CV HOLDINGS, INC. For comparative purposes, for the year ended
Liquidity
As of
As described below, the Company was unable to begin redeeming its Senior Non-Convertible Preferred Stock, the initial installment of which was required to be paid in
The Company remains unable to redeem the Senior Non-Convertible Preferred Stock as required, is unlikely to become able to do so for the foreseeable future and may never be able to do so. If the Company is unsuccessful in negotiating continued forbearance or a restructuring of these obligations, Colborne may, at its election, require that all outstanding shares of Colborne Preferred Stock (as defined below) be redeemed, including those which are not currently scheduled to be redeemed, or otherwise pursue remedies against the Company.
If Colborne were to pursue remedies, the Company could be required to take drastic measures, including the liquidation and winding down of its operations, and it is unclear how much, if any, value would be allocated to the Company’s common stock as a result. There can be no assurance that Colborne will continue to forbear or agree to a restructuring of these obligations that would provide significant value to common stockholders, and, consequently, an investment in the common stock of the Company is highly risky and speculative.
Colborne Investment Update
Since its first investment in 2015,
On a pro forma basis, assuming the full amount of common stock associated with the Colborne Preferred Stock is issued to Colborne, the Company’s outstanding fully diluted shares of common stock would increase from the current fully diluted amount of 71,336,558 to 96,014,007, and Colborne will own, through Company-issued stock, approximately 50% of the total shares outstanding. The Company has also approved unrelated open-market third-party purchases by Colborne from third-party shareholders, which, when combined with the aforementioned shares, will result in Colborne owning approximately 62% of the total shares outstanding.
The Company was required to begin redeeming the outstanding shares of Senior Non-Convertible Preferred Stock through cash payments to be made by the Company in equal quarterly installments over a two-year period beginning in
Important Reminder Regarding Transfer and Ownership Restrictions
Current and potential investors in the Company’s common stock are reminded that the Company’s Articles of Incorporation and Bylaws, each as amended and/or restated from time to time (collectively, the “Charter”), restrict beneficial ownership and constructive ownership and transfer of the Company’s common stock for the purpose, among others, of the Company's maintenance of its ability to utilize the net operating loss carryovers, capital loss carryovers, general business credit carryovers, alternative minimum tax credit carryovers and foreign tax credit carryovers, as well as any “net unrealized built-in loss” within the meaning of section 382 of the Internal Revenue Code, of the Company or any direct or indirect subsidiary thereof (“tax benefits”).
Among other restrictions, the Charter provides that no person may beneficially own or constructively own shares of the Company's common stock in excess of 4.9 percent (by value or by number of shares, whichever is more restrictive) of the outstanding shares of common stock of the Company or such other percentage determined by the board of directors unless such person is an excepted holder (in which case the excepted holder limit for such excepted holder shall be applicable). As of the date hereof, this limitation is 3,156,275 shares.
Any person who beneficially owns or constructively owns or attempts to beneficially own or constructively own shares of common stock which causes or will cause a person to beneficially own or constructively own shares of common stock in excess or in violation of the above limitation must immediately notify the Company, or in the case of such a proposed or attempted transaction, give at least fifteen (15) days prior written notice, and shall provide to the Company such other information as the Company may request in order to determine the effect, if any, of such transfer on the Company’s ability to utilize its tax benefits.
If the restrictions on transfer or ownership are violated, the shares of common stock in excess or in violation of the above limitation (or any of the other ownership and transfer limitations set out in the Charter) will be automatically transferred to a trustee of a trust for the benefit of one or more charitable beneficiaries effective as of the close of business on the business day prior to the date of such transfer (or other event). In addition, the Company may redeem shares upon the terms and conditions specified by the board of directors in its sole discretion, refuse to give effect to such transfer on the books of the Company or institute proceedings to enjoin such transfer or other event if the board of directors determines that ownership or a transfer or other event may violate the restrictions described above. Furthermore, if the ownership restrictions above would be violated or upon the occurrence of certain events, attempted transfers in violation of the restrictions described above may be void ab initio.
As noted above, from time to time, the Company has made or approved privately-negotiated purchases of its common stock. Any shareholder wishing to sell common stock is encouraged to contact the Company.
Financial Reporting
Included in this press release are the audited consolidated balance sheets, statements of operations, and statements of cash flows of
Update on the Business
Consolidated Update
During 2022, Centra, the Company’s equipment finance business, continued to grow and significantly increased its profitability despite the steep rise in interest rates over the course of the year and large one-time expenses in connection with the insourcing of its loan servicing efforts (described more fully below). The Company continued to reduce the size of its commercial real estate loan portfolio by resolving its remaining two directly held loans. Finally, the Company has substantially completed the liquidation of its venture loan and lease business and its non-performing mortgage business.
As of
From an operating cash flow standpoint, as shown in the following table, excluding the pay-in-kind dividends on the Colborne Preferred Stock, the Company had EBITDA of
| Year Ended | Year Ended | |||||||
| Net loss | $ | (11,844,043 | ) | $ | (12,399,757 | ) | ||
| Interest expense on preferred equity | 11,478,988 | 11,529,709 | ||||||
| Unrealized loss on derivative instruments | - | (42,386 | ) | |||||
| Taxes | 44,616 | (2,252 | ) | |||||
| Depreciation | 69,451 | 55,248 | ||||||
| EBITDA | (250,988 | ) | (859,439 | ) | ||||
During 2022, the Company sold its two remaining directly held commercial real estate loans, leaving its investment in the CVCF joint venture as the only significant remaining CVCF asset other than cash. As noted, the Company continued to grow Centra and substantially completed the winddown of the VenSource venture leasing and LongVue nonperforming residential mortgage businesses. Because the Company is focused on growing Centra, it has generally allocated capital received from these asset sales and business winddowns to Centra.
While the Company is pleased with the progress made on all these fronts in 2022, the rise in interest rates and accompanying economic uncertainty have been a significant headwind to Centra’s business, reducing loan originations while substantially increasing the Company’s cost of funds. This has reduced Centra’s profitability. The foregoing, together with the continued growth of the amount owed on the Colborne Preferred Stock, which is senior to the Company’s common shares, has created a dilutive effect to common stockholders. As noted above, additional dilution is likely if Colborne ceases to forbear and this leads to a restructuring of the Company.
On
Centra’s profitability increased significantly in 2022 and it ended the year with net loans receivable approximately 50% higher than at year-end 2021. Centra was also able to increase the weighted average yield that it has been achieving on new originations. Although loan losses remained muted throughout 2022, Centra increased its loan loss provision in response to modestly increasing delinquencies and indications that the economy may enter a recession in 2023. As of
As of
As of
Since its inception, Centra had been outsourcing the servicing of its equipment finance contracts to a third party. Given the growth in its portfolio, in late 2021 Centra began preparing to bring this function in-house, through the implementation of new servicing software and the addition of dedicated collections and customer service staff. The software implementation required substantial one-time expense, but Centra successfully converted a substantial majority of its equipment finance contracts to fully internal servicing effective
On
Since inception, CVCF has originated 37 loans, totaling
The initial joint venture is also being wound down, and its two remaining loans are in the process of being resolved. Certain obligors are in default, and CVCF is engaged in workouts and relevant legal proceedings where appropriate, coordinating closely with its bank lenders. During 2022, the two remaining loans on CVCF’s balance sheet were sold to third parties. CVCF recognized losses of
Other Businesses
In
The Company terminated its last servicing contract for non-performing residential loans and real estate owned properties as of
In 2006 and 2007, the Company issued two different series of collateralized debt obligations (“CDOs”), described more fully in previous press releases. The CDO bonds are non-recourse to the Company. As previously announced, the company does not expect to recover any of its investment in either CDO, and since virtually all assets in both CDOs have been disposed of or written off, the CDOs are not expected to generate any meaningful future income to the Company.
Additional information is available at: www.cvhldgs.com.
Annual Meeting of Stockholders
On
Dividends
The Company has suspended dividends on shares of its outstanding common stock since the fourth quarter of 2008, and dividends are expected to continue to be suspended for the foreseeable future.
Litigation
As of
Financial Statements
Below are summary audited financial statements of the Company including its consolidated balance sheets, statements of operations and statements of cash flows.
| Consolidated Balance Sheets | ||||||||
| 2022 | 2021 | |||||||
| Assets | ||||||||
| Cash | $ | 10,958,353 | $ | 11,268,565 | ||||
| Restricted cash | 686,773 | 686,773 | ||||||
| Management and servicing fees receivable from affiliates | - | 6,890 | ||||||
| Prepaid expenses and other assets | 1,131,444 | 713,506 | ||||||
| Loans receivable, net | 129,880,749 | 92,354,708 | ||||||
| Investment in real estate joint venture | 3,937,969 | 3,937,969 | ||||||
| Investments in Opportunity Funds | 2,242,167 | 3,109,800 | ||||||
| Total assets | $ | 148,837,455 | $ | 112,078,211 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable, accrued expenses and other liabilities | $ | 8,835,004 | $ | 7,886,473 | ||||
| Lines of credit | 87,196,953 | 29,314,639 | ||||||
| Securitized debt, net of deferred financing costs | 18,230,303 | 39,484,436 | ||||||
| Mandatorily redeemable senior non-convertible | ||||||||
| preferred stock | 102,526,928 | 91,500,353 | ||||||
| Mandatorily redeemable senior perpetual preferred stock | - | - | ||||||
| Total liabilities | 216,789,188 | 168,185,901 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Deficit | ||||||||
| Common stock, | ||||||||
| 64,413,784 issued and outstanding for both years | ||||||||
| 644,136 | 644,136 | |||||||
| Additional paid-in capital | 10,295,229 | 10,295,229 | ||||||
| Accumulated deficit | (78,891,098 | ) | (67,047,055 | ) | ||||
| (67,951,733 | ) | (56,107,690 | ) | |||||
| Noncontrolling interests | - | - | ||||||
| Total stockholders' deficit | (67,951,733 | ) | (56,107,690 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 148,837,455 | $ | 112,078,211 | ||||
| Consolidated Statements of Operations | ||||||||
| Years Ended | ||||||||
| 2022 | 2021 | |||||||
| Revenues | ||||||||
| Interest income on loans receivable | $ | 17,343,688 | $ | 11,552,461 | ||||
| Broker and other income | 806,273 | 845,626 | ||||||
| Management and servicing fees from affiliates | 350,000 | 166,479 | ||||||
| Loss from unconsolidated entities | (867,633 | ) | (793,465 | ) | ||||
| Total revenues | 17,632,328 | 11,771,101 | ||||||
| Operating Expenses | ||||||||
| Salaries and related payroll | 5,244,937 | 5,026,138 | ||||||
| General and administrative | 4,746,251 | 3,398,403 | ||||||
| Provision for loan losses | 4,297,028 | 2,004,301 | ||||||
| Total operating expenses | 14,288,216 | 10,428,842 | ||||||
| Income from operations | 3,344,112 | 1,342,259 | ||||||
| Interest Expense and Other | ||||||||
| Interest on senior perpetual preferred stock | - | (3,283,579 | ) | |||||
| Interest on senior non-convertible preferred stock | (11,478,988 | ) | (8,246,130 | ) | ||||
| Interest on lines of credit and securitized debt | (3,664,551 | ) | (2,256,946 | ) | ||||
| Unrealized gain on derivative instruments | - | 42,386 | ||||||
| Total interest expense and other, net | (15,143,539 | ) | (13,744,269 | ) | ||||
| Loss before income tax (provision) benefit | (11,799,427 | ) | (12,402,010 | ) | ||||
| Income Tax (Provision) Benefit | (44,616 | ) | 2,252 | |||||
| Net loss | (11,844,043 | ) | (12,399,758 | ) | ||||
| Less net loss attributable to noncontrolling interests | - | - | ||||||
| Net loss attributable to | $ | (11,844,043 | ) | $ | (12,399,758 | ) | ||
| Consolidated Statements of Cash Flows | ||||||||
| Years Ended | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (11,844,043 | ) | $ | (12,399,758 | ) | ||
| Adjustments to reconcile net loss to net cash | ||||||||
| provided by operating activities: | ||||||||
| Provision for loan losses | 4,297,028 | 2,004,301 | ||||||
| Depreciation | 69,451 | 55,248 | ||||||
| Amortization of debt discount and financing costs | 486,270 | 477,873 | ||||||
| Paid in-kind interest on mandatorily redeemable | ||||||||
| preferred stock | 11,026,575 | 11,137,721 | ||||||
| Unrealized gain on derivative instruments | - | (42,386 | ) | |||||
| Loss from unconsolidated entities | 867,633 | 793,465 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Management and servicing fees receivable from affiliates | 6,890 | 47,263 | ||||||
| Prepaid expenses and other assets | (392,480 | ) | 572,867 | |||||
| Accounts payable, accrued expenses and other liabilities | 948,531 | 368 | ||||||
| Net cash provided by operating activities | 5,465,855 | 2,646,962 | ||||||
| Cash Flows From Investing Activities | ||||||||
| Acquisition of property and equipment | (53,018 | ) | (58,388 | ) | ||||
| Funding of loans receivable | (117,222,489 | ) | (79,036,690 | ) | ||||
| Principal payments on loans receivable | 75,399,420 | 53,609,443 | ||||||
| Distributions from Opportunity Funds | - | 78,475 | ||||||
| Net cash used in investing activities | (41,876,087 | ) | (25,407,160 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Payments of deferred financing costs | (114,425 | ) | (1,141,508 | ) | ||||
| Borrowings on securitized debt | - | 58,375,000 | ||||||
| Payments on securitized debt | (21,667,869 | ) | (18,890,564 | ) | ||||
| Borrowings on lines of credit | 101,613,157 | 56,532,719 | ||||||
| Payments on lines of credit | (43,730,843 | ) | (71,812,033 | ) | ||||
| Net cash provided by financing activities | 36,100,020 | 23,063,614 | ||||||
| Net (decrease) increase in cash and restricted cash | (310,212 | ) | 303,416 | |||||
| Cash and Restricted Cash, Beginning | 11,955,338 | 11,651,922 | ||||||
| Cash and Restricted Cash, Ending | $ | 11,645,126 | $ | 11,955,338 | ||||
| Supplemental Disclosure of Cash Flows Information | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 2,771,571 | $ | 1,807,787 | ||||
| Income taxes (benefit) provision | $ | 44,616 | $ | (2,252 | ) | |||
| Supplemental Disclosure of Noncash Investing | ||||||||
| and Financing Activities | ||||||||
| Conversion of senior perpetual preferred stock to senior | ||||||||
| non-convertible preferred stock | $ | - | $ | 42,716,747 | ||||
| Issuance of common stock in connection with conversion of | ||||||||
| senior perpetual preferred stock | $ | - | $ | - | ||||
| Deferred financing costs paid with borrowings on line of credit | $ | 114,425 | $ | 103,653 | ||||
About
Our common stock is currently traded on the Pink® Open Market operated by OTC Markets Group, or OTC Markets. While not a requirement, OTC Markets encourages companies having their securities quoted thereon to provide adequate current information in accordance with its disclosure guidelines. We will evaluate the need to issue press releases containing information similar to the information disclosed herein. We do not undertake any obligation, nor do we give any assurance that we will provide timely periodic disclosures or any public disclosure at all.
We conduct our operations so as to not be or become regulated as an investment company under the Investment Company Act of 1940. The Company has not had federal taxable income since 2007 and does not expect any federal taxable income in the foreseeable future.
Forward-Looking Information and Other Information
This press release contains forward-looking statements based upon the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company or are within its control. If a change occurs, the Company’s business, financial condition, liquidity and results of operations may vary materially from those expressed in its forward-looking statements.
The factors that could cause actual results to vary from the Company’s forward-looking statements include: the
In addition, this press release contains summary financial information about the Company. This summary financial information does not represent the entire audited financial statements of the Company.
FOR FURTHER INFORMATION
AT
jcrystal@cvhldgs.com
Source: 2023 GlobeNewswire, Inc., source
