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
March
31, 2007
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
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [
X]
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.
1,023,955
Common shares were outstanding as of March 31, 2007.
HMG/COURTLAND
PROPERTIES, INC.
Index
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|
PAGE
NUMBER
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PART
I.
|
Financial
Information
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|
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|
|
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Item
1.
Financial Statements
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|
|
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|
|
Condensed
Consolidated Balance Sheets as of
|
|
|
March
31, 2007 (Unaudited) and December 31, 2006
|
|
|
|
|
|
Condensed
Consolidated Statements of Comprehensive Income for the
|
|
|
Three
Months Ended March 31, 2007 and 2006 (Unaudited)
|
|
|
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|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
Three
Months Ended March 31, 2007 and 2006 (Unaudited)
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
Item
2.
Management's Discussion and Analysis of Financial
|
|
|
Condition and Results of Operations
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|
|
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|
|
Item
3.
Controls and Procedures
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|
|
|
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PART
II.
|
Other
Information
|
|
|
Item
1.
Legal Proceedings
|
|
|
Item
2. Changes
in Securities and Small Business Issuer Purchases of Equity
Securities
|
|
|
Item
3.
Defaults Upon Senior Securities
|
|
|
Item
4.
Submission of Matters to a Vote of Security Holders
|
|
|
Item
5.
Other Information
|
|
|
Item
6.
Exhibits and Reports on Form 8-K
|
|
Signatures
|
|
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.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
March
31,
|
|
December
31,
|
|
|
|
2007
|
|
2006
|
|
ASSETS
|
|
(UNAUDITED)
|
|
|
|
Investment
properties, net of accumulated depreciation:
|
|
|
|
|
|
|
|
Commercial
properties
|
|
$
|
7,356,893
|
|
$
|
7,385,857
|
|
Commercial
properties- construction in progress
|
|
|
436,842
|
|
|
239,166
|
|
Hotel,
club and spa facility
|
|
|
5,296,387
|
|
|
5,433,500
|
|
Marina
properties
|
|
|
2,983,534
|
|
|
3,044,878
|
|
Land
held for development
|
|
|
27,689
|
|
|
27,689
|
|
Total
investment properties, net
|
|
|
16,101,345
|
|
|
16,131,090
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
3,421,155
|
|
|
2,412,871
|
|
Investments
in marketable securities
|
|
|
5,697,005
|
|
|
5,556,121
|
|
Other
investments
|
|
|
4,549,853
|
|
|
4,293,662
|
|
Investment
in affiliate
|
|
|
3,199,472
|
|
|
3,165,235
|
|
Loans,
notes and other receivables
|
|
|
866,250
|
|
|
1,910,555
|
|
Notes
and advances due from related parties
|
|
|
746,444
|
|
|
736,909
|
|
Deferred
taxes
|
|
|
5,000
|
|
|
76,000
|
|
Goodwill
|
|
|
7,728,627
|
|
|
7,728,627
|
|
Other
assets
|
|
|
846,205
|
|
|
718,935
|
|
TOTAL
ASSETS
|
|
$
|
43,161,356
|
|
$
|
42,730,005
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$
|
20,765,174
|
|
$
|
20,931,301
|
|
Accounts
payable and accrued expenses
|
|
|
1,804,443
|
|
|
1,704,182
|
|
Interest
rate swap contract payable
|
|
|
65,000
|
|
|
45,000
|
|
TOTAL
LIABILITIES
|
|
|
22,634,617
|
|
|
22,680,483
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
3,391,901
|
|
|
3,126,715
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, $1 par value; 2,000,000 shares
|
|
|
|
|
|
|
|
authorized;
none issued
|
|
|
-
|
|
|
-
|
|
Excess
common stock, $1 par value; 500,000 shares authorized;
|
|
|
|
|
|
|
|
none
issued
|
|
|
-
|
|
|
-
|
|
Common
stock, $1 par value; 1,500,000 shares authorized;
|
|
|
|
|
|
|
|
1,317,535
shares issued as of March 31, 2007 and
|
|
|
|
|
|
|
|
December
31, 2006
|
|
|
1,317,535
|
|
|
1,317,535
|
|
Additional
paid-in capital
|
|
|
26,585,595
|
|
|
26,585,595
|
|
Undistributed
gains from sales of properties, net of losses
|
|
|
41,572,120
|
|
|
41,572,120
|
|
Undistributed
losses from operations
|
|
|
(49,742,078
|
)
|
|
(49,964,109
|
)
|
Accumulated
other comprehensive loss
|
|
|
(32,500
|
)
|
|
(22,500
|
)
|
|
|
|
19,700,672
|
|
|
19,488,641
|
|
Less:
Treasury stock, at cost (293,580 shares as of
|
|
|
|
|
|
|
|
March
31, 2007 and December 31, 2006)
|
|
|
(2,565,834
|
)
|
|
(2,565,834
|
)
|
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
17,134,838
|
|
|
16,922,807
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
43,161,356
|
|
$
|
42,730,005
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated financial
statements
|
|
|
|
|
|
|
|
(1)
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
|
|
|
Three
months ended
March
31,
|
|
REVENUES
|
|
|
2007
|
|
|
2006
|
|
Real
estate rentals and related revenue
|
|
$
|
385,228
|
|
$
|
336,355
|
|
Food
& beverage sales
|
|
|
1,782,562
|
|
|
1,786,051
|
|
Marina
revenues
|
|
|
445,188
|
|
|
427,814
|
|
Spa
revenues
|
|
|
211,094
|
|
|
129,130
|
|
Net
gain from investments in marketable securities
|
|
|
126,401
|
|
|
136,353
|
|
Net
income from other investments
|
|
|
377,093
|
|
|
112,818
|
|
Interest,
dividend and other income
|
|
|
140,492
|
|
|
130,462
|
|
Total
revenues
|
|
|
3,468,058
|
|
|
3,058,983
|
|
EXPENSES
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
Rental
and other properties
|
|
|
136,356
|
|
|
175,577
|
|
Food
and beverage cost of sales
|
|
|
472,657
|
|
|
530,396
|
|
Food
and beverage labor and related costs
|
|
|
345,047
|
|
|
335,929
|
|
Food
and beverage other operating costs
|
|
|
582,627
|
|
|
539,736
|
|
Marina
expenses
|
|
|
250,691
|
|
|
260,016
|
|
Spa
expenses
|
|
|
212,343
|
|
|
152,285
|
|
Depreciation
and amortization
|
|
|
311,558
|
|
|
261,283
|
|
Adviser's
base fee
|
|
|
225,000
|
|
|
225,000
|
|
General
and administrative
|
|
|
95,633
|
|
|
78,277
|
|
Professional
fees and expenses
|
|
|
81,941
|
|
|
78,648
|
|
Directors'
fees and expenses
|
|
|
21,413
|
|
|
16,300
|
|
Total
operating expenses
|
|
|
2,735,266
|
|
|
2,653,447
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
402,328
|
|
|
397,820
|
|
Minority
partners' interests in operating income of
|
|
|
|
|
|
|
|
consolidated
entities
|
|
|
37,433
|
|
|
34,871
|
|
Total
expenses
|
|
|
3,175,027
|
|
|
3,086,138
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
293,031
|
|
|
(27,155
|
)
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
|
71,000
|
|
|
48,000
|
|
Net
income (loss)
|
|
$
|
222,031
|
|
|
($75,155
|
)
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss) income:
|
|
|
|
|
|
|
|
Unrealized
(loss) gain on interest rate swap agreement
|
|
|
($10,000
|
)
|
$
|
198,000
|
|
Total
other comprehensive (loss) income
|
|
|
(10,000
|
)
|
|
198,000
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
212,031
|
|
$
|
122,845
|
|
|
|
|
|
|
|
|
|
Net
Income (loss) Per Common Share:
|
|
|
|
|
|
|
|
Basic
|
|
$
|
.22
|
|
|
($.07
|
)
|
Diluted
|
|
$
|
.21
|
|
|
-
|
|
Weighted
average common shares outstanding-basic
|
|
|
1,023,955
|
|
|
1,050,131
|
|
Weighted
average common shares outstanding-diluted
|
|
|
1,057,570
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated financial
statements
|
|
|
|
|
|
|
|
(2)
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
|
|
|
|
|
Three
months ended March 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
222,031
|
|
|
($75,155
|
)
|
Adjustments
to reconcile net income (loss) to net cash provided by
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
311,558
|
|
|
261,283
|
|
Net
income from other investments
|
|
|
(377,093
|
)
|
|
(112,818
|
)
|
Net
gain from investments in marketable securities
|
|
|
(126,401
|
)
|
|
(136,353
|
)
|
Minority
partners' interest in operating income
|
|
|
37,433
|
|
|
34,871
|
|
Deferred
income tax expense
|
|
|
71,000
|
|
|
48,000
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Increase
in other assets and other receivables
|
|
|
(117,346
|
)
|
|
(46,586
|
)
|
Net
proceeds from sales and redemptions of securities
|
|
|
356,639
|
|
|
791,871
|
|
Increase
in investments in marketable securities
|
|
|
(362,208
|
)
|
|
(217,794
|
)
|
Increase
in accounts payable and accrued expenses
|
|
|
70,543
|
|
|
199,592
|
|
Total
adjustments
|
|
|
(135,875
|
)
|
|
822,066
|
|
Net
cash provided by operating activities
|
|
|
86,156
|
|
|
746,911
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
and improvements of properties
|
|
|
(273,923
|
)
|
|
(839,749
|
)
|
(Increase)
decrease in notes and advances from related parties
|
|
|
(9,535
|
)
|
|
14,509
|
|
Additions
in mortgage loans and notes receivables
|
|
|
(100,548
|
)
|
|
-
|
|
Collections
of mortgage loans and notes receivables
|
|
|
1,127,040
|
|
|
24,303
|
|
Distributions
from other investments
|
|
|
352,589
|
|
|
229,456
|
|
Contributions
to other investments
|
|
|
(287,218
|
)
|
|
(254,525
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
808,405
|
|
|
(826,006
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Additional
borrowings, mortgages and notes payables
|
|
|
-
|
|
|
614,777
|
|
Repayment
of mortgages and notes payables
|
|
|
(166,127
|
)
|
|
(34,970
|
)
|
Purchase
of treasury stock
|
|
|
-
|
|
|
(687,120
|
)
|
Contributions
from minority partners
|
|
|
279,850
|
|
|
418,608
|
|
Net
cash provided by financing activities
|
|
|
113,723
|
|
|
311,295
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
1,008,284
|
|
|
232,200
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
2,412,871
|
|
|
2,350,735
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
$
|
3,421,155
|
|
$
|
2,582,935
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
Cash
paid during the period for interest
|
|
$
|
402,000
|
|
$
|
398,000
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated financial
statements
|
|
|
|
|
|
|
|
(3)
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, 2006. The
balance sheet as of December 31, 2006 was derived from audited financial
statements as of that date. The results of operations for the three months
ended
March 31, 2007 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
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. SFAS No. 159 permits entities
to choose to measure eligible financial instruments at fair value. The
unrealized gains and losses on items for which the fair value option has been
elected should be reported in earnings. The decision to elect the fair value
options is determined on an instrument by instrument basis, it should be applied
to an entire instrument, and it is irrevocable. Assets and liabilities measured
at fair value pursuant to the fair value option should be reported separately
in
the balance sheet from those instruments measured using another measurement
attribute. SFAS No. 159 is effective as of the beginning of the first
fiscal year that begins after November 15, 2007. The Company is currently
analyzing the potential impact of adoption of SFAS No. 159 to its
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ,
(“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles and expands disclosures
about fair value measurements. SFAS 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The Company does not anticipate adoption
of
this standard will have a material impact on its consolidated financial
statements.
(4)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
3. 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”).
Summarized
combined statement of income for Landing and Rawbar for the three months ended
March 31, 2007 and 2006 is presented below (Note: the Company’s ownership
percentage in these operations is 50%):
Summarized
Combined statements of income
Bayshore
Landing, LLC and
Bayshore
Rawbar, LLC
|
|
For
the three months ended
March
31, 2007
|
|
For
the three months ended
March
31, 2006
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
$
|
1,783,000
|
|
$
|
1,786,000
|
|
Marina
dockage and related
|
|
|
333,000
|
|
|
316,000
|
|
Retail/mall
rental and related
|
|
|
93,000
|
|
|
73,000
|
|
Total
Revenues
|
|
|
2,209,000
|
|
|
2,175,000
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
473,000
|
|
|
530,000
|
|
Labor
and related costs
|
|
|
291,000
|
|
|
284,000
|
|
Entertainers
|
|
|
54,000
|
|
|
52,000
|
|
Other
food and beverage related costs
|
|
|
61,000
|
|
|
70,000
|
|
Other
operating costs
|
|
|
268,000
|
|
|
242,000
|
|
Insurance
|
|
|
166,000
|
|
|
88,000
|
|
Management
fees
|
|
|
101,000
|
|
|
93,000
|
|
Utilities
|
|
|
77,000
|
|
|
95,000
|
|
Ground
rent
|
|
|
198,000
|
|
|
172,000
|
|
Interest
|
|
|
244,000
|
|
|
240,000
|
|
Depreciation
|
|
|
157,000
|
|
|
109,000
|
|
Total
Expenses
|
|
|
2,090,000
|
|
|
1,975,000
|
|
|
|
|
|
|
|
|
|
Net
Income before minority interest
|
|
$
|
119,000
|
|
$
|
200,000
|
|
(5)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
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
from investments in marketable securities for the three months ended March
31,
2007 and 2006 is summarized below:
|
|
Three
Months Ended March 31,
|
|
Description
|
|
|
2007
|
|
|
2006
|
|
Net
realized gain from sales of securities
|
|
$
|
65,000
|
|
$
|
29,000
|
|
Unrealized
net gain in trading securities
|
|
|
61,000
|
|
|
107,000
|
|
Total
net gain from investments in marketable securities
|
|
$
|
126,000
|
|
$
|
136,000
|
|
For
the
three months ended March 31, 2007 net realized gain from sales of marketable
securities of approximately $65,000 consisted of approximately $84,000 of gross
gains net of $19,000 of gross losses. For the three months ended March 31,
2006
net realized gain from sales of marketable securities of approximately $29,000
consisted of approximately $164,000 of gross gains net of $135,000 of gross
losses.
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
March 31, 2007, the Company has committed to invest approximately $13.3 million
in other investments primarily in private capital funds, of which approximately
$11.5 million has been funded. The carrying value of other investments (which
reflects distributions and valuation adjustments) is approximately $4.5 million
as of March 31, 2007.
During
the three months ended March 31, 2007 the Company made follow-on contributions
to four existing investments totaling approximately $287,000. During this same
period the Company received approximately $353,000 in
distributions.
(6)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Net
income from other investments for the three months ended March 31, 2007 and
2006, is summarized below:
|
|
2007
|
|
2006
|
|
High
yield distressed debt fund
|
|
$
|
24,000
|
|
$
|
38,000
|
|
Venture
capital fund - technology
|
|
|
48,000
|
|
|
51,000
|
|
Partnership
owning diversified businesses
|
|
|
222,000
|
|
|
-
|
|
Partnership
owning real estate
|
|
|
35,000
|
|
|
-
|
|
Others,
net
|
|
|
14,000
|
|
|
-
|
|
Income
from investment in 49% owned affiliate (T.G.I.F. Texas,
Inc.)
|
|
|
34,000
|
|
|
24,000
|
|
Total
net income from other investments
|
|
$
|
377,000
|
|
$
|
113,000
|
|
During
the three months ended March 31, 2007, the Company received cash distributions
primarily consisting of a $222,000 cash distribution from one investment in
a
partnership in which one of its portfolio companies made a recapitalization
distribution in February 2007. This distribution exceeded the carrying amount
of
the investment and accordingly was recognized as income.
During
the three months ended March 2006, the Company received cash distributions
from
two funds, one from a high yield distressed debt fund the other from a
technology venture fund. These distributions exceeded the carrying amount of
the
investments and accordingly were recognized as income.
6.
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 has
entered into 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. As
of
March 31, 2007 the fair value (net of 50% minority interest) was an unrealized
loss of $32,500 and as of December 31, 2006 the fair value (net of 50% minority
interest) of the cash flow hedge was an unrealized loss of $22,500. These
amounts have been recorded as other comprehensive loss and will be reclassified
to interest expense over the life of the swap contract.
7.
SEGMENT
INFORMATION
The
Company has three reportable segments: Real estate rentals; Food and Beverage
sales; and Other investments and related income. The Real estate and rentals
segment primarily includes the leasing of its Grove Isle property, marina dock
rentals at both Monty’s and Grove Isle marinas, and the leasing of office and
retail space at its Monty’s property. The Food and Beverage sales segment
consists of the Monty’s restaurant operation. Lastly, the Other investment and
related income segment includes all of the Company’s other investments,
marketable securities, loans, notes and other receivables and the Grove Isle
spa
operations which individually do not meet the criteria as a reportable segment.
(7)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
7.
SEGMENT
INFORMATION (continued)
|
|
For
the three months ended March 31,
|
|
|
|
2007
|
|
2006
|
|
Net
Revenues:
|
|
|
|
|
|
Real
estate and marina rentals
|
|
$
|
830,416
|
|
$
|
764,169
|
|
Food
and beverage sales
|
|
|
1,782,562
|
|
|
1,786,051
|
|
Other
investments and related income
|
|
|
855,080
|
|
|
508,763
|
|
Total
Net Revenues
|
|
$
|
3,468,058
|
|
$
|
3,058,983
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes:
|
|
|
|
|
|
|
|
Real
estate and marina rentals
|
|
$
|
105,084
|
|
|
($4,974
|
)
|
Food
and beverage sales
|
|
|
62,503
|
|
|
73,428
|
|
Other
investments and related income
|
|
|
125,444
|
|
|
(95,610
|
)
|
Total
income (loss) before income taxes
|
|
$
|
293,031
|
|
|
($27,155
|
)
|
|
|
|
|
|
|
|
|
8. BASIC
AND DILUTED EARNINGS PER SHARE
Basic
and
diluted earnings per share for the three months ended March 31, 2007 computed
as
follows:
|
|
2007
|
|
Basic:
|
|
|
|
Net
income
|
|
$
|
222,031
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
1,023,955
|
|
Basic
earnings per share
|
|
$
|
.22
|
|
|
|
|
|
|
|
|
2007
|
|
Diluted:
|
|
|
|
|
Net
income
|
|
$
|
222,031
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
1,023,955
|
|
Plus
incremental shares from assumed conversion: Stock options (dilutive
shares
only)
|
|
|
33,615
|
|
|
|
|
|
|
Diluted
weighted average common shares
|
|
|
1,057,570
|
|
Diluted
earnings per share
|
|
$
|
.21
|
|
(8)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
9. NOTE
RECEIVABLE
In
July
2004 the Company loaned $1 million to an entity which owned and operated a
restaurant in Key West, Florida. In February 2007, the restaurant was sold
and
the Company was repaid the $1 million loan plus accrued and unpaid interest
of
approximately $26,000.
10. INCOME
TAXES
We
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-an
interpretation of FASB Statement No. 109” (“FIN 48”), on January 1,
2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in an enterprise’s financial statements in accordance with FASB Statement 109,
“Accounting for Income Taxes”, and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of
a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting
in
interim periods, disclosure and transition.
Based
on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our evaluation
was
performed for the tax years ended December 31, 2003, 2004, 2005 and 2006,
the tax years which remain subject to examination by major tax jurisdictions
as
of March 31, 2007.
We
may
from time to time be assessed interest or penalties by major tax jurisdictions,
although any such assessments historically have been minimal and immaterial
to
our financial results. In the event we have received an assessment for interest
and/or penalties, it has been classified in the financial statements as selling,
general and administrative expense.
(9)
Financial Condition
and Results of Operations
RESULTS
OF OPERATIONS
The
Company reported net income of approximately $222,000 (or $.22 per basic share
and $.21 per diluted share) for the three months ended March 31, 2007. This
is
as compared with a net loss of approximately $75,000 (or $.07 per share) for
the
three months ended March 31, 2006.
As
discussed further below, total revenues for the three months ended March 31,
2007 as compared with the same period in 2006, increased by approximately
$409,000 or 13%. Total expenses for the three months ended March 31, 2007,
as
compared with the same period in 2006, increased by approximately $89,000 or
3%.
REVENUES
Rentals
and related revenues for the three months ended March 31, 2007 as compared
with
the same period in 2006 increased by $49,000 (14%). Approximately $30,000 of
the
increase was due to increased rental revenue from the Grove Isle property as
a
result of inflation adjustments as provided in the lease. The remaining increase
was the result of increase rental revenue from the Monty’s retail
space.
Restaurant
operations:
A
summarized statement of income for the Company’s Monty’s restaurant for the
three months ended March 31, 2007 and 2006 is presented below:
Summarized
statement of income of Monty’s restaurant
|
Three
months ended March 31, 2007
|
Percentage
of sales
|
Three
months ended March 31, 2006
|
Percentage
of sales
|
Revenues:
|
|
|
|
|
Food
and Beverage Sales
|
$1,783,000
|
100%
|
$1,786,000
|
100%
|
Expenses:
|
|
|
|
|
Cost
of food and beverage sold
|
473,000
|
26.5%
|
530,000
|
29.7%
|
Labor,
entertainment and related costs
|
345,000
|
19.4%
|
336,000
|
18.8%
|
Other
food and beverage direct costs
|
61,000
|
3.4%
|
70,000
|
3.9%
|
Insurance
|
87,000
|
4.9%
|
46,000
|
2.6%
|
Management
fees
|
81,000
|
4.5%
|
81,000
|
4.5%
|
Utilities
|
49,000
|
2.8%
|
52,000
|
2.9%
|
Rent
(as allocated)
|
167,000
|
9.4%
|
168,000
|
9.4%
|
Other
|
138,000
|
7.7%
|
123,000
|
6.9%
|
Total
Expenses
|
1,401,000
|
78.6%
|
1,406,000
|
78.7%
|
|
|
|
|
|
Income
before depreciation and minority interest
|
$382,000
|
21.4%
|
$380,000
|
21.3%
|
Restaurant
sales were consistent with last year as favorable weather conditions were
experienced during the three months ended March 31, 2007 much like during the
same period in 2006. Cost of sales improved over last year primarily due to
decreased cost of beverages due to less beer spoilage. Insurance expense
increased in 2007 by almost 50% over 2006 as a result of general insurance
premium increases being experienced by across the board in South
Florida.
(10)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
Marina
operations:
Summarized
and combined statements of income for marina operations:
(The
Company owns 50% of the Monty’s marina and 95% of the Grove Isle
marina)
|
Combined
marina
operations
|
Combined
marina
operations
|
Summarized
statement of income of marina operations
|
Three
months
ended
March 31,
2007
|
Three
months
ended
March 31,
2006
|
Revenues:
|
|
|
Dockage
fees and related income
|
$333,000
|
$315,000
|
Grove
Isle marina slip owners dues
|
112,000
|
113,000
|
Total
marina revenues
|
445,000
|
428,000
|
Expenses:
|
|
|
Labor
and related costs
|
58,000
|
54,000
|
Insurance
|
50,000
|
40,000
|
Management
fees
|
16,000
|
9,000
|
Utilities
|
17,000
|
35,000
|
Bay
bottom lease
|
63,000
|
59,000
|
Repairs
and maintenance
|
27,000
|
39,000
|
Other
|
20,000
|
24,000
|
Total
Expenses
|
251,000
|
260,000
|
|
|
|
Income
before interest, depreciation and minority interest
|
$194,000
|
$168,000
|
The
Monty’s Marina dockage fee and related revenues for the three months ended March
31, 2007 as compared to the same period in 2006 increased by approximately
$18,000 or 4%. This was the result of increased dockage activity in 2007.
Utilities expense for the three months ended March 31, 2007 as compared with
2006 decreased by $18,000 or approximately 50% due to increased electrical
pass
through charges to marina tenants in 2007 versus 2006.
Spa
operations:
Below
are
summarized statements of income for Grove Isle spa operations for the three
months ended March 31, 2007 and 2006. The Company owns 50% of the Grove Isle
Spa
with the other 50% owned by an affiliate of the Noble House Resorts, the tenant
of the Grove Isle Resort:
Summarized
statement of income of spa operations
|
Three
months
ended
March 31,
2007
|
Three
months
ended
March 31,
2006
|
Revenues:
|
|
|
Services
provided
|
$198,000
|
$116,000
|
Membership
and other
|
13,000
|
13,000
|
Total
spa revenues
|
211,000
|
129,000
|
Expenses:
|
|
|
Cost
of sales (commissions and other)
|
64,000
|
33,000
|
Salaries,
wages and related
|
74,000
|
38,000
|
Other
operating expenses
|
46,000
|
41,000
|
Management
and administrative fees
|
15,000
|
10,000
|
Pre-opening
and start up costs
|
-
|
20,000
|
Other
non-operating expenses
|
13,000
|
10,000
|
Total
Expenses
|
212,000
|
152,000
|
|
|
|
Loss
before interest, depreciation and minority interest
|
($1,000)
|
($23,000)
|
(11)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
Spa
revenues for the three months ended March 31, 2007 as compared with the same
period in 2006 increased by $82,000 or 63%. The spa is benefiting from increased
occupancy and overall improved operations at the Grove Isle resort during 2007.
In order to better serve its customers, beginning in 2007 the spa is utilizing
full-time employees to provide spa services versus on-call contractors
previously used.
Net
gain from investments in marketable securities:
Net
gain
from investments in marketable securities for the three months ended March
31
2007 was a gain of approximately $126,000, as compared with a net gain from
investments in marketable securities of approximately $136,000 for the same
period in 2006. For further details refer to Note 4 to Condensed Consolidated
Financial Statements (unaudited).
Net
income from other investments:
Net
income from other investments for the three months ended March 31, 2007 was
approximately $377,000 as compared with net income of approximately $113,000
for
the same period in 2006. The increase in income was primarily from a cash
distribution from an investment in a partnership owning diversified businesses..
For further details refer to Note 5 to Condensed Consolidated Financial
Statements (unaudited).
Interest,
dividend and other income:
Interest
and dividend income for the three months ended March 31, 2007 was approximately
$140,000 as compared with approximately $130,000, for the same period in 2006.
The increase from last year of $10,000 (or 8%) was primarily due to increased
income from loans, notes and other receivables.
EXPENSES
Expenses
for rental and other properties for the three months ended March 31, 2007
decreased by approximately $39,000 (or 22%) as compared to that for the three
months ended March 31, 2006. This decrease was primarily due to a 2006
non-recurring management fee of $100,000 paid to the manager of the HMG-Fieber
joint venture which sold its last property in August 2005. This decrease was
partially offset by increased insurance expense of the Monty’s retail mall of
approximately $28,000.
For
comparisons of all food and beverage related expenses refer to Restaurant
Operations (above) summarized statement of income for Monty’s
restaurant.
For
comparisons of all marina related expenses refer to Marina Operations (above)
for summarized and combined statements of income for marina operations.
For
comparisons of all spa related expenses refer to Spa Operations (above) for
summarized statements of income for spa operations.
Depreciation
and amortization expense for the three months ended March 31, 2007 increased
by
approximately $50,000 (or 19%) primarily due to the completion of improvements
to the Monty’s property placed in service in the fourth quarter of
2006.
(12)
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 2007 primarily consist of maturities of debt
obligations of approximately $4.4 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
2007 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. The
obligation due to TGIF will be paid with funds available from distributions
from
the Company’s investment in TGIF and from available cash.
MATERIAL
COMPONENTS OF CASH FLOWS
For
the
three months ended March 31, 2007, net cash provided by operating activities
was
approximately $86,000. Included in this amount are proceeds and redemptions
of
marketable securities of $357,000 offset by increased investments in marketable
securities of approximately $362,000.
For
the
three months ended March 31, 2007, net cash provided by investing activities
was
approximately $808,000. This consisted primarily of approximately $1.1 million
in collections of mortgage loans and notes receivable, partially offset by
improvements to the Monty’s property of approximately $274,000.
For
the
three months ended March 31, 2007, net cash provided by financing activities
was
approximately $114,000. This consisted of $280,000 of contributions from
minority partners partially offset by $166,000 of repayments of mortgages and
notes payable.
(13)
(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
Securities 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 Securities 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
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:
None
Item
6. Exhibits
and Reports on Form 8-K:
(b) |
Reports
on Form 8-K filed for the quarter ended March 31, 2007:
None.
|
(14)
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:
May 15, 2007
|
/s/
Lawrence Rothstein
|
|
President,
Treasurer and Secretary
|
|
Principal
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
Dated:
May 15, 2007
|
/s/Carlos
Camarotti
|
|
Vice
President- Finance and Controller
|
|
Principal
Accounting Officer
|
(15)