Document
Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 FORM 10-Q
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
or 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to                       
Commission File Number: 000-55419
 
Voltari Corporation
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
90-0933943
(State of incorporation)
 
(I.R.S. Employer
Identification Number)
767 Fifth Avenue, 47th Floor
New York, NY 10153
(212) 388-5500
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 
Large accelerated filer
o
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
As of November 7, 2016, there were 8,994,814 shares of the registrant's common stock, par value of $0.001 per share, outstanding.
 


TABLE OF CONTENTS
 

 
 
Page
 
 
 
 
 
Item 1.
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
Item 5.
 
 
 
 
 
 
 
 
Item 1.
Item 1A.
Item 5.
Item 6.
 

Table of Contents


PART I

Item 1.    Condensed Consolidated Financial Statements.

Voltari Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)

 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
Assets
 
 
 
Real estate investments, net
$
6,270

 
$
3,592

Cash and cash equivalents
102

 
1,180

Accounts receivable, net of allowance for doubtful accounts of $0 and $12 at September 30, 2016 and December 31, 2015 respectively
—

 
32

Prepaid expenses and other current assets
420

 
856

Property and equipment, net
28

 
252

Other assets
92

 
92

Total assets
$
6,912

 
$
6,004

Liabilities, redeemable preferred stock and stockholders’ deficit
 
 
 
 
 
 
 
Accounts payable and accrued expenses
$
646

 
$
683

Accrued compensation
71

 
93

Deferred rent income
17

 
17

Revolving note
3,550

 
—

Interest payable
90

 
10

Deferred rent expense
27

 
29

Other liabilities
1,664

 
1,541

Total liabilities
$
6,065

 
$
2,373

 
 
 
 
Commitments and contingencies
—

 
—

 
 
 
 
Redeemable preferred stock, $0.001 par value; 1,170,327 shares issued and outstanding at September 30, 2016 and December 31, 2015. Redemption value: $48,757 and $44,292 at September 30, 2016 and December 31, 2015, respectively.
$
46,251

 
$
41,305

 
 
 
 
Stockholders’ deficit
 
 
 
Common stock, $0.001 par value; 25,000,000 shares authorized at September 30, 2016 and December 31, 2015, 8,994,814 shares issued and outstanding at September 30, 2016 and December 31, 2015.
9

 
9

Additional paid-in capital
557,113

 
562,204

Accumulated deficit
(602,571
)
 
(599,938
)
Accumulated other comprehensive income
45

 
51

Total stockholders’ deficit
(45,404
)
 
(37,674
)
Total liabilities, redeemable preferred stock and stockholders’ deficit
$
6,912

 
$
6,004

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Voltari Corporation
Condensed Consolidated Statements of Operations
(in thousands, except share data and per share amounts)
(unaudited)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016

2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Revenue
$
83

 
$
8

 
$
181

 
$
8

 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
General and administrative, excluding depreciation
641

 
1,314

 
2,358

 
3,804

Depreciation and amortization
72

 
40

 
216

 
127

Impairment losses
115

 
—

 
115

 
—

Acquisition and transaction related
5

 
62

 
22

 
62

Total operating expenses
833

 
1,416

 
2,711

 
3,993

Operating loss
$
(750
)
 
$
(1,408
)
 
$
(2,530
)
 
$
(3,985
)
Interest expense
(44
)
 
(4
)
 
(80
)

(4
)
Loss from continuing operations before income taxes
(794
)
 
(1,412
)
 
(2,610
)
 
(3,989
)
Provision for income taxes
—

 
—

 
—


—

Net loss from continuing operations
(794
)
 
(1,412
)
 
(2,610
)
 
(3,989
)
Net income (loss) from discontinued operations
14

 
158

 
(23
)
 
(1,767
)
Net loss
$
(780
)
 
$
(1,254
)
 
$
(2,633
)
 
$
(5,756
)
Accretion of redeemable preferred stock
(216
)
 
(183
)
 
(623
)
 
(528
)
Series J redeemable preferred stock dividends
(1,547
)
 
(1,361
)
 
(4,465
)
 
(3,950
)
Net loss attributable to common stockholders
$
(2,543
)
 
$
(2,798
)
 
$
(7,721
)
 
$
(10,234
)
 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders - basic and diluted
 
 
 
 
 
 
 
Continuing operations
$
(0.28
)
 
$
(0.33
)
 
$
(0.86
)
 
$
(1.11
)
Discontinued operations
—

 
0.02

 
—

 
(0.24
)
Total net loss per share attributable to common stockholders
$
(0.28
)
 
$
(0.31
)
 
$
(0.86
)
 
$
(1.35
)
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic and diluted
8,994,814

 
8,994,814

 
8,994,814

 
7,606,313

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Voltari Corporation
Condensed Consolidated Statements of Comprehensive Loss
(in thousands)
(unaudited)


 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016

2015
 
 
 
 
 
 
 
 
Net loss
$
(780
)
 
$
(1,254
)
 
$
(2,633
)
 
$
(5,756
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Foreign currency translation adjustment
(6
)
 
57

 
(6
)
 
82

Comprehensive loss
$
(786
)
 
$
(1,197
)
 
$
(2,639
)
 
$
(5,674
)
The accompanying notes are an integral part of these condensed consolidated financial statements.


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Voltari Corporation
Condensed Consolidated Statements of Changes in Stockholders’ Deficit
(in thousands, except share data)
(unaudited)


 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance as of December 31, 2015
8,994,814

 
$
9

 
$
562,204

 
$
(599,938
)
 
$
51

 
$
(37,674
)
Net loss
—

 
—

 
—

 
(2,633
)
 
—

 
(2,633
)
Other comprehensive loss
—

 
—

 
—

 
—

 
(6
)
 
(6
)
Redeemable preferred stock dividends
—

 
—

 
(4,465
)
 
—

 
—

 
(4,465
)
Accretion of redeemable preferred stock
—

 
—

 
(623
)
 
—

 
—

 
(623
)
Stock-based compensation
 
 
 
 
(3
)
 
 
 
 
 
(3
)
Balance as of September 30, 2016
8,994,814

 
$
9

 
$
557,113

 
$
(602,571
)
 
$
45

 
$
(45,404
)
The accompanying notes are an integral part of these condensed consolidated financial statements.

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Voltari Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
 
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
Net loss
$
(2,633
)
 
(5,756
)
Loss from discontinued operations
23

 
1,767

Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
216

 
127

Amortization of lease intangible
31

 
—

Stock-based compensation expense
(3
)
 
87

Impairment charges
115

 
—

Non-cash interest expense
80

 
4

Other non-cash adjustments
(6
)
 
—

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
13

 
—

Prepaid expenses and other current assets
436

 
329

Accounts payable and accrued expenses
(78
)
 
273

Deferred rent expense
(1
)
 
—

Net cash used in operating activities - continuing operations
(1,807
)
 
(3,169
)
Net cash used in operating activities - discontinued operations
(7
)
 
(1,701
)
Net cash used in operating activities
(1,814
)
 
(4,870
)
 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of real estate
(2,817
)
 
(3,629
)
Proceeds from the sale of fixed assets
3

 
280

Net cash used in investing activities - continuing operations
(2,817
)
 
(3,629
)
Net cash provided by investing activities - discontinued operations
3

 
280

Net cash used in investing activities
(2,814
)
 
(3,349
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from sale of common stock
—

 
5,755

Proceeds from debt facilities
3,550

 
—

Rights offering costs
—

 
(465
)
Proceeds from exercise of common stock options and warrants
—

 
22

Redemption of Series J preferred stock
—

 
(1,012
)
Net cash provided by financing activities
3,550

 
4,300

Effect of exchange rate changes on cash and cash equivalents
—

 
82

Net decrease in cash and cash equivalents
(1,078
)
 
(3,837
)
Cash and cash equivalents at beginning of period
1,180

 
6,256

Cash and cash equivalents at end of period
$
102

 
$
2,419

 
 
 
 
Supplemental disclosure of non-cash financing activities:
 
 
 
Series J redeemable preferred stock dividend paid-in-kind
4,323

 
3,856

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)



1. Business Description and Basis of Presentation

Business Description
Voltari Corporation (“Voltari” or the “Company”) is in the business of acquiring, financing and leasing commercial real properties. The Company had previously been engaged in the business of providing mobile marketing and advertising solutions to brands, marketers and advertising agencies. In August 2015, we began implementing a transformation plan pursuant to which, among other things, we exited our mobile marketing and advertising business. It is anticipated that the majority of the remaining costs related to the transformation plan will be incurred during 2016. Additional amounts to be incurred during the balance of 2016, if any, cannot be reasonably estimated. While we continue experience losses from continuing operations and discontinued operations we have been reducing those losses as compared to prior periods.  We have been funding our operations with borrowings under our Revolving Note as described in Note 6. We expect to continue to rely on borrowings to provide working capital in the near term.

Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete financial statements. The condensed consolidated balance sheet as of December 31, 2015 included herein was derived from the audited financial statements as of that date, but does not include all disclosures required by U.S. GAAP.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all normal recurring adjustments which are necessary for a fair statement of the results of the interim period. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2015 included in our Annual Report on Form 10-K for the year ended December 31, 2015, as amended on April 29, 2016 ("Form 10-K"). The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year or for any other period. Certain amounts from prior periods related to discontinued operations have been reclassified to conform with the presentation in the current period.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates include those involved in the valuation of long lived assets, valuation allowance on the deferred tax asset, redeemable preferred stock, litigation and other loss contingencies. Actual results could differ from those estimates.


2. Summary of Significant Accounting Policies

Our significant accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations.

Significant Accounting Policies - Real Estate Investments
As a result of our entry into the business of acquiring, financing and leasing commercial real properties, we have adopted the following significant accounting policies. Management believes there have been no other material changes to our significant accounting policies discussed in Note 2 of our Form 10-K, with the exception of the standards adopted January 1, 2016.

Investments in real estate are be recorded at acquisition date fair value. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined

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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


by considering current market conditions, as well as costs to execute similar leases. The fair value of above- or below-market leases is recorded based on the present value of the difference between the contractual amount to be paid pursuant to the in-place lease and the Company's estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining term of the lease, including any below-market fixed-rate renewal options for below-market leases.

Depreciation is computed using the straight-line method over the estimated useful lives of up to 45 years for buildings, 15 years for land improvements, five years for fixtures and improvements and the shorter of the useful life or the remaining lease term for tenant improvements and leasehold interests. Capitalized above-market lease values are amortized as a reduction of rental income over the remaining terms of the respective leases. Capitalized below-market lease values are amortized as an increase to rental income over the remaining terms of the respective leases and expected below-market renewal option periods. The value of in-place leases, exclusive of the value of above-market and below-market in-place leases, are amortized to expense over the remaining periods of the respective leases.

Recently Adopted Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to evaluate for each reporting period whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosure in certain circumstances. The new standard is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company adopted this standard effective as of January 1, 2016.

In November 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-16-Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or Equity. The amendments in this ASU clarify how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amendments in this ASU also clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (i.e., the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. The Company adopted the standard effective as of January 1, 2016.
 

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015.  The Company adopted the standard effective as of January 1, 2016.

In April, 2015, the FASB issued ASU 2015-05 Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (Topic 350). The update provides criteria for customers in a cloud computing arrangement to determine whether the arrangement included a license of software. The guidance is effective for fiscal years and interim reporting periods beginning after December 15, 2016. The Company adopted the standard effective as of January 1, 2016.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). The amendments in this ASU require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Additionally, this ASU requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination,

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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


the amendments in this ASU eliminates the requirement to retrospectively account for those adjustments. The Company adopted the standard effective as of January 1, 2016.

Recently Issued Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. The guidance in this ASU supersedes nearly all existing revenue recognition guidance under U.S. GAAP and creates a single, principle-based revenue recognition framework that is codified in a new FASB ASC Topic 606. The core principle of this guidance is for the recognition of revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued ASU No. 2015-14, which established that the new revenue standard is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those years. The new standard allows for either full retrospective or modified retrospective adoption. The Company is currently evaluating the transition method that will be elected and the potential effects of the adoption of the new standard on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard will supersede the existing guidance for lease accounting and states that companies will be required to recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 requires qualitative and quantitative disclosures to supplement the amounts recorded in the financial statements so that users can understand the nature of the entity’s leasing activities, including significant judgments and changes in judgments. Within ASU 2016-02 lessor accounting remained fairly unchanged. In adopting ASU 2016-02, companies will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. ASU 2016-02 is effective for the fiscal years beginning after December 15, 2018 with early adoption permitted. The Company is currently evaluating the impact of this new standard.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). Measurement of Credit Losses on Financial Instruments which amends the guidance on measuring credit losses on financial assets held at amortized cost. The amendment is intended to address the issue that the previous “incurred loss” methodology was restrictive to an entity's ability to record credit losses based on not yet meeting the “probable” threshold. The new language will require these assets to be valued at amortized cost presented at the net amount expected to be collected with a valuation provision. The amendments in this Update are effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of this new standard on our consolidated financial statements.



3. Real Estate Investments

On May 18, 2016, we, through our wholly owned subsidiary, Voltari Real Estate Holding LLC ("Voltari Holdings"), completed the acquisition of a real estate parcel in Flanders, New York (“the Flanders Property”) from Flanders Holding, LLC ("Seller") pursuant to the Purchase and Sale Agreement, between Voltari Holdings and the Seller, dated December 3, 2015, as amended on January 11, 2016, February 10, 2016 and March 10, 2016, for a purchase price of approximately $2.82 million, inclusive of all costs, escrows and reserves. The purchase price was paid using cash on hand and borrowings under the Company’s revolving loan facility with Koala Holding LP ("Koala"), an affiliate of Mr. Carl C. Icahn, the Company’s controlling stockholder. The revolving loan facility bears interest at a per annum rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum.

The Flanders Property is a single tenant retail convenience store, which is subject to a lease (the “Lease”) with 7-Eleven, Inc. (“7-Eleven”), the original term (the “Original Term”), of which expires in December 2029 (with four, five-year renewal options (the “Renewal Term,” and together with the Original Term, the “Term”). During the Term, 7-Eleven is responsible for the payment of base rent, as well as the

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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


payment of, subject to certain exceptions, real estate taxes, utilities, tenant’s insurance and other property related costs. Voltari Holdings, as landlord following the consummation of the acquisition of the Flanders Property, is responsible for certain maintenance and repair costs. Average annual rental income for the property over the remaining Original Term of the lease is approximately $160,000.

Information related to major categories of real estate investments, net, is as follows (dollars in thousands):

 
Useful life
 
As of
 
 
September 30, 2016
 
December 31, 2015
Real Estate Investments, at cost:
 
 
 
 
 
   Land
 
 
$
2,345

 
$
1,454

   Building, fixtures and improvements
10 - 45 yrs.
 
3,494

 
1,780

      Total tangible assets
 
 
5,839

 
3,234

      Acquired Intangibles - In-place leases
5 to 13 yrs.
 
607

 
395

Total cost of Real Estate Investments
 
 
6,446

 
3,629

Less: Accumulated depreciation and amortization
 
 
(176
)
 
(37
)
Total cost of Real Estate Investments, net
 
 
$
6,270

 
3,592


Depreciation expense for the nine months ended September 30, 2016 and 2015 amounted to $70,278 and $0 respectively.
Intangible amortization expense for the nine months ended September 30, 2016 and 2015 amounted to $68,295 and $0 respectively, of which $31,257 and $0 of favorable lease amortization were reflected as a reduction in revenue, respectively.

Expected in-place lease amortization for each of the next five years and thereafter is as follows (dollars in thousands):

Balance of 2016
 
$
25

2017
 
99

2018
 
99

2019
 
99

2020
 
57

2021
 
16

Thereafter
 
124

Total
 
519




4. Discontinued Operations

The effect of discontinued operations on the condensed consolidated statements of operations for the three months ended September 30, 2016 and 2015 is as follows (in thousands):

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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


 
Three Months Ended September 30, 2016
 
Mobile Marketing & Advertising
 
U.S. Messaging & Other
 
Total
Revenue
$
—

 
$
—

 
$
—

Operating income
14

 
—

 
14

Other income
—

 
—

 
—

Pre-tax income
14

 
—

 
14

Net income from discontinued operations
$
14

 
$
—

 
$
14



 
Three Months Ended September 30, 2015
 
Mobile Marketing & Advertising
 
U.S. Messaging & Other
 
Total
Revenue
$
328

 
$
—

 
$
328

Operating loss
(396
)
 
(25
)
 
(421
)
Other income
579

 
—

 
579

Pre-tax income (loss)
183

 
(25
)
 
158

Net income (loss) from discontinued operations
$
183

 
$
(25
)
 
$
158



The effect of discontinued operations on the condensed consolidated statements of operations for the nine months ended September 30, 2016 and 2015 is as follows (in thousands):


 
Nine Months Ended September 30, 2016
 
Mobile Marketing & Advertising
 
U.S. Messaging & Other
 
Total
Revenue
$
—

 
$
—

 
$
—

Operating loss
(23
)
 
—

 
(23
)
Pre-tax loss
(23
)
 
—

 
(23
)
Provision for taxes
—

 
—

 
—

Net loss from discontinued operations
$
(23
)
 
$
—

 
$
(23
)





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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


 
Nine Months Ended September 30, 2015
 
Mobile Marketing & Advertising
 
U.S. Messaging & Other
 
Total
Revenue
$
3,035

 
$
—

 
$
3,035

Operating loss
(2,379
)
 
(87
)
 
(2,466
)
Other income (expense), net
699

 
—

 
699

Pre-tax loss
(1,680
)
 
(87
)
 
(1,767
)
Provision for taxes
—

 
—

 
—

Net loss from discontinued operations
$
(1,680
)
 
$
(87
)
 
$
(1,767
)














12
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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


5. Restructuring

In the first quarter of 2015, we significantly reduced the size of our engineering department and terminated operations at our Seattle Data Center as part of an effort to reduce our operating expenses, particularly the cost of research and development and advertising delivery.

On August 6, 2015, we committed to and began implementing a transformation plan pursuant to which among other things we exited the mobile marketing and advertising business and entered into the business of acquiring, financing and leasing commercial real estate properties

During the three months ended September 30, 2016, in connection with the Company's ongoing transformation plan, and in an effort to minimize expenses in light of its significantly reduced employee headcount, the Company vacated the office space at 601 W 26th Street, New York, New York, and impaired the remaining value of any office furniture, equipment and leasehold improvements resulting in an impairment loss of approximately $0.1 million.




6. Revolving Note

On August 7, 2015, we (as borrower) and Koala (as lender), an affiliate of Carl C. Icahn, our controlling stockholder, entered into a revolving note (the “Note”). Pursuant to the Note, Koala made available to us a revolving loan facility of up to $10 million in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by us (or our successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at our option, a date selected by us that is earlier than December 31, 2017. Subject to the terms and conditions of the Note, we may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, we have pledged and granted to Koala a lien on our limited liability company interest in Voltari Holdings. During the nine months ended September 30, 2016, borrowings from this loan facility totaled $3.55 million, primarily due to borrowings in connection with the acquisition of the Flanders Property. The outstanding balance, including accumulated interest of $0.09 million, totaled $3.64 million as of September 30, 2016.

7. Redeemable Preferred Stock

Upon completion of our rights offering in October 2012, we issued 1,199,643 shares of our 13% Redeemable Series J Preferred Stock (the "Series J preferred stock") and warrants to acquire 1,014,982 shares of our common stock in exchange for approximately $30 million in cash. Net proceeds from the rights offering of approximately $27.8 million were allocated between Series J preferred stock and common stock warrants based on their estimated relative fair market values at the date of issuance as determined by management with the assistance of a third party valuation specialist. The portion of the net proceeds from the rights offering attributable to the Series J preferred stock was determined to be approximately $26.4 million and is included in redeemable preferred stock on the accompanying condensed consolidated balance sheets.

Our Series J preferred stock contains certain redemption features and was classified as mezzanine equity at September 30, 2016 and December 31, 2015 since the shares are (i) redeemable for cash, at the option of the holder upon the occurrence of certain events and (ii) have conditions for redemption which are not solely within our control. Our Series J preferred stock is redeemable at the option of the holder (a) if the Company undergoes a change in control, which includes a person becoming a beneficial owner of securities representing at least 50% of the voting power of our company, a sale of substantially all of our assets, and certain business combinations and mergers which cause a change in 20% or more of the voting power of our company, or (b) if we experience an ownership change (within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended), which results in a substantial limitation on our ability to use our net operating losses and related tax benefits. In the event that a redemption event were to occur, currently the Company would be precluded, under the terms of the Series J preferred stock and applicable Delaware law, from making any material redemptions.

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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


 
The difference between the carrying value of the Series J preferred stock and its liquidation value is being accreted over an anticipated redemption period of five years using the effective interest method. The shares of Series J preferred stock have limited voting rights and are not convertible into shares of our common stock or any other series or class of our capital stock.

Holders of the Series J preferred stock are entitled to an annual dividend of 13%, which is payable in cash or in-kind at our discretion, on a quarterly basis. To date, we have elected to pay all quarterly dividend payments on our Series J preferred stock, in the cumulative amount of $18.0 million, in-kind rather than in cash. Accordingly, we have increased the carrying value of our Series J preferred stock for the amount of the paid in-kind dividend payments. Dividends on the Series J preferred stock and the accretion increase the amount of net loss that is attributable to common stockholders and are presented as separate amounts on the condensed consolidated statements of operations.

Our Series J preferred stock has a preference upon dissolution, liquidation or winding up of the Company in respect of assets available for distribution to stockholders. The liquidation preference of the Series J preferred stock is initially $25 per share. If the quarterly cash dividends on the Series J preferred stock are not paid, which has been the case to date, the liquidation preference is adjusted and increased quarterly (i) until October 11, 2017, by an amount equal to 3.5% of the liquidation preference per share, as in effect at such time and (ii) thereafter by an amount equal to 3.5% of the liquidation preference per share, as in effect at such time. The quarterly accretion will continue until the shares are redeemed, or until the Company's affairs are liquidated, dissolved or wound-up.

As of September 30, 2016, our Series J preferred stock had an aggregate redemption value of approximately, $48.8 million including paid in-kind dividends of $18.0 million and accrued dividends of $1.5 million which are included within Other liabilities on our condensed consolidated balance sheet. We recorded accretion associated with our Series J preferred stock of $0.2 million and $0.6 million for the three and nine months ended September 30, 2016, respectively. For the three and nine month periods ended September 30, 2015 the amounts were $0.2 million and $0.6 million respectively.

In connection with the closing of our rights offering on March 30, 2015 (See Note 8 - Rights Offering), entities affiliated with Mr. Carl C. Icahn, our largest shareholder, became the owner of approximately 52.3% of our common stock, which resulted in a change of control of the Company. This constituted a redemption event pursuant to the terms and conditions of the Series J preferred stock, and as a result each holder of shares of Series J preferred stock had the right to require the Company to redeem all or a portion of such holder’s shares of Series J preferred stock. Entities affiliated with Mr. Carl C. Icahn waived their option to redeem Series J preferred stock in connection with the change in control resulting from the completion of the rights offering that closed on March 30, 2015. On April 13, 2015 we redeemed 29,316 shares of Series J preferred stock for approximately $1.0 million in cash from holders not affiliated with Mr. Carl C. Icahn. Following the April 13, 2015 redemption of Series J preferred stock, entities affiliated with Mr. Carl C. Icahn became the owner of approximately 97.9% of our Series J preferred stock.

8. Rights Offering

On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock. Under the terms of the rights offering, we distributed to stockholders of record at the close of business on February 13, 2015 transferable subscription rights to purchase 0.9027 shares of common stock for every share of common stock owned on such date.

The rights offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the rights offering, including approximately 96% from entities affiliated with Mr. Carl C. Icahn. Costs related to the rights offering of $0.7 million, were charged against the proceeds of the offering in the first quarter of 2015.

Following the completion of the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to

14
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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


purchase an additional 9.7% of our common stock. These warrants are currently unexercisable by Mr. Icahn and such affiliated entities.


15
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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


9. Net Loss Per Share Attributable to Common Stockholders

The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the period indicated (dollars in thousands):

 
Three Months Ended
 
Nine months ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Net loss attributable to common stockholders
$
(2,543
)
 
$
(2,798
)
 
$
(7,721
)
 
$
(10,234
)
 
 
 
 
 
 
 
 
Weighted-average common shares outstanding - basic and diluted
8,994,814

 
8,994,814

 
8,994,814

 
7,606,313

 
 
 
 
 
 
 
 
Net loss per share attributable to common stockholders - basic and diluted
$
(0.28
)
 
$
(0.31
)
 
$
(0.86
)
 
$
(1.35
)


Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the applicable period. Diluted net loss per share attributable to common stockholders includes the effects of any warrants, options and other potentially dilutive securities outstanding during the period. Due to net losses, for the periods presented, there were no potentially dilutive securities outstanding, therefore basic and diluted net loss per share attributable to common stockholders are equal. The following table presents the outstanding antidilutive securities excluded from the calculation of net loss per share attributable to common stockholders:
 
September 30,
 
2016
 
2015
Common stock issuable upon exercise of Warrants
1,014,958

 
1,014,958

Options to purchase common stock
21,150

 
41,150

Restricted stock
—

 
—

Total securities excluded from net loss per share attributable to common stockholders
1,036,108

 
1,056,108


16
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Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)


10. Legal Proceedings

Legal Proceedings
Putative Securities Class Action. We previously announced that Joe Callan filed a putative securities class action complaint in the U.S. District Court, Western District of Washington at Seattle (the "Court") on behalf of all persons who purchased or otherwise acquired common stock of Motricity between June 18, 2010 and August 9, 2011 or in Motricity’s initial public offering. Motricity, which was our predecessor registrant, is now our wholly-owned subsidiary and has changed its name to Voltari Operating Corp. The defendants in the case were Motricity, certain of our current and former directors and officers, including Ryan K. Wuerch, James R. Smith, Jr., Allyn P. Hebner, James N. Ryan, Jeffrey A. Bowden, Hunter C. Gary, Brett Icahn, Lady Barbara Judge CBE, Suzanne H. King, Brian V. Turner; and the underwriters in Motricity’s initial public offering, including J.P. Morgan Securities, Inc., Goldman, Sachs & Co., Deutsche Bank Securities Inc., RBC Capital Markets Corporation, Robert W. Baird & Co Incorporated, Needham & Company, LLC and Pacific Crest Securities LLC. The complaint alleged violations under Sections 11 and 15 of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), by all defendants and under Section 10(b) of the Exchange Act by Motricity and those of our former and current officers who are named as defendants. The complaint sought, inter alia, damages, including interest and plaintiff’s costs and rescission. A second putative securities class action complaint was filed by Mark Couch in October 2011 in the same court, also related to alleged violations under Sections 11 and 15 of the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act. On November 7, 2011, the class actions were consolidated, and lead plaintiffs were appointed pursuant to the Private Securities Litigation Reform Act. On December 16, 2011, plaintiffs filed a consolidated complaint which added a claim under Section 12 of the Securities Act to its allegations of violations of the securities laws and extended the putative class period from August 9, 2011 to November 14, 2011. The plaintiffs filed an amended complaint on May 11, 2012 and a second amended complaint on July 11, 2012. On August 1, 2012, we filed a motion to dismiss the second amended complaint, which was granted on January 17, 2013. A third amended complaint was filed on April 17, 2013. On May 30, 2013, we filed a motion to dismiss the third amended complaint, which was granted by the Court on October 1, 2013. On October 31, 2013, the plaintiffs filed a notice of appeal of the dismissal to the United States Court of Appeals for the Ninth Circuit. On April 25, 2014, the plaintiffs filed their opening appellate brief and on July 24, 2014 we filed our answering brief. On May 3, 2016, following oral arguments in the case on April 8, 2016, a three judge panel of the United States Court of Appeals for the Ninth Circuit unanimously affirmed the Court's decision dismissing all claims with prejudice.

In addition to the above litigation, from time to time, we are subject to claims in legal proceedings arising in the normal course of business. We do not believe that we are currently party to any pending legal action that could reasonably be expected to have a material adverse effect on our business, financial condition, results of operations or cash flows.



11. Subsequent Events

On October 11, 2016 the Company borrowed an additional $0.5 million from Koala bringing the principal balance outstanding to $4.05 million.



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

The following discussion should be read in conjunction with our condensed consolidated financial statements included elsewhere herein.

Forward-Looking Statements
Some of the statements contained in this Quarterly Report on Form 10-Q, including this Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 1A—Risk Factors, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 12E of the Securities Exchange Act of 1934, as amended, regarding our plans, objectives, expectations and intentions. Such statements include, without limitation, any statements regarding our transformation plan, our exit from the mobile marketing and advertising business and our entry into the real estate investment business, any statements regarding our ability to generate profits, any statements regarding various estimates we have made in preparing our financial statements, statements that refer to projections of our future operating performance, statements regarding any pro forma financial information we present, the sufficiency of our liquidity and capital resources to meet our cash needs, the exit from or disposition of certain of our businesses, and the potential costs associated therewith, and the anticipated growth and trends in our businesses. These forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those anticipated.

Risks and uncertainties that could adversely affect our business and prospects include without limitation:
•
any financial or other information included herein based upon or otherwise incorporating judgments or estimates based upon future performance or events;
•
our ability to raise additional capital or generate the cash necessary to continue and expand our operations or to fund the liquidation preference on, or redeem, our Series J preferred stock if required to do so;
•
our ability to protect and make use of our substantial net operating loss carryforwards;
•
our ability to implement our transformation plan;
•
our ability to compete in the highly competitive real estate investment industry;
•
the impact of government regulation, legal requirements or industry standards relating to commercial real estate;
•
our limited experience acquiring and managing commercial real properties;
•
our ability to execute real estate acquisitions;
•
risks generally associated with the commercial real estate investment business, including the credit risk associated with our tenants;
•
our ability to meet the criteria required to remain listed on NASDAQ;
•
the ongoing benefits and risks related to our relationship with Mr. Carl C. Icahn, our principal beneficial stockholder and principal lender, through certain of his affiliates;
•
the impact and costs and expenses of any litigation we may be subject to now or in the future; and
•
our leadership transition.


In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. Our actual results could be different from the results described in or anticipated by our forward-looking statements due to the inherent uncertainty of estimates, forecasts, projections and pro forma financial information, and may be materially better or worse than anticipated. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Forward-looking statements represent our estimates and assumptions only as of the date of this report. We expressly disclaim any duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, in order to reflect changes in circumstances or expectations or the occurrence of unanticipated events except to the extent required by applicable securities laws. All of the forward-looking statements are qualified in their entirety by reference to the factors discussed above, as well as the risks and uncertainties discussed in Item 1A - Risk Factors of our Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year ended December 31, 2015 and our Quarterly Report on Form 10-Q for the Quarter Ended June 30,

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2016. We qualify all of our forward-looking statements by these cautionary statements. We caution you that these risks are not exhaustive. We operate in a continually changing business environment and new risks emerge from time to time.

References in this Quarterly Report on Form 10-Q to “Voltari,” “the Company,” “we,” “us” and “our” are to Voltari Corporation.

Recent Developments & Transformation Plan

Transformation Plan -- In August 2015, we committed to and began implementing a transformation plan pursuant to which, among other things, we exited our mobile marketing and advertising business and entered into the business of acquiring, financing and leasing commercial real estate properties. In the three and nine months ended September 30, 2016 our losses related to discontinued operations decreased compared to the same periods in 2015 due in part to a decrease in expenditures related to discontinuing our mobile marketing and advertising business and the continuing execution of our transformation plan. 

The Company continues to search for real estate properties to acquire. We intend on leasing such properties pursuant to so-called “double net” or “triple net” leases. The Company has significantly reduced its workforce in connection with its transformation plan. We intend to acquire properties primarily in the Northeast United States. Future acquisitions are intended to be initially financed through borrowings available under our $10 million Note (as defined herein) with Koala (as defined herein). In September 2015 and May 2016 we acquired real estate parcels in New Jersey and New York respectively.

Real Property Acquisitions—In connection with the execution of our transformation plan, on September 17, 2015, we acquired a real estate parcel in Long Branch, New Jersey. The property is subject to a triple net lease with JPMorgan Chase Bank, N.A. ("Chase"), the original term of which expires in June 2020 (with two, five-year renewal options), pursuant to which Chase is responsible for the payment of basic rent as well as the payment of real estate taxes, maintenance costs, utilities, tenant's insurance and other property related costs. The purchase price was approximately $3.63 million and average annual rental income for the property over the remaining term of the original lease is approximately $203,000.

On May 18, 2016, we, through our wholly owned subsidiary, Voltari Real Estate Holding LLC ("Voltari Holdings"), completed the acquisition of a real estate parcel in Flanders, New York (the Flanders Property") from Flanders Holding, LLC (“Seller”) pursuant to the Purchase and Sale Agreement, between Voltari Holdings and the Seller, dated December 3, 2015, as amended on January 11, 2016, February 10, 2016 and March 10, 2016, for a purchase price of approximately $2.82 million, inclusive of all costs, escrows and reserves. The purchase price was paid using cash on hand and borrowings under the Company’s revolving loan facility with Koala Holding LP ("Koala"), an affiliate of Mr. Carl C. Icahn, the Company’s controlling stockholder. The revolving loan facility bears interest at a per annum rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum.

The Flanders Property is a single tenant retail convenience store, which is subject to a lease (the “Lease”) with 7-Eleven, Inc. (“7-Eleven”), the original term (the “Original Term”) of which expires in December 2029 (with four, five-year renewal options (the “Renewal Term,” and together with the Original Term, the “Term”)). During the Term, 7-Eleven is responsible for the payment of basic rent, as well as the payment of, subject to certain exceptions, real estate taxes, utilities, tenant’s insurance and other property related costs. Voltari Holdings, as landlord following the consummation of the acquisition of the Flanders Property, is responsible for certain maintenance and repair costs. Average annual rental income for the property over the remaining Original Term of the lease is approximately $160,000.

Rights offering—On February 27, 2015, we commenced a rights offering of up to an aggregate of 4,300,000 shares of our common stock. Under the terms of the rights offering, we distributed to stockholders of record at the close of business on February 13, 2015 transferable subscription rights to purchase 0.9027 shares of common stock for every share of common stock owned on the record date. The rights offering included an over-subscription privilege, which permitted each subscriber that exercised its basic subscription right in full the option to purchase additional shares of common stock that remained unsubscribed at the expiration of the offering.

The rights offering was fully subscribed and closed on March 30, 2015. We received approximately $4.6 million in net proceeds from the rights offering and we intend to use these proceeds for general corporate and working capital purposes. Following the completion of the rights offering on March 30, 2015, entities affiliated with Mr. Carl C. Icahn, the Company’s largest stockholder, became the owner of approximately 52.3% of our common stock. Entities affiliated with Mr. Icahn also own warrants to purchase an additional 9.7% of our common stock. The warrants are currently unexercisable by Mr. Icahn and such affiliated entities.


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Table of Contents


Series J Preferred Stock—The March 30, 2015 acquisition of common stock by entities affiliated with Mr. Carl C. Icahn in the rights offering resulted in a change of control of the Company, which triggered a redemption event pursuant to the terms of the Company's 13% Redeemable Series J Preferred Stock, par value $0.001 per share (the "Series J preferred stock"), and as a result each holder of shares of Series J preferred stock had the right to require the Company to redeem, in cash, all or a portion of such holder’s shares of Series J preferred stock. Entities affiliated with Mr. Carl C. Icahn waived their option to redeem Series J preferred stock in connection with the change in control resulting from the completion of the rights offering on March 30, 2015. On April 13, 2015 we redeemed 29,316 shares of Series J preferred stock for approximately $1.0 million in cash from holders not affiliated with Mr. Carl C. Icahn. Following the April 13, 2015 redemption of Series J preferred stock, entities affiliated with Mr. Carl C. Icahn became the owner of approximately 97.9% of our Series J preferred stock.

Non-Compliance with NASDAQ Continued Listing Requirements--Our common stock is currently listed on the NASDAQ Capital Market. On June 14, 2016, the Company received written notice from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“NASDAQ”) notifying the Company that for the preceding 30 consecutive business days, the Company has failed to comply with NASDAQ Listing Rule 5550(b)(2), which requires the Company to maintain a minimum Market Value of Listed Securities ("MVLS") of $35 million for continued listing on the NASDAQ Capital Market. The notice also stated that the Company did not meet the alternative requirements under NASDAQ Listing Rules 5550(b)(1) or 5550(b)(3). NASDAQ stated in its letter that in accordance with NASDAQ Listing Rule 5810(c)(3)(C), the Company will be provided 180 calendar days, or until December 12, 2016, to regain compliance with the minimum MVLS requirement. The Company will regain compliance if, during the 180 calendar day period the MVLS of the Company’s common stock closes at or above $35 million for a minimum of ten consecutive business days. If the Company does not regain compliance prior to December 12, 2016, the Company's common stock may be subject to delisting. At that time, the Company may appeal any delisting determination if it chooses to do so.

Corporate Headquarters--The Company rents approximately 8,000 square feet of office space in New York, New York, which has been utilized as its corporate headquarters. In connection with the Company's ongoing transformation plan, and in an effort to minimize expenses in light of its significantly reduced employee headcount, the Company determined that this office space was not suitable for its needs, and therefore vacated the office space and informed its landlord of its intention not to renew the lease when it terminates in November 2018. The Company has sought, and continues to actively seek, a tenant to sublease this vacated office space. As of July 1, 2016, the Company has moved to approximately 100 square feet of office space utilized by companies affiliated with Mr. Carl C. Icahn, the Company’s controlling shareholder, in New York, New York. This space is being rented on a month-to-month basis for $500 per month. This arrangement may be terminated at any time by either party without penalty. 
 

Results of Operations
On May 30, 2014, we completed the sale of our messaging business in the U.S. and Canada. Further, on September 1, 2014, we completed the sale of our wireless carrier business in the UK. In August, 2015 we began implementing a transformation plan pursuant to which, among other things, we exited our mobile marketing and advertising business. As a result, these businesses are reported as discontinued operations in the condensed consolidated financial statements for the requisite periods presented in this Quarterly Report on Form 10-Q. See discussion of net loss from discontinued operations below and Note 4 - Discontinued Operations to our condensed consolidated financial statements for more information.

Our continuing operations for the three and nine months ended September 30, 2016 consist of revenues and expenses related to commercial real estate operations which commenced in August 2015, as well as general and administrative costs, depreciation and amortization which are not directly attributable to discontinued operations. Continuing operations includes all personnel and facilities costs related to executive management, finance and accounting, human resources and other general corporate staff as well as all legal and other professional fees, insurance and other costs not directly attributable to the mobile marketing and advertising business or our other discontinued operations.

Total revenue
We commenced commercial real estate operations in August, 2015. Revenue from continuing operations for the three and nine months ended September 30, 2016 and 2015 consists of rental income from our first property acquired in September, 2015 and our second acquired in May, 2016.


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Table of Contents


 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
September 30,
 
 
 
2016
 
2,015
 
$ Change
 
2016
 
2015
 
$ Change
 
(Dollars in thousands)
Total revenue
$
83

  
$
8

  
$
75

  
$
181

 
$
8

 
$
173







Operating expenses

 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
September 30,
 
 
 
 
2016
 
2015
 
$ Change
 
2016

2015
 
$ Change
 
 
(Dollars in thousands)
General and administrative, excluding depreciation
641

 
1,314

  
(673
)
 
2,358

 
3,804

 
(1,446
)
 
Depreciation and amortization
72

 
40

  
32

 
216

 
127

 
89

 
Impairment losses
115

 
—

 
115

 
115

 
—

 
115

 
Acquisition transaction and integration costs
5

 
62

 
(57
)
 
22

 
62

 
(40
)
 
Total operating expenses
$
833

  
$
1,416

  
$
(583
)
 
$
2,711

 
$
3,993

 
$
(1,282
)
 
    

General and administrative, excluding depreciation
For the three months ended September 30, 2016, general and administrative expense, excluding depreciation, declined by approximately $0.7 million from the three months ended September 30, 2015, due to:
•
$0.1 million decrease in personnel costs, resulting from staff reductions, as well as staff reductions in connection with our transformation plan in August, 2015;
•
$0.1 decrease in taxes and insurance costs resulting from the execution of our transformation plan; and
•
$0.5 million decrease in legal and professional fees resulting from the execution of our transformation plan.

For the nine months ended September 30, 2016, general and administrative expense, excluding depreciation, declined by approximately $1.4 million from the nine months ended September 30, 2015, due to:

•
$0.5 million decrease in personnel costs, resulting from January, 2015 staff reductions, as well as staff reductions in connection with our transformation plan;
•
$0.3 million decrease in taxes and insurance costs resulting from the execution of our transformation plan; and
•
$0.6 million decrease in legal and professional fees resulting from the execution of our transformation plan.

Depreciation and amortization
Depreciation and amortization expense for the three and nine months ended September 30, 2016 and 2015 relates primarily to real estate investments (for 2016 only), general office computer equipment, furniture, computer software and leasehold improvements related to our former corporate headquarters.
For the three and nine months ended September 30, 2016, depreciation and amortization expense increased less than $0.1 million from the comparable periods in 2015 as a result of the addition of real estate assets in 2015 and 2016. Depreciation and amortization related to real estate investments in 2015 and 2016 amounted to less than $0.1 million for the three months ended September 30, 2016, and $0.2 million for the nine months ended September 30, 2016.


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Impairment losses
During the three months ended September 30, 2016, in connection with the Company's ongoing transformation plan, and in an effort to minimize expenses in light of its significantly reduced employee headcount, we vacated our office space at 601 W 26th Street, New York, New York, and impaired the remaining value of any office furniture, equipment and leasehold improvements resulting in an impairment loss of approximately $0.1 million.

Acquisition costs
During the three months ended September 30, 2016, our acquisition costs related to our real estate purchases declined by less than $0.1 million from the three months ended September 30, 2015. For the nine months ended 2016 and 2015 our acquisition costs totaled less than $0.1 million.

Net income (loss) from discontinued operations
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
September 30,
 
 
 
September 30,
 
 
 
2016
 
2015
 
$ Change
 
2016
2015
 
$ Change
 
(Dollars in thousands)
 
Net income (loss) from discontinued operations
14

 
158

 
$
(144
)
 
(23
)
(1,767
)
 
$
1,744


Results of operations for our mobile marketing and advertising business, which terminated in August 2015, are included in discontinued operations for all periods presented. Results from discontinued operations for the three months ended September 30, 2016 and 2015 also reflect residual charges related to operations discontinued in 2015 and prior years. See Note 4 - Discontinued Operations to our condensed consolidated financial statements for more information.

For the three months ended September 30, 2016, discontinued operations reflected net income of less than $0.1 million compared to net income of $0.2 million for the three months ended September 30, 2015. This change in results from discontinued operations is due primarily to:
•
$0.2 million decrease in direct third party expenses resulting from our exit from the mobile marketing and advertising business;
•
$0.1 million decrease in network operations expense resulting from executing our transformation plan;
•
$0.3 million decrease in general and administrative expenses related to our transformation plan;
•
$0.2 million decrease in sales and marketing expense resulting from executing our transformation plan, partially offset by;
•
$0.3 million decrease in revenue, resulting from our exit from the mobile marketing and advertising business and;
•
$0.7 million decrease in a tax refund and the sale of certain office equipment.

For the nine months ended September 30, 2016, discontinued operations reflected a net loss of less than $0.1 million compared to a net loss of $1.8 million for the nine months ended September 30, 2015. This reduction of $1.7 million in results from discontinued operations is due primarily to:
•
$0.6 million decrease related to product development which was substantially curtailed in the first quarter of 2015;
•
$1.7 million decrease in direct third party expenses resulting from our exit from the mobile marketing and advertising business;
•
$1.1 million decrease in network operations expense resulting from executing our transformation plan;
•
$0.4 million decrease in general and administrative expenses relating to our transformation plan;
•
$1.5 million decrease in sales and marketing expense resulting from executing our transformation plan and;
•
$0.2 million decrease in depreciation expense, partially offset by;
•
$0.7 million decrease in a tax refund and the sale of certain office equipment and;
•
$3.0 million decrease in revenue, resulting from our exit from the mobile marketing and advertising business.

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Net loss
 
 
Three Months Ended
 
 
 
Nine Months Ended
 
 
 
 
September 30,
 
 
 
September 30,
 
 
 
 
2016
 
2015
 
$ Change
 
2016
 
2015
 
$ Change
 
(Dollars in thousands)
Net loss
 
$
(780
)
 
$
(1,254
)
 
$
474

 
$
(2,633
)
 
$
(5,756
)
 
$
3,123


For the three months ended September 30, 2016, net loss was $0.8 million, compared to net loss of $1.3 million for the three months ended September 30, 2015. The $0.5 million improvement in net loss is primarily due to:
•
$0.7 million decrease of general and administrative expenses resulting from executing our transformation plan;
•
$0.1 million decrease in acquisition related expenses and interest and;
•
$0.1 million decrease in discontinued operations income;
•
$0.1 million increase in revenue partially offset by;
•
$0.1 million increase in interest expense:
•
$0.1 million increase in depreciation expense and:
•
$0.1 million increase in impairment losses.

For the nine months ended September 30, 2016, net loss was $2.6 million, compared to net loss of $5.8 million for the nine months ended September 30, 2015. The $3.1 million improvement in net loss is primarily due to:
•
$1.8 million decrease in expenses related to our discontinued operations;
•
$1.4 million decrease in general and administrative expenses and:
•
$0.2 million increase in revenue from our rental properties partially offset by:
•
$0.1 million increase in depreciation and amortization;
•
$0.1 million increase in impairment losses and;
•
$0.1 million increase in interest expense.



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Liquidity and Capital Resources
General
Our principal needs for liquidity since we began executing our transformation plan in August, 2015, have been to fund operating losses, working capital requirements, capital expenditures, restructuring expenses, acquisitions and integration and debt service. Our principal sources of liquidity as of September 30, 2016 consisted of cash and cash equivalents of approximately $0.1 million, and our ability to borrow on our Koala loan.

On August 7, 2015, we (as borrower) and Koala (as lender), an affiliate of Mr. Carl C. Icahn, our controlling stockholder (“Koala”), entered into a revolving note (the “Note”). Pursuant to the Note, Koala made available to us a revolving loan facility of up to $10 million in aggregate principal amount. Borrowings under the Note will bear interest at a rate equal to the greater of the LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum. The Note also includes a fee of 0.25%, per annum, on undrawn amounts and matures on the earliest of (i) December 31, 2017, (ii) the date on which any financing transaction, whether debt or equity, is consummated by us (or our successors and assigns) with net proceeds in an amount equal to or greater than $10 million, and (iii) at our option, a date selected by us that is earlier than December 31, 2017. Subject to the terms and conditions of the Note, we may repay all or any portion of the amounts outstanding under the Note at any time without premium or penalty, and any amounts so repaid will, until the maturity date, be available for re-borrowing. As collateral for the Note, we have pledged and granted to Koala a lien on our limited liability company interest in Voltari Holdings. As of September 30, 2016, borrowings from this loan facility totaled $3.55 million, primarily due to borrowings in connection with the acquisition of the Flanders Property. The outstanding balance, including accumulated interest, totaled $3.64 million as of September 30, 2016. To the extent we are unable to replace or refinance the Note prior to its maturity we may not have sufficient capital resources to repay any amounts borrowed thereunder. There can be no assurance that we will be able to replace or refinance the Note on commercially reasonable terms, if at all. On October 11, 2016 we borrowed an additional $0.5 million under the Note to fund ongoing operating costs.
 

In August 2015, we began implementing a transformation plan pursuant to which, among other things, we exited our mobile marketing and advertising business and entered into the business of acquiring, financing and leasing commercial real properties. We expect that the acquisition of commercial real properties, the cost of operations and working capital requirements will be our principal need for liquidity in the future. Our cash flows may be affected by many factors including the economic environment, competitive conditions in the commercial real estate industry and the success of our transformation plan. We believe we will have adequate resources to fund our operations, capital expenditures and working capital needs for the next 12 months using borrowings available under the Note and our cash and cash equivalents on hand. We currently intend to leverage real properties that we may acquire, but cannot assure that we will be able to do so on commercially reasonable terms, if at all.
Our liquidity may be adversely affected if, and to the extent that, our remaining Series J preferred stock becomes redeemable. The Company believes that, if a redemption event were to occur, limited, if any, funds would be available for such redemption under the terms of the Series J preferred stock and applicable Delaware law. As a result, in the event that a redemption event were to occur, the Company currently expects that it would be precluded, under the terms of the Series J preferred stock and applicable Delaware law, from making any material redemptions.

Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and estimates of future performance, borrowing capacity and credit and equity finance availability, which cannot at all times be assured. Accordingly, we cannot assure that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing additional financing to the extent available, pursuing and evaluating other alternatives and opportunities to obtain additional sources of liquidity and other potential actions to reduce costs. We cannot assure that any of these actions would be successful, sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed could have a material adverse impact on our business and financial position.
  
Our ability to obtain any additional financing depends upon many factors, including our then existing level of indebtedness (if any) and restrictions in any debt facilities we may establish in the future, historical business performance, financial projections, prospects and creditworthiness and external economic conditions and general liquidity in the credit and capital markets. Any financing (or subsequent refinancing) could also be extended with additional financing costs to us, and likely require us to satisfy restrictive covenants, which could further limit or restrict our business and results of operations, or be dilutive to our stockholders.

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Cash flows
As of September 30, 2016, and December 31, 2015, we had cash and cash equivalents of $0.1 million and $1.2 million, respectively. The decrease reflects cash used in operating and investing activities of $4.6 million offset by our increase in borrowings of $3.6 million.

Net cash used in operating activities
The change in our operating assets and liabilities was driven by a decrease in our prepaid expenses and other current assets of $0.4 million primarily from the reduction in our deposit on the Flanders Property, and a decrease in accounts payable and other accrued expenses of $0.1 million resulting primarily from the decrease in payroll costs accrued related to the execution of our transformation plan.

Net cash from investing activities
For the nine months ended September 30, 2016, $2.8 million of cash was used for the purchase of real estate investments.

Net cash from financing activities

For the nine months ended September 30, 2016, $3.6 million of cash was provided by financing activities due to additional borrowings on our Note.



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Off-Balance Sheet Arrangements
As of September 30, 2016 and December 31, 2015, we do not have any off-balance sheet arrangements.

Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions and in certain cases the difference may be material. Our critical accounting policies and estimates include those involved in the recognition of revenue, valuation of long lived assets, valuation allowance on the deferred tax asset, stock-based compensation, redeemable preferred stock, litigation and other loss contingencies. Actual results could differ from those estimates. Estimates related to the allocated cost of investments in real estate among land, other tangible and intangible assets affect future depreciation and amortization expense as well as the amount of reported assets.

As a result of our entry into the business of acquiring, financing and leasing commercial real properties, we have adopted the significant accounting policies described in Note 2 - Summary of Significant Accounting Policies in our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

In August 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to evaluate for each reporting period whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern and provide related footnote disclosure in certain circumstances. The new standard is effective for the annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early application is permitted. The Company adopted this standard effective as of January 1, 2016.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2015.  The Company adopted the standard effective as of January 1, 2016.

In April, 2015, the FASB issued ASU 2015-05 Intangibles - Goodwill and Other - Internal-Use Software: Customer's Accounting for Fees Paid in a Cloud Computing Arrangement (Topic 350). The update provides criteria for customers in a cloud computing arrangement to determine whether the arrangement included a license of software. The guidance is effective for fiscal years and interim reporting periods beginning after December 15, 2016. The Company adopted the standard effective as of January 1, 2016.

In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). The amendments in this ASU require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. Additionally, this ASU requires an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments in this ASU eliminates the requirement to retrospectively account for those adjustments. This ASU is effective prospectively for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company adopted the standard effective as of January 1, 2016.


Our critical accounting policies and estimates have not materially changed since our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Note 2 - Summary of Significant Accounting Policies in our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.


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Recent Accounting Pronouncements
See discussion of recent accounting pronouncements in Note 2 - Summary of Significant Accounting Policies in our condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Item 3.    Quantitative and Qualitative Disclosures about Market Risk.

We are not required to provide qualitative and quantitative disclosures about market risk because we are a smaller reporting company.

Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management evaluated, with the participation of our Chief Administrative and Accounting Officer (our principal executive officer) and our Chief Financial Officer (principal financial officer), the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Administrative and Accounting Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Administrative and Accounting Officer and out Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II
 
Item 1.    Legal Proceedings.

There have been no material changes to the legal proceedings previously disclosed in Part 1, Item 3 of our Annual Report on Form 10-K, as amended by Form 10-K/A, for the fiscal year ended December 31, 2015, except as set forth in Note 10---Legal Proceedings in our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.


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Table of Contents


Item 1A.    Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A in our Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2015, and in our Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016, which could materially affect our business, financial position and results of operations. There have been no material changes to the risk factors disclosed in Part I, Item 1A in our Annual Report on Form 10-K, as amended by Form 10-K/A, for the year ended December 31, 2015 and our Quarterly Report on Form 10-Q for the Quarter Ended June 30, 2016.



Item 5.    Other Information.

None


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Item 6.    Exhibits.

Exhibit Number
 
Exhibit Description
31.1
 
Certification pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Chief Administrative and Accounting Officer.
31.2
 
Certification pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer.


32.1
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Administrative and Accounting Officer.
32.2
 
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - Chief Financial Officer.


101.INS
 
XBRL Instance Document.*
101.SCH
 
XBRL Taxonomy Extension Schema Document.*
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document.*
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document.*
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document.*


*
 
Filed herewith.
 
 
 
 
 
 

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SIGNATURES
Pursuant to the requirements 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.

 
 
 
VOLTARI CORPORATION
 
 
 
 
Date:
November 14, 2016
By:
/s/ Kenneth Goldmann
 
 
 
Kenneth Goldmann
 
 
 
Chief Administrative and Accounting Officer (Principal Executive Officer)
 
 
 
 
Date:
November 14, 2016
By:
/s/ Andreea Paraschivoiu
 
 
 
Andreea Paraschivoiu
 
 
 
Chief Financial Officer (Principal Financial Officer)




31