UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
(Mark
One)
[x]
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
Quarterly period ended
September 30, 2005
OR
[
]
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
|
59-1914299
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Identification
No.)
|
1870
S. Bayshore Drive, Coconut Grove, Florida 33133
(Address
of principal executive offices) (Zip Code)
305-854-6803
(Registrant's
telephone number, including area code)
Not
Applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) has filed all reports required to be filed by Sections
13
or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90
days. Yes
x
No
APPLICABLE
ONLY TO CORPORATE ISSUERS:
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.
1,073,035
Common shares were outstanding as of September 30, 2005.
HMG/COURTLAND
PROPERTIES, INC.
Index
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PAGE
NUMBER
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PART
I. Financial Information
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Item
1.
Financial Statements
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PART
II. Other Information
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13 |
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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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September
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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$4,515,727
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$4,721,261
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Commercial
properties- construction in progress
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1,641,024
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210,965
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Hotel,
club and spa facility
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5,501,801
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3,827,201
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Hotel,
club and spa facility-construction in progress
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242,860
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1,489,702
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Marina
properties
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2,373,581
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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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14,864,412
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13,353,813
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Cash
and cash equivalents
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1,959,796
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3,410,408
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Investments
in marketable securities
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7,047,985
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7,132,542
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Other
investments
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5,721,875
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5,190,543
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Investment
in affiliate
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3,053,243
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2,993,649
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Loans,
notes and other receivables
|
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2,055,277
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2,027,119
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Notes
and advances due from related parties
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707,137
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973,242
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Deferred
taxes
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393,000
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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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604,884
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536,706
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TOTAL
ASSETS
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$44,136,236
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$43,374,649
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LIABILITIES
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Mortgages
and notes payable
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$19,626,252
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$18,483,069
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Accounts
payable and accrued expenses
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793,412
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885,132
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Margin
payable to broker
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1,627,877
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1,448,605
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Income
taxes payable
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-
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250,000
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Interest
rate swap contract payable
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417,000
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579,000
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TOTAL
LIABILITIES
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22,464,541
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21,645,806
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Minority
interests
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2,809,878
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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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1,317,535
& 1,315,635 shares issued and outstanding
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as
of September 30, 2005 & December 31, 2004,
respectively
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1,317,535
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1,315,635
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Additional
paid-in capital
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26,585,595
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26,571,972
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Undistributed
gains from sales of properties, net of losses
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41,498,752
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41,735,070
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Undistributed
losses from operations
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(48,452,851
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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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(208,500
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)
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(289,500
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)
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20,740,531
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20,808,763
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Less:
Treasury stock, at cost (244,500 & 226,500 shares as
of
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September
30, 2005 & December 31, 2004, respectively)
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(1,878,714
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)
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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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-
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(258,750
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)
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TOTAL
STOCKHOLDERS' EQUITY
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18,861,817
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18,890,899
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$44,136,236
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$43,374,649
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See
notes to the condensed consolidated financial
statements
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(1)
HMG/COURTLAND
PROPERTIES, INC AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
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Three
months ended
September
30,
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Nine
months ended
September
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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$371,697
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$393,477
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$1,136,834
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$1,188,993
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Food
& beverage sales
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1,036,587
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384,574
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4,049,180
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384,574
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Marina
revenues
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353,913
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189,820
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1,133,535
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422,674
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Spa
revenues
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104,134
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-
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260,176
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-
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Net
gain (loss) from investments in marketable securities
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210,015
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111,410
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268,529
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(23,818
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)
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Net
income from other investments
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51,501
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|
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17,136
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|
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45,204
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|
|
121,507
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Interest,
dividend and other income
|
|
|
132,033
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|
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135,223
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|
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410,444
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|
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320,574
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Total
revenues
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2,259,880
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1,231,640
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7,303,902
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2,414,504
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EXPENSES
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Operating
expenses:
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Rental
and other properties
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231,654
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156,880
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648,952
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398,471
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Food
and beverage cost of sales
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323,549
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117,731
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1,211,252
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117,731
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Food
and beverage labor and related costs
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281,841
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83,809
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898,870
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83,809
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Food
and beverage other operating costs
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418,456
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227,028
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1,383,521
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227,028
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Marina
expenses
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213,554
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145,969
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625,053
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354,861
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Spa
expenses
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196,099
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-
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|
332,675
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-
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Depreciation
and amortization
|
|
|
196,922
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|
|
145,411
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|
|
693,223
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412,201
|
|
Adviser's
base fee
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225,000
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|
|
225,000
|
|
|
675,000
|
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|
675,000
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|
General
and administrative
|
|
|
97,262
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|
|
69,459
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|
|
257,906
|
|
|
228,260
|
|
Professional
fees and expenses
|
|
|
61,947
|
|
|
59,847
|
|
|
180,359
|
|
|
129,664
|
|
Directors'
fees and expenses
|
|
|
19,803
|
|
|
18,614
|
|
|
55,522
|
|
|
48,825
|
|
Total
operating expenses
|
|
|
2,266,087
|
|
|
1,249,748
|
|
|
6,962,333
|
|
|
2,675,850
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
363,052
|
|
|
185,707
|
|
|
1,027,291
|
|
|
414,547
|
|
Minority
partners' interests in operating loss of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
entities
|
|
|
(178,816
|
)
|
|
(62,364
|
)
|
|
(147,285
|
)
|
|
(61,292
|
)
|
Total
expenses
|
|
|
2,450,323
|
|
|
1,373,091
|
|
|
7,842,339
|
|
|
3,029,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before sales of properties and income taxes
|
|
|
(190,443
|
)
|
|
(141,451
|
)
|
|
(538,437
|
)
|
|
(614,601
|
)
|
Gain
on sales of properties, net
|
|
|
302,999
|
|
|
297,444
|
|
|
302,999
|
|
|
2,146,385
|
|
Income
(loss) before income taxes
|
|
|
112,556
|
|
|
155,993
|
|
|
(235,438
|
)
|
|
1,531,784
|
|
(Benefit
from) provision for income taxes
|
|
|
(189,000
|
)
|
|
247,000
|
|
|
(610,000
|
)
|
|
443,000
|
|
Net
income (loss)
|
|
|
$301,556
|
|
|
($91,007
|
)
|
|
$374,562
|
|
|
$1,088,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on interest rate swap agreement
|
|
|
$209,500
|
|
|
-
|
|
|
$81,000
|
|
|
-
|
|
Total
other comprehensive income
|
|
|
209,500
|
|
|
|
|
|
81,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
|
$511,056
|
|
|
($91,007
|
)
|
|
$455,562
|
|
|
$1,088,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) Per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$.28
|
|
|
($.08
|
)
|
|
$.35
|
|
|
$1.00
|
|
Diluted
|
|
|
$.27
|
|
|
($.08
|
)
|
|
$.34
|
|
|
$.98
|
|
Weighted
average common shares outstanding
|
|
|
1,076,261
|
|
|
1,089,135
|
|
|
1,081,297
|
|
|
1,089,135
|
|
Weighted
average common shares outstanding - Diluted
|
|
|
1,107,202
|
|
|
1,103,271
|
|
|
1,113,384
|
|
|
1,103,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated financial
statements
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(2)
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
2005
|
|
2004
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
Net
income
|
|
|
$374,562
|
|
|
$1,088,784
|
|
Adjustments
to reconcile net income to net cash used in
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
693,223
|
|
|
412,201
|
|
Net
income from other investments
|
|
|
(45,204
|
)
|
|
(121,507
|
)
|
Gain
on sales of properties, net
|
|
|
(302,999
|
)
|
|
(2,146,385
|
)
|
Net
(gain) loss from investments in marketable securities
|
|
|
(268,529
|
)
|
|
23,818
|
|
Minority
partners' interest in operating losses
|
|
|
(147,285
|
)
|
|
(61,292
|
)
|
Deferred
income tax (benefit) expense
|
|
|
(365,000
|
)
|
|
40,000
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Decrease
(increase) in other assets and other receivables
|
|
|
103,722
|
|
|
(122,612
|
)
|
Net
proceeds from sales and redemptions of securities
|
|
|
1,557,538
|
|
|
2,738,344
|
|
Increased
investments in marketable securities
|
|
|
(1,204,452
|
)
|
|
(4,431,184
|
)
|
(Decrease)
increase in accounts payable and accrued expenses
|
|
|
(91,720
|
)
|
|
764,004
|
|
Increase
in margin payable to brokers and other liabilities
|
|
|
179,272
|
|
|
1,850,266
|
|
(Decrease)
increase in income taxes payable
|
|
|
(250,000
|
)
|
|
403,000
|
|
Total
adjustments
|
|
|
(141,434
|
)
|
|
(651,347
|
)
|
Net
cash provided by operating activities
|
|
|
233,128
|
|
|
437,437
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
and improvements of properties
|
|
|
(2,266,148
|
)
|
|
(14,510,474
|
)
|
Net
proceeds from disposals of properties
|
|
|
517,288
|
|
|
4,232,528
|
|
Decrease
in notes and advances from related parties
|
|
|
266,105
|
|
|
24,552
|
|
Additions
in mortgage loans and notes receivables
|
|
|
(250,000
|
)
|
|
(1,100,000
|
)
|
Collections
of mortgage loans and notes receivables
|
|
|
100,000
|
|
|
54,776
|
|
Distributions
from other investments
|
|
|
1,069,233
|
|
|
1,138,447
|
|
Contributions
to other investments
|
|
|
(1,605,728
|
)
|
|
(1,051,187
|
)
|
Net
cash used in investing activities
|
|
|
(2,169,250
|
)
|
|
(11,211,358
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Additional
borrowings, mortgages and notes payables
|
|
|
1,247,305
|
|
|
10,050,000
|
|
Repayment
of mortgages and notes payables
|
|
|
(104,122
|
)
|
|
(753,089
|
)
|
Dividends
paid
|
|
|
(539,317
|
)
|
|
-
|
|
Net
(distributions to) contributions from minority partners
|
|
|
(118,356
|
)
|
|
2,366,722
|
|
Net
cash provided by financing activities
|
|
|
485,510
|
|
|
11,663,633
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(1,450,612
|
)
|
|
889,712
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
3,410,408
|
|
|
2,624,643
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
|
$1,959,796
|
|
|
$3,514,355
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash
paid during the period for interest
|
|
|
$1,027,000
|
|
|
$415,000
|
|
|
|
|
|
|
|
|
|
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 nine
months ended September 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 be 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 Statement of Financial Accounting Standards
No. 154, Accounting Changes and Error Corrections to have a material effect
on
its financial statements.
3.
GAIN
ON SALES OF PROPERTIES
In
August
2005, HMG Fieber Associates sold its property located in Kingston, New York,
resulting in a net gain to the Company of approximately $303,000.
4. RESULTS
OF OPERATIONS FOR MONTY’S RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT
GROVE, FLORIDA
The
Company, through two 50%-owned entities, Bayshore Landing, LLC (“Landing”) and
Bayshore Rawbar, LLC (“Rawbar”), (collectively, “Bayshore”) owns a restaurant,
office/retail and marina property located in Coconut Grove (Miami), Florida
known as Monty’s (the “Monty’s Property”).
(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 nine
months ended September 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
September
30, 2005
|
Nine
months
ended
September
30, 2005
|
August
20, 2004
through
December
31, 2004
|
Revenues:
|
|
|
|
|
Food
and Beverage Sales
|
|
$1,037,000
|
$4,049,000
|
$1,733,000
|
Marina
dockage, upland rents and other
|
|
275,000
|
896,000
|
400,000
|
Total
Revenues
|
|
1,312,000
|
4,945,000
|
2,133,000
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Cost
of food and beverage sold
|
|
323,000
|
1,211,000
|
537,000
|
Labor
and related costs
|
|
282,000
|
899,000
|
434,000
|
Other
food and beverage related costs
|
|
109,000
|
280,000
|
117,000
|
Insurance
|
|
88,000
|
248,000
|
137,000
|
Management
fees
|
|
95,000
|
288,000
|
138,000
|
Utilities
|
|
86,000
|
235,000
|
107,000
|
Ground
rent
|
|
207,000
|
622,000
|
267,000
|
Interest
|
|
223,000
|
635,000
|
285,000
|
Depreciation
|
|
91,000
|
272,000
|
126,000
|
Other
|
|
84,000
|
398,000
|
214,000
|
Total
Expenses
|
|
1,588,000
|
5,088,000
|
2,362,000
|
|
|
|
|
|
Net
loss
|
|
($276,000)
|
($143,000)
|
($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 nine months
ended September 30, 2005 with comparative results of operations for the three
and nine months ended September 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
September
30,
|
For
the nine months
ended
September 30,
|
|
2005
|
2004
|
2005
|
2004
|
Revenues
|
$2,260,000
|
$1,944,000
|
$7,304,000
|
$6,779,000
|
Net
income (loss)
|
$302,000
|
($45,000)
|
$375,000
|
$1,621,000
|
Earnings
(loss) per share
|
$.28
|
($04)
|
$.35
|
$1.49
|
5.
INVESTMENTS
IN MARKETABLE SECURITIES
Investments
in marketable securities consist primarily of large capital corporate equity
and
debt securities in varying industries or issued by government agencies with
readily determinable fair values. These securities are stated at market value,
as determined by the most recent traded price of each security at the balance
sheet date. Consistent with the Company's overall current investment objectives
and activities its entire marketable securities portfolio is classified as
trading.
Net
gain
(loss) from investments in marketable securities for the three and nine months
ended September 30, 2005 and 2004 is summarized below:
|
Three
months ended
September
30,
|
Nine
months ended
September
30,
|
Description
|
2005
|
2004
|
2005
|
2004
|
Net
realized gain (loss) from sales of securities
|
$116,000
|
$5,000
|
$207,000
|
($7,000)
|
Unrealized
net gain (loss) in trading securities
|
94,000
|
95,000
|
61,000
|
(27,000)
|
Net
change in sales of securities pending delivery
|
-
|
11,000
|
-
|
10,000
|
Total
net gain (loss) from investments in marketable securities
|
$210,000
|
$111,000
|
$268,000
|
($24,000)
|
For
the
three and nine months ended September 30, 2005 net realized gain from sales
of
marketable securities of approximately $116,000 and $207,000, respectively,
consisted of approximately $131,000 of gross gains net of $15,000 of gross
losses for the three month period and $241,000 of gross gains and $34,000
of
gross losses for the nine month period. For the three and nine months ended
September 30, 2004 net realized gain (loss) from sales of marketable securities
was approximately $5,000 and ($7,000), respectively. These amounts consisted
of
approximately $131,000 of gross losses net of $124,000 of gross gains for
the
nine month period ended September 30, 2004. Gross gains and losses were not
significant for the three month period ended September 30, 2004.
(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.
6.
OTHER
INVESTMENTS
As
of
September 30, 2005, the Company has committed to invest approximately $12.1
million in other investments primarily in private capital funds and other
partnerships, of which approximately $10.8 million has been funded. The carrying
value of other investments (which reflects distributions and valuation
adjustments) is approximately $5.7 million. During the nine months ended
September 30, 2005 the Company made contributions to eleven existing investments
and five new investments totaling $1,606,000 and received cash distributions
from existing investments of $1,052,000.
Included
in new investments is a $1,000,000 investment made in September 2005
representing a 2.375% equity interest in a limited liability company that
was
recently formed for the sole purpose of acquiring a thirteen-story building
with
163,395 square feet located in Coconut Grove, Florida (commonly known as
“Grand
Bay Plaza”) and converting the existing rental office condominiums for sale to
investors and end-users.
Net
income from other investments for the three and nine months ended September
30,
2005 and 2004, is summarized below:
|
Three
months ended September 30,
|
Nine
months ended September 30,
|
Description
|
2005
|
2004
|
2005
|
2004
|
Partnership
owning diversified operating companies
|
$9,000
|
$61,000
|
$77,000
|
$201,000
|
Technology-related
venture fund
|
--
|
(83,000)
|
43,000
|
(187,000)
|
Real
estate development and operation
|
21,000
|
30,000
|
22,000
|
70,000
|
Income
from investment in 49% owned affiliate (T.G.I.F. Texas,
Inc.)
|
24,000
|
12,000
|
60,000
|
47,000
|
Others,
net
|
(3,000)
|
(3,000)
|
(157,000)
|
(9,000)
|
Total
net gain (loss) from other investments
|
$51,000
|
$17,000
|
$45,000
|
$122,000
|
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 other write downs or significant gains during
the
three and nine months ended September 30, 2005.
During
the nine months ended September 30, 2004, the Company received total
distributions approximately of $611,000 from one investment in a partnership
which recapitalized and or sold various operating companies. The excess of
the
distributions over the Company’s carrying value of the investment in this
partnership has resulted in capital gains of $201,000.
(7)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
6.
OTHER
INVESTMENTS (continued)
In
March
and September 2004, the Company reduced the carrying value of one of its
investments in a venture capital fund by $104,000 and $20,000, respectively.
This fund experienced a decline in the market value of its holdings in
publicly-traded companies having a concentration in technology and
communications. Also in September 2004, the Company reduced by $83,000 the
carrying value of one of its other investments in a private corporation which
experienced an other than temporary decline in value as a result of lower
than
expected demand for its product.
7.
DERIVATIVE
FINANCIAL INSTRUMENTS
The
Company is exposed to interest rate risk through its borrowing activities.
In
order to minimize the effect of changes in interest rates, the Company (through
it’s 50% owned subsidiary Bayshore Landing, LLC) 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 September 30, 2005 and December 31, 2004, is a loss
of
$208,500 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.
8. STOCK
OPTIONS
On
August
16, 2005, two officers of the Company exercised options to purchase a total
of
400 shares which had been previously granted. The total exercise price of
$3,026
and existing promissory notes due to the Company from these officers totaling
$70,000 were satisfied by delivery to the Company a total of 6,000 shares
of the
Company’s stock at the then market value of $12.10 per share and $428, all in
accordance with the Company’s 2000 Stock Option Plan (the “Plan”). Pursuant to
the reload feature of the Plan these officers received options to purchase
6,000
shares at $12.10 per share.
On
April
1, 2005 an officer of the Company exercised options to purchase 1,500 shares
which had been previously granted. The exercise price of $12,495 and an existing
promissory note due to the Company of $135,000 were satisfied by delivery
by 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 the officer received an
option to purchase 12,000 shares at $12.25 per share.
On
March
31, 2005 a director of the Company 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)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
9. BASIC
AND DILUTED EARNINGS PER SHARE
Basic
and
diluted earnings per share for the three and nine months ended September
30,
2005 and 2004 are computed as follows:
|
|
|
For
the three months ended
|
For
the nine months ended
|
|
|
|
September
30,
|
September
30,
|
|
|
|
2005
|
2004
|
2005
|
2004
|
|
Basic:
|
|
|
|
|
|
|
Net
income (loss)
|
$301,556
|
($91,007)
|
$374,562
|
$1,088,784
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
1,076,261
|
1,089,135
|
1,081,297
|
1,089,135
|
Basic
earnings (loss) per share
|
$.28
|
($.08)
|
$.35
|
$1.00
|
|
|
|
|
|
|
|
|
|
|
2005
|
2004
|
2005
|
2004
|
|
Diluted:
|
|
|
|
|
|
|
Net
income (loss)
|
$301,556
|
($91,007)
|
$374,562
|
$1,088,784
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
1,076,261
|
1,089,135
|
1,081,297
|
1,089,135
|
|
Plus
incremental shares from assumed conversion: Stock options
|
30,941
|
14,136
|
32,088
|
14,565
|
|
|
|
|
|
|
|
Diluted
weighted average common shares
|
1,107,202
|
1,103,271
|
1,113,384
|
1,103,700
|
Diluted
earnings (loss) per share
|
$.27
|
($.08)
|
$.34
|
$.98
|
(9)
|
Management's
Discussion and Analysis of
|
|
Financial Condition
and Results of
Operations
|
RESULTS
OF OPERATIONS
The
Company reported net income of approximately $302,000 (or $.27 per diluted
share) and $374,000 (or $.34 per diluted share) for the three and nine months
ended September 30, 2005, respectively. This is as compared with a net loss
of
approximately $91,000 (or $.08 per basic and diluted share) for the three
months
ended September 30, 2004 and net income of $1.1 million (or $1.00 per basic
share and $.99 per diluted share) for the nine months ended September 30,
2004,
respectively.
As
discussed further below, total revenues for the three and nine months ended
September 30, 2005 as compared with the same periods in 2004, increased by
approximately $1.0 million or 83% and $4.9 million or 203%, respectively.
Total
expenses for the three and nine months ended September 30, 2005, as compared
with the same periods in 2004, increased by approximately $1.1 million or
78%
and $4.8 million or 148%, respectively. Gain on sales of properties for the
three and nine months ended September 30, 2005 was $303,000 as compared with
gains of approximately $297,000 and $2.1 million for the three and nine months
ended September 30, 2004, respectively.
REVENUES
Rentals
and related revenues for the three and nine months ended September 30, 2005
as
compared with the same comparable periods in 2004 decreased by $22,000 (5%)
and
$52,000 (4%), respectively. This decrease was primarily due to decreased
rental
revenue as a result of the sale in April 2004 of the Fashion Square shopping
center located near Jacksonville, Florida.
Food
and
beverage sales increased by $652,000 (170%) and $3.7 million (953%) for the
three and nine months ended September 30, 2005, respectively, as compared
with
the same periods in 2004. This is as a result of the acquisition of the Monty’s
property in August 2004. For further details refer to Note 3 to Condensed
Consolidated Financial Statements (unaudited).
Marina
revenues for the three and nine months ended September 30, 2005 as compared
with
the same comparable periods in 2004 increased by $164,000 (86%) and $711,000
(168%), 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 nine months ended September 30, 2005 of approximately
$104,000 and $260,000 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 nine months ended
September 30, 2005 was approximately $210,000 and $268,000, respectively.
This
is as compared with a net gain of $111,000 for the three months ended September
30, 2004 and a net loss of $24,000 for the nine months ended September 30,
2004.
For further details refer to Note 4 to Condensed Consolidated Financial
Statements (unaudited).
(10)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
Net
income from other investments increased by $34,000 (201%) for the three months
ended September 30, 2005 as compared to the same period in 2004 primarily
due to
fewer write downs of investments in 2005 versus 2004. For the nine month
period
ended September 30, 2005 as compared to the same period in 2004 net income
from
other investments decreased by $76,000 (63%) primarily due to fewer
distributions from investments in 2005. For further details refer to Note
5 to
Condensed Consolidated Financial Statements (unaudited).
Interest
and dividend income for the nine months ended September 30, 2005 increased
by
approximately $90,000 as compared with the same comparable period in 2004
primarily as a result 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.
The change in interest and dividend income for the three month period ended
September 30, 2005 versus 2004 was not significant.
EXPENSES
Expenses
for rental and other properties for the three and nine months ended September
30, 2005 increased by approximately $75,000 (or 48%) and $250,000 (63%),
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).
Further comparison of food and beverage related expenses for the reporting
periods ended September 30, 2005 versus the same periods in 2004 is not relevant
at this time.
Marina
expenses for the three and nine months ended September 30, 2005 increased
by
approximately $68,000 (46%) and $270,000 (76%), 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). Further comparison of marina related expenses for
the
reporting periods ended September 30, 2005 versus the same periods in 2004
is
not relevant at this time.
Spa
expenses for the three and nine months ended September 30, 2005 were
approximately $196,000 and $333,000, 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 nine months ended September 30,
2005
increased by approximately $52,000 (35%) and $281,000 (or 68%), as compared
with
the same comparable periods in 2004, respectively. This was primarily the
result
of the acquisition of the Monty’s property in August 2004 and the completion of
construction of the spa property in the first quarter of 2005.
General
and administrative expense for the three and nine months ended September
30,
2005 increased by approximately $28,000 (40%) and $30,000 (13%) as compared
with
the same comparable periods in 2004, respectively. The increases were primarily
the result of increased federal excise tax paid during the quarter ended
September 30, 2005.
(11)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
Professional
fees expense for the nine months ended September 30, 2005 increased by
approximately $51,000 (39%) as compared with the same comparable period 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. The change in professional fees
expense for the three month periods ended September 30, 2005 versus 2004
was not
significant.
Interest
expense for the three and nine months ended September 30, 2005 increased
by
approximately $177,000 (95%) and $613,000 (148%), as compared with the same
comparable periods in 2004. This increase was primarily from new debt related
to
the acquisition of the Monty’s property in August 2004.
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 $3.7 million and commitments to fund private
capital investments of approximately $1.4 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
nine months ended September 30, 2005, net cash provided by operating activities
was approximately $233,000. Included in this amount are proceeds and redemptions
of marketable securities of $1.5 million which are substantially offset by
increased investments in marketable securities of approximately $1.2
million.
For
the
nine months ended September 30, 2005, net cash used in investing activities
was
approximately $2.2 million. This was comprised primarily of improvements
of
properties of $2.3 million and contributions to other investments of $1.6
million. These uses were partially offset by distributions from other
investments of $1.1 million and net proceeds from sales of properties of
$517,000.
For
the
nine months ended September 30, 2005, net cash provided by financing activities
was approximately $485,000 primarily consisting of $1.2 million in additional
borrowings under the Monty’s property construction loan agreement partially
offset by dividends paid of $539,000, repayment of mortgages and notes payable
of $104,000 and distributions to minority partners of $118,000.
(12)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations
(continued)
(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:
None
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. The dividend was paid
on
August 26, 2005 totaling $539,000 and qualifies as a dividends paid deduction
to
offset taxable income for the year ended December 31, 2004.
Item
6. Exhibits
and Reports on Form 8-K:
(a)
Certifications pursuant to 18 USC Section 1350-Sarbanes-Oxley Act of
2002. Filed
herewith.
(b) Reports
on Form 8-K filed for the quarter ended September 30, 2005:
None.
(13)
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.
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HMG/COURTLAND
PROPERTIES, INC.
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Dated:
November 11, 2005
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/s/
Lawrence Rothstein
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President,
Treasurer and Secretary
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Principal
Financial Officer
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Dated:
November 11, 2005
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/s/
Carlos Camarotti
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Vice
President- Finance and Controller
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Principal
Accounting Officer
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