Note 3 - Investments in Related Parties

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

3.          Investments in Related Parties

On  March 19, 2019, the Company entered into subscription agreements with HC Realty, pursuant to which it purchased (i) 200,000 shares of HC Realty’s 10.00% Series B Cumulative Convertible Preferred Stock (the “HC Series B Stock”) for an aggregate purchase price of $2,000,000 and (ii) 300,000 shares of HC Realty’s common stock ("HC Common Stock") for an aggregate purchase price of $3,000,000. Certain investors affiliated with Hale Partnership Capital Management, LLC (“HPCM”), an entity founded by our Chairman and Chief Executive Officer and for which our Chairman and Chief Executive Officer serves as sole manager, purchased an additional 850,000 shares 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 does not receive management fees, performance fees, or any other economic benefits with respect to these investors’ investments in HC Series B Stock. On  April 3,  April 9, and  June 29, 2020, the Company entered into subscription agreements with HC Realty, pursuant to which we purchased 100,000, 250,000, and 475,000 shares of Series B Stock, respectively, for an aggregate purchase price of $8,250,000.

As of December 31, 2023, the Company currently owns approximately 27.4% of the voting interest in HC Realty through its ownership of 300,000 shares of HC Common Stock and 1,025,000 shares of HC Series B Stock.

The following table summarizes the Company’s investment in HC Realty as of the years ended  December 31, 2023 and 2022 (amounts in thousands, except ratios):

	Ownership %						Carrying 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, 2023			December 31, 2022			December 31, 2023		December 31, 2022		December 31, 2023			December 31, 2022
HC Series B Stock (a)		26.3	%		26.8	%	$	10,250	$	10,250	$	-		$	-
HC Common Stock		1.1	%		7.1	%		301		600		(213	)		(435	)
Total		27.4	%		33.9	%	$	10,551	$	10,850	$	(213	)	$	(435	)

(a) Represents investments in shares of HC Series B Stock with a 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 “Net loss from investments in related parties” in 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 Company’s 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.

As a result of the Company’s holding in HC Realty, the Company includes the following summarized income statement information of HC Realty for the years ended December 31, 2023 and 2022 (in thousands):

	For the Year Ended
	December 31, 2023			December 31, 2022
Total revenue	$	20,878		$	16,770
Total expense		33,858			25,626
Net loss	$	(12,980	)	$	(8,856	)

The Company’s other investments in related parties were $283,000 and $250,000 as of December 31, 2023 and December 31, 2022, 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, 2023, the Company had total receivables and payables from these related parties of $27,000 and $73,000, respectively. As of December 31, 2022, the Company had total receivables and payables from these related parties of $191,000 and $0, respectively. During the year ended December 31, 2023, the Company received $81,000 of distributions from the related party investees, which are included in “Net loss from investments in related parties” in the Consolidated Statements of Operations. No distributions were received from the related party investees during the year ended December 31, 2022.