10QSB 1 hmgq9-01.txt 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, 2001 ------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________ Commission file number 1-7865 HMG/COURTLAND PROPERTIES, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Delaware 59-1914299 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1870 S. Bayshore Drive, Coconut Grove, Florida 33133 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 305-854-6803 ----------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ----------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Check whether the registrant filed all documents and reports required to be filed by Sections 12, 13, or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by court. Yes 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, 2001. HMG/COURTLAND PROPERTIES, INC. Index PAGE NUMBER ------ PART I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets as of September 30, 2001 (Unaudited) and December 31, 2000................1 Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited).........................................................2 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000 (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 PART II. Other Information Item 1. Legal Proceedings . . . .................................12 Item 4. Submission of Matters to a Vote of Security Holders......12 Item 6. Reports on Form 8-K......................................12 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, 2001 2000 ASSETS Investment properties, net of accumulated depreciation: Commercial and industrial $2,706,443 $3,137,257 Hotel and club facility 5,230,431 5,514,374 Yacht slips 711,693 1,167,286 Land held for development 2,232,871 2,469,890 -------------------- -------------------- Total investment properties, net 10,881,438 12,288,807 Cash and cash equivalents 2,787,175 1,923,947 Investments in marketable securities 4,498,220 5,542,067 Other investments 6,367,035 6,435,118 Investment in affiliate 2,856,548 2,744,355 Cash restricted pending delivery of securities 252,309 343,672 Loans, notes and other receivables 1,331,146 1,086,513 Notes and advances due from related parties 808,222 891,727 Other assets 251,946 371,326 -------------------- -------------------- TOTAL ASSETS $30,034,039 $31,627,532 ==================== ==================== LIABILITIES Mortgages and notes payable $8,769,318 $9,491,648 Accounts payable and accrued expenses 407,120 582,295 Sales of securities pending delivery 214,504 420,118 Income taxes payable 352,000 95,000 Deferred taxes 326,000 244,000 Other liabilities 490,372 661,646 -------------------- -------------------- TOTAL LIABILITIES 10,559,314 11,494,707 Minority interests 420,349 383,612 -------------------- -------------------- Commitments and contingencies STOCKHOLDERS' EQUITY Preferred stock, no par value; 2,000,000 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 real estate, net of losses 38,047,713 36,520,727 Undistributed losses from operations (43,517,374) (42,440,503) Accumulated other comprehensive loss (1,415,706) (270,754) -------------------- -------------------- 21,002,240 21,697,077 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 19,054,376 19,749,213 -------------------- -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $30,034,039 $31,627,532 ==================== ====================
See notes to condensed consolidated financial statements 1
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES ------------------------------------------------ CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ----------------------------------------------- (UNAUDITED) REVENUES Three months ended September 30, Nine months ended September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Rentals and related revenue $ 378,114 $ 424,543 $ 1,086,703 $ 1,262,890 Marina revenues 129,398 115,204 380,130 373,573 Net (loss) gain from sale of marketable securities (171,121) 484,962 897,440 3,049,590 Unrealized gain (loss) from sales of securities pending delivery 98,880 267,861 (735,035) 659,382 Net (loss) gain from other investments (511,059) 54,802 (366,759) 84,505 Interest and dividends from invested cash, and other 99,731 83,419 330,387 251,769 ---------------------------- ---------------------------- Total revenues 23,943 1,430,791 1,592,866 5,681,709 ---------------------------- ---------------------------- EXPENSES Operating expenses: Rental properties and other 139,561 153,476 400,765 450,499 Marina 111,699 95,402 331,688 285,043 Advisor's base fee 165,000 165,000 495,000 495,000 General and administrative 61,458 67,590 165,771 157,562 Professional fees and expenses 82,617 45,559 199,028 115,422 Directors' fees and expenses 12,774 12,974 43,587 34,737 Depreciation and amortization 144,978 177,267 440,394 537,217 ---------------------------- ---------------------------- Total operating expenses 718,087 717,268 2,076,233 2,075,480 Interest expense 172,733 215,983 560,603 652,127 Minority partners' interests in operating gains of consolidated entities 3,444 92,244 6,336 207,673 ---------------------------- ---------------------------- Total expenses 894,264 1,025,495 2,643,172 2,935,280 ---------------------------- ---------------------------- (Loss) income before sales of properties, income from litigation and provision for income taxes (870,321) 405,296 (1,050,306) 2,746,429 Gain on sales of properties, net 94,260 168,110 1,908,729 414,998 Income from litigation, net 383,726 ---------------------------- ---------------------------- (Loss) income before income taxes (776,061) 573,406 858,423 3,545,153 (Benefit from) provision for income taxes (311,694) (224,000) 408,306 (224,000) ---------------------------- ---------------------------- Net (loss) income ($ 464,367) $ 797,406 $ 450,117 $ 3,769,153 ============================ ============================ Net (Loss) Income Per Common Share: Basic ($ 0.43) $ 0.75 $ 0.41 $ 3.57 =========== =========== =========== =========== Diluted ($ 0.43) $ 0.74 $ 0.41 $ 3.53 =========== =========== =========== ===========
See notes to condensed consolidated financial statements 2
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES ----------------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- (UNAUDITED) Nine months ended September 30, 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $450,117 $3,769,153 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 440,394 537,217 Net loss (gain) from other investments 366,759 (84,505) Gain on sales of properties, net (1,908,729) (414,998) Net gain from sales of marketable securities (897,440) (3,049,590) Unrealized loss (gain) from sales of securities pending delivery 735,035 (659,382) Minority partners' interest in operating gains 6,336 207,673 Increase in deferred tax liability 82,000 Changes in assets and liabilities: Decrease in notes and advances from related parties 83,505 8,642 Decrease (increase) in other assets 98,157 (294,713) Decrease in accounts payable and accrued expenses (175,178) (231,606) Increase (decrease) in current income taxes payable 257,000 (224,000) Increase in other liabilities 162,080 63,122 ----------------- ------------------ Total adjustments (750,081) (4,142,140) ----------------- ------------------ Net cash used in operating activities (299,964) (372,987) ----------------- ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Aquisitions and improvements of properties (101,620) (28,824) Net proceeds from disposals of properties 3,173,463 840,889 Increase in mortgage loans, notes and other receivables (415,881) (507,698) Decrease in mortgage loans, notes and other receivables 171,248 432,916 Contributions to other investments, net of distributions (410,869) (2,412,337) Net proceeds from sales and redemptions of securities 2,820,118 4,486,086 Decrease in restricted cash 91,363 743,286 Increase in sales of securities pending delivery 169,929 801,941 Increased investments in marketable securities (3,134,361) (4,215,026) ----------------- ------------------ Net cash provided by investing activities 2,363,390 141,233 ----------------- ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgages and notes payables (722,330) (422,904) Exercised stock options 70,000 ----------------- ------------------ Dividends paid (1,089,135) ----------------- ------------------ Net distributions to minority partners (477,868) (115,469) Net cash used in financing activities (1,200,198) (1,557,508) Net increase (decrease) in cash and cash equivalents 863,228 (1,789,262) ----------------- ------------------ Cash and cash equivalents at beginning of the period $1,923,947 $3,410,476 ================= ================== Cash and cash equivalents at end of the period $2,787,175 $1,621,214 ================= ================== ================= ================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest 484,000 521,000 Cash paid during the period for income taxes 69,000 ---
See notes to condensed consolidated financial statements 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 generally accepted accounting principles 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, 2000. The balance sheet as of December 31, 2000 was derived from audited financial statements as of that date. The results of operations for the nine months ended September 30, 2001 are not necessarily indicative of the results to be expected for the full year. 2. GAIN ON SALES OF PROPERTIES --------------------------- For the three months ended September 30, 2001 Grove Isle Yacht Club Associates (GIYCA) sold 3 yacht slips located in Miami, Florida resulting in a gain to the Company of approximately $93,000. For the nine months ended September 30, 2001 GIYCA has sold 12 yacht slips resulting in a net gain to the Company of approximately $382,000. In June 2001, The Grove Towne Center-Texas, Ltd. sold approximately 1.6 acres of vacant land located in Houston, Texas, resulting in a net gain to the Company of approximately $482,000. In June 2001, HMG Fieber Associates sold its property located in Fitchburg, Massachusetts, resulting in a net gain to the Company of approximately $103,000. The proceeds included a $190,000 promissory note from the buyer. The net gain on the sale was recorded under the installment method of accounting for real estate sales, as the transaction did not meet the criteria for the full accrual method. Accordingly, approximately $93,000 of the net gain has been deferred. In January 2001, HMG Fieber Associates sold six of its properties located primarily in New York, resulting in a net gain to the Company of approximately $1,035,000. 3. INVESTMENTS IN MARKETABLE SECURITIES ------------------------------------ Investments in marketable securities are composed primarily of large capital corporate equity and debt securities in varying industries. These securities are classified as available-for-sale and carried at fair value, based on quoted market prices. The net unrealized gains or losses on these investments are reported as a separate component of stockholders' equity (accumulated other comprehensive loss). Gross unrealized gains on available-for-sale securities as of September 30, 2001 were approximately $307,000. Gross unrealized losses as of September 30, 2001 were approximately $1,723,000. (4) HMG/COURTLAND PROPERTIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Unrealized gain (loss) from sales of securities pending delivery is reported in the statement of operations. For the three and nine months ended September 30, 2001 the unrealized gain (loss) was approximately $99,000 and ($735,000), respectively. The nine-month unrealized loss of $735,000 was primarily from the realization of gains of approximately $997,000 from short positions closed during this nine-month period. These closed positions were previously included in unrealized gain from securities pending delivery. There were no short positions closed during the three months ended September 30, 2001. For the three and nine months ended September 30, 2000 such unrealized gains were approximately $268,000 and $659,000, respectively. Gross gains on sales of marketable securities of approximately $326,000 and $1,727,000 were realized during the three and nine months ended September 30, 2001, respectively, of which approximately zero and $997,000, respectively, had previously been reported as unrealized gain from securities pending delivery. Gross losses of approximately $497,000 and $829,000 were realized during the three and nine months ended September 30, 2001, respectively. Included in gross losses for the three and nine months ended September 30, 2001 was approximately $168,000 and $328,000, respectively, representing a decline in market value of securities deemed to be other than temporary. Effective January 1, 2001, gross gains and losses are based on the first-in first-out method of determining cost, net of the Advisor's incentive fee. The Company had previously recorded gains and losses based on the average cost method. The cumulative effect of the accounting change was not significant to the condensed consolidated financial statements. 4. OTHER INVESTMENTS ----------------- Included in net loss from other investments for the nine months ended September 30, 2001 is approximately $774,000 of charges representing the write down of technology-related investments. These investments were deemed to have suffered an other-than-temporary decline in value. The carrying value of these investments prior to the write down was approximately $1,050,000. 5. 2000 STOCK OPTION PLAN ---------------------- As previously reported, on June 25, 2001 the Board of Directors approved the 2000 Stock Option Plan (the "Plan"). Under the Plan, options were granted to all officers and directors to purchase an aggregate of 86,000 common shares at no less than 100% of the fair market value at the date of grant. The average exercise price of the options, which are fully vested, is $7.84 per share. The Company's stock price on the date of grant was $7.57 per share. 6. RECENT ACCOUNTING PRONOUNCEMENTS -------------------------------- In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. (5) HMG/COURTLAND PROPERTIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of September 30, 2001, the net carrying amount of other intangible assets is approximately $162,000. Amortization expense during the nine month period ended September 30, 2001 was approximately $18,000. There was no goodwill at September 30, 2001. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. 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 are 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. Currently, the Company is assessing but has not yet determined how the adoption of SFAS No. 144 will impact its financial position and results of operations. (6) HMG/COURTLAND PROPERTIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 7. BASIC AND DILUTED EARNINGS PER SHARE ------------------------------------ Basic and diluted earnings per share for the three and nine months ended September 30, 2001 and 2000 are computed as follows:
For the three months ended For the nine months ended September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Basic: Net (loss) income ($464,367) $797,406 $450,117 $3,769,153 Weighted average shares outstanding 1,089,135 1,058,796 1,089,135 1,055,779 ----------------------------------------------------------------------- Basic (loss) earnings per share ($.43) $.75 $.41 $3.57 ======================================================================= Diluted: Net (loss) income ($464,367) $797,406 $450,117 $3,769,153 Weighted average shares outstanding 1,089,135 1,058,796 1,089,135 1,055,779 Options to acquire common stock -- 11,818 -- 12,974 ----------------------------------------------------------------------- Diluted weighted average common shares 1,089,135 1,070,614 1,089,135 1,068,753 ----------------------------------------------------------------------- Diluted (loss) earnings per share ($.43) $.74 $.41 $3.53 =======================================================================
Options, issued in June 2001, to acquire 86,000 shares of the Company's common stock were excluded from diluted earnings per share as their exercise price exceeded the average price of the stock during the nine months ended September 30, 2001 and were anti-dilutive during the three months ended September 30, 2001. (7) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) RESULTS OF OPERATIONS --------------------- The Company reported net (loss) income of approximately ($464,000) (or $.43 per basic and diluted share) and $450,000 (or $.41 per basic and diluted share) for the three and nine months ended September 30, 2001, respectively. This is as compared with net income of approximately $797,000 (or $.75 per basic share and $.74 per diluted share) and $3,769,000 (or $3.57 per basic share and $3.53 per diluted share) for the three and nine months ended September 30, 2000, respectively. Total revenues for the three and nine months ended September 30, 2001, as compared with the same periods in 2000, decreased by approximately $1,407,000 (or 98%) and $4,089,000 (or 72%), respectively. Total expenses for the three and nine months ended September 30, 2001, as compared with the same periods in 2000, decreased by approximately $131,000 (or 13%) and $292,000 (or 10%), respectively. Gain on sales of properties for the three and nine months ended September 30, 2001 was approximately $94,000 and $1,909,000, respectively. Gain on sales of properties for the three and nine months ended September 30, 2000 was approximately $168,000 and $415,000, respectively. REVENUES Rentals and related revenue for the three and nine months ended September 30, 2001 was approximately $378,000 and $1,087,000, respectively. This is as compared with approximately $425,000 and $1,263,000, respectively for the same comparable periods in 2000. These decreases of approximately $47,000 (or 11%) and $176,000 (or 14%) for the three and nine month comparable periods, respectively were primarily the result of the reduction in rental revenue due to the sale of the six HMG Fieber retail stores in January 2001. Net (loss) gain from sale of marketable securities for the three and nine months ended September 30, 2001 was approximately ($171,000) and $897,000, respectively. Included in these amounts, for the three and nine months ended September 30, 2001, is approximately $168,000 and $328,000 in losses representing a decline in market value of securities deemed to be other than temporary. Also included in the net gains for the nine months ended September 30, 2001 is approximately $997,000, which were realized from short positions closed which were previously included in unrealized gain from securities pending delivery. For the three and nine months ended September 30, 2000 net gain from sale of marketable securities was approximately $485,000 and $3,050,000, respectively, resulting in decreased gains of approximately $656,000 and $2,152,000, respectively. Unrealized gain (loss) from sales of securities pending delivery is reported on the statement of operations. For the three and nine months ended September 30, 2001 such gain (loss) was approximately $99,000 and ($735,000), respectively. The nine-month unrealized loss of $735,000 was primarily from the realization of approximately $997,000 of short positions closed during this nine-month period. These closed positions were previously included in unrealized gain from securities pending delivery. There were no short positions closed during the three months ended September 30, 2001. For the three and nine months ended September 30, 2000 unrealized gain from sales of securities pending delivery was approximately $268,000 and $659,000, respectively. (8) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Net loss from other investments for the three and nine months ended September 30, 2001 was approximately $511,000 and $367,000, respectively. This is as compared with net gains of approximately $55,000 and $85,000 for the three and nine months ended September 30, 2000, respectively. In September 2001, an investment in a venture capital fund which focused on technology and communications was deemed to have suffered other-than-temporary losses and accordingly was written down from its original $1 million carrying value to $271,000. The resulting loss of $729,000 was partially offset by a net gain of approximately $187,000 from an investment in a partnership, which sold real estate in August 2001. In addition in June 2001, the Company recorded an approximate $45,000 charge for the write down of a technology-related investment. Interest and dividends from invested cash for the three and nine months ended September 30, 2001 was approximately $100,000 and $330,000, respectively. This is as compared with approximately $83,000 and $252,000 for the same comparable periods in 2000. These increases of approximately $17,000 (or 20%) and $78,000 (or 31%) for the three and nine month comparable periods, respectively, were primarily due to increased investments in debt securities. EXPENSES Operating expenses of rental properties and other for the three and nine months ended September 30, 2001 was approximately $140,000 and $401,000, respectively. This is as compared with approximately $153,000 and $450,000 for the same periods in 2000, respectively. These decreases of approximately $13,000 (or 8%) and $49,000 (or 11%) for the three and nine month comparable periods were primarily the result of lower operating costs of HMG Fieber properties due to the aforementioned sale of six stores in January 2001. Marina expenses for the three and nine months ended September 30, 2001 were approximately $112,000 and $332,000, respectively. This is as compared with approximately $95,000 and $285,000 for the same periods in 2000. These increases of approximately $17,000 (or 18%) and $47,000 (or 16%) for the three and nine month comparable periods were primarily attributable to higher insurance costs. Professional fees and expenses for the three and nine months ended September 30, 2001 were approximately $83,000 and $199,000, respectively. This is as compared with approximately $46,000 and $115,000 for the same periods in 2000. These increases of approximately $37,000 (or 80%) and $84,000 (or 73%) for the three and nine month comparable periods were primarily due to increased legal fees relating to the Company's annual proxy material and the reversal of over accrued legal fees in the second quarter of 2000. Depreciation and amortization expense for the three and nine months ended September 30, 2001 was approximately $145,000 and $440,000, respectively. This is as compared with approximately $177,000 and $537,000 for the same periods in 2000. These decreases of approximately $32,000 (or 18%) and $97,000 (or 18%) for the three and nine month comparable periods were primarily due to decreased depreciation as a result of sales of properties. (9) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) Interest expense for the three and nine months ended September 30, 2001 was approximately $173,000 and $561,000, respectively. This is as compared with approximately $216,000 and $652,000 for the same periods in 2000. These decreases of approximately $43,000 (or 20%) and $91,000 (or 14%) for the three and nine month comparable periods were attributable to decreased loan amounts outstanding due to repayments and decreased interest rates. Minority partners' interest in operating gains of consolidated entities for the three and nine months ended September 30, 2001 was approximately $3,000 and $6,000, respectively. This is as compared with approximately $92,000 and $208,000 for the three and nine months ended September 30, 2000, respectively. These decreases of $89,000 (or 97%) and $202,000 (or 97%) for the three and nine month comparable periods in 2000 were primarily the result of decreased operating income from Courtland Investments, Inc. (95% owned) and HMG Fieber Associates (70% owned). (Benefit from) provision for income taxes for the three and nine months ended September 30, 2001 was approximately ($312,000) and $408,000, respectively. The benefit from income taxes for the three months ended September 30, 2001 was primarily attributable to the aforementioned write down of investments. The increase in the provision for income taxes of approximately $632,000 for the nine months ended September 30, 2001 as compared with the prior period is due primarily to the gain on sales of properties in 2001. The payment of any future dividends may reduce or eliminate the Company's income tax liability. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- The Company's material commitments primarily consist of maturities of debt obligations. The funds necessary to meet these obligations are expected from the proceeds of sales of properties, refinancing, distributions from investments and available cash. The Company believes that its cash flow from operations will be sufficient to meets its cash requirements over the next 12 months. In addition, the Company intends to continue to seek opportunities for investments in income producing properties. MATERIAL COMPONENTS OF CASH FLOWS --------------------------------- For the nine months ended September 30, 2001, net cash provided by investing activities was approximately $2,363,000. This was comprised primarily of net proceeds from disposals of properties of approximately $3,173,000 and net proceeds from sales and redemptions of securities of $2,820,000. These increases were partially offset by uses of cash resulting from increased investments in marketable securities of approximately $3,134,000, increased net contributions to other investments of approximately $411,000 and increase mortgage loans, notes and other receivables of approximately $416,000. For the nine months ended September 30, 2001, net cash used in financing activities was approximately $1,200,000. This consisted primarily of repayment of mortgages and notes payable of approximately $722,000 and distributions to minority partners of approximately $478,000. (10) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Unaudited) RECENT ACCOUNTING PRONOUNCEMENTS: --------------------------------- In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires the use of the purchase method of accounting and prohibits the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30, 2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142 that the Company reclassify the carrying amounts of intangible assets and goodwill based on the criteria in SFAS 141. SFAS 142 requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142 requires that the Company identify reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of other intangible assets within the first interim quarter after adoption of SFAS 142. The Company's previous business combinations were accounted for using the purchase method. As of September 30, 2001, the net carrying amount of other intangible assets is approximately $162,000. Amortization expense during the nine month period ended September 30, 2001 was approximately $18,000. There was no goodwill at September 30, 2001. Currently, the Company is assessing but has not yet determined how the adoption of SFAS 141 and SFAS 142 will impact its financial position and results of operations. 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 are 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. Currently, the Company is assessing but has not yet determined how the adoption of SFAS No. 144 will impact its financial position and results of operations. (11) PART II. OTHER INFORMATION Item 1. Legal Proceedings ------- ----------------- No items to report. Item 4. Submissions of Matters to a Vote of Security Holders ------- ---------------------------------------------------- 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, 2001. (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. /s/ Lawrence Rothstein Dated: November 14, 2001 --------------------------------------- Lawrence Rothstein President, Treasurer & Secretary /s/ Carlos Camarotti Dated: November 14, 2001 --------------------------------------- Carlos Camarotti Vice President - Finance and Controller (13)