Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2018
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number: 000-55419
Voltari Corporation
(Exact name of registrant as specified in its charter)
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Delaware
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90-0933943
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(State of incorporation)
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(I.R.S. Employer
Identification Number)
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767 Fifth Avenue, Suite 4700
New York, NY 10153
(212) 388-5500
(Address, including zip code, and telephone number, including area
code, of registrant’s principal executive
offices)
Indicate by check
mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements
for the past 90 days. ☒
Yes ☐ No
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files).
☒
Yes ☐ No
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer”, “accelerated
filer”, “smaller reporting company” and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated
filer
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☐ (Do not check if a
smaller reporting company)
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Smaller reporting company
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☒
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Emerging growth
company
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☐
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange
Act). ☐ Yes
☒
No
As of
May 10, 2018, there were 8,994,814 shares of the registrant's
common stock, par value of $0.001 per share,
outstanding.
TABLE
OF CONTENTS
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Page
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PART
I
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Item 1.
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Condensed
Consolidated Financial Statements
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3
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Condensed
Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and
December 31, 2017
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3
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Condensed
Consolidated Statements of Operations for the three months ended
March 31, 2018 and 2017 (Unaudited)
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4
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Condensed
Consolidated Statements of Comprehensive Loss for the three months
ended March 31, 2018 and 2017 (Unaudited)
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5
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Condensed
Consolidated Statement of Changes in Stockholders' Deficit for the
three months ended March 31, 2018 (Unaudited)
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6
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Condensed
Consolidated Statements of Cash Flows for the three months ended
March 31, 2018 and 2017 (Unaudited)
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7
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Notes
to Condensed Consolidated Financial Statements
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8
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Item 2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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22
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Item 4.
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Controls
and Procedures
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22
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PART
II
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Item 1.
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Legal
Proceedings
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23
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Item 1A.
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Risk
Factors
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23
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Item
6.
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Exhibits
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23
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Signatures
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24
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2
PART I
Item 1. Condensed Consolidated Financial
Statements.
Voltari Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
(unaudited)
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March 31,
2018
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December 31,
2017
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Assets
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Real estate
investments, net
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$5,940
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$5,995
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Cash
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160
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101
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Restricted cash and
cash equivalents
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91
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91
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Prepaid
expenses
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319
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435
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Other
assets
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460
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26
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Total
assets
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$6,970
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$6,648
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Liabilities,
redeemable preferred stock and stockholders’
deficit
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Accounts payable
and accrued expenses
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$875
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$641
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Accrued
compensation
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9
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6
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Deferred rent
income
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17
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17
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Revolving
note
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6,000
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5,500
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Interest
payable
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382
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331
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Deferred rent
expense
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12
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15
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Accrued preferred
stock dividends
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1,976
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1,816
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Other
liabilities
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112
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112
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Total
liabilities
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9,383
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8,438
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Commitments
and contingencies
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—
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—
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Redeemable
preferred stock, $0.001 par value; 1,200,000 shares authorized, and
1,170,327 shares issued and outstanding at March 31, 2018 and
December 31, 2017. Redemption value: $59,203 and $57,227 at March
31, 2018 and December 31, 2017, respectively.
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$57,227
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$55,411
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Stockholders’
deficit
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Common stock,
$0.001 par value; 25,000,000 shares authorized at March 31, 2018
and December 31, 2017; 8,994,814 shares issued and outstanding at
March 31, 2018 and December 31, 2017.
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9
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9
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Additional paid-in
capital
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545,704
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547,680
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Accumulated
deficit
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(605,419)
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(604,951)
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Accumulated other
comprehensive income
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66
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61
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Total
stockholders’ deficit
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(59,640)
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(57,201)
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Total
liabilities, redeemable preferred stock and stockholders’
deficit
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$6,970
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$6,648
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
3
Voltari Corporation
Condensed Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
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Three Months
Ended
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March
31,
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2018
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2017
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Revenue
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$81
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$81
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Operating
expenses
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General and
administrative, excluding depreciation
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418
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538
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Depreciation and
amortization
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44
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44
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Acquisition and
transaction related
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36
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9
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Total
operating expenses
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498
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591
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Operating
loss
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(417)
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(510)
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Interest expense
& Revolving note fees
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(51)
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(54)
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Net
loss
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$(468)
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$(564)
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Accretion of
redeemable preferred stock
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-
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(235)
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Series J redeemable
preferred stock dividends
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(1,976)
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(1,614)
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Net
loss attributable to common stockholders
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$(2,444)
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$(2,413)
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Net
loss per share attributable to common stockholders- basic and
diluted
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$(0.27)
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$(0.27)
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Weighted-average
common shares outstanding – basic and diluted
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8,994,814
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8,994,814
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
4
Voltari Corporation
Condensed Consolidated Statements of Comprehensive
Loss
(in thousands)
(unaudited)
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Three Months
Ended
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March
31,
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2018
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2017
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Net
loss
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$(468)
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$(564)
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Other comprehensive
loss:
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Foreign currency
translation adjustment
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5
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(3)
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Comprehensive
loss
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$(463)
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$(567)
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
5
Voltari Corporation
Condensed Consolidated Statements of Changes in Stockholders’
Deficit
(in thousands, except share data)
(unaudited)
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Common
Stock
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Shares
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Amount
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Additional
Paid-in
Capital
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Accumulated
Deficit
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Accumulated
Other
Comprehensive
Income
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Total
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Balance
as of December 31, 2017
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8,994,814
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$9
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$547,680
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$(604,951)
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$61
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$(57,201)
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Net
loss
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—
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—
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—
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(468)
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—
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(468)
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Other comprehensive
income
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—
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—
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—
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—
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5
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5
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Redeemable
preferred stock dividends
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—
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—
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(1,976)
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—
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—
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(1,976)
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Balance
as of March 31, 2018
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8,994,814
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$9
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$545,704
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$(605,419)
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$66
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$(59,640)
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
6
Voltari Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
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Three Months
Ended
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March
31,
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2018
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2017
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Cash
flows from operating activities:
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Net
loss
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$(468)
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$(564)
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Adjustments to
reconcile net loss to net cash used in operating
activities:
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Depreciation and
amortization
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44
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44
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Straight line
rental income
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(4)
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(4)
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Amortization
of favorable lease intangible
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11
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11
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Non-cash
interest expense
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51
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54
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Changes in
operating assets and liabilities:
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Prepaid
expenses and other assets
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(314)
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99
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Accounts
payable and accrued expenses
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242
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61
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Deferred
rent expense
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(3)
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(2)
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Net
cash used in operating activities
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(441)
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(301)
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Cash
flows from financing activities:
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Proceeds
from debt facilities
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500
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500
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Net
cash provided by financing activities
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500
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500
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Net
increase in cash, restricted cash and cash equivalents
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59
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199
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Cash,
restricted cash and cash equivalents, beginning of
period
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192
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505
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Cash,
restricted cash and cash equivalents, end of period
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$251
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$704
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Supplemental
disclosure for non-cash financing activities:
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Series J redeemable
preferred stock dividends paid-in-kind
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$1,816
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$1,598
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The
accompanying notes are an integral part of these condensed
consolidated financial statements.
7
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Business Description and Basis of Presentation
Business Description
Voltari
Corporation (“Voltari” or the “Company”) is
in the business of acquiring, financing and leasing commercial real
properties through its wholly owned subsidiary, Voltari Real Estate
Holding LLC (“Voltari Holding”). 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. The majority
of the costs related to the transformation plan had been incurred
as of the end of 2017. Additional amounts to be incurred subsequent
to the year ended December 31, 2017, if any, cannot be reasonably
estimated. As of March 31, 2018, we owned two commercial real
properties. All of our revenue for such period is derived from the
rental income we receive under the two leases associated with these
two properties. As discussed in Note 9 - Subsequent Events, we acquired
a third commercial real estate property on April 23, 2018. We have
been funding our operations with borrowings under our Amended Note
(as defined herein) as described in Note 4 - Liquidity and Capital
Resources. We expect to continue to rely on borrowings to
provide working capital in the near term.
Basis of Presentation
The
accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
for interim financial reporting pursuant to the rules and
regulations of the Securities and Exchange Commission
(“SEC”). Accordingly, they do not include all the
information and footnotes required by U.S. generally accepted
accounting principles (“U.S. GAAP”) for complete
financial statements. The condensed consolidated balance sheet as
of December 31, 2017 included herein was derived from the
audited financial statements as of that date but does not include
all disclosures required by U.S. GAAP.
The
unaudited condensed consolidated financial statements have been
prepared on the same basis as the audited consolidated financial
statements and, in the opinion of management, reflect all normal
recurring adjustments which are necessary for a fair statement of
the results of the interim period. These unaudited condensed
consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and accompanying
notes for the fiscal year ended December 31, 2017 included in
our Annual Report on Form 10-K for the year ended December 31,
2017. The results of operations for the three months ended March
31, 2018 are not necessarily indicative of the results to be
expected for the full year or for any other period. Certain amounts
from prior periods have been reclassified to conform with the
presentation in the current period.
The
preparation of the condensed consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and
assumptions in certain circumstances that affect the reported
amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the condensed consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. The more significant
estimates include those involved in allocating the costs 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.
2. Summary of Significant Accounting Policies
Our
significant accounting policies are those that we believe are both
important to the portrayal of our financial condition and results
of operations.
Reclassifications
Certain
prior year balances have been reclassified to conform with the
current year presentation. As of January 1, 2018, the Company
adopted Accounting Standards Update, or ASU, No. 2016-18,
"Statement of Cash Flows (Topic
230): Restricted Cash", which requires restricted cash and
cash equivalents to be included with cash and cash equivalents when
reconciling beginning-of-period and end-of-period total amounts
shown on the Consolidated Statements of Cash Flows. As a result of
the adoption, Other assets were reduced by $91 thousand and
Restricted cash was increased for the same amount as of
March 31, 2017.
Cash, Restricted Cash and Cash Equivalents
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 consists of security for our office
operating lease for our former headquarters and our credit
card.
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.
8
Notes to Condensed Consolidated Financial Statements
(unaudited)
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As of March
31,
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2018
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2017
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(Dollars in
thousands)
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Cash
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$160
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$613
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Restricted cash and
cash equivalents
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91
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91
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Total cash, cash
equivalents, and restricted cash
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$251
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$704
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Significant
Accounting Policies - Real Estate Investments
As a
result of our entry into the business of acquiring, financing and
leasing commercial real properties, we have adopted the following
significant accounting policies. Management believes there have
been no other material changes to our significant accounting
policies discussed in Note 2 of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2017, except for the
standards adopted this period.
Investments
in real estate are recorded at cost. Improvements and replacements
are capitalized when they extend the useful life of the asset.
Costs of repairs and maintenance are expensed as incurred. The fair
value of the tangible assets of an acquired property with an
in-place operating lease will be determined by valuing the property
as if it were vacant, and the “as-if-vacant” value will
then be allocated to the tangible assets based on the fair value of
the tangible assets. The fair value of in-place leases will be
determined by considering current market conditions, as well as
costs to execute similar leases. The fair value of above- or
below-market leases will be recorded based on the present value of
the difference between the contractual amount to be paid pursuant
to the in-place lease and the Company's estimate of the fair market
lease rate for the corresponding in-place lease, measured over the
remaining term of the lease, including any below-market fixed-rate
renewal options for below-market leases.
Depreciation
is computed using the straight-line method over the estimated
useful lives of up to 43 years for buildings, up
to 13 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.
The
Company’s revenues are derived from rental income, which
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 our tenants are classified as operating leases.
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.
9
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
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 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.
In February, 2017, the FASB issued ASU 2017-05,
“Other Income - Gains and
Losses from the Derecognition of Nonfinancial Assets,
Clarifying the
Scope of Asset Derecognition Guidance and Accounting for Partial
Sales of Nonfinancial Assets”. ASU 2017-05 clarifies that ASC 610-20 applies to
all nonfinancial assets (including real estate) for which the
counterparty is not a customer and clarifies that all businesses
are derecognized using the deconsolidation guidance. Additionally,
it defines an in substance nonfinancial asset as a financial asset
that is promised to a counterparty in a contract in which
substantially all the fair value of the assets promised in the
contract is concentrated in nonfinancial assets, which excludes
cash or cash equivalents and liabilities. The new guidance is
expected to impact the gain recognized when a real estate asset is
sold to a non-customer and a noncontrolling interest is retained.
Under the current guidance, a partial sale is recognized, and
carryover basis is used for the retained interest, however, the new
guidance eliminates the use of carryover basis and generally
requires a full gain to be recognized. We adopted this standard
effective January 1, 2018. The adoption of this standard will not
have an impact on our condensed consolidated financial
statements.
In May, 2017, the FASB issued ASU 2017-09,
“Compensation - Stock
Compensation (Topic
718), Scope of Modification
Accounting” to provide clarity and to reduce diversity
in practice related to a modification when applying the guidance in
ASC 718, Compensation – Stock Compensation. The guidance in
ASC 718 defines a “modification” as a change in the
terms or conditions of a share-based payment award. The amendments
provide guidance about when changes in terms or conditions of a
share-based payment award require an entity to apply the existing
modification guidance in ASC 718. We adopted the amendments
effective January 1, 2018. The adoption of this standard will not
have an impact on our condensed consolidated financial
statements.
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 for us in the first quarter of 2019, and we are currently
assessing the impact of this standard on our condensed
consolidated financial
statements.
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. Early adoption is permitted. We are currently
evaluating the impact of this guidance on our condensed
consolidated financial statements.
Other
recent accounting pronouncements issued by the FASB (including the
Emerging Issues Task Force), The American Institute of Certified
Public Accountants and the SEC did not, or are not expected to,
have a material effect on the Company’s results of operations
or financial position.
10
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
3. Real Estate Investments
Information
related to major categories of real estate investments, net, is as
follows (dollars in thousands):
|
|
|
As
of
|
|
|
|
Estimated
Useful life
|
March 31,
2018
|
December
31,
2017
|
|
Real Estate
Investments, at cost:
|
|
|
|
|
Land
|
|
$2,345
|
$2,345
|
|
Building,
fixtures and improvements
|
10 - 43
yrs.
|
3,494
|
3,494
|
|
Total
tangible assets
|
|
5,839
|
5,839
|
|
Acquired
Intangibles - In-place leases
|
5 to 13
yrs.
|
607
|
607
|
|
Total cost of Real
Estate Investments
|
|
6,446
|
6,446
|
|
Less: Accumulated
depreciation and amortization
|
|
(506)
|
(451)
|
|
Total cost of Real
Estate Investments, net
|
|
$5,940
|
$5,995
|
Depreciation
expense for the three months ended March 31, 2018 and 2017 amounted
to $30 thousand and $29 thousand respectively.
Intangible
amortization expense for the three months ended March 31, 2018 and
2017 amounted to $25 thousand and $26 thousand respectively, of
which $11 thousand of favorable lease amortization was reflected as
a reduction in revenue, for both periods.
Expected
in-place lease and favorable lease amortization for each of the
next five (5) years, and thereafter, is as follows (dollars in
thousands):
|
Years
Ending December 31,
|
|
|
Balance of
2018
|
$74
|
|
2019
|
99
|
|
2020
|
57
|
|
2021
|
16
|
|
2022
|
16
|
|
Thereafter
|
108
|
|
Total
|
$370
|
The following table presents future minimum base
rental receipts due to us over the next five (5) years, and
thereafter, is as follows (dollars in thousands):
|
Year
Ending December 31,
|
|
|
Balance of
2018
|
$261
|
|
2019
|
348
|
|
2020
|
244
|
|
2021
|
160
|
|
2022
|
160
|
|
Thereafter
|
1,196
|
|
Total
|
$2,369
|
11
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
4. 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 March 31,
2018 consisted of cash and cash equivalents of $0.2 million, and
our ability to borrow on our Amended Note. See Note 9 - Subsequent Events, for further
information on the increase in our rental income.
On
August 7, 2015, we, as borrower, and Koala Holdings LP, as lender,
an affiliate of Mr. Carl C. Icahn, the Company’s controlling
stockholder ("Koala"), 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
reborrowing’s under the Amended Note, respectively, from time
to time. As collateral for the Amended Note, the Company has
pledged and granted to Koala a lien on the Company’s limited
liability company interest in Voltari Holding.
As of
March 31, 2018, borrowings from this loan facility totaled $6.0
million. The outstanding balance, including accumulated interest of
$0.4 million, totaled $6.4 million as of March 31,
2018.
In
light of the above, the condensed consolidated financial statements
were prepared on the basis that the Company will continue as a
going concern. Therefore, the accompanying condensed consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets and
liabilities or any other adjustments that might result in the event
the Company is unable to continue as a going concern.
See
Note 9 - Subsequent Events, for more
information.
12
Voltari
Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
5. Redeemable Preferred Stock
Upon
completion of our rights offering in October 2012, we issued
1,199,643 shares of Series J preferred stock and warrants to
acquire 1,014,982 common shares 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
March 31, 2018 and December 31, 2017.
Our
Series J preferred stock contains certain redemption features and
is classified as mezzanine equity at March 31, 2018, and
December 31, 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 was 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 being accreted over an
anticipated redemption period of five years using the effective
interest method and was 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% (13% through December 31, 2017), 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 $28.0 million, in-kind
rather than in-cash. Accordingly, we have increased the carrying
value of our redeemable preferred stock for the amount of the
paid-in-kind dividend payments. Dividends on the Series J preferred
stock and the accretion increase the amount of net loss that is
attributable to common stockholders and are presented as separate
amounts on the condensed consolidated statements of
operations.
Our
Series J preferred stock has a preference upon dissolution,
liquidation or winding up of the Company in respect of assets
available for distribution to stockholders. The liquidation
preference of the Series J preferred stock is initially $25 per
share. If the dividend on the Series J preferred stock is paid
in-kind, which has been the case to date, the liquidation
preference is adjusted and increased quarterly (i) until October
11, 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 accretion will continue until
the shares are redeemed, or until the Company's affairs are
liquidated, dissolved or wound-up.
As of
March 31, 2018, our Series J preferred stock had an aggregate
redemption value of approximately $59.2 million, including
paid-in-kind dividends of $28.0 million and accrued dividends of
$2.0 million. We recorded accretion associated with our Series J
preferred stock of $0.0 million and $0.2 million for the three
months ended March 31, 2018 and 2017, respectively.
6. Revolving Note
As of
March 31, 2018, borrowings from this loan facility totaled $6.0
million. The outstanding balance, including accumulated interest of
$0.4 million totaled $6.4 million as of March 31, 2018. On January
17, 2018, we borrowed an additional $0.5 million under the Amended
Note to fund ongoing operating costs and acquisition costs related
to the McClatchy Property (as defined herein) acquisition. See
Note 4 - Liquidity and Capital Resources and
Note 9 - Subsequent Events, for more
information.
13
Voltari
Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
7. 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, except per share
data):
|
|
Three Months
Ended
|
|
|
|
March
31,
|
|
|
|
2018
|
2017
|
|
Net loss
attributable to common stockholders
|
$(2,444)
|
$(2,413)
|
|
|
|
|
|
Weighted-average
common shares outstanding - basic and diluted
|
8,994,814
|
8,994,814
|
|
|
|
|
|
Net loss per share
attributable to common stockholders - basic and
diluted
|
$(0.27)
|
$(0.27)
|
Basic
net loss per share attributable to common stockholders is computed
by dividing net loss attributable to common stockholders by the
weighted-average number of common shares outstanding during the
applicable period. Diluted net loss per share attributable to
common stockholders includes the effects of any warrants, options
and other potentially dilutive securities outstanding during the
period. For the periods presented, there were no potentially
dilutive securities outstanding, therefore basic and diluted net
loss per share attributable to common stockholders are equal. The
following table presents the outstanding antidilutive securities
excluded from the calculation of net loss per share attributable to
common stockholders:
|
|
March
31,
|
|
|
|
2018
|
2017
|
|
Common stock
issuable upon exercise of Warrants
|
-
|
1,014,958
|
|
Total securities
excluded from net loss per share attributable to common
stockholders
|
-
|
1,014,958
|
14
Voltari Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
8. Legal Proceedings
From
time to time, we are subject to claims and legal proceedings
arising in the normal course of business. We do not believe that we
are currently party to any pending legal action that could
reasonably be expected to have a material adverse effect on our
business, financial condition, results of operations or cash
flows.
9. Subsequent Events
On April 23, 2018, the Company, through its wholly owned
subsidiary, Voltari Holding, (the “Purchaser”),
completed its previously announced acquisition of a real estate
parcel in Columbia, South Carolina (the “McClatchy
Property”) from The State Media Company, a South Carolina
corporation (the “Seller”), pursuant to the terms of
that certain purchase and sale agreement, dated as of January 19,
2018, as amended on February 26, 2018, March 29, 2018 and April 6,
2018 (the “Purchase Agreement”), between Purchaser and
Seller, for a purchase price of $16,625,000, excluding costs, which
was paid using cash on hand and borrowings under the
Company’s Amended Note.
Upon the closing of the sale of the McClatchy Property, on April
23, 2018, the Company, through its wholly owned subsidiary, the
Purchaser entered into a triple net lease (the “Lease”)
with the McClatchy Company, a publicly traded Delaware company and
an affiliate of the Seller (“McClatchy”).
The Lease has an initial term of fifteen years, with three
five-year extension options (collectively, the “Term”).
During the Term, 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. The initial average annual rental income for the
McClatchy Property is approximately $1,613,000 (the “Base
Rent”). 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.
On
April 9, 2018, the Company borrowed an additional $1.0 million from
Koala. $500,000 of the proceeds were used to fund ongoing
operations and $500,000 of the proceeds were used to make an
additional deposit on the then pending purchase of the McClatchy
Property. After the $500,000 withdrawal to fund operations, there
is $4.0 million remaining available for working capital
purposes.
On
April 18, 2018, the Company borrowed an additional $16.0 million
from Koala to complete the purchase of the McClatchy Property,
bringing the principal balance outstanding under the Amended Note
to $23.0 million.
15
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations.
The following discussion should be read in conjunction with our
condensed consolidated financial statements included elsewhere
herein.
Forward-Looking Statements
Some of
the statements contained in this Quarterly Report on Form 10-Q,
including this Management’s Discussion and Analysis of
Financial Condition and Results of Operations, contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 12E of the
Securities Exchange Act of 1934, as amended, regarding our plans,
objectives, expectations and intentions. Such statements include,
without limitation, any statements regarding our transformation
plan, our exit from the mobile marketing and advertising business
and our entry into the real estate investment business, our plans
to acquire additional real estate properties, including additional
potentially higher valued properties, any statements regarding our
ability to generate profits, any statements regarding various
estimates we have made in preparing our financial statements,
statements that refer to projections of our future operating
performance, statements regarding any pro forma financial
information we present, the sufficiency of our capital resources to
meet our cash needs, the exit from or disposition of certain of our
businesses, and the potential costs associated therewith, and the
anticipated growth and trends in our businesses. These
forward-looking statements are subject to known and unknown risks
and uncertainties that could cause actual results to differ
materially from those anticipated.
Risks
and uncertainties that could adversely affect our business and
prospects include without limitation:
●
any financial or
other information included herein (including any pro forma
financial information) based upon or otherwise incorporating
judgments or estimates based upon future performance or
events;
●
our ability to
raise additional capital or generate the cash necessary to continue
and expand our operations or to fund the liquidation preference on,
or redeem, our Series J preferred stock if required to do
so;
●
our ability to
protect and make use of our substantial net operating loss
carryforwards;
●
our ability to
execute real estate acquisitions;
●
risks generally
associated with the commercial real estate investment business,
including the credit risk associated with our tenants and their
ability to pay rent and to satisfy their other lease
obligations;
●
our ability to
implement our transformation plan;
●
our ability to
compete in the highly competitive real estate investment
industry;
●
the impact of
government regulation, legal requirements or industry standards
relating to commercial real estate;
●
our limited
experience acquiring and managing commercial real
properties;
●
our ability to meet
the criteria required to remain quoted on the OTCQB
Marketplace;
●
the ongoing
benefits and risks related to our relationship with Mr. Carl C.
Icahn, our principal beneficial stockholder and principal lender,
through certain of his affiliates;
●
the impact and
costs and expenses of any litigation we may be subject to now or in
the future; and
●
our leadership
transitions.
16
In some
cases, you can identify forward-looking statements by terms such as
“may,” “will,” “should,”
“could,” “would,” “expects,”
“plans,” “anticipates,”
“believes,” “estimates,”
“projects,” “predicts,”
“potential” and similar expressions intended to
identify forward-looking statements. Our actual results could be
different from the results described in or anticipated by our
forward-looking statements due to the inherent uncertainty of
estimates, forecasts, projections and pro forma financial
information, and may be materially better or worse than
anticipated. Given these uncertainties, you should not place undue
reliance on these forward-looking statements. Forward-looking
statements represent our estimates and assumptions only as of the
date of this report. We expressly disclaim any duty to provide
updates to forward-looking statements, and the estimates and
assumptions associated with them, after the date of this report, in
order to reflect changes in circumstances or expectations or the
occurrence of unanticipated events except to the extent required by
applicable securities laws. All of the forward-looking statements
are qualified in their entirety by reference to the factors
discussed above, as well as the risks and uncertainties discussed
in Item 1A - Risk Factors
of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017. We qualify all of our forward-looking statements
by these cautionary statements. We caution you that these risks are
not exhaustive. We operate in a continually changing business
environment and new risks emerge from time to time.
References
in this Quarterly Report on Form 10-Q to “Voltari,”
“the Company,” “we,” “us” and
“our” are to Voltari Corporation and its
subsidiaries.
17
Business
Overview
In
August 2015, we committed to and began implementing a
transformation plan pursuant to which, among other things, we
exited our mobile marketing and advertising business and entered
into the business of acquiring, financing and leasing commercial
real estate properties. We lease our properties and intend to
continue to lease such 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 Following the completion of the McClatchy Property acquisition, we
anticipate that our current monthly rental income will increase to
approximately $164,000. See Note
9 - Subsequent
Events, for more information.
Any
future acquisitions are intended to be initially financed through
borrowings available under our Amended Note (as defined herein)
with Koala Holding LP (“Koala”).
Real Property Acquisitions— On September 17,
2015, we acquired a real estate parcel in Long Branch, New Jersey.
The property is subject to a triple net lease with JPMorgan Chase
Bank, N.A. ("Chase"), the original term of which expires in June,
2020 (with two, five-year renewal options), pursuant to which Chase
is responsible for the payment of basic rent as well as the payment
of real estate taxes, maintenance costs, utilities, tenant's
insurance and other property related costs. Refer to http://investor.shareholder.com/jpmorganchase/sec.cfm
for the financial statements of the tenant. The purchase price was
approximately $3.63 million. As of March 31, 2018, the 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 (the “Original
Term”) of which expires in December 2029 (with four,
five-year renewal options (the “Renewal Term,” and
together with the Original Term, the “Term”)). During
the Term, 7-Eleven is responsible for the payment of basic rent, as
well as the payment of, subject to certain exceptions, real estate
taxes, utilities, tenant’s insurance and other property
related costs. The landlord is responsible for certain maintenance
and repair costs. The purchase price was approximately $2.82
million. As of March 31, 2018, the average annual rental income for
the property over the remaining Original Term is approximately
$164,000, exclusive of the amortization of the above market lease
intangible.
Recent Developments — On April 23, 2018 we acquired a
real estate property in Columbia, South Carolina. The property is
subject to a triple net lease with The McClatchy Company. See
Note 9 - Subsequent Events
for more information.
Results of Operations
Our
operations for the three months ended March 31, 2018 and 2017
consist of revenues and expenses related to commercial real estate
operations which commenced in August 2015, as well as general and
administrative costs. Operations includes all personnel and
facilities costs related to executive management, finance and
accounting, human resources and other general corporate staff, as
well as all legal and other professional fees, insurance and other
costs.
18
|
Total revenue
|
Three Months
Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2018
|
2017
|
Change
|
|
|
(Dollars in
thousands)
|
|
|
|
Total
revenue
|
$81
|
$81
|
$-
|
Revenue
from operations for the three months ended March 31, 2018 and 2017
consists of rental income from properties acquired.
Operating expenses
|
|
Three Months
Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2018
|
2017
|
Change
|
|
|
(Dollars in
thousands)
|
|
|
|
General and
administrative, excluding depreciation
|
$418
|
$538
|
$(120)
|
|
Depreciation and
amortization
|
44
|
44
|
--
|
|
Acquisition and
transaction costs
|
36
|
$9
|
27
|
|
Total
operating expenses
|
$498
|
$591
|
$(93)
|
General and administrative, excluding depreciation
For the
three months ended March 31, 2018, general and administrative
expense, excluding depreciation, declined by approximately $0.1
million from the three months ended March 31, 2017, due
to:
●
$41 thousand
increase in personnel costs;
●
$117 thousand
decrease in accounting and legal professional fees;
and
●
$44 thousand
reduction in consulting fees, insurance, stock related listing fees
and various other cost reductions.
Depreciation and amortization
Depreciation
and amortization remained the same for the three months ended March
31, 2018 compared to the three months ended March 31,
2017.
Acquisition and transaction costs
Acquisition
and transaction related expenses for the three months March 31,
2018 relates to third party professional expenses associated with
potential real estate investments. Expenses related to the
McClatchy Property acquisition incurred during the three months
ended March 31, 2018 totaling $0.2 million have been deferred and
included in Other assets on the Balance Sheet as they will be
capitalized as part of such acquisition. See Note 9 - Subsequent Events, for more
information.
Net
loss
|
|
Three Months
Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2018
|
2017
|
Change
|
|
|
(Dollars in
thousands)
|
|
|
|
Net
Loss
|
$(468)
|
$(564)
|
$96
|
For the
three months ended March 31, 2018, net loss was $0.5 million
compared to net loss of $0.6 million for the three months ended
March 31, 2017. This $0.1 million improvement in net loss is
primarily due to the reduction in general and administrative
expenses described above.
19
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 March 31,
2018 consist of cash and cash equivalents of approximately $0.1
million, and our ability to borrow on our Koala loan.
On August 7, 2015, we, as borrower, and Koala, as lender, an
affiliate of Mr. Carl C. Icahn, the Company’s controlling
stockholder ("Koala"), 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
March 31, 2018, borrowings from this facility totaled $6.0 million
due to borrowings in connection with our second real estate
acquisition as well as for working capital requirements. On April
9, 2018, we borrowed an additional $1.0 million from Koala, of
which $500,000 was used to fund ongoing operations and $500,000 was
used to make an additional deposit on the then pending purchase of
the McClatchy Property. After the $500,000 withdrawal to fund
operations, there is $4.0 million remaining available for working
capital purposes. On April
18, 2018, we borrowed an additional $16.0 million from Koala to
complete the purchase of the McClatchy Property, bringing the
principal balance outstanding under the Amended Note to $23.0
million.
We
expect that the acquisition of future commercial real properties,
the cost of operations and working capital requirements will be our
principal need for liquidity in the future. Our cash flows may be
affected by many factors including the economic environment,
competitive conditions in the commercial real estate industry and
the success of our transformation plan. We believe we will have
adequate resources to fund our operations, capital expenditures and
working capital needs for the next 12 months using borrowings
available under the Amended Note and our cash and cash equivalents
on hand. We currently intend to leverage real properties that we
may acquire, but cannot assure that we will be able to do so on
commercially reasonable terms, if at all.
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.
20
Our
liquidity may be adversely affected if, and to the extent that, our
remaining Series J preferred stock becomes redeemable. The Company
believes that, if a redemption event were to occur, limited, if
any, funds would be available for such redemption under the terms
of the Series J preferred stock and applicable Delaware law.
As a result, in the event that a redemption event were to occur,
the Company currently expects that it would be precluded, under the
terms of the Series J preferred stock and applicable Delaware law,
from making any material redemptions.
Our
ability to achieve our business and cash flow plans is based on a
number of assumptions which involve significant judgments and
estimates of future performance, borrowing capacity and credit and
equity finance availability, which cannot at all times be assured.
Accordingly, we cannot assure that cash flows from operations and
other internal and external sources of liquidity will at all times
be sufficient for our cash requirements. If necessary, we may need
to consider actions and steps to improve our cash position and
mitigate any potential liquidity shortfall, such as modifying our
business plan, pursuing additional financing to the extent
available, pursuing and evaluating other alternatives and
opportunities to obtain additional sources of liquidity and other
potential actions to reduce costs. We cannot assure that any of
these actions would be successful, sufficient or available on
favorable terms. Any inability to generate or obtain sufficient
levels of liquidity to meet our cash requirements at the level and
times needed could have a material adverse impact on our business
and financial position.
Our
ability to obtain any additional financing depends upon many
factors, including our then existing level of indebtedness (if any)
and restrictions in any debt facilities to which we may be subject
now or 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) may be costly to obtain 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
March 31, 2018, and December 31, 2017, we had cash,
restricted cash and cash equivalents of $0.2 million and $0.1
million, respectively. The increase reflects cash provided by
financing activities of $0.5 million, offset by $0.4 million cash
used in operating activities.
Net cash used in operating activities
The
change in our operating assets and liabilities was driven by a
decrease in prepaid expenses of $115 thousand, an increase in other
assets of $429 thousand, and an increase in accounts payable and
accrued expenses of $242 thousand, and a decrease in deferred rent
expense of $3 thousand.
Net cash from investing activities
For the
three months ended March 31, 2018, no net cash was used in
investing activities.
Net cash from financing activities
For the
three months ended March 31, 2018, cash in the amount of $0.5
million was provided by borrowings on the Amended
Note.
Off-Balance Sheet Arrangements
As of
March 31, 2018, and December 31, 2017, we do not have any
off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our
condensed consolidated financial statements are prepared in
accordance with U.S. GAAP. The preparation of our financial
statements and related disclosures requires us to make estimates,
assumptions and judgments that affect the reported amount of
assets, liabilities, revenue, costs and expenses, and related
disclosures. We base our estimates and assumptions on historical
experience and other factors that we believe to be reasonable under
the circumstances. We evaluate our estimates and assumptions on an
ongoing basis. Our actual results may differ from these estimates
under different assumptions and conditions and in certain cases the
difference may be material. Our critical accounting policies and
estimates include those involved in recognition of revenue,
valuation of long-lived assets, valuation allowance on the deferred
tax asset, accounting for our redeemable preferred stock,
litigation and other loss contingencies. Estimates related to the
allocated cost of investments in real estate among land, other
tangible and intangible assets affect future depreciation and
amortization expense as well as the amount of reported
assets.
21
As a
result of our entry into the business of acquiring, financing and
leasing commercial real properties, we have adopted the significant
accounting policies described in Note 2 - Summary of Significant Accounting
Policies in our Condensed Consolidated Financial Statements
in this Quarterly Report on Form 10-Q.
Recent Accounting Pronouncements
See
discussion of recent accounting pronouncements in Note 2 - Summary of Significant Accounting
Policies in our condensed consolidated financial statements
in this Quarterly Report on Form 10-Q.
Item 3. Quantitative and Qualitative
Disclosures about Market Risk.
We are
not required to provide qualitative and quantitative disclosures
about market risk because we are a smaller reporting
company.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our
management evaluated, with the participation of our principal
executive officer and our principal financial officer, the
effectiveness of our disclosure controls and procedures as of the
end of the period covered by this Quarterly Report on Form 10-Q.
Based on this evaluation, our principal executive officer and our
principal financial officer have concluded that our disclosure
controls and procedures are effective to ensure that information we
are required to disclose in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms and that such information is
accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required
disclosure.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during the period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.
22
PART II
Item 1. Legal Proceedings.
There
have been no material changes to the legal proceedings previously
disclosed in Part 1, Item 3
of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2017.
Item 1A. Risk Factors.
In
addition to the other information set forth in this report, you
should carefully consider the factors discussed in Part I, Item 1A in our Annual Report on
Form 10-K, for the year ended December 31, 2017, which could
materially affect our business, financial position and results of
operations. There have been no material changes to the risk factors
disclosed in Part I, Item
1A in our Annual Report on Form 10-K for the year ended
December 31, 2017.
Item
5. Other Information.
On May 8, 2018, the Board of Directors approved increases in the
base salaries of our named executives officers, effective as of
June 1, 2018. Mr. Goldmann's annual base salary was increased from
$175,000 to $190,000. Mr. Kaouris's annual base salary was
increased from $162,500 to $172,500.
Item 6. Exhibits.
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Exhibit Number
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Exhibit Description
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Purchase
and Sale Agreement, dated as of January 19, 2018, by and between
The State Media Company and Voltari Real Estate Holding LLC
(incorporated by reference to Exhibit 10.1 to the Company’s
Current Report filed January 23, 2018, File No.
000-55419).
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First
Amendment to Purchase and Sale Agreement, dated as of February 26,
2018, by and between The State Media Company and Voltari Real
Estate Holding LLC (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report filed March 2, 2018, File No.
000-55419).
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Second
Amendment to Purchase and Sale Agreement, dated as of March 29,
2018, by and between The State Media Company and Voltari Real
Estate Holding LLC (incorporated by reference to Exhibit 10.1 to
the Company’s Current Report filed April 4, 2018, File No.
000-55419).
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Certification
pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 – Principal Executive Officer. *
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Certification
pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 – Chief Accounting Officer. *
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 – Principal Executive
Officer. *
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Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 – Chief Accounting
Officer. *
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101.INS
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XBRL
Instance Document.*
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101.SCH
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XBRL
Taxonomy Extension Schema Document.*
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase Document.*
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101.LAB
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XBRL
Taxonomy Extension Label Linkbase Document.*
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101.PRE
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XBRL
Taxonomy Extension Presentation Linkbase Document.*
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101.DEF
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XBRL
Taxonomy Extension Definition Linkbase Document.*
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*
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Filed
herewith.
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23
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
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VOLTARI
CORPORATION
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Date:
May 14,
2018
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By:
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/s/
Kenneth
Goldmann
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Kenneth Goldmann |
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Principal Executive Officer |
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(Principal Executive Officer) |
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By:
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/s/
Peter
Kaouris
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Peter Kaouris |
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Chief Accounting Officer |
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(Principal Financial Officer) |
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24