As of March 31, 2021, our sources of income include dividends on HC Realty
Series B Stock, and interest paid on our cash deposits and the S&L Note. 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 financial statements.
The Company continues 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 Months Ended March 31, 2021
The Company generated interest income of $12,000 and $224,000 for the three
month periods ending March 31, 2021 and 2020, respectively. The decrease was
primarily a result of decreased interest income from the Second A&R Note
pursuant to the Forbearance Agreement and payoff of that note in March 2020,
decreased interest income from the HC Realty Loan Agreement as a result of the
payoff of that note in August 2020, ceasing to accrete interest income on the
S&L Note in third quarter 2020, and lower interest rates on our cash deposits.
Interest income for the three month period ending March 31, 2021 consisted of
cash interest income on our cash deposits and income tax receivable. The Company
generated dividend income of $256,000 and $50,000 for the three month periods
ending March 31, 2021 and 2020, respectively. The increase resulted primarily
from the April 3, April 29, and June 29, 2020 acquisitions of additional HC
Realty Series B Stock.
General and administrative expenses decreased to $340,000 for the three month
period ending March 31, 2021 from $439,000 for the three month period ended
March 31, 2020 primarily due to reduced legal and professional fees incurred in
connection with the Company's registration statement and amendments with respect
to the Rights Offering in June 2020. General and administrative expenses for the
three month period ending March 31, 2021 consisted of $161,000 of professional
fees, $63,000 of wages, $21,000 of insurance expense, $21,000 of stock based
compensation expense, $12,000 of franchise tax expense, and $62,000 of other
operating expenses. Included in the expenses incurred in the three month period
ended March 31, 2021 were approximately $94,000 of legal and professional fees
and other due diligence costs related to the pursuit of potential acquisitions,
including the transactions contemplated by the Purchase Agreement.
Our effective tax rate for the three month periods ended March 31, 2021 and 2020
was effectively 0% due to our net operating loss carryforwards.
Financial Condition, Liquidity and Capital Resources
Sources of liquidity include cash on hand, cash interest earned on our cash on
hand and the S&L Note and dividends from our HC Realty common 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 financial statements.
At March 31, 2021, we had $12.1 million in cash and $234,000 in restricted cash.
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 and Series B Stock at annual rates of 5.5% and 10%. See
Note 7 of the Notes to the Financial Statements for a discussion of
uncertainties related to COVID-19.
Cash provided by operations for the three month period ended March 31, 2021 of
$575,000 consisted of $12,000 of cash interest income received, $41,000 of
dividends on our HC Realty common stock, $256,000 of dividends on our HC Realty
Series B Stock, and $488,000 of income tax refund offset by $222,000 of payments
to employees and suppliers. The payments to employees and suppliers primarily
consisted of $70,000 of wages and payroll expenses to current management and
$81,000 of legal and professional fees.
Cash provided by investing activities for the three months ended March 31, 2021
consisted of the cash principal payments received on the S&L Note of
approximately $107,000.
11
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Critical Accounting Policies
Our critical accounting policies and estimates from the information provided in
Item 7, "Management's Discussion and Analysis of Financial Condition and Results
of Operations", included in our 2020 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 three months
ended March 31, 2021.
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, including from the COVID-19
pandemic, that negatively impact the business or assets of HC Realty reducing
the value of our investment in HC Realty, or that negatively impact our
liquidity in such a way as to limit or eliminate our ability to use proceeds
from the Asset Sale or the Rights Offering to fund acquisitions, or an inability
on our part to identify additional suitable businesses to acquire or develop
with the proceeds of the Asset Sale or the Rights Offering, or an inability on
the part of S&L to make payments to us under the S&L Note, or inability to close
the transactions contemplated by the Purchase Agreement or successfully run
those new operations. 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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