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, 2004
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7865
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HMG/COURTLAND PROPERTIES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 59-1914299
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1870 S. Bayshore Drive, Coconut Grove, Florida 33133
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(Address of principal executive offices) (Zip Code)
305-854-6803
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed
by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
1,089,135 Common shares were outstanding as of April 30, 2004.
HMG/COURTLAND PROPERTIES, INC.
Index
PAGE
NUMBER
PART I. Financial Information ------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2004 (Unaudited) and December 31, 2003...................................................1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2004 and 2003 (Unaudited).............................................2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2004 and 2003 (Unaudited).............................................3
Notes to Condensed Consolidated Financial Statements (Unaudited)...................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................8
Item 3. Controls and Procedures...................................................................10
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PART II. Other Information
Item 1. Legal Proceedings . . . .................................................................10
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Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities ..........10
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Item 3. Defaults Upon Senior Securities . . . ...................................................10
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Item 4. Submission of Matters to a Vote of Security Holders . . . ...............................10
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Item 5. Other Information . . . .................................................................10
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Item 6. Exhibits and Reports on Form 8-K.........................................................10
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Signatures......................................................................................................11
Cautionary Statement. This Form 10-QSB contains certain statements relating to
future results of the Company that are considered "forward-looking statements"
within the meaning of the Private Litigation Reform Act of 1995. Actual results
may differ materially from those expressed or implied as a result of certain
risks and uncertainties, including, but not limited to, changes in political and
economic conditions; interest rate fluctuation; competitive pricing pressures
within the Company's market; equity and fixed income market fluctuation;
technological change; changes in law; changes in fiscal, monetary, regulatory
and tax policies; monetary fluctuations as well as other risks and uncertainties
detailed elsewhere in this Form 10-QSB or from time-to-time in the filings of
the Company with the Securities and Exchange Commission. Such forward-looking
statements speak only as of the date on which such statements are made, and the
Company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made
or to reflect the occurrence of unanticipated events.
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------
March 31, December 31,
2004 2003
----- ----
ASSETS (UNAUDITED)
Investment properties, net of accumulated depreciation:
Commercial and industrial $ 2,580,839 $ 2,611,777
Hotel and club facility 4,114,751 4,212,734
Yacht slips 140,349 169,073
Land held for development 1,083,855 1,083,855
------------ ------------
Total investment properties, net 7,919,794 8,077,439
Cash and cash equivalents 2,029,742 2,624,643
Investments in marketable securities 5,849,147 4,892,908
Other investments 4,830,146 5,048,016
Investment in affiliate 2,947,077 2,926,326
Loans, notes and other receivables 973,081 1,015,118
Notes and advances due from related parties 987,224 1,003,243
Deferred taxes 416,000 478,000
Other assets 245,965 234,036
------------ ------------
TOTAL ASSETS $ 26,198,176 $ 26,299,729
============ ============
LIABILITIES
Mortgages and notes payable $ 8,051,799 $ 8,086,227
Accounts payable and accrued expenses 322,582 229,461
------------ ------------
TOTAL LIABILITIES 8,374,381 8,315,688
Minority interests 324,419 322,193
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STOCKHOLDERS' EQUITY
Preferred stock, $1 par value; 2,000,000 shares
authorized; none issued
Excess common stock, $1 par value; 500,000 shares authorized;
none issued
Common stock, $1 par value; 1,500,000 shares authorized;
1,315,635 shares issued and outstanding 1,315,635 1,315,635
Additional paid-in capital 26,571,972 26,571,972
Undistributed gains from sales of properties, net of losses 39,526,129 39,478,523
Undistributed losses from operations (47,996,496) (47,786,418)
------------ ------------
19,417,240 19,579,712
Less: Treasury stock, at cost (226,500 shares) (1,659,114) (1,659,114)
Notes receivable from exercise of stock options (258,750) (258,750)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 17,499,376 17,661,848
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,198,176 $ 26,299,729
============ ============
See notes to the condensed consolidated financial statements
(3)
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
----------------------------------------------------------------
Three months ended March 31,
REVENUES 2004 2003
---- ----
Real estate rentals and related revenue $ 428,488 $ 411,823
Marina revenues 116,678 123,569
Net gain (loss) from investments in marketable securities 114,249 (24,645)
Net (loss) gain from other investments (47,899) 68,629
Interest, dividend and other income 79,041 62,933
-----------------------------
Total 690,557 642,309
EXPENSES
Operating expenses:
Rental and other properties 123,630 147,410
Marina expenses 112,114 94,544
Depreciation and amortization 144,325 146,935
Adviser's base fee 225,000 225,000
General and administrative 78,065 73,130
Professional fees and expenses 29,183 45,096
Directors' fees and expenses 16,953 11,800
-----------------------------
Total operating expenses 729,270 743,915
Interest expense 112,720 126,977
Minority partners' interests in operating (loss) gain of
consolidated entities (3,355) 50
-----------------------------
Total expenses 838,635 870,942
-----------------------------
Loss before sales of properties and income taxes (148,078) (228,633)
Gain on sales of properties, net 47,606 39,144
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Loss before income taxes (100,472) (189,489)
Provision for income taxes 62,000 7,000
-----------------------------
Net Loss ($ 162,472) ($ 196,489)
=============================
Net Loss Per Common Share:
Basic and diluted ($ 0.15) ($ 0.18)
=========== ===========
Weighted average common shares outstanding: 1,089,135 1,089,135
=========== ===========
See notes to the condensed consolidated financial statements
(4)
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
------------------------------------------------------------------------------------------------
Three months ended March 31,
2004 2003
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 162,472) ($ 196,489)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 144,325 146,935
Net loss (gain) from other investments 47,899 (68,629)
Gain on sales of properties, net (47,606) (39,144)
Net (gain) loss from investments in marketable securities (114,249) 24,645
Minority partners' interest in operating (losses) gains (3,355) 50
Deferred income tax expense 62,000 7,000
Changes in assets and liabilities:
Increase in other assets and other receivables (74,208) (21,747)
Net proceeds from sales and redemptions of securities 817,106 736,179
Decrease in sales of securities pending delivery -- (8,369)
Increased investments in marketable securities (1,659,096) (157,774)
Increase in accounts payable and accrued expenses 93,120 120,202
Decrease in other liabilities -- (673,626)
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Total adjustments (734,064) 65,722
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Net cash used in operating activities (896,536) (130,767)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from disposals of properties 69,752 45,000
Decrease in notes and advances from related parties 16,019 396,498
Net decrease in mortgage loans and notes receivables 97,998 107,405
Distributions from other investments 442,294 270,595
Contributions to other investments (290,000) (89,820)
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Net cash provided by investing activities 336,063 729,678
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgages and notes payables (34,428) (28,060)
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Net cash used in financing activities (34,428) (28,060)
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Net (decrease) increase in cash and cash equivalents (594,901) 570,851
Cash and cash equivalents at beginning of the period 2,624,643 1,863,534
----------- -----------
Cash and cash equivalents at end of the period $ 2,029,742 $ 2,434,385
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 113,000 $ 127,000
=========== ===========
Cash paid during the period for income taxes -- --
=========== ===========
See notes to condensed consolidated financial statements
(5)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------
In the opinion of the Company, the accompanying unaudited condensed consolidated
financial statements prepared in accordance with instructions for Form 10QSB,
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, 2003. The
balance sheet as of December 31, 2003 was derived from audited financial
statements as of that date. The results of operations for the three months ended
March 31, 2004 are not necessarily indicative of the results to be expected for
the full year.
2. RECENT ACCOUNTING PRONOUNCEMENTS.
---------------------------------
During April 2003, the FASB issued SFAS 149 - "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", effective for contracts entered
into or modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of then-issued securities or other securities that do not yet exist,
should be applied to both existing contracts and new contracts entered into
after June 30, 2003. The Company does not participate in such transactions, and
accordingly, adoption of this statement did not have a material effect on the
Company's financial statements.
During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. This Statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a freestanding financial
instrument that is within its scope as a liability (or an asset in some
circumstances). Many of those instruments were previously classified as equity.
Some of the provisions of this Statement are consistent with the current
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements". The Company does not participate in such transactions,
and accordingly, adoption of this statement did not have a material effect on
the Company's financial statements.
(4)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
In January 2003, the FASB issued FASB Interpretation No. 46 (" FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
certain entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. FIN 46 applies immediately to variable interest
entities ("VIE's") created after January 31, 2003, and to VIE's in which an
enterprise obtains an interest after that date. On October 9, 2003 the FASB
issued FASB Staff Position No. FIN 46-6 "Effective Date of FASB Interpretation
No.46 Consolidation of Variable Interest Entities," which defers the
implementation date for public entities that hold an interest in a variable
interest entity or potential variable interest entity from the first fiscal year
or interim period beginning after June 15, 2003 to the end of the first interim
or annual period ending after December 15, 2003. This deferral applies only if
1) the variable interest entity was created before February 1, 2003 and 2) the
public entity has not issued financial statements reporting that variable
interest entity in accordance with FIN 46, other than disclosures required by
paragraph 26 of FIN 46. The adoption of FIN 46 did not have a material impact on
the Company's financial position, liquidity or results of operations.
3. GAIN ON SALES OF PROPERTIES
---------------------------
For the three months ended March 31, 2004 Grove Isle Yacht Club Associates
(GIYCA) sold one yacht slip located in Miami, Florida resulting in a net gain to
the Company of approximately $48,000.
(5)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
4. INVESTMENTS IN MARKETABLE SECURITIES
-------------------------------------
Investments in marketable securities consist primarily of large capital
corporate equity and debt securities in varying industries or issued by
government agencies with readily determinable fair values. These securities are
stated at market value, as determined by the most recent traded price of each
security at the balance sheet date. Consistent with the Company's overall
current investment objectives and activities its entire marketable securities
portfolio is classified as trading.
Net gain (loss) from investments in marketable securities for the three months
ended March 31, 2004 and 2003 is summarized below:
Three Months Ended March 31,
----------------------------------------------------------------
Description 2004 2003
----------------------------------------------------------------
Net realized loss from sales of ($ 8,000) ($ 36,000)
securities
Unrealized net gain in trading
securities 122,000 41,000
Net change in sales of securities
pending delivery -- (30,000)
--------- ---------
Total net gain (loss) from investments
in marketable securities $ 114,000 ($ 25,000)
========= =========
For the three months ended March 31, 2004 net realized loss from sales of
marketable securities of approximately $8,000 consisted of approximately $79,000
of gross losses net of $71,000 of gross gains. For the three months ended March
31, 2003 net realized loss from sales of marketable securities of approximately
$36,000 consisted of approximately $49,000 of gross losses net of $13,000 of
gross gains.
Net change in sales of securities pending delivery in 2003 represents the
changes in the market value of those securities and the delivery of securities
to realize gain or loss from these transactions. There are no remaining sales of
securities pending delivery in 2004.
Investment gains and losses on marketable securities may fluctuate significantly
from period to period in the future and could have a significant impact on the
Company's net earnings. However, the amount of investment gains or losses on
marketable securities for any given period has no predictive value and
variations in amount from period to period have no practical analytical value.
(6)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
5. OTHER INVESTMENTS
-----------------
As of March 31, 2004, the Company has committed to invest approximately $10
million in other investments primarily in private capital funds, of which
approximately $8.7 million has been funded. The carrying value of other
investments (which reflects distributions and valuation adjustments) is
approximately $4.9 million. During the three months ended March 31, 2004 the
Company has made follow-on contributions to four existing investments of
approximately $290,000 and has received approximately $442,000 in distributions
from other investments. The distributions in 2004 primarily consisted of one
return of capital distribution in the amount of $306,000 from an investment in a
partnership which recapitalized one of its operating businesses and distributed
the proceeds to its partners.
Net (loss) gain from other investments for the three months ended March 31, 2004
and 2003, is summarized below:
2004 2003
--------- ---------
Real estate development and operation $ 38,000 $ 59,000
Venture capital fund - technology (104,000)
Income from investment in 49% owned
affiliate (T.G.I.F. Texas, Inc.) 21,000 13,000
Others, net (3,000) (3,000)
--------- ---------
Total net (loss) gain from other investments ($ 48,000) $ 69,000
========= =========
In March 2004, the Company reduced the carrying value of one of its investments
in a venture capital fund by $104,000. This fund experienced a decline in the
market value of its holdings in publicly-traded companies having a concentration
in technology and communications.
6. MORTGAGES AND NOTES PAYABLE
---------------------------
Included in mortgages and notes payable as of March 31, 2004 and December 31,
2003 is approximately $3.7 million of notes payable to a 49%-owned affiliate,
T.G.I.F. Texas, Inc., as previously disclosed.
7. SUBSEQUENT EVENT - SALE OF SHOPPING CENTER
------------------------------------------
In April 2004, the Company sold its shopping center located near Jacksonville,
Florida for approximately $3.9 million. The Company projects a gain on the sale
of approximately $1.8 million.
(7)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
---------------------
The Company reported a net loss of approximately $162,000 (or $.15 per share)
for the three months ended March 31, 2004. This is as compared with a net loss
of approximately $196,000 (or $.18 per share) for the three months ended March
31, 2003. Total revenues for the three months ended March 31, 2004 as compared
with the same period in 2003, increased by approximately $48,000 or 7%. Total
expenses for the three months ended March 31, 2004, as compared with the same
periods in 2003, decreased by approximately $32,000 or 4%. Gain on sales of
properties for the three months ended March 31, 2004 was approximately $48,000
as compared with gains of approximately $39,000 for the three months ended March
31, 2003.
REVENUES
Rentals and related revenues for the three months ended March 31, 2004 as
compared with the same comparable period in 2003 increase slightly (4%)
primarily due to consumer price index adjustments to base rent.
Marina revenues for the three months ended March 31, 2004 as compared with the
same comparable period in 2003 decreased slightly (5%) primarily due to reduced
transient rental income as a result of the sale of yacht slips in the prior
year.
Net gain from investments in marketable securities for the three months ended
March 31, 2004 was approximately $114,000 as compared with a net loss of
approximately $25,000 for the same comparable three month period in 2003. See
discussion in Note 4 to Condensed Consolidated Financial Statements (unaudited).
Net loss from other investments for the three months ended March 31, 2004 was
approximately $48,000 as compared with a net gain of approximately $69,000 for
the same three month comparable period in 2003. See discussion in Note 5 to
Condensed Consolidated Financial Statements (unaudited).
Interest and dividend income for the three months ended March 31, 2004 was
approximately $79,000 as compared with approximately $63,000 for the same three
month comparable period in 2003. This increase of approximately $16,000 (or 26%)
was primarily due to an increase in debt security investments that yield
interest income.
EXPENSES
Rental and other properties expenses for the three months ended March 31, 2004
decreased by approximately $24,000 (or 16%) as compared that for the three
months ended March 31, 2003. This was primarily the result of a non-recurring
repair to the Grove Isle property in 2003 of approximately $18,000.
Marina expenses for the three months ended March 31, 2004 increased by
approximately $18,000 or 19% as compared with the same comparable three month
period in 2003 primarily due to increased insurance expense as a result of the
reinstatement of windstorm coverage at the Grove Isle Marina in 2004.
(8)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Professional fees expense decreased by approximately $16,000 (or 35%) for the
three months ended March 31, 2004 as compared with the same period in 2003
primarily as a result of a reduction in the Company auditing and tax preparation
fees due to the change in accountants, as previously reported.
Interest expense decreased by approximately $14,000 (or 11%) for the three
months ended March 31, 2004 as compared with the same period in 2003 primarily
as a result the overall reduction in outstanding debt.
EFFECT OF INFLATION:
--------------------
Inflation affects the costs of operating and maintaining the Company's
investments. In addition, rentals under certain leases are based in part on the
lessee's sales and tend to increase with inflation, and certain leases provide
for periodic adjustments according to changes in predetermined price indices.
LIQUIDITY, CAPITAL EXPENDITURE REQUIREMENTS AND CAPITAL RESOURCES
-----------------------------------------------------------------
The Company's material commitments in 2004 primarily consist of maturities of
debt obligations of approximately $3.8 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
2004 is a note payable to the Company's 49% owned affiliate, T.G.I.F. Texas,
Inc. ("TGIF") of approximately $3.6 million. This amount is due on demand. It is
expected that this obligation when due to TGIF would be paid with funds
available from distributions from its investment in TGIF and from available
cash.
MATERIAL COMPONENTS OF CASH FLOWS
---------------------------------
For the three months ended March 31, 2004, net cash used in operating activities
was approximately $896,000. Included in this amount is an increase in
investments of marketable securities of approximately $1.7 million less proceeds
from sales of marketable securities of approximately $817,000.
For the three months ended March 31, 2004, net cash provided by investing
activities was approximately $336,000. This was comprised primarily of
distributions from other investments of approximately $442,000, repayments of
mortgage loans and notes receivable of approximately $98,000 and proceeds from
sales of properties of approximately $70,000. These sources of cash were
partially offset by contributions to other investments of $290,000.
For the three months ended March 31, 2004, net cash used in financing activities
was approximately $34,000 consisting of repayments of mortgages and notes
payable.
(9)
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our Chief
Executive Officer and Chief Financial, , after evaluating the effectiveness of
our disclosure controls and procedures (as defined in the Exchange Act Rules
13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly
Report on Form 10-QSB have concluded that, based on such evaluation, our
disclosure controls and procedures were adequate and designed to ensure that
material information relating to us and our consolidated subsidiaries, which we
are required to disclose in the reports we file or submit under the Exchange Act
of 1934, was made known to them by others within those entities and reported
within the time periods specified in the SEC's rules and forms.
(b) There were no significant changes in the Company's internal
controls or in other factors that could significantly affect these controls
during the quarter covered by this report or from the end of the reporting
period to the date of this Form 10-QSB.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None.
Item 2. Changes in Securities and Small Business Issuers Purchase of
Equity Securities: None.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submission of Matters to a Vote of Security Holders: None.
Item 5. Other Information: None.
Item 6. Exhibits and Reports on Form 8-K:
(a) Certifications pursuant to 18 USC Section 1350-Sarbanes-Oxley Act of
2002. Filed herewith.
(b) Reports on Form 8-K filed for the quarter ended March 31, 2004: On
March 23, 2004 the Company filed Form 8-K reporting the election of
Mr. Clinton Stuntebeck as a director of the Company, to hold office
until the next Annual Meeting of Shareholders.
(10)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMG/COURTLAND PROPERTIES, INC.
Dated: May 14, 2004 ----------------------------------
/s/Lawrence Rothstein
President, Treasurer and Secretary
Principal Financial Officer
Dated: May 14, 2004 ----------------------------------
/s/Carlos Camarotti
Vice President - Finance and Controller
Principal Accounting Officer
(11)