Filed 2026-03-27 · Period ending 2025-12-31 · 46,052 words · SEC EDGAR
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# HG Holdings, Inc. (STLY) — 10-K
**Filed:** 2026-03-27
**Period ending:** 2025-12-31
**Accession:** 0001437749-26-009993
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/797465/000143774926009993/)
**Origin leaf:** 10a23209012a583df8aedcba6eb988915c4d5e58b3d5814fac724798b8324b00
**Words:** 46,052
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Table of Contents
| UNITED STATES | |
| SECURITIES AND EXCHANGE COMMISSION | |
| Washington, D.C. 20549 | |
| FORM 10-K | |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For the fiscal year ended December 31, 2025
OR
**TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**
For the transition period from to
Commission file number: 001-34964
**HG HOLDINGS, INC.**
(Exact name of Registrant as specified in its Charter)
| Delaware | 54-1272589 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
| 6265 Old Water Oak Road, Suite 204, Tallahassee, FL 32312 | |
| (Address of principal executive offices, Zip Code) | |
Registrants telephone number, including area code: (850) 201-9204
**Securities registered pursuant to Section 12(b) of the Act:**
None
**Securities registered pursuant to Section 12(g) of the Act:**
Common Stock, par value $.02 per share
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: Yes No
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes No
Indicate by check mark whether the Registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes No
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company and emerging growth company in Rule 12b-2 of the Exchange Act, (check one):
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No
Aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant based on the closing price on the over-the-counter market on the Over-The-Counter Quotation Bureau ("OTCQB") on June 30, 2025, the last business day of the Registrants most recently completed second fiscal quarter: $7.6million.
As ofMarch 24, 2026there were 5,107,035outstanding shares of common stock of HG Holdings, Inc., par value $0.02 per share.
Documents incorporated by reference: None
[Table of Contents](#toc)
[](#)TABLE OF CONTENTS
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Part I |
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Item 1 |
Business |
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Item 1A |
Risk Factors |
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Item 1B |
Unresolved Staff Comments |
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Item 1C |
Cybersecurity |
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Item 2 |
Properties |
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Item 3 |
Legal Proceedings |
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Item 4 |
Mine Safety Disclosures |
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Part II |
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Item 5 |
Market for Registrants Common Equity, Related StockholderMatters and Issuer Purchases of Equity Securities |
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Item 6 |
[Reserved] |
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Item 7 |
Managements Discussion and Analysis of Financial Conditionand Results of Operations |
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Item 7A |
Quantitative and Qualitative Disclosures About Market Risk |
27 |
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Item 8 |
Financial Statements and Supplementary Data |
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Item 9 |
Changes in and Disagreements with Accountants on Accountingand Financial Disclosure |
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Item 9A |
Controls and Procedures |
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Item 9B |
Other Information |
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Item 9C |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
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Part III |
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Item 10 |
Directors, Executive Officers and Corporate Governance |
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Item 11 |
Executive Compensation |
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Item 12 |
Security Ownership of Certain Beneficial Owners andManagement and Related Stockholder Matters |
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Item 13 |
Certain Relationships and Related Transactions, and Director Independence |
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Item 14 |
Principal Accountant Fees and Services |
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Part IV |
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Item 15 |
Exhibits and Financial Statement Schedules |
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Item 16 |
Form 10-K Summary |
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Signatures |
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Index to Consolidated Financial Statements |
F-1 |
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2
[Table of Contents](#toc)
**PART I**
[](#)**Item 1.****Business**
**General**
HG Holdings,Inc. (together with its consolidated subsidiaries, the 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),Omega National Title Agency, LLC (ONTA or Omega), Omega National Title of Florida, LLC (ONF) and Omega National Title of Pensacola, LLC (ONP),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 its subsidiary, NCTIC, and providing title agency services through its subsidiaries, NCTG, TAV, ONTA, ONF and ONP.Through NCTIC, the Company underwrites land title insurance for owners and mortgagees as the primary insurer.The Company mainly provides title insurance services in the state of Florida.
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 stockholderreturns.
The Company is also engaged in real estate-related activities through its equity investments in HC Realtyas well as management advisory services provided to affiliates.
The Company was originally incorporated in Delaware in 1984 under the name Stanley Furniture Company, Inc. Until March2, 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., refocusing our business and core strategy ontheinsurance industry.
EffectiveJanuary 1, 2025*,*the Company changed its reportable segments to: (i) Title Insurance and (ii) Corporate and Other. The Corporate and Other segment is comprised of activity previously presented in the Real Estate, Reinsurance and Management Advisory Services segments.This change in reportable segments reflects the changes in the business mix and the manner in which management monitors the performance of its operations.The change in reportable segments hadnoimpact on the Companys historical consolidated financial positions, results of operations or cash flows as previously reported. Where applicable, all prior periods presented have been revised to conform to this new presentation.
**Title Insurance Segment**
Our title insurance segment issues title insurance policies and provides title agency services for residential and commercial real estate transactions.This segment also provides closing and/or escrow services to facilitate real estate transactions.
*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 lenders title insurance policy to protect its position as a holder of a mortgage loan, but the lenders title insurance policy does not protect the property owner.The property owner has to purchase a separate owners title insurance policy to protect its investment.
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*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,encumbrancesor 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 excluded 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 companys 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 buyers 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 a majority of our title insurance policies are issued,the state insurance regulator promulgates title insurance rates.
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*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 refinancing activities. These fees are earned when the title policy is issued. Escrow and other title fees included in our title insurance segment represented approximately
30% of the total title insurance segment revenues in
2025.
*Title Insurance Operations*
*Overview.*The Company issues a majority of its title insurance policies in Florida, through its home office and through a network of affiliated and independent title agents.In 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; however, itis 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 abroadcan 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 Companys revenues from title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond managements 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 throughthis 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 historical loss patterns and other factors.The reserve for incurred but not reported (IBNR) claims, together with the reserve for known claims, reflects managements best estimate of the total costs required to settle all current and future claims on title insurance policies.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 title 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.
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*Reinsurance.*Within our title insurance segment, we limit our maximum loss by reinsuring risk of loss with other insurers (reinsurers) under reinsurance agreements. In these 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 the products.The number of competing companies and the size of such companies vary significantly 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 major title underwriters such as Fidelity National Financial, Inc., First American Financial Corporation, Old Republic International Corporation, Stewart Information Services Corporation, Westcor Land Title Insurance Company, and WFG National Title Insurance Company, aswell as other regional title insurance companies, underwritten title companies and independent agency operations. Certain title insurers may 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 title agency business.
*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.
**Corporate and OtherSegment**
The Corporate and Other segmentcontains the results of management advisory services and other investment activity not related to title insurance.
The Company, through itswholly-ownedsubsidiary, HGMA, engages in providing various management advisory services such as legal entity formation, licensure, regulatory approval, assumption of policies, and other general operational services.
Effective January 1, 2024, the Company, through HGMA, was engaged to providemanagement advisory services to a related captive managing general agency, HP Managing Agency, LLC ("HPMA"), and its affiliates, including but not limited to general management, legal compliance, strategy services and review of potential acquisitions and transactions.The engagement was initially for twelve months from January 1,2024through December 31, 2024, for a monthly fee of $200,000, and was renewed effective January 1,2025for anadditionalsixmonths.HPMA is a related party of the Company as it is controlled by Steven A. Hale II, who serves as ourChairman, Chief ExecutiveOfficerand Director. The engagement expiredin accordance withits terms on June 30, 2025.
Effective April 1, 2023, the Company, through HGMA, was also engagedto provide management advisory services to a related reinsurance intermediary affiliated with HPMA.The services included legal entity formation, licensure, regulatory approval, and other general operational services to allow the intermediary to adequately perform its business functions.The engagement was initially for twelve months from April 1,2023through March 31, 2024, fora monthly fee of $50,000, and was renewed effective April 1,2024for anadditionalnine months, as well as effective January 1,2025for anadditionalsix months.The engagement expiredin accordance withits terms on June 30, 2025.
On April 21, 2025, the Company entered into a Master Services Agreement, effective June 1, 2025, with HP Risk Solutions, LLC (HP Risk), a wholly-owned subsidiary of HP Holding Company, LLC, which is wholly owned by certain affiliates of Mr. Hale, pursuant to which the Company provides certain managerial and operational services to HP Risk for consideration from HP Risk of $6 million per year over the course of three years (the Services Agreement). Foradditionalinformationregardingthe Services Agreement, refer to*Note 3, Significant Transactions,*in the accompanying notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Additionally, the Company owns 250 shares of HC Realtys Common Stock (the HC Common Stock) and 1,025,000 shares of HC Realtys 10.00% Series B Cumulative Convertible Preferred Stock (the HC Series B Stock). As of December 31, 2025, the Company owns approximately28.0%of the voting interest of HC Realty. In June 2024, HC Realty effecteda one(1) for one thousand two hundred (1,200) reverse stock split of its common stock, which resulted in a reduction in the number of our shares of HC Common Stock from 300,000 to 250.
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HC Realty is an internally-managed real estate investment trust (REIT) focused on acquiring, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration (the "GSA") or directly by the federal government agencies or sub-agencies occupying such properties (referred to as Government Properties).HC Realty invests primarily in Government Properties ranging from 10,000 to 100,000 rentable square feet that are in theirinitiallease term after original construction or renovation-to-suit. HC Realty further emphasizes Government Properties that perform law enforcement, publicserviceor other functions that support the mission of the agencies or sub-agencies occupying such properties.Leases associated with the Government 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 of Government Properties; although, HC Realty may elect to invest in Government Properties through indirect investments, such as joint ventures.Steven A. Hale II, ourChairmanand Chief Executive Officer, serves as HC RealtysChairman, Chief Executive Officer and President and a member of the HC Realty board of directors. In addition, Mr. Hale, and certain investors affiliated with Mr. Hale, founded Hale Partnership Capital Management, LLC (HPCM), and Mr. Hale currently serves as HPCMs solemanager. HPCM serves as investment manager and adviserto, andmaypossessvoting and/or investment power over the securities of HC Realty held by, certain other investors in HC Realty.HC Realty is considered to be a related party to the Company.
For information about our reportable segments refer to*Note 8**, Segment Information* in the accompanying notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
**Major Customers**
For the year ended December 31, 2025, two customers accounted for more than 10% of our total consolidated revenue, with HP Risk and HPMA accounting for 23.8% and 11.3%, respectively.For the year ended December 31, 2024, one customer accounted for more than 10% of our total consolidated revenue, with HPMA accounting for 26.1%.
**Forward-Looking Statements**
Certain statements made in this Annual Report on Form 10-K are not based on historical facts but are forward-looking 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 Section27A of the Securities Act of 1933, as amended (the "Securities Act"), Section21E of the Securities Exchange Actof 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, "would," "intends," 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 Companys liquidity in such a way as to limit or eliminate the Companys 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 Companys title insurance operations and/or the business or assets of HC Realty and the value of our investment in HC Realty, such as HC Realty's dependence on leases by the U.S. government and its agencies for substantially all of its revenues, and the risk that the U.S. government reduces its spending on real estate or that it changes its preference away from leased properties. Forward-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 statements, which reflect our managements view only as of the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission (the "SEC"). We make no representation, express or implied, about the accuracy of any 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.
Stockholders should carefully review the Item IA. Risk Factors 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, 2026, are as follows:
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Steven A. Hale II |
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Chairman, Chief Executive Officer and Director |
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Anna A. Lieb |
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Principal Financial and Accounting Officer; Secretary |
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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 Bancof America Securities. Mr. Hale has served as a director of the Company since February 2017, as Chairman of the Companys Board of Directors (the "Board") 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. He has also served as President of HC Realty from August 2020 until January 2022 and again beginning in August 2024.
Anna A. Lieb joined the Company in September2023as the Controller of HGMA, a wholly-owned subsidiary of the Company, and assumed the role of Principal Financial and Accounting Officer, Secretary effective May 31, 2024. Mrs. Lieb has over 16years of experience in finance and accounting, specializing in the insurance industry. Prior to joining the Company, Mrs. Lieb served as a Financial Controller and Vice President of SEC Reporting at SiriusPoint Ltd. from March 2019 to August 2023. From November 2013 until joining SiriusPoint Ltd., Mrs. Lieb served as an Accounting Advisory and Policy Manager at Marsh & McLennan Companies, Inc. Prior to that, Mrs. Lieb was an Audit Manager at KPMG LLP.
**Employees**
As of December 31, 2025, we had 69employees, 68of which werefull-time employees.
**Available Information**
Our principal Internet address is www.hgholdingsinc.net. We make available, free of charge, on this website our annual, quarterly and current reports, proxy statements, and other filings with the SEC, including amendments to 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 SECs 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.
6265 Old Water Oak Road, Suite 204
Tallahassee, Florida32312
Attention: Mr. Steven A. Hale II
Telephone: 850-201-9204
Email: investor@hgholdingsinc.net
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**Item 1A.****Risk Factors**
*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.*
**Risks Related to the Company**
**We have limited operating history in the title insurance and title agency businesses.**
Since the Asset Sale on March 2, 2018, we completed the acquisitions of NCTIC, through which we provide title insurance, and NCTG, TAV, ONTA, ONF and ONP, through which we provide title agency services. We have limited operating history in the title insurance and title agency lines of business. Accordingly, our future success may in part be subject to the risks, expenses, uncertainties and delays inherent in establishing a footprint in thisline of business and our ultimate success in the title insurance and title agency business cannot be assured.
Additionally, we may seek to acquire other assets in the title insurance and title agency businesses. If we are not successful in identifying, acquiring and operating such assets, our results of operations and cash flows may be adversely affected and our stock price may decline.
**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 (as described below)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.In general, an ownership changewould occur if the percentage of our common stock held by one or more 5% shareholders increases by more than 50 percentage pointsover the lowest percentage of our common stock owned by such shareholder during a three-year test period.
**Resources may be expended in researching potential acquisitions that might not be consummated.**
The investigation of additional businesses or 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. 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, 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 or proposes to engage 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 issuers 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 securities of HC Realty we holdmay be considered investment securities and we may fall within the scope of Section 3(a)(1)(C) of the 1940 Act.
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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 set forth in Rule 3a-1under the 1940 Act, which provides a safe harbor from investment company registration for an issuer if no more than 45% of the value of its total assets consists of, and no more than 45% of its net income after taxes is derived from, securities, other than, among other limited types of securities, those issued by companies which are controlled primarily by such issuer. Weacquired an equity interest in HC Realty on March 19, 2019. On April 3, 2020, April 29, 2020, and June 29, 2020, we purchased an aggregate of 825,000 additional shares of HC Series B Stock for an aggregate purchase price of $8.25 million. As a result of these purchases, we now own approximately28.0% of the voting interest in HC Realty. We believe that these additional purchases allow us to rely on the safe harbor 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, 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 Series B Stock so that we primarily control HC Realty within the meaning of Rule 3a-1 of the 1940 Act.
We havenot sought or obtained an exemptive order, no-action letter or any other assurances from the SEC or its staff regarding our ability to rely onRule 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.
**Cybersecurity risks and cyber incidents may adversely affect our business in the event we or any other party that provides us with essential services experiences cyber incidents**.
We and any other party that provides us with services essential to our operations (including, but not limited to, our title insurance and title agency subsidiaries) are vulnerable to service interruptions or damages from any number of sources, including computer viruses, malware, unauthorized access, energy blackouts, natural disasters, terrorism, war and telecommunication failures.Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of our information resources. These incidents may be an intentional attack or an unintentional event and could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption.
The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusions, including by computer hackers, nation-state affiliated actors, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased, and will likely continue to increase in the future. Such threats are prevalent and continue to rise, are increasingly difficult to detect, and come from a variety of sources, including traditional computer hackers, threat actors, hacktivists, organized criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage and are expected to continue to engage in cyberattacks, including, without limitation, nation-state actors for geopolitical reasons and in conjunction with military conflicts and defense activities. During times of war and other major conflicts, we and the third-party service providers upon which we may rely may be vulnerable to a heightened risk of these attacks, including retaliatory cyberattacks.
The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our stockholder relationships. As we and the parties that provide essential services to us increase our and their reliance on technology, the risks posed to the information systems of such persons have also increased. We have implemented processes, procedures and internal controls to help mitigate cyber incidents, but these measures do not guarantee that a cyber-incident will not occur or that attempted security breaches or disruptions would not be successful or damaging. A cyber incident could materially adversely impact our business, financial condition, results of operations, cash flows, or our ability to satisfy our debt service obligations. There also may be liability for any stolen assets or misappropriated Company funds or confidential information. Any material adverse effect experienced by us or other parties that provide us with services essential to our operations could, in turn, have an adverse impact on us.
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**We may use artificial intelligence in our business and we are subject to risks related to such use.**
We mayuse artificial intelligence in our business or incorporate artificial intelligence into our products and services. The artificial intelligence we may use may not operate properly or as expected, which could cause our title insurance subsidiaries to write policies they may not have otherwise written, misprice policies, assume greater risks, or overpay customer claims, among other potential negative impacts on our business and operations. Our existing competitors, new entrants, technology companies or other third parties may leverage artificial intelligence to the benefit of their business or operations or may incorporate artificial intelligence into their products and services more quickly or successfully than we do, which could make us less competitive and negatively impact our results of operations. In addition, if the content, analyses, output or recommendations produced by or with the assistance of artificial intelligence are unintentionally, or are alleged to be, deficient, inaccurate or misleading, our business, financial condition and results of operations may be adversely impacted.
**We hold our cash and restricted cash in depository accounts that could be adversely affected if the financial institutions holding such deposits fail.**
In 2023, certain specialized banking institutions with elevated concentrations of uninsured deposits experienced large deposit outflows coupled with insufficient liquidity to meet withdrawal demands, resulting in the institutions being placed into Federal Deposit Insurance Corporation (FDIC) receiverships. Wemaintain our cash and restricted cash at insured financial institutions. The account balances at each institution periodically substantially exceed the FDICinsurance coverage of $250,000, and, as a result, there is a concentration of credit riskrelated to amounts in excess of FDICinsurance coverage. If a bank in which we hold funds fails or is subject to adverse conditions in the financial or credit markets, we may be subject to a risk of loss or delay in accessing all or a portion of our funds exceeding the FDIC insurance coverage, which could adversely impact our short-term liquidity, ability to operate our business, and financial performance. To date, we have not experienced any material loss as a result of the failure of any financial institution in which we hold cash or restricted cash in depository accounts.
***Catastrophic events, including, but not limited to, natural events and the outbreak of diseases, along with geopolitical concerns and changes to trade policy, could have a material adverse impact on our financial performance and results of operations.***
A significant natural disaster, such as a hurricane, tropical storm, tornado, windstorm, earthquake, hail, and othercatastrophic events, including the occurrence of a contagious disease or illness, such as COVID-19 or any other future epidemics or pandemics, could have a material adverse impact on our business, results of operations, and financial condition. In addition, climate change could result in an increase in the frequency or severity of natural disasters. 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 our business. Additionally, geopolitical concerns (including the ongoing conflicts between Russia and Ukraine and in the Middle East), the imposition of tariffs and other changes to trade policy in the U.S. and other jurisdictions, and terrorist attacks could result in increased volatility in, or damage to, real estate prices and the United States and the worldwide financial markets and economy more generally, including with respect to supply chain disruptions, labor market interruptions and government interventions, all of which could have a material adverse effect on our results of operations and financial condition.
**Our common stock****is traded 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 national 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 shares of common stock were traded on other markets.
**We have recorded goodwill as a result of prior acquisitions, and an economic or business downturn could cause these balances to become impaired, requiring write-downs that would reduce our operating income.**
Goodwill aggregated approximately
$6.5 million, or approximatel
y
14% of our total assets as of
December 31, 2025. 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, 2025, 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.
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**Risks Related to our Title Insurance and Title Agency Businesses**
**Conditions in the real estate market generally impact the demand for a substantial portion of our****title insurance and title agency subsidiaries****products and services and NCTIC****s title claims experience.**
Demand for a substantial portion of our title insurance and title agency subsidiaries products and services generally decreases as real estate activity, such as sales, mortgage financing and mortgage refinancing, decreases. We have found that real estate activityand, as a result, the demand for our title insurance and title agency subsidiaries products and services, generally decreases in the following situations:
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When mortgage interest rates are high or rising; |
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When the availability of credit, including commercial and residential mortgage funding, is limited; and |
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When real estate affordability is declining. |
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National inventory levels for residential real estate have declinedover the past several years and remain below historical average levels. The number of residential purchase transactions has also declined, particularly as a result of decreased demand due to increased mortgage interest rates beginning in 2022.Residential refinance activity is also strongly correlated with changes in mortgage interest rates, and rising mortgage interest rates during previous years have, expectedly, had an adverse impact on our refinance business, whichis expected to continue for so long as mortgage interest rates remain high relative to the interest rates of outstanding mortgages. Higher interest rates have also negatively impacted the volume of commercial transactions since 2022.
Additionally, these market conditions and the increase in foreclosures that often results therefrom, may adversely impact NCTICs title claims experience. Historically, increasing foreclosure activity has led to an increase in title claims.
**Unfavorable economic conditions may adversely affect our title insurance and title agency 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 our title insurance and title agency subsidiaries core title and settlement businesses.
The demand for our title insurance and title agency 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.Mortgage rates remained very high after emergency actions taken by the Federal Reserve to substantially increase its benchmark interest rate in an attempt to control inflation during 2022 and 2023. In the latter partof2025,the Federal Reserve lowered thefederal funds rate several times to a range of3.50% to 3.75% as of December 31, 2025.While the latest and potential future Federal Reserve rate decreasesmay positively impact the title insurance market, mortgage rates continue to remain relatively high as compared to pre-2022levels and will likely continue to contribute to decreased real estate activity in the upcoming year. Ongoingpolitical and market uncertainties (including tariff policies)are contributing to the suppressed volume of real estate activity.In addition, expectations of further Federal Reserve rate decreases may notmaterializeand the Federal Reserve may increase rates in the future to combat inflation, which wouldlikely havea negative impact on the title insurance market.
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 our title insurance and title agency subsidiaries businesses could be materially adverse, including a significant reduction in revenues, earnings and cash flows, deterioration in the value of or return on their investments and increased credit risk from customers and others with obligations to our title insurance and title agency subsidiaries.
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**Changes in our****relationships with large mortgage lenders or government****sponsored enterprises could adversely affect our business.**
Large mortgage lenders and government-sponsored enterprises, because of their significant role in the mortgage process, have significant influence over our title insurance and title agency subsidiariesand other service providers.Changes in ourrelationship with any of these lenders or government-sponsored enterprises, the loss of all or a portion of the business we derivefrom these parties, any refusal of these parties to accept ourproducts 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 our products and services, could have a material adverse effect on our business.
**A downgrade by ratings agencies, reductions in statutory capital and surplus maintained by NCTIC, our****title insurance underwriter, or a deterioration in other measures of financial strength could adversely affect our business.**
The financial strength of NCTIC may be measured by ratings provided by ratings agencies. Demotech, Inc. currently rates NCTICs operations. NCTICs financial strength ratings are Exceptional or A by Demotech, Inc. This rating provides the ratings agencys perspective on NCTICs financial strength, operating performance and cash generating ability.The ratings agency will continually review these ratings and the ratings are subject to change.If NCTICs ratings are downgraded from current levels by Demotech, Inc. or any other ratings agencies, NCTICs 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 of an insurance company.Accordingly, if the statutory capital and surplus of NCTIC is reduced from the current level, or if there is a deterioration in other measures of financial strength, NCTICs results of operations, competitive position and liquidity could be adversely affected.
**The issuance of title insurance policies and related activities by title agents, some of which operate with substantial independence from us, could adversely affect our business.**
Our title insurance subsidiaries issue a significant portion of their policies through title agents, some that may operate largely independent of us.There is no guarantee that these title agents will fulfill their contractual obligations to our title insurance subsidiaries, which contracts include limitations that are designed to limit our title insurance subsidiaries risk with respect to the title agents activities.In addition, regulators are increasingly seeking to hold companies such as ourtitle insurance subsidiaries responsible for the actions of these title agents and, under certain circumstances, our 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 our 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, Inc., First American Financial Corporation, Old Republic International Corporation, Stewart Information Services Corporation, Westcor Land Title Insurance Company, and WFG National Title Insurance Company, aswell 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, including artificial intelligence, could, over time, significantly disrupt the traditional business model of financial services and real estate-related companies, including title insurance companies. These alternative products or disruptive technologies, if permitted by regulators, could have a material adverse effect on our revenues and earnings.
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**We depend on our ability to attract and retain key personnel and agents, and our inability to do so could adversely affect our business.**
Competition for skilled and experienced personnel in our industry is high, and our success is substantially dependent on our ability to attract and retain such personnel. We may have difficulty hiring and retaining the necessary marketing and management personnel to support future growth plans. Also, our results of operations and financial condition could be adversely affected if we are unsuccessful in attracting and retaining new agents.
**Errors and fraud involving the transfer of funds may adversely affectour title**
**insurance and title agency subsidiaries.**
Our title insurance and title agency subsidiaries rely on their systems, employees and domestic banks to transfer funds on behalf of our title insurance and title agency subsidiaries as well as title agents that are not affiliates of ours. These transfers are susceptible to user input error, fraud, system interruptions, incorrect processing and similar errors that from time-to-time result in lost funds or delayed transactions.Our title insurance and title agency subsidiaries email and computer systems and systems used by their 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 our titleinsurance and title agency subsidiaries or their agents to improperly transfer funds. Funds transferred to a fraudulent recipient are often not recoverable.In certain instances, our titleinsurance and title agency subsidiaries may be liable for those unrecovered funds.The controls and procedures used by our title insurance and title agency 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 our titleinsurance and title agency subsidiaries****operations, make it more costly or burdensome to conduct such operations or result in decreased demand for their products and services.**
Our title insurance business is regulated by various federal, state, and local governmental agencies and operates within statutory guidelines.The industry in which our title insurance business operates and the markets into which it sells its products are also regulated and subject to statutory guidelines.In general, our 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.
For instance, the Consumer Financial Protection Bureau (CFPB) is charged with protecting consumers by enforcing federal consumer protection laws and regulations. The CFPB is an independent agency and funded by the United States Federal Reserve System. Its jurisdiction includes banks, credit unions, securities firms, payday lenders, mortgage servicing operations, foreclosure relief services, debt collectors and other financial companies. The nature and extent of these regulations include, but are not limited to: conducting rule-making, supervision, and enforcement of federal consumer protection laws; restricting unfair, deceptive, or abusive acts or practices; marshalling consumer complaints; promoting financial education; researching consumer behavior; monitoring financial markets for new risks to consumers; and enforcing laws that outlaw discrimination and other unfair treatment in consumer finance.
Governmental authorities regulate our insurance subsidiaries in the states in which we do business. These regulations generally are intended for the protection of policyholders rather than stockholders. The nature and extent of these regulations vary from jurisdiction to jurisdiction, but typically involve:
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approving or setting of insurance premium rates; |
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standards of solvency and minimum amounts of statutory capital and surplus that must be maintained; |
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limitations on types and amounts of investments; |
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establishing reserves, including statutory premium reserves, for losses and loss adjustment expenses; |
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regulating underwriting and marketing practices; |
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regulating dividend payments and other transactions among affiliates; |
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prior approval for the acquisition and control of an insurance company or of any company controlling an insurance company; |
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licensing of insurers, agencies and, in certain states, escrow officers; |
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regulation of reinsurance; |
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restrictions on the size of risks that may be insured by a single company; |
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deposits of securities for the benefit of policyholders; |
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approval of policy forms; |
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methods of accounting; and |
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filing of annual and other reports with respect to financial condition and other matters. |
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These regulations may impede or impose burdensome conditions on rate increases or other actions that we might want to take to enhance our operating results. In addition, state regulators perform periodic examinations of insurance companies, which could result in increased compliance or legal expenses.
Regulatory oversight could require us to raise capital, and/or make it more difficult to deploy capital.For example, our regulatory capital requirementshave historically applied only at the subsidiary level, specifically our insurance underwriter subsidiaries.However, the National Association of Insurance Commissioners (the "NAIC") hasadopted an approach to assess group risks and capital adequacy and assist in the regulation of insurer solvency using the Group Capital Calculation (the GCC), which uses an aggregation methodology for all entities within an insurance holding company system. The adoption of the GCC by jurisdictions in which we are regulatedcould increase our prescribed capital requirements, the level at which regulatory scrutiny intensifies, as well as significantly increase our cost of regulatory compliance. 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 our title insurance and title agency subsidiaries products or services could prohibit or limit their 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 their competitive position.The impact of these changes would be more significant if they involve the Florida jurisdiction, as a majority of our title premiums are currently generated in the state of Florida, anda proposed bill aligning Florida law with theGCCapproach adopted by the NAICiscurrentlyworking its way through the Florida legislature. These changes may restrict our ability to acquire assets or businesses, may limit the manner in which weconductour business or otherwise may have a negative impact on our ability to generate revenues, earnings and cash flows. Additionally, in jurisdictions where rates are not promulgated by the state insurance regulator, these changes may compel us to reduce our prices and may restrict our ability to implement price increases.
**Regulation of title insurance rates could adversely affect our business.**
Title insurance rates are subject to extensive regulation, which varies from state to state.Our title insurance subsidiaries currently operate primarily in the state of Florida. In Florida, rates are promulgated by the state insurance regulator. Ourinsurance subsidiaries ability to promptly adapt to changing market dynamics through price adjustments may be limited due to the rates promulgated by the states insurance regulator, particularly in a declining market.
**Our title insurance business may be adversely affected by business or regulatory conditions that disproportionately affect Florida.**
Our title insurance subsidiaries currently operate primarily in the state of Florida. As a result of the significant income derived from customers in this state, our title insurance business is exposed to adverse business or regulatory conditions that significantly or disproportionally affectFlorida.For example, a declining business climate or real estate market that is localized inFloridacould have an adverse effect on the title insurance segments results of operations.Adverse regulatory developments, including reductions in rates or increased regulatory or capital requirements inFloridacould similarly adversely affect the title insurance segments business, financial condition and results of operations.
**Changes in certain laws and regulations, and in the regulatory environment in which weoperate, could adversely affect our business.**
Federal and state officials are discussing various potential changes to laws and regulations that could impact our businesses, including the reform of government-sponsored enterprises such as the Federal National Mortgage Association (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 our titleinsurance and title agency subsidiaries and theircustomers operate, could adversely impact the volume of mortgage originations in the United States and our title insurance and title agency subsidiaries competitive position and results of operations.
***The overturning of the Chevron doctrine could have an unfavorable impact on us.***
In June 2024, the U.S. Supreme Court issued a decision in theLoper Bright Enterprises v. Raimondocase that overturned the long-standing federal Chevron doctrine. The Chevron doctrine set forth a test that outlined when courts should defer to an agencys interpretation of federal law. Under the doctrine, if Congress had not spoken directly to the precise issue in question, the courts were to defer to the agencys interpretation so long as the interpretation was reasonable. Under theLoper Brightdecision, courts are now required to exercise their independent judgment in deciding whether an agency has acted within its statutory authority and may not defer to an agency interpretation of the law simply because a statute is ambiguous.
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The overturning of the Chevron doctrine is likely to result in challenges to numerous agency interpretations in various areas of law including energy, environment, taxation, and labor, among others. If these challenges are upheld, they could have both favorable and unfavorable impacts on us, depending on whether the interpretations that are overturned were more favorable toward our business and operations than subsequent revised agency interpretations. The likely increase of challenges to agency actions may also increase legal costs and create less certainty around agency actions, at least in the near term.
**Actual claims experience could materially vary from the expected claims experience reflected in NCTIC**
**s reserve for incurred but not reported claims.**
NCTIC maintains a reserve for IBNR claims pertaining to its titleinsurance 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 experienced as a result of the COVID-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 are 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.
**Risks Related to our Investment in HC Realty**
**Our investment in HC Realty may lose value.**
We owned approximately28.0%ofthe voting interest in HC Realty as of December 31, 2025. There is no guarantee that HC Realty will be successful implementing its business strategy for the acquisition, financing, ownership and management of Government Properties and, as a result, our investment in HC Common Stock and HC Series B Stock may lose value. Additionally, HC Realtyhas paused distributions on HC Common Stock and HC Series B Stock, which has resultedin our loss of revenue historically derived from such distributions, and we have recognized an impairment of our investment in HC Series B Stock.
**HC Realty depends on leases by the U.S. government and its agencies for substantially all of its revenues and any failure by the U.S. government and its agencies to perform their obligations under their leases or renew their leases upon expiration could have a material adverse effect on our investment in HC Realty.**
As of December 31, 2025, leases by the U.S. government and its agencies accounted for substantially all of HC Realtys revenues. We expect that leases to agencies of the U.S. government will continue to be HC Realtys primary source of revenues for the foreseeable future. Due to such concentration, any failure by the U.S. government to perform its obligations under its leases or a failure to renew its leases upon expiration, could cause interruptions in the receipt of lease revenue or result in vacancies, or both, which would reduce HC Realtys revenue until the affected properties are leased, and could decrease the ultimate value of the affected property upon sale and have a material adverse effect on our investment in HC Realty. In addition, as part of ongoing efforts to reduce waste, the U.S. government and the GSA are reaching out to all tenant agencies to see if there are opportunities to reduce space usage.
By executive order on January 20, 2025, President Trumpestablishedthe Department of Government Efficiency (DOGE) to maximize government efficiency and productivity. Among the actions taken by DOGE toward this goal were the terminations of leases by governmentagencyor department tenants atnumerousreal estate properties around the country.While DOGE was disbanded in November 2025, any further effort by the U.S. government toterminate leases by government agency or department tenants for purposes of maximizing government efficiency and productivity, or otherwise, could materially and adversely affect HC Realtysbusiness, financial condition and results of operations,and our investment in HC Realty.
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**Some of HC Realtys leases with the U.S. government permit the U.S. government to terminate the lease and discontinue paying rent prior to the lease expiration date.**
From time to time, HC Realty enters into leases that provide the U.S. government the right to terminate the lease during a specified period prior to the expiration of the total term stated in the lease, with such period often referred to as the soft term. In the event that a portion of HC Realtys U.S. government tenant agencies exercise their termination rights during a soft term period prior to the expiration of the total term stated in the lease, for government efficiency and productivity reasons,fiscal policy reasons, security concerns or other reasons, and HC Realty is not able to lease the vacant space to another tenant in a timely manner or at all, it could have a material adverse effect on HC Realtys business, financial condition and results of operations, and our investment in HC Realty.
**The U.S. government may consolidate its existing GSA leases, which may have an adverse effect on HC Realtys business and results of operations and our investment in HC Realty.**
The U.S. government has been acting to reduce its expenses by consolidating various lease agreements for single office buildings in which several agencies and/or branches are located. HC Realty faces the risk that such consolidation will take place in one or more of its Government Properties, leading lessees to migrate to a property that is not beneficially owned by HC Realty. There can be no assurance that the U.S. government will not consolidate GSA leases. Because many of the Government Properties were built or renovated for specific GSA lessees, it may be difficult to find other tenants interested in facilities with these specifications. HC Realty may consequently have to invest significant amounts of capital to renovate Government Properties with GSA specifications for other tenants. The vacancies or costs attendant to renovations for new tenants resulting from U.S. government lease consolidation could significantly impair HC Realtys revenues and business strategy and our investment in HC Realty.
**The value of our 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. HC Realtys continued qualification as a REIT depends on its satisfaction of certain asset, income, organizational, distribution and stockholder ownership requirements on a continuing basis. HC Realtys 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 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 Realtys failure to qualify as a REIT could impair its ability to expand business and raise capital and could adversely affect the value of our investment in HC Common Stock and HC Series B Stock.
**Risks Related to Conflicts of Interest**
**Our Chairman and Chief Executive Officer, who is also a director, may have potential or actual conflicts of interest because of his positions with HPCM and HC Realty.**
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 Partnership Fund, L.P. and related entities (collectively, the Hale Funds) and certain holders of HC Series B Stock other than us. The Hale Funds own approximately74.0%of our outstanding common stock. We also own HC Series B Stock and HC Common Stock. Mr. Hale also serves as Chairman, Chief Executive Officer and President and a director of HC Realty.
Mr. Hale owes fiduciary duties to (i) us, (ii) HC Realty as a result of his position with HC Realty and (iii) the Hale Funds and certain holders of HC Series B Stock other than us as a result of his position with HPCM, the investment adviser to these parties.As a result, Mr. 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 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 other holders of HC Series B Stock advised by HPCM.For example, these potential conflicts could arise over matters such as funding and capital matters.
17
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**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
89.7%of the voting power represented by our outstanding common stock. If these stockholders act together, whether by written consent or at a duly called and held meeting of stockholders, they may be able to exert significant control over our management and affairs requiring stockholder approval, such as the election of directors or our dissolution. 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 Chief Executive Officer, who will be employed on a part-time basis for the foreseeable future, currently has outside business interests that will require his time and attention and may interfere with his ability to devote all of his time to our business, which may adversely affect our business and operations.**
Mr. Hale, our Chief Executive Officer, will be employed for the foreseeable future on a part-time basis and has outside business interests that could require substantial time and attention. Mr. Haleis also associated with HPCM and HC Realty and devotes significant time to their affairs. We cannot accurately predict the amount of time and attention that will be required of Mr. Hale to perform his ongoing duties related to outside business interests. The inability of Mr. Hale to devote sufficient time to managing our business could have a material adverse effect on our business and operations.
**Item 1B.****Unresolved Staff Comments**
None.
**Item 1C.** **Cybersecurity**
As part of our commitment to maintaining the integrity, confidentiality, and availability of our information assets, the Company places a significant emphasis on cybersecurity. The Companys risk management program is designed to comply with laws and regulations applicable to cybersecurity. The Board is responsible for overseeing the Companys risk management program and cybersecurity is a critical element of this program. The Company's management, including its Director of Information Technology, is responsible for the day-to-day administration of the Companys risk management program and its cybersecurity policies, processes, and practices. Our Director of Information Technology has served in similar roles in information technology and information security for over 20 years. He holds an undergraduate degree in Management Information Systems.
Our strategies, policies, and initiatives aimed at protecting our systems and data against potential threats are outlined below.
*1.* Cybersecurity Governance:
The Company hasestablished a robust governance framework to oversee cybersecurity initiatives. This framework includes:
| | | Regular risk assessments by management, including our Director of Information Technology, and audits to identify vulnerabilities and areas for improvement. The Company performs annual financial and risk assessment audits aimed at identifying potential security threats. The Board has responsibility for oversight of potential threats relating to cybersecurity. In furtherance of such responsibility, the Director of Information Technology reports to the Board as needed on information about such threats, which may include the current cybersecurity threat landscape, defensibility measures implemented by the Company, the health of the Companys information security system, and the effectiveness of the Companys cybersecurity controls. | |
| | | Clear delineation of roles and responsibilities within the organization for cybersecurity-related tasks. | |
| | | The Company utilizes third-party vendors to monitor anti-virus, anti-malware as well as for training and security awareness of the employees. The Company actively manages cybersecurity risks associated with third-party vendors. We require all vendors to provide SOC 2 reports and perform annual reviews of these reports to ensure they continue to maintain appropriate security controls and safeguards. For vendors unable to provide a SOC 2 report, the Company requires alternative documentation detailing their cybersecurity policies, processes, and controls, which are reviewed and assessed prior to engagement and on an ongoing basis. | |
*18*
[Table of Contents](#toc)
*2.* Cybersecurity Policies:
The Company has implemented a comprehensive set of cybersecurity policies and procedures designed to mitigate risks and protect our information assets. These policies cover areas such as:
| | | Access control: Ensuring that access to sensitive systems and data is granted only to authorized personnel and regularly reviewed and updated. | |
| | | Incident response: Establishing procedures for responding to cybersecurity incidents in a timely and effective manner.This includes notifying appropriate stakeholders, conducting a thorough investigation, and implementing remediation measures to prevent future occurrences. | |
| | | Employee training: Providing ongoing cybersecurity awareness training to all employees to ensure they understand their role in protecting company assets. | |
3. Cybersecurity Compliance:
The Company is committed to complying with all applicable cybersecurity regulations and standards. We regularly review our cybersecurity practices to ensure they align with industry best practices and regulatory requirements.
Cybersecurity is a top priority for usand we are dedicated to continuously improving our cybersecurity posture to protect our systems and data from evolving threats. By implementing robust governance, policies, technologies, and compliance measures, we strive to maintain the trust and confidence of our stakeholders in our ability to safeguard their information.
Pursuant to the Companys cybersecurity policy, the Board will be promptly notified of any material cybersecurity incident required to be disclosed under Item 1.05 of Form 8-K and shall oversee the Companys response to such matter.
In *2025,* we did not identify any cybersecurity threats that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, despite our efforts, we cannot eliminate all risks from cybersecurity threats, or provide assurances that we have *not* experienced an undetected cybersecurity incident. For more information about these risks, please see Item *1A.* Risk Factors Risks Related to the Company - Cybersecurity risks and cyber incidents *may*adversely affect our business in the event we or any other party that provides us with essential services experiences cyber incidents in this Annual Report on Form *10*-K.
**Item 2.****Properties**
Our corporate headquarters is located in Tallahassee, Floridawhere we lease office space. The Companys subsidiaries, principally Omega, lease office space throughout Florida. It is our opinion that these leasedproperties are in good operating condition, suitable, and adequate for present uses.
**Item 3.****Legal Proceedings**
The information required for this Part I, Item 3is incorporated by reference to the discussion under the heading Litigation in *Note 12, Commitments and Contingencies* in the accompanying notes to the Consolidated Financial Statements included in Part II, Item 8of this Annual Report on Form 10-K.
**Item 4.****Mine Safety Disclosures**
Not Applicable.
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**PART II**
**Item 5.****Market for Registrant****s Common Equity, Related Stockholder Matters and Issuer****Purchases of Equity Securities**
**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 12, 2026, we had approximately 367beneficial 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**
In May2024, the Board authorized the repurchase of up to $1.5 million of shares of the Companys common stock (the 2024 Repurchase Program) and discontinued therepurchase program that had been authorized in 2022. The authorization didnot obligate the Company to acquire a specific number of shares during any period and didnot have an expiration date. Repurchases under the 2024 Repurchase Program couldbe made from time to time in the open market, or through privately negotiated transactions or otherwise, in such quantities, at such prices, in such manner and on such terms and conditions as the authorized officers of the Company determined werein the best interests of the Company. Repurchasesalso could be made under a plan adopted pursuant to Rule 10b5-1 promulgated under theExchange Act.
In December 2025, the Board authorized a new share repurchase program pursuant to which the Company may repurchase up to $1.5 million of its outstanding common stock (the 2025 Repurchase Program), which replaced the 2024 Repurchase Program. Theauthorization doesnotobligate the Company to acquire a specific number of shares during any period and doesnothave an expiration date. Repurchases under the2025Repurchase Programmaybe made from time to time in the open market, or through privately negotiated transactions or otherwise, in such quantities, at such prices, in such manner and on such terms and conditions as the authorized officers of the Company determine are in the best interests of the Company. Repurchasesmayalso be made under a plan adopted pursuant to Rule10b5-1promulgated under the Exchange Act.
During the yearendedDecember 31, 2025,the Company repurchased 606,055 sharesof common stock (203,733of which were repurchasedunder theshare repurchase programsand 402,322 of which were repurchased from three related stockholders outside of, and as an exception to, the share repurchase programs)at a weighted average price per share of $7.23.
The following table summarizes the Companys repurchase activity, including activity under the share repurchase programs, for the three months ended December31, 2025:
|
|
|
|
|
|
|
|
|
|
|
Total number of shares |
|
|
Maximum dollar value |
|
|
|
|
|
Total number of |
|
|
|
|
|
|
purchased as part of |
|
|
of shares that may yet |
|
|
|
|
|
shares |
|
|
Average price paid |
|
|
publicly announced |
|
|
be purchased under the |
|
|
|
Period |
|
purchased |
|
|
per share |
|
|
plans or programs |
|
|
plans or programs |
|
|
|
October 2025 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
431,106 |
|
|
|
November 2025 |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
431,106 |
|
|
|
December 2025 |
|
|
97,678 |
|
|
$ |
4.25 |
|
|
|
97,678 |
|
|
$ |
1,084,869 |
|
|
|
Total |
|
|
97,678 |
|
|
$ |
4.25 |
|
|
|
97,678 |
|
|
$ |
1,084,869 |
|
|
20
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|
Item 6. |
Reserved |
|
|
Item 7. |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
|
The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
The statements in this discussion regarding business outlook, our expectations regarding our future performance, liquidity and capital resources and other non-historical statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited tothe risks and uncertainties described in Part I, Item 1A Risk Factors. Our actual results may differ materially from those contained in or implied by any forward-looking statements.
**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 on Form 10-K.
*Title Insurance Segment Trends and Conditions*
Our title insurance segment issues title insurance policies and provides title agency services on residential and commercial real estate transactions.This segment also provides closing and/or escrow services to facilitate real estate transactions.
Our title insurance segment revenue is closely related to the level of real estate activity, such as 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. A shortage in the supply of homes for sale, elevated home prices, high mortgage interest rates and inflation have created volatility in the residential real estate market since 2021. In addition, geopolitical uncertainties and other macroeconomic factors may continue to contribute to volatility in domestic and global arenas.
The industry as a whole has experienced lower real estate transaction volume in recent years, largely due to higher mortgage interest rates as compared to pre-2022levels. In the latter part of2025,the Federal Reserve lowered thefederal funds rate several times to a range of3.50% to 3.75% as of December 31, 2025; however, mortgage rates have remained elevated relative to pre-2022levels and continue to affect affordability and transaction volumes. Despite continued elevated mortgage rates, theMortgage Bankers Association (the MBA) projects a gradual recovery in the housing market.Per the MBAs 2026 Mortgage Finance Forecast, total U.S. single-family mortgage origination volume is expected to increase to approximately $2.2 trillion in 2026, compared with estimated volumes in 2025 of approximately $2.0 trillion, as both purchase and refinance activity are forecast to grow.
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 financing. 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 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 recent years deviated from historical patterns due tochanges in interest rates and other market conditions.
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*Corporate and Other Segment*
Effective January 1, 2025, the Company changed its reportable segments to: (i) Title Insurance and (ii) Corporate and Other. The Corporate and Other segment is comprised of activity previously presented in the Real Estate, Reinsurance and Management Advisory Services segments. This change reflects changes in the business mix and the manner in which management monitors performance, and had no impact on the Companys historical consolidated financial position, results of operations or cash flows. Where applicable, prior periods have been revised to conform to this presentation. TheCorporate and Other segment includes results of management advisory services and other investment activity not related to title insurance. The Company, through its wholly-owned subsidiary, HGMA, engages in providing various management advisory services such as legal entity formation, licensure, regulatory approval, assumption of policies and other general operational services. In addition, the Corporate and Other segment includes the results of the Companys investment in a related party, HC Realty.The Company currently owns approximately 28.0% of the voting interest in HC Realty through its ownership of 250 shares of HC Common Stock and 1,025,000 shares of HC Series B Stock. HC Realty owns and operates a portfolio of Government Properties leased to and occupied by U.S. government tenant agencies and sub-agencies administered by the GSA or directly by federal agencies. Aspart of ongoing efforts to reduce space usage, the U.S. government and the GSA may seek opportunities to reduce leased space across tenant agencies. As of December 31, 2025, leases by the U.S. government and its agencies accounted for substantially all of HC Realtys revenues. In the event the U.S. government reduces spending on real estate,changes its preferences away from leased properties,or exercises early termination rightswith respect to any lease,HC Realtys revenues, and the value of our investment in HC Realty, could be adversely affected.
**Results of Operations**
The following table sets forth the key items discussed in the results of operations section below for the years endedDecember 31, 2025and2024(dollar amounts in thousands):
|
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
|
Change |
|
|
|
Net premium written |
|
$ |
6,941 |
|
|
$ |
6,009 |
|
|
$ |
932 |
|
|
|
Escrow and other title fees |
|
|
2,795 |
|
|
|
2,501 |
|
|
|
294 |
|
|
|
Management fees |
|
|
5,000 |
|
|
|
3,003 |
|
|
|
1,997 |
|
|
|
Total revenue |
|
$ |
14,736 |
|
|
$ |
11,513 |
|
|
$ |
3,223 |
|
|
|
Cost of revenues |
|
|
(485 |
) |
|
|
(595 |
) |
|
|
110 |
|
|
|
Gross profit |
|
$ |
14,251 |
|
|
$ |
10,918 |
|
|
$ |
3,333 |
|
|
|
Operating expenses |
|
|
(12,974 |
) |
|
|
(12,579 |
) |
|
|
(395 |
) |
|
|
Other (expense) income, net |
|
|
(2,348 |
) |
|
|
1,394 |
|
|
|
(3,742 |
) |
|
|
Loss before income taxes |
|
$ |
(1,071 |
) |
|
$ |
(267 |
) |
|
$ |
(804 |
) |
|
|
Effective tax rate |
|
|
255.6 |
% |
|
|
6.7 |
% |
|
|
|
|
|
2025 Compared to 2024
As of December 31, 2025, our sources of income include earnings on our title insurance and title agency subsidiaries,revenue earned frommanagement services, and interest earned on our cash deposits and investment portfolio. The Company believes that the revenue generating from these sourcesand cash on hand aresufficient to fund operating expenses for at least 12 months from the date of the accompanying consolidated financial statements.
The Companys underwriting results were primarily influenced by a growth of the net title premium to $6.9million for the year endedDecember 31, 2025from $6.0million for the yearended December 31, 2024driven by the higher volumein affiliated title business written in 2025.
The Companys escrow and other title fees increasedto$2.8million for the year endedDecember 31, 2025, compared to $2.5million for the year ended December 31, 2024 due to the increase in volumes of title business generated in 2025.
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Management fees generated by the Company were $5.0 million for the year ended December 31, 2025, as compared to $3.0million for the year ended December 31, 2024. The increase was due to the new Services Agreement with HP Risk becoming effectiveJune 1, 2025.HP Risk is a wholly-owned subsidiary of HP Holding Company, LLC, which, in turn,is wholly owned by certain affiliates of Steven A. Hale II, our Chairman and Chief Executive Officer, pursuant to which the Company isprovidingcertain managerial and operational services to HP Riskfor consideration from HP Riskof $6.0 million per year over the course of three years.Such services include, but are not limited to:reinsurance brokerage services; the review and improvement of financial goals; compliance with legal and regulatory mandates; maintenance of an ethical business environment; investment and asset manager compliance; cash and equity management; corporate tax management; personnel management; related party transaction oversight; tax preparation administration; strategic capital modeling; the review of potential acquisitions and transactions involving affiliates and third parties, including but not limited to, renewal rights deals, loss portfolio transfers or entity acquisitions; execution of (or provision for the execution of) all general corporate legal matters; and provision of internal control management services.
The Companys cost of revenue consists primarily of a provision for title claim losses and underwriting expenses, which are largely comprised of commissions to unaffiliated title agencies.Cost of revenue for the year ended December 31, 2025 was$0.5 millioncompared to $0.6 million for the yearendedDecember 31, 2024.The decreasein cost of revenuewas attributable to favorable reserve developmentinthe provision for title claims loss and loss adjustment expenseattributable to one claim related to the prior insured year,as a result of estimation of the reserve for claims lossand loss adjustment expenses and the collection of subrogationon a prior year claim. Original estimates of ultimate loss exposures are decreased or increased as additional information becomes known during the adjustment process regarding individual claims.
The Companys operating expenses primarily consist of general and administrative expenses, such as personnel expenses, office and technology expenses, and professional fees. General and administrative expenses for the year ended December 31, 2025 were $13.0million, as compared to $12.6million for the year ended December 31, 2024.The increase is primarily due to higher legal and professional fees related to transactions described in *Note 3, Significant Transactions*, in the accompanyingConsolidated Financial Statements, as well as anincrease in employee health and benefit costs in 2025 as compared to 2024.
Other (expense) income, netprimarily consistof interest and dividend income,changes in the net asset value of investment in limited partnership, as well as changes in value and distributions of our related party investments. During the year ended December 31, 2025, other (expense) income, net of ($2.3) million was primarily driven by a$4.1 million impairment of HC Series B Stock,offset bydistributions from related parties of $0.9 million.Additionally, other (expense) income included interest income of $0.4million and an increase in the net asset value of investment in limited partnership of $0.4 million. During the year ended December 31, 2024, the Company generated $1.4million in other (expense) income, netprimarily as a result of a recovery of $1.1 million fromFedNatHolding Company (FedNat) litigation. Additionally,the Company generateddividend and interest income of $0.7million, increase in the net asset value of investment in limited partnership of $0.4 million and net gainfrom investments in related parties of $0.2million during the year ended December 31, 2024, whichwere largely offset by an impairment of the investment in HC Common Stock and HC Series B Stock of $1.2million.
Our effective tax rate for the years ended December 31, 2025and 2024was255.6%and 6.7%, respectively,primarily as a result ofnet operating loss carryforward, valuation allowances on deferred tax assets, and state income tax differences in the jurisdictions in which the Company currently operates. The increase in effective tax rate in 2025 as compared to 2024 was driven primarily by a valuation allowance release on federal and Florida net operating losses.Historically, the effective tax rate had been driven almost exclusively by state income taxes.
**Financial Condition, Liquidity and Capital Resources**
Sources of liquidity include cash on hand, earnings from our title insurance and title agency subsidiaries,management service fees earned, and interest and dividends from deposits and invested assets. We expect cash on hand to be adequate for ongoing operational expenditures for at least 12 months from the date of the issuance of the accompanying consolidated financial statements. At December 31, 2025, we had $10.3million in cash and cash equivalents and an additional $6.7million in restricted cash, all of which is cash held in escrow for title insurance transactions. The Company 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 and cash equivalents is currently held in savings accounts earning interest at approximately 3.6% annually.
23
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**Cash Flows**
(in thousands)
|
|
|
2025 |
|
|
2024 |
|
|
|
Net cash provided by operating activities |
|
$ |
878 |
|
|
$ |
1,961 |
|
|
|
Net cash provided by investing activities |
|
|
183 |
|
|
|
1,060 |
|
|
|
Net cash used in financing activities |
|
|
(4,391 |
) |
|
|
(364 |
) |
|
|
Net (decrease) increase in cash and cash equivalents and restricted cash |
|
|
(3,330 |
) |
|
|
2,657 |
|
|
|
Cash and cash equivalents and restricted cash at beginning of period |
|
|
20,409 |
|
|
|
17,752 |
|
|
|
Cash and cash equivalents and restricted cash at end of period |
|
$ |
17,079 |
|
|
$ |
20,409 |
|
|
Cash flows from operating activities differ from net income (loss) due to adjustments for non-cash items, such as gains and losses on investments, amortization, depreciation, claims and other accrued liabilities, and collections or changes in receivables and other assets.Net cash provided by operations of $0.9 million for the year ended December 31, 2025differs from operating results for the year ended December 31, 2025primarily due toan impairment of the investment inHC Series B Stock of $4.1millionand an increase of $1.5million in escrow liabilities on the title insurance subsidiaries. Net cash provided by operations of $2.0million for the year ended December 31, 2024differs from operating results for the year ended December 31, 2024primarily due toan impairment of the investment in HC Common Stock and HC Series B Stock of $1.2millionand an increase of $0.7million in escrow liabilities on the title insurance subsidiaries.
Cash flows from investing activities include effects ofpurchases of investments and proceeds from sales or maturities of investments.During the year ended December 31, 2025, the Company had $0.2million of net cash provided by investing activities, which was a result of $1.5million of proceeds from redemptions of securities and sales ofinvestments, partially offset by$1.3 million of purchases of investments, including investments in related parties of $0.3million. Duringthe year ended December 31, 2024, the Company had $1.1 million of net cash provided by investing activities, which consisted of $2.4million of proceeds from redemptions of securities and sales of investments, partially offset by $1.3 million ofpurchases of investments, including investments in related parties of $0.5 million.
Cash flows from financing activities include effects of capital contributions, repurchase of outstanding shares of common stockand changes in noncontrolling interest. Cash flows used in financing activities for the year ended December 31, 2025 were $4.4 millionand consisted of $4.4 millionin repurchases of shares of common stock and $11,000 of net distributions tominority stockholders. Cash flows used in financing activities for the year ended December 31, 2024were $0.4 millionand consisted of $243,000 in repurchases of shares of common stock, partially offset by $121,000 of net distributions to minority stockholders.
*Non-cash Transactions*
Additionally, during the second quarter of 2025, the Company entered into an Assignment and Contribution Agreement (the Contribution Agreement) with the certain assignors listed therein (the Assignors), pursuant to which the Assignors agreed to assign and contribute to the Company an aggregate of 10,203 shares of common stock, no par value ("ACMAT Common Stock"), and 291,656 shares of Class A stock, no par value ("ACMAT Class A Stock"), of ACMAT Corporation (ACMAT), a Connecticut corporation, and, in consideration of and exchange therefor, the Company agreed to issue to the Assignors an aggregate of 2,899,876 shares of Company common stock, contingent upon the closing of the transactions contemplated by the Services Agreement. After giving effect to the transactionspursuant tothe Contribution Agreement, the Company owns approximately 39.1% of the outstanding equity of ACMAT and approximately 10.4% of the voting power of ACMAT, based on ACMAT's outstanding equity as of November 6, 2025. Holders of ACMAT Class A Stock are entitled to one-tenth vote per share in relation to ACMAT Common Stock, holders of which are entitled to one vote per share, with respect to matters subject to approval by ACMAT stockholders.ACMAT, through its subsidiaries, offers surety bonds for prime, sub-prime, specialty trade, environmental, asbestos and leadabatementcontractors and miscellaneous obligations nationwide. ACMAT also provides other miscellaneous surety such as workers compensation bonds, supply bonds, subdivision bonds, and license andpermitbonds.HPCM, an entity wholly owned by Mr. Hale, is the registered investment advisor or investment manager for each of the Assignors, and Mr. Hale is the sole principal owner of Hale Partnership Capital Advisors, LLC, the general partner of all but one of the Assignors. The transaction closed on June 30, 2025.
24
[Table of Contents](#toc)
As a result of the transaction, the Company recorded a $12.5 million investment in ACMAT Corporation at the time of close, based on the value of the Company's 2,899,876 shares of common stock issued as a consideration given.The transaction is classified as a nonmonetary, non-reciprocal transfer between related parties and did not constitute a business combination underFinancial Accounting Standards Board Accounting Standards Codification Topic805,Business Combinations. No cash consideration was exchanged.Refer to*Note 5, Investments*in the accompanying notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-Kforinitialandsubsequentmeasurements of the Company's investments inACMAT Common Stock andACMAT Class A Stock.
**Critical Accounting Estimates**
See *Note 2,Significant Accounting Policies*in the accompanying notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a summary of our significant accounting and reporting policies.
Our consolidated financial statements are prepared in accordance withgenerally accepted accounting principles in the United States (GAAP), which requires management to make estimates and assumptions. We believe that the accounting policies that require the most significant judgments and estimations by management are: (1) valuation of goodwill, (2) valuation of investments in related parties, and(3) reserve for title claims.If actual events differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material adverse effect on our results of operations and financial condition.
*Valuation of Goodwill Impairment*
Goodwill represents the excess of purchase price over fair value of identifiable net assets acquired and assumed in a business combination. Goodwill is reviewed for impairment at the reporting unit level on an annual basis or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. In evaluating the recoverability of goodwill, we perform a quarterly goodwill impairment analysis based on a review ofqualitative factors to determine if events and circumstances exist, which will lead to a determination that the fair value of a reporting unit is greater than its carrying amount, prior to performing a full fair-value assessment. In the absence of any indicators of potential impairment, the evaluation of goodwill is performed annually during the fourth quarter of each year.
For our annual goodwill impairment test, we utilize two approaches to value goodwill: the income approach, which converts future estimates of cash flows by reporting unit to a single (discounted) current value, and the market approach, which uses publicly available peer data to estimate value of the reporting unit.The valuation techniques performed in our quantitative analysis make use of our estimates and assumptions related to revenue and operating margin growth rates, future market conditions, determination of market multiples and comparative companies,and determination of risk-adjusted discount rates. Forecasts of future operations are based, in part, on actual operating results and our expectations as to future growth and market conditions, which are inherently uncertain and difficult to project. In performing our analysis, we make assumptions and apply judgments to estimate industry economic factors and the future profitability of our businesses. Due to the uncertainty and complexity of performing the goodwill impairment analysis, future results related to market conditions and our business operations and other inputs to the analysis may be worse than estimated or assumed. In such cases, we may be exposed to future material impairments of goodwill.
*Valuation of Investments in Related Parties*
The Companys investments in related parties are accounted for either under the equity method of accounting or, where they do not meet the criteria of accounting under the equity method, under the cost adjusted for market observable events less impairment method. For information about the Companys investments in related parties and its accounting policy, refer to *Note 5, Investments*and *Note 2, Significant Accounting Policies*in the accompanying notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
25
[Table of Contents](#toc)
The Company's reviewof its investments in related parties is performedon a regular basis to determine if the investments areimpaired. For purposes of this assessment, the Company performs a qualitative review where it considers the investees cash position, liquidity, earnings and revenue outlook, equity position, and ownership, among other factors. If the qualitative impairment assessment leads to a conclusion that a potential impairment exists, a quantitative assessment is performed. In performing the quantitative assessment forimpairment, the Company estimates afair value of the investment utilizinga combination of the income, market and cost approach, where applicable.If indicated fair value is lower than the carrying amount of the investment, the Company recognizes in current earnings an impairment loss that is equal to the difference between the fair value of the investment and its carrying amount.The valuation techniques performed in our quantitative analysis make use of the investee's growth projections and free cash flows, assumptions related to risk-adjusted discount rate, timing of liquidity events, determination of market multiples and comparative companies, and assumptions related to reproduction or replacement value. Forecasts of future operations are based, in part, onassumptions and data provided by management ofthe investee andour expectations as to market, peer data and research,which are inherently uncertain and difficult to project. Due to the uncertainty and complexity of performing the valuationanalysis, future results related to market conditions and the investee's business operations and other inputs to the analysis may be worse than estimated or assumed. In such cases, we may be exposed to future material impairments of our investments in related parties.
For the year ended December 31, 2025, the Company recognized $4.1million in impairments to investments in related parties and $1.2million inimpairments were recognized for the year endedDecember 31, 2024.
*Reserve for Title Claims*****
The total reserve for all reported and unreported losses the Company incurred is represented by the reserve for title claims. The Company'sreserves for unpaid losses and loss adjustment expenses (LAE) are established using estimated amounts required to settle claims for which notice has been received (reported) and the amount estimated to be required to satisfy claims that have been incurred but not reported (IBNR).We reserve for each known claim based on our review of the estimated amount of the claim and the costs required to settle the claim. The reserves for IBNR claims are estimates that are established at the time the premium revenue is recognized and are based upon historical policy loss emergence and development patterns, adjusted for other factors, including industry trends, legal environment, policy year and policy type differences.
The table below summarizes our reserves for known claims and IBNR claims related to title insurance (in thousands):
|
|
|
As of |
|
|
As of |
|
|
|
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
|
|
Known title claims |
|
$ |
66 |
|
|
$ |
114 |
|
|
|
IBNR title claims |
|
|
639 |
|
|
|
523 |
|
|
|
Total title claims |
|
|
705 |
|
|
|
637 |
|
|
|
Non-title claims |
|
|
- |
|
|
|
- |
|
|
|
Total reserve for title claims |
|
$ |
705 |
|
|
$ |
637 |
|
|
Although claims against title insurance policies can be reported relatively soon after the policy has been issued, claims may be reported many years later.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.Estimating future title loss payments is difficult because of the complex nature of title claims, the long periods of time over which claims are paid, significantly varying dollar amounts of individual claims and other factors.The Company continually reviews and adjusts its reserve estimates as necessary to reflect its loss experience and any new information that becomes available. 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.
Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through December 31, 2025.
26
[Table of Contents](#toc)
The table below presents our title insurance loss development experience for the past two years (in thousands):
|
|
|
For the Year |
|
|
For the Year |
|
|
|
|
|
Ended |
|
|
Ended |
|
|
|
|
|
December 31, 2025 |
|
|
December 31, 2024 |
|
|
|
Beginning reserves |
|
$ |
637 |
|
|
$ |
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for claims related to: |
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
241 |
|
|
|
219 |
|
|
|
Prior years |
|
|
(85 |
) |
|
|
109 |
|
|
|
Total provision for claim losses (1) |
|
|
156 |
|
|
|
328 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims paid related to: |
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
- |
|
|
|
- |
|
|
|
Prior years |
|
|
(88 |
) |
|
|
(4 |
) |
|
|
Total title claims paid |
|
|
(88 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending reserve for title claims |
|
$ |
705 |
|
|
$ |
637 |
|
|
|
|
(1)The Company's provision for claims losses and loss adjustment expense on its Consolidated Statements of Operations for the year ended December 31, 2025 includes the impact of subrogation recovery of $37,000 related to prior-year claims. |
|
As of December 31, 2025and 2024, our title claim reserves were $705,000 and $637,000, respectively, which we determined were reasonable and represented our best estimate. These recorded amounts were within a reasonable range of the central estimates provided by our actuaries.During the yearsended December 31, 2025and 2024, the Company recognized ($85,000) and $109,000, respectively, in net provision for claims development attributable to insured events of the prior years.Original estimates are decreased or increased as additional information becomes known regarding individual claims.
At December 31, 2025and 2024, there were no reinsurance recoverables on paid claims or unpaid reserves.
**Item 7A.****Quantitative and Qualitative Disclosures about Market Risk**
Not applicable as the Company is a smaller reporting company.
**Item 8.****Financial Statements and Supplementary Data**
See the *Index to Consolidated Financial Statements* at page F-1 of this Annual Report on Form 10-K.
**Item 9.****Changes in and Disagreements with Accountants on Accounting and Financial Disclosure**
None.
27
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**Item 9A.****Controls and Procedures**
**Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures**
We maintain disclosure 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 disclosure 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 ofDecember 31, 2025was conducted under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures, as ofDecember 31, 2025, were effective at the reasonable assurance level.
**Management****s Report on Internal Control over Financial Reporting**
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act. Under Rule 13a-15(c), management must evaluate, with the participation of the principal executive officer and principal financial officer, the 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 issuers principal executive and principal financial officers, or persons performing similar functions, and effected by the issuers 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:
|
|
1. |
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer; |
|
|
|
2. |
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the issuer are being made only in accordance with the authorization of management of the issuer; and |
|
|
|
3. |
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the issuers assets that could have a material effect on the financial statements. |
|
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 as of December 31, 2025 using the criteria issued by the Committee of Sponsoring Organizations of the Treadway Commissions (COSO) in the*Internal Control-Integrated Framework (2013).*Based on that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2025.
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, 2025.
28
[Table of Contents](#toc)
**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 quarter ended December 31, 2025 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| Item 9B. | Other Information | |
During the *three* months ended *December 31, 2025,*none of our directors or officers, as defined in Section *16* of the Exchange Act, adopted or terminated a Rule *10b5*-*1* trading arrangement or a non-Rule *10b5*-*1* trading arrangement, as each term is defined in Item *408* of Regulation S-K of the Exchange Act.
|
Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
|
None.
**PART III**
| Item 10. | Directors, Executive Officers and Corporate Governance. | |
**Directors**
Our Board has set the number of our directors at three, *one* of whom is our Chairman and Chief Executive Officer, Steven A. Hale II, and *two* of whom are independent. Our directors are divided into *three* classes with staggered terms. One director, Mr. Hale,whose term was set to expire in *2025,* was nominated for re-election by our Board and re-elected by our stockholders to serve another *three*-year term expiring in *2028.*
**Director Whose Term Expires this Year**
*Jeffrey S. Gilliam*, *68,* has been a director since *February 2015.*Since *April 2022,*Mr. Gilliam has served as the CFO/Treasurer of Hickory Springs Manufacturing Company. Mr. Gilliam also has served as the managing member of Willow Oak Advisory Group, LLC (Willow Oak Advisory Group), a provider of business advisory services, since *January 2016.*Related to his duties with Willow Oak Advisory Group, Mr. Gilliam served as President of Columbus Industries, Inc. (a division of Filtration Group) from *August 2019*until *February 2022.*Mr. Gilliam was a director of the Finley Group, a corporate advisory firm, from *August 2012*until *January 2016.*Mr. Gilliam served as President of Toter, Incorporated (a division of Wastequip, LLC), a manufacturer of automated cart systems, from *October 2008*until *August 2012,*and as Vice President Finance (Chief Financial Officer) from *June 2002*until *October 2008.*Our corporate governance and nominating committee and our Board concluded that Mr. Gilliam is qualified to serve as a director by reason of his strong financial experience as a chief financial officer.Mr. Gilliam was appointed to our Board in *February 2015*pursuant to an agreement dated *February 12, 2015*with Hale Partnership Fund, LP and Talanta Fund, L.P. (collectively with their affiliates, the Hale-Talanta Group), which had nominated *two* candidates for election to our Board at the *2015* annual meeting of stockholders. Under this agreement, we appointed Mr. Gilliam to our Board for a term expiring at the *2017* annual meeting of stockholders and the Hale-Talanta Group withdrew its nominations. Mr. Gilliam was re-elected by our stockholders in *2020* and *2023.*Mr. Gilliam's term as director is set to expire in *2026.*
**Directors Whose Terms Do Not Expire this Year**
*Peter M. Sherman*, *64,* has been a director since *December 2020.*Mr. Sherman has served as founder of Sherman Capital Management, a special situation investing and restructuring consulting firm for institutional investors, since *July 2016.*Mr. Sherman also served as Chief Risk Officer of Capitala Group, a lower middle market lender and equity investor, from *February 2018*to *March 2024.*Mr. Sherman was a partner in Brevet Capital Management, a middle market direct lending hedge fund, from *June 2014*to *June 2016.*Mr. Sherman was elected to our Board in *December 2020*upon the recommendation of our Chairman and Chief Executive Officer and was re-elected by the Companys stockholders in *2021* and *2024.* Our corporate governance and nominating committee and our Board concluded that Mr. Sherman is qualified to serve as a director by reason of his experience in principal finance and debt capital markets, special situation restructuring, and as a capital provider to lower to middle market companies through his role as a chief risk officer. Mr. Shermans term as director expires in*2027.*
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*Steven A. Hale II,**42,* has been a director since *February 2017*and has served as Chairman of our Board since *November 2017.*He has also served as our Chief Executive Officer since *March 2018.*Since *March 2019,*Mr. Hale has served as Chairman and Chief Executive Officer of HC Realty, an internally-managed real estate investment trust focused on acquiring, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the GSA or directly by the federal government agencies or sub-agencies occupying such properties. He has also served as President of HC Realty from *August 2020*until *January 2022*and again beginning in *August 2024.*We currently own approximately*28.0%* of the voting interest of HC Realty and HC Realty is considered to be arelated party of the Company. Mr. Hale is also the founder and sole manager of HPCM, an asset management firm that serves as the investment manager to certain privately held investment partnerships. Mr. Hale has held his position with HPCM 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 Bancof America Securities.Our corporate governance and nominating committee and our Board concluded that Mr. Hale is qualified to serve as a director by reason of his experience as our Chief Executive Officer, his experience with asset management and his indirect ownership of approximately *74%*of our outstanding shares of common stock.
Mr. Hale was initially elected to our Board pursuant to the terms of an agreement dated *January 30, 2017*with Hale Partnership Fund, LP, and related parties (collectively, the Hale Group), a stockholder group that, as of the date of the agreement, owned approximately *10%* of our outstanding shares of common stock and which had nominated *two* candidates for election to our Board at the *2017* annual meeting of stockholders. Under this agreement, we appointed Mr. Hale to our Board and the Hale Group withdrew its nominations and agreed, among other things, to vote in favor of the election of Messrs. Hale and Gilliam as directors at the *2017* annual meeting of stockholders for a term that expired at the *2020* annual meeting of stockholders. Mr. Hale was re-elected by our stockholders in*2020,* *2022* and *2025.*Mr. Hales term as a director expires in*2028.*
**Delinquent Section 16(a) Reports**
The Exchange Act requires our executive officers and directors, and any persons owning more than *10%* of our common stock, to file certain reports of ownership and changes in ownership with the SEC. Based solely on our review of the copies of the Forms *3,* *4* and *5* we have received, and written representations from certain reporting persons that *no* Forms*5* were required to be filed by those persons, we believe that all executive officers, directors and *10%* stockholders complied with these filing requirements, except as follows:
One Form *4* required to be filed by HPCM on *April**23,**2025*was filed late on *May**12,**2025*due to delays in obtaining EDGAR filing codes forHPCM and its joint filers, Mr. Hale and Hale Partnership Fund, L.P.The Form *4* was filed promptly upon obtaining such EDGAR filing codes and reportstheacquisition of shares of Company common stockbyentities for which HPCM serves as investment managerin exchange for shares of ACMATCommon Stock and ACMAT Class A Stockand other assetspursuant tothe Contribution Agreement.
**Code of Ethics**
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.
**Audit Committee**
The audit committee of our Board presently consists of Messrs. Gilliam (Chair) and Sherman. Our Board has determined that Messrs. Gilliam and Sherman each meet the current independence requirements contained in the rules of the NASDAQ Stock Market (which we have adopted for purposes of determining such independence even though our common stock is *not* listed on a national securities exchange),including the additional independence requirements applicable to audit committee members. Our Board has also determined that Mr. Gilliam qualifies as an audit committee financial expert as that term is defined in regulations promulgated by the SEC.
**Insider Trading Policy**
We have adopted insider trading policies and procedures governing the purchase, sale, and/or other dispositions of our securities by directors, officers, and employees that are reasonably designed to promote compliance with insider trading laws, rules and regulations (the Insider Trading Policy). The Insider Trading Policy is filed as Exhibit 19.1 to this Annual Report on Form *10*-K.
30
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| Item 11. | Executive Compensation. | |
Our named executive officers for *2025*were Steven A. Hale II, our Chairman and Chief Executive Officer,and Anna A. Lieb,our Principal Financial and Accounting Officer; Secretary(collectively the Named Executive Officers).
During *2025*, our executive compensation program had two major components: salary and a cash bonus.The program was designed to promote our strategy of profitably growing our core title insurance and management servicesbusiness.
Our executive compensation program is administered by the compensation and benefits committee of our Board.
*Salary and Bonus*. Our Named Executive Officers received the following cash compensation in *2025:*
| | | Steven A. Hale II received an annual salary of $125,000, and | |
| | | Anna A. Lieb received an annual salary of $300,000 and abonus of $85,000, which included a cash retention bonus of $25,000. | |
*Long-Term Incentives*. Our Named Executive Officers did *not* receive any restricted stock awards in *2025*.
**Summary Compensation Table**
The following table sets forth compensation received by the Named Executive Officers for the years ended *December 31, 2025*and *2024*.
**SUMMARY COMPENSATION TABLE**
| | | | | | | | | | | | | Stock | | | Option | | | Non-Equity | | | All Other | | | | | | |
| | | | Salary | | | | | | | | Awards | | | Awards | | | Incentive Plan | | | Compensation | | | Total | | |
| Name and Principal Position | Year | | ($) | | | | Bonus ($) | | | ($) | | | ($) | | | Compensation | | | ($) | | | ($) | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| STEVEN A. HALE II, | 2025 | | | 125,000 | | | | | | | | | | | | | | | | | | | | | | | | | 125,000 | | |
| Chairman and Chief Executive Officer | 2024 | | | 125,000 | | | | | | | | | | | | | | | | | | | | | | | | | 125,000 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ANNA A. LIEB, | 2025 | | | 300,000 | | (1) | | | 85,000 | | | | | | | | | | | | | | | | | | | | 385,000 | | |
| Principal Financial and Accounting Officer; Secretary | 2024 | | | 275,000 | | (1) | | | 61,000 | | | | | | | | | | | | | | | | | | | | 336,000 | | |
| | (1) Ms. Lieb received a salary increase effective May 31, 2024 in connection with her appointment as Principal Financial and Accounting Officer; Secretary. | |
**Outstanding Equity Awards at Fiscal Year-End Table******
As of *December 31, 2025,*there were *no* outstanding equity awards.
*31*
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**Director Compensation******
Our Board has approved a policy for compensation of non-employee directors providing that each non-employee director receives annual cash compensation in the amount of *$35,000.* The corporate governance and nominating committee reviews director compensation annually and, as part of that process, typically has for review publicly available director compensation information for other comparable companies. Our Board approves director compensation. Pursuant to the agreement under which he was elected to our Board, Mr. Hale has agreed to serve as a director without compensation.
The following table sets forth information concerning the compensation of directors for the year ended *December 31, 2025*.
**DIRECTOR COMPENSATION**
**FOR THE FISCAL YEAR ENDED December 31, 2025**
| | | | | | | | | | | | | |
| | | Fees | | | | | | | | | | |
| | | Earned | | | Stock | | | | | | |
| Name | | in Cash ($) | | | Awards ($) (1) | | | Total ($) | | |
| STEVEN A. HALE II | | | | | | | | | | | | | |
| PETER M. SHERMAN | | | 35,000 | | | | | | | | 35,000 | | |
| JEFFREY S. GILLIAM | | | 35,000 | | | | | | | | 35,000 | | |
| | (1) | At December 31, 2025, Messrs. Sherman and Gilliam held no stock options or restricted shares of common stock. | |
|
Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
|
**SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**
The following table sets forth certain information with respect to the beneficial ownership of our common stock as of March 24, 2026by each stockholder we know to be the beneficial owner of more than 5% of our outstanding common stock, by each director, by each of our Named Executive Officers and by all directors and executive officers as a group. Unless otherwise set forth below, the address of each stockholder listed in the following table is 6265Old Water Oak Road, Suite 204, Tallahassee, Florida 32312. Percentages are based on 5,107,035 shares of common stock outstanding as of March 24, 2026.
|
|
|
Amount and |
|
|
|
|
|
|
|
|
|
|
|
Nature |
|
|
|
|
|
|
|
|
|
|
|
of Beneficial |
|
|
|
Percent |
|
|
|
|
Name |
|
Ownership |
|
|
|
of Class |
|
|
|
|
Solas Capital Management, LLC |
|
|
762,727 |
|
(a) |
|
|
14.93 |
% |
|
|
|
Hale Partnership Fund, L.P. and related parties |
|
|
3,777,158 |
|
(b) |
|
|
73.96 |
% |
|
|
|
Jeffrey S. Gilliam |
|
|
4,165 |
|
|
|
|
0.08 |
% |
(c) |
|
|
Steven A. Hale II |
|
|
3,804,935 |
|
(d) |
|
|
74.50 |
% |
|
|
|
Anna A. Lieb |
|
|
|
|
|
|
|
|
|
|
|
|
Peter M. Sherman |
|
|
8,702 |
|
|
|
|
0.17 |
% |
(c) |
|
|
All directors and executive officers as a group (4 persons) |
|
|
3,817,802 |
|
(d) |
|
|
74.76 |
% |
|
|
|
(a) |
The beneficial ownership information for Solas Capital Management, LLC (Solas) is based upon the Schedule 13Gfiled with the SEC on April 28, 2025 by Solas and its portfolio manager, Frederick Tucker Golden (Golden).Solas and Golden each have shared voting and dispositive power over all of the reported shares. The business address of Solas and Golden is 1063 Post Road, 2nd Floor, Darien, Connecticut 06820. |
|
32
[Table of Contents](#toc)
|
(b) |
The beneficial ownership information reported is based upon the Schedule 13D/A filed with the SEC on December 12, 2025by HPCM, Hale Partnership Capital Advisors, LLC, Hale Partnership Fund, L.P., Hale ICFG Fund, L.P., MGEN II - Hale Fund, L.P., Clark - Hale Fund, L.P.,Dickinson Hale Fund, L.P., Smith Hale Fund, L.P.and Steven A. Hale II andaForm4 filed with the SEC on December 12,2025. HPCM and Steven A. Hale II each have shared voting and dispositive power overall ofthe reported shares. Steven A. Hale II also has sole voting power over 27,777 shares. Hale Partnership Capital Advisors, LLC has shared voting and dispositive power over 2,265,175 shares; Hale Partnership Fund, L.P. has shared voting and dispositive power over 1,550,439shares,Hale ICFG Fund, L.P. has shared voting and dispositive power over 376,689 shares,MGEN II - Hale Fund, L.P. has shared voting and dispositive power over 63,100shares,Dickinson-Hale Fund, L.P. has shared voting and dispositive power over 87,704 shares,Smith-Hale Fund, L.P. has shared voting and dispositive power over 187,243shares,and a managed account for whichHPCM serves as investment manager has shared voting and dispositive power over 1,511,983 shares.Clark Hale Fund, L.P. has shared voting and dispositive power over zero sharesas a result ofa Company repurchase of all shares previouslyheld by Clark Hale Fund, L.P.pursuant toa stock repurchase agreement dated December 10, 2025.TheSchedule 13D/A andForm4 indicate Hale Partnership Capital Advisors, LLC, an entity for which Mr. Hale serves as sole manager,is the General Partner of Hale Partnership Fund, L.P.,Hale ICFG Fund, L.P.,MGEN II - Hale Fund, L.P., Clark - Hale Fund, L.P., Dickinson-Hale Fund, L.P. and Smith-Hale Fund, L.P. The principal business and principal office address for each of theaforementioned partiesis 4350 Congress St, Suite 580, Charlotte, North Carolina 28209. |
|
|
(c) |
1% or less. |
|
|
(d) |
Includes 3,777,158 shares over which Mr. Hale shares voting and dispositive power as a result of his service as managing member of HPCM. See note (b) above. |
|
**Equity Compensation Plan Information**
The Companys 2012 Incentive Compensation Plan, as amended, expired during 2022.Therefore, the Company does not have any outstanding options, warrants or rights subject toequity compensation plans, and there are no shares remaining available for future issuance under equity compensation plans.
|
Item 13. |
Certain Relationships and Related Transactions, and Director Independence. |
|
**Review of Transactions with Related Persons**
Under theaudit committee charter, the audit committee is responsible forreviewing any transaction involving related persons which requiresdisclosure pursuant to SEC Regulation S-K, Item 404 and has the power to approve or disapprove these transactions.
Since January 1, 2025, the Company has entered into the following transactions involving amounts in excess of $120,000 with related persons or affiliated entities.
During 2025, the Company invested an additional $272,000 into HP LPT Holding Company LLC ("HP LPT"), a limited liability company domiciled in the state of Florida.HP LTP is a related party of the Company as it is controlled by Mr. Hale through his ownership of the Hale Funds. HP LPT is a holding company for the segregated portfolio cell writing reinsurance business in Cayman Islands.
Beginning in2024, the Company, through HGMA, was engaged to providemanagement advisory services to a related captive managing general agency, HPMA, and its affiliates,including a related reinsurance intermediary.Such services included, but werenotlimited to general management, legal entity formation, legalcompliance, strategy services, review of potential acquisitions and transactions, licensure, regulatory approval, and other general operational services.The engagement wasrenewedfor six months fromJanuary 1,2025through June 30, 2025,for a monthly fee of $250,000.HPMA is a related party of the Company as it is controlled by Mr. Hale. The engagement expiredin accordance withits terms on June 30, 2025.
On April 21, 2025, the Company entered intotheServices Agreement, effective June 1, 2025, with HP Risk, a wholly-owned subsidiary of HP Holding Company, LLC, which is wholly owned by certain affiliates of Mr. Hale, pursuant to which the Company provides certain managerial and operational services to HP Risk for consideration from HP Risk of $6 million per year over the course of three years. Foradditionalinformationregardingthe Services Agreement, refer to*Note 3, Significant Transactions*in the accompanying notes to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
During2025,the Company received $891,000 of distributions as a result of the Company's equity investment in HP Holding Company, LLC. HP Holding Company, LLC is a related party of the Company as it is controlled by Mr. Hale through his ownership of the Hale Funds.
33
[Table of Contents](#toc)
**Director Independence**
Our Board has determined that all current directors, with the exception of Mr. Hale, who serves as our Chief Executive Officer, are independent directors as that term is defined in the rules of the NASDAQ Stock Market (which we have adopted for purposes of determining such independence even though we do not have any securities listed on a national securities exchange).
|
Item 14. |
Principal Accountant Fees and Services. |
|
**Fees and Services**
As previouslydisclosedin our Current Report on Form 8-K filed with the SEC onNovember 3,2025,effective as of November 1, 2025, the partners and professional staff of Horne LLP (Horne), an independent registered public accounting firm,joinedBDO USA, P.C. (BDO).As a result of this transaction, effective as of November 1, 2025, Horne resigned as the Companys independent registered public accounting firm, and the Company, through and with the approval of theauditcommittee, appointed BDO as its independent registered public accounting firm.The following table sets forth the fees, including reimbursement of expenses, billed by, or expected to be billed by, BDOand Horne for each of the periods set forth below,all of which were pre-approved by the audit committee.
|
|
|
2025 |
|
|
2024 |
|
|
|
Audit Fees |
|
$ |
130,000 |
|
|
$ |
120,000 |
|
|
|
Audit-Related Fees |
|
|
|
|
|
|
|
|
|
|
Tax Fees |
|
|
|
|
|
|
|
|
|
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
130,000 |
|
|
$ |
120,000 |
|
|
*Audit Fees.*These fees relate to professional services rendered for the audit of our annual financial statements and reviews of our Quarterly Reports on Form 10-Q.
**Pre-Approval Policies and Procedures**
The audit committee has established a policy to pre-approve all audit, audit-related, tax and other services proposed to be provided by our independent accountants before engaging the accountants for that purpose. Consideration and approval of these services generally occur at the audit committees regularly scheduled meetings. In order to address situations where it is impractical to wait until the next scheduled meeting, the audit committee has delegated the authority to approve non-audit services not in excess of $25,000 individually or in the aggregate to the chairman of the audit committee. Any services approved pursuant to this delegation of authority are required to be reported to the full audit committee at the next regularly scheduled meeting.
34
[Table of Contents](#toc)
**PART IV**
|
(1) |
Item 15. Exhibitand Financial Statement Schedules |
|
|
(a)(1) |
Financial Statements: |
|
|
|
|
|
|
|
See the Index to Consolidated Financial Statements at page F-1 of this Annual Report on Form 10-K |
|
|
|
|
|
|
(b) |
Exhibits: |
|
|
|
|
|
|
3.1 |
Restated Certificate of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrants Form 10-Q (Commission File No. 001-34964) filed August 6, 2021). |
|
|
|
|
|
|
3.2 |
By-laws of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed November 20, 2017). |
|
|
|
|
|
|
3.3 |
Certificate of Designation of Series A Participating Preferred Stock of Stanley Furniture Company, Inc. (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed December6, 2016). |
|
|
|
|
|
|
3.4 |
Certificate of Amendment of Restated Certificate of Incorporation of the Registrant,dated June 26, 2025 (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed June30, 2025). |
|
|
|
|
|
|
3.5 |
Certificate of Amendment of Restated Certificate of Incorporation of the Registrant,dated September 2, 2025 (incorporated by reference to Exhibit 3.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed September 3, 2025). |
|
|
|
|
|
|
4.1 |
Description of the Companys Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.(2) |
|
|
|
|
|
|
10.1 |
Agreement, dated as of January30, 2017, by and among Stanley Furniture Company, Inc. and the entities and natural persons listed on Exhibit A thereto (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed January30, 2017). |
|
|
|
|
|
|
10.2 |
Forbearance Extension Letter Agreement, dated as of February 24, 2020, by and among Stanley Furniture Company LLC, Stanley Intermediate Holdings LLC, Stanley Furniture Company 2.0, LLC and Churchill Downs Holdings Ltd., and HG Holdings, Inc. (incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K (Commission File No. 001-34964) filed February 25, 2020). |
|
|
|
|
|
|
10.3 |
Second Forbearance Extension Letter Agreement, dated as of March 6, 2020, by and among Stanley Furniture Company LLC, Stanley Intermediate Holdings LLC, Stanley Furniture Company 2.0, LLC and Churchill Downs Holdings Ltd., and HG Holdings Inc. (incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K (Commission File No. 001-34964) filed March 12, 2020). |
|
|
|
|
|
|
10.4 |
Subscription Agreement, dated as of April 3, 2020, by and between HC Government Realty Trust, Inc. and HG Holdings, Inc. (incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K (Commission File No. 001-34964) filed April 9, 2020). |
|
|
|
|
|
|
10.5 |
Subscription Agreement, dated as of April 9, 2020, by and between HC Government Realty Trust, Inc. and HG Holdings, Inc. (incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K (Commission File No. 001-34964) filed April 10, 2020). |
|
|
|
|
|
|
10.6 |
Subscription Agreement, dated as of June 29, 2020, by and between HC Government Realty Trust, Inc. and HG Holdings, Inc. (incorporated by reference to Exhibit 10.1 of the Registrants Form 8-K (Commission File No. 001-34964) filed June 30, 2020). |
|
35
[Table of Contents](#toc)
|
10.7 |
Equity Purchase Agreement, dated as of April 20, 2021, by and among the Company and National Consumer Title Insurance Company, a Florida corporation, National Consumer Title Group LLC, a Florida limited liability company, Southern Fidelity Insurance Company, a Florida corporation, Southern Fidelity Managing Agency, LLC, a Florida limited liability company, and Preferred Managing Agency, LLC, a Florida limited liability company (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed April 26, 2021). |
|
|
|
|
|
|
10.8 |
Letter Agreement, dated July 20, 2021, by and among the Company, Southern Fidelity Insurance Company, a Florida corporation, Southern Fidelity Managing Agency, LLC, a Florida limited liability company, and Preferred Managing Agency, LLC, a Florida limited liability company (incorporated by reference to Exhibit 2.2 to the Registrants Form 10-Q (Commission File No. 001-34964) filed August 6, 2021). |
|
|
|
|
|
|
10.9 |
Membership Interest Purchase Agreement, dated as of September 1, 2021, by and among the Company and Title Agency Ventures LLC, a Delaware limited liability company, and Fidelis US Holdings, Inc., a Delaware Corporation (incorporated by reference to Exhibit 2.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed September 8, 2021). |
|
|
|
|
|
|
10.10 |
Employment Agreement, dated May 31, 2024, by and between HG Managing Agency, LLC and Anna Lieb (incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed June 6, 2024). (1) |
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|
|
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|
|
10.11 |
Stock Repurchase Agreement,dated April 21, 2025, by and among the Registrant and the Sellers namedtherein(incorporated by reference to Exhibit 10.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed April 23, 2025). |
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|
|
10.12 |
Assignment and Contribution Agreement,dated April 21, 2025, by and among the Registrant and the Assignors namedtherein(incorporated by reference to Exhibit 10.2 to the Registrants Form 8-K (Commission File No. 001-34964) filed April 23, 2025). |
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|
|
10.13 |
Master Services Agreement,dated April 21, 2025, by andbetweenthe Registrant andHP Risk Solutions, LLC(incorporated by reference to Exhibit 10.3to the Registrants Form 8-K (Commission File No. 001-34964) filed April 23, 2025). |
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|
|
16.1 |
Letter from Horne LLP, dated November 1, 2025 (incorporated by reference to Exhibit 16.1 to the Registrants Form 8-K (Commission File No. 001-34964) filed November 3, 2025). |
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|
|
19.1 |
Insider Trading Policy(incorporated by reference to Exhibit 19.1 to the Registrants Form 10-K (Commission File No. 001-34964) filed March 27, 2025). |
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21.1 |
List of Subsidiaries. (2) |
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31.1 |
Certification by Steven A. Hale II, our Chairman and Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (2) |
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31.2 |
Certification by Anna A. Lieb, our Principal Financial and Accounting Officer, pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended. (2) |
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|
|
32.1 |
Certification by Steven A. Hale II, our Chairman and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) |
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|
|
|
|
|
32.2 |
Certification by Anna A. Lieb, our Principal Financial and Accounting Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (3) |
|
36
[Table of Contents](#toc)
|
101.INS |
Inline XBRL INSTANCE DOCUMENT (2) |
|
|
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|
|
|
101.SCH |
Inline XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT (2) |
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|
|
101.CAL |
Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE (2) |
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101.DEF |
Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE (2) |
|
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|
101.LAB |
Inline XBRL TAXONOMY EXTENSION LABELS LINKBASE (2) |
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|
|
101.PRE |
Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE (2) |
|
|
|
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|
|
104 |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) (2) |
|
|
(1) |
Management contract or compensatory plan |
|
|
(2) |
Filed Herewith |
|
|
(3) |
Furnished Herewith |
|
**Item 16.****Form****10-K Summary**
None.
37
[Table of Contents](#toc)
**SIGNATURES**
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
HG HOLDINGS, INC. |
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|
By: |
/s/Steven A. Hale II |
|
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|
|
Steven A. Hale II |
|
|
|
|
|
Chairman, Chief Executive Officer and Director |
|
|
|
|
Date: |
March 27, 2026 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
Signature |
|
Title |
|
Date |
|
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|
|
|
|
|
|
/s/Steven A. Hale II (Steven A. Hale II) |
|
Chairman, Chief Executive Officer and Director |
|
March 27, 2026 |
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|
|
|
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|
|
|
|
/s/Anna A. Lieb (Anna A. Lieb) |
|
Principal Financial and Accounting Officer |
|
March 27, 2026 |
|
|
|
|
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|
|
|
|
/s/Peter M. Sherman (Peter M. Sherman) |
|
Director |
|
March 27, 2026 |
|
|
|
|
|
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|
|
|
/s/Jeffrey S. Gilliam (Jeffrey S. Gilliam) |
|
Director |
|
March 27, 2026 |
|
38
[Table of Contents](#toc)
**HG HOLDINGS, INC.**
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED December 31, 2025
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| | Page | |
| Reportof Independent Registered Public Accounting Firm (PCAOB ID 243) | F-2 | |
| | | |
| Consolidated Financial Statements | F-4 | |
| | | |
| Consolidated Balance Sheets as of December 31, 2025 and 2024 | F-4 | |
| | | |
| Consolidated Statements of Operations for the years ended December 31, 2025 and 2024 | F-5 | |
| | | |
| Consolidated Statements of Changes in StockholdersEquity for the years ended December 31, 2025 and 2024 | F-6 | |
| | | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2025 and 2024 | F-7 | |
| | | |
| Notes to Consolidated Financial Statements | F-8 | |
F-1
[Table of Contents](#toc)
**Report of Independent Registered Public Accounting Firm**
Shareholders and Board of Directors of HG Holdings, Inc.
HG Holdings, Inc.
Tallahassee, Florida
**Opinion on the Consolidated Financial Statements**
We have audited the accompanying consolidated balance sheets of HG Holdings, Inc. (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, changes in stockholders equity, and cash flows for the years then ended, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended**,** in conformity with accounting principles generally accepted in the United States of America.
**Basis for Opinion**
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
**Critical Audit Matter**
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
**Valuation of Investment in HC Government Realty Trust, Inc. Series B Stock for Impairment**
As described in Note 5 to the consolidated financial statements, the carrying value of the Companys investment in the Series B Stock (the "HC Series B Stock") of HC Government Realty Trust, Inc. ("HC Realty"), a related party entity, totaled $5.2 million as of December 31, 2025 and the Company recognized an impairment loss in the HC Series B Stock in the amount of $4.1 million during the year ended December 31, 2025. The Company accounts for its investment in the HC Series B Stockunder the cost adjusted for market observable events less impairment method as it is not deemed to be in-substance common stock. The Company reviews its investment in HC Series B Stock on a regular basis to determine if the investment is impaired. If managements assessment indicates that an impairment exists, the Company recognizes an impairment loss in current earnings that is equal to the difference between the fair value of the investment and its carrying value.
F-2
[Table of Contents](#toc)
We identified the valuation of the investment in HC Series B Stock for impairment as a critical audit matter. The principal consideration for our determination was the subjective judgement required by management in developing certain elements used to estimate the fair value of the investment in HC Series B Stock, specifically the relevant market multiples and the discount for lack of marketability. Auditing these elements involved especially subjective and complex auditor judgment due to the nature and extent of audit effort required to address these matters, including the extent of specialized skills and knowledge needed.
The primary procedures we performed to address this critical audit matter included:
| | | Evaluating the relevance and reliability of certain data used in determining the relevant market multiples in the fair value of the investment in HC Series B Stock. | |
| | | Utilizing personnel with specialized skills and knowledge in valuation to assist in assessing the reasonableness of the relevant market multiples and discount for lack of marketability. | |
/s/ BDO USA, P.C.
(formerly HORNE LLP)
We have served as the Company's auditor since 2023.
Ridgeland, Mississippi
March 27, 2026
F-3
[Table of Contents](#toc)
**HG HOLDINGS, INC.**
**CONSOLIDATED BALANCE SHEETS**
**(in thousands, except per share and share amounts)**
| | | As of December 31, | | | As of December 31, | | |
| | | 2025 | | | 2024 | | |
| ASSETS | | | | | | | | | |
| Cash and cash equivalents | | $ | 10,333 | | | $ | 12,145 | | |
| Restricted cash | | | 6,746 | | | | 8,264 | | |
| Investments | | | | | | | | | |
| Fixed income securities, held-to-maturity | | | - | | | | 1,000 | | |
| Investments in limited partnerships | | | 3,088 | | | | 2,183 | | |
| Investments in related parties | | | 18,841 | | | | 10,073 | | |
| Accounts receivable | | | 307 | | | | 263 | | |
| Due from related parties | | | 526 | | | | 3 | | |
| Interest and dividend receivables | | | - | | | | 19 | | |
| Prepaid expenses | | | 269 | | | | 288 | | |
| Property, plant and equipment, net | | | 38 | | | | 62 | | |
| Lease assets | | | 615 | | | | 611 | | |
| Deferred tax asset, net | | | 2,712 | | | | - | | |
| Goodwill | | | 6,492 | | | | 6,492 | | |
| Intangible assets, net | | | 118 | | | | 193 | | |
| Other assets | | | 601 | | | | 572 | | |
| Total assets | | $ | 50,686 | | | $ | 42,168 | | |
| | | | | | | | | | |
| LIABILITIES | | | | | | | | | |
| Accounts payable | | $ | 193 | | | $ | 106 | | |
| Accrued salaries, wages and benefits | | | 612 | | | | 496 | | |
| Escrow liabilities | | | 6,592 | | | | 8,110 | | |
| Other accrued expenses | | | 39 | | | | 224 | | |
| Due to related parties | | | 355 | | | | 136 | | |
| Reserve for title claims | | | 705 | | | | 637 | | |
| Lease liabilities | | | 620 | | | | 616 | | |
| Other liabilities | | | 17 | | | | 35 | | |
| Total liabilities | | | 9,133 | | | | 10,360 | | |
| | | | | | | | | | |
| Commitments and contingencies (refer to Note 12) | | | | | | | | | |
| | | | | | | | | | |
| STOCKHOLDERS EQUITY | | | | | | | | | |
| Preferred stock, $0.01 par value, 1,000,000 shares authorized and no shares issued and outstanding as of December 31, 2025 and December 31, 2024. | | | - | | | | - | | |
| Common stock, $0.02 par value, 7,000,000 shares authorized as of December 31, 2025 and 35,000,000 shares authorized as of December 31, 2024; 5,107,035 shares issued and outstanding as of December 31, 2025 and 2,813,214 shares issued and outstanding as of December 31, 2024. | | | 95 | | | | 52 | | |
| Additional paid-in capital | | | 38,648 | | | | 30,491 | | |
| Retained earnings | | | 2,942 | | | | 1,413 | | |
| Total stockholders equity | | | 41,685 | | | | 31,956 | | |
| Noncontrolling interests | | | (132 | ) | | | (148 | ) | |
| Total equity | | | 41,553 | | | | 31,808 | | |
| Total liabilities and stockholders equity | | $ | 50,686 | | | $ | 42,168 | | |
The accompanying notes are an integral part of the consolidated financial statements.
F-4
[Table of Contents](#toc)
**HG HOLDINGS, INC.**
**CONSOLIDATED STATEMENTS OF OPERATIONS**
**(in thousands, except per share and share amounts)**
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | | | | |
| Revenues: | | | | | | | | | |
| Net premium written | | $ | 6,941 | | | $ | 6,009 | | |
| Escrow and other title fees | | | 2,795 | | | | 2,501 | | |
| Management fees | | | 5,000 | | | | 3,003 | | |
| Total revenues | | | 14,736 | | | | 11,513 | | |
| | | | | | | | | | |
| Cost of revenues: | | | | | | | | | |
| Underwriting expenses | | | 263 | | | | 205 | | |
| Provision for title claim losses | | | 119 | | | | 328 | | |
| Search and other fees | | | 103 | | | | 62 | | |
| Total cost of revenues | | | 485 | | | | 595 | | |
| | | | | | | | | | |
| Gross underwriting profit | | | 14,251 | | | | 10,918 | | |
| | | | | | | | | | |
| Operating expenses: | | | | | | | | | |
| Personnel expenses | | | (8,334 | ) | | | (7,860 | ) | |
| Other general and administrative expenses | | | (4,640 | ) | | | (4,719 | ) | |
| Total operating expenses | | | (12,974 | ) | | | (12,579 | ) | |
| | | | | | | | | | |
| Other income/expenses: | | | | | | | | | |
| Net investment income | | | 725 | | | | 1,058 | | |
| Other income, net | | | 11 | | | | 1,151 | | |
| Loss from investments in related parties, net | | | (3,084 | ) | | | (815 | ) | |
| | | | | | | | | | |
| Loss from operations before income taxes | | | (1,071 | ) | | | (267 | ) | |
| | | | | | | | | | |
| Income tax benefit | | | (2,737 | ) | | | (18 | ) | |
| | | | | | | | | | |
| Net income (loss) | | | 1,666 | | | | (249 | ) | |
| Net income (loss) attributable to noncontrolling interests | | | 137 | | | | (10 | ) | |
| Net income (loss) attributable to the Company's shareholders | | $ | 1,529 | | | $ | (239 | ) | |
| | | | | | | | | | |
| Basic and diluted per share net income (loss) attributable to the Company's shareholders: | | | | | | | | | |
| Basic | | $ | 0.39 | | | $ | (0.08 | ) | |
| Diluted | | $ | 0.39 | | | $ | (0.08 | ) | |
| | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | |
| Basic | | | 3,944 | | | | 2,833 | | |
| Diluted | | | 3,944 | | | | 2,833 | | |
The accompanying notes are an integral part of the consolidated financial statements.
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**HG HOLDINGS, INC.**
**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY**
**(in thousands)**
| | | | | | | | | | | Additional | | | Retained | | | | | | | | | | |
| | | Common Stock | | | Paid-in | | | Earnings | | | Noncontrolling | | | | | | |
| | | Shares | | | Common Stock | | | Capital | | | (Deficit) | | | Interest | | | Total | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2025 | | | 2,813 | | | $ | 52 | | | $ | 30,491 | | | $ | 1,413 | | | $ | (148 | ) | | $ | 31,808 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net income | | | - | | | | - | | | | - | | | | 1,529 | | | | 137 | | | | 1,666 | | |
| Non-controlling interest shareholders contributions (distributions) | | | - | | | | - | | | | 111 | | | | - | | | | (121 | ) | | | (10 | ) | |
| Issuance of common stock | | | 2,900 | | | | 59 | | | | 12,411 | | | | - | | | | - | | | | 12,470 | | |
| Repurchase of common stock | | | (606 | ) | | | (13 | ) | | | (4,368 | ) | | | - | | | | - | | | | (4,381 | ) | |
| Other | | | - | | | | (3 | ) | | | 3 | | | | - | | | | - | | | | - | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2025 | | | 5,107 | | | $ | 95 | | | $ | 38,648 | | | $ | 2,942 | | | $ | (132 | ) | | $ | 41,553 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at January 1, 2024 | | | 2,862 | | | $ | 53 | | | $ | 30,491 | | | $ | 1,894 | | | $ | (17 | ) | | $ | 32,421 | | |
| Net loss | | | - | | | | - | | | | - | | | | (239 | ) | | | (10 | ) | | | (249 | ) | |
| Non-controlling interest shareholders distributions | | | - | | | | - | | | | - | | | | - | | | | (121 | ) | | | (121 | ) | |
| Repurchase of common stock | | | (49 | ) | | | (1 | ) | | | - | | | | (242 | ) | | | - | | | | (243 | ) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2024 | | | 2,813 | | | $ | 52 | | | $ | 30,491 | | | $ | 1,413 | | | $ | (148 | ) | | $ | 31,808 | | |
The accompanying notes are an integral part of the consolidated financial statements.
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**HG HOLDINGS, INC.**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
**(in thousands)**
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | |
| Net income (loss) attributable to the Company's shareholders | | $ | 1,529 | | | $ | (239 | ) | |
| Net income (loss) attributable to noncontrolling interests | | | 137 | | | | (10 | ) | |
| Net income (loss) | | | 1,666 | | | | (249 | ) | |
| Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: | | | | | | | | | |
| Depreciation expense | | | 24 | | | | 59 | | |
| Amortization expense | | | 75 | | | | 74 | | |
| Change in net asset value of investment in limited partnership | | | (362 | ) | | | (363 | ) | |
| Amortization of premium and accretion of discount, net | | | - | | | | (3 | ) | |
| Equity in earnings of related parties equity method investees | | | (114 | ) | | | - | | |
| Loss from investment in related parties | | | 4,089 | | | | 1,286 | | |
| Non-cash lease expense | | | 3 | | | | (29 | ) | |
| Changes in assets and liabilities: | | | | | | | | | |
| Prepaid expenses | | | 19 | | | | (65 | ) | |
| Accounts receivable | | | (43 | ) | | | (127 | ) | |
| Due from related parties | | | (523 | ) | | | 3 | | |
| Deferred tax asset, net | | | (2,712 | ) | | | - | | |
| Interest and dividends receivables | | | 19 | | | | 274 | | |
| Other assets | | | (28 | ) | | | 225 | | |
| Accounts payable | | | 87 | | | | (294 | ) | |
| Accrued salaries, wages, and benefits | | | 116 | | | | 146 | | |
| Escrow liabilities | | | (1,518 | ) | | | 656 | | |
| Reserve for title claims | | | 68 | | | | 324 | | |
| Other accrued expenses | | | (185 | ) | | | (93 | ) | |
| Due to related parties | | | 219 | | | | 109 | | |
| Lease liabilities | | | (4 | ) | | | 26 | | |
| Other liabilities | | | (18 | ) | | | 2 | | |
| Net cash provided by operating activities | | | 878 | | | | 1,961 | | |
| | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | |
| Purchases of investments | | | (1,000 | ) | | | (775 | ) | |
| Purchases of investments in related parties | | | (273 | ) | | | (525 | ) | |
| Proceeds from sale of investments | | | 456 | | | | 235 | | |
| Proceeds from redemptions of fixed-income securities | | | 1,000 | | | | 2,125 | | |
| Net cash provided by investing activities | | | 183 | | | | 1,060 | | |
| | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | |
| Repurchase of common stock | | | (4,381 | ) | | | (243 | ) | |
| Subsidiary distributions paid to non-controlling interest shareholders, net | | | (10 | ) | | | (121 | ) | |
| Net cash used in financing activities | | | (4,391 | ) | | | (364 | ) | |
| | | | | | | | | | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | | | (3,330 | ) | | | 2,657 | | |
| Cash and cash equivalents and restricted cash at beginning of year | | | 20,409 | | | | 17,752 | | |
| Cash and cash equivalents and restricted cash at end of year | | $ | 17,079 | | | $ | 20,409 | | |
| | | | | | | | | | |
| Cash and cash equivalents | | $ | 10,333 | | | $ | 12,145 | | |
| Restricted cash | | | 6,746 | | | | 8,264 | | |
| Cash and cash equivalents and restricted cash | | $ | 17,079 | | | $ | 20,409 | | |
The accompanying notes are an integral part of the consolidated financial statements
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**HG HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**
**1. Basis****of****Presentation****and****Nature****of****Operations**
The accompanyingconsolidatedfinancial statements have been preparedin accordance withaccounting principlesgenerally acceptedin the United States of America (GAAP) and the rules and regulations of the Securities and Exchange Commission (SEC). Theconsolidatedfinancial statements include the accounts ofHG Holdings, Inc.and itsconsolidatedsubsidiaries(collectively, the Company, we, us, our, it, and its). All intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, theconsolidatedfinancial statements include all adjustments necessary for a fair presentation of the Companysconsolidatedfinancial position, results of operations, and cash flows for the periods presented. All such adjustments are of a normal recurring nature.
The Companyoperates 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),Omega National Title Agency, LLC (ONTA or Omega), Omega National Title of Florida, LLC (ONF) and Omega National Title of Pensacola, LLC (ONP).
**Description of the Business**
Effective *January 1, 2025,*the Company changed its reportable segments to: (i) Title Insurance and (ii) Corporate and Other. The Corporate and Other segment iscomprisedof activity previously presented in the Real Estate, Reinsurance and Management Advisory Services segments.This change in reportable segments reflects the changes in the business mix and themanner in whichmanagementmonitorsthe performance of its operations.The change in reportable segments had *no* impact on the Companys historicalconsolidatedfinancial positions, results ofoperationsor cash flows as previously reported. Where applicable, all prior periods presented have been revised to conform to this new presentation.
*Title Insurance*
The Company engages in issuing title insurance through its subsidiary, NCTIC, and providing title agency services through its subsidiaries, NCTG, TAV, ONTA,ONFand ONP. Through NCTIC, the Company underwrites title insurance for owners and mortgagees as the primary insurer. The Companymainly providestitle insurance services in the State of Florida.
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 topurchasealenderstitle insurance policy to protect its position as a holder of a mortgage loan, but thelenderstitle insurance policy does *not* protect the property owner.The property owner has to purchase a separate owners title insurance policy to protect its investment.
NCTIC issues title insurance policies through its home office and through a network of affiliated and independent title agents.In the State of Florida, issuing agents are independent agents or subsidiaries of community and regional mortgage lending institutions, depending on local customs and regulations.The ability to attract andretainissuing agents is a key determinant of the Companys growth in title insurancepremiums written.
Revenues for the title insurance segment primarily result from purchases of new and existing residential and commercial real estate, refinanceactivityand certain other types of mortgage lending such as home equity lines of credit. Title insurance premiums vary from state tostateand are subject to extensiveregulation. Statutesgenerally providethat rates must *not* be excessive,inadequateor unfairly discriminatory. The process of implementing a rate change in most states involves pre-approval by the applicable state insurance regulator.
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The substantial majority of the Company's 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, butisgenerally correlatedwith changes in interest rates and general economic cycles.Commercial real estate volumes are less sensitive to changes in interest rates than residential real estatevolumes, butfluctuate based on local supply and demand conditions and financing availability. Commercial real estatehistorically haselevated activity towards the end of the year.However, changes in general economic conditions in the United States and abroadcan 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 Companys revenues from title insurance premiums in future periods are likely to fluctuate due to these and other factors which are beyond managements control. In conducting its title insurance operations, the Company often holds customers assets in escrow, pending completion of real estate transactions.This cash is presented as restricted cash on the Companys Consolidated Balance Sheets.The Company records an offsetting escrow liability given that we are liable for the disposition of these escrowed funds.
*Corporate and Other*
The Corporate and Other segmentcontainsresults of management advisory services and other investment activity, *not* related to title insurance.
The Company, through itswholly-ownedsubsidiary, HGMA, engages in providing various management advisory services such as legal entity formation, licensure, regulatory approval, assumption of policies, and other general operational services.
Effective *January 1, 2024,*the Company, through HGMA, was engaged to providemanagement advisory services to a related captive managing general agency, HP Managing Agency, LLC ("HPMA"), and its affiliates, including but *not* limited to general management, legal compliance, strategy services and review of potential acquisitions and transactions.The engagement was initially for *twelve* months from *January 1,**2024*through *December 31, 2024,*for a monthly fee of $200,000, and was renewed effective *January 1,**2025*for anadditionalsixmonths.HPMA is a related party of the Company as it is controlled by Steven A. Hale II, who serves as ourChairman, Chief ExecutiveOfficerand Director. The engagement expiredin accordance withits terms on *June 30, 2025.*
Effective *April 1, 2023,*the Company, through HGMA, was also engagedto provide management advisory services to a related reinsurance intermediary affiliated with HPMA.The services included legal entity formation, licensure, regulatory approval, and other general operational services to allow the intermediary to adequately perform its business functions.The engagement was initially for *twelve* months from *April 1,**2023*through *March 31, 2024,*fora monthly fee of $50,000, and was renewed effective *April 1,**2024*for anadditional*nine* months, as well as effective *January 1,**2025*for anadditional*six* months.The engagement expiredin accordance withits terms on *June 30, 2025.*
On *April 21, 2025,*the Company entered into a Master Services Agreement, effective *June 1, 2025,*with HP Risk Solutions, LLC (HP Risk), a wholly-owned subsidiary of HP Holding Company, LLC, which is wholly owned by certain affiliates of Mr. Hale, pursuant to which the Company provides certain managerial and operational services to HP Risk for consideration from HP Risk of $6 million per year over the course of *three* years (the Services Agreement). Foradditionalinformationregardingthe Services Agreement, refer to*Note 3, Significant Transactions*.
Additionally, the Company owns 250 shares of Common Stock ("HC Common Stock") of HC Government Realty Trust, Inc., a Maryland corporation and related party entity ("HC Realty"),and 1,025,000 shares of HC Realtys 10.00% Series B Cumulative Convertible Preferred Stock (the HC Series B Stock). As of *December**31,* *2025,* the Company owns approximately28.0%of the voting interest of HC Realty. In *June 2024,*HC Realty effecteda *one*(*1*) for *one thousand two hundred* (1,200) reverse stock split of its common stock, which resulted in a reduction in the number of our shares of HC Common Stock from 300,000 to 250.
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HC Realty is an internally-managed real estate investment trust (REIT) focused on acquiring, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the U.S. General Services Administration (the "GSA")or directly by the federal government agencies or sub-agencies occupying such properties (referred to as Government Properties).HC Realty invests primarily in Government Properties ranging from 10,000 to 100,000 rentable square feet that are in theirinitiallease term after original construction or renovation-to-suit. HC Realty further emphasizes Government Properties that perform law enforcement, publicserviceor other functions that support the mission of the agencies or sub-agencies occupying such properties.Leases associated with the Government 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 of Government Properties; although, HC Realty *may*elect to invest in Government Properties through indirect investments, such as joint ventures.Steven A. Hale II, ourChairmanand Chief Executive Officer, serves as HC RealtysChairman, Chief Executive Officer and President and a member of the HC Realty board of directors. In addition, Mr. Hale, and certain investors affiliated with Mr. Hale, founded Hale Partnership Capital Management, LLC (HPCM), and Mr. Hale currently serves as HPCMs solemanager. HPCM serves as investment manager and adviserto, and*may*possessvoting and/or investment power over the securities of HC Realty held by, certain other investors in HC Realty.HC Realty is considered to be a related party to the Company.
**2.** **Significant Accounting Policies**
The significant accounting policies of the Company are summarized below:
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held in banks and other short-term, highly liquid investments with the originalmaturity of *three* months or less.The Company maintains its cash and cash equivalents with major financial institutions. Deposits at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable limits. From time to time, the Companys cash balances *may*exceed federally insured limits. The Company has *not* experienced any losses related to these balances and believes the risk of loss associated with cash deposits in excess of federally insured limits is *not* significant as of the balance sheet date.
Restricted Cash
Restricted cash includes cash held in escrow under escrow agreements. Cash held by the Company in escrow was approximately $6.7million and $8.3million as of *December 31, 2025*and *2024,* respectively. The Company records an offsetting escrow liability reflecting its obligationfor the disposition of these escrowed funds.
Investments
*Fair Value Measurement* -Where available, we estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the New York Stock Exchange, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a *third*-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable.Refer to *Note 5, Investments*for additional information.Accounting for fair value measurements requires disclosure of the level within the fair value hierarchy in which fair value measurements in their entirety fall, segregating fair value measurements using quoted prices in active markets for identical assets or liabilities (Level *1*), significant other observable inputs (Level *2*), and significant unobservable inputs (Level *3*). Equity method investments are *not* measured at fair value on a recurring basis.
*Fixed income debt securities* - The Company's fixed income debt portfolio consists of U.S. government and agency securities. Ourfixed income securities are classified as held-to-maturity and are reported at amortized cost. The Company performs ongoing impairment evaluations of its fixed income securities, and we did not record any current expected credit losses ("CECL") during the years ended *December 31, 2025*and *2024,* as the U.S. government and agency securities are assumed to have *no* risk of non-payment.
*Investments in Limited Partnership*- The Company has elected the practical expedient for fair value for its investment in limited partnership which is estimated based on the Company's share of the net asset value (NAV) of the limited partnership, as provided by the independent fund administrator. The Companys share of the NAV represents the Companys proportionate interest in the members equity of the limited partnership.
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Investments in Related Parties
The Companys investments in related parties are accounted for either under the equity method of accounting or, where they do *not* meet the criteria of accounting under the equity method,under the cost adjusted for market observable events less impairment method. For information about the Companys investments in related parties, refer to *Note 5, Investments.*
*Equity Method Investments -*Investments inentities over which the Company exercises significant influence, but does *not* control, are accounted for using the equity method of accounting.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 purposes of this assessment, the Company considers the investees cash position, liquidity, earnings and revenue outlook, equity position, and ownership, among other factors, in its review.If managements assessment indicates that an impairment exists, the Company estimates the fair value of the equity method investment and recognizes in current earnings an impairment loss that is equal to the difference between the fair value of theequity method investment and its carrying amount. TheCompany recognizes equity method earnings on a lag basis, generally *one* reporting period in arrears, where investee financial information is *not* available on a timely basis. Management has determined that the use of a reporting lag does *not* have a material impact on the Companys consolidated financial statements.
*Other Investments in Related Parties* - Investments in which the Company does *not* exercise significant influence over the investee and that do *not* have readily determinable fair values,are accounted for under the measurement alternative -cost, less impairment, adjusted for any observable price changes, when available.The Company reviews its equity securities without readily determinable fair values on a regular basis to determine if the investment is impaired. For purposes of this assessment, the Company considers the investees cash position, liquidity, earnings and revenue outlook, equity position, and ownership, among other factors, in its review.If managements assessment indicates that an impairment exists, the Company estimates the fair value of the equity investment and recognizes in current earnings an impairment loss that is equal to the difference between the fair value of theequity investment and its carrying amount.
Variable and Voting Interest Entities
We evaluate our investments to determine whether those investments are variable interest entities ("VIEs") or voting interest entities (VOEs) and whether consolidation is required. The Company consolidates the results of operations and financial position of all VOEs in which it has a controlling financial interest and VIEs in which it is considered to be the primary beneficiary. The consolidation assessment, including the determination as to whether an entity qualifies as a VOE or VIE, depends on the facts and circumstances surrounding each entity.
Noncontrolling interests
The Company consolidates the results of entities in which it has a controlling financial interest. Noncontrolling interests are presented as a separate line within stockholders equity in the Consolidated Balance Sheets. The Company presents the portion of net income(loss) attributable to noncontrolling interests as a separate line within the Consolidated Statements of Operations.
Fair Value of Assets Acquired and Liabilities Assumed in Business Combinations
The Company recognizes 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.
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Goodwill
Goodwill represents the excess of purchase price over fair value of identifiable net assets acquired and liabilities assumed in a business combination. Goodwill and other intangible assets with indefinite useful lives are reviewed for impairment at the reporting unit level on an annual basis or more frequently if circumstances indicate potential impairment, through a comparison of fair value to the carrying amount. In evaluating the recoverability of goodwill, we perform a quarterly goodwill impairment analysis based on a review ofqualitative factors to determine if events and circumstances exist, which will lead to a determination that the fair value of a reporting unit is greater than its carrying amount, prior to performing a full fair-value assessment.In the absence of any indicators of potential impairment, the evaluation of goodwill is performed annually during the
*fourth* quarter of each year.
For our annual goodwill impairment test performed as of *December 31*of each year, we utilize *two* approaches to value goodwill: the income approach, which converts future estimates of cash flows by reporting unit to a single (discounted) current value, and the market approach, which uses publicly available peer data to estimate value of the reporting unit.The valuation techniques performed in our quantitative analysis make use of our estimates and assumptions related to revenue and operating margin growth rates, future market conditions, determination of market multiples and comparative companies,and determination of risk-adjusted discount rates. In performing our analysis, we make assumptions and apply judgments to estimate industry economic factors and the future profitability of our businesses. Based on our quantitative annual valuations as of *December 31, 2025*and *2024,* we have concluded that there was no impairment of goodwill.
Leases
The Company enters into lease agreements that are primarily used for office space, and all current leases are accounted for as operating leases. Amounts related to operating leases are included in lease assets and lease liabilities on the Consolidated Balance Sheets. Lease assets represent the Companys right to use an underlying asset for the stated lease term. Lease liabilities represent the Companys obligation to make lease payments arising from an operating lease. Lease assets and liabilities are recognized at the date of the lease commencementand are based on the present value of lease payments over the lease term. The Company's current leases do *not* provide an implicit interest rate, thus the Company calculated the discount rate for present value of lease payments using estimates of its incremental borrowing rate for a fully collateralized fully amortized loan with a term similar to the lease. A portion of the Company's current leases includes an option to extend or cancel the lease term. The exercise of such an option is solely at the Company's discretion. The operating lease liability recorded in the Consolidated Balance Sheets includes lease payments related to options to extend or cancel the lease term if the Company determined at the date of adoption that the lease was expected to be renewed or extended. A lease expense, which is calculated on a straight-line basis over the lease term and presented as part of operating expenses in the Consolidated Statements of Operations, is composed of the amortization of the lease asset and the accretion of the lease liability.
Variable lease payments are *not* capitalized and are recorded as lease expense when incurred. Operating leases with initial terms of *12* months or less (short-term leases), which are *not* reasonably certain to be extended at the commencement date, are *not* capitalized on the balance sheet.For further information on the Companys leasing arrangements see *Note12*,*Commitments and Contingencies*.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed using the straight-line method based upon the estimated useful lives. Depreciation expense is included in operating expensesin the Consolidated Statements of Operations. Maintenance and repairs are charged to expense as incurred; renewals and betterments are capitalized. Assets are 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 property, plant and equipment, which could result in impairment charges in future periods. Our depreciation policy reflects judgments on the estimated useful lives of assets. No impairment losses on our long-lived assets were recognized during the years ended*December 31, 2025* and *2024.*
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Title Premiums Written and Commissions to Agents
When the policy is issued directly, the premiums collected are retained by the Company. When the policy is issued through a title insurance agency, the agency retains a majority of the premium as a commission and remits the net amount to the Company.The Companys title insurance premiums are recognized as revenue at the time title insurance policies written by agencies are reported to the Company. Our direct title insurance premiums and agency commission revenues are recognized as revenue at the time of closing of the underlying transaction as the earnings process is then considered complete.Expenses typically associated with premiumsincludeagent commissions andpremium taxes thatare included within underwriting expenses on our Consolidated Statements of Operations, as well as a provision for future claims that is recognized concurrent with recognition of related premium revenue and included within provision for title claim losses.Fee income related to escrow and other closing services is recognized when the related services have been performed and completed.Other revenues are recognized when contractual obligations are fulfilled or as services are provided.Quarterly, the Company evaluates the collectability of receivables. Write-offs of receivables have *not* been material to the Company.
Revenue from Contracts with Customers
The Accounting Standards Codification ("ASC") *606,**Revenue from Contracts with Customers*,requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance does *not* apply to revenue associated with insurance contracts (including title insurance policies), financial instruments and lease contracts; and therefore, is primarily applicable to the following Company revenue categories:
*Escrow and other title-related fees* The Companys title insurance segment recognizes commission revenue and fees related to items such as searches, settlements, commitments, and other ancillary services. Escrow and other title-related fees are recognized as revenue at the time of the related transactions as the earnings process, or performance obligation, is then considered to be complete. Cash associated with such revenue is typically collected at the same time revenue is recognized.
*Non-title services* All non-title service fees, such as management fees, are recognized as revenue as performance obligations are completed.Cash associated with such revenue is typically collected monthly over the term of the service contract.
Credit losses on the Company's accounts receivable and due from related parties are recognized based on estimated losses expected to occur over the life of these receivables. As of *December 31, 2025,*the Companydid *not* record an allowance for credit losses related to these balances.
Reserve for Title Claims
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") 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 (incurred but *not* reported, or "IBNR"). The Company continually reviews and adjusts its reserve estimates as necessary to reflect its loss experience and any new information that becomes available.
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.
Interest Income
Interest income, as well as the related amortization of premium and accretion of discount, on debt securities are recognizedon an accrual basis under the effective interest rate method and are included in Net investment incomein the Consolidated Statements of Operations.
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Income Taxes
Deferred income taxes are determined based on the difference between the consolidated financial statements and income tax bases of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax expense represents the change in the deferred tax asset/liability balance. Income tax credits are reported as a reduction of income tax expense in the year in which the credits are generated. A valuation allowance is recorded when it is more likely than *not* that a deferred tax asset will *not* be realized. Interest and penalties on uncertain tax positions are recorded as income tax expense.
Earnings per Share of Common Stock
Basic earnings per share is computed based on the weighted average number of shares of common stock outstanding. Diluted earnings per share includes any dilutive effect of outstanding stock options and restricted stock, if any, calculated using the treasury stock method. As of *December 31, 2025* and *2024,* there were no stock options or restricted stock outstanding.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Changes in such estimates *may*affect amounts reported in future periods.
Reclassifications
Certain comparative figures have been reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
*Recently Adopted Accounting Standards*
In *December 2023,*the Financial Accounting Standards Board ("FASB") issuedAccounting Standards Update (ASU)*2023*-*09,Income* Taxes (Topic *740*): Improvements to Income Tax Disclosures(ASU *2023*-*09*), that requirespublic entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and provide more details about the reconciling items in some categories if items meet a quantitative threshold. The guidance requires all entities todiscloseincome taxes paid, net of refunds, disaggregated by federal (national), state and foreign taxes for annual periods and to disaggregate the information byjurisdictionbasedonaquantitativethreshold.The Company has adopted ASU *2023*-*09* for the *2025* annual reporting period and applied it retrospectively to all periods presented. The updated guidance did *not* have a material impacton the Company'sconsolidatedfinancial statements except for the disclosure requirements provided in*Note 9, Income Taxes*.
*Recently Issued Accounting Standards Not Yet Adopted*
In *November 2024,*the FASB issued ASU *2024*-*03,* *Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses*.This update requires public business entities todisclose disaggregated information about certain income statement expenses, including categories such as employee compensation, intangible asset amortization and depreciation, and selling expense, in the notes to the Consolidated Financial Statements.Public business entities are required to apply the guidance prospectively and *may*apply it retrospectively. The guidance is effective for fiscal years beginning after *December 15, 2026,*and interim periods within fiscal years beginning after *December 15, 2027.*Early adoption is permitted.The Company is evaluating the impacts of this standard on our tax disclosures and is *not* planning to early adopt.
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**3. Significant Transactions**
**Stock Repurchase Agreement**
On *April 21, 2025,*the Companyentered into a Stock Repurchase Agreementwith certain of its existing stockholders who are managed by Solas Capital Management, LLC (the Sellers), pursuant to which the Sellers agreed to sell to the Company, and the Company agreed to repurchase from the Sellers, an aggregate of 402,322 shares of the Companys common stockheld by the Sellers, for an aggregate price of $3,138,112(the Repurchase).The Repurchase was made outside of, and as an exception to, the *2024* Repurchase Program (as defined below).
Prior to the Repurchase, the Sellers owned an aggregate of approximately 41.4% of the Companys outstanding shares of common stock. After giving effect to the Repurchase and the transactions effected pursuant to the Contribution Agreement (defined and described below), the Sellers owned an aggregate of approximately 14.4% of the Companys outstanding shares of common stock.
**Master Services Agreement**
On *April 21, 2025,*the Company entered into the Services Agreement, effective *June 1, 2025,*with HP Risk, awholly-owned subsidiary of HP Holding Company, LLC, which is wholly owned by certain affiliates of Mr. Hale, pursuant to which the Company provides certain managerial and operational services to HP Riskfor consideration from HP Riskof $6 million per year over the course of three years.Such services to be performed pursuant to the Services Agreement include, but are *not* limited to: reinsurance brokerage services; the review and improvement of financial goals; compliance with legal and regulatory mandates; maintenance of an ethical business environment; investment and asset manager compliance; cash and equity management; corporate tax management; personnel management; related party transaction oversight; tax preparation administration; strategic capital modeling; the review of potential acquisitions and transactions involving affiliates and *third* parties, including but *not* limited to, renewal rights deals, loss portfolio transfers or entity acquisitions; execution of (or provision for the execution of) all general corporate legal matters; and provision of internal control management services.
**Assignment and Contribution Agreement**
On *April 21, 2025,*the Company entered into an Assignment and Contribution Agreement (the Contribution Agreement) with the certain assignors listed therein (the Assignors), pursuant to which the Assignors agreed to assign and contribute to the Company an aggregate of 10,203 shares of common stock, no par value ("ACMAT Common Stock"), and 291,656 shares of Class A stock, no par value ("ACMAT Class A Stock"), of ACMAT Corporation (ACMAT), a Connecticut corporation, and, in consideration of and exchange therefor, the Company agreed to issue to the Assignors an aggregate of 2,899,876 shares of Company common stock, contingent upon the closing of the transactions contemplated by the Services Agreement described in the previous paragraph. After giving effect to the transactions pursuant to the Contribution Agreement, the Company owns approximately 39.1% of the outstanding equity of ACMAT and approximately 10.4% of the voting power of ACMAT, based on ACMAT's outstanding equity as of *November 6, 2025.*Holders of ACMAT Class A Stock are entitled to *one*-tenth vote per share in relation to ACMAT Common Stock, holders of which are entitled to one vote per share, with respect to matters subject to approval by ACMAT stockholders.ACMAT, through its subsidiaries, offers surety bonds for prime, sub-prime, specialty trade, environmental, asbestos and lead abatement contractors and miscellaneous obligations nationwide. ACMAT also provides other miscellaneous surety bonds such as workers compensation bonds, supply bonds, subdivision bonds, and license and permit bonds.
HPCM, an entity wholly owned by Mr. Hale, is the registered investment advisor or investment manager for each of the Assignors, and Mr. Hale is the sole principal owner of Hale Partnership Capital Advisors, LLC, the general partner of all but *one* of the Assignors.
Prior to the transactions effected pursuant to the Contribution Agreement and the Repurchase described above, the Assignors owned an aggregate of approximately 34.7% of the Companys outstanding shares of common stock. After giving effect to the transactions effected pursuant to the Contribution Agreement and the Repurchase described above, the Assignors owned an aggregate of approximately 73.0% of the Companys outstanding shares of common stock. This transaction closed on *June 30, 2025.*
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**4.****Statutory Reporting and Requirements**
NCTIC's assets, liabilities, and results of operations have been reported in accordance with GAAP, which varies from statutory accounting practices (SAP) prescribed or permitted by insurance regulatory authorities. Prescribed SAP are found in a variety of publications of the National Association of Insurance Commissioners (NAIC), state laws and regulations, as well as through general practices. The principal differences between SAP and GAAP are that under SAP: (*1*) certain assets that are *not* admitted assets are eliminated from the balance sheet, (*2*) a supplemental reserve for claims is charged directly to unassigned surplus rather than provision for claims under GAAP, and (*3*) differences *may*arise in the computation of deferred income taxes. The Company must file with applicable state insurance regulatory authorities an Annual Statement which reports, among other items, net income (loss) and stockholders' equity (called surplus as regards policyholders in statutory reporting).
NCTIC is subject to regulations and standards of the Florida Office of Insurance Regulation (FLOIR).These standards and regulations include a requirement that the insurance entities domiciled in the State of Florida maintain specified levels of statutory capital and restrict the timing and amount of dividends and other distributions that *may*be paid by the insurance entities to the parent company.
Capital and surplus on a statutory basis was $8.7million as of *December 31, 2025*, compared to $7.3million as of *December 31, 2024*and exceeded the minimum of $3.0 million required by the State of Florida for title insurance companies. The maximum amount of dividends which can be paid by State of Florida insurance companies to shareholders without prior approval of the Insurance Commissioner is subject to restrictions relating to statutory surplus. Cash dividends *may*only be paid out of accumulated surplus funds derived from net operating profits and realized capital gains *not* exceeding *10%* of such surplus in any *one* year, although there are *no* restrictions on cash dividend payments out of profits and gains derived during the immediately preceding year. During the years ended *December 31, 2025* and *2024*,nodividends were paid from NCTIC to the Company.
**5.****Investments**
*Investments in Related Parties*
On *June 30, 2025,*the Company completed a non-cash equity-for-equity exchange transaction pursuant to which it acquired a 39.1% equity interest and a 10.4% voting interest in ACMAT. ACMAT is considered a related party as the Company is a principal owner of ACMAT through its voting interest. For additional information regarding this transaction, refer to *Note 3,Significant Transactions*. TheCompany accounts for its investment in ACMAT under the equity method of accounting, as the Company has concluded that it has the ability to exercise significant influence over the operating and financial policies of the investee. As of *December 31, 2025,*the Companys investment in ACMAT was carried at approximately $12.6million. TheCompany recognizes equity method earnings from ACMAT on a lag basis, generally *one* reporting period in arrears, as financial information for ACMAT is *not* available on a timely basis. Management has determined that the use of a reporting lag does *not* have a material impact on the Companys consolidated financial statements. The Companys share of ACMATs earnings for the year ended*December 31, 2025*of $114,000isreflected in income from investments in related parties in the consolidated statements of operations.The Company did not have any share of ACMATs earnings as of *December 31, 2024.*
Asa result of the Companys equity method investment in ACMAT, the Company includes the following summarized income statement information of ACMAT for the latest available period, the *nine* months ended *September 30, 2025(*in thousands):
| | | September 30, 2025 | | |
| Total revenue | | $ | 2,719 | | |
| Total expense | | | 2,416 | | |
| Pre-tax earnings | | $ | 303 | | |
| Provision for income tax | | | (36 | ) | |
| Net earnings | | $ | 339 | | |
Additionally, the Company owns approximately 28.0%of the voting interest of HC Realty through its ownership of 250 shares of HC Common Stockand 1,025,000 shares of HC Series B Stock.
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OnMarch *19,* *2019,the* Company entered into subscription agreements with HC Realty, pursuant to which it purchased (i)200,000shares ofHC Series B Stockfor an aggregate purchase price of $2,000,000and (ii)300,000shares ofHC Common Stockfor an aggregate purchase price of $3,000,000. Certain investors affiliated withHPCM, an entity founded by ourChairmanand Chief Executive Officer and for which ourChairmanand Chief Executive Officerservesas sole manager,purchasedanadditional850,000shares of HC Series B Stock for an aggregate purchase price of $8,500,000. 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 doesnotreceive management fees, performance fees, or any other economic benefits with respect to these investors investments in HC Series B Stock.OnApril *3,April* *9,andJune* *29,* *2020,the* Company entered into subscription agreements with HC Realty,pursuant towhich wepurchased100,000,250,000, and475,000shares of HC Series B Stock, respectively, for an aggregate purchase price of $8,250,000.
In *June 2024,*HC Realty effected a *one* (*1*) for *one thousand two hundred* (1,200) reverse stock split of its common stock, which resulted in a reduction in the number of our shares of HC Common Stock from 300,000 to 250.
The following table summarizes the Companys investment in HC Realty as of the years ended*December 31, 2025*and*2024*(amounts in thousands, except ratios):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Ownership % | | | Carrying Value / Fair Value | | | Loss recorded in the Consolidated Statements of Operations (b) | | |
| | | | | | | | | | | | | | | | | | | For the | | | For the | | |
| | | As of | | | As of | | | As of | | | As of | | | Year Ended | | | Year Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | | December 31, 2025 | | | December 31, 2024 | | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| HC Series B Stock (a) | | | 27.9 | % | | | 27.9 | % | | $ | 5,166 | | | $ | 9,256 | | | $ | (4,090 | ) | | $ | (994 | ) | |
| HC Common Stock | | | 0.1 | % | | | 0.1 | % | | | 5 | | | | 9 | | | | (4 | ) | | | (292 | ) | |
| Total | | | 28.0 | % | | | 28.0 | % | | $ | 5,171 | | | $ | 9,265 | | | $ | (4,094 | ) | | $ | (1,286 | ) | |
| | (a) | Represents investments in shares of HC Series B Stock with an original basis of $10.25 million. Each share of HC Series B Stock has voting rights on an as converted basis and can be converted into shares of HC Common Stock at a conversion ratio equal to $10.00 per share divided by the lesser of $9.10 per share or the fair market value per share of HC Common Stock, subject to adjustment upon the occurrence of certain events. | |
| | (b) | Loss from these investments is included in Lossfrom investments in related parties, netin the Consolidated Statements of Operations.Since HC Realty is a REIT and not a taxable entity, the loss is not reported net of taxes. | |
The Companys investment in HC Common Stock is accounted for under the equity method of accounting as the Company has concluded it has a significant influence over the investee. The HC Series B Stock is *not* deemed to be in-substance common stock and is accounted for under the cost adjusted for market observable events less impairment method.Both investments in HC Common Stock and HC Series B Stock are evaluated quarterly for impairment.During the years ended *December 31, 2025*and *2024,* the Company recognized an impairment of HC Series B Stock of $4.1 millionand $994,000,respectively. The impairments predominantly related to the downturn in the governmental real estate industry as a result of continuing elevated interest ratesas well as certain actions taken by the government in *2025.* During the yearended*December 31, 2024,*the Company recognized an impairment of HC Common Stock of $260,000. The Company did *not* recognize an impairment of HC Common Stock during the year ended *December 31, 2025.*
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As a result of the Companys holding in HC Realty, the Company includes the following summarized income statement information of HC Realty for the years ended *December 31, 2025*and *2024*(in thousands):
| | | For the Year Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | | | | |
| Total revenue | | $ | 21,353 | | | $ | 21,260 | | |
| Total expense | | | 31,095 | | | | 39,706 | | |
| Net loss | | $ | (9,742 | ) | | $ | (18,446 | ) | |
The Companys other investments in related parties were $1.1 millionand $808,000 as of *December 31,**2025*and *December 31, 2024,*respectively, and include investments in limited liability companies and corporations. These investments do *not* meet the criteria for accounting under the equity method and are accounted for under the cost adjusted for market observable events less impairment method. As of *December 31, 2025,*the Company had total receivables and payables from related parties of $526,000 and $355,000, respectively.As of *December 31, 2024,*the Company had total receivables and payables from these related parties of $3,000 and $136,000, respectively. During the years ended *December 31, 2025*and *2024,* the Company received $891,000 and $465,000, respectively, of distributions from the related partyinvestees, which are included in Lossfrom investments in related parties, net in the Consolidated Statements of Operations.
*Other Investments*
The following table details investments by major investment category, other than investments in related parties, at *December 31, 2025*and *December 31, 2024(*in thousands):
| | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | Cost/Amortized | | | | | | | Cost/Amortized | | |
| | | Fair Value | | | Cost, Net | | | Fair Value | | | Cost, Net | | |
| U.S. government and agency securities, held-to-maturity (1) | | $ | - | | | $ | - | | | $ | 1,000 | | | $ | 1,000 | | |
| Investment in limited partnership, at NAV(2) | | | 3,088 | | | | 3,088 | | | | 2,183 | | | | 2,183 | | |
| Total investments | | $ | 3,088 | | | $ | 3,088 | | | $ | 3,183 | | | $ | 3,183 | | |
| | 1. | The Company's fixed-income securities portfolio was classified asheld-to-maturity andreported at amortized cost as of December 31, 2024.The fixed-income securities were classified as Level 2 in the fair value hierarchy. As of December 31, 2024, there were no unrealized gainsor losses on fixed-income securities. TheCompany's fixed-income securitiesmaturedin the first quarter of 2025. | |
| | 2. | As of December 31, 2025, there are no unfunded commitments related to the investment in limited partnership. This limited partnership invests in property catastrophe risk through customized reinsurance solutions. The underlying assets of the limited partnership are one year or less in duration and the Companys proceeds may be redeemed or reinvested annually for each tranche. Changes in NAVof the investment in limited partnership are included in "Net investment income" on the Companys Consolidated Statements of Operations. | |
The Company has elected the practical expedient for fair value for its investment in limitedpartnershipwhich is estimated based on our share of the NAVof the limited partnership, as provided by the independent fund administrator. The Companys share of the NAVrepresentsthe Companys proportionate interest in the members equity of the limited partnership.
*Fair Value Measurement*
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on our Consolidated Balance Sheets at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:
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Level *1:* Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we can access.
Level *2:* Assets and liabilities whose values are based on the following:
| | a. | Quoted prices for similar assets or liabilities in active markets; | |
| | b. | Quoted prices for identical or similar assets or liabilities in markets that are not active; or | |
| | c. | Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. | |
Level *3:* Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the assets and liabilities.
Where available, we estimate the fair value of our investments using the closing prices on the last business day of the reporting period, obtained from active markets such as the New York Stock Exchange, Nasdaq and NYSE American. For securities for which quoted prices in active markets are unavailable, we use a *third*-party pricing service that utilizes quoted prices in active markets for similar instruments, benchmark interest rates, broker quotes and other relevant inputs to estimate the fair value of those securities for which quoted prices are unavailable.
Our fixed income securities are classified as held-to-maturity and are reported at amortized cost as of *December 31, 2025*and *2024.* The Company performs ongoing impairment evaluations, and we did not record any CECLduring the years ended *December 31, 2025*and *2024,* as U.S. government and agency securities are assumed to have *no* risk of non-payment. The disclosed fair value of our fixed-income securities is initially calculated by a *third*-party pricing service. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary models, produce valuation information in the form of a single fair value for individual fixed income and other securities for which a fair value has been requested. The inputs used by the valuation service providers include, but are *not* limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial information. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector and, where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience.
The Companys investments in related parties are accounted for either under the equity method of accounting or, where they do *not* meet the criteria of accounting under the equity method, under the cost adjusted for market observable events less impairment method. For information about the Companys investments in related parties, refer tothe*Investments in Related Parties*section above.**
The following tables presentthe carrying amounts and estimated fair values of the Companys financial instruments *not* measured at fair value as of *December 31, 2025*and *2024:*
| | | | | | | Estimated fair value | | |
| (in thousands) | | Carrying Amount | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | NAV | | |
| December 31, 2025 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 10,333 | | | $ | 10,333 | | | $ | 10,333 | | | $ | - | | | $ | - | | | $ | - | | |
| Restricted cash | | $ | 6,746 | | | $ | 6,746 | | | $ | 6,746 | | | $ | - | | | $ | - | | | $ | - | | |
| Investments in limited partnerships | | $ | 3,088 | | | $ | 3,088 | | | $ | - | | | $ | - | | | $ | - | | | $ | 3,088 | | |
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| | | | | | | Estimated fair value | | |
| (in thousands) | | Carrying Amount | | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | | NAV | | |
| December 31, 2024 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 12,145 | | | $ | 12,145 | | | $ | 12,145 | | | $ | - | | | $ | - | | | $ | - | | |
| Restricted cash | | $ | 8,264 | | | $ | 8,264 | | | $ | 8,264 | | | $ | - | | | $ | - | | | $ | - | | |
| Fixed income securities, held-to-maturity | | $ | 1,000 | | | $ | 1,000 | | | $ | - | | | $ | 1,000 | | | $ | - | | | $ | - | | |
| Investments in limited partnerships | | $ | 2,183 | | | $ | 2,183 | | | $ | - | | | $ | - | | | $ | - | | | $ | 2,183 | | |
*Assets measured at fair value on a non-recurring basis*
| (in thousands) | | Estimated Fair Value | | |
| December 31, 2025 | | Total | | | Level 1 | | | Level 2 | | | Level 3 | | |
| HC Series B Stock | | $ | 5,166 | | | | - | | | | - | | | $ | 5,166 | | |
| December 31, 2024 | | | | | | | | | | | | | | | | | |
| HC Series B Stock | | $ | 9,256 | | | | - | | | | - | | | $ | 9,256 | | |
HC Series B Stock has been remeasured during the year as part ofevaluation for impairment.For purposes of this assessment, the Company performs a qualitative review where it considers the investees cash position, liquidity, earnings and revenue outlook, equity position, and ownership, among other factors. If the qualitative impairment assessment leads to a conclusion that a potential impairment exists, a quantitative assessment is performed. In performing the quantitative assessment forimpairment, the Company estimates afair value of the investment utilizinga combination of the income, market and cost approach, where applicable.If indicated fair value is lower than the carrying amount of the investment, the Company recognizes in current earnings an impairment loss that is equal to the difference between the fair value of the investment and its carrying amount.The valuation techniques performed in our quantitative analysis make use of Level *3* inputs such as the investee's growth projections and free cash flows, assumptions related to risk-adjusted discount rate, timing of liquidity events, determination of market multiples and comparative companies, discount for lack of marketability and assumptions related to reproduction or replacement value. Forecasts of future operations are based, in part, onassumptions and data provided by management ofthe investee andour expectations as to market, peer data and research,which are inherently uncertain and difficult to project. Due to the uncertainty and complexity of performing the valuationanalysis, future results related to market conditions and the investee's business operations and other inputs to the analysis *may*be worse than estimated or assumed. In such cases, we *may*be exposed to future material impairments of our investments in related parties.
*Net Investment Income*
Net investment income for the years ended *December 31, 2025*and *2024*is detailed below (in thousands):
| | | For the Year Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | | | | |
| Interest on: | | | | | | | | | |
| Cash equivalents | | $ | 345 | | | $ | 337 | | |
| Fixed income securities | | | 18 | | | | 102 | | |
| Dividends on investment in HC Series B Stock | | | - | | | | 256 | | |
| Change in NAV of investment in limited partnership | | | 362 | | | | 363 | | |
| Net investment income | | $ | 725 | | | $ | 1,058 | | |
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**6.****Reserve for Title Claims**
NCTICs reserves for unpaid losses and loss adjustment expenses areestablishedusing estimated amounts required tosettle claims for which notice has been received (reported) and the amount estimated to berequiredto satisfy IBNR claims. Despite the variability of such estimates, management believes that the total reserve for claims is adequate to cover claim losses which might result from pending and future claims under title insurance policies issued through *December 31, 2025.*We continually update loss reserve estimates asnew informationbecomes known, new loss patternsemergeor 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, itis possible thatadditionalreserve adjustments *may*berequiredin future periodsin order tomaintainour recorded reserve within a reasonable range of our actuary's central estimate.
Areconciliationof the activity in the reserves account for the years ended*December 31, 2025*and *2024*is as follows (in thousands):
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| Beginning reserves | | $ | 637 | | | $ | 313 | | |
| | | | | | | | | | |
| Provision for claims related to: | | | | | | | | | |
| Current year | | | 241 | | | | 219 | | |
| Prior years | | | (85 | ) | | | 109 | | |
| Total provision for claim losses (1) | | | 156 | | | | 328 | | |
| | | | | | | | | | |
| Claims paid related to: | | | | | | | | | |
| Current year | | | - | | | | - | | |
| Prior years | | | (88 | ) | | | (4 | ) | |
| Total title claims paid | | | (88 | ) | | | (4 | ) | |
| | | | | | | | | | |
| Ending reserve for title claims | | $ | 705 | | | $ | 637 | | |
| | 1. | The Company's provision for claims losses and loss adjustment expense on its Consolidated Statements of Operations for the year ended December 31, 2025 includes the impact of subrogation recovery of $37,000 related to prior-year claims. | |
During the yearsended *December 31, 2025*and *2024,* the Company recognized ($85,000) and $109,000, respectively, in net provision for claims development attributable to insured events of the prior years. Original estimates of ultimatelossexposures are decreased or increased as additional information becomes known during the adjustment processregardingindividual claims.
A summary of the Companys loss reserves at*December 31, 2025*and *2024* is as follows (in thousands):
| | | As of | | | As of | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| Known title claims | | $ | 66 | | | $ | 114 | | |
| IBNR title claims | | | 639 | | | | 523 | | |
| Total title claims | | | 705 | | | | 637 | | |
| Non-title claims | | | - | | | | - | | |
| Total reserve for title claims | | $ | 705 | | | $ | 637 | | |
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**7.****Reinsurance**
Certain premiums and benefits at NCTIC are ceded to other insurance companies under reinsurance agreements. The reinsurance agreements provide NCTIC with increased capacity to write more risk and maintain its exposure to loss within its capital resources. For the years ended *December 31, 2025*and *2024*, NCTIC's reinsurance program consisted of excess of loss reinsurance treaties. The following is a summary of the reinsurance coverage.
Effective *January 1, 2025,*NCTIC entered into a per risk excess of loss reinsurance agreement that providedcoverage of $4.0 million in excess of $1.0 million on each and every risk. The contract allowedfor *one* full reinstatement without additional premium.This per risk agreement was shared with other non-affiliated companies. Each company paidits share of the reinsurance cost based on separate company earned premiums. The agreement expired*December 31, 2025.*
Effective *January 1, 2024,*NCTIC entered into a per risk excess of loss reinsurance agreement that providedcoverage of $4.0 million in excess of $1.0 million on each and every risk. The contract allowedfor *one* full reinstatement without additional premium.This per risk agreement was shared with other non-affiliated companies. Each company paidits share of the reinsurance cost based on separate company earned premiums. The agreement expired*December 31, 2024.*
NCTICs reinsured risks are treated, to the extent of reinsurance, as though they are risks for which the Company is *not* liable. However, NCTIC remains contingently liable in the event its reinsurers do *not* meet their obligations under these reinsurance contracts. NCTIC uses a broker to place its reinsurance through Lloyds syndicates, a group of underwriters who work together to provide insurance coverage for a variety of risks. Chaucer Syndicates Ltd. (Chaucer Syndicates) and Beazley Syndicate (Beazley) are each 50% participants in the Lloyds syndicate.As such, NCTIC has a concentration of reinsurance risk with these *third*-party reinsurers that could have a material impact on NCTICs financial position in the event that either of these reinsurers fail to perform their obligations under the reinsurance treaty. As of *December 31, 2025,*Chaucer Syndicates was rated A+ (superior) by A.M. Best, AA-(very strong) by Standard & Poors and AA- (very strong) by Fitch. Beazley was rated A+ (superior) by A.M. Best, AA- (very strong)by Standard & Poors and AA- (very strong)by Fitch.The Company monitors the financial condition of individual reinsurers, risk concentration arising from similar activities as well as economic characteristics of reinsurers to attempt to reduce the risk of default by such reinsurers. Given the quality of the reinsurers, management believes this possibility to be remote. At *December 31, 2025*and *2024,* there were no reinsurance recoverables on paid claims or unpaid reserves.
The effects of reinsurance on the title premiums written and earned at NCTIC for the years ended *December 31, 2025*and *2024*are as follows (in thousands):
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, | | | December 31, | | |
| | | 2025 | | | 2024 | | |
| Direct title premiums | | $ | 4,876 | | | $ | 4,408 | | |
| Ceded title premiums | | | (53 | ) | | | (42 | ) | |
| Net title premiums written(1) | | $ | 4,823 | | | $ | 4,366 | | |
| | (1) | Net title premiums written disclosed in the table above is of NCTIC only and is included as part of the "Net premiumwritten" on the Consolidated Statements of Operations. | |
**8.****Segment Information**
Effective *January 1, 2025,*the Company changed its reportable segments to two reportable segments: (i) Title Insurance and (ii) Corporate and Other. The Corporate and Other segment is comprised of activity previously presented in the Real Estate, Reinsurance and Management Advisory Services segments. This change in reportable segments reflects the changes in the business mix and the manner in which the Company's chief operating decision maker, Steven A. Hale II, Chief Executive Officer, monitors the performance ofoperations.The change in reportable segments had *no* impact on the Companys historical consolidated financial positions, results of operations or cash flows as previously reported. Where applicable, all prior periods presented have been revised to conform to this new presentation.The measure of the Company's segment performance is income (loss) before income taxes.
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**Title Insurance**
Our title insurance segment issues title insurance policies and provides title agency services on residential and commercial real estate transactions. This segment also provides closing and/or escrow services to facilitate real estate transactions.
**Corporate and Other**
The Corporate and Other segment is comprised of activity previously presented in the Real Estate, Reinsurance and Management Advisory Services segments. Activity in the Corporate and Other segment primarily consists of management advisory services that the Company performs through its Services Agreement with HP Risk. Pursuant to this agreement, the Company provides certain managerial and operational services that include, but are *not* limited to: reinsurance brokerage services the review and improvement of financial goals compliance with legal and regulatory mandates maintenance of an ethical business environment investment and asset manager compliance cash and equity management corporate tax management personnel management related party transaction oversight tax preparation administration strategic capital modeling the review of potential acquisitions and transactions involving affiliates and *third* parties, including but *not* limited to, renewal rights deals, loss portfolio transfers or entity acquisitions execution of (or provision for the execution of) all general corporate legal matters and provision of internal control management services.
The Corporate and Other segment also includes results of the Company's investment in a related party - HC Realty. HC Realty is an internally-managed REIT focused on acquiring, financing, owning and managing build-to-suit or renovate-to-suit, single-tenant properties leased primarily to the U.S. government and administered by the GSAor directly by the federal government agencies or sub-agencies occupying such properties. As of *December 31, 2025,*the Company owns approximately 28.0% of the voting interest of HC Realty.
Provided below is selected financial information about the Companys operations by segment for the yearended *December 31, 2025(*in thousands):
| | | Title | | | Corporate | | | | | | |
| | | Insurance | | | and Other | | | Total | | |
| Revenues: | | | | | | | | | | | | | |
| Net premium written | | $ | 6,941 | | | $ | - | | | $ | 6,941 | | |
| Escrow and other title fees | | | 2,795 | | | | - | | | | 2,795 | | |
| Management fees | | | - | | | | 5,000 | | | | 5,000 | | |
| Total revenues | | | 9,736 | | | | 5,000 | | | | 14,736 | | |
| | | | | | | | | | | | | | |
| Cost of revenues: | | | | | | | | | | | | | |
| Underwriting expenses | | | (263 | ) | | | - | | | | (263 | ) | |
| Recoveries of title claim losses | | | (119 | ) | | | - | | | | (119 | ) | |
| Search and other fees | | | (103 | ) | | | - | | | | (103 | ) | |
| Total cost of revenue | | | (485 | ) | | | - | | | | (485 | ) | |
| | | | | | | | | | | | | | |
| Gross profit | | | 9,251 | | | | 5,000 | | | | 14,251 | | |
| | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | |
| Personnel costs | | | (6,829 | ) | | | (1,505 | ) | | | (8,334 | ) | |
| Other operating expense (1) | | | (3,377 | ) | | | (1,164 | ) | | | (4,541 | ) | |
| Amortization and depreciation | | | (99 | ) | | | - | | | | (99 | ) | |
| Total operating expense | | | (10,305 | ) | | | (2,669 | ) | | | (12,974 | ) | |
| Other income/(expense), net | | | 342 | | | | (2,690 | ) | | | (2,348 | ) | |
| Loss before income taxes | | $ | (712 | ) | | $ | (359 | ) | | $ | (1,071 | ) | |
| | | | | | | | | | | | | | |
| Goodwill and intangible assets (2) | | $ | 6,610 | | | $ | - | | | $ | 6,610 | | |
| | (1) | Other operating expense primarily consists of rent and other occupancy expenses, software and equipment expense, corporate insurance and other regulatory and professionalfees. | |
| | (2) | The Company does not allocate its assets by segment, with the exception of Goodwill and Intangible assets. | |
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Provided below is selected financial information about the Companys operations by segment for the yearended *December 31, 2024(*in thousands):
| | | Title | | | Corporate | | | | | | |
| | | Insurance | | | and Other | | | Total | | |
| Revenues: | | | | | | | | | | | | | |
| Net premium written | | $ | 6,009 | | | $ | - | | | $ | 6,009 | | |
| Escrow and other title fees | | | 2,501 | | | | - | | | | 2,501 | | |
| Management fees | | | - | | | | 3,003 | | | | 3,003 | | |
| Total revenues | | | 8,510 | | | | 3,003 | | | | 11,513 | | |
| | | | | | | | | | | | | | |
| Cost of revenues: | | | | | | | | | | | | | |
| Underwriting expenses | | | (205 | ) | | | - | | | | (205 | ) | |
| Provision for title claim losses | | | (328 | ) | | | - | | | | (328 | ) | |
| Search and other fees | | | (62 | ) | | | - | | | | (62 | ) | |
| Total cost of revenue | | | (595 | ) | | | - | | | | (595 | ) | |
| | | | | | | | | | | | | | |
| Gross profit | | | 7,915 | | | | 3,003 | | | | 10,918 | | |
| | | | | | | | | | | | | | |
| Operating expenses: | | | | | | | | | | | | | |
| Personnel costs | | | (6,505 | ) | | | (1,355 | ) | | | (7,860 | ) | |
| Other operating expense (1) | | | (3,499 | ) | | | (1,087 | ) | | | (4,586 | ) | |
| Amortization and depreciation | | | (131 | ) | | | (2 | ) | | | (133 | ) | |
| Total operating expense | | | (10,135 | ) | | | (2,444 | ) | | | (12,579 | ) | |
| Other income, net | | | 280 | | | | 1,114 | | | | 1,394 | | |
| (Loss) income before income taxes | | $ | (1,940 | ) | | $ | 1,673 | | | $ | (267 | ) | |
| | | | | | | | | | | | | | |
| Goodwill and intangible assets (2) | | $ | 6,685 | | | $ | - | | | $ | 6,685 | | |
| | (1) | Other operating expense primarily consists of rent and other occupancy expenses, software and equipment expense, corporate insurance and other regulatory and professionalfees. | |
| | (2) | The Company does not allocate its assets by segment, with the exception of Goodwill and Intangible assets. | |
There were *no* major customers contributing more than *10%* of revenue, aside from HPMA and HP Risk, asnoted above, for the yearended *December 31, 2025,*and there were *no* major customers contributing more than *10%* of revenue, aside from HPMA, as noted above, for the year ended *December 31, 2024.*
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**9.****Income Taxes**
The provision for income tax (benefit) expense is as follows for the years ended *December 31, 2025*and *December 31, 2024(*in thousands):
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| | | | | | | | | | |
| Loss from operations before income taxes | | $ | (1,071 | ) | | $ | (267 | ) | |
| | | | | | | | | | |
| Current: | | | | | | | | | |
| Federal | | $ | - | | | $ | - | | |
| State | | | (25 | ) | | | (18 | ) | |
| Total current tax benefit | | | (25 | ) | | | (18 | ) | |
| | | | | | | | | | |
| Deferred: | | | | | | | | | |
| Federal | | | (2,576 | ) | | | - | | |
| State | | | (136 | ) | | | - | | |
| Total deferred tax benefit | | | (2,712 | ) | | | - | | |
| Income tax benefit | | $ | (2,737 | ) | | $ | (18 | ) | |
| | | | | | | | | | |
| Effective tax rate | | | 255.6 | % | | | 6.7 | % | |
The Companys state income tax expense is primarily attributable to operations in Florida and North Carolina, which together comprise more than *50%* of total state income tax expense for the year ended *December 31, 2025.*
The following provides reconciliation ofthe U.S. federal statutory tax amount and rate to our actual effective tax benefit and rate for the year ended *December 31, 2025(*dollars in thousands):
| | | For the Year | | | | | |
| | | Ended | | | | | |
| | | December 31, 2025 | | | Percent | | |
| Tax computed at statutory rate | | $ | (225 | ) | | | 21 | % | |
| State and local income tax, net of federal income tax effect | | | (161 | ) | | | 15.0 | % | |
| Change in valuation allowance | | | (2,351 | ) | | | 219.6 | % | |
| Non-taxable or non-deductible items: | | | | | | | | | |
| Non-taxable entity activity | | | (3 | ) | | | 0.3 | % | |
| Other | | | 1 | | | | (0.1 | )% | |
| Changes in unrecognized tax benefits | | | 6 | | | | (0.6 | )% | |
| Other adjustments | | | (4 | ) | | | 0.4 | % | |
| Effective tax benefit and rate | | $ | (2,737 | ) | | | 255.6 | % | |
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The following table provides reconciliation of the U.S. federal statutory income tax rate to the actual effective income tax rate for the yearended *December 31, 2024 (*dollars in thousands):
| | | For the Year | | | | | | |
| | | Ended | | | | | | |
| | | December 31, 2024 | | | Percent | | |
| Income tax expense computed at U.S. federal statutory rates | | | (56 | ) | | | 21 | % | |
| State income taxes, net of federal benefit | | | (159 | ) | | | 59.6 | % | |
| Excluded entities | | | 157 | | | | (58.9 | )% | |
| Change in valuation allowance | | | 40 | | | | (15.0 | )% | |
| Income tax expense at effective rate | | $ | (18 | ) | | | 6.7 | % | |
The Company's effective tax rate for *2025* was 255.6%, compared to 6.7% for *2024.*The increase in effective tax rate in *2025* as compared to *2024* was driven primarily by a valuation allowance release on federal and Florida net operating losses.Historically, the effective tax rate had been driven almost exclusively by state income taxes.
*Impact of One Big Beautiful Bill Act*
On *July 4, 2025,*the One Big Beautiful Bill Act (the OBBBA) was signed into law. TheOBBBAmakes permanent key elements of the Tax Cuts and Jobs Actof *2017,* including *100* percent bonus depreciation, domestic research cost expensing, increases theadvancedmanufacturinginvestmentcreditto *35* percent from *25* percent and makes modifications to the international tax framework. TheOBBBAincludes multiple effective dates, with certain provisions effective in *2025* and others phased in through *2027.*The Company evaluated the impact of the OBBBA on its consolidated financial statements for the year ended *December 31, 2025*and determined that the adoption of provisions effective in *2025* did *not* have a material impact on its financial position, results of operations, or cash flows. We continue to evaluate the impact of theOBBBA'sprovisions that take effect in future years.
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*Deferred and Current Income Taxes*
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts for income tax purposes. Significant components of our deferred tax assets and liabilities at the end of eachperiod were as follows (in thousands):
| | | At | | | At | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| Deferred tax assets: | | | | | | | | | |
| Equity method investment | | $ | 513 | | | $ | 560 | | |
| Lease liability | | | 27 | | | | 52 | | |
| Other accrued expenses | | | 12 | | | | 12 | | |
| Capital loss carryforward | | | 12 | | | | 12 | | |
| Bad debt expense | | | 16 | | | | 9 | | |
| Net operating loss | | | 6,881 | | | | 9,232 | | |
| Outside basis difference in preferred investment | | | 590 | | | | - | | |
| Impairment loss | | | - | | | | 256 | | |
| Gross deferred tax assets | | | 8,051 | | | | 10,133 | | |
| Valuation allowance | | | (5,006 | ) | | | (8,281 | ) | |
| | | | 3,045 | | | | 1,852 | | |
| Deferred tax liabilities: | | | | | | | | | |
| Property, plant, and equipment | | | - | | | | (1 | ) | |
| Non-taxable dividends | | | - | | | | (730 | ) | |
| Right of use asset | | | (26 | ) | | | (52 | ) | |
| Goodwill | | | (139 | ) | | | - | | |
| Gain on remeasurement of acquisition | | | - | | | | (843 | ) | |
| Pass-through activity | | | (158 | ) | | | (212 | ) | |
| Investments | | | (10 | ) | | | - | | |
| Other | | | - | | | | (14 | ) | |
| Gross deferred tax liabilities | | | (333 | ) | | | (1,852 | ) | |
| | | | | | | | | | |
| Net deferred tax assets | | $ | 2,712 | | | $ | - | | |
The Company has U.S. federal net operating loss carryforwards of $32.6million which are available to reduce future taxable income, of which $11.3 million *may*be carried forward indefinitely and $21.3 million will begin to expire starting in *2033.* The Company also has combined state net operating loss carryforwards of $23.4million, of which $8.8 million *may*be carried forward indefinitely and $14.6 million willbegin to expire in*2033.*
*Valuation Allowance*
A valuation allowance is recorded to reduce the gross deferred tax assets to an amount management believes is more likely than *not* to be realized.The valuation allowance is primarily attributable to the uncertainty regarding the realization of net operating losses, which is dependent upon future taxable income. A reconciliation of the valuation allowance for the years ended *December 31, 2025*and *2024*is as follows (in thousands):
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, | | | December 31, | | |
| | | 2025 | | | 2024 | | |
| Beginning gross valuation allowance | | $ | 8,281 | | | $ | 8,150 | | |
| Additions charged to tax expense | | | - | | | | 131 | | |
| Deferred balance sheet presentation | | | (563 | ) | | | - | | |
| Valuation allowance reversal | | | (2,712 | ) | | | - | | |
| Ending gross unrecognized tax benefits | | $ | 5,006 | | | $ | 8,281 | | |
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During *2025* and *2024,* we recorded a non-cash debit to our valuation allowance of approximately $3.3millionand a non-cash credit of $131,000, respectively,against our deferred tax assets. The primary assets which are covered by this valuation allowance are impairment losses and net operatinglosses in excess of the amounts which can be carried back to prior periods. The valuation allowance was calculated considering an assessment of both positive and negative evidence when measuring the needfor a valuation allowance.
*Financial Statement Classification*
Deferred tax assets are includedon the Consolidated Balance Sheets. Currentincome taxes receivable of $43,000as of *December 31, 2025 (*$29,000as of *December 31, 2024)*are included in otherassets.
*Uncertain Tax Positions*
The unrecognized tax benefits activity for the years ended*December 31, 2025*and *2024* follows (in thousands):
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, | | | December 31, | | |
| | | 2025 | | | 2024 | | |
| Beginning gross unrecognized tax benefits | | $ | 31 | | | $ | 31 | | |
| Settlements and effective settlements with tax authorities | | | - | | | | - | | |
| Changes in balances on positions taken in prior periods | | | (31 | ) | | | - | | |
| Changes in balances on positions taken in current period | | | - | | | | - | | |
| Ending gross unrecognized tax benefits | | $ | - | | | $ | 31 | | |
The unrecognized tax benefits as of *December 31, 2024*were representative of certain state income tax positions from periods prior to the Company's reorganization in *2018.*As of *December 31, 2025,*management concluded that the applicable statutes of limitation had lapsed for those positions and, as a result, released the related unrecognized tax benefit liability. The release was recognized as a current income tax benefit for the period ending *December 31, 2025.*
The Company accrued *no* interest or penalties related to income tax return filings during calendar years *2025* or *2024.*
The Company files income tax returns in U.S. Federal and various state jurisdictions.With few exceptions, the Company is *not* subject to examinations by major tax jurisdictions for years ended *December 31, 2022,*and prior.
*Cash Taxes Paid*
The below table presents income taxes paid(net of refunds received) by the Company for the year ended *December 31, 2025 (*in thousands):
| | | For the Year | | |
| | | Ended | | |
| | | December 31, 2025 | | |
| Federal taxes | | $ | - | | |
| State taxes | | | 20 | | |
| Foreign taxes | | | - | | |
| Total cash taxes paid | | $ | 20 | | |
The state taxes paid during the year ended *December 31, 2025*were to the state of Florida. There were no income taxes paid for the year ended *December 31, 2024.*
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**10.****Stockholders****Equity and Earnings Per Share**
Basic earnings (loss) per share of common stock isbased upon the weighted average shares outstanding.Outstanding stock options and restricted stock are treated as potential common stock for purposes of computing diluted earnings (loss) per share.Basic and diluted earnings (loss) per share are calculated using the following share data (in thousands):
| | | As of the | | | As of the | | |
| | | Year Ended | | | Year Ended | | |
| | | December 31, 2025 | | | December 31, 2024 | | |
| Weighted average shares outstanding for basic calculation | | | 3,944 | | | | 2,833 | | |
| Dilutive effect of restricted stock | | | - | | | | - | | |
| Weighted average shares outstanding for diluted calculation | | | 3,944 | | | | 2,833 | | |
For the years ended*December 31, 2025*and *2024,* there were *no* stock options or restricted stock awards outstanding.
In *May**2024,the* Companys board of directors (the Board) authorized the repurchase of up to $1.5millionof shares of the Companys common stock (*the2024Repurchase* Program) anddiscontinuedtherepurchaseprogramthat wasauthorized in *2022.* The authorizationdidnotobligatethe Company toacquirea specific number of shares during any period anddidnothavean expirationdate. Repurchases under *the2024Repurchase* Programcouldbe made from time to time in the open market, or through privately negotiated transactions or otherwise, in such quantities, at such prices, in such manner and on such terms and conditions as the authorized officers of the Company determinedwerein the best interests of the Company. Repurchasesalsocouldbe made under a plan adoptedpursuant to*Rule10b5*-*1promulgated*under the Securities Exchange Act *of1934,as* amended (the Exchange Act).
In *December 2025,*the Board authorized a new share repurchase programpursuant towhich the Company *may*repurchase up to $1.5 million of its outstanding common stock (the *2025* Repurchase Program), which replaced the *2024* Repurchase Program. Theauthorization doesnotobligatethe Company toacquirea specific number of shares during any period and doesnothavean expirationdate. Repurchases under *the2025Repurchase* Programmaybe made from time to time in the open market, or through privately negotiated transactions or otherwise, in such quantities, at such prices, in such manner and on such terms and conditions as the authorized officers of the Company determine are in the best interests of the Company. Repurchasesmayalso be made under a plan adoptedpursuant to*Rule10b5*-*1promulgated*under the Exchange Act.
During the years ended *December 31,**2025and* *2024,* the Company repurchased606,055and 48,333shares of common stock, respectively, at a weighted average price per share of $7.23and $5.00, respectively. The total cost of shares repurchased, inclusive of fees and commissions, during the year ended *December 31,**2025*was $4.4 million,or $7.23per share. The total cost of shares repurchased, inclusive of fees and commissions, during the year ended *December 31,**2024was* $243,000, or $5.02per share. Shares ofcommon stock repurchased by the Company during these periods were retired.
During the years ended *December 31, 2025*and*2024,* the Company did not declare or pay any dividendsto its holders of common stock.
In addition to common stock, authorized capital includes 1,000,000 shares of Blank Check Preferred Stock. None were outstanding during the years ended *December 31, 2025*and *2024.* The Boardis authorized to issue such stock in series and to fix the designation, powers, preferences, rights, limitations and restrictions with respect to any series of such shares. Such Blank Check Preferred Stock *may*rank prior to common stock as to dividend rights, liquidation preferences or both, *may*have full or limited voting rights and *may*be convertible into shares of common stock.
Effective *September 2, 2025,*the Companyamended its Restated Certificate of Incorporation (as amended, the Certificate of Incorporation) to reduce the number of authorized shares to 8,000,000 shares which are divided into *two* classes as follows: (a) 7,000,000 shares of common stock, $0.02 par value per share; and (b) 1,000,000 shares of Blank Check Preferred Stock, $0.01 par value per share (the Amendment). The Certificate of Incorporation previously provided that the number of authorized shares was 36,000,000 shares which were divided into *two* classes as follows: (a) 35,000,000 shares of common stock,$0.02 par value per share; and (b) 1,000,000 shares of Blank Check Preferred Stock, $0.01 par value per share. *No* issued shares of the Company areimpactedby the Amendment; the Amendment only reduces the Companys authorized but unissued shares.
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**11.****Goodwill and Intangible Assets**
**Goodwill**
Goodwill as of *December 31, 2025*and *2024* was $6.5 million.The Companys goodwill is allocated to the Title Insurance Segment. See*Note 8,**Segment Information*for allocation of assets to the Companys segments.****
**Intangible Assets**
Intangible assets subject to amortization consisted of the following as of *December 31, 2025(*dollars in thousands):
| | | Weighted- | | | | | | | | | | | | | | |
| | | average remaining amortization period (in years) | | | Gross carrying amount | | | Accumulated amortization | | | Net carrying amount | | |
| Noncompetition agreement | | | 1.6 | | | $ | 372 | | | $ | (254 | ) | | $ | 118 | | |
| Total | | | 1.6 | | | $ | 372 | | | $ | (254 | ) | | $ | 118 | | |
Intangible assets subject to amortization consisted of the following as of *December 31, 2024(*dollars in thousands):
| | | Weighted- | | | | | | | | | | | | | | |
| | | average remaining amortization period (in years) | | | Gross carrying amount | | | Accumulated amortization | | | Net carrying amount | | |
| Noncompetition agreement | | | 2.6 | | | $ | 372 | | | $ | (179 | ) | | $ | 193 | | |
| Total | | | 2.6 | | | $ | 372 | | | $ | (179 | ) | | $ | 193 | | |
No impairment in the value of amortizing intangible assets was recognized during the years ended *December 31, 2025*and *2024.*Amortization expense of the intangible assets was $75,000 and$74,000, respectively,for the years ended *December 31, 2025*and *2024.*
Estimated amortization expense of our intangible assets to be recognized by the Company over the following*five* years is as follows (in thousands):
| | | Estimated | | |
| Year ending December 31, | | Amortization Expense | | |
| 2026 | | $ | 74 | | |
| 2027 | | | 44 | | |
| 2028 | | | - | | |
| 2029 | | | - | | |
| 2030 | | | - | | |
| Total | | $ | 118 | | |
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**12.****Commitments and Contingencies**
The Company and its subsidiaries are parties to claims and lawsuits related to the normal course of business operations. When the Company determines that a loss is both probable and reasonably estimable, a liability representing the best estimate of the Companys financial exposure is recorded. Actual losses *may*materially differ from the Companys estimates. With respect to our title insurance operations, this customary litigation includes but is *not* limited to a wide variety of cases arising out of or related to title and escrow claims, for which we make provisions through our loss reserves. See *Note 6, Reserve for Title Claims*, for further information. *None* of these claims and lawsuits, in managements opinion, will have a material adverse effect on our Consolidated Financial Statements.
**Litigation**
The Companys subsidiaries are parties to legal actions incidental to their business. As of *December 31, 2025,*management believed that the resolution of these matters would *not* materially affect our financial condition or results of operations.
*Omega and ONF Litigation*
During the*first*quarter of*2026,**one*of the Companyssubsidiaries,Omega, was served with litigation in the Circuit Court in and for Lee County, Florida. The case, instituted by Citizens Bank (Plaintiff), is a mortgage foreclosure action filed against multiple parties, including the current owner and a prior borrower.Plaintiff filed Affirmative Defenses and Counter Claims in the foreclosure action alleging a count of negligence and a count of breach of fiduciary duty against Omega and naming Omega as a Third-Party Defendant. Plaintiff alleges that Omega was negligent and breached its fiduciary duty to Plaintiff in performing its duty as a closing agent when Omega performed a closing and paid off the existing loan, but failed to check a box on Plaintiffs form stating the loan was to be closed and terminated. After the loan was paid off, the prior borrower continued using the loan and defaulted on the payment obligations.The Company believes it is unlikely that the case will result in a material adverse effect on the Company's consolidated financial statements.
During thethirdquarter *of2025,oneof* the Companyssubsidiaries, ONF, was included as a defendant in connection with litigation in the County Court inand forLee County, Florida. ONFwas served with theinitialsummons on *October 2, 2025.*The case, instituted by Delta Build Services, Inc., a sub-contractor who provided labor and supplies, andGretchelDe Los Milagros Castaneda-Vazquez, the purchaser of the property(collectively "Lee County Plaintiffs), is a multi-count civil lawsuit filed against multiple parties, including the general contractor, its managers and managing members, ONF, a former employee of Delta BuildServices, Inc.,the buyers realtor andsupervising broker. The single alleged count against ONFis a claim of negligence. Lee CountyPlaintiffs allege that ONFbreached a duty of care owed to Lee County Plaintiffs by accepting an allegedly forged document at closing. ONFhasretainedoutside counsel. The Company believes it is unlikely that the case will result in a material adverse effect on the Company'sconsolidatedfinancial statements.
During the *fourth* quarter of *2024,Omegawas* served with litigation in the Circuit Court in and for Charlotte County, Florida. The case, instituted by ABL RPC Residential Credit Acquisition, LLC, is a mortgage foreclosure action filed against multiple parties including the borrower, the current UCC lien holder, the current owners of the collateralized properties, and unknown tenants of the properties (collectively "Charlotte County Defendants). Two of the Charlotte CountyDefendants, *760* Anatalya Holding LLC and *562* Monaco Holding LLC (Anatalya and Monaco), through their majority owners, filed Affirmative Defenses and Counter Claims in the foreclosure action alleging a count of negligence against Omega and naming Omega as a Third-Party Defendant. Anatalya and Monaco allege that Omega was negligent in conducting the closing of the mortgage transaction when Omega allowed the Manager of Anatalya and Monaco to execute all documents on their behalf including deeds transferring the properties into the name of the borrowing entity.Omega hasretainedoutside counsel.Though the procedural posture of the case has changed given amendments to the relevant complaint filed by Anatalya and Monaco, the Company continues to believeit is unlikely that the case will result in a material adverse effect on the Company'sconsolidatedfinancial statements.
*Citibank Foreclosure Against Unrelated Third Party*
On *May 13, 2024,*the Company was served with a foreclosure action filed by Citibank, N.A., primarily against *two* individually named defendants. The Company was identified as a co-defendant in this matter as the Company has a recorded judgment against *one* of the primary defendants. The Company hasretainedoutside counsel in this matter in efforts to preserve any claim the Company *may*have tosaidrecorded judgment against the primary defendant. Given the posture of the litigation, management does *not* believe this matter will result in a material adverse effect on the Companysconsolidatedfinancial statements.
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**13. Leases**
Right-of-use assets and lease liabilities related to operating leases under ASC Topic *842,* Leases (ASC *842*), are recorded when the Company and its subsidiaries are party to a contract, which conveys the right for it to control an asset for a specified period of time.Substantially all of our operating lease arrangements relate to rented office space and real estate for our title operations. The Company is *not* a party to any material contracts considered finance leases.Right-of-use assets and lease liabilities under ASC *842* are recorded as Lease assets and Lease liabilities, respectively, on the Consolidated Balance Sheets.
The Company's operating leases range in term fromonetofive years. As of *December 31, 2025*and *2024,* the weighted-average remaining lease term of our operating leases was 2.0years and 2.1years, respectively.
The Companys lease agreements do *not* contain material variable lease payments, buyout options, residual value guarantees or restrictive covenants.
Most of the Companys leases include*one*or more options to renew, with renewal terms that can extend the lease term by varying amounts.The exercise of lease renewal options is at our sole discretion. We do *not* include options to renew in our measurement of lease assets and lease liabilities as they are *not* considered reasonably assured of exercise as of *December 31, 2025.*
The lease liability is determined by discounting future lease payments using a discount rate based on the Companys incremental borrowing rate for a fully collateralized fully amortizing loan with maturity similar to the lease term.As of *December 31, 2025*and *2024,* the weighted-average discount rate used to determine our operating lease liability was6.0%.
The following table details lease costfor the years ended *December 31, 2025*and *2024* (in thousands):
| | | For the Year | | | For the Year | | |
| | | Ended | | | Ended | | |
| | | December 31, | | | December 31, | | |
| | | 2025 | | | 2024 | | |
| Operating lease cost | | $ | 409 | | | $ | 396 | | |
| Short-term lease cost | | | 367 | | | | 599 | | |
| Total lease cost | | | 776 | | | | 995 | | |
Lease costs include property taxes and routine maintenance and are reflected in general and administrative expense on the Consolidated Statements of Operations.
During the years ended *December 31, 2025*and *2024,* lease liabilities recognized in exchange for operating lease right-of-use assets were approximately****$371,000 and $334,000, respectively.
Future minimum rental commitments asof *December 31, 2025*under these leases are expected to beas follows (in thousands):
| 2026 | | $ | 381 | | |
| 2027 | | | 211 | | |
| 2028 | | | 63 | | |
| 2029 | | | 0 | | |
| Total lease payments, undiscounted | | $ | 655 | | |
| Less: present value discount | | | (35 | ) | |
| Lease liabilities, at present value | | $ | 620 | | |
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