Exhibit 99.2
NATIONAL CONSUMER TITLE GROUP, LLC | |||
Balance Sheets | |||
(in thousands) |
June 30, 2021 | December 31, 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 9 | $ | 9 | ||||
Total current assets | 9 | 9 | ||||||
Other assets: | ||||||||
Due from affiliate | 418 | 221 | ||||||
Equity method investment | 3,032 | 2,642 | ||||||
Total assets | $ | 3,459 | $ | 2,872 | ||||
LIABILITIES AND MEMBERS' EQUITY | ||||||||
Liabilities: | ||||||||
Due to affiliate | $ | 10 | $ | 10 | ||||
Total liabilities | 10 | 10 | ||||||
Members' equity: | ||||||||
Contributed capital | 2,200 | 2,200 | ||||||
Retained earnings | 1,249 | 662 | ||||||
Total members' equity | 3,449 | 2,862 | ||||||
Total liabilities and members' equity | $ | 3,459 | $ | 2,872 |
See Notes to Unaudited Financial Statements |
NATIONAL CONSUMER TITLE GROUP, LLC | |||
Statement of Operations | |||
(in thousands) | |||
(unaudited) |
Six Months Ended | ||||||||
2021 | 2020 | |||||||
Operating revenues: | ||||||||
Management fees earned | $ | 197 | $ | 21 | ||||
Earnings from equity method investment | 390 | 43 | ||||||
Total operating revenues | 587 | 64 | ||||||
Operating expenses: | ||||||||
Taxes, licenses, and fees | - | - | ||||||
Total operating expenses | - | - | ||||||
Net income | $ | 587 | $ | 64 |
See Notes to Unaudited Financial Statements |
NATIONAL CONSUMER TITLE GROUP, LLC | |||
Statements of Cash Flows | |||
(in thousands) | |||
(unaudited) |
Six Months Ended | ||||||||
2021 | 2020 | |||||||
Operating activities | ||||||||
Net income | $ | 587 | $ | 64 | ||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||||||||
Earnings from equity method investment | (390 | ) | (43 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Due from affiliate | (197 | ) | (21 | ) | ||||
Due to affiliate | - | - | ||||||
Net cash (used in) provided by operating activities | $ | - | $ | - | ||||
Investing activities | ||||||||
Equity method investments | - | - | ||||||
Net cash used in investing activities | - | - | ||||||
Financing activities | ||||||||
Capital contributions from members | - | - | ||||||
Net cash provided by financing activities | - | - | ||||||
Net (decrease) increase in cash and cash equivalents | - | - | ||||||
Cash and cash equivalents at beginning of year | 9 | 10 | ||||||
Cash and cash equivalents at end of year | $ | 9 | $ | 10 |
See notes to unaudited financial statements |
NATIONAL CONSUMER TITLE GROUP, LLC
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. | Summary of Significant Accounting Policies |
Nature of Operations
National Consumer Title Group, LLC (the Company) began operations on June 1, 2019 (inception) as an investment holding company and is organized under the laws of the state of Florida.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The significant accounting practices and policies are summarized as follows:
Revenue Recognition
The Company recognizes revenues as services are provided. The Company’s primary source of operating revenue is management fees for providing administrative and management services to Title Agency Ventures, LLC (TAV), an affiliate through common management and ownership.
Cash and Cash Equivalents
The Company considers all highly-liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents include demand deposits with financial institutions and investments in highly-liquid money market securities.
Investments
The Company evaluates its investments in accordance with the variable interest model to determine if it has a controlling financial interest in an investment. This evaluation is made as of the date on which the Company makes its initial investment, and subsequent evaluations are made if the structure of the investment changes. The Company generally consolidates investments in which it holds a controlling ownership interest of greater than 50%. When the Company consolidates less than wholly-owned subsidiaries, it discloses its noncontrolling interest in its financial statements.
The Company uses the equity method of accounting for its investments in entities in which it has a significant influence; generally, this represents an ownership interest of between 20% and 50%. A decline in value that is determined to be other-than-temporary is recorded as an impairment charge as a component of earnings in the period in which that determination is made.
Concentration of Credit Risk
The Company’s concentrations of credit risk consist primarily of its cash and cash equivalents, equity method investment, and operating revenues. The Company maintains its cash and cash equivalents at several financial institutions. Deposits with financial institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. Bank deposits at times may exceed federally insured limits. The Company has not experienced any losses in such times may exceed federally insured limits. The Company has not experienced any losses in such accounts.
Income Taxes
The Company has elected to be taxed as a partnership under the provisions of the Internal Revenue Code. Therefore, taxes are paid at the member level, not at the Company level. Accordingly, no provision or liability for income taxes has been included in the financial statements.
Fair Value of Financial Instruments
The fair value of financial instruments represents estimates of fair values at a specific point in time determined by the Company using available market information and appropriate valuation methodologies. These estimates are subjective in nature and involve uncertainties and significant judgment in the interpretation of current market data. Therefore, the fair values presented are not necessarily indicative of amounts the Company could realize or settle currently.
The level in the fair value hierarchy within which fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The three levels of the hierarchy are as follows:
Level 1: Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date.
Level 2: Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets of liabilities. Unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability at the measurement date.
The Company utilizes valuation techniques that maximize the use of observable inputs and minimize their fair value.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.
2. | Equity Method Investment |
The Company owns a 50% noncontrolling membership interest in TAV, which owns 100% of the membership interest in Omega National Title Agency, LLC (Omega), a Florida-based title agency. Omega operates 10 title agency locations in Florida providing title agency services for residential and commercial real estate transactions.
Significant information on the assets and liabilities of TAV, an equity method investment of the Company, as of June 30, 2021 is as follows (in thousands):
Assets: | ||||
Current assets: | ||||
Cash and cash equivalents | $ | 2,703 | ||
Restricted Cash | 10,650 | |||
Accounts receivables | 172 | |||
Prepaid expenses and other current assets | 54 | |||
Total current assets | 13,579 | |||
Property, plant and equipment, net | 228 | |||
Goodwill | 4,040 | |||
Total assets | $ | 17,847 | ||
Liabilities: | ||||
Current liabilities: | ||||
Accounts payable | $ | 170 | ||
Escrow liabilities | 10,650 | |||
Accrued management fee | 418 | |||
Total current liabilities | 11,238 | |||
Long-term liabilities: | ||||
Note payable | 545 | |||
Total long-term liabilities | 545 | |||
Total liabilities | 11,783 | |||
Members’ capital: | ||||
Members’ capital contributions | 4,400 | |||
Retained earnings | 1,664 | |||
Total members’ capital | 6,064 | |||
Total liabilities and members’ capital | $ | 17,847 |
The Company recorded $3.0 million for its equity method investment in TAV at June 30, 2021.
Significant information on the results of operations of TAV for the six months ended June 30, 2021 is as follows (in thousands):
Revenues: | ||||
Premiums written | $ | 2,332 | ||
Escrow and other title fees | 1,446 | |||
Other income | 14 | |||
Total revenues | 3,792 | |||
Cost of revenues: | ||||
Escrow losses | 57 | |||
Search and other fees | 50 | |||
Total cost of revenues | 107 | |||
Gross underwriting profit | 3,685 | |||
Operating expenses: | ||||
General and administrative expenses | 2,905 | |||
Net income | $ | 780 |
The Company recorded earnings from its equity method investment in TAV of $390,000 for the six months ended June 30, 2021.
3. | Related Party Transactions |
The Company has a service agreement with TAV, an affiliate through common management and ownership. Under terms of the agreement, the Company provides administrative and management services to TAV for a fee equal to 20% of TAV’s earnings (prior to calculation of the fee due to the Company). The Company recorded management fee income of $197,000 for the six months ended June 30, 2021 related to the agreement. As of June 30, 2021, the Company was owed $418,000 from TAV in fees, which are presented as due from affiliate on the balance sheets.
The Company owed $10,000 at June 30, 2021 to Preferred Managing Agency, LLC (PMA), an affiliate through common management, for an advance received by the Company from PMA to help with the startup of operations.
4. | Members’ Equity |
The Company had one class of ownership units at June 30, 2021.
5. | Subsequent Event |
In July 2021, HG Holdings, Inc., purchased all of the Company’s outstanding ownership interest.
In September 2021, HG Holdings, Inc., purchased the remaining outstanding ownership interest in TAV.