Critical Accounting Policies and Estimates.


The preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions in applying our critical
accounting policies that affect the reported amounts of assets and liabilities
and the disclosure (if any) of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amount of revenues and
expenses during the reporting period. Our estimates and assumptions concern,
among things, potential impairment of our other investments and other long-lived
assets, uncertainties for Federal and state income tax and allowance for
potential doubtful accounts. We evaluate those estimates and assumptions on an
ongoing basis based on historical experience and on various other factors which
we believe are reasonable under the circumstances. Note 1 of the consolidated
financial statements, included elsewhere on this Form 10-K, includes a summary
of the significant accounting policies and methods used in the preparation of
the Company's consolidated financial statements. The Company believes the
following critical accounting policies affect the significant judgments and
estimates used in the preparation of the Company's consolidated financial
statements:



Marketable Securities. All unrealized gains and losses on the Company's
investment portfolio are included in the Consolidated Statements of Income. Our
investments in equity and debt marketable securities are carried at fair value
and based on quoted market prices or other observable inputs. Marketable
securities are subject to fluctuations in value in accordance with market
conditions.



Other Investments. The Company's other investments consist primarily of nominal
equity interests in various privately held entities, including limited
partnerships whose purpose is to invest venture capital funds in growth-oriented
enterprises. The Company does not have significant influence over any investee
and the Company's investment typically represents less than 3% of the investee's
ownership. These investments generally do not meet the criteria of accounting
under the equity method and are carried at cost less distributions and other
than temporary unrealized losses. These investments do not have available quoted
market prices, so we must rely on valuations and related reports and information
provided to us by those entities for the purposes of determining
other-than-temporary declines. These valuations are by their nature subject to
estimates which could change significantly from period to period. The Company
regularly reviews the underlying assets in its other investment portfolio for
events, that may indicate the investment has suffered other-than-temporary
decline in value including.  These events include but are not limited to
bankruptcies, closures and declines in estimated fair value. When a decline is
deemed other-than-temporary, we permanently reduce the cost basis component of
the investments to its estimated fair value, and the loss is recorded as a
component of income from other investments. As such, any recoveries in the value
of the investments will not be recognized until the investments are sold.



We believe our estimates of each of these items historically have been adequate.
However, due to uncertainties inherent in the estimation process, it is
reasonably possible that the actual resolution of any of these items could vary
significantly from the estimate and, accordingly, there can be no assurance that
the estimates may not materially change in the near term.



Real Estate. Land, buildings and improvements, furniture, fixtures and equipment
are recorded at cost. Tenant improvements, which are included in buildings and
improvements, are stated at cost. Expenditures for ordinary maintenance and
repairs are expensed to operations as they are incurred. Renovations and/or
replacements, which improve or extend the life of the asset are capitalized and
depreciated over the shorter of their estimated useful lives, or the remaining
lease term (if leased).



Depreciation is computed utilizing the straight-line method over the estimated
useful lives of ten to forty years for buildings and improvements and five to
ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the shorter of the term of the related
leases or the assets useful life.



The Company is required to make subjective assessments as to the useful lives of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net income.



Assessment by the Company of certain other lease related costs must be made when
the Company has a reason to believe that the tenant will not be able to execute
under the term of the lease as originally expected.



The Company periodically reviews the carrying value of certain of its properties
and long-lived assets in relation to historical results, current business
conditions and trends to identify potential situations in which the carrying
value of assets may not be recoverable. If such reviews indicate that the
carrying value of such assets may not be recoverable, the Company would estimate
the undiscounted sum of the expected future cash flows of such assets or analyze
the fair value of the asset, to determine if such sum or fair value is less than
the carrying value of such assets to ascertain if a permanent impairment exists.
If a permanent impairment exists, the Company would determine the fair value by
using quoted market prices, if available, for such assets, or if quoted market
prices are not available, the Company would discount the expected future cash
flows of such assets and would adjust the carrying value of the asset to fair
value. Judgments as to impairments and assumptions used in projecting future
cash flow are inherently imprecise.


  8




Results of Operations:



For the years ended December 31, 2019 and 2018, the Company reported net income
of approximately $270,000 ($0.27 per share) and $4.1 million ($4.07 per share),
respectively.



Revenues:

Total revenues for the years ended December 31, 2019 and 2018 were approximately $75,000 and $73,000, respectively. This is primarily comprised of rental revenue from the leasing of the corporate offices to the Adviser.





Expenses:

Total expenses for the year ended December 31, 2019 as compared to that of 2018 decreased by approximately $353,000 (or 21%).





Operating expenses of rental and other properties decreased by approximately
$292,000 (or 68%).  This decrease was primarily due to non-recurring costs to
remediate the Company's Montpelier, Vermont property as previously disclosed in
Form 10-Q for the period ended September 30, 2018. The Company agreed to pay a
fixed fee of $500,000 to a third-party local developer to implement the
remediation plan.  The Company's portion of the fixed fee is approximately 70%,
or $350,000. The remediation work began in December 2019.



General and administrative expenses for the year ended December 31, 2019 as
compared to that of 2018 decreased by approximately $39,000 (or 18%) primarily
due to non-recurring expenses approximately $56,000 expensed in 2018 relating to
a proposed property development in Orlando, Florida did not proceed and was
terminated.

Interest expense for the year ended December 31, 2019 as compared to that of 2018 decreased by approximately $33,000 (or 37%) primarily due to decreased broker margin balances and lower outstanding debt balance due to affiliate.





Other Income:

Net realized and unrealized gains from investments in marketable securities:

Net gain (loss) from investments in marketable securities, including marketable securities distributed by partnerships in which the Company owns minority positions, for the years ended December 31, 2019 and 2018, is as follows:





                                                                     2019

2018


Net realized gain from sales of marketable securities             $   42,000     $   51,000
Net unrealized gain (loss) from marketable securities

236,000 (454,000 ) Total net gain (loss) from investments in marketable securities $ 278,000 $ (403,000 )




Net realized gain from sales of marketable securities consisted of approximately
$108,000 of gains net of $66,000 of losses for the year ended December 31, 2019.
The comparable amounts in fiscal year 2018 were approximately $240,000 of gains
net of $189,000 of losses.



Consistent with the Company's overall current investment objectives and
activities, the entire marketable securities portfolio is classified as trading
(as defined by U.S generally accepted accounting principles). Unrealized gains
or losses from marketable securities are recorded as other income in the
Consolidated Statements of Income.



Investment gains and losses on marketable securities may fluctuate significantly
from period to period in the future and could have a significant impact on the
Company's net earnings. However, the amount of investment gains or losses on
marketable securities for any given period has no predictive value and
variations in amount from period to period have no practical analytical value.

Investments in marketable securities give rise to exposure resulting from the volatility of capital markets. The Company attempts to mitigate its risk by diversifying its marketable securities portfolio.

Equity gain (loss) in residential real estate partnerships:





For the year ended December 31, 2019 a gain of approximately $4,000 represents
our portion of interest income earned on funds invested in Murano At Three Oaks
Associates LLC (Fort Myers, Florida) prior to commencement of development.



For the year ended December 31, 2018 (through the date of sale) JY-TV Associates
LLC (Orlando, Florida) reported a net loss from operations of approximately
$411,000, which includes depreciation and amortization expense of $447,000 and
interest expense of $159,000.  The Company's portion of the 2018 loss from
operations was approximately $137,000.  As previously reported on Form 8-K dated
February 20, 2018,  JY-TV Associates, LLC, a Florida limited liability company
("JY-TV") ("Seller") an entity one-third owned by HMG, completed the sale of its
multi-family residential apartments located in Orlando, Florida pursuant to the
previously reported Agreement of Sale (the "Agreement") to Murano 240, LLC (as
per an Assignment and Assumption of Agreement of Sale with Cardone Real Estate
Acquisitions, LLC), a Delaware limited liability company, an unrelated entity
("Purchaser").  The final sales price was $50,150,000 and the sales proceeds
were received in cash and payment of outstanding debt. The gain on the sale to
HMG was approximately $5.5 million, net of the incentive fee.


  9

Income from other investments is summarized below (excluding other than temporary impairment losses):





                                                                2019

2018

Partnerships owning real estate and related investments (a) $ 668,000 $ 217,000 Venture capital funds - diversified businesses (a)

              113,000

63,000


Venture capital funds - technology businesses                         -

34,000


Investment in 49% owned affiliate and other (b)                  25,000

74,000


Total income from other investments                           $ 806,000
$ 388,000
























(a) The gains in 2019 and 2018 consist of various cash distributions from
investments owning real estate and related investments and diversified
businesses which made cash distributions from the sale or refinancing of
operating companies or properties.  During the year ended December 31, 2019, we
received cash distributions from other investments of approximately $2,059,000.
This consisted of distributions from existing investments (primarily real estate
related). In December 2019 we received $409,000 from a partnership which sold
one of its two rental apartments in Atlanta, Georgia and we recognized a gain of
$109,000, before incentive fee. In September 2019 we received $563,000 from a
partnership which sold its sole asset, a multifamily residential property
located in Austin, Texas and we recognized a gain of $429,000, before incentive
fee.  The remaining gains from real estate and related investments were from
distributions made in excess of our carrying value. In August 2019, we redeemed
a stock fund for $316,000 and recognized a gain of $66,000, before incentive
fee. Also, in the first quarter of 2019 the Company's $300,000 investments in a
private insurance company publicly registered all shares and began trading on
the NASDAQ on March 29, 2019.  Accordingly, we have transferred this investment
to marketable securities.  As of December 31, 2019, this investment had an
unrealized loss of approximately $111,000.



(b) This gain represents income from the Company's 49% owned affiliate, T.G.I.F.
Texas, Inc. ("TGIF").  In 2019 and 2018 TGIF declared and paid a cash dividend
of which the Company's portion was approximately $221,000 and $193,000,
respectively. These dividends were recorded as reduction in the investment
carrying value as required under the equity method of accounting for
investments.

Other than temporary impairment ("OTTI") losses from other investments:

There were no OTTI losses for the year ended December 31, 2019 and 2018.





Income or loss from other investments may fluctuate significantly from period to
period in the future and could have a significant impact on the Company's net
earnings. However, the amount of investment gain or loss from other investments
for any given period has no predictive value and variations in amount from
period to period have no practical analytical value.

Interest, dividend and other income

Interest, dividend and other income for the year ended December 31, 2019 as compared with 2018 increased by approximately $97,000 (or 25%). This was primarily due to increased interest income from T-bills and increased interest income earned on new loans made in late December 2018.

(Provision for) benefit from income taxes:


The Company qualifies as a real estate investment trust and distributes its
taxable ordinary income to stockholders in conformity with requirements of the
Internal Revenue Code and is not required to report deferred items due to its
ability to distribute all taxable income. In addition, net operating losses can
be carried forward to reduce future taxable income but cannot be carried back.
Distributed capital gains on sales of real estate as they relate to REIT
activities are not subject to taxes; however, undistributed capital gains may be
subject to corporate tax.



The provision for income taxes for the year ended December 31, 2019 was
approximately $29,000 and is primarily attributable to deferred tax expense
relating to CII.  The benefit from income taxes for the year ended December 31,
2018 was approximately $39,000 and was primarily attributable to deferred tax
benefit relating to CII.

As of December 31, 2019, the Company, excluding its taxable REIT subsidiary, CII, is expected to have a tax net operating loss carryover (NOL) of approximately $447,000.

The Company's 95%-owned taxable REIT subsidiary, CII, files a separate income tax return and its operations are not included in the REIT's income tax return.


For CII, the Company follows the liability method of accounting for income
taxes. Under this method, deferred tax liabilities and assets are recognized for
the expected future tax consequences of temporary differences between the
carrying amount and the tax basis of assets and liabilities at each year-end
based on enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income. As a result of
timing differences associated with the carrying value of other investments,
unrealized gains and losses of marketable securities, depreciable assets and the
future benefit of a net operating loss, as of December 31, 2019, and 2018 the
Company has recorded a net deferred tax liability of $80,000 and $48,000,
respectively.


  10

As of December 31, 2019, CII has an estimated NOL of approximately $949,000 which has been fully reserved due to CII historically having tax losses.





Effect of Inflation.

Inflation affects the costs of maintaining the Company's investments.

Liquidity, Capital Expenditure Requirements and Capital Resources.





The Company's material commitments primarily consist of a note payable to the
Company's 49% owned affiliate, T.G.I.F. Texas, Inc. ("TGIF") of approximately
$1.0 million due on demand (see Item 13. Certain Relationships and Related
Transactions and Director Independence), and contributions committed to other
investments of approximately $792,000 due upon demand. The $9.9 million in
margin is primarily related to the purchase of US T-bills at quarter end.  The
T-bills were sold in January 2020 and the related margin was repaid.  The
purchase of T-bills at each fiscal quarter end is for the purposes of qualifying
for the REIT asset test. The funds necessary to meet the other obligations are
expected from the proceeds from the sales of investments, distributions from
investments and available cash and equivalents ($15.4 million at December 31,
2019).



A summary of the Company's contractual cash obligations at December 31, 2019 is
as follows:



                                                                     Payments Due by Period
Contractual
Obligations                         Total         Less than 1 year        1 - 3 years         4 - 5 years        After 5 years
Note payable                     $ 1,000,000     $        1,000,000                   -                   -                    -

Other investments commitments        792,000                792,000        

          -                   -                    -
Total                            $ 1,792,000     $        1,792,000                   -                   -                    -

The timing of amounts due under commitments for other investments is determined by the managing partners of the individual investments.

Material Changes in Operating, Investing and Financing Cash Flows.





The Company's cash flows are generated primarily from its dividends, interest
and sales proceeds of marketable securities, distributions from investments

and
borrowings.




For the year ended December 31, 2019, net cash used in operating activities was
approximately $798,000, primarily consisting of net loss before income taxes and
other income of approximately $1,262,000, plus interest, dividends and other
income of approximately $483,000.



For the year ended December 31, 2019, net cash used in investing activities was
approximately $2.8 million and consisted primarily of $3.4 million investment in
residential real estate partnership which (as previously reported) is
constructing multi-family residential apartments in Fort Myers, Florida,
purchases of marketable securities of $1.9 million, contributions to other
investments of $1.0 million and additions in notes and loan participation
receivable of $700,000. These uses of funds were partially offset by net
proceeds from the sale of marketable securities of $2.0 million, distributions
from other investments of $2.1 million, and a dividend from TGIF of $221,000.



For the year ended December 31, 2019, net cash used in financing activities was
approximately $788,000 and consisted primarily of dividends paid of $506,646 and
$340,000 of repayment of note payable to TGIF.  These uses were partially offset
by $59,000 in margin borrowings net of repayments.

© Edgar Online, source Glimpses