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Note B - Summary of Significant Accounting Policies
9 Months Ended
Sep. 30, 2024
Notes to Financial Statements  
Significant Accounting Policies [Text Block]

Note B — Summary of Significant Accounting Policies

 

Basis of Accounting

 

Our consolidated financial statements are prepared on the accrual basis of accounting and in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information as contained in the Financial Accounting Standards Board (“FASB”) ASC, and in conjunction with rules and regulations of the SEC. Certain information and footnote disclosures required for annual financial statements have been condensed or excluded pursuant to SEC rules and regulations. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all normal recurring adjustments considered necessary to give a fair presentation of operating results for the periods presented have been included. Certain prior period amounts have been reclassified to conform to the current period presentation. Operating results for the three and nine months ended September 30, 2024, are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. There were no significant changes to our significant accounting policies during the nine months ended September 30, 2024 other than those noted below. For a full summary of our accounting policies, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on March 22, 2024.

 

Going Concern

 

The accompanying consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

 

The going concern basis assumes that we will be able to meet our obligations and continue our operations one year from the date of the issuance of the Quarterly Report, which is dependent upon our ability to effectively implement plans related to the secured debt that matures within one year after the date of the issuance of the Quarterly Report.

 

We have incurred net losses since our inception and anticipate net losses for the near future. We have $111.1 million of debt due within twelve months of the date of the issuance of the Quarterly Report which is comprised of $53.3 million related to the Revolving Credit Facility (as defined herein), $23.6 million related to the Line of Credit (as defined herein) and $34.2 million of notes payable. We do not currently have sufficient cash on hand, liquidity or projected future cash flows to repay these outstanding amounts and interest due upon maturity. These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

 

We are currently analyzing financial and strategic alternatives in order to satisfy these debt maturities. While there can be no assurance that we will satisfy the debt prior to or at maturity, management has determined it is probable that it will be able to address the notes payable maturities by refinancing the notes payable and/or selling the real estate investments and utilizing the sales proceeds to satisfy the related notes payable.

 

With respect to the Revolving Credit Facility, we are evaluating several refinancing options supported by current term sheets received from multiple lenders. We expect to execute on available options in 2024. We are also evaluating refinancing options for the Line of Credit and expect to refinance prior to maturity. However, the finalization of the refinancing under these options are not fully within our control and therefore cannot be deemed probable and thus our plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern. 

 

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts of liabilities that might result from the outcome of this uncertainty.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management makes significant estimates regarding stock issuance, equity compensation, asset impairment, and purchase price allocations to record investments in real estate, as applicable.

 

Concentration

 

Our operators may act as agents collecting revenues on our behalf or may act as lessee if under a lease agreement. The revenue from locations where Metropolis Technologies, Inc. (“Metropolis”) acts as either a lease tenant or an operator agent represented 56.2% and 61.6% of our revenue, excluding commercial revenue, for the nine months ended September 30, 2024 and 2023, respectively. Revenue from locations where LAZ Parking ("LAZ") acts as either a lease tenant or an operator agent represented 15.3% and 3.2% of our revenue, excluding commercial revenue, for the nine months ended September 30, 2024 and 2023, respectively.  

 

In addition, we had concentrations in Cincinnati (18.7% and 19.4%), Detroit (10.4% and 10.3%), and Chicago (9.2% and 9.1%) based on gross book value of real estate as of September 30, 2024 and December 31, 2023, respectively.

 

We had concentrations of our outstanding accounts receivable balance with Metropolis of 28.8% and 60.1% as of September 30, 2024 and December 31, 2023, respectively and with LAZ of 11.8% and 2.7% as of September 30, 2024 and December 31, 2023, respectively. During the nine months ended September 30, 2024, the majority of these receivable balances represent cash paid by parkers that was collected on our behalf by these operators.

 

Revenue Recognition

 

During 2024, 29 of our parking facilities converted from lease arrangements with operators to contracts with the operator to provide services for a set fee. Under these contracts, the operators will run the day-to-day activities at the facilities under our direction. We recognize revenue and expenses on a gross basis as we have determined we are the principal in these arrangements. These management contracts are accounted for in accordance with ASC Topic 606, Revenue from Contracts with Customers, and the revenues associated with these contracts are recorded as Managed Property Revenue in the Consolidated Statement of Operations.

 

Taxes assessed by a governmental authority that are collected from a customer are excluded from revenue.

 

Allowance for Doubtful Accounts

 

Accounts receivable is primarily comprised of amounts owed to us for services provided under our managed property contracts and a note receivable related to a property sale. Amounts are recorded at the invoiced amount net of an allowance for doubtful accounts, if necessary. We apply judgment in assessing the ultimate realization of our receivables and we estimate an allowance for doubtful accounts based on various factors, such as the aging of our receivables, historical experience, and the financial condition of our obligors. Allowance for doubtful accounts was approximately $0.2 million as of September 30, 2024 and immaterial as of  December 31, 2023.

 

Income Taxes

 

Legacy MIC previously elected to be taxed as a REIT for federal income tax purposes and operated in a manner that allowed Legacy MIC to qualify as a REIT through  December 31, 2019.  As a consequence of the COVID-19 pandemic, Legacy MIC earned management income in lieu of lease income from a number of distressed tenants, which did not constitute qualifying REIT income for purposes of the annual REIT gross income tests, and, as a result, Legacy MIC was not in compliance with the annual REIT income tests for the year ended  December 31, 2020. Accordingly, Legacy MIC did not qualify for taxation as a REIT in 2020 and we continue to be taxed as a C corporation. As a C corporation, we are subject to federal income tax on our taxable income at regular corporate rates.

 

A full valuation allowance for deferred tax assets was historically provided each year since we believed that as a REIT it was more likely than not that it would not realize the benefits of its deferred tax assets.  As a taxable C Corporation, we have evaluated our deferred tax assets for the nine months ended September 30, 2024, which consist primarily of net operating losses and our investment in the Operating Company. Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2024. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth. We have continued to generate a net loss and as such have determined that we will continue to record a full valuation allowance against our deferred tax assets for the nine months ended September 30, 2024. A change in circumstances may cause us to change our judgment about whether deferred tax assets should be recorded, and further whether any such assets would more likely than not be realized. We would generally report any change in the valuation allowance through our Consolidated Statements of Operations in the period in which such changes in circumstances occur.

 

Reportable Segments

 

Our principal business is the ownership and operation of parking facilities. We do not distinguish our principal business, or group our operations, by geography or size for purposes of measuring performance. Accordingly, we have presented our results as a single reportable segment.

 

Recently Issued Accounting Standards

 

The following table provides a brief description of recent accounting pronouncements that could have a material effect on our consolidated financial statements:

 

Standard

Description

Planned Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2023-07—Segment Reporting (TOPIC 280): Improvements to Reportable Segment Disclosures

The amendments improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment, and contain other disclosure requirements.

December 31, 2024

We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements, including additional required disclosures.

ASU 2023-09—Income Taxes (TOPIC 740): Improvements to Income Tax Disclosures

The amendments require additional categories within the tax rate reconciliation and provide additional information on reconciling items that are 5% or more.

December 31, 2025

We are currently evaluating the impact the adoption of this standard will have on our disclosures.

ASU 2024-01—Stock Compensation (TOPIC 718): Scope Application of Profits Interest and Similar AwardsThe amendment clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718 or (2) not a share-based payment arrangement and therefore within the scope of other guidance.  January 1, 2025We are currently evaluating the impact the adoption of this standard will have on our consolidated financial statements.