Item 1. Business
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
Item 1A. Risk Factors
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.
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.
Item 2.
Item 2. Properties.
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.
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.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5.
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.
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.
Item 6. Selected Financial Data.
We are not required to provide selected financial data disclosures because we are a smaller reporting company.
Item 7.
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
● 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
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 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
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
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:
● 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;
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.
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.
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)
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)
The accompanying notes are an integral part of these consolidated financial statements.
Voltari Corporation
Consolidated Statements of Comprehensive Loss
(in thousands)
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)
The accompanying notes are an integral part of these consolidated financial statements.
Voltari Corporation
Consolidated Statements of Cash Flows
(in thousands)
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.
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):
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):
The following table presents future minimum base rental receipts due to us over the next five years (dollars in thousands):
4. Property and Equipment, net
Information related to major categories of our property and equipment, net, is as follows (dollars in thousands):
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):
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:
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):
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):
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
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,
(Dollars in Thousands)
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:
Changes in accumulated depreciation for the years ended December 31, 2018 and 2017 are as follows:
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
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.
Item 9B. Other Information.
None.
PART III
Item 10.
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.
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.
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.
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.
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.
PART IV
Item 15.
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:
2. Financial Statement Schedules
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.
SIGNATURES
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.
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
EXHIBIT INDEX
* 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.