HMG 10QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)
 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended  June 30, 2005
OR

 
[X]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
     

For the transition period from   to

Commission file number 1-7865

HMG/COURTLAND PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter)

Delaware
59-1914299
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 

 
1870 S. Bayshore Drive, Coconut Grove, Florida
33133
(Address of principal executive offices)
(Zip Code)

305-854-6803
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 

APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

1,078,635 Common shares were outstanding as of June 30, 2005.





HMG/COURTLAND PROPERTIES, INC.

Index


PART I. Financial Information
   PAGE
NUMBER
 Item 1. Financial Statements
  
   
 
   
 
 
  
 
   
   
 
   
   
PART II. Other Information
  
13 

Cautionary Statement. This Form 10-QSB contains certain statements relating to future results of the Company that are considered "forward-looking statements" within the meaning of the Private Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions; interest rate fluctuation; competitive pricing pressures within the Company's market; equity and fixed income market fluctuation; technological change; changes in law; changes in fiscal, monetary, regulatory and tax policies; monetary fluctuations as well as other risks and uncertainties detailed elsewhere in this Form 10-QSB or from time-to-time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.




 


         
CONDENSED CONSOLIDATED BALANCE SHEETS
          
   
 
  
 
  
   
June 30,
  
December 31,
  
   
2005
  
2004
  
ASSETS
  
(UNAUDITED)
      
Investment properties, net of accumulated depreciation:
          
Commercial properties
  
$
4,624,708
  
$
4,721,261
  
Commercial properties- construction in progress
    
1,094,055
    
210,965
  
Hotel, club and spa facility
    
5,676,067
    
3,827,201
  
Hotel, club and spa facility-construction in progress
    
72,415
    
1,489,702
  
Marina properties
    
2,423,475
    
2,515,265
  
Land held for development
    
589,419
    
589,419
  
Total investment properties, net
    
14,480,139
    
13,353,813
  
               
Cash and cash equivalents
    
2,300,686
    
3,410,408
  
Investments in marketable securities
    
6,854,518
    
7,132,542
  
Other investments
    
5,084,793
    
5,190,543
  
Investment in affiliate
    
3,029,328
    
2,993,649
  
Loans, notes and other receivables
    
2,165,180
    
2,027,119
  
Notes and advances due from related parties
    
860,646
    
973,242
  
Deferred taxes
    
204,000
    
28,000
  
Goodwill
    
7,728,627
    
7,728,627
  
Other assets
    
565,354
    
536,706
  
TOTAL ASSETS
  
$
43,273,271
  
$
43,374,649
  
           
LIABILITIES
              
Mortgages and notes payable
  
$
19,155,660
  
$
18,483,069
  
Accounts payable and accrued expenses
    
685,666
    
885,132
  
Margin payable to broker
    
975,518
    
1,448,605
  
Income taxes payable
    
5,000
    
250,000
  
Interest rate swap contract payable
    
836,000
    
579,000
  
TOTAL LIABILITIES
    
21,657,844
    
21,645,806
  
               
Minority interests
    
2,779,527
    
2,837,944
  
           
STOCKHOLDERS' EQUITY
              
Preferred stock, $1 par value; 2,000,000 shares
              
     authorized; none issued
    
-
    
-
  
Excess common stock, $1 par value; 500,000 shares authorized;
              
     none issued
    
-
    
-
  
Common stock, $1 par value; 1,500,000 shares authorized;
              
     1,317,135 & 1,315,635 shares issued and outstanding
              
          as of June 30, 2005 & December 31, 2004, respectively
    
1,317,135
   
1,315,635
 
Additional paid-in capital
    
26,582,967
   
26,571,972
 
Undistributed gains from sales of properties, net of losses
    
41,735,070
   
41,735,070
 
Undistributed losses from operations
    
(48,451,408
)
  
(48,524,414
)
Accumulated other comprehensive loss
    
(418,000
)
  
(289,500
)
     
20,765,764
   
20,808,763
 
Less: Treasury stock, at cost (238,500 & 226,500 shares as of
              
     June 30, 2005 & December 31, 2004, respectively)
    
(1,806,114
)
  
(1,659,114
)
               Notes receivable from exercise of stock options
    
(123,750
)
  
(258,750
)
TOTAL STOCKHOLDERS' EQUITY
    
18,835,900
    
18,890,899
  
               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
43,273,271
  
$
43,374,649
  
           
See notes to the condensed consolidated financial statements
              

(1)
 
 
 
 
HMG/COURTLAND PROPERTIES, INC AND SUBSIDIARIES
          
STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
          
   
Three months ended
June 30,
  
Six months ended
June 30,
  
REVENUES
  
2005
  
2004
  
2005
  
2004
  
Real estate rentals and related revenue
  
$
382,182
  
$
367,028
  
$
765,137
  
$
795,516
  
Food & beverage sales
    
1,448,145
   
-
    
3,012,593
   
-
  
Marina revenues
    
385,399
   
116,176
   
779,622
   
232,854
 
Spa revenues
    
94,918
   
-
    
156,042
   
-
  
Net gain (loss) from investments in marketable securities
    
50,734
   
(249,477
)
  
58,514
   
(135,228
)
Net income (loss) from other investments
    
77,334
   
152,270
   
(6,297
)
  
104,371
 
Interest, dividend and other income
    
135,992
    
106,310
    
278,411
    
185,351
  
Total revenues
    
2,574,704
    
492,307
    
5,044,022
    
1,182,864
  
EXPENSES
                          
Operating expenses:
                          
   Rental and other properties
    
197,547
    
117,961
    
417,298
    
241,591
  
   Food and beverage cost of sales
    
435,945
    
-
    
887,703
    
-
  
   Food and beverage labor and related costs
    
320,311
    
-
    
617,029
    
-
  
   Food and beverage other operating costs
    
488,003
    
-
    
965,065
    
-
  
   Marina expenses
    
199,304
    
96,778
    
411,499
    
208,892
  
   Spa expenses
    
84,809
    
-
    
136,576
    
-
  
   Depreciation and amortization
    
269,252
    
122,465
    
496,301
    
266,790
  
   Adviser's base fee
    
225,000
    
225,000
    
450,000
    
450,000
  
   General and administrative
    
88,842
    
80,736
    
160,644
    
158,801
  
   Professional fees and expenses
    
59,994
    
40,634
    
118,412
    
69,817
  
   Directors' fees and expenses
    
18,987
    
13,258
    
35,719
    
30,211
  
Total operating expenses
    
2,387,994
    
696,832
    
4,696,246
    
1,426,102
  
                           
Interest expense
    
321,545
    
116,120
    
664,239
    
228,840
  
Minority partners' interests in operating (loss) gain of
                          
       consolidated entities
    
(29,489
)
  
4,427
   
31,531
   
1,072
 
Total expenses
    
2,680,050
    
817,379
    
5,392,016
    
1,656,014
  
                   
Loss before sales of properties and income taxes
    
(105,346
)
  
(325,072
)
  
(347,994
)
  
(473,150
)
Gain on sales of properties, net
          
1,801,335
         
1,848,941
 
(Loss) income before income taxes
    
(105,346
)
  
1,476,263
   
(347,994
)
  
1,375,791
 
(Benefit from) provision for income taxes
    
(36,000
)
  
134,000
   
(421,000
)
  
196,000
 
Net (loss) income
    
($69,346
)
$
1,342,263
  
$
73,006
  
$
1,179,791
  
                   
Other comprehensive (loss) income:
                          
    Unrealized loss on interest rate swap agreement
    
($275,000
)
  
-
    
($128,500
)
  
-
  
                                                                Total other comprehensive (loss) income
    
(275,000
)
      
(128,500
)
    
                           
Comprehensive (loss) income
    
($344,346
)
$
1,342,263
    
($55,494
)
$
1,179,791
  
                   
Net (Loss) Income Per Common Share:
                          
Basic
 
  
($0.06
)
$
1.23
  
$
0.07
  
$
1.08
  
Diluted
    
($0.06
)
$
1.22
  
$
0.07
  
$
1.07
  
Weighted average common shares outstanding
    
1,078,635
    
1,089,135
    
1,083,856
    
1,089,135
  
Weighted average common shares outstanding - Diluted
    
1,104,224
    
1,103,271
    
1,114,649
    
1,103,700
  
                           
See notes to the condensed consolidated financial statements
                          
 
 
 
(2)
 
 
 
 
 
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
          
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
      
 
  
Six months ended June 30,
  
   
2005
  
2004
  
CASH FLOWS FROM OPERATING ACTIVITIES:
          
  Net income
  
$
73,006
  
$
1,179,791
  
  Adjustments to reconcile net income to net cash used in
              
    operating activities:
              
  Depreciation and amortization
    
496,301
   
266,790
 
  Net loss (gain) from other investments
    
6,295
   
(104,371
)
  Gain on sales of properties, net
          
(1,848,941
)
   Net (gain) loss from investments in marketable securities
    
(58,514
)
  
135,228
 
   Minority partners' interest in operating gains (losses)
    
31,531
   
1,072
 
   Deferred income tax (benefit) expense
    
(176,000
)
  
14,000
 
   Changes in assets and liabilities:
              
       (Increase) decrease in other assets and other receivables
    
(66,768
)
  
29,247
 
       Net proceeds from sales and redemptions of securities
    
957,533
   
1,419,170
 
       Increased investments in marketable securities
    
(620,995
)
  
(3,304,127
)
       (Decrease) increase in accounts payable and accrued expenses
    
(199,466
)
  
185,682
 
       Decrease in margin payable to brokers and other liabilities
    
(473,087
)
  
-
  
       (Decrease) increase in income taxes payable
    
(245,000
)
  
182,000
 
Total adjustments
    
(348,170
)
  
(3,024,250
)
Net cash used in operating activities
    
(275,164
)
  
(1,844,459
)
           
CASH FLOWS FROM INVESTING ACTIVITIES:
              
     Improvements of properties
    
(1,572,073
)
  
-
  
     Net proceeds from disposals of properties
          
3,440,649
 
     Decrease in notes and advances from related parties
    
112,596
   
21,846
 
     Additions in mortgage loans and notes receivables
    
(250,000
)
  
(182,510
)
     Collections of mortgage loans and notes receivables
    
100,000
   
291,902
 
     Distributions from other investments
    
395,433
   
869,734
 
     Contributions to other investments
    
(325,507
)
  
(939,036
)
     Net cash (used in) provided by investing activities
    
(1,539,551
)
  
3,502,585
 
           
CASH FLOWS FROM FINANCING ACTIVITIES:
              
     Additional borrowings, mortgages and notes payables
    
741,974
       
     Repayment of mortgages and notes payables
    
(69,383
)
  
(718,782
)
     Net contributions from (distributions to) minority partners
    
32,402
   
(30,443
)
     Net cash used in financing activities
    
704,993
   
(749,225
)
           
     Net (decrease) increase in cash and cash equivalents
    
(1,109,722
)
  
908,901
 
               
     Cash and cash equivalents at beginning of the period
    
3,410,408
   
2,624,643
 
           
     Cash and cash equivalents at end of the period
  
$
2,300,686
  
$
3,533,544
  
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      
     Cash paid during the period for interest
  
$
664,000
  
$
229,000
  
           
See notes to the condensed consolidated financial statements
              


(3)



HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements prepared in accordance with instructions for Form 10-QSB, include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company's Annual Report for the year ended December 31, 2004. The balance sheet as of December 31, 2004 was derived from audited financial statements as of that date. The results of operations for the three and six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the full year.

The condensed 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. All material transactions and balances with consolidated and unconsolidated entities have been eliminated in consolidation or as required under the equity method.

2. RECENT ACCOUNTING PRONOUNCEMENT 
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement provides guidance on accounting for reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. This Statement also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. This Statement also provides guidance on the correction of an error by restating previously issued financial statements.  This Statement shall effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections to have a material effect on its financial statements.
 

3. RESULTS OF OPERATIONS FOR MONTY’S RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE, FLORIDA
As previously reported On August 20, 2004, the Company, through two 50%-owned entities, Bayshore Landing, LLC (“Landing”) and Bayshore Rawbar, LLC (“Rawbar”), (collectively, “Bayshore”) purchased a restaurant, office/retail and marina property located in Coconut Grove (Miami), Florida known as Monty’s (the “Monty’s Property”) for approximately $13.9 million.
 

 
(4)

 



HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)

 
Summarized combined statement of income for Landing and Rawbar for the three and six months ended June 30, 2005 and for the period from the date of purchase of August 20, 2004 through December 31, 2004 is presented below (Note: the Company’s ownership percentage in these operations is 50%):
 
Combined Operations of Landing and Rawbar
  
Three months
ended
June 30, 2005
  
Six months
ended
June 30, 2005
  
August 20, 2004 through
December 31, 2004
  
Revenues:
              
Food and Beverage Sales
  
$
1,448,000
  
$
3,012,000
  
$
1,733,000
  
Marina dockage, upland rents and other
    
308,000
    
621,000
    
400,000
  
Total Revenues
    
1,756,000
    
3,633,000
    
2,133,000
  
Expenses:
                    
Cost of food and beverage sold
    
436,000
    
888,000
    
537,000
  
Labor and related costs
    
320,000
    
617,000
    
434,000
  
Other food and beverage related costs
    
77,000
    
171,000
    
117,000
  
Insurance
    
77,000
    
160,000
    
137,000
  
Management fees
    
96,000
    
193,000
    
138,000
  
Utilities
    
74,000
    
149,000
    
107,000
  
Rent
    
208,000
    
415,000
    
267,000
  
Interest
    
188,000
    
412,000
    
285,000
  
Depreciation
    
91,000
    
181,000
    
126,000
  
Other
    
167,000
    
314,000
    
214,000
  
Total Expenses
    
1,734,000
    
3,500,000
    
2,362,000
  
                     
Net Income (loss)
  
$
22,000
  
$
133,000
    
($229,000
)

 

(5)
 
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
Unaudited Pro-forma Results of Operations
 
The following are the Company’s results of operations for the three and six months ended June 30, 2005 with comparative results of operations for the three and six months ended June 30, 2004, as if the acquisition of the Monty’s (Landing and Rawbar) property had taken place at the beginning of the years.
 


 
   
 
For the three months ended June 30,
 
For the six months ended June 30,
 
 
 
2005
 
2004
 
2005
 
2004
  
Revenues
  
$
2,575,000
  
$
2,326,000
  
$
5,044,000
  
 
$
,835,000
  
Net (loss) income
    
($69,000
)
$
1,586,000
  
$
73,000
  
$
1,666,000
  
(Loss) earnings per share
    
($.06
)
$
1.68
  
$
.07
  
$
1.98
  

 

4. INVESTMENTS IN MARKETABLE SECURITIES
Investments in marketable securities consist primarily of large capital corporate equity and debt securities in varying industries or issued by government agencies with readily determinable fair values. These securities are stated at market value, as determined by the most recent traded price of each security at the balance sheet date. Consistent with the Company's overall current investment objectives and activities its entire marketable securities portfolio is classified as trading.

Net gain (loss) from investments in marketable securities for the three and six months ended June 30, 2005 and 2004 is summarized below:

   
Three months ended
June 30,
  
Six months ended
June 30,
  
Description
  
2005
  
2004
  
2005
  
2004
  
Net realized gain (loss) from sales of securities
  
$
49,000
    
($5,000
)
$
91,000
    
($13,000
)
Unrealized net gain (loss) in trading securities
    
2,000
    
(244,000
)
  
(32,000
)
  
(122,000
)
Total net gain (loss) from investments in marketable securities
  
$
51,000
    
($249,000
)
$
59,000
    
($135,000
)

For the three and six months ended June 30, 2005 net realized gain from sales of marketable securities of approximately $49,000 and $91,000, respectively, consisted of approximately $61,000 of gross gains net of $12,000 of gross losses for the three month period and $110,000 of gross gains and $19,000 of gross losses for the six month period. For the three and six months ended June 30, 2004 net realized loss from sales of marketable securities of approximately $5,000 and $13,000 consisted of approximately $10,000 of gross losses net of $5,000 of gross gains for the three month period and approximately $89,000 of gross losses net of $76,000 of gross gains for the six month period.

(6)
 
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)

Investment gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net earnings. However, the amount of investment gains or losses on marketable securities for any given period has no predictive value and variations in amount from period to period have no practical analytical value.

5. OTHER INVESTMENTS
As of June 30, 2005, the Company has committed to invest approximately $11.7 million in other investments primarily in private capital funds, of which approximately $9.8 million has been funded. The carrying value of other investments (which reflects distributions and valuation adjustments) is approximately $5.0 million. During the six months ended June 30, 2005 the Company has made contributions to four existing and three new investments of approximately $326,000 and has received approximately $378,000 in cash distributions from other investments.

Net (loss) gain from other investments for the three and six months ended June 30, 2005 and 2004, is summarized below:

   
Three months ended June 30,
  
Six months ended June 30,
  
Description
  
2005
  
2004
  
2005
  
2004
  
Partnership owning diversified operating companies
  
$
50,000
  
$
140,000
  
$
67,000
  
$
140,000
  
Technology-related venture fund
    
23,000
    
--
    
43,000
    
(104,000
)
Real estate development and operation
   
--
    
2,000
    
1,000
    
40,000
  
Income from investment in 49% owned affiliate (T.G.I.F. Texas, Inc.)
    
7,000
    
13,000
    
36,000
    
34,000
  
Others, net
    
(3,000
)
  
(3,000
)
  
(153,000
)
  
(6,000
)
Total net gain (loss) from other investments
  
$
77,000
  
$
152,000
    
($6,000
)
$
104,000
  

In March 2005, the Company reduced the remaining carrying value (approximately $147,000) of one of its investments in a privately held company in the personal cosmetic industry. This investment experienced a decline in demand for its product which is believed to result in other-than-temporary decline in the value of the investment. This write down is included under the caption “Others, net” in the table above. There were no write downs during the three months ended June 30, 2005.

In March 2004, the Company reduced the carrying value of one of its investments in a venture capital fund by $104,000. This fund experienced a decline in the market value of its holdings in publicly-traded companies having a concentration in technology and communications.


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HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued) (Unaudited)
6. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to interest rate risk through their borrowing activities. In order to minimize the effect of changes in interest rates, the Company has entered an interest rate swap contract under which the Company agrees to pay an amount equal to a specified rate of 7.57% times a notional principal approximating the outstanding loan balance, and to receive in return an amount equal to the one month LIBOR rate plus 2.45% times the same notional amount. The Company designated this interest rate swap contract as a cash flow hedge. The fair value of the cash flow hedge, which at June 30, 2005 and December 31, 2004, is a loss of $418,000 and $289,500, respectively (net of 50% minority interest), is deferred to other comprehensive loss and reclassified to interest expense over the life of the swap contract.

7.  STOCK OPTIONS
On April 1, 2005 Mr. Wiener exercised options to purchase 1,500 shares which had been previously granted. The exercise price of $12,495 and the existing promissory note due to the Company from Mr. Wiener of $135,000 were satisfied by delivery by Mr. Wiener of 12,000 shares of the Company’s stock at the then market value of $12.25 per share and $495, all in accordance with the Company’s 2000 Stock Option Plan (the “Plan”). Pursuant to the reload feature of the Plan Mr. Wiener received an option to purchase 12,000 shares at $12.25 per share.
 
On March 31, 2005 a director of the Company (Mr. Stuntebeck) was granted options to purchase 5,000 shares of the Company’s stock at $12.25 per share (market value). The options are not restricted, fully vested and expire in March 2015.

8.  BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the three and six months ended June 30, 2005 and 2004 are computed as follows:
 
 
 
 
 
For the three months ended
 
For the six months ended
 
 
 
 
 
June 30,
 
June 30,
  
       
2005
  
2004
  
2005
  
2004
  
 Basic:
                      
        Net (loss) income
  
 
    
($69,346
)
$
1,342,263
  
$
73,006
  
$
1,179,791
  
                                 
Weighted average shares outstanding
  
1,078,635
   
1,089,135
   
1,083,856
   
1,089,135
 
    Basic (loss) earnings per share
  
($.06
)
$
1.23
  
$
.07
  
$
1.08
  
                                 
           
2005
 
 
2004
 
 
2005
 
 
2004
  
Diluted: 
                            
               Net (loss) Income  
  
 
    
($69,346
)
$
1,342,263
  
$
73,006
  
$
1,179,791
  
                                 
Weighted average shares outstanding
  
1,078,635
    
1,089,135
    
1,083,836
    
1,089,135
  
 
Plus incremental shares from assumed conversion: Stock options
  
25,589
    
14,136
    
30,793
    
14,565
  
                                 
Diluted weighted average common shares
  
1,104,224
    
1,103,271
    
1,114,649
    
1,103,700
  
    Diluted (loss) earnings per share
  
($.06
)
$
1.22
  
$
.07
  
$
1.07
  
 
(8)
 
 
 
 
Item 2.  Management's Discussion and Analysis of
Financial Condition and Results of Operations

RESULTS OF OPERATIONS
The Company reported a net loss of approximately $69,000 (or $.06 per share) for the three months ended June 30, 2005 and reported net income of $73,000 (or $.07 per share) for the six months ended June 30, 2005. This is as compared with net income of approximately $1.3 million (or $1.22 per diluted share) and $1.2 million (or $1.07 per diluted share) for the three and six months ended June 30, 2004, respectively.

As discussed further below, total revenues for the three and six months ended June 30, 2005 as compared with the same periods in 2005, increased by approximately $2.1 million or 423% and $3.9 million or 326%, respectively. Total expenses for the three and six months ended June 30, 2005, as compared with the same periods in 2004, increased by approximately $1.9 million or 228% and $3.7 million or 226%, respectively. There were no sales of properties for the three and six months ended June 30, 2005 as compared with gains of approximately $1.8 million and $1.9 million for the three and six months ended June 30, 2004.


REVENUES

Rentals and related revenues for the six months ended June 30, 2005 as compared with the same comparable period in 2004 decreased by $30,000 (4%). This decrease was primarily due to decreased rental revenue of approximately $108,000 as a result of the sale in April 2004 of the Fashion Square shopping center located near Jacksonville, Florida. This decrease in rental revenue was partially offset by increased rental revenue of approximately $60,000 from the retail space of the Monty’s property in Miami, Florida which was acquired in August 2004. Rentals and related revenues for the three months ended June 30, 2005 as compared with the same comparable period in 2004 remained substantially unchanged.
 
Food and beverage sales of $1.4 million and $3.0 million for the three and six months ended June 30, 2005, respectively, consists of sales from Bayshore Rawbar, LLC, which is the restaurant portion of the Monty’s property acquired in August 2004. For further details refer to Note 3 to Condensed Consolidated Financial Statements (unaudited).
 
Marina revenues for the three and six months ended June 30, 2005 as compared with the same comparable periods in 2004 increased by $269,000 (or 232%) and $547,000 (235%), respectively. This increase was almost entirely from transient rental dockage fees from the marina at the Monty’s property acquired in August 2004. For further details refer to Note 3 to Condensed Consolidated Financial Statements (unaudited).

Spa revenues for the three and six months ended June 30, 2005 of approximately $95,000 and $156,000 were from the newly constructed spa at the Grove Isle property which began operations in the first quarter 2005.

Net gain from investments in marketable securities for the three and six months ended June 30, 2005 was approximately $51,000 and $58,000, respectively. This is as compared with a net loss from investments in marketable securities of approximately $249,000 and $135,000 for the same comparable period in 2004, respectively. For further details refer to Note 4 to Condensed Consolidated Financial Statements (unaudited).
 

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Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)

Net gain (loss) from other investments for the three and six months ended June 30, 2005 was approximately $77,000 and ($6,000). This is as compared with a net gain of approximately $152,000 and $104,000 for the same comparable periods in 2004, respectively. For further details refer to Note 5 to Condensed Consolidated Financial Statements (unaudited).

Interest and dividend income for the three and six months ended June 30, 2005 increased by approximately $30,000 and $93,000 as compared with the same comparable periods in 2004, respectively. The increases from last year consists primarily of interest income from notes receivable (Key West restaurant operator) and increased interest and dividends from investments in bonds, other fixed income securities and equity securities which pay dividends.

EXPENSES

Expenses for rental and other properties for the three and six months ended June 30, 2005 increased by approximately $80,000 (or 67%) and $176,000 (73%), as compared to that for the same comparable periods in 2004, respectively. This increase was primarily due to operating expenses relating to the rental operations of the Monty’s property acquired in August 2004. For further details refer to Note 3 to Condensed Consolidated Financial Statements (unaudited).

Food and beverage cost of sales, labor and related costs and other operating costs are all related to the Monty’s property acquired in August 2004. For further details refer to Note 3 to Condensed Consolidated Financial Statements (unaudited).

Marina expenses for the three and six months ended June 30, 2005 increased by approximately $103,000 (or 106%) and $203,000 (or 97%), as compared with the same comparable periods in 2004, respectively. This was primarily due to increased operating expenses of the marina portion of Monty’s property acquired in August 2004. For further details refer to Note 3 to Condensed Consolidated Financial Statements (unaudited).

Spa expenses for the three and six months ended June 30, 2005 were approximately $85,000 and $137,000, respectively, and all related to the opening of the spa at Grove Isle in the first quarter of 2005.

Depreciation and amortization expense for the three and six months ended June 30, 2005 increased by approximately $147,000 (or 120%) and $230,000 (or 86%), as compared with the same comparable periods in 2004, respectively. This was primarily the result of the acquisition of property in August 2004 and the completion of construction in the first quarter of 2005.

Professional fees expense for the three and six months ended June 30, 2005 increased by approximately $19,000 (or 48%) and $49,000 (or 70%) as compared with the same comparable periods in 2004, respectively. This increase was primarily the result of an increase in professional services (accounting and legal) relating to the aforementioned acquisitions and improvements of properties.

Interest expense for the three and six months ended June 30, 2005 increased by approximately $205,000 (or 177%) and $435,000 (or 190%), as compared with the same comparable period in 2004. This increase was primarily from new debt related to the acquisition of the Monty’s property in August 2004.
 

(10)
 
 
Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)

EFFECT OF INFLATION:
Inflation affects the costs of operating and maintaining the Company's investments. In addition, rentals under certain leases are based in part on the lessee's sales and tend to increase with inflation, and certain leases provide for periodic adjustments according to changes in predetermined price indices.

LIQUIDITY, CAPITAL EXPENDITURE REQUIREMENTS AND CAPITAL RESOURCES
The Company's material commitments in 2005 primarily consist of maturities of debt obligations of approximately $3.9 million and commitments to fund private capital investments of approximately $1.9 million due upon demand. The funds necessary to meet these obligations are expected to be available from the proceeds of sales of properties or investments, refinancing, distributions from investments and available cash. The majority of maturing debt obligations for 2005 is a note payable to the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) of approximately $3.7 million. This amount is due on demand. It is expected that this obligation when due to TGIF would be paid with funds available from distributions from its investment in TGIF and from available cash.

MATERIAL COMPONENTS OF CASH FLOWS
For the six months ended June 30, 2005, net cash used by operating activities was approximately $275,000. Included in this amount are increased investments in marketable securities of approximately $621,000, decreased margin payable to brokers of $473,000 and decreased accounts payable and accrued expenses of $199,000. These uses of funds were partially offset by proceeds from sales of marketable securities of $958,000.

For the six months ended June 30, 2005, net cash used in investing activities was approximately $1.5 million. This was comprised primarily of improvements of properties of $1.6 million.

For the six months ended June 30, 2005, net cash provided by financing activities was approximately $705,000 primarily consisting of $742,000 in additional borrowings under the Monty’s property construction loan agreement.

 
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Item 3.  Controls and Procedures
(a)       
Evaluation of Disclosure Controls and Procedures.
Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-QSB have concluded that, based on such evaluation, our disclosure controls and procedures were adequate and designed to ensure that material information relating to us and our consolidated subsidiaries, which we are required to disclose in the reports we file or submit under the Exchange Act of 1934, was made known to them by others within those entities and reported within the time periods specified in the SEC's rules and forms.

(b)
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter covered by this report or from the end of the reporting period to the date of this Form 10-QSB.


PART II. OTHER INFORMATION
Item 1. Legal Proceedings: None.
Item 2. Changes in Securities and Small Business Issuers Purchase of Equity Securities: None.

Item 3. Defaults Upon Senior Securities: None.

Item 4. Submission of Matters to a Vote of Security Holders: 
At the Company’s annual meeting, held on July 22, 2005, the shareholders approved the renewal of the Advisory Agreement between the Company and the Adviser for a term commencing January 1, 2006 and expiring December 31, 2006, and reelected the Company's Board of Directors by the following votes:

 
Number of votes
 
For
Against/Withheld
Directors:
    
     Walter G. Arader
636,176
  
      Harvey Comita
636,176
  
      Lawrence Rothstein
636,176
  
      Maurice Wiener
636,176
  
      Clinton A. Stuntebeck
636,176
  
     
Renewal of Advisory Agreement
636,076
8,200

The number of votes for the renewal of the Advisory Agreement represents a majority of the votes cast at the meeting.
 
Item 5. Other Information: On July 25, 2005 the Company declared a dividend of $.50 per share payable on August 26, 2005 to shareholders of record on August 12, 2005.
 

Item 6. Exhibits and Reports on Form 8-K:
 
 (a)  Certifications pursuant to 18 USC Section 1350-Sarbanes-Oxley Act of 2002. Filed herewith.
(b)  
Reports on Form 8-K filed for the quarter ended June 30, 2005: None.



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 



 
HMG/COURTLAND PROPERTIES, INC.
   
   
                                           
Dated: August 10, 2005
/s/ Lawrence Rothstein
 
President, Treasurer and Secretary
 
Principal Financial Officer
   





 
                                           
Dated: August 10, 2005
/s/Carlos Camarotti
 
Vice President- Finance and Controller
 
Principal Accounting Officer

 


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