hmg10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(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, 2008
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
|
|
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 October 31, 2008.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer [
] Accelerated
filer [
] Non-accelerated
filer [
] Smaller reporting
company [ X ]
(Do
not check if a smaller reporting company)
HMG/COURTLAND
PROPERTIES, INC.
Index
PART
I.
|
|
Financial
Information
|
PAGE
NUMBER
|
|
|
Item
1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets as of
|
|
|
|
September
30, 2008 (Unaudited) and December 31, 2007
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Comprehensive Loss for the
|
|
|
|
Three
and Nine Months Ended September 30, 2008 and 2007
(Unaudited)
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows for the
|
|
|
|
Nine
Months Ended September 30, 2008 and 2007 (Unaudited)
|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements (Unaudited)
|
|
|
|
|
|
|
|
Item
2. Management's Discussion and Analysis of
Financial
|
|
|
|
Condition
and Results of Operations
|
|
|
|
|
|
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risks
|
|
|
|
|
|
|
|
Item
4T. Controls and Procedures
|
|
|
|
|
|
PART
II.
|
|
Other
Information |
|
|
|
Item 1. Legal Proceedings
|
|
|
|
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds |
|
|
|
Item
3. Defaults Upon Senior Securities |
18 |
|
|
Item
4. Submission of Matters to a Vote of Security
Holders |
18 |
|
|
Item 5. Other
Information |
18 |
|
|
Item
6. Exhibits |
18 |
Signatures |
|
|
19 |
Cautionary
Statement. This Form 10-Q 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-Q 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
(UNAUDITED)
|
|
|
|
|
Investment
properties, net of accumulated depreciation:
|
|
|
|
|
|
|
Commercial
properties
|
|
$ |
8,057,202 |
|
|
$ |
7,604,490 |
|
Commercial
properties- construction in progress
|
|
|
45,995 |
|
|
|
320,617 |
|
Hotel,
club and spa facility
|
|
|
4,467,732 |
|
|
|
4,885,328 |
|
Marina
properties
|
|
|
2,588,585 |
|
|
|
2,793,155 |
|
Land
held for development
|
|
|
27,689 |
|
|
|
27,689 |
|
Total
investment properties, net
|
|
|
15,187,203 |
|
|
|
15,631,279 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
2,446,384 |
|
|
|
2,599,734 |
|
Cash
and cash equivalents-restricted
|
|
|
2,011,113 |
|
|
|
- |
|
Investments
in marketable securities
|
|
|
3,215,025 |
|
|
|
4,818,330 |
|
Other
investments
|
|
|
4,862,720 |
|
|
|
4,623,801 |
|
Investment
in affiliate
|
|
|
3,173,812 |
|
|
|
3,132,117 |
|
Loans,
notes and other receivables
|
|
|
813,144 |
|
|
|
1,218,559 |
|
Notes
and advances due from related parties
|
|
|
661,096 |
|
|
|
700,238 |
|
Deferred
taxes
|
|
|
513,000 |
|
|
|
233,000 |
|
Goodwill
|
|
|
7,728,627 |
|
|
|
7,728,627 |
|
Other
assets
|
|
|
695,107 |
|
|
|
727,534 |
|
TOTAL
ASSETS
|
|
$ |
41,307,231 |
|
|
$ |
41,413,219 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$ |
19,473,954 |
|
|
$ |
19,981,734 |
|
Accounts
payable and accrued expenses
|
|
|
2,003,822 |
|
|
|
1,613,734 |
|
Interest
rate swap contract payable
|
|
|
677,000 |
|
|
|
525,000 |
|
TOTAL
LIABILITIES
|
|
|
22,154,776 |
|
|
|
22,120,468 |
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
4,017,930 |
|
|
|
3,052,540 |
|
|
|
|
|
|
|
|
|
|
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 September 30, 2008 and
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
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
|
|
|
(51,436,391 |
) |
|
|
(50,406,705 |
) |
Accumulated
other comprehensive loss
|
|
|
(338,500 |
) |
|
|
(262,500 |
) |
|
|
|
17,700,359 |
|
|
|
18,806,045 |
|
Less: Treasury
stock, at cost (293,580 shares as of
|
|
|
|
|
|
|
|
|
September
30, 2008 and December 31, 2007)
|
|
|
(2,565,834 |
) |
|
|
(2,565,834 |
) |
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
15,134,525 |
|
|
|
16,240,211 |
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
41,307,231 |
|
|
$ |
41,413,219 |
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated financial statements
|
|
|
|
|
|
|
|
|
(1)
SUBSIDIARIES
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED STATEMENTS
OF
COMPREHENSIVE LOSS (UNAUDITED)
|
|
|
|
|
|
|
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
REVENUES
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Real
estate rentals and related revenue
|
|
$ |
436,401 |
|
|
$ |
382,791 |
|
|
$ |
1,242,281 |
|
|
$ |
1,153,114 |
|
Food
& beverage sales
|
|
|
1,350,509 |
|
|
|
1,334,074 |
|
|
|
5,206,324 |
|
|
|
4,762,052 |
|
Marina
revenues
|
|
|
447,032 |
|
|
|
408,859 |
|
|
|
1,327,045 |
|
|
|
1,291,498 |
|
Spa
revenues
|
|
|
227,991 |
|
|
|
156,815 |
|
|
|
652,063 |
|
|
|
535,651 |
|
Total
revenues
|
|
|
2,461,933 |
|
|
|
2,282,539 |
|
|
|
8,427,713 |
|
|
|
7,742,315 |
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental
and other properties
|
|
|
209,237 |
|
|
|
207,739 |
|
|
|
478,813 |
|
|
|
489,554 |
|
Food
and beverage cost of sales
|
|
|
370,329 |
|
|
|
366,993 |
|
|
|
1,390,691 |
|
|
|
1,280,020 |
|
Food
and beverage labor and related costs
|
|
|
377,900 |
|
|
|
353,615 |
|
|
|
1,184,991 |
|
|
|
1,082,699 |
|
Food
and beverage other operating costs
|
|
|
524,415 |
|
|
|
503,762 |
|
|
|
1,654,115 |
|
|
|
1,742,184 |
|
Marina
expenses
|
|
|
243,845 |
|
|
|
244,477 |
|
|
|
733,529 |
|
|
|
791,429 |
|
Spa
expenses
|
|
|
236,928 |
|
|
|
205,454 |
|
|
|
604,891 |
|
|
|
623,739 |
|
Depreciation
and amortization
|
|
|
345,779 |
|
|
|
327,218 |
|
|
|
1,019,927 |
|
|
|
990,019 |
|
Adviser's
base fee
|
|
|
255,000 |
|
|
|
225,000 |
|
|
|
765,000 |
|
|
|
675,000 |
|
General
and administrative
|
|
|
85,760 |
|
|
|
93,240 |
|
|
|
246,987 |
|
|
|
264,383 |
|
Professional
fees and expenses
|
|
|
102,331 |
|
|
|
84,030 |
|
|
|
231,476 |
|
|
|
262,012 |
|
Directors'
fees and expenses
|
|
|
30,959 |
|
|
|
30,999 |
|
|
|
83,988 |
|
|
|
71,462 |
|
Total
operating expenses
|
|
|
2,782,483 |
|
|
|
2,642,527 |
|
|
|
8,394,408 |
|
|
|
8,272,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
329,299 |
|
|
|
403,195 |
|
|
|
1,018,403 |
|
|
|
1,211,960 |
|
Minority
partners' interests in operating losses of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidated
entities
|
|
|
(174,946 |
) |
|
|
(204,832 |
) |
|
|
(4,904 |
) |
|
|
(292,570 |
) |
Total
expenses
|
|
|
2,936,836 |
|
|
|
2,840,890 |
|
|
|
9,407,907 |
|
|
|
9,191,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income and income taxes
|
|
|
(474,903 |
) |
|
|
(558,351 |
) |
|
|
(980,194 |
) |
|
|
(1,449,576 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized (loss) gain from investments in marketable
securities
|
|
|
(689,073 |
) |
|
|
118,131 |
|
|
|
(903,723 |
) |
|
|
368,536 |
|
Net
income from other investments
|
|
|
6,969 |
|
|
|
23,871 |
|
|
|
165,000 |
|
|
|
765,746 |
|
Interest,
dividend and other income
|
|
|
72,639 |
|
|
|
124,481 |
|
|
|
409,231 |
|
|
|
368,576 |
|
Total
other (loss) income
|
|
|
(609,465 |
) |
|
|
266,483 |
|
|
|
(329,492 |
) |
|
|
1,502,858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes
|
|
|
(1,084,368 |
) |
|
|
(291,868 |
) |
|
|
(1,309,686 |
) |
|
|
53,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Benefit
from) provision for income taxes
|
|
|
(322,000 |
) |
|
|
164,000 |
|
|
|
(280,000 |
) |
|
|
291,000 |
|
Net
loss
|
|
$ |
(762,368 |
) |
|
$ |
(455,868 |
) |
|
$ |
(1,029,686 |
) |
|
$ |
(237,718 |
) |
Other comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swap agreement
|
|
$ |
(61,000 |
) |
|
$ |
(17,500 |
) |
|
$ |
(76,000 |
) |
|
$ |
(40,000 |
) |
Total other comprehensive
loss
|
|
|
(61,000 |
) |
|
|
(17,500 |
) |
|
|
(76,000 |
) |
|
|
(40,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$ |
(823,368 |
) |
|
$ |
(473,368 |
) |
|
$ |
(1,105,686 |
) |
|
$ |
(277,718 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Common
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
|
$ |
(0.74 |
) |
|
$ |
(0.45 |
) |
|
$ |
(1.01 |
) |
|
$ |
(0.23 |
) |
Weighted
average common shares outstanding-basic &
diluted
|
|
|
1,023,955 |
|
|
|
1,023,955 |
|
|
|
1,023,955 |
|
|
|
1,023,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the condensed consolidated financial
statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Nine
months ended September 30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(1,029,686 |
) |
|
$ |
(237,718 |
) |
Adjustments
to reconcile net loss to net cash provided by (used in)
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,019,927 |
|
|
|
990,019 |
|
Net
income from other investments
|
|
|
(165,000 |
) |
|
|
(765,746 |
) |
Net
loss (gain) from investments in marketable securities
|
|
|
903,723 |
|
|
|
(368,536 |
) |
Minority
partners' interest in operating income
|
|
|
(4,904 |
) |
|
|
(292,570 |
) |
Deferred
income tax (benefit) expense
|
|
|
(280,000 |
) |
|
|
291,000 |
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Other
assets and other receivables
|
|
|
6,820 |
|
|
|
67,001 |
|
Accounts
payable and accrued expenses
|
|
|
386,380 |
|
|
|
(155,862 |
) |
Total
adjustments
|
|
|
1,866,946 |
|
|
|
(234,694 |
) |
Net
cash provided (used in) by operating activities
|
|
|
837,260 |
|
|
|
(472,412 |
) |
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
and improvements of properties
|
|
|
(553,851 |
) |
|
|
(701,361 |
) |
Decrease
(increase) in notes and advances from related parties
|
|
|
39,142 |
|
|
|
(21,702 |
) |
Additions
in mortgage loans and notes receivables
|
|
|
(100,000 |
) |
|
|
(211,000 |
) |
Collections
of mortgage loans and notes receivables
|
|
|
509,025 |
|
|
|
1,207,000 |
|
Distributions
from other investments
|
|
|
252,235 |
|
|
|
1,005,187 |
|
Contributions
to other investments
|
|
|
(495,298 |
) |
|
|
(1,105,265 |
) |
Net
proceeds from sales and redemptions of securities
|
|
|
3,092,459 |
|
|
|
3,424,317 |
|
Increase
in investments in marketable securities
|
|
|
(2,265,429 |
) |
|
|
(1,255,599 |
) |
Net
cash provided by investing activities
|
|
|
478,283 |
|
|
|
2,341,577 |
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment
of mortgages and notes payables
|
|
|
(507,780 |
) |
|
|
(783,807 |
) |
Cash
deposited (restricted) to meet bank loan debt covenant
|
|
|
(2,011,113 |
) |
|
|
- |
|
Contributions
from minority partners
|
|
|
1,050,000 |
|
|
|
479,850 |
|
Net
cash used in financing activities
|
|
|
(1,468,893 |
) |
|
|
(303,957 |
) |
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(153,350 |
) |
|
|
1,565,208 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the period
|
|
|
2,599,734 |
|
|
|
2,412,871 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the period
|
|
$ |
2,446,384 |
|
|
$ |
3,978,079 |
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
Cash
paid during the period for interest
|
|
$ |
1,018,000 |
|
|
$ |
1,212,000 |
|
Cash
paid during the period for income taxes
|
|
|
- |
|
|
|
- |
|
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-Q,
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, 2007. The balance sheet
as of December 31, 2007 was derived from audited financial statements as of that
date. The results of operations for the three and nine months ended September
30, 2008 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 PRONOUNCEMENTS
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with U.S. Generally Accepted Accounting Principles (GAAP). The current GAAP
hierarchy has been criticized because it is directed to the auditor rather than
the entity, it is complex, and it ranks FASB Statements of Financial Accounting
Concepts, which are subject to the same level of due process as FASB Statements
of Financial Accounting Standards, below industry practices that are widely
recognized as generally accepted but that are not subject to due process. The
Board believes the GAAP hierarchy should be directed to entities because it is
the entity (not its auditors) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
The adoption of FASB 162 is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.
In May,
2008 the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement).” APB 14-1 requires the issuer to separately
account for the liability and equity components of convertible debt instruments
in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The
guidance will result in companies recognizing higher interest expense in the
statement of operations due to amortization of the discount that results from
separating the liability and equity components. APB 14-1 will be effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company is currently
evaluating the impact of adopting APB 14-1 on its consolidated financial
statements.
In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. FSP 142-3 is effective for fiscal years beginning after December 15,
2008. The Company is currently assessing the impact of FSP 142-3 on its
consolidated financial position and results of operations.
(4)
HMG/COURTLAND PROPERTIES,
INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161
amends and expands the disclosure requirement for FASB Statement No. 133,
"Derivative Instruments and Hedging Activities" ("SFAS No. 133"). It
requires enhanced disclosure about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations,
and (iii) how derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and cash flows. SFAS
No. 161 is effective for the Company as of January 1,
2009.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business
Combinations” (SFAS 141). SFAS 141(R) retains the underlying concepts of SFAS
141 in that all business combinations are still required to be accounted for at
fair value under the acquisition method of accounting but SFAS 141(R) changed
the method of applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as incurred;
noncontrolling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date, until either
abandoned or completed, at which point the useful lives will be determined;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141(R) is effective on a
prospective basis for all business combinations for which the acquisition date
is on or after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends
SFAS No. 109, “Accounting for Income Taxes” (SFAS 109) such that
adjustments made to valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to the effective
date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early
adoption is not permitted. Upon adoption, SFAS 141(R) will not have a
significant impact on our Company’s consolidated financial position and results
of operations; however, any business combination entered into after the adoption
may significantly impact our consolidated financial position and results of
operations when compared to acquisitions accounted for under existing
GAAP.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes reporting requirements that provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. This
standard is effective for fiscal years beginning after December 15, 2008.
We are currently evaluating the impact the adoption of SFAS 160 will have on our
consolidated financial position and consolidated results of
operations.
(5)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Recently adopted accounting
principles
In
September 2006, the FASB issued SFAS No. 157, ‘‘Fair Value
Measurements’’. This statement clarifies the definition of fair value of assets
and liabilities, establishes a framework for measuring fair value of assets and
liabilities and expands the disclosures on fair value measurements. SFAS
No. 157 is effective for fiscal years beginning after November 15,
2007. However, the FASB deferred the effective date of SFAS No. 157 until the
fiscal years beginning after November 15, 2008 as it relates to the fair value
measurement requirements for non-financial assets and liabilities that are
initially measured at fair value, but not measured at fair value in subsequent
periods. These non-financial assets include goodwill and other indefinite-lived
intangible assets which are included within other assets. In accordance with
SFAS No. 157, the Company has adopted the provisions of SFAS No. 157 with
respect to financial assets and liabilities effective as of January 1, 2008
and its adoption did not have a material impact on its results of operations or
financial condition. The Company is assessing the impact of SFAS No. 157 for
non-financial assets and liabilities and expects that this adoption will not
have a material impact on its results of operations or financial
condition.
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 began after November 15, 2007. The adoption of this
standard in 2008 has not had a material impact on the Company's consolidated
financial statements.
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 and nine
months ended September 30, 2008 and 2007 is presented below (Note: the Company’s
ownership percentage in these operations is 50%):
(6)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Summarized
Combined statements of income
Bayshore
Landing, LLC and
Bayshore
Rawbar, LLC
|
|
For
the three months ended
September
30, 2008
|
|
|
For
the three months ended
September
30, 2007
|
|
|
For
the nine
months ended
September
30, 2008
|
|
|
For
the nine months ended
September
30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
$ |
1,350,000 |
|
|
$ |
1,334,000 |
|
|
$ |
5,206,000 |
|
|
$ |
4,762,000 |
|
Marina
dockage and related
|
|
|
310,000 |
|
|
|
290,000 |
|
|
|
949,000 |
|
|
|
938,000 |
|
Retail/mall
rental and related
|
|
|
135,000 |
|
|
|
91,000 |
|
|
|
341,000 |
|
|
|
276,000 |
|
Total
Revenues
|
|
|
1,795,000 |
|
|
|
1,715,000 |
|
|
|
6,496,000 |
|
|
|
5,976,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
371,000 |
|
|
|
367,000 |
|
|
|
1,391,000 |
|
|
|
1,280,000 |
|
Labor
and related costs
|
|
|
324,000 |
|
|
|
292,000 |
|
|
|
1,020,000 |
|
|
|
918,000 |
|
Entertainers
|
|
|
53,000 |
|
|
|
61,000 |
|
|
|
164,000 |
|
|
|
164,000 |
|
Other
food and beverage related costs
|
|
|
129,000 |
|
|
|
137,000 |
|
|
|
435,000 |
|
|
|
417,000 |
|
Other
operating costs
|
|
|
50,000 |
|
|
|
52,000 |
|
|
|
119,000 |
|
|
|
197,000 |
|
Repairs
and maintenance
|
|
|
115,000 |
|
|
|
91,000 |
|
|
|
317,000 |
|
|
|
293,000 |
|
Insurance
|
|
|
159,000 |
|
|
|
155,000 |
|
|
|
465,000 |
|
|
|
485,000 |
|
Management
fees
|
|
|
79,000 |
|
|
|
69,000 |
|
|
|
216,000 |
|
|
|
339,000 |
|
Utilities
|
|
|
86,000 |
|
|
|
79,000 |
|
|
|
234,000 |
|
|
|
229,000 |
|
Ground
rent
|
|
|
230,000 |
|
|
|
251,000 |
|
|
|
698,000 |
|
|
|
698,000 |
|
Interest
|
|
|
234,000 |
|
|
|
244,000 |
|
|
|
706,000 |
|
|
|
734,000 |
|
Depreciation
|
|
|
198,000 |
|
|
|
180,000 |
|
|
|
578,000 |
|
|
|
536,000 |
|
Total
Expenses
|
|
|
2,028,000 |
|
|
|
1,978,000 |
|
|
|
6,343,000 |
|
|
|
6,290,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) income before minority interest
|
|
$ |
(233,000 |
) |
|
$ |
(263,000 |
) |
|
$ |
153,000 |
|
|
$ |
(314,000 |
) |
For the
three months ended September 30, 2008 Landing and Rawbar combined operations
reported a loss of $233,000, and for the nine months ended September 30, 2008
reported net income of $153,000. This is as compared to reported
losses of $263,000 and $314,000 during the same comparable periods in 2007,
respectively. For the nine month comparable periods the increase of income from
a loss of $314,000 to income of $153,000 was primarily due to increased food and
beverage revenues and decreased management fees. Restaurant sales
increased by 10% for the nine month periods ended September 30, 2008, as
compared to the same period in 2007, respectively. Management fees for the nine
month comparable periods decreased primarily due to a non-recurring $100,000
payment to the former manager for termination of the management services portion
of the contract in April 2007.
(7)
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. The Company uses Level 1 inputs in
measuring fair value of its marketable securities, that is, quoted prices in
active markets for identical securities at the measurement date. Consistent with
the Company's overall current investment objectives and activities its entire
marketable securities portfolio is classified as trading.
Net
(loss) gain from investments in marketable securities for the three and nine
months ended September 30, 2008 and 2007 is summarized below:
|
|
Three
months ended
September
30,
|
|
|
Nine
months ended
September
30,
|
|
Description
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
realized gain (loss) from sales of securities
|
|
$ |
48,000 |
|
|
$ |
106,000 |
|
|
$ |
(46,000 |
) |
|
$ |
311,000 |
|
Unrealized
net (loss) gain in trading securities
|
|
|
(737,000 |
) |
|
|
12,000 |
|
|
|
(858,000 |
) |
|
|
58,000 |
|
Total
net (loss) gain from investments in marketable securities
|
|
$ |
(689,000 |
) |
|
$ |
118,000 |
|
|
$ |
(904,000 |
) |
|
$ |
369,000 |
|
For the
three and nine months ended September 30, 2008 net realized gain (loss) from
sales of marketable securities of approximately $48,000 and ($46,000),
respectively, consisted of approximately $126,000 of gross gains net of $78,000
of gross losses for the three month period and $340,000 of gross losses net of
$294,000 of gross gains for the nine month period.
For the
three and nine months ended September 30, 2007, net realized gain from sales of
marketable securities of approximately $106,000 and $311,000, respectively,
consisted of approximately $121,000 of gross gains net of $15,000 of gross
losses for the three month period and $501,000 of gross gains and $190,000 of
gross losses for the nine month period.
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
September 30, 2008, the Company has funded $11.2 million of $12.5 million of
commitments in other investments primarily in private capital funds. The
carrying value of other investments (which reflects distributions and valuation
adjustments) is approximately $4.9 million as of September 30,
2008.
During
the nine months ended September 30, 2008 the Company made follow-on
contributions to 12 existing investments totaling approximately
$495,000. During this same period the Company received a total of
approximately $252,000 in distributions from 7 existing
investments.
Net gain
from other investments for the three and nine months ended September 30, 2008
and 2007 is summarized below:
(8)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
|
|
Three
months ended September 30,
|
|
|
Nine
months ended September 30,
|
|
Description
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Technology-related
venture fund
|
|
$ |
-- |
|
|
|
-- |
|
|
$ |
22,000 |
|
|
$ |
44,000 |
|
Real
estate development and
operation
|
|
|
-- |
|
|
$ |
1,000 |
|
|
|
-- |
|
|
|
52,000 |
|
Partnership
owning diversified businesses & distressed debt
|
|
|
-- |
|
|
|
140,000 |
|
|
|
7,000 |
|
|
|
418,000 |
|
Income
from investment in 49% owned affiliate (T.G.I.F. Texas,
Inc.)
|
|
|
7,000 |
|
|
|
33,000 |
|
|
|
42,000 |
|
|
|
97,000 |
|
Restaurant
development
|
|
|
-- |
|
|
|
(150,000 |
) |
|
|
|
|
|
|
(150,000 |
) |
Others,
net
|
|
|
-- |
|
|
|
-- |
|
|
|
94,000 |
|
|
|
305,000 |
|
Total
net gain from other
investments
|
|
$ |
7,000 |
|
|
$ |
24,000 |
|
|
$ |
165,000 |
|
|
$ |
766,000 |
|
In April
2008, the Company received approximately $149,000 of cash proceeds from the
redemption of a private equity fund resulting in a gain to the Company of
$94,000.
In
September and August 2007, the Company received cash distributions from two
investments in partnerships owning diversified businesses and distressed debt
totaling approximately $140,000. These distributions were in excess
of the Company’s basis in these investments and have been recorded as
income.
In
September 2007, the Company elected to write off $150,000 of its investment in a
restaurant development and franchise entity which is being restructured and
which, in the Company’s opinion, will result in an other-than-temporary decline
in value. The Company had invested $200,000 in this entity,
representing approximately 1% of its equity.
In April
2007, the Company received approximately $449,000 of cash and stock from an
investment in a privately-held bank which was purchased by a publicly-held
bank. The Company realized a gain of approximately $299,000 on this
transaction (included in table above under “Others, net”).
In
February 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 was recapitalized. This distribution exceeded the
carrying amount of the investment and accordingly was recognized as
income.
(9)
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 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. The Company uses Level 2 inputs in
measuring fair value of its derivative financial instruments, that is, model
derived valuations or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the assets or
liabilities. As of September 30, 2008 the fair value (net of 50% minority
interest) was an unrealized loss of $338,000 and as of December 31, 2007 the
fair value (net of 50% minority interest) of the cash flow hedge was an
unrealized loss of $262,000. These amounts have been recorded as
other comprehensive loss and will be reclassified to interest expense over the
life of the swap contract.
7.
MODIFICATION OF LOAN
PAYABLE TO BANK
As
previously reported, the loan secured by the Monty’s property includes certain
covenants including debt service coverage with which the Company was not in
compliance as of December 31, 2007. In March 2008, the Company obtained
a notice of forbearance from the lender of the loan, in which the bank
agreed to not declare an event of default during the forbearance period. In
October 2008 the Company reached an agreement with the bank and amended the loan
as described below:
-
|
The
Company’s 50%-owned subsidiaries Bayshore Landing, LLC and Bayshore
Rawbar, LLC (“Borrower”) have granted to the bank a security interest in
the Borrowers’ accounts having a balance of $2 million. Withdrawals from
these pledged accounts are not
permitted.
|
-
|
Borrower
has also pledged and granted to bank a security interest in a $375,000
cash flow reserve account which can be used for the purposes of
calculating the debt coverage ratio. This reserve account was initially
funded in October 2008.
|
8. 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.
(10)
HMG/COURTLAND
PROPERTIES, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
8. SEGMENT INFORMATION
(continued)
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Net
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate and marina rentals
|
|
$ |
883,000 |
|
|
$ |
792,000 |
|
|
$ |
2,569,000 |
|
|
$ |
2,445,000 |
|
Food
and beverage sales
|
|
|
1,351,000 |
|
|
|
1,334,000 |
|
|
|
5,207,000 |
|
|
|
4,762,000 |
|
Spa
revenues
|
|
|
228,000 |
|
|
|
157,000 |
|
|
|
652,000 |
|
|
|
535,000 |
|
Total
Net Revenues
|
|
$ |
2,462,000 |
|
|
$ |
2,283,000 |
|
|
$ |
8,428,000 |
|
|
$ |
7,742,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate and marina rentals
|
|
$ |
118,000 |
|
|
$ |
40,000 |
|
|
$ |
365,000 |
|
|
$ |
185,000 |
|
Food
and beverage sales
|
|
|
(97,000 |
) |
|
|
(84,000 |
) |
|
|
85,000 |
|
|
|
(73,000 |
) |
Other
investments and related income
|
|
|
(1,105,000 |
) |
|
|
(248,000 |
) |
|
|
(1,760,000 |
) |
|
|
(59,000 |
) |
Total
(loss) income before income taxes
|
|
$ |
(1,084,000 |
) |
|
$ |
(292,000 |
) |
|
$ |
(1,310,000 |
) |
|
$ |
53,000 |
|
9. 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, 2005, 2006 and 2007, the tax
years which remain subject to examination by major tax jurisdictions as of
September 30, 2008.
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.
(11)
Financial
Condition and
Results of Operations
RESULTS OF
OPERATIONS
The
Company reported net losses of approximately $762,000 (or $.74 per share) and
approximately $1,030,000 (or $1.01 per share) for the three and nine months
ended September 30, 2008, respectively. This is as compared with net losses of
approximately $456,000 (or $.45 per share) and $238,000 (or $.23 per share) for
the three and nine months ended September 30, 2007, respectively.
As
discussed below, total revenues for the three and nine months ended September
30, 2008 as compared with the same periods in 2007, increased by approximately
$179,000 (8%) and $685,000 (9%), respectively. Total expenses for the
three and nine months ended September 30, 2008, as compared with the same
periods in 2007, increased by approximately $96,000 (3%) and $216,000 (2%),
respectively.
REVENUES
Rentals
and related revenues for the three and nine months ended September 30, 2008 as
compared with the same periods in 2007 increased by $54,000 (14%) and $89,000
(8%). The increases were primarily due to increased rental revenue from the
Monty’s retail space.
Restaurant
operations:
Summarized
statements of income for the Company’s Monty’s restaurant for the three and nine
months ended September 30, 2008 and 2007 is presented below:
|
|
For
the three months
|
|
|
For
the nine months
|
|
|
|
ended
September 30,
|
|
|
ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
$ |
1,350,000 |
|
|
$ |
1,334,000 |
|
|
$ |
5,206,000 |
|
|
$ |
4,762,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
371,000 |
|
|
|
367,000 |
|
|
|
1,391,000 |
|
|
|
1,280,000 |
|
Labor
and related costs
|
|
|
324,000 |
|
|
|
292,000 |
|
|
|
1,020,000 |
|
|
|
918,000 |
|
Entertainers
|
|
|
54,000 |
|
|
|
61,000 |
|
|
|
165,000 |
|
|
|
164,000 |
|
Other
food and beverage direct costs
|
|
|
64,000 |
|
|
|
48,000 |
|
|
|
213,000 |
|
|
|
173,000 |
|
Other
operating costs
|
|
|
66,000 |
|
|
|
89,000 |
|
|
|
222,000 |
|
|
|
244,000 |
|
Repairs
and maintenance
|
|
|
60,000 |
|
|
|
53,000 |
|
|
|
158,000 |
|
|
|
175,000 |
|
Insurance
|
|
|
77,000 |
|
|
|
78,000 |
|
|
|
232,000 |
|
|
|
250,000 |
|
Management
and accounting fees
|
|
|
47,000 |
|
|
|
52,000 |
|
|
|
104,000 |
|
|
|
284,000 |
|
Utilities
|
|
|
66,000 |
|
|
|
53,000 |
|
|
|
194,000 |
|
|
|
147,000 |
|
Rent
(as allocated)
|
|
|
143,000 |
|
|
|
143,000 |
|
|
|
530,000 |
|
|
|
486,000 |
|
Total
Expenses
|
|
|
1,272,000 |
|
|
|
1,236,000 |
|
|
|
4,229,000 |
|
|
|
4,121,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before depreciation and minority interest
|
|
$ |
78,000 |
|
|
$ |
98,000 |
|
|
$ |
977,000 |
|
|
$ |
641,000 |
|
(12)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
The
following table summarizes the amounts on the table above as a percentage of
sales:
|
|
|
|
|
|
|
All
amounts as a percentage of sales
|
|
For
the three months
|
|
|
For
the nine months
|
|
|
|
ended
September 30,
|
|
|
ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
27 |
% |
|
|
27 |
% |
|
|
27 |
% |
|
|
27 |
% |
Labor
and related costs
|
|
|
24 |
% |
|
|
22 |
% |
|
|
20 |
% |
|
|
19 |
% |
Entertainers
|
|
|
4 |
% |
|
|
5 |
% |
|
|
3 |
% |
|
|
4 |
% |
Other
food and beverage direct costs
|
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
4 |
% |
Other
operating costs
|
|
|
5 |
% |
|
|
7 |
% |
|
|
4 |
% |
|
|
5 |
% |
Repairs
and maintenance
|
|
|
4 |
% |
|
|
4 |
% |
|
|
3 |
% |
|
|
4 |
% |
Insurance
|
|
|
6 |
% |
|
|
5 |
% |
|
|
4 |
% |
|
|
5 |
% |
Management
fees
|
|
|
3 |
% |
|
|
4 |
% |
|
|
2 |
% |
|
|
6 |
% |
Utilities
|
|
|
5 |
% |
|
|
4 |
% |
|
|
4 |
% |
|
|
3 |
% |
Rent
(as allocated)
|
|
|
11 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
10 |
% |
Total
Expenses
|
|
|
94 |
% |
|
|
93 |
% |
|
|
81 |
% |
|
|
87 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before depreciation and minority interest
|
|
|
6 |
% |
|
|
7 |
% |
|
|
19 |
% |
|
|
13 |
% |
For the
three and nine months ended September 30, 2008 as compared with the same periods
in 2007 restaurant sales increased by approximately $16,000 (or 1%) and $444,000
(or 9%), respectively.
For the
three and nine months ended September 30, 2008 labor and related costs as a
percentage of sales was 24% and 20%, respectively, as compared to 22% and 19%
for the three and nine months ended September 30, 2007,
respectively. These increases are primarily a result of higher
management wages.
(13)
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)
|
|
For
the three months
|
|
|
For
the nine months
|
|
|
|
ended
September 30,
|
|
|
ended
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Marina
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Monty's
dockage fees and related income
|
|
$ |
310,000 |
|
|
$ |
290,000 |
|
|
$ |
949,000 |
|
|
$ |
937,000 |
|
Grove
Isle marina slip owners dues and dockage fees
|
|
|
137,000 |
|
|
|
119,000 |
|
|
|
378,000 |
|
|
|
354,000 |
|
Total
marina revenues
|
|
|
447,000 |
|
|
|
409,000 |
|
|
|
1,327,000 |
|
|
|
1,291,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marina
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
and related costs
|
|
|
57,000 |
|
|
|
50,000 |
|
|
|
177,000 |
|
|
|
168,000 |
|
Insurance
|
|
|
51,000 |
|
|
|
50,000 |
|
|
|
148,000 |
|
|
|
150,000 |
|
Management
fees
|
|
|
19,000 |
|
|
|
19,000 |
|
|
|
58,000 |
|
|
|
54,000 |
|
Utilities,
net of tenant reimbursement
|
|
|
9,000 |
|
|
|
15,000 |
|
|
|
3,000 |
|
|
|
48,000 |
|
Rent
and bay bottom lease expense
|
|
|
59,000 |
|
|
|
56,000 |
|
|
|
181,000 |
|
|
|
178,000 |
|
Repairs
and maintenance
|
|
|
24,000 |
|
|
|
45,000 |
|
|
|
94,000 |
|
|
|
124,000 |
|
Other
|
|
|
25,000 |
|
|
|
10,000 |
|
|
|
73,000 |
|
|
|
69,000 |
|
Total
marina expenses
|
|
|
244,000 |
|
|
|
245,000 |
|
|
|
734,000 |
|
|
|
791,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before depreciation and minority interest
|
|
$ |
203,000 |
|
|
$ |
164,000 |
|
|
$ |
593,000 |
|
|
$ |
500,000 |
|
Marina
revenues for the three and nine months ended September 30, 2008 as compared to
the same periods in 2007 increased by 9% and 3%, respectively, primarily as a
result of increased dues at the Grove Isle marina. Marina expenses for the nine
months ended September 30, 2008 as compared to the same period in 2007 decreased
by approximately $57,000 (or 7%) primarily due to decreased repairs and
maintenance expenses.
(14)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
Spa
operations:
Below are
summarized statements of income for Grove Isle spa operations. 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
statements of income of spa operations
|
|
Three
months
ended
September
30,
2008
|
|
|
Three
months
ended
September
30,
2007
|
|
|
Nine
months
ended
September
30,
2008
|
|
|
Nine
months
ended
September
30,
2007
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
provided
|
|
$ |
215,000 |
|
|
$ |
143,000 |
|
|
$ |
612,000 |
|
|
$ |
496,000 |
|
Membership
and other
|
|
|
13,000 |
|
|
|
13,000 |
|
|
|
40,000 |
|
|
|
40,000 |
|
Total
spa revenues
|
|
|
228,000 |
|
|
|
156,000 |
|
|
|
652,000 |
|
|
|
536,000 |
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales (commissions and other)
|
|
|
86,000 |
|
|
|
38,000 |
|
|
|
201,000 |
|
|
|
141,000 |
|
Salaries,
wages and related
|
|
|
64,000 |
|
|
|
66,000 |
|
|
|
185,000 |
|
|
|
208,000 |
|
Other
operating expenses
|
|
|
91,000 |
|
|
|
81,000 |
|
|
|
179,000 |
|
|
|
203,000 |
|
Management
and administrative fees
|
|
|
11,000 |
|
|
|
9,000 |
|
|
|
31,000 |
|
|
|
34,000 |
|
Other
non-operating expenses
|
|
|
(15,000 |
) |
|
|
11,000 |
|
|
|
9,000 |
|
|
|
38,000 |
|
Total
Expenses
|
|
|
237,000 |
|
|
|
205,000 |
|
|
|
605,000 |
|
|
|
624,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before interest, depreciation and
minority
interest
|
|
$ |
(9,000
|
) |
|
$ |
(49,000 |
) |
|
$ |
47,000 |
|
|
$ |
(88,000 |
) |
Spa
revenues for the three and nine months ended September 30, 2008 as compared with
the same periods in 2007 increased by $72,000 (or 46%) and $116,000 (or
22%). The spa is benefiting from increased occupancy and overall
improved operations at the Grove Isle resort during 2008.
Net (loss) gain from
investments in marketable securities:
Net loss
from investments in marketable securities for the three and nine months ended
September 30 2008 was approximately $689,000 and $904,000, respectively, as
compared with a net gain from investments in marketable securities of
approximately $118,000 and $368,000 for the same comparable periods in 2007. 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 and nine months ended September 30,
2008 was approximately $7,000 and $165,000, respectively, as compared with net
income of approximately $24,000 and $766,000 for the same comparable periods in
2007. The decrease in income was primarily from a non-recurring 2007 cash
distribution from an investment in a bank and 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 and nine months ended September 30, 2008 was
approximately $73,000 and $409,000, respectively, as compared with approximately
$124,000 and $368,000, for the same periods in 2007. The decrease from last year
in the three month periods of $51,000 (or 41%), was primarily due to lower
interest rates and lower dividend income. The increase from last year
in the nine month periods of $41,000 (or 11%) was primarily the result of real
estate commission earned by Courtland Houston, Inc. of approximately $168,000 in
June 2008, partially offset by lower interest and dividend income.
(15)
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations (continued)
EXPENSES
Expenses
for rental and other properties for the three and nine months ended September
30, 2008 were consistent with that for the three and nine months ended September
30, 2007.
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.
Adviser’s
base fee for the three and nine months ended September 30, 2008 as compared to
the same periods in 2007 increased by $30,000 (or 13%) and $90,000 (or
13%). This was the result of the amendment to the Advisory Agreement
effective January 1, 2008, as previously reported.
Professional
fees for the three months ended September 30, 2008 as compared to the same
period in 2007 increased by $18,000 (or 22%), primarily due to legal costs
related to loan restructuring. Professional fees decreased for the
nine months ended September 30, 2008 primarily due to non-recurring restaurant
consulting fees of approximately $28,000 paid in May 2007.
Interest
expense for the three and nine months ended September 30, 2008 as compared to
the same periods in 2007 decreased by $74,000 (or 18%) and $194,000 (or
16%). This was primarily due to lower interest rates in 2008 versus
2007.
Minority
partner’s interest in operating (gains) losses for the three and nine months
ended September 30, 2008 as compared to the same periods in 2007 decreased by
$30,000 (or 15%) and $288,000 (or 98%). This was primarily the result
of increased operating gains from the Monty’s operations and from the Grove Isle
Spa operations.
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 2008 primarily consist of maturities of debt
obligations of approximately $4 million and commitments to fund private capital
investments of approximately $1.3 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
2008 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.
(16)
Condition
and Results of Operations (continued)
MATERIAL COMPONENTS OF CASH
FLOWS
For the
nine months ended September 30, 2008, net cash provided by operating activities
was approximately $837,000 primarily due to improved restaurant and spa
operations.
For the
nine months ended September 30, 2008, net cash provided by investing activities
was approximately $478,000. This consisted primarily of approximately $3.1
million in net proceeds from sales of marketable securities and collections of
notes receivable of approximately $500,000, partially offset by increased
investments in marketable securities of $2.3 million, contributions to other
investments of $495,000 and improvements to the Monty’s property of
approximately $554,000.
For the
nine months ended September 30, 2008, net cash used in financing activities was
approximately $1.5 million consisting of $2 million restricted cash relating to
the loan modification discussed in Note 7. $1 million of this restricted cash
was contributed by the Company 50% partner in the Monty’s
property. Repayments of loans accounted for the other $508,000 cash
used in financing activities.
Item
3. Quantitative and
Qualitative Disclosures about Market Risk
Not
applicable
(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-Q have concluded that, based
on such evaluation, our disclosure controls and procedures were effective as of
September 30, 2008.
(b)
|
Changes
in Internal Control Over Financial
Reporting.
|
There
were no changes in the Company's internal controls over financial reporting
identified in connection with the evaluation of such internal control over
financial reporting that occurred during our last fiscal quarter which have
materially affected, or reasonably likely to materially affect, our internal
control over financial reporting.
(17)
PART
II. OTHER INFORMATION
(a) Certifications
pursuant to 18 USC Section 1350-Sarbanes-Oxley Act of 2002. Filed
herewith.
(18)
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
HMG/COURTLAND
PROPERTIES, INC.
|
|
|
|
|
|
|
|
|
|
____________________________________
|
Dated: November
14, 2008
|
/s/
Lawrence Rothstein
|
|
President,
Treasurer and Secretary
|
|
Principal
Financial Officer
|
|
|
|
|
|
____________________________________
|
Dated: November
14, 2008
|
/s/Carlos
Camarotti
|
|
Vice
President- Finance and Controller
|
|
Principal
Accounting Officer
|
(19)