Overview
For a description of our business, including descriptions of segments and recent
business developments, see the discussion in Note 1 Basis of Financial
Statements in the accompanying unaudited Consolidated Financial Statements
included in Item 1 of Part I of this Report, which is incorporated by reference
into this Part I, Item 2.
As of June 30, 2022, our sources of income include earnings on our title
insurance subsidiaries, dividends on HC Realty Series B Stock, and interest paid
on our cash deposits and bond portfolio. The Company believes that the revenue
generating from these sources, dividends paid on HC Realty Common Stock, and
cash on hand is sufficient to fund operating expenses for at least 12 months
from the date of these consolidated financial statements.
The Company will continue to pursue acquisition opportunities which will allow
us to potentially derive benefit from the Company's net operating loss
carryforwards and also create appropriate risk adjusted returns for
shareholders.
Results from Operations
Three and Six Months Ended June 30, 2022
The Company generated dividend income of $257,000 and $513,000 for the three and
six month periods ending June 30, 2022, respectively, compared to $256,000 and
$513,000 for the three and six month periods ending June 30, 2021, respectively.
As a result of the Company's acquisition of the title insurance operations, the
Company generated title premium and other title fee revenue of $1.9 million and
$3.4 million for the three and six month periods ended June 30, 2022,
respectively. The title insurance subsidiaries cost of revenue consists
primarily of a provision for title claim losses and underwriting expenses, which
is primarily commissions to title agencies. The title insurance operating
expenses consist primarily of personnel expenses, office and technology expenses
and professional fees. Operating expenses for the three and six month periods
ended June 30, 2022 was $2.0 million and $3.8 million, respectively, consisting
primarily of $1.1 and $2.1 million in wages, $166,000 and $312,000 of rent
expense, and $158,000 and $344,000 in professional and legal fees. During the
first quarter of 2022, the Company began operations of HGMA to provide
management oversight of title operations. The operating expenses incurred at
HGMA are included in the operating results of our title insurance segment.
Corporate general and administrative expenses are not directly allocable to
either of our reporting segments and consist primarily of wages and personnel
costs, legal and professional fees, insurance expense, and stock based
compensation. Corporate general and administrative expenses incurred were
$281,000 and $566,000 for the three and six month periods ending June 30,2022,
respectively, compared to $256,000 and $596,000 for the three and six month
periods ending June 30, 2021. General and administrative expenses for the three
and six month periods ending June 30, 2022 consisted of $63,000 and $188,000 of
professional fees, $63,000 and $125,000 of wages and personnel costs, $20,000
and $41,000 of stock based compensation expense, and $135,000 and $212,000 of
other operating expenses, respectively.
Our effective tax rate for the three and six month periods ended June 30, 2022
and 2021 was effectively 0% due to our net operating loss carryforwards.
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand, earnings from our title insurance
subsidiaries, and dividends from our HC Realty common stock and Series B Stock.
We expect cash on hand to be adequate for ongoing operational expenditures for
at least 12 months from the date of these consolidated financial statements. At
June 30, 2022, we had $8.8 million in cash and additional $8.0 million in
restricted cash, of which $8.0 million is cash held in escrow for title
insurance transactions. A portion of our unrestricted and restricted cash is
currently held in savings accounts earning approximately 0.05%. We also received
quarterly dividends on our HC Realty common stock and Series B Stock at annual
rates of 5.5% and 10%.
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Cash flows provided by operating activities differ from net loss due to
adjustments for non-cash items, such as gains and losses on investments and
affiliates, impairment losses on note receivables, the timing of disbursements
for taxes, claims and other accrued liabilities, and collections or changes in
receivables and other assets. Net cash used by operations for the six month
period ended June 30, 2022 of $1.3 million consisted of primarily personnel
costs of $2.2 million, title policy software, processing and printing costs of
$466,000, office rent of $326,000 and legal and professional fees of $511,000;
offset by revenue from our title operations, dividends on our HC Realty common
stock of $83,000, dividends on our HC Realty Series B Stock of $512,000, and a
decrease of $5.6 million in escrow liabilities on the title insurance
subsidiaries offset.
Critical Accounting Policies
Our critical accounting policies and estimates are discussed in the information
provided in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", included in our 2021 Annual Report on Form 10-K. We
believe there have been no new critical accounting policies or material changes
to our existing critical accounting policies and estimates during the six months
ended June 30, 2022.
Forward-Looking Statements
Certain statements made in this report are not based on historical facts, but
are forward-looking statements. These statements can be identified by the use of
forward-looking terminology such as "believes," "estimates," "expects," "may,"
"will," "should," "could," or "anticipates," or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy.
These statements reflect our reasonable judgment with respect to future events
and are subject to risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Such risks and
uncertainties include the occurrence of events that negatively impact the
Company's liquidity in such a way as to limit or eliminate the Company's ability
to use its cash on hand to fund further asset acquisitions, an inability on the
part of the Company to identify additional suitable businesses to acquire or
develop, and the occurrence of events that negatively impact the title insurance
operations and/or the business or assets of HC Realty and the value of our
investment in HC Realty. Any forward-looking statement speaks only as of the
date of this filing and we undertake no obligation to update or revise any
forward-looking statements, whether as a result of new developments or
otherwise.
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