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 June 30, 2003
------------------------
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.
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(Exact name of small business issuer as specified in its charter)
Delaware 59-1914299
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1870 S. Bayshore Drive, Coconut Grove, Florida 33133
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(Address of principal executive offices) (Zip Code)
305-854-6803
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(Registrant's telephone number, including area code)
Not Applicable
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(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 July 31, 2003.
HMG/COURTLAND PROPERTIES, INC.
Index
PAGE
NUMBER
------
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 2003 (Unaudited) and December 31, 2002..............................................1
Condensed Consolidated Statements of Operations for the
Three and Six Months Ended June 30, 2003 and 2002 (Unaudited)................................2
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002 (Unaudited)..........................................3
Notes to Condensed Consolidated Financial Statements (Unaudited).............................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................................9
Item 3. Controls and Procedures............................................................12
PART II. Other Information
Item 1. Legal Proceedings . . . ..........................................................13
Item 4. Submission of Matters to a Vote of Security Holders...............................13
Item 6. Exhibits and Reports on Form 8-K..................................................13
Signatures...............................................................................................14
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 STATEMENTS OF OPERATIONS (UNAUDITED)
------------------------------------------------------------------------
Three months ended June 30, Six months ended June 30,
REVENUES 2003 2002 2003 2002
---- ---- ---- ----
Real estate rentals and related revenue $402,951 $410,311 $814,774 $814,816
Marina revenues 118,030 113,410 241,599 241,550
Net gain (loss) from investments in marketable securities 324,500 (558,614) 299,855 (755,175)
Net gain (loss)from other investments 77,650 (69,611) 146,279 (38,114)
Interest, dividend and other income 67,489 72,216 130,422 150,790
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Total revenues 990,620 (32,288) 1,632,929 413,867
EXPENSES
Operating expenses:
Rental and other properties 121,187 143,732 268,597 292,097
Marina expenses 87,565 82,606 182,109 172,711
Depreciation and amortization 145,411 151,823 292,346 303,698
Adviser's base fee 225,000 165,000 450,000 330,000
General and administrative 74,277 52,404 147,407 120,759
Professional fees and expenses 64,252 38,370 109,348 79,077
Directors' fees and expenses 16,708 12,465 28,508 31,188
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Total operating expenses 734,400 646,400 1,478,315 1,329,530
Interest expense 123,706 134,897 250,683 271,963
Minority partners' interests in operating gain (loss) of
consolidated entities 10,659 (19,121) 10,709 (31,857)
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Total expenses 868,765 762,176 1,739,707 1,569,636
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Income (loss) before sales of properties and income taxes 121,855 (794,464) (106,778) (1,155,769)
Gain on sales of properties, net 39,112 362,943 78,256 370,638
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Income (loss) before income taxes 160,967 (431,521) (28,522) (785,131)
Provision for (benefit from) income taxes 120,000 (131,000) 127,000 (306,250)
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Net income (loss) $40,967 ($300,521) ($155,522) ($478,881)
====================================================================
Net Income (Loss) Per Common Share:
Basic and diluted $0.04 ($0.28) ($0.14) ($0.44)
====== ======= ======= =======
See notes to the condensed consolidated financial statements
(1)
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
------------------------------ ----------------
CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30, December 31,
2003 2002
---- ----
ASSETS (UNAUDITED)
Investment properties, net of accumulated depreciation:
Commercial and industrial $2,673,996 $2,737,158
Hotel and club facility 4,409,993 4,607,964
Yacht slips 315,189 379,332
Land held for development 1,854,318 1,854,318
----------------------- ------------------------
Total investment properties, net 9,253,496 9,578,772
Cash and cash equivalents 2,723,090 1,863,534
Investments in marketable securities 2,966,735 3,730,820
Other investments 5,715,406 5,694,448
Investment in affiliate 2,908,907 2,894,196
Cash restricted pending delivery of securities 32,194 23,921
Loans, notes and other receivables 1,051,617 1,142,882
Notes and advances due from related parties 1,014,797 1,414,974
Deferred taxes 674,000 801,000
Other assets 183,345 195,612
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TOTAL ASSETS $26,523,587 $27,340,159
----------------------- ------------------------
LIABILITIES
Mortgages and notes payable 8,567,314 8,622,406
Accounts payable and accrued expenses 250,150 235,948
Sales of securities pending delivery 118,873 80,117
Other liabilities 679,891
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TOTAL LIABILITIES 8,936,337 9,618,362
Minority interests 291,713 270,738
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COMMITMENTS AND CONTINGENCIES
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 38,919,036 38,840,780
Undistributed losses from operations (47,563,242) (47,329,464)
----------------------- ------------------------
19,243,401 19,398,923
Less: Treasury stock, at cost (226,500 shares) (1,659,114) (1,659,114)
Notes receivable from exercise of stock options (288,750) (288,750)
----------------------- ------------------------
TOTAL STOCKHOLDERS' EQUITY 17,295,537 17,451,059
----------------------- ------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,523,587 $27,340,159
----------------------- ------------------------
See notes to the condensed consolidated financial statements
(2)
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Six months ended June 30,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($155,522) ($478,881)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 292,346 303,698
Net gain from other investments (146,279) 38,114
Gain on sales of properties, net (78,256) (370,638)
Net (gain) loss from marketable securities (299,855) 755,175
Minority partners' interest in operating gains (losses) 10,709 (31,857)
Deferred income tax expense (benefit) 127,000 (233,000)
Changes in assets and liabilities:
Decrease in other assets and other receivables 34,847 59,660
Net proceeds from sales and redemptions of securities 1,658,564 1,804,557
Increase in restricted cash (8,273) (903)
Increased investments in marketable securities (555,866) (1,095,883)
Increase in accounts payable and accrued expenses 14,202 10,500
Decrease in current income taxes payable (75,000)
Decrease in other liabilities (679,891) (149,660)
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Total adjustments 369,248 1,014,763
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Net cash provided by operating activities 213,726 535,882
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposals of properties 127,500 532,499
Decrease (increase) in notes and advances from related parties 400,177 (253,851)
Decrease in mortgage loans and notes receivables 56,485 14,658
Distributions from other investments 405,820 81,024
Contributions to other investments (289,060) (599,251)
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Net cash provided by (used in) investing activities 700,922 (224,921)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgages and notes payables (55,092) (222,982)
Net distributions to minority partners (30,443)
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Net cash used in financing activities (55,092) (253,425)
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Net increase in cash and cash equivalents 859,556 57,536
Cash and cash equivalents at beginning of the period 1,863,534 2,598,536
------------------ -----------------
Cash and cash equivalents at end of the period $2,723,090 $2,656,072
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $251,000 $170,000
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Cash paid during the period for income taxes $0 $1,000
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See notes to the 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 10-QSB,
include all adjustments (consisting only of normal recurring accruals) which are
necessary for a fair presentation. 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, 2002. The balance sheet as of December 31, 2002 was
derived from audited financial statements as of that date. The results of
operations for the three and six months ended June 30, 2003 are not necessarily
indicative of the results to be expected for the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS.
---------------------------------
In June 2002, the FASB issued Statement 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement requires the recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred versus the date the Company commits to an exit plan. In
addition, this Statement states the liability should be initially measured at
fair value. The Statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The primary effect to the Company's financial
statements would be in the timing of accounting recognition of potential future
exit activities. The adoption of this pronouncement did not have a material
effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure. This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in the financials statements about the
effects of stock-based compensation. The transitional guidance and annual
disclosure provisions of this Statement is effective for the December 31, 2002
financial statements. The interim reporting disclosures requirements were
effective beginning with the Company's March 31, 2003 10-QSB. Because the
Company continues to account for employee stock-based compensation under APB
opinion No. 25, the transitional guidance of SFAS No. 148 has no effect on the
financial statements at this time. There was no pro forma effect for stock based
compensation during the three and six months ended June 30, 2003 and 2002.
(4)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of then-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The Company does not participate in such transactions,
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 149 within the prescribed time.
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
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 150 within the prescribed time.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annul financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and 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." 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 variable interest
entities ("VIE's") created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to VIE's in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. We are evaluating the effects, if any the adoption of
FIN 46 may have on the Company's consolidated financial position, liquidity, or
results of operations.
(5)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
3. GAIN ON SALES OF PROPERTIES
---------------------------
For the six months ended June 30, 2003 Grove Isle Yacht Club Associates (GIYCA)
sold two yacht slips located in Miami, Florida resulting in a total net gain to
the Company of approximately $78,000.
4. 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 six
months ended June 30, 2003 and 2002 is summarized below:
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------- ----------------------------------------- ------------------------------------
Description 2003 2002 2003 2002
------------------------------------- ---------------------- ------------------- ------------------- ---------------
Net realized (loss) gain from sales ($39,615) $159,479 ($75,284) $100,387
of securities
Unrealized net gain (loss) in
trading securities 372,849 (515,860) 413,896 (652,338)
Net change in sales of securities
pending delivery (8,734) (202,233) (38,757) (203,224)
---------------------- ------------------ -------------------- ---------------
Total net gain (loss) $324,500 ($558,614) $299,855 ($755,175)
====================== ================== ==================== ===============
For the three months ended June 30, 2003 net realized loss from sales of
marketable securities of approximately $40,000 consisted of approximately
$155,000 of gross losses net of approximately $115,000 of gross gains. For the
six months ended June 30, 2003 net realized loss from sales of marketable
securities of approximately $75,000 consisted of approximately $204,000 of gross
losses net of approximately $129,000 of gross gains. For the three months ended
June 30, 2002 net realized gain from sales of marketable securities of
approximately $159,000 consisted of approximately $338,000 of gross gains net of
approximately $179,000 of gross losses. For the six months ended June 30, 2002
net realized gain from sales of marketable securities of approximately $100,000
consisted of approximately $501,000 of gross gains net of approximately $401,000
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.
(6)
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.
5. OTHER INVESTMENTS
-----------------
As of June 30, 2003, the Company has committed to invest approximately $11.7
million in other investments primarily in private capital funds, of which
approximately $10 million has been funded. The carrying value of other
investments (which reflects distributions and valuation adjustments) is
approximately $5.7 million. During the three and six months ended June 30, 2003
the Company has made contributions to existing investments of approximately
$199,000 and $289,000, respectively, and has received approximately $135,000 and
$406,000, respectively, in distributions from other investments. The
distributions in 2003 primarily consisted of one return of capital distribution
in the amount of $206,000 from an investment in a partnership which
recapitalized one of its operating businesses and distributed the proceeds to
its partners and $133,000 distributed from a partnership which sold an
investment in real estate.
Net loss from other investments for the three and six months ended June 30, 2003
and 2002, is summarized below:
Three Months Ended June30, Six Months Ended June 30,
---------------------------------- --------------------------------
2003 2002 2003 2002
----------------- ---------------- -------------- -----------------
Real estate development and $79,000 $1,000 $137,000 $13,000
operation
Internet and related -- (57,000) -- (57,000)
Income from investment in 49%
owned affiliate (T.G.I.F. Texas,
Inc.) 2,000 (11,000) 15,000 12,000
Others, net (3,000) (3,000) (6,000) (6,000)
----------------- ---------------- -------------- -----------------
Total net gain (loss) from other $78,000 ($70,000) $146,000 ($38,000)
investments
================= ================ ============== =================
6. NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES
-----------------------------------------------------------------
In March 2003, the Company received a cash payment of $500,000 from the Adviser
as payment on amounts due from the Adviser to the Company. As of June 30, 2003
the amount due from the Adviser is approximately $260,000.
(7)
7. BASIC AND DILUTED EARNINGS PER SHARE
-------------------------------------
Basic and diluted earnings per share for the three and six months ended June 30,
2003 and 2002 are computed as follows:
For the three months ended For the six months ended
June 30, June 30,
2003 2002 2003 2002
---- ---- ---- ----
Basic:
------
Net Income (loss) $40,967 ($300,521) ($155,522) ($478,881)
Weighted average shares outstanding 1,089,135 1,089,135 1,089,135 1,089,135
-------------------------------------------------------------
Basic earnings (loss) per share $0.04 ($0.28) ($0.14) ($0.44)
=============================================================
Diluted:
--------
Net Income (loss) $40,967 ($300,521) ($155,522) ($478,881)
Weighted average shares outstanding 1,089,135 1,089,135 1,089,135 1,089,135
Plus incremental shares from assumed conversion: Stock
options 9,018 -- -- --
-------------------------------------------------------------
Diluted weighted average common shares 1,098,153 1,089,135 1,089,135 1,089,135
-------------------------------------------------------------
Diluted earnings (loss) per share $0.04 ($0.28) ($0.14) ($0.44)
=============================================================
The effect of 86,000 options to purchase shares of the Company's common stock
were not included in the calculation of diluted earnings per share for the six
months ended June 30, 2003 and 2002, and for the three months ended June 30,
2002, as their effect would have been anti-dilutive.
(8)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
---------------------
The Company reported net income of approximately $41,000 (or $.04 per share) for
the three months ended June 30, 2003 and a net loss of approximately $156,000
(or $.14 per share) for the six months ended June 30, 2003. This is as compared
with a net loss of approximately $301,000 (or $.28 per share) and $479,000 (or
$.44 per share) for the three and six months ended June 30, 2002, respectively.
Total revenues for the three and six months ended June 30, 2003 as compared with
the same periods in 2002, increased by approximately $1 million and $1.2
million, respectively. Total expenses for the three and six months ended June
30, 2003, as compared with the same periods in 2002, increased by approximately
$107,000 (or 14%) and $170,000 (or 11%), respectively. Gain on sales of
properties for the three and six months ended June 30, 2003 was approximately
$39,000 and $78,000, respectively, as compared with gains of approximately
$363,000 and $371,000, respectively, for the three and six months ended June 30,
2002.
REVENUES
Rentals and related revenues for the three and six months ended June 30, 2003 as
compared with the same comparable periods in 2002 remained relatively
consistent.
Net gain from investments in marketable securities for the three and six months
ended June 30, 2003 was approximately $325,000 and $300,000, respectively, as
compared with a net loss of approximately $559,000 and $755,000, respectively,
for the same comparable three six month periods in 2002. See discussion in Note
4 to Condensed Consolidated Financial Statements (unaudited).
Net gain from other investments for the three and six months ended June 30, 2003
was approximately $78,000 and $146,000, respectively, as compared with a net
loss from other investments of approximately $70,000 and $38,000 for the same
three and six month comparable periods in 2002. See discussion in Note 5 to
Condensed Consolidated Financial Statements (unaudited).
Interest and dividend income for the three and six months ended June 30, 2003
was approximately $67,000 and $130,000, respectively, as compared with
approximately $72,000 and $151,000, respectively, for the same three and six
month comparable periods in 2002. The decrease in the six month comparable
periods of approximately $21,000 (or 14%) was primarily due to fewer investments
in the portfolio that yielded interest and dividends combined with lower market
interest rates.
EXPENSES
Rental and other properties expenses for the three and six months ended June 30,
2003 as compared with the same periods in 2002 decreased by approximately
$23,000 (or 16%) and $24,000 (or 8%). These decreases were primarily a result of
decreased insurance expense.
Marina expenses for the three and six months ended June 30, 2003 remained
consistent with that of the three and six months ended June 30, 2002.
Adviser's base fee increased by $60,000 and $120,000 (or 36%) for the three and
six months ended June 30, 2003, respectively, as compared with the same periods
in 2002. As previously disclosed, this was as a result of a shareholder-approved
contractual increase in the Adviser's base fee. This amendment increased the
annual Adviser base fee from $660,000 to $900,000 effective January 1, 2003.
(9)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
General and Administrative expenses increase by approximately $22,000 (or 42%)
and $27,000 (or 22%), respectively for the three and six months ended June 30,
2003 as compared with the same comparable periods in 2002. These increases were
primarily attributable to increased travel and meals and entertainment expenses
of approximately $14,000, payroll and related expense of approximately $6,000
and increased dues and subscriptions of approximately $5,000.
Professional fees increased by approximately $26,000 (or 67%) and $30,000 (or
38%), respectively for the three and six months ended June 30, 2003 as compared
with the same comparable periods in 2002. These increases were primarily
attributable to increased legal costs associated with shareholder relations.
Interest expense decrease by approximately $11,000 and $21,000 (or 8%),
respectively for the three and six months ended June 30, 2003 as compared with
the same comparable periods in 2002. This was primarily as a result of decreased
variable interest rates and overall reduction in outstanding debt.
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.
LIQUIDITY, CAPITAL EXPENDITURE REQUIREMENTS AND CAPITAL RESOURCES
-----------------------------------------------------------------
The Company's material commitments in 2003 primarily consist of maturities of
debt obligations of approximately $3.9 million and commitments to fund private
capital investments of approximately $1.7 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
2003 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 investments and from available cash.
MATERIAL COMPONENTS OF CASH FLOWS
---------------------------------
For the six months ended June 30, 2003, net cash provided by operating
activities was approximately $214,000. Included in this amount are net proceeds
from sales and redemptions of marketable securities of approximately $1.7
million less increased investments in of marketable securities of approximately
$556,000 and decreased other liabilities (margin payables) of approximately
$680,000.
For the six months ended June 30, 2003, net cash provided by investing
activities was approximately $701,000. This was comprised primarily of
repayments received on notes and advances due from related parties of
approximately $400,000, distributions from other investments of approximately
$406,000, net proceeds from sales of properties of approximately $127,000 less
contributions to other investments of approximately $289,000.
For the six months ended June 30, 2003, net cash used in financing activities
was approximately $55,000 consisting of repayments of mortgages and notes
payable.
(10)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
RECENT ACCOUNTING PRONOUNCEMENTS.
---------------------------------
In June 2002, the FASB issued Statement 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement requires the recognition of a
liability for a cost associated with an exit or disposal activity when the
liability is incurred versus the date the Company commits to an exit plan. In
addition, this Statement states the liability should be initially measured at
fair value. The Statement is effective for exit or disposal activities that are
initiated after December 31, 2002. The primary effect to the Company's financial
statements would be in the timing of accounting recognition of potential future
exit activities. The adoption of this pronouncement did not have a material
effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation--Transition and Disclosure. This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in the financials statements about the
effects of stock-based compensation. The transitional guidance and annual
disclosure provisions of this Statement is effective for the December 31, 2002
financial statements. The interim reporting disclosures requirements were
effective beginning with the Company's March 31, 2003 10-QSB. Because the
Company continues to account for employee stock-based compensation under APB
opinion No. 25, the transitional guidance of SFAS No. 148 has no effect on the
financial statements at this time. There was no pro forma effect for stock based
compensation during the three and six months ended June 30, 2003 and 2002.
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of then-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The Company does not participate in such transactions,
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 149 within the prescribed time.
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
however, is evaluating the effect of this new pronouncement, if any, and will
adopt FASB 150 within the prescribed time.
(11)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annul financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and did have
a material effect on the Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness to Others, an interpretation of FASB Statements No. 5, 57, and 107
and a rescission of FASB Interpretation No. 34. This Interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annul financial
statements about its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at inception of a
guarantee, a liability for the fair value of the obligation undertaken. The
initial recognition and measurement provisions of the Interpretation are
applicable to guarantees issued or modified after December 31, 2002 and did 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." 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 variable interest
entities ("VIE's") created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to VIE's in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
FIN 46 applies to public enterprises as of the beginning of the applicable
interim or annual period. We are evaluating the effects, if any the adoption of
FIN 46 may have on the Company's consolidated financial position, liquidity, or
results of operations.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Principal Executive Officer and Principal Financial Officer have reviewed the
Company's disclosure controls and procedures within 90 days prior to the filing
of this report. Based upon this review, these officers believe that the
Company's disclosure controls and procedures are effective in ensuring that
material information related to the Company is made known to them by others
within the Company.
(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.
(12)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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No items to report.
Item 4. Submission of Matters to a Vote of Security Holders.
------- ----------------------------------------------------
On July 25, 2003, the shareholders approved the renewal of the Advisory
Agreement between the Company and the Adviser for a term commencing January 1,
2004 and expiring December 31, 2004, and reelected the Company's Board of
Directors by the following votes:
Number of votes
-------------------------------------------
For Against/Withheld
-------------------------------------------
Directors:
Walter G. Arader 1,004,315 5,465
Harvey Comita 1,004,315 5,465
Lawrence Rothstein 1,004,315 5,465
Maurice Wiener 1,004,315 5,465
Renewal of Advisory Agreement 1,003,314 5,465
John Bailey, a long-time director and nominee, passed away in early July 2003.
The Board has not yet filled this vacancy.
The number of votes for the renewal of the Advisory Agreement represents a
majority of the votes cast at the meeting.
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) There were no reports on Form 8-K filed for the quarter ended June
30, 2003.
(13)
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: August 14, 2003 _______________________________
/s/Lawrence Rothstein
President, Treasurer and Secretary
Principal Financial Officer
Dated: August 14, 2003 _______________________________
/s/Carlos Camarotti
Vice President - Finance and Controller
Principal Accounting Officer
(14)