U.
S. SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
Annual Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act
of 1934
For the
fiscal year ended
December 31,
2008
[ ]
Transition Report pursuant to Section 13 or 15(d) of the Securities and Exchange
Act of 1934
Commission
file number: 1-7865
HMG/COURTLAND
PROPERTIES, INC
.
(Name of
Registrant in its Charter)
Delaware
|
59-1914299
|
(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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|
|
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1870 S. Bayshore Drive, Coconut Grove,
Florida
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33133
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer's
telephone number, including area code: (305) 854-6803
Securities
registered pursuant to Section 12(b) of the Act:
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Name
of each exchange
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Title of class
|
on which registered:
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Common
Stock - Par value $1.00 per share
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NYSE
Amex
|
Securities
registered pursuant to Section 12(g) of the Act
: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act
Yes [ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 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 [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).. Yes [
] No [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company filer” in Rule 12b-2 of the Exchange Act (Check
One):
Large
accelerated filer________ Accelerated
filer__________
Non-accelerated filer ___
___ Smaller
reporting company___
X
__
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the exchange Act). Yes [ ] No [
X]
The
aggregate market value of the voting stock held by non-affiliates of the
Registrant (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) based on the closing price of the stock as traded
on the American Stock Exchange on March 20, 2009 was $987,302. The number of
shares outstanding of the issuer’s common stock, $1 par value as of the latest
practicable date: 1,022,583 shares of common stock, $1 par value, as of March
20, 2009.
TABLE
OF CONTENTS
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PAGE
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PART
I
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Item
1.
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Description
of Business
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Item
2.
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Description
of Property
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Item
3.
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Legal
Proceedings
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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PART
II
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Item
5.
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Market
for Registrant’s Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
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Item
6.
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Selected
Financial Data
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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Item
7A.
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Quantitative
and Qualitative Disclosures About Market Risk
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Item
8.
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Financial
Statements and Supplementary Data
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Item
9.
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Changes
in and Disagreements with Accountants On Accounting and Financial
Disclosure
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Item
9A.
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Controls
and Procedures
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Item
9B.
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Other
Information
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PART
III
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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Item
11.
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Executive
Compensation
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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Item
14.
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Principal
Accountant Fees and Services
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PART
IV
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Item
15.
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Exhibits
and Financial Statement Schedules
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Part
I.
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.
Item 1.
Description of Business
.
HMG/Courtland
Properties, Inc. and subsidiaries (“HMG”, or the “Company”), is a Delaware
corporation organized in 1972. The Company’s business is the
ownership and management of income-producing commercial properties and will
consider other investments if they offer growth or profit
potential.
HMG
(excluding its 95% owned subsidiary Courtland Investments, Inc. (“CII”), which
files a separate tax return) qualifies for taxation as a real estate investment
trust (“REIT”) under the U.S. Internal Revenue Code. In order for a company to
qualify as a REIT, it must comply with certain rules specified in the Internal
Revenue Code. These include: investing at least 75 percent of total assets in
real estate; deriving at least 75 percent of gross income as rents from real
property or interest from mortgages on real property; and distributing annually
at least 90 percent of taxable income to shareholders in the form of
dividends.
The
Company’s commercial properties are located in the Coconut Grove section of
Miami, Florida and consist of a luxury resort on a private island known as
“Grove Isle” with a 50-room hotel, restaurant/banquet facilities, spa, tennis
courts and marina with 85 dockage slips and a 50% leasehold interest in
“Monty’s”, a facility consisting of a 16,000 square foot indoor/outdoor seafood
restaurant adjacent to a marina with 132 dockage slips and a 40,000 square foot
office/retail mall building. The Monty’s facility is subject to a ground lease
with the City of Miami, Florida which expires in 2035. The Company’s corporate
office is also located in Coconut Grove in a 5,000 square foot
building.
The
Company’s rental and related revenue for each of the years ended December 31,
2008 and 2007 were generated approximately 70% from the Grove Isle property and
30% from the Monty’s property. Marina and related revenues were
generated approximately 70% from the marina at the Monty’s facility, with the
other 30% coming from the marina at the Grove Isle facility. The Company’s food
and beverage revenue is entirely from the restaurant at the Monty’s facility.
Spa revenue is from the Company’s 50% owned spa at Grove Isle. The other 50% of
the Spa is owned by the tenant operator of Grove Isle.
The
Company also owns two properties held for development, consisting of a 70%
interest in a 13,000 square foot commercial building in Montpelier, Vermont, and
approximately 50 acres of vacant land held for development in Hopkinton, Rhode
Island.
The
Company’s other investments consist primarily of nominal equity interests in
various privately-held entities, including limited partnerships whose purpose is
to invest venture capital funds in growth-oriented enterprises. The
Company does not have significant influence over any investee and the Company’s
investment represents less than 3% of the investee’s ownership. Some
of these investments give rise to exposure resulting from the volatility in
capital markets. The Company mitigates its risks by diversifying its
investment portfolio. Information with respect to the amounts and types of other
investments including the nature of the declines in value is set forth in Note 5
of the Notes to Consolidated Financial Statements.
The
Company’s investments in marketable securities include equity and debt
securities issued primarily by large capital companies or government agencies
with readily determinable fair values in varying industries. This includes real
estate investment trusts and mutual funds focusing in commercial real estate
activities. Substantially all of the Company’s marketable securities
investments are in companies listed on major national stock markets, however the
overall investment portfolio and some of the Company’s investment strategies
could be viewed as risky and the market values of the portfolio may be subject
to fluctuations. Consistent with the Company's overall investment objectives and
activities, management classifies all marketable securities as being held in a
trading portfolio. Accordingly, all unrealized gains and losses on
the Company's investments in marketable securities are recorded in the
consolidated statements of comprehensive income. Marketable securities are
stated at market value as determined by the most recently traded price of each
security at the balance sheet date. Information regarding the amounts and types
of investments in marketable securities is set forth in Note 4 of the Notes to
Consolidated Financial Statements.
The
Company acquires its real estate and other investments utilizing available cash,
trading securities or borrowing funds.
The
Company may realize gains and losses in its overall investment portfolio from
time to time to take advantage of market conditions and/or manage the
portfolio's resources and the Company's tax liability. The Company may utilize
margin for its marketable securities purchases through the use of standard
margin agreements with national brokerage firms. The use of available leverage
is guided by the business judgment of management. The Company may also use
options and futures to hedge concentrated stock positions and index futures to
hedge against market risk and enhance the performance of the Company's portfolio
while reducing the overall portfolio's risk and volatility.
Reference
is made to
Item 13.
Certain Relationships and Related Transactions
for discussion of the
Company’s organizational structure and related party transactions.
Investment in
affiliate.
The
Company’s investment in affiliate consists of a 49% equity interest in T.G.I.F.
Texas, Inc. (TGIF). TGIF is a Texas Corporation with investments
primarily consisting of promissory notes receivable from its shareholders
including CII and Maurice Wiener, the Chairman of the Company. This investment’s
carrying value as of December 31, 2008 and 2007 was approximately $2.9 and $3.1
million. CII’s note payable to TGIF which is due on demand was approximately
$3.7 million as of December 31, 2008 and 2007. Reference is made to
Item 6. Liquidity, Capital
Expenditure Requirements and Capital Resources.
Insurance, Environmental
Matters and Other
.
In the opinion of management, all
significant 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.
The
Company’s subsidiary which operates a restaurant is subject to various federal,
state and local laws affecting its business. In particular, this
restaurant is subject to licensing and regulation by the alcoholic beverage
control, health, sanitation, safety and fire department agencies of Miami-Dade
County, Florida. To the extent that the Company’s restaurant sells
alcoholic beverages it is subject to the State of Florida’s liquor liability
statutes or “dram shop laws” which allow a person injured by an “obviously
intoxicated person” to bring a civil suit against the business (or social host)
who had served intoxicating liquors to an already “obviously intoxicated
person”. Dram shop claims normally involve traffic accidents and the
Company would generally not learn of such claims until such claims are
filed. At the present time, there are no dram shop cases pending
against the Company. The Company has in place insurance coverage to
protect it from losses, if any. The deductible amount on the restaurant’s
general liability policy is $5,000 per claim.
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 leases properties it must compete for
tenants with other lessors offering similar facilities. Tenants are
sought by providing modern, well-maintained facilities at competitive
rentals. The Company has attempted to facilitate successful leasing
of its properties by investing in facilities that have been developed according
to the specifications of tenants and special local needs.
The food
and beverage industry is highly competitive and is often affected by changes in
taste and entertainment trends among the public, by local, national and economic
conditions affecting spending habits, and by population and traffic
patterns. The Company’s Monty’s restaurant is primarily outdoors and
subject to climate and seasonal conditions.
The
Company has the right to certain trademarks and service marks commonly known as
“Monty Trainer’s”, “Monty’s Stone Crab”, “Monty’s Conch”, “Monty’s” and “Monty’s
Marina”, together with certain other trademarks, trade secrets, unique features,
concepts, designs, operating procedures, recipes and materials used in
connection with the operation of the restaurant. The Company regards
its trademarks and other proprietary rights as valuable assets which are
essential to the related operations. The Company will vigorously
monitor and protect its trademarks against infringement and dilution where
legally feasible and appropriate.
Employees
.
The
Company’s management is provided in accordance with its Advisory Agreement (the
“Agreement”) with the HMG Advisory Corp. (“the Adviser”), as described below
under “Terms of the Agreement”. Reference is also made to
Item 13. Certain
Relationships and Related Transactions
. There is one employee at an
80%-owned subsidiary of CII which performs services in real estate leasing for
which the Company receives commissions.
As of
December 31, 2008 the Company’s 50%-owned subsidiary and operator of the Monty’s
restaurant, Bayshore Rawbar, LLC (“BSRB”), employed approximately 94 hourly
employees and two salaried employees. Reference is made to discussion of
restaurant, marina and mall in
Item 2. Description of
Property.
The
restaurant operation is subject to federal and state laws governing such matters
as wages, working conditions, citizenship requirements and
overtime. Some states, including Florida, have set minimum wage
requirements higher than the federal
level. Significant numbers of hourly personnel
at our
restaurants are paid at rates related to
the Florida minimum wage and,
accordingly, increases in the minimum wage
will increase labor costs. We are also subject
to the Americans With Disability Act of 1990
(ADA), which, among
other things, may require certain renovations to
our restaurants to meet
federally mandated requirements. The cost of
any such renovations is not expected to materially affect us.
We are
not aware of any statute, ordinance, rule or regulation under present
consideration which would significantly limit or restrict our business as now
conducted. None of our employees are represented by collective bargaining
organizations. We consider our labor relations to be favorable.
Terms of the Advisory
Agreement
. Under the terms of the Agreement, the Adviser
serves as the Company's investment adviser 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 Adviser
are compensated solely by the Adviser 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 Adviser and a majority of the
Company's shareholders. The contract may be terminated at any time on
120 days written notice by the Adviser 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.
On August
14, 2008, the shareholders approved the renewal of the Advisory Agreement
between the Company and the Adviser for a term commencing January 1, 2009, and
expiring December 31, 2009.
The
Adviser is majority owned by Mr. Wiener with the remaining shares owned by
certain officers, including Mr. Rothstein. The officers and directors
of the Adviser are as follows: Maurice Wiener, Chairman of the Board and Chief
Executive officer; Larry Rothstein, President, Treasurer, Secretary and
Director; and Carlos Camarotti, Vice President - Finance and Assistant
Secretary.
Advisory
Fees
. For the years ended December 31, 2008 and 2007,
the Company and its subsidiaries incurred Adviser fees of approximately
$1,076,000 and $989,000, respectively, of which $1,020,000 and $900,000
represented regular compensation for 2008 and 2007, respectively and
approximately $56,000 and $89,000 represented incentive compensation for 2008
and 2007, respectively. The Adviser is also the manager for certain of the
Company's affiliates and received management fees of approximately $44,000 and
$41,000 in 2008 and 2007, respectively for such services. Included in fees for
2008 and 2007 was $25,000 of management fees earned relating to management of
the Monty’s restaurant operations.
Item 2.
Description of Property
.
Grove Isle Hotel, Club and
Marina (“Grove Isle”) (Coconut Grove, Florida).
The
Company has owned Grove Isle since 1993 and leases the property to a qualified
luxury resort manager to operate the resort. The Grove Isle resort
includes a 50 room hotel, renowned restaurant and banquet facilities, a first
class spa, tennis courts and an 85-boat slip marina. It is located on
7 acres of a private island in Coconut Grove, Florida, known as "Grove
Isle".
In
November 2008 the lessee of Grove Isle, Westgroup Grove Isle Associates, Ltd.,
an affiliate of Noble House Resorts, Inc. (“NHR”) assigned its leasehold
interest to Grove Hotel Partners, LLC an affiliate of Grand Heritage Hotel
Group, LLC (“GH”). GH operates over a dozen independent hotels and resorts
across North America and Mexico. The Company approved the assignment of the
lease to GH which assumed all terms of the original lease with
NHR. The lease termination date remains November 30, 2016, if not
extended as provided in the lease. Base rent was $1,137,000 for the year ended
December 31, 2008 and increases to $1,184,000 in 2009 after annual inflation
adjustment provided in the lease. The lease also calls for participation rent
consisting of a portion of operating surplus, as
defined. Participation rent when and if due is payable at end of each
lease year. There has been no participation rent since the inception of the
lease.
In
conjunction with the aforementioned lease assignment, NHR also assigned its 50%
interest in the Grove Isle Spa, LLC (“GS”) to GH which will manage the day to
day operations of the spa. The Grove Isle spa began operations in the
first quarter of 2005. The spa operates under the name “Spa Terre at the Grove”
and offers a variety of body treatments, salon services, facial care and massage
therapies.
The Grove
Isle property is encumbered by a mortgage note payable with an outstanding
balance of approximately $3.8 million and $3.9 million as of December 31, 2008
and 2007, respectively. This loan calls for monthly principal
payments of $10,000 with all outstanding principal and interest due at maturity
on September 29, 2010. Interest on outstanding principal is due
monthly at an annual rate of 2.5% plus the one-month LIBOR Rate. In December
2004, this loan was modified to include an increase in the loan balance
outstanding of $1 million. This additional borrowed amount (less loan
costs) was loaned to GS to partially fund the construction of the Spa Property.
In November 2008, in conjunction with the aforementioned lease assignment this
note was repaid in full.
As of
December 31, 2008, 6 of the 85 yacht slips at the facility are owned by the
Company and the other 79 are owned by unrelated individuals or their entities.
The Company operates and maintains all aspects of the Grove Isle marina for an
annual management fee from the slip owners to cover operational expenses. In
addition the Company rents the unsold slips to boat owners on a short term
basis.
Restaurant, marina and mall
(“Monty’s”) (Coconut Grove, Florida).
In August
2004, the Company, through two 50%-owned entities, Bayshore Landing, LLC
(“Landing”) and Bayshore Rawbar, LLC (“BSRB”), (collectively, “Bayshore”)
purchased a restaurant, office/retail and marina property located in Coconut
Grove (Miami), Florida known as Monty’s. The other 50% owner of
Bayshore is The Christoph Family Trust (the “Trust” or “CFT”). Members of the
Trust are experienced real estate and marina operators.
The
Monty’s property consists of a two story building with approximately 40,000
rentable square feet and approximately 3.7 acres of land and submerged land with
a 132-boat slip marina. It includes a 16,000 square foot indoor-outdoor raw bar
restaurant known as Monty’s Raw Bar and 24,000 net rentable square footage of
office/retail space leased to tenants operating boating and marina related
businesses. Monty’s Raw Bar has operated in the same location since
1969 and is an established culinary landmark in South Florida. It is
a casual restaurant and bar located next to the picturesque Monty’s
marina.
Total
cost of improvements to the Monty’s property since its acquisition in 2004 is
approximately $6 million as of December 31, 2008.
The
Monty’s property is subject to a ground lease with the City of Miami, Florida
expiring in 2035. Under the lease, Landing pays percentage rent ranging from 5%
to 15% of gross revenues from various components of the property.
The
Monty’s property is encumbered by a loan mortgage payable to a bank with an
outstanding principal balance of $11.8 million as of December 31, 2008. The loan
is repayable in equal monthly principal payments necessary to fully amortize the
principal amount over the remaining term of the loan maturing in February 2021,
plus accrued interest. In conjunction with this loan Bayshore entered
into an interest rate swap agreement to manage their exposure to interest rate
fluctuation through the entire term of the mortgage. The effect of
the swap agreement is to provide a fixed interest rate of 7.57%.
Through
March 31, 2007 the operations of the Monty’s restaurant were managed by RMI,
Inc. (the “RMI”) whose principal and his related entities had managed the
restaurant for the last 16 years. Effective April 1, 2007 the
Company, through its 50% owned subsidiary, BSRB took over the operations and
hired a restaurant general manager. Essentially all employees of RMI
as of March 31, 2007 were hired by BSRB and there was no disruption in
operations. Under an amended management agreement BSRB retained RMI to perform
accounting related administrative functions only. For the year ended December
31, 2008 and under the amended management agreement with RMI, BSRB paid RMI
$114,000 (or $9,500 per month) for accounting and related
service. The amended management agreement is renewable on an annual
basis. In October 2008 the agreement with RMI was renewed and extended through
the year ended December 31, 2009 under the same terms of the prior
agreement.
Land held for development
(Vermont and Rhode Island).
The
Company owns approximately 50 acres of vacant land held for development located
in Hopkinton, Rhode Island. There are no current plans for
development of this land.
The
Company also owns a 70% interest in a vacant building located in Montpelier,
Vermont which is being held for development.
Executive offices (Coconut
Grove, Florida).
The principal executive offices of the
Company and the Adviser are located at 1870 South Bayshore Drive, Coconut Grove,
Florida, 33133, in premises owned by the Company and leased to the Adviser
pursuant to a lease agreement dated December 1, 1999 (as renewed in 2004). The
lease provides for base rent of $48,000 per year payable in equal monthly
installments during the five year term of the lease. The Adviser, as
tenant, pays utilities, certain maintenance and security expenses relating to
the leased premises.
The
Company regularly evaluates potential real estate acquisitions for future
investment or development and would utilize funds currently available or from
other resources to implement its strategy.
Item 3. Legal
Proceedings
None.
Item
4. Submission of Matters to a Vote of Security
Holders
.
At the
Company’s annual meeting, held on August 14, 2008, the shareholders approved the
renewal of the Advisory Agreement between the Company and the Adviser for a term
commencing January 1, 2009 and expiring December 31, 2009 (Reference is made to
Item 1. Business), and reelected the Company's Board of Directors by the
following votes:
|
Number
of votes
|
|
For
|
Against/Withheld
|
Directors:
|
|
|
Walter
G. Arader
|
965,464
|
31,599
|
Harvey
Comita
|
965,464
|
31,599
|
Lawrence
Rothstein
|
971,864
|
25,199
|
Maurice
Wiener
|
971,864
|
25,199
|
Clinton
A. Stuntebeck
|
971,864
|
25,199
|
|
|
|
Renewal
of Advisory Agreement
|
633,100
|
116,708
|
The
number of votes for the renewal and amendment of the Advisory Agreement
represents a majority of the votes cast at the meeting.
No
matters were submitted to a vote of security holders during the fourth quarter
of the fiscal year ended December 31, 2008.
Part
II.
Item
5. Market for Registrant’s
Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities.
The high
and low per share closing sales prices of the Company's stock on the NYSE Amex
Exchange (ticker symbol: HMG) for each quarter during the past two years were as
follows:
|
High
|
Low
|
March
31, 2008
|
$10.00
|
$8.60
|
June
30, 2008
|
$8.80
|
$7.20
|
September
30, 2008
|
$7.59
|
$4.56
|
December
31, 2008
|
$5.20
|
$2.05
|
|
|
|
March
31, 2007
|
$13.94
|
$12.09
|
June
30, 2007
|
$13.11
|
$12.47
|
September
30, 2007
|
$13.20
|
$11.06
|
December
31, 2007
|
$12.40
|
$10.20
|
|
|
|
No
dividends were declared or paid during 2008 and 2007. The Company's policy has
been to pay dividends as are necessary for it to qualify for taxation as a REIT
under the Internal Revenue Code.
As of
March 20, 2009, there were 409 holders of record of the Company's common
stock.
In 2008
the Company purchased 1,372 shares of its common stock for $4,801 representing
the aggregate market value paid for the shares.
The
following table illustrates securities authorized for issuance under the
Company’s equity compensation plan:
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options
|
Weighted-average
exercise
price of
outstanding
options
|
Number
of securities
remaining
available
for
future issuance
under
equity
compensation
plans
|
Equity
compensation plan approved by shareholders
|
102,100
|
$8.83
|
16,000
|
Equity
compensation plan not approved by shareholders
|
--
|
--
|
--
|
Total
|
102,100
|
$8.83
|
16,000
|
Item 6.
Selected Financial Data:
Not
applicable to the Company.
Item 7.
Management's Discussion
and Analysis of Financial Condition and Results of
Operations
.
Critical Accounting Policies
and Estimates.
Securities
and Exchange Commission Financial Reporting Release No. 60 requires all
companies to include a discussion of critical accounting policies and methods
used in the preparation of the financial statements. Note 1 of the
consolidated financial statements, included elsewhere on this Annual Report of
Form 10-K, includes a summary of the significant accounting policies and methods
used in the preparation of the Company’s consolidated financial
statements. The Company believes the following critical accounting
policies affect the significant judgments and estimates used in the preparation
of the Company’s financial statements:
Marketable
Securities
. Consistent with the Company's overall investment
objectives and activities, management has classified its entire marketable
securities portfolio as trading. As a result, all unrealized gains and losses on
the Company's investment portfolio are included in the Consolidated Statement of
Comprehensive Income. Our investments in trading equity and debt marketable
securities are carried at fair value and based on quoted market prices or other
observable inputs. Marketable securities are subject to fluctuations in value in
accordance with market conditions.
Other
Investments.
The Company’s other investments consist primarily
of nominal equity interests in various privately-held entities, including
limited partnerships whose purpose is to invest venture capital funds in
growth-oriented enterprises. The Company does not have significant
influence over any investee and the Company’s investment represents less than 3%
of the investee’s ownership. None of these investments meet the criteria of
accounting under the equity method and are carried at cost less distributions
and other than temporary unrealized losses. These investments do not have
available quoted market prices, so we must rely on valuations and related
reports and information provided to us by those entities. These valuations are
by their nature subject to estimates which could change significantly from
period to period. The Company regularly reviews the underlying assets in its
other investment portfolio for events, including but not limited to
bankruptcies, closures and declines in estimated fair value, that may indicate
the investment has suffered an other-than-temporary decline in
value. When a decline is deemed other-than-temporary, we permanently
reduce the cost basis component of the investments to its estimated fair value,
and the loss is recorded as a component of net income from other investments. As
such, any recoveries in the value of the investments will not be recognized
until the investments are sold.
Our
estimates of each of these items historically have been adequate. However, due
to uncertainties inherent in the estimation process, it is reasonably possible
that the actual resolution of any of these items could vary significantly from
the estimate and, accordingly, there can be no assurance that the estimates may
not materially change in the near term.
Real
Estate.
Land, buildings and improvements, furniture, fixtures
and equipment are recorded at cost. Tenant improvements, which are included in
buildings and improvements, are also stated at cost. Expenditures for ordinary
maintenance and repairs are expensed to operations as they are incurred.
Renovations and/or replacements, which improve or extend the life of the asset
are capitalized and depreciated over their estimated useful lives.
Depreciation
is computed utilizing the straight-line method over the estimated useful lives
of ten to forty years for buildings and improvements and five to ten years for
furniture, fixtures and equipment. Tenant improvements are amortized on a
straight-line basis over the term of the related leases.
The
Company is required to make subjective assessments as to the useful lives of its
properties for purposes of determining the amount of depreciation to reflect on
an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net
income.
Assessment
by the Company of certain other lease related costs must be made when the
Company has a reason to believe that the tenant will not be able to execute
under the term of the lease as originally expected.
The
Company periodically reviews the carrying value of certain of its properties and
long-lived 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 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 and would adjust the carrying value of
the asset to fair value. Judgments as to impairments and assumptions
used in projecting future cash flow are inherently imprecise.
Results of
Operations
:
For the
years ended December 31, 2008 and 2007, the Company reported a net loss of
approximately $1,617,000 (or $1.58 per share) and $443,000 (or $.43 per share),
respectively.
Revenues
:
Total
revenues for the year ended December 31, 2008 as compared with that of 2007
increased by approximately $589,000 (or 6%). This increase was
primarily due to an increase in real estate rentals and related revenues and
increased restaurant revenues, as discussed below.
Real estate and related
revenue:
Real
estate rentals and related revenue increased by approximately $138,000 (or 9%)
for the year ended December 31, 2008 as compared with 2007. This
increase was the result of increased rental income from the Monty’s
office/retail space of approximately $106,000 and increased rental revenue from
Grove Isle of $32,000 due to inflation adjustments. As of December
31, 2008 approximately 21,000 square feet of office/retail space is leased and
expected to generate approximately $419,000 total rent and related revenue on
annualized basis.
Monty’s restaurant
operations:
Summarized
statement of income of the Monty’s restaurant operations for the years ended
December 31, 2008 and 2007 is presented below (Note: the information below
represents 100% of the restaurant operations while the Company’s ownership
percentage in these operations is 50%):
Summarized
statements of income of
Monty’s
restaurant
|
|
Year
ended
December
31, 2008
|
|
|
Percentage
of
sales
|
|
|
Year
ended
December
31, 2007
|
|
|
Percentage
of sales
|
|
Revenues
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
$
|
6,697,000
|
|
|
|
100
|
%
|
|
$
|
6,344,000
|
|
|
|
100
|
%
|
Expenses
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
1,794,000
|
|
|
|
26.8
|
%
|
|
|
1,720,000
|
|
|
|
27.1
|
%
|
Labor,
entertainment and related costs
|
|
|
1,557,000
|
|
|
|
23.2
|
%
|
|
|
1,451,000
|
|
|
|
22.9
|
%
|
Other
food and beverage related costs
|
|
|
287,000
|
|
|
|
4.3
|
%
|
|
|
246,000
|
|
|
|
3.9
|
%
|
Other
operating costs
|
|
|
529,000
|
|
|
|
7.9
|
%
|
|
|
555,000
|
|
|
|
8.7
|
%
|
Insurance
|
|
|
318,000
|
|
|
|
4.7
|
%
|
|
|
332,000
|
|
|
|
5.2
|
%
|
Management
and accounting fees
|
|
|
140,000
|
|
|
|
2.1
|
%
|
|
|
325,000
|
|
|
|
5.1
|
%
|
Utilities
|
|
|
255,000
|
|
|
|
3.8
|
%
|
|
|
209,000
|
|
|
|
3.3
|
%
|
Rent
(as allocated)
|
|
|
688,000
|
|
|
|
10.3
|
%
|
|
|
651,000
|
|
|
|
10.3
|
%
|
Total
Expenses
|
|
|
5,568,000
|
|
|
|
83.1
|
%
|
|
|
5,489,000
|
|
|
|
86.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before loss on disposal of assets,
depreciation
and minority interest
|
|
$
|
1,129,000
|
|
|
|
16.9
|
%
|
|
$
|
855,000
|
|
|
|
13.5
|
%
|
The
Monty’s restaurant is subject to seasonal fluctuations in
sales. January through May sales typically account for over 50% of
annual sales.
Sales in
2008 as compared with 2007 increased by approximately 6% primarily due to menu
price increases.
Expenses
in 2008 were generally consistent with that in 2007. The decrease in
Management and accounting fees was due to the change in April 2007 of the
management of the restaurant which resulted in the hiring of in-house general
manager. In 2007 management fees paid to the former manager were included in
management and accounting fees whereas in 2008 the in-house
manger’s salary is included in labor costs. The former
management company was retained to perform accounting and related services only
for $114,000 per year.
Grove Isle and Monty’s
marina operations:
The Grove
Isle marina operates for the benefit of the slip owners and maintains all
aspects of the marina in exchange for an annual maintenance fee from the slip
owners to cover operational expenses. As of December 31, 2008 and 2007, 79 of
the 85 slips were owned by unrelated individuals or entities, the remaining 6
slips are owned by the Company. The Company rents the unsold slips to
boat owners on a short term basis.
The
Monty’s marina consists of 132 boat slips of which approximately 30 slips are
leased on a long term basis (more than one year) to tenants of the upland
property, and the others are available for rent to the public.
Total
marina revenues increased by approximately $40,000 (or 2%) for the year ended
December 31, 2008 as compared with 2007 primarily as a result of increased
member dues at the Grove Isle marina. Marina expense for the year ended December
31, 2008 as compared with 2007 remained consistent with the exception of
decreased utilities expense resulting from increased electrical usage
reimbursements from tenants at Monty’s marina and decreased repairs and
maintenance at the Grove Isle marina.
Summarized
and combined statements of income from marina operations:
(The
Company owns 50% of the Monty’s marina and 95% of the Grove Isle
marina)
|
Grove
Isle Marina
|
Monty’s
Marina
|
Combined
marina operations
|
Combined
marina operations
|
Summarized
statements of income of marina operations
|
Year
ended December 31, 2008
|
Year
ended December 31, 2008
|
Year
ended December 31, 2008
|
Year
ended December 31, 2007
|
Revenues
:
|
|
|
|
|
Dockage
fees and related income
|
$104,000
|
$1,235,000
|
$1,339,000
|
$1,336,000
|
Grove
Isle marina slip owners dues
|
420,000
|
-
|
420,000
|
383,000
|
Total
marina revenues
|
524,000
|
1,235,000
|
1,759,000
|
1,719,000
|
Expenses
:
|
|
|
|
|
Labor
and related costs
|
247,000
|
-
|
247,000
|
232,000
|
Insurance
|
59,000
|
135,000
|
194,000
|
201,000
|
Management
fees
|
40,000
|
37,000
|
77,000
|
73,000
|
Utilities
(net of reimbursements)
|
25,000
|
-
|
25,000
|
60,000
|
Bay
bottom lease
|
38,000
|
198,000
|
236,000
|
237,000
|
Repairs
and maintenance
|
41,000
|
74,000
|
115,000
|
154,000
|
Other
|
24,000
|
50,000
|
74,000
|
104,000
|
Total
Expenses
|
474,000
|
494,000
|
968,000
|
1,061,000
|
|
|
|
|
|
Income
before interest, depreciation and minority interest
|
$50,000
|
$741,000
|
$791,000
|
$658,000
|
Grove Isle spa
operations:
Spa
revenues increased by $58,000 (or 8%), primarily in increased massage revenue.
This was partially the result of continued exposure to guests of the Grove Isle
resort which has increased promotions of hotel accommodations offering spa
packages.
Spa
expenses decreased by $159,000 (or 19%), primarily due to the reversal of
approximately $86,000 in certain technical fees which had been charged to the
Spa by the former tenant-operator of the Spa since 2005. This was done in
conjunction with the aforementioned Grove Isle lease assumption in November
2008. Employee wages and related costs also decreased by
approximately $63,000 in 2008 as compared with 2007 as a result of a reduction
in staff.
Below is
a summarized income statement for these operations for the year ended December
31, 2008 and 2007. The Company owns 50% of the Grove Isle Spa with
the other 50% owned by an affiliate of the Grand Heritage Hotel Group, the
tenant operator of the Grove Isle Resort.
Grove
Isle Spa
Summarized
statement of income
|
For
the year
ended
December
31, 2008
|
For
the year
ended
December
31, 2007
|
Revenues
:
|
|
|
Services
provided
|
$754,000
|
$688,000
|
Membership
and other
|
45,000
|
53,000
|
Total
spa revenues
|
799,000
|
741,000
|
Expenses
:
|
|
|
Cost
of sales (commissions and other)
|
246,000
|
188,000
|
Salaries,
wages and related
|
233,000
|
296,000
|
Other
operating costs
|
145,000
|
259,000
|
Management
and administrative fees
|
43,000
|
45,000
|
Other
|
-
|
44,000
|
Total
Expenses
|
667,000
|
832,000
|
|
|
|
Income
(loss) before interest, depreciation, minority interest and income
taxes
|
$132,000
|
($91,000)
|
Expenses
:
Total
expenses for the year ended December 31, 2008 as compared to that of 2007
increased by approximately $55,000 (or less than 1%). Food and beverage costs
are solely from the Monty’s restaurant operations. Spa expenses are
solely from the Grove Isle spa operations. Marina expenses are from
both the Monty’s and Grove Isle marinas. Summarized income statements and
discussion of significant changes in expenses for each of these operations are
presented above.
Operating
expenses of rental and other properties for the year ended December 31, 2008
were consistent with 2007.
Depreciation
and amortization expense increased by approximately $87,000 (or 7%) primarily
increased purchases of fixed assets and improvements at the Monty’s restaurant
in 2008 and the write off of unamortized deferred loan costs at Grove Isle
Spa.
Interest
expense decreased by approximately $262,000 (or 16%) for year ended December 31,
2008 as compared to 2007. This was due to decreased interest rates
and as a result of loan principal reductions of approximately $684,000 during
the year ended December 31, 2008.
Adviser’s base fee expense increased by
$120,000 (or 13%) for year ended December 31, 2008 as compared to 2007 as a
result of the amendment to the Advisory Agreement effective January 1, 2008, as
previously reported
.
General
and administrative expense decreased by approximately $31,000 (or 9%) for year
ended December 31, 2008 as compared to 2007. This was due to
decreased corporate general liability insurance of approximately $17,000 and
decreased other taxes of approximately $14,000.
Professional
fees decreased by approximately $20,000 (or 6%) for the year ended December 31,
2008 as compared to 2007. This was primarily due to decreased legal
and consulting expenses relating to the Monty’s facility.
Other
Income:
Net gain (loss) from
investments in marketable securities:
Net gain
from investments in marketable securities, including marketable securities
distributed by partnerships in which the Company owns minority positions, for
the years ended December 31, 2008 and 2007, is as follows:
Description
|
2008
|
2007
|
Net
realized (loss) gain from sales of
marketable
securities
|
($53,000)
|
$249,000
|
Unrealized
net loss in marketable
securities
|
(1,383,000)
|
(135,000)
|
Total
net gain (loss) from investments
in
marketable securities
|
($1,436,000)
|
$114,000
|
Net
realized gain from sales of marketable securities consisted of approximately
$435,000 of gains net of $488,000 of losses for the year ended December 31,
2008. The comparable amounts in fiscal year 2007 were gains of
approximately $516,000 net of $267,000 of losses.
Consistent
with the Company’s overall current investment objectives and activities, the
entire marketable securities portfolio is classified as trading (versus
available for sale, as defined by generally accepted accounting
principles). Unrealized gains or losses from marketable securities
are recorded as other income in the consolidated statements of comprehensive
income.
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.
Investments
in marketable securities give rise to exposure resulting from the volatility of
capital markets. The Company attempts to mitigate its risk by
diversifying its marketable securities portfolio.
Net income from other
investments is summarized below:
|
|
2008
|
|
|
2007
|
|
Partnerships
owning stocks and bonds (a)
|
|
$
|
392,000
|
|
|
$
|
143,000
|
|
Venture
capital funds – diversified businesses (b)
|
|
|
208,000
|
|
|
|
438,000
|
|
Real
estate and related
|
|
|
(38,000
|
)
|
|
|
(6,000
|
)
|
Venture
capital funds – technology & communications
|
|
|
22,000
|
|
|
|
(125,000
|
)
|
Income
from investment in 49% owned affiliate (c)
|
|
|
40,000
|
|
|
|
107,000
|
|
Restaurant
development & operation (d)
|
|
|
-
|
|
|
|
(150,000
|
)
|
Other
|
|
|
4,000
|
|
|
|
320,000
|
|
Totals
|
|
$
|
628,000
|
|
|
$
|
727,000
|
|
(a)
|
In
2008 and 2007 amounts consist of gains from the full redemption of
investments in private capital funds that invested in equities, debt or
debt like securities.
|
(b)
|
In
2008 and 2007 amounts consist primarily of gains from distributions of
investments in two private limited partnerships which own interests in
various diversified businesses, primarily in the manufacturing and
production related sectors.
|
(c)
|
This
gain represents income from the Company’s 49% owned affiliate, T.G.I.F.
Texas, Inc. (“TGIF”). In December 2008 and 2007 TGIF declared and paid a
cash dividend of the Company’s portion of which was approximately $224,000
and $140,000, respectively. These dividends were recorded as reduction in
the investment carrying value as required under the equity method of
accounting for investments.
|
(d)
|
In
September 2007, the Company elected to write off $150,000 of its
investment in a restaurant development and franchise entity which is being
restructured and which, in the Company’s opinion, will result in an
other-than-temporary decline in value. The Company had invested
$200,000 in this entity, representing approximately 1% of its equity. This
franchise entity was restructured in a reverse merger in which the Company
invested an additional $75,000 in December
2007.
|
Net
income or loss from other investments 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 gain or loss from other investments
for any given period has no predictive value and variations in amount from
period to period have no practical analytical value.
Interest, dividend and other
income
Interest,
dividend and other income for years ended December 31, 2008 and 2007 was
approximately $509,000 and $541,000, respectively. The decrease of approximately
$32,000 (or 6%) was primarily due to lower interest rates, repayments of notes
receivable and lower dividend income as a result of sales of securities. This
decrease was partially offset by increased real estate commissions earned by
Courtland Houston, Inc. of approximately $151,000.
Benefit from income
taxes:
Benefit
from income taxes for the years ended December 31, 2008 and 2007 was $130,000
and $157,000, respectively.
The
Company follows the liability method of accounting for income taxes. Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amount and
the tax basis of assets and liabilities at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. As a result of timing differences
associated with the carrying value of other investments, unrealized gains and
losses of marketable securities, depreciable assets and the future benefit of a
net operating loss, as of December 31, 2008 and 2007, the Company has recorded a
net deferred tax asset of $366,000 and $233,000,
respectively. A valuation allowance against deferred tax asset has
not been established as management believes it is more likely than not, based on
the Company’s previous history and expectation of future taxable income before
expiration, that these assets will be realized.
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 primarily consist of maturities of debt obligations of approximately
$4.4 million in 2009 and contributions committed to other investments of
approximately $1.1 million due upon demand. The funds necessary to
meet these obligations are expected from the proceeds from the sales of
properties or investments, bank construction loan, refinancing of existing bank
loans, distributions from investments and available cash. Included in
the maturing debt obligations for 2009 is a note payable to the Company’s 49%
owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) ( Reference is made to Item 12
Certain Relationships and Related Transactions) of approximately $3.7
million. This amount is due on demand. The obligation due
to TGIF will be paid with funds available from distributions from its investment
in TGIF and from available cash.
A summary
of the Company’s contractual cash obligations at December 31, 2008 is as
follows:
|
|
Payments
Due by Period
|
|
Contractual
Obligations
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1 –
3 years
|
|
|
4 –
5 years
|
|
|
After
5 years
|
|
Mortgages
and
notes
payable
|
|
$
|
19,298,000
|
|
|
$
|
4,388,000
|
|
|
$
|
5,077,000
|
|
|
$
|
1,598,000
|
|
|
$
|
8,235,000
|
|
Other
investments
commitments
(a)
|
|
|
1,121,000
|
|
|
|
1,121,000
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
$
|
20,419,000
|
|
|
$
|
5,509,000
|
|
|
$
|
5,077,000
|
|
|
$
|
1,598,000
|
|
|
$
|
8,235,000
|
|
(a)
|
The
timing of amounts due under commitments for other investments is
determined by the managing partners of the individual
investments. These amounts are reflected as due in less than
one year although the actual funding may not be required until some time
in the future.
|
Material Changes in
Operating, Investing and Financing Cash Flows
.
The
Company’s cash flows are generated primarily from its real estate net rental and
related activities, sales of marketable securities, distributions from other
investments and borrowings.
For the
year ended December 31, 2008 the Company’s net cash provided by operating
activities was approximately $241,000. This was primarily from real
estate net rental and related activities. The Company believes that there will
be sufficient cash flows in the next year to meet its operating
requirements.
For the
year ended December 31, 2008, the net cash provided by investing activities was
approximately $1.8 million. This included sources of cash consisting
of proceeds from the sales and redemptions of marketable securities of $3.8
million, cash distributions from other investments of $1.8 million and
collections of mortgages and notes receivable of $612,000. These
sources of cash were partially offset by purchases of marketable securities of
$3.2 million, contributions to other investments of $659,000 and improvements of
properties of $601,000.
For the
year ended December 31, 2008, net cash used in financing activities was
approximately $1.2 million. This consisted of $2.4 million cash
deposited and restricted relating to the loan modification obtained from the
lender bank of the Monty’s facility, as previously reported, repayments of
mortgages and notes payable of $684,000 less contributions from minority
partners of $1.8 million.
Item 7A.
Quantitative
and Qualitative
Disclosures About Market Risks.
Not
Applicable to the Company.
Item 8.
Financial Statements and
Supplementary Data
|
Report
of Independent Registered Public Accounting Firm
|
22.
|
|
|
|
|
Consolidated
balance sheets as of December 31, 2008 and 2007
|
23.
|
|
|
|
|
Consolidated
statements of comprehensive income for the
|
|
|
years
ended December 31, 2008 and 2007
|
24.
|
|
|
|
|
Consolidated
statements of changes in stockholders' equity
|
|
|
for
the years ended December 31, 2008 and 2007
|
25.
|
|
|
|
|
Consolidated
statements of cash flows for the
|
|
|
years
ended December 31, 2008 and 2007
|
26.
|
|
|
|
|
Notes
to consolidated financial statements
|
27.
|
Berenfeld
Spritzer Shechter & Sheer LLP; Certified Public Accountants and
Advisors
401 East
Las Olas Boulevard, Suite 1090
Ft.
Lauderdale, Florida 33301
Telephone
(954) 728-3740 Fax (954) 728-3798
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of HMG/Courtland Properties, Inc. and
Subsidiaries
We have
audited the accompanying consolidated balances sheets of HMG/Courtland
Properties, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
2008 and 2007, and the related consolidated statements of comprehensive income,
stockholders' equity and cash flows for each of the years in the two year period
ended December 31, 2008. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall 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 HMG/Courtland Properties,
Inc. and Subsidiaries at December 31, 2008 and 2007, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 2008, in conformity with accounting principles generally accepted
in the United States of America.
/s/
Berenfeld Spritzer Shechter & Sheer LLP
Berenfeld
Spritzer Shechter & Sheer LLP;
Certified
Public Accountants and Advisors
March 20,
2009
Ft.
Lauderdale, Florida
HMG/COURTLAND PROPERTIES, INC.
AND
|
|
|
|
|
|
|
SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2008 AND
2007
|
|
|
|
|
|
|
|
|
December
31,
|
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
ASSETS
|
|
|
|
|
|
|
Investment
properties, net of accumulated depreciation:
|
|
|
|
|
|
|
Commercial
properties
|
|
$
|
7,961,765
|
|
|
$
|
7,604,490
|
|
Commercial
properties- construction in progress
|
|
|
-
|
|
|
|
320,617
|
|
Hotel,
club and spa facility
|
|
|
4,338,826
|
|
|
|
4,885,328
|
|
Marina
properties
|
|
|
2,566,063
|
|
|
|
2,793,155
|
|
Land
held for development
|
|
|
27,689
|
|
|
|
27,689
|
|
Total
investment properties, net
|
|
|
14,894,343
|
|
|
|
15,631,279
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
|
3,369,577
|
|
|
|
2,599,734
|
|
Cash
and cash equivalents-restricted
|
|
|
2,390,430
|
|
|
|
-
|
|
Investments
in marketable securities
|
|
|
3,295,391
|
|
|
|
4,818,330
|
|
Other
investments
|
|
|
3,733,101
|
|
|
|
4,623,801
|
|
Investment
in affiliate
|
|
|
2,947,758
|
|
|
|
3,132,117
|
|
Loans,
notes and other receivables
|
|
|
621,630
|
|
|
|
1,218,559
|
|
Notes
and advances due from related parties
|
|
|
587,683
|
|
|
|
616,968
|
|
Deferred
taxes
|
|
|
366,000
|
|
|
|
233,000
|
|
Goodwill
|
|
|
7,728,627
|
|
|
|
7,728,627
|
|
Other
assets
|
|
|
888,535
|
|
|
|
727,534
|
|
TOTAL
ASSETS
|
|
$
|
40,823,075
|
|
|
$
|
41,329,949
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Mortgages
and notes payable
|
|
$
|
19,297,560
|
|
|
$
|
19,981,734
|
|
Accounts
payable, accrued expenses and other liabilities
|
|
|
1,577,115
|
|
|
|
1,530,464
|
|
Interest
rate swap contract payable
|
|
|
2,156,000
|
|
|
|
525,000
|
|
TOTAL
LIABILITIES
|
|
|
23,030,675
|
|
|
|
22,037,198
|
|
|
|
|
|
|
|
|
|
|
Minority
interests
|
|
|
3,989,561
|
|
|
|
3,052,540
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
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 and
|
|
|
|
|
|
|
|
|
1,317,535
shares issued as of December 31, 2008 & 2007
|
|
|
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
|
|
|
41,572,120
|
|
|
|
41,572,120
|
|
Undistributed
losses from operations
|
|
|
(52,023,776
|
)
|
|
|
(50,406,705
|
)
|
Accumulated
other comprehensive loss
|
|
|
(1,078,000
|
)
|
|
|
(262,500
|
)
|
|
|
|
16,373,474
|
|
|
|
18,806,045
|
|
Less:
Treasury stock, at cost (294,952 and 293,580 shares as of
|
|
|
|
|
|
|
|
|
December
31, 2008 & 2007, respectively)
|
|
|
(2,570,635
|
)
|
|
|
(2,565,834
|
)
|
TOTAL
STOCKHOLDERS' EQUITY
|
|
|
13,802,839
|
|
|
|
16,240,211
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$
|
40,823,075
|
|
|
$
|
41,329,949
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements
|
|
|
|
|
|
|
|
|
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
2008
|
|
|
2007
|
|
Real
estate rentals and related revenue
|
|
$
|
1,677,949
|
|
|
$
|
1,539,906
|
|
Food
& beverage sales
|
|
|
6,696,816
|
|
|
|
6,344,133
|
|
Marina
revenues
|
|
|
1,759,386
|
|
|
|
1,718,933
|
|
Spa
revenues
|
|
|
799,011
|
|
|
|
740,890
|
|
Total
revenues
|
|
|
10,933,162
|
|
|
|
10,343,862
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Rental
and other properties
|
|
|
773,251
|
|
|
|
763,839
|
|
Food
and beverage cost of sales
|
|
|
1,793,807
|
|
|
|
1,719,911
|
|
Food
and beverage labor and related costs
|
|
|
1,556,906
|
|
|
|
1,451,142
|
|
Food
and beverage other operating costs
|
|
|
2,216,260
|
|
|
|
2,301,804
|
|
Marina
expenses
|
|
|
967,696
|
|
|
|
1,061,494
|
|
Spa
expenses
|
|
|
667,134
|
|
|
|
831,765
|
|
Depreciation
and amortization
|
|
|
1,384,928
|
|
|
|
1,298,047
|
|
Adviser's
base fee
|
|
|
1,020,000
|
|
|
|
900,000
|
|
General
and administrative
|
|
|
316,020
|
|
|
|
346,884
|
|
Professional
fees and expenses
|
|
|
309,458
|
|
|
|
329,880
|
|
Directors'
fees and expenses
|
|
|
115,072
|
|
|
|
99,160
|
|
Total
operating expenses
|
|
|
11,120,532
|
|
|
|
11,103,926
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
1,332,706
|
|
|
|
1,594,246
|
|
Minority
partners' interests in operating loss of
|
|
|
|
|
|
|
|
|
consolidated
entities
|
|
|
(72,030
|
)
|
|
|
(371,930
|
)
|
Total
expenses
|
|
|
12,381,208
|
|
|
|
12,326,242
|
|
|
|
|
|
|
|
|
|
|
Loss
before other income and income taxes
|
|
|
(1,448,046
|
)
|
|
|
(1,982,380
|
)
|
|
|
|
|
|
|
|
|
|
Net
realized and unrealized (loss) gain from investments in marketable
securities
|
|
|
(1,436,224
|
)
|
|
|
113,993
|
|
Net
income from other investments
|
|
|
627,936
|
|
|
|
727,461
|
|
Interest,
dividend and other income
|
|
|
509,263
|
|
|
|
541,330
|
|
Total
other income (loss)
|
|
|
(299,025
|
)
|
|
|
1,382,784
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(1,747,071
|
)
|
|
|
(599,596
|
)
|
|
|
|
|
|
|
|
|
|
Benefit
from income taxes
|
|
|
(130,000
|
)
|
|
|
(157,000
|
)
|
Net
loss
|
|
$
|
(1,617,071
|
)
|
|
$
|
(442,596
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
(loss):
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swap agreement
|
|
$
|
(815,500
|
)
|
|
$
|
(240,000
|
)
|
Total
other comprehensive loss
|
|
|
(815,500
|
)
|
|
|
(240,000
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(2,432,571
|
)
|
|
$
|
(682,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted Net Loss per Common Share
|
|
$
|
(1.58
|
)
|
|
$
|
(0.43
|
)
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding basic and diluted
|
|
|
1,023,919
|
|
|
|
1,023,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements
|
|
|
|
|
|
|
|
|
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
|
YEARS
ENDED DECEMBER 31, 2008 AND 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-In
|
|
|
Undistributed
Gains from Sales of Properties Net
|
|
|
Undistributed
Losses from
|
|
|
Comprehensive
|
|
|
Accumulated
Other Compre-hensive
|
|
|
Treasury
Stock
|
|
|
Total
Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
of Losses
|
|
|
Operations
|
|
|
Income (loss)
|
|
|
Income (loss)
|
|
|
Shares
|
|
|
Cost
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of January 1, 2007
|
|
|
1,317,535
|
|
|
$
|
1,317,535
|
|
|
$
|
26,585,595
|
|
|
$
|
41,572,120
|
|
|
$
|
(49,964,109
|
)
|
|
|
|
|
$
|
(22,500
|
)
|
|
|
293,580
|
|
|
$
|
(2,565,834
|
)
|
|
$
|
16,922,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442,596
|
)
|
|
|
(442,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(442,596
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swap contract
|
|
|
|
(240,000
|
)
|
|
|
(240,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(240,000
|
)
|
Comprehensive
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
(682,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2007
|
|
|
1,317,535
|
|
|
|
1,317,535
|
|
|
|
26,585,595
|
|
|
|
41,572,120
|
|
|
|
(50,406,705
|
)
|
|
|
|
|
|
|
(262,500
|
)
|
|
|
293,580
|
|
|
|
(2,565,834
|
)
|
|
|
16,240,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,617,071
|
)
|
|
|
(1,617,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,617,071
|
)
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on interest rate swap
contract
|
|
|
|
(815,500
|
)
|
|
|
(815,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(815,500
|
)
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,432,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,372
|
|
|
|
(4,801
|
)
|
|
|
(4,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of December 31, 2008
|
|
|
1,317,535
|
|
|
$
|
1,317,535
|
|
|
$
|
26,585,595
|
|
|
$
|
41,572,120
|
|
|
$
|
(52,023,776
|
)
|
|
|
|
|
|
$
|
(1,078,000
|
)
|
|
|
294,952
|
|
|
$
|
(2,570,635
|
)
|
|
$
|
13,802,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
notes to the consolidated financial statements
|
|
|
|
|
|
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
FOR THE YEARS ENDED DECEMBER 31, 2008 AND
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,617,071
|
)
|
|
$
|
(442,596
|
)
|
Adjustments
to reconcile net loss to net cash provided by (used in)
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
1,384,928
|
|
|
|
1,298,047
|
|
Net
income from other investments
|
|
|
(627,936
|
)
|
|
|
(727,461
|
)
|
Net
gain from investments in marketable securities
|
|
|
1,436,224
|
|
|
|
(113,993
|
)
|
Minority
partners' interest in operating losses
|
|
|
(72,030
|
)
|
|
|
(371,930
|
)
|
Deferred
income tax benefit
|
|
|
(133,000
|
)
|
|
|
(157,000
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase
in other assets and other receivables
|
|
|
(122,767
|
)
|
|
|
(346,350
|
)
|
Increase
in accounts payable, accrued expenses and other
liabilities
|
|
|
(6,927
|
)
|
|
|
(150,901
|
)
|
Total
adjustments
|
|
|
1,858,492
|
|
|
|
(569,588
|
)
|
Net
cash provided by (used in) operating activities
|
|
|
241,421
|
|
|
|
(1,012,184
|
)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchases
and improvements of properties
|
|
|
(601,321
|
)
|
|
|
(766,490
|
)
|
Decrease
in notes and advances from related parties
|
|
|
29,285
|
|
|
|
36,671
|
|
Increase
in mortgage loans and notes receivables
|
|
|
(100,000
|
)
|
|
|
(211,000
|
)
|
Collections
of mortgage loans and notes receivables
|
|
|
612,025
|
|
|
|
1,209,000
|
|
Net
proceeds from sales and redemptions of securities
|
|
|
3,762,483
|
|
|
|
3,571,190
|
|
Increase
in investments in marketable securities
|
|
|
(3,247,411
|
)
|
|
|
(2,475,289
|
)
|
Distributions
from other investments
|
|
|
1,759,205
|
|
|
|
1,398,236
|
|
Contributions
to other investments
|
|
|
(658,716
|
)
|
|
|
(1,333,567
|
)
|
Distribution
from affiliate
|
|
|
224,019
|
|
|
|
140,013
|
|
Net
cash provided by investing activities
|
|
|
1,779,569
|
|
|
|
1,568,764
|
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Repayment
of mortgages and notes payables
|
|
|
(684,174
|
)
|
|
|
(949,567
|
)
|
Deposit
to restricted cash
|
|
|
(2,390,430
|
)
|
|
|
-
|
|
Contributions
from minority partners
|
|
|
1,828,258
|
|
|
|
579,850
|
|
Purchase
of treasury stock
|
|
|
(4,801
|
)
|
|
|
-
|
|
Net
cash used in financing activities
|
|
|
(1,251,147
|
)
|
|
|
(369,717
|
)
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
769,843
|
|
|
|
186,863
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of the year
|
|
|
2,599,734
|
|
|
|
2,412,871
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of the year
|
|
$
|
3,369,577
|
|
|
$
|
2,599,734
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash
paid during the year for interest
|
|
$
|
1,333,000
|
|
|
$
|
1,594,000
|
|
Cash
paid during the year for income taxes
|
|
|
-
|
|
|
|
-
|
|
See
notes to the consolidated financial statements
|
|
|
|
|
|
|
|
|
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,
2008 and 2007
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. The
Company was organized in 1972 and (excluding its 95% owned subsidiary Courtland
Investments, Inc., which files a separate tax return) qualifies for taxation as
a real estate investment trust ("REIT") under the Internal Revenue
Code. The Company’s business is the ownership and management of
income-producing commercial properties and its management considers other
investments if such investments offer growth or profit potential. The
Company’s recurring operating revenue comes from food and beverage operations,
marina dockage operations, commercial property rental operations and spa
operations.
All
material transactions and balances 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 in which the Company holds a 95%
non-voting interest and Masscap Investments Company, Inc. ("Masscap") which
holds a 5% voting interest in CII. The Company and Masscap have had a
continuing arrangement with regard to the ongoing operations of CII, which
provides the Company with complete authority over all decision making relating
to the business, operations and financing of CII consistent with the Company’s
status as a real estate investment trust. Masscap is a wholly-owned
subsidiary of Transco Realty Trust which is a 46% shareholder of the
Company. CII files a separate tax return and its operations are not
part of the REIT tax return.
Courtland Bayshore Rawbar,
LLC (“CBSRB”).
This Florida limited liability company is
wholly owned by CII. CBSRB owns a 50% interest in Bayshore Rawbar,
LLC (“BSRB”) which operates the Monty’s restaurant. The other 50%
owner of BSRB is The Christoph Family Trust (“CFT”), an unrelated
entity.
HMG Bayshore, LLC
(“HMGBS”).
This Florida limited liability company owns a 50%
interest in the real property and marina operations of Bayshore Landing, LLC
(“BSL”). HMGBS and the CFT formed BSL for the purposes of acquiring
and operating the Monty’s property in Coconut Grove, Florida.
Grove Isle Associates, Ltd.
(“GIA”)
. This limited partnership (owned 85% by the Company and 15% by
CII) owns and leases the Grove Isle Resort to a tenant-operator. The Grove Isle
resort includes a 50 room hotel, renowned restaurant and banquet facilities, a
first class spa, tennis courts and an 85-boat slip marina. It is
located on 7 acres of a private island in the Coconut
Grove
section of Miami, Florida. The tenant-operator of Grove Isle is Grove Hotel
Partners LLC, as discussed below.
In
November 2008 the lessee of Grove Isle, Westgroup Grove Isle Associates, Ltd.,
an affiliate of Noble House Resorts, Inc. (“NHR”) assigned its leasehold
interest to Grove Hotel Partners, LLC an affiliate of Grand Heritage Hotel
Group, LLC (“GH”). GH operates over a dozen independent hotels and resorts
across North America and Mexico. The Company approved the assignment
of the lease to GH which assumed all terms of the original lease with
NHR.
CII Spa, LLC
(“CIISPA
”). This Florida single-member limited liability company was
formed in 2004 and is wholly-owned by CII. CIISPA owns a 50% interest
in Grove Spa, LLC (“GS”), as discussed below.
In
conjunction with the aforementioned lease assignment, NHR also assigned its 50%
interest in the Grove Isle Spa to GH which will manage the day to day operations
of the spa. The Grove Isle spa began operations in the first quarter
of 2005. The spa, which operates under the name “Spa Terre at the Grove”, offers
a variety of body treatments, salon services, facial care and massage
therapies.
Grove Isle Yacht Club
Associates (“GIYCA”)
. This partnership (wholly-owned by CII)
was the developer of the 85 boat slips located at Grove Isle of which the
Company owns six as of December 31, 2008. All other slips are privately
owned. Grove Isle Marina, Inc. a wholly-owned subsidiary of GIYCA,
operates all aspects of the Grove Isle marina.
260 River Corp
(“260”).
This is a wholly-owned corporation which owns a 70%
interest in a vacant retail store location in Montpelier, Vermont. Development
of this property is expected to begin in 2009.
Courtland Houston, Inc.
(“CHI”)
. This Florida corporation, formed in April 2007, is 80% owned by
CII and 20% owned by its sole employee. CHI was formed with a
$140,000 investment by CII and engages in commercial leasing activities in Texas
and earns commission revenue.
South Bayshore Associates
(“SBA”)
. This is a 75% owned joint venture with its sole asset
being a receivable from the Company's 46% shareholder, Transco Realty
Trust.
Courtland/Key West, Inc.
(“CKWI”)
. This Florida corporation was the former owner of a 10% interest
in a limited liability company (Monty’s Key West, LLC) which owned and operated
a restaurant in Key West, Florida. In February 2007 the restaurant
was sold.
Preparation of Financial
Statements
. The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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.
Income
Taxes
. The Company’s 95%-owned subsidiary, CII, files a
separate income tax return and its operations are not included in the REIT’s
income tax return. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for
Income Taxes”. SFAS No. 109 requires a Company to use the asset and
liability method of accounting for income taxes. Under this method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Under SFAS No. 109, the effect on
deferred income taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred taxes only pertain
to CII. The Company (excluding CII) qualifies as a real estate
investment trust and distributes its taxable ordinary income to stockholders in
conformity with requirements of the Internal Revenue Code and is not required to
report deferred items due to its ability to distribute all taxable income. In
addition, net operating losses can be carried forward to reduce future taxable
income but cannot be carried back. Distributed capital gains on sales of real
estate as they relate to REIT activities are not subject to taxes; however,
undistributed capital gains are taxed as capital gains. State income
taxes are not significant.
We
adopted the provisions of Financial Accounting Standards Board (“FASB”)
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an
interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. FIN 48
clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement 109,
“Accounting for Income Taxes”, and prescribes a recognition threshold and
measurement process for financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure and transition.
Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our evaluation was
performed for the tax years ended December 31, 2004, 2005, 2006 and 2007, the
tax years which remain subject to examination by major tax jurisdictions as of
December 31, 2008.
We may
from time to time be assessed interest or penalties by major tax jurisdictions,
although any such assessments historically have been minimal and immaterial to
our financial results. In the event we have received an assessment for interest
and/or penalties, it has been classified in the financial statements as selling,
general and administrative expense.
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, 2008 and 2007 was
approximately $1,385,000 and $1,298,000, respectively. The Grove Isle yacht
slips were being depreciated on a straight-line basis over their estimated
useful life of 20 years and are fully depreciated as of December 31,
2008. The Monty’s marina is being depreciated on a straight-line
basis over its estimated useful life of 15 years.
Fair Value of Financial
Instruments
. The carrying value of financial instruments
including other receivables, notes and advances due from related parties,
accounts payable and accrued expenses and mortgages and notes payable
approximate their fair values at December 31, 2008 and 2007, due to their
relatively short terms or variable interest rates.
We
adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (“SFAS 157”), which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. The standard provides a consistent definition of fair
value which focuses on an exit price that would be received upon sale of an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The standard also prioritizes,
within the measurement of fair value, the use of market-based information over
entity specific information and establishes a three-level hierarchy for fair
value measurements based on the nature of inputs used in the valuation of an
asset or liability as of the measurement date.
The
three-level hierarchy for fair value measurements is defined as
follows:
·
|
Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets;
|
·
|
Level
2 – inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability other than quoted prices, either directly or
indirectly including inputs in markets that are not considered to be
active;
|
·
|
Level
3 – inputs to the valuation methodology are unobservable and significant
to the fair value measurement
|
An
investment’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.
Cash
equivalents are classified with Level 1 or Level 2 of the fair value hierarchy
because they are valued using quoted market prices, broker or dealer quotations,
or alternative pricing sources with reasonable levels of
transparency.
The
valuation of non-public investments requires significant judgment by the
Company’s management due to the absence of quoted market values, inherent lack
of liquidity and long-term nature of such assets. Such investments
are valued initially based upon transaction price. Valuations are
reviewed periodically utilizing available market data and additional factors to
determine if the carrying value of these investments should be
adjusted. In determining valuation adjustments, emphasis is placed on
market participants’ assumptions and market-based information over
entity-specific information. Nonpublic investments are included in
Level 3 of the valuation hierarchy.
Marketable
Securities
. The entire marketable securities portfolio is
classified as trading consistent with the Company's overall investment
objectives and activities. Accordingly, all
unrealized
gains and losses on the Company's marketable securities investment portfolio are
included in the consolidated statements of comprehensive income.
Gross
gains and losses on the sale of marketable securities are based on the first-in
first-out method of determining cost.
Marketable
securities from time to time are pledged as collateral pursuant to broker margin
requirements. At December 31, 2008 and 2007 there are no margin
balances outstanding.
Notes and other
receivables.
Management periodically performs a review of
amounts due on its notes and other receivable balances to determine if they are
impaired based on factors affecting the collectibility of those balances.
Management's estimates of collectibility of these receivables requires
management to exercise significant judgment about the timing, frequency and
severity of collection losses, if any, and the underlying value of collateral,
which may affect recoverability of such receivables. As of December
31, 2008 and 2007, there were no receivables that required an
allowance.
Equity
investments.
Investments in which the Company does not have a
majority voting or financial controlling interest but has the ability to
exercise influence are accounted for under the equity method of accounting, even
though the Company may have a majority interest in profits and losses. The
Company follows EITF Topic D-46 in accounting for its investments in limited
partnerships. This guidance requires the use of the equity method for
limited partnership investments of more than 3 to 5 percent.
The
Company has no voting or financial controlling interests in its other
investments which include entities that invest venture capital funds in growth
oriented enterprises. These other investments are carried at cost
less adjustments for other than temporary declines in value.
Comprehensive Income
(Loss)
. The Company reports comprehensive income (loss) in
both its consolidated statements of comprehensive income and the consolidated
statements of changes in stockholders' equity. Comprehensive income
(loss) is the change in equity from transactions and other events from nonowner
sources. Comprehensive income (loss) includes net income (loss) and
other comprehensive income (loss). For the years ended December 31, 2008 and
2007 comprehensive loss consisted of unrealized loss from interest rate swap
agreement of approximately $815,500 and $240,000, respectively.
(Loss) earnings per common
share
. Net (loss) income per common share (basic and diluted) is based on
the net (loss) income divided by the weighted average number of common shares
outstanding during each year. Diluted net (loss) income per share
includes the dilutive effect of options to acquire common
stock. Common shares outstanding include issued shares less shares
held in treasury.
Gain on Sales of
Properties
. Gain on sales of properties is recognized when the
minimum investment requirements have been met by the purchaser and title passes
to the purchaser. There were no sales of property in 2008 and
2007.
Cash and Cash
Equivalents
. For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
Concentration of Credit
Risk
. Financial instruments that potentially subject the
Company to concentration of credit risk are cash and cash equivalent deposits in
excess of federally insured limits, marketable securities, other receivables and
notes and mortgages receivable. From time to time the Company may have bank
deposits in excess of federally insured limits. The Company evaluates
these excess deposits and transfers amounts to brokerage accounts and other
banks to mitigate this exposure. As of December 31, 2008 the Company had
approximately $2.4 million in excess of insured limits in one bank. The
federally insured limit is presently $250,000.
Interest Rate Swap
Contract.
The
Company may or may not use interest rate swap contracts to reduce interest rate
risk.
Interest
rate swap contracts designated and qualifying as cash flow hedges are reported
at fair value. The gain or loss on the effective portion of the hedge initially
is included as a component of other comprehensive income and is subsequently
reclassified into earnings when interest on the related debt is
paid.
Inventories.
Inventories
consist primarily of food and beverage and are stated at the lower of cost or
market. Cost is determined on a first-in, first-out
basis.
Intangible
Assets.
Intangible assets consist primarily of goodwill and
deferred loan costs. Goodwill is carried at historical cost if its
estimated fair value is greater than its carrying value. However, if
its estimated fair value is less than the carrying amount, goodwill is reduced
to its estimated fair value through an impairment charge to the consolidated
statements of comprehensive income.
Goodwill
relates to the Company’s real estate rentals and food and beverage sales
segments and is assessed for impairment annually on December 31st and, more
frequently, if a triggering event occurs utilizing a valuation study. In
performing this assessment, management relies on a number of factors including
operating results, business plans, economic projections,
anticipated
future
cash flows, and transactions and market place data. There are inherent
uncertainties related to these factors and judgment in applying them to the
analysis of goodwill impairment. Since judgment is involved in performing
goodwill valuation analyses, there is a risk that the carrying value of our
goodwill may be overstated or understated. As of December 31, 2008 and 2007, the
Company was not aware of any items or events that would cause it to adjust the
recorded value of goodwill for impairment. Based upon the assessment performed
as of December 31, 2008, the estimated fair value of the reporting unit exceeded
its carrying amount by approximately $1.7 million.
Management
believes the most significant assumption which would have an effect on the
estimated fair value of goodwill is the discount rate. The Company estimates
that each one percentage point increase in the discount rate would decrease the
fair value of the reporting unit by approximately $800,000.
Deferred
loan costs are amortized on a straight line basis over the life of the
loan. This method approximates the effective interest rate
method.
Reclassifications
. Certain
amounts in the 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. A summary of minority
interest for the years ended December 31, 2008 and 2007 is as
follows:
|
|
2008
|
|
|
2007
|
|
Minority
interest balance at beginning of year
|
|
$
|
3,052,000
|
|
|
$
|
3,127,000
|
|
Minority
partners’ interest in operating losses of consolidated
subsidiaries
|
|
|
(72,000
|
)
|
|
|
(372,000
|
)
|
Net
contributions from minority partners
|
|
|
1,828,000
|
|
|
|
579,000
|
|
Unrealized
loss on interest rate swap agreement
|
|
|
(815,000
|
)
|
|
|
(240,000
|
)
|
Other
|
|
|
(3,000
|
)
|
|
|
(42,000
|
)
|
Minority
interest balance at end of year
|
|
$
|
3,990,000
|
|
|
$
|
3,052,000
|
|
Revenue
Recognition.
The Company is the lessor of various real estate
properties. 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 and are recognized on the accrual basis, based on the
lessee’s monthly sales. 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.
In
addition to base rent, the Company may receive participation rent consisting of
a portion of the tenant’s operating surplus, as defined in the lease
agreement. Participation rent is due at end of each lease year and
recognized when earned. Revenues earned from restaurant and marina operations
are in cash or cash equivalents with an insignificant amount of customer
receivables.
Impairment of Long-Lived
Assets
. The Company periodically reviews the carrying value of
its properties and long-lived 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 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 and would
adjust the carrying value of the asset to fair value.
Share-Based
Compensation.
The
Company accounts for share-based compensation in accordance with Statement of
Financial Accounting Standards 123 (revised 2004), ‘Share-Based Payments: (SFAS
123(R)’). The Company has used the Black-Scholes option pricing model to
estimate the fair value of stock options on the dates of grant.
Recent Accounting
Pronouncements
.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with U.S. Generally Accepted Accounting Principles (GAAP). The current GAAP
hierarchy has been criticized because it is directed to the auditor rather than
the entity, it is complex, and it ranks FASB Statements of Financial Accounting
Concepts, which are subject to the same level of due process as FASB Statements
of Financial Accounting Standards, below industry practices that are widely
recognized as generally accepted but that are not subject to due process. The
Board believes the GAAP hierarchy should be directed to entities because it is
the entity (not its auditors) that is responsible for selecting accounting
principles for financial statements that are presented in conformity with GAAP.
The adoption of FASB 162 is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.
In May,
2008 the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for
Convertible Debt Instruments That May Be Settled in Cash upon Conversion
(Including Partial Cash Settlement).” APB 14-1 requires the issuer to separately
account for the liability and equity components of convertible debt instruments
in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The
guidance will result in companies recognizing higher interest expense in the
statement of operations due to amortization of the discount that results from
separating the liability and equity components. APB 14-1 will be effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company is currently
evaluating the impact of adopting APB 14-1 on its consolidated financial
statements.
In April
2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible
Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible
Assets”. FSP 142-3 is effective for fiscal years beginning after December 15,
2008. The adoption of FSP-142-3 is not expected to have a material impact on the
Company’s consolidated financial position and results of
operations.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS No. 161"). SFAS No. 161
amends and expands the disclosure requirement for FASB Statement No. 133,
"Derivative Instruments and Hedging Activities" ("SFAS No. 133"). It
requires enhanced disclosure about (i) how and why an entity uses
derivative instruments, (ii) how derivative instruments and related hedged
items are accounted for under SFAS No. 133 and its related interpretations,
and (iii) how derivative instruments and related hedged items affect an
entity’s financial position, financial performance, and cash flows. SFAS
No. 161 is effective for the Company as of January 1,
2009.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business
Combinations” (SFAS 141). SFAS 141(R) retains the underlying concepts of SFAS
141 in that all business combinations are still required to be accounted for at
fair value under the acquisition method of accounting but SFAS 141(R) changed
the method of applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as incurred;
noncontrolling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date, until either
abandoned or completed, at which point the useful lives will be determined;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141(R) is effective on a
prospective basis for all business combinations for which the acquisition date
is on or after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends
SFAS No. 109, “Accounting for Income Taxes” (SFAS 109) such that
adjustments made to valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to the effective
date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early
adoption is not permitted. Upon adoption, SFAS 141(R) will not have a
significant impact on our Company’s consolidated financial position and results
of operations; however, any business combination entered into after the adoption
may significantly impact our consolidated financial position and results of
operations when compared to acquisitions accounted for under existing
GAAP.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, “Noncontrolling Interests in Consolidated Financial Statements”
(“SFAS 160”). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of
retained
noncontrolling equity investments when a subsidiary is deconsolidated. SFAS 160
also establishes reporting requirements that provide sufficient disclosures that
clearly identify and distinguish between the interests of the parent and the
interests of the noncontrolling owners. This standard is effective for fiscal
years beginning after December 15, 2008. We are currently evaluating the
impact the adoption of SFAS 160 will have on our consolidated financial position
and consolidated results of operations.
Recently adopted accounting
principles
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. SFAS No. 159 permits entities
to choose to measure eligible financial instruments at fair value. The
unrealized gains and losses on items for which the fair value option has been
elected should be reported in earnings. The decision to elect the fair value
options is determined on an instrument by instrument basis, it should be applied
to an entire instrument, and it is irrevocable. Assets and liabilities measured
at fair value pursuant to the fair value option should be reported separately in
the balance sheet from those instruments measured using another measurement
attribute. SFAS No. 159 was effective for the Company as January 1, 2008.
As of December 31, 2008 the Company did not elect such option for its financial
instruments and liabilities.
2.
INVESTMENT PROPERTIES
The
components of the Company’s investment properties and the related accumulated
depreciation information follow:
|
|
December
31, 2008
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Commercial Properties:
|
|
|
|
|
|
|
|
|
|
Monty’s
restaurant and retail mall (Coconut Grove, FL) - Building &
Improvements (1)
|
|
$
|
6,679,686
|
|
|
$
|
688,473
|
|
|
$
|
5,991,213
|
|
Monty’s
restaurant and retail mall (Coconut Grove, FL) - furniture,
fixtures and equipment (F,F &E) (1)
|
|
|
1,851,876
|
|
|
|
750,145
|
|
|
|
1,101,731
|
|
Corporate
Office - (Coconut Grove, FL) – Building
|
|
|
641,572
|
|
|
|
198,012
|
|
|
|
443,560
|
|
Corporate
Office – (Coconut Grove, FL) – Land
|
|
|
325,000
|
|
|
|
-
|
|
|
|
325,000
|
|
Other
(Montpelier, Vermont) – Buildings
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
-
|
|
Other
(Montpelier, Vermont) - Land and improvements
|
|
|
100,261
|
|
|
|
-
|
|
|
|
100,261
|
|
|
|
|
9,650,395
|
|
|
|
1,688,630
|
|
|
|
7,961,765
|
|
Grove Isle Hotel, club and spa facility (Coconut
Grove, FL):
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,338,518
|
|
|
|
-
|
|
|
|
1,338,518
|
|
Hotel
and club building and improvements
|
|
|
6,819,032
|
|
|
|
5,815,975
|
|
|
|
1,003,057
|
|
Spa
building and improvements
|
|
|
2,272,944
|
|
|
|
418,644
|
|
|
|
1,854,300
|
|
Spa
F, F & E
|
|
|
429,457
|
|
|
|
286,506
|
|
|
|
142,951
|
|
|
|
|
10,859,951
|
|
|
|
6,521,125
|
|
|
|
4,338,826
|
|
Marina Properties (Coconut Grove,
FL):
|
|
|
|
|
|
|
|
|
|
|
|
|
Monty’s
marina - 132 slips and improvements (1)
|
|
|
3,465,480
|
|
|
|
917,104
|
|
|
|
2,548,376
|
|
Grove
Isle marina (6 slips company owned, 79 privately owned)
|
|
|
333,334
|
|
|
|
315,647
|
|
|
|
17,687
|
|
|
|
|
3,798,814
|
|
|
|
1,232,751
|
|
|
|
2,566,063
|
|
Land Held for Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hopkinton,
Rhode Island (approximately 50 acres)
|
|
|
27,689
|
|
|
|
-
|
|
|
|
27,689
|
|
|
|
|
27,689
|
|
|
|
-
|
|
|
|
27,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
24,336,849
|
|
|
$
|
9,442,506
|
|
|
$
|
14,894,343
|
|
(1)
|
The
Monty’s property is subject to a ground lease with the City of Miami,
Florida expiring in 2035. Lease payments due under the lease
consist of percentage rent ranging from 5% to 15% of gross revenues from
various components of the property.
|
|
|
December
31, 2007
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Commercial Properties:
|
|
|
|
|
|
|
|
|
|
Monty’s
restaurant and retail mall (Coconut Grove, FL) - Building &
Improvements (1)
|
|
$
|
5,947,000
|
|
|
$
|
468,412
|
|
|
$
|
5,478,588
|
|
Monty’s
restaurant and retail mall (Coconut Grove, FL) - furniture,
fixtures and equipment (F,F &E) (1)
|
|
|
1,685,225
|
|
|
|
443,273
|
|
|
|
1,241,952
|
|
Corporate
Office - (Coconut Grove, FL) – Building
|
|
|
641,572
|
|
|
|
182,152
|
|
|
|
459,420
|
|
Corporate
Office – (Coconut Grove, FL) – Land
|
|
|
325,000
|
|
|
|
-
|
|
|
|
325,000
|
|
Other
(Montpelier, Vermont) – Buildings
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
-
|
|
Other
(Montpelier, Vermont) - Land and improvements
|
|
|
99,530
|
|
|
|
-
|
|
|
|
99,530
|
|
|
|
|
8,750,327
|
|
|
|
1,145,837
|
|
|
|
7,604,490
|
|
Commercial Properties- Construction in
Progress:
|
|
|
|
|
|
|
|
|
|
|
|
|
Monty’s
restaurant and retail mall (Coconut Grove, FL) (1)
|
|
|
320,617
|
|
|
|
-
|
|
|
|
320,617
|
|
|
|
|
320,617
|
|
|
|
-
|
|
|
|
320,617
|
|
Grove Isle Hotel, club and spa facility (Coconut
Grove, FL):
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
|
1,338,518
|
|
|
|
-
|
|
|
|
1,338,518
|
|
Hotel
and club building and improvements
|
|
|
6,819,032
|
|
|
|
5,446,810
|
|
|
|
1,372,222
|
|
Spa
building and improvements
|
|
|
2,261,197
|
|
|
|
305,153
|
|
|
|
1,956,044
|
|
Spa
F, F & E
|
|
|
429,457
|
|
|
|
210,913
|
|
|
|
218,544
|
|
|
|
|
10,848,204
|
|
|
|
5,962,876
|
|
|
|
4,885,328
|
|
Marina Properties (Coconut Grove,
FL):
|
|
|
|
|
|
|
|
|
|
|
|
|
Monty’s
marina - 132 slips and improvements (1)
|
|
|
3,465,479
|
|
|
|
685,189
|
|
|
|
2,780,290
|
|
Grove
Isle marina (6 slips company owned, 79 privately owned)
|
|
|
323,211
|
|
|
|
310,346
|
|
|
|
12,865
|
|
|
|
|
3,788,690
|
|
|
|
995,535
|
|
|
|
2,793,155
|
|
Land Held for Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
Hopkinton,
Rhode Island (approximately 50 acres)
|
|
|
27,689
|
|
|
|
-
|
|
|
|
27,689
|
|
|
|
|
27,689
|
|
|
|
-
|
|
|
|
27,689
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
23,735,527
|
|
|
$
|
8,104,248
|
|
|
$
|
15,631,279
|
|
(1)
The Monty’s property is subject to a ground lease with the City of Miami,
Florida expiring in 2035. Lease payments due under the lease consist
of percentage rent ranging from 5% to 15% of gross revenues from various
components of the property.
3.
MONTY’S RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE,
FLORIDA
The
Company owns a 50% equity interest in two entities, Bayshore Landing, LLC
(“Landing”) and Bayshore Rawbar, LLC (“Rawbar”), (collectively, “Bayshore”)
which own and operate a restaurant, office/retail and marina property located in
Coconut Grove (Miami), Florida known as Monty’s (“Monty’s”). The other 50% owner
of Bayshore is The Christoph Family Trust (“CFT”). Members of CFT are
experienced real estate and marina operators. The Monty’s property is
subject to a ground lease with the City of Miami, Florida which expires on May
31, 2035. Under the lease Bayshore pays percentage rents ranging from
5% to 15% of gross revenues from various components of the
project. Total rent paid for the years ended December 31, 2008 and
2007 was approximately $838,000 and $826,000, respectively.
The
Monty’s property consists of a two story building with approximately 40,000
rentable square feet and approximately 3.7 acres of submerged land with a
132-boat slip marina. It includes a 16,000 square foot indoor-outdoor raw bar
restaurant and 24,000 square feet of office/retail space of which approximately
21,000 are presently leased to tenants operating boating and marina related
businesses. Total cost of improvements to the Monty’s property since
its acquisition in 2004 is approximately $6 million. As of December 31, 2008
there are approximately 3,000 square feet of potential leased retail space to be
leased.
The
excess of capitalized cost assigned to specific assets over the 2004 purchase
price of Monty’s is approximately $7,729,000 and was recorded as
goodwill. Since goodwill is an indefinite-lived intangible asset it
is reviewed for impairment at each reporting period or whenever an event occurs
or circumstances change that would more likely than not reduce fair value below
carrying amount. Goodwill is carried at historical cost if its estimated fair
value is greater than its carrying amounts. However, if its estimated
fair value is less than the carrying amount, goodwill is reduced to its
estimated fair value through an impairment charge to the consolidated statements
of comprehensive income. There was no impairment of goodwill at
December 31, 2008 and 2007.
Since the
acquisition in August 2004, improvements totaling approximately $6 million have
been made to the Monty’s property, net of disposals. These
improvements primarily consisted of the expansion of the restaurant to provide
an indoor area, improvements to the office/retail space which includes
approximately 24,000 square feet leased or available for lease as of December
31, 2008 and parking lot and landscaping improvement to the
property.
The
Monty’s property was purchased with proceeds from an acquisition and
construction bank loan secured by the property in the amount of $13.3 million
plus approximately $3.9 million in cash. As of December 31, 2008 and
2007 the outstanding balance of the loan was $11.8 million and $12.4 million,
respectively. The loan calls for monthly principal payments necessary to fully
amortize the principal amount over the remaining life of the loan maturing in
February 2021, plus accrued interest. The outstanding principal balance of the
bank loan bears interest at a rate of 2.45% per annum in excess of the LIBOR
Rate. However, Bayshore entered into an interest rate swap agreement
with the same lender to manage its exposure to interest rate fluctuation
through
the entire term of the mortgage. The effect of the swap agreement is
to provide a fixed interest rate of 7.57%.
Effective
April 1, 2007 the Company amended the restaurant management contract with RMI
(the former manager) and took over management of the restaurant. The amendment
provided for a one-time payment of $100,000 to the former manager for
termination of the management services portion of the contract. RMI
continues to perform accounting and certain administrative services and was paid
$15,000 per month from April 1 through December 31, 2007. Effective
January 1, 2008 RMI will be paid $9,500 per month for these accounting
services. RMI is also a tenant of Landing and pays monthly base rent
of $1,500.
Summarized
combined statements of income for Landing and Rawbar for the years ended
December 31, 2008 and 2007 are presented below (Note: the Company’s ownership
percentage in these operations is 50%):
Summarized
combined statements of income
Bayshore
Landing, LLC and
Bayshore
Rawbar, LLC
|
|
For
the year
ended
December
3
1,
2008
|
|
|
For
the year
ended
December
31,
2007
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
Food
and Beverage Sales
|
|
$
|
6,697,000
|
|
|
$
|
6,344,000
|
|
Marina
dockage and related
|
|
|
1,235,000
|
|
|
|
1,244,000
|
|
Retail/mall
rental and related
|
|
|
476,000
|
|
|
|
371,000
|
|
Total
Revenues
|
|
|
8,408,000
|
|
|
|
7,959,000
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost
of food and beverage sold
|
|
|
1,794,000
|
|
|
|
1,720,000
|
|
Labor
and related costs
|
|
|
1,336,000
|
|
|
|
1,233,000
|
|
Entertainers
|
|
|
221,000
|
|
|
|
218,000
|
|
Other
food and beverage related costs
|
|
|
588,000
|
|
|
|
568,000
|
|
Other
operating costs
|
|
|
267,000
|
|
|
|
380,000
|
|
Repairs
and maintenance
|
|
|
435,000
|
|
|
|
392,000
|
|
Insurance
|
|
|
626,000
|
|
|
|
645,000
|
|
Management
fees
|
|
|
267,000
|
|
|
|
398,000
|
|
Utilities
|
|
|
308,000
|
|
|
|
311,000
|
|
Rent
|
|
|
838,000
|
|
|
|
826,000
|
|
Interest
|
|
|
930,000
|
|
|
|
972,000
|
|
Depreciation
|
|
|
779,000
|
|
|
|
698,000
|
|
Total
Expenses
|
|
|
8,389,000
|
|
|
|
8,361,000
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before minority interest
|
|
$
|
19,000
|
|
|
$
|
(402,000
|
)
|
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 (see table below). These securities
are stated at market value, as determined by the most recently 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. Accordingly all unrealized gains and losses
on this portfolio are recorded in the consolidated statements of comprehensive
income. For the years ended December 31, 2008 and 2007 net unrealized loss on
trading securities were approximately $1,383,000 and $135,000,
respectively.
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Cost
|
|
|
Fair
|
|
|
Unrealized
|
|
Description
|
|
Basis
|
|
|
Value
|
|
|
Gain (loss)
|
|
|
Basis
|
|
|
Value
|
|
|
Gain (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate
Investment
Trusts
|
|
$
|
417,000
|
|
|
$
|
266,000
|
|
|
$
|
(151,000
|
)
|
|
$
|
403,000
|
|
|
$
|
588,000
|
|
|
$
|
185,000
|
|
Mutual
Funds
|
|
|
804,000
|
|
|
|
583,000
|
|
|
|
(221,000
|
)
|
|
|
1,014,000
|
|
|
|
1,129,000
|
|
|
|
115,000
|
|
Other
Equity
Securities
|
|
|
1,768,000
|
|
|
|
1,269,000
|
|
|
|
(499,000
|
)
|
|
|
1,558,000
|
|
|
|
1,823,000
|
|
|
|
265,000
|
|
Total
Equity
Securities
|
|
|
2,989,000
|
|
|
|
2,118,000
|
|
|
|
(871,000
|
)
|
|
|
2,975,000
|
|
|
|
3,540,000
|
|
|
|
565,000
|
|
Debt
Securities
|
|
|
1,211,000
|
|
|
|
1,177,000
|
|
|
|
(34,000
|
)
|
|
|
1,365,000
|
|
|
|
1,278,000
|
|
|
|
(87,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,200,000
|
|
|
$
|
3,295,000
|
|
|
$
|
(905,000
|
)
|
|
$
|
4,340,000
|
|
|
$
|
4,818,000
|
|
|
$
|
478,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2008, debt securities are scheduled to mature as
follows:
|
|
|
Cost
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
2009
– 2013
|
|
|
$
|
514,000
|
|
|
$
|
462,000
|
|
|
2014-2018
|
|
|
|
444,000
|
|
|
|
453,000
|
|
|
2019
– thereafter
|
|
|
|
253,000
|
|
|
|
262,000
|
|
|
|
|
|
$
|
1,211,000
|
|
|
$
|
1,177,000
|
|
Net gain
from investments in marketable securities for the years ended December 31, 2008
and 2007 is summarized below:
Description
|
|
2008
|
|
|
2007
|
|
Net
realized (loss) gain from sales
of
securities
|
|
$
|
(53,000
|
)
|
|
$
|
249,000
|
|
Unrealized
net loss in marketable
securities
|
|
|
(1,383,000
|
)
|
|
|
(135,000
|
)
|
Total
net (loss) gain
|
|
$
|
(1,436,000
|
)
|
|
$
|
114,000
|
|
Net
realized gain from sales of marketable securities consisted of approximately
$435,000 of gains net of $488,000 of losses for the year ended December 31,
2008. The comparable amounts in fiscal year 2007 were gains of
approximately $516,000 net of $267,000 of losses.
Consistent
with the Company’s overall current investment objectives and activities the
entire marketable securities portfolio is classified as trading (versus
available for sale, as defined by generally accepted accounting
principles). Unrealized gains or loss of marketable securities on
hand are recorded in the consolidated statements of comprehensive
income.
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.
Investments
in marketable securities give rise to exposure resulting from the volatility of
capital markets. The Company attempts to mitigate its risk by
diversifying its marketable securities portfolio.
5. OTHER
INVESTMENTS
The
Company’s other investments consist primarily of nominal equity interests in
various privately-held entities, including limited partnerships whose purpose is
to invest venture capital funds in growth-oriented enterprises. The
Company does not have significant influence over any investee and the Company’s
investment represents less than 3% of the investee’s ownership. None
of these investments meet the criteria of accounting under the equity method and
are carried at cost less distributions and other than temporary unrealized
losses.
As of
December 31, 2008 and 2007, the Company’s portfolio of other investments
includes approximately 30 investments with an aggregate carrying value of $3.7
million and $4.6 million, respectively. The Company has committed to
fund an additional $1.1 million as required by agreements with the
investees. The carrying value of these investments is equal to
contributions less distributions and loss valuation
adjustments. During the years ended December 31, 2008 and 2007 the
Company contributed approximately $659,000 and $1.3 million, respectively,
toward these commitments and received distributions from these investments
(consisting of cash and stock distributions) of $1.8 million and $1.6 million,
respectively.
The
Company’s other investments are summarized below.
|
|
Carrying
values as of December 31,
|
|
Investment Focus
|
|
2008
|
|
|
2007
|
|
Venture
capital funds – technology and
communications
|
|
$
|
637,000
|
|
|
$
|
562,000
|
|
Venture
capital funds – diversified
businesses
|
|
|
1,404,000
|
|
|
|
1,009,000
|
|
Real
estate and related
|
|
|
1,387,000
|
|
|
|
1,368,000
|
|
Stock
and debt funds
|
|
|
300,000
|
|
|
|
1,555,000
|
|
Other
|
|
|
5,000
|
|
|
|
130,000
|
|
Totals
|
|
$
|
3,733,000
|
|
|
$
|
4,624,000
|
|
|
|
|
|
|
|
|
|
|
The
Company regularly reviews the underlying assets in its investment portfolio for
events, including but not limited to bankruptcies, closures and declines in
estimated fair value, that may indicate the investment has suffered
other-than-temporary decline in value. When a decline is deemed
other-than-temporary, an investment loss is recognized. There were no valuation
losses for the year ended December 31, 2008. For the year ended December 31,
2007 valuation losses were approximately $514,000.
Net
income from other investments (including valuation losses) is as
follows:
Net income from other
investments is summarized below:
|
|
2008
|
|
|
2007
|
|
Partnerships
owning stocks and bonds (a)
|
|
$
|
392,000
|
|
|
$
|
143,000
|
|
Venture
capital funds – diversified businesses (b)
|
|
|
208,000
|
|
|
|
438,000
|
|
Real
estate and related
|
|
|
(38,000
|
)
|
|
|
(6,000
|
)
|
Venture
capital funds – technology & communications
|
|
|
22,000
|
|
|
|
(125,000
|
)
|
Income
from investment in 49% owned affiliate (c)
|
|
|
40,000
|
|
|
|
107,000
|
|
Restaurant
development & operation (d)
|
|
|
-
|
|
|
|
(150,000
|
)
|
Other
|
|
|
4,000
|
|
|
|
320,000
|
|
Totals
|
|
$
|
628,000
|
|
|
$
|
727,000
|
|
(a)
|
In
2008 and 2007 amounts consist of gains from the full redemption of
investments in private capital funds that invested in equities, debt or
debt like securities.
|
(b)
|
In
2008 and 2007 amounts consist primarily of gains from distributions of
investments in two private limited partnerships which own interests in
various diversified businesses, primarily in the manufacturing and
production related sectors.
|
(c)
|
This
gain represents income from the Company’s 49% owned affiliate, T.G.I.F.
Texas, Inc. (“TGIF”). In December 2008 and 2007 TGIF declared and paid a
cash dividend of the Company’s portion of which was approximately $224,000
and $140,000, respectively. These dividends were recorded as reduction in
the investment carrying value as required under the equity method of
accounting for investments.
|
(d)
|
In
September 2007, the Company elected to write off $150,000 of its
investment in a restaurant development and franchise entity which is being
restructured and which, in the Company’s opinion, will result in an
other-than-temporary decline in value. The Company had invested
$200,000 in this entity, representing approximately 1% of its equity. This
franchise entity was restructured in a reverse merger in which the Company
invested an additional $75,000 in December
2007.
|
Net gain
or loss from other investments 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 gain or loss from other investments for any
given period has no predictive value and variations in amount from period to
period have no practical analytical value.
6. INTEREST
RATE SWAP CONTRACT
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 2.45% plus the one-month LIBOR Rate times the same
notional amount. The Company designated this interest rate swap
contract as a cash flow hedge. As of December 31, 2008 and 2007 the
fair value (net of 50% minority interest) of the cash flow hedge was a loss of
approximately $1,078,000 and $262,000, respectively, which has been recorded as
other comprehensive loss and will be reclassified to interest expense over the
life of the swap contract.
7. FAIR
VALUE INSTRUMENTS
In
accordance with SFAS 157, the Company measures cash equivalents, marketable
securities, other investments and interest rate swap contract at fair value. Our
cash equivalents, marketable securities and interest rate swap contract are
classified within Level 1 or Level 2. This is because our cash equivalents,
marketable securities and interest rate swap are valued using quoted market
prices or alternative pricing sources and models utilizing market observable
inputs. Our other investments are classified within Level 3 because they are
valued using valuation models which use some inputs that are unobservable and
supported by little or no market activity and are significant.
Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurement at reporting date using
|
|
Description
|
|
December 31,
2008
|
|
|
Quoted Prices in Active
Markets for Identical Assets
(Level
1)
|
|
|
Significant Other
Observable Inputs
(Level
2)
|
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
Time
deposits
|
|
$
|
50,000
|
|
|
|
—
|
|
|
$
|
50,000
|
|
|
|
—
|
|
Money
market
mutual
funds
|
|
|
1,556,000
|
|
|
|
1,556,000
|
|
|
|
—
|
|
|
|
—
|
|
Cash
equivalents –
restricted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market
mutual
funds
|
|
|
2,390,000
|
|
|
|
2,390,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
debt
securities
|
|
|
1,177,000
|
|
|
|
—
|
|
|
|
1,177,000
|
|
|
|
—
|
|
Marketable
equity
securities
|
|
|
2,118,000
|
|
|
|
2,118,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
7,291,000
|
|
|
$
|
6,064,000
|
|
|
$
|
1,227,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swap contract
|
|
$
|
2,156,000
|
|
|
$
|
—
|
|
|
$
|
2,156,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
$
|
2,156,000
|
|
|
$
|
—
|
|
|
$
|
2,156,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value on a
nonrecurring basis are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
December 31,
2008
|
|
Quoted Prices in Active
Markets for Identical Assets
(Level
1)
|
|
Significant Other
Observable Inputs
(Level
2)
|
|
Significant
Unobservable Inputs
(Level
3)
|
|
Total
Loss
|
|
Investment
in
various
technology
related
partnerships
|
|
$
|
303,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
303,000
|
|
|
$
|
924,000
|
|
In prior
years from 2001 through 2007 the Company’s investments in four technology and
communication related partnerships with an aggregate carrying value of
approximately $1,227,000 were written down to fair value of approximately
$303,000, resulting in an “other-than-temporary” impairment charge of $924,000,
which was included in results of operations in the years in which the impairment
was recognized. For the year ended December 31, 2007 an
impairment of $164,000 was recorded. No other than temporary impairments were
recognized for the year ended December 31, 2008.
Effective
January 1, 2008, we also adopted SFAS No. 159, The Fair Value Option
for Financial Assets and Financial Liabilities—Including an Amendment of FASB
Statement No. 115, which allows an entity to choose to measure certain
financial instruments and liabilities at fair value on a contract-by-contract
basis. Subsequent fair value measurement for the financial instruments and
liabilities an entity chooses to measure will be recognized in earnings. As of
December 31, 2008, we did not elect such option for our financial
instruments and liabilities.
8. INVESTMENT
IN AFFILIATE
Investment
in affiliate consists of CII’s 49% equity interest in T.G. I.F. Texas, Inc.
(T.G.I.F.). T.G.I.F. is a Texas Corporation which holds promissory
notes receivable from its shareholders, including CII and Maurice Wiener, the
Chairman of the Company and T.G.I.F. Reference is made to Notes 8 and
10 for discussion on notes payable by CII to T.G. I.F. and notes payable by Mr.
Wiener to T.G.I.F. This investment is recorded under the equity method of
accounting. For the years ended December 31, 2008 and 2007 income
from investment in affiliate amounted to approximately $40,000 and $107,000,
respectively and is included in net income from other investments in the
consolidated statements of comprehensive income. In December 2008 and
2007 T.G.I.F. declared and paid a cash dividend of $.08 and $.05 per share,
respectively. CII received $224,000 and $140,000, respectively in
2008 and 2007 from this dividend and it was recorded as a reduction in the
carrying amount of CII investment in T.G.I.F. as required under the equity
method of accounting.
9. LOANS,
NOTES AND OTHER RECEIVABLES
|
|
As of December 31,
|
|
Description
|
|
2008
|
|
|
2007
|
|
Mortgage
loan participation
|
|
$
|
111,000
|
|
|
$
|
111,000
|
|
Promissory
note and accrued interest due from individual (a)
|
|
|
403,000
|
|
|
|
402,000
|
|
Promissory
note and accrued interest due from principal of Grove Isle tenant
(b)
|
|
|
-
|
|
|
|
500,000
|
|
Other
|
|
|
107,000
|
|
|
|
206,000
|
|
Total
loans, notes and other receivables
|
|
$
|
621,000
|
|
|
$
|
1,219,000
|
|
(a)
|
In
December 2007 the Company loaned $400,000 to a local real estate developer
who is well known to the Company and which loan is secured by numerous
real estate interests. The loan calls for interest only
payments at an annual rate of 9% with all principal due on June 30, 2009
(as extended). All interest payments due have been
received.
|
(b)
|
In
1997, GIA advanced $500,000 to the principal owner of the tenant of the
Grove Isle property. All principal and accrued interest was received in
January 2008.
|
10. NOTES
AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES
The
Company has an agreement (the "Agreement") with HMG Advisory Corp. (the
"Adviser") for its services as investment adviser and administrator of the
Company's affairs. All officers of the Company who are officers of
the Adviser are compensated solely by the Adviser for their
services.
The
Adviser is majority owned by Mr. Wiener, the Company’s Chairman, with the
remaining shares owned by certain officers including Mr.
Rothstein. The officers and directors of the Adviser are as follows:
Maurice Wiener, Chairman of the Board and Chief Executive Officer; Larry
Rothstein, President, Treasurer, Secretary and Director; and Carlos Camarotti,
Vice President - Finance and Assistant Secretary.
Under the
terms of the Agreement, the Adviser serves as the Company's investment adviser
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 Adviser are compensated solely by the Adviser 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 Adviser
and a majority of the Company's shareholders. The contract may be
terminated at any time on 120 days written notice by the Adviser 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.
In 2008
the shareholders approved the renewal and amendment of the Advisory Agreement
between the Company and the Adviser for a term commencing January 1, 2009, and
expiring December 31, 2009.
For the
years ended December 31, 2008 and 2007, the Company and its subsidiaries
incurred Adviser fees of approximately $1,076,000 and $989,000, respectively, of
which $1,020,000 and $900,000, respectively, represented regular compensation
and approximately $56,000 and $89,000 represented incentive compensation for
2008 and 2007, respectively. The Adviser is also the manager for certain of the
Company's affiliates and received management fees of approximately $44,000 and
$41,000 in 2008 and 2007, respectively for such services. Included in fees for
2008 and 2007 was $25,000 of management fees earned relating to management of
the Monty’s restaurant operations.
At
December 31, 2008 and 2007, the Company had amounts due from the Adviser and
subsidiaries of approximately $288,000 and $317,000, respectively. The amount
due from the Adviser and subsidiaries bears interest at prime plus 1% and is due
on demand.
The
Adviser leases its executive offices from CII pursuant to a lease
agreement. This lease agreement is at the going market rate for
similar property and calls for base rent of $48,000 per year payable in equal
monthly installments. Additionally, the Adviser is responsible for
all utilities, certain maintenance, and security expenses relating to the leased
premises. The lease term is five years, expiring in November
2009.
In August
2004 HMG Advisory Bayshore, Inc. (“HMGABS”) (a wholly owned subsidiary of the
Adviser) was formed for the purposes of overseeing the Monty’s restaurant
operations acquired in August 2004. For the years ended December 31,
2008 and 2007 HMGABS earned approximately $25,000, in such management
fees.
The
Company, via its 75% owned joint venture (SBA), has a note receivable from
Transco (a 46% shareholder of the Company) of $300,000. This note
bears interest at the prime rate and is due on demand.
Mr.
Wiener is an 18% shareholder and the chairman and director of T.G.I.F. Texas,
Inc., a 49% owned affiliate of CII (See Note 6). As of December 31,
2008 and 2007, T.G.I.F. had amounts due from CII in the amount of approximately
$3,661,000. These amounts are due on demand and bear interest at the
prime rate. All interest due has been paid. T.G.I.F. also owns 10,000
shares of the Company’s common stock it purchased at market value in
1996.
As of
December 31, 2008 and 2007 T.G.I.F. had amounts due from Mr. Wiener in the
amount of approximately $707,000. These amounts bear interest at the
prime rate and principal and interest are due on demand. All interest
due has been paid.
Mr.
Wiener received consulting and director’s fees from T.G.I.F totaling $37,000 and
$52,000 for the years ended December 31, 2008 and 2007,
respectively.
11. OTHER
ASSETS
The
Company’s other assets consisted of the following as of December 31, 2008 and
2007:
Description
|
|
2008
|
|
|
2007
|
|
Deferred
loan costs, net of accumulated amortization
|
|
$
|
170,000
|
|
|
$
|
185,000
|
|
Prepaid
expenses and other assets
|
|
|
343,000
|
|
|
|
266,000
|
|
Food/beverage
& spa inventory
|
|
|
80,000
|
|
|
|
89,000
|
|
Utility
deposits
|
|
|
75,000
|
|
|
|
76,000
|
|
Deferred
leasing costs
|
|
|
221,000
|
|
|
|
112,000
|
|
Total
other assets
|
|
$
|
889,000
|
|
|
$
|
728,000
|
|
12.
MORTGAGES AND NOTES PAYABLES
|
|
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
Collateralized by Investment Properties (Note
2)
|
|
|
|
|
|
|
Monty’s
restaurant, marina and retail rental space:
Mortgage
loan payable with interest 7.57% after taking
into
effect interest rate swap; principal and interest
payable
in equal monthly payments of approximately
$127,000
per month until maturity on 2/19/21. (a).
|
|
$
|
11,818,000
|
|
|
$
|
12,382,000
|
|
Grove
Isle hotel, private club, yacht slips and spa:
Mortgage
loan payable with interest at 2.5% plus the
one-month
LIBOR Rate (2.97% as of 12/31/08).
Monthly
payments of principal of $10,000 (plus accrued
i
nterest)
with all unpaid principal and interest payable at
maturity
on 9/29/10.
|
|
|
3,819,000
|
|
|
|
3,939,000
|
|
Other (unsecured) (Note 8):
|
|
|
|
|
|
|
|
|
Note
payable to affiliate:
Note
payable is to affiliate T.G.I.F., interest at prime
(3.25%
at 12/31/08) payable monthly. Principal
outstanding
is due on demand.
|
|
|
3,661,000
|
|
|
|
3,661,000
|
|
Totals
|
|
$
|
19,298,000
|
|
|
$
|
19,982,000
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The
loan is guaranteed by the Company as well as a personal guaranty from the
trustee of CFT. The loan includes certain covenants including debt
service coverage. The Company is in compliance with all debt covenants as
of December 31, 2008.
|
See
Note 6 for discussion of interest rate swap agreement related to this
loan.
A summary
of scheduled principal repayments or reductions for all types of notes and
mortgages payable is as follows:
Year ending December 31
,
|
|
Amount
|
|
2009
|
|
$
|
4,388,000
|
|
2010
|
|
|
4,362,000
|
|
2011
|
|
|
715,000
|
|
2012
|
|
|
768,000
|
|
2013
|
|
|
831,000
|
|
2014
and thereafter
|
|
|
8,234,000
|
|
Total
|
|
$
|
19,298,000
|
|
13. LEASE
COMMITMENTS
The
Company’s 50% owned subsidiary (Landing), as lessee, leases land and submerged
lands on which it operates the Monty’s property under a lease with the City of
Miami which expires on May 31, 2035. Under the lease, the Company
pays percentage rents ranging from 5% to 15% of gross revenues from various
components of the property’s operations. Total rent paid to the City
of Miami for the years ended December 31, 2008 and 2007 was approximately
$838,000 and $826,000, respectively.
14. INCOME
TAXES
The
Company (excluding CII) qualifies as a real estate investment trust and
distributes its taxable ordinary income to stockholders in conformity with
requirements of the Internal Revenue Code and is not required to report deferred
items due to its ability to distribute all taxable income. In addition, net
operating losses can be carried forward to reduce future taxable income but
cannot be carried back. Distributed capital gains on sales of real estate as
they relate to REIT activities are not subject to taxes; however, undistributed
capital gains may be subject to corporate tax.
The
Company’s 95%-owned subsidiary, CII, files a separate income tax return and its
operations are not included in the REIT’s income tax return.
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”. SFAS
No. 109 requires a Company to use the asset and liability method of
accounting for income taxes. Under this method, deferred income taxes are
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years to differences between
the financial statement carrying amounts and the tax bases of existing assets
and liabilities. Under SFAS No. 109, the effect on deferred income taxes of
a change in tax rates is recognized in income in the period that includes the
enactment date. Deferred taxes only pertain to CII. As a result of
timing differences associated with the carrying value of other investments and
depreciable assets and the future benefit of a net operating loss, the Company
has recorded a net deferred tax asset as of December 31, 2008 and 2007 of
$366,000 and
$233,000,
respectively. A valuation allowance against deferred tax asset has
not been established as it is more likely than not, based on the Company’s
previous history, that these assets will be realized.
As of
December 31, 2008 the Company (excluding CII) has an estimated net operating
loss carryover of approximately $2.7 million of which $881,000 expires in 2028,
$500,000 expires in 2027, $786,000 expires in 2026 and $571,000 in
2025.
As of
December 31, 2008 CII has estimated net operating loss carryover of
approximately $417,000 of which $12,000 expires in 2026, $13,000 expires in 2024
and $392,000 expires in 2022.
The
components of income before income taxes and the effect of adjustments to tax
computed at the federal statutory rate for the years ended December 31, 2008 and
2007 were as follows:
|
|
2008
|
|
|
2007
|
|
Loss
before income taxes
|
|
$
|
(1,747,000
|
)
|
|
$
|
(600,000
|
)
|
Computed
tax at federal statutory rate of 34%
|
|
$
|
(594,000
|
)
|
|
$
|
(204,000
|
)
|
State
taxes at 5.5%
|
|
|
(96,000
|
)
|
|
|
(33,000
|
)
|
REIT
related adjustments – current year
|
|
|
419,000
|
|
|
|
83,000
|
|
Unrealized
loss from marketable securities for book not tax
|
|
|
390,000
|
|
|
|
53,000
|
|
Investment
(gains) losses for book in excess of tax
|
|
|
(161,000
|
)
|
|
|
203,000
|
|
Recaptured
tax loss from investments
|
|
|
49,000
|
|
|
|
348,000
|
|
Utilization
of net operating loss carry forward
|
|
|
(14,000
|
)
|
|
|
(390,000
|
)
|
Other
items, net
|
|
|
(123,000
|
)
|
|
|
(217,000
|
)
|
Benefit
from income taxes
|
|
$
|
(130,000
|
)
|
|
$
|
(157,000
|
)
|
The REIT
related adjustments – current year represents the difference between estimated
taxes on undistributed income and/or capital gains and book taxes computed on
the REIT’s income before income taxes. In 2008 the Company incurred
recorded unrealized losses from investments in marketable securities which are
not deductible for tax purposes of approximately $990,000. The
estimated tax effect of these book losses in excess of tax losses was
$390,000. Also, in 2008 the Company redeemed certain of its
other investments and recorded a book gain in excess of estimated tax gain of
approximately $629,000. The estimated tax effect of these book gains in excess
of tax gains was approximately $161,000.
The
(benefit from) provision for income taxes in the consolidated statements of
comprehensive income consists of the following:
Year
ended December 31,
|
|
2008
|
|
|
2007
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
|
-
|
|
|
|
-
|
|
State
|
|
|
3,000
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(114,000
|
)
|
|
$
|
(141,000
|
)
|
State
|
|
|
(19,000
|
)
|
|
|
(16,000
|
)
|
|
|
|
(133,000
|
)
|
|
|
(157,000
|
)
|
Total
|
|
$
|
(130,000
|
)
|
|
$
|
(157,000
|
)
|
As of
December 31, 2008 and 2007, the components of the deferred tax assets and
liabilities are as follows:
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
|
Deferred
tax
|
|
|
Deferred
tax
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Net
operating loss carry forward
|
|
$
|
146,000
|
|
|
|
|
|
$
|
73,000
|
|
|
|
|
Excess
of book basis of 49% owned
corporation
over tax basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
717,000
|
|
|
|
|
|
|
|
702,000
|
|
Excess
of tax basis over book basis
of
investment
property
|
|
|
273,000
|
|
|
|
|
|
|
|
260,000
|
|
|
|
|
|
Unrealized
gain/loss on marketable securities
|
|
|
278,000
|
|
|
|
|
|
|
|
|
|
|
|
94,000
|
|
Excess
of tax basis over book basis of other
investments
|
|
|
488,000
|
|
|
|
102,000
|
|
|
|
758,000
|
|
|
|
62,000
|
|
Totals
|
|
$
|
1,185,000
|
|
|
$
|
819,000
|
|
|
$
|
1,091,000
|
|
|
$
|
858,000
|
|
15. STOCK-BASED
COMPENSATION
In
November 2000, the Company’s Board of Directors authorized the 2000 Stock Option
Plan, which was approved by the shareholders in June 2001. The Plan provides for
the grant of options to purchase up to 120,000 shares of the Company’s common
stock to the officers and directors of the Company. Under the 2000
Plan, options are vested immediately upon grant and may be exercised at any time
within ten years from the date of grant. Options are not transferable
and expire upon termination of employment, except to a limited extent in the
event of retirement,
disability
or death of the grantee. On June 25, 2001, options were granted to
all officers and directors to purchase an aggregate of 86,000 common shares at
no less than 100% of the fair market value at the date of grant.
The average exercise
price of the options granted in 2001 was $7.84 per share. The
Company’s stock price on the date of grant was $7.57 per share.
There
were no options granted, exercised or forfeited in 2008 and 2007.
A summary
of the status of the Company’s stock option plan as of December 31, 2008 and
2007, and changes during the years ending on those dates are presented
below:
|
|
As
of December 31, 2008
|
|
|
As
of December 31, 2007
|
|
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at beginning of year
|
|
|
102,100
|
|
|
$
|
8.83
|
|
|
|
102,100
|
|
|
$
|
8.83
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Forfeited
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of year
|
|
|
102,100
|
|
|
$
|
8.83
|
|
|
|
102,100
|
|
|
$
|
8.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
exercisable at year-end
|
|
|
102,100
|
|
|
$
|
8.83
|
|
|
|
102,100
|
|
|
$
|
8.83
|
|
Weighted
average fair value of
options
granted during the year
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
16. OPERATING
LEASES AS LESSOR
Lease of Grove Isle hotel
property
. In November 2008 the lessee of Grove Isle, Westgroup Grove Isle
Associates, Ltd., an affiliate of Noble House Resorts, Inc. (“NHR”) assigned its
leasehold interest to Grove Hotel Partners, LLC an affiliate of Grand Heritage
Hotel Group, LLC (“GH”). GH operates over a dozen independent hotels and resorts
across North America and Mexico. The Company approved the assignment of the
lease to GH which assumed all terms of the original lease with
NHR. The lease termination date remains November 30, 2016, if not
extended as provided in the lease. Base rent was $1,137,000 for the year ended
December 31, 2008 increases to $1,184,000 in 2009 after annual inflation
adjustment provided in the lease. The lease also calls for participation rent
consisting of a portion of operating surplus, as
defined. Participation rent when and if due is payable at end of each
lease year. There has been no participation rent since the inception of the
lease.
In
conjunction with the aforementioned lease assignment, NHR also assigned its 50%
interest in the Grove Isle Spa (“GS”) to GH which will manage the day to day
operations of the spa under the same management agreement as the Company
previously had with NHR. GS sub-leases the Grove Isle Spa property from GH under
a lease agreement which expires on November 30, 2016, with GS having the right
to extend the term for two additional consecutive 20 year
terms. Annual base rent of the sublease is $10,000, plus GS pays real
estate taxes, insurance, utilities and all other costs relating to operation of
the spa. GS began operations in the first quarter of 2005. The spa operates
under the name “Spa Terre at the Grove” and offers a variety of body treatments,
salon services, facial care and massage therapies.
Lease of Monty’s
property.
Bayshore, as landlord, leases various office and
dock space under non-cancelable operating leases that expire at various dates
through 2035. Annual minimum lease payments due from leases to
non-combined, third party tenants under non-cancelable operating leases are
included in the table below.
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. There was no percentage rent in
2008 and 2007.
These
leases are classified as operating leases and generally require the tenant to
pay all costs associated with the property. Minimum annual rentals on
non-cancelable leases in effect at December 31, 2008, are as
follows:
Year ending December 31
,
|
|
|
Amount
|
|
2009
|
|
|
$
|
2,032,000
|
|
2010
|
|
|
|
2,029,000
|
|
2011
|
|
|
|
1,866,000
|
|
2012
|
|
|
|
1,825,000
|
|
2013
|
|
|
|
1,840,000
|
|
Subsequent
years
|
|
|
|
8,253,000
|
|
|
Total
|
|
|
$
|
17,845,000
|
|
17. 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,
receivables and the Grove Isle spa operations which individually do not meet the
criteria as a reportable segment.
|
|
For
the years ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
Net Revenues:
|
|
|
|
|
|
|
Real
estate rentals
|
|
$
|
3,437,335
|
|
|
$
|
3,258,839
|
|
Food
and beverage sales
|
|
|
6,696,816
|
|
|
|
6,344,133
|
|
Spa revenues
|
|
|
799,011
|
|
|
|
740,890
|
|
Total
Net Revenues
|
|
$
|
10,933,162
|
|
|
$
|
10,343,862
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income before income taxes and sales of
property:
|
|
|
|
|
|
|
|
|
Real
estate and marina rentals
|
|
$
|
364,518
|
|
|
$
|
152,255
|
|
Food
and beverage sales
|
|
|
29,537
|
|
|
|
(95,453
|
)
|
Other
investments and related income
|
|
|
(2,141,126
|
)
|
|
|
(656,398
|
)
|
Total
loss before sales of properties and income taxes
|
|
$
|
(1,747,071
|
)
|
|
$
|
(599,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
For
the years ended December 31,
|
|
Identifiable Assets:
|
|
2008
|
|
|
2007
|
|
Real
estate rentals
|
|
$
|
17,748,637
|
|
|
$
|
15,894,385
|
|
Food
and beverage sales
|
|
|
957,182
|
|
|
|
1,014,080
|
|
Other
investments and related income
|
|
|
14,388,629
|
|
|
|
16,776,127
|
|
Total
Identifiable Assets
|
|
$
|
33,094,448
|
|
|
$
|
33,684,592
|
|
|
|
|
|
|
|
|
|
|
A
summary of changes in the Company’s goodwill
during
the years ended December 31, 2008 and 2007
is
as follows:
|
|
|
|
|
|
|
|
|
|
Summary of changes in
goodwill:
|
|
01/01/08
|
|
|
Acquisitions
|
|
|
12/31/08
|
|
Real
estate rentals
|
|
$
|
4,776,291
|
|
|
|
-
|
|
|
$
|
4,776,291
|
|
Food
& Beverage sales
|
|
|
2,952,336
|
|
|
|
-
|
|
|
|
2,952,336
|
|
Other
investments and related income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
goodwill
|
|
$
|
7,728,627
|
|
|
|
-
|
|
|
$
|
7,728,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
01/01/07
|
|
|
Acquisitions
|
|
|
12/31/07
|
|
Real
estate rentals
|
|
$
|
4,776,291
|
|
|
|
-
|
|
|
$
|
,776,291
|
|
Food
& Beverage sales
|
|
|
2,952,336
|
|
|
|
-
|
|
|
|
2,952,336
|
|
Other
investments and related income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
goodwill
|
|
$
|
7,728,627
|
|
|
|
-
|
|
|
$
|
7,728,627
|
|
Item
9. Changes in and Disagreements
with Accountants on
Accounting and Financial
Disclosure
.
None.
Item
9A. Controls and Procedures
.
(a)
|
Evaluation
of Disclosure Controls and Procedures. The Company’s 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
Form 10-K have concluded that, based on such evaluation, our disclosure
controls and procedures were effective 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, 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
was no change in our internal controls or in other factors that could
affect these controls during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
|
(c)
|
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Exchange Act Rule
13a-15(f). Our management conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in
Internal Conrol-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our
management concluded that our internal control over financial reporting
was effective as of December 31, 2008. This Annual Report on
Form 10-K does not include an attestation report of our independent
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by
our independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit us to provide
only management’s report in the Annual Report on Form
10-K.
|
Item
9B. Other Information
.
None.
Part
III.
Item
10. Directors, Executive Officers
and Corporate
Governance
.
Listed
below is certain information relating to the executive officers and directors of
the Company:
Name and Office
|
Age
|
Principal
Occupation and Employment other than With the
Company
During the Past Five
Years - Other
Directorships
|
|
|
|
Maurice
Wiener; Chairman of
the
Board of Directors and
Chief
Executive Officer
|
67
|
Chairman
of the Board and Chief Executive Officer of the Adviser;
Executive Trustee, Transco; Director, T.G.I.F. Texas,
Inc
|
|
|
|
Larry
Rothstein; Director,
President,
Treasurer and
Secretary
|
56
|
Director,
President and Secretary of the Adviser; Trustee and Vice President of
Transco; Vice President and Secretary, T.G.I.F. Texas,
Inc.
|
|
|
|
Carlos
Camarotti; Vice
President-Finance
and Assistant
Secretary
|
48
|
Vice
President - Finance and Assistant Secretary of the
Adviser;
|
|
|
|
Walter
Arader; Director
|
90
|
President,
Walter G. Arader and Associates (financial and management
consultants).
|
|
|
|
Harvey
Comita; Director
|
79
|
Business
Consultant; Trustee of Transco Realty Trust.
|
|
|
|
Clinton
Stuntebeck; Director
|
70
|
Attorney/Business and Investment
Consultant; P
artner Emeritus, Schnader Harrison Segal & Lewis,
LLP, Philadelphia,
PA.
|
All
executive officers of the Company were elected to their present positions to
serve until their successors are elected and qualified at the 2009 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. All directors and executive
officers have been in their present position for more than five
years.
Code of
Ethics.
The
Company has adopted a Code of Ethics that applies to directors and officers
including principal executive officer, principal financial officer, principal
accounting officer and controller and HMG Advisory Corp. and subsidiaries
(“HMGA”) and its employees in all instances in which HMGA is acting on behalf of
the Company. The Company will provide to any person without charge, upon written
request, a copy of the Code of Ethics including any amendments as well as any
waivers that are required to be disclosed by the rules of the SEC or the NYSE
Amex Stock Exchange.
Audit Committee and Audit
Committee Financial Expert.
The
Company has a separately designated standing Audit Committee established in
accordance with Section 3(a) (58) (A) of the Securities Exchange act of 1934, as
amended (the "Exchange
Act").
The members of the Audit Committee are Messrs. Arader and Comita. The Board of
Directors has determined that each of Messrs. Arader and Comita is (1) an "
audit committee financial expert," as that term is defined in Item 401(e) of
Regulation S-B of the Exchange Act, and (2) independent as defined by the
listing standards of the NYSE Amex Stock Exchange and Section 10A(m)(3) of the
Exchange Act.
Item 11.
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 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
for information concerning fees paid to the Adviser.
Compensation
of Directors
. The following table summarizes
director’s compensation for the year ended December 31, 2008:
Director
|
|
Annual
Fee
|
|
|
Board
Meeting
Fee
|
|
|
Committee
Meeting
Fee
|
|
|
Total
Compensation
|
|
Maurice
Wiener
|
|
$
|
17,000
|
|
|
$
|
2,250
|
|
|
|
-
|
|
|
$
|
19,250
|
|
Larry
Rothstein
|
|
|
17,000
|
|
|
|
2,250
|
|
|
|
5,250
|
|
|
$
|
24,500
|
|
Walter
Arader
|
|
|
12,000
|
|
|
|
1,500
|
|
|
|
4,500
|
|
|
$
|
18,000
|
|
Harvey
Comita
|
|
|
12,000
|
|
|
|
2,250
|
|
|
|
5,250
|
|
|
$
|
19,500
|
|
Clinton
Stuntebeck
|
|
|
12,000
|
|
|
|
2,250
|
|
|
|
5,250
|
|
|
$
|
19,500
|
|
Totals
|
|
$
|
70,000
|
|
|
$
|
10,500
|
|
|
$
|
20,250
|
|
|
$
|
100,750
|
|
Annual
director's fees are paid at the beginning of each quarter and board and
committee meeting fees are paid for each meeting a director
attends. Effective April 1, 2007, the annual fee for outside
directors was increased from $8,000 per year to $12,000 per year and all meeting
fees were increased from $500 per meeting to $750 per meeting.
Outstanding Equity Awards to
Executive Officers.
The
following table summarizes all outstanding equity awards to the Company’s
executive officers as of December 31, 2008. These options are all
exercisable and there are no unearned options outstanding.
Executive
Officer
|
Number
of Options
|
Exercise
Price
|
Expiration
Date
|
Maurice
Wiener
|
28,500
|
$8.33
per share
|
June
25, 2011
|
Maurice
Wiener
|
12,000
|
$12.25
per share
|
June
25, 2011
|
Larry
Rothstein
|
24,900
|
$7.57
per share
|
June
25, 2011
|
Larry
Rothstein
|
5,000
|
$12.10
per share
|
June
25, 2011
|
Stock
Options
. In November 2000, the Company’s Board of Directors
authorized the 2000 Stock Option Plan (the “Plan”), which was approved by the
shareholders in June 2001. The Plan, which permits the grant of qualified and
non-qualified options expires in 2010, and 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.
On June
25, 2001, options were granted to all officers and directors to purchase an
aggregate of 86,000 common shares at no less than 100% of the fair market value
at the date of grant.
The average exercise
price of the options granted in 2001 is $7.84 per share. The
Company’s stock price on the date of grant was $7.57 per share.
There
were no options granted, exercised or forfeited in 2008 and 2007.
Item
12. Security Ownership of Certain
Beneficial Owners and
Management and Related Stockholder Matters
.
Set forth
below is certain information concerning common stock ownership by directors,
executive officers, directors and officers as a group, and holders of more than
5% of the outstanding common stock.
Shares Held as of
March 20, 2009
|
Name
(
7), (8)
|
Shares
Owned by Named Persons & Members
of His
Family
(1)
|
Additional
Shares in Which the named Person Has, or Participates in,
the Voting or
Investment Power
(2)
|
Total
Shares &
Percent of Class
|
|
Maurice
Wiener
|
51,100
|
(4)
|
|
541,830
|
(3),
(5)
|
592,930
|
53%
|
|
Lawrence
Rothstein
|
47,900
|
(4)
|
|
541,830
|
(3)
|
589,730
|
52%
|
|
Walter
G. Arader
|
15,400
|
(4)
|
|
|
|
15,400
|
1%
|
|
Harvey
Comita
|
10,000
|
(4)
|
|
477,300
|
(6)
|
487,300
|
43%
|
|
Clinton
Stuntebeck
|
5,000
|
(4)
|
|
|
|
5,000
|
*
|
|
All
Directors and Officers as a Group
|
156,000
|
(4)
|
|
541,830
|
(3)
|
697,830
|
62%
|
|
Emanuel
Metz
CIBC
Oppenheimer Corp.
One
World Financial Center 200 Liberty Street
New
York, NY 10281
|
59,500
|
|
|
|
|
59,500
|
5%
|
|
Transco
Realty Trust
1870
S. Bayshore Drive
Coconut
Grove, FL 33133
|
477,300
|
(5)
|
|
|
|
477,300
|
42%
|
|
* 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), HMG Advisory Corp. (54,530 shares) and T.G.I.F. Texas, Inc.
(10,000 shares). 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 2000 Stock Option
Plan. These options have been granted to Mr. Wiener, 40,500;
Mr. Rothstein, 29,900; 5,000 each to Mr. Arader, Mr. Comita and Mr.
Stuntebeck; and 16,700 to two officers. Reference is made to
Item
11. Executive Compensation
for further information about
the 2000 Stock Option Plan.
|
(5)
|
Mr.
Wiener holds approximately 34% and 57% of the stock of Transco and HMG
Advisory Corp., respectively, and may therefore be deemed to be the
beneficial owner of the shares of the Company held by Transco and HMG
Advisory Corp.
|
(6)
|
This
number represents the number of shares held by Transco Realty Trust, of
which, Mr. Comita is a Trustee.
|
|
|
(7)
|
Except
as otherwise set forth, the address for theses individuals is 1870 South
Bayshore Drive, Coconut Grove, Florida 33133.
|
|
|
(8)
|
No
shares of stock of the executive officers and directors have been pledged
as collateral.
|
Item 13.
Certain Relationships
and Related Transactions and Director
Independence.
The following discussion describes the
organizational structure of the Company’s subsidiaries and
affiliates.
Transco Realty Trust
(“Transco”)
.
Transco
is a 47% shareholder of the Company of which Mr. Wiener is its executive trustee
and holds 34% of its stock.
HMG Advisory Corp. (the
“Adviser”) and subsidiaries
.
The
day-to-day operations of the Company are handled by the Adviser, as described
above under
Item 1.
Business
"Advisory Agreement." The Adviser is majority owned
by Mr. Wiener, its Chairman and CEO.
In
November 2007 Courtland Group, Inc (“CGI”) (the former Adviser) was merged into
a newly formed and wholly owned subsidiary of the Adviser (HMG Advisory Newco
Inc.). Amounts previously due from CGI are now due from HMG Advisory
Newco, Inc. and there is no impact to the Company as a result of this
merger.
In August
2004 the HMG Advisory Bayshore, Inc. (“HMGABS”) (a wholly owned subsidiary of
the Adviser) was formed for the purposes of overseeing the Monty’s restaurant
operations acquired in August 2004. HMGABS will receive a management
fee of $25,000 per year from Bayshore Rawbar, LLC. For each of the
years ended December 31, 2008 and 2007, HMGABS earned $25,000 in management
fees. HMGABS is owed approximately $108,000 from Bayshore Rawbar, LLC
for such fees as of December 31, 2008.
Reference
is made to
Item 1.
Business
and
Item 1. Business
and
Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
for further information about the remuneration of the Adviser.
Courtland Investments, Inc.
(“CII”).
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 the Company’s 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, Grove Isle Marina, Inc., CII Spa, LLC, Courtland Bayshore
Rawbar, LLC and it also owns 15% of Grove Isle Associates, Ltd., (the Company
owns the other 85%).
T.G.I.F. Texas, Inc.
(“T.G.I.F.”).
CII owns
approximately 49% of the outstanding shares of T.G.I.F. Mr.
Wiener is a director and chairman of T.G.I.F. and owns, directly and indirectly,
approximately 18% of the outstanding shares of T.G.I.F. T.G.I.F also
owns 10,000 shares of the Company’s stock.
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
Adviser
.
As of
December 31, 2008 and 2007 the Adviser owed the Company (net of amounts due to
HMGABS described above) approximately $288,000 and $317,000,
respectively. Amounts due from the Adviser bear interest at the prime
rate plus 1% payable monthly, with principal due on demand. In
December 2007 the Advisor made a principal payment of $40,000 on amounts due to
the Company.
In
November 2007 Courtland Group, Inc (“CGI”) (the former Adviser) was merged into
a newly formed and wholly owned subsidiary of the Adviser (HMG Advisory Newco
Inc.). This was done for administrative purposes as the owners of the
Adviser and CGI were essentially the same individuals. Amounts
previously due from CGI are now due from HMG Advisory Newco, Inc. and there is
no impact to the Company as a result of this merger.
The
Adviser leases its executive offices from CII pursuant to a lease
agreement. This lease agreement is at the going market rate for
similar property and calls for base rent of $48,000 per year payable in equal
monthly installments. Additionally, the Adviser is responsible for
all utilities, maintenance, and security expenses relating to the leased
premises. The lease term is five years expiring in November
2009.
In August
2004 the HMG Advisory Bayshore, Inc. (“HMGABS”) (a wholly owned subsidiary of
the Adviser) was formed for the purposes of overseeing the Monty’s restaurant
operations acquired in August 2004. HMGABS will receive a management
fee of $25,000 per year from Bayshore Rawbar, LLC. For the years
ended December 31, 2008 and 2007, HMGBS earned approximately $25,000 in such
management fees.
South Bayshore Associates
(“SBA”).
SBA is a
joint venture in which Transco and the Company hold interests of 25% and 75%,
respectively. The sole major asset of SBA is a demand note from
Transco, bearing interest at the prime rate, with an outstanding balance of
approximately $300,000 in principal and interest as of December 31, 2008 and
2007.
The
Company also holds a demand note from SBA bearing interest at the prime rate
plus 1% with an outstanding balance as of December 31, 2008 and 2007 of
approximately $1,106,000 and $1,081,000, in principal and accrued interest,
respectively. Interest payments of $15,000 and $24,000 were made in 2008 and
2007, respectively. Accrued and unpaid interest is not added to the
principal. Because the Company consolidates SBA, the note payable and
related interest income is eliminated in consolidation.
CII.
The
Company holds a demand note due from its 95%-owned consolidated subsidiary, CII,
bearing interest at the prime rate plus 1% with an outstanding balance of
$2,563,000 and $3,975,000 as of December 31, 2008 and 2007,
respectively. During 2008 there was $210,000 in advances from the
Company to CII. During 2007 there were no advances from the Company to
CII. Repayments from CII to the Company during 2008 and 2007 were
$1.6 million and $1.2 million, respectively. Because CII is a
consolidated subsidiary of the Company, the note payable and related interest is
eliminated in consolidation.
In 1986,
CII acquired from the Company the rights to develop the marina at Grove Isle for
a promissory note of $620,000 payable at an annual rate equal to the prime
rate. The principal is due on demand. Interest payments
are due annually in January. Because the Company consolidates CII,
the note payable and related interest income is eliminated in
consolidation.
In April
2007 Courtland Houston, Inc. (“CHI”) was formed. CHI is 80%-owned by
CII and 20% owned by Bernard Lerner, its sole employee. CHI was
formed with a $140,000 investment by CII and engages in commercial leasing
activities in Texas and earns commission revenue. Mr. Lerner is a
cousin of the Company’s Chairman and CEO Mr. Maurice Wiener. For the years ended
December 31, 2008 and 2007 Mr. Lerner was paid a salary of
$85,000. For the years ended December 31, 2008 and 2007 CHI earned
commission revenue of approximately $168,000 and $17,000,
respectively.
CII Spa,
LLC.
As more
fully discussed in
Item 2.Description of
Property,
in September 2004 the Company entered into an agreement with
the lessee and operator of the Grove Isle property to develop and operate the
Grove Isle Spa. A subsidiary of the Company, CII Spa, LLC (“CIISPA”)
and the lessee formed a Delaware limited liability company, Grove Spa, LLC
(“GS”) which is owned 50% by CIISPA and 50% by the lessee. Construction of Grove
Isle Spa was completed in the first quarter of 2005 and operations commenced in
March 2005. GS sub-leases the Grove Isle Spa property from the
lessee. The initial term of the sublease commenced on September 15,
2004 and ends on November 30, 2016, with the GS having the right to extend the
term for two additional consecutive 20 year terms on the same terms as the
original sublease. Annual base rent of the sublease is $10,000, plus
GS shall pay real estate taxes, insurance, utilities and all other costs
relating to Grove Isle Spa.
T.G.I.F.
As of
December 31, 2008 and 2007, CII owed approximately $3,661,000 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%. All
interest due has been paid. As of December 31, 2008 and 2007,
T.G.I.F. had amounts due from Mr. Wiener of approximately
$707,000. These amounts are due on demand and bear interest at the
prime rate. All interest due has been paid. Mr. Wiener
received consulting and director’s fees from T.G.I.F of approximately $37,000
and $52,000 for the years ended December 31, 2008 and 2007, respectively. Also,
T.G.I.F. owns 10,000 shares of the Company which were purchased in 1996 at the
market value. In December 2008 and 2007 T.G.I.F. declared and paid a
cash dividend of $.08 and $.05 per share, respectively. CII’s portion
of the dividends was approximately $224,000 and $140,000,
respectively.
Item 14.
Principal Accountants Fees and Services
.
The
following table sets forth fees billed to the Company by the Company's
independent auditors for the year ended December 31, 2008 and December 31, 2007
for (i) services rendered for the audit of the Company's annual financial
statements and the review of the Company's quarterly financial statements, (ii)
services rendered that are reasonably related to the performance of the audit or
review of the Company's financial statements that are not reported as Audit
Fees, and (iii) services rendered in connection with tax preparation,
compliance, advice and assistance. The Audit Committee pre-approved
all services rendered by the Company’s independent auditors.
Principal
Accountant Fees and Services
For
the fiscal year ended
|
|
December
31, 2008
|
|
|
December
31, 2007
|
|
Audit
fees including quarterly reviews
|
|
$
|
101,000
|
|
|
$
|
103,000
|
|
Tax
return preparation fees
|
|
|
22,000
|
|
|
|
26,000
|
|
Total
Fees
|
|
$
|
123,000
|
|
|
$
|
129,000
|
|
Part
IV.
Item 15.
Exhibits and Financial Statement Schedules
.
(a) Exhibits
listed in the Index to Exhibits.
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
20, 2009
|
|
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
20, 2009
|
Maurice
Wiener
|
|
|
Chairman
of the Board
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
/s/Larry
Rothstein
|
|
March
20, 2009
|
Larry
Rothstein
|
|
|
Director,
President, Treasurer and Secretary
|
|
|
Principal
Financial Officer
|
|
|
|
|
|
/s/Walter
G. Arader
|
|
March
20, 2009
|
Walter
G. Arader, Director
|
|
|
|
|
|
|
|
|
/s/Harvey
Comita
|
|
March
20, 2009
|
Harvey
Comita, Director
|
|
|
|
|
|
|
|
|
/s/Clinton
Stuntebeck
|
|
March
20, 2009
|
Clinton
Stuntebeck, Director
|
|
|
|
|
|
|
|
|
/s/Carlos
Camarotti
|
|
March
20, 2009
|
Carlos
Camarotti
|
|
|
Vice
President - Finance and Controller
|
|
|
Principal
Accounting Officer
|
|
|
EXHIBIT INDEX
|
|
Description
|
|
|
(3)
|
(a)
|
Amended
and Restated Certificate of Incorporation
|
|
Incorporated
by reference to Annex A of the May 29, 2001 Proxy
Statement.
|
|
|
|
|
|
|
(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)
|
Amended
and restated lease agreement between Grove Isle Associates, Ltd. and
Westgroup Grove Isle Associates, Ltd. dated November 19,
1996.
|
|
Incorporated
by reference to Exhibit 10(d) to the 1996 Form 10-KSB
|
|
|
|
|
|
|
(b)
|
Master
agreement between Grove Isle Associates, Ltd. Grove Isle Clubs Inc., Grove
Isle Investments, Inc. and Westbrook Grove Isle Associates, Ltd. dated
November 19, 1996.
|
|
Incorporated
by reference to Exhibit 10(e) to the 1996 Form 10-KSB
|
|
|
|
|
|
|
(c)
|
Agreement
Re: Lease Termination between Grove Isle Associates, Ltd. and Grove Isle
Club, Inc. dated November 19, 1996.
|
|
Incorporated
by reference to Exhibit 10(f) to the 1996 Form 10-KSB
|
|
|
|
|
|
|
(d)
|
Amended
and restated agreement between NAF Associates and the Company, dated
August 31, 1999.
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Incorporated
by reference to Exhibit 10(f) to the 1999 Form 10-KSB
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(e)
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Amendment
to Amended and restated lease agreement between Grove Isle Associates,
Ltd. and Westgroup Grove Isle Associates, Ltd. dated December 1,
1999.
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Incorporated
by reference to Exhibit 10(g) to the 1999 Form 10-KSB
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(f)
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Lease
agreement between Courtland Investments, Inc. and HMG Advisory Corp. dated
December 1, 1999.
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Incorporated
by reference to Exhibit 10(h) to the 1999 Form 10-KSB
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(g)
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2000
Incentive Stock Option Plan of HMG/ Courtland Properties,
Inc.
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Incorporated
by reference to Exhibit 10(h) to the 2001 Form 10-KSB
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(h)
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Amended
and Restated Advisory Agreement between the Company and HMG Advisory Corp.
effective January 1, 2003.
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Incorporated
by reference to Exhibit 10(i) and 10(j) to the 2002 Form
10-KSB
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(i)
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Second
Amendment to Amended and restated lease agreement included herein between
Grove Isle Associated, Ltd. and Westgroup Grove Isle Associates, Ltd.
dated September 15, 2004
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Incorporated
by reference to Exhibit 10(i) to the 2004 Form 10-KSB
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(j)
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Operating
Agreement of Grove Spa, LLC dated September 15, 2004
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Incorporated
by reference to Exhibit 10(j) to the 2004 Form 10-KSB
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(k)
|
Sublease
between Westgroup Grove Isle Associates, Ltd. and Grove Spa, LLC dated
September 15, 2004
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Incorporated
by reference to Exhibit 10(k) to the 2004 Form 10-KSB Included
herein.
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(l)
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Purchase
and Sale Agreement (“Acquisition of Monty’s”) between Bayshore Restaurant
Management Corp. and Bayshore Landing, LLC dated August 20,
2004
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|
Incorporated
by reference to Exhibit 10(l) to the 2004 Form 10-KSB
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(m)
|
Ground
Lease between City of Miami and Bayshore Landing, LLC dated August 20,
2004 and related document
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|
Incorporated
by reference to Exhibit 10(m) to the 2004 Form 10-KSB
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(n)
|
Loan
Agreement between Wachovia Bank and Bayshore Landing, LLC dated August 20,
2004
|
|
Incorporated
by reference to Exhibit 10(n) to the 2004 Form 10-KSB
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(o)
|
Operating
Agreement of Bayshore Landing, LLC dated August 19, 2004
|
|
Incorporated
by reference to Exhibit 10(o) to the 2004 Form 10-KSB
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(p)
|
Management
Agreement for Bayshore Rawbar , LLC executed by RMI, LLC
|
|
Incorporated
by reference to Exhibit 10(p) to the 2004 Form 10-KSB
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(q)
|
Management
Agreement for Bayshore Rawbar, LLC executed by HMG Advisory Bayshore,
Inc.
|
|
Incorporated
by reference to Exhibit 10(q) to the 2004 Form 10-KSB
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(r)
|
Management
and Leasing Agreement for Bayshore Landing, LLC executed by RCI Bayshore,
Inc.
|
|
Incorporated
by reference to Exhibit 10(r) to the 2004 Form 10-KSB
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(14)
|
|
Code
of Ethics for Chief Executive Officer and Senior Financial Officers dated
May 2003
|
|
Incorporated
by reference to Exhibit 14 to the 2004 Form 10-KSB
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(21)
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(31)
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72
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