Blueprint
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
⌧ ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31,
2018
or
☐ 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 or Other Jurisdiction of
Incorporation or Organization)1
|
|
(IRS Employer Identification No.)
|
767 Fifth Avenue, Suite 4700
New York, NY 10153
(212) 388-5500
(Address of Principal Executive Offices, including zip
code)
(212) 388-5500
(Registrant’s
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None.
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.001 per share
13%
Redeemable Series J Preferred Stock, par value $0.001 per
share
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities
Act. Yes ☐ No ⌧
Indicate by check mark if the
registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the
Act. Yes ☐ No ⌧
Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or 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. Yes ⌧ No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File
required to be submitted 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
such files).
Yes ⌧ No ☐
Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405) is not contained herein, and will
not be contained, to the best of Registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company or an emerging
growth company. See definitions of “large accelerated
filer,” “accelerated filer”, “smaller
reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
|
☐
|
Accelerated
filer
|
☐
|
Non-accelerated
filer
|
☐
|
Smaller reporting
company
|
☒
|
|
|
Emerging growth
company
|
☐
|
If
an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the
Act). Yes ☐ No ⌧
At
June 29, 2018, the last
business day of the Registrant’s most recently completed
second fiscal quarter, the aggregate market value of the voting and
non-voting common equity held by non-affiliates of the Registrant
(based upon the closing sale price of such shares on the OTCQB
marketplace.) was approximately $4.2 million. Shares of
Registrant’s common stock held by each executive officer and
director and by each entity or person that, to the
Registrant’s knowledge, owned 5% or more of
Registrant’s outstanding common stock as of June 29,
2018 have been excluded because
such persons may be deemed to be affiliates of the Registrant. This
determination of affiliate status is not necessarily a conclusive
determination for other purposes.
Indicate the number
of shares outstanding of each of the Registrant’s classes of
common stock as of
March 5,
2019:
Title of Class
|
|
Number of Shares
|
Common
Stock, $0.001 par value
|
|
8,994,814
|
DOCUMENTS INCORPORATED BY REFERENCE
Portions
of the Registrant’s Definitive Proxy Statement for its 2019
Annual Meeting of Stockholders to be filed within 120 days of the
close of the fiscal year ended December 31, 2018 are incorporated
by reference into Part III (Items 10, 11, 12, 13 and 14) of this
Annual Report on Form 10-K.
Special Note Regarding Forward-Looking Statements
Some of
the statements contained in this Annual Report on Form 10-K 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
capital resources to meet our cash needs, the exit from or
disposition of certain of our businesses, and the potential costs
associated therewith, statements regarding any anticipated growth
or trends in our businesses, and any statements regarding the
recent offer letter by High River and its affiliates. 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 (including any pro
forma financial information) 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;
|
●
risks
relating to cybersecurity threats, including the potential
misappropriation of assets or sensitive information, corruption of
data or operational disruption;
|
●
our
ability to execute real estate acquisitions, including without
limitation, consummating any purchase and sale transactions that we
may enter into;
|
●
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 quoted on the OTCQB
marketplace;
|
●
risks
relating to the recent offer letter by High River and its
affiliates;
|
●
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;
|
|
●
risks
relating to leadership transitions.
|
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 and projections 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 and under “Risk
Factors” set forth in Part I Item 1A of this Annual Report on
Form 10-K, as well as the risks and uncertainties discussed
elsewhere in this Annual Report on Form 10-K. 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.
TABLE OF CONTENTS
|
|
Page
|
|
|
|
|
|
|
|
4
|
|
|
7
|
|
|
19
|
|
|
19
|
|
|
20
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
21
|
|
|
22
|
|
|
22
|
|
|
29
|
|
|
29
|
|
Report
of Independent Registered Accounting Firm
|
30
|
|
Consolidated
Balance Sheets as of December 31, 2018 and 2017
|
31
|
|
Consolidated
Statements of Operations for the years ended December 31, 2018 and
2017
|
32
|
|
Consolidated
Statements of Comprehensive Loss for the years ended December 31,
2018 and 2017
|
33
|
|
Consolidated
Statements of Changes in Stockholders’ Deficit for the years
ended December 31, 2018 and 2017
|
34
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2018 and
2017
|
35
|
|
Notes
to Consolidated Financial Statements
|
36
|
|
Schedule
II - Valuation and Qualifying Accounts
|
50
|
|
Schedule
III - Real estate and accumulated depreciation
|
51
|
|
|
52
|
|
|
52
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
54
|
|
|
54
|
|
|
54
|
|
|
54
|
|
|
|
|
|
|
|
55
|
|
|
55
|
|
|
56
|
|
|
57
|
Business Overview
Voltari
Corporation ("Voltari" the "Company" “we,”
“our” or “us”), a Delaware corporation, is
in the business of acquiring, financing and leasing commercial real
properties. As of the date of this Annual Report on Form 10-K, we
own three commercial real properties. One property is in Long
Branch, New Jersey, which we lease to JPMorgan Chase Bank, N.A.
(“Chase”) pursuant to a triple net lease. The second
property is in Flanders, New York, which we lease to 7-Eleven
Corporation ("7-Eleven") pursuant to a double net lease. The third
property is in Columbia, South Carolina, which is leased to the
McClatchy Company (“McClatchy”) pursuant to a triple
net lease. All of our revenue is derived from the rental income we
receive under these three leases. Future acquisitions are intended
to be initially financed through borrowings available under our $30
million Amended Note (as defined herein) with Koala (as defined
herein). The Company leases its properties and intends to lease any
future properties pursuant to “double net” or
“triple net” leases.
Voltari
was originally incorporated under the name “Mobile Systems
Corp.” on December 14, 2012 as a wholly owned subsidiary of
Motricity, Inc. (“Motricity”), and changed its name to
“Voltari Corporation” on January 16, 2013. On April 9,
2013, pursuant to an agreement and plan of reorganization by and
among Motricity, Voltari and Voltari Merger Sub, Inc. and intending
to protect the long-term value of Motricity’s net operating
loss carryforwards ("NOLs"), Motricity became a wholly-owned
subsidiary of Voltari (the “Reorganization”). For
purposes of Rule 12g-3(a), we are the successor issuer to
Motricity.
Recent Developments — On December 7, 2018, High River
Limited Partnership (“High River”), an entity
affiliated with Mr. Carl C. Icahn, our controlling stockholder, and
its affiliates (collectively with High River, the “Icahn
Affiliates”) beneficial owners of approximately 52.7% of our
outstanding shares of common stock and approximately 98.0% of our
outstanding shares of 13% Redeemable Series J Preferred Stock, made
an offer to purchase the remaining shares of the Company’s
common stock in a merger transaction for $0.58 per share in cash
(the “Offer”). As previously disclosed in our Current
Report on Form 8-K dated January 10, 2019, the Board subsequently
formed a special committee of independent directors to consider the
Offer. On February 19, 2019, the Icahn Affiliates increased their
offer to $0.68 per share in cash, on February 25, 2019, they
increased their offer to $0.80 per share in cash and on March 5,
2019, they further increased their offer to $0.86 per share in
cash, each subject to the same conditions as set forth in the
original offer letter.
There
can be no assurance that an agreement with High River or any other
party will be executed or that any transaction will be approved or
consummated. The pendency of the Offer for an extended period of
time, as well as the failure to consummate a transaction with High
River or any other party, may have a negative impact on our ability
to effectively execute our business plans. If a transaction is
approved and consummated, we would no longer be a public company
and common stockholders would no longer be able to participate in
any of our future earnings or growth.
Transformation Plan—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 and entered into the business of
acquiring, financing and leasing commercial real estate properties.
The Company leases its properties and intends to lease any future
properties pursuant to so-called “double net” or
“triple net” leases. The Company has significantly
reduced its workforce in connection with its transformation plan.
The Board believes that, if successfully implemented, the Company
can, over time, generate profits from the transformation
plan.
Real Estate Investment
The
Company is in the business of acquiring, financing and leasing
commercial real properties. The Company leases its properties and
intends to lease any future properties pursuant to so-called
“double net” or “triple net” leases. Future
acquisitions are intended to be initially financed through
borrowings available under our $30 million Amended Note with Koala.
See Note 5 - Liquidity and Capital
Resources to our consolidated financial statements for more
information.
As of
the date of this Annual Report on Form 10-K, we have completed
three real estate acquisitions. Until and unless we acquire
additional properties, the rental payments associated with our
three properties will represent the sole source of our revenues.
The termination of the leases associated with these properties or
our failure to maintain our leases on favorable terms could have a
material adverse effect on our business and financial condition.
See Part I, Item 1A - Risk
Factors.
Properties
As of
the date of this Annual Report on Form 10-K, we own three
commercial real properties. All of our revenue is derived from the
rental income we receive under the leases associated with these
three properties.
The
Long Branch property is located at 160 Brighton Avenue, City of
Long Branch, New Jersey (the "Long Branch Property") and has a
retail bank branch building situated thereon. The original term of
the lease expires in June 2020 (with two, five-year renewal
options). Pursuant to the lease, 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 average annual rental income for the property
over the remaining term of the original lease is expected to be
approximately $203,000, exclusive of the amortization of the above
market lease intangible.
The
Flanders property is located at 721 Flanders Road, Flanders, New
York (the "Flanders Property") and has a retail convenience store
situated thereon. The original term of the lease expires in
December 2029 (with four, five-year renewal options). Pursuant to
the lease, 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 Holding, as landlord is responsible for certain
maintenance and repair costs. The average annual rental income for
the property over the remaining term of the original lease is
expected to be approximately $165,000, exclusive of the
amortization of the above market lease intangible.
The
McClatchy property is located at 1401 Shop Road, Columbia, South
Carolina (the "McClatchy Property") and has an office and
manufacturing facility situated thereon. The original term of the
lease expires on April 30, 2033 (with three, five-year renewal
options). Pursuant to the lease, McClatchy is responsible for the
payment of basic rent as well as the payment of real estate taxes,
utilities, tenant's insurance and other property related costs. The
average annual rental income for the property over the remaining
term of the original lease is expected to be approximately
$1,787,000, exclusive of the amortization of the below market lease
intangible.
Competition
The
commercial real estate industry is highly competitive, and we will
face competition from many other entities engaged in real estate
investment activities, including individuals, corporations, REITs,
investment companies, private equity and hedge fund investors, and
other investors, some of whom are significantly larger and have
greater resources and lower costs of capital. See Part I, Item 1A -
Risk Factors.
Financing Arrangements
On
August 7, 2015, we, as borrower, and Koala Holding LP
(“Koala”), as lender, an affiliate of Mr. Carl C.
Icahn, the Company’s controlling stockholder, entered into a
$10 million revolving loan facility (the “Prior Note") at a
rate equal to the greater of the LIBOR rate plus 350 basis points,
per annum, and 3.75%, per annum, plus a fee of 0.25% per annum on
undrawn amounts. The Company sought and received the Prior Note to,
in part, allay potential concerns regarding the Company’s
ability to invest in and execute its transformation plan while
retaining cash levels sufficient to fund its ongoing operations.
There were no limitations on the use of proceeds under the Prior
Note. As collateral for the Prior Note, we pledged and granted to
Koala a lien on our limited liability company interest in Voltari
Holding.
Our
Board formed a special committee of independent directors (the
“Special Committee”) to negotiate the structure and
terms of the Prior Note. The Special Committee consisted of James
L. Nelson, a former member of our Board, and Jay A. Firestone. In
connection with its negotiation of the structure and terms of the
Prior Note, the Special Committee retained and received advice from
its own legal counsel as well as an independent financial advisor.
The Special Committee received an opinion from its independent
financial advisor that the financial terms of the Prior Note were
fair, from a financial point of view, to us. The Special Committee
approved the terms and conditions of, and our entry into, the Prior
Note.
On
March 29, 2017, we and Koala amended and restated the Prior Note
(the “Amended Note”). Pursuant to the Amended Note,
Koala made available to the Company a revolving loan facility of up
to $30 million in aggregate principal amount (the
“Commitment”). The Company may, by written notice to
Koala, request that the Commitment be increased (the
“Increased Commitment”), provided that the aggregate
amount of all borrowings, plus availability under the aggregate
Increased Commitment, shall not exceed $80 million. Koala has no
obligation to provide any Increased Commitment and may refuse to do
so in its sole discretion.
The
Amended Note provides that the net proceeds thereunder in excess of
$10 million will be used by the Company for the acquisition,
improvement, development, modification, alteration, repair,
maintenance, financing or leasing of real property, including any
fees and expenses associated with such activities. In connection
with the negotiation of the structure and terms of the Amended
Note, the Board, which at the time consisted entirely of
independent directors, retained and received advice from its own
legal counsel as well as an independent financial advisor. The
Board received an opinion from its independent financial advisor
that the financial terms of the Amended Note are fair, from a
financial point of view, to the Company. The Board approved the
terms and conditions of, and the Company’s entry into, the
Amended Note.
Borrowings
under the Amended Note will bear interest at a rate equal to the
LIBOR Rate (as defined in the Amended Note) plus 200 basis points,
per annum, subject to a maximum rate of interest of 3.75%, per
annum. The Amended Note matures on the earliest of (i) December 31,
2020, (ii) the date on which any financing transaction, whether
debt or equity, is consummated by the Company (or its successors
and assigns) with net proceeds in an amount equal to or greater
than $30 million, and (iii) at the Company’s option, a date
selected by the Company that is earlier than December 31, 2020 (the
“Maturity Date”). The Amended Note also allows the
Company to, upon written notice to Koala not more than 60 days and
not less than 30 days prior to the Maturity Date, request that
Koala extend the Maturity Date to December 31, 2022. Koala may, in
its sole discretion, agree to extend the Maturity Date by providing
written notice to the Company on or before the date that is 20 days
prior to the Maturity Date.
If an
event of default (as defined in the Amended Note) exists, the
Amended Note will bear interest at a default rate equal to the
greater of the LIBOR Rate plus 300 basis points, per annum, and
4.5%, per annum. Subject to the terms and conditions of the Amended
Note, the Company may repay all or any portion of the amounts
outstanding under the Amended Note at any time without premium or
penalty. The amounts available under the Commitment or Increased
Commitment, as the case may be, will increase and decrease in
direct proportion to repayments and reborrowing’s under the
Amended Note, respectively, from time to time. As collateral for
the Amended Note, the Company has pledged and granted to Koala a
lien on the Company’s limited liability company interest in
Voltari Holding.
As of
December 31, 2018, borrowings under the Amended Note equaled $23.0
million. The outstanding balance, including interest of $1.0
million, totaled $24.0 million.
Governmental Regulation
Our
investments may be subject to various federal, state, local and
foreign laws, ordinances and regulations, including, among other
things, zoning regulations, land use controls, environmental
controls relating to air and water quality, noise pollution and
indirect environmental impacts such as increased motor vehicle
activity. See Part I, Item 1A - Risk Factors.
Environmental
As an
owner of commercial real estate, we will be subject to various
environmental laws of federal, state and local governments. We
cannot predict the impact of unforeseen environmental contingencies
or new or changed laws or regulations on properties that may be
acquired directly or indirectly in the future. We intend to hire
third parties to conduct Phase I environmental testing and when
advisable, additional, environmental reviews of the real properties
that we propose to purchase. See Part I, Item 1A - Risk Factors.
Intellectual property
We are
the owner of trademarks registered with the United States Patent
and Trademark office and internationally, including
Voltari.
Employees
As of
December 31, 2018, we had two full-time employees. Our employees
are not represented by a labor union nor covered by a collective
bargaining agreement.
Available Information
We
maintain a website at www.voltari.com. The information on or
available through our website is not, and should not be considered,
a part of this report. You may access our annual report on Form
10-K, quarterly reports on Form 10-Q, current reports on Form 8-K
and amendments to these reports, as well as other reports relating
to us that are filed with or furnished to the Securities and
Exchange Commission (the "SEC") free of charge at our website as
soon as reasonably practicable after such material is
electronically filed with, or furnished to, the SEC. In addition,
you may read and copy any materials we file with the SEC at the
SEC’s Public Reference Room at 100 F Street, NE, Washington,
DC 20549. Information on the operation of the Public Reference Room
may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an Internet site, www.sec.gov,
that contains reports, proxy and information statements, and other
information that we file electronically with the SEC.
The
following risk factors should be considered carefully in addition
to the other information contained in this Annual Report on Form
10-K. This Annual Report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. See "Special
Statement Regarding Forward-Looking Statements" appearing at the
beginning of this report. Our actual results could differ
materially from those contained in the forward-looking statements.
Factors that may cause such differences include, but are not
limited to, those discussed below as well as those discussed
elsewhere in this Annual Report on Form 10-K. Additional risks and
uncertainties that management is not aware of or that are currently
deemed immaterial may also adversely affect our business
operations. If any of the following risks materialize, our
business, financial condition or operating results could be
materially adversely affected. We undertake no obligations to
update or revise publicly any forward-looking statements, whether
as a result of new information, future events or
otherwise.
The market price of our common stock is highly volatile and may not
relate to our operating performance, financial results or
prospects. In addition, features of our Series J preferred stock
may make it difficult for holders of our common stock to realize
value on their investment.
The
market price for our common stock is highly volatile. For example,
for the year ended December 31, 2018, the closing sales price
of our common stock, which is quoted on the OTCQB marketplace under
the symbol “VLTC” fluctuated from a low of $0.36 per
share to a high of $1.48 per share. As of March 5, 2019, the
closing sales price of our common stock was $0.86 per
share.
Broad
market and industry factors may adversely affect the market price
of our common stock regardless of our actual operating performance,
financial results or prospects. The stock market in general has in
the past and may in the future experience extreme price and volume
fluctuations that have often been unrelated or disproportionate to
individual companies’ operating performance. The price of our
common stock could fluctuate widely based on a variety of
additional factors, including actual or anticipated changes in our
financial condition and operating results; media speculation
regarding the intentions of our controlling stockholder; actual or
potential transactions in our securities by us or our security
holders, including acquisitions or dispositions by our controlling
stockholder, directors or officers; announcements by us of capital
commitments or significant changes in our business strategy; and
other factors affecting us and our industry, as well as general
economic, political and market conditions such as recessions,
interest rate changes or international currency
fluctuations.
The
current market price of our common stock may not be indicative of
future market prices or intrinsic value, and we may not be able to
sustain or increase the value of an investment in our common stock.
Investors in our securities may experience a decrease, which could
be substantial, in the value of their securities, including
decreases unrelated to our operating performance, financial results
or prospects. Investors in our securities could lose part or all of
their investment.
Other
factors may adversely affect the market price, and intrinsic value,
of our common stock, including features of our Series J preferred
stock. Our common
stock is ranked junior to our Series J preferred stock with respect
to cash dividends and amounts payable in the event of our
dissolution, liquidation or winding up. This means that, unless
full cumulative dividends have been paid or set aside for payment
on all outstanding Series J preferred stock for all accrued
dividends, no cash dividends may be declared or paid on our common
stock. As of December 31, 2018, holders of our Series J
preferred stock were owed $36.4 million in dividends. Also, in the
event of our voluntary or involuntary liquidation, dissolution or
winding up, no distribution of our assets may be made to holders of
our common stock until we have paid to our Series J preferred
stockholders the liquidation preference relating to such preferred
stock, including in each case any accrued and unpaid dividends. As
of December 31, 2018, the total liquidation preference on the
outstanding shares of our Series J preferred stock, including
accrued and unpaid dividends as of such date, was $65.7 million. In
the event of our voluntary or involuntary liquidation, dissolution
or winding up, our asset value would inure to the benefit of
holders of our Series J preferred stock, up to the value of the
Series J preferred stock liquidation preference plus any accrued
and unpaid dividends thereon, before holders of our common stock
would realize any return from our asset value.
The
value of our common stock may also be adversely affected if, and to
the extent that, our Series J preferred stock becomes redeemable.
The holders of our Series J preferred stock may require us to
redeem their shares of Series J preferred stock at a redemption
price equal to 100% of the liquidation preference per share in
effect at such time plus accrued and unpaid dividends through the
next dividend payment date after the redemption date, in connection
with a redemption event. A redemption event occurs if (i) we
undergo 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 all or 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 (ii) we experience an ownership change (within the meaning of
Section 382 (“Section 382”)of the Internal Revenue Code
of 1986, as amended (the ”Code”)), which results in a
substantial limitation on our ability to use our net operating
losses and related tax benefits. 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.
As of
December 31, 2018, our Series J preferred stock had an
aggregate redemption value of approximately $65.7 million,
including paid in-kind dividends of $36.4 million and accrued
dividends of $2.2 million. Dividends declared or accrued on the
Series J preferred stock reduce the amount of net earnings, if any,
that may be available to common stockholders.
In
addition, our ability to pay dividends on our common stock is
currently limited by the terms of our Series J preferred stock and
may be further restricted by the terms of any future debt or
preferred securities. Accordingly, your only opportunity to achieve
a return on your investment in our common stock may be if the
market price of our common stock appreciates and you sell your
shares at a profit. The market price for our common stock may never
exceed, and may fall below, the price that you paid for such common
stock.
We are implementing a transformation plan, which may not be
successful.
We have
been implementing a transformation plan pursuant to which, among
other things, we have exited our mobile marketing and advertising
business and have entered into the business of acquiring, leasing
and financing commercial real properties. In connection with this
transformation plan, on September 17, 2015 we acquired our
first commercial real property, located in Long Branch, New Jersey
and on May 18, 2016 we acquired our second commercial property,
located in Flanders, New York, and on April 23, 2018 we acquired
our third commercial property, located in Columbia, South Carolina.
Our ability to generate revenues and become profitable will be
dependent in large part on our ability to acquire, lease and
finance additional commercial real properties. There can be no
assurance that we will be able to do so or that we will ever
achieve profitability.
Our
failure to successfully execute our transformation plan would
adversely affect our financial condition, results of operations and
stockholders’ equity. While we believe our transition costs
are generally completed, we could still incur unanticipated costs
or become subject to liabilities in connection with our exit from
the mobile marketing and advertising business and our entry into
the business of acquiring, leasing and financing commercial real
properties. For example, we may incur unanticipated costs and/or
become subject to litigation from customers, vendors or other third
parties in connection with our exit from the mobile marketing and
advertising business, which could materially adversely affect our
financial condition, results of operations and stockholders’
equity.
We have
limited operating experience in the commercial real estate
business, which makes it difficult to predict the long-term success
of our new business model. In addition, because of our new business
plan, our historical performance is not a meaningful indicator of
future results.
We have a history of net operating losses and may continue to
suffer losses in the future.
For the
years ended December 31, 2010, 2011, 2012, 2013, 2014, 2015, 2016,
2017 and 2018, we had net losses of approximately $7.0 million,
$195.4 million, $34.2 million, $10.3 million, $29.3 million, $6.6
million, $3.1 million, $1.9 million and $1.5 million, respectively.
If we cannot become profitable, our financial condition will
deteriorate further, and we may be unable to achieve our business
objectives.
Our common stock is traded on the OTCQB Market, which could have
material adverse consequences for us and our
investors.
Since
the opening of business on December 23, 2016, our common stock has
been quoted on the OTCQB marketplace under the symbol
“VLTC.” Stocks traded on the OTCQB marketplace
generally have a more limited trading volume and exhibit a wider
spread between the bid/ask quotations than stock traded on national
exchanges. Many institutional investors have investment policies
which prohibit them from trading in stocks on the OTCQB
marketplace. The OTCQB marketplace affords our stockholders fewer
corporate governance protections than if we were listed on a
national exchange, such as requirements concerning the independence
of our board of directors. As a result of our delisting from
trading on The NASDAQ Stock Market, and the subsequent quotation of
our common stock on the OTCQB marketplace, we and our investors
could face adverse consequences, including:
●
limited
availability of market quotations for our securities;
|
●
reduced
liquidity for our securities;
|
●
increased
volatility in the market price and trading volume for our
securities;
|
●
a
determination that our common stock is a “penny stock,”
which would require brokers trading in our common stock to adhere
to more stringent rules and possibly result in a reduced level of
trading activity for our securities;
|
●
a
limited amount of news and analyst coverage; and
|
●
a
decreased ability to issue additional securities or obtain
additional financing in the future. |
We have limited experience acquiring commercial real estate
properties.
Our
experience in acquiring, leasing and financing commercial real
estate properties is limited. As a result, we may encounter
unforeseen difficulties in our efforts to identify essential
assets, assess the risk levels associated with such assets,
negotiate favorable terms with property owners, negotiate favorable
terms with lessees, and comply with applicable laws and
regulations.
If we
are unable to correctly predict rental rates, cancellation rates,
demand, consolidation trends and growth trends, a material adverse
impact on our results of operations could result. If we are unable
to effectively expand, our growth rate may be adversely
impacted.
We intend to pursue acquisitions of additional properties and may
be unsuccessful in this pursuit, and any acquisitions that we do
consummate may fail to meet our expectations.
We
intend to pursue acquisitions of additional properties to grow our
business in connection with our transformation plan. Further,
in order to continue to grow our real estate portfolio in a manner
designed to, over time, help us generate profits, we may pursue
higher valued properties, such as the McClatchy Property. While we
anticipate that acquisitions of any such higher valued properties
would likely generate relatively higher rental income, such
acquisitions would likely also involve higher acquisition costs and
may involve higher costs of maintenance. There can be no assurance
that we will be successful in acquiring additional real estate
properties, including any such higher valued properties on
commercially reasonable terms, if at all.
Accordingly,
from time to time, we may engage in discussions that may result in
one or more transactions. Although there is uncertainty that any of
these discussions will result in definitive agreements or the
completion of any transaction, we may devote a significant amount
of management and other resources to such a transaction, which
could negatively impact our operations. We may incur significant
costs in connection with seeking acquisitions regardless of whether
any transaction is completed.
As of
the date of this report, we have completed three real estate
acquisitions in connection with the execution of our transformation
plan. Until and unless we acquire additional properties, the rental
payments by our existing lessees will represent the sole source of
our revenues. The termination of any of our leases or our failure
to maintain them on favorable terms could have a material adverse
effect on our business and financial condition.
The
real estate industry is highly competitive, and we will face
competition from many other entities engaged in real estate
investment activities, including individuals, corporations, REITs,
investment companies, private equity and hedge fund investors, and
other investors, some of whom are significantly larger and have
greater resources and lower costs of capital. This competition will
make it more challenging to identify and successfully capitalize on
acquisition opportunities that meet our investment objectives. If
we cannot identify and purchase a sufficient quantity of properties
at favorable prices or if we are unable to finance acquisition
opportunities on commercially favorable terms, our business,
financial condition or results of operations could be materially
adversely affected.
Investments
in, and acquisitions of, properties we might seek to acquire entail
risks associated with real estate investments generally, including,
but not limited to, the following risks and as noted elsewhere in
this report:
●
we may
be unable to acquire a desired property because of
competition;
|
●
even if
we are able to acquire a desired property, competition from other
potential acquirers may significantly increase the purchase
price;
|
●
even if
we enter into agreements for the acquisition of properties, these
agreements are subject to customary conditions to closing,
including completion of due diligence investigations to our
satisfaction;
|
●
we may
incur significant costs and divert management attention in
connection with evaluation and negotiation of potential
acquisitions, including ones that we are subsequently unable to
complete;
|
●
we may
acquire properties that are not initially accretive to our results
upon acquisition, and we may not successfully lease those
properties to meet our expectations;
|
●
we may
be unable to finance the acquisition on favorable terms in the time
period we desire, or at all; even if we are able to finance the
acquisition, our cash flow may be insufficient to meet our required
principal and interest payments;
|
●
we may
spend more than budgeted to make necessary improvements or
renovations to acquired properties;
|
●
we may
be unable to quickly and efficiently integrate new acquisitions,
particularly the acquisition of portfolios of properties, into our
existing operations;
|
●
market
conditions may result in higher than expected vacancy rates and
lower than expected rental rates; and
|
●
we may
acquire properties subject to liabilities and without any recourse,
or with only limited recourse, with respect to unknown
liabilities.
|
In the
event that we consummate an acquisition in the future, there is no
assurance that we would fully realize the potential benefits of
such a transaction. Further, acquisitions of properties we might
seek to acquire entail risks associated with real estate
investments generally, including that the investment's performance
will fail to meet expectations. To the extent we acquire higher
valued properties as discussed above, these and other real
estate-related risks may be exacerbated by the increased costs and
obligations associated with any such higher valued
properties.
Leadership transitions could have a material adverse impact on our
business, operating results or financial condition.
We have
experienced leadership transitions in the past and any additional
leadership transitions could have a material adverse impact on our
business, operating results or financial condition. On May 11,
2015, Richard Sadowsky resigned from his position as our acting
Chief Executive Officer and from all other positions he held,
effective immediately. In addition, effective May 11, 2015, Aaron
Epstein was appointed as our President. John Breeman, in addition
to his role as our Chief Financial Officer, served as our acting
principal executive officer and principal financial officer. During
2016, both John Breeman and Aaron Epstein departed from the
Company. On September 24, 2015, each of Messrs. Andrew Roberto,
James Nelson and Hunter Gary notified us of his resignation from
our Board and each committee of the Board on which he served,
effective September 25, 2015. On September 24, 2015, Peter Shea was
appointed to the Board, effective September 25, 2015. Mr. Shea was
also appointed to serve as Chairperson of the Board, Chairperson of
the Compensation and Governance and Nominating Committees and as a
member of our Audit Committee. On September 28, 2015, the Board
appointed Kenneth Goldmann as Chief Administrative and Accounting
Officer of the Company, effective as of October 5, 2015. On April
30, 2016, the Board appointed Andreea Paraschivoiu as the Chief
Financial Officer of the Company. On November 14, 2016, Ms.
Paraschivoiu resigned from her position as our Chief Financial
Officer. On April 21, 2017, Sachin Latawa was appointed to the
Board. On May 10, 2017, the Board appointed Peter Kaouris as Chief
Accounting Officer and Kenneth Goldmann as Chief Financial Officer
of the Company. On August 8, 2017, the Board changed Mr. Kenneth
Goldmann's title to Principal Executive Officer of the Company. Mr.
Kaouris also currently serves as our Principal Financial
Officer.
The
uncertainty inherent in leadership transitions can be difficult to
manage, may cause concerns from third parties with whom we do
business, and may increase the likelihood of turnover of other
employees. In addition, our current management team lacks
significant experience in the commercial real estate business, and
we may need to hire personnel with relevant experience to help us
execute our transformation plan. We cannot assure that we will be
able to do so, and our failure to do so could materially harm our
results of operations.
We will be dependent on our tenants to make payments to us under
our leases, and an event that materially and adversely affects our
tenants’ business, financial position or results of
operations could materially and adversely affect our business,
financial position or results of operations.
Pursuant
to our transformation plan, to the extent we generate revenues, we
will generate substantially all of our revenues from payments made
by our tenants. Additionally, to the extent we are able to enter
into triple net leases, we will depend on our tenants to pay all
insurance, taxes, utilities, and maintenance and repair expenses
related to the applicable property, subject to limited carveouts,
and to indemnify, defend and hold us harmless from and against
various claims, litigation and liabilities arising in connection
with its business. There can be no assurance that our tenants will
have sufficient assets, income and access to financing to enable
them to satisfy their payment obligations under the applicable
leases. The failure of a tenant to satisfy its other obligations
under the lease, such as the payment of insurance, taxes and
utilities, could materially and adversely affect the condition of
our properties. For these reasons, if a tenant were to experience a
material and adverse effect on its business, financial position or
results of operations, our business, financial position or results
of operations could also be materially and adversely
affected.
Due to
our dependence on rental payments from our tenants as our primary
source of revenues, we may be limited in our ability to enforce our
rights under, or to terminate, the applicable leases. Failure by a
tenant to comply with the terms of a lease could require us to find
another lessee for the property. There is no assurance that we
would be able to lease a property to another lessee on
substantially equivalent or better terms, or at all, successfully
reposition the property for other uses or sell the property on
terms that are favorable to us.
The historical information included in this Annual Report on Form
10-K may not be a reliable indicator of future
results.
Our
historical financial data included in this Annual Report on Form
10-K may not reflect what our business, financial position or
results of operations will be in the future. The historical
financial statements included in this Annual Report on Form 10-K
are not necessarily indicative of how we will conduct our business
as we continue our efforts to implement our transformation plan.
Significant changes have and may continue to occur in our cost
structure, financing and business operations as a result of our
transformation plan.
Our operating results may be affected by economic and regulatory
changes that have an adverse impact on the commercial real estate
market in general, and we can provide no assurance that we will be
profitable or that we will realize growth in the value of our
commercial real estate properties.
Our
operating results are subject to risks generally incident to the
ownership of real estate, including:
●
changes
in general economic or local conditions;
|
●
changes
in supply of or demand for competing properties in an
area;
|
●
changes
in interest rates and availability of permanent mortgage funds that
may render the sale of a property difficult or
unattractive;
|
●
changes
in tax, real estate, environmental and zoning laws;
and
|
●
periods
of high interest rates and tight money supply.
|
These
and other risks may prevent us from realizing growth or maintaining
the value of our real estate properties or from becoming
profitable.
Our
operations may face adverse effects from tenant bankruptcies or
insolvencies.
The
bankruptcy or insolvency of any of our tenants may adversely affect
the income produced by our properties. If a tenant defaults, we may
experience delays and incur substantial costs in enforcing our
rights as landlord. If a tenant files for bankruptcy, we cannot
evict the tenant solely because of such bankruptcy. A court,
however, may authorize a tenant to reject or terminate its lease
with us. We may also incur additional vacancy and other
re-tenanting expense.
Mr. Carl C. Icahn indirectly owns a majority of our common stock
and Series J preferred stock, our certificate of incorporation
waives the corporate opportunity doctrine as it relates to funds
affiliated with him and he may have interests that diverge from
those of other stockholders, and one of his affiliates is our
principal lender.
Following
the completion, and as a result of, our rights offering on March
30, 2015, entities affiliated with Mr. Carl C. Icahn, our largest
stockholder, became the beneficial owner of, and had voting control
over, approximately 52.3% of our common stock. This amount
increased to 52.7% following the forfeiture by our Board on August
20, 2015 of 73,525 shares of restricted common stock, in the
aggregate. Entities affiliated with Mr. Carl C. Icahn also
previously owned warrants to purchase an additional 9.7% of our
common stock. On October 11, 2017, warrants to purchase 1,014,958
shares of our common stock, including the warrants beneficially
owned by Mr. Icahn, expired without being exercised. Further, Mr.
Icahn beneficially owns 98.0% of our Series J preferred stock,
which has limited voting rights. Mr. Carl C. Icahn is able to
control and exert substantial influence over us, including the
election of our directors and controlling most matters requiring
board or stockholder approval, including business strategies,
mergers, business combinations, acquisitions or dispositions of
significant assets, issuances of common stock, incurrence of debt
or other financing and the payment of dividends. The existence of a
controlling stockholder may have the effect of making it difficult
for, or may discourage or delay, a third party from seeking to
acquire a majority of our outstanding common stock, which could
adversely affect the market price of our stock. Mr. Carl C. Icahn
owns, controls and has an interest in many companies, some of which
may compete directly or indirectly with us. As a result, his
interests may not always be consistent with our interests or the
interests of our other stockholders.
In our
certificate of incorporation, we renounce and provide for a waiver
of the corporate opportunity doctrine as it relates to the funds
affiliated with Koala, an affiliate of Mr. Carl C. Icahn,
Technology Crossover Ventures, and any person or entity affiliated
with these investors. As a result, Mr. Carl C. Icahn and entities
controlled by him will have no fiduciary duty to present corporate
opportunities to us. These exempted persons are in the business of
making investments in companies and may, from time to time, acquire
and hold interests in businesses that compete directly or
indirectly with us. They may also pursue, for their own accounts,
acquisition opportunities that may be complementary to our
business, and, as a result, those acquisition opportunities may not
be available to us. These potential conflicts of interest could
have a material adverse effect on our business, financial
condition, results of operations or prospects if attractive
corporate opportunities are directed by the exempted persons to
themselves or their other affiliates instead of to us. As a result,
corporate opportunities that may benefit us may not be available to
us. To the extent that conflicts of interest may arise between us,
Mr. Carl C. Icahn and his affiliates, those conflicts may be
resolved in a manner adverse to us or our other
shareholders.
On
March 29, 2017, we, as borrower, and Koala, as lender, an affiliate
of Carl C. Icahn, our controlling stockholder, entered into a $30
million Amended Note, which amended and restated our prior
revolving note with Koala dated August 7, 2015. See Item 1 –
Financing Arrangements.
We may have future capital needs and may not be able to obtain
additional financing on acceptable terms.
We may
incur indebtedness in the future to refinance our existing
indebtedness or to finance newly acquired properties or for other
purposes. Demands on our cash resources from debt service will
reduce funds available to us to make capital expenditures and
acquisitions or carry out other aspects of our business strategy.
Our indebtedness may also limit our ability to adjust rapidly to
changing market conditions, make us more vulnerable to general
adverse economic and industry conditions and create competitive
disadvantages for us compared to other companies with relatively
lower debt levels. Increased future debt service obligations may
limit our operational flexibility, including our ability to acquire
properties, finance or refinance our properties or sell properties
as needed.
Further,
our Amended Note with Koala provides a revolving loan facility of
up to $30 million in aggregate principal amount (the
“Commitment”), which provides that the net proceeds
thereunder in excess of $10 million will be used by us for the
acquisition, improvement, development, modification, alteration,
repair, maintenance, financing or leasing of real property,
including any fees and expenses associated with such activities.
Our outstanding balance at December 31, 2017 totaled $5.5 million.
During the year ended December 31, 2018 we borrowed $16.75 million
to fund the purchase of the McClatchy Property and $0.75 million to
fund ongoing operating costs. As of December 31, 2018, borrowings
under the Amended Note totaled $23.0 million, and there remains
$4.0 million available for working capital purposes. The
outstanding balance, including accumulated interest of $1.0
million, totaled $24.0 million as of December 31, 2018. We may, by
written notice to Koala, request that the Commitment be increased
(the “Increased Commitment”), provided that the
aggregate amount of all borrowings, plus availability under the
aggregate Increased Commitment, shall not exceed $80 million.
However, Koala has no obligation to provide any Increased
Commitment and may refuse to do so in its sole discretion. If
we are unable to increase our availability under the Amended Note,
or obtain other suitable financing, our ability to purchase other
properties and execute our transformation plan could be materially
adversely affected.
Moreover,
our ability to obtain additional financing and satisfy our
financial obligations under indebtedness outstanding from time to
time will depend upon our future operating performance, which is
subject to then- prevailing general economic, real estate and
credit market conditions, including interest rate levels and the
availability of credit generally, and financial, business and other
factors, many of which are beyond our control. A prolonged
worsening of credit market conditions would have a material adverse
effect on our ability to obtain financing on favorable terms, if at
all.
We may
be unable to obtain additional financing or financing on favorable
terms or our operating cash flow may be insufficient to satisfy our
financial obligations under any indebtedness outstanding from time
to time. If financing is not available when needed, or is available
only on unfavorable terms, we may be unable to enhance our
properties or develop new properties, complete acquisitions or
otherwise take advantage of business opportunities or respond to
competitive pressures, any of which could have a material adverse
effect on our business, financial condition and results of
operations.
We may be unable to secure funds for future tenant improvements or
capital needs, which could adversely impact the returns we generate
on our properties.
When
tenants do not renew their leases or otherwise vacate their space,
in order to attract replacement tenants, we may be required to
expend substantial funds for tenant improvements and tenant
refurbishments to the vacated space. In addition, we will likely be
responsible for any major structural repairs, such as repairs to
the foundation, exterior walls and rooftops, even if our leases
with tenants may require tenants to pay routine property
maintenance costs. We may use cash flow from operations,
borrowings, property sales or future debt or equity offerings in
order to improve or maintain our properties or for any other
reason. These sources of funding may not be available on attractive
terms or at all. If we cannot procure additional funding for
capital improvements, our investments may generate lower cash flows
or decline in value, or both, all of which could have a material
adverse effect on the value of our investments.
Rising expenses could reduce cash flow and funds available for
future acquisitions.
Any
properties that we may buy will be subject to operating risks
common to real estate in general, any or all of which may
negatively affect us. If any property is not fully occupied or if
rents are being paid in an amount that is insufficient to cover
operating expenses, we could be required to expend funds with
respect to that property for operating expenses. Any of our
properties could be subject to increases in tax rates, utility
costs, operating expenses, insurance costs, repairs and maintenance
and administrative expenses. Leases may not be negotiated on a
double- or triple-net basis or on a basis requiring the tenants to
pay all or some of such expenses, in which event we may have to pay
those costs. If we are unable to lease properties on a
triple-net-lease basis or on a basis requiring the tenants to pay
all or some of such expenses, or if tenants fail to pay required
tax, utility and other impositions, we could be required to pay
those costs which could adversely affect our cash flows and funds
available for future acquisitions.
Costs of complying with governmental laws and regulations,
including those relating to environmental matters, may adversely
affect our operations and cash position.
All
real property and the operations conducted on real property are
subject to federal, state and local laws and regulations relating
to environmental protection and human health and safety. These laws
and regulations generally govern wastewater and storm water
discharges, air emissions, the operation and removal of underground
and above-ground storage tanks, the use, storage, treatment,
transportation and disposal of solid and hazardous materials, and
the remediation of contamination associated in soils or
groundwater. Environmental laws and regulations may impose joint
and several liabilities on tenants, owners or operators for the
costs to investigate or remediate contaminated properties,
regardless of fault or whether the acts causing the contamination
were legal. This liability could be substantial. In addition, the
presence of hazardous substances, or the failure to properly
remediate these substances, may adversely affect our ability to
sell, rent or pledge such property as collateral for future
borrowings.
Some of
these laws and regulations are amended from time to time and may
require compliance with new or more stringent standards in the
future. Compliance with new or more stringent laws or regulations
or stricter interpretation of existing laws may require material
expenditures by us. Future laws, ordinances or regulations may
impose material environmental liability. Additionally, our
tenants’ operations, the existing condition of land when we
buy it, operations in the vicinity of our properties, such as the
presence of underground storage tanks, contamination from others in
the soils or groundwater on adjoining properties, or activities of
unrelated third parties may affect our properties. In addition,
there are various local, state and federal fire, health,
life-safety and similar regulations with which we may be required
to comply, and that may subject us to liability in the form of
fines or damages for noncompliance. Any material expenditures,
fines, or damages we must pay could materially adversely affect our
results from operations and may reduce the value of an investment
in our shares. The cost of defending against claims of liability,
of compliance with environmental regulatory requirements, of
remediating any contaminated property, or of paying personal injury
claims may materially adversely affect our business, assets or
results of operations.
Environmental compliance costs and liabilities associated with real
estate properties owned by us may materially and adversely affect
us.
Our
properties may be subject to known and unknown environmental
liabilities under various federal, state and local laws and
regulations relating to human health and the environment. Certain
of these laws and regulations may impose joint and several
liabilities on certain statutory classes of persons, including
owners or operators, and past owners and operators for the costs of
investigation or remediation of contaminated properties. These laws
and regulations apply to past and present business operations on
the properties, and the use, storage, handling and recycling or
disposal of hazardous substances or wastes. We may face liability
regardless of our knowledge of the contamination, the timing of the
contamination, the cause of the contamination or the party
responsible for the contamination of the property.
We may
be held primarily or jointly and severally liable for costs
relating to the investigation and clean-up of any of our properties
on which there is contamination, or from which there has been a
release or threatened release of a regulated material as well as
other affected properties, regardless of whether we knew of or
caused the release.
As the
owner or operator of real property, we may also incur liability
based on various building conditions. The presence of significant
asbestos, mold or other airborne contaminants at any of our
properties could require us to undertake a costly remediation to
contain or remove the asbestos, mold or other airborne contaminants
or increase ventilation and/or expose us to liability from our
tenants, employees of our tenants, or others if property damage or
personal injury occurs.
In
addition to these costs, which could exceed the property’s
value, we could be liable for certain other costs, including
governmental fines, and injuries to persons, property or natural
resources. Further, some environmental laws create a lien on the
contaminated site in favor of the government for damages and the
costs the government incurs in connection with such contamination.
Any such costs or liens could have a material adverse effect on our
business or financial condition.
Although
we intend to require our tenants to undertake to indemnify us for
certain environmental liabilities, including environmental
liabilities they cause, the amount of such liabilities could exceed
the financial ability of the tenant to indemnify us. The presence
of contamination or the failure to remediate contamination may
adversely affect our ability to sell or lease the real estate or to
borrow using the real estate as collateral.
We may obtain only limited warranties when we purchase a property
and would have only limited recourse if our due diligence did not
identify any issues that lower the value of our property, which
could adversely affect our financial condition.
The
seller of a property often sells such property in its “as
is” condition on a “where is” basis and
“with all faults,” without any warranties of
merchantability or fitness for a particular use or purpose. In
addition, purchase agreements may contain only limited warranties,
representations and indemnifications that will only survive for a
limited period after the closing. The purchase of properties with
limited warranties increases the risk that we may lose some or all
our invested capital in the property as well as the loss of rental
income from that property.
Our costs associated with complying with the Americans with
Disabilities Act may affect our operating results.
Our
properties are and will be subject to the Americans with
Disabilities Act of 1990 (the “ADA”). Under the ADA,
all places of public accommodation are required to comply with
federal requirements related to access and use by disabled persons.
The ADA has separate compliance requirements for “public
accommodations” and “commercial facilities” that
generally require that buildings and services, including
restaurants and retail stores, be made accessible and available to
people with disabilities. The ADA’s requirements could
require removal of access barriers and could result in the
imposition of injunctive relief, monetary penalties, or, in some
cases, an award of damages. There is no assurance that we will be
able to acquire properties or allocate the burden on the seller or
other third party, such as a tenant, to ensure compliance with the
ADA. If we cannot, our funds used for ADA compliance may affect our
results from operations. The fluctuation in market conditions makes
judging the future performance of these assets difficult. There is
a risk that we may not purchase real estate assets at absolute
discounted rates and that these assets may continue to decline in
value.
Properties that we may own and may acquire face competition that
may decrease the amount of rent that we may charge our
tenants.
Properties
that we may own and may acquire face competition for tenants. The
number of competitive properties could have a material effect on
our ability to rent space at our properties and the amount of rents
charged. We could be adversely affected if additional competitive
properties are built in locations competitive with our properties,
causing increased competition for customer traffic and creditworthy
tenants. This could result in decreased cash flow from tenants and
may require us to make capital improvements to properties that we
would not have otherwise made, thus affecting our income, financial
condition and results of operations.
We may be unable to renew leases or re-lease space as leases
expire.
If
tenants do not renew their leases upon expiration, we may be unable
to re-lease the vacated space. Even if the tenants do re-lease the
lease or we are able to re-lease to a new tenant, the terms and
conditions of the new lease may not be as favorable as the terms
and conditions of the expired lease. One or more of our properties
may incur a vacancy either by the continued default of a tenant
under its lease or the expiration of one of our leases. In
addition, the resale value of a property could be diminished
because the market value of a particular property will depend
principally upon the value of the cash flow generated from the
property which in the case of vacancies, will be
reduced.
Changes in building and/or zoning laws may require us to renovate
or reconstruct a property in connection with the continued use of
the property or the commencement of a new use of the property or
prevent us from fully restoring a property in the event of a
substantial casualty loss and/or require us to meet additional or
more stringent construction requirements.
Due to
changes, among other things, in applicable building and zoning
laws, ordinances and codes that may affect certain of our
properties that have come into effect after the initial
construction of the properties, certain properties may not comply
fully with current building and/or zoning laws, including
electrical, fire, health and safety codes and regulations, use, lot
coverage, parking and setback requirements, but may qualify as
permitted non-conforming uses. Such changes may require updating
various existing physical conditions of buildings in connection
with our recapture, renovation, and/or redevelopment of properties.
In addition, such changes may limit our or our tenant’s
ability to restore the premises of a property to its previous
condition in the event of a substantial casualty loss with respect
to the property or the ability to refurbish, expand or renovate
such property to remain compliant, or increase the cost of
construction in order to comply with changes in building or zoning
codes and regulations. If we are unable to restore a property to
its prior use after a substantial casualty loss or are required to
comply with more stringent building or zoning codes and
regulations, we may be unable to re-lease the space at a comparable
effective rent or sell the property at an acceptable price, which
may materially and adversely affect us.
We may be subject to unanticipated liabilities as a result of our
real properties.
We may
be involved in disputes and other matters with property owners,
tenants, their respective employees and agents, and other unrelated
parties, such as tort claims related to hazardous conditions,
foreclosure actions and access disputes. We cannot assure you that
we will not become subject to material litigation or other
liabilities. If these liabilities are not adequately covered by
insurance, they could have a material adverse impact on our results
from operations.
We intend to enter into leases that will generally make our tenants
contractually responsible for payment of taxes, maintenance,
insurance and other similar expenditures associated with our
tenants' use of a property. If our tenants fail to pay these
expenses as required, or if we are otherwise required to pay such
expenses, it could result in a material adverse impact on our
results of operations.
Under
triple net lease arrangements, tenant lease agreements typically
make tenants contractually responsible for payment of taxes,
maintenance, insurance and other similar expenditures associated
with tenants' infrastructure assets. If our tenants fail to pay
these expenses as required, it could result in a diminution in the
value of the infrastructure asset associated with our real property
interest and have a material adverse impact on our results of
operations. Further, if a tenant fails to pay real property taxes,
any lien resulting from such unpaid taxes would be senior to our
real property interest in the applicable site. Failure to pay such
real property taxes could result in our real property interest
being impaired or extinguished, or we may be forced to incur costs
and pay the real property tax liability to avoid impairment of our
assets. We may enter into leases or acquire properties already
subject to lease that are not triple net lease arrangements,
including double net lease arrangements, in which case we may be
primarily responsible for certain expenses, such as insurance,
taxes, maintenance or other expenditures. Such obligations could
have a material adverse impact on our results from operations, as
could any material increase in such amounts over what we anticipate
paying.
We or our tenants may experience uninsured or underinsured losses,
which could result in a significant loss of the capital we have
invested in a property, decrease anticipated future revenues or
cause us to incur unanticipated expenses.
Leases
that we enter into are expected to require that the tenant maintain
comprehensive insurance and hazard insurance or self-insure its
insurance obligations. However, there are certain types of losses,
generally of a catastrophic nature, such as earthquakes, hurricanes
and floods, which may be uninsurable or not economically insurable.
Insurance coverage may not be sufficient to pay the full current
market value or current replacement cost of a loss. Inflation,
changes in building codes and ordinances, environmental
considerations, and other factors also might make it infeasible to
use insurance proceeds to replace the property after such property
has been damaged or destroyed. Under such circumstances, the
insurance proceeds received might not be adequate to restore the
economic position with respect to such property.
If any
of our existing properties or any other property we acquire
experiences a loss that is uninsured or that exceeds policy
coverage limits, we could lose the capital invested in the damaged
property as well as the anticipated future cash flows from the
property. In addition, even if damage to our properties is covered
by insurance, a disruption of business caused by a casualty event
may result in loss of revenue for our tenants or us. Any business
interruption insurance may not fully compensate them or us for such
loss of revenue. If one of our tenants experiences such a loss, it
may be unable to satisfy its payment obligations to us under its
lease with us.
Our ability to fully control the maintenance of our net-leased
properties may be limited.
The
tenants or managers of net-leased properties are generally
responsible for maintenance and other day-to-day management of the
properties. If a property is not adequately maintained in
accordance with the terms of the applicable lease, we may incur
expenses for deferred maintenance expenditures or other liabilities
once the property becomes free of the lease. While we expect our
leases will generally provide for recourse against the tenant in
these instances, a bankrupt or financially-troubled tenant may be
more likely to defer maintenance and it may be more difficult to
enforce remedies against such a tenant. In addition, to the extent
tenants are unable to conduct their operation of the property on a
financially-successful basis, their ability to pay rent may be
adversely affected. Although we endeavor to monitor, on an ongoing
basis, compliance by tenants with their lease obligations and other
factors that could affect the financial performance of our
properties, such monitoring may not in all circumstances ascertain
or forestall deterioration either in the condition of a property or
the financial circumstances of a tenant.
Real estate investments are relatively illiquid, and therefore we
may not be able to dispose of properties when appropriate or on
favorable terms.
Investments
in real properties are relatively illiquid. We may not be able to
quickly alter our portfolio or generate capital by selling
properties. The real estate market is affected by many factors,
such as general economic conditions, availability of financing,
interest rates and other factors, including supply and demand, that
are beyond our control. If we need or desire to sell a property or
properties, we cannot predict whether we will be able to do so at a
price or on the terms and conditions acceptable to us. We cannot
predict the length of time needed to find a willing purchaser and
to close the sale of a property. Further, we may be required to
invest monies to correct defects or to make improvements before a
property can be sold. We can make no assurance that we will have
funds available to correct these defects or to make these
improvements. Moreover, in acquiring a property, we may agree to
restrictions that prohibit the sale of that property for a period
of time or impose other restrictions, such as a limitation on the
amount of debt that can be placed or repaid on that property. These
provisions would restrict our ability to sell a
property.
Any material weaknesses in our internal controls over financial
reporting or failure to maintain proper and effective internal
controls could impair our ability to produce accurate and timely
financial statements and investors' views of us could be harmed.
The execution of our transformation plan may make it more
challenging for us to maintain effective controls.
Ensuring
that we have adequate internal financial and accounting controls
and procedures in place so that we can manage our business and
produce accurate financial statements on a timely basis is a costly
and time-consuming effort. Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”). We are required to comply with Section
404(a) of the Sarbanes-Oxley Act of 2002, which requires annual
management assessment of the effectiveness of our internal control
over financial reporting. Our compliance with Section 404 has
required and will continue to require that we incur additional
expense and expend management time on compliance-related issues. We
have significantly reduced staffing in connection with the
execution of our transformation plan. As a result, our maintenance
of sufficient controls will be dependent on a smaller group of
individuals than in the past. We currently only have two full-time
employees, which may adversely affect our ability to maintain
proper internal controls.
If we
fail to maintain proper controls, our business could be adversely
affected, our ability to predict our cash needs and the market's
confidence in our financial statements could decline, and the
market price of our common stock could be adversely
affected.
We may not be able to realize value from our NOLs.
As of
December 31, 2018, we had
U.S. federal net operating loss carryforwards of approximately $496
million (net of $3 million of limitations) and state net operating
loss carryforwards of $0.1 million to $202 million, which begin to
expire at varying dates starting in 2019 for U.S. federal and state
income tax purposes. If we had an “ownership
change” as defined in section 382 of the Code, our NOLs
generated prior to the ownership change would be subject to annual
limitations, which could reduce, eliminate, or defer the
utilization of these losses. Generally, an ownership change occurs
if one or more stockholders, each of whom owns 5% or more in value
of a corporation’s stock, increase their aggregate percentage
ownership by 50 percentage points or more as compared to the lowest
percentage of stock owned by such stockholders at any time during
the preceding three-year period. Based upon a review of past
changes in our ownership, we do not believe that we have
experienced an ownership change (as defined under Section 382) that
would result in any limitation on our future ability to use these
NOLs. There can be no assurance however that the Internal Revenue
Service or some other taxing authority will not disagree with our
position and contend that we have already experienced such an
ownership change, which would severely limit our ability to use our
NOLs to offset future taxable income.
In
connection with our Reorganization shares of our common stock are
subject to transfer restrictions contained in our certificate of
incorporation. In general, the transfer restrictions prohibit
transfers having the effect of increasing without our consent the
ownership of our common stock by (i) any person from less than 5%
to 5% or more or (ii) any person owning or deemed to own 5% of more
of our common stock.
While
we expect that the transfer restrictions will help guard against an
ownership change occurring under Section 382 of the Code and the
related rules, because we may use our common stock as consideration
to make acquisitions and because we may sell additional shares of
our common stock in the future to raise capital for our business,
we cannot guarantee that an ownership change will not occur in the
future.
Further,
under the Tax Act, the amount of post 2017 NOLs that we are
permitted to deduct in any taxable year is limited to 80% of our
taxable income in such year, where taxable income is determined
without regard to the NOL deduction itself. In addition, the Tax
Act generally eliminates the ability to carry back any NOL to prior
taxable years, while allowing post 2017 unused NOLs to be carried
forward indefinitely. There is a risk that due to changes under the
Tax Act, regulatory changes, or other unforeseen reasons, our
existing NOLs could expire or otherwise be unavailable to offset
future income tax liabilities. For these reasons, we may not be
able to realize a tax benefit from the use of our NOLs, whether or
not we attain profitability.
We may not be able to make use of the existing tax benefits of the
NOLs because we may not generate taxable income.
The use
of the NOLs is subject to uncertainty because it is dependent upon
the amount of taxable income generated by us and our consolidated
subsidiaries. Through December 31, 2018 we have not generated
federal taxable income on an annual basis, and there can be no
assurance that we will have sufficient taxable income in future
years to use the NOLs before they begin expiring at varying dates
starting in 2019 for U.S. federal and state income tax
purposes.
Future legislation may impede our ability to realize the tax
benefits of the NOLs.
It is
possible that legislation or regulations will be adopted in the
future that would further limit our ability to realize the tax
benefits associated with the NOLs.
The IRS could challenge the amount of the NOLs or claim that we
experienced an ownership change, which could reduce the amount of
NOLs that we can use.
As of
the date of this Annual Report on Form 10-K, the amount of the NOLs
has not been audited or otherwise validated by the IRS. The IRS
could challenge the amount of the NOLs, which could result in an
increase in our future income tax liability. The Company's U.S.
federal tax return for the year ended December 31, 2013 was audited
by the Internal Revenue Service and such audit was completed in
2017. No adjustments were made as a result of the
audit.
In
addition, calculating whether an ownership change has occurred is
subject to uncertainty, both because of the complexity and
ambiguity of Section 382 and because of limitations on a
publicly traded company's knowledge as to the ownership of, and
transactions in, its securities. Therefore, we cannot assure you
that a governmental authority will not claim that we experienced an
ownership change and attempt to reduce or eliminate the benefit of
the NOLs even if we are successful in implementing the protective
measures subjecting our stock to transfer
restrictions.
Any lawsuits filed against us could divert management's attention
and adversely affect our business, results of operations and cash
flows.
In the
past, lawsuits have been filed against us and certain of our former
directors and officers. Although these cases have been dismissed,
there is always the possibility for more suits to be brought
against the Company. These types of litigation often are expensive
and divert management's attention and resources. As a result, any
of those claims, whether or not ultimately successful, could
adversely affect our business, results of operations and cash
flows.
As a result of the implementation of measures designed to protect
the use of our NOLs by restricting transfers of our common stock to
the extent such transfers would affect the percentage of stock that
is treated as owned by a five-percent stockholder, your ability to
transfer your shares of common stock and your opportunity to
receive a premium on our stock may be limited.
In
connection with our Reorganization, shares of our common stock are
subject to transfer restrictions contained in our certificate of
incorporation. In general, the transfer restrictions prohibit
transfers without our consent having the effect of increasing the
ownership of our common stock by (i) any person from less than 5%
to 5% or more or (ii) any person owning or deemed to own 5% of more
of our common stock. Consequently, your ability to transfer your
shares of common stock may be limited.
Even if
our Board consented to a significant stock acquisition, a potential
buyer might be deterred from acquiring our common stock while we
still have significant tax losses being carried forward, because
such an acquisition might trigger an ownership change and severely
impair our ability to use our NOLs against future income. Thus,
this potential tax situation could have the effect of delaying,
deferring or preventing a change in control and, therefore, could
affect adversely our shareholders' ability to realize a premium
over the then prevailing market price for our common stock in
connection with a change in control. The transfer restrictions that
apply to shares of our common stock, although designed as a
protective measure to avoid an ownership change, may have the
effect of impeding or discouraging a merger, tender offer or proxy
contest, even if such a transaction may be favorable to the
interests of some or all of our shareholders. This effect might
prevent our stockholders from realizing an opportunity to sell all
or a portion of their common stock at a premium to the prevailing
market price. In addition, the transfer restrictions may delay the
assumption of control by a holder of a large block of our common
stock and the removal of incumbent directors and management, even
if such removal may be beneficial to some or all of our
stockholders.
Our common stock is ranked junior to our Series J preferred stock
with respect to cash dividends and amounts payable in the event of
our dissolution, liquidation or winding up.
With
respect to the payment of cash dividends and amounts payable in the
event our liquidation, dissolution or winding up, our common stock
is ranked junior to our Series J preferred stock. This means that,
unless full cumulative dividends have been paid or set aside for
payment on all outstanding Series J preferred stock for all accrued
dividends, no cash dividends may be declared or paid on our common
stock. Likewise, in the event of our voluntary or involuntary
liquidation, dissolution or winding up, no distribution of our
assets may be made to holders of our common stock until we have
paid to our Series J preferred stockholders the liquidation
preference relating to such preferred stock, plus in each case any
accrued and unpaid dividends. In the event of our voluntary or
involuntary liquidation, dissolution or winding up, our asset value
would first inure to the benefit of holders of our Series J
preferred stock, up to the value of the Series J preferred stock
liquidation preference plus any accrued and unpaid dividends
thereon, before holders of our common stock would realize any
benefits from such increase.
We have not paid or declared common stock cash dividends in the
past, and do not plan to pay or declare common stock cash dividends
in the future, and, as a result, your only opportunity to achieve a
return on an investment in our common stock is if the price of our
common stock appreciates.
We have
never declared or paid any dividends on our common stock other than
the distribution of subscription rights in the rights offerings
that closed in October 2012 and March 2015. We do not expect to
declare or pay dividends on our common stock in the foreseeable
future. Instead, we anticipate that all of our earnings in the
foreseeable future will be used in the operation and growth of our
business and the payment of dividends on our Series J preferred
stock. Any determination to pay dividends on our common stock in
the future will be at the discretion of our board of directors. In
addition, our ability to pay dividends on our common stock is
currently limited by the terms of our Series J preferred stock and
may be further restricted by the terms of any future debt or
preferred securities. Accordingly, your only opportunity to achieve
a return on your investment in our common stock may be if the
market price of our common stock appreciates and you sell your
shares at a profit. The market price for our common stock may never
exceed, and may fall below, the price that you paid for such common
stock.
We currently have fewer than 300 stockholders of record and,
therefore, are eligible to terminate the registration of our common
stock under the Securities Exchange Act of 1934, as
amended.
As a
public company with fewer than 300 stockholders of record, we
currently register our shares of common stock under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”),
on a voluntary basis. Section 12(g)(4) of the Exchange Act allows
for the registration of any class of securities to be terminated 90
days after a company files a certification with the SEC that the
number of holders of record of such class of security is fewer than
300 persons. Accordingly, we are eligible to deregister our common
stock under the Exchange Act. Upon the effectiveness of the
termination of registration under Section 12, we would not be
required to comply with certain disclosure requirements under the
Exchange Act, including, but not limited to, proxy statement
filings and filings by insiders to disclose the acquisition and
disposition of our securities. Even if we were to deregister,
however, Section 15(d) of the Exchange Act would require us to
continue to file annual, quarterly and current reports until no
earlier than when we file our next annual report on Form 10-K. At
such time, you may not have access to current information about our
Company.
We are subject to cybersecurity risks and other cyber incidents
that may disrupt and harm our business.
Threats
to information technology systems associated with cybersecurity
risks and cyber incidents or attacks continue to grow. We depend on
information technology systems. In addition, we may collect,
process and retain sensitive and confidential information in the
normal course of business. Our facilities and systems, and those of
our third-party service providers, could be vulnerable to security
breaches, computer viruses, lost or misplaced data, programming
errors, human errors, acts of vandalism or other events. Any
disruption of our systems or security breach or event resulting in
the misappropriation, loss or other unauthorized disclosure of
confidential information, whether by us directly or our third-party
service providers, could damage our reputation, expose us to the
risks of litigation and liability, disrupt our business or
otherwise materially and adversely affect our results of
operations.
Terrorist attacks and other acts of violence or war may adversely
impact the real estate industry generally and our business,
financial condition and results of operations.
Terrorist
attacks may negatively affect our operations. Such attacks in the
past have caused uncertainty in the global financial markets and
economic instability in the U.S. and elsewhere. Future acts of
terrorism, violence, war, prolonged periods of civil unrest, the
anticipation of any such events, and the consequences of any
military or other responses could similarly affect global financial
markets and trade. We cannot predict the severity of the effect
that any such future events would have on the U.S. financial
markets, including the real estate capital markets, the economy, or
our business. In addition, terrorist attacks or other hostilities
may directly impact our real properties or our tenants, which could
adversely impact our operations. These uncertainties could also
adversely affect our ability to obtain additional financing on
terms acceptable to us, or at all.
Item 1B. Unresolved Staff
Comments.
We are
not required to provide the information required by Item 1B because
we are a smaller reporting company. However, there are no
unresolved staff comments.
As of
December 31, 2018, our real estate portfolio consisted of
three investments in real property. The first property is located
at 160 Brighton Ave., Long Branch, NJ, 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. Refer to http://investor.shareholder.com/jpmorganchase/sec.cfm
for the financial statements of the tenant. The average annual
rental income for the property over the remaining term of the
original lease is expected to be approximately $203,000, exclusive
of the amortization of the above market lease
intangible.
The
second property is located at
721 Flanders Road, Flanders, New York, subject to a double net
lease with 7-Eleven, Inc. (“7-Eleven”), the original
term of which expires in December 2029 (with four, five-year
renewal options. During the term of this lease, 7-Eleven is
responsible for the payment of base rent, as well as the payment
of, subject to certain exceptions, real estate taxes, utilities,
tenant’s insurance and other property related costs. Voltari
Holding, 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
$165,000, exclusive of the amortization of the above market lease
intangible.
The third property is located at 1401 Shop Road in
Columbia, South Carolina. The
property (the "McClatchy Property") is subject to a triple net
lease with The McClatchy Company
(“McClatchy”), the original term of which is for
fifteen years and expires in April 2033 (with three, five-year
renewal options. During the Term, McClatchy is responsible for the
payment of basic rent, as well as the payment of real estate taxes,
utilities, tenant’s insurance and other property related
costs. The purchase price was approximately $16.89 million
inclusive of all costs. Refer to http://investors.mcclatchy.com/phoenix.zhtml?c=87841&p=irol-sec for
the financial statements of the tenant. On each of the fifth (5th) and tenth (10th)
anniversaries of the commencement date of the Lease, the base rent
will be increased by ten percent (10%) above the then current base
rent. The average annual rental income for the McClatchy
property over the remaining original term is approximately
$1,787,000, exclusive of the amortization of the below market lease
intangible.
Our
corporate headquarters is located at 767 Fifth Avenue, Suite 4700,
New York, New York and comprises approximately 100 square feet of
space leased on a month to month basis. As of November 30, 2018,
our lease of the approximately 8,000 square feet in New York, New
York where our headquarters was previously located terminated
pursuant to its terms.
Item 3. Legal Proceedings
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.
Item 4. Mine Safety Disclosure
Not
applicable.
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Since
December 23, 2016, our common stock has been quoted on the OTCQB
marketplace under the symbol “VLTC.” Previously, our
common stock traded on NASDAQ under the symbol
“VLTC.”
The
following table sets forth the high and low sales prices of our
common stock per share, as reported by the OTCQB marketplace, as
applicable, for each of the periods presented. The information
reflects prices between dealers, and does not include retail
markup, markdown, or commissions, and may not represent actual
transactions. As of March 5, 2019, the closing sales price of
our common stock was $0.86 per share.
|
|
|
Fiscal
Year Ending December 31, 2018
|
|
|
Fourth
Quarter
|
$0.55
|
$0.36
|
Third
Quarter
|
$0.98
|
$0.42
|
Second
Quarter
|
$1.38
|
$0.90
|
First
Quarter
|
$1.48
|
$0.88
|
Fiscal
Year Ending December 31, 2017
|
|
|
Fourth
Quarter
|
$2.19
|
$0.37
|
Third
Quarter
|
$0.90
|
$0.69
|
Second
Quarter
|
$1.26
|
$0.72
|
First
Quarter
|
$3.39
|
$1.00
|
Holders
Total
shares of common stock outstanding as of March 5, 2019 were
8,994,814, and we had 179 stockholders of record. The number of
stockholders of record does not reflect beneficial owners whose
shares are held in the names of various securities brokers, dealers
and registered clearing agencies.
Unregistered Sales of Equity Securities
In the
fiscal year ended December 31,
2018, we did not issue any unregistered
securities.
Dividend Policy
We are
not required to pay any dividends and have not declared or paid any
dividends on our common stock other than the distribution of
subscription rights in our rights offerings that closed on October
11, 2012 and March 30, 2015. We do not anticipate paying any
cash dividends on our common stock in the foreseeable future. Any
future dividends will be at the discretion of our Board and will
depend upon our operating results, strategic plans, capital
requirements, financial condition, provisions of any of our
borrowing arrangements, applicable law and other factors our board
of directors considers relevant.
Item 6. Selected Financial Data.
We are
not required to provide selected financial data disclosures because
we are a smaller reporting company.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Forward-Looking Statements
The following discussion should be read in conjunction with our
consolidated financial statements included elsewhere herein. Unless
otherwise noted, all dollar amounts in tables are in
thousands.
This annual report on Form 10-K, including this Management's
Discussion and Analysis of Financial Condition and Results of
Operations, contains forward-looking statements that are based on
management's current expectations, estimates, forecasts, and
projections about our business and operations. Our actual results
may differ materially and adversely from those currently
anticipated and expressed in any such forward-looking statements,
including as a result of the factors we describe under “Risk
Factors” and elsewhere in this annual report. See
“Special Note Regarding Forward-Looking Statements”
appearing at the beginning of this report and “Risk
Factors” set forth in Part I - Item 1A of this
report.
Business Overview
Transformation Plan - 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 estate properties. We lease our properties and intend to lease
any future properties pursuant to so-called “double
net” or “triple net” leases. In order to continue
to grow our real estate portfolio in a manner designed to, over
time, help us generate profits, we may pursue higher valued
properties, such as the McClatchy Property. We anticipate that any
such higher valued properties would likely generate relatively
higher rental income and would likely involve higher acquisition
costs and may involve higher costs of maintenance. There can be no
assurance that we will be successful in acquiring additional real
estate properties, including any such higher valued properties, on
commercially reasonable terms, if at all. As a result of the
completion of the McClatchy Property acquisition (as
described below), our current monthly rental income has increased
to approximately $163,000.
Any
future acquisitions are intended to be initially financed through
borrowings available under our Amended Note with
Koala.
Real Property Acquisitions—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. Refer to http://investor.shareholder.com/jpmorganchase/sec.cfm
for the financial statements of the tenant. 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, exclusive of the amortization of the above
market lease intangible.
On May
18, 2016, we acquired a real estate parcel in Flanders, New York.
The property is subject to a double net lease with 7-Eleven, Inc.
(“7-Eleven”), the original term of which expires in
December 2029 (with four, five-year renewal options. During the
term of the lease, 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. The landlord is responsible for certain
maintenance and repair costs. The purchase price was approximately
$2.82 million and the average annual rental income for the property
over the remaining original term is approximately $165,000,
exclusive of the amortization of the above market lease
intangible.
On April 23, 2018, we acquired a real estate parcel in
Columbia, South Carolina. The
property (the "McClatchy Property") is subject to a triple net
lease with The McClatchy Company
(“McClatchy”), the original term of which is for
fifteen years and expires in April 2033. During the term of the
lease, McClatchy is responsible for the payment of basic rent, as
well as the payment of real estate taxes, utilities, tenant’s
insurance and other property related costs. The purchase price was
approximately $16.89 million inclusive of all costs. Refer to
http://investors.mcclatchy.com/phoenix.zhtml?c=87841&p=irol-sec for
the financial statements of the tenant. On each of the fifth (5th) and tenth (10th)
anniversaries of the commencement date of the lease, the base rent
will be increased by ten percent (10%) above the then current base
rent. The average annual rental income for the McClatchy
property over the remaining original term is approximately
$1,787,000, exclusive of the amortization of the below market lease
intangible.
Recent Developments — On December 7, 2018, High River
Limited Partnership (“High River”), an entity
affiliated with Mr. Carl C. Icahn, our controlling stockholder, and
its affiliates (collectively with High River, the “Icahn
Affiliates”) beneficial owners of approximately 52.7% of our
outstanding shares of common stock and approximately 98.0% of our
outstanding shares of 13% Redeemable Series J Preferred Stock, made
an offer to purchase the remaining shares of the Company’s
common stock in a merger transaction for $0.58 per share in cash
(the “Offer”). As previously disclosed in our Current
Report on Form 8-K dated January 10, 2019, the Board subsequently
formed a special committee of independent directors to consider the
Offer. On February 19, 2019, the Icahn Affiliates increased their
offer to $0.68 per share in cash, on February 25, 2019, they
increased their offer to $0.80 per share in cash, and on March 5,
2019, they further increased their offer to $0.86 per share in
cash, each subject to the same conditions as set forth in the
original offer letter.
There
can be no assurance that an agreement with High River or any other
party will be executed or that any transaction will be approved or
consummated. The pendency of the Offer for an extended period of
time, as well as the failure to consummate a transaction with High
River or any other party, may have a negative impact on our ability
to effectively execute our business plans. If a transaction is
approved and consummated, we would no longer be a public company
and common stockholders would no longer be able to participate in
any of our future earnings or growth.
Results of Operations
Total revenues
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
$1,554
|
$322
|
$1,232
|
●
For the year ended December 31, 2018, the revenue increase
resulted from the acquisition of the McClatchy Property in April
2018.
Operating expenses
|
|
|
|
|
|
|
|
|
|
General and
administrative
|
$1,598
|
1,843
|
(245)
|
Depreciation and
amortization
|
909
|
178
|
731
|
Acquisition and transaction
related
|
37
|
102
|
(65)
|
Total operating expenses
|
$2,544
|
$2,123
|
$421
|
General and administrative
For the
year ended December 31, 2018, general and administrative
expenses decreased $0.2 million compared to the year ended
December 31, 2017, due to:
●
$0.1
million decrease in professional fees,
● $0.1 million
decrease in insurance costs resulting from lower fees
Depreciation and amortization
For the
year ended December 31, 2018, depreciation and amortization
increased by $0.7 million compared to the year ended
December 31, 2017, as a result of depreciation and
amortization related to the acquisition of the McClatchy
property.
Acquisition and transaction related
For the
year ended December 31, 2018, acquisition and transaction
related costs declined by approximately $0.1 million. For the year
ended December 31, 2017 acquisition costs included expenses related
to potential acquisitions, including the McClatchy
purchase.
Other income net of expense
|
|
|
|
|
|
|
|
|
|
|
|
Other income net of
expense
|
$133
|
$89
|
$44
|
Other
income net of expense for the year ended December 31, 2018,
represents various miscellaneous items and has remained similar to
the amount for the year ended December 31, 2017.
Interest expense and revolving note fees
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense and Revolving Note
fees
|
$(667)
|
$(190)
|
$(477)
|
For the
years ended December 31, 2018 and 2017, interest expense consists
of interest on borrowings under our Prior Note and Amended Note, as
applicable, with Koala. Interest expense for the year ended
December 31, 2017 also included a revolving note fee on the undrawn
amounts under the Prior Note. Under our Amended Note, effective in
March 2017, the revolving note fee on undrawn amounts was
eliminated. See Note 5 –
Liquidity and Capital Resources to our consolidated
financial statements for more information.
Provision (benefit) for income taxes
A
provision for income tax was recorded in 2018 in the amount of $2
thousand. No provision was recorded for 2017. Because of our
history of generating operating losses, we maintain full valuation
allowances against these deferred tax assets and consequently do
not recognize tax benefits for our current operating losses. If we
determine it is more likely than not that all or a portion of the
deferred tax assets will be realized, we will eliminate or reduce
the corresponding valuation allowances which would result in
immediate recognition of an associated tax benefit. Going forward,
we will reassess the need for any remaining valuation allowances or
the necessity to recognize additional valuation allowances. In the
event we do eliminate all or a portion of the valuation allowances
in the future, we will begin recording income tax provisions based
on our earnings at applicable statutory tax rates from that time
forward.
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$(1,526)
|
$(1,902)
|
$376
|
For the
year ended December 31, 2018, our net loss was $1.5 million,
compared to net loss of $1.9 million for the year ended
December 31, 2019. The
$0.4 million decrease in net loss is primarily due to:
●
increase in revenue
of $1.2 million;
|
●
decreased general
and administrative expenses of $0.3 million;
|
● decrease in
acquisition and transaction related costs of $0.1 million partially
offset by;
|
●
increase in
depreciation of $0.7 million;
|
● increase in
interest expense of $0.5 million;
|
|
|
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 December 31, 2018 consisted of cash
and cash equivalents of $0.6 million, our positive cash flow from
operations, and our ability to borrow on our Koala
loan.
On
August 7, 2015, we, as borrower, and Koala Holding LP
(“Koala”), as lender, an affiliate of Mr. Carl C.
Icahn, the Company’s controlling stockholder, entered into a
$10 million revolving loan facility (the “Prior Note") at a
rate equal to the greater of the LIBOR rate plus 350 basis points,
per annum, and 3.75%, per annum, plus a fee of 0.25% per annum on
undrawn amounts. The Company sought and received the Prior Note to,
in part, allay potential concerns regarding the Company’s
ability to invest in and execute its transformation plan while
retaining cash levels sufficient to fund its ongoing operations.
There were no limitations on the use of proceeds under the Prior
Note. As collateral for the Prior Note, we pledged and granted to
Koala a lien on our limited liability company interest in Voltari
Holding.
On
March 29, 2017, we as borrower, and Koala, as lender, entered into
a revolving note (the “Amended Note”), which amended
and restated the Prior Note. The Amended Note provides that the net
proceeds thereunder in excess of $10 million will be used by the
Company for the acquisition, improvement, development,
modification, alteration, repair, maintenance, financing or leasing
of real property, including any fees and expenses associated with
such activities. Pursuant to the Amended Note, Koala made available
to the Company a revolving loan facility of up to $30 million in
aggregate principal amount (the “Commitment”). The
Company may, by written notice to Koala, request that the
Commitment be increased (the “Increased Commitment”),
provided that the aggregate amount of all borrowings, plus
availability under the aggregate Increased Commitment, shall not
exceed $80 million. Koala has no obligation to provide any
Increased Commitment and may refuse to do so in its sole
discretion. Borrowings under the Amended Note will bear interest at
a rate equal to the LIBOR Rate (as defined in the Amended Note)
plus 200 basis points, per annum, subject to a maximum rate of
interest of 3.75%, per annum. The Amended Note matures on the
earliest of (i) December 31, 2020, (ii) the date on which any
financing transaction, whether debt or equity, is consummated by
the Company (or its successors and assigns) with net proceeds in an
amount equal to or greater than $30 million, and (iii) at the
Company’s option, a date selected by the Company that is
earlier than December 31, 2020 (the “Maturity Date”).
The Amended Note also allows the Company to, upon written notice to
Koala not more than 60 days and not less than 30 days prior to the
Maturity Date, request that Koala extend the Maturity Date to
December 31, 2022. Koala may, in its sole discretion, agree to
extend the Maturity Date by providing written notice to the Company
on or before the date that is 20 days prior to the Maturity Date.
If an event of default exists, the Amended Note will bear interest
at a default rate equal to the greater of the LIBOR Rate plus 300
basis points, per annum, or 4.5%, per annum.
Subject
to the terms and conditions of the Amended Note, the Company may
repay all or any portion of the amounts outstanding under the
Amended Note at any time without premium or penalty. The amounts
available under the Commitment or Increased Commitment, as the case
may be, will increase and decrease in direct proportion to
repayments and reborrowings under the Amended Note, respectively,
from time to time. As collateral for the Amended Note, the Company
has pledged and granted to Koala a lien on the Company’s
limited liability company interest in Voltari Holding.
As of
December 31, 2018, borrowings from this facility totaled $23.0
million due to borrowings in connection with our real estate
acquisitions as well as for working capital requirements. After our
$500,000 withdrawal to fund operations during 2018, there remains
$4.0 million available for working capital purposes.
We
expect that our principal needs for liquidity in the future will be
for the acquisition of future commercial real properties, the cost
of operations and working capital requirements. Our cash flows may
be affected by many factors including the economic environment,
competitive conditions in the commercial real estate industry. We
believe we will have adequate resources to fund our operations,
capital expenditures and working capital needs for the next 12
months using our cash and cash equivalents on hand, together with
cash flows generated by our rental income net of operating expenses
as well as borrowings available under the Amended Note. 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.
To the
extent we are unable to replace or refinance the Amended 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 Amended Note 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 only at costs
and require us to satisfy restrictive covenants, which could
further limit or restrict our business and results of operations or
be dilutive to our stockholders.
Cash Flows
As of
December 31, 2018, and
2017, we had cash, cash equivalents and restricted cash of $1.0
million and $0.2 million, respectively. The increase of $0.8
million reflects:
●
$ 0.2 million of cash provided by operating
activities;
●
$17.5 million increase in our borrowings, offset by
●
$16.9 million used for the purchase of real estate.
Net Cash Provided by (Used in) Operating Activities
For the
year ended December 31, 2018, net cash of $0.2 million was provided
by operating activities. The change in our operating assets and
liabilities was driven by a decrease in prepaid expenses of $0.1
million, a decrease in accounts payable, accrued expenses other
liabilities of $0.2 million and an increase in security deposits of
$0.4 million as a result of the McClatchy lease.
Cash Used in Investing Activities
For the
year ended December 31, 2018, approximately $16.9 million cash was
used in investing activities to acquire our additional real
estate.
Cash Provided by Financing Activities
For the
year ended December 31, 2018, cash in the amount of $17.5 million
was provided by borrowings under our Amended Note.
Off-Balance Sheet Arrangements
As of
December 31, 2018, we do
not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity and capital resources
that are material to investors. Prior to the implementation of our
transformation plan, we entered into contracts with mobile
marketing and advertising customers which provided that we would
indemnify such customers against certain intellectual property
claims as well as other contractual matters. Until the expiration
of such contractual indemnification provisions, we may indemnify
our previous customers against certain copyright and patent
infringement claims that may arise from them having used our
software technology.
Critical Accounting Policies and Estimates
Our
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, redeemable preferred
stock, litigation and other loss contingencies. 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 to our consolidated financial statements in this
Annual Report on Form 10-K.
Revenue recognition
The
Company’s revenues are derived from rental income, include
rents due in accordance with the lease terms, reported on a
straight-line basis over the initial term of the leases. Our leases
are categorized as operating leases.
Real Estate Investments
Investments
in real estate are 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. Cost of acquiring real estate investments is
allocated to tangible and intangible assets. 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 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. We determine these fair values primarily by
relying upon third-party appraisals conducted by independent
appraisal firms.
Depreciation
is computed using the straight-line method over the estimated
useful lives of up to 43 years for buildings, 15 years
for land 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.
Valuation of long-lived and intangible assets
We
periodically evaluate events or changes in circumstances that
indicate the carrying amount of our long-lived and intangible
assets may not be recoverable or that the useful lives of the
assets may no longer be appropriate. Factors which could trigger an
impairment review or a change in the remaining useful life of our
long-lived and intangible assets include significant
underperformance relative to historical or projected future
operating results, significant changes in our use of the assets or
in our business strategy, loss of or changes in customer
relationships and significant negative industry or economic trends.
When indications of impairment arise for a particular asset or
group of assets, we assess the future recoverability of the
carrying value of the asset (or asset group) based on an
undiscounted cash flow analysis. If carrying value exceeds
projected, net, undiscounted cash flows, an additional analysis is
performed to determine the fair value of the asset (or asset
group), typically a discounted cash flow analysis, based on an
income and/or cost approach, and an impairment charge is recorded
for the excess of carrying value over fair value. Any impairment
losses relating to long-lived and intangible assets are recognized
in the consolidated financial statements.
The
process of assessing potential impairment of our long-lived and
intangible assets is highly subjective and requires significant
judgment. An estimate of future undiscounted cash flow can be
affected by many assumptions, requiring that management make
significant judgments in arriving at these estimates. Although
there are inherent uncertainties in this assessment process, the
estimates and assumptions we use to estimate future cash flows are
consistent with our internal planning. Significant future changes
in these estimates or their related assumptions could result in
additional impairment charges related to individual assets or
groups of these assets.
Provision (benefit) for income taxes
On
December 22, 2017, the U.S. Congress enacted a new tax legislation,
commonly referred to as “The Tax Cuts and Jobs Act of
2017” (the “Tax Act”). In accordance with ASC
740, Accounting for Income Taxes, the Company recognized the effect
of the Tax Act in the period of enactment, during the year ended
December 31,2017.
We are
subject to federal and various state income taxes in the U.S., and
to a lesser extent, income-based taxes in various foreign
jurisdictions, including, but not limited to Canada. In 2012, we
effected a restructuring of our workforce and other cost savings
initiatives. As a part of this process we have exited from our
operations in India, the Asia Pacific region, France and the
Netherlands. Deferred tax assets, related valuation allowances,
current tax liabilities and deferred tax liabilities are determined
separately by tax jurisdiction. In making these determinations, we
calculate tax assets, related valuation allowances, current tax
liabilities and deferred tax liabilities, and we assess temporary
differences resulting from differing treatment of items for tax and
accounting purposes. We recognize only tax positions that are
“more likely than not” to be sustained based solely on
their technical merits. Although we believe that our tax estimates
are reasonable, the ultimate tax determination involves significant
judgment that is subject to audit by tax authorities in the
ordinary course of business.
At
December 31, 2018, our
gross deferred tax assets consisted primarily of domestic net
operating losses and research and development credit carryforwards.
As of December 31, 2018, the Company had federal net operating loss
carryforwards of $496 million (net $3 million of limitations) and
state net operating loss carryforwards of $0.1 million to $202
million for the respective states the Company files in. Federal net
operating loss carryforwards amounting to $495.4 million begin to
expire from 2019 to 2037 for U.S. federal income tax purposes while
the remaining $0.6 million do not expire. State net operating
loss carryforwards begin to expire from 2019 to 2038 for state
income tax purposes.
Because
of our history of generating operating losses, we maintain full
valuation allowances against these deferred tax assets and
consequently do not recognize tax benefits for our current
operating losses. If we determine it is more likely than not that
all or a portion of the deferred tax assets will be realized, we
will eliminate or reduce the corresponding valuation allowances
which would result in immediate recognition of an associated tax
benefit. Going forward, we will reassess the need for any remaining
valuation allowances or the necessity to recognize additional
valuation allowances. In the event we do eliminate all or a portion
of the valuation allowances in the future, we will begin recording
income tax provisions based on our earnings at applicable statutory
tax rates from that time forward.
Redeemable preferred stock and common stock
warrants
In
October 2012, we issued 1,199,643 shares of Series J preferred
stock and (after giving effect to the one-for-ten reverse stock
split) warrants to purchase 1,014,982 shares of our common stock.
Net proceeds from the rights offering of $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 with the assistance of a third party valuation
specialist. Our Series J preferred stock contains certain
redemption features which are outside of our control. Accordingly,
our Series J preferred stock is classified as mezzanine equity and
reported as Redeemable preferred stock on our consolidated balance
sheet, net of issuance costs, at December 31, 2018. The difference
between the carrying value of the Series J preferred stock and its
liquidation value was accreted over an anticipated redemption
period of five years using the effective interest method. Holders
of the Series J preferred stock are entitled to an annual dividend
of 14%, which increased from 13% as of January 1, 2018, which is
payable in-cash or in-kind, at the discretion of the Company, on a
quarterly basis. Dividends declared on the Series J preferred stock
and accretion associated with the Series J preferred stock reduce
the amount of net earnings that are available to common
stockholders and are presented as separate amounts on the
consolidated statements of operations. The common stock warrants
were recorded as Additional paid-in capital on our consolidated
balance sheet. On October 11, 2017, the remaining warrants to
purchase 1,014,958 shares of our common stock expired without being
exercised.
Recent
Accounting Pronouncements
See Note 2 - Summary of Significant Accounting
Policies to the consolidated financial
statements.
Item 7A.
Qualitative and Quantitative
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 8.
Consolidated Financial
Statements.
Report
of Independent Registered Public Accounting Firm
Board
of Directors and Stockholders
Voltari
Corporation
Opinion on the financial statements
We have
audited the accompanying consolidated balance sheets of Voltari
Corporation (a Delaware corporation) and subsidiaries (the
“Company”) as of December 31, 2018 and 2017, the
related consolidated statements of operations, comprehensive loss,
changes in stockholders’ deficit, and cash flows for each of
the two years in the period ended December 31, 2018, and the
related notes and financial statement schedules included under Item
15(a) (collectively referred to as the “financial
statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2018, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits we are required to obtain an understanding of
internal control over financial reporting but not for the purpose
of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/
GRANT THORNTON LLP
We have
served as the Company’s auditor since 2011.
New
York, New York
March 07,
2019.
Voltari Corporation
Consolidated Balance Sheets
(in thousands, except share data)
|
|
|
Assets
|
|
|
Real estate
investments, net
|
$21,977
|
$5,995
|
Cash and cash
equivalents
|
556
|
101
|
Restricted
cash
|
403
|
90
|
Prepaid
expenses
|
400
|
435
|
Deferred rent
receivable
|
158
|
27
|
Total
assets
|
$23,494
|
$6,648
|
Liabilities,
redeemable preferred stock and stockholders’
deficit
|
|
|
Accounts payable
and accrued expenses
|
$537
|
$641
|
Tenant security
deposit payable
|
403
|
-
|
Accrued
compensation
|
15
|
6
|
Deferred rent
income
|
17
|
17
|
Revolving
note
|
23,000
|
5,500
|
Interest
payable
|
999
|
331
|
Deferred rent
expense
|
-
|
15
|
Accrued preferred
stock dividends
|
2,238
|
1,816
|
Other
liabilities
|
-
|
112
|
Total
liabilities
|
27,209
|
8,438
|
Commitments
and contingencies
|
|
|
Redeemable
preferred stock, $0.001 par value; 1,200,000 shares authorized;
1,170,327 shares issued and outstanding at December 31, 2018 and
2017. Redemption value: $65,670 and $57,227 at December 31, 2018
and 2017, respectively.
|
63,431
|
55,411
|
Stockholders’
deficit
|
|
|
Common stock,
$0.001 par value; 25,000,000 shares authorized at December 31, 2018
and 2017; 8,994,814 shares issued and outstanding at December 31,
2018 and 2017.
|
9
|
9
|
Additional paid-in
capital
|
539,237
|
547,680
|
Accumulated
deficit
|
(606,477)
|
(604,951)
|
Accumulated other
comprehensive income
|
85
|
61
|
Total
stockholders’ deficit
|
(67,146)
|
(57,201)
|
Total
liabilities, redeemable preferred stock and stockholders’
deficit
|
$23,494
|
$6,648
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Voltari Corporation
Consolidated Statements of Operations
(in thousands, except share data and per share
amounts)
|
|
|
|
|
Revenue
|
$1,554
|
$322
|
Operating
expenses
|
|
|
General and
administrative
|
1,598
|
1,843
|
Depreciation and
amortization
|
909
|
178
|
Acquisition and
transaction related
|
37
|
102
|
Total
operating expenses
|
2,544
|
2,123
|
Operating
loss
|
(990)
|
(1,801)
|
Other income net of
expenses
|
133
|
89
|
Interest expense
and Revolving Note fees
|
(667)
|
(190)
|
Net
loss before income tax expense
|
$(1,524)
|
$(1,902)
|
Income tax
expense
|
(2)
|
-
|
Net
loss
|
$(1,526)
|
$(1,902)
|
Accretion of
redeemable preferred stock
|
-
|
(734)
|
Series J redeemable
preferred stock dividends
|
(8,443)
|
(6,872)
|
Net
loss attributable to common stockholders
|
$(9,969)
|
$(9,508)
|
|
|
|
Net
loss per share attributable to common stockholders
|
$(1.11)
|
$(1.06)
|
|
|
|
Weighted-average
common shares outstanding – basic and diluted
|
8,994,814
|
8,994,814
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Voltari Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
|
|
|
|
|
Net
loss
|
$(1,526)
|
$(1,902)
|
Other comprehensive
income:
|
|
|
Foreign currency
translation adjustment
|
24
|
3
|
Comprehensive
loss
|
$(1,502)
|
$(1,899)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Voltari Corporation
Consolidated Statements of Changes in Stockholders’
Deficit
(in thousands, except share data)
|
|
|
Additional
Paid-in
Capital
|
|
Accumulated
Other
Comprehensive
Income
|
|
Balance
as of December 31, 2016
|
8,994,814
|
$9
|
$555,286
|
$(603,049)
|
$58
|
$(47,696)
|
Net
loss
|
—
|
—
|
—
|
(1,902)
|
—
|
(1,902)
|
Other comprehensive
income
|
—
|
—
|
—
|
—
|
3
|
3
|
Redeemable
preferred stock dividends
|
—
|
—
|
(6,872)
|
—
|
—
|
(6,872)
|
Accretion of
redeemable preferred stock
|
—
|
—
|
(734)
|
—
|
—
|
(734)
|
Balance
as of December 31, 2017
|
8,994,814
|
9
|
547,680
|
(604,951)
|
61
|
(57,201)
|
Net
loss
|
—
|
—
|
—
|
(1,526)
|
—
|
(1,526)
|
Other comprehensive
income
|
—
|
—
|
—
|
—
|
24
|
24
|
Redeemable
preferred stock dividends
|
—
|
—
|
(8,443)
|
—
|
—
|
(8,443)
|
Balance
as of December 31, 2018
|
8,994,814
|
$9
|
$539,237
|
$(606,477)
|
$85
|
$(67,146)
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Voltari
Corporation
Consolidated Statements of Cash Flows
(in thousands)
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
Net
loss
|
$(1,526)
|
$(1,902)
|
Adjustments to
reconcile net loss to net cash provided by and (used in) operating
activities:
|
|
|
Depreciation and
amortization
|
909
|
178
|
Amortization of
above and below market lease intangibles
|
36
|
42
|
Straight-line
rental income
|
(131)
|
(16)
|
Non-cash interest
expense
|
667
|
190
|
Changes in
operating assets and liabilities:
|
|
|
Prepaid
expenses and deferred rent
|
35
|
175
|
Tenant
security deposit payable
|
403
|
-
|
Accounts
payable and accrued expenses
|
(182)
|
120
|
Deferred
rent expense
|
(15)
|
(10)
|
Net
cash provided by and (used in) operating activities
|
196
|
(1,223)
|
|
|
|
Cash
flows from investing activities:
|
|
|
Purchase of real
estate
|
(16,928)
|
-
|
Net
cash used in investing activities
|
(16,928)
|
-
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds
from debt facilities
|
17,500
|
1,000
|
Net
cash provided by financing activities
|
17,500
|
1,000
|
Net
increase (decrease) in cash, restricted cash and cash
equivalents
|
768
|
(223)
|
Cash,
restricted cash and cash equivalents at beginning of
year
|
191
|
414
|
Cash
and cash equivalents at end of year
|
$959
|
$191
|
|
|
|
Supplemental
cash flow information:
Non-cash investing
activities:
|
|
|
Series J redeemable
preferred stock dividend paid-in-kind
|
$8,020
|
$6,654
|
Cash paid during
the year for:
|
|
|
|
$30,000
|
-
|
The
accompanying notes are an integral part of these consolidated
financial statements.
Voltari Corporation
Notes to Consolidated Financial Statements
1. Organization
Voltari
Corporation (“Voltari” the “Company” or
“We”), a Delaware corporation, was incorporated in
December 2012, as a wholly-owned subsidiary of Motricity, Inc.
(“Motricity”). Through a reorganization, Motricity
became a wholly owned subsidiary of Voltari in April 2013. As of
December 31, 2018, entities affiliated with Mr. Carl C. Icahn
own approximately 98.0% of our Series J preferred stock and
approximately 52.7% of our common stock.
The
Company is in the business of acquiring, financing and leasing
commercial real properties through its wholly owned subsidiary,
Voltari Real Estate Holding LLC ("Voltari Holding"). We currently
own three commercial real properties. All of our revenue is derived
from the rental income we receive under the three leases associated
with these properties. We have been funding our operations with
borrowings under our Revolving Note as described in Note 5 - Liquidity and Capital
Resources.
2. Summary of Significant Accounting Policies
Basis of Presentation
The
consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. Intercompany balances
and transactions have been eliminated upon consolidation. The
accompanying consolidated financial statements and related notes of
the Company have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”).
Reclassifications
Certain
prior period amounts have been reclassified in the consolidated
financial statements to conform to current period
presentation.
Comprehensive Loss
The
Company reports consolidated comprehensive loss in a separate
statement following the consolidated statements of operations.
Comprehensive loss is defined as the change in equity resulting
from net loss and Other Comprehensive Income ("OCI"). The only
component of OCI is foreign currency translation adjustments which
stem from a foreign non-operating dormant entity.
Use of Estimates
The
preparation of 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 consolidated financial statements
and the reported amounts of revenues and expenses during the
reporting period. The more significant estimates include those
involved in allocating cost of real estate investments, valuation
of long-lived and intangible assets, provision for income taxes,
and accounting for our redeemable preferred stock. Actual results
could differ from those estimates.
Real Estate Investments
Investments
in real estate are 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 will be
determined by valuing the property as if it were vacant, and the
“as-if-vacant” value will then be allocated to the
tangible assets based on the fair value of the tangible assets. The
fair value of in-place leases will be determined by considering
current market conditions, as well as costs to execute similar
leases. The fair value of above-or below-market leases will be
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 43 years for buildings, up
to 15 years for 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.
Voltari
Corporation
Notes to Consolidated Financial Statements
Revenue Recognition
The
Company’s revenues are derived from rental income, include
rents due in accordance with the lease terms, reported on a
straight-line basis over the initial term of the leases. Our leases
with tenants are classified as operating leases.
Cash, Cash Equivalents and Restricted Cash
The
Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents. The
Company's restricted cash in 2017 consisted of a security deposit
for our operating lease for our former headquarters. The restricted
cash in 2018 consisted of security deposit held on behalf of the
tenant located at the McClatchy Property.
The
following table provides a reconciliation of cash, cash
equivalents, and restricted cash reported within the Consolidated
Balance Sheets that sums to the total of such amounts shown in the
Consolidated Statements of Cash Flows.
|
Dollars in
Thousands
As of December
31,
|
|
|
|
Cash and cash
equivalents
|
$556
|
$101
|
Restricted
cash
|
403
|
90
|
Total cash, cash
equivalents, and restricted cash
|
$959
|
$191
|
Long-Lived Assets
Long-lived
assets include assets such as property and equipment and intangible
assets, other than those with indefinite lives. We assess the
carrying value of our long-lived asset groups when indicators of
impairment exist and recognize an impairment loss when the carrying
amount of a long-lived asset is not recoverable from the
undiscounted cash flows expected to result from the use and
eventual disposition of the asset. Indicators of impairment include
significant under-performance relative to historical or projected
future operating results, significant changes in our use of the
assets or in our business strategy, loss of or changes in customer
relationships and significant negative industry or economic trends.
When indications of impairment arise for a particular asset or
group of assets, we assess the future recoverability of the
carrying value of the asset (or asset group) based on an
undiscounted cash flow analysis. If carrying value exceeds
projected net undiscounted cash flows, an additional analysis is
performed to determine the fair value of the asset (or asset
group), typically a discounted cash flow analysis, and an
impairment charge is recorded for the excess of carrying value over
fair value.
Property
and equipment are recorded at historical cost less accumulated
depreciation, unless impaired. Depreciation is charged to
operations over the estimated useful lives of the assets using the
straight-line method or a variable method reflecting the pattern in
which the economic benefits are anticipated to be utilized. Upon
retirement or sale, the historical cost of assets disposed of and
the related accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized. Expenditures for
repairs and maintenance are charged to expense as incurred. In
accordance with guidance effective for us on January 1, 2018,
certain acquisition costs associated with successful property
acquisitions are capitalized and added to the purchase
price.
All
costs related to the development of internal-use software other
than those incurred during the application development stage are
expensed, including costs for minor upgrades and enhancements when
there is no reasonable cost-effective way to separate these costs
from maintenance activities. Costs incurred during the application
development stage are capitalized and amortized over the estimated
useful life of the software, which is generally three years.
Identifiable
intangible assets are recorded at cost or, when acquired as part of
a business acquisition, estimated fair value. The recorded amount
is amortized to expense over the estimated useful life of the asset
using the straight-line method or a variable method reflecting the
pattern in which the economic benefits are anticipated to be
realized. At each balance sheet date, the unamortized costs for all
intangible assets are reviewed by management and reduced to net
realizable value when necessary.
Redeemable preferred stock and common stock warrants
Series
J preferred stock and common stock warrants are based on their
estimated relative fair market values at the date of issuance as
determined with the assistance of a third-party valuation
specialist. Our Series J preferred stock contains certain
redemption features which are outside of our control. Accordingly,
our Series J preferred stock is classified as mezzanine equity and
reported as Redeemable preferred stock on our consolidated balance
sheet. The difference between the carrying value of the Series J
preferred stock and its liquidation value has been accreted over an
anticipated redemption period of five years using the effective
interest method.
Voltari
Corporation
Notes to Consolidated Financial Statements
Income Taxes
We
utilize the balance sheet method of accounting for income taxes.
Accordingly, we are required to estimate our income taxes in each
of the jurisdictions in which we operate as part of the process of
preparing our consolidated financial statements. This process
involves estimating our actual current tax exposure, including
assessing the risks associated with tax audits, together with
assessing temporary differences resulting from the different
treatment of items for tax and financial reporting purposes. These
differences result in deferred tax assets and liabilities. Due to
the evolving nature and complexity of tax rules combined with the
number of jurisdictions in which we previously operated, it is
possible that our estimates of our tax liability could change in
the future, which may result in additional tax liabilities and
adversely affect our results of operations, financial condition and
cash flows.
We
follow the authoritative accounting guidance prescribing a
threshold and measurement attribute for the financial recognition
and measurement of a tax position taken or expected to be taken in
a tax return. The guidance defines the level of assurance that a
tax position must meet in order to be recognized in the financial
statements and also provides for de-recognition of tax benefits,
classification on the balance sheet, interest and penalties,
accounting in interim periods, disclosure and transition. The
guidance utilizes a two-step approach for evaluating uncertain tax
positions. Step one, recognition, requires a company to determine
if the weight of available evidence indicates that a tax position
is more likely than not to be sustained upon audit, including
resolution of related appeals or litigation processes, if any. If a
tax position is not considered “more likely than not”
to be sustained, no benefits of the position are recognized. Step
two, measurement, is based on the largest amount of benefit which
is more likely than not to be realized on effective settlement. We
do not have any uncertain tax positions.
Net Loss Per Share Attributable to Common Stockholders
Basic
and diluted 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 period. Our net loss attributable to common
stockholders was not allocated to preferred stock using the
two-class method, as the preferred stock does not have a
contractual obligation to share in the net loss attributable to
common stockholders.
During
2018 we did not have any potentially dilutive shares. During 2017
our potentially dilutive shares, which include common stock
warrants, have not been included in the computation of diluted net
loss per share attributable to common stockholders, as the results
would have been anti-dilutive. The remaining outstanding common
stock warrants expired in October 2017.
Operating Segment
We
operate and manage our business as a single segment, that of
acquiring, financing and leasing commercial real estate properties.
For the year ended December 31, 2018, all of our revenue came from
the rental payments we received from our three U.S. tenants, and
for the year ended December 31, 2017, all of our revenue came from
the rental payments we received from the two U.S. tenants we had at
that time.
Fair Value of Financial Instruments
As of
December 31, 2018, and
2017, we had cash, cash
equivalents and restricted cash of $1.0 million and $0.2 million, respectively. The carrying
amount of certain financial instruments, including accounts
payable, revolving note and accrued expenses, approximates fair
value due to their short maturities. There were no transfers
between levels in the fair value hierarchy during the years ended
December 31, 2018 or
2017.
Concentration of Credit Risk
Financial
instruments that potentially subject us to concentrations of credit
risk consist primarily of cash, cash equivalents and restricted
cash, to the extent balances exceed limits that are insured by the
Federal Deposit Insurance Corporation.
Voltari Corporation
Notes to Consolidated Financial Statements
Foreign Currency
We have
ceased operations in all of our previously operational
international subsidiaries and are winding down these subsidiaries.
During this winding down period the functional currencies of our
international subsidiaries are the local currencies. We translate
the financial statements of our international subsidiaries to U.S.
dollars using end-of-period exchange rates for assets and
liabilities and average currency exchange rates for revenues and
expenses. Translation adjustments resulting from this process are
included in Other comprehensive income and are reflected as a
separate component of Stockholders’ deficit. Realized and
unrealized transaction gains and losses are included in Other
income (expense), net in the period in which they occur, except on
intercompany balances considered to be long-term, which have not
been significant for any periods presented. Transaction gains and
losses on intercompany balances considered to be long-term are
recorded in Other comprehensive income.
Recently Adopted Accounting Pronouncements
In May
2014, the FASB issued ASU 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. We adopted this standard effective January 1, 2018.
Currently, all revenues are derived from lease contracts which are
not within the scope of this guidance.
In
November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows - Restricted
Cash". The guidance requires that the statement of cash
flows explain the change during the period in the total of cash,
cash equivalents, and amounts generally described as restricted
cash or cash equivalents. Therefore, amounts generally described as
restricted cash and equivalents should be included with cash and
cash equivalents when reconciling the beginning and end of period
total amounts on the statement of cash flows. We adopted this
standard effective January 1, 2018 and have adjusted our cash flows
to reflect the new guidance.
In
January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic
805), Clarifying the Definition of a Business”.
The amendments in this ASU provide a
more robust framework to use in determining when a set of assets
and activities is a business. The amendments provide more
consistency in applying the guidance, reduce the costs of
application, and make the definition of a business more
operable. The guidance changes the definition of a business
to exclude acquisitions where substantially all the fair value of
the assets acquired are concentrated in a single identifiable asset
or a group of similar identifiable assets. Given this change in
definition, we believe most of our real estate acquisitions will be
considered asset acquisitions. The new guidance will be
applied prospectively to any transactions occurring in the period
of adoption. We adopted this standard effective January 1,
2018. Under the new standard, transaction costs directly related to
the acquisition will be capitalized under asset acquisitions and
expensed for business combinations and transactions that will be
considered asset acquisitions will not be afforded the one-year
measurement period to complete any valuation studies and resulting
purchase price allocation. For our purchase of the McClatchy
property we capitalized approximately $0.3 million of such
transaction costs.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, "Leases." The guidance significantly changes the accounting
for leases by requiring lessees to recognize assets and liabilities
for leases greater than 12 months on their balance sheet. The
lessor model stays substantially the same, however, there were
modifications to, conform lessor accounting with the lessee model,
eliminate real estate specific guidance, further define certain
lease and non-lease components, and change the definition of
initial direct costs of leases by requiring significantly more
leasing related costs to be expensed upfront. ASU 2016-02 is
effective as of January 1, 2019. We have assessed the impact of
this standard on our consolidated financial statements and concluded
that there will be no material changes as a result of our adoption
of this standard.
In
February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income”, which amends
FASB ASC Topic 220, Income Statement - Reporting Comprehensive
Income. This ASU allows a reclassification out of accumulated other
comprehensive income into retained earnings for standard tax
effects resulting from the Tax Cuts and Jobs Act (the “Tax
Act”) and consequently, eliminates the stranded tax effects
resulting from the Tax Act. This ASU is effective for fiscal years
beginning after December 15, 2018, and interim periods within those
fiscal years. We have assessed the
impact of this standard on our consolidated financial statements and concluded
that there will be no material changes as a result of our adoption
of this standard.
Other
recent accounting pronouncements issued by the FASB (including the
Emerging Issues Task Force) and the SEC did not, or are not
expected to, have a material effect on the Company’s results
of operations or financial position.
Voltari
Corporation
Notes to Consolidated Financial Statements
3.
Real Estate Investments
On
September 17, 2015, we, through our wholly owned subsidiary,
Voltari Holding, completed the acquisition of a real estate parcel
in Long Branch, New Jersey from 160 Brighton Acquisition, LLC
(“Seller”) pursuant to the terms of an Agreement for
Sale and Purchase, dated August 7, 2015, between Voltari
Holding and Seller, for a purchase price of approximately $3.63
million which was paid from proceeds received from the sale of
stock in 2015. Refer to
http://investor.shareholder.com/jpmorganchase/sec.cfm for the
financial statements of the tenant.
The
property is subject to a triple net lease with JP Morgan 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. Average annual rental
income for the property over the remaining term of the original
lease is approximately $203,000, exclusive of the amortization of
the above market lease intangible.
On May
18, 2016, we, through our wholly owned subsidiary, Voltari Holding,
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 Holding and the Seller, dated December 3, 2015, as amended
on January 11, 2016, February 10, 2016 and March 10, 2016. The
purchase price was 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
Flanders Property is a single tenant retail convenience store,
which is subject to a double net lease with 7-Eleven, Inc.
(“7-Eleven”), the original term, of which expires in
December 2029 (with four, five-year renewal options. During the
term of this lease, 7-Eleven is responsible for the payment of base
rent, as well as the payment of, subject to certain exceptions,
real estate taxes, utilities, tenant’s insurance and other
property related costs. Voltari Holding, as landlord, 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 $165,000, exclusive of the
amortization of the above market lease intangible.
On April 23, 2018, we, through our wholly owned subsidiary, Voltari
Holding, completed the acquisition of a real estate parcel in
Columbia, South Carolina pursuant to a Purchase and Sale Agreement, between
Voltari Holding and the State Media Company; (the "Seller"), dated
January 19, 2018, as amended, for a purchase price of approximately
$16.9 million, inclusive of all capitalized costs in amount equal
to approximately $0.3 million. The purchase price was paid using
cash on hand and borrowings under the Company’s revolving
loan facility with Koala.
The property (the "McClatchy Property") is subject to a triple net
lease with the McClatchy Company ("McClatchy"), an affiliate of the
seller. The lease has an initial term of fifteen years, with three
five-year extension options. During the term of this lease, in
addition to rent, McClatchy is responsible for the payment of all
real estate taxes, utilities, tenant’s insurance and other
property related costs, and the maintenance of the McClatchy
Property and its premises. Refer to http://investors.mcclatchy.com/phoenix.zhtml?c=87841&p=irol-sec
for the financial statements of the tenant. Average annual rental
income for the property over the remaining term of the original
lease is approximately $1,787,000, exclusive of the amortization of
the below market lease intangible.
For the
years ended December 31, 2018 and 2017, acquisition and transaction
related costs totaled $37 thousand and $102 thousand respectively
and have been recognized as expense.
Information
related to major categories of real estate investments, net, is as
follows (dollars in thousands):
|
Estimated
|
|
|
Useful
Life
|
|
|
Real Estate
Investments, at cost:
|
|
|
|
Land
|
|
$5,840
|
$2,345
|
Building,
fixtures and improvements
|
10 - 43
yrs.
|
15,891
|
3,494
|
Total
tangible assets
|
|
21,731
|
5,839
|
Acquired
Intangibles - In-place leases
|
5 - 15
yrs.
|
1,642
|
607
|
Total cost of Real
Estate Investments
|
|
23,373
|
6,446
|
Less: Accumulated
depreciation and amortization
|
|
(1,396)
|
(451)
|
Total cost of Real
Estate Investments, net
|
|
$21,977
|
$5,995
|
Depreciation
expense for the years ended December 31, 2018 and 2017 amounted to
$799 thousand and $122 thousand, respectively.
Voltari Corporation
Notes to Consolidated Financial Statements
Intangible
amortization expense for the years ended December 31, 2018 and
2017, amounted to $146 thousand and $98 thousand respectively, of
which $36 thousand and $42 thousand of net favorable lease
amortization were reflected as a reduction in revenue,
respectively.
Included
in the accumulated depreciation and amortization balance are
amounts for in place leases and net favorable leases, as of
December 31, 2018 and 2017, amounting to $359 thousand and $213
thousand, respectively.
Expected
in-place lease and favorable lease amortization for each of the
next five years, and thereafter, is as follows (dollars in
thousands):
Year
Ending December 31,
|
|
|
|
2019
|
$168
|
2020
|
126
|
2021
|
85
|
2022
|
85
|
2023
|
85
|
Thereafter
|
734
|
Total
|
$1,283
|
The
following table presents future minimum base rental receipts due to
us over the next five years (dollars in thousands):
Year
Ending December 31,
|
|
|
|
2019
|
$1,961
|
2020
|
1,852
|
2021
|
1,773
|
2022
|
1,773
|
2023
|
1,880
|
Thereafter
|
18,483
|
Total
|
$27,722
|
4. Property and Equipment, net
Information
related to major categories of our property and equipment, net, is
as follows (dollars in thousands):
|
Estimated
|
|
|
|
|
|
Capitalized
software
|
3 yrs.
|
$331
|
$331
|
Computer software
and equipment
|
3-5
yrs.
|
—
|
—
|
Total
property and equipment
|
|
331
|
331
|
Less: Accumulated
depreciation and amortization
|
|
(331)
|
(331)
|
Property
and equipment, net
|
|
$—
|
$—
|
There
was no capitalized interest associated with property and equipment
for the years ended December 31,
2018 and 2017.
Depreciation expense related to property and equipment totaled $0
and $0 thousand for the years ended December 31, 2018 and 2017,
respectively.
Voltari Corporation
Notes to Consolidated Financial Statements
5. Liquidity and Capital Resources
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 December 31,
2018 consisted of cash and cash equivalents of $0.6 million, our
positive cash flow from operations 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, the Company’s controlling stockholder,
entered into a $10 million revolving loan facility (the
“Prior Note") at a rate equal to the greater of the LIBOR
rate plus 350 basis points, per annum, and 3.75%, per annum, plus a
fee of 0.25% per annum on undrawn amounts. The Company sought and
received the Prior Note to, in part, allay potential concerns
regarding the Company’s ability to invest in and execute its
transformation plan while retaining cash levels sufficient to fund
its ongoing operations. There were no limitations on the use of
proceeds under the Prior Note. As collateral for the Prior Note, we
pledged and granted to Koala a lien on our limited liability
company interest in Voltari Holding.
On
March 29, 2017, we as borrower, and Koala, as lender, entered into
a revolving note (the “Amended Note”), which amended
and restated the Prior Note. The Amended Note provides that the net
proceeds thereunder in excess of $10 million will be used by the
Company for the acquisition, improvement, development,
modification, alteration, repair, maintenance, financing or leasing
of real property, including any fees and expenses associated with
such activities. Pursuant to the Amended Note, Koala made available
to the Company a revolving loan facility of up to $30 million in
aggregate principal amount (the “Commitment”). The
Company may, by written notice to Koala, request that the
Commitment be increased (the “Increased Commitment”),
provided that the aggregate amount of all borrowings, plus
availability under the aggregate Increased Commitment, shall not
exceed $80 million. Koala has no obligation to provide any
Increased Commitment and may refuse to do so in its sole
discretion. Borrowings under the Amended Note will bear interest at
a rate equal to the LIBOR Rate (as defined in the Amended Note)
plus 200 basis points, per annum, subject to a maximum rate of
interest of 3.75%, per annum. The Amended Note matures on the
earliest of (i) December 31, 2020, (ii) the date on which any
financing transaction, whether debt or equity, is consummated by
the Company (or its successors and assigns) with ne
proceeds
in an amount equal to or greater than $30 million, and (iii) at the
Company’s option, a date selected by the Company that is
earlier than December 31, 2020 (the “Maturity Date”).
The Amended Note also allows the Company to, upon written notice to
Koala not more than 60 days and not less than 30 days prior to the
Maturity Date, request that Koala extend the Maturity Date to
December 31, 2022. Koala may, in its sole discretion, agree to
extend the Maturity Date by providing written notice to the Company
on or before the date that is 20 days prior to the Maturity Date.
If an event of default exists, the Amended Note will bear interest
at a default rate equal to the greater of the LIBOR Rate plus 300
basis points, per annum, or 4.5%, per annum. Subject to the terms
and conditions of the Amended Note, the Company may repay all or
any portion of the amounts outstanding under the Amended Note at
any time without premium or penalty. The amounts available under
the Commitment or Increased Commitment, as the case may be, will
increase and decrease in direct proportion to repayments and
reborrowings under the Amended Note, respectively, from time to
time. As collateral for the Amended Note, the Company has pledged
and granted to Koala a lien on the Company’s limited
liability company interest in Voltari Holding.
As of
December 31, 2018, borrowings from this loan facility totaled $23.0
million. The outstanding balance, including accumulated interest of
$1.0 million, totaled $24.0 million as of December 31,
2018.
In
light of the above, the consolidated financial statements were
prepared on the basis that the Company will continue as a going
concern. Therefore, the accompanying consolidated financial
statements do not include any adjustments relating to the
recoverability and classification of recorded assets and
liabilities or any other adjustments that might result in the event
the Company is unable to continue as a going concern.
Voltari
Corporation
Notes to Consolidated Financial Statements
6. Accounts Payable and Accrued Expenses
Accounts
payable and accrued expenses consisted of the following (dollars in
thousands):
|
|
|
|
|
Accounts payable
and accrued expenses
|
$181
|
$286
|
Accrued taxes, not
related to income
|
356
|
355
|
Total
|
$537
|
$641
|
7. Revolving Note
During
the years ended December 31, 2018 and 2017, borrowings under the
Prior Note and Amended Note totaled $23.0 million and $5.5 million,
respectively. During 2018 we borrowed $17.5 million of which
approximately $17.0 million was used for the purchase of the
McClatchy property and approximately $0.5 million was used for
working capital purposes. During 2017, we borrowed $1.0 million of
which approximately $0.25 million was used for the McClatchy
property and approximately $0.75 million was used for working
capital purposes. See Note 5 -
Liquidity and Capital Resources for more information
regarding the Prior Note and Amended Note.
8. Commitments and Contingencies
Operating Leases
Corporate Headquarters-- As of July 1, 2016, the Company
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.
During
2018 and 2017 we leased office space under a non-cancellable
operating lease agreement. Rent expense for the non-cancellable
operating lease with scheduled rent increases and landlord
incentives has been recognized on a straight-line basis over the
lease term, beginning with the effective lease commencement date.
This lease terminated pursuant to its terms on November 30, 2018
and was not renewed. The security deposit of approximately $26
thousand was returned to the Company in 2018.
Rental
expense under operating lease agreements for each of the years
ended December 31, 2018
and 2017 was $0.3
million.
Other Contractual Arrangements
We have
entered into several agreements with various vendors who provide
additional operational support and services to the Company. The
arrangements are primarily for a duration of twelve months or less
or cancellable with short-term notice. We have no material
contractual arrangements beyond 2018.
Voltari
Corporation
Notes to Consolidated Financial Statements
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. See
Note 15 - Legal Proceedings
for details regarding outstanding litigation.
9. Termination of 401(k) Plan
We
maintained a defined contribution plan the Voltari Operating Corp.
401(k) Plan (the “Plan”), for eligible employees, which
was suspended in January 2016. The Plan assets had been held in
trust and invested as directed by the plan participants and shares
of our common stock were not an eligible investment election. We
had provided a match on a specified portion of eligible
employees’ contributions as approved by our board of
directors. Historically, we had made matching contributions equal
to 50% of the portion of
contributions that do not exceed 6% of eligible pay. The Plan was terminated
in April 30, 2016.
We did
not have any matching contributions included in continuing
operations in 2018 and 2017. In early 2018, we received a favorable
determination letter from the Internal Revenue Service, dated
December 20, 2017 as to the Plan’s tax-qualified status upon
termination. During 2017 we accrued an additional contribution of
approximately $65 thousand to cover a shortfall in contributions
from prior periods. During 2018 the plan was liquidated, and all
participant balances were distributed or transferred to other
investment choices as directed by the participants.
10. Redeemable Preferred Stock
In
connection with the closing of a rights offering on March 30, 2015,
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. During 2017, entities affiliated with Mr.
Carl C. Icahn purchased additional shares of our Series J preferred
stock from third parties, which increased Mr. Carl C. Icahn’s
ownership percentage to approximately 98.0%.
Upon
completion of our rights offering in October 2012, we issued
1,199,643 shares of Series J
preferred stock and warrants to acquire 1,014,982 common shares in
exchange for approximately $30
million in cash proceeds. 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 our
consolidated balance sheets at December 31, 2018 and
2017.
Voltari
Corporation
Notes to Consolidated Financial Statements
Our
Series J preferred stock contains certain redemption features and
is classified as mezzanine equity at December 31, 2018 and 2017 since the
shares are (i) redeemable 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 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,
and 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.
The
difference between the carrying value of the Series J preferred
stock and its liquidation value was accreted over an anticipated
redemption period of five years using the effective interest method
and has fully accreted as of September 30, 2017. 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 14%, adjusted from 13% on
January 1, 2018, 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 $34.2 million, in-kind rather than
in-cash. Accordingly, we have increased the carrying value of our
redeemable 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
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 dividend on the Series J preferred stock is paid
in-kind, which has been the case to date, the liquidation
preference is adjusted and increased quarterly (i) through December
31, 2017, by an amount equal to 3.25% 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 dividend will continue until the
shares are redeemed, or until the Company's affairs are liquidated,
dissolved or wound-up.
As of
December 31, 2018, our Series J preferred stock has an
aggregate redemption value of approximately $65.7 million,
including paid-in-kind dividends of $34.2 million and accrued
dividends of $2.2 million which are included within Other
liabilities on our consolidated balance sheet. We recorded
accretion associated with our Series J preferred stock of $0
million and $0.7 million for
the years ended December 31, 2018 and 2017,
respectively.
11. Stock Options, Restricted Stock and Warrants
Overview
Pursuant
to the 2010 Long-Term Incentive Plan (“2010 LTIP”), we
may grant equity awards up to an aggregate of 636,562 shares under the 2010 LTIP. Awards
granted under the 2010 LTIP may include incentive stock options or
nonqualified stock options, stock appreciation rights, restricted
stock and other stock-based or cash-based awards. Option terms may
not exceed 10 years and the
exercise price cannot be less than 100% of the estimated fair market value per
share of our common stock on the grant date. The maximum number of
shares subject to any performance award granted to any participant
during any fiscal year shall be 26,666 shares. The maximum cash payment
made under a performance award granted to any participant with
respect to any fiscal year shall be $5.4 million.
Stock Options
There
was no stock-based compensation expense associated with common
stock awards for the years ended December 31, 2018 and 2017. In
April 2018 the 2010 LTIP was terminated.
Voltari
Corporation
Notes to Consolidated Financial Statements
Warrants
We
issued common stock warrants (the “Warrants”) to
purchase 1,014,982 common shares in connection with the closing of
our 2012 rights offering. Ten (10) Warrants had to be exercised to
purchase one (1) share of common stock, at a price of $6.50 per
common share. On October 11, 2017, the remaining Warrants to
purchase 1,014,958 shares of common stock expired without being
exercised.
Net
proceeds from the 2012 rights offering of approximately $27.8
million were allocated between Series J preferred stock and the
Warrants based on their estimated relative fair market values at
the date of issuance as determined with the assistance of a
third-party valuation specialist. The portion of the net proceeds
from the rights offering attributable to the Warrants was
determined to be approximately $1.4 million and was recorded in
Additional paid-in capital on our consolidated balance
sheets.
12. Income Taxes
Tax
expense of $2 thousand and zero was recorded for the years ended
December 31, 2018 and 2017 respectively. We maintain a full
valuation allowance against our net deferred tax assets, which
precludes us from recognizing a tax benefit for our current
operating losses. Our historical lack of profitability is a key
factor in concluding that there is insufficient evidence to support
the realizability of our deferred tax assets.
Taxes
computed at the statutory federal income tax rate 21% and 34% are
reconciled to the income tax provision as follows:
|
|
|
|
|
United States
federal tax at statutory rate
|
21.0%
|
34.0%
|
Change in valuation
allowance
|
(613.4)
|
3,439.7
|
Federal
Return-to-provision true-ups
|
(55.8)
|
-
|
State taxes (net of
federal tax benefit)
|
651.2
|
(212.8)
|
Impact of US
Federal Tax Rate Change
|
(-)
|
(3,262.4)
|
Impact of Canada
Tax Rate Change
|
(6.4)
|
-
|
Other
|
3.3
|
1.5
|
Effective
rate
|
(0.1)%
|
—%
|
Voltari
Corporation
Notes to Consolidated Financial Statements
Significant
components of our deferred tax assets and liabilities consist of
the following as of December 31 (in thousands):
|
|
|
|
|
Domestic net
operating loss carryforwards
|
$132,406
|
$122,424
|
Foreign net
operating loss carryforwards
|
8,585
|
8,682
|
Research and
development credits
|
5,436
|
5,436
|
Other
|
1,686
|
2,260
|
Deferred tax
assets
|
148,113
|
138,802
|
Valuation
allowance
|
(148,113)
|
(138,802)
|
Net
deferred tax assets
|
$—
|
$—
|
On
December 22, 2017, the U.S. Congress enacted the Tax Act. The Tax
Act contains several significant tax reform provisions which
includes, among others, a reduction of the U.S. corporate statutory
tax rate from 34% to 21% (starting January 1, 2018), a one-time
mandatory repatriation transition tax on the net accumulated
earnings and profits of a U.S. taxpayer’s foreign
subsidiaries, and a minimum tax on certain foreign earnings in
excess of 10% of -the foreign subsidiaries' tangible assets (i.e.,
global intangible low-taxed income or
“GILTI”).
The
reduction in the U.S. corporate statutory tax rate to 21% requires
the Company to re-measure its net deferred tax assets using the
newly enacted tax rate. As a result of the revaluation in 2017, the
Company reduced its deferred tax assets by $62 million, which was
offset by a reduction in valuation allowance of the same amount.
Therefore, the impact of the corporate statutory tax rate change
has a net tax effect of zero upon income tax expense and net
loss.
Due to an overall deficit in the accumulated earnings and profits
of the Company’s specified foreign corporations, the Company
did not record any income tax liability related to the one-time
mandatory tax on accumulated foreign earnings and
profits.
The GILTI provision is effective for the year ended December 31,
2018 and imposes a tax on certain foreign earnings in excess of a
deemed return on the foreign subsidiaries' tangible assets. The
Company has elected to consider the impact of GILTI as a period
expense and does not expect GILTI to have an impact to the
financial statement, due to minimal operations on its specified
foreign corporations.
Other provisions that became effective for the year ended December
31, 2018 include limitation on the current deductibility of net
interest expense in excess of 30 percent of adjusted taxable income
and a limitation of net operating losses generated after tax year
2018 to 80 percent of taxable income. The Company began to generate
interest expense carryforwards in 2018, offset by an increase in
valuation allowance of the same amount, which resulted in a net
income tax effect of zero.
As of December 31, 2018, the Company provided a full valuation
allowance against its gross deferred tax assets because realization
of these benefits could not be reasonably assured. The $9 million
increase in
the valuation
allowance for the period December 31, 2017 to December 31, 2018 was
primarily due to domestic net operating losses generated during
2018 and return-to-provision for state operating losses. If we
determine it is more
likely than not that all or a portion of the deferred tax assets
will be realized, we will eliminate or reduce the corresponding
valuation allowances which would result in immediate recognition of
an associated tax benefit.
We have
research and development credit carryforwards of $5.4 million at
December 31, 2018, that will begin to expire in 2021.
As of
December 31, 2018, the Company had federal net operating loss
carryforwards of $496 million (net $3 million of limitations) and
state net operating loss carryforwards of $0.1 million to $202
million for the respective states the Company files in. Federal net
operating loss carryforwards amounting to $495.4 million begin to
expire from 2019 to 2037 for U.S. federal income tax purposes while
the remaining $0.6 million do not expire. State net operating
loss carryforwards begin to expire from 2019 to 2038 for state
income tax purposes. As a result of
the Tax Cuts and Jobs Act, federal net operating losses arising in
tax years ending after December 31, 2017 have indefinite
carryforward periods. The ultimate availability of the federal, and
state net operating loss carryforwards to offset future income may
be subject to limitation under the rules regarding changes in stock
ownership as determined by the Internal Revenue
Code.
Voltari
Corporation
Notes to Consolidated Financial Statements
The
Company has determined that there are no unrecognized tax benefits
as of December 31, 2018
and 2017. Historically, the Company has not incurred interest or
penalties associated with unrecognized tax benefits and no interest
or penalties were recognized during the years ended
December 31, 2018 or 2017. The Company has adopted a policy
whereby amounts related to interest and penalties associated with
unrecognized tax benefits are classified as income tax expense when
incurred.
The
Company files income tax returns in the U.S. federal jurisdiction,
and various state and foreign jurisdictions. Due to the generation
of net operating losses, all tax years for which the Company filed
a tax return remain open. The Company's U.S. federal tax return for
the year ended December 31, 2013 was audited by the Internal
Revenue Service and such audit was completed in 2017. No
adjustments were made as a result of the audit.
During 2018, the Company made estimated state income tax payments
in the amount of $30 thousand related to our operations. We did not
make any income tax payments in 2017 due to taxable losses. The
Company files income tax returns in the U.S. federal jurisdiction,
and various state and foreign jurisdictions. Due to generation of
net operating losses, all tax years for which losses are being
carried forward remain open upon utilization of these net operating
losses.
The
Company discontinued operations in Indonesia in 2012. In 2013 the
Company received notification that additional income and VAT taxes
would be due from the Company's subsidiary, P. T. Motricity
Indonesia for the years ended 2010 to 2012. The assessment resulted
in tax totaling approximately $0.7 million which was recorded in
2013. Subsequently P. T. Motricity Indonesia paid taxes and
penalties as assessed. However, the Company determined that there
remains approximately $0.3 million of unpaid amounts. Currently the
Company is in the process of liquidating its corporate structure in
Indonesia, which is expected to wind down by 2019. Management has
decided to leave the remaining balance as a liability until such
time as the liquidation has been completed.
Voltari Corporation
Notes to Consolidated Financial Statements
13. Common Stock and 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):
|
|
|
|
|
Net loss
attributable to common stockholders
|
$(9,969)
|
$(9,508)
|
|
|
|
Weighted-average
common shares outstanding - basic and diluted
|
8,994,814
|
8,994,814
|
Net loss per share
attributable to common stockholders - basic and
diluted
|
$(1.11)
|
$(1.06)
|
Basic
and diluted net loss per share attributable to common stockholders
has been computed based on the net loss and the weighted-average
number of common shares outstanding during the applicable
period.
14. Related Party Transactions
Insight
Portfolio Group LLC, owned by a number of other entities with which
Mr. Carl C. Icahn has a relationship, was formed in order to
maximize the potential buying power of participating companies in
negotiating with a wide range of suppliers of goods, services and
tangible and intangible property at negotiated rates. The Company
is a member of the buying group. During the year ended December 31,
2018 and 2017, we paid no fees or services to Insight Portfolio
Group.
On
August 7, 2015, we, as borrower, and Koala, as lender, an
affiliate of Carl C. Icahn, our controlling stockholder, entered
into the Prior Note. On March 29, 2017, we as borrower, and Koala,
as lender, entered into the Amended Note, which amended and
restated the Prior Note. See Note
5 - Liquidity and Capital Resources for more
information.
As of
July 1, 2016, the Company has moved to approximately 100 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. As of December 31, 2018, the Company
has accrued $15 thousand of such rent.
15. Legal Proceedings
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 a party to any pending legal actions that could
reasonably be expected to have a material adverse effect on our
business, financial condition, results of operations or cash
flows.
16. Subsequent Events
On
January 10, 2019, the Company issued a press release regarding the
formation by its Board of Directors of a special committee of
independent directors to consider an offer by High River Limited
Partnership and its affiliates, beneficial owners of approximately
52.69% of the Company’s outstanding shares of common stock
and approximately 98.0% of the Company’s outstanding shares
of 13% Redeemable Series J Preferred Stock, to purchase the
remaining shares of the Company’s common stock.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
|
|
(in
thousands)
|
|
|
Tax Valuation
Allowance:
|
|
|
Beginning
balance
|
$138,802
|
$203,393
|
Charged
(reversed) to net loss
|
9,311
|
(64,591)
|
Ending
balance
|
$148,113
|
$138,802
|
|
|
|
Note:
Included in “Charged (reversed) to net loss” for 2017
is ($62,052) that relates to the Tax Act.
Schedule III -
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31,
2018
(Dollars in Thousands)
COLUMN
A
|
|
|
COLUMN D
Cost Capitalized Subsequent to Acquisition
|
COLUMN E
Gross amount carried at Close of Period
|
|
COLUMN
G
|
COLUMN H
|
Location
|
|
|
|
Land Building
& Improvements
|
|
Building and
Improvements
|
|
|
|
Date
Acquired
|
Life on which
depreciation is computed
|
Long Branch,
NJ
|
$-
|
$1,454
|
$2,175
|
$-
|
$1,454
|
$2,175
|
$3,629
|
$484
|
$3,145
|
9/17/2015
|
35
years
|
Flanders,
NY
|
-
|
891
|
1,926
|
-
|
891
|
1,926
|
2,817
|
187
|
2,630
|
5/18/2016
|
43
years
|
Columbia,
SC
|
|
3,495
|
13,432
|
|
3,495
|
13,432
|
16,927
|
725
|
16,202
|
4/23/2018
|
15
years
|
Total
|
$-
|
$5,840
|
$17,533
|
$-
|
$5,840
|
$17,533
|
$23,373
|
$1,396
|
$21,977
|
|
|
The
following table presents changes in the Company's operating real
estate portfolio exclusive of accumulated depreciation for the
years ended December 31, 2018 and 2017:
|
|
|
Beginning
balance
|
$6,446
|
$6,446
|
Property
acquisitions
|
16,927
|
-
|
Ending
Balance
|
$23,373
|
$6,446
|
Changes
in accumulated depreciation for the years ended December 31, 2018
and 2017 are as follows:
|
|
|
Beginning
balance
|
$451
|
$231
|
Depreciation and
amortization expense
|
945
|
220
|
Ending
Balance
|
$1,396
|
$451
|
Item 9. Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our
management evaluated, with the participation of our Principal
Executive Officer (our principal executive officer) and our Chief
Accounting Officer (our principal financial officer), the
effectiveness of our disclosure controls and procedures as of the
end of the period covered by this annual report on Form 10-K. Based
on this evaluation, our Principal Executive Officer and our Chief
Accounting 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 board and management, including our Principal Executive
Officer and our Chief Accounting Officer, as appropriate, to allow
timely decisions regarding required disclosure.
Management's Report on Internal Control Over Financial
Reporting
Management
is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Our internal control over financial
reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that: (i) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
our assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and
that our receipts and expenditures are being made only in
accordance with authorizations of management and our directors; and
(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect all misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management
conducted an evaluation of the effectiveness of our internal
control over financial reporting as of December 31, 2018,
using the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal Control - Integrated Framework
(2013).
Based
on this evaluation, management concluded that our internal control
over financial reporting was effective as of December 31,
2018.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the quarter ended December 31, 2018 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate
Governance.
The
information required by this Item is incorporated by reference to
our Proxy Statement for the 2019 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal
year ended December 31, 2018.
Item 11. Executive Compensation.
The
information required by this Item is incorporated by reference to
our Proxy Statement for the 2019 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal
year ended December 31, 2018.
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.
The
information required by this Item is incorporated by reference to
our Proxy Statement for the 2019 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal
year ended December 31, 2018.
Item 13. Certain
Relationships and Related Transactions, and Director
Independence.
The
information required by this Item is incorporated by reference to
our Proxy Statement for the 2019 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal
year ended December 31, 2018.
Item 14. Principal Accounting Fees and
Services.
The
information required by this Item is incorporated by reference to
our Proxy Statement for the 2019 Annual Meeting of Stockholders to
be filed with the SEC within 120 days after the end of our fiscal
year ended December 31, 2018.
Item 15. Exhibits and
Financial Statement Schedules.
(a)
The
following documents are filed as part of this report:
|
1. Financial Statements
The
following consolidated financial statements are submitted in Part
II, Item 8 of this annual report:
|
Page
|
Audited
Consolidated Financial Statements
|
|
Report
of Independent Registered Public Accounting Firm
|
30
|
Consolidated
Balance Sheets as of December 31, 2018 and 2017
|
31
|
Consolidated
Statements of Operations for the years ended December 31, 2018 and
2017
|
32
|
Consolidated
Statements of Comprehensive Loss for the years ended December 31,
2018 and 2017
|
33
|
Consolidated
Statements of Changes in Stockholders’ Deficit for the years
ended December 31, 2018 and 2017
|
34
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2018 and
2017
|
35
|
Notes
to Consolidated Financial Statements
|
36
|
2. Financial Statement Schedules
Schedule
II - Valuation and Qualifying Accounts
|
50
|
Schedule
III - Real Estate and Accumulated Depreciation
|
51
|
All
other financial statement schedules have been omitted because the
required information is either included in the financial statements
or the notes thereto or is not applicable.
3. Exhibits
The
exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as part of this report.
Item 16. Form 10-K Summary.
None.
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
VOLTARI
CORPORATION
|
|
|
|
|
|
Date: March
07, 2019
|
By:
|
/s/ Kenneth
Goldmann
|
|
|
|
Kenneth
Goldmann
|
|
|
|
Principal
Executive Officer (Principal Executive Officer)
|
|
|
|
|
|
|
By:
|
/s/ Peter
Kaouris
|
|
|
|
Peter
Kaouris
|
|
|
|
Chief
Accounting Officer
(Principal
Financial Officer)
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, the following
persons on behalf of the registrant and in the capacities and on
the dates indicted have signed this report below.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
Kenneth Goldmann
|
|
Principal
Executive Officer (Principal Executive Officer)
|
|
March
07, 2019
|
Kenneth Goldmann
|
|
|
|
|
|
|
|
|
|
/s/
Peter Kaouris
|
|
Chief
Accounting Officer (Principal Financial Officer)
|
|
March
07, 2019
|
Peter Kaouris
|
|
|
|
|
|
|
|
|
|
/s/
Peter Shea
|
|
Chairman
of the Board
|
|
March
07, 2019
|
Peter Shea
|
|
|
|
|
|
|
|
|
|
/s/
Jaffrey A. Firestone
|
|
Director
|
|
March
07, 2019
|
Jaffrey A. Firestone
|
|
|
|
|
|
|
|
|
|
/s/
Kevin Lewis
|
|
Director
|
|
March
07, 2019
|
Kevin Lewis
|
|
|
|
|
|
|
|
|
|
/s/
Sachin Latawa
|
|
Director
|
|
March
07, 2019
|
Sachin Latawa
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
Exhibit Number
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
Filed by
|
|
|
Agreement
and Plan of Reorganization, dated as of February 8, 2013, by and
among Motricity, Inc., Voltari Merger Sub, Inc., and Voltari
Corporation
|
|
S-4
|
|
2/11/13
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Certificate of Incorporation of Voltari
Corporation
|
|
S-4
|
|
2/11/13
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Certificate
of Amendment to the Amended and Restated Certificate of
Incorporation of Voltari Corporation
|
|
8-K
|
|
4/23/13
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Certificate
of Amendment to the Amended and Restated Certificate of
Incorporation of Voltari Corporation
|
|
8-K
|
|
9/16/15
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Amended
and Restated Bylaws of Voltari Corporation
|
|
S-4
|
|
2/11/13
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Specimen
Stock Certificate for Voltari Corporation Common Stock
|
|
S-4
|
|
2/11/13
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Specimen
Stock Certificate for Voltari Series J Preferred Stock
|
|
S-4
|
|
2/11/13
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Form of
Motricity, Inc. Indemnification Agreement#
|
|
S-1
|
|
1/22/10
|
|
Motricity
|
|
|
|
|
|
|
|
|
|
|
|
Agreement
for Sale and Purchase, dated as of August 7, 2015, by and between
160 Brighton Acquisition LLC and Voltari Real Estate Holding
LLC.
|
|
10-Q
|
|
8/7/15
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Ground
Lease with JPMorgan Chase Bank, N.A., together with Bill of Sale
and General Assignment to 160 Brighton Acquisition LLC, dated March
2, 2006.
|
|
10-Q
|
|
8/7/15
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Offer
Letter by and between Voltari Corporation and Kenneth Goldmann,
dated September 28, 2015.
|
|
8-K
|
|
9/30/15
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Non-Disclosure
and Intellectual Property Protection Agreement by and between
Voltari Corporation and Kenneth Goldmann, dated September 28,
2015.
|
|
8-K
|
|
9/30/15
|
|
Voltari
|
|
|
Purchase
and Sale Agreement, dated as of December 3, 2015, by and between
Flanders Holding, LLC and Voltari Real Estate Holding
LLC.
|
|
8-K
|
|
12/9/15
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
First
Amendment to Purchase and Sale Agreement, dated as of January 11,
2016, by and between Flanders Holding, LLC and Voltari Real Estate
Holding LLC.
|
|
8-K
|
|
2/19/16
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Second
Amendment to Purchase and Sale Agreement, dated as of February 10,
2016, by and between Flanders Holding, LLC and Voltari Real Estate
Holding LLC.
|
|
8-K
|
|
2/19/16
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Third
Amendment to Purchase and Sale Agreement, dated as of March 10,
2016, by and between Flanders Holding, LLC and Voltari Real Estate
Holding LLC.
|
|
10-K
|
|
3/16/16
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Revolving
Note with Koala (as lender) dated March 29, 2017.
|
|
10-K
|
|
3/31/17
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Offer
Letter by and between Voltari Corporation
and Peter Kaouris, dated May 12, 2017.
|
|
8-K
|
|
5/18/17
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
and Sale Agreement, dated as of January 19, 2018, by and between
The State Media Company and Voltari Real Estate Holding
LLC.
|
|
8-K
|
|
1/23/18
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
First
Amendment to Purchase and Sale Agreement, dated as of February 26,
2018, by and between The State Media Company and Voltari Real
Estate Holding LLC.
|
|
8-K
|
|
3/2/18
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Second
Amendment to Purchase and Sale Agreement, dated as of March 29,
2018, by and between The State Media Company and Voltari Real
Estate Holding LLC.
|
|
8-K
|
|
4/4/18
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Third
Amendment to Purchase and Sale Agreement, dated as of April 6,
2018, by and between The State Media Company and Voltari Real
Estate Holding LLC.
|
|
8-K
|
|
4/9/18
|
|
Voltari
|
|
|
Triple
Net Lease, dated as April 23, 2018, by and between Voltari Real
Estate Holding LLC and The McClatchy Company.
|
|
8-K
|
|
4/23/18
|
|
Voltari
|
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries
of Voltari Corporation*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 - Principal Executive Officer*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Accounting Officer*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 - Principal Executive
Officer**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 - Chief Accounting
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.
**
Furnished herewith.
‡
Confidential treatment was granted for certain provisions of this
Exhibit pursuant to Exchange Act Rule 24b-2. These provisions have
been omitted from the filing and submitted separately to the
Securities and Exchange Commission.
#
Indicates a management contract or compensatory plan or
arrangement.
(1) If
not filed herewith, filed as an exhibit to the document referred to
above by either Motricity, Inc. (CIK# 0001336691) or Voltari
Corporation (CIK# 0001568319), as indicated.