-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G8kCE7CSN79BC2b47UnZvU5dEp2XmbySNerPGd4ZhUu8so9INZr1vySqElNmUvOg pCZGDhSN2ZmWyVvQDNKJ5A== 0000950159-99-000080.txt : 19990331 0000950159-99-000080.hdr.sgml : 19990331 ACCESSION NUMBER: 0000950159-99-000080 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HMG COURTLAND PROPERTIES INC CENTRAL INDEX KEY: 0000311817 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 591914299 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: SEC FILE NUMBER: 001-07865 FILM NUMBER: 99578567 BUSINESS ADDRESS: STREET 1: 2701 S BAYSHORE DR CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 3058546803 MAIL ADDRESS: STREET 1: 2701 S BAYSHORE DRIVE STREET 2: 2701 S BAYSHORE DRIVE CITY: COCONUT GROVE STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: HMG PROPERTY INVESTORS INC DATE OF NAME CHANGE: 19880215 FORMER COMPANY: FORMER CONFORMED NAME: HOSPITAL MORTGAGE GROUP INC DATE OF NAME CHANGE: 19810818 10KSB40 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 ----------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-7865 HMG/COURTLAND PROPERTIES, INC. (Name of small business issuer in its charter) DELAWARE 59-1914299 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2701 S. Bayshore Drive, 33133 Coconut Grove, Florida (Zip Code) (Address of principal executive offices) Issuer's telephone number, including area code: (305) 854-6803 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange Share of Common Stock: on which registered: Par value $1.00 per share American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 [ ] Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this form 10-KSB. [ X ] DOCUMENTS INCORPORATED BY REFERENCE: NONE Total Number of Pages: _____ Exhibit Index: Page No.: N/A (continued) State the issuer's revenues for the most recent fiscal year: $3,003,019 State the aggregate market value of the voting stock held by non-affiliates of the Registrant: $2,377,397 based on the closing price of the stock as traded on the American Stock Exchange on March 19, 1999. (Excludes shares of voting stock held by directors, executive officers and beneficial owners of more than 10% of the Registrant's voting stock; however, this does not constitute an admission that any such holder is an "affiliate" for any purpose.) Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of the latest practicable date: 1,100,235 shares of common stock, $1 par value, as of March 19, 1999. Cautionary Statement. This Annual Report 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 Annual Report 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. (2) Part I. Item 1. Business. - ------------------ HMG/Courtland Properties, Inc. (the "Company") invests in a portfolio of equity interests in commercial real estate. The Company was organized in 1972 and qualifies for taxation as a real estate investment trust ("REIT") under the Internal Revenue Code. The Company's present investment policy is to invest primarily in income-producing commercial properties. To implement its investment policy, the Company directly and through its subsidiaries has invested in improved properties and in the commercial development of unimproved properties held in its portfolio or acquired for that purpose. The following table summarizes the Company's portfolio of real estate investments as of December 31, 1998: Percent of Geographic Distribution Investments (1) ----------------------- --------------- Florida 74% Texas 21% Northeastern United States (2) 5% ----- 100% ==== Type of Property(3) Undeveloped land 21% Hotel and club facility 45% Individual retail stores 4% Yacht slips 11% Shopping center and other 19% ----- 100% ==== ----------------- (1) For each category, the aggregate of cost less accumulated depreciation divided by the aggregate of such investments in all real estate owned directly by the Company or by joint ventures in which the Company has a majority interest. The Company's minority interests in joint ventures are not included in the above. (2) New York, Massachusetts, Maine and Vermont. (3) Based on predominant present or intended use. Reference is made to Item 12. Certain Relationships and Related Transactions for discussion of the Company's organizational structure and related party transactions. Consolidated Entities - --------------------- Courtland Investments, Inc. ("CII"). The Company owns a 95% equity interest in CII (all non-voting). The other 5% equity interest (which is 100% of the voting interest) is held by Masscap Investment Company, Inc. ("MICI"), a wholly-owned subsidiary of Transco Realty Trust ("Transco") which is a 43% shareholder of the Company. The Company and MICI have had a continuing arrangement with regard to the ongoing operations of CII, all of which provides the Company with complete authority over all decision making relating to the business, operations and financing of CII consistent with its status as a real estate investment trust. (3) CII owns equity interests in certain corporations and partnerships that are passive (non-operating) in nature. CII also owns an interest in a partnership which owns a 50 room hotel and private club (see discussion on Grove Isle Associates, Ltd. "GIA"), a corporation (Grove Isle Club Inc."GICI") which formerly operated the hotel and club and a joint venture owning the marina adjacent to the hotel and club (Grove Isle Yacht Club Associates "GIYCA"). The properties are located in Coconut Grove, Florida, and a more detailed description of each follows: Grove Isle Associates, Ltd. ("GIA"). This limited partnership (owned 15% by CII and 85% by the Company) owns a 50 room hotel and private club facility (the "facility") located on 7 acres of a private island in Coconut Grove, Florida, known as "Grove Isle". In addition to the 50 hotel rooms, the facility includes public space, tennis courts, and a pool. The facility is encumbered by a mortgage note payable with an outstanding balance of approximately $4.5 million and $4.0 million as of December 31, 1998 and 1997, respectively. In September 1998, the Company refinanced this mortgage note payable. The outstanding balance of the note was increased from approximately $4.0 million to $4.5 million. The terms of the new mortgage note include payments based on a twenty-five (25) year amortization with all outstanding principal and interest due in September 2010. The interest rate is fixed at 7.75% for the first three years of the loan. The rate will then be re-adjusted and become fixed at 290 basis points above the then five (5) year Treasury Note rate for the next three years, and re-adjusted every three years thereafter at the then five (5) year Treasury Note rate. In November 1996, GIA entered into a long-term lease with an unrelated tenant, Westgroup Grove Isle Associates, Ltd. ("Westgroup") and a Master Agreement with Westgroup whereby among other things Westgroup assumed the operations of the Grove Isle hotel and club. The leased premises includes all real property and all furniture, furnishings, fixtures, appliances and other equipment used in connection with the operation of the Grove Isle hotel, resort and membership club. The initial term of the lease is ten years and calls for annual net base rent of $880,000 plus real estate taxes and property insurance, payable in monthly installments. In addition to the base net rent Westgroup shall also pay GIA participation rent consisting of a portion of Westgroup's operating surplus, as defined in the lease agreement. Participation rent is due at end of each lease year. No participation rent was due in 1998 or 1997. Furthermore, as previously reported, in consideration for GICI relinquishment of its rights in and to the original lease with GIA, GIA agreed to pay to GICI the sum of $200,000 for each year that the Westgroup lease is in good standing and has also assigned to GICI the aforementioned participation rent due from Westgroup. This sum is payable annually commencing in November 1997. This amount is eliminated in consolidation. During 1997 and in conjunction with the aforementioned agreements, GIA advanced $500,000 to the principal owner of the tenant of the Grove Isle property. GIA received a promissory note bearing interest at 8% per annum with interest payments due quarterly beginning on July 1, 1997 and all principal due at maturity in 2006. All interest payments due have been received. Grove Isle Club, Inc. ("GICI"). This corporation operated the aforementioned hotel and club through November 18, 1996. It's primary sources of revenues are presently from the aforementioned $200,000 annual payment from GIA. As of December 31, 1998 and 1997 GICI has amounts due to GIA which are eliminated in consolidation of approximately $1,758,000 and $1,759,000, respectively. This promissory note bears interest at a fixed rate of 8% per annum and is due on demand. Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the developer of the 85 boat slips located at Grove Isle. As of December 31, 1998, forty-two slips remain unsold and are encumbered by the aforementioned $4.5 million mortgage note payable by GIA. GIYCA (through a 100% owned (4) subsidiary) operates and maintains all aspects of the marina at Grove Isle in exchange for an annual maintenance fee from the slip owners to cover operational expenses. HMG-Fieber Associates ("Fieber"). HMG-Fieber Associates, a joint venture owned 65% by the Company and 35% by NAF Associates (NAF), a Connecticut general partnership, owns 10 retail stores. Eight of the stores are leased to Grossman's, Inc., a chain of home improvements stores, under net leases. Two stores are not leased at the present time. During 1998, there were no Fieber properties sold. During 1997 Fieber sold 4 of its locations as described below. All except one of the remaining leases contain renewal options of at least five years. In October 1997, Fieber sold its property located in Pittsfield, Maine for $75,000 and recognized a gain to the venture of approximately $33,000. The net gain to the Company was approximately $19,000. In August 1997, Fieber sold its property located on Presque Isle, Maine for $150,000 and recognized a gain to the venture of approximately $102,000. The net gain to the Company was approximately $60,000. In March 1997, Fieber sold its store located in Vestal, New York for $350,000 and recognized a gain to the venture of approximately $226,000. The net gain to the Company was approximately $132,000. In January 1997, Fieber sold its store located in Springfield, Massachusetts for approximately $937,000 and recognized a gain to the venture of approximately $774,000. The net gain to the Company was approximately $452,000. Reference is made to Item 12. Certain Relationships and Related Transactions for further information regarding the failure of former directors Lee Gray and Norman Fieber to disclose Mr. Gray's interest in NAF, the inquiry into that failure by a Special Committee appointed by the Board of Directors and the actions taken by the Board of Directors as a result of that inquiry. 260 River Corp. ("260"). On January 1, 1997, each partner in HMG-Fieber received its pro rata interest in the ventures' property located in Vermont. The property was transferred at book value and resulted in no gain or loss to the Company. The Company's 65% interest in this property is owned by 260 River Corp., a wholly-owned subsidiary. The Grove Towne Center - Texas, Ltd. ("TGTC"). The Grove Towne Center-Texas, Ltd. is a limited partnership owned 75% by the Company (including a 1% general partnership interest by a wholly-owned subsidiary of the Company). The remaining 25% partnership interest is held by an unrelated entity. In March 1999, TGTC sold approximately 2.3 acres for approximately $557,000 and the Company recognized a net gain of approximately $203,000. On January 1, 1998 a 10% limited partner of TGTC assigned its partnership interest to the Company in exchange for the cancellation of a $677,000 promissory note due to the Company. This assignment has no impact on the Company's consolidated financial statements. In January 1998, TGTC sold approximately 13.5 acres for $2.6 million. The net gain on this sale to the Company was approximately $725,000. (5) In December 1997, TGTC was awarded approximately $380,000 from the State of Texas in consideration for the condemnation of 28,000 square feet of its property to be used to widen the adjacent freeway. The net gain to the Company was approximately $181,000. In February 1997, TGTC sold .7 acres for $244,000. The net gain to the Company was approximately $68,000. In January 1997, TGTC sold 3.15 acres for $823,000. The net gain to the Company was approximately $146,000. South Bayshore Associates ("SBA"). SBA is a joint venture, formed in 1986 in which Transco Realty Trust (Transco) and the Company hold interests of 25% and 75%, respectively. The major asset of SBA is a demand note bearing interest at the prime rate from Transco with an outstanding balance as of December 31, 1998 and 1997 of approximately $475,000 and $450,000, respectively, in principal and accrued interest. The Company holds a demand note (which is eliminated in consolidation) from SBA bearing interest at the prime rate plus 1% with an outstanding balance including accrued interest as of December 31, 1998 and 1997 of approximately $994,000 and $935,000, respectively, in principal and accrued interest. HMG Fashion Square, Inc. This wholly-owned subsidiary has a 90% partnership interest in Fashion Square Partnership (the "partnership") formed in 1992 for the purpose of developing a shopping center located on approximately 11.5 acres near Jacksonville, Florida. The shopping center presently consists of four operating restaurants and a Sears Homelife Center. Three of the four restaurant operators are leasing the property from the partnership and the fourth operator purchased the third and final out parcel from the partnership in November 1997, the partnership sold its last out parcel, approximately one acre, for $400,000. The net gain to the Company was approximately $175,000. The purchaser is an operator of a chain of restaurants. In December of 1996, the partnership entered into a lease with a tenant which is an operator of a restaurant. The leased premises, a 6,242 square foot restaurant, was constructed in 1996 and the partnership contributed $200,000 towards the cost of the restaurant building. The initial term of the lease is ten years and calls for annual base rent of $80,000 for years one through five and $88,000 for years six through ten. The lease also calls for percentage rent based on sales. No percentage rent was due in 1998 or 1997. The lease also provides three five year renewal options for years eleven through twenty-five with escalating base rent. This property is encumbered by a mortgage loan of $350,000 which bears interest at a fixed rate of 9.75% and calls for monthly interest-only payments with all principal due in November 1999. In November, 1994, the partnership entered into a ground lease with a tenant which is an operator of a restaurant. In 1995, this tenant completed construction of a restaurant on the 3/4 acres of land covered by the ground lease. The initial term of the lease is twenty years and calls for base rent of $60,000 per year with 12.5% increase every five years. In March 1994, the partnership entered into a ground lease with a tenant which is an operator of a 7,000 square foot restaurant on the one acre parcel covered by the ground lease. The partnership agreed to contribute approximately $100,000 in improvements to the leased site. The initial term of the lease is ten years and calls for base rent of $60,000 per year with 1% increases each subsequent year. This property is encumbered by a mortgage loan of $300,000 which bears interest at a fixed rate of 9.75% and calls for monthly interest-only payments with all principal due in February 2001. (6) HMG Sugargrove, Inc. This wholly-owned subsidiary sold its sole asset (eight acres of land located in Houston, Texas) in June 1998 for approximately $1,064,000. The net gain to the Company was approximately $621,000. In July 1997, a prospective buyer of the 8 acres forfeited a $225,000 non-refundable deposit and did not close on the sale. This amount was recognized as other income in 1997. Insurance, Environmental Matters and Other. - ------------------------------------------- In the opinion of management, all assets of the Company are adequately covered by insurance and the cost and effects of complying with environmental laws do not have a material impact on the Company's operations. Other Transactions and Investments. - ----------------------------------- (a) Sales of Property. ------------------ In March 1998, the Company, in conjunction with the previously disclosed 1997 condemnation of land by the state of Texas, received an additional condemnation award of approximately $144,000 and recognized a net gain of approximately $86,000. Reference is made to the above sections of Item 1. Business and Item 6. Management's Discussion and Analysis or Plan of Operation for information concerning sales of properties. (b) Other Investments. ------------------ In September 1998, the Company invested $250,000 in an unrelated privately-held mortgage fund which invests in high-yield mortgage-backed securities. As of December 31, 1998, the carrying value of this investment approximates its net realizable value. Other Unconsolidated Investments of CII. T.G.I.F. Texas, Inc. (T.G.I.F.). CII owns 2,798,232 shares of common stock of T.G.I.F. Texas, Inc., a Texas publicly-held corporation (T.G.I.F.), (representing approximately 49% of T.G.I.F. equity) with a carrying value of approximately $2.4 million. Mr. Wiener (T.G.I.F.'s Chairman and sole director) is an 18% stockholder of T.G.I.F. As of December 31, 1998 and 1997, CII had outstanding loans due to T.G.I.F. of approximately $3.2 million and $3.1 million, respectively. These loans are payable on demand and bear interest at the prime rate (7.75% as of December 31, 1998). Interest is payable annually, CII expects to repay these loans with proceeds from distributions of its investments. The carrying value of CII's investment in T.G.I.F. approximates its net realizable value. CII also owns investments primarily in the form of limited partnership interests in companies whose purpose is to make equity investments in growth oriented enterprises. The Company's ownership interest in these partnerships represents less than 3% of each partnership's total ownership. Competition. - ------------ The Company competes for suitable opportunities for real estate investments with other real estate investment trusts, foreign investors, pension funds, insurance companies and other investors. The Company also competes with other real estate investors and borrowers for available sources of financing. In addition, to the extent the Company directly and through its subsidiaries leases properties, it must compete for tenants with other lessors offering similar facilities. Tenants sought by providing modern, well-maintained facilities at competitive rentals. The Company has attempted to facilitate successful (7) leasing of its properties by investing in facilities that have been developed according to the specifications of tenants and special local needs. Employees. - ---------- The Company has no employees other than officers who are not compensated for their services as such. Advisory Agreement (the "Agreement"). - ------------------------------------- Terms of the Agreement. Under the terms of the Agreement, HMG Advisory Corp. (the "Advisor") serves as the Company's investment advisor and, under the supervision of the directors of the Company, administers the day-to-day operations of the Company. All officers of the Company who are officers of the Advisor are compensated solely by the Advisor for their services. The Agreement is renewable annually upon the approval of a majority of the directors of the Company who are not affiliated with the Advisor and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days' written notice by the Advisor or upon 60 days' written notice by a majority of the unaffiliated directors of the Company or the holders of a majority of the Company's outstanding shares. Under the Agreement, the Advisor is entitled to receive a monthly fee of $55,000. The Advisor is entitled to an annual incentive compensation equal to the sum of 10% of net realized capital gains and extraordinary items of income for that year and 10% of the amount, if any, by which net profits of the Company for such fiscal year exceeded 8% per annum of the Average Net Worth of the Company, as defined. The Advisor also is entitled to a monthly fee of 20% of the amount of any unrefunded commitment fees received by the Company with respect to mortgage loans and other commitments which the Company was not required to fund and which expired within the next preceding calendar month. As previously reported, on April 4, 1997, the Board of Directors approved the aforementioned advisory agreement between the Company and HMG Advisory Corp. effective for a term commencing January 1, 1998 through December 31, 1998. This advisory agreement was approved by a majority of the shareholders of the Company at the 1997 Annual Meeting of Shareholders on June 27, 1997. The advisory agreement is substantially the same as the former advisory agreement with Courtland Group, Inc., but with a 25% reduction in the regular compensation paid to the Advisory. The Advisor is majority owned by Mr. Wiener with a portion of the remaining shares owned by certain officers. The officers and directors of the Advisor are as follows: Maurice Wiener, Chairman of the Board and Chief Executive Officer; Lawrence I. Rothstein, President, Treasurer, Secretary and Director; Carlos Camarotti, Vice President - Finance and Assistant Secretary; and Bernard Lerner, Vice President. Advisory Fees. For the year ended December 31, 1998, the Company and its subsidiaries paid the Advisor approximately $792,000 in fees, of which $660,000 represented regular compensation and approximately $132,000 represented incentive compensation, including approximately $39,000 paid by CII to the Advisor relating to capital gains realized by CII. Also, in January 1998, the Company paid Courtland Group, Inc. (the former advisor) approximately $80,000 in incentive fee compensation relating to the sale of property substantially completed in 1997, but did not close until January 1998. In 1997, Courtland Group Inc. was paid regular compensation of $875,000, and incentive compensation of approximately $385,000, including approximately $130,000 paid by CII to the Advisor relating to capital gains realized by CII. The Advisor is also the manager for certain of the Company's affiliates and received fees of approximately $30,000 in 1998 for such services. (8) Item 2. Description of Property. - -------------------------------- The principal executive offices of the Company and the Advisor are located at 2701 South Bayshore Drive, Coconut Grove, Florida, 33133, in premises furnished by the Advisor pursuant to the terms of the Agreement. Reference is made to Item 1. Business for a description of the Company's properties. Item 3. Legal Proceedings. - -------------------------- As previously reported, the Company has made certain claims and took certain other actions against Lee Gray, a former officer and Director of the Company, Norman A. Fieber, a former Director of the Company, and certain related parties. The Company's claims and actions arose from the failure of Messrs. Gray and Fieber to disclose Mr. Gray's and Mr. Gray's sister's interest in the Company's HMG- Fieber Wallingford Associates and HMG-Fieber Associates joint ventures (the "Joint Ventures") and the inquiry into Messrs. Gray's and Fieber's failure to disclose Mr. Gray's and Mr. Gray's sister's interest in HMG-Fieber Associates by a Special Committee appointed by the Board of Directors (the "Inquiry"). The Company is currently party, as both plaintiff and defendant, to litigation in two jurisdictions stemming from the Inquiry and the actions taken by the Company and Courtland Group, Inc., a Delaware corporation ("CGI"), subsequent to the Inquiry. HMG Courtland Properties, Inc. v. Lee Gray et al (the "Delaware Litigation"). - ----------------------------------------------------------------------------- On July 2, 1997, the Company filed suit in the Court of Chancery of the State of Delaware in and for New Castle County against Lee Gray (individually and as a partner in Martine Avenue Associates), Norman A. Fieber (individually and as a partner in NAF Associates), Betsy Gray Saffell (Lee Gray's sister) (individually and as a partner in Martine Avenue Associates), Martine Avenue Associates, (a New York general partnership in which Mr. Gray and Mrs. Saffell are the general partners) ("Martine"), NAF Associates (a Connecticut general partnership in which Mr. Fieber and Martine are general partners, and the Company's joint venture partner in HMG-Fieber Associates ("NAF"), and The Jim Fieber Trust ( a trust for beneficiaries including Mr. Fieber and Martine, and the Company's joint venture partner in HMG-Fieber Wallingford Associates, which has James A Fieber, son of Norman A. Fieber, as trustee) (the "Trust"). NAF and the Trust have been dismissed from the case because the Delaware court determined that it did not have personal jurisdiction over those two entities. The Company's lawsuit is based on the facts underlying the Board of Directors' conclusion , based upon the report of the Special Committee following the Inquiry and in consultation with counsel, that Mr. Gray breached his fiduciary duties to the Company and CGI by failing to disclose his and his sister's interest in the Joint Ventures, and that Mr. Fieber breached his fiduciary duty to the Company and assisted Mr. Gray by failing to disclose Mr. Gray's and Mr. Gray's sister's interest in the Joint Ventures. The Company's suit makes the following claims: (i) breach of fiduciary duty against Mr. Gray; (ii) breach of fiduciary duty against Mr. Fieber; (iii) aiding and abetting against Mr. Fieber, Mrs. Saffell, Martine, NAF and the Trust; (iv) usurpation of a corporate opportunity against all defendants; (v) common law fraud against Messrs. Gray and Fieber; and (vi) conspiracy against all defendants. Relief being sought by the Company includes: (i) damages; (ii) imposition of constructive trust for the benefit of the Company over, and an accounting of, the defendants' interests in the Joint Ventures; (iii) a recision of the transactions which created the Joint Ventures; and (iv) a disgorgement of all interests and profits derived by all the defendants from the Joint Ventures. Trial of the lawsuit is scheduled to begin May 10, 1999 and is expected to last one week. The Company believes strongly that its claims are meritorious and intends to vigorously pursue all legal remedies against all defendants. Lee Gray v. HMG/Courtland Properties, Inc et al (the "Florida Litigation"). - --------------------------------------------------------------------------- On May 22, 1997, Lee Gray, a former director and officer and a shareholder of the Company and a former officer and director and a shareholder of CGI, which served as the Company's advisor pursuant to an advisory agreement which expired December 31, 1997, filed suit in the Circuit Court of the 11th (9) Judicial Circuit in and for Dade County, Florida against the following defendants: (i) the Company; (ii) all of the directors and certain of the officers of the Company and of CGI; (iii) CGI; and (iv) HMG Advisory Corp., a Delaware corporation that has served as the Company's advisor since January 1, 1998. In his lawsuit, Mr. Gray, individually and derivatively as a shareholder of CGI, alleges, among other things, that his removal as an officer of the Company, his failure to be nominated for reelection as Director of the Company, his subsequent removal as an officer and director of CGI and the Board of Directors' decision not to renew the Company's former advisory agreement with CGI, were the product of a conspiracy involving certain officers and Directors of the Company and of CGI who wanted to force Mr. Gray out of the Company and CGI, and to terminate the Company's advisory agreement with CGI, for their own financial gain. Mr. Gray has also alleged that he was libeled in the discussion of the Inquiry and the results thereof in certain documents, including documents filed with the Securities and Exchange Commission. Mr. Gray is seeking money damages in excess of $15,000, punitive damages, and temporary and permanent injunctive relief on the following grounds: (i) breach of fiduciary duty against the directors and certain of the officers of the Company; (ii) libel against the Company and the directors and certain of the officers of the Company; (iii) breach of fiduciary duty against the officers and directors of CGI; and (iv) tortious interference with an advantageous business relationship against defendants HMG Advisory Corp. and the officers and directors of CGI. On July 10, 1997, the Company filed a motion to dismiss the portion of the lawsuit directed against it and its directors. The motion to dismiss was granted November 18, 1997. On December 1, 1997, Mr. Gray filed an amended complaint that seeks to reinstate the libel claim against the Company. The Company moved to dismiss the amended complaint and the motion was denied. The parties have agreed to stay this suit pending the outcome of the Delaware litigation described above. The Company and its officers and directors believe strongly that they have meritorious defenses to, and intend to vigorously defend against, the libel claim made by Mr. Gray. CGI also filed a motion to dismiss the tortious interference claims described in (iv) above which was granted. HMGA filed a motion to dismiss which was granted. HMGA is no longer a defendant. Norman A. Fieber v. HMG/Courtland Properties, Inc. et al. - --------------------------------------------------------- On July 8, 1997, Norman A. Fieber, NAF Associates and James A. Fieber, Trustee (collectively, the "Fieber Plaintiffs") filed a separate lawsuit against the Company in the Superior Court of the State of Connecticut, Fairfield/Bridgeport Judicial District. In their lawsuit, the Fieber Plaintiffs sought a declaratory judgement absolving them of any liability to the Company on essentially all of the issues and claims being considered in the Company's lawsuit in Delaware discussed above. On August 27, 1997, the Company moved to dismiss, or in the alternative, stay this action on the grounds that the declaratory judgement action was inappropriate given the pendency of the Company's prior pending lawsuit in Delaware. This motion was never decided. On June 16, 1998, the Fieber Plaintiffs filed a notice of withdrawal of their claims and the matter is now terminated. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------ No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1998. (10) Part II. Item 5. Market Price for Common Equity and Related Stockholder Matters. - ------------------------------------------------------------------------ The high and low per share sales prices of the Company's stock on the American Stock Exchange for each quarter during the past two years were as follows: High Low ------- -------- March 31, 1997 5 1/4 4 5/8 June 30, 1997 5 4 7/16 September 30, 1997 4 3/4 4 1/8 December 31, 1997 6 1/8 4 1/2 March 31, 1998 4 5/8 4 1/4 June 30, 1998 5 1/2 4 1/4 September 30, 1998 5 7/8 4 1/2 December 31, 1998 5 3 5/8 The Company stopped paying dividends, beginning in the fourth quarter of 1990, in order to preserve its cash in light of the overall economic conditions and for future development opportunities. The Company's policy has been to pay such dividends as are necessary for it to qualify for taxation as a REIT under the Internal Revenue Code. The Company continues to meet all qualifications for taxation as a REIT. As of March 19, 1999, there were 220 holders of record of the Company's common stock. Item 6. Management's Discussion and Analysis or Plan of Operation. - ------------------------------------------------------------------ Discussion of Balance Sheet Items: - ---------------------------------- At December 31, 1998, the balance sheet reflected assets consisting primarily of equity interests in real estate investment properties and investments in unconsolidated entities. Liabilities at December 31, 1998 consisted principally of mortgages on individual properties. Significant changes and/or activity in specific balance sheet items between December 31, 1998 and 1997 are described below: Assets: - ------- Commercial and industrial properties increased from approximately $3 million to $3.3 million, an increase of approximately $300,000 or (10%). This increase was primarily the result of improvements made during 1998 to CII's office building which was purchased in 1997. The carrying value of the hotel and club facility decreased from approximately $7.3 million to approximately $6.5 million, a decrease of approximately $800,000 (or 11%). This was primarily the result of depreciation expense. (11) Land held for development decreased from approximately $5.1 million to approximately $3.0 million, a decrease of approximately $2.1 million (or 41%). This was primarily as the result of sales of land located in Houston, Texas. Investments in and receivables from unconsolidated entities increased from approximately $4.1 million to approximately $4.6 million, an increase of approximately $500,000 (or 12%). This was primarily as a result of additional investments (net of distributions) in privately-held limited partnerships whose primary purpose is to make equity investments in growth-oriented enterprises and an investment in a privately-held mortgage fund. The Company's consolidated balance in cash and cash equivalents decreased from approximately $2.5 million to approximately $1.8 million, a decrease of approximately $700,000 (or 28%). This decrease is primarily the result of increased investments in marketable securities and in unconsolidated investments, partially offset by net proceeds from sales of real estate. Investments in marketable securities increased from approximately $100,000 to $1.6 million, as a result of increased cash available for investment primarily from the sales of properties. Other assets decreased from approximately $792,000 to approximately $403,000, a decrease of approximately $389,000 (or 49%). This was primarily the result of decreased funds in escrow relating to the condemnation of certain property located in Houston, Texas on December 31, 1997 and decreased deferred loan costs. Liabilities: - ------------ Accounts payable and accrued expenses increased from approximately $888,000 to approximately $1,059,000, an increase of approximately $171,000 (or 19%). This was primarily as a result of increased accrued expenses of HMG-Fieber Associates. Mortgages and notes payable decreased from approximately $10.2 million to approximately $9.6 million, a decrease of approximately $600,000 (or 6%). The activity during the year consisted of repayments of debt by The Grove Towne Center-Texas, Ltd. of approximately $1.1 million partially offset by increased borrowings of approximately $511,000 relating to the refinancing of the debt encumbering the Grove Isle property. Results of Operations: - ---------------------- For the year ended December 31, 1998, the Company reported a net loss of approximately $930,000 or ($.82 per share) compared with net income of approximately $548,000 (or $.47 per share) for the year ended December 31, 1997. Changes in specific revenues and expenses are discussed below. Revenues: - --------- 1998 versus 1997: - ----------------- Total revenues for the year ended December 31, 1998 as compared with that of 1997 decreased by approximately $872,000 (or 23%). This decrease was primarily due to decreased gains from unconsolidated investments of approximately $708,000 or (78%) and decreased other income due to non-recurring gain from the forfeiture of a land sale deposit of approximately $202,000 and gain on the sale of a yacht slip of approximately $107,000 in 1997. These decreases were partially offset by an increase in the gain on sale of marketable securities of approximately $276,000. (12) Expenses: - --------- 1998 versus 1997: - ----------------- Total expenses for the year ended December 31, 1998 as compared to that of 1997 increased by approximately $99,000 (or 2%). Operating expenses of rental properties and other decreased by approximately $135,000 or (17%) for the year ended December 31, 1998 as compared to 1997. This decrease was primarily due to lower operating expenses of The Grove Towne Center-Texas, Ltd. property as a result of sales during the year. Advisor's fee decreased by $215,000 (or 25%) for the year ended 12/31/98 as compared to 1997. This was the result of the change in the advisory agreement effective January 1, 1998, as previously reported. General and administrative expenses decreased by approximately $95,000 or (20%) for the year ended December 31, 1998 as compared to 1997. This decrease was primarily due to approximately $190,000 of decreased costs relating to the termination of the Grove Isle property operations in the first quarter of 1997. This decrease was partially offset by increased operating costs of CII of approximately $96,000. Professional fees increased by approximately $455,000 (or 69%) for year ended December 31, 1998 as compared to 1997. This was primarily the result of increased costs relating to the on-going litigation, as previously reported. Interest expense decreased by approximately $84,000 (or 9%) primarily as the result of paydowns and refinancing of long-term debt. Minority partner's interest in operating gains (losses) of consolidated entities increased by approximately $280,000 primarily due to decreased losses from The Grove Towne Center -Texas, Ltd. as a result of no further losses being allocated to the minority partner due to a deficit in it's minority balance. Net gain on sale of real estate for the years ended December 31, 1998 and 1997 consisted of the following:
Net gain after incentive fee and minority interest -------------------------------- Property Sold 1998 1997 ---------- ---------- Undeveloped land in Texas $1,433,000 $1,190,000 Undeveloped land in Rhode Island 86,000 -- Land in Florida shopping center -- 174,000 HMG-Fieber retail stores in various states -- 664,000 ---------- ---------- $1,519,000 $2,028,000 ========== ==========
Projected Operating Results: - ---------------------------- The Company's rental and related revenues and expenses in 1999 are expected to remain consistent with those of 1998. 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. (13) Liquidity and Capital Resources: - -------------------------------- The Company's material commitments primarily consist of maturities of debt obligations of approximately $3.9 million in 1999. The funds necessary to meet these obligations are expected from the proceeds of sales of properties, refinancing, distributions from investments and available cash. Included in the maturing debt obligations is a note payable by CII to T.G.I.F. of approximately $3.2 million due on demand. CII intends to repay this obligation, when due, with funds available from distributions from investments. In addition, the Company intends to continue to seek opportunities for investment in income producing properties. The Company used cash from operating activities of approximately $1.4 million for the year ended December 31, 1998 versus approximately $2.2 million in 1997. The Company believes that there will be sufficient cash flows in the next year to meet its operating requirements. Capital Expenditure Requirements - -------------------------------- The Company does not presently anticipate any significant capital expenditures, other than in the ordinary course of business. Material Changes in Operating, Investing and Financing Cash Flows: - ------------------------------------------------------------------ Discussion of 1998 Changes. - --------------------------- For the year ended December 31, 1998, net cash provided by investing activities was approximately $1.7 million. This consisted primarily of net proceeds from disposals of properties of approximately $3.4 million, net proceeds from the sales of and redemptions of securities of approximately $1.5 million, less increased investments in marketable securities of approximately $2.5 million, less acquisitions and improvements of properties of approximately $407,000 and less additional investments of approximately $263,000. For the year ended December 31, 1998, net cash used in financing activities was approximately $967,000. This consisted of repayment of mortgages and notes payable of approximately $5.2 million and purchase of treasury stock of approximately $325,000, partially offset by additional borrowings of $4.6 million. Year 2000. - ---------- Background. - ----------- In the past, many computer software programs were written using two digits rather than four to define the applicable year. As a result, date-sensitive computer software may recognize a date using "00" as the year 1900 rather than the Year 2000. This is generally referred to as the Year 2000 issue. If this situation occurs, the potential exists for computer system failure or miscalculations by computer programs, which could disrupt operations. State of Readiness. - ------------------- Costs and Risks. - ---------------- In February 1999, the Company completed the conversion of its computer system to use 4-digit year fields and therefore believes to be "Year 2000" compliant. The cost of such conversion was not material to the Company's financial condition or results of operation, nor did the Company experience any material disruption in its operations with respect thereto. The Company's computer system is small, consisting of only six personal computers connected via one local area network server located in one facility. The Company utilizes its computer system to perform accounting and word processing functions only. The Company has no other operations which rely on computers or other equipment that would be affected by the Year 2000 issue. (14) The Company is exposed to the risk that one or more of its tenants could experience Year 2000 problems that impact their ability to meet lease obligations to the Company. To date, the Company is not aware of any tenant Year 2000 issue that would have a material adverse impact on the Company's operations. The Company has received an interim status report from its primary tenant at its Grove Isle property in Florida that this tenant is addressing its Year 2000 readiness. The Company has no means of ensuring that this or any other tenant will be Year 2000 ready. The inability of tenants to complete their Year 2000 resolution process in a timely fashion could have an adverse impact on the Company. The effect of non-compliance by tenants is not determinable at this time. The Company's Year 2000 risks are considered minimal and no contingency plans are believed to be necessary. Widespread disruptions in the national or international economy, including disruptions affecting the financial markets, resulting from Year 2000 issues, or in certain industries, such as commercial or investment banks, could also have an adverse impact on the Company. The likelihood and effect of such disruptions is not determinable at this time. Future Accounting Pronouncements. - --------------------------------- SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information, " which among other things, changes the way public companies report information about operating segments, is effective for the Company in 1998. The Company currently operates solely as a real estate investment trust and therefore SFAS No. 131 has no effect on the Company's reporting. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement applies to all entities and is effective for all fiscal quarters of the fiscal years beginning after June 15, 1999. The Company did not materially engage in derivative instruments or hedging activities in any periods presented in the consolidated financial statements. (15) Item 7. Consolidated Financial Statements --------------------------------- Report of Independent Certified Public Accountants..................17. Consolidated balance sheets as of December 31, 1998 and 1997........18. Consolidated statements of operations for the years ended December 31, 1998 and 1997............................19. Consolidated statements of stockholders' equity for the years ended December 31, 1998 and 1997........................20. Consolidated statements of cash flows for the years ended December 31, 1998, and 1997...........................21. Notes to consolidated financial statements..........................22. (16) REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balance sheets of HMG/Courtland Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1998, and 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1998, and 1997 and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Miami, Florida March 19, 1999 (17) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
December 31, December 31, 1998 1997 ---- ---- ASSETS NOTES Investment Properties, net of accumulated depreciation: 2 Commercial and Industrial $3,267,582 $3,046,597 Hotel and Club Facility 6,521,428 7,254,692 Yacht Slips 1,508,291 1,557,675 Land Held for Development 3,013,272 5,073,976 ----------------- -------------------- Total investment properties, net 14,310,573 16,932,940 Investments In and Receivables From Unconsolidated Entities 3 4,603,047 4,138,935 Notes and Advances Due From Related Parties 4 719,937 655,912 Loans, Notes and Other Receivables 875,614 894,935 Cash and Cash Equivalents 1,834,365 2,492,059 Investments in marketable securities 5 1,621,488 102,378 Other Assets 402,674 792,464 ================= ==================== TOTAL ASSETS $24,367,698 $26,009,623 ================= ==================== LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable and Accrued Expenses 1,058,959 888,346 Mortgages and Notes payable 6 9,555,129 10,216,407 Other Liabilities 349,767 390,864 ----------------- -------------------- TOTAL LIABILITIES 10,963,855 11,495,617 Commitment and contingincies 4 Minority interests 424,925 396,694 ----------------- -------------------- STOCKHOLDERS' EQUITY 8 Preferred Stock, no par value; 2,000,000 shares authorized; none issued Common Stock, $1 par value; 1,500,000 shares authorized; 1,245,635 shares issued and outstanding 1,245,635 1,245,635 Additional Paid-in Capital 26,283,222 26,283,222 Undistributed Gains From Sales of Real Estate, net of losses 36,670,311 35,151,554 Undistributed Losses From Operations (50,015,668) (47,566,637) Accumulated other comprehensive income 116,555 ----------------- -------------------- 14,300,055 15,113,774 Less: Treasury Stock, at cost (145,400 and 78,800 shares as of December 31, 1998 and 1997, respectively) (1,321,137) (996,462) ----------------- -------------------- TOTAL STOCKHOLDERS' EQUITY 12,978,918 14,117,312 ----------------- -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,367,698 $26,009,623 ================= ====================
See notes to consolidated financial statements (18) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 ---- ---- Rentals and related revenue $ 1,715,704 $ 1,707,430 Marina revenues 518,522 537,226 Gain from sale of marketable securities 347,834 71,894 Gain from unconsolidated investments 201,534 909,450 Interest from invested cash, dividends and other 219,425 648,978 ------------------------------- Total revenues 3,003,019 3,874,978 ------------------------------- EXPENSES Operating expenses: Rental Properties and other 655,167 790,033 Marina 507,255 556,895 Advisor's fee 660,000 875,000 General and administrative 382,314 477,771 Professional fees and expenses 1,110,142 655,486 Directors' fees and expenses 41,315 63,227 Depreciation and amortization 1,043,702 1,080,347 ------------------------------- Total operating expenses 4,399,895 4,498,759 Interest expense 851,559 936,027 Minority partners' interests in operating gains (losses) of consolidated entities 200,596 (79,606) ------------------------------- Total expenses 5,452,050 5,355,180 ------------------------------- Loss before sales of real estate (2,449,031) (1,480,202) Gain on sales of real estate, net 1,518,757 2,028,215 ------------------------------- Net (Loss) income ($ 930,274) $ 548,013 =============================== Net (Loss) Income Per Common Share, Basic and Diluted (Based on weighted average shares outstanding of 1,130,707 and 1,166,835 for the years ended December 31, 1998 and 1997 respectively) ($ 0.82) $ 0.47 =========== ===========
See notes to consolidated financial statements (19) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
Undistributed Gains from Undistri- Accumulated Sales of buted Other Total Additional Real Estate, Losses Compre- Compre- Stock Common Stock Paid-In Net of from hensive hensive Treasury Stock holders' Shares Amount Capital Losses Operations Income Income Shares Cost Equity Balance as of January 1, 1997 1,245,635 $1,245,635 $26,283,222 $33,123,339 ($46,086,435) 78,800 ($996,462) $13,569,299 Net ncome (loss) 2,028,215 (1,480,202) 548,013 --------------------------------------------------------------------------------------------------------------- Balance as of December 31, 1997 1,245,635 1,245,635 26,283,222 35,151,554 (47,566,637) 78,800 (996,462) 14,117,312 Comprehensive income (loss) Net income (loss) 1,518,757 (2,449,031) ($930,274) (930,274) Other comprehensive income Unrealized gain on marketable securities 116,555 $116,555 116,555 --------- Comprehensive income (loss) ($813,719) Purchased 66,600 shares of treasury stock 66,600 (324,675) (324,675) --------------------------------------------------------------------------------------------------------------- Balance as of December 31, 1998 1,245,635 $1,245,635 $26,283,222 $36,670,311 ($50,015,668) $116,555 145,400 ($1,321,137) $12,978,918 ===============================================================================================================
See notes to consolidated financial statements (20) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1998 AND 1997 - --------------------------------------------------------------------------------
1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($ 930,274) $ 548,013 Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,043,702 1,080,347 Gain from unconsolidated investments (201,534) (909,450) Gain on sales of real estate, net (1,518,757) (2,028,215) Gain from sales of marketable securities, net (347,834) (71,894) Minority partners' interest in operating gains (losses) 200,596 (79,606) Changes in assets and liabilities: Decrease (increase) in other assets 314,565 (276,591) (Increase) decrease in due from affiliates (64,025) 185,886 Increase (decrease) in accounts payable and accrued expenses 170,613 (733,580) (Decrease) increase in other liabilities (41,097) 107,055 ----------- ----------- Total adjustments (443,771) (2,726,048) ----------- ----------- Net cash used in operating activities (1,374,045) (2,178,035) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Aquisitions and improvements of properties (406,816) (669,806) Net proceeds from disposals of properties 3,388,497 4,714,429 Increase in mortgage loans, notes and other loans receivable (50,953) (1,419,622) Decrease in mortgage loans, notes and other loans receivable 70,274 969,579 Net contributions to unconsolidated entities (262,577) (160,560) Net proceeds from sales and redemptions of securities 1,453,268 89,599 Increase in investments in securities (2,507,989) (73,344) ----------- ----------- Net cash provided by investing activities 1,683,704 3,450,275 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of mortgages and notes payables (5,245,830) (1,313,931) Additions to mortgages and notes payables 4,584,552 1,445,943 Purchase of treasury stock (324,675) Net contributions from (distributions to) minority partners 18,600 (301,739) ----------- ----------- Net cash used in financing activities (967,353) (169,727) ----------- ----------- Net decrease in cash and cash equivalents (657,694) 1,102,513 Cash and cash equivalents at beginning of the period 2,492,059 1,389,546 ----------- ----------- Cash and cash equivalents at end of the period $ 1,834,365 $ 2,492,059 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 790,000 $ 1,112,000 =========== ===========
See notes to consolidated financial statements (21) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998 and 1997 -------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business and Consolidation. The consolidated financial statements include the accounts of HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company owns a majority voting interest or controlling financial interest. Investments in which the Company does not have a majority voting or financial controlling interest are accounted for under the equity method of accounting , even though the Company may have a majority interest in profits and losses. The Company invests in a portfolio of equity interests in commercial real estate. The Company was organized in 1972 and qualifies for taxation as a real estate investment trust ("REIT") under the Internal Revenue Code. The Company operates in one business segment and its present investment policy is to invest primarily in income-producing commercial properties. All material transactions with consolidated and unconsolidated entities have been eliminated in consolidation or as required under the equity method. The Company's consolidated subsidiaries are described below: Courtland Investments, Inc. ("CII"). A 95% owned corporation which owns 100% of Grove Isle Yacht Club Associates, a 15% general partnership interest in Grove Isle Associates, Ltd., and various investments in partnerships whose primary purpose is to make equity investments in growth-oriented enterprises and real estate. As previously reported, the Company holds a 95% non-voting interest and Masscap Investments Company, Inc. ("Masscap") holds a 5% voting interest in CII. The Company and Masscap have had a continuing arrangement with regard to the ongoing operations of CII, all of which provides the Company with complete authority over all decision making relating to the business, operations and financing of CII consistent with its status as a real estate investment trust. Grove Isle Associates, Ltd. ("GIA"). This limited partnership owns a 50 room, hotel and private club facility located on approximately 7 acres of a private island in Coconut Grove, Florida known as Grove Isle. (See Note 9). Grove Isle Club, Inc. ("GICI"). This corporation was the former operator of the hotel and club of GIA. GICI's present revenues consists solely of the amounts received from GIA in consideration for the relinquishment of its lease of the Grove Isle property (See Note 9). Grove Isle Yacht Club Associates ("GIYCA"). This partnership was the developer of the 85 boat slips located at Grove Isle of which 42 remain unsold. GIYCA and its wholly-owned subsidiary operate all aspects of the Grove Isle marina. The Grove Towne Center - Texas, Ltd. A 75% owned limited partnership having a wholly-owned subsidiary of the Company as its sole general partner. This partnership was formed in 1994 with its principal asset being a 41 acre site located in suburban Houston, Texas, held for investment and development. During the year ended December 31, 1997 this partnership sold approximately 4.5 acres of its property and in January 1998, the partnership sold another 13.5 acres. In March 1999, this partnership sold another 2.3 acres. (22) South Bayshore Associates. A 75% owned venture of which the major asset is a receivable from the Company's venture partner. HMG - Fieber Associates. A 65% owned venture of which the major assets are commercial properties located in the northeastern United States. (See Note 4). 260 River Corp. A 100% subsidiary of the company which owns a 65% interest in one property located in Montpelier, Vermont. HMG Sugargrove, Inc. A wholly-owned Texas corporation which sold its sole asset (an 8 acre parcel of land in Houston, Texas) in June 1998. HMG Fashion Square, Inc. A wholly-owned Florida corporation of which the major asset is a 90% partnership interest in Fashion Square Partnership which owns a shopping center on an approximate 10 acre site in Jacksonville, Florida. As of December 31, 1998, this shopping center has three tenants each operating restaurants. Unconsolidated entities are discussed in Note 3. The following table summarizes the Company's portfolio of real estate investments as of December 31, 1998: Percent of Geographic Distribution Investments (1) ----------------------- --------------- Florida 74% Texas 21% Northeastern United States (2) 5% ----- 100% Type of Property (3) Undeveloped land 21% Hotel and club facility 45% Individual retail stores 4% Yacht slips 11% Shopping center and other 19% ----- 100% ==== ----------------- (1) For each category, the aggregate of cost less accumulated depreciation divided by the aggregate of such investments in all real estate owned directly by the Company or by joint ventures in which the Company has a majority interest. The Company's minority interests in joint ventures are not included in the above. (2) New York, Massachusetts, Maine and Vermont. (3) Based on predominant present or intended use. Preparation of Financial Statements. - ------------------------------------ The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (23) Income Taxes. The Company qualifies as a real estate investment trust and distributes its taxable operating income to stockholders in conformity with requirements of the Internal Revenue Code. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. The Company intends to distribute any of its future taxable operating income and is not taxed on the amounts distributed. Distributed capital gains on sales of real estate are not subject to taxes; however, undistributed capital gains are taxed as capital gains. State income taxes are not significant. Any benefit from or provisions for income taxes relates solely to taxable losses or income of CII which is not consolidated with the Company for income tax purposes and accordingly files a separate tax return. Refer to Note 7 for further disclosure on income taxes. Depreciation and Amortization. Depreciation of properties held for investment is computed using the straight-line method over the estimated useful lives of the properties, which range up to 39.5 years. Deferred mortgage and leasing costs are amortized over the shorter of the respective term of the related indebtedness or life of the asset. Depreciation and amortization expense for the years ended December 31, 1998, and 1997 was approximately $1 million and $1.1 million, respectively. The GIYCA's yacht slips are being depreciated on a straight-line basis over their remaining useful life of 20 years. Fair Value of Financial Instruments. The carrying value of financial instruments including investments in and receivables from unconsolidated entities, notes and advances due from related parties, accounts payable and accrued expenses and mortgages and notes payable approximate their fair values at December 31, 1998. Marketable Securities. Investments in marketable securities have been designated as available for sale. Those securities are reported at market value, with net unrealized gains and losses included in equity. Unrealized losses that are other than temporary are recognized in earnings. Realized gains and loses on investments are determined using the average cost method. Comprehensive Income. During the third quarter of 1998, the Company implemented Statement of Financial Accounting Standards ("SFAS") No. 130. "Reporting Comprehensive Income" and has elected to report comprehensive income in the consolidated statement of stockholders' equity. Comprehensive income is the change in equity from transactions and other events from nonowner sources. Comprehensive income includes net income and comprehensive income. The components and related activity of accumulated other comprehensive income, resulting from net unrealized gain on available-for- sale investments are as follows: Accumulated Other Comprehensive Income: Balance as of December 31, 1997.....................................$-0- Changes during the year..........................................116,555 -------- Balance as of December 31, 1998.................................$116,555 ======== Earnings (Loss) Per Common Share. Net income (loss) per common share (basic and diluted) is based on the net income (loss) divided by the weighted average number of common shares outstanding during each year. Common shares outstanding includes issued shares less shares held in treasury. The Company's potential issuable shares of common stock pursuant to outstanding stock purchase options are excluded from the Company's diluted computation as their effect would be antidilutive to the Company's net income (loss). Treasury Stock. In June 1998, the Company purchased 66,600 shares of treasury stock at a cost of approximately $325,000 or $4.88 per share which was the market value at the date of purchase. (24) Gain on Sales of Real Estate. Gain on sales of real estate has been reduced, where applicable, by minority partners' interest in the (loss) gain of $191,000 and $422,000 and advisor's incentive fees of $168,000 and $225,000 for the years ended December 31, 1998 and 1997, respectively. Cash and Cash Equivalents. For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalent. Reclassifications. Certain amounts in prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. Minority Interest. Minority interest represents the minority partners' proportionate share of the equity of the Company's majority owned subsidiaries.
1998 1997 --------- --------- Minority interest balance at beginning of year $ 397,000 $ 356,000 Minority partners' interest in operating gains (losses) of consolidated subsidiaries 201,000 (80,000) Minority partners' interest in net gain (losses) on sales of real estate of consolidated subsidiaries (191,000) 422,000 Net contributions from (distributions to) minority partners 6,000 (314,000) Other 12,000 13,000 --------- --------- Minority interest balance at end of year $ 425,000 $ 397,000 ========= =========
Stock-Based Compensation. The Company recognizes compensation expense for its stock option plan using the intrinsic value method of accounting. Under the terms of the intrinsic value method, compensation cost is the excess, if any, of the quoted market price of the stock at the grant date, or other measurement date, over the amount an employee must pay to acquire the stock. Revenue Recognition. The Company is the lessor of various real estate. All of the lease agreements are classified as operating leases and accordingly all rental revenue is recognized as earned based upon total fixed cash flow over the initial term of the lease, using the straight line method. Percentage rents are based upon tenant sales levels for a specified period. Reimbursed expenses for real estate taxes, common area maintenance, utilities and insurance are recognized in the period in which the expenses are incurred, based upon the provisions of the tenant's lease. Future Accounting Pronouncements. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which among other things, changes the way public companies report information about operating segments, is effective for the Company in 1998. The Company currently operates solely as a real estate investment trust and therefore SFAS No. 131 has no effect on the Company's reporting. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Statement applies to all entities and is effective for all fiscal quarters of the fiscal years beginning after June 15, 1999. The Company did not materially engage in derivative instruments or hedging activities in any periods presented in the consolidated financial statements. Asset Impairments. The Company periodically reviews the carrying value of certain of its assets in relation to historical results, current business conditions and trends to identify potential situations in which the carrying value of assets may not be recoverable. If such reviews indicate that the carrying (25) value of such assets may not be recoverable, the Company would estimate the undiscounted sum of the expected future cash flows of such assets or analyze the fair value of the asset, to determine if such sum or fair value is less than the carrying value of such assets to ascertain if a permanent impairment exists. If a permanent impairment exists, the Company would determine the fair value by using quoted market prices, if available, for such assets, or if quoted market prices are not available, the Company would discount the expected future cash flows of such assets. (26) 2. INVESTMENT PROPERTIES The components of the Company's investment properties and the related accumulated depreciation information follows:
December 31, 1998 ------------------------------------------- Accumulated Cost Depreciation Net ---- ------------ --- Commercial and Industrial Properties Land $ 1,445,948 $ 1,445,948 Buildings and improvements 3,295,078 $ 1,473,444 1,821,634 ----------- ----------- ----------- 4,741,026 1,473,444 3,267,582 ----------- ----------- ----------- Hotel and Club Facility Land 1,338,518 1,338,518 Hotel/ club facility and improvements 6,918,914 1,984,754 4,934,160 Furniture, fixtures & equipment 2,234,643 1,985,893 248,750 ----------- ----------- ----------- 10,492,075 3,970,647 6,521,428 ----------- ----------- ----------- Yacht Slips 1,587,675 79,384 1,508,291 ----------- ----------- ----------- Land Held for Development 3,013,272 3,013,272 ----------- ----------- ----------- Total $19,834,048 $ 5,523,475 $14,310,573 =========== =========== ===========
December 31, 1997 -------------------------------------------- Accumulated Cost Depreciation Net ---- ------------ --- Commercial and Industrial Properties Land $ 1,444,890 $ 1,444,890 Buildings and improvements 2,930,635 $ 1,328,928 1,601,707 ----------- ----------- ----------- 4,375,525 1,328,928 3,046,597 ----------- ----------- ----------- Hotel and Club Facility Land 1,338,518 1,338,518 Hotel/ club facility and improvements 6,910,614 1,583,641 5,326,973 Furniture, fixtures & equipment 2,231,630 1,642,429 589,201 ----------- ----------- ----------- 10,480,762 3,226,070 7,254,692 ----------- ----------- ----------- Yacht Slips 1,557,675 1,557,675 ----------- ----------- ----------- Land Held for Development 5,073,976 5,073,976 ----------- ----------- ----------- Total $21,487,938 $ 4,554,998 $16,932,940 =========== =========== ===========
(27) 3. INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED ENTITIES As of December 31, 1998 the Company's investments in and receivables from unconsolidated entities primarily consisted of CII's 49% equity interest in T.G.I.F. Texas, Inc. (T.G.I.F.) and CII's other investments. CII owns approximately 49% of the outstanding common stock of T.G.I.F., a publicly-held Texas corporation which primarily owns notes receivable from its shareholders and a net leased property in Louisiana. This investment is accounted for under the equity method. The operations of T.G.I.F. are not material to the Company's consolidated financial statements. During 1997, T.G.I.F. sold its four net leased properties in Texas for $4 million. This sale was in conjunction with a 1987 settlement agreement between T.G.I.F. and its former franchisor T.G.I. Fridays, Inc. CII recognized a gain of approximately $510,000 from T.G.I.F. primarily as a result of this sale. T.G.I.F. continues to own one property located in Baton Rouge, Louisiana which is leased to a restaurant operator. Also, see Note 6 for notes payable to T.G.I.F. CII's other investments primarily consist of investments in various partnerships whose purpose is to make equity investments primarily in growth oriented enterprises. CII's ownership interest in each of these partnerships is less than 3% of the total partnership ownership . The carrying values of all investments in and receivables from unconsolidated entities are carried at the lower of cost or fair value. In connection with such investments, the Company has committed to contribute approximately $1.5 million to these partnerships as required by agreement. Subsequent to year end, the Company invested and/or committed to invest an additional $1.5 million in similar partnerships. Carrying Values as of December 31, ---------------------------------- Description 1998 1997 ----------- ---------- ---------- T.G.I.F. Texas, Inc. $2,392,963 $2,264,931 Various Others 2,210,084 1,874,004 ---------- ---------- $4,603,047 $4,138,935 ========== ========== 4. NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES AND LITIGATION The Company has an agreement (the "Agreement") with HMG Advisory Corp. (the "Advisor") for its services as investment advisor and administrator of the Company's affairs. All officers of the Company who are officers of the Advisor are compensated solely by the Advisor for their services. The Agreement is renewable annually upon the approval of a majority of the directors of the Company who are not affiliated with the Advisor and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days written notice by the Advisor or upon 60 days written notice by a majority of the unaffiliated directors of the Company or the holders of a majority of the Company's outstanding shares. The Advisor is majority owned by Mr. Wiener with the remaining shares owned by certain officers. The officers and directors of the Advisor are as follows: Maurice Wiener, Chairman of the Board and Chief Executive Officer; Lawrence I. Rothstein, President, Treasurer, Secretary and Director; Carlos Camarotti, Vice President - Finance and Assistant Secretary; and Bernard Lerner, Vice President. Under the Agreement, the Advisor is also entitled to receive a monthly fee of $55,000. The Advisor is entitled to a monthly fee of 20% of the amount of any unrefunded commitment fees received by the Company with respect to mortgage loans and other commitments which the Company was not required to (28) fund and which expired within the next preceding calendar month. The Advisor is also entitled to an annual incentive compensation equal to the sum of 10% of net realized capital gains and extraordinary items of income for that year and 10% of the amount, if any, by which net profits of the Company for such fiscal year exceeded 8% per annum of the Average Net Worth of the Company, as defined. During 1998, $792,000 was earned by the Advisor as advisory fees of which approximately $132,000 was for incentive compensation. The Advisor also received management fees from certain affiliates of the Company in the amount of approximately $30,000 in 1998. As previously reported, the Company's advisory agreement prior to January 1, 1998, was with Courtland Group, Inc. In January 1998, Courtland Group Inc. received approximately $80,000 in incentive fees relating to the sale of property which was substantially completed in December 1997, but did not close until January 1998. During 1997, Courtland Group, Inc. earned approximately $1,260,000 in advisory fees of which $385,000 was for incentive compensation. At December 31, 1998, the Company had amounts due from the Advisor of approximately $11,000. This amount bears interest at prime plus 1%. At December 31, 1998 and 1997, the Company had amounts due from Courtland Group, Inc. of approximately $233,000 and $205,000, respectively. This amount bears interest at Prime +1% and is due on demand. The Company, via its 75% owned joint venture (SBA), has a note receivable from Transco of $300,000 plus accrued interest of approximately $175,000 and $150,000 as of December 1998 and 1997, respectively. This note bears interest at the prime rate and is due on demand. Mr. Wiener, Chairman of the Company, is an 18% shareholder and an officer and director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII (See Note 3). As of December 31, 1998 and 1997, T.G.I.F. had amounts due from Mr. Wiener in the amount of approximately $388,000 and $185,000, respectively. These amounts are due on demand and bear interest at the prime rate. Furthermore, the Advisor receives a management fee of $18,000 per year from T.G.I.F. CII has amounts due to T.G.I.F. of approximately $3.2 million and $3.1 million as of December 31, 1998 and 1997, respectively. These amounts bear interest at the prime rate and principal and interest are due on demand. T.G.I.F. owns 10,000 shares of the Company purchased at market value in 1996. In October 1996, it was brought to the Company's attention that Mr. Lee Gray (then President, Treasurer and Director of the Company, "Gray") failed to disclose his interest, through a partnership of his and his sister's, in a 35% joint venture partner in HMG-Fieber Associates. Additionally, another director (Mr. Norman Fieber, "Fieber"), who had an interest in the joint venture partner, failed to disclose Gray's or Gray's sister's interest in such partnership. In November 1996, the Company appointed a Special Committee of the Board to review Gray's and Fieber's failure to disclose the interests in the joint venture partner. During the course of the inquiry it was discovered that Gray also failed to disclose his and his sister's interest in the Company's 66 2/3% joint venture partner in another joint venture which operated through 1992. Based on the report of the Special Committee in March 1997, the Board concluded that Gray and Fieber breached their fiduciary duties to the Company by failing to disclose Gray's and Gray's sister's interest in the joint ventures. The Board removed Gray as President and Treasurer of the Company. Both Gray and Fieber refused to resign as directors of the Company. Mr. Gray and Mr. Fieber were not re-elected as directors at the 1997 Annual Meeting of Shareholders. The Company is currently a party, as both plaintiff and defendant, to litigation in two jurisdictions, as follows: (29) HMG Courtland Properties, Inc. v. Lee Gray et al (the "Delaware Litigation"). - ----------------------------------------------------------------------------- On July 2, 1997, the Company filed suit in the Court of Chancery of the State of Delaware in and for New Castle County against Lee Gray (individually and as a partner in Martine Avenue Associates), Norman A. Fieber (individually and as a partner in NAF Associates), Betsy Gray Saffell (Lee Gray's sister) (individually and as a partner in Martine Avenue Associates), Martine Avenue Associates, (a New York general partnership in which Mr. Gray and Mrs. Saffell are the general partners) ("Martine"), NAF Associates (a Connecticut general partnership in which Mr. Fieber and Martine are general partners, and the Company's joint venture partner in HMG-Fieber Associates ("NAF"), and The Jim Fieber Trust ( a trust for beneficiaries including Mr. Fieber and Martine, and the Company's joint venture partner in HMG-Fieber Wallingford Associates, which has James A Fieber, son of Norman A. Fieber, as trustee) (the "Trust"). NAF and the Trust have been dismissed from the case because the Delaware court determined that it did not have personal jurisdiction over those two entities. The Company's lawsuit is based on the facts underlying the Board of Directors' conclusion , based upon the report of the Special Committee following the Inquiry and in consultation with counsel, that Mr. Gray breached his fiduciary duties to the Company and CGI by failing to disclose his and his sister's interest in the Joint Ventures, and that Mr. Fieber breached his fiduciary duty to the Company and assisted Mr. Gray by failing to disclose Mr. Gray's and Mr. Gray's sister's interest in the Joint Ventures. The Company's suit makes the following claims: (i) breach of fiduciary duty against Mr. Gray; (ii) breach of fiduciary duty against Mr. Fieber; (iii) aiding and abetting against Mr. Fieber, Mrs. Saffell, Martine, NAF and the Trust; (iv) usurpation of a corporate opportunity against all defendants; (v) common law fraud against Messrs. Gray and Fieber; and (vi) conspiracy against all defendants. Relief being sought by the Company includes: (i) damages; (ii) imposition of constructive trust for the benefit of the Company over, and an accounting of, the defendants' interests in the Joint Ventures; (iii) a recision of the transactions which created the Joint Ventures; and (iv) a disgorgement of all interests and profits derived by all the defendants from the Joint Ventures. Trial of the lawsuit is scheduled to begin May 10, 1999 and is expected to last one week. The Company believes strongly that its claims are meritorious and intends to vigorously pursue all legal remedies against all defendants. Lee Gray v. HMG/Courtland Properties, Inc et al (the "Florida Litigation"). - --------------------------------------------------------------------------- On May 22, 1997, Lee Gray, a former director and officer and a shareholder of the Company and a former officer and director and a shareholder of CGI, which served as the Company's advisor pursuant to an advisory agreement which expired December 31, 1997, filed suit in the Circuit Court of the 11th Judicial Circuit in and for Dade County, Florida against the following defendants: (i) the Company; (ii) all of the directors and certain of the officers of the Company and of CGI; (iii) CGI; and (iv) HMG Advisory Corp., a Delaware corporation that has served as the Company's advisor since January 1, 1998. In his lawsuit, Mr. Gray, individually and derivatively as a shareholder of CGI, alleges, among other things, that his removal as an officer of the Company, his failure to be nominated for reelection as Director of the Company, his subsequent removal as an officer and director of CGI and the Board of Directors' decision not to renew the Company's former advisory agreement with CGI, were the product of a conspiracy involving certain officers and Directors of the Company and of CGI who wanted to force Mr. Gray out of the Company and CGI, and to terminate the Company's advisory agreement with CGI, for their own financial gain. Mr. Gray has also alleged that he was libeled in the discussion of the Inquiry and the results thereof in certain documents, including documents filed with the Securities and Exchange Commission. Mr. Gray is seeking money damages in excess of $15,000, punitive damages, and temporary and permanent injunctive relief on the following grounds: (i) breach of fiduciary duty against the directors and certain of the officers of the Company; (ii) libel against the Company and the directors and certain of the officers of the Company; (iii) breach of fiduciary duty against the officers and directors of CGI; and (iv) tortious interference with an advantageous business relationship against defendants HMG Advisory Corp. and the officers and directors of CGI. (30) On July 10, 1997, the Company filed a motion to dismiss the portion of the lawsuit directed against it and its directors. The motion to dismiss was granted November 18, 1997. On December 1, 1997, Mr. Gray filed an amended complaint that seeks to reinstate the libel claim against the Company. The Company moved to dismiss the amended complaint and the motion was denied. The parties have agreed to stay this suit pending the outcome of the Delaware litigation described above. The Company and its officers and directors believe strongly that they have meritorious defenses to, and intend to vigorously defend against, the libel claim made by Mr. Gray. CGI also filed a motion to dismiss the tortious interference claims described in (iv) above which was granted. HMGA filed a motion to dismiss which was granted. HMGA is no longer a defendant. Norman A. Fieber v. HMG/Courtland Properties, Inc. et al. - --------------------------------------------------------- On July 8, 1997, Norman A. Fieber, NAF Associates and James A. Fieber, Trustee (collectively, the "Fieber Plaintiffs") filed a separate lawsuit against the Company in the Superior Court of the State of Connecticut, Fairfield/Bridgeport Judicial District. In their lawsuit, the Fieber Plaintiffs sought a declaratory judgement absolving them of any liability to the Company on essentially all of the issues and claims being considered in the Company's lawsuit in Delaware discussed above. On August 27, 1997, the Company moved to dismiss, or in the alternative, stay this action on the grounds that the declaratory judgement action was inappropriate given the pendency of the Company's prior pending lawsuit in Delaware. This motion was never decided. On June 16, 1998, the Fieber Plaintiffs filed a notice of withdrawal of their claims and the matter is now terminated. 5. INVESTMENTS IN MARKETABLE SECURITIES Investments in marketable securities are composed primarily of corporate equity securities. These securities are classified as available-for-sale and carried at fair value, based on quoted market price. The net unrealized gains or losses on these investments are reported as a separate component of stockholders' equity. Gross unrealized gains on available-for-sale securities as of December 31, 1998 were approximately $161,000. Gross unrealized losses as of December 31, 1998 were approximately $45,000. Gross gains on sales of marketable securities of approximately $423,000 were realized during the year ended December 31, 1998. Gross losses of approximately $75,000 were realized during the year ended December 31, 1998. Gross gains and losses are based on the average cost method of determining cost. (31) 6. MORTGAGES AND NOTES PAYABLES
December 31, -------------------------------- 1998 1997 ----------- ------- Collateralized by Investment Properties (Note 2) - ------------------------------------------------ Land Held for Development: Mortgage loan payable, interest at 9% payable quarterly with quarterly principal payments of $12,776. Principal and accrued interest were paid off in January 1998 -- $ 867,524 Mortgage loan payable, interest at 1% over prime (8.75% at December 31, 1998) payable monthly. Principal payment of $153,600 due in June 1999 with remaining balance due at maturity in June 2000 $ 568,000 768,000 Mortgage loan payable, interest at prime plus 1.75% (9.5% at December 31, 1998) payable monthly with all principal due June 1999 221,340 221,340 Mortgage loan payable, interest fixed at 9.75% payable quarterly with principal payments of $15,867 due each February 1st and a balloon payment due February 2000. Note was paid in 1998 -- 149,167 Joint Venture owning retail centers: Mortgage loan payable requiring monthly payments of principal and interest of $2,895 at 10% interest rate Note was paid in 1998 -- 33,095 Partnerships owning hotel and club facility and yacht slips: Mortgage loan payable with interest at prime plus 2% (10.5% at December 31, 1997). Payments of interest based on 20-year amortization. Loan balance was paid off through a refinancing. See new mortgage below -- 3,972,055 Mortgage loan payable with interest at prime plus 1.75%; fixed at 7.75% through September 30, 2003 (7.75% as of December 31, 1998) Monthly payments of principal and interest based on 25-year amortization. All outstanding principal due at maturity on September 30, 2008 4,490,411 -- Note payable to individual with interest rate fixed at 8%. Payment of principal and interest quarterly, with maturity in May 1998. Note was paid in 1998 -- 6,426 Partnership owning shopping center: Mortgage loan payable with interest fixed at 9.75% payable monthly with principal due at maturity in November 1999 300,000 300,000 Mortgage loan payable with interest fixed at 9.75% payable monthly with principal done at maturity in February 2001 350,000 350,000 Office building: Mortgage loan payable, interest at 9.25% for the first five years, then fixed at the then prime rate plus 3/4%. Payment of principal and interest monthly with maturity in August 2007 420,071 428,045 Other: Note payable to affiliate (T.G.I.F.), interest at prime (7.75% at December 31, 1998) payable annually in January. Principal outstanding due on demand 3,205,307 3,120,755 ----------- ----------- $ 9,555,129 $10,216,407 =========== ===========
(32) Partnership owning shopping center: A summary of scheduled principal repayments or reductions for all types of notes and mortgages payable is as follows: Year ending December 31, Amount ------------------------------- ---------- 1999 $3,952,180 2000 492,256 2001 434,267 2002 91,209 2003 98,725 2004 and thereafter 4,486,492 ---------- Total $9,555,129 ========== The 1999 principal repayments are expected to be satisfied with proceeds from sales of real estate, distributions from investments, available cash or such debt may be refinanced. 7. INCOME TAXES The Company's income tax benefit or provision is solely attributable to CII which files a separate tax return. Deferred tax assets and liabilities reflect the impact of temporary differences between amounts of assets and liabilities for financial reporting purposes and the bases of such assets and liabilities as measured by income tax law. A valuation allowance is recognized to reduce deferred tax assets to the amounts more likely than not to be realized. The Company has net operating loss carryforwards of approximately $2.1 million which expire through 2018. As of December 31, 1998 and 1997, the components of the deferred tax assets and liabilities are as follows:
As of December 31, 1998 As of December 31, 1997 Deferred tax Deferred tax -------------------------------------------------------------- Assets Liabilities Assets Liabilities ----------- ----------- ----------- ----------- Net operating loss carryforward $ 2,100,000 $ 1,911,000 Excess of book basis of 49%-owned corporation over tax basis 382,000 334,000 Other 410,000 16,000 447,000 22,000 Valuation allowance (2,112,000) (2,002,000) ----------- ----------- ----------- ----------- Totals $ 398,000 $ 398,000 $ 356,000 $ 356,000 =========== =========== =========== ===========
The change in the valuation allowance between December 31, 1998 and 1997 was an increase of $110,000. There is no provision or benefit necessary for income taxes for the years ended December 31, 1998 and 1997. 8. STOCK-BASED COMPENSATION At December 31, 1998, the Company has a fixed stock option plan which is described below. The Company applies APB Opinion 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for the plan. Under APB Opinion 25, if the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation is recognized. (33) In July 1991, the shareholders approved the 1990 Stock Option Plan (which expires in 2001) for the issuance of options to the officers and directors of the Company. Under the 1990 Plan, options were authorized to be granted to purchase 120,000 common shares at no less than 100% of the fair market value at the date of grant. Options may be exercised at any time within ten years from the date of grant and are not transferable. Options expire upon termination of employment, except to a limited extent in the event of retirement, disability or death of the optionee. FASB Statement 123, Accounting for Stock-Based Compensation, requires the Company to provide proforma information regarding net income and net income per share as if compensation cost for the Company's stock option plan had been determined in accordance with the fair value based method prescribed in FASB Statement 123. There were no options granted during the years ended December 31, 1998 and 1997, and therefore, under the accounting provisions of FASB Statement 123, the Company's proforma net income (loss) and net income (loss) per share would not differ. A summary of the status of the Company's fixed stock option plan as of December 31, 1998 and 1997, and changes during the years ending on those dates are presented below:
As of December 31, 1998 As of December 31, 1997 ------------------------------------------------- Weighted- Weighted- Average Average Exercise Exercise Shares Price Shares Price - -------------------------------------------------------------------------------- Outstanding at beginning of year 75,000 $ 5.12 105,000 $ 5.20 Granted -- -- -- -- Exercised -- -- -- -- Forfeited 5,000 $ 5.00 30,000 $ 5.41 - -------------------------------------------------------------------------------- Outstanding at end of year 70,000 $ 5.13 75,000 $ 5.12 - -------------------------------------------------------------------------------- Options exercisable at year-end 70,000 $ 5.13 75,000 $ 5.12 Weighted average fair value of -- -- -- -- options granted during the year ================================================================================
The following table summarizes information about fixed stock options outstanding at December 31, 1998:
Options Outstanding Options Exercisable - -------------------------------------------------------------------------- --------------------------- Weighted- Average Weighted- Weighted- Range of Number Remaining Average Number Average Exercise outstanding at Contractual Exercise Exercisable Exercise Prices 12/31/98 Life Price at 12/31/98 Price ========================================================================================================= $3.75 - $5.50 70,000 2.9 $5.13 70,000 $5.13
(34) 9. OPERATING LEASES AS LESSOR Grove Isle Lease. In November 1996, GIA terminated its lease with GICI and entered into a long-term lease with an unrelated tenant, Westgroup Grove Isle Associates, Ltd. ("Westgroup"). GIA and GICI also entered into a Master Agreement with Westgroup whereby among other things Westgroup assumed the operations of the Grove Isle hotel and club. The leased premises include all real property and all furniture, furnishings, fixtures, appliances and other equipment used in connection with the operation of the Grove Isle hotel, resort and membership club. The initial term of the lease is ten years and calls for annual net base rent of $880,000 plus real estate taxes and property insurance, payable in monthly installments. In addition to the base net rent, Westgroup shall also pay GIA participation rent consisting of a portion of Westgroup's operating surplus, as defined in the lease agreement. Participation rent is due at end of each lease year. No participation rent was due in 1998 and 1997. Furthermore, also as previously reported, in consideration for GICI relinquishment of its rights in and to the original lease with GIA, GIA agreed to pay to GICI the sum of $200,000 for each year that the Westgroup lease is in good standing and has also assigned to GICI the aforementioned participation rent due from Westgroup. In November 1998 and 1997, GIA paid GICI $200,000 as per agreement. This amount is eliminated in consolidation. During 1997 and in conjunction with the aforementioned agreements, GIA advanced $500,000 to the principal owner of the tenant of the Grove Isle property. GIA received a promissory note bearing interest at 8% per annum with interest payments due quarterly beginning on July 1, 1997 and all principal due at maturity in 2006. All interest payments due in 1998 and 1997 have been received. Minimum lease payments receivable. The Company leases its commercial and industrial properties under agreements for which substantially all of the leases specify a base rent and a rent based on tenant sales (or other benchmark) exceeding a specified percentage. Such percentage rent approximated $37,000 and $81,000 in 1998 and 1997, respectively. These leases are classified as operating leases and generally require the tenant to pay all costs associated with the property. Minimum annual rentals on noncancelable leases in effect at December 31, 1998, are as follows: Year ending December 31, Amount ----------------------- ------ 1999 $1,297,000 2000 1,307,000 2001 1,290,000 2002 1,204,000 2003 1,110,000 Subsequent years 3,943,000 ----------- Total $10,151,000 =========== (35) Item 8. Changes in and Disagreements with Accountants on Accounting and --------------------------------------------------------------- Financial Disclosure. --------------------- Not applicable. Part III. Item 9. Directors, Executive Officers and Control Persons. - ------------------------------------------------------------ Listed below is certain information relating to the executive officers and directors of the Company:
Principal Occupation and Employment other than With the Company During the Past Five Name and Office Age Years - Other Directorships - --------------- --- -------------------------------------------------------- Maurice Wiener; Chairman of 57 Chairman of the Board and Chief Executive Officer of the the Board of Directors and Advisor; Executive Trustee, Transco; Director, T.G.I.F. Chief Executive Officer Texas, Inc.; Chairman of the Board and Chief Executive Officer of Courtland Group, Inc. Lawrence I. Rothstein; 46 Director, President and Secretary of the Advisor ; Trustee Director, President, Treasurer and Vice President of Transco; Director, President and and Secretary Secretary of Courtland Group, Inc. Vice President and Secretary, T.G.I.F. Texas, Inc. Carlos Camarotti; Vice 38 Vice President - Finance and Assistant Secretary of the President-Finance and Advisor; Vice President - Finance and Assistant Secretary Assistant Secretary of Courtland Group, Inc. Bernard Lerner; Vice 56 Vice President of the Advisor; Vice President of Courtland President Group, Inc. Walter Arader; Director 77 President, Arader, Herzig and Associates Inc. (financial management consultants); Director, Pep Boys-Manny, Moe & Jack; Director, Unitel Video; Former Secretary of Commerce, Commonwealth of Pennsylvania. Harvey Comita; Director 69 Business Consultant; Trustee of Transco Realty Trust; President and Director of Pan-Optics, Inc. (1971-1991); Director of Mediq, Incorporated (1981-1991); John B. Bailey; Director 72 Real Estate Consultant; Retired CEO, Landauer Associates, Inc. (Real Estate Consultants) (1977-1988).
Except as previously discussed, all executive officers of the Company were elected to their present positions to serve until their successors are elected and qualified at the 1998 annual organizational meeting of directors immediately following the annual meeting of shareholders. All directors of the Company were elected to serve until the next annual meeting of shareholders and until the election and qualification of their successors. (36) Item 10. Executive Compensation. - --------------------------------- Executive officers received no cash compensation from the Company in their capacity as executive officers. Reference is made to Item 1. Business and Item 6. Management's Discussion and Analysis or Plan of Operation for information concerning fees paid to the Advisor. Compensation of Directors. Each Director receives an annual fee of $5,000, plus expenses and $500 per each Board of Directors meeting attended. Stock Options. In July 1991, the shareholders approved the 1990 Stock Option Plan (the "Plan"). The Plan, which is non-qualified and expires in 2001, is intended to provide incentives to the directors and employees (the "employees") of the Company as well as to enable the Company to obtain and retain the services of such employees. The Plan is administered by a Stock Option Committee (the "Committee") appointed by the Board of Directors. The Committee selects those key officers and employees of the Company to whom options for shares of common stock of the Company shall be granted. The Committee determines the purchase price of shares deliverable upon exercise of an option; such price may not, however, be less than 100% of the fair market value of a share on the date the option is granted. Payment of the purchase price may be made in cash, Company stock, or by delivery of a promissory note, except that the par value of the stock must be paid in cash or Company stock. Shares purchased by delivery of a note must be pledged to the Company. Shares subject to an option may be purchased by the optionee within ten years from the date of the grant of the option. However, options automatically terminate if the optionee's employment with the Company terminates other than by reason of death, disability or retirement. Further, if, within one year following exercise of any option, an optionee terminates his employment other than by reason of death, disability or retirement, the shares acquired upon exercise of such option must be sold to the Company at a price equal to the lesser of the purchase price of the shares or their fair market value. As of December 31, 1998, 70,000 options have been granted, of which none have been exercised, and 15,000 options are reserved for issuance under the Plan, of which none have been granted. (37) Item 11. Security Ownership of Certain Beneficial Owners and Management. - ------------------------------------------------------------------------ Set forth below is certain information concerning common stock ownership by directors, directors and officers as a group, and holders of more than 5% of the outstanding common stock.
Shares Held as of March 19, 1999 -------------------------------- Additional Shares in Which the named Shares Owned by Person Has, or Named Persons & Participates in, the Members of His Voting or Total Shares & Name Family(1) Investment Power(2) Percent of Class - ---- ------ ---------------- ---------------- Maurice Wiener 35,100(4) 541,830(3) 576,930 46% Lawrence Rothstein 25,000(4) 541,830(3) 566,830 46% Walter G. Arader 12,800(4) 0 12,800 1% John B. Bailey 7,100(4) 0 7,100 * Harvey Comita 5,000(4) 477,300(6) 482,300 39% * All 7 Directors and 95,000(4) 541,830(3) 636,830 51% Officers as a Group Emanuel Metz 59,500 0 59,500 5% CIBC Oppenheimer Corp. One World Financial Center 200 Liberty Street New York, NY 10281 Transco Realty Trust 477,300(5) 0 477,300 38% 2701 S. Bayshore Drive Coconut Grove, FL 33133 * Less than 1 % - ----------------------- (1) Unless otherwise indicated, beneficial ownership is based on sole voting and investment power. (2) Shares listed in this column represent shares held by entities with which directors or officers are associated. Directors, officers and members of their families have no ownership interest in these shares. (3) This number includes the number of shares held by Transco Realty Trust (477,300 shares), Courtland Group, Inc. (54,530 shares) and T.G.I.F. Texas, Inc. (10,000 shares). Of those shares owned by Transco Realty Trust, 24,350 shares have been pledged to a brokerage firm pursuant to a margin agreement. Several of the directors of the Company are directors, trustees, officers or shareholders of certain of those firms. (4) This number includes options granted under the 1990 Stock Option Plan, none of which have been exercised. These options have been granted to Mr. Wiener, 30,000; Mr. Rothstein ,15,000; 5,000 each to Mr. Arader, Mr. Bailey, and Mr. Comita; and a total of 10,000 to two officers who are not directors. Reference is made to Item 10. Executive Compensation for further information about the 1990 Stock Option Plan. (5) Mr. Wiener holds approximately 25% and 40% of the stock of Transco and Courtland Group Inc., respectively, and may therefore be deemed to be the beneficial owner of the shares of the Company held by Transco and Courtland Group, Inc. (6) This number represents the number of shares held by Transco Realty Trust, of which Mr. Comita is a Trustee.
(38) Item 12. Certain Relationships and Related Transactions. The following discussion describes the organizational structure of the Company's subsidiaries and affiliates. Transco Realty Trust ("Transco"). - --------------------------------- Transco is a publicly-held 43% shareholder of the Company. HMG Advisory Corp. (the "Advisor"). - ----------------------------------- The Advisor is majority owned by Maurice Wiener, its Chairman and CEO. As of December 31, 1998, the Advisor owed the Company approximately $11,000. Such sum bearing interest at the prime rate plus 1% and is due on demand. Courtland Group, Inc. ("CGI"). - ------------------------------ CGI served as the Company's investment Advisor until January 1, 1998 and owns approximately 21% of Transco's stock and owns approximately 5% of the Company's common stock. As of December 31, 1998 and 1997, CGI owed the Company approximately $233,000 and $205,000, respectively. Such sums bear interest at the prime rate plus 1% and are due on demand. Courtland Investments, Inc. ("CII"). - ------------------------------------ As previously reported, the Company holds a 95% non-voting interest and Masscap Investment Company, ("Masscap") holds a 5% voting interest in CII. In May 1998, the Company and Masscap entered into a written agreement in order to confirm and clarify the terms of their previous continuing arrangement with regard to the ongoing operations of CII, all of which provide the company with complete authority over all decision making relating to the business, operation, and financing of CII consistent with its status as a real estate investment trust. CII and its wholly-owned subsidiary own 100% of Grove Isle Club, Inc., Grove Isle Yacht Club Associates and Grove Isle Marina, Inc. CII also owns 15% of Grove Isle Associates, Ltd., and the other 85% is owned by the Company. On May 31, 1997, CII sold a 45% partnership interest in GIA, Ltd. to the Company for approximately $4.6 million. This transaction was between consolidated subsidiaries and accordingly had no impact on the consolidated financial statements of the Company. HMG-Fieber Associates ("Fieber"). - --------------------------------- The Company owns a 65% interest in Fieber and the other 35% is owned by NAF Associates ("NAF"). The partners in NAF include the following related parties: Norman A. Fieber, a former director of the Company (33.62%), Norman A. Fieber's son, James A. Fieber, (1.08%), Norman A. Fieber's brother, Stanley S. Fieber, M.D. (7.59%), and Martine Avenue Associates (Martine), a New York general partnership in which Mr. Gray, a former officer and director of the Company, and Mr. Gray's sister are the partners (13.02%). The following discussion describes all material transactions, receivables and payables involving related parties. All of the transactions described below were on terms as favorable to the Company as comparable transactions with unaffiliated third parties. The Advisor. - ------------ The day-to-day operations of the Company are handled by the Advisor, as described above under Item 1. Business "Advisory Agreement." Reference is made to Item 1. Business and Item 6. Management's Discussion and Analysis or Plan of Operation for further information about the remuneration of the Advisor. (39) Transco. - -------- As of December 31, 1998, the Company has a note and accrued interest receivable from Transco of $475,000 compared to $450,000 as of December 31, 1997. This note bears interest at the prime rate and is due on demand.(See Item 1. Business- South Bayshore Associates). CII - T.G.I.F. Texas, Inc. - -------------------------- CII owns approximately 49% of the outstanding shares of T.G.I.F. Texas, Inc. ("T.G.I.F.") Mr. Wiener is a director and officer of T.G.I.F. and owns, directly and indirectly, approximately 18% of the outstanding shares of T.G.I.F. As of December 31, 1998 and 1997, T.G.I.F. had amounts due from Mr. Wiener of approximately $388,000 and $185,000, respectively. These amounts are due on demand and bear interest at the prime rate. Also, T.G.I.F. owns 10,000 shares of the Company at $5 per share which was the market value at the time of purchase. The Advisor receives a management fee of $18,000 per year from T.G.I.F. As of December 31, 1998 and 1997, CII owed approximately of $3.2 million and $3.1 million, respectively to T.G.I.F. All advances between CII and T.G.I.F. are due on demand and bear interest at the prime rate plus 1%. CII- Grove Isle. - ---------------- In 1986, CII acquired from the Company the rights to develop the marina at Grove Isle for a promissory note of $620,000 payable in 10 years at an annual interest rate equal to the prime rate. The principal matures on January 2, 2001. Interest payments are due each January 2. Because the Company consolidates CII, the note payable and related interest income are eliminated in consolidation. HMG-Fieber Wallingford Associates. - ---------------------------------- In April of 1986, James A. Fieber, Trustee, acting for The Fieber Group purchased from the Company a two-thirds interest in a store located in Wallingford, Connecticut leased to Grossman's, Inc. for $233,000 based on the appraised value of the store, less existing indebtedness. Subsequently, on July 1, 1986, the Company purchased from Transco its 8 1/3% interest in the Wallingford store and concurrently entered into an agreement with The Fieber Group creating the joint venture titled HMG-Fieber Wallingford Associates, owned two-thirds by James A. Fieber, Trustee, acting for The Fieber Group, and one-third by the Company. Partners in The Fieber Group included the following related parties: Norman A. Fieber, a former director of the Company, James Fieber (Norman A. Fiebers' son) and Martine Avenue Associates, a New York general partnership in which Mr. Gray, a former officer and director of the Company, and Mr. Gray's sister are the partners. HMG-Fieber Associates ("Fieber"). - --------------------------------- On June 30, 1986, the Company purchased from Transco its 25% interest in certain retail stores located in Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, Rhode Island and Vermont and owned by South Bayshore Associates, a joint venture owned 75% by the Company and 25% by Transco. These stores were leased to Grossman's, Inc, a chain of home improvement stores, under net leases, most of which provided for minimum and percentage rent payments. The purchase price paid the Company was $1,500,000 plus the assumption of liabilities of $660,355. Concurrently, the Company sold to NAF a 35% interest in the Grossman's stores for a price of approximately $2,100,000 plus the assumption of liabilities of $924,497, and entered into an agreement with NAF creating the joint venture titled HMG-Fieber Associates. The purchase price of Transco's 25% interest and of NAF's 35% interest were based on the appraised value of the Grossman's stores, less existing indebtedness. NAF is a Connecticut general partnership, the partners of which include the following related parties: Norman A. Fieber, a former director of the Company (33.62%), James A. Fieber, Norman A. Fieber's son (1.08%), Stanley S. Fieber, M.D., Norman A. Fieber's brother (7.59%), and Martine Avenue Associates, a New (40) York general partnership in which Mr. Gray, a former officer and director the Company, and Mr. Gray's sister are the partners (13.02%). Inquiry Relating to HMG-Fieber Wallingford Associates and HMG-Fieber Associates. - -------------------------------------------------------------------------------- On November 15, 1996, the Board of Directors appointed a Special Committee of the Board to review Mr. Lee Gray's failure to disclose his and his sister's interest, through Martine Avenue Associates ("Martine"), a partnership of Mr. Gray and his sister, in NAF Associates ("NAF"), the Company's 35% joint venture partner in HMG-Fieber Associates ("Fieber"), as well as Mr. Norman A. Fieber's failure to disclose Mr. Gray's and Mr Gray's sister's interest in NAF. Mr. Gray's interest in NAF first came to the attention of the Company in October of 1996. During the course of the inquiry, it was discovered that Mr. Gray and his sister also had an interest in The Fieber Group, the Company's 66 2/3% joint venture partner in HMG-Fieber Wallingford Associates (Wallingford), which venture operated from 1986 to 1992. James A. Fieber, Norman A. Fieber's son, and Stanley Fieber, Norman A. Fieber's brother, were also partners in NAF. As a result of the inquiry, it was determined that in 1986, Mr. Gray and his sister, through Martine, acquired a 13.02% interest in NAF and a 20% interest in The Fieber Group, but did not then or at any time since disclose those interests to the Board of Directors of the Company. Norman A. Fieber, a partner in both NAF and The Fieber Group, also failed to disclose Mr. Gray's and Mr. Gray's sister's interests in NAF and The Fieber Group. A special meeting of the Board of Directors was held on March 21, 1997, at which the Board considered the report of the Special Committee. Based on the Special Committee's report and in consultation with counsel, the Board concluded that Mr. Gray breached his fiduciary duty to the Company and to the Advisor by failing to disclose his and his sister's interest in NAF and Wallingford, and that Mr. Norman A. Fieber breached his fiduciary duty to the Company and assisted Gray by failing to disclose Mr. Gray's and Mr. Gray's sister's interest in NAF and Wallingford. The Board requested the resignation of Mr. Gray as President, Treasurer, Director and as a member of the Audit Committee; requested the resignation of Mr. Norman A. Fieber as a Director and member of the Audit Committee; and requested that the Board of Directors of the Advisor consider requesting the resignation of Mr. Gray as President, Treasurer and Director of the Advisor. Lee Gray has been removed as President and Treasurer of the Company and as a member of the Audit Committee and as President and a Director of the Advisor. Mr. Gray refused to resign as a director of the Company. Norman A. Fieber has been removed as a member of the Audit Committee of the Company and refused to resign as a director of the Company. Mr. Gray and Mr. Norman A. Fieber were not re- elected as directors of the Company at the 1997 Annual Meeting of Shareholders. (41) Part IV. -------- Item 13. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. - --------------------------------------------------------------------------- (a) 1. Financial Statements - See Item 7. Index to Consolidated Financial Statements and Supplemental Data. ----------------------------------------------------------------- All other schedules omitted because of the absence of the conditions under which they are required or because all information required to be reported is included in the consolidated financial statements or notes thereto. 2. Exhibits listed in the Index to Exhibits. (b) Reports on Form 8-K: None. (42) SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. March 19, 1999 By: /s/ Maurice Wiener ---------------------------- Maurice Wiener Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ Maurice Wiener March 19, 1999 - -------------------------------- Maurice Wiener Chairman of the Board Chief Executive Officer /s/ Lawrence I. Rothstein March 19, 1999 - -------------------------------- Lawrence I. Rothstein Director, President, Treasurer & Secretary /s/ Walter G. Arader March 19, 1999 - -------------------------------- Walter G. Arader, Director /s/ John B. Bailey March 19, 1999 - -------------------------------- John B. Bailey, Director /s/ Harvey Comita March 19, 1999 - -------------------------------- Harvey Comita, Director /s/ Carlos Camarotti March 19, 1999 - -------------------------------- Carlos Camarotti Vice President - Finance and Controller (43) EXHIBIT INDEX ------------- Description ----------- (3) (a) Restated Certificate of Incorporation Incorporated by reference to Exhibit 3(a) to the Company's 1987 Report on Form 10-KSB (the "1987 Form 10-KSB"). (b) By-laws Incorporated by reference to Exhibit 6.1 to the Registration Statement of Hospital Mortgage Group, Inc. on Form S-14, No. 2-64, 789, filed July 2, 1979. (10) (a) Agreement between NAF Associates and the Incorporated by reference to Exhibit 10(f) Company, dated June 30, 1986. to the 1987 Form 10-K. (b) 1990 Incentive Stock Option Plan of Incorporated by reference to Exhibit 10(j) HMG/Courtland Properties, Inc. to the 1991 Form 10-KSB. (c) Amended and restated lease agreement between Grove Isle Associates, Ltd. and Westgroup Grove Incorporated by reference to Exhibit10(d) to the Isle Associates, Ltd. dated November 19, 1996. 1996 Form 10-KSB. (d) Master agreement between Grove Isle Associates, Incorporated by reference to Exhibit Ltd. Grove Isle Club. Inc., Grove Isle Investments, 10(e) to the 1996 Form 10-KSB. Inc. and Westgroup Grove Isle Associates, Ltd. dated November 19, 1996. (e) Agreement Re: Lease Termination between Grove Incorporated by reference to Exhibit 10(f) Isle Associates, Ltd. And Grove Isle Club, Inc. to the 1996 Form 10-KSB. dated November 19, 1996. (f) Martine Avenue Associates Partnership Incorporated by reference to Exhibit Agreement dated May 24, 1968 and 10(g) to the 1996 Form 10-KSB. amendment dated January 29, 1987. (g) Advisory Agreement between the Company and Incorporated by reference to Exhibit HMG Advisory Corp. effective January 1, 1998. 10(h) to the 1997 From 10-KSB.
(44) (22) Subsidiaries of the Company: HMG-FIEBER ASSOCIATES, a Connecticut Joint Venture SOUTH BAYSHORE ASSOCIATES, a Florida Joint Venture HMG FASHION SQUARE, INC., a Florida Corporation FASHION SQUARE PARTNERSHIP, a Florida Partnership HMG SUGARGROVE, INC., a Texas Corporation COURTLAND INVESTMENTS, INC., a Delaware Corporation GROVE ISLE INVESTMENTS, INC., a Florida Corporation GROVE ISLE YACHT CLUB ASSOCIATES., a Florida Joint Venture GROVE ISLE ASSOCIATES, LTD., a Florida Limited Partnership GROVE ISLE CLUB, INC., a Florida Corporation HMG HOUSTON GROVE, INC., a Texas Corporation THE GROVE TOWNE CENTER-TEXAS, LTD. , a Texas Limited Partnership 260 RIVER CORP., a Vermont Corporation FASHION SQUARE OWNER'S ASSOCIATION, a Florida Corporation (45) EX-27 2
5 0000311817 HMG/Courtland Properties, Inc. 12-MOS Dec-31-1998 Dec-31-1998 1,834,365 1,621,488 1,595,551 0 0 0 19,834,048 5,523,475 24,367,698 0 0 1,245,635 0 0 11,733,283 24,367,698 3,003,019 3,003,019 0 0 4,600,491 0 851,559 (930,274) 0 0 0 0 0 (930,274) (0.82) 0
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