UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 2002
-------------------------------
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 October 31, 2002.
HMG/COURTLAND PROPERTIES, INC.
Index
PAGE
NUMBER
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 2002 (Unaudited) and December 31, 2001.........................................1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 2002 and 2001 (Unaudited)..........................2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 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.............................................8
Item 3. Controls and Procedures............................................................12
PART II. Other Information
Item 1. Legal Proceedings . . . ..........................................................12
Item 6. Reports on Form 8-K...............................................................12
Signatures...............................................................................................13
Certification Pursuant to 18 U.S.C. Section 1350.........................................................14
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 Part I Financial Information
Item I Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2002 2001
ASSETS
Investment properties, net of accumulated depreciation:
Commercial and industrial $2,768,737 $2,872,783
Hotel and club facility 4,708,161 5,008,652
Yacht slips 518,593 673,722
Land held for development 1,854,318 1,864,558
---------------------- -------------------------
Total investment properties, net 9,849,809 10,419,715
Cash and cash equivalents 2,245,158 2,598,536
Investments in marketable securities 2,600,254 4,605,085
Other investments 6,829,492 6,097,144
Investment in affiliate 2,867,343 2,851,129
Cash restricted pending delivery of securities 22,264 430,131
Loans, notes and other receivables 1,074,619 1,288,124
Notes and advances due from related parties 1,362,664 945,872
Deferred taxes 594,000 139,000
Other assets 190,585 253,891
---------------------- -------------------------
TOTAL ASSETS $27,636,188 $29,628,627
====================== =========================
LIABILITIES
Mortgages and notes payable $8,597,011 $8,869,887
Accounts payable and accrued expenses 323,026 220,019
Sales of securities pending delivery 76,967 183,340
Income taxes payable 219,174
Other liabilities 162,871 382,325
---------------------- -------------------------
TOTAL LIABILITIES 9,159,875 9,874,745
Minority interests 377,445 411,692
---------------------- -------------------------
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 38,642,024 38,534,768
Undistributed losses from operations (46,482,899) (45,132,321)
---------------------- -------------------------
20,046,732 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 18,098,868 19,342,190
---------------------- -------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $27,636,188 $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 September 30, Nine months ended September 30,
2002 2001 2002 2001
Real estate rentals and related revenue $409,154 $378,114 $1,223,970 $1,086,703
Marina revenues 108,717 129,398 350,267 380,130
Net (loss) gain from investments in marketable securities (535,065) (72,241) (1,290,240) 162,405
Net loss from other investments (118,396) (511,059) (156,510) (366,759)
Interest and dividend income 55,729 99,731 206,519 330,387
---------------------------- -------------------------------
Total Revenues (79,861) 23,943 334,006 1,592,866
EXPENSES
Other operating expenses:
Rental and other properties 141,096 139,561 433,193 400,765
Marina expenses 86,556 111,699 259,267 331,688
Depreciation and amortization 150,056 144,978 453,754 440,394
Advisor's base fee 165,000 165,000 495,000 495,000
General and administrative 54,107 61,458 174,866 165,771
Professional fees and expenses 57,595 82,617 136,672 199,028
Directors' fees and expenses 17,061 12,774 48,249 43,587
---------------------------- -------------------------------
Total operating expenses 671,471 718,087 2,001,001 2,076,233
Interest expense 133,205 172,733 405,168 560,603
Minority partners' interests in operating (loss) gains of
consolidated entities (28,627) 3,444 (60,484) 6,336
---------------------------- -------------------------------
Total expenses 776,049 894,264 2,345,685 2,643,172
---------------------------- -------------------------------
(Loss) income before sales of properties and income taxes (855,910) (870,321) (2,011,679) (1,050,306)
Gain on sales of properties, net 63,359 94,260 433,997 1,908,729
---------------------------- -------------------------------
(Loss) income before income taxes (792,551) (776,061) (1,577,682) 858,423
(Benefit from) provision for income taxes (354,851) (311,694) (661,101) 408,306
---------------------------- -------------------------------
Net (loss) income ($437,700) ($464,367) ($916,581) $450,117
============================ ===============================
Net (Loss) Income Per Common Share:
Basic and diluted ($0.40) ($0.43) ($0.84) $0.41
Weighted average common shares outstanding 1,089,135 1,089,135 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)
Nine months ended
September 30,
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income ($916,581) $450,117
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Depreciation and amortization 453,754 440,394
Net loss from other investments 156,510 366,759
Gain on sales of properties, net (433,997) (1,908,729)
Net loss (gain) from marketable securities 1,290,240 (162,405)
Minority partners' interest in operating (losses) gains (60,484) 6,336
Changes in assets and liabilities:
Decrease in other assets and other receivables 71,302 98,157
Net proceeds from sales and redemptions of securities 2,417,861
Decrease in restricted cash 407,867 91,363
(Decrease) increase in sales of securities pending delivery (267,943) 169,929
Increased investments in marketable securities (1,541,700)
Increase (decrease) in accounts payable and accrued expenses 103,006 (175,178)
(Decrease) increase in current income taxes payable (219,174) 257,000
(Increase) decrease in deferred taxes (455,000) 82,000
(Decrease) increase in other liabilities (219,454) 162,080
----------------- ------------------
Total adjustments 1,702,788 (572,294)
----------------- ------------------
Net cash provided by (used in) operating activities 786,207 (122,177)
----------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Aquisitions and improvements of properties (101,620)
Net proceeds from disposals of properties 617,379 3,173,463
(Increase) decrease in notes and advances from related parties (416,792) 83,505
Increase in mortgage loans and notes receivables (415,881)
Decrease in mortgage loans and notes receivables 194,960 171,248
Distributions from other investments 94,679 607,981
Contributions to other investments (999,751) (1,018,850)
Net proceeds from sales and redemptions of securities 2,820,118
Increased investments in marketable securities (3,134,361)
----------------- ------------------
Net cash (used in) provided by investing activities (509,525) 2,185,603
----------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of mortgages and notes payables (272,876) (722,330)
Dividends paid (326,741)
Net distributions to minority partners (30,443) (477,868)
----------------- ------------------
Net cash used in financing activities (630,060) (1,200,198)
----------------- ------------------
Net (decrease) increase in cash and cash equivalents (353,378) 863,228
Cash and cash equivalents at beginning of the period 2,598,536 1,923,947
----------------- ------------------
Cash and cash equivalents at end of the period $2,245,158 $2,787,175
================= ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $262,000 $484,000
================= ==================
Cash paid during the period for income taxes $11,000 $69,000
================= ==================
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 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, 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 nine months ended September 30, 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
Combinations) 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.
In April 2002, the FASB issued Statement 145, Rescission of FASB
Statements No.4, 44, and 64, Amendments of FASB Statement No. 13, and Technical
Corrections. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits to
an exit plan. In addition, this Statement states the liability should be
initially measured at fair value. The Statement is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not believe that the adoption of this pronouncement will have a material effect
on its financial statements.
(4)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
3. DIVDEND PAID.
On August 23, 2002, the Company declared a special non-recurring
dividend of $.30 per share. This dividend was paid on September 13, 2002 to
shareholders of record as of September 4, 2002 and qualifies as a dividends paid
deduction to offset taxable income for the year ended December 31, 2001.
4. GAIN ON SALES OF PROPERTIES
For the three months ended September 30, 2002 Grove Isle Yacht Club
Associates (GIYCA) sold one yacht slip located in Miami, Florida resulting in a
net gain to the Company of approximately $29,000. For the nine months ended
September 30, 2002 GIYCA has sold 5 yacht slips resulting in a net gain to the
Company of approximately $123,000.
In May 2002, HMG Fieber Associates sold its property located in
Watertown, New York, resulting in a net gain to the Company of approximately
$57,000.
In April 2002, Courtland Investments sold approximately 50 acres of
vacant land located in Middleborough, Massachusetts, resulting in a net gain to
the Company of approximately $254,000.
5. 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 September 30, 2001, gross
unrealized gains and losses on available for sale securities were approximately
$307,000 and $1,723,000, respectively, and a net unrealized loss of
approximately $1,416,000 was recorded in accumulated comprehensive income in
stockholders' equity.
(5)
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Net (loss) gain from investments in marketable securities for the
three and nine months ended September 30, 2002 and 2001 is summarized below:
Three Months Ended September 30, Nine Months Ended September 30,
----------------------------------- ---------------------------------------- ----------------------------------------
Description 2002 2001 2002 2001
----------------------------------- ------------------------ ------------------- ------------------- ----------------
Net realized gain from sales of ($489,629) ($171,121) ($389,242) $897,440
securities
Unrealized net loss in trading
securities (87,090) -- (739,428) --
Net change in sales of securities
pending delivery 41,654 98,880 (161,570) (735,035)
------------------------ ---------------- ---------------------- ----------------
Total net (loss) gain ($535,065) ($72,241) ($1,290,240) $162,405
======================== ================ ====================== ================
For the three months ended September 30, 2002 net realized gain
from sales of marketable securities of approximately $490,000 consisted of
approximately $82,000 of gross gains net of $572,000 of gross losses. For the
nine months ended September 30, 2002 net realized gain from sales of marketable
securities of approximately $389,000 consisted of approximately $583,000 of
gross gains net of $972,000 of gross losses.
The net change in unrealized loss of marketable securities for the
three and nine months ended September 30, 2002 was an additional net loss of
approximately $87,000 and $739,000, respectively.
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.
(6)
6. OTHER INVESTMENTS
As of September 30, 2002, the Company has committed to invest
approximately $11 million in other investments primarily in private capital
funds, of which approximately $9.1 million has been funded. The carrying value
of other investments (which reflects distributions and valuation adjustments) is
approximately $6.8 million. Included in net loss from other investments for the
three and nine months ended September 30, 2002 are adjustments to the carrying
value of other investments of approximately $63,000 and $188,000 which represent
declines in value deemed to be other than temporary. This is as compared with
similar adjustments of $774,000 for the three and nine months ended September
30, 2001
As a further diversification of the Company's investments in
private capital funds, during the nine months ended September 30, 2002,
$1,050,000 was committed to purchase limited partnership interests in three
private capital funds. Two of the funds seek to maximize total return on capital
through investments in the debt securities of undervalued or financially
troubled companies. These two commitments made during the first quarter 2002,
(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. In September 2002, a commitment of $250,000 was made
in a hedge fund with multi-managers and multi-strategies. The basic objective of
the fund is to minimize downside risk and capture a healthy percentage of the
upside performance.
7. ADVISORY AGREEMENT
On September 20, 2002, the shareholders approved the amendment and
renewal of the Advisory Agreement between the Company and the Advisor for a term
commencing January 1, 2003, and expiring December 31, 2003.
The sole amendment to the Advisory Agreement was an increase in the
remuneration of the Advisor to increase the Advisor's current regular
compensation monthly fee from $55,000 to $75,000, or $660,000 to $900,000
annually. All other terms of the existing Advisory Agreement will remain the
same. The increase in remuneration of the Advisor was approved after taking into
account the increased costs of the Advisor in managing the affairs of the
Company, the economic factors impacting the real estate industry and competitive
conditions in today's market place. The amendment and renewal was approved
unanimously by the Directors unaffiliated with the Advisor in March 2002.
(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 $438,000 (or $.40 per
share) and $917,000 (or $.84 per share) for the three and nine months ended
September 30, 2002, respectively. This is as compared with a net loss of
approximately $464,000 (or $.43 per share) and net income of $450,000 (or $.41
per share) for the three and nine months ended September 30, 2001, respectively.
Total revenues for the three months ended September 30, 2002 as compared with
the same period in 2001, increased by approximately $104,000. Total revenues for
the nine months ended September 30, 2002, as compared with the same period in
2001, decreased by approximately $1.3 million (or 79%). Total expenses for the
three and nine months ended September 30, 2002, as compared with the same
periods in 2001, decreased by approximately $118,000 (or 13%) and $297,000 (or
11%), respectively. Gain on sales of properties for the three and nine months
ended September 30, 2002 was approximately $63,000 and $434,000, respectively.
This is as compared with gains of $94,000 and $1.9 million for the three and
nine months ended September 30, 2001, respectively.
REVENUES
Rentals and related revenues for the three and nine months ended
September 30, 2002 were approximately $409,000 and $1.2 million, respectively.
This is as compared with approximately $378,000 and $1.1 million for the same
comparable periods in 2001, respectively. These increases of approximately
$31,000 (or 8%) and $137,000 (or 13%) for the three and nine month comparable
periods were due to increased rent from the Company's Grove Isle hotel property
in accordance with changes in the Consumer Price Index and increased rent from
the Company's Fashion Square shopping center due to an additional tenant added
in the fourth quarter of 2001.
Net loss from investments in marketable securities for the three and
nine months ended September 30, 2002 was approximately $535,000 and $1.3
million, respectively. This is as compared with a net loss of approximately
$72,000 for the same comparable three month period in 2001 and a net gain of
approximately $162,000 for the same comparable nine month period in 2001. See
discussion in Note 4 to Condensed Consolidated Financial Statements.
Net loss from other investments for the three and nine months ended
September 30, 2002 was approximately $118,000 and $156,000, respectively. This
is as compared with net losses of approximately $511,000 and $367,000 for the
same comparable periods in 2001. The decrease in losses of approximately
$393,000 and $211,000, for the three and nine month comparable periods was
primarily attributable to a decrease in valuation write-downs between the two
periods. Included in net loss from other investments for the thee and nine
months ended September 30, 2002 are write downs in other investments of
approximately $63,000 and $188,000 which represent declines in value deemed to
be other than temporary. This is as compared with valuation write-downs of
$774,000 for the three and nine months ended September 30, 2002.
Interest and dividend income for the three and nine months ended
September 30, 2002 was approximately $56,000 and $207,000, respectively. This is
as compared with approximately $100,000 and $330,000 for the same comparable
periods in 2001, respectively. These decreases of approximately $44,000 (or 44%)
and $124,000 (or 37%) for the three and nine month comparable periods,
respectively, were primarily attributable to decreased dividend income from
investments in marketable securities.
(8)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
EXPENSES
Rental and other properties expenses for the three and nine months
ended September 30, 2002 were approximately $141,000 and $433,000, respectively.
This is as compared with approximately $140,000 and $401,000 for the same
comparable periods in 2001. The increase of approximately $32,000 (or 8%) for
the nine month comparable periods, respectively, was primarily the result of
increased insurance expense at the Grove Isle hotel property of approximately
$30,000 partially offset by lower operating costs at HMG Fieber properties. The
property insurance at the Grove Isle hotel property is paid by the tenant and
accordingly a corresponding insurance revenue amount is included in rental and
related revenues. Changes in insurance costs for this property do not impact the
Company's net income.
Marina expenses for the three and nine months ended September 30, 2002
were approximately $86,000 and $259,000, respectively. This is as compared with
approximately $112,000 and $332,000 for the same comparable periods in 2001.
These decreases of approximately $26,000 (or 23%) and $73,000 (or 22%) for the
three and nine month comparable periods in 2001, respectively, were primarily
attributable to lower insurance costs as a result of the elimination of
windstorm coverage for the marina slips in 2002. The Company believes that in
light of the increased cost of this insurance (approximately 100% from 2001) and
the large deductibles now required, it is more effective to self insure the
marina slips for this particular peril. All other insurance coverage's remain in
effect on this property.
Professional fees and expenses for the three and nine months ended
September 30, 2002 were approximately $58,000 and $137,000, respectively. This
is as compared with approximately $83,000 and $199,000 for the same comparable
periods in 2001. These decreases of approximately $25,000 (or 30%) and $62,000
(or 31%) for the three and nine month comparable periods in 2001, respectively,
were primarily attributable to lower legal fees relating to the Company's proxy
filing.
Interest expense for the three and nine months ended September 30,
2002 was approximately $133,000 and $405,000, respectively. This is as compared
with approximately $173,000 and $561,000, respectively, for the same comparable
periods in 2001. These decreases of approximately $40,000 (or 23%) and $155,000
(or 28%) for the three and nine month comparable periods, respectively, were
primarily attributable to decreased interest rates on bank loans and on amounts
due to affiliate (T.G.I.F. Texas, Inc.).
Benefit from income taxes for the three and nine months ended
September 30, 2002 was approximately $355,000 and $661,000, respectively. This
consists of $133,000 of current and $222,000 of deferred tax benefits for the
three months ended September 30, 2002, and $206,000 of current and $455,000 of
deferred tax benefits for the nine months ended September 30, 2002. This is as
compared with a benefit from income taxes of $312,000 for the three months ended
September 30, 2001 and a provision for current income taxes of $408,000 for the
nine months ended September 30, 2001. The increase in benefits from the prior
year provisions is due primarily to non recurring gain on sales of properties in
the first quarter of 2001, increased net operating losses for Courtland
Investments, Inc. and reduced taxable income as a result of the dividend paid
deduction made in September 2002 (refer to Note 3).
(9)
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
EFFECT OF INFLATION:
Inflation affects the costs of operating and maintaining the Company's
investments 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 $3.8 million and commitments to
fund private capital investments of approximately $1.8 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 nine months ended September 30, 2002, net cash provided by
operating activities was approximately $786,000. Included in this amount are net
proceeds from sales and redemptions of marketable securities of approximately
$2.4 million less increased investments in of marketable securities of
approximately $1.5 million.
For the nine months ended September 30, 2002, net cash used in
investing activities was approximately $510,000. This was comprised primarily of
contributions to other investments of approximately $1 million and increased
notes and advances to related parties of approximately $417,000 less proceeds
from sales of properties of $617,000, repayments of mortgage loans and notes
receivables of approximately $195,000 and distributions from other investments
of approximately $95,000.
For the nine months ended September 30, 2001, net cash used in
financing activities was approximately $630,000 consisting of dividends paid of
$327,000, repayments of mortgages and notes payable of $273,000 and
distributions to minority partners of $30,000.
(10)
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
Combinations) 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.
In April 2002, the FASB issued Statement 145, Rescission of FASB
Statements No.4, 44, and 64, Amendments of FASB Statement No. 13, and Technical
Corrections. The Company does not believe that the adoption of this
pronouncement will have a material effect on its financial statements.
In June 2002, the FASB issued Statement 146, Accounting for Costs
Associated with Exit or Disposal Activities. This Statement requires the
recognition of a liability for a cost associated with an exit or disposal
activity when the liability is incurred versus the date the Company commits to
an exit plan. In addition, this Statement states the liability should be
initially measured at fair value. The Statement is effective for exit or
disposal activities that are initiated after December 31, 2002. The Company does
not believe that the adoption of this pronouncement will have a material effect
on its financial statements.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. The Company's
Principal Executive Officer and Principal Financial Officer have reviewed the
Company's disclosure controls and procedures within 90 days prior to the filing
of this report. Based upon this review, these officers believe that the
Company's disclosure controls and procedures are effective in ensuring that
material information related to the Company is made known to them by others
within the Company.
(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.
(11)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
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
September 30, 2002.
(12)
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: November 13, 2002 /s/ Lawrence Rothstein
Lawrence Rothstein
President, Treasurer and Secretary
Principal Financial Officer
Dated: November 13, 2002 /s/ Carlos Camarotti
Carlos Camarotti
Vice President - Finance and Controller
Principal Accounting Officer
(13)
CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Maurice Wiener, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of HMG/Courtland
Properties, Inc.
2. Based on my knowledge, this quarterly report does no contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------------------------
/s/ Maurice Wiener, Principal Executive Officer
(14)
CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lawrence Rothstein, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of HMG/Courtland
Properties, Inc.
2. Based on my knowledge, this quarterly report does no contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 13, 2002
-----------------------------------
/s/ Lawrence Rothstein, Principal Financial Officer
(15)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HMG/Courtland Properties, Inc. (the
"Company") on Form 10-QSB for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Maurice Wiener, Principal Executive Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13 or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company for the periods indicated in the Report.
------------------------------------
/s/ Maurice Wiener, Principal Executive Officer
HMG/Courtland Properties, Inc.
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of HMG/Courtland Properties, Inc. (the
"Company") on Form 10-QSB for the period ending September 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Lawrence Rothstein, Principal Financial Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13 or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Company for the periods indicated in the Report.
------------------------------------
/s/ Lawrence Rothstein, Principal Financial Officer
HMG/Courtland Properties, Inc.
(16)