1.
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements prepared in accordance with instructions for Form 10-Q, include all adjustments (consisting only
of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information
and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the Company's Annual Report for the year ended December 31, 2015. The balance
sheet as of December 31, 2015 was derived from audited consolidated financial statements as of that date. The results of operations
for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year.
The condensed consolidated financial statements include the
accounts of HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company owns a majority voting interest
or controlling financial interest. All material transactions and balances with consolidated and unconsolidated entities have been
eliminated in consolidation or as required under the equity method.
2.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to the consolidated financial statements and footnotes
thereto included in the HMG/Courtland Properties, Inc. Annual Report on Form 10-K for the year ended December 31, 2015 for recent
accounting pronouncements. The Company does not believe that any recently issued, but not yet effective accounting standards, if
currently adopted, will have a material effect on the Company’s consolidated financial position, results of operations and
cash flows.
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. Included in investments in marketable securities is approximately $8.6 million and $8.3 million,
of large capital real estate investment trusts (REITs) as of March 31, 2016 and December 31, 2015, respectively.
Net realized and unrealized gain from investments in marketable
securities for the three months ended March 31, 2016 and 2015 is summarized below:
|
|
Three Months Ended March 31,
|
|
Description
|
|
2016
|
|
|
2015
|
|
Net realized (loss) gain from sales of securities
|
|
$
|
(47,000
|
)
|
|
$
|
155,000
|
|
Unrealized net gain in trading securities
|
|
|
211,000
|
|
|
|
27,000
|
|
Total net gain from investments in marketable securities
|
|
$
|
164,000
|
|
|
$
|
182,000
|
|
For the three months ended March 31, 2016, net realized losses
from sales of marketable securities of approximately $47,000 consisted of approximately $143,000 of gross losses net of $96,000
of gross gains. For the three months ended March 31, 2015, net realized gain from sales of marketable securities of approximately
$155,000 consisted of approximately $262,000 of gross gains net of $107,000 of gross losses.
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.
4.
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 bases, 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 March 31, 2016 the Company was in compliance with all debt covenants.
5.
OTHER INVESTMENTS
As of March 31, 2016, the Company’s portfolio of other
investments had an aggregate carrying value of approximately $4.4 million and we have committed to fund approximately $2.2 million
as required by agreements with the investees. The carrying value of these investments is equal to contributions less distributions
and loss valuation adjustments, if any.
During the three months ended March 31, 2016, we made contributions
to other investments of approximately $727,000, consisting primarily of a $300,000 investment in an income and value real estate
fund and $250,000 in a stock fund. The remaining contributions were made towards existing investment commitments.
During the three months ended March 31, 2016, we received distributions
from other investments of approximately $228,000 primarily from various real estate related investments.
Net income from other investments for the three months ended
March 31, 2016 and 2015, is summarized below:
|
|
2016
|
|
|
2015
|
|
Partnership owning real estate & related
|
|
$
|
6,000
|
|
|
$
|
45,000
|
|
Partnership owning diversified businesses
|
|
|
31,000
|
|
|
|
7,000
|
|
Income from investment in affiliate -T.G.I.F. Texas, Inc.
|
|
|
-
|
|
|
|
15,000
|
|
Total net income from other investments
|
|
$
|
37,000
|
|
|
$
|
67,000
|
|
The following tables present gross unrealized losses and fair
values for those investments that were in an unrealized loss position as of March 31, 2016 and December 31, 2015, aggregated
by investment category and the length of time that investments have been in a continuous loss position:
|
|
As of March 31, 2016
|
|
|
|
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
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,000
|
|
|
$
|
(12,000
|
)
|
|
$
|
4,000
|
|
|
$
|
(12,000
|
)
|
Partnerships owning diversified businesses investments
|
|
|
641,000
|
|
|
|
(46,000
|
)
|
|
|
181,000
|
|
|
|
(20,000
|
)
|
|
|
822,000
|
|
|
|
(66,000
|
)
|
Other (private banks, etc.)
|
|
|
—
|
|
|
|
—
|
|
|
|
288,000
|
|
|
|
(12,000
|
)
|
|
|
288,000
|
|
|
|
(12,000
|
)
|
Total
|
|
$
|
641,000
|
|
|
$
|
(46,000
|
)
|
|
$
|
473,000
|
|
|
$
|
(44,000
|
)
|
|
$
|
1,114,000
|
|
|
$
|
(90,000
|
)
|
|
|
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
|
)
|
When evaluating the investments for other-than-temporary impairment,
the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial
condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than not
it will be required to sell, the investment before recovery of the investment’s amortized cost basis.
In accordance with ASC Topic 320-10-65, Recognition and Presentation
of Other-Than-Temporary Impairments there were no OTTI impairment valuation adjustments for the three months ended March 31, 2016
and 2015.
6. FAIR VALUE OF FINANCIAL 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 three months ended March 31, 2016 and for the year ended December 31, 2015,
using quoted prices in active markets for identical assets (Level 1) and significant other observable inputs (Level 2). For the
periods presented, there were no major assets measured at fair value on a recurring basis which uses significant unobservable inputs
(Level 3):
Assets and liabilities measured at fair value on a recurring
basis are summarized below:
|
|
Fair value measurement at reporting date using
|
|
Description
|
|
Total
March 31,
2016
|
|
|
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
|
|
$
|
818,000
|
|
|
$
|
818,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. T-bills
|
|
|
5,208,000
|
|
|
|
5,208,000
|
|
|
|
—
|
|
|
|
—
|
|
Marketable securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
764,000
|
|
|
|
—
|
|
|
|
764,000
|
|
|
|
—
|
|
Marketable equity securities
|
|
|
9,774,000
|
|
|
|
9,774,000
|
|
|
|
—
|
|
|
|
—
|
|
Total assets
|
|
$
|
16,564,000
|
|
|
$
|
15,800,000
|
|
|
$
|
764,000
|
|
|
$
|
—
|
|
|
|
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
|
|
|
$
|
—
|
|
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 three months ended March 31, 2016 and for the year ended December 31,
2015. 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
March 31,
|
|
|
Quoted
Prices in Active
Markets for Identical Assets
|
|
|
Significant
Other
Observable Inputs
|
|
|
Significant
Unobservable Inputs
|
|
|
Total
losses
for the
three
months
ended
|
|
Description
|
|
2016
|
|
|
(Level
1)
|
|
|
(Level
2) (a)
|
|
|
(Level
3) (b)
|
|
|
3/31/2016
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments by investment focus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
& Communication
|
|
$
|
284,000
|
|
|
$
|
—
|
|
|
$
|
284,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Diversified
businesses
|
|
|
2,134,000
|
|
|
|
—
|
|
|
|
2,134,000
|
|
|
|
—
|
|
|
|
—
|
|
Real
estate and related
|
|
|
1,379,000
|
|
|
|
—
|
|
|
|
1,282,000
|
|
|
|
97,000
|
|
|
|
—
|
|
Other
|
|
|
635,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
635,000
|
|
|
|
—
|
|
Total
assets
|
|
$
|
4,432,000
|
|
|
$
|
—
|
|
|
$
|
3,700,000
|
|
|
$
|
732,000
|
|
|
$
|
—
|
|
|
|
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
|
|
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
|
|
|
$
|
—
|
|
|
(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 March 31, 2016, 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 three months ended March 31, 2016, the Company received distributions of approximately
$227,000 from this type of investment primarily from investments in diversified businesses and real estate. During the three months
ended March 31, 2016, the Company made contributions totaling $727,000 in this type of investment. As of March 31, 2016, 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 $97,000 include various investments
in real estate and related. 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 three months ended March 31, 2016:
|
|
Level 3 Investments:
|
|
Balance at January 1, 2016
|
|
$
|
733,000
|
|
Investment in Level 3 investments
|
|
|
|
|
Distributions from Level 3 investments, net of gains
|
|
|
(1,000
|
)
|
Balance at March 31, 2016
|
|
$
|
732,000
|
|
7.
INCOME TAXES
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.
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 March 31, 2016
and December 31, 2015, 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 2017 is estimated
at $1.1 million expiring beginning in 2022 and has been fully reserved due to CII historically having tax losses.
The provision for income taxes in the consolidated
statements of comprehensive income consists of the following:
Three months ended March 31,
|
|
2016
|
|
|
2015
|
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
-
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
80,000
|
|
|
$
|
2,000
|
|
State
|
|
|
12,000
|
|
|
|
1,000
|
|
|
|
|
92,000
|
|
|
|
3,000
|
|
Additional valuation allowance
|
|
|
(92,000
|
)
|
|
|
(3,000
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
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. 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.
8.
STOCK OPTIONS
Stock based compensation expense is recognized using the fair-value
method for all awards. During the three months ended March 31, 2016 options to purchase 7,500 shares of the Company’s common
stock to one director were forfeited.
The following table summarizes stock option activity during
the three months ended March 31, 2016.
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at January 1, 2016
|
|
|
20,700
|
|
|
$
|
17.54
|
|
Forfieted
|
|
|
(7,500
|
)
|
|
$
|
18.89
|
|
Outstanding at March 31, 2016
|
|
|
13,200
|
|
|
$
|
16.77
|
|
The following table summarizes information concerning outstanding
and exercisable options as of March 31, 2016:
|
|
|
Number Outstanding
|
|
|
Weighted Average
|
|
Strike Price
|
|
|
and exercisable
|
|
|
Strike Price
|
|
$
|
12.75
|
|
|
|
3,000
|
|
|
$
|
12.75
|
|
$
|
17.84
|
|
|
|
9,500
|
|
|
$
|
17.84
|
|
$
|
19.50
|
|
|
|
700
|
|
|
$
|
19.50
|
|
|
|
|
|
|
13,200
|
|
|
$
|
16.77
|
|
As of March 31, 2016 the options outstanding and exercisable
had no intrinsic value.
Item 2.
Management's Discussion
and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
The Company reported a net loss of approximately $59,000 (or
$.06 per share) for the three months ended March 31, 2016. For the three months ended March 31, 2015 the Company reported net income
of approximately $56,000 (or $.05 share).
REVENUES
Rentals and related revenues for the three months ended March
31, 2016 and 2015 consists of rent from the Advisor to CII for its corporate office.
Net realized and unrealized gain from investments in marketable
securities:
Net realized and unrealized gain from investments in marketable
securities for the three months ended March 31, 2016 and 2015 was approximately $164,000 and $182,000, respectively. For further
details, refer to Note 3 to Condensed Consolidated Financial Statements (unaudited).
Net income from other investments:
Net income from other investments for the three months ended
March 31, 2016 and 2015 was approximately $37,000 and $67,000, respectively. For further details, refer to Note 5 to Condensed
Consolidated Financial Statements (unaudited).
Interest, dividend and other income for the three months ended
March 31, 2016 as compared with the same period in 2015 decreased by approximately $35,000 (or 19%) primarily due to decreased
non-recurring other income.
EXPENSES
General and administrative expenses for
the three months ended March 31, 2016 as compared with the same period in 2015 increased by approximately $23,000 (or 31%) primarily
due to increased other taxes and related expenses.
Professional fees and expenses for the
three months ended March 31, 2016 as compared with the same period in 2015 increased by approximately $16,000 (or 21%) primarily
due to increased auditing and tax preparation fees.
EFFECT OF INFLATION:
Inflation affects the costs of holding the Company's investments.
Increased inflation would decrease the purchasing power of our mainly liquid 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, 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.
MATERIAL COMPONENTS OF CASH FLOWS
For the three months ended March 31, 2016, net cash used in
operating activities was approximately $65,000, primarily consisting of operating expenses.
For the three months ended March 31, 2016, net cash used in
investing activities was approximately $380,000. This consisted primarily of $1 million in purchases of marketable securities,
and $727,000 of contributions to other investments. These uses of funds were partially offset by net proceeds from sales of marketable
securities of $1.2 million and distributions from other investments of $228,000.
For the three months ended March 31, 2016, net cash used in
financing activities was $4.4 million, consisting of repayments of margin borrowings of $3.9 million and a dividend payment of
$518,000.