Item 1. Condensed Consolidated Financial
Statements.
Voltari Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
|
|
|
|
|
|
Assets
|
|
|
Real
estate investments, net
|
$
6,050
|
$
6,215
|
Cash
and cash equivalents
|
572
|
414
|
Prepaid
expenses and other current assets
|
315
|
520
|
Other
assets
|
113
|
101
|
Total
assets
|
$
7,050
|
$
7,250
|
|
|
|
Liabilities,
redeemable preferred stock and stockholders’
deficit
|
|
|
Accounts
payable and accrued expenses
|
$
479
|
$
508
|
Accrued
compensation
|
4
|
17
|
Deferred
rent income
|
17
|
17
|
Revolving
note
|
5,500
|
4,500
|
Interest
payable
|
283
|
141
|
Deferred
rent expense
|
19
|
25
|
Accrued
preferred stock dividends
|
1,758
|
1,598
|
Other
liabilities
|
116
|
116
|
Total
liabilities
|
$
8,176
|
$
6,922
|
|
|
|
Commitments
and contingencies
|
—
|
—
|
|
|
|
Redeemable
preferred stock, $0.001 par value; 1,200,000 shares authorized at
September 30, 2017 and December 31, 2016, 1,170,327 shares issued
and outstanding at September 30, 2017 and December 31, 2016.
Redemption value: $55,412 and $50,355 at September 30, 2017 and
December 31, 2016, respectively.
|
$
53,653
|
$
48,024
|
|
|
|
Stockholders’
deficit
|
|
|
Common
stock, $0.001 par value; 25,000,000 shares authorized at September
30, 2017 and December 31, 2016, 8,994,814 shares issued and
outstanding at September 30, 2017 and December 31,
2016.
|
9
|
9
|
Additional
paid-in capital
|
549,495
|
555,286
|
Accumulated
deficit
|
(604,341
)
|
(603,049
)
|
Accumulated
other comprehensive income
|
58
|
58
|
Total
stockholders’ deficit
|
(54,779
)
|
(47,696
)
|
Total
liabilities, redeemable preferred stock and stockholders’
deficit
|
$
7,050
|
$
7,250
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Voltari Corporation
Condensed Consolidated Statements of Operations
(in thousands, except share data and per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
81
|
$
83
|
$
242
|
$
181
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
General
and administrative, excluding depreciation
|
374
|
641
|
1,318
|
2,358
|
Depreciation
and amortization
|
44
|
72
|
133
|
216
|
Impairment
losses
|
-
|
115
|
-
|
115
|
Acquisition
and transaction related
|
19
|
5
|
30
|
22
|
Total
operating expenses
|
437
|
833
|
1,481
|
2,711
|
Operating
loss
|
$
(356
)
|
$
(750
)
|
$
(1,239
)
|
$
(2,530
)
|
Other
income and (expenses)
|
|
|
|
|
Other
income – net of expenses
|
-
|
-
|
89
|
-
|
Interest
expense & Revolving note fees
|
(44
)
|
(44
)
|
(142
)
|
(80
)
|
Net
loss from continuing operations
|
(400
)
|
(794
)
|
(1,292
)
|
(2,610
)
|
Net
income (loss) from discontinued operations
|
-
|
14
|
-
|
(23
)
|
Net
loss
|
$
(400
)
|
$
(780
)
|
$
(1,292
)
|
$
(2,633
)
|
Accretion
of redeemable preferred stock
|
(255
)
|
(216
)
|
(734
)
|
(623
)
|
Series
J redeemable preferred stock dividends
|
(1,758
)
|
(1,547
)
|
(5,057
)
|
(4,465
)
|
Net
loss attributable to common stockholders
|
$
(2,413
)
|
$
(2,543
)
|
$
(7,083
)
|
$
(7,721
)
|
|
|
|
|
|
Net
loss per share attributable to common stockholders - basic and
diluted
|
|
|
|
|
Continuing
operations
|
$
(0.27
)
|
$
(0.28
)
|
$
(0.79
)
|
$
(0.86
)
|
Discontinued
operations
|
-
|
-
|
-
|
-
|
Total
net loss per share attributable to common stockholders
|
$
(0.27
)
|
$
(0.28
)
|
$
(0.79
)
|
$
(0.86
)
|
|
|
|
|
|
Weighted-average
common shares outstanding – basic and diluted
|
8,994,814
|
8,994,814
|
8,994,814
|
8,994,814
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Voltari Corporation
Condensed Consolidated Statements of Comprehensive
Loss
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(400
)
|
$
(780
)
|
$
(1,292
)
|
$
(2,633
)
|
Other comprehensive
gain (loss):
|
|
|
|
|
Foreign currency
translation adjustment
|
4
|
(6
)
|
-
|
(6
)
|
Comprehensive
loss
|
$
(396
)
|
$
(786
)
|
$
(1,292
)
|
$
(2,639
)
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Voltari Corporation
Condensed Consolidated Statements of Changes in Stockholders’
Deficit
(in thousands, except share data)
(unaudited)
|
|
|
|
|
|
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
|
—
|
—
|
—
|
(1,292
)
|
—
|
(1,292
)
|
Other comprehensive
loss
|
—
|
—
|
—
|
—
|
—
|
—
|
Redeemable
preferred stock dividends
|
—
|
—
|
(5,057
)
|
—
|
—
|
(5,057
)
|
Accretion of
redeemable preferred stock
|
—
|
—
|
(734
)
|
—
|
—
|
(734
)
|
Balance
as of September 30, 2017
|
8,994,814
|
$
9
|
$
549,495
|
$
(604,341
)
|
$
58
|
$
(54,779
)
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Voltari Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
Net
loss
|
$
(1,292
)
|
$
(2,633
)
|
Loss from
discontinued operations
|
-
|
23
|
Adjustments to
reconcile net loss to net cash used in operating
activities:
|
|
|
Depreciation and
amortization
|
133
|
216
|
Amortization of
lease intangible
|
32
|
31
|
Stock-based
compensation expense
|
-
|
(3
)
|
Impairment
charges
|
-
|
115
|
Non-cash interest
expense
|
142
|
80
|
Other non-cash
adjustment
|
-
|
(6
)
|
Changes in
operating assets and liabilities:
|
|
|
Accounts
receivable
|
-
|
13
|
Prepaid expenses
and other current assets
|
205
|
436
|
Accounts payable
and accrued expenses
|
(43
)
|
(78
)
|
Other
assets
|
(12
)
|
-
|
Deferred rent
expense
|
(7
)
|
(1
)
|
Net
cash used in operating activities - continuing
operations
|
(842
)
|
(1,807
)
|
Net
cash used in operating activities - discontinued
operations
|
-
|
(7
)
|
Net
cash used in operating activities
|
(842
)
|
(1,814
)
|
|
|
|
Cash
flows from investing activities:
|
|
|
Purchases of real
estate
|
-
|
(2,817
)
|
Proceeds from the
sale of fixed assets
|
-
|
3
|
Net
cash used in investing activities - continuing
operations
|
-
|
(2,817
)
|
Net
cash provided by investing activities - discontinued
operations
|
-
|
3
|
Net
cash used in investing activities
|
-
|
(2,814
)
|
|
|
|
Cash
flows from financing activities:
|
|
|
Proceeds from debt
facilities
|
1,000
|
3,550
|
Net
cash provided by financing activities
|
1,000
|
3,550
|
Effect of exchange
rate changes on cash and cash equivalents
|
-
|
-
|
Net
increase (decrease) in cash and cash equivalents
|
158
|
(1,078
)
|
Cash
and cash equivalents at beginning of period
|
414
|
1,180
|
Cash
and cash equivalents at end of period
|
$
572
|
$
102
|
|
|
|
Supplemental
disclosure of non-cash financing activities:
|
|
|
Series J redeemable
preferred stock dividend paid-in-kind
|
$
4,896
|
$
4,323
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Business Description and Basis of Presentation
Business Description
Voltari
Corporation (“Voltari” or the “Company”) is
in the business of acquiring, financing and leasing commercial real
properties. The Company had previously been engaged in the business
of providing mobile marketing and advertising solutions to brands,
marketers and advertising agencies. In August 2015, we began
implementing a transformation plan pursuant to which, among other
things, we exited our mobile marketing and advertising business. It
is anticipated that the majority of the costs related to the
transformation plan were incurred during 2015 and 2016. Additional
amounts to be incurred during the balance of 2017, if any, cannot
be reasonably estimated. We have been funding our operations with
borrowings under our Amended Note (as defined herein) as described
in Note 5. We expect to continue to rely on borrowings to provide
working capital in the near term.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
for interim financial reporting pursuant to the rules and
regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all the
information and footnotes required by U.S. generally accepted
accounting principles (“U.S. GAAP”) for complete
financial statements. The condensed consolidated balance sheet as
of December 31, 2016, included herein was derived from the
audited financial statements as of that date, but does not include
all disclosures required by U.S. GAAP.
The
unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all normal
recurring adjustments which are necessary for a fair statement of
the results of the interim periods. These unaudited condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and accompanying
notes for the fiscal year ended December 31, 2016, included in
our Annual Report on Form 10-K for the year ended December 31,
2016. The results of operations for the three and nine months ended
September 30, 2017 are not necessarily indicative of the results to
be expected for the full year or for any other period. Certain
amounts from prior periods have been reclassified to conform with
the presentation in the current period.
The
preparation of condensed consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions in certain circumstances that affect the reported
amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates include those involved in the valuation of long lived
assets, valuation allowance on the deferred tax asset, redeemable
preferred stock, litigation and other loss contingencies. Actual
results could differ from those estimates.
2. Summary of Significant Accounting Policies
Our
significant accounting policies are those that we believe are both
important to the portrayal of our financial condition and results
of operations.
Significant Accounting Policies - Real Estate
Investments
As a
result of our entry into the business of acquiring, financing and
leasing commercial real properties, we have adopted the following
significant accounting policies. Management believes there have
been no other material changes to our significant accounting
policies discussed in Note 2 of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2016, except for the standards
adopted this year.
Investments
in real estate are recorded at cost. 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.
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
Depreciation
is computed using the straight-line method over the estimated
useful lives of up to 43 years for buildings, 13 years
for land improvements, five (5) years for fixtures and
improvements and the shorter of the useful life or the remaining
lease term for tenant improvements and leasehold interests.
Capitalized above-market lease values are amortized as a reduction
of rental income over the remaining terms of the respective leases.
Capitalized below-market lease values are amortized as an increase
to rental income over the remaining terms of the respective leases
and expected below-market renewal option periods. The value of
in-place leases, exclusive of the value of above-market and
below-market in-place leases, are amortized to expense over the
remaining periods of the respective leases.
Recently Adopted Accounting Pronouncements
In March 2016, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2016-09,
Compensation - Stock
Compensation
. ASU 2016-09
simplifies the accounting for share-based payment transactions,
including a policy election option with respect to accounting for
forfeitures either as they occur or estimating forfeitures, as well
as increasing the amount an employer can withhold to cover income
taxes on equity awards. Additionally, ASU 2016-09 requires the cash
paid to a taxing authority when shares are withheld to pay employee
taxes to be classified as a "financing activity" rather than an
"operating activity," as was done previously on the Statement of
Cash Flows. We adopted this standard effective January 1, 2017,
and, as a result, we will be accounting for future forfeitures as
they occur.
Recently Issued 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. The new revenue standard
is effective for annual reporting periods beginning after December
15, 2017, and interim periods within those years. Earlier
application is permitted only as of annual reporting periods
beginning after December 15, 2016, including interim reporting
periods within that reporting period. The new standard allows for
either full retrospective or modified retrospective adoption.
Currently, all revenues are derived from lease contracts which are
not within the scope of this guidance. We don't expect this
standard will have any impact on our condensed consolidated
financial statements.
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 requiring significantly more leasing
related costs to be expensed upfront. ASU 2016-02 is effective for
us in the first quarter of 2019, and we are currently assessing the
impact of this standard to our condensed consolidated financial
statements.
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. ASU
2017-01 is effective for financial statements issued for
annual periods
beginning after
December 15, 2017, including interim periods within those
periods
. Under the new
standard, transaction costs would be capitalized under asset
acquisitions and expensed for business combinations. We are
currently assesing the impact of this standard to our condensed
consolidated financial statements.
In February 2017, the FASB issued ASU 2017-05,
Other Income - Gains and
Losses from the Derecognition of Nonfinancial Assets,
Clarifying the
Scope of Asset Derecognition Guidance and Accounting for Partial
Sales of Nonfinancial Assets
.
ASU 2017-05 clarifies that ASC 610-20 applies to all nonfinancial
assets (including real estate) for which the counterparty is not a
customer and clarifies that all businesses are derecognized using
the deconsolidation guidance. Additionally, it defines an in
substance nonfinancial asset as a financial asset that is promised
to a counterparty in a contract in which substantially all the fair
value of the assets promised in the contract is concentrated in
nonfinancial assets, which excludes cash or cash equivalents and
liabilities. The new guidance is expected to impact the gain
recognized when a real estate asset is sold to a non-customer and a
noncontrolling interest is retained. Under the current guidance, a
partial sale is recognized and carryover basis is used for the
retained interest, however, the new guidance eliminates the use of
carryover basis and generally requires a full gain to be
recognized. ASU 2017-05 is effective for us in the first quarter of
2018, and we are currently assessing the impact of this standard to
our condensed consolidated financial
statements.
In May 2017, the FASB issued
ASU 2017-09,
Compensation - Stock Compensation
(Topic 718),
Scope of Modification Accounting
to
provide clarity and to reduce diversity in practice related to a
modification when applying the guidance in ASC 718, Compensation
– Stock Compensation. The guidance in ASC 718 defines a
“modification” as a change in the terms or conditions
of a share-based payment award. The amendments provide guidance
about when changes in terms or conditions of a share-based payment
award require an entity to apply the existing modification guidance
in ASC 718. The amendments in this Update are effective for all
entities for annual periods, and interim periods within those
annual reporting periods, beginning after December 15, 2017. We are
currently assesing the impact of this standard to our condensed
consolidated financial statements.
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
3. Real Estate Investments
During
2015 and 2016 we acquired two real estate properties, one located
in Long Branch, NJ and the other in Flanders, NY.
Information
related to major categories of real estate investments, net, is as
follows (in thousands):
|
|
|
|
Useful
life
|
|
|
Real Estate
Investments, at cost:
|
|
|
|
Land
|
|
$
2,345
|
$
2,345
|
Building,
fixtures and improvements
|
10 - 43
yrs.
|
3,494
|
3,494
|
Total
tangible assets
|
|
5,839
|
5,839
|
Acquired
Intangibles - In-place leases
|
5 to 13
yrs.
|
607
|
607
|
Total cost of Real
Estate Investments
|
|
6,446
|
6,446
|
Less: Accumulated
depreciation and amortization
|
|
(396
)
|
(231
)
|
Total cost of Real
Estate Investments, net
|
|
$
6,050
|
$
6,215
|
Depreciation
expense for the nine months ended September 30, 2017 and 2016
amounted to $91 thousand and $70 thousand,
respectively.
Intangible
amortization expense for the nine months ended September 30, 2017
and 2016 amounted to $74 thousand and $68 thousand, respectively,
of which $32 thousand of favorable leases amortization was
reflected as a reduction in revenue, for both periods.
Expected
in-place lease and favorable lease amortization for each of the
next five (5) years, and thereafter, is as follows (in
thousands):
Years
Ending December 31,
|
|
Balance of
2017
|
$
25
|
2018
|
99
|
2019
|
99
|
2020
|
57
|
2021
|
16
|
Thereafter
|
124
|
Total
|
$
420
|
F
uture
minimum base rental receipts due to us over the next five (5)
years, and thereafter is as follows (in thousands):
Year
Ending December 31,
|
|
Balance of
2017
|
$
87
|
2018
|
348
|
2019
|
348
|
2020
|
239
|
2021
|
160
|
Thereafter
|
1,356
|
Total
|
$
2,538
|
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
4. Discontinued Operations
There
were no discontinued operations expenses for the three and nine
months ended September 30, 2017. The effect of discontinued
operations on the condensed consolidated statements of operations
for the three and nine months ended September 30, 2016 were as
follows (in thousands):
|
Three Months
Ended
September 30,
2016
|
|
Mobile Marketing
& Advertising
|
Revenue
|
$
-
|
Operating
income
|
14
|
Other
income
|
-
|
Pre-tax
income
|
14
|
Net income from
discontinued operations
|
$
14
|
|
Nine
Months Ended
September 30,
2016
|
|
Mobile Marketing
& Advertising
|
Revenue
|
$
-
|
Operating
loss
|
(23
)
|
Other income
(expense), net
|
-
|
Pre-tax
loss
|
(23
)
|
Net loss from
discontinued operations
|
$
(23
)
|
5. Revolving Note
On
August 7, 2015, we, as borrower, and Koala Holding LP
(“Koala”), as lender, an affiliate of Carl C. Icahn,
our controlling stockholder, entered into a revolving note (the
“Prior Note”). Pursuant to the Prior Note, Koala made
available to us a revolving loan facility of up to $10 million in
aggregate principal amount. Borrowings under the Prior Note bore
interest at a rate equal to the greater of the LIBOR rate plus 350
basis points, per annum, and 3.75%, per annum. The Prior Note also
included a fee of 0.25%, per annum, on undrawn amounts and matured
on the earliest of (i) December 31, 2017, (ii) the date on which
any financing transaction, whether debt or equity, was consummated
by us (or our successors and assigns) with net proceeds in an
amount equal to or greater than $10 million, and (iii) at our
option, a date selected by us that was earlier than December 31,
2017. Subject to the terms and conditions of the Prior Note, we
could repay all or any portion of the amounts outstanding under the
Prior Note at any time without premium or penalty, and any amounts
so repaid would, until the maturity date, be available for
re-borrowing. As collateral for the Prior Note, we pledged and
granted to Koala a lien on our limited liability company interest
in Voltari Real Estate Holding LLC (“Voltari Holding”).
As of March 29, 2017, borrowings on this facility totaled $5.0
million.
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. 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.
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 (i) the LIBOR Rate plus 300 basis points, per annum, or
(ii) 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
September 30, 2017, borrowings under the Amended Note equaled $5.5
million. The outstanding balance, including interest of $0.3
million, totaled $5.8 million.
6. Redeemable Preferred Stock
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 (the "Warrants") 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
September 30, 2017, and December 31, 2016.
Our
Series J preferred stock contains certain redemption features and
is classified as mezzanine equity at September 30, 2017, and
December 31, 2016 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 is being accreted over an
anticipated redemption period of five years using the effective
interest method, which is 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 13% through December 31, 2017, after which it adjusts to 14%,
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 $24.4 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
condensed consolidated statements of operations.
Our
Series J preferred stock has a preference upon dissolution,
liquidation or winding up of the Company in respect of assets
available for distribution to stockholders. The liquidation
preference of the Series J preferred stock is initially $25 per
share. If the 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 adjustment will continue until
the shares are redeemed, or until the Company's affairs are
liquidated, dissolved or wound-up.
As of
September 30, 2017, our Series J preferred stock had an aggregate
redemption value of approximately $55.4 million, including
paid-in-kind dividends of $24.4 million and accrued dividends of
$1.8 million. We recorded accretion associated with our Series J
preferred stock of $0.7 million and $0.6 million for the nine
months ended September 30, 2017 and 2016,
respectively.
In
connection with the closing of our 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.
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
7. 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 September 30,
2017, consisted of cash and cash equivalents of $0.6 million, and
our ability to borrow on our
Amended
Note
. See Note 5,
Revolving
Note,
of our condensed consolidated financial statements for
more information.
In
light of the above, the condensed consolidated financial statements
were prepared on the basis that the Company will continue as a
going concern. Therefore, the accompanying condensed 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.
8. 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 periods
indicated (dollars in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to common stockholders
|
$
(2,413
)
|
$
(2,543
)
|
$
(7,083
)
|
$
(7,721
)
|
|
|
|
|
|
Weighted-average
common shares outstanding - basic and diluted
|
8,994,814
|
8,994,814
|
8,994,814
|
8,994,814
|
|
|
|
|
|
Net loss per share
attributable to common stockholders - basic and
diluted
|
$
(0.27
)
|
$
(0.28
)
|
$
(0.79
)
|
$
(0.86
)
|
Basic
net loss per share attributable to common stockholders is computed
by dividing net loss attributable to common stockholders by the
weighted-average number of common shares outstanding during the
applicable period. Diluted net loss per share attributable to
common stockholders includes the effects of any warrants, options
and other potentially dilutive securities outstanding during the
period. Due to net losses, for the periods presented, there were no
potentially dilutive securities outstanding, therefore basic and
diluted net loss per share attributable to common stockholders are
equal. The following table presents the outstanding antidilutive
securities excluded from the calculation of net loss per share
attributable to common stockholders:
|
|
|
|
|
Common stock
issuable upon exercise of Warrants
|
1,014,958
|
1,014,958
|
Options to purchase
common stock
|
-
|
21,150
|
Total securities excluded from net loss per share
attributable to common stockholders
|
1,014,958
|
1,036,108
|
9. Legal Proceedings
From
time to time, we are subject to claims and 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.
10. Subsequent Events
On
October 11, 2017, the Warrants to purchase 1,014,958 shares of
common stock, expired without any such Warrants being
exercised.
Item 2. Management
’
s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion should be read in conjunction with our
condensed consolidated financial statements included elsewhere
herein.
Forward-Looking Statements
Some of
the statements contained in this Quarterly Report on Form 10-Q,
including this Management’s Discussion and Analysis of
Financial Condition and Results of Operations
,
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, our plans to acquire additional
real estate properties, including potentially higher valued
properties, 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, and the anticipated growth
and trends in our businesses. These forward-looking statements are
subject to known and unknown risks and uncertainties that could
cause actual results to differ materially from those
anticipated.
Risks
and uncertainties that could adversely affect our business and
prospects include without limitation:
●
any
financial or other information included herein (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 execute real estate acquisitions;
●
risks
generally associated with the commercial real estate investment
business, including the credit risk associated with our
tenants;
●
our
ability to implement our transformation plan;
●
our
ability to compete in the highly competitive real estate investment
industry;
●
the
impact of government regulation, legal requirements or industry
standards relating to commercial real estate;
●
our
limited experience acquiring and managing commercial real
properties;
●
our
ability to meet the criteria required to remain quoted on the OTCQB
Marketplace;
●
the
ongoing benefits and risks related to our relationship with Mr.
Carl C. Icahn, our principal beneficial stockholder and principal
lender, through certain of his affiliates;
●
the
impact and costs and expenses of any litigation we may be subject
to now or in the future; and
●
our
leadership 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, projections and pro forma financial
information, and may be materially better or worse than
anticipated. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. Forward-looking
statements represent our estimates and assumptions only as of the
date of this report. We expressly disclaim any duty to provide
updates to forward-looking statements, and the estimates and
assumptions associated with them, after the date of this report, in
order to reflect changes in circumstances or expectations or the
occurrence of unanticipated events except to the extent required by
applicable securities laws. All of the forward-looking statements
are qualified in their entirety by reference to the factors
discussed above, as well as the risks and uncertainties discussed
in
Item 1A - Risk Factors
of our Annual Report on Form 10-K, for the fiscal year ended
December 31, 2016. We qualify all of our forward-looking statements
by these cautionary statements. We caution you that these risks are
not exhaustive. We operate in a continually changing business
environment and new risks emerge from time to time.
References
in this Quarterly Report on Form 10-Q to “Voltari,”
“the Company,” “we,” “us” and
“our” are to Voltari Corporation and its
subsidiaries.
Transformation Plan
In
August 2015, we committed to and began implementing a
transformation plan pursuant to which, among other things, we
exited our mobile marketing and advertising business and entered
into the business of acquiring, financing and leasing commercial
real estate properties. We have significantly reduced our
workforce in connection with our transformation plan.
We
lease our properties and intend to lease any additional properties
we acquire pursuant to so-called “double net” or
“triple net” leases. We are actively searching for
additional properties to acquire. 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 than the
properties we currently own. 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.
Any
future acquisitions are intended to be initially financed through
borrowings available under our Amended Note (as defined herein)
with Koala Holding LP (“Koala”).
Real Property Acquisitions
—In connection with the
execution of our transformation plan, on September 17, 2015,
we acquired a real estate parcel in Long Branch, New Jersey. The
property is subject to a triple net lease with JPMorgan Chase Bank,
N.A. ("Chase"), the original term of which expires in June, 2020
(with two, five-year renewal options), pursuant to which Chase is
responsible for the payment of basic rent as well as the payment of
real estate taxes, maintenance costs, utilities, tenant's insurance
and other property related costs. Refer to
http://investor.shareholder.com/jpmorganchase/sec.cfm for the
financial statements of the tenant. The purchase price was
approximately $3.63 million. As of September 30, 2017, the average
annual rental income for the property over the remaining term of
the original lease is approximately $203,000.
On May
18, 2016, we acquired a real estate parcel in Flanders, New York.
The property is subject to a lease with 7-Eleven, Inc.
(“7-Eleven”), the original term (the “Original
Term”) of which expires in December 2029 (with four,
five-year renewal options (the “Renewal Term,” and
together with the Original Term, the “Term”)). During
the Term, 7-Eleven is responsible for the payment of basic rent, as
well as the payment of, subject to certain exceptions, real estate
taxes, utilities, tenant’s insurance and other property
related costs. The landlord is responsible for certain maintenance
and repair costs. The purchase price was approximately $2.82
million. As of September 30, 2017, the average annual rental income
for the property over the remaining Original Term is approximately
$163,000.
Results of Operations
Our
continuing operations for the three and nine months ended September
30, 2017 and 2016 consist of revenues and expenses related to
commercial real estate operations which commenced in August 2015,
as well as general and administrative costs. Continuing operations
includes all personnel and facilities costs related to executive
management, finance and accounting, human resources and other
general corporate staff, as well as all legal and other
professional fees, insurance and other costs not directly
attributable to the mobile marketing and advertising business or
our other discontinued operations.
Total revenue
Revenue
from continuing operations for the three and nine months ended
September 30, 2017 and 2016 consists of rental income from
properties acquired (dollars in thousands);
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
$
81
|
$
83
|
$
(2
)
|
$
242
|
$
181
|
$
61
|
Revenue
for the nine months ended September 30, 2017 increased $61 thousand
as a result of the addition of the Flanders property in May,
2016.
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and
administrative, excluding depreciation
|
$
374
|
$
641
|
$
(267
)
|
$
1,318
|
$
2,358
|
$
(1,040
)
|
Depreciation and
amortization
|
44
|
72
|
(28
)
|
133
|
216
|
(83
)
|
Impairment
losses
|
-
|
115
|
(115
)
|
-
|
115
|
(115
)
|
Acquisition and
transaction related
|
19
|
5
|
14
|
30
|
22
|
8
|
Total
operating expenses
|
$
437
|
$
833
|
$
(396
)
|
$
1,481
|
$
2,711
|
$
(1,230
)
|
General and administrative, excluding
depreciation
For the
three months ended September 30, 2017, general and administrative
expense, excluding depreciation, declined by approximately $0.3
million from the three months ended September 30, 2016, due to
a:
●
$0.1
million decrease in personnel costs; and
●
$0.2
million decrease in various other administrative
costs.
For the
nine months ended September 30, 2017, general and administrative
expense, excluding depreciation, declined by approximately $1.0
million from the nine months ended September 30, 2016, due to
a:
●
$0.4
million decrease in personnel costs, resulting from January 2016
staff reductions, as well as staff reductions in connection with
our transformation plan;
●
$0.5
million decrease in accounting, legal and professional fees
resulting from the execution of our transformation plan and
acquisition of the Flanders property and completion of our IRS
audit; and
●
$0.1
million reduction in various other administrative
costs.
Depreciation
and amortization
Depreciation
and amortization expense for the three and nine months ended
September 30, 2017 and 2016 relates primarily to real estate
investments and, in 2016, also includes general office computer
equipment, furniture, computer software and leasehold improvements
related to the New York City office.
For the
three and nine months ended September 30, 2017, depreciation and
amortization expense decreased less than $0.1 million from the
comparable periods in 2016, primarily as a result of items related
to the New York City office being fully depreciated by the end of
2016.
Impairment
losses
There
were no impairment losses for the three or nine months ended
September 30, 2017.
Acquisition
and transaction related
Acquisition and
transaction related expenses for the three and nine months
September 30, 2017 and 2016 relates to third party professional
expenses associated with potential investments.
Other Income and expenses
Other
income and expenses for the nine months ended September 30, 2017
relates to a franchise tax refund from the State of Delaware in the
amount of approximately $135,500. Professional fees directly
associated, and offset against this tax refund, amounted to
approximately $46,500. There was no other income and expenses for
the three and nine months ended September 30, 2016.
For the
nine months ended September 30, 2017, interest expense increased
$62 thousand as a result of additional borrowings to fund our real
estate purchase and operating expenses.
Net income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) from discontinued operations
|
$
-
|
$
14
|
$
(14
)
|
$
-
|
$
(23
)
|
$
23
|
Results
of operations for our mobile marketing and advertising business,
which terminated in August 2015, are included in discontinued
operations for all periods presented. Results from discontinued
operations for the three and nine months ended September 30, 2016,
also reflect residual charges related to operations discontinued in
2015 and prior years. See
Note 4 -
Discontinued Operations
to our condensed consolidated
financial statements for more information.
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
$
(400
)
|
$
(780
)
|
$
(380
)
|
$
(1,292
)
|
$
(2,633
)
|
$
(1,341
)
|
For the
three months ended September 30, 2017, net loss was $0.4 million,
compared to net loss of $0.8 million for the three months ended
September 30, 2016. The $0.4 million improvement in net loss is
primarily due to a reduction of general and administrative
expenses.
For the
nine months ended September 30, 2017, net loss was $1.3 million,
compared to net loss of $2.6 million for the nine months ended
September 30, 2016. The $1.3 million improvement in net loss is
primarily due to:
●
$0.1
million increase in rental income.
●
$0.4
million decrease in personnel costs, resulting from staff
reductions in connection with our transformation plan;
●
$0.6
million decrease in accounting, legal and professional fees and
other costs resulting from the execution of our transformation
plan;
●
$0.1
million in
depreciation
and
$0.1
million decrease in impairment losses.
Liquidity
and Capital Resources
General
Our
principal needs for liquidity since we began executing our
transformation plan in August, 2015, have been to fund operating
losses, working capital requirements, capital expenditures,
restructuring expenses, acquisitions and integration and debt
service. Our principal sources of liquidity as of September 30,
2017, consisted of cash and cash equivalents of approximately $.6
million and our ability to borrow on our Koala loan
.
On
August 7, 2015, we, as borrower, and Koala, as lender, an affiliate
of Carl C. Icahn, our controlling stockholder, entered into a
revolving note (the “Prior Note”). Pursuant to the
Prior Note, Koala made available to us a revolving loan facility of
up to $10 million in aggregate principal amount. Borrowings under
the Prior Note bore interest at a rate equal to the greater of the
LIBOR rate plus 350 basis points, per annum, and 3.75%, per annum.
The Prior Note also included a fee of 0.25%, per annum, on undrawn
amounts and matured on the earliest of (i) December 31, 2017, (ii)
the date on which any financing transaction, whether debt or
equity, was consummated by us (or our successors and assigns) with
net proceeds in an amount equal to or greater than $10 million, and
(iii) at our option, a date selected by us that was earlier than
December 31, 2017. Subject to the terms and conditions of the Prior
Note, we could repay all or any portion of the amounts outstanding
under the Prior Note at any time without premium or penalty, and
any amounts so repaid would, until the maturity date, be available
for re-borrowing. As collateral for the Prior Note, we pledged and
granted to Koala a lien on our limited liability company interest
in Voltari Real Estate Holding LLC (“Voltari
Holding”).
As of
March 29, 2017, borrowings from this facility totaled $5.0 million
due to borrowings in connection with our second real estate
acquisition as well as for working capital
requirements.
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. 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, 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
September 30, 2017, borrowings from this facility totaled $5.5
million due to borrowings in connection with our second real
estate
acquisition as well as for working capital requirements. The
outstanding balance, including interest of $0.3 million, totaled
$5.8 million.
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.
In
August, 2015, we began implementing a transformation plan pursuant
to which, among other things, we exited our mobile marketing and
advertising business and entered into the business of acquiring,
financing and leasing commercial real properties. We expect that
the acquisition of commercial real properties, the cost of
operations and working capital requirements will be our principal
need for liquidity in the future. Our cash flows may be affected by
many factors including the economic environment, competitive
conditions in the commercial real estate industry and the success
of our transformation plan. We believe we will have adequate
resources to fund our operations, capital expenditures and working
capital needs for the next 12 months using borrowings available
under the Amended Note and our cash and cash equivalents on hand.
We currently intend to leverage real properties that we may
acquire, but cannot assure that we will be able to do so on
commercially reasonable terms, if at all.
Our
liquidity may be adversely affected if, and to the extent that, our
remaining Series J preferred stock becomes redeemable. The Company
believes that, if a redemption event were to occur, limited, if
any, funds would be available for such redemption under the terms
of the Series J preferred stock and applicable Delaware law.
As a result, in the event that a redemption event were to occur,
the Company currently expects that it would be precluded, under the
terms of the Series J preferred stock and applicable Delaware law,
from making any material redemptions.
Our
ability to achieve our business and cash flow plans is based on a
number of assumptions which involve significant judgments and
estimates of future performance, borrowing capacity and credit and
equity finance availability, which cannot at all times be assured.
Accordingly, we cannot assure that cash flows from operations and
other internal and external sources of liquidity will at all times
be sufficient for our cash requirements. If necessary, we may need
to consider actions and steps to improve our cash position and
mitigate any potential liquidity shortfall, such as modifying our
business plan, pursuing additional financing to the extent
available, pursuing and evaluating other alternatives and
opportunities to obtain additional sources of liquidity and other
potential actions to reduce costs. We cannot assure that any of
these actions would be successful, sufficient or available on
favorable terms. Any inability to generate or obtain sufficient
levels of liquidity to meet our cash requirements at the level and
times needed could have a material adverse impact on our business
and financial position.
Our
ability to obtain any additional financing depends upon many
factors, including our then existing level of indebtedness (if any)
and restrictions in any debt facilities to which we may be subject
now or 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
September 30, 2017, and December 31, 2016, we had cash and
cash equivalents of $0.6 million and $0.4 million, respectively.
The increase reflects cash provided by financing activities of $1.0
million, offset by
cash used for
operating activities of $0.8 million
.
Net cash used in operating activities
The
change in our operating assets and liabilities was driven by a
decrease in prepaid expenses and other assets of $0.2 million,
offset by an increase in other assets of $12 thousand, and a
decrease in accounts payable and accrued expenses of $43 thousand,
and a decrease in deferred rent expense of $7
thousand.
Net cash from investing activities
For the
nine months ended September 30, 2017, no net cash was used in
investing activities.
Net cash from financing activities
For the
nine months ended September 30, 2017, cash in the amount of $1.0
million was provided by borrowings on the Amended
Note.
Off-Balance Sheet Arrangements
As of
September 30, 2017, and December 31, 2016, we do not have any
off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our
condensed consolidated financial statements are prepared in
accordance with U.S. GAAP. 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 recognition of revenue,
valuation of long-lived assets, valuation allowance on the deferred
tax asset, accounting for our 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
in our condensed consolidated financial statements
in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See
discussion of recent accounting pronouncements in
Note 2 - Summary of Significant Accounting
Policies in
our condensed consolidated financial statements
in this Quarterly Report on Form 10-Q.