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 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 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 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, 2015, the Company reported a
net loss attributable to the Company of approximately $1,060,000 ($1.02 per share). For the year ended December 31, 2014, the
Company reported net income of approximately $233,000 ($.22 per share). The net loss in 2015, as further explained below, was
primarily the result of increased legal fees and decreased gains from marketable securities.
Revenues
:
Total revenues for the years ended December 31, 2015 and 2014 were
approximately $65,000 and $77,000, respectively and is primarily comprised of rental revenue from the corporate office.
Expenses
:
Total expenses for the year ended December 31, 2015 as compared
to that of 2014 increased by approximately $373,000 (or 25%). This increase was primarily due to increased legal fees, partially
offset by decreased other general and administrative expenses. Legal fees increased by approximately $427,000 (587%) in 2015 as
compared to 2014. This was due to the Grove Isle litigation which was settled in September 2015.
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,
2015 and 2014, is as follows:
Description
|
|
2015
|
|
|
2014
|
|
Net realized gain from sales of marketable securities
|
|
$
|
50,000
|
|
|
$
|
400,000
|
|
Net unrealized (loss) gain from marketable securities
|
|
|
(402,000
|
)
|
|
|
259,000
|
|
Total net (loss) gain from investments in marketable securities
|
|
$
|
(352,000
|
)
|
|
$
|
659,000
|
|
Net realized gain from sales of marketable securities consisted
of approximately $487,000 of gains net of $437,000 of losses for the year ended December 31, 2015. The comparable amounts in fiscal
year 2014 were approximately $523,000 of gains net of $123,000 of losses.
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 Statement of 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):
|
|
2015
|
|
|
2014
|
|
Venture capital funds – diversified businesses (a)
|
|
$
|
151,000
|
|
|
$
|
90,000
|
|
Partnerships owning real estate and related investments
|
|
|
149,000
|
|
|
|
11,000
|
|
Investment in 49% owned affiliate and other (b)
|
|
|
22,000
|
|
|
|
19,000
|
|
Total net income from other investments
|
|
$
|
322,000
|
|
|
$
|
120,000
|
|
(a) The gains in 2015 and 2014 consist of various cash distributions
from investments owning diversified businesses and real estate and related investments which made cash distributions from the sale
or refinancing of operating companies. The increase in gain between 2015 and 2014 from partnerships owning real estate and related
investments primarily consisted of $85,000 from one investment in a limited partnerships which sold various real estate interests
and distributed proceeds in 2015.
(b) This gain represents income from the Company’s
49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”). In 2015 and 2014 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
|
|
2015
|
|
|
2014
|
|
Technology and related
|
|
$
|
-
|
|
|
$
|
(11,000
|
)
|
Total other than temporary impairment loss from other investments
|
|
$
|
|
|
|
$
|
(11,000
|
)
|
There were no OTTI losses for the year ended December 31, 2015.
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.
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, 2015 as compared with 2014 decreased by approximately $121,000 (or 13%), primarily due to decreased other income from a non-recurring
gain of approximately $282,000 from the dissolution of South Bayshore Associates (SBA), as previously reported. This decrease
was partially offset by approximately $161,000 in increased dividends and 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
).
There was no provision for or benefit from income taxes for the
year ended December 31, 2015. 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, 2015 the Company (excluding CII) has an estimated
tax net operating loss carryover (NOL) of approximately $333,000.
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, 2015 and 2014, the Company has
recorded a net deferred tax liability of $217,000.
As of December 31, 2015, CII has an estimated NOL of approximately
$1.2 million which has been fully reserved due to CII historically having tax losses.
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 $1.8 million due on demand (see
Item 13. Certain Relationships and Related
Transactions and Director Independence
), and contributions committed to other investments of approximately $2.7 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 and equivalents ($11.2 million at December 31, 2015).
A summary of the Company’s contractual cash obligations at
December 31, 2015 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
|
|
$
|
1,800,000
|
|
|
$
|
1,800,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Other investments commitments
|
|
|
2,700,000
|
|
|
|
2,700,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
4,500,000
|
|
|
$
|
4,500,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
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, 2015, net cash used in operating
activities was approximately $1.3 million, primarily consisting of net loss before income taxes of approximately $1.1 million,
plus approximately $235,000 of payment of accounts payable, accrued expenses and other liabilities relating to 2014.
For the year ended December 31, 2015, net cash used in investing
activities was approximately $621,000 and consisted primarily of $6.8 million of purchases of marketable securities, $2 million
investment in real estate partnership (Orlando) and $1.8 million of contributions to other investments. These uses of funds were
partially offset by proceeds from sales of marketable securities of $7.8 million and distributions from other investments of $1.98
million.
For the year ended December 31, 2015, net cash provided by financing
activities was approximately $3.7 million and consisted primarily of $4.75 million of margin borrowings, partially offset by repayment
of note payable to affiliate of $300,000, dividend paid of $527,000 and purchase of treasury stock of $214,000.
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, 2015 and
2014, and the related consolidated statements of 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, 2015 and 2014, 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 23, 2016
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2015
|
|
|
2014
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Investment properties, net of accumulated depreciation:
|
|
|
|
|
|
|
|
|
Office building and other commercial property
|
|
$
|
833,680
|
|
|
$
|
793,749
|
|
Total investment properties, net
|
|
|
833,680
|
|
|
|
793,749
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
11,213,385
|
|
|
|
9,451,152
|
|
Investments in marketable securities
|
|
|
10,507,750
|
|
|
|
11,790,037
|
|
Other investments
|
|
|
3,895,317
|
|
|
|
3,793,420
|
|
Investment in affiliate
|
|
|
2,061,706
|
|
|
|
2,232,972
|
|
Loans, notes and other receivables
|
|
|
1,260,620
|
|
|
|
1,400,877
|
|
Investment in real estate partnership
|
|
|
2.322,695
|
|
|
|
281,663
|
|
Other assets
|
|
|
129,755
|
|
|
|
53,356
|
|
TOTAL ASSETS
|
|
$
|
32,224,908
|
|
|
$
|
29,797,226
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Note payable to affiliate
|
|
$
|
1,800,000
|
|
|
$
|
2,100,000
|
|
Margin payable
|
|
|
7,999,166
|
|
|
|
3,253,065
|
|
Dividends payable
|
|
|
517,747
|
|
|
|
526,963
|
|
Accounts payable, accrued expenses and other liabilities
|
|
|
23,132
|
|
|
|
210,691
|
|
Amounts due to the Adviser
|
|
|
36,799
|
|
|
|
54,111
|
|
Deferred income tax payable
|
|
|
217,000
|
|
|
|
217,000
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
10,593,844
|
|
|
|
6,361,830
|
|
|
|
|
|
|
|
|
|
|
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 issued as of December 31, 2015 and 2014
|
|
|
1,053,926
|
|
|
|
1,053,926
|
|
Additional paid-in capital
|
|
|
24,255,614
|
|
|
|
24,249,844
|
|
Less: Treasury shares at cost (18,433 and 800 shares as of December 31, 2015 and 2014, respectively)
|
|
|
(223,798
|
)
|
|
|
(9,377
|
)
|
Undistributed gains from sales of properties, net of losses
|
|
|
52,709,950
|
|
|
|
53,227,696
|
|
Undistributed losses from operations
|
|
|
(56,375,340
|
)
|
|
|
(55,315,000
|
)
|
Total stockholders’ equity
|
|
|
21,420,352
|
|
|
|
23,207,089
|
|
Noncontrolling interest
|
|
|
210,712
|
|
|
|
228,307
|
|
TOTAL STOCKHOLDERS’ EQUITY
|
|
|
21,631,064
|
|
|
|
23,435,396
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
32,224,908
|
|
|
$
|
29,797,226
|
|
See notes to the consolidated financial statements
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
2015
|
|
|
2014
|
|
REVENUES
|
|
|
|
|
|
|
|
|
Real estate rentals and related revenue
|
|
$
|
64,800
|
|
|
$
|
76,754
|
|
Total revenues
|
|
|
64,800
|
|
|
|
76,754
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Rental and other properties
|
|
|
114,050
|
|
|
|
96,039
|
|
Adviser’s base fee
|
|
|
660,000
|
|
|
|
660,000
|
|
General and administrative
|
|
|
251,689
|
|
|
|
271,326
|
|
Professional fees and expenses
|
|
|
656,830
|
|
|
|
279,719
|
|
Directors’ fees and expenses
|
|
|
88,029
|
|
|
|
100,349
|
|
Depreciation expense
|
|
|
15,335
|
|
|
|
19,435
|
|
Interest expense
|
|
|
104,939
|
|
|
|
91,198
|
|
Total expenses
|
|
|
1,890,872
|
|
|
|
1,518,066
|
|
|
|
|
|
|
|
|
|
|
Loss before other income and income taxes
|
|
|
(1,826,072
|
)
|
|
|
(1,441,312
|
)
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (losses) gains from investments in marketable securities
|
|
|
(351,843
|
)
|
|
|
659,276
|
|
Net income from other investments
|
|
|
321,962
|
|
|
|
120,589
|
|
Other than temporary impairment losses from other investments
|
|
|
-
|
|
|
|
(11,092
|
)
|
Interest, dividend and other income
|
|
|
778,017
|
|
|
|
899,483
|
|
Total other income
|
|
|
748,136
|
|
|
|
1,668,256
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(1,077,936
|
)
|
|
|
226,944
|
|
Benefit from income taxes
|
|
|
-
|
|
|
|
(8,190
|
)
|
Net (loss) income
|
|
|
(1,077,936
|
)
|
|
|
235,134
|
|
Noncontrolling interest
|
|
|
17,597
|
|
|
|
(2,261
|
)
|
Net (loss) income attributable to the Company
|
|
$
|
(1,060,339
|
)
|
|
$
|
232,873
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding-basic
|
|
|
1,040,181
|
|
|
|
1,049,428
|
|
Weighted average common shares outstanding-diluted
|
|
|
1,040,181
|
|
|
|
1,049,428
|
|
Net (loss) income per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted income per share
|
|
$
|
(1.02
|
)
|
|
$
|
.22
|
|
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, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
Undistributed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains from Sales
|
|
|
Undistributed
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
of Properties
|
|
|
Losses from
|
|
|
Treasury Stock
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-In Capital
|
|
|
Net of Losses
|
|
|
Operations
|
|
|
Shares
|
|
|
Cost
|
|
|
Equity
|
|
Balance as of January
1, 2014
|
|
|
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 paid - $.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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,060,339
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,060,339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payable - $.50 per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(517,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(517,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-employee stock option
compensation
|
|
|
|
|
|
|
|
|
|
|
5,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,633
|
|
|
|
(214,421
|
)
|
|
|
(214,421
|
)
|
Balance as of December
31, 2015
|
|
|
1,053,926
|
|
|
$
|
1,053,926
|
|
|
$
|
24,255,614
|
|
|
$
|
52,709,949
|
|
|
$
|
(56,375,339
|
)
|
|
|
18,433
|
|
|
$
|
(223,798
|
)
|
|
$
|
21,420,352
|
|
See notes to the consolidated financial statements
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
2015
|
|
|
2014
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to the Company
|
|
$
|
(1,060,339
|
)
|
|
$
|
232,873
|
|
Adjustments to reconcile net (loss) income attributable to the Company to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
15,335
|
|
|
|
19,435
|
|
Non-employee stock compensation
|
|
|
5,770
|
|
|
|
—
|
|
Net income from other investments, excluding impairment losses
|
|
|
(321,962
|
)
|
|
|
(120,589
|
)
|
Other than temporary impairment loss from other investments
|
|
|
—
|
|
|
|
11,092
|
|
Gain from dissolution of joint venture
|
|
|
—
|
|
|
|
(226,157
|
)
|
Net loss (gain) from investments in marketable securities
|
|
|
351,843
|
|
|
|
(659,276
|
)
|
Net (loss) gain attributable to noncontrolling interest
|
|
|
(17,597
|
)
|
|
|
2,261
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets and other receivables
|
|
|
(58,720
|
)
|
|
|
(13,311
|
)
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(235,321
|
)
|
|
|
(3,699,205
|
)
|
Total adjustments
|
|
|
(260,652
|
)
|
|
|
(4,685,750
|
)
|
Net cash used in operating activities
|
|
|
(1,320,991
|
)
|
|
|
(4,452,877
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net proceeds from sales and redemptions of securities
|
|
|
7,773,036
|
|
|
|
8,997,601
|
|
Increased investments in marketable securities
|
|
|
(6,842,592
|
)
|
|
|
(15,405,765
|
)
|
Investment in real estate partnership
|
|
|
(2,041,032
|
)
|
|
|
(281,663
|
)
|
Distributions from other investments
|
|
|
1,984,673
|
|
|
|
958,086
|
|
Contributions to other investments
|
|
|
(1,756,178
|
)
|
|
|
(1,347,067
|
)
|
Proceeds from collections of mortgage loans and notes receivables
|
|
|
122,580
|
|
|
|
138,000
|
|
Distribution from affiliate
|
|
|
193,286
|
|
|
|
232,286
|
|
Purchases and improvements of properties
|
|
|
(55,265
|
)
|
|
|
(274,691
|
)
|
Proceeds from sales of real estate and discontinued operations
|
|
|
—
|
|
|
|
278,720
|
|
Proceeds from collections of notes and advances from related parties
|
|
|
—
|
|
|
|
226,157
|
|
Additions in mortgage loans and notes receivable
|
|
|
—
|
|
|
|
(138,000
|
)
|
Net cash used in investing activities
|
|
|
(621,492
|
)
|
|
|
(6,616,336
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Margin borrowings
|
|
|
4,746,101
|
|
|
|
3,253,065
|
|
Dividend paid
|
|
|
(526,963
|
)
|
|
|
—
|
|
Repayment of note payable to affiliate
|
|
|
(300,000
|
)
|
|
|
(402,891
|
)
|
Proceeds from stock options exercised
|
|
|
—
|
|
|
|
24,000
|
|
Purchase of treasury stock
|
|
|
(214,421
|
)
|
|
|
(9,377
|
)
|
Net cash provided by financing activities
|
|
|
3,704,717
|
|
|
|
2,864,797
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,762,234
|
|
|
|
(8,204,416
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the year
|
|
|
9,451,152
|
|
|
|
17,655,568
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
11,213,385
|
|
|
$
|
9,451,152
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
105,000
|
|
|
$
|
91,000
|
|
Cash paid during the year for income taxes
|
|
$
|
—
|
|
|
$
|
1,593,000
|
|
See notes to the consolidated financial statements
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2015 and 2014
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
two hundred forty (240) 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.
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, 2015 and 2014. The Company’s federal income tax returns since 2012 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, 2015 and 2014 was approximately $15,000 and $19,000, 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, 2015 and 2014, 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 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 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. There were no marketable securities pledged as collateral pursuant to margin agreements
as of December 31, 2015.
Treasury bills, from time to time, are pledged as collateral
pursuant to broker margin requirements. As of December 31, 2015 and 2014 the Company had approximately $7,999,000 and $3,253,000
of margin balances outstanding, respectively.
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, 2015 and 2014, 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.
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 20,700 and 17,700 stock options outstanding as of December 31, 2015
and 2014, respectively. The 2015 and 2014 options were not included in the diluted earnings per share computation as their effect
would have been anti-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 2015 and 2014.
Cash and cash Equivalents
. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less
to be cash and cash equivalents.
Concentration of Credit Risk
. Financial instruments that
potentially subject the Company to concentration of credit risk are cash and cash equivalent deposits in excess of federally insured
limits, marketable securities, other receivables and notes and mortgages receivable. From time to time the Company may have bank
deposits in excess of federally insured limits (presently $250,000). The Company evaluates these excess deposits and transfers
amounts to brokerage accounts and other banks to mitigate this exposure. As of December 31, 2015 and 2014, respectively, we had
approximately $399,000 and $485,000 of deposits in excess of 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.
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.
Noncontrolling Interest
. Noncontrolling 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, 2015 and 2014 is as follows:
|
|
2015
|
|
|
2014
|
|
Noncontrolling interest balance at beginning of year
|
|
$
|
228,000
|
|
|
$
|
282,000
|
|
Noncontrolling partners’ interest in operating gains of consolidated subsidiaries
|
|
|
(17,000
|
)
|
|
|
2,000
|
|
Noncontrolling partners’ balance written off upon dissolution
|
|
|
-
|
|
|
|
(56,000
|
)
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest balance at end of year
|
|
$
|
211,000
|
|
|
$
|
228,000
|
|
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 with an increase of
5% in rent for each extension. The lease was extended in December 2015 for one year, as permitted by the lease agreement. Beginning
in December 2015 the base rent is $50,400 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 2015 and 2014.
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 March 2016 the FASB issued Accounting Standards Update No.
2016-07, Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.
The amendments affect all entities that have an investment that becomes qualified for the equity method of accounting as a result
of an increase in the level of ownership interest or degree of influence.
The amendments eliminate the requirement that when an investment
qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an
investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the
equity method had been in effect during all previous periods that the investment had been held. The amendments require that the
equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s
previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method
accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required.
The amendments require that an entity that has an available-for-sale equity security that becomes qualified for the equity method
of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date
the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively
upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of
the equity method. Earlier application is permitted. The Company is currently evaluating the potential impact this guidance will
have on its consolidated financial position, results of operations and cash flows.
In February 2016, the FASB issued ASU No. 2016-02, "Leases
(Topic 842)" ("ASU 2016-02") that will supersede current guidance related to accounting for leases. The guidance
is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing arrangements. The standard will be effective for the first interim
period within annual periods beginning after December 15, 2019 with early adoption permitted. The standard is required to be adopted
using the modified retrospective approach. The Company is currently evaluating the potential impact this guidance will have on
its consolidated financial position, results of operations and cash flows.
In November 2015, the FASB issued ASU No. 2015-17, "Income
Taxes (Topic 740)" ("ASU 2015-17"). Currently U.S. GAAP requires an entity to separate deferred income tax liabilities
and assets into current and noncurrent amounts in a classified statement of financial position. The amendments under ASU 2015-17
will require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.
The amendments in this update will be effective for fiscal years beginning after December 15, 2017 and interim periods within the
fiscal years beginning after December 15, 2018. The adoption of ASU 2015-17 is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
In April 2015, the FASB issued ASU No. 2015-03, "Interest
- Imputation of Interest (Subtopic 835-30)" ("ASU 2015-03"). Currently generally accepted accounting principles
U.S. GAAP requires any debt issuance costs to be reported in the balance sheet as deferred charges. The amendments in this Update
require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction
from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this Update are effective for
financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning
after December 15, 2016. The Company is currently evaluating the potential impact this guidance will have on its consolidated financial
position, results of operations and cash flows.
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.
The Company does not believe that other standards which have
been issued but are not yet effective will have a significant impact on its financial statements.
2. INVESTMENT PROPERTIES
The components of the Company’s investment properties and
the related accumulated depreciation information follow:
|
|
December 31, 2015
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Net
|
|
Office building and other commercial property:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Office - (Coconut Grove, FL) – Building
|
|
$
|
652,198
|
|
|
$
|
310,472
|
|
|
$
|
357,060
|
|
Corporate Office – (Coconut Grove, FL) – Land
|
|
|
325,000
|
|
|
|
—
|
|
|
|
325,000
|
|
Other (Hopkinton, RI) – Land (50 acres)
|
|
|
48,305
|
|
|
|
—
|
|
|
|
48,305
|
|
Other (Paxton, MA) – Land (20,000 square feet)
|
|
|
6,960
|
|
|
|
—
|
|
|
|
6,960
|
|
Other (Montpelier, Vermont) – Building
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
—
|
|
Other (Montpelier, Vermont) - Land and improvements (5.4 acres)
|
|
|
111,689
|
|
|
|
—
|
|
|
|
111,689
|
|
|
|
$
|
1,196,152
|
|
|
$
|
362,472
|
|
|
$
|
833,680
|
|
|
|
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
|
|
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. These securities are stated at market value, as determined by the most recent traded price of each security at the balance
sheet date. Consistent with the Company's overall current investment objectives and activities its entire marketable securities
portfolio is classified as trading. Accordingly all unrealized gains (losses) on this portfolio are recorded in income. Included
in investments in marketable securities is approximately $8.3 million and $7.8 million of large capital real estate investment
trusts (REITs) as of December 31, 2015 and 2014, respectively.
For the years ended December 31, 2015 and 2014, net unrealized
(losses) gains on trading securities were approximately ($402,000) and $259,000, respectively.
|
|
December 31, 2015
|
|
|
December 31, 2014
|
|
Description
|
|
Cost
Basis
|
|
|
Fair
Value
|
|
|
Unrealized
Gain (loss)
|
|
|
Cost
Basis
|
|
|
Fair
Value
|
|
|
Unrealized
Gain (loss)
|
|
Real Estate Investment Trusts
|
|
$
|
8,108,000
|
|
|
$
|
8,320,000
|
|
|
$
|
212,000
|
|
|
$
|
7,491,000
|
|
|
$
|
7,791,000
|
|
|
$
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds, ETF & other
|
|
|
755,000
|
|
|
|
753,000
|
|
|
|
(2,000
|
)
|
|
|
1,468,000
|
|
|
|
1,543,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Equity Securities
|
|
|
666,000
|
|
|
|
697,000
|
|
|
|
31,000
|
|
|
|
1,191,000
|
|
|
|
1,358,000
|
|
|
|
167,000
|
|
Total Equity Securities
|
|
|
9,529,000
|
|
|
|
9,770,000
|
|
|
|
241,000
|
|
|
|
10,150,000
|
|
|
|
10,692,000
|
|
|
|
542,000
|
|
Debt Securities
|
|
|
847,000
|
|
|
|
737,000
|
|
|
|
(110,000
|
)
|
|
|
1,107,000
|
|
|
|
1,098,000
|
|
|
|
(9,000
|
)
|
Total
|
|
$
|
10,376,000
|
|
|
$
|
10,507,000
|
|
|
$
|
131,000
|
|
|
$
|
11,257,000
|
|
|
$
|
11,790,000
|
|
|
$
|
533,000
|
|
As of December 31, 2015, debt securities are scheduled to mature
as follows:
|
|
Cost
|
|
|
Fair Value
|
|
2016 – 2020
|
|
$
|
49,000
|
|
|
$
|
45,000
|
|
2021 – 2025
|
|
|
140,000
|
|
|
|
111,000
|
|
2026 – thereafter
|
|
|
658,000
|
|
|
|
581,000
|
|
|
|
$
|
847,000
|
|
|
$
|
737,000
|
|
Net gain (loss) from investments in marketable securities for the
years ended December 31, 2015 and 2014 is summarized below:
Description
|
|
2015
|
|
|
2014
|
|
Net realized gain from sales of marketable securities
|
|
$
|
50,000
|
|
|
$
|
400,000
|
|
Net unrealized (loss) gain from marketable securities
|
|
|
(402,000
|
)
|
|
|
259,000
|
|
Total net (loss) gain from investments in marketable securities
|
|
$
|
(352,000
|
)
|
|
$
|
659,000
|
|
Net realized gain from sales of marketable securities consisted
of approximately $487,000 of gains net of $437,000 of losses for the year ended December 31, 2015. The comparable amounts in fiscal
year 2014 were gains of approximately $523,000 net of $123,000 of losses
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. These investments do not 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
40 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, 2015 and 2014, other investments had an aggregate
carrying value of $3.9 million and $3.8 million, respectively. As of December 31, 2015 the Company has committed to fund approximately
an additional $2.7 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, 2015 and 2014 the Company
made contributions of approximately $1.8 million and $1.3 million, respectively, and received distributions from these investments
of $2.0 million and $958,000, respectively.
The Company’s other investments are summarized below.
|
|
Carrying values as of December 31,
|
|
Investment Focus
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Venture capital funds – technology and communications
|
|
$
|
284,000
|
|
|
$
|
288,000
|
|
|
|
|
|
|
|
|
|
|
Venture capital funds – diversified businesses
|
|
|
1,860,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
Real estate and related
|
|
|
1,116,000
|
|
|
|
1,680,000
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
635,000
|
|
|
|
625,000
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
3,895,000
|
|
|
$
|
3,793,000
|
|
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):
|
|
2015
|
|
|
2014
|
|
Income from investment in 49% owned affiliate (a)
|
|
$
|
22,000
|
|
|
$
|
19,000
|
|
Real estate and related (b)
|
|
|
149,000
|
|
|
|
11,000
|
|
Venture capital funds – diversified businesses (c)
|
|
|
151,000
|
|
|
|
90,000
|
|
Total net income from other investments
|
|
$
|
322,000
|
|
|
$
|
120,000
|
|
(a) This gain represents income from the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”).
In 2015 and 2014 TGIF declared and paid a cash dividend, the Company’s portion of which was approximately $193,000 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 2015 and 2014 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 2015 and 2014 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 year ended December 31, 2015 there were no valuation losses
from other than temporary impairment losses from other investments. For the year ended December 31, 2014, valuation losses from
other than temporary impairment losses from other investments of $11,000 were recorded, consisting of a valuation loss from an
investment in a limited partnership which invests in technology related entities and made a liquidating distribution in 2014.
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, 2015 and 2014, aggregated by investment
category and the length of time that investments have been in a continuous loss position:
|
|
As of December 31, 2015
|
|
|
|
12 Months or Less
|
|
|
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
|
|
|
$
|
(12,000
|
)
|
|
$
|
5,000
|
|
|
$
|
(12,000
|
)
|
Partnerships owning diversified businesses investments
|
|
|
272,000
|
|
|
|
(28,000
|
)
|
|
|
184,000
|
|
|
|
(16,000
|
)
|
|
|
456,000
|
|
|
|
(44,000
|
)
|
Other (private banks, etc.)
|
|
|
—
|
|
|
|
—
|
|
|
|
288,000
|
|
|
|
(12,000
|
)
|
|
|
288,000
|
|
|
|
(12,000
|
)
|
Total
|
|
$
|
272,000
|
|
|
$
|
(28,000
|
)
|
|
$
|
477,000
|
|
|
$
|
(40,000
|
)
|
|
$
|
748,000
|
|
|
$
|
(68,000
|
)
|
|
|
As of December 31, 2014
|
|
|
|
12 Months or less
|
|
|
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
|
)
|
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, 2015 and 2014, using quoted prices in active markets
for identical assets (Level 1) and significant other observable inputs (Level 2). For the year ended December 31, 2015 and 2014,
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,
2015
|
|
|
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market mutual funds
|
|
$
|
943,000
|
|
|
$
|
943,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. T-bills
|
|
|
9,478,000
|
|
|
|
9,478,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
737,000
|
|
|
|
—
|
|
|
|
737,000
|
|
|
|
—
|
|
Marketable equity securities
|
|
|
9,771,000
|
|
|
|
9,771,000
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
20,929,000
|
|
|
$
|
20,192,000
|
|
|
$
|
737,000
|
|
|
$
|
—
|
|
|
|
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
|
|
|
$
|
—
|
|
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, 2015 and 2014. 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
|
|
2015
|
|
|
(Level 1)
|
|
|
(Level 2)
(a)
|
|
|
(Level 3)
(b)
|
|
|
12/31/2015
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments by investment focus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology & Communication
|
|
$
|
284,000
|
|
|
$
|
—
|
|
|
$
|
284,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Diversified businesses
|
|
|
1,859,000
|
|
|
|
—
|
|
|
|
1,859,000
|
|
|
|
—
|
|
|
|
—
|
|
Real estate and related
|
|
|
1,117,000
|
|
|
|
—
|
|
|
|
1,019,000
|
|
|
|
98,000
|
|
|
|
—
|
|
Other
|
|
|
635,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
635,000
|
|
|
|
—
|
|
Total assets
|
|
$
|
3,895,000
|
|
|
$
|
—
|
|
|
$
|
3,162,000
|
|
|
$
|
733,000
|
|
|
$
|
—
|
|
|
|
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
|
|
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
|
|
|
(a)
|
Other investments measured at fair value on a nonrecurring 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, 2015, 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 30, 2015, the Company received distributions of approximately
$960,000 from this type of investment primarily from investments in diversified businesses and real estate. During the year ended
September 30, 2015, the Company made contributions totaling approximately $1.6 million in this type of investment. As of December
31, 2015, the amount of the Company’s unfunded commitments related to the aforementioned investments is approximately $2.7
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 three 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 $377,000 include one investment
in a commercial building located near the Company’s offices purchased in 2005 with a zero carrying value as of December 31,
2015. During 2015, the Company received distributions totaling $733,000 from this investment. Investments in this category 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, 2015:
|
|
Level 3 Investments:
|
|
Balance at January 1, 2015
|
|
$
|
1,568,000
|
|
Investment in real estate partnership and other
|
|
|
110,000
|
|
Distributions from Level 3 investments, net of gains
|
|
|
(945,000
|
)
|
Balance at December 31, 2015
|
|
$
|
733,000
|
|
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 both 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, 2015 and 2014, income from investment in affiliate amounted to approximately
$22,000 and $19,000, respectively and is included in net income from other investments in the consolidated statements of income. In December 2015 and 2014 T.G.I.F. declared and paid a cash dividend of $.07 per share. CII’s
dividend amount received was approximately $193,000 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
|
|
2015
|
|
|
2014
|
|
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)
|
|
|
204,000
|
|
|
|
205,000
|
|
Other
|
|
|
22,000
|
|
|
|
162,000
|
|
Total loans, notes and other receivables
|
|
$
|
1,260,000
|
|
|
$
|
1,401,000
|
|
|
(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, 2015 and
2014 the principal outstanding on this loan was $203,000. In June 2015, the loan was modified and the maturity date was extended
to June 30, 2016 at the same interest rate of 8%. All interest due on the loan has been collected.
|
8. INVESTMENT IN REAL ESTATE PARTNERSHIP
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”). Also, as previously reported, on May 19, 2015, pursuant to the terms
of a Construction Loan Agreement, between JY-TV Associates LLC (“JY-TV” or the “Borrower”, which is one-third
owned by a wholly-owned subsidiary of the Company) and Wells Fargo Bank ("Lender"), Lender loaned to the Borrower the
principal sum of $27 million pursuant to a senior secured construction loan ("Loan"). The proceeds of the Loan are being
used to finance the previously reported construction of multi-family residential apartments containing 240 units totaling approximately
239,000 net rentable square feet on a 9.5 acre site located in Orlando, Florida ("Project"). Total development costs
for the Project are estimated at $34 million and the Borrower’s equity totals approximately $7 million. Construction of the
Project commenced in June 2015 and is proceeding as planned.
As previously reported, the Company and certain affiliates of the
other two members of the Borrower ("Guarantors") entered into a Completion Guaranty Agreement ("Completion Guaranty")
and a Repayment Guaranty Agreement ("Repayment Guaranty") (collectively, the “Guaranties”) with the Lender.
Under the Completion Guaranty, Guarantors shall unconditionally guaranty, on a joint and several basis, lien free completion of
all improvements with respect to the Project and any construction or completion obligations required to be made by the Borrower
pursuant to any approved leases. Under the Repayment Guaranty, Guarantors shall provide an unconditional guaranty including the
repayment of $11.5 million of the principal balance of the Loan, repayment of all accrued but unpaid interest and payment of any
other sums payable under any of the Loan Agreement. Each Guarantor is required to maintain compliance at all times with certain
financial covenants, as defined. As of December 31, 2015 the Company was in compliance with all debt covenants.
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 October 2015, the shareholders approved the renewal of the Advisory
Agreement between the Company and the Adviser for a term commencing January 1, 2016 and expiring December 31, 2016, under the same
terms as in 2015.
For the years ended December 31, 2015 and 2014, the Company incurred
Adviser fees of approximately $690,000 and $714,000, respectively, of which $660,000 represented regular compensation for 2015
and 2014. In 2015 and 2014 Advisor fees include $30,000 and $54,000 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 $50,400 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 2015,
the lease term was extended one year, expiring in November 2016, with one 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 a 19% shareholder and the chairman and director of
T.G.I.F. Texas, Inc., a 49% owned affiliate of CII. As of December 31, 2015 and 2014, T.G.I.F. had amounts due from CII in the
amount of approximately $1,800,000 and $2,100,000, respectively. These amounts are due on demand and bear interest at the prime
rate (3.50 % at December 31, 2015). All interest due has been paid.
As of December 31, 2015 and 2014, T.G.I.F. owns 10,200 and 10,000
shares of the Company’s common stock, respectively.
As of December 31, 2015 and 2014, 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 (3.5% at December 31, 2015) 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, 2015 and 2014.
10. INCOME TAXES
As previously reported, during the fourth quarter of 2014 the Company
discovered that it fell short of meeting the 75% asset test. Management has taken the necessary steps to meet the test and
filed its REIT tax return on September 15, 2015.
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 2016 and 2015, the Company paid
a cash dividend of approximately $517,000 and $527,000 (or $.50 per share) to shareholders of record as of December 31, 2015 and
December 29, 2014, respectively. The dividends were a return of capital to shareholders.
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,
2015 and 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 2016 is estimated
at $1.1 million expiring beginning in 2022 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, 2015 and 2014 were as follows:
|
|
2015
|
|
|
2014
|
|
(Loss) income before income taxes
|
|
$
|
(1,078,000
|
)
|
|
$
|
233,000
|
|
Computed tax at federal statutory rate of 34%
|
|
$
|
(367,000
|
)
|
|
$
|
76,000
|
|
State taxes at 5.5%
|
|
|
(33,000
|
)
|
|
|
12,000
|
|
REIT related adjustments
|
|
|
250,000
|
|
|
|
218,000
|
|
Adjustment to valuation allowance
|
|
|
121,000
|
|
|
|
(315,000
|
)
|
Other items, net
|
|
|
29,000
|
|
|
|
1,000
|
|
Tax benefit from income taxes
|
|
$
|
-
|
|
|
$
|
(8,000
|
)
|
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,
|
|
2015
|
|
|
2014
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
(8,000
|
)
|
|
|
|
-
|
|
|
|
(8,000
|
)
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(104,000
|
)
|
|
$
|
22,000
|
|
State
|
|
|
(17,000
|
)
|
|
|
2,000
|
|
|
|
|
(121,000
|
)
|
|
|
24,000
|
|
Additional valuation allowance
|
|
|
121,000
|
|
|
|
(24,000
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
(8,000
|
)
|
As of December 31, 2015 and 2014, the components of the deferred
tax assets and liabilities are as follows:
|
|
As of December 31, 2015
Deferred tax
|
|
|
As of December 31, 2014
Deferred tax
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
Net operating loss carry forward
|
|
$
|
444,000
|
|
|
|
|
|
|
$
|
487,000
|
|
|
|
|
|
Excess of book basis of 49% owned corporation over tax basis
|
|
|
|
|
|
$
|
407,000
|
|
|
|
|
|
|
$
|
407,000
|
|
Unrealized gain on marketable securities
|
|
|
30,000
|
|
|
|
-
|
|
|
|
|
|
|
|
87,000
|
|
Excess of tax basis over book basis of other investments
|
|
|
256,000
|
|
|
|
-
|
|
|
|
306,000
|
|
|
|
98,000
|
|
Valuation allowance
|
|
|
(540,000
|
)
|
|
|
|
|
|
|
(418,000
|
)
|
|
|
|
|
Totals
|
|
$
|
190,000
|
|
|
$
|
407,000
|
|
|
$
|
375,000
|
|
|
$
|
592,000
|
|