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, 2014
o
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 |
(I.R.S.
Employer |
incorporation
or organization) |
Identification
Number) |
|
|
1870
S. Bayshore Drive, Coconut Grove (Miami), Florida |
33133 |
(Address
of principal executive offices) |
(Zip
Code) |
Issuer’s
telephone number, including area code: (305) 854-6803
Securities
registered pursuant to Section 12(b) of the Act:
|
|
|
Name
of each exchange |
Title
of class |
on
which registered: |
Common
Stock - Par value $1.00 per share |
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 o
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 o
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 o
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 (Section 232.05) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
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 o Accelerated
filer o
Non-accelerated
filer o 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 o
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 NYSE Amex Exchange on the last business day of the Registrant’s most recently completed second fiscal quarter (June
30, 2014) was $5,681,984. The number of shares outstanding of the issuer’s common stock, $1 par value as of the latest practicable
date: 1,042,553 shares of common stock, $1 par value, as of March 23, 2015.
TABLE
OF CONTENTS
Part
I.
Cautionary
Statement.
An
investment in our common stock involves a high degree of risk. These risks should be considered carefully with the uncertainties
described below, and all other information included in this Annual Report on Form 10-K, before deciding whether to purchase our
common stock. Additional risks and uncertainties not currently known to management or that management currently deems immaterial
may also become important factors that may harm our business, financial condition or results or operations. The trading price
of our common stock could decline due to any of these risks and uncertainties and you may lose part or all of your investment.
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 it 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. One of the qualifications
the Company must satisfy in order to be considered a REIT is the asset tests relating to the nature and diversification of its
assets determined in accordance with generally accepted accounting principles. The asset tests must be satisfied within
30 days after the close of each quarter of the REIT’s taxable year. The key asset test requires that at least 75% of the
value of the REIT’s total assets must be represented by real estate assets, cash, cash items (including receivables arising
in the ordinary course of operation), government securities and qualified temporary investments. During the fourth quarter of
2014 the Company discovered that it fell short of meeting the 75% asset test. However, a REIT is deemed to have satisfied
the asset test, if management has taken steps outlined under the safe harbor provisions of section 856(c)(7) of the Internal
Revenue Code to correct the failure within the time period provided under the safe harbor rules. Under such rules the REIT must
1) pay a tax equal to the 35% maximum corporate rate on the income from the assets that caused the failure or $50,000 (the excise
tax), whichever is greater, 2) disclose the discrepancy and corrections on a disclosure schedule in its 2014 tax return, and
3) dispose of any asset that caused the REIT to fail the test within six months after the last day of the quarter in which the
discrepancy was discovered or otherwise meet the test within the same six month time period. In addition, management must have
reasonable cause for not satisfying the test. Management is taking these steps and intends to include the disclosure statement
in the tax return for the REIT, which it will file by September 15, 2015. In addition, the $50,000 excise tax has been accrued
as of December 31, 2014 and paid to the IRS as of March 15, 2015. Management believes it has reasonable cause for failing the
test, and expects to meet the 75% asset test as of June 30, 2015. As such, the Company fully anticipates that it will still qualify
as a REIT for 2014 and beyond and thus will not be subject to federal income taxation.
As previously
reported, in September 2014, the Company, through a newly-formed wholly owned subsidiary (HMG Orlando LLC, a Delaware limited
liability company), acquired a one-third equity membership interest in JY-TV Associates, LLC a Florida limited liability company
(“JY-TV”) and entered into the Amended and Restated Operating Agreement of JY-TV (the “Agreement”). JY-TV
was formed in 2014 for the sole purpose of purchasing and constructing up to two hundred fifty (250) unit rental apartments on
approximately 9.5 acres in Orlando, Florida. The other two initial members of JY-TV are not related to the Company. As provided
in the Agreement, the three members have each committed to fund approximately $1.8 million in equity in this project.
As of December
31, 2014 the Company has funded $250,000 towards this commitment, and has funded another $1.185 million to date in 2015. In February
2015 JY-TV completed purchase of the 9.5 acres for approximately $3.4 million. JY-TV is in the process of obtaining construction
financing of approximately $27 million and construction is expected to commence in 2015. This investment is accounted for under
the equity method.
The Company
invests its idle cash in marketable securities and acquires real estate and other investments utilizing available cash or borrowing
funds.
As previously
reported, in April 2014, the Company purchased approximately $3.5 million of preferred equity of large capital real estate investment
trusts (REITS); consisting of approximately 20 preferred stock positions with no one position exceeding $400,000 in value as of
December 31, 2014. And in March 2014, the Company purchased approximately $3.5 million of marketable securities consisting of
approximately 50 common stock positions in large capital REITS. No one stock position of this purchase exceeds $400,000 in value
as of December 31, 2014.
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 3 of the Notes to Consolidated Financial Statements.
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.
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 4 of the Notes to Consolidated Financial Statements.
Reference
is made to Item 13. Certain Relationships and Related Transactions and Director Independence 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 was
incorporated in Texas and operates solely from the Company’s corporate office in Miami, Florida. The Company’s CEO,
Maurice Wiener, is also the CEO of TGIF. Its assets consist primarily of promissory notes receivable from its shareholders including
CII and Mr. Wiener and other investments including marketable debt and equity securities. This investment’s carrying value
as of December 31, 2014 and 2013 was approximately $2.2 and $2.4 million, respectively. CII’s note payable to TGIF which
is due on demand was approximately $2.1 million and $2.5 million as of December 31, 2014 and 2013, respectively. Reference is
made to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
We
are not aware of any federal, state or local environmental laws or regulations that will materially affect our earnings or competitive
position or result in material capital expenditures. However, we cannot predict the effect of possible future environmental legislation
or regulations on our operations.
Competition
and the Company’s Market
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.
Employees.
The
Company’s management is provided in accordance with its Advisory Agreement (the “Agreement”) with the HMGA,
Inc. (“the Adviser”), as described below under “Terms of the Agreement”. Reference is also made to Item
13. Certain Relationships and Related Transactions, and Director Independence.
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
September 18, 2014, the shareholders approved the renewal and amendment of the Advisory Agreement between the Company and the
Adviser for a term commencing January 1, 2015 and expiring December 31, 2015.
The
Adviser is majority owned by Mr. Wiener. The officers and directors of the Adviser are as follows: Maurice Wiener, Chairman of
the Board, Chief Executive officer and President and Carlos Camarotti, Vice President - Finance and Assistant Secretary.
Advisory
Fees. For the years ended December 31, 2014 and 2013, the Company and its subsidiaries incurred Adviser fees of approximately
$714,000 and $3,116,000, respectively, of which $660,000 and $1,020,000 represented regular compensation for 2014 and 2013, respectively.
In 2014 and 2013 Advisor fees include $54,000 and $2,096,000 in incentive fee compensation, respectively.
Item
2. Description of Property.
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’s subsidiary CII and leased to the Adviser
pursuant to a lease agreement originally dated December 1, 1999. In December 2014 the lease was renewed for one year with two
one year extensions. The lease provides for base rent of $48,000 per year payable in equal monthly installments during the term
of the lease which expires on December 1, 2015, before extension options. 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.
Grove Isle
Associates, LLLP was a co-defendant in two lawsuits in the circuit court in Miami Dade County Florida. These cases arose from
claims by a condominium association and resident seeking a declaratory judgment regarding certain provisions of the declaration
of condominium relating to the Grove Isle Club and the developer. The claim by the association had been dismissed as to all counts
related to the Company; however the association filed an appeal. In March 2014, the appellate court ruled on the appeal reversing
the lower court’s dismissal. Pursuant to an agreement dated February 25, 2013 in which the company sold its interests
in Grove Isle Associates, LLLP the company will continue to defend the lawsuit and will indemnify the purchaser for any related
judgment. The ultimate outcome of this litigation cannot presently be determined. However, in management’s opinion the likelihood
of a material adverse outcome is remote. Accordingly, adjustments, if any that might result from the resolution of this matter
have not been reflected in the consolidated financial statements.
Item
4. Mine Safety Disclosures.
Not
applicable to the Company.
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, 2014 | |
$ | 18.75 | | |
$ | 16.48 | |
June 30, 2014 | |
$ | 17.17 | | |
$ | 14.00 | |
September 30, 2014 | |
$ | 16.15 | | |
$ | 13.02 | |
December 31, 2014 | |
$ | 16.50 | | |
$ | 11.00 | |
| |
| | | |
| | |
March 31, 2013 | |
$ | 20.74 | | |
$ | 4.97 | |
June 30, 2013 | |
$ | 20.20 | | |
$ | 16.61 | |
September 30, 2013 | |
$ | 20.58 | | |
$ | 17.80 | |
December 31, 2013 | |
$ | 23.80 | | |
$ | 15.00 | |
On
December 19, 2014 the Company declared a return of capital dividend of $.50 per share which was paid on January 7, 2015 to all
shareholders of record as of December 29, 2014.
On
October 21, 2013 the Company declared a capital gains dividend of $4.00 per share which was paid on November 8, 2013 to all shareholders
of record as of November 1, 2013.
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, 2015, there were 327 shareholders of record of the Company’s common stock.
The
following table illustrates securities authorized for issuance under the Company’s equity compensation plan, the 2011 Stock
Option Plan:
| |
| | |
| | |
| |
| |
Number of securities | | |
| | |
| |
| |
to be issued upon | | |
Weighted-average | | |
Number of securities remaining | |
| |
exercise of | | |
exercise price of | | |
available for future issuance under | |
| |
outstanding options | | |
outstanding options | | |
equity compensation plans | |
Equity compensation plan approved by shareholders | |
| 17,700 | | |
$ | 18.35 | | |
| 17,900 | |
Equity compensation plan not approved by shareholders | |
| — | | |
| — | | |
| — | |
Total | |
| 17,700 | | |
$ | 18.35 | | |
| 17,900 | |
The
following table summarizes stock option activity during the year ended December 31, 2014:
| |
| | |
| |
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Options | | |
Exercise | |
| |
Outstanding | | |
Price | |
Outstanding at January 1, 2014 | |
| 22,700 | | |
$ | 15.37 | |
Granted | |
| — | | |
$ | — | |
Exercised | |
| (5,000 | ) | |
$ | 4.80 | |
Outstanding at December 31, 2014 | |
| 17,700 | | |
$ | 18.35 | |
The
following table summarizes stock option activity during the year ended December 31, 2013:
| |
| | |
| |
| |
| | |
Weighted | |
| |
| | |
Average | |
| |
Options | | |
Exercise | |
| |
Outstanding | | |
Price | |
Outstanding at January 1, 2013 | |
| 102,100 | | |
$ | 4.99 | |
Granted | |
| 17,700 | | |
$ | 18.35 | |
Exercised | |
| (97,100 | ) | |
$ | 5.00 | |
Outstanding at December 31, 2013 | |
| 22,700 | | |
$ | 15.37 | |
The intrinsic
value of options exercised during the years ended December 31, 2014 and 2013 was approximately $39,000 and $1.3 million, respectively.
The
following table summarizes information concerning outstanding and exercisable options as of December 31, 2014:
| | |
| |
Number Outstanding | | |
Weighted Average | |
and exercisable | | |
Strike Prices | |
| 9,500 | | |
$ | 17.84 | |
| 7,500 | | |
$ | 18.89 | |
| 700 | | |
$ | 19.50 | |
| 17,700 | | |
$ | 18.35 | |
As
of December 31, 2014 stock options outstanding and exercisable had no intrinsic value.
The following
table presents information regarding the shares of our common stock we purchased during each of the twelve calendar months ended
December 31, 2014:
Period | | |
Total Number of Shares Purchased | | |
Average Price Paid per Share | | |
Total Number of Shares Purchased as Part of Publicly Announced Plan (1) | | |
Maximum Dollar Value of Shares That May Yet Be Purchased
Under
the Plan (1) | |
| Jan. 1 –31 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| Feb. 1 –28 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| March 1 –31 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| April 1 –30 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| May 1 –31 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| June 1 –30 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| July 1 –31 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| Aug 1 –31 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| Sept. 1 –30 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| Oct. 1 –31 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| Nov. 1 –30 2014 | | |
| — | | |
| — | | |
| — | | |
$ | 168,900 | |
| Dec. 1 –31 2014 | | |
| 800 | | |
$ | 11.72 | | |
| — | | |
$ | 490,623 | |
| | | |
| | | |
| | | |
| | | |
| | |
1. |
We
have one current program to repurchase outstanding shares of our common stock from time
to time in the open market at prevailing market prices or in privately negotiated transactions.
This program was approved by our Board of Directors and announced in November 2012 (the
“2012 Program”) and expires on December 31, 2015. As previously reported,
on December 19, 2014, HMG’s Board of Directors authorized to increase the purchase
limit under the 2012 Program up to a limit of $500,000 (from $300,000) of HMG common
stock.
As
of December 31, 2014 the maximum dollar value of shares that may yet be purchased under the program is $490,623. During
the year ended December 31, 2014, there were 800 shares purchased as part of this publicly announced program, as revised
|
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.
The
preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United
States of America requires us to make estimates and assumptions in applying our critical accounting policies that affect the reported
amounts of assets and liabilities and the disclosure (if any) of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the reporting period. Our estimates and assumptions
concern, among things, potential impairment of our other investments and other long-lived assets, uncertainties for Federal and
state income tax and allowance for potential doubtful accounts. We evaluate those estimates and assumptions on an ongoing basis
based on historical experience and on various other factors which we believe are reasonable under the circumstances. Note 1 of
the consolidated financial statements, included elsewhere on this 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
consolidated 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 Statements 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, that may indicate the investment has suffered an other-than-temporary decline
in value including. These events include but are not limited to bankruptcies, closures and declines in estimated fair 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.
We
believe 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 the shorter of their estimated useful lives, or the remaining lease term (if leased).
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
shorter of the term of the related leases or the assets useful life.
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, 2014 and 2013, the Company reported net income attributable to the Company of approximately $233,000
($.22 per share) and $15.2 million ($15.11 per basic share and $15.08 per diluted share), respectively. The decrease in net income
was primarily the result of non-recurring income from discontinued operations of approximately $16.3 million (or $16.25 per share)
relating to the gain on sales of the Grove Isle and Monty’s property in the first quarter of 2013.
Revenues:
Total
revenues for the years ended December 31, 2014 and 2013 were approximately $77,000 and $64,000, respectively and is primarily
comprised of rental revenue from corporate office.
Expenses:
Total
expenses for the year ended December 31, 2014 as compared to that of 2013 decreased by approximately $337,000 (or 19%). This decrease
was primarily due to decrease advisory fee expense and general and administrative expenses partially offset by increases in professional
fees, as described below.
The
Adviser’s base fee expense for the year ended December 31, 2014 as compared to 2013 decreased by $360,000 (or 35%) due to
the reduction of the monthly base fee from $85,000 to $55,000 per month effective January 1, 2014, as previously reported.
General
and administrative expenses for the year ended December 31, 2014 as compared to 2013 decreased by $53,000 (or 16%) primarily due
decreased expenses relating to Courtland Houston Inc. which was dissolved effective December 31, 2013.
Professional
fees and expenses increased by approximately $106,000 (or 61%) for the year ended December 31, 2014 as compared to 2013. This
was primarily due to increased tax return preparation and consulting fees of approximately $54,000, and increased legal fees of
approximately $52,000.
Other
Income:
Net
realized and unrealized gain (loss) from investments in marketable securities:
Net
gain (loss) from investments in marketable securities, including marketable securities distributed by partnerships in which the
Company owns minority positions, for the years ended December 31, 2014 and 2013, is as follows:
| |
| | |
| |
Description | |
2014 | | |
2013 | |
Net realized gain (loss) from sales of marketable securities | |
$ | 400,000 | | |
($ | 119,000 | ) |
Net unrealized gain from marketable securities | |
| 259,000 | | |
| 263,000 | |
Total net gain from investments in marketable securities | |
$ | 659,000 | | |
$ | 144,000 | |
| |
| | | |
| | |
Net
realized gain (loss) from sales of marketable securities consisted of approximately $523,000 of gains net of $123,000 of losses
for the year ended December 31, 2014. The comparable amounts in fiscal year 2013 were approximately $176,000 of losses net of
$57,000 of gains.
Consistent
with the Company’s overall current investment objectives and activities, the entire marketable securities portfolio is classified
as trading (as defined by U.S 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 (excluding other than temporary impairment losses):
| |
| | |
| |
| |
2014 | | |
2013 | |
Venture capital funds – diversified businesses (a) | |
$ | 90,000 | | |
$ | 115,000 | |
Partnerships owning real estate and related investments | |
| 11,000 | | |
| 40,000 | |
Investment in 49% owned affiliate (b) | |
| 19,000 | | |
| 94,000 | |
Total net income from other investments | |
$ | 120,000 | | |
$ | 249,000 | |
| |
| | | |
| | |
(a)
The gains in 2014 and 2013 consist of various cash distributions from an investments owning diversified businesses which made
cash distributions from the sale or refinancing of operating companies.
(b)
This gain represents income from the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”). The decrease
in income is due to decreased unrealized gains from marketable securities in 2014 versus 2013 and increased operating expenses
of TGIF. In 2014 and 2013 TGIF declared and paid a cash dividend of which the Company’s portion of was approximately $196,000
each year. These dividends were recorded as reduction in the investment carrying value as required under the equity method of
accounting for investments.
Other
than temporary impairment (“OTTI”) losses from other investments
| |
| | |
| |
| |
2014 | | |
2013 | |
Technology and related | |
($ | 11,000 | ) | |
($ | 50,000 | ) |
Total other than temporary impairment loss from other investments | |
($ | 11,000 | ) | |
($ | 50,000 | ) |
| |
| | | |
| | |
The
OTTI loss for the year ended December 31, 2014 consists of a recognized impairment loss in an investment in a partnership that
invested in technology related companies.
The
OTTI loss for the year ended December 31, 2013 consists of a recognized impairment loss in an investment in a partnership that
invests in technology related companies. The Company committed to fund $500,000 in this investment of which $466,000 has been
funded. As a result of this recognized impairment, the investment’s carrying value was decreased from $369,000 to $319,000.
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 the year ended December 31, 2014 as compared with 2013 increased by approximately $668,000 (or 288%),
primarily due to increased dividend and interest income from equity and debt marketable securities. Also included in other income
is a gain of approximately $282,000 from the dissolution of South Bayshore Associates (SBA). In 2014 SBA was dissolved and the
note payable to the Company of $905,000 was distributed 75% to the Company and 25% to Transco. Transco repaid its portion of the
note (approximately $226,000) in June 2014 and the Company recognized this amount as other income.
Provision
for (benefit from) 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.
(Reference
is made to Item 1. Description of Business for discussion regarding REIT 75% asset test).
Benefit
from income taxes for the year ended December 31, 2014 was approximately $8,000, consisting of refunding state income taxes.
As of December
31, 2014 the Company (excluding CII) had a tax net operating loss carryover (NOL) of approximately $30,000.
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.
For
CII, 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, 2014 and 2013, the Company has recorded a net deferred tax liability of $217,000.
As
of December 31, 2014, CII has an estimated NOL of approximately $1.3 million which has been fully reserved due to CII historically
having tax losses.
Provision
for income taxes for the year ended December 31, 2013 was approximately $2,508,000, is netted in income from discontinued operations
and includes $915,000 of deferred income tax expense.
Effect
of Inflation.
Inflation
affects the costs of maintaining the Company’s investments.
Liquidity,
Capital Expenditure Requirements and Capital Resources. The Company’s material commitments primarily consist of a note
payable to the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) of approximately $2.1 million due
on demand (see Item 13. Certain Relationships and Related Transactions and Director Independence.) and contributions committed
to other investments of approximately $2.2 million due upon demand. The funds necessary to meet these obligations are expected
from the proceeds from the sales of investments, distributions from investments and available cash.
A
summary of the Company’s contractual cash obligations at December 31, 2014 is as follows:
| |
| | |
| | |
| | |
| | |
| |
| |
Payments Due by Period | |
Contractual | |
| | |
| | |
| | |
| | |
| |
Obligations | |
Total | | |
Less than 1 year | | |
1 – 3 years | | |
4 – 5 years | | |
After 5 years | |
Note payable | |
$ | 2,100,000 | | |
$ | 2,100,000 | | |
| — | | |
| — | | |
| — | |
Other investments commitments | |
| 2,200,000 | | |
| 2,200,000 | | |
| — | | |
| — | | |
| — | |
Total | |
$ | 4,300,000 | | |
$ | 4,300,000 | | |
| — | | |
| — | | |
| — | |
The
timing of amounts due under commitments for other investments is determined by the managing partners of the individual investments.
Material
Changes in Operating, Investing and Financing Cash Flows.
The
Company’s cash flows are generated primarily from its dividends, interest and sales proceeds of marketable securities, distributions
from other investments and borrowings.
For
the year ended December 31, 2014, net cash used in operating activities was approximately $4.4 million, primarily consisting of
the payment of accounts payable and accrued expenses relating to 2013 taxes paid on undistributed REIT capital gains of approximately
$1.6 million and Adviser’s 2013 incentive fee of $2.1 million.
For
the year ended December 31, 2014, net cash used in investing activities was approximately $6.6 million and consisted primarily
of $15.4 million of purchases of marketable securities and $1.3 million of contributions to other investments. These uses of funds
were partially offset by proceeds from sales of marketable securities of $9.0 million and distributions from other investments
of $958,000.
For
the year ended December 31, 2014, net cash provided by financing activities was approximately $2.9 million and consisted primarily
of $3.2 million of margin borrowings partially offset by repayment of note payable to affiliate of $403,000.
Item
7A. Quantitative and Qualitative Disclosures About Market Risks.
Not
Applicable to the Company.
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 balance sheets of HMG/Courtland Properties, Inc. (a Delaware corporation) and Subsidiaries
(the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income,
changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated 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 audits 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 consolidated
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 consolidated
financial position of HMG/Courtland Properties, Inc. and Subsidiaries at December 31, 2014 and 2013, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in
the United States of America.
/s/
Cherry Bekaert LLP
Coral Gables, Florida
March 31, 2015
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013 | |
| | |
| |
| |
| | |
| |
| |
December 31, | | |
December 31, | |
| |
2014 | | |
2013 | |
ASSETS | |
| | | |
| | |
Investment properties, net of accumulated depreciation: | |
| | | |
| | |
Office building and other commercial property | |
$ | 793,749 | | |
$ | 809,905 | |
Total investment properties, net | |
| 793,749 | | |
| 809,905 | |
| |
| | | |
| | |
Cash and cash equivalents | |
| 9,451,152 | | |
| 17,655,568 | |
Investments in marketable securities | |
| 11,790,037 | | |
| 4,722,597 | |
Other investments | |
| 3,793,420 | | |
| 3,304,336 | |
Investment in affiliate | |
| 2,232,972 | | |
| 2,445,891 | |
Loans, notes and other receivables | |
| 1,400,877 | | |
| 1,408,150 | |
Investment in real estate partnership | |
| 281,663 | | |
| — | |
Other assets | |
| 53,356 | | |
| 32,773 | |
TOTAL ASSETS | |
$ | 29,797,226 | | |
$ | 30,379,220 | |
| |
| | | |
| | |
LIABILITIES | |
| | | |
| | |
Note payable to affiliate | |
$ | 2,100,000 | | |
$ | 2,502,891 | |
Margin payable | |
| 3,253,065 | | |
| — | |
Dividends payable | |
| 526,963 | | |
| — | |
Accounts payable, accrued expenses and other liabilities | |
| 210,691 | | |
| 202,552 | |
Amounts due to the Adviser | |
| 54,111 | | |
| 2,095,701 | |
Current income tax payable | |
| — | | |
| 1,592,716 | |
Deferred income tax payable | |
| 217,000 | | |
| 217,000 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 6,361,830 | | |
| 6,610,860 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| — | | |
| — | |
| |
| | | |
| | |
STOCKHOLDERS’ EQUITY | |
| | | |
| | |
Excess common stock, $1 par value; 100,000 shares authorized: no shares issued | |
| — | | |
| — | |
Common stock, $1 par value; 1,200,000 shares authorized and 1,053,926 and 1,048,926 issued and outstanding as of December 31, 2014 and 2013, respectively | |
| 1,053,926 | | |
| 1,048,926 | |
Additional paid-in capital | |
| 24,249,844 | | |
| 24,230,844 | |
Less: Treasury shares at cost (800 shares as of December 31, 2014) | |
| (9,377 | ) | |
| — | |
Undistributed gains from sales of properties, net of losses | |
| 53,227,696 | | |
| 53,754,659 | |
Undistributed losses from operations | |
| (55,315,000 | ) | |
| (55,547,873 | ) |
Total stockholders’ equity | |
| 23,207,089 | | |
| 23,486,556 | |
Non controlling interest | |
| 228,307 | | |
| 281,804 | |
TOTAL STOCKHOLDERS’ EQUITY | |
| 23,435,396 | | |
| 23,768,360 | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | |
$ | 29,797,226 | | |
$ | 30,379,220 | |
See
notes to the consolidated financial statements
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
FOR
THE YEARS ENDED DECEMBER 31, 2014 AND 2013 | |
| | |
| |
| |
| | |
| |
| |
2014 | | |
2013 | |
REVENUES | |
| | |
| |
Real estate rentals and related revenue | |
$ | 76,754 | | |
$ | 64,142 | |
Total revenues | |
| 76,754 | | |
| 64,142 | |
| |
| | | |
| | |
EXPENSES | |
| | | |
| | |
Operating expenses: | |
| | | |
| | |
Rental and other properties | |
| 96,039 | | |
| 73,983 | |
Adviser’s base fee | |
| 660,000 | | |
| 1,020,000 | |
General and administrative | |
| 271,326 | | |
| 324,852 | |
Professional fees and expenses | |
| 279,719 | | |
| 173,439 | |
Directors’ fees and expenses | |
| 100,349 | | |
| 108,620 | |
Depreciation expense | |
| 19,435 | | |
| 16,156 | |
Interest expense | |
| 91,198 | | |
| 88,427 | |
Total expenses | |
| 1,518,065 | | |
| 1,805,477 | |
| |
| | | |
| | |
Loss before other income and income taxes | |
| (1,441,312 | ) | |
| (1,741,335 | ) |
| |
| | | |
| | |
Net realized and unrealized gains from investments in marketable securities | |
| 659,276 | | |
| 144,219 | |
Net income from other investments | |
| 120,589 | | |
| 248,709 | |
Other than temporary impairment losses from other investments | |
| (11,092 | ) | |
| (50,000 | ) |
Interest, dividend and other income | |
| 899,483 | | |
| 231,864 | |
Total other income | |
| 1,668,256 | | |
| 574,792 | |
| |
| | | |
| | |
Income (loss) before income taxes | |
| 226,944 | | |
| (1,166,543 | ) |
| |
| | | |
| | |
Benefit from income taxes | |
| (8,190 | ) | |
| — | |
Loss from continuing operations | |
| 235,134 | | |
| (1,166,543 | ) |
Income from discontinued operations, net of tax and incentive fee | |
| — | | |
| 16,439,449 | |
Net income | |
| 235,134 | | |
| 15,272,906 | |
| |
| | | |
| | |
Noncontrolling interest in continuing operations | |
| (2,261 | ) | |
| (3,713 | ) |
Noncontrolling interest in discontinued operations | |
| — | | |
| (93,206 | ) |
Net income attributable to the noncontrolling interest | |
| (2,261 | ) | |
| (96,919 | ) |
Net income attributable to the Company | |
$ | 232,873 | | |
$ | 15,175,987 | |
| |
| | | |
| | |
Amounts attributable to the Company | |
| | | |
| | |
Continuing operations | |
| 232,873 | | |
| (1,170,256 | ) |
Discontinued operations | |
| — | | |
| 16,346,243 | |
Net income attributable to the Company | |
$ | 232,873 | | |
$ | 15,175,987 | |
| |
| | | |
| | |
Weighted average common shares outstanding-basic | |
| 1,049,428 | | |
| 1,004,599 | |
Weighted average common shares outstanding-diluted | |
| 1,049,428 | | |
| 1,006,067 | |
Net income (loss) per common share: | |
| | | |
| | |
Continuing operations-basic | |
$ | .22 | | |
$ | (1.16 | ) |
Continuing operations-diluted | |
$ | .22 | | |
$ | (1.16 | ) |
Discontinued operations-basic | |
$ | — | | |
$ | 16.27 | |
Discontinued operations-diluted | |
$ | — | | |
$ | 16.25 | |
Basic income per share | |
$ | .22 | | |
$ | 15.11 | |
Diluted income per share | |
$ | .22 | | |
$ | 15.08 | |
Other comprehensive income: | |
| | | |
| | |
Unrealized gain on interest rate swap agreement | |
$ | — | | |
$ | 982,500 | |
Total other comprehensive income | |
| — | | |
| 982,500 | |
| |
| | | |
| | |
Comprehensive income | |
$ | 232,873 | | |
$ | 16,158,487 | |
See
notes to the consolidated financial statements
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR
THE YEARS ENDED DECEMBER 31, 2014 AND 2013 | | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| |
| | |
| | |
| | |
Undistributed | | |
| | |
Accumulated | | |
| | |
| | |
| |
| |
| | |
| | |
| | |
Gains
from Sales | | |
Undistributed | | |
Other | | |
| | |
| | |
Total | |
| |
Common
Stock | | |
Additional | | |
of
Properties | | |
Losses
from | | |
Comprehensive | | |
Treasury
Stock | | |
Stockholders’ | |
| |
Shares | | |
Amount | | |
Paid-In
Capital | | |
Net
of Losses | | |
Operations | | |
Loss | | |
Shares | | |
Cost | | |
Equity | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of January 1, 2013 | |
| 969,526 | | |
$ | 969,526 | | |
$ | 24,129,031 | | |
$ | 41,572,120 | | |
($ | 54,377,617 | ) | |
($ | 982,500 | ) | |
| — | | |
| — | | |
$ | 11,310,560 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
income | |
| | | |
| | | |
| | | |
| 16,346,243 | | |
| (1,170,256 | ) | |
| | | |
| | | |
| | | |
| 15,175,987 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Dividend
paid - $4.00 per share | |
| | | |
| | | |
| | | |
| (4,163,704 | ) | |
| | | |
| | | |
| | | |
| | | |
| (4,163,704 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reversal
of unrealized loss on interest rate swap contract | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 982,500 | | |
| | | |
| | | |
| 982,500 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Non-employee
stock option compensation | |
| | | |
| | | |
| 20,498 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 20,498 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
options exercised | |
| 97,100 | | |
| 97,100 | | |
| 388,420 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 485,520 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Treasury
stock from stock option reloads | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 17,700 | | |
| (324,805 | ) | |
| (324,805 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Treasury
stock retired | |
| (17,700 | ) | |
| (17,700 | ) | |
| (307,105 | ) | |
| | | |
| | | |
| | | |
| (17,700 | ) | |
| 324,805 | | |
| — | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of December 31, 2013 | |
| 1,048,926 | | |
| 1,048,926 | | |
| 24,230,844 | | |
| 53,754,659 | | |
| (55,547,873 | ) | |
| — | | |
| — | | |
| — | | |
| 23,486,556 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
income | |
| | | |
| | | |
| | | |
| | | |
| 232,873 | | |
| | | |
| | | |
| | | |
| 232,873 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Dividend
payable - $.50 per share | |
| | | |
| | | |
| | | |
| (526,963 | ) | |
| | | |
| | | |
| | | |
| | | |
| (526,963 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock
options exercised | |
| 5,000 | | |
| 5,000 | | |
| 19,000 | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 24,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Purchase
of treasury stock | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| 800 | | |
| (9,377 | ) | |
| (9,377 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
as of December 31, 2014 | |
| 1,053,926 | | |
$ | 1,053,926 | | |
$ | 24,249,844 | | |
$ | 53,227,696 | | |
($ | 55,315,000 | ) | |
$ | — | | |
| 800 | | |
($ | 9,377 | ) | |
$ | 23,207,089 | |
See
notes to the consolidated financial statements
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2014 AND 2013 | |
| | |
| |
| |
| | |
| |
| |
2014 | | |
2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | |
| | | |
| | |
Net income attributable to the Company | |
$ | 232,873 | | |
$ | 15,175,987 | |
Adjustments to reconcile net income attributable to the Company to net cash used in operating activities: | |
| | | |
| | |
Depreciation expense | |
| 19,435 | | |
| 16,156 | |
Non-employee stock compensation | |
| — | | |
| 20,498 | |
Net income from other investments, excluding impairment losses | |
| (120,589 | ) | |
| (248,709 | ) |
Other than temporary impairment loss from other investments | |
| 11,092 | | |
| 50,000 | |
Gain from sale of discontinued operations | |
| — | | |
| (16,346,243 | ) |
Gain from dissolution of joint venture | |
| (226,157 | ) | |
| — | |
Net gain from investments in marketable securities | |
| (659,276 | ) | |
| (144,219 | ) |
Net gain attributable to non controlling interest | |
| 2,261 | | |
| 3,713 | |
Changes in assets and liabilities: | |
| | | |
| | |
Other assets and other receivables | |
| (13,311 | ) | |
| (205,746 | ) |
Accounts payable, accrued expenses and other liabilities | |
| (3,699,205 | ) | |
| 156,003 | |
Total adjustments | |
| (4,685,750 | ) | |
| (16,698,547 | ) |
Net cash used in operating activities | |
| (4,452,877 | ) | |
| (1,522,560 | ) |
| |
| | | |
| | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
| | | |
| | |
Proceeds from sales of real estate and discontinued operations | |
| 278,720 | | |
| 23,030,262 | |
Purchases and improvements of properties | |
| (274,691 | ) | |
| — | |
Investment in real estate partnership | |
| (281,663 | ) | |
| — | |
Proceeds from collections of notes and advances from related parties | |
| 226,157 | | |
| 696,909 | |
Additions in mortgage loans and notes receivable | |
| (138,000 | ) | |
| — | |
Proceeds from collections of mortgage loans and notes receivables | |
| 138,000 | | |
| 75,000 | |
Distributions from other investments | |
| 958,086 | | |
| 516,764 | |
Contributions to other investments | |
| (1,347,067 | ) | |
| (135,750 | ) |
Net proceeds from sales and redemptions of securities | |
| 8,997,601 | | |
| 1,305,944 | |
Increased investments in marketable securities | |
| (15,405,765 | ) | |
| (3,703,313 | ) |
Distribution from affiliate | |
| 232,286 | | |
| 196,016 | |
Net cash (used in) provided by investing activities | |
| (6,616,336 | ) | |
| 21,981,832 | |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | | |
| | |
Margin borrowings | |
| 3,253,065 | | |
| — | |
Dividend paid | |
| — | | |
| (4,163,704 | ) |
Repayment of note payable to affiliate | |
| (402,891 | ) | |
| (311,488 | ) |
Proceeds from stock options exercised | |
| 24,000 | | |
| 160,715 | |
Purchase of treasury stock | |
| (9,377 | ) | |
| — | |
Net cash provided by (used in) financing activities | |
| 2,864,797 | | |
| (4,314,477 | ) |
| |
| | | |
| | |
Net (decrease) increase in cash and cash equivalents | |
| (8,204,416 | ) | |
| 16,144,795 | |
| |
| | | |
| | |
Cash and cash equivalents at beginning of the year | |
| 17,655,568 | | |
| 1,510,773 | |
| |
| | | |
| | |
Cash and cash equivalents at end of the year | |
$ | 9,451,152 | | |
$ | 17,655,568 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid during the year for interest | |
$ | 91,000 | | |
$ | 88,000 | |
Cash paid during the year for income taxes | |
$ | 1,593,000 | | |
$ | — | |
| |
| | | |
| | |
Non-cash Investing Activities: | |
| | | |
| | |
Note receivable received for sales of discontinued operations | |
$ | — | | |
$ | 1,000,000 | |
See
notes to the consolidated financial statements
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2014 and 2013
1.
DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
and Consolidation. The consolidated financial statements include the accounts of HMG/Courtland Properties, Inc. (“we”
or 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 is from
property rental operations of its corporate offices.
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 45% shareholder of the Company.
CII files a separate tax return and its operations are not part of the REIT tax return.
HMG
Orlando, LLC (“HMGO”). This wholly owned limited liability company was formed in August 2014. In September 2014
HMGO acquired a one-third equity membership interest in JY-TV Associates, LLC a Florida limited liability company (“JY-TV”)
and entered into the Amended and Restated Operating Agreement of JY-TV (the “Agreement”). JY-TV was formed in 2014
for the sole purpose of purchasing and constructing up to two hundred fifty (250) unit rental apartments on approximately 9.5
acres in Orlando, Florida. The other two initial members of JY-TV are not related to the Company.
260
River Corp (“260”). This wholly owned corporation of the Company owns an approximate 70% interest in a vacant
commercially zoned building located on 5.4 acres in Montpelier, Vermont. Development of this property is being considered.
HMG
Bayshore, LLC (“HMGBS”). This is a wholly owned Florida limited liability company.
Baleen
Associates, Inc. (“Baleen”). This corporation is wholly owned by CII and its sole asset is a 50% interest in a
partnership which operates an executive suite rental business in Coconut Grove, Florida.
South
Bayshore Associates (“SBA”). This was a 75% company owned joint venture with the Company’s 45% shareholder,
Transco Realty Trust (“TRT”). In 2013 TRT paid off its $300,000 note due to SBA. In 2014 SBA was dissolved and the
note payable to the Company of $905,000 was distributed 75% to the Company and 25% to Transco. Transco repaid its portion of the
note (approximately $226,000) in June 2014 and the Company recognized this amount as other income.
Preparation
of Financial Statements. The preparation of consolidated 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 consolidated 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 ASC Topic 740, “Accounting
for Income Taxes” (“ASC Topic 740”). This 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.
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.
The
Company follows the provisions of ASC Topic 740-10, “Accounting for Uncertainty in Income Taxes” which clarifies the
accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with ASC Topic
740, 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. This topic also provides guidance on de-recognition, 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 consolidated
financial statements. Our evaluation was performed for the tax years ended December 31, 2014 and 2013. The Company’s federal
income tax returns since 2011 are subject to examination by the Internal Revenue Service, generally for a period of three years
after the returns were filed.
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 consolidated financial statements as selling, general and administrative expense.
Depreciation.
Depreciation of the corporate offices properties held for investment is computed using the straight-line method over its estimated
useful life of 39.5 years. Depreciation expense for the corporate offices for each of the years ended December 31, 2014 and 2013
was approximately $19,000 and $16,000, respectively.
Fair
Value of Financial Instruments. The Company records its financial assets and liabilities at fair value, which is defined under
the applicable accounting standards as the exchange price that would be received for an asset or paid to transfer a liability
(an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measure date. The Company uses valuation techniques to measure fair value, maximizing the use of observable
outputs and minimizing the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of
inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which
are the following:
| · | Level
1 – Quoted prices in active markets for identical assets or liabilities. |
| · | Level
2 – Inputs other than Level 1 that are observable, either directly or indirectly,
such as quoted prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities. |
| · | Level
3 – Inputs include management’s best estimate of what market participants
would use in pricing the asset or liability at the measurement date. The inputs are unobservable
in the market and significant to the instrument’s valuation. |
An
investment’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to
the fair value measurement.
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, 2014 and 2013, due to their
relatively short terms or variable interest rates.
Cash
equivalents are classified within 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. Other investments which are
measured by investees at net asset value per share or its equivalent are also classified within Level 2. The fair value of the
interest rate swap contract payable is based on the value provided by the issuing bank on a monthly basis (Level 2).
The
valuation of other investments not included above 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 and have been classified within Level
3. 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.
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, 2014 the Company
had approximately $3,253,000 of margin balances outstanding. There were no margin balances outstanding as of December 31, 2013.
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 collectability of those balances. Management’s estimates
of collectability 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, 2014 and 2013, the Company had no allowances for bad debt.
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 ASC Topic 323-30 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. The Company reports comprehensive income in its consolidated statements of comprehensive income. Comprehensive income
is the change in equity from transactions and other events from nonowner sources. Comprehensive income includes net income (loss)
and other comprehensive income (loss). For the year ended December 31, 2014 there was no other comprehensive income. For the year
ended December 31, 2013 other comprehensive income consisted of reversal of unrealized loss from interest rate swap contract (relating
to discontinued operations) of $982,500.
Income
(loss) per common share. Net income (loss) per common share (basic and diluted) is based on the net income (loss) divided
by the weighted average number of common shares outstanding during each year. Diluted net loss per share includes the dilutive
effect of options to acquire common stock. Common shares outstanding include issued shares less shares held in treasury. There
were 17,700 and 22,700 stock options outstanding as of December 31, 2014 and 2013, respectively. The 2014 options were not included
in the diluted earnings per share computation as their effect would have been anti-dilutive. The 2013 options were included in
the diluted earnings per share computation as their effect was dilutive.
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 2014.
In
2013 the Company sold its interests in the Grove Isle and Monty’s properties and recognized gain on sale of discontinued
operations of $16.4 million, net of income taxes and incentive fee to Adviser.
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.
Treasury
bills, from time to time, are pledged as collateral pursuant to broker margin requirements. At December 31, 2014 the Company had
$3 million of margin balances outstanding relating to the purchase of treasury bills. There were no margin balances outstanding
as of December 31, 2013.
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, 2014 and 2013,
respectively, we had approximately $485,000 and $560,000 of deposits in excess of federally insured limits.
The
Company maintains cash and equivalents in bank accounts which at times, may exceed federally-insured limits. The Company has not
experienced any losses in such accounts and believes that it is not exposed to any significant credit risk on cash. The federally
insured limit for time deposits is presently $250,000.
Other
intangible assets:
Deferred
loan costs are amortized on a straight line basis over the life of the loan. This method approximates the effective interest rate
method.
Non
controlling Interest. Non controlling interest represents the noncontrolling or minority partners’ proportionate share
of the equity of the Company’s majority owned subsidiaries. A summary for the years ended December 31, 2014 and 2013 is
as follows:
| |
| | |
| |
| |
2014 | | |
2013 | |
Non controlling interest balance at beginning of year | |
$ | 282,000 | | |
$ | 2,917,000 | |
Non controlling partners’ interest in operating gains of consolidated subsidiaries | |
| 2,000 | | |
| 4,000 | |
Non controlling partners’ balance written off upon dissolution | |
| (56,000 | ) | |
| — | |
Non controlling partners’ interest in gains of discontinued operations of consolidated subsidiaries | |
| — | | |
| 93,000 | |
Non controlling partners’ interest in sales of real estate | |
| — | | |
| (1,750,000 | ) |
Reclassification of unrealized loss on interest rate swap agreement | |
| — | | |
| (982,000 | ) |
| |
| | | |
| | |
Non controlling interest balance at end of year | |
$ | 228,000 | | |
$ | 282,000 | |
Revenue
recognition. CII is the lessor of the Company’s principal executive offices and the Adviser corporate offices. This
lease agreement is classified as an operating lease 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. The lease agreement originally dated December
1, 1999 and was due to expire on December 1, 2014. In December the lease was renewed for a one year lease term expiring on December
1, 2015, with two one year extensions permitted. The lease provides for base rent of $48,000 per year payable in equal monthly
installments during the term of the lease. The Adviser, as tenant, pays utilities, certain maintenance and security expenses relating
to the leased premises.
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. There were no impairment of long-lived assets in 2014 and 2013.
Share-based
compensation.
The
Company accounts for share-based compensation in accordance with ASC Topic 718 “Share-Based Payments”. 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
July 2013, the FASB issued guidance on the financial statement presentation of an unrecognized tax benefit when a net operating
loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance requires the unrecognized tax benefit
to be presented in the financial statements as a reduction to a deferred tax asset. When a deferred tax asset is not available,
or the asset is not intended to be used for this purpose, an entity should present the unrecognized tax benefit in the financial
statements as a liability. The guidance became effective for us at the beginning of our second quarter of fiscal 2014. The adoption
of this guidance did not have a material impact on our consolidated financial statements.
In
February 2013, the FASB issued ASU 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of
Accumulated Other Comprehensive Income,” or ASU 2013-02. ASU 2013-02 implements the previously deferred requirement to disclose
reclassification adjustments into and out of accumulated other comprehensive income in either a note or on the face of the financial
statements. ASU 2013-02 was effective for the first interim or annual period beginning after December 15, 2012, and was applied
prospectively. As we have not reclassified any balances into or out of accumulated other comprehensive income, the adoption of
ASU 2013-02 did not have a material impact on our consolidated financial statements.
In January
2013, the FASB issued guidance clarifying the scope of disclosure requirements for offsetting assets and liabilities. The amended
guidance limits the scope of balance sheet offsetting disclosures to derivatives, repurchase agreements, and securities lending
transactions to the extent that they are offset in the financial statements or subject to an enforceable master netting arrangement
or similar agreement. The guidance became effective for us at the beginning of our first quarter of fiscal 2014. The adoption
of this guidance did not have a material impact on our consolidated financial statements.
In
August 2014, the FASB issued Accounting Standard Update ASU2014-15 Disclosure of Uncertainties about an entity’s
Ability to Continue as a Going Concern. This ASU amends ASC205-40. ASC205-40 provides guidance about management’s
responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern
and to provide related note disclosures. With the amendments made by ASU 2014-15, financial statement disclosures will be
required when there is substantial doubt about an entity’s ability to continue as a going concern or when substantial
doubt is alleviated as a result of considerations of management’s plans. The new standard provides management with
principles for evaluating whether there is substantial doubt by: providing a definition of substantial doubt, requiring an
evaluation every reporting period (including interim periods), providing principles for considering the mitigating effect of
management’s plans, requiring certain disclosures when substantial doubt is alleviated as a result of consideration of
management’s plans,requiring an express statement and other disclosures when substantial doubt is not alleviated, and
requiring an assessment for a period of one year after the date that the financial statements are issued (or available to be
issued). The amendments are effective for the annual period ending after December 15, 2016, and for annual periods and
interim periods thereafter. Early adoption is permitted. The adoption of this guidance is not expected to have a material
impact on our consolidated financial statements.
In May 2014,
the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes
nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when
promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects
to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing
so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.
The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the
following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting
period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially
adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating
the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method
by which we will adopt the standard in 2017.
2.
INVESTMENT PROPERTIES
The
components of the Company’s investment properties and the related accumulated depreciation information follow:
| |
| | |
| | |
| |
| |
December 31, 2014 | |
| |
| | |
Accumulated | | |
| |
| |
Cost | | |
Depreciation | | |
Net | |
Office building and other commercial property: | |
| | | |
| | | |
| | |
Corporate Office - (Coconut Grove, FL) – Building | |
$ | 652,198 | | |
$ | 295,138 | | |
$ | 357,060 | |
Corporate Office – (Coconut Grove, FL) – Land | |
| 325,000 | | |
| — | | |
| 325,000 | |
Other (Montpelier, Vermont) – Building | |
| 52,000 | | |
| 52,000 | | |
| — | |
Other (Montpelier, Vermont) - Land and improvements (5.4 acres) | |
| 111,689 | | |
| — | | |
| 111,689 | |
| |
$ | 1,140,887 | | |
$ | 347,138 | | |
$ | 793,749 | |
| |
December 31, 2013 | |
| |
| | |
Accumulated | | |
| |
| |
Cost | | |
Depreciation | | |
Net | |
Office building and other commercial property: | |
| | | |
| | | |
| | |
Corporate Office - (Coconut Grove, FL) – Building | |
$ | 652,198 | | |
$ | 278,982 | | |
$ | 373,216 | |
Corporate Office – (Coconut Grove, FL) – Land | |
| 325,000 | | |
| — | | |
| 325,000 | |
Other (Montpelier, Vermont) – Building | |
| 52,000 | | |
| 52,000 | | |
| — | |
Other (Montpelier, Vermont) - Land and improvements (5.4 acres) | |
| 111,689 | | |
| — | | |
| 111,689 | |
Totals | |
$ | 1,140,887 | | |
$ | 330,982 | | |
$ | 809,905 | |
3. 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). In April 2014, the Company purchased approximately
$3.5 million of preferred equity of large capital real estate investment trusts (REITS); consisting of approximately 20 preferred
stock positions with no one position exceeding $400,000 in value as of December 31, 2014. In March 2014, the Company purchased
approximately $3.5 million of marketable securities consisting of approximately 50 common stock positions in large capital REITS.
No one stock position of this purchase exceeds $400,000 in value as of December 31, 2014.
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 income. For the years
ended December 31, 2014 and 2013, net unrealized gains on trading securities were approximately $259,000 and $263,000,
respectively.
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
December 31, 2014 | | |
December 31, 2013 | |
Description | |
Cost Basis | | |
Fair Value | | |
Unrealized Gain (loss) | | |
Cost Basis | | |
Fair Value | | |
Unrealized Gain (loss) | |
Real Estate Investment Trusts | |
$ | 7,491,000 | | |
$ | 7,791,000 | | |
$ | 300,000 | | |
$ | 345,000 | | |
$ | 351,000 | | |
$ | 6,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Mutual Funds, ETF & other | |
| 1,468,000 | | |
| 1,543,000 | | |
| 75,000 | | |
| 2,030,000 | | |
| 2,144,000 | | |
| 114,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Other Equity Securities | |
| 1,191,000 | | |
| 1,358,000 | | |
| 167,000 | | |
| 962,000 | | |
| 1,163,000 | | |
| 201,000 | |
Total Equity Securities | |
| 10,150,000 | | |
| 10,692,000 | | |
| 542,000 | | |
| 3,337,000 | | |
| 3,658,000 | | |
| 321,000 | |
Debt Securities | |
| 1,107,000 | | |
| 1,098,000 | | |
| (9,000 | ) | |
| 1,088,000 | | |
| 1,065,000 | | |
| (23,000 | ) |
Total | |
$ | 11,257,000 | | |
$ | 11,790,000 | | |
$ | 533,000 | | |
$ | 4,425,000 | | |
$ | 4,723,000 | | |
$ | 298,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
As
of December 31, 2014, debt securities are scheduled to mature as follows:
| |
Cost | | |
Fair Value | |
2015 – 2019 | |
$ | 51,000 | | |
$ | 52,000 | |
2020 – 2024 | |
| 262,000 | | |
| 247,000 | |
2025 – thereafter | |
| 794,000 | | |
| 799,000 | |
| |
$ | 1,107,000 | | |
$ | 1,098,000 | |
Net
gain from investments in marketable securities for the years ended December 31, 2014 and 2013 is summarized below:
| |
| | |
| |
Description | |
2014 | | |
2013 | |
Net realized gain (loss) from sales of marketable securities | |
$ | 400,000 | | |
($ | 119,000 | ) |
Net unrealized gain from marketable securities | |
| 259,000 | | |
| 263,000 | |
Total net gain from investments in marketable securities | |
$ | 659,000 | | |
$ | 144,000 | |
Net
realized gain from sales of marketable securities consisted of approximately $523,000 of gains net of $123,000 of losses
for the year ended December 31, 2014. The comparable amounts in fiscal year 2013 were losses of approximately $176,000 and gains
of $57,000.
Consistent
with the Company’s overall current investment objectives and activities the entire marketable securities portfolio is classified
as trading (as defined by U.S. generally accepted accounting principles). Unrealized gains or losses of marketable securities
on hand are recorded in 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.
4.
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 accordingly are carried at cost less distributions
and other than temporary unrealized losses.
The
Company’s portfolio of other investments consists of approximately 35 individual investments primarily in limited partnerships
with varying investment objectives and focus. Management has categorized these investments by investment focus: technology and
communications, diversified businesses, real estate related and other.
As
of December 31, 2014 and 2013, other investments had an aggregate carrying value of $3.8 million and $3.3 million, respectively.
As of December 31, 2014 the Company has committed to fund approximately an additional $2.2 million as required by agreements with
the investees. The carrying value of these investments is equal to contributions less distributions and other than temporary loss
valuation adjustments. During the years ended December 31, 2014 and 2013 the Company made contributions of approximately $1.3
million and $136,000, respectively, and received distributions from these investments of $958,000 and $516,000, respectively.
The
Company’s other investments are summarized below.
| |
| | |
| |
| |
Carrying values as of December 31, | |
Investment Focus | |
2014 | | |
2013 | |
| |
| | |
| |
Venture capital funds – technology and communications | |
$ | 288,000 | | |
$ | 473,000 | |
| |
| | | |
| | |
Venture capital funds – diversified businesses | |
| 1,200,000 | | |
| 1,098,000 | |
| |
| | | |
| | |
Real estate and related | |
| 1,680,000 | | |
| 1,409,000 | |
| |
| | | |
| | |
Other | |
| 625,000 | | |
| 325,000 | |
| |
| | | |
| | |
Totals | |
$ | 3,793,000 | | |
$ | 3,304,000 | |
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.
Net
income from other investments is summarized below (excluding other than temporary impairment loss):
| |
| | |
| |
| |
2014 | | |
2013 | |
Income from investment in 49% owned affiliate (a) | |
$ | 19,000 | | |
$ | 94,000 | |
Real estate and related (b) | |
| 11,000 | | |
| 40,000 | |
Venture capital funds – diversified businesses (c) | |
| 90,000 | | |
| 104,000 | |
Other | |
| — | | |
| 10,000 | |
Total net income from other investments | |
$ | 120,000 | | |
$ | 248,000 | |
(a) This
gain represents income from the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”). The decrease in
income is due to increased operating expenses of TGIF and reduced investment income. In 2014 and 2013 TGIF declared and paid a
cash dividend, the Company’s portion of which was approximately $196,000 each year. These dividends were recorded as reduction
in the investment carrying value as required under the equity method of accounting for investments.
(b) The
gain in 2014 and 2013 consists primarily of cash distributions from an investment in real estate partnership which distributed
proceeds from sales of its real estate.
(c) The
gain in 2014 and 2013 consists of cash distributions from various investments in partnerships owning diversified businesses which
made cash distributions from the sale or refinancing of operating companies and/or distributions from operating activities.
Other
than temporary impairment losses from other investments
For
the years ended December 31, 2014 and 2013, approximately $11,000 and $50,000, respectively, of valuation losses from other than
temporary impairment losses from other investments were recorded. In 2014 this consisted of valuation loss of $11,000 from an
investment in a limited partnership which invests in technology related entities and made a liquidating distribution in 2014.
In 2013 this consisted of valuation loss of $50,000 from an investment in a limited partnership which invests in technology related
entities.
| |
| | |
| |
| |
2014 | | |
2013 | |
Technology and related | |
($ | 11,000 | ) | |
($ | 50,000 | ) |
Total other than temporary impairment loss from other investments | |
($ | 11,000 | ) | |
($ | 50,000 | ) |
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.
The following
tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of December 31,
2014 and 2013, aggregated by investment category and the length of time that investments have been in a continuous loss position:
| |
| | |
| | |
| | |
| | |
| | |
| |
| |
As of December 31, 2014 | |
| |
Less than 12 Months | | |
Greater than 12 Months | | |
Total | |
Investment Description | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | |
Partnerships owning investments in technology related industries | |
| — | | |
| — | | |
$ | 5,000 | | |
$ | (11,000 | ) | |
$ | 5,000 | | |
$ | (11,000 | ) |
Partnerships owning diversified businesses investments | |
| 190,000 | | |
| (10,000 | ) | |
| — | | |
| — | | |
| 190,000 | | |
| (10,000 | ) |
Partnerships owning real estate and related investments | |
| 45,000 | | |
| (30,000 | ) | |
| — | | |
| — | | |
| 45,000 | | |
| (30,000 | ) |
Other (private banks, etc.) | |
| 242,000 | | |
| (8,000 | ) | |
| | | |
| | | |
| 242,000 | | |
| (8,000 | ) |
Total | |
$ | 477,000 | | |
$ | (48,000 | ) | |
$ | 5,000 | | |
$ | (11,000 | ) | |
$ | 482,000 | | |
$ | (59,000 | ) |
| |
| |
| |
As of December 31, 2013 | |
| |
Less than 12 Months | | |
Greater than 12 Months | | |
Total | |
Investment Description | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | | |
Fair Value | | |
Unrealized Loss | |
Partnerships owning investments in technology related industries | |
| — | | |
| — | | |
$ | 346,000 | | |
$ | (76,000 | ) | |
$ | 346,000 | | |
$ | (76,000 | ) |
Partnerships owning real estate and related investments | |
| — | | |
| — | | |
| 246,000 | | |
| (11,000 | ) | |
| 246,000 | | |
| (11,000 | ) |
Total | |
| — | | |
| — | | |
$ | 592,000 | | |
$ | (87,000 | ) | |
$ | 592,000 | | |
$ | (87,000 | ) |
5.
FAIR VALUE INSTRUMENTS
In
accordance with ASC Topic 820, the Company measures cash and cash equivalents, marketable debt and equity securities at fair value
on a recurring basis. Other investments are measured at fair value on a nonrecurring basis.
The
following are the major categories of assets and liabilities measured at fair value on a recurring basis during the years ended
December 31, 2014 and 2013, using quoted prices in active markets for identical assets (Level 1) and significant other observable
inputs (Level 2). For the year ended December 31, 2014 and 2013, there were no major assets or liabilities measured at fair value
on a recurring basis which uses significant unobservable inputs (Level 3):
| |
| |
| |
Fair value measurement at reporting date using | |
Description | |
Total December 31, 2014 | | |
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 | |
$ | 55,000 | | |
| — | | |
$ | 55,000 | | |
| — | |
Money market mutual funds | |
| 1,206,000 | | |
$ | 1,206,000 | | |
| — | | |
| — | |
U.S. T-bills | |
| 7,200,000 | | |
$ | 7,200,000 | | |
| — | | |
| — | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Corporate debt securities | |
| 1,098,000 | | |
| — | | |
| 1,098,000 | | |
| — | |
Marketable equity securities | |
| 10,692,000 | | |
| 10,692,000 | | |
| — | | |
| — | |
Total assets | |
$ | 20,251,000 | | |
$ | 19,098,000 | | |
$ | 1,153,000 | | |
$ | — | |
| |
Fair value measurement at reporting date using | |
Description | |
Total December 31, 2013 | | |
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 | |
$ | 55,000 | | |
| — | | |
$ | 55,000 | | |
| — | |
Money market mutual funds | |
| 1,257,000 | | |
$ | 1,257,000 | | |
| — | | |
| — | |
U.S. T-bills | |
| 15,305,000 | | |
$ | 15,305,000 | | |
| — | | |
| | |
Marketable securities: | |
| | | |
| | | |
| | | |
| | |
Corporate debt securities | |
| 1,065,000 | | |
| — | | |
| 1,065,000 | | |
| — | |
Marketable equity securities | |
| 3,658,000 | | |
| 3,658,000 | | |
| — | | |
| — | |
Total assets | |
$ | 21,340,000 | | |
$ | 20,220,000 | | |
$ | 1,120,000 | | |
$ | — | |
| |
| | | |
| | | |
| | | |
| | |
Carrying
amount is the estimated fair value for corporate debt securities and time deposits based on a market-based approach using observable
(Level 2) inputs such as prices of similar assets in active markets.
The
following are the major categories of assets and liabilities measured at fair value on a nonrecurring basis during the years ended
December 31, 2014 and 2013. This category includes other investments which are measured using significant other observable inputs
(Level 2) and significant unobservable inputs (Level 3):
| |
| | |
| | |
| | |
| | |
| |
| |
Fair value measurement at reporting date using | | |
Total | |
| |
Total | | |
Quoted Prices in Active | | |
Significant Other | | |
Significant | | |
losses for | |
| |
December 31, | | |
Markets for Identical Assets | | |
Observable Inputs | | |
Unobservable Inputs | | |
year ended | |
Description | |
2014 | | |
(Level 1) | | |
(Level 2) (a) | | |
(Level 3) (b) | | |
12/31/2014 | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Other investments by investment focus: | |
| | | |
| | | |
| | | |
| | | |
| | |
Technology & Communication | |
$ | 288,000 | | |
$ | — | | |
$ | 288,000 | | |
$ | — | | |
$ | 11,000 | |
Diversified businesses | |
| 1,200,000 | | |
| — | | |
| 1,200,000 | | |
| — | | |
| — | |
Real estate and related | |
| 1,680,000 | | |
| — | | |
| 737,000 | | |
| 943,000 | | |
| — | |
Other | |
| 625,000 | | |
| — | | |
| — | | |
| 625,000 | | |
| — | |
Total assets | |
$ | 3,793,000 | | |
$ | — | | |
$ | 2,225,000 | | |
$ | 1,568,000 | | |
$ | 11,000 | |
| |
Fair value measurement at reporting date using | | |
Total | |
| |
Total | | |
Quoted Prices in Active | | |
Significant Other | | |
Significant | | |
losses for | |
| |
December 31, | | |
Markets for Identical Assets | | |
Observable Inputs | | |
Unobservable Inputs | | |
year ended | |
Description | |
2013 | | |
(Level 1) | | |
(Level 2) (a) | | |
(Level 3) (b) | | |
12/31/2013 | |
Assets: | |
| | | |
| | | |
| | | |
| | | |
| | |
Other investments by investment focus: | |
| | | |
| | | |
| | | |
| | | |
| | |
Technology & Communication | |
$ | 472,000 | | |
$ | — | | |
$ | 472,000 | | |
$ | — | | |
$ | 50,000 | |
Diversified businesses | |
| 1,098,000 | | |
| — | | |
| 1,098,000 | | |
| — | | |
| — | |
Real estate and related | |
| 1,409,000 | | |
| — | | |
| 462,000 | | |
| 947,000 | | |
| — | |
Other | |
| 325,000 | | |
| — | | |
| — | | |
| 325,000 | | |
| — | |
Total assets | |
$ | 3,304,000 | | |
$ | — | | |
$ | 2,032,000 | | |
$ | 1,272,000 | | |
$ | 50,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
| (a) | Other
investments measured at fair value on a non recurring basis include investments in certain
entities that calculate net asset value per share (or its equivalent such as member units
or an ownership interest in partners’ capital to which a proportionate share of
net assets is attributed, “NAV”). This class primarily consists of private
equity funds that have varying investment focus. These investments can never be redeemed
with the funds. Instead, the nature of the investments in this class is that distributions
are received through the liquidation of the underlying assets of the fund. If these investments
were held it is estimated that the underlying assets of the fund would be liquidated
over 5 to 10 years. As of December 31, 2014, it is probable that all of the investments
in this class will be sold at an amount different from the NAV of the Company’s
ownership interest in partners’ capital. Therefore, the fair values of the investments
in this class have been estimated using recent observable information such as audited
financial statements and/or statements of partners’ capital obtained directly from
investees on a quarterly or other regular basis. During the year ended December 31, 2014,
the Company received distributions of approximately $852,000 from this type of investment
primarily from investments in diversified businesses and real estate. During the year
ended December 31, 2014 the Company made contributions totaling $947,000 in this type
of investment primarily in investments in diversified businesses and real estate. As
of December 31, 2014, the amount of the Company’s unfunded commitments related
to the aforementioned investments is approximately $2.2 million. |
| (b) | Other
investments above which are measured on a nonrecurring basis using Level 3 unobservable
inputs consist of investments primarily in commercial real estate in Florida through
private partnerships and two investments in the stock of private banks in Florida and
Texas. The Company does not know when it will have the ability to redeem the investments
and has categorized them as a Level 3 fair value measurement. The Level 3 real estate
and related investments of approximately $943,000 include one investment in a
commercial building located near the Company’s offices purchased in 2005 with a
carrying value as of December 31, 2014 of $724,000. These investments are measured using
primarily inputs provided by the managing member of the partnerships with whom the Company
has done similar transactions in the past and is well known to management. The fair values
of these real estate investments have been estimated using the net asset value of the
Company’s ownership interest in partners’ capital. The other Level 3 investments
include investments in private bank stocks and a reinsurance company. The fair values
of these other Level 3 investments have been estimated using the cost method less distributions
received and other than temporary impairments. This investment is valued using inputs
provided by the management of the investee. |
The following
table includes a roll-forward of the investments classified within level 3 of the fair value hierarchy for the year ended December
31, 2014:
| |
| |
| |
Level 3 Investments: | |
Balance at January 1, 2014 | |
$ | 1,272,000 | |
Investment in private community bank | |
| 400,000 | |
Distributions from Level 3 investments, net of gains | |
| (104,000 | ) |
Transfers from Level 2 | |
| — | |
Balance at December 31, 2014 | |
$ | 1,568,000 | |
6.
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 Note 9 for discussion on notes payable by CII to T.G.I.F. This investment is recorded
under the equity method of accounting. For the years ended December 31, 2014 and 2013, income from investment in affiliate amounted
to approximately $19,000 and $94,000, respectively and is included in net income from other investments in the consolidated statements
of comprehensive income. In December 2014 and 2013 T.G.I.F. declared and paid a cash dividend of $.07 per share. CII’s dividend
amount received was approximately $196,000 each year. This dividend is recorded as a reduction in the carrying amount of CII investment
in T.G.I.F. as required under the equity method of accounting.
7.
LOANS, NOTES AND OTHER RECEIVABLES
| |
| |
| |
As of December 31, | |
Description | |
2014 | | |
2013 | |
Promissory note and accrued interest due from purchaser of Grove Isle (a) | |
$ | 1,034,000 | | |
$ | 1,034,000 | |
Promissory note and accrued interest due from individual (b) | |
| 205,000 | | |
| 214,000 | |
Other | |
| 162,000 | | |
| 160,000 | |
Total loans, notes and other receivables | |
$ | 1,401,000 | | |
$ | 1,408,000 | |
| |
| | | |
| | |
| (a) | In
February 2013, the Company sold its interest in Grove Isle and related entities and received
a $1 million promissory note from the purchaser as part of the purchase proceeds. This
note bears interest of 4% per annum and will mature upon the earlier of ten years (February
25, 2023) or when any expansion or development occurs at Grove Isle (as defined in the
purchase agreement). All interest due on this loan has been collected. |
| (b) | 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. In
2010 $197,000 of principal payments were received. As of December 31, 2014 and 2013 the
principal outstanding on this loan was $203,000. In February 2014, the loan was modified
and the maturity date was extended to February 1, 2015. In 2015, the loan was further
modified with the maturity date extended to June 30, 2015 and the interest rate reduced
from 9% to 8% per annum. All interest due on the loan has been collected. |
8.
INVESTMENT IN REAL ESTATE PARTNERSHIP
In September
2014, the Company, through a newly-formed wholly owned subsidiary (HMG Orlando LLC, a Delaware limited liability company), acquired
a one-third equity membership interest in JY-TV Associates, LLC a Florida limited liability company (“JY-TV”) and
entered into the Amended and Restated Operating Agreement of JY-TV (the “Agreement”). JY-TV was formed in 2014 for
the sole purpose of purchasing and constructing up to two hundred fifty (250) unit rental apartments on approximately 9.5 acres
in Orlando, Florida. The other two initial members of JY-TV are not related to the Company. As provided in the Agreement, the
three members have each committed to fund approximately $1.8 million in equity in this project.
As
of December 31, 2014 the Company has funded $250,000 towards this commitment, and has funded another $1.185 million to date in
2015. In February 2015 JY-TV completed the purchased the 9.5 acres for approximately $3.4 million. JY-TV is in the process of
obtaining construction financing of approximately $27 million and construction is expected to commence in 2015. This investment
is accounted for under the equity method.
9.
NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES
The
Company has an agreement (the “Agreement”) with HMGA, Inc. (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, CEO and President. The officers and directors of the Adviser
are as follows: Maurice Wiener, Chairman of the Board, President and Chief Executive Officer; 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
September 2014, the shareholders approved the renewal of the Advisory Agreement between the Company and the Adviser for a term
commencing January 1, 2015 and expiring December 31, 2015, under the same terms as in 2014.
For
the years ended December 31, 2014 and 2013, the Company incurred Adviser fees of approximately $714,000 and $3,116,000, respectively,
of which $660,000 and $1,020,000 represented regular compensation for 2014 and 2013, respectively. In 2014 and 2013 Advisor fees
include $54,000 and $2,096,000 in incentive fee compensation, respectively.
The
Adviser leases its executive offices from CII pursuant to a lease agreement. This lease agreement 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. In 2014, the lease term was extended one year, expiring in November 2015,
with two one-year extensions options available.
In
2014, South Bayshore Associates (“SBA”), a 75% owned joint venture was dissolved and the note payable to the Company
of $905,000 was distributed 75% to the Company (previously eliminated in consolidation) and 25% to Transco (a 45% shareholder
of the Company and SBA’s other venture partner). Transco repaid its portion of the note (approximately $226,000) in June
2014 and the Company recognized this amount as other income.
Mr.
Wiener is an 19% shareholder and the chairman and director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII. As of December
31, 2014 and 2013, T.G.I.F. had amounts due from CII in the amount of approximately $2,100,000 and $2,503,000, respectively. These
amounts are due on demand and bear interest at the prime rate (3.25% at December 31, 2014). All interest due has been paid.
As
of December 31, 2014, and 2013 T.G.I.F. owns 10,000 shares of the Company’s common stock it purchased at market value in
1996.
As
of December 31, 2014 and 2013, 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 approximately $23,000 for each of the years ended December
31, 2014 and 2013.
10.
INCOME TAXES
One
of the qualifications the Company must satisfy in order to be considered a REIT is the asset tests relating to the nature and
diversification of its assets determined in accordance with generally accepted accounting principles. The asset tests must be
satisfied within 30 days after the close of each quarter of the REIT’s taxable year. The key asset test requires that at
least 75% of the value of the REIT’s total assets must be represented by real estate assets, cash, cash items (including
receivables arising in the ordinary course of operation), government securities and qualified temporary investments. During the
fourth quarter of 2014 the Company discovered that it fell short of meeting the 75% asset test. However, a REIT is deemed
to have satisfied the asset test, if management has taken steps outlined under the safe harbor provisions of section 856(c)(7)
of the Internal Revenue Code to correct the failure within the time period provided under the safe harbor rules. Under such rules
the REIT must 1) pay a tax equal to the 35% maximum corporate rate on the income from the assets that caused the failure or $50,000
(the excise tax), whichever is greater, 2) disclose the discrepancy and corrections on a disclosure schedule in its 2014 tax
return, and 3) dispose of any asset that caused the REIT to fail the test within six months after the last day of the quarter
in which the discrepancy was discovered or otherwise meet the test within the same six month time period. In addition, management
must have reasonable cause for not satisfying the test. Management is taking these steps and intends to include the disclosure
statement in the tax return for the REIT, which will be filed by September 15, 2015. In addition, the $50,000 excise tax has been
accrued as of December 31, 2014 and paid to the IRS as of March 15, 2015. Management believes it has reasonable cause for failing
the test, and expects to meet the 75% asset test as of June 30, 2015. As such, the Company fully anticipates that it will still
qualify as a REIT for 2014 and beyond and thus will not be subject to federal income taxation.
The
Company (excluding CII) as a qualifying real estate investment trust 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.
As
previously reported, in January 2015, the Company paid a cash dividend of approximately $527,000 (or $.50 per share) to shareholders
of record as of December 29, 2014. This dividend was a return of capital to shareholders.
As
previously reported, in November 2013, the Company paid a cash dividend of $4.2 million (or $4.00 per share) to shareholders of
record as of November 1, 2013. This dividend reduced 2013 REIT taxable income and was a distribution of REIT tax capital gains
primarily from gain on sales of real estate interests in 2013. The Company’s undistributed tax capital gains for the year
ended December 31, 2013 were approximately $3.8 million (or $3.67 per share), after giving effect for the utilization of $5.1
net operating loss carryover. The Company (REIT only, excluding CII) had federal and state tax liability of $1.35 million and
$250,000, respectively as of December 31, 2013. The $1.6 million federal and state liability was netted in gain from sale of discontinued
operations.
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 ASC Topic 740, “Accounting for Income Taxes”. ASC Topic 740 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. 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 of December 31, 2014 the Company has recorded a net deferred tax liability of $217,000 as a result
of timing differences associated with the carrying value of the investment in affiliate (TGIF) and other investments. CII’s
NOL carryover to 2014 is estimated at $1.3 million expiring in 2033 and has been fully reserved due to CII historically having
tax losses.
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, 2014 and 2013 were as follows:
| |
| | |
| |
| |
2014 | | |
2013 | |
Income before income taxes | |
$ | 225,000 | | |
$ | 17,684,000 | |
Computed tax at federal statutory rate of 34% | |
$ | 76,000 | | |
$ | 6,012,000 | |
State taxes at 5.5% | |
| 12,000 | | |
| 973,000 | |
REIT capital gains dividend paid | |
| — | | |
| (1,645,000 | ) |
Utilization of net operating loss carryover | |
| (17,000 | ) | |
| (2,408,000 | ) |
REIT related adjustments | |
| 218,000 | | |
| (407,000 | ) |
Unrealized gain from marketable securities for book not tax | |
| (298,000 | ) | |
| (26,000 | ) |
Other items, net | |
| 1,000 | | |
| 9,000 | |
Tax (benefit from) provision for income taxes | |
$ | (8,000 | ) | |
$ | 2,508,000 | |
| |
| | | |
| | |
The
REIT related adjustments represent the difference between estimated taxes on undistributed income and/or capital gains and book
taxes computed on the REIT’s income before income taxes.
The
benefit from income taxes in the consolidated statements of comprehensive income consists of the following:
| |
| | |
| |
Year ended December 31, | |
2014 | | |
2013 | |
Current: | |
| | | |
| | |
Federal | |
$ | — | | |
$ | 1,347,000 | |
State | |
| (8,000 | ) | |
| 246,000 | |
| |
| (8,000 | ) | |
| 1,593,000 | |
Deferred: | |
| | | |
| | |
Federal | |
$ | 22,000 | | |
$ | 905,000 | |
State | |
| 2,000 | | |
| 10,000 | |
| |
| 24,000 | | |
| 915,000 | |
Additional valuation allowance | |
| (24,000 | ) | |
| | |
Total | |
$ | (8,000 | ) | |
$ | 2,508,000 | |
As
of December 31, 2014 and 2013, the components of the deferred tax assets and liabilities are as follows:
| |
| | |
| | |
| | |
| |
| |
As of December 31, 2014 Deferred tax | | |
As of December 31, 2013 Deferred tax | |
| |
Assets | | |
Liabilities | | |
Assets | | |
Liabilities | |
Net operating loss carry forward | |
$ | 487,000 | | |
| | | |
$ | 504,000 | | |
| | |
Excess of book basis of 49% owned corporation over tax basis | |
| | | |
$ | 407,000 | | |
| | | |
$ | 424,000 | |
Unrealized gain on marketable securities | |
| | | |
| 87,000 | | |
| | | |
| 105,000 | |
Excess of tax basis over book basis of other investments | |
| 306,000 | | |
| 98,000 | | |
| 306,000 | | |
| 104,000 | |
Valuation allowance | |
| (418,000 | ) | |
| | | |
| (394,000 | ) | |
| | |
Totals | |
$ | 375,000 | | |
$ | 592,000 | | |
$ | 416,000 | | |
$ | 633,000 | |
11.
STOCK-BASED COMPENSATION
The
Company’s 2011 Stock Option Plan (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.
The
Company’s policy is to record stock compensation expense in accordance with ASC Topic 505-50, “Equity-Based Payments
to Non-Employees”. Stock based compensation expense is recognized using the fair-value method for all awards. There were
no stock options granted during the year ended December 31, 2014.
For
the year ended December 31, 2013 the Company granted 17,700 reload options related to options previously granted which were exercised
during the year. A reload stock option is granted for the number of shares tendered as payment for the exercise price and tax
withholding obligation (if any) upon the exercise of a stock option with a reload provision. The exercise price of the reload
option is equal to the market price of the stock on the date of grant and the reload option will expire on the same date as the
original option which was exercised. The Company determined the fair value of its option awards using the Black-Scholes option
pricing model. The following assumptions were used to value the reload options granted during the year ended December 31, 2013:
3 year expected life; expected volatility of approximately 37%; risk-free of .11% and annual dividend yield of 17%. The expected
life for options granted during the period represents the period of time that options are to be outstanding based on the expiration
date of the Plan. Expected volatilities are based upon historical volatility of the Company’s stock over a period equal
to the 3 year expected life.
The
weighted average fair value for the 17,700 reload options granted during the year ended December 31, 2013 was $18.35 per share.
The Company’s
non-employee stock compensation expense based on the fair value at the date of grant for stock options was approximately $20,000
for the year ended December 31, 2013, and is included in the results of operations in the condensed consolidated financial statements.
As
of December 31, 2014 and 2013, there is no unrecognized non-employee stock compensation expense related to unvested stock options
under the Plan.
A
summary of the status of the Company’s stock option plan as of December 31, 2014 and 2013, and changes during the periods
ending on those dates are presented below:
| |
| | |
| |
| |
As of December 31, 2014 | | |
As of December 31, 2013 | |
| |
Shares | | |
Weighted Average Exercise Price | | |
Shares | | |
Weighted Average Exercise Price | |
Outstanding at the beginning of the period | |
| 22,700 | | |
$ | 15.37 | | |
| 102,100 | | |
$ | 4.99 | |
Granted | |
| — | | |
$ | — | | |
| 17,700 | | |
$ | 18.35 | |
Exercised | |
| (5,000 | ) | |
$ | 4.80 | | |
| (97,100 | ) | |
$ | 5.00 | |
Expired | |
| — | | |
| — | | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | | |
| — | | |
| — | |
Outstanding at the end of the period | |
| 17,700 | | |
$ | 18.35 | | |
| 22,700 | | |
$ | 15.37 | |
| |
| | | |
| | | |
| | | |
| | |
Options exercisable at period-end | |
| 17,700 | | |
$ | 18.35 | | |
| 22,700 | | |
$ | 15.37 | |
Weighted average fair value of options granted during the period | |
| 17,700 | | |
| — | | |
– | 17,700 | | |
$ | 18.35 | |
Aggregate intrinsic value of outstanding and exercisable options at the end of the period | |
| 17,700 | | |
| — | | |
| 22,700 | | |
$ | 2.63 | |
The
intrinsic value of options exercised during the years ended December 31, 2014 and 2013 was approximately $39,000 and $1.3 million,
respectively.
The
following table summarizes outstanding and exercisable options as of December 31, 2014:
| | |
| |
Number Outstanding and exercisable | | |
Weighted Average Strike Prices | |
| 9,500 | | |
$ | 17.84 | |
| 7,500 | | |
$ | 18.89 | |
| 700 | | |
$ | 19.50 | |
| 17,700 | | |
$ | 18.35 | |
As
of December 31, 2014, the options outstanding and exercisable had no intrinsic value.
12.
BASIC AND DILUTED EARNINGS PER SHARE
There was
no difference between basic and diluted weighted average common shares for the year ended December 31, 2014.
Basic
and diluted earnings per share for the year ended December 31, 2013 were computed as presented in the table below.
| |
| |
Basic: | |
For the year ended December 31, 2013 | |
Net income | |
$ | 15,175,987 | |
| |
| | |
Weighted average shares outstanding | |
| 1,004,599 | |
Basic earnings per share | |
$ | 15.11 | |
Diluted: | |
For the year ended December 31, 2013 | |
Net income | |
$ | 15,175,987 | |
| |
| | |
Weighted average shares outstanding | |
| 1,004,599 | |
Plus incremental shares from assumed conversion | |
| 1,468 | |
| |
| | |
Diluted weighted average common shares | |
| 1,006,067 | |
Diluted earnings per share | |
$ | 15.08 | |
13.
DISCONTINUED OPERATIONS AND REAL ESTATE INTERESTS HELD FOR SALE
As previously
reported, on February 25, 2013 the Company completed the sale of its interests in Grove Isle Associates LLLP, Grove Isle Yacht
Club Associates, Grove Isle Investments Inc. and CII Yacht Club, Inc., which represent interests in the Grove Isle hotel, club,
tennis courts and marina (collectively, the “Grove Isle Property”) to Grove Isle Yacht & Tennis, LLC, a Florida
limited liability company and an unrelated entity (“the Purchaser”), pursuant to a purchase agreement entered into
on the same day (the “Agreement”). The purchase price was $24.4 million, consisting of $23.4 million in cash and a
$1 million promissory note due from the Purchaser. Approximately $2.7 million of the proceeds were used to pay off the existing
mortgage on the Grove Isle Property. The Company realized gain on the sale of these interests (including amounts received in June
2013 described below) of approximately $19 million (or $19 per share) net of incentive fee due to the Adviser of approximately
$2.1 million.
In June
2013 the Company received approximately $327,000 of past due rental payments from the Grove Isle tenant. This amount is included
in the realized gain on the sale of Grove Isle. Also in June 2013 the Purchaser exercised its option to purchase our 50% interest
in the spa for $100,000 as provided in the Agreement. There was no gain or loss realized on this transaction.
As
previously reported, on March 29, 2013, pursuant to a Membership Interests Purchase Agreement (the “Agreement”) entered
into in December 2012, HMG/Courtland Properties, Inc. and its 95% owned subsidiary, Courtland Investments, Inc. (the “Company”),
completed the sale of the Company’s 50% membership interests in Bayshore Landing LLC, Bayshore Rawbar LLC and Bayshore Restaurant
LLC, (collectively the “Monty’s property) to the other 50% owner, The Christoph Family Trusts, which are unrelated
entities. The purchase price for the membership interests of $3 million was paid in cash. The Company realized a loss on the sale
of these interests of approximately $28,000 (or $.03 per share).
For
the year ended December 31, 2013, we have classified the results of operations for the real estate interests discussed above into
discontinued operations in the accompanying consolidated financial statements of operations.
| |
| |
Revenues: | |
2013 | |
Rental and related revenue | |
$ | 171,000 | |
Food & beverage sales | |
| 1,950,000 | |
Marina revenue | |
| 382,000 | |
Other | |
| — | |
Total revenue | |
$ | 2,503,000 | |
Expenses: | |
| | |
Rental operating expenses | |
| 97,000 | |
Food & beverage operation expenses | |
| 1,430,000 | |
Marina expenses | |
| 178,000 | |
Professional fees | |
| 53,000 | |
Interest expense | |
| 190,000 | |
Depreciation, amortization and other expenses | |
| 199,000 | |
Total expenses | |
$ | 2,147,000 | |
| |
| | |
Less: noncontrolling interest sold | |
| (212,000 | ) |
| |
| | |
Gain on sale of discontinued operations, net of incentive fee | |
| 18,803,000 | |
| |
| | |
Provision for income tax expense on gain on sale of discontinued operations | |
| (2,508,000 | ) |
Income from discontinued operations | |
$ | 16,439,000 | |
| |
| | |
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item
9A. Controls and Procedures.
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.
Management’s
Assessment on Internal Control over Financial Reporting/Limitations on the Effectiveness of Controls and Permitted Omission from
Management’s Assessment
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted
an evaluation of the effectiveness of the internal controls over financial reporting (as defined in Rule 13a-15(f) promulgated
under the Exchange Act) based on the 1992 framework in Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the “COSO”). Management has selected the COSO framework for its evaluation
as it is a control framework recognized by the SEC and the Public Company Accounting Oversight Board that is free from bias, permits
reasonably consistent qualitative and quantitative measurement of our internal controls, is sufficiently complete so that relevant
controls are not omitted and is relevant to an evaluation of internal controls over financial reporting.
Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error
and the circumvention or overriding of controls. Accordingly, even effective internal controls can only provide reasonable assurance
with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Management,
including the Principal Executive and Principal Financial Officers, based on their evaluation of our internal control over financial
reporting, has concluded that our internal control over financial reporting was effective as of December 31, 2014.
This
annual report 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 rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.
Changes
in Internal Control Over Financial Reporting
During
the last fiscal quarter, we have not made any change to our internal control over financial reporting that has materially affected,
or is reasonably likely to materially affect, our internal control over financial reporting.
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, Chief Executive Officer, President and Secretary |
|
73 |
|
Chairman of the
Board, Chief Executive Officer, President and Secretary of the Adviser; Executive Trustee, Transco; Director, T.G.I.F.
Texas, Inc. |
|
|
|
|
|
Carlos Camarotti;
Vice President-Finance and Assistant Secretary |
|
54 |
|
Vice President
- Finance and Assistant Secretary of the Adviser. Vice President, Transco; Vice President, T.G.I.F. Texas, Inc. |
|
|
|
|
|
Larry Rothstein;
Director |
|
62 |
|
Director, President
and Secretary of the Company (until April 15, 2014); President and Secretary of the Adviser (until April 15, 2014); Trustee
and Vice President of Transco (until December 31, 2013); Vice President and Secretary, T.G.I.F. Texas, Inc. (until April 15,
2014). |
|
|
|
|
|
Walter Arader;
Director |
|
96 |
|
President, Walter
G. Arader and Associates (financial and management consultants). |
|
|
|
|
|
Harvey Comita;
Director |
|
85 |
|
Business Consultant;
Trustee of Transco Realty Trust. |
|
|
|
|
|
Richard Wiener;
Director |
|
73 |
|
Practicing attorney
- real estate and commercial transactions. |
All
executive officers of the Company were elected to their present positions to serve until their successors are elected and qualified
at the 2015 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.
Richard
M. Wiener was elected to the Board in 2010. Mr. Wiener (who is not related to Maurice Wiener) is a practicing attorney in New
York, specializing in real estate and commercial transactions for more than twenty-five years. He has broad experience in real
estate investment, development, financing and acquisitions. Mr. Wiener’s legal background and experience, and his long outstanding
involvement in the real estate industry are valuable to his service on the Board.
All
other 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 HMGA, Inc. 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 Walter Arader, Harvey
Comita and Richard Wiener (added in 2014). The Board of Directors has determined that each of Messrs. Arader, Comita and R. Wiener
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 compensation to existing directors for the year ended December 31, 2014:
| |
| | |
| | |
| | |
| |
Director | |
Annual Fee | | |
Board Meeting Fee | | |
Committee Meeting Fee | | |
Total Compensation | |
Maurice Wiener | |
$ | 17,100 | | |
$ | 3,750 | | |
| — | | |
$ | 20,850 | |
Larry Rothstein | |
| 14,500 | | |
| 3,750 | | |
$ | 1,500 | | |
| 19,750 | |
Walter Arader | |
| 12,000 | | |
| 3,000 | | |
| 2,250 | | |
| 17,250 | |
Harvey Comita | |
| 12,000 | | |
| 3,000 | | |
| 3,000 | | |
| 18,000 | |
Richard Wiener | |
| 12,000 | | |
| 3,750 | | |
| 750 | | |
| 16,500 | |
Totals | |
$ | 67,600 | | |
$ | 17,250 | | |
$ | 7,500 | | |
$ | 92,350 | |
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. The annual fee for directors is $12,000 per year plus meeting fees $750 per meeting. For the year ended December
31, 2014 Maurice Wiener and Larry Rothstein received, respectively, $5,000 and $2,500, in director fees per year from Courtland
Investments, Inc. included in the amounts above.
Outstanding
Equity Awards to Executive Officers.
The
following table summarizes all outstanding equity awards to the Company’s executive officers as of December 31, 2014.
| |
| | |
| | |
|
Executive Officer | |
Number of Options | | |
Exercise Price | | |
Expiration Date |
Maurice Wiener | |
| 9,500 | | |
| $17.84 per share | | |
August 25, 2016 |
Maurice Wiener | |
| 700 | | |
| $19.50 per share | | |
August 25, 2016 |
Stock
Options.
The
Company’s 2011 Stock Option Plan (the “Plan”), which was approved by the shareholders on August 25, 2011 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. In 2011 options were granted to all officers and directors to purchase an aggregate of 102,000 common shares at no
less than 100% of the fair market value at the date of grant. Options are not transferable and expire on August 25, 2016 or upon
termination of employment, except to a limited extent in the event of retirement, disability or death of the grantee.
The
Plan, which permits the grant of qualified and non-qualified options 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. Shares subject to an option
may be purchased by the optionee within five 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.
The following
table summarizes activity in equity awards to the Company’s executive officers for the year ended December 31, 2014.
| |
| | |
| |
| |
Maurice Wiener | |
| |
Shares | | |
Weighted Average Exercise Price | |
Outstanding at January 1, 2014 | |
| 10,200 | | |
$ | 17.95 | |
Granted | |
| — | | |
| — | |
Exercised | |
| — | | |
| — | |
Expired | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Outstanding at December 31, 2014 | |
| 10,200 | | |
$ | 17.95 | |
| |
| | | |
| | |
Options exercisable at period-end | |
| 10,200 | | |
$ | 17.95 | |
Weighted average fair value of options granted during the period | |
| 10,200 | | |
$ | 17.95 | |
Aggregate intrinsic value of outstanding and exercisable options at the end of the period | |
| 10,200 | | |
| — | |
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.
| |
| | |
| | |
| |
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 | |
| 45,846 | (4) | |
| 541,830 | (3),
(5) | |
| 587,676 55 | % |
| |
| | | |
| | | |
| | |
Carlos Camarotti | |
| 8,700 | (4) | |
| | | |
| 8,700 * | % |
| |
| | | |
| | | |
| | |
Larry Rothstein | |
| 47,900 | (4) | |
| | | |
| 47,900 4 | % |
| |
| | | |
| | | |
| | |
Walter G. Arader | |
| 5,058 | (4) | |
| | | |
| 5,058 * | |
| |
| | | |
| | | |
| | |
Harvey Comita | |
| 10,000 | (4) | |
| 477,300 | (6) | |
| 487,300 45 | % |
| |
| | | |
| | | |
| | |
All Directors and Officers as a Group | |
| 117,504 | (4) | |
| 541,830 | (3) | |
| 659,334 62 | % |
| |
| | | |
| | | |
| | |
Transco Realty Trust 1870 S. Bayshore Drive Coconut Grove, FL 33133 | |
| 477,300 | (5) | |
| | | |
| 477,300 46 | % |
| |
| | | |
| | | |
| | |
Comprehensive Financial Planning, Inc. 3950 Fairlane Drive Dacula, GA 30019 | |
| 136,794 | (9) | |
| | | |
| 136,794 13 | % |
*
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 (Transco) (477,300
shares), HMGA, Inc. (HMGA) (54,530 shares) and T.G.I.F. Texas, Inc. (T.G.I.F.) (10,000
shares). Mr. M. Wiener is a director of T.G.I.F. and a trustee of Transco. Mr. H. Comita
is a trustee of Transco. |
| (4) | This
number includes options granted and outstanding under the 2011 Stock Option Plan. These
options have been granted to Mr. M. Wiener, 10,200; Mr. Rothstein, 7,500. Reference is
made to Item 11. Executive Compensation for further information about the 2011
Stock Option Plan. |
| (5) | Mr.
Wiener holds approximately 55% of the stock of Transco and approximately 72% of HMGA
Inc., and may therefore be deemed to be the beneficial owner of the shares of the Company
held by Transco and HMGA Inc. |
| (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 these 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. |
| (9) | Comprehensive
Financial Planning, Inc. has shared investment power on all shares and sole voting power
on all shares. |
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 45% shareholder of the Company of which Mr. Wiener is its executive trustee and holds 55% of its stock.
HMGA,
Inc. (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.
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.
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.
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’s subsidiary CII and leased to the Adviser pursuant to a lease agreement originally dated
December 1, 1999, and as renewed in 2009 and 2014. The lease provides for base rent of $48,000 per year payable in equal monthly
installments during the one year term of the lease which expires on December 1, 2015 and can be extended for two one-year terms.
The Adviser, as tenant, pays utilities, certain maintenance and security expenses relating to the leased premises.
As of December
2014 and 2013, the Company owes the Advisor approximately $54,000 and $2.1 million, respectively, in incentive fee from capital
gains.
CII.
The
Company holds a demand note due from its 95%-owned consolidated subsidiary, CII. The note bears interest at a fixed rate of 5%
per annum, payable quarterly. The outstanding principal balance of the note was $1,000,000 as of December 31, 2014 and 2013, respectively.
There were no principal repayments or advances relating to this note during 2014. Repayments from CII to the Company during 2013
were $222,000, and advances from the Company to CII during 2013 were $130,000. CII is a consolidated subsidiary of the Company
and the note payable and related interest is eliminated in consolidation. The note is secured by a mortgage security agreement
with the Company’s executive offices as collateral.
T.G.I.F.
As
of December 31, 2014 and 2013, CII owed approximately $2,100,000 and $2,503,000, respectively, to T.G.I.F. All advances between
CII and T.G.I.F. are due on demand and bear interest at the prime rate plus 1%. All interest due has been paid.
As
of December 31, 2014 and 2013, 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 $22,000 for the years ended December 31, 2014 and 2013. Also, T.G.I.F. owns 10,000 shares of the
Company which were purchased in 1996 at the market value. In 2014 and 2013 T.G.I.F. declared and paid a cash dividend of $.07
per share. CII’s portion of the dividends was approximately $196,000 each year.
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, 2014 and December 31, 2013 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, 2014 | | |
December 31, 2013 | |
Audit fees, including reviews of quarterly financial statements | |
$ | 47,000 | | |
$ | 45,000 | |
Tax fees (consists of fees relating to tax compliance and planning) | |
| 84,000 | | |
| 28,000 | |
Total Fees | |
$ | 131,000 | | |
$ | 73,000 | |
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 31, 2015 |
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 31, 2015 |
Maurice Wiener |
|
|
Chairman of the
Board, President and Secretary |
|
|
Chief Executive
Officer |
|
|
|
|
|
/s/ Carlos
Camarotti |
|
March 31, 2015 |
Carlos Camarotti |
|
|
Vice President
– Finance |
|
|
Principal Financial
Officer |
|
|
|
|
|
/s/ Larry
Rothstein |
|
March 31, 2015 |
Larry Rothstein |
|
|
Director |
|
|
|
|
|
/s/ Walter
G. Arader |
|
March 31, 2015 |
Walter G. Arader,
Director |
|
|
|
|
|
/s/ Harvey
Comita |
|
March 31, 2015 |
Harvey Comita,
Director |
|
|
|
|
|
/s/ Richard
Wiener |
|
March 31, 2015 |
Richard Wiener,
Director |
|
|
|
|
|
EXHIBIT
INDEX
|
|
|
|
|
|
|
Description |
|
|
|
|
|
|
|
(3) |
(a) |
Certificate of
Incorporation as amended |
|
Incorporated by
reference to Exhibit 3(a) to the 2010
Form 10-K. |
|
|
|
|
|
|
(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. |
|
Incorporated by
reference to Exhibit 10(f) to the 1999
Form 10-KSB |
|
|
|
|
|
|
(e) |
Amendment to Amended
and restated lease agreement between Grove Isle Associates, Ltd. and Westgroup Grove Isle Associates, Ltd. dated December
1, 1999. |
|
Incorporated by
reference to Exhibit 10(g) to the 1999
Form 10-KSB |
|
|
|
|
|
|
(f) |
Lease agreement
between Courtland Investments, Inc. and HMG Advisory Corp. dated December 1, 1999. |
|
Incorporated by
reference to Exhibit 10(h) to the 1999
Form 10-KSB |
|
|
|
|
|
|
(g) |
2000 Incentive
Stock Option Plan of HMG/ Courtland Properties, Inc. |
|
Incorporated by
reference to Exhibit 10(h) to the 2001
Form 10-KSB |
|
|
|
|
|
|
(h) |
Amended and Restated
Advisory Agreement between the Company and HMG Advisory Corp. effective January 1, 2003. |
|
Incorporated by
reference to Exhibit 10(i) and 10(j) to the 2002 Form 10-KSB |
|
|
|
|
|
|
(i) |
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 |
|
Incorporated by
reference to Exhibit 10(i) to the 2004
Form 10-KSB |
|
|
|
|
|
|
(j) |
Operating Agreement
of Grove Spa, LLC dated September 15, 2004 |
|
Incorporated by
reference to Exhibit 10(j) to the 2004
Form 10-KSB |
|
|
|
|
|
|
(k) |
Sublease
between Westgroup Grove Isle Associates, Ltd. and Grove Spa, LLC dated September 15, 2004 |
|
Incorporated
by reference to Exhibit 10(k) to the 2004
Form 10-KSB Included herein. |
|
|
|
|
|
|
(l) |
Purchase
and Sale Agreement (“Acquisition of Monty’s”) between Bayshore Restaurant Management Corp. and Bayshore
Landing, LLC dated August 20, 2004 |
|
Incorporated
by reference to Exhibit 10(l) to the 2004
Form 10-KSB |
|
|
|
|
|
|
(m) |
Ground
Lease between City of Miami and Bayshore Landing, LLC dated August 20, 2004 and related document |
|
Incorporated
by reference to Exhibit 10(m) to the 2004
Form 10-KSB |
|
(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 |
|
|
|
|
|
|
(o) |
Operating
Agreement of Bayshore Landing, LLC dated August 19, 2004 |
|
Incorporated
by reference to Exhibit 10(o) to the 2004
Form 10-KSB |
|
|
|
|
|
|
(p) |
Management
Agreement for Bayshore Rawbar, LLC executed by RMI, LLC |
|
Incorporated
by reference to Exhibit 10(p) to the 2004
Form 10-KSB |
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
(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 |
|
|
|
|
|
|
(s) |
Assignment
and Assumption of Management Agreement by Noble House Grove Isle, Ltd.
To GH-Grove Isle Management LLC
And Consent by Grove Spa, LLC |
|
Incorporated
by reference to Exhibit 10(s) to the 2008
Form 10-K |
|
|
|
|
|
|
(t) |
Third
Amendment to Amended and Restated Lease Agreement |
|
Incorporated
by reference to Exhibit 10(t) to the 2008
Form 10-K |
|
|
|
|
|
|
(u) |
Assignment
and Assumption of Lease and Consent of Landlord |
|
Incorporated
by reference to Exhibit 10(u) to the 2008
Form 10-K |
|
|
|
|
|
|
(v) |
Amendment
to Operating Agreement of Grove Spa, LLC, A Delaware Limited Liability Company |
|
Incorporated
by reference to Exhibit 10(v) to the 2008
Form 10-K |
|
|
|
|
|
|
(w) |
First Amendment
to Management Agreement |
|
Incorporated by
reference to Exhibit 10(w) to the 2008
Form 10-K |
|
|
|
|
|
|
(x) |
Interest
Purchase Agreement by and among Courtland Investments, Inc., HMG/Courtland Properties, Inc. as Seller and Grove Isle Yacht
and Tennis Club, Inc. and Grove Isle Associates LLLP, CII Spa, LLC, Grove Isle Investments, Inc. CII Yacht Club, Inc. and
Grove Isle Yacht Club Associates – February 25, 2013 |
|
Incorporated
by reference to Exhibit 99.1 to Form 8-K filed on February 25, 2013. |
|
|
|
|
|
|
(y) |
Membership
Interests Purchase Agreement (HMG to Christoph) by and among The Christoph Family Trusts, as Purchasers and HMG Bayshore,
LLC, Courtland Bayshore Rawbar, LLC and Courtland Bayshore Restaurant, LLC as Sellers |
|
Incorporated
by reference to Exhibit 10(y) to Form 8-K filed on April 3, 2013. |
|
|
|
|
|
|
(z) |
Amended
and Restated Operating Agreement of JY-TV Associates LLC. |
|
Incorporated
by reference to Exhibit 10(z) to Form 10-Q filed on November 14, 2014. |
|
|
|
|
|
(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 |
|
|
|
|
|
(21) |
|
Subsidiaries
to the Company |
|
Included
herein. |
|
|
|
|
|
(31) |
(a) |
Certification
of Chief Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Included
herein. |
|
|
|
|
|
|
(b) |
Certification
of Chief Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Included
herein. |
|
|
|
|
|
(32) |
(a) |
Certification
of Chief Executive Officer pursuant to 18 U.S.C. § 1350 as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002 |
|
Included herein. |
|
|
|
|
|
|
(b) |
Certification
of Chief Financial Officer pursuant to 18 U.S.C. § 1350 as adopted pursuant to § 906 of the Sarbanes-Oxley Act of
2002 |
|
Included
herein. |
EXHIBIT
21
EXHIBIT
21: SUBSIDIARIES OF THE COMPANY
260
RIVER CORP., a Vermont Corporation
BALEEN ASSOCIATES Inc., a Florida Corporation
COURTLAND INVESTMENTS, INC., a Delaware Corporation
HMG ORLANDO, LLC, a Delaware limited liability company
HMG BAYSHORE,
LLC, a Florida limited liability company
EXHIBIT
31A
EXHIBIT 31A: CERTIFICATION REQUIRED UNDER SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I,
Maurice Wiener, certify that:
1.
I have reviewed this annual report on Form 10-K of HMG/Courtland Properties, Inc.
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s internal controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the design or operation of internal controls which could adversely affect
the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s
auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
|
Date:
March 31, 2015 |
|
/s/
Maurice Wiener |
|
Maurice
Wiener, Principal Executive Officer |
EXHIBIT
31B
EXHIBIT
31B: CERTIFICATION REQUIRED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Carlos Camarotti, certify that:
1.
I have reviewed this annual report on Form 10-K of HMG/Courtland Properties, Inc.
2.
Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;
3.
Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s internal controls and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors
(or persons performing the equivalent function):
a)
all significant deficiencies and material weaknesses in the design or operation of internal controls which could adversely affect
the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s
auditors any material weaknesses in internal controls; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting.
|
Date:
March 31, 2015 |
|
/s/
Carlos Camarotti |
|
Carlos
Camarotti, Principal Financial Officer |
EXHIBIT
32A
EXHIBIT
32A: CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of HMG/Courtland Properties, Inc. (the “Company”) on Form 10-K for the year ending
December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Maurice
Wiener, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The
Report fully complies with the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934; and |
| (2) | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company for the periods indicated in the Report. |
|
|
/s/
Maurice Wiener |
|
Maurice
Wiener, Principal Executive Officer |
HMG/Courtland
Properties, Inc. |
EXHIBIT
32B
EXHIBIT
32B: CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In
connection with the Annual Report of HMG/Courtland Properties, Inc. (the “Company”) on Form 10-K for the year ending
December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Larry
Rothstein, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The
Report fully complies with the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934; and |
| (2) | The
information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company for the periods indicated in the Report. |
|
|
/s/
Carlos Camarotti |
|
Carlos
Camarotti, Principal Financial Officer |
HMG/Courtland
Properties, Inc. |
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