UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly period ended September 30, 2004
------------------
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7865
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HMG/COURTLAND PROPERTIES, INC.
------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 59-1914299
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1870 S. Bayshore Drive, Coconut Grove, Florida 33133
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
305-854-6803
------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed
by Sections 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 x No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1,089,135 Common shares were outstanding as of September 30, 2004.
HMG/COURTLAND PROPERTIES, INC.
Index
PAGE
NUMBER
------
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2004 (Unaudited) and December 31, 2003..............................................1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2004 and 2003 (Unaudited)...............................2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2004 and 2003 (Unaudited).........................................3
Notes to Condensed Consolidated Financial Statements (Unaudited)..................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................................................11
Item 3. Controls and Procedures.................................................................14
PART II. Other Information
Item 1. Legal Proceedings . . . ...............................................................14
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities.........14
Item 3. Defaults Upon Senior Securities . . . .................................................14
Item 4. Submission of Matters to a Vote of Security Holders . . . .............................14
Item 5. Other Information . . . ...............................................................14
Item 6. Exhibits and Reports on Form 8-K.......................................................14
Signatures....................................................................................................15
Cautionary Statement. This Form 10-QSB contains certain statements relating to
future results of the Company that are considered "forward-looking statements"
within the meaning of the Private Litigation Reform Act of 1995. Actual results
may differ materially from those expressed or implied as a result of certain
risks and uncertainties, including, but not limited to, changes in political and
economic conditions; interest rate fluctuation; competitive pricing pressures
within the Company's market; equity and fixed income market fluctuation;
technological change; changes in law; changes in fiscal, monetary, regulatory
and tax policies; monetary fluctuations as well as other risks and uncertainties
detailed elsewhere in this Form 10-QSB or from time-to-time in the filings of
the Company with the Securities and Exchange Commission. Such forward-looking
statements speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------------------------
September 30, December 31,
2004 2003
---- ----
ASSETS (UNAUDITED)
Investment properties, net of accumulated depreciation:
Commercial properties $4,657,065 $2,611,777
Hotel and club facility 3,923,262 4,212,734
Hotel and club facility-Spa construction in progress 602,181 -
Marina properties 2,602,060 169,073
Land held for development 589,419 1,083,855
--------------------- ---------------------
Total investment properties, net 12,373,987 8,077,439
Cash and cash equivalents 3,514,355 2,624,643
Investments in marketable securities 6,730,330 4,892,908
Other investments 5,096,518 5,048,016
Investment in affiliate 2,972,955 2,926,326
Loans, notes and other receivables 1,960,104 1,015,118
Notes and advances due from related parties 738,674 1,003,243
Deferred taxes 438,000 478,000
Goodwill 7,728,627 -
Other assets 441,387 234,036
--------------------- ---------------------
TOTAL ASSETS $41,994,937 $26,299,729
===================== =====================
LIABILITIES
Mortgages and notes payable $17,383,138 $8,086,227
Accounts payable and accrued expenses 800,148 229,462
Margin payable to broker 1,850,266 -
Accrued income taxes payable 403,000 -
Sales of securities pending delivery 168,400 -
--------------------- ---------------------
TOTAL LIABILITIES 20,604,952 8,315,689
Minority interests 2,639,354 322,193
--------------------- ---------------------
STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; 2,000,000 shares
authorized; none issued
Excess common stock, $1 par value; 500,000 shares authorized;
none issued
Common stock, $1 par value; 1,500,000 shares authorized;
1,315,635 shares issued and outstanding 1,315,635 1,315,635
Additional paid-in capital 26,571,972 26,571,972
Undistributed gains from sales of properties, net of losses 41,624,907 39,478,522
Undistributed losses from operations (48,844,019) (47,786,418)
--------------------- ---------------------
20,668,495 19,579,711
Less: Treasury stock, at cost (226,500 shares) (1,659,114) (1,659,114)
Notes receivable from exercise of stock options (258,750) (258,750)
--------------------- ---------------------
TOTAL STOCKHOLDERS' EQUITY 18,750,631 17,661,847
--------------------- ---------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $41,994,937 $26,299,729
===================== =====================
See notes to the condensed consolidated financial statements
(1)
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------
Three months ended September 30, Nine months ended September 30,
REVENUES 2004 2003 2004 2003
---- ---- ---- ----
Real estate rentals and related revenue $393,477 $445,336 $1,188,993 $1,260,110
Food & beverage sales 384,574 - 384,574 -
Marina revenues 189,820 120,553 422,674 362,152
Net gain (loss) from investments in marketable securities 111,410 190,626 (23,818) 490,481
Net gain (loss) from other investments 17,136 (105,527) 121,507 40,752
Interest, dividend and other income 135,223 78,867 320,574 209,289
-----------------------------------------------------------------------
Total 1,231,640 729,855 2,414,504 2,362,784
EXPENSES
Operating expenses:
Rental and other properties 156,880 144,943 398,471 413,540
Food and beverage cost of sales 117,731 - 117,731 -
Food and beverage labor and related costs 83,809 - 83,809 -
Food and beverage other operating costs 227,028 - 227,028 -
Marina expenses 145,969 99,817 354,861 281,926
Depreciation and amortization 145,411 145,016 412,201 437,362
Adviser's base fee 225,000 225,000 675,000 675,000
General and administrative 69,459 70,781 228,260 218,188
Professional fees and expenses 59,847 54,509 129,664 163,857
Directors' fees and expenses 18,614 17,618 48,825 46,126
-----------------------------------------------------------------------
Total operating expenses 1,249,748 757,684 2,675,850 2,235,999
Interest expense 185,707 123,371 414,547 374,054
Minority partners' interests in operating gain (loss) of
consolidated entities (62,364) 3,331 (61,292) 14,040
-----------------------------------------------------------------------
Total expenses 1,373,091 884,386 3,029,105 2,624,093
-----------------------------------------------------------------------
Loss before sales of properties and income taxes (141,451) (154,531) (614,601) (261,309)
Gain on sales of properties, net 297,444 307,855 2,146,385 386,111
-----------------------------------------------------------------------
Income before income taxes 155,993 153,324 1,531,784 124,802
Provision for income taxes 247,000 23,000 443,000 150,000
-----------------------------------------------------------------------
Net (loss) Income ($91,007) $130,324 $1,088,784 ($25,198)
=======================================================================
Net Income (loss) Per Common Share:
Basic ($0.08) $0.12 $1.00 ($0.02)
====== ===== ===== ======
Diluted ($0.08) $0.12 $0.98 ($0.02)
====== ===== ===== ======
Weighted average common shares outstanding - Basic 1,089,135 1,089,135 1,089,135 1,089,135
========= ========= ========= =========
Weighted average common shares outstanding - Diluted 1,103,271 1,098,153 1,103,700 1,089,135
========= ========= ========= =========
See notes to the condensed consolidated financial statements
(2)
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
-----------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
-------------------------------------------------------------------------------------------------------------------------------
Nine months ended September 30,
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $1,088,784 ($25,198)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 412,201 437,362
Net gain from other investments (126,466) (40,827)
Gain on sales of properties, net (2,146,385) (386,111)
Net loss (gain) from investments in marketable securities 23,818 (490,481)
Minority partners' interest in operating gains (61,292) 14,040
Deferred income tax expense 40,000 150,000
Changes in assets and liabilities: -
(Increase) decrease in other assets and other recievables (117,653) 122,558
Net proceeds from sales and redemptions of securities 2,738,344 1,724,702
Increase in sales of securities pending delivery 178,511 -
Increased investments in marketable securities (4,609,695) (1,971,213)
Increase in accounts payable and accrued expenses 764,004 129,953
Increase in accrued income taxes payable 403,000 ``
Increase (decrease) in margin payable to brokers and other liabilities 1,850,266 (679,891)
Repayment of note receivable from stock options exercised - 30,000
----------------- -----------------
Total adjustments (651,347) (959,908)
----------------- -----------------
Net cash provided by (used in) operating activities 437,437 (985,106)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases and improvements of properties (including goodwill) (14,510,474) -
Net proceeds from disposals of properties 4,232,528 1,227,802
Decrease in notes and advances from related parties 24,552 411,598
Additions in mortgage loans and notes receivables (1,100,000) (25,195)
Collections of mortgage loans and notes receivables 54,776 -
Distributions from other investments 1,138,447 839,044
Contributions to other investments (1,051,187) (561,050)
----------------- -----------------
Net cash (used in) provided by investing activities (11,211,358) 1,892,199
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from mortgages and notes payables 10,050,000 -
Repayment of mortgages and notes payables (753,089) (202,699)
Contributions from minority partners 2,397,165 -
Distributions to minority partners (30,443) -
----------------- -----------------
Net cash provided by (used in) financing activities 11,663,633 (202,699)
----------------- -----------------
Net increase in cash and cash equivalents 889,712 704,394
Cash and cash equivalents at beginning of the period 2,624,643 1,863,534
----------------- -----------------
Cash and cash equivalents at end of the period $3,514,355 $2,567,928
----------------- -----------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $415,000 $318,000
----------------- -----------------
Cash paid during the period for income taxes -- $2,000
----------------- -----------------
See notes to condensed consolidated financial statements
(3)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements prepared in accordance with instructions for Form 10QSB,
include all adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation of the results for the periods presented.
Certain information and footnote disclosures normally included in the financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted. It is suggested
that these condensed consolidated financial statements be read in conjunction
with the Company's Annual Report for the year ended December 31, 2003. The
balance sheet as of December 31, 2003 was derived from audited financial
statements as of that date. The results of operations for the three and nine
months ended September 30, 2004 are not necessarily indicative of the results to
be expected for the full year.
The condensed consolidated financial statements include the accounts of
HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company
owns a majority voting interest or controlling financial interest. Also included
in the condensed consolidated financial statements are the accounts of two 50%
owned entities which were formed in 2004 for the purpose of acquiring and
developing property (refer to Notes 3 and 5 below). All material transactions
and balances with consolidated and unconsolidated entities have been eliminated
in consolidation or as required under the equity method.
2. RECENT ACCOUNTING PRONOUNCEMENTS.
---------------------------------
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The Company does not participate in such transactions,
and accordingly, adoption of this statement did not have a material effect on
the Company's financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities ("VIE's")." FIN 46 clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 applies immediately to
VIE's created after January 31, 2003, and to VIE's in which an enterprise
obtains an interest after that date. On October 9, 2003 the FASB issued FASB
Staff Position No. FIN 46-6 "Effective Date of FASB Interpretation No.46
Consolidation of Variable Interest Entities," which defers the implementation
date for public entities that hold an interest in a variable interest entity or
potential variable interest entity from the first fiscal year or interim period
beginning after June 15, 2003 to the end of the first interim or annual period
ending after December 15, 2003. This deferral applies only if 1) the variable
interest entity was created before February 1, 2003 and 2) the public entity has
not issued financial statements reporting that variable interest entity in
accordance with FIN 46, other than disclosures required by paragraph 26 of FIN
46. The Company does not have any VIE's as defined by FIN 46.
(4)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
3. ACQUISITION OF RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE,
--------------------------------------------------------------------------------
FLORIDA
-------
As previously reported, on August 20, 2004, the Company, through two 50%-owned
entities, Bayshore Landing, LLC ("Landing") and Bayshore Rawbar, LLC ("Rawbar"),
(collectively "Bayshore") purchased a restaurant, office/retail and marina
property located in Coconut Grove (Miami), Florida (the "Property") for
approximately $13.9 million. The other 50% owner of Bayshore is The Christoph
Family Trust (the "Trust"). Members of the Trust are experienced real estate and
Marina operators. The seller, Bayshore Restaurant Management Corporation and
affiliates, is part of a larger privately-held organization which operates other
restaurants in Florida. The acquired assets included a two story building with
approximately 40,000 rentable square feet. A portion of the upstairs space is
intended to be utilized as a restaurant. The property also includes
approximately 15,000 square feet of outdoor space comprising the raw bar
restaurant and approximately 3.7 acres of submerged land with approximately 132
dock slips comprising the marina portion of the acquired property. Also included
in the acquired assets were certain trademarks and other rights in connection
with the restaurant and dock slips.
The acquired property is subject to a ground lease with the City of Miami,
Florida expiring in 2035 which was assigned to Bayshore upon acquisition. The
annual rent under the ground lease is based on a percentage of revenues.
The purchase price paid by Bayshore included proceeds from a bank loan secured
by the Property in the amount of $10 million plus approximately $3.9 million in
cash. The $10 million bank loan is part of a $13.275 million acquisition and
construction loan. Proceeds from the construction loan are intended for
renovations to the entire property. The outstanding principal balance of the
bank loan shall bear interest at a rate of 2.45% per annum in excess of the
LIBOR Rate. The bank loan shall be payable as follows: during the first year,
monthly payments of accrued interest will be paid. After the first year and upon
conversion to permanent terms, the loan will be repayable in equal monthly
principal payments necessary to fully amortize the principal amount over the
remaining twenty years of the loan, plus accrued interest.
The following table sets forth the allocation of the purchase price to the
assets acquired:
Marina slips $2,500,000
Buildings 2,900,000
Furniture and fixtures 765,000
Goodwill 7,729,000
Food and beverage inventory 49,000
--------------------------
Total Capitalized Costs $13,943,000
--------------------------
The allocation above was based, in part, on an independent appraisal report
which utilized as its primary valuation method the discounted cash flows from
the existing operations assigning appropriate discount rates for each of the
three operating components of the Property. The excess of capitalized cost
assigned to specific assets over the purchase price was $7,729,000 and was
recorded as goodwill. For tax purposes this goodwill is expected to be deducted
over 15 years.
The Company believes this purchase will compliment its existing property
portfolio.
(5)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Concurrently with the acquisition of the Property, Bayshore entered into a
management agreement with a company whose principal is a principal of the seller
("manager") and previously operated the Raw Bar restaurant. Bayshore will pay
the manager a management fee based on sales and operating profits. Also, refer
to Note 6 below regarding promissory note relating to another restaurant owned
by the manager.
The Company has included the accounts of Bayshore in its condensed consolidated
financial statements beginning from August 20, 2004, the date of acquisition.
Pro-forma Results of Operations
-------------------------------
The following are the Company's results of operations for the three and nine
months ended September 30, 2004 with comparative results of operations for the
three and nine months ended September 30, 2003, as if the acquisition of the
Property had taken place at the beginning of the periods.
Three months ended September 30, Nine months ended September 30,
----------------------------------------- ---------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
Revenues $1,922,205 $2,106,780 $6,779,093 $6,912,427
---------- ---------- ---------- ----------
Net (loss) income ($60,402) $349,103 $1,880,444 $781,014
-------- -------- ---------- --------
Basic (Loss) earnings
per share ($0.06) $.32 $1.73 $.72
------ ---- ----- ----
Diluted (Loss)
earnings per share ($0.05) $.32 $1.70 $.71
------ ---- ----- ----
4. GAIN ON SALES OF PROPERTIES
---------------------------
In September 2004 the Company sold 3.4 acres of undeveloped land for
approximately $885,000 and recognized a net gain on the sale of $297,000.
In April 2004 the Company sold its shopping center near Jacksonville, Florida
for approximately $3.9 million and recognized a net gain on the sale of $1.8
million.
In March 2004 Grove Isle Yacht Club Associates (GIYCA) sold one yacht slip
located in Miami, Florida resulting in a net gain to the Company of
approximately $48,000.
(6)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
5.CONSTRUCTION OF SPA AT GROVE ISLE
-----------------------------------
In September 2004 the Company entered into an agreement with Noble House
Associates, LLC ("NHA"), an affiliate of the Company's tenant at its Grove Isle
property (Westgroup Grove Isle Associates, Ltd., or "Westgroup"), for the
purpose of developing and operating on the Grove Isle property a commercial
project consisting of a first class spa, together with related improvements and
amenities (the "Spa Property"). A newly formed subsidiary of the Company, CII
Spa, LLC ("CIISPA") and NHA formed a Delaware limited liability company, Grove
Spa, LLC ("GS") which is owned 50% by CIISPA and 50% by NHA. The Spa Property
developed by GS will be sub-leased from Westgroup. The initial term of the
sublease commenced on September 15, 2004 and ends on November 30, 2016, with the
GS having the right to extend the term for two additional consecutive 20 year
terms on the same terms as the original sublease. Annual base rent of the
sublease is $10,000, plus GS shall pay real estate taxes, insurance, utilities
and all other costs relating to the Spa Property. The construction of the Spa
Property is currently underway and is expected to cost approximately $2 million
and is to be completed in 2005.
In conjunction with the Spa Property development, the Company amended and
restated its lease with Westgroup to extend the term of the lease from December
31, 2006 to December 31, 2016. Furthermore, the lease's termination payment, as
defined, was amended and restated to mean 50% of the amount by which the value
of the leased property on the date of termination, as amended, exceeds
$11,480,000, plus the value of NHA's percentage ownership interest in GS.
The Company has included the accounts of CIISPA in its condensed consolidated
financial statements beginning from September 15, 2004, the date of agreement.
(7)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
6.PROMISSORY NOTE TO OPERATOR OF RESTAURANT
-------------------------------------------
In August 2004 the Company advanced $1 million to an entity which owns and
operates a restaurant in Key West, Florida. The Company has had a 10% equity
interest in this restaurant since its construction began in 1999. The restaurant
opened in October 2003. The proceeds of loan were used for leasehold
improvements. The principal owner of the restaurant is an entity whose principal
is also the principal of the seller and current manager of the restaurant
operations acquired on August 20, 2004 and described in Note 3. The promissory
note is secured by a 65-year leasehold interest and calls for quarterly payments
of interest of 8% per annum beginning on July 31, 2004. All principal and
accrued and unpaid interest is due on June 30, 2009. The Company also has a ten
year option to acquire an additional 20% equity interest in this restaurant.
7. INVESTMENTS IN MARKETABLE SECURITIES
---------------------------------------
Investments in marketable securities consist primarily of large capital
corporate equity and debt securities in varying industries or issued by
government agencies with readily determinable fair values. These securities are
stated at market value, as determined by the most recent traded price of each
security at the balance sheet date. Consistent with the Company's overall
current investment objectives and activities its entire marketable securities
portfolio is classified as trading.
Net gain (loss) from investments in marketable securities for the three and nine
months ended September 30, 2004 and 2003 is summarized below:
Three months ended September Nine months ended September
30, 30,
------------------------------------------------------- ------------------------------- ------------------------------
Description 2004 2003 2004 2003
------------------------------------------------------- ---------------- -------------- --------------- --------------
Net realized gain (loss) from sales of securities $5,000 $179,000 ($7,000) $103,000
Unrealized net gain (loss) in trading securities 95,000 (3,000) (27,000) 411,000
Net change in sales of securities pending delivery 11,000 15,000 10,000 (24,000)
---------------- -------------- --------------- --------------
Total net (loss) gain from investments in marketable
securities $111,000 $191,000 ($24,000) $490,000
================ ============== =============== ==============
For the three and nine months ended September 30, 2004 net realized gain (loss)
from sales of marketable securities was approximately $5,000 and ($7,000),
respectively. These amounts consisted of approximately $131,000 of gross losses
net of $124,000 of gross gains for the nine month period ended September 30,
2004. Gross gains and losses were not significant for the three month period
ended September 30, 2004. For the three months ended September 30, 2003 net
realized gain from sales of marketable securities of approximately $179,000
consisted of approximately $199,000 of gross gains net of approximately $20,000
of gross losses. For the nine months ended September 30, 2003 net realized gain
from sales of marketable securities of approximately $103,000 consisted of
approximately $328,000 of gross gains net of approximately $225,000 of gross
losses.
Net change in sales of securities pending delivery represents the changes in the
market value of those securities and the delivery of securities to realize gain
or loss from these transactions.
(8)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Investment gains and losses on marketable securities may fluctuate significantly
from period to period in the future and could have a significant impact on the
Company's net earnings. However, the amount of investment gains or losses on
marketable securities for any given period has no predictive value and
variations in amount from period to period have no practical analytical value.
8. OTHER INVESTMENTS
--------------------
As of September 30, 2004, the Company has committed to invest approximately
$10.6 million in investments consisting primarily of private capital funds and
other limited partnerships, of which approximately $9.4 million has been funded.
The carrying value of other investments (which reflects distributions and
valuation adjustments) is approximately $5.1 million. During the nine months
ended September 30, 2004 the Company made contributions of approximately $1
million and has received distributions of approximately $1.1 from these
investments. The contributions include $575,000 made to two new investments
during the nine months ended September 30, 2004. The distributions in 2004
primarily consisted of return of capital distribution in the amount of $611,000
from an investment in a partnership which sold and recapitalized several of its
operating businesses and distributed the proceeds to its partners.
Net gain (loss) from other investments for the three and nine months ended
September 30, 2004 and 2003, is summarized below:
Three months ended September 30, Nine months ended September 30,
------------------- -------------------- ------------------- --------------------
Description 2004 2003 2004 2003
------------------- -------------------- ------------------- --------------------
Partnership owning diversified operating
companies $61,000 $-- $201,000 $--
Technology-related venture fund (83,000) (114,000) (187,000) (114,000)
Real estate development and operation 30,000 -- 70,000 138,000
Income from investment in 49% owned
affiliate (T.G.I.F. Texas, Inc.) 12,000 11,000 47,000 26,000
Others, net (3,000) (3,000) (9,000) (9,000)
------------------- -------------------- ------------------- --------------------
Total net gain (loss) from other
investments $17,000 ($106,000) $122,000 $41,000
=================== ==================== =================== ====================
During the nine months ended September 30, 2004, the Company received total
distributions approximately of $611,000 from one investment in a partnership
which recapitalized and or sold various operating companies. The excess of the
distributions over the Company's carrying value of the investment in this
partnership has resulted in capital gains of $201,000.
(9)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
In March and September 2004, the Company reduced the carrying value of one of
its investments in a venture capital fund by $104,000 and $20,000, respectively.
This fund experienced a decline in the market value of its holdings in
publicly-traded companies having a concentration in technology and
communications. Also in September 2004, the Company reduced by $83,000 the
carrying value of one of its other investments in a private corporation which
experience an other than temporary decline in value as a result of lower than
expected demand for its product.
9. BASIC AND DILUTED EARNINGS PER SHARE
---------------------------------------
Basic and diluted earnings per share for the three and nine months ended
September 30, 2004 and 2003 are computed as follows:
For the three months ended For the nine months ended
September 30, September 30,
2004 2003 2004 2003
---- ---- ---- ----
Basic:
------
Net (loss) income ($91,007) $130,324 $1,088,784 ($25,198)
Weighted average shares outstanding 1,089,135 1,089,135 1,089,135 1,089,135
-------------------------------------------------------------
Basic (loss) earnings share ($0.08) $0.12 $1.00 ($0.02)
=============================================================
Diluted:
--------
Net (loss) income ($91,007) $130,324 $1,088,784 ($25,198)
Weighted average shares outstanding 1,089,135 1,089,135 1,089,135 1,089,135
Plus incremental shares from assumed conversion: Stock
options 25,248 8,192 18,600 6,726
-------------------------------------------------------------
Diluted weighted average common shares 1,114,383 1,097,327 1,107,735 1,095,861
-------------------------------------------------------------
Diluted (loss) earnings per share ($0.08) $0.12 $0.98 ($0.02)
=============================================================
(10)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
---------------------
The Company reported a net loss of approximately $91,000 (or $.08 per share) and
net income of approximately $1.1 million (or $1.00 per basic share and $.98 per
diluted share) for the three and nine months ended September 30, 2004,
respectively. This is as compared with net income of approximately $130,000 (or
$.12 per basic and diluted share) for the three months ended September 30, 2003
and a net loss of approximately $25,000 (or $.02 per basic and diluted share)
for the nine months ended September 30, 2003.
As discussed further below, total revenues for the three and nine months ended
September 30, 2004 as compared with the same periods in 2003, decreased by
approximately $502,000 or 69% and $52,000 or 2%, respectively. Total expenses
for the three and nine months ended September 30, 2004, as compared with the
same periods in 2003, increased by approximately $489,000 or 55% and $405,000 or
15%, respectively. Gain on sales of properties for the three and nine months
ended September 30, 2004 was approximately $297,000 and $2.1 million,
respectively. This is as compared with gains of approximately $308,000 and
$386,000 for the three and nine months ended September 30, 2003.
REVENUES
Rentals and related revenues for the three and nine months ended September 30,
2004 as compared with the same comparable periods in 2003 decreased by $52,000
(12%) and $71,000 (6%), respectively. These decreases were primarily due to the
sale in April 2004 of the shopping center located near Jacksonville, Florida.
And they were partially offset by increased rental revenue of approximately
$44,000 from the retail space of the newly-acquired property in Miami, Florida.
Food and beverage sales of $385,000 for the three and nine months ended
September 30, 2004 consists of sales from Bayshore Rawbar, LLC, which is the
restaurant portion of the newly-acquired property in Miami, Florida.
Marina revenues for the three and nine months ended September 30, 2004 as
compared with the same comparable periods in 2003 increased by $69,000 (or 57%)
and $61,000 (or 17%), respectively. These increases were primarily from
additional transient rental dockage fees from the marina at the newly-acquired
property in Miami, Florida.
Net gain (loss) from investments in marketable securities for the three and nine
months ended September 30, 2004 was a gain of approximately $111,000 for the
three month period and a loss of approximately $24,000 for the nine month
period. This is as compared with net gain from investments in marketable
securities of approximately $191,000 and $490,000, respectively, for the same
comparable periods in 2003. For further details refer to Note 7 to Condensed
Consolidated Financial Statements (unaudited).
Net gain from other investments for the three and nine months ended September
30, 2004 was approximately $17,000 and $122,000, respectively. This is as
compared with a net loss of approximately $105,000 for the three month period
ended September 30, 2003 and a gain of $41,000 for the nine month period ended
September 30, 2003. For further details refer to Note 8 to Condensed
Consolidated Financial Statements (unaudited).
(11)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Interest and dividend income for the three and nine months ended September 30,
2004 was approximately $135,000 and $321,000, respectively. This is as compared
with approximately $79,000 and $209,000, respectively, for the same comparable
periods in 2003. The increases from last year of $56,000 (or 71%) for the three
month periods and $111,000 (or 53%) for the nine month periods was primarily due
to an increase in investments bonds and other fixed income securities.
EXPENSES
Expenses for rental and other properties for the three months ended September
30, 2004 increased by approximately $12,000 (or 8%) as compared to that for the
three months ended September 30, 2003. This was primarily due to the operating
expenses of approximately $26,000 relating to the retail portion of the
newly-acquired property in Miami, Florida. For the nine months ended September
30, 2004 as compared with 2003 such expenses decreased by $15,000 (or 4%)
primarily due to the sale of the shopping center near Jacksonville, Florida in
April 2004.
Food and beverage cost of sales, labor and related costs and other operating
costs are all related to the newly-acquired property in Miami, Florida.
Marina expenses for the three and nine months ended September 30, 2004 increased
by approximately $46,000 (or 46%) and $73,000 (or 26%), respectively, as
compared with the same comparable periods in 2003. This was primarily due to
increased operating expenses of the marina portion of the newly-acquired
property in Miami, Florida. For the period from the date of acquisition through
September 30, 2004 these expenses amounted to approximately $45,000.
Professional fees expense for the nine months ended September 30, 2004 decreased
by approximately $34,000 (or 21%) as compared with the same comparable period in
2003. This decrease was primarily the result of a reduction in the Company legal
expenses.
Interest expense for the three and nine months ended September 30, 2004
increased by approximately $62,000 (or 51%) and $40,000 (or 11%), respectively,
as compared with the same comparable periods in 2003. This increase was
primarily from new debt from acquisition of property.
EFFECT OF INFLATION:
--------------------
Inflation affects the costs of operating and maintaining the Company's
investments. In addition, rentals under certain leases are based in part on the
lessee's sales and tend to increase with inflation, and certain leases provide
for periodic adjustments according to changes in predetermined price indices.
(12)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
LIQUIDITY, CAPITAL EXPENDITURE REQUIREMENTS AND CAPITAL RESOURCES
-----------------------------------------------------------------
The Company's material commitments in 2004 primarily consist of maturities of
debt obligations of approximately $3.7 million and commitments to fund private
capital investments of approximately $1.2 million due upon demand. The funds
necessary to meet these obligations are expected to be available from the
proceeds of sales of properties or investments, refinancing, distributions from
investments and available cash. The majority of maturing debt obligations for
2004 is a note payable to the Company's 49% owned affiliate, T.G.I.F. Texas,
Inc. ("TGIF") of approximately $3.7 million. This amount is due on demand. It is
expected that this obligation when due to TGIF would be paid with funds
available from distributions from its investment in TGIF and from available
cash.
MATERIAL COMPONENTS OF CASH FLOWS
---------------------------------
For the nine months ended September 30, 2004, net cash provided by operating
activities was approximately $437,000. Included in this amount are proceeds from
sales of marketable securities of approximately $2.7 million, increased margin
payable to broker of $1.8 million and increased accounts payable, accrued
expenses and income taxes payable of approximately $1.2 million. These sources
of funds were partially offset by investments in marketable securities of $4.6
million.
For the nine months ended September 30, 2004, net cash used in investing
activities was approximately $11.2 million. This was comprised primarily of
purchases and improvements of properties of $14.5 million, additions to notes
receivable of $1.1 million and contributions to other investments of $1.1
million. These uses of funds were partially offset by proceeds from the sales of
properties of approximately $4.2 million and distributions from other
investments of $1.1 million.
For the nine months ended September 30, 2004, net cash provided by financing
activities was approximately $11.7 million primarily consisting of new
borrowings from bank for acquisition of property of $10 million and
contributions from minority partners of $2.4 million. These sources of funds
were partially offset by repayments of mortgages and notes payable of $753,000.
(13)
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of our disclosure controls and procedures (as defined in the
Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered
by this Quarterly Report on Form 10-QSB have concluded that, based on such
evaluation, our disclosure controls and procedures were adequate and designed to
ensure that material information relating to us and our consolidated
subsidiaries, which we are required to disclose in the reports we file or submit
under the Exchange Act of 1934, was made known to them by others within those
entities and reported within the time periods specified in the SEC's rules and
forms.
(b) There were no significant changes in the Company's internal controls
or in other factors that could significantly affect these controls during the
quarter covered by this report or from the end of the reporting period to the
date of this Form 10-QSB.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None.
------- ------------------
Item 2. Changes in Securities and Small Business Issuers Purchase of Equity
------- -------------------------------------------------------------------
Securities: None.
-----------
Item 3. Defaults Upon Senior Securities: None.
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Item 4. Submission of Matters to a Vote of Security Holders: None.
------- ----------------------------------------------------
Item 5. Other Information: None.
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Item 6. Exhibits and Reports on Form 8-K:
------- ---------------------------------
(a) Certifications pursuant to 18 USC Section 1350-Sarbanes-Oxley
Act of 2002. Filed herewith.
(b) Reports on Form 8-K filed for the quarter ended September 30,
2004: On September 2, 2004 the Company filed Form 8-K reporting
the acquisition of certain assets consisting of restaurant,
marina and retail property in Miami, Florida.
(14)
SIGNATURES
Pursuant to the requirements 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.
HMG/COURTLAND PROPERTIES, INC.
------------------------------
Dated: November 12, 2004 -------------------------------------
/s/Lawrence Rothstein
President, Treasurer and Secretary
Principal Financial Officer
Dated: November 12, 2004 -------------------------------------
/s/Carlos Camarotti
Vice President - Finance and Controller
Principal Accounting Officer
(15)