PART I

General

We were incorporated in Delaware in 1984.1984 under the name Stanley Furniture Company, Inc. Until March 2, 2018, we were a leading design, marketing and distribution resource in the upscale segment of the wood residential furniture market.  On March 2, 2018, we sold substantially all our assets (the “Asset Sale”) to Stanley Furniture Company LLC, formerly known as Churchill Downs LLC (the “Buyer”) and changed our name to HG Holdings, Inc. In this Annual Report on Form 10-K, we sometimes refer to HG Holdings, Inc. by the terms “we,” “our,” “it,” “its,” and “Company.” Our two executive officers are both part-time employees. See Item. 1A Risk Factors for more information.

HG Holdings,Holdings. Inc, together with its consolidated subsidiaries (the “Company”“Company,” “we,” “us,” “our,” “it,” and “its”), operates through its wholly owned subsidiaries National Consumer Title Insurance Company (“NCTIC”), National Consumer Title Group, LLC (“NCTG”), Title Agency Ventures, LLC (“TAV”), HG Managing Agency, LLC (“HGMA”), and Omega National Title Agency, LLC (“Omega”) and through an affiliated investment in HC Government Realty Trust, Inc., a Maryland corporation (“HC Realty”).

The Company engages in the business of providing title insurance through ourits subsidiary NCTIC and providing title agency services through ourits subsidiaries NCTG, TAV, and Omega.  Through NCTIC, the Company underwrites land title insurance for owners and mortgagees as the primary insurer.  The Company currently only provides title insurance services in the state of Florida.  The Company is also engaged in real estate related activities through its equity investments in HC Realty.

The title insurance segment provides title insurance, closing and/or escrow services and similar or related services in connection with residential and commercial real estate transactions.  The substantial majority of our business is dependent upon activity in the real estate and mortgage markets, which are cyclical and seasonal.  

Our strategy is to profitably grow our core title insurance and settlement services business through a focus on continued improvement of our customers’ experiences with our products and services. Our growth strategy also includes potential acquisitions to expand our market share, geographic footprint, and enhance our data or technological capabilities.   We remain committed to efficiently managing our business to market conditions throughout business cycles and to deploying our capital to maximize stockholder returns.

The real estate related segment invests in rental real estate through an equity investment in HC Realty. HC Realty is an internally-managed real estate investment trust (“REIT’) formed to grow the business offocused on acquiring, developing, financing, owning and managing build-to-suit or improved-to-suit,renovate-to-suit, single-tenant properties leased primarily to the United States of AmericaU.S. government and administered by the U.S. General Services Administration (“GSA”) or directly by the federal government agencies or departmentssub-agencies occupying such properties (referred to as “GSA“Government Properties”).

Title Insurance Segment

Our title insurance segment issues title insurance policies on residential and commercial property in the state of Florida.  This segment also provides closing and/or escrow services to facilitate real estate transactions. Our title insurance subsidiaries had 38 employees as of December 31, 2021.

Overview of Title Insurance Industry

Title insurance protects against loss or damage resulting from title defects that affect real property. When real property is conveyed from one party to another, occasionally there is an undisclosed defect in the title or a mistake or omission in a prior deed, will or mortgage that may give a third party a legal claim against such property.  If a covered claim is made against real property, title insurance provides indemnification against insured defects. There are two basic types of title insurance policies – one for the mortgage lender and one for the real property owner.  A lender often requires the property owner to purchase a lender’s title insurance policy to protect its position as a holder of a mortgage loan, but the lender’s title insurance policy does not protect the property owner.  The property owner has to purchase a separate owner’s title insurance policy to protect its investment.

Title Insurance Policies.     Title insurance policies insure the interests of owners or lenders against defects in the title to real property.  These defects include adverse ownership claims, liens, encumbrances or other matters affecting title.  Title insurance policies generally are issued at the request of a preliminary title report or commitment, which documents the current title to the property and any exceptions and/or limitations. The preliminary title report or commitment includes specific exceptions and/or limitations (i.e. the existence of easements, restrictions, rights of way, conditions, encumbrances or other matters affecting the title to, or use of, real property), which the title agent determines through a search of public records and prior title policies.

The beneficiaries of title insurance policies generally are real estate buyers and mortgage lenders.  A title insurance policy indemnifies the named insured and certain successors in interest against certain title defects, liens and encumbrances existing as of the date of the policy and not specifically excepted from its provisions.  The policy typically provides coverage for the real property mortgage lender in the amount of its outstanding mortgage loan balance and for the buyer in the amount of the purchase price of the property.  The potential for claims under a title insurance policy issued to a mortgage lender generally ceases upon repayment of the mortgage loan.  The potential for claims under a title insurance policy issued to a buyer generally ceases upon the sale or transfer of the insured property. A title insurer, however, generally does not know when a property has been sold or refinanced except when it issues the replacement coverage. Due to these factors, the total liability of a title underwriter on outstanding policies cannot be precisely determined.

Prior to issuing title policies, title insurers attempt to reduce the risk of claim losses by performing title searches and, in most cases, curing identified title defects.  A title insurance company’s primary expenses relate to such searches and examinations and the curative process of defects, preparation of title reports, policies and commitments, and facilitating the close of the real estate transaction. Claim losses typically result from errors made in the title search and examination process, from hidden defects such as fraud, forgery, incapacity, or missing heirs of the property, and from closing-related errors.

Issuing the Policy.Title insurance companies typically issue title insurance policies directly by the title insurer, through affiliated title agencies, or indirectly through independent third-party agencies unaffiliated with the title insurance company. When the policy is issued by a title insurer, the search is performed by or on behalf of the title insurer, and the premium is collected and retained by the title insurer.  In a policy issued through an affiliated or independent third-party title agency, the agent performs the title search, and collects and retains a portion of the premium. The agent remits the remainder of the premium to the title insurance company as compensation for bearing the risk of loss in the event a claim is made under the policy. The percentage of the premium retained by an agent varies by geography and may be regulated by the state.  The title insurance company is obligated to pay title claims in accordance with the terms of its policies, regardless of whether the title insurance company issues policies through its direct operations, affiliated agents or independent agents.

The Closing Process.     In the United States, title insurance is essential to the real estate closing process in most transactions involving real property mortgage lenders.  In a typical residential real estate sale transaction where title insurance is issued, a third party, such as a real estate broker or agent, lawyer or closer, orders the title insurance on behalf of an insured or in certain instances, such as with respect to a lender, the insured orders on its own behalf.  Once the order has been placed and a title insurance company or an agent has determined the current status of the title to the property to its satisfaction, the title insurer or agent prepares, issues and circulates a commitment or preliminary report.  The commitment or preliminary report identifies the conditions, exceptions and/or limitations that the title insurer intends to attach to the policy and identifies items appearing on the title that must be eliminated prior to closing.

In the United States, the closing or settlement function is, depending on the region, performed by a lawyer, an escrow company or a title insurance company or agent, generally referred to as a “closer.”  Once documentation has been prepared and signed, and any required mortgage lender payoff demands are obtained, the transaction closes.  The closer typically records the appropriate title documents and arranges the transfer of funds to pay off prior loans and extinguish the liens securing such loans.  Title policies are then issued, typically insuring the priority of the mortgage of the real property mortgage lender in the amount of its mortgage loan and the buyer in the amount of the purchase price.  Before a closing takes place, however, the title insurer or agent typically provides an update to the commitment to discover any adverse matters affecting title and, if any are found, works with the seller to eliminate them so that the title insurer or agent issues the title policy subject only to those exceptions to coverage which are acceptable to the title insurer, the buyer and the buyer’s lender.

Premiums.     The premium for title insurance is typically due and earned in full when the real estate transaction is closed.  Premiums generally are calculated with reference to the policy amount.  The premium charged by a title insurer or an agent is subject to regulation in most areas.  Such regulations vary from jurisdiction to jurisdiction.  In the state of Florida, where all of our title insurance operations are currently, the state insurance regulator promulgates title insurance rates.

Escrow and Other Title Fees.   In addition to fees for underwriting title insurance policies, we derive a significant amount of our revenues from escrow and other title-related services including closing. The escrow and other services provided include all of those typically required in connection with residential and commercial real estate purchases and refinancerefinancing activities. These fees are earned when the title policy is issued. Escrow and other title fees included in our Title Insurancetitle insurance segment represented approximately 33%20% of total Title Insurancetitle insurance segment revenues in 2021.2022.

Title Insurance Operations

Overview.     The Company issues title insurance policies in Florida through its home office and through a network of affiliated and independent title agents.  Issuing agents, inIn the state of Florida, issuing agents are independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations.

Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinance activity and certain other types of mortgage lending such as home equity lines of credit. Title insurance premiums vary from state to state and are subject to extensive regulation. Statutes generally provide that rates must not be excessive, inadequate or unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.

The substantial majority of our title insurance business is dependent upon the overall level of residential and commercial real estate activity and mortgage markets, which are cyclical and seasonal.  Residential purchase activity is typically slower in the winter months with increased volumes in the spring and summer months and is sensitive to interest rates.  Refinance activity is not seasonal, but is generally correlated with changes in interest rates and general economic cycles.  Commercial real estate volumes are less sensitive to changes in interest rates than residential real estate volumes, but fluctuate based on local supply and demand conditions and financing availability. Commercial real estate historically has elevated activity towards the end of the year.  However, changes in general economic conditions in the United States and abroad, can cause fluctuations in these traditional patterns of real estate activity, and changes in the general economic conditions in a geography can cause fluctuations in these traditional patterns of real estate activity in that geography.

The Company’s revenue from title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond management’s control.

Distribution, Sales and Marketing.     We distribute our title insurance policies and related products and services through our direct and agent (affiliated and independent) channels.  In our direct channel, the distribution of our policies and related products and services occurs through sales representatives located throughout our geographic footprint.  Title insurance policies issued, and other products and services delivered through, this channel are primarily delivered in connection with sales and refinances of residential and commercial real property.

Within the direct channel, our sales and marketing efforts are focused on the primary sources of business referrals.  For residential business, we generally market to real estate agents and brokers, mortgage brokers, real estate attorneys, mortgage originators, homebuilders and escrow service providers.  For the refinance business, we market primarily to mortgage originators and servicers.  For the commercial business, we market primarily to commercial real estate professionals, law firms, commercial lenders, commercial brokers and mortgage brokers.

In our agency channel, we issue policies in accordance with agreements with authorized agents.  The agency agreements typically state the conditions under which the agent is authorized to issue our title insurance policies.  The agency agreement specifies the services and price, if not regulated by the state, for those services and typically describes the circumstances under which the agent may be liable if a policy loss occurs.  As is standard in the industry, title agents operate largely independent of the Company and may act as agents for other title insurers.

Within the agency channel, our sales and marketing efforts are directed at the agents themselves and emphasize the quality and timeliness of our underwriting, our customer service and other title service offerings.

Reserves for Title Claims.      We reserve for claim losses associated with title insurance policies based upon our historical loss patterns and other factors by a charge to expense when the related premium revenue is recognized.  The reserve for incurred but not reported (“IBNR”) claims, together with the reserve for known claims, reflects management’s best estimate of the total costs required to settle all current and future claims on title insurance policies issued through December 31, 2021,2022, and are considered to be adequate for such purpose.  We continually update loss reserve estimates as new information becomes known, new loss patterns emerge or as other contributing factors are considered and incorporated into the analysis of reserve for claim losses. Due to the uncertainty inherent in the process and to the judgment used by management, the ultimate liability may be greater or less than our current reserves. If actual claims loss development varies from what is currently expected and is not offset by other factors, it is possible that additional reserve adjustments may be required in future periods in order to maintain our recorded reserve within a reasonable range of our actuary's central estimate.

Reinsurance.     Within our title insurance segment, we limit our maximum loss by reinsuring risk of loss with other insurers (“reinsurers”) under reinsurance agreements. In reinsurance arrangements, the primary insurer retains a certain amount of risk under a policy and cedes the remainder of the risk under the policy to the reinsurer.  In exchange for accepting the risk of loss, the primary insurer pays the reinsurer premiums and benefits.  The primary insurer generally remains liable to its insured for the total risk, but is reinsured for a portion of the total risk under the terms of the reinsurance agreement.

Competition.     Competition for title insurance, escrow and other title services is based primarily on service, quality, price, customer relationships and the ease of access and use of our products.   The number of competing companies and the size of such companies vary significantly vary by geographic regions.  The four largest title insurance companies typically maintain greater than 80% of the market for title insurance in the United States. In our principal market, competitors include other major title underwriters such as Fidelity National Financial, First American Financial Corporation, Old Republic International Corporation, Stewart Information Services Corporation, Westcor Land Title Insurance Company, and WFG National Title Insurance Company, as well as other regional title insurance companies, underwritten title companies and independent agency operations. SomeCertain title insurers currentlymay have greater financial resources, larger distribution networks and more diverse offerings and geographic footprint than us. The addition or removal of regulatory barriers and/or new technologies may result in changes to competition in the title insurance business.  Numerous agency operations throughout our geographic footprint also provide aggressive competition to our wholly owned agency.

Regulation.     Our title insurance subsidiaries are subject to extensive regulation under applicable state laws. The title insurer is subject to a holding company act in its state of domicile, which regulates, among other matters, the ability to pay dividends and enter into transactions with affiliates. State statutes establish supervisory agencies with broad administrative powers relating to issuing and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, accounting practices, financial practices, establishing reserve and capital and surplus, defining suitable investments for reserves and surplus, and approving premium rate schedules.

Real Estate Related Segment

The Company engages in rental real estate through our equity investment in HC Realty.  HC Realty is an internally-managed REIT formed to acquire, develop, finance, ownfocused on acquiring, developing, financing, owning and manage GSAmanaging Government Properties.  HC Realty invests primarily in GSAGovernment Properties in sizes that rangeranging from 5,00010,000 to 50,000100,000 rentable square feet that are in their firstinitial lease term after original construction or renovation-to-suit date.renovation-to-suit. HC Realty further emphasizes GSAGovernment Properties that fulfillperform law enforcement, public service or other functions that support the mission criticalof the agencies or direct citizen service functions.sub-agencies occupying such properties.  Leases associated with the GSAGovernment Properties in which HC Realty invests are full faith and credit obligations of the United States of America.  HC Realty intends to grow its portfolio primarily through direct acquisitions and development of single-tenanted, federal government-leased properties in such markets;Government Properties; although, at some point in the future HC Realty may elect to develop, orinvest in Government Properties through indirect investments, such as joint venture with others in the development of, competitively bid, built-to-suit, single-tenant, federal government-leased properties, or buy facilities that are leased to credit-worthy state or municipal tenants.ventures.

On March 19, 2019, we purchased 300,000 shares of HC Realty’s Common Stock (the “HC Common Stock”) for an aggregate purchase price of $3,000,000 and 200,000 shares of HC Realty’s 10.00% Series B Cumulative Convertible Preferred Stock (the “HC Series B Stock”) for an aggregate purchase price of $2,000,000. On April 3, April 9, and June 29, 2020, the Company entered into subscription agreements with HC Realty, pursuant to which we purchased 100,000, 250,000, and 475,000 shares of HC Series B Stock, respectively, for an aggregate purchase price of $8,250,000. As a result of these purchases, we currently own 33.9% of the as-converted equityvoting interest of HC Realty; however, we do not believe we control HC Realty as a result of our current ownership interest.Realty.

Certain other investors, including certain investors affiliated with Hale Partnership Capital Management, LLC (“HPCM”), purchased an additional 850,000 shares of HC Series B Stock for an aggregate purchase price of $8,500,000 on March 19, 2019. While some of these investors have other investments with HPCM, each of these investors made a separate and direct investment in HC Realty and HPCM does not receive management fees, performance fees, or any other economic benefits with respect to these investors’ investmentinvestments in HC Realty’s Series B Stock.

On March 19, 2019, we, together with certain other lenders, including certain entities affiliated with HPCM (collectively, the “Lenders”), entered into a loan agreement (the “Loan Agreement”) with HC Realty’s operating partnership, pursuant to which the Lenders provided HC Realty’s operating partnership with a $10,500,000 senior secured term loan (the “Initial Term Loan”), of which $2,000,000 was provided by us. On August 14, 2020, pursuant to the terms of the Loan Agreement, HC Realty’s operating partnership repaid the loan in full, including all accrued interest and make whole interest.

In connection with the transactions discussed above, Steven A. Hale II, our Chairman and Chief Executive Officer, was appointed to serveserves as HC Realty’s Chairman and Chief Executive Officer.Officer and a member of the HC Realty board of directors. In addition, Mr. Hale, and Brad G. Garner, our Principal Financialcertain investors affiliated with Mr. Hale, founded HPCM, and Accounting Officer, are directors of HC Realty. HC Realty’s Board of Directors is composed of five directors.Mr. Hale currently serves as HPCM’s sole manager.

Additional information on HC Common Stock, HC Series B Stock the Loan Agreement and HC Realty is disclosed in the Annex D into the prospectus included in our Registration Statement (No. 333-235539) on Form S-1, as amended, filed with the Securities and Exchange Commission (the “SEC”) on May 8, 2020, which Annex D is incorporated herein by reference. . Additionally, HC Realty makes certain filings with the SEC, such as annual and semi-annual reports, which are available free of charge through the SEC’s website, www.sec.gov. Such filings are not incorporated into and do not constitute a part of this Annual Report on Form 10-K.

Reinsurance Related Segment

The Company, through the formation of White Rock USA Cell 47, engaged in providing another insurance company excess-of-loss reinsurance coverage related to catastrophic weather risk in Texas. The current reinsurance contract (refer to Note 10 Reinsurance in the accompanying notes to consolidated financial statements included in this Annual Report on Form 10-K) expired on December 31, 2022; however, the Company may actively look to provide reinsurance coverage to other carriers as future opportunities arise.

Management Services Related Segment

The Company, through its wholly-owned subsidiary HGMA, engages in providing management advisory services including formation, operational, and restructuring services. HGMA was engaged on June 30, 2022, to develop a restructuring plan for an insurance holding company’s non-statutory entities, including identifying costs savings and other necessary or advisable steps. Upon approval of such plan by the board of directors of the holding company, HGMA was contracted to oversee the implementation of such plan. The Company may continue to actively look to provide management advisory services as future opportunities arise.

For information about our reportable segments refer to Note 17 Segment Information in the accompanying notes to consolidated financial statements included in this Annual Report on Form 10-K.

Forward-Looking Statements

Certain statements made in this report are not based on historical facts but are forward-looking statements.statements within the meaning of applicable securities laws.  We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and other applicable law.  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, are not guarantees of future performance, and are subject to risks and uncertainties, some of which are beyond our control and difficult to predict, 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 Company’s title insurance operations and/or the business or assets of HC Realty and the value of our investment in HC Realty.  AnyForward-looking statements that were true at the time made may ultimately prove to be incorrect or false. We caution readers not to place undue reliance on forward-looking statement speaksstatements, which reflect our management’s view only as of the date this Annual Report on Form 10-K is filed with the SEC. We make no representation, express or implied, about the accuracy of this filing andany such forward-looking statements contained hereunder. Except as otherwise required by federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new developments or otherwise.

No assurance can be given thatStockholders should carefully review the actual future results will not differ materially from the forward-looking statements that we make for a number of reasons including those described above and in Item IA. Risk Factors below.section below for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition.

Information about our Executive Officers

Our executive officers, who are elected annually, and their ages as of January 1, 2023 are as follows:

Steven A. Hale II is the founder of HPCM, an asset management firm that serves as the investment manager to certain privately held investment partnerships. Mr. Hale has held this position since 2010. From 2007 to 2010, prior to founding HPCM, Mr. Hale was an associate director with Babson Capital Management, LLC, an asset management firm, where he had responsibility for coverage of distressed debt investments across a variety of industries. From 2005 to 2007, Mr. Hale was a leveraged finance analyst with Banc of America Securities. Mr. Hale has served as a director of the Company since February 2017, as Chairman of the Company’s Board of Directors since November 2017 and as an officer of the Company since March 2018. Mr. Hale has also served as the Chairman and Chief Executive Officer of HC Realty since March 2019.

Justin H. Edenfield joined the Company in January 2022 as the Chief Financial Officer of NCTI, a wholly-owned subsidiary of the Company. Prior to joining the Company, Mr. Edenfield was the Chief Financial Officer and Director of a privately-held group of Florida domestic insurance carriers focused in property & casualty insurance. Prior to taking on that role, Mr. Edenfield spent 12 years in public accounting at Thomas Howell Ferguson P.A. Mr. Edenfield has served as an officer of the Company since August 2022.

Employees

As of December 31, 2022, we had 76 employees, including 76 full-time employees.

Available Information

Our principal Internet address is www.hgholdingsinc.net. We make available, free of charge, on this web site our annual, quarterly and current reports, proxy statements, and other filings with the SEC, including amendments to those reports,such filings, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These filings are also available free of charge through the SEC’s website, www.sec.gov

In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing, telephoning or e-mailing us at the following address, telephone number or e-mail address:

HG Holdings, Inc.

2115 E. 7th Street, Suite 101

Charlotte, North Carolina 28204

Attention: Mr. Steven A. Hale II

Telephone: 252-355-4610850-772-0698

Or e-mail your request to:Email: investor@hgholdingsinc.net

An investment in our common stock involves a high degree of risk. You should consider carefully the specific risk factors described below in addition to the other information contained in this Annual Report on Form 10-K, including our financial statements and related notes included elsewhere in this Annual Report on Form 10-K, before making a decision to invest in our common stock. If any of these risks actually occurs, our business, financial condition, results of operations or prospects could be materially and adversely affected. This could cause the trading price of our common stock to decline and a loss of all or part of your investment.

Material risks ofRisks related to the Company

We may not receive the amount owed to us under the subordinated secured promissory note from Stone & Leigh, LLC (“S&L.&L”).

The Subordinated Secured PromissoryAs part of the consideration for the Asset Sale, the Buyer issued to the Company a subordinated secured promissory note in the principal amount of approximately $7.4 million (the “Original Note”).  In September 2018, the Buyer sold certain of its assets, including certain inventory and the Stone & Leigh tradename, to S&L. As part of such sale, the Buyer assigned certain of its rights and obligations under the Original Note withto S&L, the Company and the Buyer entered into an amended and restated subordinated secured promissory note in the principal amount of $3.3 million as of the assignment date (the “A&R Note”), and the Company and S&L entered into a new subordinated secured promissory note in the principal amount of $4.4 million as of the assignment date (the “S&L Note”),. The S&L Note which had an outstanding principal amount of $3.1 million as of December 31, 2021, will mature2022, matured and the entire principal amount will beis payable inas of March 2, 2023. During 20212022 and 2020,2021, we recorded impairment losses of $701,000$992,000 and $833,000,$701,000, respectively, on the S&L Note as a result of concluding,our belief, based on current information and events, including the impact of the COVID-19 pandemic on S&L’s business and its customers, that we didwould not believe we would be able to collect the entire amount due under the S&L Note. S&L’s ability to make payments to us under the S&L Note may continue to be adversely impacted by the current pandemic health event resulting from COVID-19 as S&L’s operations may continue to be adversely impacted by disruptions to the supply chain and distribution channels for its products caused by this pandemic. Consequently, we may have to record additional impairment charges with respect to the S&L Note. There is no guarantee that S&L will pay us the amounts owed under the S&L Note or that, in the event of default by S&L, the collateral securing the S&L Note will be sufficient to pay the S&L Note in full.Note. 

An “ownership change” could limit the use of our net operating loss carryforwards and our potential to derive a benefit from our net operating loss carryforwards.

If an “ownership change” occurs pursuant to applicable statutory regulations, we are potentially subject to limitations on the use of our net operating loss carryforwards which in turn could adversely impact our potential to derive a benefit from our net operating loss carryforwards. While we have entered into a rights agreement designed to preserve and protect our net operating loss carryforwards, there is no guarantee that the rights agreement will prevent us from experiencing an ownership change and, therefore, having a limitation on our ability to use our net operating loss carryforwards. In general, an “ownership change” would occur if there is a cumulative change in the ownership of our common stock of more than 50% by one or more “5% shareholders” during a three-year test period.

Failure to successfully identify, acquire and, to the extent applicable, operate non-furniture related assets could cause our stock price to decline.

We continue evaluating alternatives for using remaining cash proceeds from the Asset Sale and Rights Offeringour June 2020 offering of rights to purchase 19,500,000 shares of our common stock at a purchase price of $0.65 per share to stockholders of record as of May 18, 2020 (the “Rights Offering”) to acquire non-furniture related assets. Since the Asset Sale, we have obtained an equity interest in HC Realty and completed the Acquisitionacquisition of NCTIC and NCTG. We may not be able to acquire other profitable assets with the remaining cash proceeds of the Asset Sale and its June 2020 rights offering.the Rights Offering. In addition, any assets that we do acquire, including the Acquisitionacquisition of our title insurance subsidiaries, and our equity interest in HC Realty, may not be profitable. If we are not successful in identifying, acquiring and, to the extent applicable, operating non-furniture related assets, our stock price may decline.

We have nolimited operating history in the NCTIC’s title insurance and Omega’s title agency businesses, and therefore, with respect to certain assets, we will be subject to the risks inherent in establishing a new line of business.

We have had nolimited operating history in the title insurance and title agency lines of business for which NCTIC and Omega operate.business. Accordingly, our future success may in part be subject to the risks, expenses, problems and delays inherent in establishing a new line of business and the ultimate success of such new business cannot be assured.

Resources may be expended in researching potential acquisitions that might not be consummated.

The investigation of additional non-furniture company assets to acquire and the negotiation, drafting and execution of relevant agreements and other documents will require substantial management time and attention in addition to potentially incurring legal and other professional expenses. If a decision is made not to complete a specific acquisition, the costs incurred up to that point for the proposed transaction likely would not be recoverable. As of December 31, 20212022, and December 31, 2020,2021, we had incurred no such related expenses. Furthermore, even if an agreement is reached relating to a specific acquisition, we may fail to consummate the acquisition for any number of reasons including those beyond our control.

We may be required to register under the Investment Company Act of 1940.1940, as amended (the “1940 Act”).

Under Section 3(a)(l) of the 1940 Act, an issuer is deemed to be an investment company if it is engaged in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. The 1940 Act defines “investment securities” broadly to include virtually all securities except U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves regulated or exempt investment companies. Consequently, the S&L Note, as well as the securities of HC Realty we hold, may be considered investment securities and we may fall within the scope of Section 3(a)(1)(C) of the 1940 Act.

A company that falls within the scope of Section 3(a)(1)(C) of the 1940 Act can avoid being regulated as an investment company if it can rely on certain of the exclusions or exemptions under the 1940 Act. One such exclusion is Rule 3a-2 under the 1940 Act, which temporarily relieves certain issuers that are in transition to a non-investment company business from regulation under the1940 Act (a “transient investment company”). The rule provides a one-year safe harbor for a company to comply with another exemption or exclusion under the 1940 Act provided that the company has a bona fide intent to be primarily engaged in a business other than that of investing, reinvesting, owning, holding or trading in securities. The one-year grace period started on the date of the Asset Sale, which was March 2, 2018, and ended on March 2, 2019. We did not acquire sufficient assets within one year from closing the Asset Sale as contemplated by Rule 3a-2.3a-2 under the 1940 Act. There is no assurance that we will not be deemed subject to the 1940 Act and be required to register as an investment company.

While in transient investment company status, we actively pursued alternatives for using cash proceeds from the Asset Sale for the acquisition of non-furniture related assets and acquired an equity interest in HC Realty on March 19, 2019. On April 3, 2020, we used $1.0 million of our cash to purchase an additional 100,000 shares of HC Realty Series B Stock. On April 29, 2020, we used an additional $2.5 million of our cash to purchase an additional 250,000 shares of HC Realty Series B Stock.  Onand June 29, 2020 we used $4.75 millionpurchased an aggregate of the cash proceeds from the Rights Offering to purchase an825,000 additional 475,000 shares of HG RealtyHC Series B Stock.Stock for an aggregate purchase price of $8.25 million.  As a result of these purchases, we now own approximately 33.9% of the as-converted equityvoting interest in HC Realty. We believe that these additional purchases allow us to rely on the exemption from investment company registration set forth in Rule 3a-1 of the 1940 Act because we own (i) at least 25% of the voting securities of HC Realty Common Stock on an as-converted basis,, resulting in us being presumed to control HC Realty within the meaning of Section 2(a)(9) of the 1940 Act and (ii) a sufficient number of shares of HC Realty Series B Stock so that we primarily control HC Realty within the meaning of Rule 3(a)-13a-1 of the 1940 Act.

The Company has not sought or obtained an exemptive order, no-action letter or any other assurances from the SEC or its staff regarding the Company’s ability to rely on Rule 3a-2 or Rule 3a-1 of the 1940 Act, nor has the SEC or its staff provided any such order, no-action letter or other assurances. If we are required to register under the 1940 Act, compliance with these additional regulatory burdens would significantly increase our operating expenses. Registered investment companies are subject to extensive, restrictive and potentially adverse regulation relating to, among other things, operating methods, management, capital structure, dividends and transactions with affiliates.

Other risks specificRisks related to our investment in HC Realty

Our investment in HC Realty may lose value.

In connection with using cash proceeds from the Asset Sale to acquire non-furniture related assets, weWe acquired an equity interest in HC Realty on March 19, 2019, by purchasing HC Common Stock and HC Series B Stock. We acquired additional HC Series B Stock on April 3, April 29, and June 29, 2020. As a result of these stock purchases, we currently own 33.9% of the as-converted equityvoting interest of HC Realty. There is no guarantee that HC Realty will be successful implementing its business strategy for the acquisition, development, financing, ownership and management and disposition of GSA propertiesGovernment Properties and as a result our HC Common Stock and HC Series B Stock may lose value.

The value of our equity investment in HC Realty would be adversely affected if HC Realty failed to qualify as a REIT.

HC Realty has elected to be treated as a REIT for U.S. federal income tax purposes. ItsHC Realty’s continued qualification as a REIT depends on its satisfaction of certain asset, income, organizational, distribution and stockholder ownership requirements on a continuing basis. ItsHC Realty’s ability to satisfy some of the asset tests depends upon the fair market values of its assets, some of which are not able to be precisely determined and for which HC Realty has indicated it will not obtain independent appraisals. If HC Realty fails to qualify as a REIT in any taxable year, and certain statutory relief provisions are not available, HC Realty would be subject to U.S. federal income tax on its taxable income at regular corporate rates and distributions to stockholders would not be deductible by it in computing its taxable income. Any such corporate tax liability could be substantial and would reduce the amount of cash available for distribution. Unless entitled to relief under certain provisions of the Internal Revenue Code provisions,of 1986, as amended, HC Realty also would be disqualified from taxation as a REIT for the four taxable years following the year during which HC Realty ceased to qualify as a REIT. In addition, if HC Realty fails to qualify as a REIT, HC Realty will no longer be required to make distributions. As a result of all these factors, HC Realty’s failure to qualify as a REIT could impair its ability to expand business and raise capital and could adversely affect the value of our HC Common Stock and HC Series B Stock.

Other risks specificRisks related to the Acquisition of the Title Insurance Businessesour title insurance businesses

Conditions in the real estate market generally impact the demand for a substantial portion of the Company’s title insurance subsidiaries’ products and services and NCTIC’s title claims experience.

Demand for a substantial portion of the Company’s title insurance subsidiaries’ products and services generally decreases as the number of real estate transactions in which its products and services are purchased decreases.  The number of real estate transactions in which the insurance subsidiaries’ products and services are purchased typically decreases in the following situations, among others:

There is an additional risk that these circumstances, particularly when combined with declining real estate values and the increase in foreclosures that often results therefrom, may adversely impact NCTIC’s title claims experience. National inventory levels for residential real estate have been declining over the past several years and remain below historical average levels. Combined with the rapidly rising mortgage interest rates in 2022 that have decreased demand, the number of residential purchase transactions have declined. Residential refinance activity is also strongly correlated with changes in mortgage interest rates, and rising mortgage rates during 2022 have, expectedly, had an adverse impact on the Company’s refinance business that is expected to continue for so long as mortgage rates continue to rise or if they subsequently remain high relative to the interest rates of outstanding mortgages. Higher interest rates also negatively impacted commercial transactions in the latter half of 2022 and will likely continue to impact our volumes in 2023.

Unfavorable economic conditions may adversely affect NCTIC and Omega.our title insurance subsidiaries businesses.

Historically, uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets and a general decline in the value of real property, have created a difficult operating environment for the NCTIC and Omega’sour title insurance subsidiaries’ core title and settlement businesses.  Uncertainty

The demand for our title insurance services is dependent primarily on the volume of residential and commercial real estate transactions. The volume of these transactions historically has been influenced by such factors as mortgage interest rates, inventory, affordability, availability of financing and the overall state of the economy. The Federal Reserve raised the federal funds rate a deteriorationtotal of seven times throughout 2022, resulting in economic conditions in connection witha range from 4.25% to 4.50% as of December 31, 2022. It is expected that the coronavirus pandemic adversely affectedFederal Reserve may continue to increase the NCTIC and Omega earlyfederal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the pandemic.  Thesefuture, this will likely result in further increases in market interest rates. Typically, when interest rates are increasing or when the economy is experiencing a downturn, real estate activity declines. As a result, the title insurance industry tends to experience decreased revenues and earnings, and potentially increased title claims experience.

Unfavorable economic conditions also tend to negatively impact the amount of funds NCTIC receives from third parties to be held in trust pending the closing of commercial and residential real estate transactions.  During periods of unfavorable economic conditions, the return on these funds deposited with third party financial institutions, tends to decline. 

In addition, title agencies, such as Omega, NCTG and other securitiesTAV, and the companies in which NCTIC has securities in its investment portfolio, may be negatively impacted by these potential unfavorable economic conditions.

Our revenues and results of operations have been and may in the future be adversely affected by a decline in real estate prices, real estate activity and the availability of financing alternatives. Deterioration in the macroeconomic environment generally causes weakness or adverse changes in the level of real estate activity, which could have a material adverse effect on our consolidated financial condition or results of operations. Also, we may not be able to accurately predict the effects of periods or expectations of high or rapidly rising inflation rates, and governmental responses thereto, and may not respond in a timely or adequate manner to mitigate the negative effects of such inflation, such as decreases in the demand for our products and services and higher labor and other expenses. Depending upon the ultimate severity and duration of any economic downturn, the resulting effects on NCTIC and Omegaour title insurance subsidiaries’ businesses could be materially adverse, including a significant reduction in revenues, earnings and cash flows, deterioration in the value of or return on itstheir investments and increased credit risk from customers and others with obligations to NCITC and Omega.our title insurance subsidiaries.

Changes in NCTIC’s relationships with large mortgage lenders or government–sponsored enterprises could adversely affect the Company.

Large mortgage lenders and government-sponsored enterprises, because of their significant role in the mortgage process, have significant influence over NCTIC and other service providers.  Changes in NCTIC’s relationship with any of these lenders or government-sponsored enterprises, the loss of all or a portion of the business NCTIC derives from these parties, any refusal of these parties to accept NCTIC’s products and services, the modification of the government-sponsored enterprises’ requirement for title insurance in connection with mortgages they purchase or the use of alternatives to NCTIC’s products and services, could have a material adverse effect on NCTIC.

A downgrade by ratings agencies, reductions in statutory capital and surplus maintained by NCTIC, the Company’s title insurance underwriter, or a deterioration in other measures of financial strength could adversely affect the Company.

The financial strength of NCTIC may be measured by ratings provided by ratings agencies and levels of statutory capital and surplus maintained by NCTIC, in determining the amount of a policy they will accept and the amount of reinsurance required..  Demotech, Inc. currently rates the NCTIC’s operations. NCTIC’s financial strength ratings are “Exceptional” or “A” by Demotech, Inc. This rating provides the ratings agency’s perspective on theNCTIC’s financial strength, operating performance and cash generating ability of the operation.ability.  The ratings agency will continually review these ratings and the ratings are subject to change.  If NCTIC’s ratings are downgraded from current levels by Demotech, Inc. or any other ratings agencies, NCTIC’s ability to retain existing customers and develop new customer relationships may be negatively impacted, which could result in a material adverse impact on our consolidated financial condition or results of operations.

Statutory capital and surplus, or the amount by which statutory assets exceed statutory liabilities, is also a measure of financial strength.  Accordingly, if the rating or statutory capital and surplus of NCTIC areis reduced from the current level, or if there is a deterioration in other measures of financial strength, the NCTIC’s results of operations, competitive position and liquidity could be adversely affected.

The issuance of a title insurance policies and related activities by title agents, some of which operate with substantial independence from the Company, could adversely affect NCTIC.

The Company’s title insurance subsidiaries issue a significant portion of their policies through title agents, some that may operate largely independent of the Company.  There is no guarantee that these title agents will fulfill their contractual obligations to the Company’s title insurance subsidiaries, which contracts include limitations that are designed to limit NCTIC’sthe Company’s title insurance subsidiaries’ risk with respect to theirthe title agents’ activities.  In addition, regulators are increasingly seeking to hold NCTICcompanies such as the Company’s title insurance subsidiaries responsible for the actions of these title agents and, under certain circumstances, NCTICthe Company’s title insurance subsidiaries may be held liable directly to third parties for actions (including defalcations) or omissions of these title agents. As a result, the use of title agents by the Company’s title insurance subsidiaries could result in increased claims on the policies issued through title agents and an increase in other costs and expenses.  

Competition in the title insurance industry may affect our revenues.

Competition in the title insurance industry is intense, particularly with respect to price, service and expertise. Larger commercial customers and mortgage originators also look to the size and financial strength of a title insurer. The four largest title insurance companies typically maintain greater than 80% of the market for title insurance in the United States. In our principal market, competitors include other major title underwriters such as Fidelity National Financial, First American Financial Corporation, Old Republic International Corporation, Stewart Information Services Corporation, Westcor Land Title Insurance Company, and WFG National Title Insurance Company, as well as other regional title insurance companies, underwritten title companies and independent agency operations. Although we are not aware of any current initiatives to reduce regulatory barriers to entering our industry, any such reduction could result in new competitors, including financial services firms or institutions, entering the title insurance business. From time-to-time, new entrants enter the marketplace with alternative products to traditional title insurance, although many of these alternative products have been disallowed by title insurance regulators. Further, advances in technologies could, over time, significantly disrupt the traditional business model of financial services and real estate-related companies, including title insurance. These alternative products or disruptive technologies, if permitted by regulators, could have a material adverse effect on our revenues and earnings.

Errors and fraud involving the transfer of funds may adversely affect the Company’s insurance subsidiaries.

The Company’s insurance subsidiaries rely on their systems, employees and domestic banks to transfer funds on behalf of the Company’s insurance subsidiaries as well as title agents that are not affiliates of the Company.  These transfers are susceptible to user input error, fraud, system interruptions, incorrect processing and similar errors that from time to timetime-to-time result in lost funds or delayed transactions.  The Company’s insurance subsidiaries’ email and computer systems and systems used by its agents, customers and other parties involved in a transaction may be subject to, and may continue to be the target of, fraudulent attacks, including attempts to cause the Company’s insurance subsidiaries or its agents to improperly transfer funds.  Funds transferred to a fraudulent recipient are often not recoverable.  In certain instances, the Company’s insurance subsidiaries may be liable for those unrecovered funds.  The controls and procedures used by the Company’s insurance subsidiaries to prevent transfer errors and fraud may prove inadequate, resulting in financial losses, reputational harm, loss of customers or other adverse consequences which could be material.

Regulatory oversight and changes in government regulation could prohibit or limit the Company or its insurance subsidiaries’ operations, make it more costly or burdensome to conduct such operations or result in decreased demand for their products and services.

The title insurance business is regulated by various federal, state, and local governmental agencies and operates within statutory guidelines.  The industry in which the title insurance business operates and the markets into which it sells its products are also regulated and subject to statutory guidelines.  In general, the title insurance business may be subject to increasing regulatory oversight and increasingly complex statutory guidelines.  This may be due, among other factors, to the passing of, and significant changes in, laws and regulations pertaining to privacy and data protection.

Regulatory oversight could require the Company to raise capital, and/or make it more difficult to deploy capital.  For example, regulatory capital requirements for the Company have historically applied only at the subsidiary level, specifically the insurance underwriter subsidiaries.  However, the National Association of Insurance Commissioners havehas issued a proposal for group capital calculations.  The proposal, if finalized and adopted in theirits current forms,form, may apply to the Company at the group level and would be in addition to existing subsidiary-level capital requirements.  It is possible that the requirements, particularly in an economic downturn, could have the effect of requiring the Company to raise capital and/or making it more difficult to otherwise deploy capital.

In addition, changes in the applicable regulatory environment, statutory guidelines or interpretations of existing regulations or statutes, enhanced governmental oversight or efforts by governmental agencies to cause customers to refrain from using the Company’s insurance subsidiaries’ products or services could prohibit or limit itstheir future operations or make it more costly or burdensome to conduct such operations or result in decreased demand for their products and services or a change in itstheir competitive position.  The impact of these changes would be more significant if they involve the Florida jurisdiction, as all of the Company’s title premiums are currently generated in the state of Florida.  These changes may compel the Company to reduce its prices, may restrict its ability to implement price increases or acquire assets or businesses, may limit the manner in which the Company conducts its business or otherwise may have a negative impact on its ability to generate revenues, earnings and cash flows.

Regulation of title insurance rates could adversely affect the CompanyCompany.

Title insurance rates are subject to extensive regulation, which varies from state to state.  Our title insurance subsidiaries currently only operate in the state of Florida. In Florida, rates are promulgated by the state insurance regulator.  The Company’s insurance subsidiaries’ ability to promptly adapt to changing market dynamics through price adjustments may be limited due to the rates promulgated by the state’s insurance regulator, particularly in a rapidly declining market.

The Company’s title insurance business may be adversely affected by business or regulatory conditions that disproportionately affect Florida.

The Company’s title insurance subsidiaries currently only operate in the state of Florida. As a result of the significant income derived from customers in this state, the Company’s title insurance business is exposed to adverse business or regulatory conditions that significantly or disproportionally affect Florida. For example, a declining business climate or real estate market that is localized in Florida could have an adverse effect on the title insurance segment’s results of operations. Adverse regulatory developments, including reductions in rates or increased regulatory or capital requirements in Florida could similarly adversely affect the title insurance segment’s business, financial condition and results of operations.

Changes in certain laws and regulations, and in the regulatory environment in which the Company operates, could adversely affect the CompanyCompany.

Federal and state officials are discussing various potential changes to laws and regulations that could impact the Company’s businesses, including the reform of government-sponsored enterprises such as the Federal National Mortgage Association (Fannie Mae)(“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (Freddie Mac) and additional data privacy regulations, among others.  Changes in these areas, and more generally in the regulatory environment in which the Company’s insurance subsidiaries and its customers operate, could adversely impact the volume of mortgage originations in the United States and the Company’s insurance subsidiaries competitive position and results of operations.  In addition, in connection with the coronavirus pandemic, the Company’s insurance subsidiaries and generally its agents have been deemed in most areas an essential business and have been permitted to operate.  A change in this determination, particularly in jurisdictions where the Company generates a large portion of its revenues, could adversely impact the Company’s insurance subsidiaries’ business.

Actual claims experience could materially vary from the expected claims experience reflected in the NCTIC’s reserve for incurred but not reported claimsclaims.

NCTIC maintains a reserve for IBNR claims pertaining to its title, insurance products.  The majority of this reserve pertains to title insurance policies, which are long-duration contracts with the majority of the claims reported within the first few years following the issuance of the policy.  Generally, 70% to 80% of claim amounts become known in the first six years of the policy life, and the majority of IBNR reserves relate to the six most recent policy years.  Changes in expected ultimate losses and corresponding loss rates for recent policy years are considered likely and could result in a material adjustment to the IBNR reserves.  Loss rates for recent policy years, positive or negative, may vary significantly given the long duration nature of a title insurance policy.  In uncertain economic times, such as those currently being experienced as a result of the coronavirusCOVID-19 pandemic, rising inflation and rising interest rates, larger changes may be more likely. Material changes in expected ultimate losses and corresponding loss rates for older policy years is also possible, particularly for policy years with loss ratios exceeding historical norms.  The estimates made in determining the appropriate level of IBNR reserves could ultimately prove to be materially different from actual claims experience.

Changes in laws or regulations impacting real estate, particularly when applied retroactively, may cause a material change in expected ultimate losses and corresponding loss rates for recent and/or older policy years.

We have recorded goodwill as a result of prior acquisitions, and an economic downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income.

Goodwill aggregated approximately $4.5$6.5 million, or approximately 11.6%15.8% of our total assets as of December 31, 2021.2022. Current accounting rules require that goodwill be assessed for impairment at least annually or whenever changes in circumstances indicate that the carrying amount may not be recoverable from estimated future cash flows. Factors that may be considered a change in circumstance indicating the carrying value of our goodwill may not be recoverable include, but are not limited to, significant underperformance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization, and negative industry or economic trends. As of December 31, 2021,2022, management has deemed there is no impairment of our recorded goodwill. However, if there is an economic downturn in the future, the carrying amount of our goodwill may no longer be recoverable, and we may be required to record an impairment charge, which would have a negative impact on our results of operations and financial condition. Management will continue to monitor our operating results, our market capitalization, and the impact of the economy to determine if there is an impairment of goodwill in future periods.

Risks related to the effects of COVID-19 and other potential health crises, climate change, severe weather or other catastrophic events

The COVID-19 pandemic health event resulting from COVID-19 has adversely impacted, and may continue to adversely impact, economic activity nationally and globally.  These economic and market conditions and other effects resulting from COVID-19 may adversely affect us.  S&L’s ability to make payments to us under the S&L Note may continue to be adversely impacted by the currentCOVID-19 pandemic health event resulting from COVID-19 as S&L’s operations may continue to be adversely impacted by disruptions to the supply chain and distribution channels for its products caused by thisthe pandemic. Consequently, we may have to record additional impairment charges with respect to the S&L Note. 

We will also monitor the impact of thisthe COVID-19 pandemic on our investment in HC Realty, but we aredo not currently anticipatinganticipate a significant impact as HC Realty holds properties that are leased entirelyprimarily to the United States GovernmentU.S. government for occupancy by federal agencies.agencies and sub-agencies. Many of these federal agencies and sub-agencies are deemed essential and continued operations amidst the various federal, state, and local restrictions aimed at slowing the spread of COVID-19. It is possible, however, that a resurgence in COVID-19 cases resulting in tighter restrictions may have the effect of heightening adverse impacts to HC Realty’s operations.

We will also monitor the impact of the COVID-19 pandemic on NCTIC and Omega’sour title insurance subsidiaries’ products and services. The COVID-19 pandemic has caused the Company’s title insurance subsidiaries to modify itstheir business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company believes is in the best interests of its employees. The extent to which COVID-19 impacts the Company's future operations, primarily its impact on the demand for real estate transactions, will depend on uncertain developments, including the duration and severity of the pandemic (including any of its variants), as well as uncertainty regarding the effects of government measures already taken, and which may be taken or continued in the future, to continue to combat the spread of the virus and any of its variants, and/or provide additional economic stimulus. This situation is continually changing, and additional impacts may arise that the Company is not aware of currently. It is not currently possible to predict the extent that COVID-19 will impact the Company's title insurance subsidiaries financial position or results of operation, although it is possible that it could have a material adverse effect on the Company's business.

Climate change, extreme weather conditions and catastrophic events, such as future pandemicinfectious diseases, natural disasters and terrorist attacks, could have a material adverse effect on the Company’s future results of operations and financial condition. The Company’s business operations could be impacted, including availability of key Company personnel or the Company’s information technology systems, by volatility of real estate prices, significant climate migration, and disruptions to the real estate environment or financial markets. Given the unpredictable nature of these events with respect to size, severity, duration and geographic location, it is not currently possible to quantify the ultimate impact that they may have on the Company’s business.

Other Risks related to the reinsurance business

Lossess associated with our reinsurance business could reduce our liquidity and adversely affect our results from operations.

Our reinsurance business exposes us to risks arising from catastrophes. Catastrophes can be caused by various natural events, including but not limited to hurricanes, tropical storms, tornadoes, windstorms, earthquakes, hail, and other severe weather events. The frequency and severity of weather conditions are inherently unpredictable, but the frequency and severity of property claims generally increase when severe weather conditions occur.

Catastrophes could be more frequent or severe than contemplated in our pricing and risk management models and may have a material adverse effect on our results from operations during any reporting period due to increases in the losses and loss adjustment expenses ceded to us.  Catastrophes losses, in excess of the reinsurance premium received, may reduce liquidity and adversely affect our results from operations in any reporting period. We will continue to pursue opportunities to provide reinsurance to other carriers and limit risks related to catastrophe losses by pricing risks aggressively and limiting triggering loss events through policy language.

Risks related to our common stock

Our common stock is listedtraded on the OTCQB and there may be limited ability to trade our common stock.

Trading of our common stock is currently conducted in the over-the-counter market on the OTCQB, which is generally a less active, and therefore a less liquid, trading market than other types of markets such as stock exchanges. As a result, an investor may find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock than if our stock was traded on other markets.

Risks related to our management

Our executive officers, one of whomChairman and Chief Executive Officer, who is also a current director, may have potential or actual conflicts of interest because of theirhis positions with HCPMHPCM and HC RealtyRealty.

Steven A. Hale II, our Chairman and Chief Executive Officer, is the sole manager of HPCM which serves as the investment adviser for the Hale FundsPartnership Fund, L.P. and related entities (collectively, the “Hale Funds”) and two current holders of HC Realty Series B Stock.  The Hale Funds own approximately 33.9% of our outstanding common stock. We also own HC Realty Series B Stock and HC Realty Common Stock. Mr. Hale also serves as Chairman and Chief Executive Officer and a director of HC Realty. Bradley G Garner, our Principal Financial and Accounting Officer, also serves as a director of HC Realty and is chief compliance officer for HPCM.

Mr. Hale and Mr. Garner oweowes fiduciary duties to us, as well as to HC Realty as a result of their positionshis position with HC Realty and to the Hale Funds and two current holders of HC Realty Series B Stock as a result of their positionshis position with HPCM, the investment adviser to these parties.  As a result, these executive officersMr. Hale may have potential or actual conflicts of interest when faced with decisions that could have different implications for us and HC Realty.  In addition, Mr. Hale and Mr. Garner may have potential or actual conflicts of interest when faced with decisions that could have different implications for us and the Hale Funds or the one holdertwo holders of HC Realty Series B Stock advised by HPCM.  For example, these potential conflicts could arise over matters such as funding and capital matters.

Our executive officers, directors and 10% stockholders have significant voting power and may vote their shares in a manner that is not in the best interest of other stockholders.

Our current executive officers, directors and 10% stockholders control approximately 76.0% of the voting power represented by our outstanding common stock. If these stockholders act together, they may be able to exert significant control over our management and affairs requiring stockholder approval, such as the election of directors or the dissolution of the company.Company. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all our stockholders.

Our management,Chief Executive Officer, who will be employed on a part-time basis for the foreseeable future, currently has outside business interests that will require theirhis time and attention and may interfere with theirhis ability to devote all of theirhis time to our business, which may adversely affect our business and operations.

Our two executive officersChief Executive Officer will be employed for the foreseeable future on a part-time basis and have outside business interests that could require substantial time and attention. Our executive officers areChief Executive Officer is associated with Hale Partnership Capital Management LLCHPCM and devotedevotes significant time to its affairs. Our executive officers areChief Executive Officer is also associated with HC Realty. We cannot accurately predict the amount of time and attention that will be required of our officersChief Executive Officer to perform theirhis ongoing duties related to outside business interests. The inability of our officersChief Executive Officer to devote sufficient time to managing our business could have a material adverse effect on our business and operations.

None.

Our corporate headquarters is located in Charlotte, North Carolina where we lease office space. The Company’s subsidiaries, principally Omega, lease office space throughout Florida. It is our opinion that the properties referred to above are in good operating condition, suitable, and adequate for present uses.

Hollie Drive Litigation   

In November 2019, we received notice that the Company and Stanley Furniture Company, LLC, formerly known as Churchill Downs, LLC (the “Buyer”)the Buyer were defendants in a pending case in the Circuit Court for Henry County, Virginia.  The case, which had been instituted on September 18, 2019 by Hollie Drive Associates, LLC (“Hollie”), raises issues arising from the purported breach of a lease for warehouse space in Henry County, Virginia, which is owned by Hollie and was previously rented by the Company.  The relevant lease was assigned to the Buyer in connection with the Asset Sale.  The complaint asserts that the Buyer breached various provisions of the lease including failure to make certain rental payments and failure to pay for certain clean-up and reconstruction after the Buyer vacated the property. The complaint seeks damages in the amount of approximately $555,000 and attorney’s fees.  Hollie named the Company as a party because the Company was the original tenant under the lease.   Under the Asset Purchase Agreement entered into in connection with the Asset Sale, the Buyer agreed to assume and indemnify the Company against post-closing liabilities arising under the lease including those asserted in the complaint.  The Buyer’s filings in the case do not dispute the obligation to indemnify the Company for any damages awarded in the case.  Based upon discussions with the Buyer and documents produced to date by Hollie, it appears Hollie has asserted damages greatly exceeding the likely recovery in the case.  Given these facts and the Buyer’s indemnity obligation, the Company believes it is not probable the case will result in a material adverse effect on its financial statements.          

Graham County Property Litigation

As previously disclosed, on November 26, 2019, Graham County (the “County”), North Carolina filed a complaint against the Company and the Buyer in the Superior Court for Graham County, North Carolina asserting claims arising out of a conveyance to the County of approximately 36 acres (the “Property”) in November 2014.   The Complaint sought, among other things, (i) rescission of the conveyance of the Property to the County, (ii) reimbursement of expenses incurred by the County in connection with the Property, (iii) to invalidate the indemnity agreements entered into in connection with the conveyance, (iv) and other damages, or (iv), in the alternative to rescinding the conveyance, expenses necessary to make the Property suitable and useable for a public park and outdoor recreation area. Pursuant to the Asset Purchase Agreement, the Buyer agreed to assume and indemnify the Company against certain pre-closing liabilities including those relating to the conveyance of the Property. After the filing of the complaint, the Company entered into an agreement with the Buyer providing that, if the Company reaches a settlement with the County resulting in transfer of the Property back to the Company, then the Company can retain the Property notwithstanding provisions of the Asset Purchase Agreement and will waive any right to indemnification from the Buyer with respect to the claims by the County with respect to the Property. In January 2021, representatives of the Company and the County reached an agreement to resolve all claims asserted by the County in the litigation.  Under the terms of the agreement, the County has agreed to transfer the Property back to the Company, lease a portion of the Property from the Company, and dismiss the litigation in exchange for Company making cash payments to the County in a total amount that is immaterial to the Company’s financial performance. The litigation has been dismissed and the other material terms of the settlement have now been completed.

Fednat Underwriters, Inc. Bankruptcy& Related Proof of Claim

On January 26, 2023, the United States Bankruptcy Court for the Southern District of Florida, Ft. Lauderdale Division, entered an order (the “Order”) granting a motion from the debtors (including FNU, as defined below) pursuant to Section 365(a) of the Bankruptcy Code authorizing such debtors to reject that certain Management Advisory Services Agreement dated and effective as of July 1, 2022 (the “Advisory Services Agreement”) between HGMA and FedNat Underwriters, Inc. (“FNU”). Based on the Order, the Advisory Services Agreement is deemed rejected as of December 12, 2022.

As disclosed in a Current Report on Form 8-K filed with the SEC on December 12, 2022, on December 11, 2022, FedNat Holding Company (“FedNat”) and certain of its wholly owned subsidiaries, including FNU, filed voluntary petitions under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Florida in order to maximize value for all stackholders. As part of the Chapter 11 process, FedNat will evaluate all strategic alternatives to maximize value for stakeholders, whether that be a reorganization of its business or a sale of its assets.

Effective with the rejection of the Advisory Services Agreement, the Company will no longer earn compensation for the remaining duration of the agreement.  On February 21, 2023, the Company filed a proof of claim for $609,771 of unsecured claims for compensation earned pre-petition pursuant to the Advisory Services Agreement.  The Company also filed a claim for post-petition damages arising from the rejection of the agreement prior to its contractual end date.

Not Applicable.

Information about our Executive Officers

Our executive officers who are elected annually and their ages as of January 1, 2022 are as follows:

Steven A. Hale II is the founder of Hale Partnership Capital Management, LLC, an asset management firm that serves as the investment manager to certain privately held investment partnerships. Mr. Hale has held his position since 2010. From 2007 to 2010, prior to founding Hale Partnership Capital Management, LLC, Mr. Hale was an associate director with Babson Capital Management, LLC, an asset management firm, where he had responsibility for coverage of distressed debt investments across a variety of industries. From 2005 to 2007, Mr. Hale was a leveraged finance analyst with Banc of America Securities. Mr. Hale has served as a director of the Company since February 2017, as Chairman of the Company’s Board of Directors since November 2017 and an officer of the Company since March 2018.

Brad G. Garner joined Hale Partnership Capital Management, LLC, an asset management firm that serves as the investment manager to certain privately held investment partnerships, in 2015 as Chief Financial Officer and Partner. Mr. Garner served as Chief Financial Officer of Best Bar Ever, Inc. while raising and structuring capital investments and successful exit to a strategic partner. Prior to taking on that role, he spent 10 years in public accounting at Dixon Hughes Goodman LLP. Mr. Garner has served as an officer of the Company since April 2018.

PART II

Market and Dividend Information

Our common stock is traded in the over-the-counter market on the OTCQB under the symbol “STLY”.  Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of March 22, 2022,27, 2023, we had approximately 625491 beneficial stockholders. We currently anticipate that we will retain all future earnings for the operation of our business, and we do not currently intend to pay any cash dividends on our common stock in the foreseeable future.

Issuer Purchases of Equity Securities

None.On August 5, 2022, the Company’s Board of Directors authorized the repurchase of up to $1.5 million of shares of the Company’s common stock. The authorization does not obligate the Company to acquire a specific number of shares during any period and does not have an expiration date, but it may be modified, suspended, or discontinued at any time at the discretion of the Board. Repurchases may be made from time to time in the open market, or through privately negotiated transactions or otherwise, in compliance with applicable laws, rules and regulations, and subject to the Company’s cash requirements for other purposes, and other factors it deems relevant.

The Company repurchased  2,699 shares of common stock during the fourth quarter of 2022.

Equity Compensation Plan Information

The following table summarizes ourCompany’s 2012 Incentive Compensation Plan, as amended, expired during 2022.  Therefore, the Company does not have any outstanding options, warrants or rights subject to the equity compensation plans, as of December 31, 2021 (in thousands):and there are no shares remaining available for future issuance under equity compensation plans.

The following discussion should be read in conjunction with the Consolidated Financial Statementsconsolidated financial statements and the Notesnotes thereto and Selected Financial Data included elsewhere in this Annual Report.Report on Form 10-K.

Principles of Consolidation

The consolidated financial statements have been prepared in accordance with GAAPgenerally accepted accounting principles in the United States (“GAAP”) and reflect the consolidated operations of the Company.  The consolidated financial statements include the accounts of HG Holdings, Inc. and all controlled subsidiaries.  All significant intercompany transactions and balances have been eliminated. Equity investments in which the Company exercises significant influence but does not control and is not the primary beneficiary, are accounted for using the equity method of accounting.  Equity investments in which the Company does not exercise significant influence over the investee and without readily determinable fair values, or non-marketable equity securities, are accounted for at cost, less impairment, and are adjusted up or down for any observable price changes.

Overview

For a description of our business, including descriptions of segments, see the discussion under Business in Item 1 of Part I of this Annual Report on Form 10-K, which is incorporated by reference into this Item 7 of Part II of this Annual Report.Report on Form 10-K.

COVID-19 Pandemic

Despite the widespread availability of vaccines, COVID-19 (including its variant strains) continues to impact U.S. states where the Company conducts business. The COVID-19 pandemic has negatively impacted worldwide economic activity and created significant volatility and disruptions of financial markets. In response, the U.S. government and its agencies have taken a number of significant measures to provide fiscal and monetary stimulus. Such actions have included an unscheduled cut to the federal funds rate, the introduction of new programs to preserve market liquidity, extended unemployment and sick leave benefits, mortgage loan forbearance actions, low-interest loans for working capital access and payroll assistance, and other relief measures for both workers and businesses. Many such actions have lapsed or otherwise been reduced as time has passed since the onset of the pandemic. The Company and its subsidiaries have remained fully operational throughout the pandemic and did not have any reductions in workforce during 2021.2022.

The COVID-19 pandemic has caused the Company to modify its business practices (including employee travel, employee work locations and cancellation of physical participation in meetings, events and conferences). The COVID-19 pandemic and any of its variants could continue to affect the Company in a number of ways including, but not limited to, the impact of employees becoming ill, quarantined, or otherwise unable to work or travel due to illness or governmental restriction, potential decreases in net premiums written in the future, and future fluctuations in the Company's investment portfolio due to the pandemic and the economic disruption it is causing. Because of the inherent uncertainty regarding the duration and severity of the COVID-19 pandemic (including any of its variants) and its effects on the economy, as well as uncertainty regarding the effects of government measures already taken, and which may be taken or continued in the future, to combat the spread of the virus and any of its variants, and/or provide additional economic stimulus, the Company is currently unable to predict the ultimate impact of the pandemic.

See Item 1A of Part I of this Annual Report on Form 10-K for further discussion of risk factors related to COVID-19.

Title Insurance Segment Trends and Conditions

Our title insurance segment revenue is closely related to the level of real estate activity that includes sales, mortgage financing and mortgage refinancing. Declines in the level of real estate activity or the average price of real estate sales will adversely affect our title insurance revenues.

We believe that real estate activity is generally dependent on mortgage interest rates, access and availability to mortgage debt, residential housing inventory, home prices, commercial property supply and demand, and the general economic conditions in the U.S. economy.

As of the JanuaryFebruary 21, 20222023 Mortgage Finance Forecast, the Mortgage Bankers Association (“MBA”) expects residential purchase transactions to steadily increase throughsee continued declines in 2023 due to higher mortgage interest rates before leveling outshowing increased transaction volumes in 2024.2024 and 2025, as it projects a decrease in mortgage interest rate during this period. Additionally, the MBA expects residential refinance transactions to steadilycontinue to decrease in 2022 and 2023 before leveling outstarting to show increases in 2024 and 2025 as interest rates are expected to rise. The MBA expects overall mortgage originations to decreasestart decreasing in 2022 and thereafter as compared to 2021 levels.the second half of 2024.

The industry as a whole saw growtha decline in total real estate transactions in 2021,2022, largely due to a strong residential real estate market driven by increasing home prices and lowhigher mortgage interest rates. Mortgage rates remained historically lowabnormally high after emergency actions taken by the Federal reserveReserve to reducesubstantially increase its benchmark interest rate in firstthe final three quarters of 2022, in an attempt to slow the quarter 2020. Despiteover quarter inflation. The Federal Reserve raised the lingering impactfederal funds rate a total of COVID-19seven times throughout 2022, resulting in 2021, purchase and refinance activity grew duea range from 4.25% to migration4.50% as of out of dense urban areas into less populated geographies as well near historically lowDecember 31, 2022. It is expected that the Federal Reserve may continue to increase the federal funds rate during 2023 to, among other things, control inflation. Should the Federal Reserve continue to raise rates in the future, this will likely result in further increases in market interest rates. Per the MBA’s Mortgage Finance Forecast, interest rates on a Freddie Mac 30-year, fixed rate mortgage averaged 3.1%6.6% in 2021.the fourth quarter of 2022 as compared to 3.9% in the first quarter of 2022.

See Item 1AA shortage in the supply of Part Ihomes for sale, increasing home prices, rising mortgage interest rates, inflation and disrupted labor markets created some volatility in the residential real estate market in 2021 and 2022, which has continued into 2023. Additionally, geopolitical uncertainties associated with the war in Ukraine have created additional volatility in the global economy beginning in 2022.

Because commercial real estate transactions tend to be generally driven by supply and demand for commercial space and occupancy rates in a particular area rather than by interest rate fluctuations, we believe that our commercial real estate title insurance business is less dependent on the industry cycles discussed above than our residential real estate title business. Commercial real estate transaction volume is also often linked to the availability of this Annual Reportfinancing. Factors including U.S. tax reform and a shift in U.S. monetary policy have had, or are expected to have, varying effects on availability of financing in the U.S. Lower corporate and individual tax rates, and corporate tax-deductibility of capital expenditures have provided increased capacity and incentive for further discussion of risk factors related to COVID-19.investments in commercial real estate.

Historically, real estate transactions have produced seasonal revenue fluctuations in the real estate industry. The first calendar quarter is typically the weakest quarter in terms of revenue due to the generally low volume of home sales during January and February. The second and third calendar quarters are typically the strongest quarters in terms of revenue, primarily due to a higher volume of residential transactions in the spring and summer months. The fourth quarter is typically strong due to the desire of commercial entities to complete transactions by year-end. Seasonality in 2020, 2021 and 2022 deviated from historical patterns due to COVID-19 and the subsequent rapid increase in interest rates. We have noted short-term fluctuations through recent years in resale and refinance transactions as a result of changes in interest rates.

Real Estate Related Segment

The Company acquired an equity interest incurrently owns 300,000 shares of HC Common Stock and 1,025,000 shares of HC Series B Stock of HC Realty.  HC Realty currently owns and operates a portfolio of 27 single-tenant propertiesof(i) 30 Government Properties leased  entirely to the United States of America for occupancyand occupied by federalU.S. government tenant agencies includingand sub-agencies such as the Federal Bureau of Investigation, the Department of Veterans affairs,Affairs, the Drug Enforcement Administration, the Immigration & Customs Enforcement, the Social Security Administration and the Department of Transportation.Transportation, and (ii) three Government Properties in which HC Realty is engaged in a development capacity. On March 19, 2019, we purchased 300,000 shares of HC Common Stock for an aggregate purchase price of $3,000,000 and 200,000 shares of HC Series B Stock for an aggregate purchase price of $2,000,000.  On April 3, April 9, and June 29, 2020, the Company entered into subscription agreements with HC Realty, pursuant to which we purchased 100,000, 250,000, and 475,000 shares of HC Series B Stock, respectively, for an aggregate purchase price of $8,250,000.  As a result of these purchases, we currently own approximately 33.9% of the as-converted equityvoting interest of HC Realty.

On March 19, 2019, the Company, together with certain other Lenders, entered into a loan agreement (the “Loan Agreement”) with HC Realty’s operating partnership, and HCM Agency, LLC, as collateral agent (the “Agent”), pursuant to which the Lenders provided HC Realty’s operating partnership with Initial Term Loan,As of which $2,000,000 was provided by the Company. On August 14, 2020, pursuant to the terms of the Loan Agreement, HC Realty’s operating partnership repaid the loan in full, including all accrued interest and make whole interest.

For the year ended December 31, 2021,2022, HC Realty owned 27 GSA33 Government Properties, comprised of 23 GSA28 Government Properties that it owns in fee simple,, one GSAGovernment Property that it owns subject to a ground lease, and three GSAGovernment Properties for which it has all of the rights to the profits, losses, and any distributed cash flow and all of the other benefits and burdens of ownership including for federal income tax purposes,, each of which is leased to the United States.States government, and one Government Property for which it has been awarded a lease for a newly constructed build-to-suit facility and for which it is under contract to acquire the land. HC Realty’s portfolio properties contain approximately 508,092628,000 leased rentable square feet located in 1821 states. As of December 31, 2021,2022, its portfolio properties are 100%97% leased to the United States of Americagovernment and occupied by 12 different federal government agencies. Based on net operating income of each property,leased rentable square feet, the portfolio has a weighted average remaining lease term of 8.89.5 years if none of the tenants’ early termination rights are exercised and 4.95.9 years if all of the tenants’ early termination right are exercised.

Results of Operations

20212022 Compared to 20202021

As of December 31, 2021,2022, our sources of income include earnings on our title insurance subsidiaries, dividends on HC RealtyCommon Stock and HC Series B Stock, premiums related to reinsurance provided to others, management services, and interest paid on our cash deposits. 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 thesethe accompanying consolidated financial statements.

The Company generated interest income of $111,000 for the year ended December 31, 2022 as compared to $15,000 for the year ended December 31, 2021 as compared to $0.6 million for the year ended December 31, 2020.2021.  The decreaseincrease was primarily a result of decreasedthe increased interest income fromrate environment of cash accounts and the Second Amendedtitle insurance underwriter being able to invest excess cash in the stocks and Restated Subordinated Secured Promissory Note (the “Second A&R Note”) pursuant to the October 31, 2019 Forbearance Agreement (“Forbearance Agreement”) with Buyer 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.bonds.  The Company generated dividend income of $1.0 million for both of the yearyears ended December 31, 2022 and 2021, as compared to $684,000 for the prior year, which is reported in our real estate related segment.  The increase resultedDividend income relates primarily fromto the receipt of a full year of dividends from the April 3, April 29, and June 29, 2020 acquisitions of additional HC Realty Series B Stock. Stock held by the Company.

As a result of the Company’s acquisition of the title insurance operations, the Company generated title premium and other title fee revenue of $6.8 million for the year ended December 31, 2022, as compared to $2.4 million and management fees of $37,000.for the year ended December 31, 2021.  The title insurance subsidiariessubsidiaries’ cost of revenue consists primarily of a provision for title claim losses and underwriting expenses, which is primarily consist of 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 period subsequentyear ended December 31, 2022 were $8.5 million, as compared to $2.1 for the year ended December 31, 2021.

As a result of the Company’s reinsurance related segment, the Company generated $6.3 million of written and earned premium for the year ended December 31, 2022, which was offset by operating expenses of $94,000 consisting primarily of premium tax expenses and management fees related to the Company’s acquisitionformation and management of NCTIC on July 1, 2021 andWhite Rock Cell 47.  The Company did not operate in the acquisitionreinsurance segment during the year ended December 31, 2021.

As a result of TAV on September 1, 2021the management services related segment, the Company generated $1.36 million of management fees for the year ended December 31, 2022, which was $2.1 million.offset by operating expenses of $400,000 consisting of executive management compensation allocated to the time related to providing these services to the outside party, as compared to $37,000 of management fees for the year ended December 31, 2021. Such increase was primarily the result of HGMA being engaged during the year ended December 31, 2022 to develop a restructuring plan for an insurance holding company’s non-statutory entities.

Corporate general and administrative expenses are not directly allocable to eitherany of our reporting segments and consist primarily of wages and personnel costs, legal and professional fees, insurance expense, and stock based compensation.  CorporateGeneral and administrative expenses of $1.2 million for the year ended December 31, 2022 remained relatively flat as compared to general and administrative expenses of $1.3 million for the year ended December 31, 2021 at the corporate level remained flat as compared to2021. 

Our effective tax rate for the year ended December 31, 2020. Included in the general and administrative expenses incurred in the year ended December 31, 20212022 was approximately $242,000 of legal and professional fees and other0.0% due diligence costs related to the acquisitions of the title insurance business.

our net operating loss carryforwards. Our effective tax rate for the year ended December 31, 2021 was effectively (3.8)% resulting from a tax benefit from unrecognized tax benefits position under FASBFinancial Accounting Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”). Our 2020 effective tax rate was 0.0% 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, earnings from our title insurance subsidiaries, reinsurance premiums earned, management service fees earned, and dividends from our HC Realty commonCommon Stock and HC Series B Stock. We expect cash on hand to be adequate for ongoing operational expenditures for at least 12 months from the date of thesethe accompanying consolidated financial statements. At December 31, 2021,2022, we had $11.8$9.5 million in cash and an additional $8.3$5.5 million in restricted cash, all of which $8.1 million is cash held in escrow for title insurance transactions. The companyCompany records an offsetting escrow liability given that we are liable for the disposition of these escrowed funds. A portion of our unrestricted and restricted cash is currently held in savings accounts earning interest at approximately 0.05%3.46% annually. We also received quarterly dividends on our HC Realty commonCommon Stock and HC Series B Stock at annual rates of 5.5% and 10%., respectively, during the year ended December 31, 2022.

Cash flows provided by operating activities differ from net income 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 provided by operations for the year ended December 31, 2022 of $2.7 million consisted of net income from operations of $3.7 million, and dividends on our HC Common Stock of $165,000 offset primarily by $2.5 million in escrow liabilities on the title insurance subsidiaries. Net cash used in operations for the year ended December 31, 2021 of $935,000 consisted of net income from operations of $2.8 million, dividends on our HC Realty common stockCommon Stock of $165,000, and dividends on our HC Realty Series B Stock of $1$1.0 million, income tax refund of $491,000 offset primarily by an increase of $1.2$3.3 million in escrow liabilitiesgain on remeasurement of equity interest.

Net cash used in financing activities of $7.8 million for the year ended December 31, 2022 consisted primarily of $5.6 million of cash used for the acquisition of investments in our title insurance subsidiaries, personnel costsunderwriter, and $2.3 million in goodwill acquired in a business combination for one of $1.3 million, and legal and professional feesour title agencies, offset by cash received of $605,000.

Cash$204,000 regarding the sale of tangible assets, net of related purchases.  Net cash provided by investing activities of $9.4 million for the year ended December 31, 2021 consisted primarily $7.7of $9.2 million of cash used for the acquisitioninvestments in subsidiaries, net of our title insurance subsidiaries offset by cash acquired, of $16.9 million from the title insurance subsidiaries acquired, of which $9.3 million was restricted cash held in escrow for title insurance transactions, and the cash$190,000 of principal payments received on the S&L Note of approximately $190,000.subordinated secured notes receivable.

Net cash used in investing activities stayed relatively flat for the year ended December 31, 2022 as compared to the year ended December 31, 2021 and related to repurchases of common stock in the amount of $21,000 for the year ended December 31, 2022 and redemptions of fractional shares from stock split in the amount of $2,000 for the year ended December 31, 2021.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASUAccounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendment is effective for public entities for annual reporting periods beginning after December 15, 2022. Early application is permitted for reporting periods beginning after December 15, 2018, although the Company has not opted to do so. The Company does not anticipate the adoption of ASU 2016-13 to have a material impact to the consolidated financial statements.

Critical Accounting Policies

We have chosen accounting policies that are necessary to accurately and fairly report our operational and financial position. Below are the critical accounting policies that involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.

Equity Investments - Long-term investments consist of investments in equity securities where our ownership is less than 50% and the Company has the ability to exercise significant influence, but not control, over the investee. These investments are classified in “Investment in affiliate” on the consolidated balance sheets. Investments accounted for under the equity method of accounting are initially recorded at cost and the Company subsequently increases or decreases the investment by its proportionate share of the net income or loss and other comprehensive income or loss of the investee. For investments that do not have readily determinable fair values, the Company made an accounting policy election for a measurement alternative. Upon adoption of ASU 2016-01,2016-01: Recognition and Measurement of Financial Assets and Financial Liabilities, the Company carries these investments at cost minus impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

If the Company believes a decline in market value below cost is other than temporary, a loss is charged to earnings, which establishes a new cost basis for the security. The Company determination of whether an equity investment is other than temporarily impaired incorporates both quantitative and qualitative information. The Company considers a number of factors including, but not limited to, the length of time and the extent to which the fair value has been less than cost, the length of time expected for recovery, the financial condition of the investee, the reason for decline in fair value, the ability and intent to hold the investment to maturity, and other factors specific to the individual investment.

Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations - FASB Accounting Standards Codification ("ASC") Topic 805, Business Combinations, requires an acquirer to recognize, separately from goodwill, the identifiable assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree, and to measure these items generally at their acquisition date fair values. Goodwill is recorded as the residual amount by which the purchase price exceeds the fair value of the net assets acquired. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we are required to report provisional amounts in the financial statements for the items for which the accounting is incomplete. Adjustments to provisional amounts initially recorded that are identified during the measurement period are recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. During the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the acquisition date or when we receive the information we were seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. Contingent consideration liabilities or receivables recorded in connection with business acquisitions must also be adjusted for changes in fair value until settled.

Note Receivable - In accordance with the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”)FASB ASC Topic 810-40-5, upon the sale of substantially all of the assets of the Company, the Company recorded a gain on the deconsolidation of a group of assets based on the difference between the fair value of the consideration received and the carrying amount of the group of assets. As the Subordinated Secured PromissoryOriginal Note with Buyer in the principal amount of approximately $7.4 million (the “Original Note”) was part of the consideration received for the sale of substantially all of the Company’s furniture related assets and liabilities, the Company recorded the Original Note at its fair value on March 2, 2018. The fair value of the Original Note was estimated using discounted cash flow analyses, using market rates at the acquisition date that reflect the credit and inherent rate-risk inherent in the Original Note. The discount resulting from the fair value adjustment was recorded as a direct reduction to the original principal balance and amortized to interest income using the effective interest method. As of the date of the assignment and transfer from the Buyer to S&L, it was determined that the Original Note was extinguished and therefore both the A&R Note and the S&L Note were measured based on their fair value in accordance with Emerging Issues Task Force (EITF) – Creditors Accounting for Modification or Exchange of Debt Instruments. The discounts resulting from the fair value adjustments for the A&R Note and the S&L Note were recorded as a direct reduction to the original principal balance and amortized to interest income using the effective interest method. When impairment is determined to be probable, the measurement will be based on the fair value of the collateral securing the notes. The determination of impairment involves management’s judgment and the use of market and third-party estimates regarding collateral values.

The Company concluded, based on current information and events, including the impact of the COVID-19 pandemic on S&L’s business and its customers, that the Company did not believe it would be able to collect the amount due under the S&L Note and determined that the note was other than temporarily impaired. The evaluation was generally based on an assessment of the borrower’s financial condition and the adequacy of the collateral securing the S&L Note. Given the facts and circumstances, the Company recorded an impairment loss of $701,000$992,000 during the year ended December 31, 2021.2022. The Company further ceased accruing interest and accreting interest income on the fair value discount of the S&L Note on the date in the third quarter of 2020 it determined the note was other than temporarily impairedimpaired.

Interest Income – Interest income is recorded on an accrual basis based on the effective interest rate method to the extent that we expect to collect such amounts.

Deferred taxes – We recognize deferred tax assets and liabilities based on the estimated future tax effects of differences between the consolidated financial statements and the tax basis of assets and liabilities given the enacted tax laws.  We evaluate the need for a deferred tax asset valuation allowance by assessing whether it is more likely than not that the companyCompany will realize its deferred tax assets in the future.  The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income. Adjustments to the deferred tax valuation allowance are made to earnings in the period when such assessment is made.

In preparation of our consolidated financial statements, we exercise judgment in estimating the potential exposure to unresolved tax matters and apply a more likely than not criteria approach for recording tax benefits related to uncertain tax positions. While actual results could vary, we believe we have adequate tax accruals with respect to the ultimate outcome of such unresolved tax matters.

Long-lived assets – Property, plant and equipment is reviewed for possible impairment when events indicate that the carrying amount of an asset may not be recoverable. Assumptions and estimates used in the evaluation of impairment may affect the carrying value of long-lived assets, which could result in impairment charges in future periods that would lower our earnings. Our depreciation policy reflects judgments on the estimated remaining useful lives of assets.

Stock-Based Compensation – We record share-based payment awards at fair value on the grant date of the awards, based on the estimated number of awardsshares that are expected to vest, over the vesting period.  The fair value of stock options wasis determined using the Black-Scholes option-pricing model.  The fair value of the restricted stock awards wasis based on the closing price of the Company’s common stock on the date of the grant.  For awards with performance conditions, we recognize compensation cost over the expected period to achieve the performance conditions, provided achievement of the performance conditions areis deemed probable.

Premiums Written and Commissions to Agents – Generally, title insurance premiums are recognized at the time of settlement of the related real estate transaction, as the earnings process is then considered complete, irrespective of the timing of the issuance of a title insurance policy or commitment. Expenses typically associated with premiums, including agent commissions, premium taxes, and a provision for future claims are recognized concurrent with recognition of related premium revenue. Fee income related to escrow and other closing services is recognized when the related services have been performed and completed. Rather than making estimates that could be subject to significant variance from actual premium and fee production, the Company recognizes revenues from those sources upon receipt. Such receipts can reflect up to a three to four month lag relative to the effective date of the underlying title policy and are offset concurrently by production expenses and claim reserve provisions.

Quarterly, the Company evaluates the collectability of receivables. Write-offs of receivables have not been material to the Company. 

Reserve for Title Claims – The The total reserve for all reported and unreported losses the Company incurred is represented by the reserve for title claims. The Company’s reserve for unpaid losses and loss adjustment expenses (LAE)(“LAE”) is established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy incurred claims of policyholders that may be reported in the future (“IBNR”).future. The Company continually reviews and adjusts its reserve estimates as necessary to reflect its loss experience and any new information that becomes available. Adjustments resulting from such reviews may be significant.

Reinsurance – The accompanying consolidated balance sheets reflect reserves for claims gross of reinsurance ceded. The accompanying consolidated statements of operations reflect premiums and provision for claims net of reinsurance ceded. The reinsurance arrangements allow management to control exposure to potential claims arising from large risks and catastrophic events. Amounts recoverable from reinsurers are estimated in a manner consistent with the reserves associated with the reinsured policies. Reinsurance premiums, losses, and LAE are accounted for on bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance agreements.

Off-Balance Sheet Arrangements

We do not have transactions or relationships with “special purpose” entities, and we do not have any off-balance sheet financing other than normal operating leases for office space.

Not required to be provided byapplicable as the Company is a smaller reporting company.

The financial statements and schedule listed in item 15(a) (1) hereof are incorporated herein by reference and are filed as part of this report.

Item 8.Financial Statements and Supplementary Data

See the “Index to Financial Statements” at page F-1 f this Annual Report on Form 10-K.

None.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

UnderWe maintain controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of December 31, 2022 was conducted under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluationof the effectiveness of our disclosure controls and procedures as such term is(as defined under Rule 13a-15I promulgatedin Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures, were effective as of December 31, 2021,2022, were effective at the end of the period covered by this Annual Report. reasonable assurance level.

Management’s Report on Internal Control over Financial Reporting

Our managementManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). promulgated under the Exchange Act. Under the supervision andRule 13a-15(c), management must evaluate, with the participation of our management, including ourthe principal executive officer and principal financial officer, wethe effectiveness, as of the end of each fiscal year, of our internal control over financial reporting. The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedure that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

In the course of preparing this Annual Report on Form 10-K and the consolidated financial statements included herein, our management conducted an evaluation of the effectiveness of our internal control over financial reporting based onas of December 31, 2022 using the framework in Internal Control-Integrated Framework (2013)criteria issued by the Committee of Sponsoring Organizations of the Treadway Commission.Commissions (COSO) in the Internal Control-Integrated Framework (2013). Based on ourthat evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2021.2022.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm as we are a smaller reporting company as of December 31, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) that occurred during the fourth quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

None.

None.

PART III

Information related to our directors will be set forth under the caption “Election of Directors” of our proxy statement (the “2022 Proxy Statement”) for our 2022 annual meeting of shareholders. Such information is incorporated herein by reference.Item 10.Directors, Executive Officers and Corporate Governance

Information relating to compliance with section 16(a) of the Exchange Act will be set forth under the caption “Delinquent Section 16(a) Reports” of our 2021 Proxy Statement and is incorporated herein by reference.

Information relating to the Audit Committee and Board of Directors’ determinations concerning whether a member of the Audit Committee of the Board is a “financial expert” as that term is defined under Item 407(d) (5) of Regulation S-K is set forth under the caption “Board and Board Committee Information” of our 2021 Proxy Statement and is incorporated herein by reference.

Information concerning our executive officers is included in Part I, Item 1 of this report under the caption “Information“Information about our Executive Officers.”

We have adopted a code of ethics that applies to our associates, including the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Our code of ethics is posted on our website at www.hgholdingsinc.net. Amendments to and waivers from our code of ethics will be posted to our website when permitted by applicable SEC rules and regulations.

The additional information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2022 and delivered to stockholders in connection with our 2023 annual meeting of stockholders.

Information relating to our executive and director compensation will be set forth under the caption “Executive Compensation” and “Director Compensation” of our 2022 Proxy Statement. SuchThe information required by this item is incorporated herein by reference.reference to our definitive proxy statement to be filed within 120 days of December 31, 2022 and delivered to stockholders in connection with our 2023 annual meeting of stockholders.

Our information relating to this item will be set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” of our 2022 Proxy Statement. Such information is incorporated herein by reference.

Information concerning our now terminated equity compensation plan is included in Part II, Item 5 of this report under the caption “Equity“Equity Compensation Plan Information.Information.”

The additional information required by this item is incorporated herein by reference to our definitive proxy statement to be filed within 120 days of December 31, 2022 and delivered to stockholders in connection with our 2023 annual meeting of stockholders.

OurThe information relating torequired by this item is set forth under the captions “Corporate Governance – Review of Transactions with Related Persons” and “Corporate Governance - Board and Board Committee Information” of our 2022 Proxy Statement. Such information is incorporated herein by reference.reference to our definitive proxy statement to be filed within 120 days of December 31, 2022 and delivered to stockholders in connection with our 2023 annual meeting of stockholders.

OurThe information relating torequired by this item is set forth under the caption “Independent Public Auditors” of our 2022 Proxy Statement. Such information is incorporated herein by reference.reference to our definitive proxy statement to be filed within 120 days of December 31, 2022 and delivered to stockholders in connection with our 2023 annual meeting of stockholders.

PART IV