Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Interim Operations
The following should be read in conjunction with the Management’s
Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) and Till’s consolidated
financial statements for the year ended December 31, 2016 included in Till’s Annual Report on Form 10-K as filed with the
SEC (the “2016 Report”).
Cautionary Statement for Forward-Looking Information
Certain statements in this Quarterly Report on Form 10-Q (this “Report”)
of Till Capital Ltd. ("Till," "we," "us" or "our"), including statements in this MD&A,
are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that
involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events,
or performance (often, but not always, using phrases such as “expects” or “does not expect,” “is
expected,” “anticipates”, or “does not anticipate,” “plans,” “scheduled,”
“forecasts,” “estimates,” “believes,” “intends,” or variations of such words and
phrases or stating that certain actions, events, or results “may,” “could,” “would,” “might,”
or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements
and are intended to identify forward-looking statements. Those forward-looking statements are based on the beliefs of our management,
as well as on assumptions that such management believes to be reasonable, based on information currently available at the time
such statements were made. Forward-looking statements speak only as of the date they are made, and we assume no duty to, and do
not undertake to, update forward-looking statements.
Any or all forward-looking statements may turn out to be wrong,
and, accordingly, Till cautions readers not to place undue reliance on such statements. Till bases these statements on current
expectations and the current economic environment as of the date of this Report. They involve a number of risks and uncertainties
that are difficult to predict. These statements are not guarantees of future performance; actual results could differ materially
from those expressed or implied in the forward-looking statements. Forward-looking statements can be affected by inaccurate assumptions
or by known or unknown risks and uncertainties that may be important in determining Till’s actual future results and financial
condition.
Factors that could cause actual results to differ materially from
any results projected, forecasted, estimated, or budgeted or that may materially and adversely affect our actual results include
but are not limited to (i) the cyclical nature of the insurance and reinsurance markets, (ii) fluctuations in the number and severity
of insurance claims, (iii) our ability to purchase reinsurance on favorable terms when required, (iv) changes in the legal and
regulatory environment in the U.S., Canada or Bermuda, (v) changes in insurance industry trends and significant industry developments,
(vi) the effect of emerging claim and coverage issues on our business, (vii) any suspension or revocation of the reinsurance/insurance
license of our insurance company subsidiaries, (viii) fluctuations in interest rates that could have an impact on our ability to
generate investment income, (ix) our ability to access capital when needed, and (x) changes in ratings by ratings agencies of Till
and/or its insurance company subsidiaries. For additional information, see pages 1-3 and Part I, Item 1A. Risk Factors
in the 2016 Report.
Overview
Till is an insurance holding company domiciled in Bermuda. Through
two of Till’s wholly-owned subsidiaries, Resource Re Ltd. ("RRL") and Omega General Insurance Company ("Omega"),
we provide property and casualty insurance and reinsurance. Till operates in a single segment, specifically insurance.
RRL, a Bermuda domiciled company, was organized to offer reinsurance
coverage to a select group of insurance companies, e.g., captive insurers, privately-held insurers, and other global insurers and
reinsurers. RRL entered into its initial reinsurance contracts effective December 31, 2014. Those initial reinsurance contracts
were novated in September 2015. RRL currently does not have any active reinsurance contracts in force. RRL intends to participate
in reinsurance contracts using the Multi-Strat Re platform to underwrite medium- to long-term property and casualty business, as
acceptable opportunities are identified. RRL’s primary sources of income are reinsurance premiums and investment income.
RRL also owns 64% of the outstanding shares of Silver Predator Corp., a Canadian-based junior mineral exploration company that
has historically been engaged in exploring for and developing economically viable silver, gold, and tungsten deposits in Canada
and the United States, with a focus on Nevada and Idaho.
Omega underwrites direct insurance and reinsurance business through
its wholly-owned subsidiary Omega. As a reinsurer, Omega provides assumption reinsurance to insurance companies that want to exit
the Canadian market, and to insurance companies that want to transfer all of their remaining claim liabilities on particular books
of business; those arrangements are commonly referred to as “run-off” or “loss portfolio transfer” assumption
business. Omega also is a primary insurer, direct writer, for insurance companies looking to write Canadian business, but lacking
the appropriate Canadian insurance licenses. In that capacity, Omega acts as the direct writer, or fronting company, for a specific
insurance company and typically will cede most or all of that fronted business to that insurer. Omega has three sources of revenue,
namely, (i) premiums on portfolio transfer transactions and fees related to managing Canadian branch offices in “run-off”,
(ii) assumption reinsurance, including servicing fees in certain transactions, and (iii) premiums on direct business.
Till’s other subsidiaries include Till Management Company
(“TMC”), Golden Predator US Holding Corp. (“GPUS”), Omega Insurance Holdings, Inc. ("OIHI"),
and Focus Group Inc. ("Focus"). TMC provides investment advisory and investment management services, GPUS provides personnel
services, financial accounting, corporate and compliance, and other back-office support to Till and its subsidiaries, OIHI is the
holding company for Omega and Focus, and Focus provides management services to Omega and consulting and management services to
third-party insurers and others.
The discussion of Till's financial condition and results of operations
that follows is intended to provide summarized information to assist the reader in understating Till's unaudited condensed consolidated
financial statements, as well as to provide explanations as regards the primary factors for financial statement changes from year
to year and quarter to quarter. This discussion should be read in conjunction with Till's unaudited condensed consolidated financial
statements that appear in Part I, Item 1 of this Report.
Assets and Liabilities Held for Sale and Discontinued Operations
During the third quarter of 2017, Till initiated a plan to sell
its wholly-owned subsidiary OIHI, including its wholly-owned subsidiaries, Omega and Focus (collectively, "Holdings").
Holdings was acquired by Till on May 15, 2015. Till's management and Board of Directors believe the sale of Holdings will better
position Till's operations for the benefit of its shareholders through the financing of reinsurance contracts at RRL and other
investments.
Till has engaged an investment adviser to facilitate the sale of
Holdings. There can be no assurance that the process with result in any transaction. As of November 14, 2017 negotiations between
Till and identified potential purchasers are continuing.
In accordance with accounting principles generally accepted in the
United States of America ("GAAP"), the assets and liabilities of Holdings have been classified as held for sale on Till's
Balance Sheets and the operations attributed to Holdings have been classified as discontinued operations on Till's Statements of
Income (Loss). As required by GAAP, a loss of $971,757 was realized in the third quarter of 2017 as a result of the decision to
sell OIHI and estimated costs related thereto.
Critical Accounting Estimates
When Till prepares its condensed consolidated financial statements
and accompanying notes in conformity with GAAP, Till makes estimates and assumptions about future events that affect the amounts
reported. Certain of those estimates result from judgments that can be subjective and complex. As a result of that subjectivity
and complexity, and because Till continuously evaluates those estimates and assumptions based on a variety of factors, actual results
could materially differ from Till's estimates and assumptions if changes in one or more factors require Till to make accounting
adjustments. During the nine months ended September 30, 2017, Till reassessed its critical accounting policies and estimates as
disclosed within the 2016 Report; Till has made no material changes or additions with regard to such policies and estimates.
Results of Operations - Three and nine month periods ended September
30, 2017 compared with three and nine month periods ended September 30, 2016
The following table summarizes Till’s consolidated results
of operations for the periods indicated:
|
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Revenue (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income (loss), net
|
|
$
|
(502,320
|
)
|
|
$
|
1,506,744
|
|
|
$
|
(90,185
|
)
|
|
$
|
2,207,080
|
|
|
Gain on sale of mineral interests and PP&E
|
|
|
—
|
|
|
|
48,958
|
|
|
|
1,075,335
|
|
|
|
91,958
|
|
|
Other revenue
|
|
|
—
|
|
|
|
—
|
|
|
|
50,000
|
|
|
|
40,000
|
|
|
Total revenue (loss)
|
|
|
(502,320
|
)
|
|
|
1,555,702
|
|
|
|
1,035,150
|
|
|
|
2,339,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
247,421
|
|
|
|
371,024
|
|
|
|
1,261,175
|
|
|
|
1,209,929
|
|
|
Salaries and benefits
|
|
|
98,370
|
|
|
|
96,838
|
|
|
|
319,717
|
|
|
|
584,598
|
|
|
Stock-based compensation
|
|
|
3,092
|
|
|
|
1,834
|
|
|
|
26,619
|
|
|
|
26,941
|
|
|
Mining related expenses and property impairment
|
|
|
150,003
|
|
|
|
51,935
|
|
|
|
178,636
|
|
|
|
76,456
|
|
|
Foreign exchange (gain) loss
|
|
|
37,289
|
|
|
|
36,167
|
|
|
|
59,309
|
|
|
|
(195,517
|
)
|
|
Interest and other (income) expense
|
|
|
1,663
|
|
|
|
(8
|
)
|
|
|
5,862
|
|
|
|
(26,247
|
)
|
|
Total expenses
|
|
|
537,838
|
|
|
|
557,790
|
|
|
|
1,851,318
|
|
|
|
1,676,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before loss on equity method investment
|
|
|
(1,040,158
|
)
|
|
|
997,912
|
|
|
|
(816,168
|
)
|
|
|
662,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on equity method investment
|
|
|
(3,890
|
)
|
|
|
(7,042
|
)
|
|
|
(54,173
|
)
|
|
|
(19,470
|
)
|
|
Income (loss) from continuing operations
|
|
|
(1,044,048
|
)
|
|
|
990,870
|
|
|
|
(870,341
|
)
|
|
|
643,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations including loss on assets and liabilities held for sale
|
|
|
(1,942,293
|
)
|
|
|
(24,012
|
)
|
|
|
(1,977,376
|
)
|
|
|
179,615
|
|
|
Income (loss) from discontinued operations
|
|
|
(1,942,293
|
)
|
|
|
(24,012
|
)
|
|
|
(1,977,376
|
)
|
|
|
179,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,986,341
|
)
|
|
|
966,858
|
|
|
|
(2,847,717
|
)
|
|
|
823,023
|
|
|
Income (loss) attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders of Till Capital Ltd.
|
|
|
(2,904,173
|
)
|
|
|
1,016,955
|
|
|
|
(2,761,291
|
)
|
|
|
854,249
|
|
|
Non-controlling interests
|
|
|
(82,168
|
)
|
|
|
(50,097
|
)
|
|
|
(86,426
|
)
|
|
|
(31,226
|
)
|
|
Net income (loss)
|
|
$
|
(2,986,341
|
)
|
|
$
|
966,858
|
|
|
$
|
(2,847,717
|
)
|
|
$
|
823,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per share from continuing operations of Till Capital Ltd.
|
|
$
|
(0.29
|
)
|
|
$
|
0.31
|
|
|
$
|
(0.23
|
)
|
|
$
|
0.20
|
|
|
Basic and diluted net income (loss) per share from discontinued operations of Till Capital Ltd.
|
|
$
|
(0.58
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.59
|
)
|
|
$
|
0.05
|
|
|
Weighted average number of shares outstanding
|
|
|
3,350,284
|
|
|
|
3,399,922
|
|
|
|
3,350,284
|
|
|
|
3,418,526
|
|
Comparison of the three month periods ended September 30, 2017
and 2016
Revenue
Investment income (loss), net
Investment income (loss), inclusive of net realized investment gains
and losses, decreased from income of $1.5 million for the three months ended September 30, 2016 to loss of $0.5 million for the
three months ended September 30, 2017. That decrease in net investment income (loss) was primarily due to losses related to futures
trading during the three months ended September 30, 2017, and large gains in natural resource investments during the three months
ended September 30, 2016 that did not occur during the three months ended September 30, 2017.
Expenses
General and administrative expenses
General and administrative expenses decreased from $0.4 million
for the three months ended September 30, 2016 to $0.2 million for the three months ended September 30, 2017. That decrease in general
and administrative expenses was primarily due to lower professional fees for the three months ended September 30, 2017 as compared
to the three months ended September 30, 2016.
Mining related expenses and property impairment
Mining related expenses and property impairment increased from $0.1
million for the three months ended September 30, 2016 to $0.2 million for the three months ended September 30, 2017. That increase
in mining related expenses and property impairment was due to a one time repair at Springer Mining Company ("SMC") and
and reclamation expenses at the Taylor Silver Property ("Taylor Property") during the three months ended September 30,
2017.
Net income (loss) from continuing operations
Net income (loss) from continuing operations decreased from net
income of $1.0 million for the three months ended September 30, 2016 to net loss of $1.0 million for the three months ended September
30, 2017. That decrease in net income (loss) from continuing operations was due principally to decreased investment income for
the three months ended September 30, 2017 compared to the three months ended September 30, 2016.
Net loss from discontinued operations
Discontinued operations relate to Till's decision during the third
quarter 2017 to sell Holdings. Net loss from discontinued operations increased from $0.02 million for the three months ended September
30, 2016 to $1.9 million for the three months ended September 30, 2017. That increase in net loss from discontinued operations
was due principally to the loss realized as a result of Till's revaluation of Holdings as assets and liabilities held for sale
during the three months ended September 30, 2017.
Net income (loss)
Net income (loss) decreased from net income of $1.0 million for
the three months ended September 30, 2016 to net loss of $3.0 million for the three months ended September 30, 2017. That decrease
in net income (loss) was due principally to decreased investment income and to the loss realized as a result of Till's revaluation
of Holdings as assets and liabilities held for sale during the three months ended September 30, 2017.
Comparison of the nine month periods ended September 30, 2017
and 2016
Revenue
Investment income (loss), net
Investment income (loss), inclusive of net realized investment gains
and losses, decreased from income of $2.2 million for the nine months ended September 30, 2016 to loss of $0.1 million for the
nine months ended September 30, 2017. That decrease in net investment income (loss) was due primarily to losses related to futures
trading during the nine month ended September 30, 2017 and large gains in natural resource investments during the nine months ended
September 30, 2016 that did not occur during the nine months ended September 30, 2017.
Gain on sale of mineral interests and PP&E
Gain on sale of mineral interests and PP&E increased from $0.01
million for the nine months ended September 30, 2016 to $1.1 million for the nine months ended September 30, 2017. That increase
in gain on sale of mineral interests and PP&E was due mostly to the completion of an option agreement that resulted in the
sale of a mineral property during the nine months ended September 30, 2017 compared to minor sales of mineral interests and PP&E
during the nine months ended September 30, 2016.
Total revenue
Total revenue decreased from $2.3 million for the nine months ended
September 30, 2016 to $1.0 million for the nine months ended September 30, 2017. That decrease in total revenue was due principally
to decreased investment income for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016,
partially offset by increased gain on sale of mineral interests and PP&E for the nine months ended September 30, 2017 compared
to the nine months ended September 30, 2016.
Expenses
Salaries and benefits
Salaries and benefits decreased from $0.6 million for the nine months
ended September 30, 2016 to $0.3 million for the nine months ended September 30, 2017. That decrease in salaries and benefits resulted
principally from a one-time payment to Till's former CFO during the nine months ended September 30, 2016.
Mining related expenses and property impairment
Mining related expenses and property impairment increased from $0.1
million for the nine months ended September 30, 2016 to $0.2 million for the nine months ended September 30, 2017. That increase
in mining related expenses and property impairment was due to a one time repair at SMC and and reclamation expenses at the Taylor
Property during the nine months ended September 30, 2017.
Foreign exchange (gain) loss
Foreign exchange (gain) loss decreased from gain of $0.2 million
for the nine months ended September 30, 2016 to loss of $0.01 million for the nine months ended September 30, 2017. That decrease
in foreign exchange (gain) loss is due primarily to payments received on the Canadian dollar denominated note receivable during
the nine months ended September 30, 2017. Foreign exchange gain for the nine months ended September 30, 2016 was primarily related
to the Canadian dollar denominated note receivable.
Net income (loss) from continuing operations
Net income (loss) from continuing operations decreased from net
income of $0.6 million for the nine months ended September 30, 2016 to net loss of $0.9 million for the nine months ended September
30, 2017. That decrease in net income (loss) from continuing operations was due principally to decreased investment income and
foreign exchange gain for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, partially
offset by increased gain on sale of mineral interests and PP&E for the nine months ended September 30, 2017 compared to the
nine months ended September 30, 2016.
Net income (loss) from discontinued operations
Discontinued operations relate to Till's decision during the third
quarter 2017 to sell Holdings. Net income (loss) from discontinued operations decreased from net income of $0.2 million for the
nine months ended September 30, 2016 to net loss of $2.0 million for the nine months ended September 30, 2017. That decrease in
net income (loss) from discontinued operations was due principally to the loss realized as a result of Till's valuation of Holdings
as assets and liabilities held for sale during the nine months ended September 30, 2017.
Net income (loss)
Net income (loss) decreased from net income of $0.8 million for
the nine months ended September 30, 2016 to net loss of $2.8 million for the nine months ended September 30, 2017. That decrease
in net income (loss) was due primarily to decreased investment income and the loss realized as a result of Till's valuation of
Holdings as assets and liabilities held for sale during the nine months ended September 30, 2017.
Financial Condition - September 30, 2017 compared with December
31, 2016
|
|
|
September 30, 2017
|
|
December 31, 2016
|
|
Cash and cash equivalents
|
|
$
|
4,686,049
|
|
|
$
|
2,020,265
|
|
|
Investments
|
|
|
3,021,234
|
|
|
|
4,061,781
|
|
|
Assets held for sale
|
|
|
61,897,293
|
|
|
|
33,176,729
|
|
|
Promissory note receivable
|
|
|
—
|
|
|
|
2,410,494
|
|
|
Other assets
|
|
|
1,436,683
|
|
|
|
2,146,343
|
|
|
Goodwill
|
|
|
2,235,251
|
|
|
|
2,980,819
|
|
|
Total assets
|
|
$
|
73,276,51
|
|
|
$
|
46,796,431
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities held for sale
|
|
$
|
50,275,870
|
|
|
$
|
20,061,820
|
|
|
Accounts payable and accrued liabilities
|
|
|
141,902
|
|
|
|
168,002
|
|
|
Total liabilities
|
|
$
|
50,417,772
|
|
|
$
|
20,229,822
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity
|
|
$
|
22,858,738
|
|
|
$
|
25,789,280
|
|
Cash and cash equivalents and investments
Cash and cash equivalents ($4.7 million) and investments ($3.0 million)
totaled $7.7 million at September 30, 2017 as compared to cash and cash equivalents ($2.0 million) and investments ($4.1 million)
that totaled $6.1 million at December 31, 2016. That increase in cash and cash equivalents resulted from the receipt of payments
on a note receivable and net sales of investments. The decrease in investments resulted mostly from those net sales of investments.
Assets held for sale
Assets held for sale totaled $61.9 million at September 30, 2017
as compared to $33.2 million at December 31, 2016. That increase in assets held for sale primarily relates to a new specialty insurance
program underwritten by Omega during the nine months ended September 30, 2017, growth in other Omega insurance programs, and premiums
written related to program renewals occurring during the nine months ended September 30, 2017.
Promissory note receivable
The Promissory note receivable was collected in the 2nd quarter
of 2017. As such, there was no receivable at September 30, 2017 as compared to $2.4 million at December 31, 2016.
Other assets
Other assets totaled $1.4 million at September 30, 2017 as compared
to $2.1 million at December 31, 2016. That decrease in other assets is due to primarily to a reduction in the carrying value of
mineral properties resulting from the receipt of option payments during the nine months ended September 30, 2017.
Goodwill
Goodwill totaled $2.2 million at September 30, 2017 as compared
to $3.0 million at December 31, 2016. That decrease in goodwill is primarily due to the loss realized as a result of Till's valuation
of Holdings as assets and liabilities held for sale during the third quarter 2017. Goodwill was reduced $1.0 million by that valuation
and was partially offset by foreign currency adjustment to goodwill in 2017.
Liabilities held for sale
Liabilities held for sale totaled $50.3 million at September 30,
2017 as compared to $20.1 million at December 31, 2016. Tat increase in liabilities held for sale is primarily relates to a new
specialty insurance program underwritten by Omega during the nine months ended September 30, 2017, growth in other Omega insurance
programs, and premiums written related to program renewals occurring during the nine months ended September 30, 2017.
Liquidity and Capital Resources
Cash Flows
|
|
|
Nine Months Ended September 30,
|
|
|
|
2017
|
|
2016
|
|
Net cash (used in) provided by:
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(1,406,830
|
)
|
|
$
|
(6,205,547
|
)
|
|
Investing activities
|
|
|
1,143,265
|
|
|
|
10,056,937
|
|
|
Financing activities
|
|
|
2,605,253
|
|
|
|
806,365
|
|
|
Increase in cash and cash equivalents
|
|
|
2,341,688
|
|
|
|
4,657,755
|
|
|
Effects of foreign exchange
|
|
|
732,648
|
|
|
|
315,834
|
|
|
Change of cash in assets held for sale for discontinued operations
|
|
|
(408,552
|
)
|
|
|
(3,175,662
|
)
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,020,265
|
|
|
|
1,007,616
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
4,686,049
|
|
|
$
|
2,805,543
|
|
Operating activities
Net cash used in operating activities was $1.4 million for the nine
months ended September 30, 2017 as compared to $6.2 million for the nine months ended September 30, 2016, a decrease of $4.8 million.
That decrease in cash used in operating activities in the nine months ended September 30, 2017 compared to the nine months ended
September 30, 2016 is primarily due to Omega's new specialty insurance program that did not exist in 2016.
Investing activities
Net cash provided by investing activities was $1.1 million for the
nine months ended September 30, 2017 compared to $10.1 million for the nine months ended September 30, 2016, a decrease of $9.0
million. That decrease in cash provided by investing activities is primarily due to net proceeds from the net sale of investments
of $10.0 million for the nine months ended September 30, 2017 compared to cash used for net purchase of investments of $0.1 million
for the nine months ended September 30, 2016, partially offset by proceeds from the sale of mineral properties of $1.2 million
for the nine months ended September 30, 2017 compared to $0.2 million for the nine months ended September 30, 2016.
Financing activities
Net cash provided by financing activities was $2.6 million for the
nine months ended September 30, 2017 compared to $0.8 million for the nine months ended September 30, 2016, an increase of $1.8
million. The source of cash for the nine months ended September 30, 2017 and 2016 was the receipt of $2.6 million and $0.5 million
on the note receivable, respectively.
Off-Balance Sheet Arrangements
As of September 30, 2017, Till did not have any off-balance sheet
arrangements as defined in Item 303(a)(4) of Regulation S-K.
Contractual Obligations
Not applicable.