market lease, net
|
|
|
3,277,000
|
|
|
|
|
|
|
Intangibles, net
|
|
$
|
18,139,000
|
|
|
|
|
|
|
Amortization expense for intangibles and other assets was
approximately $815,000 and $1,062,000 for the three and four
months ended September 30, 2007, respectively. Annual
amortization expense related to the values ascribed to these
assets in the preliminary allocation of the purchase price of
Private Reis is anticipated to aggregate to approximately
$3,000,000 in the next annual period.
26
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
At September 30, 2007 and December 31, 2006, the
Companys debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
Initial
|
|
Stated
|
|
September 30,
|
|
|
December 31,
|
|
Debt/Project
|
|
Maturity Date
|
|
Interest Rate
|
|
2007
|
|
|
2006
|
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
East Lyme Construction Loan
|
|
December 2007(A)
|
|
LIBOR + 2.15%(B)
|
|
$
|
7,070,000
|
|
|
$
|
10,579,000
|
|
Gold Peak Construction Loan
|
|
November 2009
|
|
LIBOR + 1.65%(B)
|
|
|
7,791,000
|
|
|
|
9,550,000
|
|
Bank Loan
|
|
September 2012
|
|
LIBOR + 3.00%(C)
|
|
|
24,500,000
|
|
|
|
|
|
Other long term debt
|
|
Various
|
|
Fixed/Various
|
|
|
620,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
|
|
|
39,981,000
|
|
|
|
20,129,000
|
|
Less current portion
|
|
|
|
|
|
|
16,408,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
|
|
|
|
|
$
|
23,573,000
|
|
|
$
|
20,129,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount of real estate assets collateralizing
construction loans payable
|
|
|
|
|
|
$
|
24,859,000
|
|
|
$
|
36,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets of Reis Services
|
|
|
|
|
|
$
|
91,943,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
The East Lyme Construction Loan provides for two one-year
extensions at the Companys option upon satisfaction of
certain conditions being met by the borrower. The Company is
negotiating extension terms with the lender (see below).
|
|
(B)
|
|
Principal payments will be made from sales proceeds upon the
sale of individual homes.
|
|
(C)
|
|
Depending upon the leverage ratio, as defined by the Bank Loan
agreement, the spread to LIBOR could decrease from 3.00% to
1.50% as described below.
|
In April 2005, the Company obtained development and construction
financing for Gold Peak in the aggregate amount of approximately
$28,800,000, which bears interest at LIBOR + 1.65% per annum
(the Gold Peak Construction Loan). The Gold Peak
Construction Loan matures in November 2009 and has additional
extensions at the Companys option upon satisfaction of
certain conditions being met by the borrower. Principal
repayments are made as units are sold. The balance of the Gold
Peak Construction Loan was approximately $7,791,000 and
$9,550,000 at September 30, 2007 and December 31,
2006, respectively. The outstanding balance on the development
portion of the loan was repaid during 2006 and the related
commitment was terminated in February 2007. The Company has a 5%
LIBOR cap expiring in June 2008 for the Gold Peak Construction
Loan.
The Company obtained construction financing for East Lyme in the
aggregate amount of $21,177,000 to be drawn upon as costs are
expended. The East Lyme Construction Loan (the East Lyme
Construction Loan) bears interest at LIBOR + 2.15% per
annum and matures in December 2007 with two one-year extensions
at the Companys option upon satisfaction of certain
conditions being met by the borrower. The Company will not meet
the minimum home sale requirement condition and, accordingly, is
negotiating extension terms with the lender. There can be no
assurance that an extension will be granted on favorable terms,
or at all. The balance of the East Lyme Construction Loan was
approximately $7,070,000 and $10,579,000 at September 30,
2007 and December 31, 2006, respectively. The Company had a
4% LIBOR cap which expired in July 2007 for a portion of the
East Lyme Construction Loan.
27
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The East Lyme Construction Loan and Gold Peak Construction Loan
require the Company to have a minimum GAAP net worth, as
defined, of $50,000,000. The Company may be required to make an
additional $2,000,000 cash collateral deposit for the East Lyme
Construction Loan and a $2,000,000 paydown of the Gold Peak
Construction Loan if net worth, as defined, is below
$50,000,000. The Company is required to maintain minimum
liquidity levels at each quarter end for the East Lyme and Gold
Peak Construction Loans, the most restrictive of which is
$10,000,000.
The lender for the East Lyme Construction Loan has also provided
a $3,000,000 letter of credit to a municipality in connection
with the construction of public roads at the East Lyme project.
The Company has posted $1,300,000 of restricted cash as
collateral for this letter of credit.
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
$508,000, $323,000, $1,016,000 and $1,033,000 was capitalized
during the three and nine months ended September 30, 2007
and 2006, respectively.
In connection with the Merger agreement, Private Reis entered
into an agreement, dated October 11, 2006, with the Bank of
Montreal, Chicago Branch, as administrative agent and BMO
Capital Markets, as lead arranger, which provides 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 amount of payments Reis Services can
make to the Company each year.
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. The final maturity date of
all amounts borrowed pursuant to the credit agreement is
September 30, 2012.
At September 30, 2007, the interest rate was LIBOR plus
3.00% if the loans are designated as LIBOR Rate loans or Base
Rate plus 2.00% if the loans are designated as Base Rate loans.
These spreads are based on a leverage ratio, as defined in the
credit agreement, greater than or equal to 4.50 to 1.00. Reis
Services also pays a fee on the unused portion of the loans of
0.50% per annum. 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, which does not have
to exceed $12,500,000. The term of any interest rate protection
must be 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 fair value of
the cap was approximately $53,000 at September 30, 2007.
The change in the fair value of approximately $56,000 was
charged to interest expense during the three months ended
September 30, 2007.
In connection with obtaining the Bank Loan, Reis Services has
paid fees aggregating approximately $501,000 which will be
amortized over the term of the loan. Such costs are included as
other assets in the accompanying financial statements. In
addition, Reis Services is required to pay an annual
administration fee of $25,000.
28
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
During the three and four months ended September 30, 2007,
the Company incurred $332,000 and $336,000, respectively, of
aggregate state and Federal income taxes which amounts are net
of a $273,000 reduction in the deferred tax valuation allowance.
Private Reis had net operating loss (NOL)
carryforwards aggregating approximately $11,600,000 at
May 30, 2007. These losses may be utilized against
consolidated taxable income to the extent that the separate
taxable income of Reis Services is included in the
Companys income tax returns in the future.
At December 31, 2006, the Company separately had NOLs
aggregating approximately $59,700,000. The NOLs include an
aggregate of approximately $22,100,000 expiring in 2007 and 2008
and $11,500,000 expiring in 2010. There is an annual limitation
on the use of such NOLs, which the Company has estimated to be
$2,700,000. A new annual limitation was established at the time
of the Merger. As a result of the new annual limitation and
expirations, the Company expects that it could only potentially
utilize approximately $36,000,000 of its remaining NOLs at
December 31, 2006. A further requirement of the tax rules
is that after a corporation experiences an ownership change, it
must satisfy the continuity of business enterprise
requirement (which generally requires that a corporation
continue its historic business or use a significant portion of
its historic business assets in its business for the two-year
period beginning on the date of the ownership change) to be able
to utilize its NOLs. There can be no assurance that this
requirement will be met with respect to any ownership change of
the Company including the Merger. If the Company fails to
satisfy this requirement, the Company would be unable to utilize
any of its NOLs; however, there would be no such limitation on
the Private Reis NOLs.
The Company did not declare or distribute any dividends during
the three and nine months ended September 30, 2007 and 2006.
|
|
9.
|
Stock
Plans and Other Incentives
|
The Company has adopted certain incentive plans (the
Incentive Plans) for the purpose of attracting and
retaining the Companys directors, officers and employees.
Options granted under the Incentive Plans expire ten years from
the date of grant, vest over periods ranging generally from
immediate vesting to up to five years and may contain the right
to receive reload options under certain conditions.
As permitted by the Plan and in accordance with the provisions
of the Companys option plans, applicable accounting rules,
the American Stock Exchange (AMEX) rules and Federal
income tax laws, the Companys outstanding stock options
were adjusted to prevent a dilution of benefits to option
holders arising from a reduction in value of the Companys
common stock as a result of the $14.00 per share initial
liquidating distribution made to the Companys stockholders
on December 14, 2005. The adjustment reduces the exercise
price of the outstanding options by the ratio of the price of a
common share immediately after the distribution ($5.60 per
share) to the stock price immediately before the distribution
($19.85 per share) and increases the number of common shares
subject to outstanding options by the reciprocal of the ratio.
As a result of this adjustment, the 520,665 options outstanding
as of December 31, 2005 were converted into options to
acquire 1,845,584 common shares and the weighted average
exercise price of such options decreased from $20.02 per share
to $5.65 per share. The Board approved these option adjustments
on January 26, 2006. These adjustments did not result in a
new grant and did not have any financial statement impact. At
the same time, the Board authorized amendments to outstanding
options to allow an option holder to receive from the Company,
in cancellation of the holders option, a cash payment with
respect to each cancelled option equal to
29
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
9.
|
Stock
Plans and Other Incentives (Continued)
|
the amount by which the fair market value of the share of stock
underlying the option exceeds the exercise price of such option.
Additionally, certain non-qualified out of the money
options which had original maturity dates prior to
December 31, 2007, were extended by the Board to the later
of December 31 of the year of original expiration or the
15th day of the third month following the date of the
original expiration.
In February 2006, the Company was advised by the AMEX that the
planned adjustment was in compliance with applicable AMEX rules
related to option adjustments. On March 21, 2006, the
Company and the option holders executed amended option
agreements to reflect these adjustments and changes.
As a result of the approval process, the Company determined that
it was appropriate to record a provision during the first
quarter of 2006 aggregating approximately $4,227,000 to reflect
the modification permitting an option holder to receive a net
cash payment in cancellation of the holders option based
upon the fair value of an option in excess of the exercise
price. The reserve is adjusted at the end of each reporting
period to reflect the settlement amounts of the liability,
exercises of stock options and the impact of changes to the
market price of the stock at the end of each reporting period.
The change in the liability is reflected in the statement of
changes in net assets in liquidation through May 31, 2007.
During the year ended December 31, 2006, the Company made
cash payments aggregating approximately $668,000 related to
237,426 options cancelled for option holders electing this
method, all of which was paid in the nine months ended
September 30, 2006. No cash payments were made during the
five months ended May 31, 2007. A liability of
approximately $7,269,000 was recorded at May 31, 2007 based
upon the difference in the closing stock price of the Company of
$11.00 per share and the individual exercise prices of all
outstanding in the money options at that date.
During the three months ended September 30, 2007, an
aggregate of 20,574 options were settled with a net cash payment
of approximately $67,000. During the nine months ended
September 30, 2007, an aggregate of 91,470 options were
settled with a net cash payment of approximately $361,000. In a
series of transactions in June 2007, Jeffrey Lynford tendered
certain shares of common stock he owned as payment of the
exercise price for 891,949 options. Further, he reduced the
number of shares he would ultimately receive in this exercise
transaction to satisfy his tax obligation of approximately
$2,072,000 in cash (which was retained by the Company to pay for
his applicable income taxes). As a result, he received a net of
212,070 shares of the Companys common stock upon the
completion of this exercise. Pursuant to his option agreements,
Jeffrey Lynford received reload options to purchase
243,931 shares of the Companys common stock which
have an exercise price of $10.67 per option reflecting the
market value of the Companys stock at the time of the
grant. These reload options, which expire on December 31,
2007, do not have a net cash settlement feature and are treated
as an equity reward.
At September 30, 2007, the option liability was
approximately $782,000 based upon the difference in the closing
stock price of the Company at September 30, 2007 of $7.42
per share and the individual exercise prices of the outstanding
382,949 in the money options that are accounted for
as a liability award at that date. The Company recorded a
compensation benefit in General and Administrative expenses in
the statement of operations of approximately $610,000 and
$1,791,000 for the three and four months ended
September 30, 2007, respectively, as a result of the stock
price declines during the periods. Changes in the settlement
value of option awards treated under the liability method as
defined by SFAS No. 123R are reflected as income or
expense in the statements of operations under the going concern
basis of accounting.
30
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
9.
|
Stock
Plans and Other Incentives (Continued)
|
A summary of the changes in outstanding stock options during the
period January 1, 2007 to May 31, 2007 and through
September 30, 2007 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options outstanding at December 31, 2006
|
|
|
1,414,876
|
|
|
$
|
5.68
|
|
Options exercised during the five months ended May 31, 2007
|
|
|
(48,508
|
)
|
|
|
(5.81
|
)
|
|
|
|
|
|
|
|
|
|
Balance outstanding prior to the Merger
|
|
|
1,366,368
|
|
|
|
5.68
|
|
Options granted as a result of the Merger to certain key
employees
|
|
|
340,000
|
|
|
|
10.40
|
|
Options granted to employees
|
|
|
100,000
|
|
|
|
7.50
|
|
Options cancelled through cash settlement
|
|
|
(91,470
|
)
|
|
|
(5.39
|
)
|
Options exercised by the Companys Chairman
|
|
|
(891,949
|
)
|
|
|
(5.81
|
)
|
Forfeitures
|
|
|
(20,000
|
)
|
|
|
(7.50
|
)
|
Reload options issued to the Companys Chairman
|
|
|
243,931
|
|
|
|
10.67
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2007
|
|
|
1,046,880
|
|
|
|
8.43
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2007
|
|
|
626,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable which can be settled in cash at
September 30, 2007
|
|
|
382,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the Merger, 340,000 options were granted to
six key employees on May 30, 2007 with an exercise price of
$10.40 per option. These options vest ratably over five years.
An additional 100,000 options were granted to employees in
August 2007 with an exercise price of $7.50 per option. These
options vest ratably over five years. These awards will be
treated as equity awards based on their respective terms and the
fair value of each award will be charged to compensation expense
on a straight-line basis at the corporate level over the vesting
period.
Also in connection with the Merger, Lloyd Lynford and
Mr. Garfield were granted 100,000 and 46,000 restricted
stock units (RSUs), respectively, which upon meeting
certain performance thresholds vest over a three year period.
The grant date fair value is $10.40 per RSU and is expensed on a
graded schedule over the vesting period. At the time of the
award and at September 30, 2007, the Company believed that
it would meet the required performance threshold to fully vest
the RSUs over the three year period.
At the Merger date, 123 employees were granted an aggregate
of 73,800 RSUs which vest after three years of service and have
a grant date value of $10.40 per RSU. This award has been
treated as an equity award and the grant date fair value will be
charged to compensation expense at the corporate level over the
vesting periods. As a result of an amendment to the Incentive
Plans which was approved by the stockholders on May 30,
2007, awards can be made to all employees of the Company, not
just key employees.
As a result of the issuance of the stock options and RSU grants,
the Company recorded non-cash compensation expense of
approximately $478,000 and $606,000 for the three and four
months ended September 30, 2007, respectively.
|
|
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
31
REIS,
INC. AND SUBSIDIARIES
(FORMERLY WELLSFORD REAL PROPERTIES, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
|
|
10.
|
Earnings
Per Common Share (Continued)
|
common shares that would be outstanding assuming the exercise of
dilutive common share options. The following table details the
computation of earnings per common share, basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
For the Three
|
|
|
For the Period
|
|
|
|
Months Ended
|
|
|
June 1, 2007 to
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2007
|
|
|
2007
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income for basic calculation
|
|
$
|
316,566
|
|
|
$
|
1,151,232
|
|
Adjustments to net income for income statement impact of
dilutive securities
|
|
|
(609,950
|
)
|
|
|
(1,791,430
|
)
|
|
|
|
|
|
|
|
|
|
Net (loss) for dilution calculation
|
|
$
|
(293,384
|
)
|
|
$
|
(640,198
|
)
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per common share,
basic weighted average common shares
|
|
|
10,984,517
|
|
|
|
10,982,779
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
RSUs
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
274,088
|
|
|
|
276,869
|
|
|
|
|
|
|
|
|
|
|
Denominator for net income (loss) per common share,
diluted weighted average common shares
|
|
|
11,258,605
|
|
|
|
11,259,648
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.03
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.03
|
)
|
|
$
|
(0.06
|
)
|
|
|
|
|
|
|
|
|
|
32
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
General
Organization
and Business
Reis, Inc. and subsidiaries, collectively, the
Company or Reis (formerly Wellsford Real
Properties, Inc. (Wellsford)) is a Maryland
corporation. The name change from Wellsford to Reis occurred in
June 2007 after the completion of the merger of the privately
held company, Reis, Inc. (Private Reis) with and
into Reis Services, LLC (Reis Services), a
wholly-owned subsidiary of Wellsford (the Merger).
Private
Reiss Historic Business
Private Reis was founded in 1980 as a provider of commercial
real estate market information and today is a leader in that
field. Reis maintains a proprietary database containing detailed
information on commercial real properties in neighborhoods and
metropolitan markets throughout the U.S. The database
contains information on apartment, retail, office and industrial
properties and is used by real estate investors, lenders and
other professionals to make informed buying, selling and
financing decisions. Reis currently provides its information
services to many of the nations leading lending
institutions, equity investors, brokers and appraisers.
Reiss flagship product is Reis SE, which provides online
access to information and analytical tools designed to
facilitate both debt and equity transactions. In addition to
trend and forecast analysis at neighborhood and metropolitan
levels, the product offers detailed building-specific
information such as rents, vacancy rate and lease terms,
property sale information, 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 and absorption. This information is
critical to all aspects of valuing assets and financing their
acquisition, development, and construction.
All of Reiss data and analytics are subjected to rigorous
validation and quality assurance procedures resulting in
reliable commercial real estate decision support systems.
Industry
Background
Commercial real estate represents a significant share of the
overall business activity and national wealth in the
U.S. As reported by Real Estate Roundtable (2007), the
combined assets of U.S. commercial real estate accounts for
over $5 trillion of the nations domestic assets, and is
equivalent to approximately 35% of the total market
capitalization of U.S. stock markets. Thousands of
commercial real estate properties are sold, purchased, financed,
and securitized each year, hundreds of millions of square feet
of new construction projects are completed, and a similar number
of square feet are signed to new leases.
The combined capitalization of REITs has also increased
measurably in recent years. The National Association of Real
Estate Investment Trusts reported that the 183 publicly-traded
REITs at the end of 2006 had a combined market capitalization of
$438.1 billion, 32.5% higher than the previous year and
almost double the REIT market capitalization of
$224.2 billion in 2003.
The varied participants in U.S. commercial real estate
demand timely and accurate information to support their
decision-making. Participants in the asset market, such as
property owners, developers and builders, banks and non-bank
lenders, and equity investors, require access to information on
both the performance and pricing of assets, including detailed
data on market transactions, supply, and absorption. This
information is critical to all aspects of valuing assets and
financing their acquisition, development and construction.
Additionally, brokers, operators and lessors require access to
detailed information concerning current and historical rents,
vacancies, concessions, operating expenses, and other market and
property-specific performance measures.
33
Reiss
Business
As commercial real estate markets have grown in size and
complexity, Reis 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:
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developed expertise in data collection across multiple markets
and property types;
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|
invested in the analytical expertise to develop decision support
systems around property valuations, credit analytics and
transaction support;
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|
created product development expertise to collect market feedback
and translate it into new products and reports; and
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|
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. The depth and breadth of Reiss data
and expertise will be critical in allowing Reis to grow its
business. As of September 30, 2007, Reis had over 675
companies under signed contracts. Generally, each company has
multiple users entitled to access
Reis SE
. These numbers
do not include users who pay for our reports by credit card on a
one-off basis.
Reiss 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 each month.
Reis continues to develop and introduce new products, expand and
add new data, and find new ways to deliver existing information
to meet and anticipate client demand. In 2007, Reis began
publishing information on an additional 87 apartment
markets (bringing the total number of apartment markets covered
to 169), released an email alert mechanism, and started
publishing new construction updates on a weekly basis.
Proprietary
Databases
Over the last 25 years, Reis has developed 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.
In addition to the core property database, Reis maintains a new
construction database that monitors projects that are being
added to the covered markets. The database reports relevant
criteria such as project size, property type and location for
planned and proposed projects, projects under construction, and
projects nearing completion.
Finally, Reis also maintains a sales comparables database that
captures information such as buyer, seller, purchase price,
capitalization rate and financing details, where available, for
each transaction over $2,000,000 in our covered markets.
Products
and Services
Reis SE
, available through the www.reis.com website,
serves as a delivery platform for the thousands of reports
containing Reiss primary research data and forecasts.
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 six
years to accommodate real estate professionals who need to
perform market-based trend and
34
forecast analysis, property specific research, comparable
property analysis, and generate valuation and credit analysis
estimates at the single property and portfolio levels.
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 reflect all individual property, city, and neighborhood
data gathered over the previous 90 days.
Reports are retrievable by street address, property type
(office, apartment, retail, and industrial) or market/submarket
and are available as presentation quality documents or in
spreadsheet formats. These reports are used by Reiss
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:
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real estate news stories chosen by Reis analysts to provide
information relevant to a particular market and property type;
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customizable email alerts that let users receive proactive
updates on only those reports or markets that they are
interested in;
|
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property comparables that allow users to identify buildings with
similar rents, sales or new construction projects to their own;
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quarterly first glance reports that provide an early
assessment of the office, apartment, and retail sectors across
the U.S. and preliminary commentary on new construction
activity; and
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the quarterly briefing a conference call
during which Reis provides an analysis of its latest findings.
|
Reis is continuously enhancing
Reis SE
by developing new
products and applications. Examples of recently released
enhancements include:
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|
coverage of an additional 52 apartment markets in April 2007
with a further addition of 35 apartment markets in August
2007, bringing the total number of apartment markets covered to
169;
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|
publication of property construction updates on a weekly basis
(August 2007); and
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introduction of a property construction search capability that
allows users to identify new construction projects near a
specific address.
|
Cost of
Service and Renewal Rates
Reiss data is available for sale in four primary ways:
(1) annual and multi-year subscriptions to
Reis SE
;
(2) capped subscriptions allowing customers to purchase a
limited number of reports; (3) online credit card
purchases; and (4) custom data requests. Annual
subscription fees range from $1,000 to over $500,000 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 range from $1,000 to $25,000 and
allow clients to download a fixed number of reports over a
12-month period. Credit card report sales typically range from
$150 to $695 per report and are available to anyone who visits
Reiss 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.
Subscription renewal rates are an important measure of customer
satisfaction. Over the past four years, Reis has renewed an
average of 94% of its subscription revenue.
Customer
Service and Training
Reis focuses heavily on proactive training and customer support.
Reiss dedicated customer service team offers customized
on-site
training and web-based and telephonic support to promote usage,
maximize product knowledge, and solicit customer input for
future product enhancements. The corporate training team meets
regularly with a large proportion of Reiss customers to
identify opportunities for product adoption and increased usage.
Additional
35
points of customer contact include mid-year service reviews, a
web-based customer feedback program and account manager visits.
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 breath of
underlying databases; 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; price;
consistent product innovation and recognition by business trade
publications.
Reiss senior management believes that, on a national
level, only a small number of firms serve the property
information needs of commercial real estate investors. 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, Property and Portfolio Research,
Inc. and Loopnet, Inc., as well as with in-house real estate
research departments. Many of our competitors, either alone or
with affiliated entities, have substantially greater resources
than we do.
Wellsfords
Historic Business
The Company was originally formed as a Maryland corporation on
January 8, 1997 as a corporate subsidiary of Wellsford
Residential Property Trust (the Residential Trust).
On May 30, 1997, Residential Trust merged (the EQR
Merger) with Equity Residential (EQR) at which
time Residential Trust contributed certain of its assets to the
Company and the Company assumed certain liabilities of
Residential Trust and distributed to its common stockholders all
of its outstanding shares of the Company. Prior to the Merger,
the Company was operating as a real estate merchant banking firm
which acquired, developed, financed and operated real properties
and invested in private and public real estate companies. The
Companys primary operating activities immediately prior to
the Merger were the development, construction and sale of three
residential projects and its approximate 23% ownership interest
in Private Reis. The Company continues to develop, construct and
sell these existing residential projects.
Merger
with Private Reis
On October 11, 2006, the Company announced that it and Reis
Services entered into a definitive merger agreement with Private
Reis to acquire Private Reis and that the Merger was approved by
the independent members of the Companys board of directors
(the Board). The Merger was approved by the
stockholders of both the Company and Private Reis on
May 30, 2007 and was completed later that day. The
previously announced Plan of Liquidation (the Plan)
(see below) of the Company was terminated as a result of the
Merger and the Company returned to the going concern basis of
accounting from the liquidation basis of accounting. For
accounting purposes, the Merger was deemed to have occurred at
the close of business on May 31, 2007 and the statements of
operations include the operations of Reis Services effective
June 1, 2007.
The merger agreement provided for half of the aggregate
consideration to be paid in Company stock and the remaining half
to be paid in cash to Private Reis stockholders, except
Wellsford Capital, the Companys subsidiary which owned a
23% preferred interest and which received only Company stock.
The Company issued 4,237,074 shares of common stock to
Private Reis stockholders, other than Wellsford Capital, with
$25,000,000 of the cash consideration being funded by a
$27,000,000 bank loan (the Bank Loan), the
commitment for which was obtained by Private Reis in October
2006 and was drawn upon just prior to the Merger, and
approximately $9,573,000 provided by the Company. The per share
value of the Companys common stock, for purposes of the
exchange of stock interests in the Merger, had been previously
established at $8.16 per common share.
36
The Companys acquisition costs, excluding assumed
liabilities, is summarized as follows:
|
|
|
|
|
Value of shares of Company stock
|
|
$
|
30,083,225
|
|
Cash paid for Private Reis shares
|
|
|
9,573,452
|
|
Capitalized merger costs
|
|
|
5,231,494
|
|
Historical cost of Companys 23% interest in Private Reis
|
|
|
6,790,978
|
|
|
|
|
|
|
Total before officer loan settlement
|
|
|
51,679,149
|
|
Officer loan settlement (see below)
|
|
|
(1,304,572
|
)
|
|
|
|
|
|
Total
|
|
$
|
50,374,577
|
|
|
|
|
|
|
The value of the Companys stock for purposes of recording
the acquisition was based upon the average closing price of the
Companys stock for a short period near the date that the
merger agreement was executed of $7.10 per common share, as
provided for under relevant accounting literature.
Upon the completion of the Merger and the settlement of certain
outstanding loans, Lloyd Lynford and Jonathan Garfield, both
executive officers and directors of Private Reis, became the
Chief Executive Officer and Executive Vice President,
respectively, of the Company and both became directors of the
Company. The Companys former Chief Executive Officer and
Chairman, Jeffrey Lynford, remained Chairman of the Company. The
merger agreement provided that the outstanding loans to Lloyd
Lynford and Mr. Garfield aggregating approximately
$1,305,000 be simultaneously satisfied with 159,873 of the
Companys shares received by them in the Merger. Lloyd
Lynford and Jeffrey Lynford are brothers. Immediately following
the consummation of the Merger, the Private Reis stockholders
owned approximately 38% of the Company.
As the Company is the acquirer for accounting purposes, the
acquisition of the remaining interests in Private Reis not owned
by the Company prior to the Merger has been accounted for as a
purchase by the Company. Accordingly, the acquisition price of
the remainder of Private Reis acquired in this transaction
combined with the historical cost basis of the Companys
historical investment in Private Reis has been allocated to the
tangible and intangible assets acquired and liabilities assumed
based on respective fair values. The purchase price allocation
is preliminary as of September 30, 2007. The Company expects to
finalize the purchase price allocation with the filing of the
December 31, 2007 financial statements on Form
10-K,
which
is within the permitted time period for completing such an
assessment under the existing accounting rules.
Plan
of Liquidation and Return to Going Concern
Accounting
On May 19, 2005, the Board approved the Plan and on
November 17, 2005, the Companys stockholders ratified
the Plan. The Plan contemplated the orderly sale of each of the
Companys remaining assets, which are either owned directly
or through the Companys joint ventures, the collection of
all outstanding loans from third parties, the orderly
disposition or completion of construction of development
properties, the discharge of all outstanding liabilities to
third parties and, after the establishment of appropriate
reserves, the distribution of all remaining cash to
stockholders. The Plan also permitted the Board to acquire more
Private Reis shares
and/or
discontinue the Plan without further stockholder approval. The
initial liquidating distribution of $14.00 per share was made on
December 14, 2005 to stockholders of record on
December 2, 2005. Upon consummation of the Merger, the Plan
was terminated. Consequently, it was necessary to recharacterize
$1.15 of the December 14, 2005 cash distribution of $14.00
per share from what may have been characterized at that time as
a return of capital for Company stockholders to taxable dividend
income.
For all periods preceding stockholder approval of the Plan on
November 17, 2005, the Companys financial statements
were presented on the going concern basis of accounting. As
required by Generally Accepted Accounting Principles
(GAAP), the Company adopted the liquidation basis of
accounting as of the close of business on November 17,
2005. Under the liquidation basis of accounting, assets are
stated at their estimated net realizable value and liabilities
are stated at their estimated settlement amounts, which
estimates have been periodically reviewed and adjusted as
appropriate.
37
The Companys net assets in liquidation at May 31,
2007 (prior to the Merger and the return to going concern
accounting), and December 31, 2006 were:
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May 31,
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December 31,
|
|
|
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2007
|
|
|
2006
|
|
|
Net assets in liquidation
|
|
$
|
51,922,617
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|
|
$
|
57,595,561
|
|
Per share
|
|
$
|
7.76
|
|
|
$
|
8.67
|
|
Common stock outstanding at each respective date
|
|
|
6,695,246
|
|
|
|
6,646,738
|
|
The reported amounts for net assets in liquidation presented
development projects at estimated net realizable values at each
respective date after giving effect to the present value
discounting of estimated net proceeds therefrom. All other
assets were presented at estimated net realizable value on an
undiscounted basis. The amount also included reserves for future
estimated general and administrative expenses and other costs
and for cash payments on outstanding stock options during the
liquidation. The primary reasons for the decline in net assets
in liquidation of approximately $5,673,000 from
December 31, 2006 to May 31, 2007 are the increase in
the reserve for stock options due to the increase in the price
of the Companys stock from $7.52 to $11.00 per share,
representing approximately $4,636,000 of the decrease, and the
decline in the value of real estate assets under development.
The Company has returned to the going concern basis of
accounting effective at the close of business on May 31,
2007.
The termination of the Plan results in the retention of cash
flow from the sales of residential development assets for
working capital and re-investment purposes after the
consummation of the Merger. Such cash would not be distributed
to stockholders in the form of a liquidating distribution as had
been contemplated under the Plan.
Residential
Development Activities and Other Investments
At September 30, 2007, the Companys residential
development activities and other investments were comprised
primarily of the following:
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The 259 unit Gold Peak condominium development in Highlands
Ranch, Colorado, which we refer to as Gold Peak. Sales commenced
in January 2006 and 167 Gold Peak units were sold as of
September 30, 2007.
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The Orchards, a single family home development in East Lyme,
Connecticut, upon which the Company could build 101 single
family homes on 139 acres. An additional 60 homes could be
built on a contiguous 85 acre parcel of land also owned by
Wellsford, which we refer to as the East Lyme Land and
collectively with the 139 acres, we refer to as East Lyme.
Sales commenced in June 2006 and 17 homes were sold as of
September 30, 2007.
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The Stewardship, a single family home development, in Claverack,
New York, which we refer to as Claverack, which is subdivided
into 48 developable single family home lots on 235 acres.
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A 10% interest in Clairborne Fordham, a company which currently
owns and is selling the remaining unsold residential unit of a
50-story, 277 unit, luxury condominium apartment project in
Chicago, Illinois.
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Wellsford Mantua, a company organized to purchase land parcels
for rezoning, subdivision and creation of environmental
mitigation credits.
|
See Note 3 of the accompanying unaudited consolidated
financial statements for additional information regarding all of
the operating activities.
Reconciliation
of Net Income to EBITDA
EBITDA is defined as earnings before interest, taxes,
depreciation and amortization. Although EBITDA is not a measure
of performance calculated in accordance with GAAP, senior
management uses EBITDA to measure operational and management
performance. Management believes that EBITDA is an appropriate
metric that may be used by investors as a supplemental financial
measure to be considered in addition to the reported GAAP basis
financial information to assist investors in evaluating and
understanding the Companys business from year to year or
period to period, as applicable, and that EBITDA provides the
reader with the ability to understand our
38
operational performance while isolating non-cash charges, such
as depreciation and amortization expenses and stock based
compensation, as well as other non-operating items, such as
interest income, interest expense and income taxes. Management
also believes that disclosing EBITDA will provide better
comparability to other companies in Reis Servicess type of
business. However, investors should not consider this measure in
isolation or as a substitute for net income, operating income,
or any other measure for determining operating performance that
is calculated in accordance with GAAP. In addition, because
EBITDA is not calculated in accordance with GAAP, it may not
necessarily be comparable to similarly titled measures employed
by other companies. Reconciliations of EBITDA to the most
comparable GAAP financial measure, net income, follows for the
three and four months ended September 30, 2007:
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|
|
|
|
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|
|
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Residential
|
|
|
|
|
(amounts in thousands)
|
|
|
|
|
Development
|
|
|
|
|
Reconciliation of Net Income to EBITDA
|
|
Reis
|
|
|
Activities
|
|
|
|
|
for the Three Months Ended September 30, 2007
|
|
Services
|
|
|
and Other*
|
|
|
Consolidated
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
316
|
|
Income tax expense (benefit), net
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
1,016
|
|
|
$
|
(368
|
)
|
|
|
648
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
932
|
|
|
|
64
|
|
|
|
996
|
|
Interest expense (income), net
|
|
|
609
|
|
|
|
(520
|
)
|
|
|
89
|
|
Stock based compensation benefit, net
|
|
|
|
|
|
|
(132
|
)
|
|
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)
|
|
$
|
2,557
|
|
|
$
|
(956
|
)
|
|
$
|
1,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
Development
|
|
|
|
|
Reconciliation of Net Income to EBITDA
|
|
Reis
|
|
|
Activities
|
|
|
|
|
for the Four Months Ended September 30, 2007
|
|
Services
|
|
|
and Other*
|
|
|
Consolidated
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
$
|
1,151
|
|
Income tax expense (benefit), net
|
|
|
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
1,233
|
|
|
$
|
254
|
|
|
|
1,487
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense
|
|
|
1,224
|
|
|
|
85
|
|
|
|
1,309
|
|
Interest expense (income), net
|
|
|
788
|
|
|
|
(595
|
)
|
|
|
193
|
|
Stock based compensation benefit, net
|
|
|
|
|
|
|
(1,185
|
)
|
|
|
(1,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA (unaudited)
|
|
$
|
3,245
|
|
|
$
|
(1,441
|
)
|
|
$
|
1,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Includes Palomino Park, East Lyme, the Companys other
developments and corporate level income and expenses that have
not been allocated to the operating segments.
|
Summary
of Significant Accounting Policies of the Acquired
Business
The following are the significant accounting policies with
respect to the assets and business acquired from Private Reis,
now part of the consolidated operations of the Company through
the Reis Services segment:
Revenue
Recognition and Related Items
The Companys subscription revenue is derived principally
from subscriptions to its web-based services and is recognized
as revenue ratably over the related contractual period, which is
typically one year, but can be as long as 36 months.
Revenues from ad-hoc and custom reports are recognized as
completed and delivered to the customers, provided that no
significant Company obligations remain.
Deferred revenues represent the portion of a subscription billed
or collected in advance under the terms of the respective
contract, which will be recognized in future periods. If a
customer does not meet the payment
39
obligations of a contract, any related accounts receivable and
deferred revenue are written off at that time and the net
amount, after considering any recovery of accounts receivable,
is charged to cost of sales.
Cost
of Sales of Subscription Revenue
Cost of sales of subscription revenue principally consists of
salaries and related expenses for the Companys researchers
who collect and analyze the commercial real estate data that is
the basis for the Companys information services.
Additionally, cost of sales includes the amortization of
database technology.
Web
Site Development Costs
The Company follows Emerging Issues Task Force
(EITF) Issue
No. 00-2,
Accounting for Web Site Development Costs,
which requires that costs of developing a web site should be
accounted for in accordance with AICPA Statement of Position
98-1,
Accounting for the Costs of Computer Software Developed
for Internal Use
(SOP 98-1)
.
The Company expenses all internet web site costs incurred during
the preliminary project stage. All direct external and internal
development and implementation costs are capitalized and
amortized using the straight-line method over their remaining
estimated useful lives, not exceeding three years. The value
ascribed to the web site development intangible asset at the
time of the Merger is amortized on a straight-line basis over
three years and is charged to product development expense.
Database
The Company capitalizes costs for the development of its
database in connection with the identification and addition of
new real estate properties and sale transactions which provide a
future economic benefit. Amortization is calculated on a
straight-line basis over a three or five year period. The
Company capitalized approximately $256,000 and $307,000 during
the three and four months ended September 30, 2007 related
to the database.
The fair value ascribed to the database intangible asset
acquired at the time of the Merger is amortized on a
straight-line basis over five years.
Customer
Relationships
The value ascribed to customer relationships acquired at the
time of the Merger is amortized over a ten-year period and is
charged to sales and marketing expense.
Lease
Value
The value ascribed to the below market terms of the office lease
existing at the time of the Merger is amortized over the
remaining term of the acquired office lease which was
approximately nine years. Amortization is charged to general and
administrative expenses.
Goodwill
Goodwill is tested for impairment at least annually or after a
triggering event has occurred requiring such a calculation in
accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142). An impairment loss is
recognized to the extent that the carrying amount exceeds the
assets fair value. SFAS No. 142 also requires
that intangible assets with estimable useful lives that arose
from the acquisitions be amortized over their respective
estimated useful lives using a method of amortization that
reflects the pattern in which the economic benefits of the
intangible assets are consumed or otherwise used up, and that
such intangible assets be reviewed for impairment in accordance
with SFAS No. 144
Accounting for Impairment
or Disposal of Long-Lived Assets
(SFAS No. 144).
40
Results
of Operations and Changes in Net Assets
Results
of operations for the three months ended September 30,
2007
The results of operations for the three months ended
September 30, 2007 reflect the operations of the Company on
a going concern basis and include the operating results of the
Reis Services segment.
Subscription revenues and related cost of sales were
approximately $6,343,000 and $1,256,000, respectively, for the
three months ended September 30, 2007 resulting in a gross
profit for the Reis Services segment of approximately $5,087,000.
Revenue and cost of sales of residential units were
approximately $12,827,000 and $11,208,000, respectively, for the
three months ended September 30, 2007 from the sale of 24
condominium units at the Gold Peak development and eight sales
at East Lyme during the period.
Sales and marketing expenses and product development expenses
were approximately $1,314,000 and $413,000, respectively, for
the three months ended September 30, 2007 and solely
represent costs of the Reis Services segment.
Property operating expenses of $367,000 for the three months
ended September 30, 2007 represent the non-capitalizable
project costs and other period expenses related to the
Companys residential development projects.
General and administrative expense of $3,794,000 for the three
months ended September 30, 2007 includes current period
expenses and accruals of $3,926,000 offset by a net reduction of
approximately $132,000 of non-cash compensation costs. This net
reduction is comprised of an approximate $610,000 decrease in
the reserve for option cancellations due to a decrease in the
market price of the Companys common stock from $9.08 per
share at June 30, 2007 to $7.42 per share at
September 30, 2007 and options settled at an amount less
than $9.08 per share during the period, offset by additional
compensation expense from 2007 equity awards of approximately
$478,000.
Interest and other income of $332,000 primarily reflects
interest earned on cash for the three months ended
September 30, 2007.
Interest expense of $421,000 for the three months ended
September 30, 2007 includes interest and cost amortization
on the Bank Loan of $625,000, non-capitalized interest from
residential development activities of $33,000 and interest from
other debt of $13,000, offset by the effect of the
capitalization of interest of $250,000 from the Bank Loan to
residential developments in accordance with existing accounting
rules.
Results
of operations for the period June 1, 2007 to
September 30, 2007
The results of operations for the period June 1, 2007 to
September 30, 2007 reflect the operations of the Company on
a going concern basis and include the operating results of the
Reis Services segment.
Subscription revenues and related cost of sales were
approximately $8,217,000 and $1,660,000, respectively, for the
period June 1, 2007 to September 30, 2007 resulting in
a gross profit for the Reis Services segment of approximately
$6,557,000.
Revenue and cost of sales of residential units were
approximately $13,984,000 and $12,158,000, respectively, for the
period June 1, 2007 to September 30, 2007 from the
sale of 28 condominium units at the Gold Peak development and
eight sales at East Lyme during the period.
Sales and marketing expenses and product development expenses
were approximately $1,762,000 and $518,000, respectively, for
the period June 1, 2007 to September 30, 2007 and
solely represent costs of the Reis Services segment.
Property operating expenses of $436,000 for the period
June 1, 2007 to September 30, 2007 represent the
non-capitalizable project costs and other period expenses
related to the Companys residential development projects.
General and administrative expense of $3,905,000 for the period
June 1, 2007 to September 30, 2007 includes current
period expenses and accruals of $5,090,000, offset by a net
reduction of approximately $1,185,000 of non-cash compensation
costs. This net reduction is comprised of an approximate
$1,791,000 decrease in the reserve for option cancellations due
to a decrease in the market price of the Companys common
stock from $11.00 per share at
41
May 31, 2007 to $7.42 per share at September 30, 2007
and options settled at an amount less than $11.00 per share
during the period, offset by additional compensation expense
from 2007 equity awards of approximately $606,000.
Interest and other income of $424,000 primarily reflects
interest earned on cash for the period June 1, 2007 to
September 30, 2007.
Interest expense of $617,000 for the period June 1, 2007 to
September 30, 2007 includes interest and cost amortization
on the Bank Loan of $807,000, non-capitalized interest from
residential development activities of $43,000 and interest from
other debt of $17,000, offset by the effect of the
capitalization of interest of $250,000 from the Bank Loan to
residential developments in accordance with existing accounting
rules.
Changes
in Net Assets in Liquidation for the period January 1, 2007
to May 31, 2007
During the period January 1, 2007 to May 31, 2007, net
assets in liquidation decreased approximately $5,673,000. This
decrease is the net result of (i) an increase to the option
cancellation reserve of approximately $4,636,000 due to the
increase in the market price of Wellsfords stock from
$7.52 per share at December 31, 2006 to $11.00 per share at
May 31, 2007 and (ii) sales of real estate assets
under development and other changes in net real estate assets
under development from the updating of cash flow valuation
calculations during the period of approximately $1,805,000,
offset by (iii) operating income of approximately $768,000
which primarily consisted of interest income earned from cash
and cash equivalents during the period.
Changes
in Net Assets in Liquidation for the Three Months Ended
September 30, 2006
During the three months ended September 30, 2006, net
assets in liquidation increased approximately $367,000. This
increase is attributable to (i) operating income of
approximately $442,000 which primarily represents interest
income earned from cash and cash equivalents and (ii) the
increase in real estate assets under development of
approximately $394,000, which resulted primarily from changes in
the net realizable value estimates for Gold Peak due to the
shortening of the discount period as a result of the passage of
time, offset by (iii) the recording of an approximate
$469,000 increase to the reserve for option cancellations to
reflect the increase in the market price of the Companys
common stock between June 30, 2006 and September 30,
2006.
Changes
in Net Assets in Liquidation for the Nine Months Ended
September 30, 2006
During the nine months ended September 30, 2006, net assets
in liquidation decreased approximately $359,000. This decrease
is primarily attributable to the recording of a $4,227,000
provision upon the adoption by the Board of modifications in the
terms of the Companys stock option plans during the first
quarter of 2006. The provision resulted from the modification to
allow for cash payments that would be made to option holders, at
their election, as consideration for the cancellation of their
options in the amount of the fair value of the Companys
common stock in excess of the adjusted exercise prices of
outstanding options as of March 31, 2006. This liability
has been decreased by $848,000 to reflect the changes in the
market price of the Companys common stock between
March 31, 2006 and September 30, 2006. The net
decrease was offset by (i) a net increase in value of real
estate assets under development of approximately $1,747,000
which results primarily from changes in the net realizable value
estimates, including the shortening of the discount periods as a
result of the passage of time and sales of condominium units and
homes and (ii) operating income of approximately $1,273,000
which primarily represents interest income earned from cash and
cash equivalents.
Income
Taxes
During the three and four months ended September 30, 2007,
the Company incurred $332,000 and $336,000, respectively, of
aggregate state and Federal income taxes which amounts are net
of a $273,000 reduction in the deferred tax valuation allowance.
Private Reis had net operating loss (NOL)
carryforwards aggregating approximately $11,600,000 at
May 30, 2007. These losses may be utilized against
consolidated taxable income to the extent that the separate
taxable income of Reis Services is included in the
Companys income tax returns in the future.
42
At December 31, 2006, the Company separately had NOLs
aggregating approximately $59,700,000. The NOLs include an
aggregate of approximately $22,100,000 expiring in 2007 and 2008
and $11,500,000 expiring in 2010. There is an annual limitation
on the use of such NOLs, which the Company has estimated to be
$2,700,000. A new annual limitation was established at the time
of the Merger. As a result of the new annual limitation and
expirations, the Company expects that it could only potentially
utilize approximately $36,000,000 of its remaining NOLs at
December 31, 2006. A further requirement of the tax rules
is that after a corporation experiences an ownership change, it
must satisfy the continuity of business enterprise
requirement (which generally requires that a corporation
continue its historic business or use a significant portion of
its historic business assets in its business for the two-year
period beginning on the date of the ownership change) to be able
to utilize its NOLs. There can be no assurance that this
requirement will be met with respect to any ownership change of
the Company including the Merger. If the Company fails to
satisfy this requirement, the Company would be unable to utilize
any of its NOLs; however, there would be no such limitation on
the Private Reis NOLs.
Liquidity
and Capital Resources
The Company expects to meet its short-term liquidity
requirements such as current operating and capitalizable costs,
near-term product development and enhancements, the current
portion of long-term debt, operating and capital leases,
construction and development costs, other capital expenditures,
cancellation of outstanding stock options, debt repayments or
additional collateral for construction loans, generally through
the use of available cash, cash generated from the operations of
Reis Services (restricted to use for obligations of Reis
Services), sales of condominium units, single family homes and
land, the sale or realization of other assets, releases from
escrow reserves and accounts, distributions from Clairborne
Fordham, interest revenue, the availability of $2,000,000 for
working capital purposes of Reis Services under the Bank Loan,
and proceeds from construction financings, refinancings,
modifications to borrowing capacity and covenant terms on
existing construction loans and the ability to extend maturity
dates on existing construction financings through the use of
available extension options and negotiated loan modifications.
The Company expects to meet its long-term liquidity requirements
such as future operating and capitalizable costs, product
development and enhancements, the non-current portion of
long-term debt, operating and capital leases, construction and
development costs, other capital expenditures and debt
repayments or additional collateral for construction loans
generally through the use of available cash, cash generated from
the operations of Reis Services (restricted to use for
obligations of Reis Services), sales of condominium units,
single family homes and land, interest revenue, the availability
of $2,000,000 for working capital purposes of Reis Services
under the Bank Loan, and proceeds from construction financing,
refinancings, modifications to terms and borrowing capacity and
covenant terms on existing construction loans and the ability to
extend maturity dates on existing construction financings
through the use of available extension options and negotiated
loan modifications.
The East Lyme Construction Loan and Gold Peak Construction Loan
require the Company to have a minimum GAAP net worth, as
defined, of $50,000,000. The Company may be required to make an
additional $2,000,000 cash collateral deposit for the East Lyme
Construction Loan and a $2,000,000 paydown of the Gold Peak
Construction Loan if net worth, as defined, is below
$50,000,000. The Company is required to maintain minimum
liquidity levels at each quarter end for the East Lyme and Gold
Peak Construction Loans, the most restrictive of which is
$10,000,000. The lender for the East Lyme Construction Loan has
also provided a $3,000,000 letter of credit to a municipality in
connection with the construction of public roads at the East
Lyme project. The Company has posted $1,300,000 of restricted
cash as collateral for this letter of credit. There is a
restriction on the transfer of funds from Reis Services to the
Company and its other subsidiaries under the terms of the Bank
Loan.
Cash and cash equivalents aggregated approximately $23,446,000
at September 30, 2007. Management considers such amount to
be adequate and expects it to continue to be adequate to meet
operating and lender liquidity requirements both in the short
and long terms.
Reis
Services
In connection with the Merger agreement, Private Reis entered
into an agreement, dated October 11, 2006, with the Bank of
Montreal, Chicago Branch, as administrative agent and BMO
Capital Markets, as lead arranger, which
43
provides 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 amount of payments Reis
Services can make to the Company each year.
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. The final maturity date of
all amounts borrowed pursuant to the credit agreement is
September 30, 2012.
At September 30, 2007, the interest rate was LIBOR plus
3.00% if the loans are designated as LIBOR Rate loans or Base
Rate plus 2.00% if the loans are designated as Base Rate loans.
These spreads are based on a leverage ratio, as defined in the
credit agreement, greater than or equal to 4.50 to 1.00. Reis
Services also pays a fee on the unused portion of the loans of
0.50% per annum. 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, which does not have
to exceed $12,500,000. The term of any interest rate protection
must be 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 fair value of
the cap was approximately $53,000 at September 30, 2007.
The change in the fair value of approximately $56,000 was
charged to interest expense during the three months ended
September 30, 2007.
In connection with obtaining the Bank Loan, Reis Services has
paid fees aggregating approximately $501,000 which will be
amortized over the term of the loan. Such costs are included as
deferred financing costs in the accompanying financial
statements. In addition, Reis Services is required to pay an
annual administration fee of $25,000.
Gold
Peak
In 2004, the Company commenced the development of Gold Peak, the
final phase of Palomino Park, a 1,707 unit multifamily
residential development in Highlands Ranch, a southern suburb of
Denver, Colorado, which we refer to as Palomino Park. Gold Peak
will be comprised of 259 condominium units on the remaining
29 acre land parcel at Palomino Park.
In April 2005, the Company obtained development and construction
financing for Gold Peak in the aggregate amount of approximately
$28,800,000, which bears interest at LIBOR + 1.65% per annum
(the Gold Peak Construction Loan). The Gold Peak
Construction Loan matures in November 2009 and has additional
extensions at the Companys option upon satisfaction of
certain conditions being met by the borrower. Principal
repayments are made as units are sold. The balance of the Gold
Peak Construction Loan was approximately $7,791,000 and
$9,550,000 at September 30, 2007 and December 31,
2006, respectively. The outstanding balance on the development
portion of the loan was repaid during 2006 and the related
commitment was terminated in February 2007. The Company has a 5%
LIBOR cap expiring in June 2008 for the Gold Peak Construction
Loan.
Gold Peak unit sales commenced in January 2006. At
September 30, 2007, there were 29 Gold Peak units under
contract with nominal down payments. The following table
provides information regarding Gold Peak sales:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Project
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Total
|
|
|
Number of units sold
|
|
|
24
|
|
|
|
34
|
|
|
|
59
|
|
|
|
75
|
|
|
|
108
|
|
|
|
167
|
|
Gross sales proceeds
|
|
$
|
7,412,000
|
|
|
$
|
9,266,000
|
|
|
$
|
17,988,000
|
|
|
$
|
21,021,000
|
|
|
$
|
31,742,000
|
|
|
$
|
49,730,000
|
|
Principal paydown on Gold Peak Construction Loan
|
|
$
|
4,920,000
|
|
|
$
|
6,890,000
|
|
|
$
|
11,732,000
|
|
|
$
|
16,753,000
|
|
|
$
|
24,528,000
|
|
|
$
|
36,260,000
|
|
44
East
Lyme
The Company has 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 is constructing houses for sale. The Company
purchased the land for $6,200,000 in June 2004.
After purchasing the land, the Company executed an agreement
with a homebuilder (the Homebuilder) who will
construct and sell the homes for this project and is a 5%
partner in the project along with receiving other consideration.
The Company obtained construction financing for East Lyme in the
aggregate amount of $21,177,000 to be drawn upon as costs are
expended. The East Lyme Construction Loan (the East Lyme
Construction Loan) bears interest at LIBOR + 2.15% per
annum and matures in December 2007 with two one-year extensions
at the Companys option upon satisfaction of certain
conditions being met by the borrower. The Company will not meet
the minimum home sale requirement condition and, accordingly, is
negotiating extension terms with the lender. There can be no
assurance that an extension will be granted on favorable terms,
or at all. The balance of the East Lyme Construction Loan was
approximately $7,070,000 and $10,579,000 at September 30,
2007 and December 31, 2006, respectively. The Company had a
4% LIBOR cap which expired in July 2007 for a portion of the
East Lyme Construction Loan.
During the fourth quarter of 2005, the model home was completed
and home sales commenced in June 2006. At September 30,
2007, four East Lyme homes were under contract for which
deposits of 10% of the contract sales price are provided by the
buyer. The following table provides information regarding East
Lyme sales:
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For The
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Project
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2006
|
|
|
Total
|
|
|
Number of homes sold
|
|
|
8
|
|
|
|
|
|
|
|
12
|
|
|
|
1
|
|
|
|
5
|
|
|
|
17
|
|
Gross sales proceeds
|
|
$
|
5,415,000
|
|
|
$
|
|
|
|
$
|
8,267,000
|
|
|
$
|
649,000
|
|
|
$
|
3,590,000
|
|
|
$
|
11,857,000
|
|
Principal paydown on East Lyme Construction Loan
|
|
$
|
4,869,000
|
|
|
$
|
|
|
|
$
|
7,426,000
|
|
|
$
|
584,000
|
|
|
$
|
3,246,000
|
|
|
$
|
10,672,000
|
|
The Company executed an option to purchase the East Lyme Land, a
contiguous 85 acre parcel of land which can be used to
develop 60 single family homes and subsequently acquired the
East Lyme Land in November 2005 for $3,720,000, including future
costs which were the obligation of the seller. The East Lyme
Land requires remediation of pesticides used on the property
when it was an apple orchard at a cost of approximately
$1,000,000. Remediation costs were considered in evaluating the
value of the property for liquidation basis purposes at
May 31, 2007 and December 31, 2006. This estimate
continues to be recognized as a liability in the going concern
balance sheet at September 30, 2007.
Claverack
Through September 30, 2007, the company had a 75% ownership
interest in a joint venture that owned two land parcels
aggregating approximately 300 acres in Claverack, New York.
The Company acquired its interest in the joint venture for
$2,250,000 in November 2004. One land parcel was subdivided into
seven single family home lots on approximately 65 acres.
The remaining 235 acres, known as The Stewardship, which
was originally subdivided into six single family home lots, now
is subdivided into 48 developable single family home lots.
During July 2006, the initial home on one lot of the seven lot
parcel was completed and in October 2006, the home and a
contiguous lot were sold for approximately $1,200,000 and the
related outstanding debt of approximately $690,000 was repaid to
the bank. At December 31, 2006, there were no additional
houses under construction on either parcel. In February 2007,
Claverack sold one lot to the venture partner, leaving four lots
of the original seven lots available for sale. In October 2007,
the Company redeemed the joint venture partners interest
in the joint venture in exchange for the remaining four lots,
representing the remaining approximate 45 acres of the
original 65 acres. This resulted in the Company being the
sole owner of The Stewardship.
45
Palomino
Park
On September 30, 2007, the Company purchased EQRs
remaining 7.075% interest in the corporation that owns the
remaining Palomino Park assets for $1,200,000.
In September 2006, the Company sold its Palomino Park
telecommunication assets, service contracts and operations and
in November 2006 it received a net amount of approximately
$988,000. At that time, the buyer held back approximately
$396,000, of which approximately $208,000, including $16,000 of
accrued interest, was received by the Company in September 2007
with the remaining receivable of approximately $204,000 expected
to be released in September 2008. The Company believes that the
remaining balance will be collected and has recorded such amount
at full value at September 30, 2007.
Stock
Option Plans
At March 31, 2006, the Company determined that it was
appropriate to record a provision during the first quarter of
2006 aggregating approximately $4,227,000 to reflect the
modification permitting an option holder to receive a net cash
payment in cancellation of the holders option based upon
the fair value of an option in excess of the exercise price. The
reserve is adjusted at the end of each reporting period to
reflect the settlement amounts of the liability, exercises of
stock options and the impact of changes to the market price of
the stock at the end of each reporting period. The change in the
liability is reflected in the statement of changes in net assets
in liquidation through May 31, 2007.
During the year ended December 31, 2006, the Company made
cash payments aggregating approximately $668,000 related to
237,426 options cancelled for option holders electing this
method, all of which was paid in the nine months ended
September 30, 2006. No cash payments were made during the
five months ended May 31, 2007. A liability of
approximately $7,269,000 was recorded at May 31, 2007 based
upon the difference in the closing stock price of the Company of
$11.00 per share and the individual exercise prices of all
outstanding in the money options at that date.
During the three months ended September 30, 2007, an
aggregate of 20,574 options were settled with a net cash payment
of approximately $67,000. During the nine months ended
September 30, 2007, an aggregate of 91,470 options were
settled with a net cash payment of approximately $361,000. In a
series of transactions in June 2007, Jeffrey Lynford tendered
certain shares of common stock he owned as payment of the
exercise price for 891,949 options. Further, he reduced the
number of shares he would ultimately receive in this exercise
transaction to satisfy his tax obligation of approximately
$2,072,000 in cash (which was retained by the Company to pay for
his applicable income taxes). As a result, he received a net of
212,070 shares of the Companys common stock upon the
completion of this exercise. Pursuant to his option agreements,
Jeffrey Lynford received reload options to purchase
243,931 shares of the Companys common stock which
have an exercise price of $10.67 per option reflecting the
market value of the Companys stock at the time of the
grant. These reload options, which expire on December 31,
2007, do not have a net cash settlement feature and are treated
as an equity reward.
At September 30, 2007, the option liability was
approximately $782,000 based upon the difference in the closing
stock price of the Company at September 30, 2007 of $7.42
per share and the individual exercise prices of the outstanding
382,949 in the money options that are accounted for
as a liability award at that date. The Company recorded a
compensation benefit in General and Administration expenses in
the statement of operations of approximately $610,000 and
$1,791,000 for the three and four months ended
September 30, 2007, respectively, as a result of the stock
price declines during the periods. Changes in the settlement
value of option awards treated under the liability method as
defined by SFAS No. 123R are reflected as income or
expense in the statements of operations under the going concern
basis of accounting.
46
A summary of the changes in outstanding stock options during the
period January 1, 2007 to May 31, 2007 and through
September 30, 2007 follows:
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|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options outstanding at December 31, 2006
|
|
|
1,414,876
|
|
|
$
|
5.68
|
|
Options exercised during the five months ended May 31, 2007
|
|
|
(48,508
|
)
|
|
|
(5.81
|
)
|
|
|
|
|
|
|
|
|
|
Balance outstanding prior to the Merger
|
|
|
1,366,368
|
|
|
|
5.68
|
|
Options granted as a result of the Merger to certain key
employees
|
|
|
340,000
|
|
|
|
10.40
|
|
Options granted to employees
|
|
|
100,000
|
|
|
|
7.50
|
|
Options cancelled through cash settlement
|
|
|
(91,470
|
)
|
|
|
(5.39
|
)
|
Options exercised by the Companys Chairman
|
|
|
(891,949
|
)
|
|
|
(5.81
|
)
|
Forfeitures
|
|
|
(20,000
|
)
|
|
|
(7.50
|
)
|
Reload options issued to the Companys Chairman
|
|
|
243,931
|
|
|
|
10.67
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at September 30, 2007
|
|
|
1,046,880
|
|
|
|
8.43
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at September 30, 2007
|
|
|
626,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable which can be settled in cash at
September 30, 2007
|
|
|
382,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The estimate for option cancellations could materially change
from period to period based upon (1) an option holder
either (a) exercising the options in a traditional manner
or (b) electing the net cash settlement alternative and
(2) the changes in the market price of the Companys
common stock. At each period end, an increase in the
Companys common stock price would result in an increase in
compensation expense, whereas a decline in the stock price would
reduce compensation expense.
The
Effects of Inflation/Declining Prices and Trends
Condominium
and Home Sales
The continuing increases in energy costs and construction
materials (such as concrete, lumber and sheetrock) and the
uncertainty as to future interest rate changes could adversely
impact our home building business. As these costs increase, our
products become more expensive to build and profit margins could
deteriorate. In order to maintain profit margin levels, we may
need to increase sale prices of our condominiums and homes. A
continuing rise in energy costs and the uncertainty as to any
future interest rate changes as well as increasing illiquidity
in the residential mortgage market may negatively impact our
marketing efforts and the ability for buyers to afford
and/or
finance the purchase of one of our homes at our targeted, or any
price level, which could result in the inability to meet
targeted sales prices or cause sale price reductions. The
Company has limited its exposure from the effects of increasing
interest on its construction loans and a portion of the Bank
Loan by purchasing interest caps.
The number and timing of future sales of any residential units
by the Company or by its joint ventures could be adversely
impacted by increases in interest rates and the availability of
credit to potential buyers.
As the softening of the national housing market continues, the
Companys operations relating to residential development
and the sale of homes have been negatively impacted in markets
where the Company owns property. Demand at certain of the
Companys projects and sales of inventory are lower than
expected resulting in price concessions
and/or
additional incentives being offered, a slower pace of
construction, building only homes which are under contract and
the consideration of selling home lots either individually or in
bulk instead of building homes. The pace of construction, unit
completions and sales at Gold Peak was negatively impacted
during the fourth quarter of 2006 and into the first and second
quarters of 2007 as a result of severe winter weather conditions
in the Denver, Colorado area. The East Lyme project has
experienced an increase in sales activity and construction of
single family homes being built for contract during the second
and third quarters of 2007, primarily driven by a multinational
pharmaceutical firms relocation of its employees to a
local research facility. This increase in construction and sales
activity may not be sustainable after this relocation event is
completed.
47
Reis
Services
The Company monitors commercial real estate industry and market
trends to determine their potential impact on its products and
product development initiatives. To date, the recent volatility
in the U.S. housing and residential mortgage markets has
not materially affected the marketability of the Companys
products or the renewal rates of its subscription services.
During historical periods of economic and commercial real estate
market volatility, Private Reis experienced stable demand for
current information on changing market conditions and an
increase in demand for its portfolio products as mortgage
lenders place greater emphasis on assessing portfolio risk.
There is no assurance that the level of demand for Reis Services
products will continue through future market volatility.
Changes
in Cash Flows
Comparison
of the nine months ended September 30, 2007 to the nine
months ended September 30, 2006
Cash flows from operating activities changed $12,166,000 from
$7,787,000 used in the 2006 period to $4,379,000 provided in the
2007 period. The significant components of this change related
to cash provided by the continuing construction activities and
the operating results of the Reis Services segment.
Cash flows from investing activities changed $12,855,000 from
$967,000 provided in the 2006 period to $11,888,000 used in the
2007 period. The significant components of this change related
to the use of cash for the Private Reis Merger consideration,
net of cash acquired of $6,527,000, the payment of Merger costs
for investment banking, legal and accounting fees and other
Merger costs of $2,504,000, the purchase of EQRs remaining
interest in Palomino Park for $1,200,000 and investments in
other real estate assets, web site and database development and
furniture, fixtures and equipment aggregating $1,777,000, offset
by the return of capital from the Companys investment in
Clairborne Fordham of $120,000. The investing activity in the
2006 period was comprised of cash proceeds from the January 2006
sale of the Beekman assets for $1,297,000, offset by $330,000
paid for Merger costs in that period.
Cash flows from financing activities changed $11,889,000 from
$3,794,000 provided in the 2006 period to $8,095,000 used in the
2007 period primarily from the net effect of borrowings and
repayments. Borrowings on the East Lyme, Gold Peak and Claverack
construction loans aggregated $21,671,000 during the 2006 period
as compared to $13,889,000 in the 2007 period, primarily from
weather related construction delays in the first and second
quarters of 2007 and fewer buildings under construction in the
2007 period as we are nearing completion of the construction
phase for the Gold Peak project. During the 2006 period,
approximately $16,753,000 was repaid on the Gold Peak
Construction Loan from 75 condominium sales and $584,000 from
one East Lyme home sale. During the 2007 period, approximately
$11,732,000 was repaid on the Gold Peak Construction Loan from
59 condominium unit sales and approximately $7,426,000 was
repaid on the East Lyme Construction Loan from 12 home sales.
During the 2007 period, $500,000 was repaid on the Bank Loan and
$109,000 was used to purchase an interest rate cap. Other debt
repayments in the 2007 period aggregated $66,000. Payments for
option cancellations aggregated $2,433,000 in the 2007 period as
compared to $668,000 during the 2006 period. Proceeds received
from the exercise of options by option holders were $282,000 in
2007.
Cautionary
Statement Regarding Forward-Looking Statements
The Company makes forward-looking statements in this quarterly
report on
Form 10-Q.
These forward-looking statements relate to the Companys
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 the Companys business operations
or performance. Specifically, forward-looking statements may
include:
|
|
|
|
|
statements relating to the benefits of the Merger with Private
Reis and future services and product development of the Reis
Services segment;
|
|
|
|
statements relating to future business prospects, potential
acquisitions, revenue, income, cash flows and EBITDA; and
|
|
|
|
statements preceded by, followed by or that include the words
estimate, plan, project,
intend, expect, anticipate,
believe, seek, target or
similar expressions.
|
48
These statements reflect managements 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
assumptions regarding, among other things, the determination of
estimated net realizable value for the Companys assets and
the determination of estimated settlement amounts for its
liabilities for reporting under the liquidation basis of
accounting through May 31, 2007 and general economic
conditions.
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:
|
|
|
|
|
expected benefits from the merger with Private Reis may not be
fully realized or at all;
|
|
|
|
revenues following the merger with Private Reis may be lower
than expected;
|
|
|
|
the possibility of litigation arising as a result of terminating
the Plan;
|
|
|
|
adverse changes in the real estate industry and the markets in
which the Company operates;
|
|
|
|
the inability to retain and increase the Companys customer
base;
|
|
|
|
competition;
|
|
|
|
the inability to attract and retain sales and senior management
personnel;
|
|
|
|
difficulties in protecting the security, confidentiality,
integrity and reliability of the Companys data;
|
|
|
|
legal and regulatory issues;
|
|
|
|
changes in accounting policies or practices; and
|
|
|
|
the risk factors listed under Item 1A. Risk
Factors in the Companys annual report on
Form 10-K
for the year ended December 31, 2006, which was filed with
the SEC on March 29, 2007 and, as amended, on
April 30, 2007, and those listed under Risk
Factors in the Companys registration statement on
Form S-4,
which was initially filed with the SEC on December 28, 2006
and, as amended, on March 9, 2007, April 11, 2007 and
April 30, 2007.
|
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.
49
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
The Companys primary market risk exposure has been to
changes in interest rates. This risk is generally managed by
limiting the Companys financing exposures to the extent
possible by purchasing interest rate caps, when deemed
appropriate.
At September 30, 2007, the Companys only exposure to
interest rates was variable rate based debt. This exposure was
minimized through the use of interest rate caps. The following
table presents the effect of a 1% increase in the applicable
base interest rates of the Companys variable rate debt at
September 30, 2007:
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Caps at
|
|
|
|
|
|
LIBOR at
|
|
|
Additional
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
September 30,
|
|
|
Interest
|
|
|
|
2007
|
|
|
2007
|
|
|
LIBOR Cap
|
|
|
2007
|
|
|
Incurred
|
|
|
Variable rate debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With interest rate caps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gold Peak Construction Loan
|
|
$
|
7,791
|
|
|
$
|
14,000
|
|
|
|
5.00
|
%
|
|
|
5.12
|
%
|
|
$
|
|
(A)(B)
|
Bank Loan
|
|
|
24,500
|
|
|
$
|
15,000
|
|
|
|
5.50
|
%
|
|
|
5.12
|
%
|
|
|
152
|
(A)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
152
|
|
Without interest rate caps:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Lyme Construction Loan
|
|
|
7,070
|
|
|
$
|
|
|
|
|
|
%
|
|
|
5.12
|
%
|
|
|
71
|
(C)(B)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
|
Reflects additional interest which could be incurred on the loan
balance amount in excess of the notional amount at
September 30, 2007 for the effect of a 1% increase in
LIBOR, plus any increase from the September 30, 2007 LIBOR
to the LIBOR cap if less than 1%.
|
|
(B)
|
|
An increase in interest incurred would result primarily in
additional interest being capitalized into the basis of this
project.
|
|
(C)
|
|
The East Lyme interest rate cap of LIBOR at 4.00% expired in
July 2007.
|
|
|
Item 4T.
|
Controls
and Procedures.
|
As of the end of the period covered by this report, management
carried out an evaluation, under the supervision and with the
participation of its chief executive officer and chief financial
officer, of the effectiveness of the design and operation of
disclosure controls and procedures. Based on this evaluation,
the chief executive officer and chief financial officer
concluded that the disclosure controls and procedures are
effective in timely alerting them to material information
required to be included in the Companys periodic reports
filed with the SEC.
Part II.
Other Information
|
|
Item 1.
|
Legal
Proceedings.
|
The Company and its subsidiaries are not presently a party to
any material litigation.
Please refer to the risk factors listed under Item 1A
to Part I. Risk Factors in the
Form 10-K
filed on March 29, 2007 and, as amended, on April 30,
2007 and the registration statement on
Form S-4
filed on December 28, 2006 and, as amended on March 9,
2007, April 11, 2007 and April 30, 2007. There has
been no material change to the risk factors disclosed therein.
50
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None.
|
|
Item 3.
|
Defaults
upon Senior Securities.
|
None.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders.
|
None.
|
|
Item 5.
|
Other
Information.
|
None.
Exhibits filed with this
Form 10-Q:
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
3
|
.1
|
|
Articles of Amendment and Restatement of Reis, Inc. (f/k/a
Wellsford Real Properties, Inc.) (incorporated by reference to
an exhibit to Amendment No. 1 to the
Form S-11
filed on November 14, 1997).
|
|
3
|
.2
|
|
Articles Supplementary (incorporated by reference to an
exhibit to the
Form 8-K
filed on December 21, 2006).
|
|
3
|
.3
|
|
Articles of Amendment of Reis, Inc. (f/k/a Wellsford Real
Properties, Inc.), effective June 1, 2007 (incorporated by
reference to an exhibit to the
Form 8-K
filed on June 4, 2007).
|
|
3
|
.4
|
|
Amended and Restated Bylaws of Reis, Inc. (f/k/a Wellsford Real
Properties, Inc.) (incorporated by reference to an exhibit to
the
Form 8-K
filed on October 3, 2005).
|
|
3
|
.5
|
|
Amendment to Amended and Restated Bylaws of Reis, Inc. (f/k/a
Wellsford Real Properties, Inc.) (incorporated by reference to
an exhibit to the
Form 8-K
filed on March 24, 2006).
|
|
3
|
.6
|
|
Second Amendment to Amended and Restated Bylaws of Reis, Inc.
(f/k/a Wellsford Real Properties, Inc.) (incorporated by
reference to an exhibit to the
Form 8-K
filed on April 9, 2007).
|
|
4
|
.1
|
|
The rights of Reiss equity security holders are defined in
Article V of the Articles of Amendment and Restatement (see
Exhibit 3.1 above).
|
|
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.
|
51
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 12, 2007
52
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