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, 2002
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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
----------------------- --------------------
Commission file number 1-7865
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, 2002.
HMG/COURTLAND PROPERTIES, INC.
Index
PAGE
NUMBER
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 2002 (Unaudited) and December 31, 2001.....................1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2002 and 2001 (Unaudited)...............2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2002 and 2001 (Unaudited)...............3
Notes to Condensed Consolidated Financial Statements (Unaudited).....4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................7
PART II. Other Information
Item 1. Legal Proceedings . . . ..................................10
Item 6. Reports on Form 8-K.......................................10
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
(UNAUDITED)
March 31, December 31,
2002 2001
---- ----
ASSETS
Investment properties, net of accumulated depreciation:
Commercial and industrial $2,840,784 $2,872,783
Hotel and club facility 4,908,861 5,008,652
Yacht slips 628,626 673,722
Land held for development 1,864,558 1,864,558
------------------------- -------------------------
Total investment properties, net 10,242,829 10,419,715
------------------------- -------------------------
Cash and cash equivalents 2,888,406 2,598,536
Investments in marketable securities 3,792,456 4,605,085
Other investments 6,439,850 6,097,144
Investment in affiliate 2,874,526 2,851,129
Cash restricted pending delivery of securities 208,602 430,131
Loans, notes and other receivables 1,247,962 1,288,124
Notes and advances due from related parties 983,393 945,872
Deferred taxes 227,000 139,000
Other assets 257,174 253,891
------------------------- -------------------------
TOTAL ASSETS $29,162,198 $29,628,627
========================= =========================
LIABILITIES
Mortgages and notes payable $8,810,403 $8,869,887
Accounts payable and accrued expenses 275,252 220,019
Sales of securities pending delivery 184,331 183,340
Income taxes payable 130,174 219,174
Other liabilities 195,726 382,325
------------------------- -------------------------
TOTAL LIABILITIES 9,595,886 9,874,745
Minority interests 402,482 411,692
------------------------- -------------------------
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 38,542,463 38,534,768
Undistributed losses from operations (45,318,376) (45,132,321)
------------------------- -------------------------
21,111,694 21,290,054
Less: Treasury stock, at cost (226,500 shares) (1,659,114) (1,659,114)
Notes receivable from exercise of stock options (288,750) (288,750)
------------------------- -------------------------
TOTAL STOCKHOLDERS' EQUITY 19,163,830 19,342,190
------------------------- -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,162,198 $29,628,627
========================= =========================
See notes to condensed consolidated financial statements (unaudited)
1
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
REVENUES Three months ended March 31,
2002 2001
---- ----
Rentals and related revenue $404,505 $337,802
Marina revenues 128,140 132,805
Net (loss) gain from investments in marketable securities (196,561) 288,185
Net gain from other investments 31,497 149,514
Interest and dividends from invested cash, and other 78,574 99,758
------------------------------------------
Total revenues 446,155 1,008,064
------------------------------------------
EXPENSES
Operating expenses:
Rental and other properties 148,365 130,966
Marina 90,105 110,637
Advisor's base fee 165,000 165,000
General and administrative 68,355 58,281
Professional fees and expenses 40,707 34,965
Directors' fees and expenses 18,723 13,393
Depreciation and amortization 151,875 148,918
------------------------------------------
Total operating expenses 683,130 662,160
Interest expense 137,066 199,624
Minority partners' interests in operating (loss)
gains of consolidated entities (12,736) 13,484
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Total expenses 807,460 875,268
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(Loss) income before sales of properties and income taxes (361,305) 132,796
Gain on sales of properties, net 7,695 1,285,510
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(Loss) income before income taxes (353,610) 1,418,306
(Benefit from) provision for income taxes (175,250) 582,000
------------------------------------------
Net (loss) income ($178,360) $836,306
==========================================
Net (Loss) Income Per Common Share:
Basic and diluted ($0.16) $0.77
======= =====
Weighted average common shares outstanding 1,089,135 1,089,135
See notes to condensed consolidated financial statements (unaudited)
2
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
March 31,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($178,360) $836,306
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 151,875 148,918
Net gain from other investments (31,497) (149,514)
Gain on sales of properties, net (7,695) (1,285,510)
Net loss (gain) from marketable securities 195,570 (1,017,208)
Unrealized loss from sales of securities pending delivery 991 729,023
Minority partners' interest in operating (losses) gains (12,736) 13,484
Changes in assets and liabilities:
Decrease in other assets (7,197) (4,883)
Net proceeds from sales and redemptions of securities 993,858
Decrease in restricted cash 221,529 89,759
Increase in sales of securities pending delivery 25,470
Increased investments in marketable securities (376,799)
(Increase) decrease in accounts payable and accrued expenses 55,233 (263,781)
(Decrease) increase in current income taxes payable (89,000) 442,000
(Decrease) increase in deferred taxes (88,000) 140,000
(Decrease) increase in other liabilities (186,598) 73,515
----------------- ------------------
Total adjustments 819,534 (1,058,727)
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Net cash provided by (used in) operating activities 641,174 (222,421)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Aquisitions and improvements of properties (83,050)
Net proceeds from disposals of properties 40,145 2,153,742
(Increase) decrease in notes and advances from related parties (37,521) 37,780
Increase in mortgage loans, notes and other receivables (2,594) (59,344)
Decrease in mortgage loans, notes and other receivables 42,756 32,688
Distributions from other investments 15,418 139,516
Contributions to other investments (350,024) (590,000)
Net proceeds from sales and redemptions of securities 1,101,892
Increased investments in marketable securities (829,385)
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Net cash (used in) provided by investing activities (291,820) 1,903,839
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgages and notes payables (59,484) (149,071)
Net distributions to minority partners (484,018)
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Net cash used in financing activities (59,484) (633,089)
----------------- ------------------
Net increase in cash and cash equivalents 289,870 1,048,329
Cash and cash equivalents at beginning of the period 2,598,536 1,923,947
----------------- ------------------
Cash and cash equivalents at end of the period $2,888,406 $2,972,276
================= ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $128,000 $125,000
================= ==================
Cash paid during the period for income taxes $1,000 ---
================= ==================
See notes to condensed consolidated financial statements (unaudited)
3
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements 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, 2001. The balance sheet as of December 31, 2001 was
derived from audited financial statements as of that date. The results of
operations for the three months ended March 31, 2002 are not necessarily
indicative of the results to be expected for the full year. Certain balances
have been reclassified to conform with the current period presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS.
In July, 2001, the Financial Accounting Standard Board issued
Statements on Financial Accounting Standards (SFAS) No. 141 (Business
Combination) and 142 (Goodwill and Other Intangible Assets). SFAS No. 141 among
other things eliminates the use of the pooling of interest method of accounting
for business combination. Under the provision of SFAS No. 142, goodwill will no
longer be amortized, but will be subject to a periodic test for impairment based
upon fair value. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001. SFAS No. 142 must be adopted in the first quarter
of fiscal years beginning after December 15, 2001. The adoption of these
statements did not have a material impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business (as previously defined in that Opinion). This Statement also amends
ARB No. 51, Consolidated Financial Statements, to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. The
provisions of this Statement were effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years, with early application encouraged. The provisions of this
Statement generally are to be applied prospectively. The adoption of SFAS No.
144 did not have a material impact on the Company's financial statements.
4
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
3. INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities consist primarily of large
capital corporate equity and debt securities in varying industries 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. Effective in December 2001, management determined that the classification
of its entire marketable securities portfolio as trading (versus available for
sale, as defined by accounting principles generally accepted in the United
States of America) would be more consistent with the Company's overall current
investment objectives and activities. As a result, beginning December 31, 2001,
all unrealized gains and losses on the Company's marketable securities portfolio
were recorded in the statement of operations. As of March 31, 2001, gross
unrealized gains and losses on available for sale securities were approximately
$616,000 and $1,505,000, respectively, and a net unrealized loss of
approximately $889,000 was recorded in accumulated comprehensive income in
stockholders' equity.
Net (loss) gain from investments in marketable securities for the
three months ended March 31, 2002 and 2001 is summarized below:
Description 2002 2001
-------------------------------------------------------------------------------
Net realized (loss) gain from sales of ($59,092) $1,017,208
securities
Unrealized net loss in marketable securities (136,478) --
Net change in sales of securities pending
delivery (991) (729,023)
---------------------------------
Total net (loss) gain ($196,561) $288,185
=================================
Net realized (loss) gain from sales of marketable securities of
($59,000) consisted of approximately $162,000 of gains net of $221,000 of losses
for three year ended March 31, 2002. Net gain from sale of marketable securities
for the three months ended March 31, 2001 was approximately $1,017,000, of which
approximately $643,000 was realized from short positions closed in 2001.
The net change in unrealized loss of marketable securities for the
three months ended March 31, 2002 was an additional net loss of $136,478.
Net change in sales of securities pending delivery represents the
changes in the market value of those securities and the delivery of securities
to realize gain or loss from these transactions.
5
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
4. OTHER INVESTMENTS
As a further diversification of the Company's investments in
private capital funds, during the three months ended March 31, 2002, $800,000
was committed to purchase limited partnership interests in two private capital
funds. Both funds seek to maximize total return on capital through investments
in the debt securities of undervalued or financially troubled companies. Both
commitments (one for $500,000 and the other for $300,000) are in funds managed
by experienced general partners each with over $6 billion under management in
funds and accounts focused on investments in distressed companies and related
investment opportunities. The commitment of $300,000 will seek to deploy 50% of
its assets in Asian investments (primarily Japan and Korea).
As of March 31, 2002, the Company has committed to invest
approximately $11.4 million in other investments in private capital funds, of
which approximately $8.9 million has been funded.
5. SUBSEQUENT EVENT
In April 2002, the Company sold approximately 50 acres of vacant
land located in Massachusetts for $300,000. The estimated net gain on the sale
is approximately $270,000.
6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
The Company reported net loss of approximately $178,000 or ($.16 per
share) for the three months ended March 31, 2002. This is as compared with net
income of approximately $836,000 (or $.77 per share) for the three months ended
March 31, 2001. Total revenues for the three months ended March 31, 2002, as
compared with the same period in 2001, decreased by approximately $562,000 (or
56%). Total expenses for the three months ended March 31, 2002, as compared with
the same period in 2001, decreased by approximately $68,000 (or 8%). Gain on
sales of properties for the three months ended March 31, 2002 was approximately
$8,000, as compared to $1,286,000 for the three months ended March 31, 2001.
REVENUES
Rentals and related revenues for the three months ended March 31, 2002
were approximately $405,000. This is as compared with approximately $338,000 for
the same comparable period in 2000. This increase of approximately $67,000 (or
20%) for the three-month comparable period was due to increased rent from the
Company's Grove Isle hotel property of approximately $39,000 in accordance with
changes in the Consumer Price Index and increased rent from the Company's
Fashion Square shopping center of approximately $28,000 due to an additional
tenant in the fourth quarter of 2001.
Net loss from investments in marketable securities for the three
months ended March 31, 2002 was approximately $197,000. This is as compared with
a net gain of approximately $288,000 for the same comparable period in 2001. See
discussion in Note 3 to Condensed Consolidated Financial Statements.
Net gain from other investments for the three months ended March 31,
2002 was approximately $31,000. This is as compared with approximately $149,000
for the same period in 2001. This decrease of approximately $118,000 (or 79%)
for the three-month comparable period was primarily attributable to
non-recurring gains from investments in privately held partnerships, which made
distributions during the first quarter of 2001.
Interest and dividends from invested cash for the three months ended
March 31, 2002 was approximately $79,000. This is as compared with approximately
$100,000 for the same period in 2001. This decrease of approximately $21,000 (or
21%) for the three-month comparable period was primarily attributable to
decreased dividends and interest from investments in marketable securities.
EXPENSES
Operating expenses of rental and other properties for the three months
ended March 31, 2002 were approximately $148,000. This is as compared with
approximately $131,000 for the same period in 2001. This increase of
approximately $17,000 (or 13%) for the three-month comparable period was
primarily the result of increased insurance expense at the Grove Isle hotel
property of approximately $30,000 partially offset by lower operating costs of
HMG Fieber properties.
Marina related expenses for the three months ended March 31, 2002 were
approximately $90,000. This is as compared with approximately $111,000 for the
same period in 2001. The decrease of approximately $21,000 (or 19%) for the
three-month comparable period was primarily attributable to lower insurance
costs.
7
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
Interest expense for the three months ended March 31, 2002 was
approximately $137,000. This is as compared with approximately $200,000 for the
same period in 2001. The decrease of approximately $63,000 (or 31%) for the
three-month comparable period was attributable to decreased interest rates on
bank loans and amounts due to affiliate (T.G.I.F. Texas, Inc.).
Benefit from income taxes for the three months ended March 31, 2002
was approximately $175,000, consisting of $87,000 of current benefit and $88,000
of deferred benefit. The increased benefit from the prior year is due primarily
non recurring gain on sales of properties in 2001.
EFFECT OF INFLATION:
Inflation affects the costs of operating and maintaining the Company's
investments and the availability and terms of financing. 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 2002 primarily consist of
maturities of debt obligations of approximately $3.7 million and commitments to
fund private capital investments of approximately $2.5 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 2002 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. The
obligation due to TGIF will 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, 2001, net cash provided by
operating activities was approximately $641,000. Included in this amount are net
proceeds from sales of marketable securities of approximately $994,000 less
purchases of marketable securities of approximately $377,000.
For the three months ended March 31, 2002, net cash used in investing
activities was approximately $292,000. This was comprised primarily of
contributions to other investments of approximately $350,000 less proceeds from
sales of properties of $40,000.
For the three months ended March 31, 2001, net cash used in financing
activities was approximately $59,000 consisting of repayments of mortgages and
notes payable.
8
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
RECENT ACCOUNTING PRONOUNCEMENTS.
In July, 2001, the Financial Accounting Standard Board issued
Statements on Financial Accounting Standards (SFAS) No. 141 (Business
Combination) and 142 (Goodwill and Other Intangible Assets). SFAS No. 141 among
other things eliminates the use of the pooling of interest method of accounting
for business combination. Under the provision of SFAS No. 142, goodwill will no
longer be amortized, but will be subject to a periodic test for impairment based
upon fair value. SFAS No. 141 is effective for all business combinations
initiated after June 30, 2001. SFAS No. 142 must be adopted in the first quarter
of fiscal years beginning after December 15, 2001. The adoption of these
statements did not have a material impact on the Company's financial statements.
In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes FASB Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, for the disposal of a segment of
a business (as previously defined in that Opinion). This Statement also amends
ARB No. 51, Consolidated Financial Statements, to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. The
provisions of this Statement were effective for financial statements issued for
fiscal years beginning after December 15, 2001, and interim periods within those
fiscal years, with early application encouraged. The provisions of this
Statement generally are to be applied prospectively. The adoption of SFAS No.
144 did not have a material impact on the Company's financial statements.
9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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No items to report.
Item 6. Exhibits and Reports on Form 8-K
------- --------------------------------
(a) There were no reports on Form 8-K filed for the quarter ended
March 31, 2002.
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 15, 2002 /s/ Lawrence Rothstein
Lawrence Rothstein
President, Treasurer and Secretary
Principal Financial Officer
Dated: May 15, 2002 /s/ Carlos Camarotti
Carlos Camarotti
Vice President - Finance and Controller
Principal Accounting Officer
11