CV Holdings, Inc. Update and Financial Statements for Year Ended December 31, 2019

NEWPORT BEACH, Calif., May 06, 2020 (GLOBE NEWSWIRE) -- CV Holdings, Inc. (OTC:CVHL) (the "Company") today reported a net loss for the year ended December 31, 2019 of $(11,897,585) or $(0.19) per common share with weighted average common shares of 61,213,784 issued and outstanding during 2019. Taking into account the December 31, 2019 balance of 61,213,784 common shares issued and outstanding and 8,072,774 warrants and stock options outstanding, the net loss was $(0.17) per diluted common share based on 69,286,558 common shares outstanding on a fully-diluted basis.

The net loss for the year ended December 31, 2019 was primarily due to interest expense on preferred equity of $9,899,471, as well as general and administrative expenses of $3,008,666. For comparative purposes, for the year ended December 31, 2018, the Company reported a net loss of $(9,354,600) or $(0.16) per common share with a weighted average of common shares issued and outstanding of 57,202,825. The interest expense on preferred equity during 2018 was $8,690,140, and administrative expenses were $2,580,435. Taking into account the December 31, 2018 balance of 61,213,784 common shares issued and outstanding and 9,422,774 warrants and stock options outstanding, the net loss was $(0.13) per diluted common share based on 70,636,558 common shares outstanding on a fully-diluted basis.

Liquidity

As of December 31, 2019, the Company had unrestricted cash of $16,724,938, as compared to $9,226,658 of unrestricted cash as of December 31, 2018. The Company's primary sources of cash flow consisted of interest earned on loans, mortgages or equipment finance contracts and other investments in its various businesses, namely CV Capital Funding, LLC ("CVCF"), Centra Funding, LLC ("Centra") and VenSource Holdings, LLC ("VenSource") as well as broker and other income.  Additionally, the Company earned various fees from its investment management activities in its non-performing residential loan business (the "NPL Business'' or "LongVue"), as well as from return of principal from its investment in the same.   As of March 31, 2020, the Company had total cash of $14,611,757.

As of March 31, 2020, the Company and its subsidiaries (including the CVCF-JV as described further below) had bank line commitments of $120,000,000, of which approximately $36,500,000 remained undrawn, and each such entity was in compliance with all of its covenants.

As described below, the Company is required to begin redeeming its Senior Non-Convertible Preferred Stock in June 2020, and is in discussions with respect to rescheduling this obligation.  If this obligation is not rescheduled, it is likely that the Company will have insufficient funds to redeem the Senior Non-Convertible Preferred Stock in accordance with its terms.  In the event the Company is unable to negotiate a new redemption schedule or make payment in accordance with the currently existing redemption schedule, Tricadia (as defined below) may, at its election, require that all outstanding shares of Tricadia Preferred Stock (as defined below) be redeemed, including those which are not currently scheduled to be redeemed, or otherwise pursue remedies against the Company.

Tricadia Investment Update

Since its first investment in 2015, entities controlled by Corvid Peak Capital Management ("Tricadia") have funded a total of $50,000,000 in capital, fulfilling Tricadia's $50,000,000 commitment in the form of a $20,000,000 investment in the Company's Senior Non-Convertible Preferred Stock and a $30,000,000 investment in the Company's Senior Perpetual Preferred (together the "Tricadia Preferred Stock").  As of December 31, 2019, the Company had issued a total of 18,745,365 common shares to Tricadia related to the Tricadia Preferred Stock, and Tricadia remained entitled to another 30,822,907 common shares upon redemption of its remaining Senior Perpetual Preferred Stock.

On a pro forma basis, assuming the full $30,000,000 Tricadia Senior Perpetual Preferred Stock investment will be subsequently converted into Tricadia Senior Non-Convertible Preferred Stock and associated common stock (as more fully described in the Company's April 2015 press release), the Company's outstanding fully-diluted shares of common stock would increase from the current fully diluted amount of 69,286,558 to 100,109,465, and Tricadia 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 Tricadia from third-party shareholders, which when combined with the aforementioned shares will result in Tricadia owning approximately 62% of the total shares outstanding.

The Company's Senior Non-Convertible Preferred Stock is required, in accordance with its terms, to be redeemed in cash by the Company in equal quarterly installments over a two-year period beginning in June 2020.  As of March 31, 2020, the Senior Non-Convertible Preferred Stock had an accrued liquidation preference of $39,831,404.  The Company is in discussions with Tricadia regarding a potential rescheduling of this obligation.  Additionally, the two tranches of the Company's Senior Perpetual Preferred Stock, which had a combined accrued liquidation preference of $38,973,768 as of March 31, 2020, are required to be redeemed by the Company in equal quarterly installments between 2021 and 2023.

Management Update

Effective October 1, 2019, James B. Crystal was appointed Executive Chairman of the Company.  From 2013 to 2019, as a Managing Director at Tricadia Capital Management (now Corvid Peak Capital Management), Mr. Crystal was the portfolio manager principally responsible for Tricadia's private equity investments in the financial services sector, overseeing funds with over $450 million in commitments and serving on various portfolio company boards.  In this capacity, he identified and structured Tricadia's investment in the Company in 2015 and has been a director of the Company since that time.  Mr. Crystal continues to serve as the director designated by Tricadia and the Company does not currently have any independent directors serving on its board.

Effective May 1, 2020, co-CEOs Ricardo Koenigsberger and Kenneth Witkin resigned from the company as officers and directors to pursue an opportunity with one of the Company's funding partners.  The Company greatly appreciates their many years of service, including their work in building and managing the Company's businesses, and wishes them well in their future endeavors.

Impact of the COVID-19 Pandemic

All of the Company's businesses have been negatively impacted by the COVID-19 pandemic.  A material number of Centra's customers and CVCF's commercial real estate obligors have requested and received limited deferments of their payment obligations, and an increased number relative to expectations are, or are expected to be, in default.  Originations have fallen substantially in the uncertain economic climate.  Although it is too early to assess what the ultimate impact of the pandemic will be, it is clear that the Company will face significant revenue shortfalls and incur substantial unanticipated costs relative to its budget for calendar 2020.  The Company is engaged in constructive dialogues with its lenders and remains in compliance with the terms of its credit facilities.

Financial Reporting

Included in this press release are the audited consolidated balance sheets, statements of operations, and statements of cash flows of CV Holdings, Inc. and its subsidiary entities as of and for the years ended December 31, 2019 and December 31, 2018.

Update on the Business

Consolidated Update

During 2019, the Company continued to grow and develop CVCF and Centra, its two principal businesses, and to manage the ongoing liquidation of its VenSource portfolio. As of December 31, 2019, the Company had investments in (through CVCF, two CVCF JVs and certain mortgages owned directly, Centra and the remaining VenSource portfolio) approximately $139,000,000 in loans, mortgages, leases or equipment finance contracts across all such investments. This compares with approximately $71,600,000 as of December 31, 2018.  From an operating cash flow standpoint, as shown in the following table, excluding the pay-in-kind dividends on the Tricadia Preferred Stock, the Company had Adjusted EBITDA of $(1,703,541) in the year ended December 31, 2019 compared to $(855,938) in the year ended December 31, 2018. This difference was principally attributable to a decrease in management and servicing fees from affiliates, reflecting the largely completed wind-down of the Company's NPL business.  As of March 31, 2020, loans, mortgages or equipment finance contracts totaled approximately $131,900,000. In general, it is the Company's expectation that, as loans grow, administrative expenses as a percentage of revenues will decline, driving the Company toward positive EBITDA.   That said, the COVID-19 pandemic has significantly disrupted the Company's businesses, and it is unclear how deep and long-lasting the effects will be on the Company itself or the markets in which the Company operates.

		Year Ended		Year Ended
		December 31, 2019		December 31, 2018
Net loss	$	(11,897,585	)		$	(9,354,600	)
	Interest expense on preferred equity		9,899,471				8,690,140
	Unrealized loss on derivative instruments		202,982				--
	Taxes		26,434				52,342
	Depreciation		65,157				56,180
EBITDA		(1,703,541	)			(555,938	)
	Preferred stock redemption		--				(300,000	)
Adjusted EBITDA	$	(1,703,541	)		$	(855,938	)

The Company has made significant progress in growing its two core businesses, CVCF and Centra.  Because the Company is focused on growing its core businesses, it has made the decision not to pay any cash dividends related to the Tricadia Preferred Stock at this time. While the Company is pleased with the progress of CVCF and Centra, the slower-than-planned growth, due to the start-up nature of the businesses and the continued growth of the amount owed on the Tricadia Preferred Stock, which is senior to its common shares, has created a dilutive effect to shareholders. Additional dilution is likely if the Company defaults on its obligation to redeem timely the Tricadia Preferred Stock and this leads to a restructuring of the Company.

Centra Funding, LLC

On November 28, 2016, the Company, through a newly-formed subsidiary, Centra Funding, LLC closed on its acquisition of Centra Leasing, Inc., which was more fully described in the November 28, 2016 press release.  Centra's business is focused on commercial "small-ticket" equipment leases or finance contracts. Originations utilize a vendor-based model, employing direct vendor- and broker-focused sales staff.  Centra's business is nationwide and spans multiple industries, with typical leases or finance contracts for less than $100,000.

Centra's $50,000,000 debt facility with an affiliate of Wells Fargo Bank allows Centra to borrow up to 85% of eligible collateral under its borrowing base and has a maturity of 3 years. As of December 31, 2019, Centra had approximately $35,000,000 of borrowings under this line. As of March 31, 2020, Centra had closed on transactions totaling approximately $80,200,000 since inception and maintains an active backlog of greater than $13,000,000 of approved transactions.

At the time of the outbreak of the COVID-19 pandemic, Centra had been preparing its first securitization, expected to close in March 2020.  Dislocation in the asset-backed securities markets caused the postponement of this transaction.  Due to the pandemic's economic impact on small businesses, a significant number of Centra's customers have requested and received payment deferments, and Centra has been working closely with Wells Fargo to adapt its credit facility to reflect appropriately the nature and scope of these contract modifications. 

CV Capital Funding, LLC

On December 14, 2016, the Company committed $20,000,000 to a commercial real estate bridge lending business, which operates under the name CV Capital Funding, LLC. CVCF provides capital for a wide range of real estate asset classes on a nationwide basis. CVCF specializes in offering bridge loans secured by first mortgages on commercial real estate and other assets, Property types for consideration include: multi-unit residences, industrial, office, hospitality and other commercial properties.

From inception through March 31, 2020, CVCF had closed on 36 loans, totaling $120,948,500 in principal with a total outstanding amount of $86,170,000, principally through CVCF's joint venture with a real estate credit-oriented investment fund (the "CVCF-JV Partner" and for the joint venture, the "CVCF-JV") and on CVCF's own balance sheet.  On January 30, 2019, CVCF increased the size of its warehouse debt facility with Northeast Bank to $30,000,000.  On April 30, 2019, the CVCF-JV closed on a $30,000,000 term facility with Pacific Western Bank.  During 2019, CVCF entered into a similar JV with a second funding partner, but the partner proved unable to meet its fundraising objectives.  Accordingly, on March 5, 2020, CVCF acquired the partner's stake for a net price of $6,848,345 and is in the process of winding down the joint venture.

As noted above, the economic impact of the COVID-19 pandemic has caused a significant number of CVCF's obligors to request payment deferments or forbearances, and CVCF is evaluating these requests and implementing negotiated payment plans on a case-by-case basis.  A small number of obligors are in default, and CVCF is engaged in workouts and relevant legal proceedings where appropriate, coordinating closely with its bank lenders.  The pandemic has also reduced the demand from the CVCF-JV partner to fund loans originated by CVCF.

Discontinued Businesses

As of March 31, 2020 the Company's remaining portfolio of venture leases and equipment finance contracts formerly managed by its VenSource joint venture totaled $1,800,000 and was performing satisfactorily.  The Company is in discussions with a small number of obligors who may require payment deferments as a result of the COVID-19 pandemic.

The Company terminated its last servicing contract for non-performing residential loans and real estate owned properties as of June 15, 2019 and is providing certain administrative functions on a cost-plus basis to assist its previous institutional investor in liquidating a small number of remaining assets.

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 given that virtually all assets in both CDOs have been disposed of or written off, the CDOs are not expected to generate any meaningful income to the Company in the future.

Additional details on the Company's businesses are available by visiting our website at:  www.cvhldgs.com.

Annual Meeting of Stockholders

On November 18, 2019, CV Holdings held an annual meeting of its stockholders.  At such meeting Ricardo Koenigsberger, Kenneth Witkin, and James Crystal were elected as directors by a vote of the majority of the outstanding common shares of the Company.

Change to REIT status

The Company ceased qualifying as a REIT in 2018 and is now a C Corporation as a result of (a) its non-real estate finance businesses, (b) the change of the tax rules in 2018 applicable to certain REIT rule provisions, and (c) the Company recognizing REIT-disqualifying income.  

Dividends

The Company 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 December 31, 2019, the Company did not have any litigation. 

Financial Statements

Below are summary audited financial statements of the Company including its consolidated balance sheets, statements of operations and statements of cash flows. 

CV HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2019 and 2018
			2019			2018
ASSETS
	Cash	$	16,724,938			$	9,226,658
	Restricted cash	-			370,774
	Management fees receivable from affiliates	33,378			46,642
	Prepaid expenses and others assets	980,064			996,655
	Loans receivable, net	66,531,261			60,615,617
	Investment in real estate joint venture	3,937,969			4,010,661
	Investments in opportunity funds	5,401,701			2,911,644
		Total assets	$	93,609,311			$	78,178,651
LIABILITIES AND DEFICIT
Current Liabilities
	Accounts payable and accrued expenses	$	1,550,848			$	1,533,597
	Due to affiliates	-			1,125,000
	Lines of credit	36,955,760			24,470,329
		Total current liabilities	38,506,608			27,128,926
	Mandatorily redeemable senior non-convertible preferred stock	38,564,068			33,794,138
	Mandatorily redeemable senior perpetual preferred stock	37,461,947			32,332,406
		Total liabilities	114,532,623			93,255,470
Commitments and Contingencies
Stockholders' Deficit
	Common stock, $0.01 par value; 200,000,000 shares
		authorized; 61,213,784 issued and outstanding for both
		at December 31, 2019 and 2018	612,136			612,136
	Additional paid-in capital	9,747,964			9,747,964
	Accumulated deficit	(38,449,762	)		(26,552,177	)
		Total CV Holdings, Inc. stockholders' deficit	(28,089,662	)		(16,192,077	)
	Noncontrolling interests	7,166,350			1,115,258
		Total deficit	(20,923,312	)		(15,076,819	)
		Total liabilities and deficit	$	93,609,311			$	78,178,651

CV HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 2019 and 2018
				2019				2018
REVENUES
	Interest income on loans receivable	$	9,033,407			$	6,237,847
	Broker and other income		772,649				398,751
	Management and servicing fees from affiliates		685,301				2,318,684
	Gain (loss) from unconsolidated entities		331,856				(313,896	)
		Total revenues		10,823,213				8,641,386
OPERATING EXPENSES
	Salaries and related payroll		5,513,022				5,096,342
	General and administrative		3,008,666				2,580,435
	Provision for loan losses		1,355,201				602,405
		Total operating expenses		9,876,889				8,279,182
INCOME FROM OPERATIONS		946,324				362,204
INTEREST EXPENSE AND OTHER
	Interest on senior non-convertible preferred stock		(4,769,930	)			(3,704,121	)
	Interest on senior perpetual preferred stock		(5,129,541	)			(4,986,019	)
	Interest on lines of credit		(2,460,777	)			(1,202,994	)
	Unrealized loss on derivative instruments		(202,982	)			-
	Preferred stock redemption		-				300,000
		Total interest expense and other		(12,563,230	)			(9,593,134	)
LOSS BEFORE INCOME TAX PROVISION		(11,616,906	)			(9,230,930	)
INCOME TAX PROVISION		(26,434	)			(52,342	)
NET LOSS		(11,643,340	)			(9,283,272	)
	Less: net income attributable to noncontrolling interests		254,245				71,328
NET LOSS ATTRIBUTABLE TO CV HOLDINGS, INC.	$	(11,897,585	)		$	(9,354,600	)

CV HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2019 and 2018
			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(11,643,340	)		$	(9,283,272	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
	Provision for loan losses		1,355,201				602,405
	Depreciation		65,157				56,180
	Amortization of debt discount and financing costs		807,532				727,725
	Paid in-kind interest on mandatorily redeemable preferred stock		9,348,335				8,139,006
	Unrealized loss on derivative instruments		202,982				-
	Loss (gain) from unconsolidated entities		(331,856	)			313,896
	Preferred stock redemption		-				(300,000	)
	Changes in operating assets and liabilities:
		Management and servicing fees receivable from affiliates		13,264				(24,437	)
		Prepaid expenses and other assets		(98,701	)			(38,509	)
		Accounts payable, accrued expenses, and other liabilities		(185,731	)			(168,406	)
		Due to affiliates		(1,125,000	)			(19,503	)
Net cash (used in) provided by operating activities		(1,592,157	)			5,085
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment		(27,094	)			(56,800	)
Funding of loans receivable		(134,294,948	)			(64,681,812	)
Principal payments on loans receivable		124,801,509				31,037,966
Investments in opportunity funds		(722,606	)			(12,118	)
Distributions from investment in real estate joint venture		72,692				-
Distributions from opportunity funds		786,999				1,144,614
Net cash used in investing activities		(9,383,448	)			(32,568,150	)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to noncontrolling interests		(1,127,621	)			-
Contributions from noncontrolling interests		6,924,468				247,573
Financing costs		-				(171,943	)
Borrowings on lines of credit		76,680,732				39,005,312
Payments on lines of credit		(64,374,468	)			(16,960,852	)
Net cash provided by financing activities		18,103,111				22,120,090
Net increase (decrease) in cash and restricted cash		7,127,506				(10,442,975	)
CASH AND RESTRICTED CASH - beginning of year		9,597,432				20,040,407
CASH AND RESTRICTED CASH - end of year	$	16,724,938			$	9,597,432
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION
Cash paid during the year for:
	Interest	$	2,206,527			$	963,263
	Income taxes	$	26,434			$	52,342
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of senior perpetual preferred stock to senior non-convertible preferred stock	$	-			$	5,992,859
Issuance of common stock in connection with conversion of senior perpetual preferred stock	$	-			$	368,199
Deferred financing costs paid through borrowings on line of credit	$	179,167			$	100,000
Investments in opportunity funds	$	2,222,594			$	2,042,682

About CV Holdings, Inc.

CV Holdings, Inc. is a specialty finance company with ownership in finance platforms across multiple businesses, including small-ticket equipment financing and commercial real estate bridge lending.

Our common stock is currently quoted on the OTC Markets Group, or OTC Markets.  While not a requirement, the 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 such 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.

The Company ceased to qualify as a REIT in 2018 and will be taxed as a C-Corp. 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 U.S. economy in general; the effects of the COVID-19 pandemic on the Company or the markets in which it operates; the Company's liquidity and ability to continue to cover its operating cash requirements; the Company's ability to redeem or renegotiate the redemption of the outstanding shares of its preferred stock when and as its obligations to do so mature; the growth of its Centra and CVCF businesses; the Company's ability to raise and deploy capital in support of its current operations; the Company's future operating results; its business operations and prospects; availability, terms and deployment of short-term and long-term capital; availability of qualified employees; changes in interest rates; adverse development in the debt securities, credit and capital markets, adverse developments in the commercial finance and real estate markets; adverse developments in the venture capital business; adverse development in the leasing business; performance and financial condition of borrowers, lessees and corporate customers; any future litigation that may arise; the ultimate resolution of the Company's defaulted loans; the performance of the Company's joint venture investments; and the ability to continue as a going concern. The Company undertakes no obligation to publicly update or revise any of the forward-looking statements.

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 CV HOLDINGS, INC.:
Jim Crystal
jcrystal@cvhldgs.com