UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20172018

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: 000-11635

FC GLOBAL REALTY INCORPORATED

(Exact name of registrant as specified in its charter)

40 Ramland Road South, Suite 200 Orangeburg, NY 10962

(Address of principal executive offices, including zip code)

(215) 619-3600

(Issuer’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:NoneCommon Stock, $0.01 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes☐Yes ☐  No ☒ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

Yes☐Yes ☐  No ☒  

Indicate by check mark whether the registrant: (i) 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 (ii) 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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes ☐  No ☒ 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 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.

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 Act).

Yes ☐  No ☒ 

As of June 30, 201729, 2018 (the last business day of the registrant’s most recently completed second fiscal quarter), the aggregate market value of the shares of the registrant’s common stock held by non-affiliates (based upon the closing sale price of such shares as reported on The Nasdaq CapitalOTC Pink Market) was approximately $4.9$3.4 million. Shares of the registrant’s common stock held by each executive officer and director and by each person who owns 10% or more of the outstanding common stock have been excluded from the calculation in that such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 30, 2018,28, 2019, the number of shares outstanding of our common stock was 11,868,619.27,336,249. 

DOCUMENTS INCORPORATED BY REFERENCE

None. 

Table of Contents

INTRODUCTORY NOTENOTES

Use of Terms

Except as otherwise indicated by the context and for the purposes of this report only, references in this report to “we,” “our” and “our company” refer to FC Global Realty Incorporated, (Formerly: PhotoMedex, Inc.), a Nevada corporation, and its consolidated subsidiaries.

Special Note Regarding Forward Looking Statements

This report and the other materials we have filed or will file with the U.S. Securities and Exchange Commission, or the SEC, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, statements regarding our business strategy, expectations and plans regarding our future operations and our future financial position. When used in this report or in the other materials we have filed or will file with the SEC, the words “believe,” “may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “indicate,” “seek,” “project,” “plan,” “could,” “should”“should,” or “would”“would,” and similar expressions, are intended to identify forward-looking statements. Among the factors that could cause or contribute to material differences between our actual results and those indicated from the forward-looking statements are risks and uncertainties inherent in our business, including, but not limited to:

Additional factors that could cause or contribute to such differences include, but are not limited to, those discussed in this report, and in particular, the risks discussed under Item 1A. “Risk Factors” and, as well as those discussed in other documents we file with the SEC. Except as required by law, we do not intend to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. In light of these risks, uncertainties, and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.

Stock Split

On September 7, 2016, we completed a 1-for-5 reverse stock split of our outstanding common stock. Accordingly, all share and per share information contained in this report has been restated to retroactively show the effect of that stock split. 

PART I

Our Company

Our company, founded in 1980, is transitioninghas recently transitioned from its former business as a skin health company to a company focused on real estate development and asset management, concentrating primarily on investments in, high qualityand the management and development of income producing assets, hotel and resort developments, residential developments and other opportunistic commercial properties.real estate assets.

Until the recent sale of our consumer products division, we were a global skin health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians, and consumers. Starting in 2014, we began to sell off certain business units and product lines and on January 23, 2017, we sold theour last remaining major product line. Following this transaction, we had only minimal operations and assets remaining, of immaterial value to our company. We are incompleted the process of liquidating the remaining legacy inventory and assets of thisthe last minor business line after which timeduring 2018, and we will no longer operate within the skin health business.

Following the Contribution Transaction described below, ourOur focus is now to build our company into a leading real estate, asset management and development company concentrating primarily on investments in high yield income producing assets and other opportunistic commercial properties via direct property ownership andand/or asset management. Our objective is to generate long term net asset value growth while adhering to institutional best practices and a deep research process for all investments.

For income producing properties, we intend to acquire assets that provide recurring income with the potential for income growth over the long-term. We believe there can be an attractive risk/reward profile to such properties based on the location and the underlying creditworthiness of the tenants. We intend to use such income generation to fund additional acquisitions and development opportunities and for general corporate purposes. In addition, we intend to invest in land assets that can be developed into income generating properties or properties for sale. We believe that our size and scale provide an opportunity to take advantage of smaller-tier assets that most traditional investors do not focus on due to size limitations, thus creating unique investment opportunities. In particular, we intend to target assets in secondary and tertiary markets that require minimal capital expenditures but generate initial unlevered cash flow yields that are higher than those in primary markets.

A second component of our investment strategy will revolve around sourcing asset management opportunities for which we would operate as an asset manager of real estate properties. We are not structured as a Real Estate Investment Trust, “REIT”,or REIT, thus we have the ability to retain earnings and to operate in real estate asset management, development, and peripheral real estate activities, items that may be limited by REIT requirements. We will look to utilize our existing infrastructure to provide economies of scale to owners of real estate assets as we grow our portfolio over time.

Recent DevelopmentsGadsden Transaction

On March 13, 2019, we entered into a stock purchase agreement, or the Gadsden Purchase Agreement with Gadsden Growth Properties, Inc., a Maryland corporation or Gadsden, pursuant to which, we will issue to Gadsden: (i) 708,485,395 shares of our common stock; (ii) a number of shares of our newly designated 7% Series A Cumulative Convertible Perpetual Preferred Stock that is equal to the number of shares of Gadsden’s 7% Series A Cumulative Convertible Perpetual Preferred Stock that are outstanding at the closing date, which is expected to be 889,075 shares; (iii) a number of shares of our newly designated Series B Non-Voting Convertible Preferred Stock that is equal to the number of shares of Gadsden’s Series B Non-Voting Convertible Preferred Stock that are outstanding at the closing date, which is expected to be 11,788,994 shares; and (iv) a number of shares of our 10% Series C Cumulative Convertible Preferred Stock that is equal to the number of shares of Gadsden’s 10% Series C Cumulative Convertible Preferred Stock that are outstanding on the closing date, which is expected to be 2,498,682 shares (which we collectively refer to as Our Securities). In consideration for Our Securities, Gadsden will transfer and assign to us: (i) all of the Class A limited partnership interests in Gadsden Growth Properties, L.P., a Delaware limited partnership, or OPCO, and (ii) all of the general partnership interests in OPCO. OPCO is the operating partnership of Gadsden that has all of its assets and liabilities. Accordingly, at the closing of the transactions contemplated by the Gadsden Purchase Agreement (which we refer to as the Gadsden Transaction), Gadsden will remain a private company with its only asset being Our Securities issued to it and we will acquire OPCO, including the Gadsden portfolio of real estate investments. Closing of the Gadsden Transaction is expected to occur within one week of the date hereof.

The Gadsden Purchase Agreement provides that 278,178,750 shares, or the Holdback Shares of our common stock that will be issued to Gadsden will be subject to forfeiture based on the reconciliation and adjustment of the net asset value of Gadsden’s assets and Gadsden’s proposed real estate investments that have not closed as of the closing date of the Gadsden Purchase Agreement (such investments referred to as the Scheduled Investments).

The number of Our Securities being issued to Gadsden at the closing is based upon an estimated net asset value of Gadsden of $211,573,000, or the Contract NAV. The Contract NAV includes Gadsden’s assets and all of its Scheduled Investments. The Gadsden Purchase Agreement provides for a reconciliation and adjustment of the final net asset value of Gadsden as follows:

The Gadsden Purchase Agreement also contains a mechanism for issuing additional shares of our common stock to Gadsden or our legacy stockholders, as applicable, if there is a loss determination. The Stock Purchase Agreement defines a loss determination as an event that gives rise to a loss due to a breach of a representation and warranty by a party or the failure of a covenant to be performed by a party that was not fully performed, in each case, after consideration of any express waiver or amendment. After the amount of a loss has been determined in accordance with the procedures set forth in the Gadsden Purchase Agreement, the amount of the loss will be paid by us as follows: (i) if our Board determines that the amount of the loss will be paid in cash, then such amount will be paid by check payable to the order of Gadsden or our legacy stockholders; or (ii) if our Board does not determine that the amount of the loss will be paid in cash, then such amount will be paid by us issuing and delivering shares of common stock with an aggregate fair value equal to the amount of the loss to Gadsden or our legacy stockholders. The Gadsden Purchase Agreement provides that no loss will be determined until the aggregate amount of losses claimed exceeds $100,000, it being acknowledged that from and after such threshold, all losses shall be subject to adjustment as set forth above.

The Gadsden Purchase Agreement contains customary representations and warranties of us and Gadsden, which survive the closing for a period expiring March 31, 2020, except for the representations and warrants contained in Sections 3.1(d)(i) (Authority), 3.1(k) (Taxes), 3.2(d)(i) (Authority) and 3.2(l) (Taxes), which shall survive for the applicable statute of limitations regarding such subject matters.

ContributionAdditionally, the Gadsden Purchase Agreement provides for customary pre-closing covenants of the parties, including a covenant to conduct their respective businesses in the usual, regular and ordinary course substantially consistent with past practice and to refrain from taking certain actions without the other parties’ consent. The parties have also agreed not to solicit proposals relating to specified “Competing Transactions” (as defined in the Gadsden Purchase Agreement) or, subject to certain exceptions relating to the receipt of unsolicited offers that may be deemed to be “Superior Competing Transaction” (as defined in the Gadsden Purchase Agreement), enter into discussions concerning or provide information in connection with Competing Transactions.

We also agreed to take such actions as is necessary, which may include accepting the resignations of directors or removing directors without cause and filling the vacancies on our Board of Directors so that as of the closing, our Board of Directors shall consist of (i) the current members of the Board of Directors of Gadsden who are John Hartman, Larry E. Finger, Jay M. Gratz, B.J. Parrish, Russell C. Platt, James Walesa, and Robert G. Watson, Jr.; and (ii) our existing directors Dennis M. McGrath and Dolev Rafaeli. At the closing of the Gadsden Transaction, our executive officers are expected to be the executive officers of Gadsden. In addition, Gadsden agreed to take such actions as is necessary, which may include accepting the resignations of directors or removing directors without cause and filling the vacancies on the Board of Directors of Gadsden so that as of the closing, the Board of Directors of Gadsden shall consist of the same members as our Board of Directors described above.

Consummation of the Gadsden Transaction is subject to various conditions, including, among others, customary conditions relating to: (i) approval of the Gadsden Transaction by the vote of Gadsden’s stockholders holding two-thirds of the outstanding shares of Gadsden’s common stock, Gadsden’s 7% Series A Cumulative Convertible Perpetual Preferred Stock entitled to vote thereon (on an as-converted basis) and Gadsden’s 10% Series C Cumulative Convertible Perpetual Preferred Stock entitled to vote thereon (on an as-converted basis); (ii) absence of injunction by any court or other tribunal of competent jurisdiction and absence of law that prevents, enjoins, prohibits or makes illegal the consummation of the Gadsden Transaction; (iii) receipt of all consents, approvals and authorizations legally required to be obtained to consummate the Gadsden Transaction; and (iv) receipt of customary legal opinions from counsel to us and Gadsden. The obligation of each party to consummate the Gadsden Transaction is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), the other party having performed in all material respects its obligations under the Gadsden Purchase Agreement, and the absence of a material adverse effect on each party.

In addition, the obligation of Gadsden to complete the Gadsden Transaction is subject to the satisfaction (or waiver, to the extent permitted by applicable law) of the following conditions: we shall have, on a consolidated basis, not less than $800,000 of unrestricted cash; and we shall have received a letter of resignation from each member of our Board of Directors, other than the directors who are to be members of the Board after the Gadsden Transaction.

The Gadsden Purchase Agreement may be terminated at any time prior to the closing, in any of the following ways: (i) by mutual written consent of us and Gadsden; (ii) by either Gadsden or us if the Gadsden Transaction shall not have occurred on or prior to March 31, 2019; provided, that a party that has materially failed to comply with any obligation of such party set forth the Gadsden Purchase Agreement shall not be entitled to exercise its right to terminate; (iii) by Gadsden upon a breach of any representation, warranty, covenant or agreement on the part of us as set forth in the Gadsden Purchase Agreement, or if there shall have been a material adverse effect; (iv) by us upon a breach of any representation, warranty, covenant or agreement on the part of Gadsden as set forth in the Gadsden Purchase Agreement, or if there shall have been a material adverse effect; (v) by either Gadsden or us if any order by any governmental entity of competent authority preventing the consummation of the Gadsden Transaction shall have become final and nonappealable; (vi) by either Gadsden or us if Gadsden stockholder approval shall not have been obtained; (vii) by either Gadsden or us prior to obtaining Gadsden stockholder approval if Gadsden or us has delivered a notice of a Superior Competing Transaction (provided that for the termination to be effective, such party shall have paid the applicable termination fee); (viii) by Gadsden if our Board of Directors shall have withdrawn, qualified or modified in a manner adverse to Gadsden, or shall recommend that the ours stockholders approve or accept a Competing Transaction, or if we shall have delivered a notice of a Superior Competing Transaction or shall have publicly announced a decision to take any such action; or (ix) by us if Gadsden’s board of directors shall have withdrawn, qualified or modified in a manner adverse to us, or shall have failed to make when required, its recommendation to approve the Gadsden Purchase Agreement, or shall recommend that Gadsden’s stockholders approve or accept a Competing Transaction, or if Gadsden shall have delivered a notice of a Superior Competing Transaction or shall have publicly announced a decision to take any such action.

Gadsden is required to pay a termination fee of $200,000 if the Gadsden Purchase Agreement is terminated: (i) by Gadsden at any time prior to the receipt of Gadsden stockholder approval upon delivery of a notice of a Superior Competing Transaction; (ii) by us upon any of the events described in subsection (ix) of the preceding paragraph; or (iii) by us if Gadsden stockholder approval shall not have been obtained and (A) prior to such termination, a person has made any bona fide written proposal relating to a Competing Transaction which has been publicly announced prior to the Gadsden’s stockholder meeting and (B) within twelve months of any such termination, Gadsden or any subsidiary of Gadsden shall consummate a Competing Transaction, or enter into a written agreement with respect to a Competing Transaction that is ultimately consummated with any person.

We are required to pay a termination fee of $250,000 if the Gadsden Purchase Agreement is terminated: (i) by us upon delivery of a notice of a Superior Competing Transaction; (ii) by Gadsden upon any of the events described in subsection (viii) of the paragraph above regarding termination; (iii) by Gadsden, upon a breach of certain representations, warranties, covenants or agreements on our part set forth in Gadsden Purchase Agreement; or (iv) or by Gadsden if Gadsden stockholder approval shall not have been obtained and (A) prior to such termination, a person has made any bona fide written proposal relating to a Competing Transaction which has been publicly announced prior to the termination of the Gadsden Purchase Agreement and (B) within twelve months of any such termination, we or any subsidiary of us shall consummate a Competing Transaction, or enter into a written agreement with respect to a Competing Transaction that is ultimately consummated with any person.

If the Gadsden Purchase Agreement is validly terminated, the Gadsden Purchase Agreement will terminate (except for the provisions described Section 5.2 (Access to Information; Confidentiality and Confidentiality Agreement), Section 7.1 (Termination), Section 7.2 (Break-Up Fees and Expenses), Section 7.3 (Effect of Termination) and Article VIII (Survival of Representations and Warranties, Indemnification) of the Gadsden Purchase Agreement, which provisions shall survive such termination), and there will be no other liability on the part of either party to the other except for the termination fees and expenses described above; provided, that no party will be relieved from liability for fraud or a willful breach, or our failure to issue and deliver Our Securities upon satisfaction of the conditions to closing set forth in the Gadsden Purchase Agreement, in which case the aggrieved party will be entitled to all rights and remedies available at law or in equity.

We will have available approximately $800,000 of cash available at the closing of the Gadsden Transaction. This amount is expected to be used to pay compensation to our directors of $250,000; compensation to our Chief Executive Officer of $100,000; purchase of 15,200 shares of Gadsden’s 7% Series A Cumulative Convertible Perpetual Preferred Stock from an affiliate of a Gadsden board member for an aggregate purchase price of $380,000; and $70,000 for audit, accounting and other professional fees and working capital. Accordingly, we will continue to require to raise additional capital to fund its operations and pay our operating expenses. There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms and conditions, if at all.

We had previously entered into an agreement and plan of merger, or the Merger Agreement, with FC Merger Sub, Inc., a Maryland corporation and our wholly-owned subsidiary, or FC Merger Sub, Gadsden and OPCO on November 8, 2018, which as amended on December 27, 2018, January 14, 2019 and January 25, 2019, pursuant to which FC Merger Sub would have merged with and into Gadsden, with Gadsden surviving the merger as a wholly-owned subsidiary of our company. In connection with the proposed merger, on November 9, 21018, we filed a registration statement on Form S-4 (No. 333-228304). The staff of the SEC was furloughed due to the U.S. Federal Government’s recent shutdown which resulted, among other things, that the review and expected timing for the registration statement was delayed to the extent that the merger would have required additional amendments to the registration statement and the timing for the consummation of the proposed merger was not certain. The parties therefore determined to terminate the Merger Agreement on March 13, 2019 in connection with the Gadsden Purchase Agreement and we withdrew the registration statement.

Contribution Transaction

On March 31, 2017, we entered into an Interest Contribution Agreement with First Capital Real Estate Operating Partnership, L.P., or the Contributor,FCOP, First Capital Real Estate Trust Incorporated, or the Contributor Parent (the Contributor and the Contributor Parent are sometimes referred to in this report as the Contributor Parties),FCREIT, and FC Global Realty Operating Partnership, LLC, our wholly-owned subsidiary, or the Acquiror.subsidiary. The parties entered into amendments to the Interest Contribution Agreement on August 3, 2017, October 11, 2017 and December 22, 2017. Pursuant to the Interest Contribution Agreement, as amended (which we collectively refer to as the Contribution Agreement), the ContributorFCOP contributed certain real estate assets to the Acquiror.us. In exchange, the ContributorFCOP received shares of our common stock and newly designated Series A Convertible Preferred Stock as described below. We refer to this transaction as the Contribution Transaction.

On May 17, 2017, (referred to in this report as the Closing Date), the ContributorFCOP transferred $10 million agreed upon value of assets to the Acquiror,us, consisting of the following:

Pursuant to the terms and conditions of an Agreement to Waive Closing Deliverables, dated as of May 17, 2017, the Contributor agreed to deliver the Avalon Interest to the Acquiror, in up to two installments, on or before the thirtieth (30th) calendar day following the Closing Date. The transfer of both installments of the Avalon Interest was completed on June 26, 2017. Notwithstanding that the Contributor did not complete the transfer of the Avalon Interest to the Acquiror on the Closing Date, the parties agreed that the Acquiror would be entitled to all economic benefits of ownership of the Avalon Interest from and after the date of the Closing Date.

On January 12, 2018, we received a copy of a complaint, dated November 17, 2017, that was filed by Alpha Alpha, LLC in the Thirteenth Judicial District Court in the County of Valencia in the State of New Mexico against Avalon Jubilee, LLC, the holding company that owns the property in Los Lunas, New Mexico, HiTex, LLC, MCBB, LLC, Land Strategies, LLC, Ronald R. Cobb and John Does 1 – 5. The suit asks the court to, among other things, determine whether there have been unauthorized transfers of interest in Avalon Jubilee LLC; and declare who are the holders of interests in Avalon Jubilee LLC. Although the complaint does not name our company or any of its subsidiaries or specifically question our interest in Avalon Jubilee LLC, it raises questions about whether the transfers of interest leading to our acquisition of our interest in Avalon Jubilee LLC were properly made in accordance with the Avalon Jubilee operating agreement. We have begun an internal investigation into this matter and will disclose the results of that investigation once it has been completed. Although neither our company nor any of its subsidiaries is a party to litigation regarding this matter, we recognized an impairment expense of $862 thousand to account for our estimate of the impact that such litigation may have on the operations and fair value of the underlying asset.

The proposed gas station sites are located in Atwater and Merced, California and had an agreed upon value at the time of acquisition of $2.6 million. We intend to explore our options for the development of these properties. We may (i) lease a property to a developer who will handle all further development of the property, with our companyus receiving monthly lease payments from the developer; (ii) engage a contractor to develop a property to a certain level, then lease it to a developer which will handle the final development and leasing of the property, with our companyus receiving monthly payments from the developer; or (iii) engage a contractor to completely develop a property, then lease it directly to a tenant who will remit monthly lease payments back to us. The option or options selected for these properties will depend upon the types of tenants interested in operating gas stations and/or related ventures on those properties, as well as our capitalization and available financial resources. In these arrangements, the construction and/or management of the properties are or will be handled by third-party firms which specialize in such work. Therefore, we anticipate that we will not need to hire significant additional personnel to develop, maintain and manage these properties. As for funding for any costs associated with these properties’ development, although we cannot provide any assurance that we will be able to obtain funding, we will seek funding from one or more of the following potential sources (i) funding from third-party investors,investors; (ii) funding as a result of loans secured by the properties,properties; or (iii) joint-funding arrangements with developers and/or managers of these properties.

The residential development in New Mexico consists of approximately 250, non-contiguous, single family residential lots, and a 10,000 square footsquare-foot club house.house, which is under construction. The agreed upon value of this property at the time of acquisition was approximately $7.4 million. This property already has a management and construction arrangement in place. We are the minority holder in that property, holding a 17.9%17.9133% interest.

In exchange for these assets, we issued to the ContributorFCOP 879,234 shares of our common stock, which represented approximately 19.9% of ourits issued and outstanding common stock immediately prior to the Closing Date,closing date, at a per share value of $2.5183, or $2.2 million in the aggregate. We issued the remaining $7.8 million of the approximately $10 million consideration to the ContributorFCOP in the form of 123,668 shares of ourits then newly designated non-voting Series A Convertible Preferred Stock. Each share of the Series A Convertible Preferred Stock, is convertiblewhich were subsequently converted into 25 shares of our common stock, subject to the satisfaction of certain conditions, including stockholder approval of such conversion.stock.

The number of shares of common stock issued to the ContributorFCOP and to be issued upon conversion of the Series A Convertible Preferred Stock was determined by dividing the $10 million value of the assets by $2.5183, a specified price per share value which represents a 7.5% premium above the volume-weighted average price of all on-exchange transactions in ourits common stock executed on The Nasdaq Capital Market, during the forty-three (43) trading days prior to the trading day immediately prior to the public announcement of the transaction by our companyus and the Contributor ParentFCREIT on March 31, 2017, as reported by Bloomberg L.P. We believe that the trading price of our common stock at the time of the Contribution Transaction represented the value of our prior medical device business and not our new real estate development business. No appraisals were obtained for these properties by us, however we did receive draft copies of appraisals obtained by FCOP. The value of the contributed assets was arrived at by the mutual agreement of the parties after analyzing each of the assets in comparison to historical sales of similar land parcels. We also assumedparcels and reviewing the obligationsdraft appraisals received from FCOP. In other words, the valuation was arrived at by negotiation and arms-length agreement based upon each party’s review of sales prices for comparable properties and without the Contributor and its affiliates under certain agreements covering the delivered assets, including an Operating Agreementbenefit of Central Valley Gas Station Development, LLC, a Delaware limited liability company, dated January 28, 2013, and all amendments thereto; the Operating Agreement of Avalon Jubilee, LLC, a New Mexico limited liability company, dated as of May 16, 2012, and all amendments thereto; a Development Services Agreement, dated September 15, 2015, by and between UR-FC Contributed Assets, LLC, a Delaware limited liability company, as owner, and Land Strategies, LLC, a Nevada limited liability company, as developer, with respect to real property owned by Avalon Jubilee, LLC; and a Construction Contract dated, November 19, 2014, between Central Valley Gas Stations Development, LLC, as owner, and First Capital Builders, LLC, as contractor, with respect to the project known commonly as Green Sands and Buhach Rd., Atwater, CA. The Acquiror expects to enter into amended operating agreements with respect to some or all of these entities. As of the filing of this report, the agreements have not been amended.formal appraisal.

Additionally, we assumed those ancillary agreements, commitments and obligations with respect to the delivered assets specified in that certain Assignment and Assumption Agreement, dated as of May 17, 2017.

Under the Contribution Agreement, on the Closing Date our Board was required to consist of seven (7) persons of whom three (3) would be designated by our company, three (3) would be designated by the Contributor Parent, and one (1) nonaffiliated director would be selected by the other six (6) directors; provided, however, that at least four (4) of the members of the Board as so designated would be independent directors. In accordance with the foregoing, on the Closing Date, Lewis C. Pell, Dr. Yoav Ben-Dror and Stephen P. Connelly resigned from our Board, Dr. Dolev Rafaeli, Dennis M. McGrath and Michael R. Stewart were designated by our company, and Suneet Singal, Richard J. Leider and Dr. Bob Froehlich were designated by the Contributor Parent to serve as members of the Board. The seventh director, Darrel C. Menthe, was designated and appointed to the Board by the other directors. On March 4, 2018, Suneet Singal resigned from the Company’s Board of Directors and on the following day, March 5, 2018, Darrel Menthe also resigned from the Company’s Board of Directors. Their resignations were not in connection with any known disagreement with the Company on any matter. Under the provisions of the Stock Purchase Agreement dated December 22, 2017, as reported in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on December 29, 2017, Opportunity Fund I-SS, LLC, or “Opportunity Fund” has notified the Company that it may exercise its right to appoint two replacement directors to the Company’s Board of Directors, but it has not yet done so. The two directorships resulting from such resignations currently remain vacant. See “Private Placement” below.

Additionally, the following officer changes became effective as of the Closing Date:

Closing of the Contribution Transaction was subject to customary closing conditions and certain other specific conditions, including the following: (i) the entry into a registration rights agreement requiring us to register for resale the shares being issued in connection with the Contribution Transaction; (ii) the entry into a lock up agreement that restricts the transfer of our shares that are held by certain of our affiliates and certain affiliates of the Contributor Parent; (iii) the restructuring of our Board as described above; (iv) the resignation of certain of our officers as described above; and (v) the entry into an employment agreement with Mr. Suneet Singal, who became our new Chief Executive Officer at the closing.

The Contribution Agreement contemplated that additional contributions would be made prior to December 31, 2017;2017 if FCOP completed its purchase of additional properties; however, the ContributorFCOP failed to satisfy the conditions precedent toacquire those additional contributionsproperties before the December 31, 2017 deadline such thatand, therefore, only the closing described above was completed.

In January 2018, we learned of a suit filed in November 2017 by the holder of the majority interest in Avalon Jubilee, LLC. The suit was filed against the previous holders of the two interests and alleged that the right of first refusal contained in the operating agreement for Avalon Jubilee, LLC had not been honored, thereby not allowing the majority holder its option to purchase those interests. While we were not named in the suit, the suit did name several ‘John Does’ as defendants and cast doubt upon the legitimacy of the transfer of the interest in Avalon Jubilee, LLC to us. As a result of this discovery, we were required under accounting rules to write down our investment in Avalon Jubilee, LLC by about $1 million, and expended additional funds to enter into negotiations with the majority interest holder to resolve our ownership of its interest in Avalon Jubilee, LLC. On April 27, 2018, we and certain of our subsidiaries entered into an agreement with Alpha Alpha LLC, the majority holder, and Presidential Realty Corporation and certain of its subsidiaries, the other holder, under which our subsidiary, First Capital Avalon Jubilee LLC, was recognized as a 17.9133% member in Avalon Jubilee, LLC, and the operating agreement and other documents for that venture were so amended to reflect that acknowledgement. 

Shortly after the Avalon matter was resolved, we discovered that one of the other properties transferred to us by FCOP, known as Greensands II, was not the property described in the documents underlying the transaction, including a draft appraisal used as part of the valuation determination for the stock issued by us to FCOP for the transaction. The property valued in that appraisal was actually a neighboring property once owned by FCOP and known as Greensands I; however the appraisal referred to it as Greensands II. The actual property transferred was significantly smaller than the property which FCOP believed it was purchasing. A subsequent re-appraisal and re-valuation of the actual property received resulted in a write-down of the property’s value by $1.4 million. That adjustment required us to restate our 2017 financials as reported in our Annual Report on Form 10-K/A for the year ended December 31, 2017, and delayed by several days the filing of our Quarterly Report on Form 10-Q for the period ended March 31, 2018, resulting in us incurring significant additional accounting and legal fees for those filings.

See “—Litigation—Suneet Singal Litigation” below for more details regarding these two matters.

We elected to early adopt ASU 2017-01,Business Combinations (Topic 805) Clarifying the Definition of a Business.Accordingly, the determination of whether the transaction represents a business combination was evaluated by applying ASU 2017-01 guidance. We have determined that the group of assets assumed do not include (and also, none of them on a stand-alone basis) include, an input and a substantive process that together significantly contribute to the ability to create output and thus it was determined that the contribution represents an acquisition of assets rather than a business combination. Accordingly, the total sum of the fair value of consideration given (i.e., the fair value of the equity interests issued) together with the transaction costs, was allocated to the individual assets acquired and liabilities assumed based on their relative fair values at the date of acquisition. Such allocation did not give rise to goodwill.

The terms of the Series A Convertible Preferred Stock are governed by a certificate of designation, or the Series A Certificate of Designation, filed by us with the Nevada Secretary of State on May 15, 2017. Pursuant to the Series A Certificate of Designation, we designated 3,000,000 shares of our preferred stock as Series A Convertible Preferred Stock. Following is a summary of the material terms of the Series A Convertible Preferred Stock:

Payout Notes and Stock Grant Agreement

Under the Contribution Agreement, amounts due to Dr. Dolev Rafaeli and Dennis M. McGrath under their employment agreements, as well as amounts due to Dr. Yoav Ben-Dror for his services as a board member and officer of our foreign subsidiaries, were converted to convertible secured notes in the principal amounts of approximately $3.1 million, $0.98 million and $1.5 million, respectively, following approval from our stockholders on October 12, 2017 (which we refer to as the Payout Notes). The Payout Notes were due on October 12, 2018, carried a ten percent (10%) interest rate, payable monthly in arrears commencing on December 1, 2017, and were secured by a security interest in all of our assets pursuant to a security agreement that we entered into with the holders of the Payout Notes on October 12, 2017. The Payout Notes were convertible into shares of our common stock and we agreed to register the shares underlying the Payout Notes within thirty (30) days of issuance with best efforts to cause the registration statement covering such shares to become effective within one-hundred twenty (120) days of issuance. On November 14, 2017, we filed a registration statement on Form S-3 (which we refer to as the First Registration Statement) to register all shares that may be issued upon conversion of the Payout Notes, which was subsequently amended to include the Payout Shares issued under the Stock Grant Agreement described below.

On December 22, 2017, we entered into a stock grant agreement, or the Stock Grant Agreement, with Dr. Dolev Rafaeli, Dennis M. McGrath and Dr. Yoav Ben-Dror (collectively referred to herein as the Note Holders) to (i) cause the early conversion of the Payout Notes into an aggregate of 5,628,291 shares of our common stock (which we refer to as the Payout Shares), (ii) effectuate the release of all security interests associated with the Payout Notes, (iii) provide for the issuance of an aggregate of 1,857,336 additional shares of common stock to the Note Holders as consideration for the various agreements of the Note Holders contained in the Stock Grant Agreement (which we refer to as the Additional Shares), (iv) provide for certain cash payments to the Note Holders in amounts equal to the interest payments that would have been made to the Note Holders absent the conversion of the Payout Notes, (v) obtain the agreement of the Note Holders to provide certain support services to our company, and (vi) obtain the conditional resignation of certain of the Note Holders from our Board of Directors. Accordingly, the Payout Notes were paid in full.

Pursuant to the Stock Grant Agreement, we agreed to make twelve (12) monthly payments on the first of each month commencing on January 1, 2018 in the amounts of approximately $21, $7, and $10 thousand, respectively, to Messrs. Rafaeli, McGrath, and Ben-Dror, respectively (which we refer to as the Cash Payments). The Cash Payments are consideration for certain consulting services to be provided by the Note Holders specified in the Stock Grant Agreement.

As promptly as possible following entry into the Stock Grant Agreement, we are required to file a proxy statement and hold a special meeting of our stockholders to authorize and approve the issuance of the Additional Shares. We are required to issue the Additional Shares promptly, but in any event within ten (10) days after we obtain stockholder approval of such issuance. As of the date of this report, we have not yet filed such proxy statement.

In furtherance of obtaining such stockholder approval, on December 22, 2017, the Contributor, the Note Holders and certain other significant stockholders of our company, including OFI (as defined under “Private Placement” below), entered into a shareholder voting support and confidentiality agreement, or the Note Holder Voting Agreement, pursuant to which such stockholders agreed to vote their shares in favor of the transactions contemplated by the Stock Grant Agreement, including the issuance to the Note Holders or their designees of common stock equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance (which we refer to as the Note Holder 20% Proposal), and also agreed to certain transfer restrictions on the securities of our company owned by them. Under the Note Holder Voting Agreement, such stockholders may not transfer or otherwise dispose of any equity securities of our company until the earlier of: (i) the first business day following approval of the Note Holder 20% Proposal by our stockholders, (ii) the mutual written consent of the parties to the Note Holder Voting Agreement, or (iii) December 31, 2018. Such transfer restrictions do not apply to (y) the exercise of any option, warrant or other securities convertible or exchangeable for securities of our company or (z) to any transfer by the Contributor or the Contributor Parent, in each case, to any holder of a security issued by it. The Note Holder Voting Agreement also includes a power of attorney pursuant to which each stockholder designated and appointed our company and its duly authorized officers and agents as its agents and attorney in fact to act on the stockholder’s behalf to execute any proxy relating to any meeting of our stockholders for the purposes set forth in the Note Holder Voting Agreement.

On December 22, 2017, in connection with the Stock Grant Agreement, we entered into a registration rights agreement, or the Note Holder Registration Rights Agreement, with the Note Holders, pursuant to which we agreed to register the Additional Shares under the Securities Act. We agreed to file a registration statement covering the resale of the Additional Shares within 30 days of the Stock Grant Agreement and cause such registration statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than 120 days following the filing date if such registration statement is filed on Form S-3 or 150 days if such registration statement is filed on Form S-1. If such registration statement is not filed or declared effective by the SEC on or prior to such dates, or if after such registration statement is declared effective, without regard for the reason thereunder or efforts therefor, such registration statement ceases for any reason to be effective for more than an aggregate of 30 trading days during any 12-month period, which need not be consecutive, then in addition to any other rights the Note Holders may have under the Note Holder Registration Rights Agreement or under applicable law, we are required to pay to each Note Holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the product obtained by multiplying (x) $1.00 by (y) the number of shares of common stock held by the Note Holder included in the registration statement (such product referred to as the Note Holder Investment Amount); provided that, in no event will we be liable for liquidated damages in excess of 1.0% of the Note Holder Investment Amount in any single month and that the maximum aggregate liquidated damages payable to the Note Holders under the Note Holder Registration Rights Agreement shall be ten percent (10%) of the Note Holder Investment Amount. The registration rights provision contained in the Payout Notes was incorporated by reference into the Note Holder Registration Rights Agreement, except that the Note Holders waived the breach by our company for failure to timely file the First Registration Statement and agreed that they are not entitled to liquidated damages as a result of such failure. Under the Note Holder Registration Rights Agreement, the Note Holders are entitled to liquidated damages if the First Registration Statement is not declared effective within 120 days following the date of the Payout Notes, but the Note Holders subsequently agreed to waive their rights to such liquidated damages until April 20, 2018. On January 23, 2018, we filed a registration statement on Form S-3 for the Additional Shares. The Note Holders waived their rights to liquidated damages in connection with the late filing of such registration statement and in connection with the effectiveness deadline for such registration statement until April 20, 2018.

Pursuant to the Stock Grant Agreement, Dr. Dolev Rafaeli and Dennis M. McGrath agreed to resign from our Board of Directors effective upon the last to occur of (i) receipt of all of the Payout Shares and all of the Additional Shares, (ii) receipt of all of the Cash Payments (either in accordance with the schedule provided in the Stock Grant Agreement or, at our option, in one lump sum on an accelerated basis), and (ii) the date that the Payout Shares and the Additional Shares have been registered for re-sale in accordance with the Note Holder Registration Rights Agreement.

Private Placement

On December 22, 2017, we entered into a securities purchase agreement, or the Purchase Agreement, with Opportunity Fund I-SS, LLC, a Delaware limited liability company, or OFI, under which OFI may invest up to $15 million in our company in a series of closings, in exchange for which OFI will receive shares of our newly designated Series B Preferred Stock at a purchase price of $1.00 per share.

On December 22, 2017, we completed the first closing under the Purchase Agreement, pursuant to which OFI provided $1.5 million to us in exchange for 1,500,000 shares of Series B Preferred Stock. On January 24, 2018, we completed a second closing under the Purchase Agreement, pursuant to which OFI provided approximately $2.2 million to us in exchange for 2,225,000 shares of Series B Preferred Stock. Under the Purchase Agreement, OFI may, but is not obligated to, make additional investments in one or more subsequent closings until an aggregate amount of $15 million has been invested or the Purchase Agreement has been terminated in accordance with its terms.

Under the Purchase Agreement, the proceeds from the first closing were to be used for working capital and general corporate purposes, the proceeds from the second closing were to be used to perform due diligence and invest in Income Generating Properties (as defined in the Purchase Agreement) that have been approved by our company’s Board of Directors, and proceeds from subsequent closings were to be used to invest in Income Generating Properties (as defined in the Purchase Agreement) that have been approved by our Board of Directors or as otherwise agreed to between us and OFI in writing prior to such subsequent closings. On March 16, 2018, we and OFI entered into a letter agreement, pursuant to which OFI agreed that we may use all proceeds for the purposes and uses described in a budget agreed to between us and OFI at the time the letter agreement was signed. In connection with such letter agreement, we agreed to provide OFI, on a quarterly basis, on or prior to 15 days after the end of each quarter, a report that describes, in reasonable detail, the actual expenses incurred, and payments made during such period compared to the expenses and payments specified in the budget for such period, certified by our Chief Financial Officer.

The terms of the Series B Preferred Stock are governed by a certificate of designation, or the Series B Certificate of Designation, filed by the Company with the Nevada Secretary of State on December 22, 2017. Pursuant to the Series B Certificate of Designation, we designated 15,000,000 shares of our preferred stock as Series B Preferred Stock. Following is a summary of the material terms of the Series B Preferred Stock:

The Purchase Agreement is subject to the usual pre- and post-closing representations, warranties and covenants. In addition, we agreed that, so long as the shares of Series B Preferred Stock purchased by OFI are outstanding, our debt (as defined by U.S. generally accepted accounting principles, or GAAP) shall not exceed 45% of our fixed assets without the prior written consent of the Requisite Holders. Subject to stockholder approval, we also agreed to amend the certificate of designation for our Series A Convertible Preferred Stock to change the conversion price from $2.5183 to $1.12024021352 such that each share of Series A Convertible Preferred Stock will be initially convertible into 56.20 shares of common stock instead of 25 shares of common stock. In addition, we agreed that at any time prior to the termination of the OFI Voting Agreement (as defined below), we shall cause any person who acquires any securities from us or any of our affiliates that, together with all securities held by such acquirer and its affiliates, will own, directly or indirectly, five percent (5%) or more of our outstanding common stock (after giving effect to the right of any such person to convert or exchange securities), to become a party to the OFI Voting Agreement by causing such person, as a condition to the delivery of such securities, to sign a counterpart signature page thereto that joins such person to the OFI Voting Agreement.

We also agreed to nominate two (2) directors to our Board of Directors upon request of OFI. In furtherance thereof, on December 22, 2017, Messrs. Suneet Singal and Darrel C. Menthe delivered resignation letters to our Board of Directors pursuant to which they resigned from the Board of Directors effective automatically on the third (3rd) day following written request to do so from OFI. Notwithstanding the fact that OFI has not yet requested Messrs. Singal and Menthe to resign from our Board of Directors, Messrs. Singal and Menthe did resign on March 3, 2018. Their resignations were not in connection with any known disagreement with the Company.

As promptly as possible following the first closing, we are also required to file a proxy statement and hold a special meeting of our stockholders to authorize and approve the issuance of shares of common stock upon conversion of the Series B Preferred Stock and the amendment to the certificate of designation for our Series A Convertible Preferred Stock described above. As of the date of this report, we have not yet filed such proxy statement.

In furtherance of obtaining such stockholder approval, on December 22, 2017, OFI entered into a shareholder voting support and confidentiality agreement, or the OFI Voting Agreement, with the Contributor and certain other significant stockholders of our company, including the Note Holders, pursuant to which the such stockholders agreed to vote their shares in favor of the transactions contemplated by the Purchase Agreement, including the issuance to OFI or its designees of common stock upon conversion of its Series B Preferred Stock equal to 20% or more of the common stock or 20% or more of the voting power outstanding before the issuance (which we refer to as the OFI 20% Proposal), and also agreed to certain transfer restrictions on the securities of our company owned by them. Under the OFI Voting Agreement, such stockholders may not transfer or otherwise dispose of any equity securities of our company until the earlier of: (i) the date of termination of the Purchase Agreement in accordance with its terms; (ii) the later of (a) the date that this registration statement becomes effective or (b) the first business day following approval of the OFI 20% Proposal by our stockholders, (iii) the mutual written consent of the parties to the OFI Voting Agreement, or (iv) December 31, 2018. Such transfer restrictions do not apply to the exercise of any option, warrant or other securities convertible or exchangeable for securities of our company, or following stockholder approval of the OFI 20% Proposal, to the following transfers: (i) if the stockholder is a corporation, partnership, limited liability company or other entity, any transfer to an affiliate if such transfer is not for value; or (ii) if the stockholder is an individual, transfers, (a) for nominal consideration or as a gift to any member of such stockholder’s immediate family (defined as the spouse, parents, lineal descendants, the spouse of any lineal descendant, and brothers and sisters) or a trust for the benefit of such stockholder or any member of such stockholder’s immediate family, (b) in connection with estate or tax planning, (c) to non-profit organizations qualified as charitable organizations under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or (d) upon the death of such stockholder pursuant to a will or other instrument taking effect upon the death of such stockholder, or pursuant to the applicable laws of descent and distribution to such stockholder’s estate, heirs or distributes. The restrictions also do not apply to any transfer by the Contributor or the Contributor Parent, in each case, to any holder of a security issued by it. The OFI Voting Agreement also includes a power of attorney pursuant to which each stockholder designated and appointed our company and its duly authorized officers and agents as its agents and attorney in fact to act on the stockholder’s behalf to execute any proxy relating to any meeting of our stockholders for the purposes set forth in the OFI Voting Agreement.

As a condition to the first closing, we entered into a registration rights agreement, or the OFI Registration Rights Agreement, with OFI, pursuant to which we agreed to register all shares of common stock that may be issued upon conversion of the Series B Preferred Stock, or the Registrable Securities, under the Securities Act. We agreed to file a registration statement covering the resale of such Registrable Securities within 30 days of the first closing and cause such registration statement to be declared effective under the Securities Act as soon as possible but, in any event, no later than 120 days following the filing date if such registration statement is filed on Form S-3 or 150 days if such registration statement is filed on Form S-1. If such registration statement is not filed or declared effective by the SEC on or prior to such dates, or if after such registration statement is declared effective, without regard for the reason thereunder or efforts therefor, such registration statement ceases for any reason to be effective for more than an aggregate of 30 trading days during any 12-month period, which need not be consecutive, then in addition to any other rights the holders of Series B Preferred Stock may have under the OFI Registration Rights Agreement or under applicable law, we shall pay to each holder an amount in cash, as partial liquidated damages and not as a penalty, equal to 1.0% of the product obtained by multiplying (x) the Series B Original Issue Price by (y) the number of shares of Registrable Securities held by the holder (such product referred to herein as the Investment Amount); provided that, in no event will we be liable for liquidated damages in excess of 1.0% of the Investment Amount in any single month and that the maximum aggregate liquidated damages payable to the holders under the OFI Registration Rights Agreement shall be ten percent (10%) of the Investment Amount. On January 23, 2018, we filed a registration statement on Form S-3 to register the shares issued to OFI in the first closing. OFI waived its right to liquidated damages in connection with the late filing of such registration statement.

Under the Purchase Agreement, we also agreed to indemnify and hold OFI and its successors and permitted assignees (collectively referred to herein as the Investor Indemnified Parties) harmless from, any and all Damages (as defined below) incurred or suffered by such Investor Indemnified Party arising out of any inaccuracy or other breach of any representation or warranty of our company in any of the Transaction Documents (as defined in the Purchase Agreement) or any breach of covenant or agreement made by us in any of the Transaction Documents. “Damages” means the amount of (i) the sum of the aggregate amount of all damages, losses, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses) in connection with any action, suit or proceeding whether involving a third party claim or a claim solely between the parties, but excluding any incidental, indirect or consequential damages, losses, liabilities or expenses; (ii) multiplied by the Indemnity Gross Up Factor. The “Indemnity Gross Up Factor” is equal to X divided by Y, where X is equal to 1 and Y is equal to 1 minus a fraction, the numerator of which is equal to the number of shares of common stock held by OFI, determined and on a fully diluted basis assuming the full conversion of shares of Series B Preferred Stock that OFI is then entitled to convert; and the denominator of which is the number of shares of common stock determined on a fully diluted basis. Notwithstanding the foregoing, no Investor Indemnified Party shall be entitled to indemnification unless and until the aggregate Damages incurred in respect of all claims collectively exceeds $50,000 whereupon Investor Indemnified Parties shall only be entitled to indemnification for all such Damages in excess of such $50,000 threshold.

The Purchase Agreement may be terminated by the written agreement of us and OFI, or by us or OFI if the final closing does not take place prior to December 31, 2018.

Our Prior Business Operations

Under its previous name, PhotoMedex, Inc., our company was, until the recent sale of the last significant business unit (its consumer products division which was sold to ICTV Brands, Inc., or ICTV, on January 23, 2017; see2017 (see Note 2, Discontinued Operations, to our consolidated financial statements), as described below and in other sections of this report, a Global Skin Healthglobal skin health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. We provided proprietary products and services that addressed skin diseases and conditions including psoriasis, acne, actinic keratosis (a precursor to certain types of skin cancer), photo damage and unwanted hair.

Before we commenced our current real estate business, we organized our business into three operating segments based upon our management structure, products and services offered, markets served and types of customers, as follows: The Consumer segment (sold to ICTV on January 23, 2017) derived its revenues from the design, development, manufacturing and selling of long-term hair reduction and acne consumer products. The Physician Recurring segment derived its revenues from the XTRAC (sold to MELA Sciences on June 22, 2015) procedures performed by dermatologists, the sales of skincare products (sold to Pharma Cosmetics on September 15, 2016), the sales of surgical disposables and accessories to hospitals and surgery centers (sold to Dalian JiKang Medical Systems September 1, 2015) and on the repair, maintenance and replacement parts on various products. The Professional segment generated revenues from the sale of equipment, such as lasers, medical and esthetic light and heat based products and LED products.

We still market and sell our LHE® brand products, which were included in our Professional segment, through our subsidiary, Radiancy, Inc., or Radiancy. We are in the process of liquidating the remaining legacy inventory and assets of this business line, after which time we will no longer operate this business.

The proprietary LHE® brand technology combines the benefits of direct heat and a full-spectrum light source for a variety of clinical applications, including psoriasis care, acne treatment, skin tightening, skin rejuvenation, wrinkle reduction, collagen renewal, vascular and pigmented lesion treatments and hair removal. This technology was originally used primarily in our professional products, including capital equipment sold to physicians and skin care specialists worldwide. The technology was then adapted to our hand-held consumer line of products like no!no! Skin, a medical device for acne. Except for occasional sale of left over inventory, this business segment has basically ceased operations with the NEOVA sale September 23, 2016.

Sale of Prior Business

On March 31, 2016, we completed the sale to The Lotus Global Group, Inc. of all of the tangible and intangible assets of the Omnilux product line for $220 thousand ($110 thousand was received as a refundable deposit during December 2015 in advance and $110 thousand was received in April 2016), pursuant to the Agreement for Sale of Assets dated March 31, 2016. Management does not believe that the sale of the Omnilux product line represented a strategic shift for our company. As a result, the above transaction has not been reflected in the accompanying consolidated financial statements as discontinued operations (see Note 2, Discontinued Operations, to our consolidated financial statements). We recorded a loss on the disposal of those assets in the amount of $843 thousand for the year ended December 31, 2016.

On August 30, 2016, we entered into an Asset Purchase Agreement for the sale of our Neova product line. The sale was completed on September 15, 2016, resulting in immediate cash proceeds to us of $1.5 million and we recorded a loss of $1,731 thousand from the transaction during the third quarter ended September 30, 2016, and for the year ended December 31, 2016. The parties entered into several ancillary agreements as part of this transaction, including a Neova Escrow Agreement and a Neova Transition Services Agreement. Under the Neova Escrow Agreement, $250 thousand of the Purchase Price was placed into an escrow account held by U.S. Bank National Association as Escrow Agent. The funds were to remain in escrow until September 15, 2017, one year following the closing of the transaction. We received $158 thousand of these on December 13, 2017 and recognized an additional loss of $92 thousand on the sales of the Neova product line for the amount of funds withheld from the escrow account.

On October 4, 2016, we entered into an Asset Purchase Agreementasset purchase agreement with ICTV for the sale of our consumer division for $9.5 million, including $5 million in cash plus a $4.5 million royalty agreement. We also entered into a Transition Services Agreement,transition services agreement, pursuant to which we agreed to provide ICTV with certain accounting, benefit, payroll, regulatory, IT support and other services for periods ranging from approximately three months to up to one year following the closing date, during which time ICTV would arrange to transition the services it receives to its own personnel.

This transaction was completed on January 23, 2017, (see Note 2 Discontinued Operations). We considered a number of factors before entering into the Asset Purchase Agreement, including, among other things, the price to be paid by ICTV, the strategic and financial benefits that the asset sale would provide to us, our extensive search process with respect to the sale of the business, the future business prospects of the business and the terms and conditions of the Asset Purchase Agreement. Ultimately, we concluded that the price offered by ICTV was a fair offer for the consumer products division.2017.

On July 12, 2017, we entered into a Terminationtermination and Release Agreementrelease agreement under which the Asset Purchase Agreementasset purchase agreement described above was terminated and is of no further force and effect, except for certain surviving rights, obligations and covenants described in the Terminationtermination and Release Agreement.release agreement. Pursuant to the Terminationtermination and Release Agreement,release agreement, ICTV paid us $2 million in cash and we agreed that ICTV will have no further royalty or other payment obligations under the Asset Purchase Agreement. We derecognized the $4.5 million royalty receivable (which had been recognized on January 23, 2017) and recognized a total loss of $2 million in the nine-month period ended September 30, 2017, resulting in an adjustment of $2 million to the amount of the loss on the disposal of the asset. We had classified the assets of the consumer division as assets held for sale as of December 31, 2016.

asset purchase agreement. As partial consideration for the releases provided by ICTV pursuant to the Terminationtermination and Release Agreementrelease agreement and in accordance with the terms therein, on July 12, 2017, we entered into a Billbill of Salesale and Assignment,assignment, which provides that we shall sell, assign, transfer, conveysold, assigned, transferred, conveyed and deliverdelivered to ICTV, and ICTV purchase and accept from us, all of the right, title and interest, legal or equitable, in and to a deposit in the amount of $210 thousand$0.21 million held by a consumer division vendor, Sigmatron International, Inc., pursuant to an arrangement between us and Sigmatron International, Inc.

As part ofDuring the year ended December 31, 2018, we discontinued our LHE® brand product lines, which were previously sold through our subsidiary, Radiancy, Inc., or Radiancy. Except for an occasional sale of leftover inventory, this business line had basically ceased operations with the consumer productNEOVA sale September 23, 2016. We liquidated the remaining legacy inventory and assets of this business line which transaction was determinedand no longer operate this business. This resulted in a net expenses of $172, from net revenues of $302, less expenses to represent a complete liquidation of a foreign subsidiary, the cumulative translation adjustment of $3,228 thousandadjust for account receivable write offs and changes in tax liabilities related to that foreign entity was reclassified from accumulated other comprehensive income (loss) and reported as part of gain or loss from the sale.former product lines.

Organizational Chart

The following chart depicts our organizational structure following the sale of our prior business and the Contribution Transaction. All subsidiaries are wholly-owned unless otherwise indicated.

*These entities were affiliated with our former medical and consumer business. We are in the process of closing and dissolving these entities.

Our Real Estate Business

Our focus is to build our company into a leading real estate, asset management, and development company, concentrating primarily on investments in high yield income producing assets and other opportunistic commercial properties via direct property ownership andand/or asset management. Our objective is to generate long term net asset value growth while adhering to institutional best practices and a deep research process for all investments.

Income Producing Properties

For income producing properties, we intend to acquire assets that provide recurring income with the potential for income growth over the long-term. We believe there can be an attractive risk/reward profile to such properties based on the location and the underlying credit attributes of the tenants. In addition, we may invest in loans that are secured by income producing properties or ground leases on such properties. We believe that owning a diversified portfolio of actively managed properties and other real estate related investments, can produce a consistent stream of income with long-term upside potential from income growth or redevelopment.

Real Estate Development

We look to invest in land assets that can be developed into income generating commercial, residential, and hospitality properties, for-sale residential properties, or mixed-use development opportunities. Such properties may require extensive planning, and for these investments, we may partner with local developers, architects, and engineers to maximize the highest and best use. We focus on development properties where we believe the risk profile is misunderstood thus creating significant opportunity if we are able to turn the development into a stabilized operating property.

Competition

We believe the real estate business is very competitive. Our properties may compete with local sites in attracting skilled labor during the construction process and in attracting tenants and end-users upon completion. We compete with several types of real estate investors for acquisitions of properties, including real estate limited partnerships, and private equity, REITs, developers, financial institutions, and individuals that own, manage, finance, or develop properties. Many of these groups have larger operations and greater financial resources than we do.

We believe that our size and scale provide an opportunity to take advantage of smaller-tier assets that most traditional investors do not focus on due to size limitations, thus creating unique investment opportunities with attractive risk/reward profiles.

Investment Strategy

Our diversified investment strategy provides us with flexibility to invest across real estate asset classes and submarkets in the United States and globally. We will look to utilize our industry experience and relationships to identify the transactions which generate the most attractive risk / risk/reward opportunities consistent with our strategy. We enforce a rigorous and repeatable underwriting process based on deep research and due diligence.

One of our core strategies is that we intend to find investments in secondary and tertiary markets with assets that require minimal capital expenditures but generate initial unlevered cash flow yields that are higher than those in primary markets. We look to acquire assets in submarkets where the population and employment trends are positive and where the underlying asset serves a key purpose to the local community.

A second component of our investment strategy will revolve around sourcing asset management opportunities for which we would operate as an asset manager of real estate properties. We are not currently structured as a REIT, thus we have the ability to retain earnings and to operate in real estate asset management, development, and peripheral real estate activities, itemsactivities that may be limited by REIT requirements. We will look to utilize our existing infrastructure to provide efficiencies of scale to owners of real estate assets as we grow our portfolio over time.

Our criteria for evaluating investments includes, but is not limited to, submarket location of the asset, economic and population growth fundamentals of the location, credit quality of the tenant, terms of the underlying leases, historical cash flow and capital expenditure needs at the property, ability to acquire financing secured by the property, tax and regulatory risks associated with the investment, environmental and structural attributes of the property, long-term viability of the asset, and potential redevelopment opportunities of the real estate.

We do extensive research on these investment attributes when preparing our investment memorandum. We compare the real estate acquisition we are making to other investments with similar risk profiles both inside and outside the direct real estate investment sector to best assess the merits of the opportunity.

Existing Portfolio

In 2017, we acquired under the Contribution Agreement (i) three vacantunoccupied land sites intended for development as gas stations in northern California, (ii) a majority (75%) membership interest in a limited liability company that owns a vacantan unoccupied land site located in Northern California, and (iii) ana minority (17.9133%) interest in a limited liability company which owns property located in Los Lunas, New Mexico being developed as a single family residential development.

In 2018, our subsidiary, RETPROP I, LLC, completed the acquisition of a 7,738 square foot medical office building in Dayton, Ohio. The building’s former owner, and current tenant, a medical practice, has entered into a lease with us to continue its occupancy through April 2022, with the option to renew that lease for two additional five-year terms.

On January 14, 2019, we acquired, from Gadsden, a preferred interest in Gadsden Roseville, LLC, which is the sole owner of an investment parcel referred to as the Roseville parcel. The Roseville parcel is located on Roseville Road in Sacramento, California and is an approximately 9.6 acres parcel that is entitled for the development of approximately 65 small lot single family detached homes.

These assets constitute our existing asset portfolio.

Our Intellectual Property

We do not have any material intellectual property rights relating to our real estate business. However, we do employ certain proprietary processes related to the real estate business which are protected as trade secrets of our company. We have not, at this time, registered any patents, trademarks, or copyrights associated with our real estate business and do not expect to do so.so in the near future.

Our legacy global skin health business provided integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. We protected our proprietary rights relating tourto our legacy business from unauthorized use by third parties to the extent that our proprietary rights were covered by valid and enforceable patents, trademarks, trade names or copyrights, or were effectively maintained as trade secrets.

Historically, our policy was to file patent applications and to protect certain technology, inventions and improvements that are commercially important to the development of our business. As patents expire and expose our inventions to public use, we sought to mitigate the impact of such expirations by seeking protection of improvements. We also relied on trade secrets, employee and third-party nondisclosure agreements and other protective measures to protect our intellectual property rights pertaining to our products and technology.

Our products and services were offered under trademarks and service marks, both registered and unregistered. We believe our trademarks encouraged customer loyalty and aided in the differentiation of our products from competitors’ products. In connection with the sales of our Neova product linelegacy medical device and our consumer products division,lines, we transferred the intellectual property associated with those product lines, including trademarks and trade names, to their respective purchasers. Accordingly, after those sales, we had 20 trademarks, either registered or being registered, in markets around the world that we intendhad either intended to maintain in support of our real estate business and our legacy capital equipment products.products or considered as useful in our developing real estate business. These include 9 trademarks issued in the U.S. and 11 trademarks issued in the rest of the world. We periodically reviewedAfter the discontinuation of our LHE business line, we have determined that those remaining trademarks would not be useful in our portfolio for usefulness with our then existingreal estate business and anticipated product lines; as a result, certain trademarks which were no longer in use in our business werehave determined that these marks will not be renewed.

Research and Development

Our research and development expenditures relating to our legacy business operations were approximately $143 thousand in 2017 and $1.2$0.14 million in 2016.2017. As of January 23, 2017, the research and development personnel were transferred to ICTV in connection with the closing of the sale of the consumer product line assets.

Government Regulation

Regulations Relating to Legacy Business

Regulations Relating to Products and Manufacturing

Our products are regulated by numerous governmental authorities, principally the U.S. Food and Drug Administration or the FDA and corresponding state and foreign regulatory agencies. Any medical device or cosmetic we distribute would be subject to pervasive and continuing regulation by the FDA. The U.S. Food, Drug and Cosmetics Act, and other federal and state laws and regulations govern the pre-clinical and clinical testing, design, manufacture, use, labeling and promotion of medical devices.

We have received approval from the European Union to affix the CE Mark to our LHE products. This certification is a mandatory conformity mark for products placed on the market in the European Economic Area, which is evidence that they meet all European Community, quality assurance standards and compliance with applicable European medical device directives for the production of medical devices. This will enable us to market our approved products in all of the member countries that accept the CE Mark. We also will be required to comply with additional individual national requirements that are in addition to those required by these nations. Our products have also met the requirements for marketing in various other countries.

Failure to comply with applicable regulatory requirements can result in fines, injunctions, civil penalties, recalls or seizures of products, total or partial suspensions of production, refusals by the U.S and foreign governments to permit product sales and criminal prosecution and could have a material adverse effect on our business, financial condition and results of operations.

Fraud and Abuse Laws

Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws whose purpose is to eliminate fraud and abuse in federal health care programs. Our business is subject to compliance with these laws.

Anti-Kickback Laws

In the U.S., there are federal and state anti-kickback laws that generally prohibit the payment or receipt of kickbacks, bribes or other remuneration in exchange for the referral of patients or other health-related business. The U.S. federal healthcare programs’ Anti-Kickback Statute makes it unlawful for individuals or entities knowingly and willfully to solicit, offer, receive or pay any kickback, bribe or other remuneration, directly or indirectly, in exchange for or to induce the purchase, lease or order, or arranging for or recommending purchasing, leasing, or ordering, any good, facility, service, or item for which payment may be made in whole or in part under a federal healthcare program such as Medicare or Medicaid. The Anti-Kickback Statute covers “any remuneration,” which has been broadly interpreted to include anything of value, including for example gifts, certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payments of cash and waivers of payments. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the arrangement can be found to violate the statute. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. In addition, several courts have permitted kickback cases brought under the Federal False Claims Act to proceed, as discussed in more detail below.

Because the Anti-Kickback Statute is broadly written and encompasses many harmless or efficient arrangements, Congress authorized the Office of Inspector General of the U.S. Department of Health and Human Services, or OIG, to issue a series of regulations, known as “safe harbors.” For example, there are regulatory safe harbors for payments to bona fide employees, properly reported discounts and rebates, and for certain investment interests. Although an arrangement that fits into one or more of these exceptions or safe harbors is immune from prosecution, arrangements that do not fit squarely within an exception or safe harbor do not necessarily violate the statute. The failure of a transaction or arrangement to fit precisely within one or more of the exceptions or safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that arguably implicate the Anti-Kickback Statute but do not fully satisfy all the elements of an exception or safe harbor may be subject to increased scrutiny by government enforcement authorities such as the OIG.

Many states have laws that implicate anti-kickback restrictions similar to the Anti-Kickback Statute. Some of these state prohibitions apply, regardless of whether federal health care program business is involved, to arrangements such as for self-pay or private-pay patients.

Government officials have focused their enforcement efforts on marketing of healthcare services and products, among other activities, and recently have brought cases against companies, and certain sales, marketing and executive personnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

Federal Civil False Claims Act and State False Claims Laws

The federal civil False Claims Act imposes liability on any person or entity who, among other things, knowingly and willfully presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program, including Medicare and Medicaid. The “qui tam,” or “whistleblower” provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In recent years, the number of suits brought against healthcare providers by private individuals has increased dramatically. Medical device companies, like us, can be held liable under false claims laws, even if they do not submit claims to the government, when they are deemed to have caused submission of false claims by, among other things, providing incorrect coding or billing advice about their products to customers that file claims, or by engaging in kickback arrangements with customers that file claims.

The False Claims Act also has been used to assert liability on the basis of misrepresentations with respect to the services rendered and in connection with alleged off-label promotion of products. Our future activities relating to the manner in which we sell our products and document our prices, such as the reporting of discount and rebate information and other information affecting federal, state and third-party reimbursement of our products, and the sale and marketing of our products, may be subject to scrutiny under these laws.

When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of five to eleven thousand dollars for each separate false claim. There are many potential bases for liability under the False Claims Act. A number of states have enacted false claim laws analogous to the federal civil False Claims Act and many of these state laws apply where a claim is submitted to any state or private third-party payor. In this environment, our engagement of physician consultants in product development and product training and education could subject us to similar scrutiny. We are unable to predict whether we would be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.

Regulations Relating Real Estate Business

Federal, State and/or Local Regulatory Compliance

We are or will be, subject to a variety of Federal, state, and/or local statutes, ordinances, rules, and regulations covering the purchase, development, construction and operation of real estate assets. These regulatory requirements include zoning and land use, building design, construction, worksite safety, traffic, and other matters, such as local rules that may impose restrictive zoning and developmental requirements. We are or will be, subject to various licensing, registration, and filing requirements in connection with the development, construction, advertisement, and sale of certain real estate assets. Additionally, state and/or local governmental agencies may impose moratoriums on new construction in an area due to the need for infrastructure development, including road development and utility remediation. Finally, state and/or local governments retain certain rights with respect to eminent domain which could enable them to restrict or alter the use of our property. These requirements may lead to increases in the Company’sour overall costs. The need to comply with these requirements may significantly delay development and/or construction with regard to properties, or lead us to alter our plans regarding certain real estate assets. Some requirements, on a property by property evaluation, may lead to a determination that development of a particular property would not be economically feasible, even if any or all necessary governmental approvals were obtained.

Environmental Regulatory Compliance

Under various Federal, state and/or local laws, ordinances and regulations, a current or previous owner or operator of a property may be required to investigate and/or clean-up hazardous or toxic substances released at that property. That owner or operator also may be held liable to third parties for bodily injury or property damage (investigation and/or clean-up costs) incurred by those parties in connection with the contamination at that site. These laws often impose liability without regard to whether the owner or operator knew of or otherwise caused the release of the hazardous or toxic substances. In addition, persons who arrange for the disposal or treatment of hazardous substances or other regulated materials also may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, whether or not such facility is owned or operated by such persons.

The costs of remediation or removal of hazardous or toxic substances can be substantial, and the presence of contamination, or the failure to remediate contamination discovered, at a property we own or operate may adversely affect our ability to develop, construct on, sell, lease, or borrow upon that property. Current and former tenants at a property we own may have, or may have involved, the use of hazardous materials or generated hazardous wastes, and those situations could result in our incurring liabilities to remediate any resulting contamination if the responsible party is unable or unwilling to do so.

In addition, our properties may be exposed to a risk of contamination originating from other sources. While a property owner generally is not responsible for remediating contamination that has migrated on-site from an off-site source, the contaminant’s presence could have adverse effects on our ability to develop, construct on, operate, sell, lease, or borrow upon that property. Certain environmental laws may create a lien on a contaminated site in favor of the government for damages and costs the government may incur to remediate that contamination. Moreover, if contamination is discovered on a property, environmental laws may impose restrictions on the manner in which that property may be used, or how businesses may be operated on that property, thus reducing our ability to maximize our investment in that property. Our properties have been subjected to varying degrees of environmental assessment at various times; however, the identification of new areas of contamination, a change in the extent or known scope of contamination, or changes in environmental regulatory standards and/or cleanup requirements could result in significant costs to us.

Employees

As of March 31, 2018,28, 2019, we had 42 full-time employees devoted to the ongoing business of our company, which consisted of 21 executive officersofficer and 2 finance,1 legal and administration staff, as well as 2 part-time employees.staff.

Our employees are not represented by a labor union nor covered by a collective bargaining agreement. We believe that we have good relations with our employees.

Available Information

Our website is www.fcglobalrealty.com. Our annual reports on Form 10-K, quarterly reports on 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on our website at www.fcglobalrealty.com as soon as reasonably practicable after we electronically file such reports with, or furnish them to, the SEC. The information on our website is not a part of this Annual Report on Form 10-K.

In addition to the other information contained in this report and the exhibits hereto, the following risk factors should be considered carefully in evaluating our business. Our business, financial condition, cash flows, or results of operations could be materially adversely affected by any of these risks. Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business, financial condition, cash flows, or results of operations. The following discussion of risk factors contains forward-looking statements as discussed above. Our business routinely encounters and addresses risks, some of which may cause our future results to be different – sometimes materially different – than we presently anticipate.

Risks Relating to Our Business Generally

Our financial condition as of December 31, 20172018 raises substantial doubt about our ability to continue as a going-concern.

As of December 31, 2017,2018, we had an accumulated deficit of approximately $134.45$139.7 million and shareholders’ deficithad incurred an operating loss for the year ended December 31, 2018 of approximately $2.90$5.6 million. To date, and subsequentSubsequent to the recent sale of our last significant business unit, the consumer products division, we have dedicated most of our financial resources to general and administrative expenses. At present, we are only generating de minimis income from our legacy operating activities.expenses associated with its ongoing business of real estate development and asset management.

Cash and cash equivalents as of December 31, 20172018 were approximately $0.95$1.8 million. We have historically financed our activities with cash from operations, the private placement of equity and debt securities, borrowings under lines of credit and, in the most recent periods, with the sale of certain assets and business units.

On March 31, 2017, we entered into the Contribution Agreement under which certain real estate investment properties were contributed to our company in exchange for the issuance of our capital stock. Closing of the Contribution Agreement occurred on May 17, 2017. However, the assets assumed in such contribution do not represent a business and are not producing cash flows and/or revenues.

On December 22, 2017, we entered into the Purchase Agreement with OFI, under which OFI may invest up to $15 million in our company in a series of closings, in exchange for which OFI will receive shares of our newly designated Series B Preferred Stock at a purchase price of $1.00 per share. On December 22, 2017, we completed the first closing under the Purchase Agreement, pursuant to which OFI provided $1.5 million to us. On January 24, 2018, we completed a second closing under the Purchase Agreement, pursuant to which OFI provided approximately $2.2 million to us in. Under the Purchase Agreement, OFI may, but is not obligated to, make additional investments in one or more subsequent closings until an aggregate amount of $15 million has been invested or the Purchase Agreement has been terminated in accordance with its terms. OFI has no obligation to continue to invest in our company, and there are restrictions placed by OFI on the use of these funds.

We will be required to obtain additional liquidity resources in order to support our ongoing operations. We are addressing our liquidity needs by seeking additional funding from lenders and investors. There are

At this time, there is no assurances, however,guarantee that we will be able to obtain an adequate level of financial resources required for the short and long-term support of our operations.operations or that we will be able to obtain additional financing as needed, or meet the conditions of such financing, or that the costs of such financing may not be prohibitive.

These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of liabilities that may result from the outcome of this uncertainty.

If we needFailure to raise additional funds to pursuecomplete the Gadsden Transaction could negatively impact our growth strategy or continue our operations, we may be unable to raise capital when needed.stock price and future business and financial results.

From timeIf the Gadsden Transaction is not completed for any reason, our ongoing business may be materially and adversely affected and, without realizing any of the benefits of having completed the Gadsden Transaction, we could be subject to time, a number of risks, including the following:

There can be no assurance that the risks described above will not materialize. If any of those risks materialize, they may seek additional equity materially and adversely affect our business, financial condition, financial results and/or debt financingstock price.

The completion of the Gadsden Transaction is subject to make acquisitionsa number of conditions, and if these conditions are not satisfied or waived, the Gadsden Transaction will not be completed.

The obligations of our company and Gadsden to complete the Gadsden Transaction are subject to satisfaction or waiver of a number of conditions, including, among other conditions:(i) approval by the vote of Gadsden’s stockholders holding two-thirds of the outstanding shares of Gadsden’s common stock, Gadsden’s 7% Series A Cumulative Convertible Perpetual Preferred Stock entitled to vote thereon (on an as-converted basis) and Gadsden’s 10% Series C Cumulative Convertible Perpetual Preferred Stock entitled to vote thereon (on an as-converted basis); (ii) absence of injunction by any court or other investments,tribunal of competent jurisdiction and absence of law that prevents, enjoins, prohibits or makes illegal the consummation of the Gadsden Transaction; (iii) receipt of all consents, approvals and authorizations legally required to provide for capital expenditures, finance working capital requirements, continue our expansion, or increase liquidity.be obtained to consummate the Gadsden Transaction; and (iv) receipt of customary legal opinions from counsel to us and Gadsden. The obligation of each party to consummate the Gadsden Transaction is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions), the other party having performed in all material respects its obligations under the Gadsden Purchase Agreement, and the absence of a material adverse effect on each party. In addition, if our business plans change, general economic, financial or political conditions in our markets change, or other circumstances arise thatwe are required have, on a material negative effect on ourconsolidated basis, not less than $800,000 of unrestricted cash flow, the anticipated cash needsand we must receive a letter of resignation from each member of our business as well as our conclusions asBoard of Directors, other than the directors who are to be members of the adequacy of our available sources of capital could change significantly.Board after the Gadsden Transaction.

AnyThere can be no assurance that the conditions to completion of these eventsthe Gadsden Transaction will be satisfied or circumstanceswaived or that it will be completed. 

The Gadsden Purchase Agreement limits our ability to pursue an alternative acquisition proposal and requires that we pay a termination fee we do.

The Gadsden Purchase Agreement prohibits us from soliciting, initiating, encouraging, or facilitating certain acquisition proposals with any third party, subject to exceptions set forth in the Gadsden Purchase Agreement. The Gadsden Purchase Agreement also provides for the payment by either party of a termination fee of the cost incurred by the non-terminating party in negotiating the transaction, if the other party terminates the Gadsden Purchase Agreement. These provisions limit our ability to pursue offers from third parties that could result in significant additional funding needs, requiring usgreater value to raise additional capital, and we cannot predictour stockholders. The obligation to make the timing or amount of any such capital requirements at this time. termination fee payment also may discourage a third party from pursuing an acquisition proposal with our company.

If financingthe Gadsden Transaction is not available on satisfactory terms, or at all,completed, we may not be unableable to expandsuccessfully integrate the acquired real estate business or realize the anticipated benefits of Gadsden Transaction.

Realization of the anticipated benefits in the Gadsden Transaction will depend on our ability to successfully integrate the real estate assets into our company. A successful integration will require that we devote significant management attention and resources to integrating business practices, operations, and support functions. The challenges we may encounter include preserving customer, supplier, and other important relationships and resolving potential conflicts that may arise as a result of the Gadsden Transaction, addressing differences in business cultures, preserving employee morale, and retaining key employees while maintaining focus on meeting the operational and financial goals of our company, and adequately addressing other business integration issues. The process of integration, the diversion of management’s attention from other business efforts, and any subsequent delays in the integration process, could adversely affect our business atand financial performance and the rate desired andmarket price of our results of operations may suffer.stock.

We are dependent upon dividends from our subsidiaries to meet our financial obligations.

We are a holding company and our principal assets are the equity interests we hold in our subsidiaries, which own, either directly or indirectly through their subsidiaries, our real estate assets. As a result, we depend on dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations. Our existing subsidiaries are legally distinct from us and may be significantly restricted from paying dividends or otherwise making funds available to us pursuant to the agreements governing their financing arrangements. In addition, their ability to make payments to us will also depend on their earnings, business, tax considerations, and legal restrictions, including applicable state corporate laws. We cannot assure you that the agreements governing our current and future indebtedness of our subsidiaries, applicable laws, or state regulation will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund payments to meet our financial obligations.

If we fail to manage our growth effectively, our businesses could be disrupted which could harm our operating results.

We expect to experience growth in our business, both organically and through acquisitions. We expect to make significant investments to enable our future growth. Such growth may place a strain on our management and operations. Our ability to manage this growth will depend upon, among other factors, our ability to broaden our management team; our ability to attract, hire, train, motivate and retain skilled employees; and the ability of our officers and key employees to continue to implement and improve our operational, financial and other systems. Our future success is heavily dependent upon achieving such growth. Any failure to effectively manage future growth could have a material adverse effect on our business, results of operations and financial condition.

We have outstanding litigation which we may not be able to settle, or which we may not be able to settle on terms favorable to us.

We are involved in certain litigation relating to our former businesses, including a twoone product liability suitscomplaint brought by a consumer regarding the no!no! product. We intend to vigorously defend claims brought against us, and to prosecute such suits to recoup sums owed to us. However, we may seek to settle such matters in order to avoid excessive legal fees and costs and the lengthy time such litigation may require in order to reach a resolution. However, there is no guarantee that we may be able to reach a settlement or resolution of such litigation, or that such a settlement or resolution will be reached in a manner that is advantageous to us, and in such cases we will need to proceed with litigation. Regardless of its outcome, litigation may result in substantial costs and expenses, and significantly divert the attention of management. There can be no assurance that we will be able to prevail in, or achieve a favorable settlement of, pending matters. In addition to the pending matters, future litigation, government proceedings, labor disputes, or environmental matters could lead to increased costs or interruption of our normal business operations, which could involve a costly and lengthy draw upon our resources and could result in a resolution to the litigation which may be detrimental to us.

We are the subject of certain tax audits which may not be resolved without impacting our operations.

We have in the past, and are currently, the subject of certain audits by state agencies and international authorities for various tax matters including, but not limited to, sales and use and corporate income, taxes, and unclaimed property reporting. While past audits have been resolved without significant impact upon us or our operations, there is no guarantee that future audits will be resolved in a manner that is satisfactory to us or that has no material impact upon our operations. Such results could include the payment of assessments which could impact our remaining resources and affect our ability to continue our operations in the existing manner.

We depend on our executive officers and key personnel to implement our business strategy and could be harmed by the loss of their services and the inability to attract personnel for these positions.

We believe that our growth and future success will depend in large part upon the skills of our key management. Certain members of our management staff as well as other key employees may voluntarily terminate their employment with us at any time, with or without notice. There is substantial competition for personnel in the industries in which we operate, and we may face increased competition for such employees, resulting in the need to compensate these personnel at a higher-than-anticipated rate, a delay in replacing such personnel and integrating them into our operations, and the possibility that we may be unable to attract and retain these personnel. The loss of the services of key personnel, or the inability to attract and retain additional qualified personnel, could result in delays to product development or approval, loss of sales and diversion of management resources, and may have an adverse effect on our business and our ability to grow that business.

In particular, our success depends in part upon the continued service and performance of Mr. Vineet P. Bedi, our Chief Executive Officer, and Mr. Matthew Stolzar, our Chief Financial Officer and Chief Investment Officer. We have fixed-term employment agreements with Messrs. Bedi and Stolzar; however, there are no assurances that the services of these individuals will be available to us for any specified period of time. The loss of the services of one or both of these officers could adversely affect our ability to develop and expand our business.

Additionally, we do not currently maintain “key person” life insurance on the lives of Messrs. Bedi and Stolzar, our other executives or any of our employees. Our lack of insurance means that we may not have adequate compensation for the loss of the services of our key employees, which could affect our ability to maintain the level of services formerly provided by those persons.

In our industry, there is substantial competition for key personnel in the regions in which we operate and we may face increased competition for such employees. If we are unable to attract key personnel in a timely manner, including key personnel who have critical industry experience and relationships in the regions in which we operate, it may have an adverse effect on our business and our ability to drive growth.

Our ability to use our net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes may be limited as a result of “ownership changes” of our company caused by the Contribution Transaction. In addition, the amount of such carryforwards could be subject to adjustment in the event of an examination by the Internal Revenue Service.

If a corporation undergoes an “ownership change” under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, as a result of the acquisition, the amount of our pre-change net operating losses, or NOLs, that may be utilized to offset future taxable income will be subject to an annual limitation. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage ownership during the applicable testing period (generally three years). The annual limitation generally is determined by multiplying the value of the corporation’s stock immediately before the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may, subject to certain limits, be carried over to later years, and the limitation may under certain circumstances be increased by recognized built-in gains or reduced by recognized built-in losses in the assets held by the corporation at the time of the ownership change. Similar rules and limitations may apply for state income tax purposes.

Our NOLs, which for federal income tax purposes expire over the next 20 years, may be subject to an annual limitation under Section 382 of the Code as a result of the completion of the Contribution Transaction. Consequently, our ability to utilize our pre-change NOLs may be subject to an additional layer of limitations imposed by Section 382 of the Code. The amount of the NOL carryforwards is subject to review and audit by the Internal Revenue Service and there can be no assurance that the benefit of such NOL carryforwards will be fully realized.

We are analyzing the tax implications of the ownership of our inactive subsidiaries in Israel and Europe, including the tax implications of dissolving or otherwise disposing of such subsidiaries. As a result of the application of Israeli and/or European tax laws, the dissolution or other disposition of these subsidiaries may result in a significant tax in such foreign jurisdictions and/or a significant tax in the United States which may not be covered by our NOLs or result in the loss of our NOLs.

Certain of our subsidiaries, both in the United States and in foreign jurisdictions, are participants in intercompany loans which originated at one of the foreign jurisdiction subsidiaries. The foreign subsidiaries could incur a tax liability as a result of holding those open loans. The subsidiary companies are not in a position to repay those loans in full. We and our subsidiaries’ boards are examining how best to proceed, but to either repay a loan, or to default and have the loan forgiven, could result in income being imputed to that subsidiary in the United States. While we and various subsidiaries hold large amounts of NOLs on a Federal level, the use of certain of those losses is restricted under Section 382 of the Code as a result of past changes of control of our company, and the transactions which occurred during 2017 may impose further restrictions on the use of these NOLs should those transactions have resulted in a change of control during 2017. Accordingly, we may be subject to significant and unexpected tax liability in Israel, Europe and/or the United States and such liability would have a material and adverse effect on our financial condition and prospects.

The Contribution Transaction may not qualify for special tax treatment, for example, as a tax-free reorganization for U.S. federal income tax purposes, resulting in certain stockholders’ recognition of taxable gain or loss in respect of their stock.

There is currently no opinion as to whether the Contribution Transaction will qualify for special tax treatment, as, for example, a tax-free reorganization for U.S. federal income tax purposes. Moreover, there is no requirementIf we take all actions to ensure that the Contribution Transaction so qualifies and, therefore, no assurance can be given that the Contribution Transaction will qualify for any certain tax treatment, including as a tax-free reorganization, or that the Internal Revenue Service or the courts will not assert that the Contribution Transaction fails to qualify as such. If the Contribution Transaction does not qualify as a tax-free reorganization, some holders of stock may be required to recognize gain or loss or incur other taxable consequences as a result of the Contribution Transaction.

If the Company failsfail to manage and protect its and its subsidiaries’our network security and underlying data effectively, itsour businesses could be exposed to a cyber-attack or other disruption which could harm itsour operating results.

Like other corporations, the Company relieswe rely upon a variety of information technology systems to transmit, process and store information in an electronic format for use in daily operations. In particular, the Company possesses and usesas a result of our prior business lines, we possess certain personal information in the conductabout customers of its business,those lines, including credit card, insurance and banking information, ofas well as information regarding our customers andcurrent vendors. The size, inter-relationship and complexity of these systems, and the possession of such information, makes us vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, theft or loss of data privacy, or other significant interference with the use and possession of such information, that could harm our business. Unauthorized disclosure or manipulation of such data, whether through breach of network security or other interception of this information, could expose the Companyus to costly litigation, damage its reputation and result in greater expenses.

Our information systems require a constant and ongoing dedication of significant resources to maintain, protect, and enhance our existing systems as well as keep pace with changes in information processing technology and regulatory standards. In particular, maintaining the Company’sour network security is of critical importance because the systems may store proprietary and confidential customer and vendor data such as names, addresses, other personal information, bank account and credit card numbers. The Company usesWe use commercially available encryption technology to transmit personal information when taking orders. However, third parties may be able to circumvent these security and business measures by developing and deploying viruses, worms and other malicious software programs that are designed to attack or attempt to infiltrate its systems and networks. Employee error, malfeasance or other mistakes in the storage, use or transmission of personal information could result in a breach of customer or employee privacy. The Company employsWe employ contractors who may have access to these systems and thus to the personal information of customers, vendors and employees. It is possible such individuals could circumvent the Company’sour data security controls, which could result in a breach of privacy. In addition, third parties may attempt to hack into our systems to obtain data relating to our business plans, products or proprietary technology. Any failure to maintain or protect these information technology systems and data integrity, including from cyber-attacks, intrusions or other breaches, could result in the unauthorized access to data, theft of intellectual property or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our operations.

We are subject to the provisions of the U.S. Foreign Corrupt Practices Act and similar foreign anti-corruption laws.

The Foreign Corrupt Practices Act, (the “FCPA”), as well as similar anti-corruption laws in foreign jurisdictions around the world, generally prohibit companies, their subsidiaries, affiliates, contractors and/or intermediaries, from offering and/or making improper payments, or providing anything of value, to non-U.S. government officials for the purpose of obtaining or retaining business or securing an unfair advantage in business matters. Certain parts of the world have experienced, or are continuing to experience, some measure of governmental corruption; while in other parts of the world, strict compliance with anti-bribery laws may conflict with local business customs and practices. Both the real estateOur business and the healthcare business areis subject to particular scrutiny in such matters, due to the requirements of numerous governmental approvals for real estate development and the predominance of government-sponsored healthcare systems around the world.  The Company hasdevelopment. We have established formal policies and procedures that prohibit, and monitor for, conduct which may violate these laws, but we cannot guarantee that employees, affiliates, representatives and/or agents of the Companyour company will not engage in conduct that violates these laws and for which the Companywe may be held responsible.

We have identified material weaknesses in our internal control over financial reporting. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential stockholders could lose confidence in our financial statements, which would harm the trading price of our common stock.

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.

A report of our management is included under “Item 9A. Controls and Procedures.” We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors. 

During our re-evaluation of the effectiveness of internal control over financial reporting as of December 31, 2018 management identified a material weakness. This material weakness was associated with a lack of sufficient internal controls (including IT and general controls) that encompass our company as a whole with respect to entity and transactions level controls in order to ensure complete documentation of complex and non-routine transactions and adequate financial reporting. We are undertaking remedial measures, which will take time to implement and test, to address this material weakness. There can be no assurance that such measures will be sufficient to remedy the material weakness identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our stock price.

Risks Relating to Our Existing Real Estate Business

We have initiated an internal investigation into the validity of our subsidiary’s 17.9133% ownership interest in Avalon Jubilee LLC, the owner of property located in Los Lunas, New Mexico. If our investigation ultimately determines that issues exist relating to the validity of our ownership interest in Avalon Jubilee LLC, our financial condition will be materially adversely affected.

On January 12, 2018, we received a copy of a complaint, dated November 17, 2017, that was filed by Alpha Alpha, LLC in the Thirteenth Judicial District Court in the County of Valencia in the State of New Mexico against Avalon Jubilee, LLC, the holding company that owns the property in Los Lunas, New Mexico, HiTex, LLC, MCBB, LLC, Land Strategies, LLC, Ronald R. Cobb and John Does 1 – 5. The suit asks the court to, among other things, determine whether there have been unauthorized transfers of interest in Avalon Jubilee LLC; and declare who are the holders of interests in Avalon Jubilee LLC. Although the complaint does not name our company or any of its subsidiaries or specifically question our interest in Avalon Jubilee LLC, it raises questions about whether the transfers of interest leading to our acquisition of our interest in Avalon Jubilee LLC were properly made in accordance with the Avalon Jubilee operating agreement. We have begun an internal investigation into the validity of our ownership interest in Avalon Jubilee LLC and will disclose the results of that investigation once it has been completed. Accordingly, we may be required to engage in costly litigation to validate our interest in Avalon Jubilee LLC. Alternatively, a court may ultimately determine that we do not own such interest in which our financial condition will be materially adversely affected as we will no longer be the owner of what we believe is a material asset of ours and be left only with potential claims against the transferors of such assets, which may not result in a full recovery of our losses. Either costly litigation or the loss of a material asset and the inability to fully recover such loss through lawsuits against the transferees of our interest in Avalon Jubilee LLC would have a material adverse effect on our financial condition and prospects.

Litigation against us, FCOP or the Contributor PartiesFCREIT regarding the acquisition from the ContributorFCOP could result in the payment of damages which could adversely affect our business, financial condition or results of operations.

If any plaintiffs in a litigation against us, FCOP or the Contributor Parties,FCREIT, or any of their respective directors, officers, parent or associated companies, secures relief adversely affecting our acquisition under the Contribution Agreement, such relief may result in our company becoming liable for damages related to one or more of the properties acquired from the Contributor.FCOP. In addition, we could incur significant costs in connection with lawsuits, including costs associated with the indemnification of our directors and officers. While one suit, JFURTI, LLC, et al v. Suneet Singal, et al, has been dismissed, there is no guarantee that the plaintiffs in that suit, or another party or parties, will not bring an action against us with regard to this transaction.

We are enteringhave entered into a new business line and, therefore, there is only a limited history upon which investors can evaluate our performance and our future business prospects.

We have entered intoIn May 2017, we completed the Contribution AgreementTransaction with the ContributorFCOP and the Contributor Parent,FCREIT, pursuant to which the ContributorFCOP has contributed real estate assets to our company. ThisThe Contribution Agreement representsrepresented a new business line for our company, which hashad no experience in the real estate sector. We will be relyingrely on the experience of our management team for the operation and development of this business line. As a result, our business will beis subject to the substantial risks which are found in the early stages of a new business venture operating in the competitive real estate industry. Our future growth and development prospects must be evaluated in light of the risks, expenses and difficulties encountered by all companies in such situations, and in particular those companies which operate a business, such as real estate investment, in competitive environments that can be greatly affected by changes in economic conditions.

We may not be able to successfully integrate the acquired real estate business.

A successful integration of the operations of the real estate development business into our company will require that we devote significant management attention and resources to integrating our business practices, operations, and support functions into a public company structure. The challenges we may encounter include preserving customer, supplier, and other important relationships, addressing differences in business cultures, preserving employee morale, and retaining key employees while maintaining focus on meeting our operational and financial goals and the real estate development business, and adequately addressing other business integration issues. The process of integrating a real estate development business, the diversion of management’s attention from other business efforts, and any subsequent delays in the integration process, could adversely affect our business and financial performance and the market price of our stock.

We are subject to demand fluctuations in the real estate industry. Any reduction in demand could adversely affect our business, results of operations, and financial condition.

Demand for properties similar to those owned by us and expected to be owned by us is subject to fluctuations that are often due to factors outside our control. We are not able to predict the course of the real estate markets or whether the current favorable trends in those markets can, or will, continue. In the event of an economic downturn, our results of operations may be adversely affected, and we may incur significant inventory impairments and other write-offs, a major decline in our gross margins from past levels, and substantial losses from operations of this business.

Adverse changes in economic conditions in markets where our real estate investments are or may be made and where prospective purchasers and utilizers of these properties live could reduce the demand for and utilization of these properties and, therefore, adversely affect our operations and financial condition.

TheOur real estate investment business in which we have become involved as a result of our signing of the Contribution Agreement will beis conducted in the United States and may also be conducted in various global locales. Adverse changes in economic conditions in these markets, and in the markets where prospective purchasers and utilizers of our to-be-acquired properties live, could negatively impact those properties and their profitability. Unfavorable changes in job growth, employment levels, consumer income and spending patterns, a decline in consumer confidence, increases in interest rates, and an oversupply of similar properties, could reduce the demand, and depress the prices we may ask, for these properties, resulting in lower sales and income from these properties and a negative impact on our results of operations and financial condition.

Adverse weather conditions, natural disasters, and other unforeseen and/or unplanned conditions could disrupt our real estate developments.

Adverse weather conditions and natural disasters, such as hurricanes, tornadoes, earthquakes, floods, droughts, and fires, could have serious impacts on our ability to develop and market individual real estate offerings. Properties that we look to acquire may also be affected by unforeseen planning, engineering, environmental, or geological conditions or problems, including conditions or problems which arise on third party properties adjacent to or in the vicinity of properties which we expect to own and which may result in unfavorable impacts on our prospective properties. As our proposed real estate investments may be located in multiple countries, with differing climates and geological characteristics, each property will face different known and unknown risks. Any adverse event or circumstance could cause a delay in, prevent the completion of, or increase the cost of, one or more of these properties expected to be developed and brought to market by us, thereby resulting in a negative impact on our operations and financial results.

If the market value of our real estate investments decreases, our results of operations will also likely decrease.

The market value of each real estate investment will depend on market conditions both locally and globally. We expect to acquire land for each expansion into a new market at a cost based upon then-current economic conditions. If local and/or global economic conditions deteriorate, or if the demand for such properties decreases below the levels anticipated at the time of acquisition of a property, we may not be able to make a profit on such property comparable to those profits made by the Contributor and the Contributor Parent in the past.those owning or managing such assets. As a result of declining economic conditions, we may experience lower than anticipated or forecast results or profits, and/or may not be able to recover our costs of a project when a property is brought to market.

We rely on subcontractors to construct each property, and on building supply companies to provide components for each property’s construction. The failure of one or more of these subcontractors to properly construct these facilities, or any defects in the components obtained from building supply companies, could adversely affect these properties, and thus our operations.

We engage and rely on subcontractors to perform the actual construction of the buildings upon each property we purchase. Also, we purchase the components used in our construction projects from third party independent building supply companies. We utilize industry standard quality control programs, but despite these programs, we may find that subcontractors are utilizing improper construction practices or the components purchased from building supply companies do not perform as specified in the project’s plans. We may also find that our subcontractors are inadequately capitalized or have insufficient staffing to undertake the required work. In such events, we may incur substantial additional costs to repair substandard construction at our properties, to comply with the plans and local legal requirements. The cost of satisfying local legal building code obligations may be significant, and we may not be able to recover these costs from our subcontractors, suppliers and/or their respective insurers.

Legal challenges or governmental regulations may delay the start or completion of construction on our projected real estate ventures, increase our expenses, or limit our construction activities, which could have a negative impact on operations.

Each of our current and future real estate developments may experience a delay and/or increased expenses in construction, marketing and/or operation due to legal challenges to the development. These challenges may be brought by private parties or by governmental authorities, resulting in delays in the start or completion of each project’s construction or requiring changes to the design or construction of each development. Any delay or change in a development’s construction would result in increased expenses to us in the development of the property, which could in turn negatively impact our financial results with respect to that development and with respect to our overall operations.

Numerous governmental authorities are typically involved in each new development project, and such authorities have broad discretion in exercising their approval authority. Various local, state, and federal statutes, ordinances, rules, and regulations concerning building, zoning, sales, and similar matters apply to and/or affect the real estate development industry and govern matters including construction, marketing, sales, operation, lending, and other activities concerning each development. In the United States, there have been numerous changes in regulations that limit the availability or use of land, including regulations which limit growth in certain communities, the use of utilities including water and sewer outlets, road construction and utilization, and other related matters. Each jurisdiction in which we expect to invest in real estate development will have different and varying levels of regulation which must be taken into account when planning and implementing such developments. For example, we may be required to change or modify our plans due to alterations in local planning or laws. As a result, we could incur substantial costs related to compliance with legal and regulatory requirements with regard to each real estate development, negatively impacting our business by causing delays, increasing costs, or limiting our ability to operate in those locations.

If a development project experiences increased costs or shortages of labor or components, or other circumstances beyond our control, there could be delays or increased costs in developing such project, which could negatively impact our finances and operating results.

We may invest in real estate development projects in a number of countries and regions, including the United States Each project may be negatively impacted by local circumstances beyond our control, including labor shortages, disputes and work stoppages, union organizing activities, price changes and delays in availability of building materials and components, and a lack of adequate utility and road infrastructure and services. Any change in these circumstances could delay the start or completion of, or increase the cost of, one or more developments. We may not be able to recover any additional such costs through an increase in the prices for our properties, and therefore our operating results may be negatively affected.

Changes in tax laws, taxes or fees may increase the cost of each development, and such changes could adversely impact our finances and operational results.

Each development project will be subject to different tax laws, tax levies and governmental fees, depending upon its geographic location. Any increase or change in such laws, taxes, or fees, including real estate property taxes, and fees to fund schools, open space, utility and road improvements, could increase the cost of a development and thus have an adverse effect on our operations. Such changes could also negatively impact potential and/or actual users and purchasers of a development because potential buyers may factor such changes into their decisions to utilize or purchase a property.

We will incur significant advance costs in each real estate development before that development begins to generate revenue from sales and/or public usage, and as a result, we may not recover our costs in whole or in part, may recover those costs slower than originally anticipated, or may incur higher costs as a result of any delays in completion of a project, resulting in an adverse impact to our operating results.

We expect to make a number of significant cash outlays for each real estate development before the construction on that development begins, and considerably before any development begins to generate revenue. Such cash outlays will include expenditures to buy, rent, lease or otherwise acquire land, to plan, design and develop a property, to conduct site studies as necessary for development, to provide basic utility and infrastructure access to a property, to obtain permits, licenses, and other required regulatory approvals, to post surety bonds and such other construction guarantees as required by law, and to actually construct the project building(s) and to fully develop a property. These processes can take up to several years before a development is completed and ready to generate any revenue for us. The time to complete each development will vary, based on local geographic conditions, legal requirements, regulatory and community concerns, the ability to obtain required construction materials and labor, and other factors that may be unique to each project. We will face the risk that, during construction, demand for a project may change, alter or decline, and we may be forced to take steps to adjust to these changes in demand, including altering a project and its scope, and selling the property at lower than anticipated or planned prices or at prices that generate lower profit margins or losses. Inflation, economic changes or downturns, asset carrying costs (including interest on funds that are used to acquire land and/or construct a building) may also be generated and may be significant. As a result of these factors, we may experience adverse impacts on our operating results, and if a development experiences a significant decline in value, we may also be required to recognize material write-downs of the book value of a project building in accordance with GAAP.

The real estate industry is highly competitive and if other property developers are more successful or offer better value to customers, our business could suffer.

The real estate industry is highly competitive, regardless of locale, and we will face competitors in each location where we develop, construct, market, sell and/or operate real estate ventures. Competitors will range from small local companies to large international conglomerates with financial resources much greater than those of our company. We have to compete in each market for land, raw materials, construction components, financing, environmental resources, utilities, infrastructure, labor, skilled management, governmental permits and licensing and other factors critical to the successful development of each project. We compete against both new and existing developments and developers. Any increase in or change to any competitive factor could result in our inability to begin or complete development of a project in a timely manner, increased costs for the design, development and completion of a project, and/or higher costs and/or lower revenues from the marketing, sales and/or operation of a development. As a result, we may experience lower revenue and decreased profits due to these factors, impacting our operations and our overall financial results.

Future terrorist activity and/or international instability could adverse impact our real estate developments and financial operations.

We expect to operate real estate developments in a variety of locales, including the United States. A terrorist attack against the United States, or other foreign country, an increase in terroristic threats or suspected activity, and/or an increase in domestic or international instability, whether or not located in a country in which we have real estate assets,the United States, could significantly affect our business by slowing, delaying or halting construction of real estate developments, increasing the cost of such developments, and/or reducing the sales and/or usages of such properties, thereby adversely affect our business.

We may incur environmental liabilities with respect to our development projects.

The properties we will target for investment will be subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The particular environmental laws that apply to any given community vary greatly according to the community site, the site’s environmental conditions and the present and former use of the site. Environmental laws may result in delays, may cause us to incur substantial compliance and other costs and may prohibit or severely restrict development in certain environmentally sensitive regions or areas. Furthermore, under various federal, state, and local laws, ordinances and regulations, an owner of real property may be liable for the costs or removal or remediation of certain hazardous or toxic substances on or in such property. Such laws often impose such liability without regard to whether we knew of, or were responsible for, the presence of such hazardous or toxic substances. The cost of any required remediation and our liability therefor as to any property are generally not limited under such laws and could exceed the value of the property and/or the aggregate assets of our company. The presence of such substances, or the failure to properly remediate contamination from such substances, may adversely affect our ability to sell the real estate or to borrow using such property as collateral.

If we fail to diversify our real estate investment portfolio, downturns relating to certain geographic regions, types of assets, industries or business sectors may have a more significant adverse impact on our income and assets than if we had a diversified development property portfolio.

We are not required to observe specific diversification criteria. Therefore, our target portfolio may at times be concentrated in certain asset types that are subject to higher risk of foreclosure or secured by assets concentrated in a limited number of geographic locations. To the extent that our real estate portfolio will be concentrated in limited geographic regions, types of assets, industries or business sectors, downturns relating generally to such region, type of asset, industry or business sector may result, for example, in tenants defaulting on their lease obligations at a number of properties within a short time period, which may reduce future projected net income and the value of our publicly traded securities and, accordingly, adversely affect our business and prospects.

Our co-venture partners, co-tenants or other partners in co-ownership arrangements could take actions that decrease the value of an investment to us and lower our valuation.

Certain of the development properties could involve joint ventures, tenant-in-common investments, or other co-ownership arrangements with third parties having investment objectives that are may or may not be similar to those of our company for the acquisition, development, or improvement of properties, as well as the acquisition of real estate-related investments. We also may purchase and develop properties in joint ventures or in partnerships, co-tenancies, or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers, or other persons. Such investments may involve risks not otherwise present with other forms of real estate investment, including, for example:

Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment.

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect the value of your stock.

The nature of the activities at certain properties could expose us and our operators to potential liability for personal injuries and, in certain instances, property damage claims. For instance, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, pollution, environmental matters, or extreme weather conditions such as hurricanes, floods, and snow storms that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. We may not carry all the usual and customary insurance policies which would be carried by a similarly-positioned company, and we may not be carrying those insurance policies in amounts and types sufficient to cover every risk which may be encountered by our company. Insurance risks associated with potential terrorist acts could sharply increase the premiums we will pay for coverage against property and casualty claims. Mortgage lenders generally insist that specific coverage against terrorism be purchased by commercial property owners as a condition for providing mortgage, bridge, or mezzanine loans. It is uncertain whether such insurance policies will be available, or available at reasonable cost, which could inhibit our ability to finance or refinance our planned to-be-acquired properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that itwe will have adequate coverage for such losses. If any of our properties incur a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss. In addition, other than the capital reserve or other reserves we may establish, we do not expect to have any contingent sources of funding in place to repair or reconstruct any uninsured damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in a decreased value attributed to our publicly traded stock.

We could face losses with respect to abandoned predevelopment costs.

The development process inherently requires that a large number of opportunities be pursued with only a few being developed and constructed. We may incur significant costs for predevelopment activity for projects that are abandoned that would directly affect our results of operations. We expect to institute procedures and controls that are intended to minimize this risk, but it is likely that there will be predevelopment costs charged to expense on an ongoing basis.

We may not have adequate financing to fund our future property acquisitions and project developments, and such capital resources may not be available to us on commercially reasonable terms, or at all.

The implementation of our new business plan including the prospective acquisition of development properties and the completion of construction projects on such properties will involve considerable sums of capital. We currently do not have any such capital and will be required to raise acquisition, construction, and related funds in the future on a project by project basis. We may not be successful in our efforts to raise such funds, or capital that we can acquire may not be reasonably priced. In such a case, we may not be able to successfully effect our new business plan.plans. Such a failure would have a material adverse effect on our financial results, our future business prospects, and our public market stock valuation.

Risk FactorsRisks Relating to Terminated Legacy LHE Business

We are exposed to credit risk of some of our customers.

We accept payment for certain of our products through credit cards and customer financing and our exposure to these credit risks may increase during an economic slowdown. Although we have programs in place that are designed to monitor and mitigate the associated risk, there can be no assurance that such programs will be effective in reducing our credit risks. Future losses, if incurred, could harm our business and have an effect on our operating results and financial condition.

We may be adversely affected by product liability claims, unfavorable court decisions or legal settlements.

SalesPast sales of the LHE products may lead to potential product liability claims arising from the design, manufacture and marketing of these products. Such claims may be subject to many uncertainties and outcomes which are not predictable, and we may incur significant legal expenses in defending these claims regardless of whether we are found to be liable for the claims. While we carry certain product liability insurance coverages, in the past, which cover our current product liability claim(s), we no longer carry such coverages, and the actual cost to us of any future product liability claim could be materially different than the amount of the current coverages we carry, which could have a material adverse effect on our financial position, results of operations and cash flows.

Risks Relating to the Market for Our Common Stock Generally

Notice of Delisting or Failure to SatisfyOur common stock is quoted on the OTC Pink market, which may have an unfavorable impact on our stock price and liquidity. Our common stock may not be eligible for listing on a Continued Listing Rule or Standardnational securities exchange.

On February 20, 2018, we received written notification fromOur common stock is quoted on the OTC Pink market. The Nasdaq Stock Market thatquotation of our shares on the closing bidOTC Pink market may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock, had been belowand could have a long-term adverse impact on its ability to raise capital in the minimum $1.00 per share for the previous 30 consecutive business days, andfuture. In addition, we cannot assure you that any listing application that we are therefore not in compliance withfile will ultimately be approved by Nasdaq or NYSE or that your shares of our common stock will be able to trade on the requirements for continuedNasdaq or NYSE at any time. Even if we obtain such a listing on the Nasdaq Capital Market under Marketplace Rule 5550(a)(2). The notice provides us withor NYSE, there can be no assurance that we will be able to maintain such listing in the future. As a result, investors may find it difficult to buy or sell or obtain accurate quotations for our common stock, and the liquidity of our common stock may remain limited. These factors may have an initial period of 180 calendar days, or until August 19, 2018, to regain compliance withadverse impact on the listing rules. We will regain compliance if the closing bidtrading and price of our common stock is $1.00 per share or higher for a minimum period of ten consecutive business days during this compliance period, as confirmed by written notification from Nasdaq.stock.

We cannot predict the extent to which an active public trading market for our common stock will develop or be sustained. If we doan active public trading market does not achieve compliance by August 19, 2018, we expect that Nasdaq would provide notice thatdevelop or cannot be sustained, you may be unable to liquidate your investment in our securities are subject to delisting from the Nasdaq Capital Market.common stock.

At present, there is minimal public trading in our common stock. We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as us or purchase or recommend the purchase of our shares of common stock until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained. If such a market cannot be sustained, you may be unable to liquidate your investment in our common stock.

Our stock price has been and continues to be volatile.

The market price for our common stock could fluctuate due to various factors. In addition to other factors described in this section, these factors may include, among others:

In addition, the stock markets have, in recent years, experienced significant volume and price fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stock is traded. Market prices and the trading volume of our stock may continue to experience significant fluctuations due to the matters described above, as well as economic and political conditions in the United States and worldwide, investors’ attitudes towards our business prospects, and changes in the interests of the investing community. As a result, the market price of our common stock has been and may continue to be adversely affected and our stockholders may not be able to sell their shares or to sell them at desired prices.

We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. Our common stock is a “penny stock” and is subject to Rule 15g-9 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1 million or annual incomes exceeding $200,000 or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.

For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.

There can be no assurance that our common stock will qualify for exemption from this rule. In any event, even if our common stock were exempt from this rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.

Our future capital needs could result in dilution of your investment.

OurThe Gadsden Transaction will involve the issuance of a significant number of shares of our Common stock. In addition, our Board of Directors may determine from time to time that there is a need to obtain additional capital through the issuance of additional shares of our common stock or other securities. These issuances would likely dilute the ownership interests of our current investors and may dilute the net tangible book value per share of our common stock. Investors in subsequent offerings may also have rights, preferences and privileges senior to our current stockholders which may adversely impact our current stockholders.

We have not paid dividends in the past and do not expect to pay dividends in the foreseeable future.

We have never declared or paid cash dividends on our capital stock. We currently intend to retain all future earnings for the operation and expansion of our business and, therefore, do not anticipate declaring or paying cash dividends in the foreseeable future.

The payment of dividends will be at the discretion of our Board of Directors and will depend on our results of operations, capital requirements, financial condition, prospects, contractual arrangements, any limitations on payments of dividends present in any of our future debt agreements and other factors our Board of Directors may deem relevant. If we do not pay dividends, a return on your investment will only occur if our stock price appreciates.

Securities analysts may not initiate coverage for our common stock or may issue negative reports and this may have a negative impact on the market price of our common stock.

The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. It may be difficult for companies such as us, with smaller market capitalizations, to attract a sufficient number of securities analysts that will cover our common stock. If one or more of the analysts who elect to cover our company downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. This could have a negative effect on the market price of our stock.

Nevada law and our charter documents contain provisions that could delay or prevent actual and potential changes in control, even if they would benefit stockholders.

Our articles of incorporation authorize the issuance of preferred shares which may be issued with dividend, liquidation, voting and redemption rights senior to our common stock without prior approval by the stockholders. The preferred stock may be issued for such consideration as may be fixed from time to time by our Board of Directors. Our Board may issue such shares of preferred stock in one or more series, with such designations, preferences and rights or qualifications, limitations or restrictions thereof as shall be stated in the resolution of resolutions.

The issuance of preferred stock could adversely affect the voting power and other rights of the holders of common stock. Preferred stock may be issued quickly with terms calculated to discourage, make more difficult, delay or prevent a change in control of our company or make removal of management more difficult. As a result, our Board of Directors’ ability to issue preferred stock may discourage the potential hostile acquirer, possibly resulting in beneficial negotiations. Negotiating with an unfriendly acquirer may result in, among other things, terms more favorable to us and our stockholders. Conversely, the issuance of preferred stock may adversely affect any market price of, and the voting and other rights of the holders of the common stock.

These and other provisions in the Nevada corporate statutes and our charter documents could delay or prevent actual and potential changes in control, even if they would benefit our stockholdersstockholders.

Not Applicable.

We lease a 5,581 sq. ft. facility in New York that houses parts of finance. The term of the lease runs until December 31, 2018. Monthly payments under this lease are approximately $6 thousand.

We lease office space at a facility in Willow Grove, Pennsylvania that currently houses part of our legal department.employee. The term of the lease expired on April 30, 2017 and we are now on a month-to-month lease. Monthly payments under this lease are approximately $1 thousand.

Some of our executives occupy office space in New York that is subject to an office service agreement between our CEO and another entity. Under the agreement, the fee is approximately $2 thousand per month. We intend to reimburse our CEO for such costs.

In 2017, we acquired (i) three vacantunoccupied land sites intended for development as gas stations in northern California, (ii) a 75% membership interest in a limited liability company that owns a vacantan unoccupied land site located in Northern California, in which profits and losses are allocated 75% to our company and 25% to the noncontrollingnon-controlling member subject to a preferred equity split in which the noncontrollingnon-controlling member earns the first 10% of net profits and the balance of the 90% is to be paid along the terms of the 75% split to our company and 25% to the noncontrollingnon-controlling member (iii) an interest in a limited liability company which owns property located in Los Lunas, New Mexico being developed as a single family residential development.

In 2018, our subsidiary, RETPROP I, LLC, completed the acquisition of a 7,738 square foot medical office building in Dayton, Ohio. The building’s former owner, and current tenant, a medical practice, has entered into a lease with us to continue its occupancy through April 2022, with the option to renew that lease for two additional five-year terms.

The proposed gas station sites are locatedOn January 14, 2019, we acquired, from Gadsden, a preferred interest in Atwater and Merced, California. We intend to explore our options forGadsden Roseville, LLC, which is the development of these properties. We may (i) lease a property to a developer who will handle all further developmentsole owner of the property, with our company receiving monthly lease payments from the developer; (ii) engage a contractor to develop a property to a certain level, then lease it to a developer which will handle the final development and leasing of the property, with our company receiving monthly payments from the developer; or (iii) engage a contractor to completely develop a property, then lease it directly to a tenant who will remit monthly lease payments back to us. The option or options selected for these properties will depend upon the types of tenants interested in operating gas stations and/or related ventures on those properties, as well as our capitalization and available financial resources. In these arrangements, the construction and/or management of the properties are or will be handled by third-party firms which specialize in such work. Therefore, we anticipate that we will not need to hire significant additional personnel to develop, maintain and manage these properties. As for funding for any costs associated with these properties’ development, although we cannot provide any assurance that we will be able to obtain funding, we will seek funding from one or more of the following potential sources funding from third-party investors, funding as a result of loans secured by the properties, or joint-funding arrangements with developers and/or managers of these properties.Roseville parcel described above.

Below description of existing land and development assets upon contribution:contribution/purchases:

(1) Based on percentage interest in asset transferred by contributed entity. Refer to Item 1A. “Risk Factors.”

(2) Based on membership interest in contributed entity assigned to our company.

JFURTISuneet Singal Litigation

Our company is a party to JFURTI, LLC, et al v.On September 21, 2018, Suneet Singal, et al,our former chief executive officer, filed a suit against us and our transfer agent, Broadridge Corporate Issuer Solutions Inc., in the United States DistrictSupreme Court of New York for the Southern DistrictCounty of New York. The suit names as defendants Suneetalleges breach of contract, breach of good faith and, with regard to Broadridge, a violation of UCC Article 8-401, and demands the issuance and release to Mr. Singal an officer of various First Capital companies1,000,000 shares of our common stock, as well as our former Chief Executive Officer and former member of our Board of Directors, Frank Grant and Richard Leider, board members of First Capital Real Estate Investments, LLC, First Capital Real Estate Advisors, LP, Presidential Realty Corporation, Presidential Realty Operating Partnership, Downey Brand LLP, and now our company (under its previous name, PhotoMedex Inc.), as well as nominal derivative defendants the Contributor and the Contributor Parent. Mr. Leider is also on the Board of Directors of our company.other unspecified damages.

The suit is the ninth filed by Jacob Frydman and/or JFURTI, LLC in a dispute between the plaintiffs and the First Capital group of companies, whichWe entered into a series of agreementsseverance agreement with Mr. Frydman beginning in September 2015. Mr. Frydman had founded, sponsored, and taken public United Realty Trust Incorporated, a Real Estate Investment Trust, or the REIT. Mr. Frydman was the CEO and Chairman of the REIT as well as the owner of various other United Realty branded companies affiliated with the REIT business. In September 2015, Mr. Frydman and Mr. Singal negotiated and agreed to a transaction between various First Capital branded companies, on the one hand, and the United Realty branded companies affiliated with the REIT business, on the other hand,December 22, 2017, as a result of which Mr. Singal resigned as our Chief Executive Officer effective January 2, 2018. Pursuant to the REIT was rebranded as the Contributor Parent.severance agreement, we agreed to issue 1,000,000 shares of common stock to Mr. Singal.

After the September 2015 transaction was concluded, several disputes arose between the parties. This suit is the ninth action brought by Mr. Frydman in state and federal courts relating to these disputes, and the second attempt by Mr. Frydman and JFURTI to bring federal claims derivatively in this Court against First Capital entities and other parties. The first action, titled JFURTI, LLC and Jacob Frydman v. Forum Partners Investment Management LLC et al., No. 16 Civ. 8633 or the Prior Action, commenced on November 7, 2016 and asserted, inter alia, derivative RICO and securities fraud claims. The Court dismissed the action in a decision and order dated April 27, 2017.

Following dismissal of the Prior Action, Mr. Frydman sent letters to each member of the Contributor Parent’s Board of Directors, or the Demand Letter, demanding that the Board investigate and remediate the dissipation of assets as alleged by plaintiffs. In particular, the Demand Letter questioned (i) a letter of intent with Presidential Realty Corporation, or Presidential, announced in an 8-K filed by the Contributor Parent on or about July 18, 2016; (ii) the Contributor Parent’s use of funds raised between September 15, 2015 and February 28, 2016; (iii) an interest contribution agreement with PresidentialWe had entered into on or about December 16, 2016; (iv) the Contributor Parent’s failure to file quarterlyContribution Agreement with FCOP and annual reports; (iv) an interest contribution agreement entered intoits parent company, FCREIT, on March 31, 2017, with our company; and (v) other purportedly fraudulent acts such as publishing an artificially inflated net asset value, defaulting onunder which FCOP was to contribute certain mortgage loans, misrepresentations byproperties to us. Mr. Singal with respectwas, at the time the Contribution Agreement was signed, a principal in FCOP and FCREIT, and continued to certain properties contributedour knowledge to the Contributor Parent through the Master Agreement executed on September 15, 2015, and various loan agreements with Forum Partners Investment Management LLC, or Forum. The Demand Letter also demanded inspection of certain corporate documents pursuant to Md. Code § 2-512.be a principal throughout his tenure as our Chief Executive Officer.

The Contributor Parent commenced such an investigation, and offered such an inspection, but Mr. Frydman and JFURTI failed to wait forIn January 2018, we learned of a suit filed in November 2017 by the resultsholder of the investigation or make any inspection,majority interest in Avalon Jubilee, LLC. The suit was filed against the previous holders of the two interests and instead brought suitalleged that the right of first refusal contained in the same courtoperating agreement for Avalon Jubilee, LLC had not been honored, thereby not allowing the majority holder its option to purchase those interests. While we were not named in the suit, the suit did name several ‘John Does’ as the Prior Action. The suit alleges, among other claims, violations of § 10(b) of the Exchange Act and Rule 10b-5 (1) against Mr. Singal and First Capital Real Estate Investments LLC for misrepresentations in connection with the Master Agreement entered into on September 15, 2015 and related agreements; (2) against Downey Brand for failure to file certain deeds; (3) against First Capital defendants (except Grant and Leider), Forum defendants and Presidential defendants for a fraudulent scheme to sell Contributor Parent assets to Presidential; and (4) against First Capital defendants, Forum defendants, and our company forcast doubt upon the legitimacy of the transfer of the Contributor Parentinterest in Avalon Jubilee, LLC to us. As a result of this discovery, we were required under accounting rules to write down its investment in Avalon Jubilee, LLC by about $1.4 million, and Contributor assetsexpended additional funds to usenter into negotiations with the majority interest holder to resolve our ownership of its interest in exchange for allegedly worthless shares. There are also claimsAvalon Jubilee, LLC. On April 27, 2018, we and certain of our subsidiaries entered into an agreement with Alpha Alpha LLC and Presidential Realty Corporation and certain of its subsidiaries, under state law for common law fraud, conversion, fraudulent conveyance, wastewhich our subsidiary, First Capital Avalon Jubilee LLC, was recognized as a 17.9133% member in Avalon Jubilee, LLC, and mismanagement, accounting, injunctive relief,the operating agreement and violation of Cal. Bus. & Prof. Code § 17-200. Many of the claims asserted in the complaint, including the securities fraud claims,other documents were never raised in the Demand Letter, as required by law. The suit seeks damages against all defendants for the failure of the Contributor Parentso amended to respond to the Demand Letter, and an injunction against the sale of the assets to the Presidential defendants.reflect that acknowledgement.

Shortly after the Avalon matter was resolved, we discovered that one of the other properties transferred to us by FCOP, known as Greensands II, was not the property described in the documents underlying the transaction, including a draft appraisal used as part of the valuation determination for our stock issued to FCOP for the transaction. The parties submittedproperty valued in that appraisal was actually a motionneighboring property once owned by FCOP and known as Greensands I; however the appraisal referred to it as Greensands II. The actual property transferred was significantly smaller than the property which we believed we were purchasing. A subsequent re-appraisal and re-valuation of the actual property received resulted in a write-down of the property’s value by $1.4 million. That adjustment required us to restate our 2017 financials as reported in our Annual Report on Form 10-K for an order (i) staying all proceedings in this action for 60 days, or until the end ofyear ended December 31, 2017, and (ii) extendingdelayed by several days the defendants time to respond tofiling of our Quarterly Report on Form 10-Q for the complaint, or to make a motion with respect to the complaint, until 45 days after the Contributor Parent’s response to the Demand Letter. The Court granted that motion on Octoberperiod ended March 31, 2017. Upon completion of their investigation, the Contributor Parent provided a response to the Demand Letter, denying all claims made2018, resulting in the letter. A Motion to Dismiss this action has now been filed with the Court on behalf of all plaintiffs.us incurring significant additional accounting and legal fees for those filings.

Our company intends to defend itself vigorously against this suit. At this time, the amountBoard of any loss, or range of loss, cannot be reasonably estimatedDirectors reviewed these matters, as well as the case has only been initiatedfact that:

Upon completing its review, our Board determined that the award of shares to Mr. Singal under his severance agreement should be rescinded, noting that we had incurred significant and no discovery has been conducted to determinemeaningful damages as a result of the validityvarious write-downs, non-payment of any claim or claims made by plaintiffs. Therefore,debts and taxes and other factors identified above. On December 18, 2018, we have not recorded any reserve or contingent liability related to these particular legal matters. However, in the future, as the cases progress, we may be required to recordfiled a contingent liability or reserve for these matters.counterclaim regarding such matters that included such damages.

Linda Andrews Litigation

During 2016, Linda Andrews, an alleged user of the no!no! Hair device, filed a product liability claim against our company, its subsidiary Radiancy, Inc., and Dr. Dolev Rafaeli, in the United States District Court for the Middle District of Florida, Orlando Division, alleging that use of the device had caused a relapse of and complication to a pre-existing medical condition resulting from her treatment for cancer.  The complaint alleged, among other claims, that Radiancy failed to provide adequate warnings regarding the operation of the device.  We and Dr. Rafaeli filed a motion to dismiss the claims against them and Radiancy filed an answer to the Complaint.  Ms. Andrews then sought leave to amend her complaint to clarify the claims. Our company, Radiancy and Dr. Rafaeli filed appropriate responses and renewed the motion to dismiss the claims against our company and Dr. Rafaeli.

On June 22, 2017, the United States District Court for the Middle District of Florida, Orlando Division, dismissed the claims against our company and Dr. Dolev Rafaeli without prejudice. Radiancy remained a defendant in the suit.

Radiancy entered into a settlement with Ms. Andrews in 2017. The terms of the settlement are confidential.

Other Litigation

Our company and certain subsidiaries are, or may be, involved in other miscellaneous litigation and legal actions, including product liability, consumer, commercial, tax and governmental matters, which can arise from time to time in the ordinary course of our business. We believe that these other litigations and claims will likely be resolved without a material effect on our consolidated financial position, results of operations or liquidity. However, litigation and legal actions are inherently unpredictable, and excessive verdicts can result in such situations. Although we believe that we have or will have substantial defenses in these matters, it may, in the future, incur judgments or enter into settlements of claims that could have a material adverse effect on results of operations in a particular period.

Not applicable.

PART II

Market Information

Our common stock is listed on the Nasdaq Capital MarketOTC Pink market and the TASE under the symbol “FCRE” (formerly “PHMD”). The following table sets forth, for the periods indicated, the high and low closing sale prices per share of our common stock. This table has been updated to reflect the reserve stock split effected September 23, 2016.

Approximate Number of Holders of Our Common Stock

As of March 30, 2018,28, 2019, we had approximately 1,095122 stockholders of record, without giving effect to determining the number of stockholders who held shares in “street name” or other nominee accounts.

Dividend Policy

We have not declared or paid any dividend on our common stock, since our inception. We do not anticipate that any dividends on our common stock will be declared or paid in the foreseeable future.

Securities Authorized for Issuance under Equity Compensation Plans

See Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

Recent Sales of Unregistered Securities

We have not sold any equity securities during the 20172018 fiscal year that were not previously disclosed in a quarterly report on Form 10-Q or a current report on Form 8-K that was filed during the 20172018 fiscal year.

Purchases of Equity Securities

No repurchases of our common stock were made during the fourth quarter of 2017.2018.

Not applicable.

The following management’s discussion and analysis should be read in conjunction with our financial statements and the notes thereto and the other financial information appearing elsewhere in this report.

Overview

Our company, founded in 1980, is transitioninghas recently transitioned from its former business as a skin health company to a company, focused on real estate development and asset management, company, concentrating primarily on investments in, high qualityand the management and development of, income producing assets, hotel and resort developments, residential developments and other opportunistic commercial properties.real estate assets.

Until the recent sale of our consumer products division, we were a global skin health company providing integrated disease management and aesthetic solutions to dermatologists, professional aestheticians and consumers. Starting in 2014, we began to sell off certain business units and product lines and on January 23, 2017, we sold theour last remaining major product line, our consumer products division (see Note 2 Discontinued Operations, to our consolidated financial statements). Following this transaction, we had only minimal operations and assets remaining of immaterial value to our company. We are in the processIn 2018, we sold certain of selling those assets, remaining inventory and assets of this business line, after which time we willand now no longer operate within the skin health business.

As a result of the Contribution Transaction described below, we became a real estate development and asset management company. Our focus is now to build our company into a leading real estate, asset management and development company concentrated primarily on investments in high yield income producing assets and other opportunistic commercial properties via direct property ownership andand/or asset management. Our objective is to generate long term net asset value growth while adhering to institutional best practices and a deep research process for all investments.

For income producing properties, we intend to acquire assets that provide recurring income with the potential for income growth over the long-term. We believe there can be an attractive risk/reward profile to such properties based on the location and the underlying creditworthiness of the tenants. We intend to use such income generation to fund additional acquisitions and development opportunities and general corporate purposes. In addition, we intend to invest in land assets that can be developed into income generating properties. We believe that our size and scale provide an opportunity to take advantage of smaller-tier assets that most traditional investors do not focus on due to size limitations, thus creating unique investment opportunities. In particular, we intend to target assets in secondary and tertiary markets with assets that require minimal capital expenditures but generate initial unlevered cash flow yields that are higher than those in primary markets.

A second component of our investment strategy will revolve around sourcing asset management opportunities for which we would operate as an asset manager of real estate properties. We are not structured as a REIT, thus we have the ability to retain all earnings and to operate in real estate asset management, development, and peripheral real estate activities, items limited by REIT requirements. We will look to utilize our existing infrastructure to provide economies of scale to owners of real estate assets as it grows its portfolio over time.

Recent Developments

Contribution AgreementTransaction

On March 31, 2017, we entered into the Contribution Agreement with the AcquirorFCOP, FCREIT, and the Contributor Parties,FC Global Realty Operating Partnership, LLC, our wholly-owned subsidiary, which was amended on August 3, 2017, October 11, 2017 and December 22, 2017. Pursuant to the Interest Contribution Agreement, as amended, FCOP contributed certain real estate assets to us. In exchange, FCOP received shares of our common stock and then newly designated Series A Convertible Preferred Stock. This Contribution Transaction closed on May 17, 2017.

On the Contributorclosing date, FCOP transferred assets totaling agreed upon value of $10 million of assets to the Acquiror,us, consisting of the following: (i) three vacant land sites intended for development as gas stations located in northern California, a 75% interest in a limited liability company that owns a vacant land site intended for development as a gas station, located in northern California; and (iii) a 100% interest in a limited liability company, which we refer to as the Avalon Interest, which owns a 17.9133% interest in a limited liability company called Avalon Jubilee LLC that owns property located in Los Lunas, New Mexico being developed as a single family residential development.

In exchange for these assets, we issued to the ContributorFCOP 879,234 shares of our common stock, which represented approximately 19.9% of our issued and outstanding common stock immediately prior to the Closing Date,closing date, at a per share value of $2.5183, or approximately $2.2 million$2,214,175 in the aggregate. We issued the remaining $7.8 million$7,785,825 of the approximately $10 million agreed upon consideration to the ContributorFCOP in the form of 123,668 shares of our newly designated non-voting Series A Convertible Preferred Stock. Each share of the Series A Convertible Preferred Stock iswas originally convertible into 25 shares of our common stock, subject to the satisfaction of certain conditions, including stockholder approval of such conversion.conversion, which was obtained on October 12, 2017. These shares were subsequently converted into common stock.

The Contribution Agreement contemplated that additional contributions would be made prior to December 31, 2017 if FCOP completed its purchase of additional properties; however, FCOP failed to acquire those additional properties before the December 31, 2017 deadline and, therefore, only the closing described above was completed.

We elected to early adopt ASU 2017-01,Business Combinations (Topic 805) Clarifying the Definition of a Business.Accordingly, the determination of whether the transaction represents a business combination was evaluated by applying ASU 2017-01 guidance. We have determined that the group of assets assumed do not include (and also, none of them on a stand-alone basis) include, an input and a substantive process that together significantly contribute to the ability to create output and thus it was determined that the contribution represents an acquisition of assets rather than a business combination. Accordingly, the total sum of the fair value of consideration given (i.e. the fair value of the equity interests issued) together with the transaction costs, was allocated to the individual assets acquired and liabilities assumed based on their relative fair values at the date of acquisition. Such allocation did not give rise to goodwill.

See Item 1 “Business—Recent Developments—Contribution Transaction” for more information.

Payout Notes and Stock Grant Agreement

Under the Contribution Agreement, amounts due to Dr. Dolev Rafaeli and Dennis M. McGrath under their employment agreements, as well as amounts due to Dr. Yoav Ben-Dror for his services as a board member and officer of our foreign subsidiaries, were converted to convertible secured notes in the principal amounts of approximately $3.1 million, $0.98 million and $1.5 million, respectively, following approval from our stockholders on October 12, 2017 (which we refer to as the Payout Notes). The Payout Notes were due on October 12, 2018, carried a ten percent (10%) interest rate, payable monthly in arrears commencing on December 1, 2017, and were secured by a security interest in all of our assets pursuant to a security agreement that we entered into with the holders of the Payout Notes on October 12, 2017.

On December 22, 2017, we entered into the Stock Grant Agreement, with Dr. Dolev Rafaeli, Dennis M. McGrath and Dr. Yoav Ben-Dror (collectively referred to herein as the Note Holders) to (i) cause the early conversion of the Payout Notes into an aggregate of 5,628,291 shares of our common stock (which we refer to as the Payout Shares), (ii) effectuate the release of all security interests associated with the Payout Notes, (iii) provide for the issuance of an aggregate of 1,857,336 additional shares of common stock to the Note Holders as consideration for the various agreements of the Note Holders contained in the Stock Grant Agreement (which we refer to as the Additional Shares), (iv) provide for certain cash payments to the Note Holders in amounts equal to the interest payments that would have been made to the Note Holders absent the conversion of the Payout Notes, (v) obtain the agreement of the Note Holders to provide certain support services to our company, and (vi) obtain the conditional resignation of certain of the Note Holders from our Board of Directors. Accordingly, the Payout Notes were paid in full.

Pursuant to the Stock Grant Agreement, we agreed to make twelve (12) monthly payments on the first of each month commencing on January 1, 2018 of approximately $21, $7 and $10 thousand respectively, to Messrs. Rafaeli, McGrath, and Ben-Dror, respectively (which we refer to as the Cash Payments). The Cash Payments are consideration for certain consulting services provided by the Note Holders specified in the Stock Grant Agreement.

See Item 1 “Business—Recent Developments—Payout Notes and Stock Grant Agreement” for more information.Developments

Private PlacementGadsden Transaction

On December 22, 2017,March 13, 2019, we entered into the Gadsden Purchase Agreement with OFI, under which OFI may invest up to $15 million in ourAgreement.

See Item 1 “Business—Gadsden Transaction” for details regarding this transaction and related termination of the Merger Agreement.

Purchase of Roseville Series A Preferred Units

On January 14, 2019, we purchased 1,000 Series A Preferred Units of Gadsden Roseville, LLC, a Delaware limited liability company, in a series of closings, in exchangeor Gadsden Roseville, for which OFI will receive shares of our newly designated Series B Preferred Stock at a purchase price of $1.00 per share.

On December 22, 2017, we completed the first closing under the Purchase Agreement, pursuant to which OFI provided $1.5 million to us in exchange for 1,500,000 shares of Series B Preferred Stock. On January 24, 2018, we completed a second closing under the Purchase Agreement, pursuant to which OFI provided approximately $2.2 million to us in exchange for 2,225,000 shares of Series B Preferred Stock. Under the Purchase Agreement, OFI may, but is not obligated to, make additional investments in one or more subsequent closings until an aggregate amount of $15 million has been invested or the Purchase Agreement has been terminated$350,000, in accordance with its terms.an Amended and Restated Limited Liability Company Agreement of Roseville, or the LLC Agreement, entered into among Gadsden Roseville, Gadsden Realty Investments I, LLC, a wholly owned subsidiary of Gadsden, or Gadsden Investments, and our company, on January 14, 2019. Gadsden Investments, the other member of Gadsden Roseville, owns 1,000 Common Units. Gadsden Roseville is the sole owner. See the Roseville property described under Item 1 “Business”.

UnderThe Series A Preferred Units entitle us to priority distribution rights. In accordance with the PurchaseLLC Agreement, the proceeds from the first closing were to be used for working capital and general corporate purposes, the proceeds from the second closing were to be used to perform due diligence and invest in Income Generating PropertiesNet Cash Flow (as defined in the PurchaseLLC Agreement) is distributed among the members as follows: (i) first, to our company, an amount equal to the Series A Preferred Return then accrued and payable; (ii) second, to our company, an amount equal to its Unreturned Capital; and (iii) then, to Gadsden Investments. “Series A Preferred Return” means an amount equal to a return that accrued on the capital contributions of our company at 15% per annum compounded annually; provided, however, that if we have been approved bynot received an amount equal to our company’s Board of Directors, and proceeds from subsequent closings were be used to invest in Income Generating Properties (as defined in the Purchase Agreement) that have been approved by our Board of Directors or as otherwise agreed to between us and OFI in writing prior to such subsequent closings. On March 16, 2018, we and OFI entered into a letter agreement, pursuant to which OFI agreed that we may use all proceeds for the purposes and uses described in a budget agreed to between us and OFI at the time the letter agreement was signed. In connection with such letter agreement, we agreed to provide OFI, on a quarterly basis,Unreturned Capital on or prior to 15 daysMay 14, 2019, then from and after such date, the end of each quarter, a report that describes, in reasonable detail,Series A Preferred Return shall accrue on our capital contributions at 25% per annum compounded annually. “Unreturned Capital” means an amount equal to our aggregate capital contributions less the actual expenses incurred,aggregate distributions made to us.

Roseville is managed by two managers - one designated by us and payments made during such period compared to the expensesone designated by Gadsden Investments. The current managers are Michael R. Stewart, our Chief Executive Officer, and payments specifiedJohn Hartman, Gadsden’s Chief Executive Officer. Except as otherwise provided in the budget for such period, certifiedLLC Agreement, actions by our Chief Financial Officer.Gadsden Roseville require the unanimous consent of the two managers.

The Purchase Agreement may be terminated by the written agreement of us and OFI, or by us or OFI if the final closing does not take place prior to December 31, 2018.

See Item 1 “Business—Recent Developments—Private Placement” for more information.

Going Concern

The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

As of December 31, 2017,2018, we had an accumulated deficit of approximately $134.45$139.7 million and shareholders’ deficitincurred an operating loss for the year ended December 31, 2018 of approximately $2.9$5.6 million. To date, and subsequentSubsequent to the recent sale of our last significant business unit, we have dedicated most of our financial resources to general and administrative expenses. At present, we are only generating de minimis income from our legacy operating activities.expenses associated with its ongoing business of real estate development and asset management.

Cash and cash equivalents as of December 31, 20172018 were approximately $0.95$1.8 million. We have historically financed our activities with cash from operations, the private placement of equity and debt securities, borrowings under lines of credit and, in the most recent periods, with the sale of certain assets and business units.

On March 31, 2017, we entered into the Contribution Agreement, under which certain real estate investment properties were contributed to our company in exchange for the issuance of our capital stock. Closing of the Contribution Agreement occurred on May 17, 2017. However, the assets assumed in such contribution do not represent a business and are not producing cash flows and/or revenues.

On December 22, 2017, we entered into the Purchase Agreement with OFI, under which OFI may invest up to $15 million in our company in a series of closings, in exchange for which OFI will receive shares of our newly designated Series B Preferred Stock at a purchase price of $1.00 per share. On December 22, 2017, we completed the first closing under the Purchase Agreement, pursuant to which OFI provided $1.5 million to us. On January 24, 2018, we completed a second closing under the Purchase Agreement, pursuant to which OFI provided approximately $2.2 million to us in. Under the Purchase Agreement, OFI may, but is not obligated to, make additional investments in one or more subsequent closings until an aggregate amount of $15 million has been invested or the Purchase Agreement has been terminated in accordance with its terms. OFI has no obligation to continue to invest in our company, and there are restrictions placed by OFI on the use of these funds.

We will be required to obtain additional liquidity resources in order to support our ongoing operations. We are addressing our liquidity needs by seeking additional funding from lenders and investors. There are

At this time, there is no assurances, however,guarantee that we will be able to obtain an adequate level of financial resources required for the short and long-term support of our operations.

operations or that we will be able to obtain additional financing as needed, or meet the conditions of such financing, or that the costs of such financing may not be prohibitive. These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of liabilities that may result from the outcome of this uncertainty.

Reportable Segments

Before we commenced our current real estate business, we organized our business into three operating segments based upon our management structure, products and services offered, markets served and types of customers, as follows: The Consumer segment (sold to ICTV on January 23, 2017, see Note 2 Discontinued Operations, to our consolidated financial statements) derived its revenues from the design, development, manufacturing and selling of long-term hair reduction and acne consumer products. The Physician Recurring segment derived its revenues from the XTRAC (sold to MELA Sciences on June 22, 2015) procedures performed by dermatologists, the sales of skincare products (sold to Pharma Cosmetics on September 15, 2016), the sales of surgical disposables and accessories to hospitals and surgery centers (sold to Dalian JiKang Medical Systems September 1, 2015) and on the repair, maintenance and replacement parts on various products. The Professional segment generated revenues from the sale of equipment, such as lasers, medical and esthetic light and heat based products and LED products. At the current time, we operate the real estate business in one segment.

Results of Operations

The following table sets forth key components of our results of operations during the years ended December 31, 20172018 and 2016, both in dollars and as a percentage of our revenues.2017.

(All dollar amounts in thousands)

General and Administrative ExpensesRental income.. For the year ended December 31, 2017,2018, rental income was $41 thousand compared to $0 in the year ended December 31, 2017. The increase was due to the acquisition of a rental income producing property in April 2018.

General and administrative expenses. Our general and administrative expenses are mainly comprised of payroll and related expenses, professional service, rent and other operating expenses. For the year ended December 31, 2018, general and administrative expenses were approximately $10.82 million. For$3.9 million, as compared to approximately $10.8 million for the year ended December 31, 2016 general and administrative expenses were included2017. The decrease was due to the sale of the last remaining global skin health product lines in the loss from discontinued operations, (see Note 2 Discontinued Operations, to our consolidated financial statements).January 2017.

Impairment of investment properties.We periodically evaluate our long-lived assets, including investment properties, for indicators of impairment in accordance with ASC 360, “Property, Plant, and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The judgments regarding the existence of indicators of impairment are based on the operating performance, market conditions, as well as our ability to hold and our intent with regard to each property. During the year ended December 31, 2018, based on management’s most recent analyses, impairment losses have been identified related to our investment properties amounting to $326 thousand.

Impairment of Investment in Other Company.The Company evaluatesWe evaluate investments in other company for impairment whenever events or changes in circumstances indicate that the carrying amount of an investment may not be recoverable in accordance with ASC 320 “Investments"Investments - Debt and Equity Securities”Securities". The judgments regarding declines in value are based on operating performance, market conditions and the Company’sour ability and intent to hold as well as itsour ability to influence significant decisions of the venture. During the year ended December 31, 2017, based on managements’management’s then most recent analyses, prepared based on the property management’s ability to execute full development of the property, an impairment losses haveloss had been identified related to the Company’sour investment in other company amounting to $862.$1.4 million. In early 2019, we evaluated the other company’s draft 2018 financial statements, had discussions with the property manager (and majority shareholder) regarding the property’s development status and lack of potential funding for the continued development of the project. Based on these discussions and our inability to influence any decisions made on the project’s development, we had an updated analysis completed, by a third-party appraiser, to the current fair value of the investment. As a result, an impairment loss was identified related to our investment in other company of approximately $1.5 million.

Revaluation of Asset Contributionoption to purchase redeemable convertible preferred stock.. For the year ended December 31, 2017,2018, the revaluation of asset contribution increasedthe option to purchase redeemable convertible preferred stock decreased by approximately $1.39$3.3 million due to the re-measurementdecrease in the share closing price of the asset contribution that resulted in a loss due tounderlying redeemable convertible preferred stock, which caused the reduced fair value of the asset.

Revaluation of Optioninstrument to Purchase Redeemable Convertible B Preferred Stock.decrease. For the year ended December 31, 2017, the revaluation of the option to purchase redeemable convertible B preferred stock increased to approximately $3.0 million due to excess of the initial value of the option liability over the proceeds received, net with the changes in the fair value of the Option at December 31, 2017.

Extinguishment of option to purchase redeemable convertible preferred stock. For the year ended December 31, 2018, we recorded an extinguishment of the option to purchase redeemable convertible preferred stock of $0.44 million due to the cancellation of the redeemable convertible preferred stock as of September 24, 2018.

Revaluation of asset contribution related financial instruments, net. For the year ended December 31, 2017, we recorded a revaluation of asset contribution was approximately $1.39 million due to the re-measurement of the asset contribution that resulted in a loss due to the reduced fair value of the asset contribution related to the financial instruments.

Interest and Other Financing Expense, Net.other financing income (expense), net. Net interest and other financing expenseincome of $3 thousand for the year ended December 31, 2018 related to notes payable which was offset by currency conversion income in Israel. For the year ended December 31, 2017 net interest and other financing expense was approximately $0.27 million. The functional currency of all U.S. members of the group, as well as Radiancy Ltd. (Israel), is the U.S. Dollar. The other foreign subsidiaries’ functional currency is each subsidiaries’ respective local currency. 

Loss from discontinued operations. For the year ended December 31, 2018, we recognized a loss of approximately $0.17 million related to the discontinued operations as a result of the sale of residual inventory to third parties, offset by historical tax assessments and adjustments. We recognized a net loss from discontinued operations of approximately $2.46 million, including the loss on the sale of the discontinued operations, in the year ended December 31, 2017, which represents the difference between the adjusted net purchase price and the carrying value of the disposal group.

Net loss. The factors discussed above resulted in a net loss, including discontinued operations, of approximately $18.82$2.04 million during the year ended December 31, 2017,2018, as compared to net loss of approximately $13.26$19.38 million of which approximately $2.46 million was attributable to discontinued operations during the year ended December 31, 2016.2017, with us primarily becoming a real estate asset management and development company.

Liquidity and Capital Resources

As of December 31, 2017,2018, we had a deficit approximately $2.71$139.7 million of working capital compared to a deficit of approximately $2.35 million as of December 31, 2016. Cashand cash and cash equivalents wereof approximately $0.95 million as of December 31, 2017, as compared$1.8 million. To date, and subsequent to approximately $2.68 million as of December 31, 2016.

The following table provides detailed information about our net cash flow for all financial statement periods presented in this report:

Cash Flow

 (In thousands)