As of June 30, 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.
Subsequent to June 30, 2021, the Company closed on the acquisition of NCTIC and
NCTG pursuant to the Purchase Agreement. See Note 8 of the Notes to the
Financial Statements for further discussion of the transaction. 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, 2021
The Company generated interest income of $1,000 and $13,000 for the three and
six month periods ending June 30, 2021, respectively, as compared to $207,000
and $431,000 for the three and six month periods ending June 30, 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, recognizing
interest payments on the S&L Note as principal payments, and lower interest
rates on our cash deposits. Interest income for the three and six month periods
ending June 30, 2021 consisted of cash interest income on our cash deposits and
income tax receivable. The Company generated dividend income of $256,000 and
$513,000 for the three and six month periods ending June 30, 2021, respectively,
as compared to $121,000 and $171,000 for the three and six month periods ending
June 30, 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 $256,000 and $596,000 for the
three and six month periods ending June 30, 2021 from $434,000 and $872,000 for
the three and six month periods ended June 30, 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 and six month
period ending June 30, 2021 consisted of $77,000 and $237,000 of professional
fees, $63,000 and $125,000 of wages, $24,000 and $45,000 of insurance expense,
$21,000 and $42,000 of stock based compensation expense, $13,000 and $25,000 of
franchise tax expense, and $58,000 and $122,000 of other operating expenses.
Included in the expenses incurred in the three and six month periods ended June
30, 2021 were approximately $132,000 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 and six month periods ended June 30, 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 June 30, 2021, we had $12.2 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 six month period ending June 30, 2021 of
$633,000 consisted of $13,000 of cash interest income received, $82,000 of
dividends on our HC Realty common stock, $513,000 of dividends on our HC Realty
Series B Stock, and $488,000 of income tax refund offset by $463,000 of payments
to employees and suppliers. The payments to employees and suppliers primarily
consisted of $138,000 of wages and payroll expenses to current management,
$60,000 of insurance premiums, and $125,000 of legal and professional fees.
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Cash provided by investing activities for the six months ending June 30, 2021
consisted of the cash principal payments received on the S&L Note of
approximately $170,000.
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 and six
months ended June 30, 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 S&L 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 S&L 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 successfully run and manage the new operations purchased under the
Acquisition. 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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