HMG 10QSB
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, 2005
OR
|
[X] |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
|
For
the
transition period from
to
Commission
file number 1-7865
HMG/COURTLAND
PROPERTIES, INC.
(Exact
name of small business issuer as specified in its charter)
Delaware
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59-1914299
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(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
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Identification
No.)
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1870
S. Bayshore Drive, Coconut Grove, Florida
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33133
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(Address
of principal executive offices)
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(Zip
Code)
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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.
1,078,635
Common shares were outstanding as of June 30, 2005.
HMG/COURTLAND
PROPERTIES, INC.
Index
PART
I. Financial
Information
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PAGE
NUMBER
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Item
1.
Financial Statements
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PART
II. Other Information
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13 |
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.
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CONDENSED
CONSOLIDATED BALANCE SHEETS
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June
30,
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December
31,
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2005
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2004
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ASSETS
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(UNAUDITED)
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Investment
properties, net of accumulated depreciation:
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Commercial
properties
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$
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4,624,708
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$
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4,721,261
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Commercial
properties- construction in progress
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1,094,055
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210,965
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Hotel,
club and spa facility
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5,676,067
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3,827,201
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Hotel,
club and spa facility-construction in progress
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72,415
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1,489,702
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Marina
properties
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2,423,475
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2,515,265
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Land
held for development
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589,419
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589,419
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Total
investment properties, net
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14,480,139
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13,353,813
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Cash
and cash equivalents
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2,300,686
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3,410,408
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Investments
in marketable securities
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6,854,518
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7,132,542
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Other
investments
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5,084,793
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5,190,543
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Investment
in affiliate
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3,029,328
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2,993,649
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Loans,
notes and other receivables
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2,165,180
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2,027,119
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Notes
and advances due from related parties
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860,646
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973,242
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Deferred
taxes
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204,000
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28,000
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Goodwill
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7,728,627
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7,728,627
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Other
assets
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565,354
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536,706
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TOTAL
ASSETS
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$
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43,273,271
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$
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43,374,649
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LIABILITIES
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Mortgages
and notes payable
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$
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19,155,660
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$
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18,483,069
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Accounts
payable and accrued expenses
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685,666
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885,132
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Margin
payable to broker
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975,518
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1,448,605
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Income
taxes payable
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5,000
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250,000
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Interest
rate swap contract payable
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836,000
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579,000
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TOTAL
LIABILITIES
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21,657,844
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21,645,806
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Minority
interests
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2,779,527
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2,837,944
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STOCKHOLDERS'
EQUITY
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Preferred
stock, $1 par value; 2,000,000 shares
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authorized;
none issued
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-
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-
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Excess
common stock, $1 par value; 500,000 shares authorized;
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none issued
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-
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-
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Common
stock, $1 par value; 1,500,000 shares authorized;
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1,317,135 & 1,315,635 shares issued and outstanding
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as of June 30, 2005 & December 31, 2004, respectively
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1,317,135
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1,315,635
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Additional
paid-in capital
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26,582,967
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26,571,972
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Undistributed
gains from sales of properties, net of losses
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41,735,070
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41,735,070
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Undistributed
losses from operations
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(48,451,408
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)
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(48,524,414
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)
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Accumulated
other comprehensive loss
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(418,000
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(289,500
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)
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20,765,764
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20,808,763
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Less:
Treasury stock, at cost (238,500 & 226,500 shares as
of
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June 30, 2005 & December 31, 2004, respectively)
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(1,806,114
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(1,659,114
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)
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Notes receivable from exercise of stock options
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(123,750
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(258,750
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)
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TOTAL
STOCKHOLDERS' EQUITY
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18,835,900
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18,890,899
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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43,273,271
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$
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43,374,649
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See
notes to the condensed consolidated financial
statements
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(1)
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STATEMENTS
OF COMPREHENSIVE INCOME (UNAUDITED)
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Three
months ended
June
30,
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Six
months ended
June
30,
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REVENUES
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2005
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2004
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2005
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2004
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Real
estate rentals and related revenue
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$
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382,182
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$
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367,028
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$
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765,137
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$
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795,516
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Food
& beverage sales
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1,448,145
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-
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3,012,593
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-
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Marina
revenues
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385,399
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116,176
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779,622
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232,854
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Spa
revenues
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94,918
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-
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156,042
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-
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Net
gain (loss) from investments in marketable securities
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50,734
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(249,477
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)
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58,514
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(135,228
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)
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Net
income (loss) from other investments
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77,334
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152,270
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(6,297
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)
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104,371
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Interest,
dividend and other income
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135,992
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106,310
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278,411
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185,351
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Total
revenues
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2,574,704
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492,307
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5,044,022
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1,182,864
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EXPENSES
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Operating
expenses:
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Rental and other properties
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197,547
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117,961
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417,298
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241,591
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Food and beverage cost of sales
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435,945
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-
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887,703
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-
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Food and beverage labor and related costs
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320,311
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-
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617,029
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-
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Food and beverage other operating costs
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488,003
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-
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965,065
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-
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Marina expenses
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199,304
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96,778
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411,499
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208,892
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Spa expenses
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84,809
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-
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136,576
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-
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Depreciation and amortization
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269,252
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122,465
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496,301
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266,790
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Adviser's base fee
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225,000
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225,000
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450,000
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450,000
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General and administrative
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88,842
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80,736
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160,644
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158,801
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Professional fees and expenses
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59,994
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40,634
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118,412
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69,817
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Directors' fees and expenses
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18,987
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13,258
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|
35,719
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|
|
30,211
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Total
operating expenses
|
|
|
2,387,994
|
|
|
696,832
|
|
|
4,696,246
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1,426,102
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Interest
expense
|
|
|
321,545
|
|
|
116,120
|
|
|
664,239
|
|
|
228,840
|
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Minority
partners' interests in operating (loss) gain of
|
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|
|
|
|
|
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consolidated entities
|
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(29,489
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)
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4,427
|
|
|
31,531
|
|
|
1,072
|
|
Total
expenses
|
|
|
2,680,050
|
|
|
817,379
|
|
|
5,392,016
|
|
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1,656,014
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|
|
|
|
|
|
|
|
|
|
|
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Loss
before sales of properties and income taxes
|
|
|
(105,346
|
)
|
|
(325,072
|
)
|
|
(347,994
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)
|
|
(473,150
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)
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Gain
on sales of properties, net
|
|
|
|
|
|
1,801,335
|
|
|
|
|
|
1,848,941
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(Loss)
income before income taxes
|
|
|
(105,346
|
)
|
|
1,476,263
|
|
|
(347,994
|
)
|
|
1,375,791
|
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(Benefit
from) provision for income taxes
|
|
|
(36,000
|
)
|
|
134,000
|
|
|
(421,000
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)
|
|
196,000
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Net
(loss) income
|
|
|
($69,346
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)
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$
|
1,342,263
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$
|
73,006
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$
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1,179,791
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Other
comprehensive (loss) income:
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|
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Unrealized loss on interest rate swap agreement
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($275,000
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)
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-
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($128,500
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)
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-
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Total other comprehensive (loss) income
|
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(275,000
|
)
|
|
|
|
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(128,500
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive
(loss) income
|
|
|
($344,346
|
)
|
$
|
1,342,263
|
|
|
($55,494
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)
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$
|
1,179,791
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|
|
|
|
|
|
|
|
|
|
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Net
(Loss) Income Per Common Share:
|
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|
|
|
|
|
|
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Basic
|
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($0.06
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)
|
$
|
1.23
|
|
$
|
0.07
|
|
$
|
1.08
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|
Diluted
|
|
|
($0.06
|
)
|
$
|
1.22
|
|
$
|
0.07
|
|
$
|
1.07
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Weighted
average common shares outstanding
|
|
|
1,078,635
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|
1,089,135
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|
|
1,083,856
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1,089,135
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Weighted
average common shares outstanding - Diluted
|
|
|
1,104,224
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|
|
1,103,271
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|
|
1,114,649
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|
|
1,103,700
|
|
|
|
|
|
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|
|
|
|
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See
notes to the condensed consolidated financial
statements
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(2)
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
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Six
months ended June 30,
|
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|
2005
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net income
|
|
$
|
73,006
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$
|
1,179,791
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|
Adjustments to reconcile net income to net cash used in
|
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|
|
|
|
|
operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
496,301
|
|
|
266,790
|
|
Net loss (gain) from other investments
|
|
|
6,295
|
|
|
(104,371
|
)
|
Gain
on sales of properties, net
|
|
|
|
|
|
(1,848,941
|
)
|
Net (gain) loss from investments in marketable securities
|
|
|
(58,514
|
)
|
|
135,228
|
|
Minority partners' interest in operating gains (losses)
|
|
|
31,531
|
|
|
1,072
|
|
Deferred income tax (benefit) expense
|
|
|
(176,000
|
)
|
|
14,000
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
(Increase) decrease in other assets and other receivables
|
|
|
(66,768
|
)
|
|
29,247
|
|
Net proceeds from sales and redemptions of securities
|
|
|
957,533
|
|
|
1,419,170
|
|
Increased investments in marketable securities
|
|
|
(620,995
|
)
|
|
(3,304,127
|
)
|
(Decrease) increase in accounts payable and accrued
expenses
|
|
|
(199,466
|
)
|
|
185,682
|
|
Decrease in margin payable to brokers and other
liabilities
|
|
|
(473,087
|
)
|
|
-
|
|
(Decrease) increase in income taxes payable
|
|
|
(245,000
|
)
|
|
182,000
|
|
Total
adjustments
|
|
|
(348,170
|
)
|
|
(3,024,250
|
)
|
Net
cash used in operating activities
|
|
|
(275,164
|
)
|
|
(1,844,459
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Improvements of properties
|
|
|
(1,572,073
|
)
|
|
-
|
|
Net proceeds from disposals of properties
|
|
|
|
|
|
3,440,649
|
|
Decrease in notes and advances from related parties
|
|
|
112,596
|
|
|
21,846
|
|
Additions in mortgage loans and notes receivables
|
|
|
(250,000
|
)
|
|
(182,510
|
)
|
Collections of mortgage loans and notes receivables
|
|
|
100,000
|
|
|
291,902
|
|
Distributions from other investments
|
|
|
395,433
|
|
|
869,734
|
|
Contributions
to other investments
|
|
|
(325,507
|
)
|
|
(939,036
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(1,539,551
|
)
|
|
3,502,585
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Additional borrowings, mortgages and notes payables
|
|
|
741,974
|
|
|
|
|
Repayment of mortgages and notes payables
|
|
|
(69,383
|
)
|
|
(718,782
|
)
|
Net contributions from (distributions to) minority
partners
|
|
|
32,402
|
|
|
(30,443
|
)
|
Net cash used in financing activities
|
|
|
704,993
|
|
|
(749,225
|
)
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(1,109,722
|
)
|
|
908,901
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period
|
|
|
3,410,408
|
|
|
2,624,643
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
2,300,686
|
|
$
|
3,533,544
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash paid during the period for interest
|
|
$
|
664,000
|
|
$
|
229,000
|
|
|
|
|
|
|
|
|
|
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 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, 2004. The
balance sheet as of December 31, 2004 was derived from audited financial
statements as of that date. The results of operations for the three and six
months ended June 30, 2005 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. 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 PRONOUNCEMENT
In
May
2005, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 154, Accounting Changes and Error Corrections, a
replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement
provides guidance on accounting for reporting of accounting changes and error
corrections. It establishes, unless impracticable, retrospective application
as
the required method for reporting a change in accounting principle in the
absence of explicit transition requirements specific to the newly adopted
accounting principle. This Statement also provides guidance for determining
whether retrospective application of a change in accounting principle is
impracticable and for reporting a change when retrospective application is
impracticable. This Statement also provides guidance on the correction of an
error by restating previously issued financial statements. This Statement
shall effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. The Company does not expect Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 154, Accounting Changes and Error Corrections to have a material effect
on
its financial statements.
3. RESULTS
OF OPERATIONS FOR MONTY’S 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 known as Monty’s (the
“Monty’s Property”) for approximately $13.9 million.
(4)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Summarized
combined statement of income for Landing and Rawbar for the three and six months
ended June 30, 2005 and for the period from the date of purchase of August
20,
2004 through December 31, 2004 is presented below (Note: the Company’s ownership
percentage in these operations is 50%):
Combined
Operations of Landing and Rawbar
|
|
Three
months
ended
June
30, 2005
|
|
Six
months
ended
June
30, 2005
|
|
August
20, 2004 through
December
31, 2004
|
|
Revenues:
|
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
$
|
1,448,000
|
|
$
|
3,012,000
|
|
$
|
1,733,000
|
|
Marina
dockage, upland rents and other
|
|
|
308,000
|
|
|
621,000
|
|
|
400,000
|
|
Total
Revenues
|
|
|
1,756,000
|
|
|
3,633,000
|
|
|
2,133,000
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
436,000
|
|
|
888,000
|
|
|
537,000
|
|
Labor
and related costs
|
|
|
320,000
|
|
|
617,000
|
|
|
434,000
|
|
Other
food and beverage related costs
|
|
|
77,000
|
|
|
171,000
|
|
|
117,000
|
|
Insurance
|
|
|
77,000
|
|
|
160,000
|
|
|
137,000
|
|
Management
fees
|
|
|
96,000
|
|
|
193,000
|
|
|
138,000
|
|
Utilities
|
|
|
74,000
|
|
|
149,000
|
|
|
107,000
|
|
Rent
|
|
|
208,000
|
|
|
415,000
|
|
|
267,000
|
|
Interest
|
|
|
188,000
|
|
|
412,000
|
|
|
285,000
|
|
Depreciation
|
|
|
91,000
|
|
|
181,000
|
|
|
126,000
|
|
Other
|
|
|
167,000
|
|
|
314,000
|
|
|
214,000
|
|
Total
Expenses
|
|
|
1,734,000
|
|
|
3,500,000
|
|
|
2,362,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss)
|
|
$
|
22,000
|
|
$
|
133,000
|
|
|
($229,000
|
)
|
(5)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Unaudited
Pro-forma Results of Operations
The
following are the Company’s results of operations for the three and six months
ended June 30, 2005 with comparative results of operations for the three and
six
months ended June 30, 2004, as if the acquisition of the Monty’s (Landing and
Rawbar) property had taken place at the beginning of the years.
|
|
For
the three months ended June 30,
|
|
For
the six months ended June 30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Revenues
|
|
$
|
2,575,000
|
|
$
|
2,326,000
|
|
$
|
5,044,000
|
|
$
|
,835,000
|
|
Net
(loss) income
|
|
|
($69,000
|
)
|
$
|
1,586,000
|
|
$
|
73,000
|
|
$
|
1,666,000
|
|
(Loss)
earnings per share
|
|
|
($.06
|
)
|
$
|
1.68
|
|
$
|
.07
|
|
$
|
1.98
|
|
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, 2005 and 2004 is summarized below:
|
|
Three
months ended
June
30,
|
|
Six
months ended
June
30,
|
|
Description
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Net
realized gain (loss) from sales of securities
|
|
$
|
49,000
|
|
|
($5,000
|
)
|
$
|
91,000
|
|
|
($13,000
|
)
|
Unrealized
net gain (loss) in trading securities
|
|
|
2,000
|
|
|
(244,000
|
)
|
|
(32,000
|
)
|
|
(122,000
|
)
|
Total
net gain (loss) from investments in marketable securities
|
|
$
|
51,000
|
|
|
($249,000
|
)
|
$
|
59,000
|
|
|
($135,000
|
)
|
For
the
three and six months ended June 30, 2005 net realized gain from sales of
marketable securities of approximately $49,000 and $91,000, respectively,
consisted of approximately $61,000 of gross gains net of $12,000 of gross losses
for the three month period and $110,000 of gross gains and $19,000 of gross
losses for the six month period. For the three and six months ended June 30,
2004 net realized loss from sales of marketable securities of approximately
$5,000 and $13,000 consisted of approximately $10,000 of gross losses net of
$5,000 of gross gains for the three month period and approximately $89,000
of
gross losses net of $76,000 of gross gains for the six month
period.
(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, 2005, the Company has committed to invest approximately $11.7 million
in other investments primarily in private capital funds, of which approximately
$9.8 million has been funded. The carrying value of other investments (which
reflects distributions and valuation adjustments) is approximately $5.0 million.
During the six months ended June 30, 2005 the Company has made contributions
to
four existing and three new investments of approximately $326,000 and has
received approximately $378,000 in cash distributions from other investments.
Net
(loss) gain from other investments for the three and six months ended June
30,
2005 and 2004, is summarized below:
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
Description
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Partnership
owning diversified operating companies
|
|
$
|
50,000
|
|
$
|
140,000
|
|
$
|
67,000
|
|
$
|
140,000
|
|
Technology-related
venture fund
|
|
|
23,000
|
|
|
--
|
|
|
43,000
|
|
|
(104,000
|
)
|
Real
estate development and operation
|
|
|
--
|
|
|
2,000
|
|
|
1,000
|
|
|
40,000
|
|
Income
from investment in 49% owned affiliate (T.G.I.F. Texas,
Inc.)
|
|
|
7,000
|
|
|
13,000
|
|
|
36,000
|
|
|
34,000
|
|
Others,
net
|
|
|
(3,000
|
)
|
|
(3,000
|
)
|
|
(153,000
|
)
|
|
(6,000
|
)
|
Total
net gain (loss) from other investments
|
|
$
|
77,000
|
|
$
|
152,000
|
|
|
($6,000
|
)
|
$
|
104,000
|
|
In
March
2005, the Company reduced the remaining carrying value (approximately $147,000)
of one of its investments in a privately held company in the personal cosmetic
industry. This investment experienced a decline in demand for its product which
is believed to result in other-than-temporary decline in the value of the
investment. This write down is included under the caption “Others, net” in the
table above. There were no write downs during the three months ended June 30,
2005.
In
March
2004, the Company reduced the carrying value of one of its investments in a
venture capital fund by $104,000. This fund experienced a decline in the market
value of its holdings in publicly-traded companies having a concentration in
technology and communications.
(7)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
6.
DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company is exposed to interest rate risk through their borrowing activities.
In
order to minimize the effect of changes in interest rates, the Company has
entered an interest rate swap contract under which the Company agrees to pay
an
amount equal to a specified rate of 7.57% times a notional principal
approximating the outstanding loan balance, and to receive in return an amount
equal to the one month LIBOR rate plus 2.45% times the same notional amount.
The
Company designated this interest rate swap contract as a cash flow hedge. The
fair value of the cash flow hedge, which at June 30, 2005 and December 31,
2004,
is a loss of $418,000 and $289,500, respectively (net of 50% minority interest),
is deferred to other comprehensive loss and reclassified to interest expense
over the life of the swap contract.
7. STOCK
OPTIONS
On
April
1, 2005 Mr. Wiener exercised options to purchase 1,500 shares which had been
previously granted. The exercise price of $12,495 and the existing promissory
note due to the Company from Mr. Wiener of $135,000 were satisfied by delivery
by Mr. Wiener of 12,000 shares of the Company’s stock at the then market value
of $12.25 per share and $495, all in accordance with the Company’s 2000 Stock
Option Plan (the “Plan”). Pursuant to the reload feature of the Plan Mr. Wiener
received an option to purchase 12,000 shares at $12.25 per share.
On
March
31, 2005 a director of the Company (Mr. Stuntebeck) was granted options to
purchase 5,000 shares of the Company’s stock at $12.25 per share (market value).
The options are not restricted, fully vested and expire in March
2015.
8. BASIC
AND DILUTED EARNINGS PER SHARE
Basic
and
diluted earnings per share for the three and six months ended June 30, 2005
and
2004 are computed as follows:
|
|
|
|
For
the three months ended
|
|
For
the six months ended
|
|
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
|
|
($69,346
|
)
|
$
|
1,342,263
|
|
$
|
73,006
|
|
$
|
1,179,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
1,078,635
|
|
|
1,089,135
|
|
|
1,083,856
|
|
|
1,089,135
|
|
Basic
(loss) earnings per share
|
|
($.06
|
)
|
$
|
1.23
|
|
$
|
.07
|
|
$
|
1.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($69,346
|
)
|
$
|
1,342,263
|
|
$
|
73,006
|
|
$
|
1,179,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
1,078,635
|
|
|
1,089,135
|
|
|
1,083,836
|
|
|
1,089,135
|
|
|
Plus
incremental shares from assumed conversion: Stock options
|
|
25,589
|
|
|
14,136
|
|
|
30,793
|
|
|
14,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares
|
|
1,104,224
|
|
|
1,103,271
|
|
|
1,114,649
|
|
|
1,103,700
|
|
Diluted
(loss) earnings per share
|
|
($.06
|
)
|
$
|
1.22
|
|
$
|
.07
|
|
$
|
1.07
|
|
(8)
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 $69,000 (or $.06 per share) for
the
three months ended June 30, 2005 and reported net income of $73,000 (or $.07
per
share) for the six months ended June 30, 2005. This is as compared with net
income of approximately $1.3 million (or $1.22 per diluted share) and $1.2
million (or $1.07 per diluted share) for the three and six months ended June
30,
2004, respectively.
As
discussed further below, total revenues for the three and six months ended
June
30, 2005 as compared with the same periods in 2005, increased by approximately
$2.1 million or 423% and $3.9 million or 326%, respectively. Total expenses
for
the three and six months ended June 30, 2005, as compared with the same periods
in 2004, increased by approximately $1.9 million or 228% and $3.7 million or
226%, respectively. There were no sales of properties for the three and six
months ended June 30, 2005 as compared with gains of approximately $1.8 million
and $1.9 million for the three and six months ended June 30, 2004.
REVENUES
Rentals
and related revenues for the six months ended June 30, 2005 as compared with
the
same comparable period in 2004 decreased by $30,000 (4%). This decrease was
primarily due to decreased rental revenue of approximately $108,000 as a result
of the sale in April 2004 of the Fashion Square shopping center located near
Jacksonville, Florida. This decrease in rental revenue was partially offset
by
increased rental revenue of approximately $60,000 from the retail space of
the
Monty’s property in Miami, Florida which was acquired in August 2004. Rentals
and related revenues for the three months ended June 30, 2005 as compared with
the same comparable period in 2004 remained substantially
unchanged.
Food
and
beverage sales of $1.4 million and $3.0 million for the three and six months
ended June 30, 2005, respectively, consists of sales from Bayshore Rawbar,
LLC,
which is the restaurant portion of the Monty’s property acquired in August 2004.
For further details refer to Note 3 to Condensed Consolidated Financial
Statements (unaudited).
Marina
revenues for the three and six months ended June 30, 2005 as compared with
the
same comparable periods in 2004 increased by $269,000 (or 232%) and $547,000
(235%), respectively. This increase was almost entirely from transient rental
dockage fees from the marina at the Monty’s property acquired in August 2004.
For further details refer to Note 3 to Condensed Consolidated Financial
Statements (unaudited).
Spa
revenues for the three and six months ended June 30, 2005 of approximately
$95,000 and $156,000 were from the newly constructed spa at the Grove Isle
property which began operations in the first quarter 2005.
Net
gain
from investments in marketable securities for the three and six months ended
June 30, 2005 was approximately $51,000 and $58,000, respectively. This is
as
compared with a net loss from investments in marketable securities of
approximately $249,000 and $135,000 for the same comparable period in 2004,
respectively. For further details refer to Note 4 to Condensed Consolidated
Financial Statements (unaudited).
(9)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
Net
gain
(loss) from other investments for the three and six months ended June 30, 2005
was approximately $77,000 and ($6,000). This is as compared with a net gain
of
approximately $152,000 and $104,000 for the same comparable periods in 2004,
respectively. For further details refer to Note 5 to Condensed Consolidated
Financial Statements (unaudited).
Interest
and dividend income for the three and six months ended June 30, 2005 increased
by approximately $30,000 and $93,000 as compared with the same comparable
periods in 2004, respectively. The increases from last year consists primarily
of interest income from notes receivable (Key West restaurant operator) and
increased interest and dividends from investments in bonds, other fixed income
securities and equity securities which pay dividends.
EXPENSES
Expenses
for rental and other properties for the three and six months ended June 30,
2005
increased by approximately $80,000 (or 67%) and $176,000 (73%), as compared
to
that for the same comparable periods in 2004, respectively. This increase was
primarily due to operating expenses relating to the rental operations of the
Monty’s property acquired in August 2004. For further details refer to Note 3 to
Condensed Consolidated Financial Statements (unaudited).
Food
and
beverage cost of sales, labor and related costs and other operating costs are
all related to the Monty’s property acquired in August 2004. For further details
refer to Note 3 to Condensed Consolidated Financial Statements
(unaudited).
Marina
expenses for the three and six months ended June 30, 2005 increased by
approximately $103,000 (or 106%) and $203,000 (or 97%), as compared with the
same comparable periods in 2004, respectively. This was primarily due to
increased operating expenses of the marina portion of Monty’s property acquired
in August 2004. For further details refer to Note 3 to Condensed Consolidated
Financial Statements (unaudited).
Spa
expenses for the three and six months ended June 30, 2005 were approximately
$85,000 and $137,000, respectively, and all related to the opening of the spa
at
Grove Isle in the first quarter of 2005.
Depreciation
and amortization expense for the three and six months ended June 30, 2005
increased by approximately $147,000 (or 120%) and $230,000 (or 86%), as compared
with the same comparable periods in 2004, respectively. This was primarily
the
result of the acquisition of property in August 2004 and the completion of
construction in the first quarter of 2005.
Professional
fees expense for the three and six months ended June 30, 2005 increased by
approximately $19,000 (or 48%) and $49,000 (or 70%) as compared with the same
comparable periods in 2004, respectively. This increase was primarily the result
of an increase in professional services (accounting and legal) relating to
the
aforementioned acquisitions and improvements of properties.
Interest
expense for the three and six months ended June 30, 2005 increased by
approximately $205,000 (or 177%) and $435,000 (or 190%), as compared with the
same comparable period in 2004. This increase was primarily from new debt
related to the acquisition of the Monty’s property in August 2004.
(10)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations
(continued)
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 2005 primarily consist of maturities of debt
obligations of approximately $3.9 million and commitments to fund private
capital investments of approximately $1.9 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
2005 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
six months ended June 30, 2005, net cash used by operating activities was
approximately $275,000. Included in this amount are increased investments in
marketable securities of approximately $621,000, decreased margin payable to
brokers of $473,000 and decreased accounts payable and accrued expenses of
$199,000. These uses of funds were partially offset by proceeds from sales
of
marketable securities of $958,000.
For
the
six months ended June 30, 2005, net cash used in investing activities was
approximately $1.5 million. This was comprised primarily of improvements of
properties of $1.6 million.
For
the
six months ended June 30, 2005, net cash provided by financing activities was
approximately $705,000 primarily consisting of $742,000 in additional borrowings
under the Monty’s property construction loan agreement.
(11)
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.
Item
4. Submission
of Matters to a Vote of Security Holders:
At
the
Company’s annual meeting, held on July 22, 2005, the shareholders approved the
renewal of the Advisory Agreement between the Company and the Adviser for a
term
commencing January 1, 2006 and expiring December 31, 2006, and reelected the
Company's Board of Directors by the following votes:
|
Number
of votes
|
|
For
|
Against/Withheld
|
Directors:
|
|
|
Walter G. Arader
|
636,176
|
|
Harvey Comita
|
636,176
|
|
Lawrence Rothstein
|
636,176
|
|
Maurice Wiener
|
636,176
|
|
Clinton A. Stuntebeck
|
636,176
|
|
|
|
|
Renewal
of Advisory Agreement
|
636,076
|
8,200
|
The
number of votes for the renewal of the Advisory Agreement represents a majority
of the votes cast at the meeting.
Item
5. Other
Information:
On July
25, 2005 the Company declared
a dividend of $.50 per share payable on August 26, 2005 to shareholders of
record on August 12, 2005.
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 June 30, 2005:
None.
|
(12)
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 10, 2005
|
/s/
Lawrence Rothstein
|
|
President,
Treasurer and Secretary
|
|
Principal
Financial Officer
|
|
|
|
|
Dated:
August 10, 2005
|
/s/Carlos
Camarotti
|
|
Vice
President- Finance and Controller
|
|
Principal
Accounting Officer
|
(13)