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 September 30, 2006
 
OR

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

For the transition period from ___________________ to ________________

Commission file number 1-7865

HMG/COURTLAND PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware
59-1914299
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
1870 S. Bayshore Drive, Coconut Grove, Florida 33133
(Address of principal executive offices) (Zip Code)

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

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

Check whether the issuer (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [ ]     No [ X]
 
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.

1,023,955 Common shares were outstanding as of September 30, 2006.
 
 

 

HMG/COURTLAND PROPERTIES, INC.

Index

 
PAGE   
NUMBER
PART I. Financial Information
  
   
Item 1. Financial Statements
  
   
Condensed Consolidated Balance Sheets as of
  
September 30, 2006 (Unaudited) and December 31, 2005
1
   
Condensed Consolidated Statements of Comprehensive Income for the
  
Three Months and Nine Months Ended September 30, 2006 and 2005 (Unaudited)
2
 
  
Condensed Consolidated Statements of Cash Flows for the
  
Nine Months Ended September 30, 2006 and 2005 (Unaudited)
3
   
Notes to Condensed Consolidated Financial Statements (Unaudited)
4
   
Item 2. Management's Discussion and Analysis of Financial
  
Condition and Results of Operations
10
   
Item 3. Controls and Procedures
14
   
PART II. Other Information
  
Item 1. Legal Proceedings
14
Item 2. Changes in Securities and Small Business Issuer Purchases of Equity Securities.
14
Item 3. Defaults Upon Senior Securities
14
Item 4. Submission of Matters to a Vote of Security Holders
14
Item 5. Other Information
14
Item 6. Exhibits and Reports on Form 8-K
14
Signatures
15
 
 
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
          
   
September 30,
  
December 31,
  
   
2006
  
2005
  
ASSETS
  
(UNAUDITED)
      
Investment properties, net of accumulated depreciation:
          
Commercial properties
  
$
7,410,027
  
$
6,513,793
  
Commercial properties- construction in progress
    
482,035
    
171,727
  
Hotel, club and spa facility
    
5,532,125
    
5,845,030
  
Marina properties
    
2,946,941
    
2,899,085
  
Land held for development
    
27,689
    
589,419
  
Total investment properties, net
    
16,398,817
    
16,019,054
  
               
Cash and cash equivalents
    
2,197,405
    
2,350,735
  
Investments in marketable securities
    
5,791,455
    
6,576,954
  
Other investments
    
5,389,390
    
5,119,179
  
Investment in affiliate
    
3,184,506
    
3,074,530
  
Loans, notes and other receivables
    
1,906,727
    
2,037,651
  
Notes and advances due from related parties
    
765,400
    
767,768
  
Deferred taxes
    
-
    
88,000
  
Goodwill
    
7,728,627
    
7,728,627
  
Other assets
    
598,592
    
640,602
  
TOTAL ASSETS
  
$
43,960,919
  
$
44,403,100
  
           
LIABILITIES
              
Mortgages and notes payable
  
$
21,092,243
  
$
20,823,764
  
Accounts payable and accrued expenses
    
1,174,855
    
1,266,561
  
Margin payable to broker
    
633,295
    
1,211,925
  
Deferred taxes
    
153,000
    
-
  
Interest rate swap contract payable
    
57,000
    
266,000
  
TOTAL LIABILITIES
    
23,110,393
    
23,568,250
  
               
Minority interests
    
3,582,133
    
2,674,740
  
           
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;
              
1,317,535 shares issued
              
as of September 30, 2006 and December 31, 2005, respectively
    
1,317,535
   
1,317,535
 
Additional paid-in capital
    
26,585,595
   
26,585,595
 
Undistributed gains from sales of properties, net of losses
    
41,315,056
   
41,315,056
 
Undistributed losses from operations
    
(49,355,459
)
  
(49,046,362
)
Accumulated other comprehensive income (loss)
    
(28,500
)
  
(133,000
)
     
19,834,227
   
20,038,824
 
Less: Treasury stock, at cost (293,580 & 244,500 shares as of
              
September 30, 2006 and December 31, 2005, respectively)
    
(2,565,834
)
  
(1,878,714
)
TOTAL STOCKHOLDERS' EQUITY
    
17,268,393
    
18,160,110
  
               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
43,960,919
  
$
44,403,100
  
           
See notes to the condensed consolidated financial statements
              
(1)

HMG/COURTLAND PROPERTIES, INC AND SUBSIDIARIES
    
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (UNAUDITED)
    
 
Three months ended
September 30,
Nine months ended
September 30,
REVENUES
2006
2005
2006
2005
Real estate rentals and related revenue
$433,863
$371,697
$1,260,285
$1,136,834
Food & beverage sales
1,352,501
1,036,587
4,939,492
4,049,180
Marina revenues
410,977
353,913
1,255,412
1,133,535
Spa revenues
156,541
104,134
465,039
260,176
Net gain from investments in marketable securities
144,873
210,015
170,480
268,529
Net income from other investments
85,320
51,501
395,031
45,204
Interest, dividend and other income
119,660
132,033
439,702
410,444
Total revenues
2,703,735
2,259,880
8,925,441
7,303,902
EXPENSES
        
Operating expenses:
        
Rental and other properties
228,878
221,526
645,487
608,114
Food and beverage cost of sales
381,365
323,549
1,420,680
1,211,252
Food and beverage labor and related costs
292,083
281,841
962,246
898,870
Food and beverage other operating costs
553,962
418,456
1,660,878
1,383,521
Marina expenses
265,662
223,682
798,530
665,891
Spa expenses
149,447
196,099
494,960
332,675
Depreciation and amortization
303,879
196,922
851,331
693,223
Adviser's base fee
225,000
225,000
675,000
675,000
General and administrative
97,607
97,262
257,706
257,906
Professional fees and expenses
85,396
61,947
232,027
180,359
Directors' fees and expenses
25,613
19,803
58,624
55,522
Total operating expenses
2,608,892
2,266,087
8,057,469
6,962,333
         
Interest expense
433,743
363,052
1,257,492
1,027,291
Minority partners' interests in operating losses of
        
consolidated entities
(132,946)
(178,816)
(64,359)
(147,285)
Total expenses
2,909,689
2,450,323
9,250,602
7,842,339
 
 
 
 
 
Loss before sales of properties and income taxes
(205,954)
(190,443)
(325,161)
(538,437)
         
Gain on sales of properties, net
257,064
302,999
257,064
302,999
Income (loss) before income taxes
51,110
112,556
(68,097)
(235,438)
         
Provision for (benefit from) income taxes
223,000
(189,000)
241,000
(610,000)
Net (loss) income
($171,890)
$301,556
($309,097)
$374,562
 
 
 
 
 
Other comprehensive income (loss):
        
Unrealized gain (loss) on interest rate swap agreement
($234,000)
$209,500
$104,500
$81,000
Total other comprehensive income (loss)
(234,000)
209,500
104,500
81,000
         
Comprehensive income (loss)
($405,890)
$511,056
($204,597)
$455,562
 
 
 
 
 
Net (Loss) Income Per Common Share:
        
Basic   
($0.17)
$0.28
($0.30)
$0.35
Diluted   
($0.17)
$0.27
($0.30)
$0.34
Weighted average common shares outstanding   
1,023,955
1,076,261
1,032,584
1,081,297
Weighted average common shares outstanding - Diluted   
1,023,955
1,107,203
1,032,584
1,113,384
         
See notes to the condensed consolidated financial statements
        
(2)
 
 
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
          
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
      
 
  
Nine months ended September 30,
  
   
2006
  
2005
  
CASH FLOWS FROM OPERATING ACTIVITIES:
          
Net (loss) income
  
$
(309,097
)
$
374,562
  
Adjustments to reconcile net (loss) income to net cash provided by
              
operating activities:
              
Depreciation and amortization
    
851,331
   
693,223
 
Net income from other investments
    
(395,031
)
  
(45,204
)
Gain on sales of properties, net
    
(257,064
)
  
(302,999
)
Net gain from investments in marketable securities
    
(170,480
)
  
(268,529
)
Minority partners' interest in operating losses
    
(64,359
)
  
(147,285
)
Deferred income tax
    
241,000
    
(365,000
)
Changes in assets and liabilities:
              
Decrease in other assets and other receivables
    
59,348
   
103,722
  
Net proceeds from sales and redemptions of securities
    
1,758,925
   
1,557,538
 
Increase in investments in marketable securities
    
(802,946
)
  
(1,204,452
)
Decrease in accounts payable and accrued expenses
    
(117,775
)
  
(91,720
)
(Decrease) increase in margin payable to brokers and other liabilities
    
(578,630
)
  
179,272
 
Decrease in income taxes payable
    
-
   
(250,000
)
Total adjustments
    
524,319
    
(141,434
)
Net cash provided by operating activities
    
215,222
    
233,128
  
           
CASH FLOWS FROM INVESTING ACTIVITIES:
              
Purchases and improvements of properties
    
(1,770,945
)
  
(2,266,148
)
Net proceeds from disposals of properties
    
818,794
    
517,288
  
Decrease in notes and advances from related parties
    
2,368
   
266,105
 
Additions in mortgage loans and notes receivables
    
-
    
(250,000
)
Collections of mortgage loans and notes receivables
    
91,708
   
100,000
 
Distributions from other investments
    
714,519
   
1,069,233
 
Contributions to other investments
    
(673,605
)
  
(1,605,728
)
Net cash used in investing activities
    
(817,161
)
  
(2,169,250
)
           
CASH FLOWS FROM FINANCING ACTIVITIES:
              
Additional borrowings, mortgages and notes payables
    
615,327
   
1,247,305
 
Repayment of mortgages and notes payables
    
(346,848
)
  
(104,122
)
Dividends paid
    
-
    
(539,317
)
Purchase of treasury stock
    
(687,120
)
  
-
  
Net contributions from (distributions to) minority partners
    
867,250
    
(118,356
)
Net cash provided by financing activities
    
448,609
   
485,510
  
           
Net decrease in cash and cash equivalents
    
(153,330
)
  
(1,450,612
)
               
Cash and cash equivalents at beginning of the period
    
2,350,735
   
3,410,408
 
           
Cash and cash equivalents at end of the period
  
$
2,197,405
  
$
1,959,796
  
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      
Cash paid during the period for interest
  
$
1,257,000
  
$
1,027,000
  
           
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, 2005. The balance sheet as of December 31, 2005 was derived from audited financial statements as of that date. The results of operations for the three and nine months ended September 30, 2006 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 be 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 Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections to have a material effect on its financial statements.
 
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109 (FIN 48), which clarifies the accounting for uncertainty in tax positions. FIN 48 requires recognition in the financial statements of the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The provisions of FIN 48 are effective as of the beginning of the 2007 fiscal year, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.
 
In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108), to address diversity in practice in quantifying financial statement misstatements.


(4)
 
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

SAB 108 requires that the Company quantify misstatements based on their impact on each of the Company’s financial statements and related disclosures. SAB 108 is effective as of the end of the Company’s 2006 fiscal year, allowing a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108. The Company is currently evaluating the impact of adopting SAB 108 on its financial statements.
 
In September 2006, the FASB issued SFAS 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of SFAS 157 are effective as of the beginning of the Company’s 2008 fiscal year. The Company is currently evaluating the impact of adopting SFAS 157 on its financial statements.
 
3. GAIN ON SALES OF PROPERTIES
In August 2006, the Company sold its remaining 4 acres of land located in Houston, Texas, resulting in a net gain to the Company of approximately $258,000.

4. RESULTS OF OPERATIONS FOR MONTY’S RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE, FLORIDA
The Company, through two 50%-owned entities, Bayshore Landing, LLC (“Landing”) and Bayshore Rawbar, LLC (“Rawbar”), (collectively, “Bayshore”) owns a restaurant, office/retail and marina property located in Coconut Grove (Miami), Florida known as Monty’s (the “Monty’s Property”). Summarized combined statement of income for Landing and Rawbar for the three and nine months ended September 30, 2006 and 2005 is presented below (Note: the Company’s ownership percentage in these operations is 50% of the amount presented below):
 
Summarized Combined statements of income
Bayshore Landing, LLC and
Bayshore Rawbar, LLC
  
For the three
months ended
September 30, 2006
For the three
 months ended
September 30, 2005
For the nine
months ended
September 30, 2006
For the nine
months ended
September 30, 2005
           
Revenues:
          
Food and Beverage Sales
  
$1,352,000
$1,036,000
$4,939,000
$4,049,000
Marina dockage and related
  
296,000
248,000
916,000
808,000
Retail/mall rental and related
  
90,000
28,000
230,000
88,000
Total Revenues
  
1,738,000
1,312,000
6,085,000
4,945,000
           
Expenses:
          
Cost of food and beverage sold
  
382,000
323,000
1,421,000
1,211,000
Labor and related costs
  
237,000
223,000
802,000
723,000
Entertainers
  
56,000
59,000
160,000
176,000
Other food and beverage related costs
  
137,000
96,000
420,000
335,000
Other operating costs
  
21,000
20,000
216,000
172,000
Repairs and maintenance
  
74,000
62,000
243,000
175,000
Insurance
  
167,000
83,000
344,000
248,000
Management fees
  
157,000
158,000
349,000
351,000
Utilities
  
112,000
86,000
313,000
235,000
Ground rent
  
175,000
163,000
522,000
554,000
Interest
  
253,000
223,000
747,000
635,000
Depreciation and amortization
  
149,000
92,000
389,000
273,000
Total Expenses
  
1,920,000
1,588,000
5,926,000
5,088,000
           
Net (loss) income
  
($182,000)
($276,000)
$159,000
($143,000)

(5)
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

5. 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 from investments in marketable securities for the three and nine months ended September 30, 2006 and 2005 is summarized below:

 
Three months ended
September 30,
Nine months ended
September 30,
Description
2006
2005
2006
2005
Net realized gain from sales of securities
$34,000
$116,000
$147,000
$207,000
Unrealized net gain in trading securities
111,000
94,000
23,000
61,000
Total net gain from investments in marketable securities
$145,000
$210,000
$170,000
$268,000
 
For the three and nine months ended September 30, 2006 net realized gain from sales of marketable securities of approximately $34,000 and $147,000, respectively, consisted of approximately $46,000 of gross gains net of $12,000 of gross losses for the three month period and $357,000 of gross gains and $210,000 of gross losses for the nine month period. For the three and nine months ended September 30, 2005 net realized gain from sales of marketable securities of approximately $116,000 and $207,000, respectively, consisted of approximately $131,000 of gross gains net of $15,000 of gross losses for the three month period and $241,000 of gross gains and $34,000 of gross losses for the nine month period.

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.

6. OTHER INVESTMENTS
As of September 30, 2006, the Company has committed to invest approximately $12.9 million in other investments primarily in private capital funds, of which approximately $11.7 million has been funded. The carrying value of other investments (which reflects distributions and valuation adjustments) is approximately $5.4 million as of September 30, 2006.

During the nine months ended September 30, 2006 the Company made initial contributions to four new investments totaling $542,000 and made follow-on contributions to five existing investments of approximately $132,000. During this same period the Company received approximately $714,000 in distributions from investments including from one investment in which the partial redemption of $100,000 was requested and granted.


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

Net income (loss) from other investments for the three and nine months ended September 30, 2006 and 2005, is summarized below:

 
Three months ended September 30,
Nine months ended September 30,
Description
2006
2005
2006
2005
Partnership/funds which invest in diversified operating companies
$58,000
$9,000
$166,000
$77,000
Technology-related venture fund
--
--
50,000
43,000
Real estate development and operation
4,000
21,000
65,000
22,000
Income from investment in 49% owned affiliate (T.G.I.F. Texas, Inc.)
29,000
24,000
110,000
60,000
Others, net
(6,000)
(3,000)
4,000
(157,000)
Total net gain (loss) from other investments
$85,000
$51,000
$395,000
$45,000

During the nine months ended September 30, 2006, the Company received cash distributions from two funds, one from a fund which invests in diversified businesses and the other from a technology venture fund. These distributions exceeded the carrying amount of the investments and accordingly were recognized as income.

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.

7. DERIVATIVE FINANCIAL INSTRUMENTS
The Company is exposed to interest rate risk through its borrowing activities. In order to minimize the effect of changes in interest rates, the Company has entered into 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. As of September 30, 2006 and December 31, 2005 the fair value (net of 50% minority interest) was an unrealized loss of approximately $28,000 and $133,000, respectively. These amounts have been recorded as other comprehensive gain (loss) and will be reclassified to interest expense over the life of the swap contract.

8. PURCHASE OF TREASURY STOCK
In February 2006 the Company purchased 49,080 shares of the Company’s common stock from one shareholder for $687,000, or $14 per share.





(7)
 
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

9. SEGMENT INFORMATION
The Company has three reportable segments: Real estate rentals; Food and Beverage sales; and Other investments and related income. The Real estate and rentals segment primarily includes the leasing of its Grove Isle property, marina dock rentals at both Monty’s and Grove Isle marinas, and the leasing of office and retail space at its Monty’s property. The Food and Beverage sales segment consists of the Monty’s restaurant operation. Lastly, the Other investment and related income segment includes all of the Company’s other investments, marketable securities, loans, notes and other receivables and the Grove Isle spa operations which individually do not meet the criteria as a reportable segment.

   
Three months ended
  
Nine months ended
   
September 30,
  
September 30,
   
2006
2005
 
2006
2005
Net Revenues:
            
Real estate and marina rentals
  
$844,840
$725,610
 
$2,515,697
$2,270,369
Food and beverage sales
  
1,352,501
1,036,587
 
4,939,492
4,049,180
Other investments and related income
506,394
497,683
 
1,470,252
984,353
Total Net Revenues
  
$2,703,735
$2,259,880
 
$8,925,441
$7,303,902
   
 
 
 
 
 
Loss before income taxes:
            
Real estate and marina rentals
  
$17,748
$76,002
 
$66,924
$224,898
Food and beverage sales
  
(56,669)
(100,626)
 
88,609
(27,590)
Other investments and related income
(167,033)
(165,819)
  
(480,694)
(735,745)
Total loss before income taxes
  
($205,954)
($190,443)
 
($325,161)
($538,437)


















(8)
 
 

 

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


10.  BASIC AND DILUTED EARNINGS PER SHARE
Basic and diluted earnings per share for the three and nine months ended September 30, 2006 and 2005 are computed as follows:

     
For the three months ended
For the nine months ended
     
September 30,
September 30,
     
2006
2005
2006
2005
 
Basic:
          
 
Net income (loss)
($171,890)
$301,556
($309,097)
$374,562
             
Weighted average shares outstanding
1,023,955
1,076,261
1,032,584
1,081,297
Basic earnings (loss) per share
($.17)
$.28
($.30)
$.35
             
     
2006
2005
2006
2005
 
Diluted:
          
 
Net income (loss)
($171,890)
$301,556
($309,097)
$374,562
             
Weighted average shares outstanding
1,023,955
1,076,261
1,032,584
1,081,297
 
Plus incremental shares from assumed conversion: Stock options (dilutive shares only)
-
30,942
-
32,087
             
Diluted weighted average common shares
1,023,955
1,107,203
1,032,584
1,113,384
Diluted earnings (loss) per share
($.17)
$.27
($.30)
$.34



11. NOTE RECEIVABLE
As of the date of this filing, the Company has not received the quarterly interest payment of $20,164 due on November 1, 2006 relating to the $1 million loan made in July 2004 to Monty’s Key West, LLC (“MKW”, an entity which owns and operates a restaurant in Key West, Florida and in which the Company holds a 10% equity interest). The company believes the note and accrued interest is collectible and is pursuing its rights under the loan documents.
 






(9)
 
 
 
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 $172,000 (or $.17 per share) and $309,000 (or $.30 per share) for the three and nine months ended September 30, 2006, respectively. This is as compared with net income of approximately $302,000 (or $.27 per diluted share) and $374,000 (or $.34 per diluted share) for the three and nine months ended September 30, 2005, respectively.

As discussed further below, total revenues for the three and nine months ended September 30, 2006 as compared with the same periods in 2005, increased by approximately $444,000 or 20% and $1.6 million or 22%, respectively. Total expenses for the three and nine months ended September 30, 2006, as compared with the same periods in 2005, increased by approximately $459,000 or 19% and $1.4 million or 18%, respectively.

REVENUES
Real estate rental operations:
Rentals and related revenues for the three and nine months ended September 30, 2006 as compared with the same periods in 2005 increased by $62,000 (17%) and $123,000 (11%), respectively. These increases were primarily due to increased rental revenue from the Monty’s retail mall after renovations were completed in late 2005 to accommodate three new tenants.

Restaurant operations:
Summarized statements of income for the Company’s Monty’s restaurant for the three and nine months ended September 30, 2006 and 2005 are presented below (the Company’s ownership in these operations is 50%):
 
For the three months
  
For the nine months
 
ended September 30,
  
ended September 30,
 
2006
2005
 
2006
2005
Revenues:
          
Food and Beverage Sales
$1,352,000
$1,036,000
  
$4,939,000
$4,049,000
           
Expenses:
          
Cost of food and beverage sold
381,000
323,000
  
1,421,000
1,211,000
Labor and related costs
236,000
223,000
  
802,000
723,000
Entertainers
56,000
59,000
  
160,000
176,000
Other food and beverage direct costs
52,000
42,000
  
190,000
146,000
Other operating costs
85,000
54,000
  
230,000
189,000
Repairs and maintenance
47,000
39,000
  
154,000
112,000
Insurance
97,000
47,000
  
189,000
140,000
Management fees
82,000
82,000
  
244,000
244,000
Utilities
47,000
45,000
  
151,000
142,000
Rent (as allocated)
143,000
111,000
  
503,000
412,000
Total Expenses
1,226,000
1,025,000
  
4,044,000
3,495,000
           
Income before depreciation and minority interest
$126,000
$11,000
  
$895,000
$554,000

The restaurant operations which are primarily outdoors benefited from less rain thus far in 2006 as compared to 2005 and from the substantial completion of renovations and construction at the Monty’s property in December 2005. Food and beverage sales increased by $316,000 (30%) and $890,000 (22%) for the three and nine months ended September 30, 2006, respectively, as compared with the same periods in 2005. Insurance costs increased by over 100% from last year as result of higher industry-wide premiums primarily for windstorm coverage due to an above-average hurricane season in 2005.
 
(10)
 
 
 
Management's Discussion and Analysis of Financial
Condition and Results of Operations

Marina operations:
Summarized statements of income for the Company’s marina operations for the three and nine months ended September 30, 2006 are presented below:
(The Company owns 50% of the Monty’s marina and 95% of the Grove Isle marina)

 
For the three months
  
For the nine months
 
ended September 30,
  
ended September 30,
 
2006
2005
 
2006
2005
Marina Revenues:
          
Monty's dockage fees and related income
$296,000
$247,000
  
$916,000
$808,000
Grove Isle marina slip owners dues and dockage fees
115,000
107,000
  
339,000
326,000
Total marina revenues
411,000
354,000
  
1,255,000
1,134,000
           
Marina Expenses:
          
Labor and related costs
54,000
50,000
  
166,000
149,000
Insurance
42,000
43,000
  
127,000
129,000
Management fees
15,000
13,000
  
43,000
36,000
Utilities
51,000
35,000
  
129,000
77,000
Rent to City of Miami and bay bottom lease
57,000
49,000
  
174,000
156,000
Repairs and maintenance
30,000
22,000
  
95,000
62,000
Other
16,000
12,000
  
64,000
57,000
Total marina expenses
265,000
224,000
  
798,000
666,000
           
Income before depreciation and minority interest
$146,000
$130,000
  
$457,000
$468,000

The primary change in marina revenues relates to the operations of the Monty’s marina. The Monty’s marina dockage fee and related income for the three and nine months ended September 30, 2006 as compared to the same periods in 2005 increased by approximately $49,000 (or 20%) and $108,000 (or 13%), respectively. These increases were the result of increased dockage after repairs and improvements to the marina were completed in December 2005. Marina expenses for the three and nine months ended September 30, 2006 and 2005 increased by $41,000 (or 18%) and $132,000 (or 20%), respectively. These increases were primarily attributable to increased labor and utilities costs.

Spa operations:
Spa revenues for the three months ended September 30, 2006 were approximately $52,000 (or 50%) higher than the three months ended September 30, 2005. Spa expenses (excluding depreciation and interest expense) for the same comparable periods were approximately $47,000 (or 24%) lower than 2005 primarily as a result of non-recurring pre-opening and organizational start costs in 2005. The Grove Isle Spa began operations in the first quarter of 2005 and comparisons to the nine months ended September 30, 2005 are not meaningful at this time.
 
Marketable securities:
Net gain from investments in marketable securities for the three and nine months ended September 30, 2006 was approximately $145,000 and $170,000, respectively. This is as compared with a net gain from investments in marketable securities of approximately $210,000 and $268,000 for the three and nine months ended September 30, 2005, respectively. For further details refer to Note 4 to Condensed Consolidated Financial Statements (unaudited).



(11)
 
 
 
Management's Discussion and Analysis of Financial
Condition and Results of Operations

Other investments:
Net gain from other investments for the three and nine months ended September 30, 2006 was approximately $85,000 and $395,000, respectively. This is as compared with a net gain of approximately $51,000 and $45,000 for the same comparable periods in 2005, respectively. For further details refer to Note 5 to Condensed Consolidated Financial Statements (unaudited).

EXPENSES
Expenses for rental and other properties for the nine months ended September 30, 2006 increased by approximately $37,000 (or 6%) as compared to that for the nine months ended September 30, 2005. This increase was primarily due to a management fee of $100,000 paid to the manager of the HMG-Fieber joint venture which sold its last property in August 2005. This increase was partially offset by decreased operating expenses of rental activities related to the Monty’s retail property.
 
For comparisons of all food and beverage related expenses refer to Restaurant Operations (above) summarized statement of income for Monty’s restaurant.

For comparisons of all marina related expenses refer to Marina Operations (above) for summarized and combined statements of income for marina operations.

Depreciation and amortization expense for the three and nine months ended September 30, 2006 increased as compared with the same periods in 2005 by approximately $107,000 (or 54%) and $158,000 (or 23%), respectively, primarily due to increase properties placed in service in 2005. This includes the completion of the Grove Spa property in the first quarter of 2005 and substantial completion of renovations to the Monty’s property in December 2005.

Professional fees expense for the three and nine months ended September 30, 2006 increased as compared with the same periods in 2005 by approximately $23,000 (or 38%) and $52,000 (or 29%), respectively. This increase was primarily the result of an increase in accounting fees.

Interest expense for the three and nine months ended September 30, 2006 increased as compared with the same periods in 2005 by approximately $71,000 (or 19%) and $230,000 (or 22%), respectively. This was primarily due to increased outstanding bank loan balances relating to borrowings for improvements made to the Monty’s property.




 






(12)
 
 
 
Management's Discussion and Analysis of Financial
Condition and Results of Operations


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 2006 primarily consist of maturities of debt obligations of approximately $3.8 million and commitments to fund private capital investments of approximately $1.2 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 2006 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 (with carrying value of approximately $3.2 million) and from available cash.

MATERIAL COMPONENTS OF CASH FLOWS
For the nine months ended September 30, 2006, net cash provided by operating activities was approximately $215,000. Included in this amount are proceeds and redemptions of marketable securities of $1.7 million partially offset by increased investments in marketable securities of approximately $802,000 and decreases in margin payable to brokers of $579,000.

For the nine months ended September 30, 2006, net cash used in investing activities was approximately $817,000. This consisted primarily of improvements to the Monty’s property of $1.6 million less net proceeds from the sale of land in Houston, Texas of $819,000.
 
For the nine months ended September 30, 2006, net cash provided by financing activities was approximately $449,000. This consisted of $615,000 of additional borrowings relating to the Monty’s property renovations and $867,000 of contributions from minority partners. These sources of funds were partially offset by the purchase of treasury stock of $687,000 and repayment of mortgages and notes payable of $347,000.















(13)
 
 
 
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 Securities 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 Securities 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 August 17, 2006, the shareholders approved the renewal of the Advisory Agreement between the Company and the Adviser for a term commencing January 1, 2007 and expiring December 31, 2007, and reelected the Company's Board of Directors by the following votes:

 
Number of votes
 
For
Against/Withheld
Directors:
    
Walter G. Arader
976,606
22,048
Harvey Comita
976,606
22,048
Lawrence Rothstein
976,606
22,048
Maurice Wiener
976,606
22,048
Clinton A. Stuntebeck
976,606
22,048
     
Renewal of Advisory Agreement
707,954
23,648

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: None
 

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 September 30, 2006: None.


(14)



SIGNATURES

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


HMG/COURTLAND PROPERTIES, INC.


 
 
 
Dated: November 14, 2006
/s/ Lawrence Rothstein
 
President, Treasurer and Secretary
 
Principal Financial Officer



 
 
Dated: November 14, 2006
/s/ Carlos Camarotti
 
Vice President- Finance and Controller
 
Principal Accounting Officer
 
 
(15)