Attached files
U.
S. SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
[X]
Annual Report pursuant to Section 13 or 15(d) of the Securities and Exchange Act
of 1934
For the
fiscal year ended December 31,
2009
[ ]
Transition Report pursuant to Section 13 or 15(d) of the Securities and Exchange
Act of 1934
Commission
file number: 1-7865
HMG/COURTLAND
PROPERTIES, INC.
(Name of
Registrant in its Charter)
Delaware
|
59-1914299
|
||
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
||
incorporation
or organization)
|
Identification
Number)
|
||
1870 S. Bayshore Drive, Coconut Grove,
Florida
|
33133
|
||
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer's
telephone number, including area code: (305) 854-6803
Securities
registered pursuant to Section 12(b) of the Act:
Name of each exchange | |||
Title of class
|
on which registered: | ||
Common Stock - Par value $1.00 per share |
|
NYSE
Amex
|
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act
Yes [ ] No [X]
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes
[X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.05)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes [
] No [ ]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated or a smaller reporting company. See the
definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company filer” in Rule 12b-2 of the Exchange Act (Check
One):
Large
accelerated filer_______ Accelerated
filer_______
Non-accelerated filer ______ Smaller
reporting company __X___
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the exchange Act). Yes [ ] No
[X]
The
aggregate market value of the voting stock held by non-affiliates of the
Registrant (excludes shares of voting stock held by directors, executive
officers and beneficial owners of more than 10% of the Registrant’s voting
stock; however, this does not constitute an admission that any such holder is an
"affiliate" for any purpose) based on the closing price of the stock as traded
on the NYSE Amex exchange on the last business day of the Registrant's most
recently completed second fiscal quarter (June 30, 2009) was $1,316,575. The
number of shares outstanding of the issuer’s common stock, $1 par value as of
the latest practicable date: 1,021,383 shares of common stock, $1 par value, as
of March 31, 2010.
TABLE
OF CONTENTS
PAGE
|
||
PART
I
|
||
Item
1.
|
Description
of Business
|
|
Item
2.
|
Description
of Property
|
|
Item
3.
|
Legal
Proceedings
|
|
PART
II
|
||
Item
4.
|
Market
for Registrant’s Common Equity and Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
|
Item
5.
|
Selected
Financial Data
|
|
Item
6.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
Item
6A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
|
Item
7.
|
Financial
Statements and Supplementary Data
|
|
Item
8.
|
Changes
in and Disagreements with Accountants On Accounting and Financial
Disclosure
|
|
Item
8A.
|
Controls
and Procedures
|
|
Item
8B.
|
Other
Information
|
|
PART
III
|
||
Item
9.
|
Directors,
Executive Officers and Corporate Governance
|
|
Item
10.
|
Executive
Compensation
|
|
Item
11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
|
Item
12.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
|
Item
13.
|
Principal
Accountant Fees and Services
|
|
PART
IV
|
||
Item
14.
|
Exhibits
and Financial Statement Schedules
|
|
Part
I.
Cautionary
Statement. This Annual Report contains certain statements
relating to future results of the Company that are considered "forward-looking
statements" within the meaning of the Private Litigation Reform Act of
1995. Actual results may differ materially from those expressed or
implied as a result of certain risks and uncertainties, including, but not
limited to, changes in political and economic conditions; interest rate
fluctuation; competitive pricing pressures within the Company's market; equity
and fixed income market fluctuation; technological change; changes in law;
changes in fiscal, monetary, regulatory and tax policies; monetary fluctuations
as well as other risks and uncertainties detailed elsewhere in this Annual
Report or from time-to-time in the filings of the Company with the Securities
and Exchange Commission. Such forward-looking statements speak only
as of the date on which such statements are made, and the Company undertakes no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events.
HMG/Courtland
Properties, Inc. and subsidiaries (“HMG”, or the “Company”), is a Delaware
corporation organized in 1972. The Company’s business is the
ownership and management of income-producing commercial properties and will
consider other investments if they offer growth or profit
potential.
HMG
(excluding its 95% owned subsidiary Courtland Investments, Inc. (“CII”), which
files a separate tax return) qualifies for taxation as a real estate investment
trust (“REIT”) under the U.S. Internal Revenue Code. In order for a company to
qualify as a REIT, it must comply with certain rules specified in the Internal
Revenue Code. These include: investing at least 75 percent of total assets in
real estate; deriving at least 75 percent of gross income as rents from real
property or interest from mortgages on real property; and distributing annually
at least 90 percent of taxable income to shareholders in the form of
dividends.
The
Company’s commercial properties are located in the Coconut Grove section of
Miami, Florida and consist of a luxury resort on a private island known as
“Grove Isle” with a 50-room hotel, restaurant/banquet facilities, spa, tennis
courts and marina with 85 dockage slips and a 50% leasehold interest in
“Monty’s”, a facility consisting of a 16,000 square foot indoor/outdoor seafood
restaurant adjacent to a marina with 132 dockage slips and a 40,000 square foot
office/retail mall building with approximately 24,000 net rentable square feet.
The Monty’s facility is subject to a ground lease with the City of Miami,
Florida which expires in 2035. The Company’s corporate office is also located in
Coconut Grove in a 5,000 square foot building.
The
Company’s rental and related revenue for each of the years ended December 31,
2009 and 2008 were generated approximately 66% and 70%, respectively, from the
Grove Isle property 34% and 30%, respectively, from the Monty’s
property. Marina and related revenues for 2009 and 2008 were
generated approximately 70% from the marina at the Monty’s facility and 30%
coming from the marina at the Grove Isle facility. The Company’s food and
beverage revenue is entirely from the restaurant at the Monty’s facility. Spa
revenue is from the Company’s 50% owned spa at Grove Isle. The other 50% of the
Spa is owned by the tenant operator of Grove Isle.
4
The
Company also owns two properties held for development. A 70% interest in a
13,000 square foot commercially zoned building located on 5 acres in Montpelier,
Vermont, and approximately 50 acres of vacant land held in Hopkinton, Rhode
Island.
The
Company’s other investments consist primarily of nominal equity interests in
various privately-held entities, including limited partnerships whose purpose is
to invest venture capital funds in growth-oriented enterprises. The
Company does not have significant influence over any investee and the Company’s
investment represents less than 3% of the investee’s ownership. Some
of these investments give rise to exposure resulting from the volatility in
capital markets. The Company mitigates its risks by diversifying its
investment portfolio. Information with respect to the amounts and types of other
investments including the nature of the declines in value is set forth in Note 5
of the Notes to Consolidated Financial Statements.
The
Company’s investments in marketable securities include equity and debt
securities issued primarily by large capital companies or government agencies
with readily determinable fair values in varying industries. This includes real
estate investment trusts and mutual funds focusing in commercial real estate
activities. Substantially all of the Company’s marketable securities
investments are in companies listed on major national stock markets, however the
overall investment portfolio and some of the Company’s investment strategies
could be viewed as risky and the market values of the portfolio may be subject
to fluctuations. Consistent with the Company's overall investment objectives and
activities, management classifies all marketable securities as being held in a
trading portfolio. Accordingly, all unrealized gains and losses on
the Company's investments in marketable securities are recorded in the
consolidated statements of comprehensive income. Marketable securities are
stated at market value as determined by the most recently traded price of each
security at the balance sheet date. Information regarding the amounts and types
of investments in marketable securities is set forth in Note 4 of the Notes to
Consolidated Financial Statements.
The
Company acquires its real estate and other investments utilizing available cash,
trading securities or borrowing funds.
The
Company may realize gains and losses in its overall investment portfolio from
time to time to take advantage of market conditions and/or manage the
portfolio's resources and the Company's tax liability. The Company may utilize
margin for its marketable securities purchases through the use of standard
margin agreements with national brokerage firms. The use of available leverage
is guided by the business judgment of management. The Company may also use
options and futures to hedge concentrated stock positions and index futures to
hedge against market risk and enhance the performance of the Company's portfolio
while reducing the overall portfolio's risk and volatility.
Reference
is made to Item 12.
Certain Relationships and Related Transactions and Director Independence
for discussion of the Company’s organizational structure and related party
transactions.
5
Investment in
affiliate.
The
Company’s investment in affiliate consists of a 49% equity interest in T.G.I.F.
Texas, Inc. (TGIF). TGIF is a Texas Corporation with investments
consisting of promissory notes receivable from its shareholders including CII
and Maurice Wiener, the Chairman of the Company, and investments in marketable
securities. This investment’s carrying value as of December 31, 2009 and 2008
was approximately $2.9 million. CII’s note payable to TGIF which is
due on demand was approximately $3.6 million and $3.7 million as of December 31,
2009 and 2008. Reference is made to Item 6. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.
Insurance, Environmental
Matters and Other.
In the opinion of management, all
significant assets of the Company are adequately covered by insurance and the
cost and effects of complying with environmental laws do not have a material
impact on the Company's operations.
The
Company’s subsidiary which operates a restaurant is subject to various federal,
state and local laws affecting its business. In particular, this
restaurant is subject to licensing and regulation by the alcoholic beverage
control, health, sanitation, safety and fire department agencies of Miami-Dade
County, Florida. To the extent that the Company’s restaurant sells
alcoholic beverages it is subject to the State of Florida’s liquor liability
statutes or “dram shop laws” which allow a person injured by an “obviously
intoxicated person” to bring a civil suit against the business (or social host)
who had served intoxicating liquors to an already “obviously intoxicated
person”. Dram shop claims normally involve traffic accidents and the
Company would generally not learn of such claims until such claims are
filed. At the present time, there are no dram shop cases pending
against the Company. The Company has in place insurance coverage to
protect it from losses, if any. The deductible amount on the restaurant’s
general liability policy is $5,000 per claim.
Competition.
The
Company competes for suitable opportunities for real estate investments with
other real estate investment trusts, foreign investors, pension funds, insurance
companies and other investors. The Company also competes with other
real estate investors and borrowers for available sources of
financing.
In
addition, to the extent the Company leases properties it must compete for
tenants with other lessors offering similar facilities. Tenants are
sought by providing modern, well-maintained facilities at competitive
rentals. The Company has attempted to facilitate successful leasing
of its properties by investing in facilities that have been developed according
to the specifications of tenants and special local needs.
The food
and beverage industry is highly competitive and is often affected by changes in
taste and entertainment trends among the public, by local, national and economic
conditions affecting spending habits, and by population and traffic
patterns. The Company’s Monty’s restaurant is primarily outdoors and
subject to climate and seasonal conditions.
The
Company has the right to certain trademarks and service marks commonly known as
“Monty Trainer’s”, “Monty’s Stone Crab”, “Monty’s Conch”, “Monty’s” and “Monty’s
Marina”, together with certain other trademarks, trade secrets, unique features,
concepts, designs, operating procedures, recipes and materials used in
connection with the operation of the restaurant. The Company regards
its trademarks and other proprietary rights as valuable assets which are
essential to the related operations. The Company will vigorously
monitor and protect its trademarks against infringement and dilution where
legally feasible and appropriate.
6
Employees.
The
Company’s management is provided in accordance with its Advisory Agreement (the
“Agreement”) with the HMG Advisory Corp. (“the Adviser”), as described below
under “Terms of the Agreement”. Reference is also made to Item 12. Certain
Relationships and Related Transactions, and Director Independence. There
is one employee at an 80%-owned subsidiary of CII which performs financial
consulting services for which the Company receives consulting fees.
As of
December 31, 2009 the Company’s 50%-owned subsidiary and operator of the Monty’s
restaurant, Bayshore Rawbar, LLC (“BSRB”), employed approximately 94 hourly
employees and two salaried employees. Reference is made to discussion of
restaurant, marina and mall in
The
restaurant operation is subject to federal and state laws governing such matters
as wages, working conditions, citizenship requirements and
overtime. Some states, including Florida, have set minimum wage
requirements higher than the federal
level. Significant numbers of hourly personnel
at our
restaurants are paid at rates related to
the Florida minimum wage and,
accordingly, increases in the minimum wage
will increase labor costs. We are also subject
to the Americans With Disability Act of 1990
(ADA), which, among
other things, may require certain renovations to
our restaurants to meet
federally mandated requirements. The cost of
any such renovations is not expected to materially affect us.
We are
not aware of any statute, ordinance, rule or regulation under present
consideration which would significantly limit or restrict our business as now
conducted. None of our employees are represented by collective bargaining
organizations. We consider our labor relations to be favorable.
Terms of the Advisory
Agreement. Under the terms of the Agreement, the Adviser
serves as the Company's investment adviser and, under the supervision of the
directors of the Company, administers the day-to-day operations of the
Company. All officers of the Company who are officers of the Adviser
are compensated solely by the Adviser for their services. The
Agreement is renewable annually upon the approval of a majority of the directors
of the Company who are not affiliated with the Adviser and a majority of the
Company's shareholders. The contract may be terminated at any time on
120 days written notice by the Adviser or upon 60 days written notice by a
majority of the unaffiliated directors of the Company or the holders of a
majority of the Company's outstanding shares.
On August
13, 2009, the shareholders approved the renewal of the Advisory Agreement
between the Company and the Adviser for a term commencing January 1, 2010, and
expiring December 31, 2010.
7
The Adviser is majority owned by Mr. Wiener with the remaining shares owned by certain officers, including Mr. Rothstein. The officers and directors of the Adviser are as follows: Maurice Wiener, Chairman of the Board and Chief Executive officer; Larry Rothstein, President, Treasurer, Secretary and Director; and Carlos Camarotti, Vice President - Finance and Assistant Secretary.
Advisory
Fees. For the years ended December 31, 2009 and 2008,
the Company and its subsidiaries incurred Adviser fees of approximately
$1,020,000 and $1,076,000, respectively, of which $1,020,000 represented regular
compensation for 2009 and 2008. In 2008, approximately $56,000
represented incentive compensation. There was no incentive
compensation for 2009. The Adviser is also the manager for certain of the
Company's affiliates and received management fees of approximately $19,000 and
$44,000 in 2009 and 2008, respectively for such services. Included in fees for
2008 was $25,000 of management fees earned relating to management of the Monty’s
restaurant operations.
Item 2. Description of
Property.
Grove Isle Hotel, Club and
Marina (“Grove Isle”) (Coconut Grove, Florida). The
Company has owned Grove Isle since 1993 and leases the property to a qualified
luxury resort manager to operate the resort. The Grove Isle resort
includes a 50 room hotel, renowned restaurant and banquet facilities, a first
class spa, tennis courts and an 85-boat slip marina. It is located on
7 acres of a private island in Coconut Grove, Florida, known as "Grove
Isle".
Presently,
the lessee of Grove Isle is Grove Hotel Partners, LLC, an affiliate of Grand
Heritage Hotel Group, LLC (“GH”). GH operates over a dozen independent hotels
and resorts across North America and Mexico. The lease termination date is
November 30, 2016, if not extended as provided in the lease. Base rent was
$1,184,000 for the year ended December 31, 2009 and will remain at $1,184,000 in
2010. The lease also calls for participation rent consisting of a portion of
operating surplus, as defined. Participation rent when and if due is
payable at end of each lease year. There has been no participation rent since
the inception of the lease.
GH also
manages the day to day operations of Grove Isle Spa, LLC (“GS”), which is owned
50% by GH and 50% by the Company. The Grove Isle spa began
operations in the first quarter of 2005. The spa operates under the name “Spa
Terre at the Grove” and offers a variety of body treatments, salon services,
facial care and massage therapies.
The Grove
Isle property is encumbered by a mortgage note payable with an outstanding
balance of approximately $3.7 million and $3.8 million as of December 31, 2009
and 2008, respectively. This loan calls for monthly principal
payments of $10,000 with all outstanding principal and interest due at maturity
on September 29, 2010. Interest on outstanding principal is due
monthly at an annual rate of 2.5% plus the one-month LIBOR Rate.
As of
December 31, 2009, 6 of the 85 yacht slips at the facility are owned by the
Company and the other 79 are owned by unrelated individuals or their entities.
The Company operates and maintains all aspects of the Grove Isle marina for an
annual management fee from the slip owners to cover operational expenses. In
addition the Company rents the unsold slips to boat owners on a short term
basis.
8
Restaurant, marina and mall
(“Monty’s”) (Coconut Grove, Florida).
In August
2004, the Company, through two 50%-owned entities, Bayshore Landing, LLC
(“Landing”) and Bayshore Rawbar, LLC (“BSRB”), (collectively, “Bayshore”)
purchased a restaurant, office/retail and marina property located in Coconut
Grove (Miami), Florida known as Monty’s. The other 50% owner of
Bayshore is The Christoph Family Trust (the “Trust” or “CFT”). Members of the
Trust are experienced real estate and marina operators.
The
Monty’s property consists of a two story building with approximately 40,000
rentable square feet and approximately 3.7 acres of land and submerged land with
a 132-boat slip marina. It includes a 16,000 square foot indoor-outdoor raw bar
restaurant known as Monty’s Raw Bar and 24,000 net rentable square footage of
office/retail space leased to tenants operating boating and marina related
businesses. Monty’s Raw Bar has operated in the same location since
1969 and is an established culinary landmark in South Florida. It is
a casual restaurant and bar located next to the picturesque Monty’s
marina.
The
Monty’s property is subject to a ground lease with the City of Miami, Florida
expiring in 2035. Under the lease, Landing pays percentage rent ranging from 8%
to 15% of gross revenues from various components of the property.
The
Monty’s property is encumbered by a loan mortgage payable to a bank with an
outstanding principal balance of $11.2 million as of December 31, 2009. The loan
is repayable in equal monthly principal payments necessary to fully amortize the
principal amount over the remaining term of the loan maturing in February 2021,
plus accrued interest. In conjunction with this loan Bayshore entered
into an interest rate swap agreement to manage their exposure to interest rate
fluctuation through the entire term of the mortgage. The effect of
the swap agreement is to provide a fixed interest rate of 7.57%.
The
operations of the Monty’s restaurant are managed by BSRB personnel with the
exception of its accounting related functions which are performed by RMI, an
unrelated third party and former operator of the restaurant. Under an amended
management agreement BSRB retained RMI to perform accounting related
administrative functions only. For the year ended December 31, 2009, BSRB paid
RMI $114,000 (or $9,500 per month) for accounting and related
service. The amended management agreement is renewable on an annual
basis. In October 2009 the agreement with RMI was renewed and extended through
the year ended December 31, 2010 under the same terms of the prior
agreement.
Land held for development
(Vermont and Rhode Island).
The
Company owns approximately 50 acres of vacant land held for development located
in Hopkinton, Rhode Island. There are no current plans for
development of this land.
The
Company also owns a 70% interest in a commercially zoned 5 acre property located
in Montpelier, Vermont. Further development of this property is being
considered.
9
Executive offices (Coconut
Grove, Florida). The principal executive offices of the
Company and the Adviser are located at 1870 South Bayshore Drive, Coconut Grove,
Florida, 33133, in premises owned by the Company’s subsidiary CII and leased to
the Adviser pursuant to a lease agreement originally dated December 1, 1999, and
as renewed in 2009. The lease provides for base rent of $48,000 per year payable
in equal monthly installments during the five year term of the
lease. The Adviser, as tenant, pays utilities, certain maintenance
and security expenses relating to the leased premises.
The
Company regularly evaluates potential real estate acquisitions for future
investment or development and would utilize funds currently available or from
other resources to implement its strategy.
The
Company is a co-defendant in two lawsuits in the circuit court in Miami Dade
County Florida. These cases arose from claims by a condominium association and
resident seeking a declaratory judgment regarding certain provisions of the
declaration of condominium relating to the Grove Isle Club and the developer.
The Company believes that the claims are without merit and intends to vigorously
defend its position. The ultimate outcome of this litigation cannot presently be
determined. However, in management’s opinion the likelihood of a material
adverse outcome is remote. Accordingly, adjustments, if any that might result
from the resolution of this matter have not been reflected in the financial
statements.
10
Part
II.
Item
4. Market for Registrant’s Common Equity and Related Stockholder
Matters and Issuer Purchases of Equity Securities.
The high
and low per share closing sales prices of the Company's stock on the NYSE Amex
Exchange (ticker symbol: HMG) for each quarter during the past two years were as
follows:
High
|
Low
|
|||||||
March
31, 2009
|
$ | 3.40 | $ | 2.16 | ||||
June
30, 2009
|
$ | 3.76 | $ | 2.88 | ||||
September
30, 2009
|
$ | 4.35 | $ | 3.06 | ||||
December
31, 2009
|
$ | 4.67 | $ | 3.25 | ||||
March
31, 2008
|
$ | 10.00 | $ | 8.60 | ||||
June
30, 2008
|
$ | 8.80 | $ | 7.20 | ||||
September
30, 2008
|
$ | 7.59 | $ | 4.56 | ||||
December
31, 2008
|
$ | 5.20 | $ | 2.05 | ||||
No
dividends were declared or paid during 2009 and 2008. The Company's policy has
been to pay dividends as are necessary for it to qualify for taxation as a REIT
under the Internal Revenue Code.
As of
March 31, 2010, there were 388 holders of record of the Company's common
stock.
In 2009
the Company purchased 1,200 shares of its common stock for $4,080 representing
the aggregate market value paid for the shares.
The
following table illustrates securities authorized for issuance under the
Company’s equity compensation plan:
Number
of securities to be
issued
upon exercise of
outstanding
options
|
Weighted-average
exercise
price of
outstanding
options
|
Number
of securities
remaining
available for
future
issuance under
equity
compensation plans
|
|
Equity
compensation plan
approved
by shareholders
|
102,100
|
$8.83
|
16,000
|
Equity
compensation plan not
approved
by shareholders
|
--
|
--
|
--
|
Total
|
102,100
|
$8.83
|
16,000
|
11
Not
applicable to the Company.
Item 6. 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 other things,
goodwill
impairment, impairment of our other
investments and other long-lived assets, uncertainties for Federal and state
income tax and allowance for 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 financial statements:
Goodwill
Impairment. The Company’s entire goodwill balance of $7.8
million as of December 31, 2009 relates to its Monty’s property which operates
in two of the Company’s reportable segments (Restaurant and real estate/marina
rentals and related).
We test
goodwill for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset may be impaired using a two-step process.
Under the first step, the fair value of the reporting unit is compared with its
carrying value (including goodwill). If the fair value of the
reporting unit is less than its carrying value, an indication of
goodwill
impairment exists for the reporting
unit and we must perform step two of the impairment test
(measurement). Step two of the impairment test, if necessary,
requires the estimation of the fair value for the assets and liabilities of a
reporting unit in order to calculate the implied fair value of the reporting
unit’s goodwill. Under step two, an impairment loss is recognized to
the extent the carrying amount of the reporting unit’s goodwill exceeds the
implied fair value of goodwill. The fair value of the reporting unit
is determined by management and is based on the results of estimates we made
regarding the present value of the anticipated cash flows associated with each
reporting unit (the “income approach”).
The
income approach which considers factors unique to each of our reporting units
and related long range plans that may not be comparable to other companies and
is dependent on several critical management assumptions. These
assumptions include estimates of future sales growth, gross margins, operating
costs, income tax rates, terminal value growth rates, capital expenditures and
the weighted average cost of capital (discount rate). Anticipated
cash flows used under the income approach are developed in conjunction with our
annual budgeting process.
12
The discount rates used in the income approach are an estimate of the rate of return that a market participant would expect of each reporting unit. To select an appropriate rate for discounting the future earnings stream, a review was made of short-term interest rate yields of long-term corporate and government bonds, as well as the typical capital structure of companies in the industry. The discount rates used for each reporting unit may vary depending on the risk inherent in the cash flow projections, as well as the risk level that would be perceived by a market participant. A terminal value is included at the end of the projection period used in our discounted cash flow analyses to reflect the remaining value that each reporting unit is expected to generate. The terminal value represents the present value in the last year of the projection period of all subsequent cash flows into perpetuity. The terminal value growth rate is a key assumption used in determining the terminal value as it represents the annual growth of all subsequent cash flows into perpetuity.
The
estimated fair value of our reporting units are subject to change as a result of
many factors including, among others, any changes in our business plans,
changing economic conditions and the competitive environment. Should
actual cash flows and our future estimates vary adversely from those estimates
we use, we may be required to recognize
goodwill
impairment charges in future
years.
We
performed our annual
goodwill
impairment test in the fourth quarter
of 2009. As a result of our testing, we concluded that the fair value of the
reporting units of Monty’s exceeded their carrying amounts.
Marketable
Securities. Consistent with the Company's overall investment
objectives and activities, management has classified its entire marketable
securities portfolio as trading. As a result, all unrealized gains and losses on
the Company's investment portfolio are included in the Consolidated Statement of
Comprehensive Income. Our investments in trading equity and debt marketable
securities are carried at fair value and based on quoted market prices or other
observable inputs. Marketable securities are subject to fluctuations in value in
accordance with market conditions.
Other
Investments. The Company’s other investments consist primarily
of nominal equity interests in various privately-held entities, including
limited partnerships whose purpose is to invest venture capital funds in
growth-oriented enterprises. The Company does not have significant
influence over any investee and the Company’s investment represents less than 3%
of the investee’s ownership. None of these investments meet the criteria of
accounting under the equity method and are carried at cost less distributions
and other than temporary unrealized losses. These investments do not have
available quoted market prices, so we must rely on valuations and related
reports and information provided to us by those entities. These valuations are
by their nature subject to estimates which could change significantly from
period to period. The Company regularly reviews the underlying assets in its
other investment portfolio for events, including but not limited to
bankruptcies, closures and declines in estimated fair value, that may indicate
the investment has suffered an other-than-temporary decline in
value. When a decline is deemed other-than-temporary, we permanently
reduce the cost basis component of the investments to its estimated fair value,
and the loss is recorded as a component of net income from other investments. As
such, any recoveries in the value of the investments will not be recognized
until the investments are sold.
13
Our
estimates of each of these items historically have been adequate. However, due
to uncertainties inherent in the estimation process, it is reasonably possible
that the actual resolution of any of these items could vary significantly from
the estimate and, accordingly, there can be no assurance that the estimates may
not materially change in the near term.
Real
Estate. Land, buildings and improvements, furniture, fixtures
and equipment are recorded at cost. Tenant improvements, which are included in
buildings and improvements, are also stated at cost. Expenditures for ordinary
maintenance and repairs are expensed to operations as they are incurred.
Renovations and/or replacements, which improve or extend the life of the asset
are capitalized and depreciated over their estimated useful lives.
Depreciation
is computed utilizing the straight-line method over the estimated useful lives
of ten to forty years for buildings and improvements and five to ten years for
furniture, fixtures and equipment. Tenant improvements are amortized on a
straight-line basis over the term of the related leases.
The
Company is required to make subjective assessments as to the useful lives of its
properties for purposes of determining the amount of depreciation to reflect on
an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net
income.
Assessment
by the Company of certain other lease related costs must be made when the
Company has a reason to believe that the tenant will not be able to execute
under the term of the lease as originally expected.
The
Company periodically reviews the carrying value of certain of its properties and
long-lived assets in relation to historical results, current business conditions
and trends to identify potential situations in which the carrying value of
assets may not be recoverable. If such reviews indicate that the
carrying value of such assets may not be recoverable, the Company would estimate
the undiscounted sum of the expected future cash flows of such assets or analyze
the fair value of the asset, to determine if such sum or fair value is less than
the carrying value of such assets to ascertain if a permanent impairment
exists. If a permanent impairment exists, the Company would determine
the fair value by using quoted market prices, if available, for such assets, or
if quoted market prices are not available, the Company would discount the
expected future cash flows of such assets and would adjust the carrying value of
the asset to fair value. Judgments as to impairments and assumptions
used in projecting future cash flow are inherently imprecise.
14
Results of
Operations:
For the
years ended December 31, 2009 and 2008, the Company reported net loss
attributable to the Company of approximately $85,000 (or $.08 per share) and
$1,617,000 (or $1.58 per share), respectively.
Revenues:
Total
revenues for the year ended December 31, 2009 as compared with that of 2008
decreased by approximately $665,000 (or 6%). This decrease was
primarily due to the decrease in restaurant, marine and spa revenues, as
discussed below.
Real estate and related
revenue:
Real
estate rentals and related revenue increased by approximately $117,000 (or 7%)
for the year ended December 31, 2009 as compared with 2008. This
increase was the result of increased rental income from the Monty’s
office/retail space of approximately $74,000 and increased rental revenue from
Grove Isle and other of $43,000. As of December 31, 2009 all but
1,800 square feet out of approximately 24,000 net rentable square feet of the
Monty’s office/retail space are leased.
Monty’s restaurant
operations:
Summarized
statement of income of the Monty’s restaurant operations for the years ended
December 31, 2009 and 2008 is presented below (Note: the information below
represents 100% of the restaurant operations while the Company’s ownership
percentage in these operations is 50%):
Summarized
statements of income of
Monty’s
restaurant
|
Year
ended
December
31, 2009
|
Percentage
of
sales
|
Year
ended
December
31,
2008
|
Percentage
of
sales
|
||||||||||||
Revenues:
|
||||||||||||||||
Food
and Beverage Sales
|
$ | 6,271,000 | 100 | % | $ | 6,697,000 | 100 | % | ||||||||
Expenses:
|
||||||||||||||||
Cost
of food and beverage sold
|
1,616,000 | 25.8 | % | 1,794,000 | 26.8 | % | ||||||||||
Labor,
entertainment and related costs
|
1,495,000 | 23.8 | % | 1,557,000 | 23.2 | % | ||||||||||
Other
food and beverage related costs
|
274,000 | 4.4 | % | 287,000 | 4.3 | % | ||||||||||
Other
operating costs
|
569,000 | 9.1 | % | 529,000 | 7.9 | % | ||||||||||
Insurance
|
295,000 | 4.7 | % | 318,000 | 4.7 | % | ||||||||||
Management
and accounting fees
|
115,000 | 1.8 | % | 140,000 | 2.1 | % | ||||||||||
Utilities
|
247,000 | 3.9 | % | 255,000 | 3.8 | % | ||||||||||
Rent
(as allocated)
|
644,000 | 10.3 | % | 688,000 | 10.3 | % | ||||||||||
Total
Expenses
|
5,255,000 | 83.8 | % | 5,568,000 | 83.1 | % | ||||||||||
Income
before depreciation and minority
interest
|
$ | 1,016,000 | 16.2 | % | $ | 1,129,000 | 16.9 | % |
15
The
Monty’s restaurant is subject to seasonal fluctuations in
sales. January through May sales typically account for over 50% of
annual sales. Restaurant sales in 2009 as compared with 2008
decreased by approximately 6% we believe primarily due to the general decline in
economic activity.
The
increase in other operating costs in 2009 (9.1% of sales) versus 2008 (7.9% of
sales) was primarily due to increase repairs and maintenance and other indirect
operating costs of the restaurant. The decrease in management and
accounting fees in 2009 (1.8% of sales) versus 2008 (2.1% of sales) was
primarily due to reduction in restaurant management fees payable.
All other
restaurant related expenses in 2009 were generally consistent, as a percentage
of sales, with that of 2008.
Grove Isle and Monty’s
marina operations:
The Grove
Isle marina operates for the benefit of the slip owners and maintains all
aspects of the marina in exchange for an annual maintenance fee from the slip
owners to cover operational expenses. There are 85 boat slips at Grove Isle, of
which 79 are privately owned by unrelated individuals or entities, the remaining
6 slips are owned by the Company. The Company rents the unsold slips
to boat owners on a short term basis. The Monty’s marina has approximately 4,400
total square feet available for rent to the public.
Summarized
and combined statements of income from marina operations:
(The
Company owns 50% of the Monty’s marina and 95% of the Grove Isle
marina)
Year
ended December 31,
2009
|
Combined
marina
operations
|
Combined
marina
operations
|
||||||||||||||
Summarized
statements of income of marina operations
|
Grove
Isle
Marina
|
Monty’s
Marina
|
Year
ended
December
31,
2009
|
Year
ended
December
31,
2008
|
||||||||||||
Revenues:
|
||||||||||||||||
Dockage
fees and related income
|
$ | 63,000 | $ | 1,187,000 | $ | 1,250,000 | $ | 1,339,000 | ||||||||
Grove
Isle marina slip owners dues
|
448,000 | - | 448,000 | 420,000 | ||||||||||||
Total
marina revenues
|
511,000 | 1,187,000 | 1,698,000 | 1,759,000 | ||||||||||||
Expenses:
|
||||||||||||||||
Labor
and related costs
|
259,000 | - | 259,000 | 247,000 | ||||||||||||
Insurance
|
61,000 | 139,000 | 200,000 | 194,000 | ||||||||||||
Management
fees
|
40,000 | 4,000 | 44,000 | 77,000 | ||||||||||||
Utilities
(net of reimbursements)
|
36,000 | (8,000 | ) | 28,000 | 25,000 | |||||||||||
Bay
bottom lease
|
39,000 | 190,000 | 229,000 | 236,000 | ||||||||||||
Repairs
and maintenance
|
55,000 | 29,000 | 84,000 | 115,000 | ||||||||||||
Other
|
25,000 | 123,000 | 149,000 | 74,000 | ||||||||||||
Total
Expenses
|
515,000 | 477,000 | 993,000 | 968,000 | ||||||||||||
(Loss)
income before interest, depreciation and
minority interest
|
$ | (4,000 | ) | $ | 710,000 | $ | 705,000 | $ | 791,000 |
16
Total
marina revenues decreased by approximately $61,000 (or 3%) for the year ended
December 31, 2009 as compared with 2008 primarily as a result of decreased
transient rentals at both marinas.
Total
marina expense for the year ended December 31, 2009 as compared with 2008
increased by approximately $25,000 (or 3%) primarily due to an increase in
general and administrative expenses. This includes a provision for bad
debt of $50,000 from one broker tenant at Monty's marina, and was partially
offset by decreased Monty's marina management fees.
Grove Isle spa
operations:
Spa
revenues decreased by $295,000 (or 37%) for the year ended December 31, 2009 as
compared with 2008. Spa and related services have been severely
affected by the economic downturn and all spa services at Grove experienced
significant declines in 2009.
Spa
expenses decreased by $128,000 (or 19%) for the year ended December 31, 2009 as
compared with 2008, primarily due decreased cost of sales and labor as a result
of reduced demand for spa services.
Below is
a summarized income statement for these operations for the year ended December
31, 2009 and 2008. The Company owns 50% of the Grove Isle Spa with
the other 50% owned by an affiliate of the Grand Heritage Hotel Group, the
tenant operator of the Grove Isle Resort.
Grove
Isle Spa
Summarized
statement of income
|
For
the year
ended
December
31,
2009
|
For
the year
ended
December
31,
2008
|
||||||
Revenues:
|
||||||||
Services
provided
|
$ | 432,000 | $ | 754,000 | ||||
Membership
and other
|
72,000 | 45,000 | ||||||
Total
spa revenues
|
504,000 | 799,000 | ||||||
Expenses:
|
||||||||
Cost
of sales (commissions and other)
|
119,000 | 246,000 | ||||||
Salaries,
wages and related
|
180,000 | 233,000 | ||||||
Other
operating costs
|
204,000 | 145,000 | ||||||
Management
and administrative fees
|
33,000 | 43,000 | ||||||
Other
|
3,000 | - | ||||||
Total
Expenses
|
539,000 | 667,000 | ||||||
(Loss)
income before interest,
depreciation, minority interest and
income taxes
|
$ | (35,000 | ) | $ | 132,000 |
17
Expenses:
Total
expenses for the year ended December 31, 2009 as compared to that of 2008
decreased by approximately $700,000 (or 6%).
Food and
beverage costs are solely from the Monty’s restaurant operations. Spa
expenses are solely from the Grove Isle spa operations. Marina
expenses are from both the Monty’s and Grove Isle marinas. Summarized income
statements and discussion of significant changes in expenses for each of these
operations are presented above.
Operating
expenses of rental and other properties for the year ended December 31, 2009 as
compared with 2008 decreased by $137,000 (or 18%). This was primarily due to
decreased operating costs of the Monty’s rental operations due to decreased
repairs and maintenance expense and reduced management fees as a result of less
oversight on the build out of the Monty’s rental space which was essentially
completed in 2009.
Depreciation
and amortization expense decreased by approximately $67,000 (or 5%) primarily
due to a non-recurring write off of unamortized deferred loan costs at Grove
Isle Spa in 2008 of approximately $22,000 and reduction in amortization expense
of approximately $35,000 relating to deferred leasing commissions on Monty’s
leases which were written off in 2009.
Interest
expense decreased by approximately $221,000 (or 17%) for year ended December 31,
2009 as compared to 2008. This was due to decreased interest rates in
2009 as compared to 2008, and due to loan principal reductions of approximately
$827,000 during the year ended December 31, 2009.
General
and administrative expenses increased by approximately $108,000 (or 34%) for
year ended December 31, 2009 as compared to 2008. This was due to
increased provision for bad debt expense of $150,000, which was partially offset
by decreased dues and subscriptions of $42,000.
Professional
fees increased by approximately $35,000 (or 11%) for the year ended December 31,
2009 as compared to 2008. This was primarily due to increased legal
and related costs associated with Monty’s facility.
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, 2009 and 2008, is as
follows:
18
Description
|
2009
|
2008
|
||||||
Net
realized loss from sales of
marketable
securities
|
$ | (4,000 | ) | $ | (53,000 | ) | ||
Net
unrealized gain (loss) from
marketable
securities
|
1,129,000 | (1,383,000 | ) | |||||
Total
net gain (loss) from investments
in
marketable securities
|
$ | 1,125,000 | $ | (1,436,000 | ) |
Net
realized gain from sales of marketable securities consisted of approximately
$261,000 of gains net of $265,000 of losses for the year ended December 31,
2009. The comparable amounts in fiscal year 2008 were gains of
approximately $435,000 net of $488,000 of losses.
Consistent
with the Company’s overall current investment objectives and activities, the
entire marketable securities portfolio is classified as trading (versus
available for sale, as defined by generally accepted accounting
principles). Unrealized gains or losses from marketable securities
are recorded as other income in the consolidated statements of comprehensive
income.
Investment
gains and losses on marketable securities may fluctuate significantly from
period to period in the future and could have a significant impact on the
Company's net earnings. However, the amount of investment gains or losses on
marketable securities for any given period has no predictive value and
variations in amount from period to period have no practical analytical
value.
Investments
in marketable securities give rise to exposure resulting from the volatility of
capital markets. The Company attempts to mitigate its risk by
diversifying its marketable securities portfolio.
Net income from other
investments is summarized below (excluding other than temporary impairment
losses):
2009
|
2008
|
|||||||
Partnerships
owning stocks and
bonds
(a)
|
$ | 22,000 | $ | 392,000 | ||||
Venture
capital funds – diversified
businesses
(b)
|
31,000 | 208,000 | ||||||
Venture
capital funds – technology
&
communications
|
12,000 | 22,000 | ||||||
Income
from investment in 49%
owned
affiliate (c)
|
74,000 | 40,000 | ||||||
Other
|
15,000 | 5,000 | ||||||
Total
net income from other
investments
|
$ | 154,000 | $ | 665,000 |
19
(a)
|
In
2009 and 2008 amounts consist of gains from the full redemption of
investments in private equity funds that invested in equities, debt or
debt like securities.
|
(b)
|
In
2008 amounts consist primarily of gains from distributions of investments
in two private limited partnerships which own interests in various
diversified businesses, primarily in the manufacturing and production
related sectors.
|
(c)
|
This
gain represents income from the Company’s 49% owned affiliate, T.G.I.F.
Texas, Inc. (“TGIF”). The increase in income is due to increase net income
of TGIF as a result of reduced operating expenses. In December 2009 and
2008 TGIF declared and paid a cash dividend of the Company’s portion of
which was approximately $140,000 and $224,000, respectively. 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 losses from other investments
2009
|
2008
|
|||||||
Venture
capital funds – diversified
businesses
(a)
|
$ | (130,000 | ) | - | ||||
Real
estate and related (b)
|
(138,000 | ) | (37,000 | ) | ||||
Venture
capital funds – technology
&
communications (c)
|
(150,000 | ) | - | |||||
Other
|
(5,000 | ) | - | |||||
Total
other than temporary
impairment loss from other
investments
|
$ | (423,000 | ) | $ | (37,000 | ) |
(a)
|
In
2009 amount consist of write downs of two investments in private limited
partnerships owning real diversified businesses. These investments
experienced other than temporary impairment in value of approximately
$130,000.
|
(a)
|
In
2009 amount consist of write downs of three investments in private limited
partnerships owning real estate interests. These investments experienced
other than temporary impairment in value of approximately $138,000. In
2008 amount consist of one write down of approximately $37,000 in an
investment owning a limited partnership real estate
interest.
|
(b)
|
In
2009 amount primarily consists of write downs of two investments in
private limited partnerships owning technology related entities. These
investments experienced other than temporary impairment in value of
approximately $150,000.
|
Net
income or loss from other investments may fluctuate significantly from period to
period in the future and could have a significant impact on the Company's net
earnings. However, the amount of investment gain or loss from other investments
for any given period has no predictive value and variations in amount from
period to period have no practical analytical value.
20
Interest, dividend and other
income
Interest,
dividend and other income for years ended December 31, 2009 and 2008 was
approximately $415,000 and $509,000, respectively. The decrease of approximately
$94,000 (or 18%) was primarily due to decreased consulting revenue of
approximately $50,000 from the Company’s 80% owned subsidiary, Courtland
Houston, Inc. and decreased dividend income of approximately $53,000, partially
offset by increased bond interest income.
Benefit from income
taxes:
Benefit
from income taxes for the years ended December 31, 2009 and 2008 was $92,000 and
$130,000, respectively.
The
Company follows the liability method of accounting for income taxes. Under this
method, deferred tax liabilities and assets are recognized for the expected
future tax consequences of temporary differences between the carrying amount and
the tax basis of assets and liabilities at each year-end based on enacted tax
laws and statutory tax rates applicable to the periods in which the differences
are expected to affect taxable income. As a result of timing differences
associated with the carrying value of other investments, unrealized gains and
losses of marketable securities, depreciable assets and the future benefit of a
net operating loss, as of December 31, 2009 and 2008, the Company has recorded a
net deferred tax asset of $458,000 and
$366,000, respectively. A valuation allowance against deferred tax
asset has not been established as management believes it is more likely than
not, based on the Company’s previous history and expectation of future taxable
income before expiration, that these assets will be realized.
Effect of
Inflation.
Inflation
affects the costs of operating and maintaining the Company's
investments. In addition, rentals under certain leases are based in
part on the lessee's sales and tend to increase with inflation, and certain
leases provide for periodic adjustments according to changes in predetermined
price indices.
Liquidity, Capital
Expenditure Requirements and Capital Resources. The Company's material
commitments primarily consist of maturities of debt obligations of approximately
$8.1 million in 2010 and contributions committed to other investments of
approximately $900,000 due upon demand. The funds necessary to meet
these obligations are expected from the proceeds from the sales of properties or
investments, bank construction loan, refinancing of existing bank loans,
distributions from investments and available cash.
Included
in the maturing debt obligations for 2010 is the bank mortgage note payable on
the Grove Isle property which matures in September 2010. The Company is in the
process of refinancing this loan and expects to do so prior to
maturity.
Also
included in the maturing debt obligations for 2010 is a note payable to the
Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) of approximately
$3.6 million due on demand.(see Item 12. Certain
Relationships and Related Transactions and Director
Independence.) The obligation due to TGIF will be paid
with funds available from distributions from its investment in TGIF and from
available cash.
21
A summary of the Company’s contractual cash obligations at December 31, 2009 is as follows:
Payments
Due by Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Less
than 1
year
|
1 –
3 years
|
4 –
5 years
|
After
5 years
|
|||||||||||||||
Mortgages
and
notes
payable
|
$ | 18,470,000 | $ | 8,130,000 | $ | 715,000 | $ | 767,000 | $ | 8,858,000 | ||||||||||
Other
investments
commitments
(a)
|
900,000 | 900,000 | -- | -- | -- | |||||||||||||||
Total
|
$ | 19,370,000 | $ | 9,030,000 | $ | 715,000 | $ | 767,000 | $ | 8,858,000 |
(a)
|
The
timing of amounts due under commitments for other investments is
determined by the managing partners of the individual
investments. These amounts are reflected as due in less than
one year although the actual funding may not be required until some time
in the future.
|
Material Changes in
Operating, Investing and Financing Cash Flows.
The
Company’s cash flows are generated primarily from its real estate net rental and
related activities, sales of marketable securities, distributions from other
investments and borrowings.
For the
year ended December 31, 2009 the Company’s net cash used in operating activities
was approximately $113,000. This was primarily from real estate net
rental and related activities. The Company believes that there will be
sufficient cash flows in the next year to meet its operating
requirements.
For the
year ended December 31, 2009, the net cash used in investing activities was
approximately $531,000. This included sources of cash consisting of
proceeds from the sales and redemptions of marketable securities of $2.1
million, cash distributions from other investments of $393,000 and distribution
from affiliate of $140,000. These sources of cash were offset by
purchases of marketable securities of $2.2 million, contributions to other
investments of $527,000, purchases and improvements of fixed assets of $309,000
and increase loans receivable of $150,000.
For the
year ended December 31, 2009, net cash used in financing activities was
approximately $816,000. This primarily consisted of repayments of
mortgages and notes payable of $827,000.
Item 6A. Quantitative
and Qualitative Disclosures About Market Risks.
Not
Applicable to the Company.
22
Item
7.
|
|||
Report
of Independent Registered Public Accounting Firm
|
24.
|
||
Consolidated
balance sheets as of December 31, 2009 and 2008
|
25.
|
||
Consolidated
statements of comprehensive income for the
|
|||
years
ended December 31, 2009 and 2008
|
26.
|
||
Consolidated
statements of changes in stockholders' equity
|
|||
for
the years ended December 31, 2009 and 2008
|
27.
|
||
Consolidated
statements of cash flows for the
|
|||
years
ended December 31, 2009 and 2008
|
28.
|
||
Notes
to consolidated financial statements
|
29.
|
23
Berenfeld
Spritzer Shechter & Sheer LLP; Certified Public Accountants and
Advisors
401 East
Las Olas Boulevard, Suite 1090
Ft.
Lauderdale, Florida 33301
Telephone
(954) 728-3740 Fax (954) 728-3798
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders of HMG/Courtland Properties, Inc. and
Subsidiaries
We have
audited the accompanying consolidated balances sheets of HMG/Courtland
Properties, Inc. (a Delaware corporation) and Subsidiaries as of December 31,
2009 and 2008, and the related consolidated statements of comprehensive income,
stockholders' equity and cash flows for each of the years in the two year period
ended December 31, 2009. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of HMG/Courtland Properties,
Inc. and Subsidiaries at December 31, 2009 and 2008, and the results of its
operations and its cash flows for each of the years in the two-year period ended
December 31, 2009, in conformity with accounting principles generally accepted
in the United States of America.
/s/
Berenfeld Spritzer Shechter & Sheer LLP
Berenfeld
Spritzer Shechter & Sheer LLP;
Certified
Public Accountants and Advisors
March 31,
2010
Ft.
Lauderdale, Florida
24
HMG/COURTLAND PROPERTIES, INC. AND | ||||||||
SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | ||||||||
AS OF DECEMBER 31, 2009 AND 2008 | ||||||||
December
31,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Investment
properties, net of accumulated depreciation:
|
||||||||
Commercial properties
|
$ | 7,653,850 | $ | 7,961,765 | ||||
Hotel, club and spa facility
|
3,864,491 | 4,338,826 | ||||||
Marina properties
|
2,319,387 | 2,566,063 | ||||||
Land held for development
|
27,689 | 27,689 | ||||||
Total
investment properties, net
|
13,865,417 | 14,894,343 | ||||||
Cash
and cash equivalents
|
1,909,218 | 3,369,577 | ||||||
Cash
and cash equivalents-restricted
|
2,401,546 | 2,390,430 | ||||||
Investments
in marketable securities
|
4,508,433 | 3,295,391 | ||||||
Other
investments
|
3,524,246 | 3,733,101 | ||||||
Investment
in affiliate
|
2,881,394 | 2,947,758 | ||||||
Loans,
notes and other receivables
|
722,210 | 621,630 | ||||||
Notes
and advances due from related parties
|
590,073 | 587,683 | ||||||
Deferred
taxes
|
458,000 | 366,000 | ||||||
Goodwill
|
7,728,627 | 7,728,627 | ||||||
Other
assets
|
787,662 | 888,535 | ||||||
TOTAL
ASSETS
|
$ | 39,376,826 | $ | 40,823,075 | ||||
LIABILITIES
|
||||||||
Mortgages
and notes payable
|
$ | 18,470,448 | $ | 19,297,560 | ||||
Accounts
payable, accrued expenses and other liabilities
|
1,056,827 | 1,577,115 | ||||||
Interest
rate swap contract payable
|
1,144,000 | 2,156,000 | ||||||
TOTAL
LIABILITIES
|
20,671,275 | 23,030,675 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
- | - | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Excess
common stock, $1 par value;100,000 shares authorized;
|
||||||||
as
of December 31, 2009 and 500,000 shares authorized
as
of December 31, 2008; no shares issued
|
- | - | ||||||
Common
stock, $1 par value; 1,200,000 shares authorized and
|
||||||||
and
1,023,955 issued as of December 31, 2009;
1,500,000
authorized and 1,317,535 issued as of
December
31, 2008
|
1,023,955 | 1,317,535 | ||||||
Additional
paid-in capital
|
24,313,341 | 26,585,595 | ||||||
Less:
Treasury stock, at cost (2,572 and 294,952 shares as of
|
||||||||
December 31, 2009 & 2008, respectively)
|
(8,881 | ) | (2,570,635 | ) | ||||
Undistributed
gains from sales of properties, net of losses
|
41,572,120 | 41,572,120 | ||||||
Undistributed
losses from operations
|
(52,109,035 | ) | (52,023,776 | ) | ||||
Accumulated
other comprehensive loss
|
(572,000 | ) | (1,078,000 | ) | ||||
Total
stockholders’ equity
|
14,219,500 | 13,802,839 | ||||||
Non
controlling interests
|
4,486,051 | 3,989,561 | ||||||
TOTAL
EQUITY
|
18,705,551 | 17,792,400 | ||||||
TOTAL
LIABILITIES AND EQUITY
|
$ | 39,376,826 | $ | 40,823,075 | ||||
See
notes to the consolidated financial statements
|
25
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||
REVENUES
|
2009
|
2008
|
||||||
Real
estate rentals and related revenue
|
$ | 1,795,119 | $ | 1,677,949 | ||||
Food
& beverage sales
|
6,270,728 | 6,696,816 | ||||||
Marina
revenues
|
1,697,950 | 1,759,386 | ||||||
Spa
revenues
|
503,963 | 799,011 | ||||||
Total
revenues
|
10,267,760 | 10,933,162 | ||||||
EXPENSES
|
||||||||
Operating
expenses:
|
||||||||
Rental
and other properties
|
636,198 | 773,251 | ||||||
Food
and beverage cost of sales
|
1,616,172 | 1,793,807 | ||||||
Food
and beverage labor and related costs
|
1,495,471 | 1,556,906 | ||||||
Food
and beverage other operating costs
|
2,142,587 | 2,216,260 | ||||||
Marina
expenses
|
993,080 | 967,696 | ||||||
Spa
expenses
|
539,160 | 667,134 | ||||||
Depreciation
and amortization
|
1,318,329 | 1,384,928 | ||||||
Adviser's
base fee
|
1,020,000 | 1,020,000 | ||||||
General
and administrative
|
424,315 | 316,020 | ||||||
Professional
fees and expenses
|
344,688 | 309,458 | ||||||
Directors'
fees and expenses
|
110,844 | 115,072 | ||||||
Total
operating expenses
|
10,640,844 | 11,120,532 | ||||||
Interest
expense
|
1,111,944 | 1,332,706 | ||||||
Total
expenses
|
11,752,788 | 12,453,238 | ||||||
Loss
before other income and income taxes
|
(1,485,028 | ) | (1,520,076 | ) | ||||
Net
realized and unrealized gains (losses) from investments in marketable
securities
|
1,125,428 | (1,436,224 | ) | |||||
Net
income from other investments
|
153,817 | 665,427 | ||||||
Other
than temporary impairment losses from other investments
|
(422,800 | ) | (37,491 | ) | ||||
Interest,
dividend and other income
|
415,417 | 509,263 | ||||||
Total
other income (loss)
|
1,271,862 | (299,025 | ) | |||||
Loss
before income taxes
|
(213,166 | ) | (1,819,101 | ) | ||||
Benefit
from income taxes
|
(92,000 | ) | (130,000 | ) | ||||
Net
loss
|
(121,166 | ) | (1,689,071 | ) | ||||
Less:
Net (loss) income attributable to non controlling
interests
|
||||||||
consolidated
entities
|
35,907 | (72,030 | ) | |||||
Net
loss attributable to the Company
|
$ | (85,259 | ) | $ | (1,617,071 | ) | ||
Other comprehensive income
(loss):
|
||||||||
Unrealized
gain (loss) on interest rate swap agreement
|
$ | 506,000 | $ | (815,000 | ) | |||
Total
other comprehensive loss
|
506,000 | (815,000 | ) | |||||
Comprehensive
income (loss)
|
$ | 420,741 | $ | (2,432,571 | ) | |||
Basic
and diluted Net Loss per Common Share
|
$ | (0.08 | ) | $ | (1.58 | ) | ||
Weighted
average common shares outstanding basic and diluted
|
1,021,408 | 1,023,919 | ||||||
See
notes to the consolidated financial statements
|
26
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
|
||||||||||||||||||||||||||||||||||||||||
YEARS
ENDED DECEMBER 31, 2009 AND 2008
|
||||||||||||||||||||||||||||||||||||||||
Common
Stock
|
Additional
Paid-In
|
Undistributed
Gains from Sales of Properties Net
|
Undistributed
Losses from
|
Comprehensive
|
Accumulated
Other Compre-hensive
|
Treasury
Stock
|
Total
Stockholders'
|
|||||||||||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
of Losses
|
Operations
|
Income (loss)
|
Income (loss)
|
Shares
|
Cost
|
Equity
|
|||||||||||||||||||||||||||||||
Balance
as of January 1, 2008
|
1,317,535 | $ | 1,317,535 | $ | 26,585,595 | $ | 41,572,120 | $ | (50,406,705 | ) | $ | (262,500 | ) | 293,580 | $ | (2,565,834 | ) | $ | 16,240,211 | |||||||||||||||||||||
Net
loss
|
(1,617,071 | ) | (1,617,071 | ) | (1,617,071 | ) | ||||||||||||||||||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
Unrealized
loss on interest rate swap
contract
|
(815,500 | ) | (815,500 | ) | (815,500 | ) | ||||||||||||||||||||||||||||||||||
Comprehensive
income (loss)
|
(2,432,571 | ) | ||||||||||||||||||||||||||||||||||||||
Purchase of Treasury stock |
|
1,372 | (4,801 | ) | (4,801 | ) | ||||||||||||||||||||||||||||||||||
Balance
as of December 31, 2008
|
1,317,535 | 1,317,535 | 26,585,595 | 41,572,120 | (52,023,776 | ) | (1,078,000 | ) | 294,952 | (2,570,635 | ) | 13,802,839 | ||||||||||||||||||||||||||||
Net
loss
|
(85,259 | ) | (85,259 | ) | (85,259 | ) | ||||||||||||||||||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||||||
Unrealized
loss on interest rate swap
contract
|
506,000 | 506,000 | 506,000 | |||||||||||||||||||||||||||||||||||||
Comprehensive
loss
|
420,741 | |||||||||||||||||||||||||||||||||||||||
Purchase
of treasury stock
|
1,200 | (4,080 | ) | (4,080 | ) | |||||||||||||||||||||||||||||||||||
Retirement
of treasury stock
|
(293,580 | ) | (293,580 | ) | (2,272,254 | ) | (293,580 | ) | 2,565,834 | |||||||||||||||||||||||||||||||
Balance
as of December 31, 2009
|
1,023,955 | $ | 1,023,955 | $ | 24,313,341 | $ | 41,572,120 | $ | (52,109,035 | ) | $ | (572,000 | ) | 2,572 | $ | (8,881 | ) | $ | 14,219,500 | |||||||||||||||||||||
See
notes to the consolidated financial statements
|
27
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
FOR THE YEARS ENDED DECEMBER 31, 2009 AND
2008
|
||||||||
2009
|
2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
loss attributable to the Company
|
$ | (85,259 | ) | $ | (1,617,071 | ) | ||
Adjustments
to reconcile net loss attributable to the Company to net cash provided by
(used in) operating activities:
|
||||||||
Depreciation
and amortization
|
1,318,329 | 1,384,928 | ||||||
Net
income from other investments, excluding impairment loss
|
(153,817 | ) | (665,387 | ) | ||||
Other
than temporary impairment loss from other investments
|
422,800 | 37,491 | ||||||
Net(gain)
loss from investments in marketable securities
|
(1,125,428 | ) | 1,436,224 | |||||
Net
income attributable to non controlling interest
|
(35,907 | ) | (72,030 | ) | ||||
Deferred
income tax benefit
|
(92,000 | ) | (133,000 | ) | ||||
Provision
for bad debts
|
200,000 | - | ||||||
Changes
in assets and liabilities:
|
||||||||
Increase
in other assets and other receivables
|
(41,714 | ) | (122,767 | ) | ||||
Decrease
in accounts payable, accrued expenses and other
liabilities
|
(520,288 | ) | (6,927 | ) | ||||
Total
adjustments
|
(28,025 | ) | 1,858,492 | |||||
Net
cash (used in) provided by operating activities
|
(113,284 | ) | 241,421 | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchases
and improvements of properties
|
(309,396 | ) | (601,321 | ) | ||||
(Increase)
decrease in notes and advances from related parties
|
(2,390 | ) | 29,285 | |||||
Increase
in mortgage loans and notes receivables
|
(150,000 | ) | (100,000 | ) | ||||
Collections
of mortgage loans and notes receivables
|
12,000 | 612,025 | ||||||
Net
proceeds from sales and redemptions of securities
|
2,089,692 | 3,762,483 | ||||||
Increase
in investments in marketable securities
|
(2,177,306 | ) | (3,247,411 | ) | ||||
Distributions
from other investments
|
392,980 | 1,759,205 | ||||||
Contributions
to other investments
|
(526,757 | ) | (658,716 | ) | ||||
Distribution
from affiliate
|
140,012 | 224,019 | ||||||
Net
cash (used in) provided by investing activities
|
(531,165 | ) | 1,779,569 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Repayment
of mortgages and notes payables
|
(827,112 | ) | (684,174 | ) | ||||
Deposit
to restricted cash
|
(11,116 | ) | (2,390,430 | ) | ||||
Contributions
from non controlling partners
|
26,398 | 1,828,258 | ||||||
Purchase
of treasury stock
|
(4,080 | ) | (4,801 | ) | ||||
Net
cash used in financing activities
|
(815,910 | ) | (1,251,147 | ) | ||||
Net
(decrease) increase in cash and cash equivalents
|
(1,460,359 | ) | 769,843 | |||||
Cash
and cash equivalents at beginning of the year
|
3,369,577 | 2,599,734 | ||||||
Cash
and cash equivalents at end of the year
|
$ | 1,909,218 | $ | 3,369,577 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
||||||||
Cash
paid during the year for interest
|
$ | 1,112,000 | $ | 1,333,000 | ||||
Cash
paid during the year for income taxes
|
- | - | ||||||
See
notes to the consolidated financial statements
|
28
HMG/COURTLAND
PROPERTIES, INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31,
2009 and 2008
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and
Consolidation. The consolidated financial statements include the accounts
of HMG/Courtland Properties, Inc. (the "Company") and entities in which the
Company owns a majority voting interest or controlling financial interest. The
Company was organized in 1972 and (excluding its 95% owned subsidiary Courtland
Investments, Inc., which files a separate tax return) qualifies for taxation as
a real estate investment trust ("REIT") under the Internal Revenue
Code. The Company’s business is the ownership and management of
income-producing commercial properties and its management considers other
investments if such investments offer growth or profit potential. The
Company’s recurring operating revenue comes from food and beverage operations,
marina dockage operations, commercial property rental operations and spa
operations.
All
material transactions and balances with consolidated and unconsolidated entities
have been eliminated in consolidation or as required under the equity
method.
The
Company's consolidated subsidiaries are described below:
Courtland Investments, Inc.
(“CII”). A 95% owned corporation in which the Company holds a 95%
non-voting interest and Masscap Investments Company, Inc. ("Masscap") which
holds a 5% voting interest in CII. The Company and Masscap have had a
continuing arrangement with regard to the ongoing operations of CII, which
provides the Company with complete authority over all decision making relating
to the business, operations and financing of CII consistent with the Company’s
status as a real estate investment trust. Masscap is a wholly-owned
subsidiary of Transco Realty Trust which is a 46% shareholder of the
Company. CII files a separate tax return and its operations are not
part of the REIT tax return.
Courtland Bayshore Rawbar,
LLC (“CBSRB”). This limited liability company is wholly owned
by CII. CBSRB owns a 50% interest in Bayshore Rawbar, LLC (“BSRB”)
which operates the Monty’s restaurant in Coconut Grove, Florida. The
other 50% owner of BSRB is The Christoph Family Trust (“CFT”), an unrelated
entity.
HMG Bayshore, LLC
(“HMGBS”). This limited liability company owns a 50% interest
in the real property and marina operations of Bayshore Landing, LLC
(“BSL”). HMGBS and the CFT formed BSL for the purposes of acquiring
and operating the Monty’s property in Coconut Grove, Florida.
Grove Isle Associates, Ltd.
(“GIA”). This limited partnership (owned 85% by the Company and 15% by
CII) owns and leases the Grove Isle Resort to a tenant-operator. The Grove Isle
resort includes a 50 room hotel, renowned restaurant and banquet facilities, a
first class spa, tennis courts and an 85-boat slip marina. It is
located on 7 acres of a private island in the Coconut Grove section of Miami,
Florida.
29
The
tenant-operator of Grove Isle is Grove Hotel Partners LLC, an affiliate of Grand
Heritage Hotel Group, LLC (“GH”). GH operates over a dozen independent hotels
and resorts across North America and Mexico. In November 2008 the
Company approved the assignment of the lease from its prior tenant operator to
GH which assumed all terms of the original lease.
CII Spa, LLC
(“CIISPA”). This wholly owned subsidiary of CII owns a 50% interest in
Grove Spa, LLC (“GS”) and the other 50% is owned by GH.
GH
manages the day to day operations of the spa. The spa, which operates under the
name “Spa Terre at the Grove”, offers a variety of body treatments, salon
services, facial care and massage therapies.
Grove Isle Yacht Club
Associates (“GIYCA”). This wholly owned subsidiary
of
CII was
the developer of the 85 boat slips located at Grove Isle of which the Company
owns six as of December 31, 2009. All other slips are privately
owned. Grove Isle Marina, Inc. a wholly-owned subsidiary of GIYCA,
operates all aspects of the Grove Isle marina.
260 River Corp
(“260”). This is a wholly owned corporation 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.
Courtland Houston, Inc.
(“CHI”). This corporation is 80% owned by CII and 20% owned by its sole
employee. CHI engages in consulting services and commercial leasing
activities in Texas.
South Bayshore Associates
(“SBA”). This is a 75% company owned joint venture with its
sole asset being a receivable from the Company's 46% shareholder, Transco Realty
Trust.
Courtland/Key West, Inc.
(“CKWI”). This corporation is wholly owned by CII and its sole asset is a
promissory note receivable from a former venture partner. The note was repaid in
March of 2010.
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 financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Income
Taxes. The Company’s 95%-owned subsidiary, CII, files a
separate income tax return and its operations are not included in the REIT’s
income tax return. The Company accounts for income taxes in accordance with ASC
Topic 740-0, (formerly Statement of Financial Accounting Standards (SFAS)
No. 109 “Accounting for Income Taxes”). 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.
30
We
adopted the provisions of ASC Topic 740-10 (formerly Financial Accounting
Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes- an interpretation of FASB Statement No. 109” (“FIN 48”)), on
January 1, 2007. This clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with ASC Topic
740 (formerly FASB Statement 109, “Accounting for Income Taxes”), and prescribes
a recognition threshold and measurement process for financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. This topic also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure and
transition.
Based on
our evaluation, we have concluded that there are no significant uncertain tax
positions requiring recognition in our financial statements. Our evaluation was
performed for the tax years ended December 31, 2006, 2007 and 2008, the tax
years which remain subject to examination by major tax jurisdictions as of
December 31, 2009.
We may
from time to time be assessed interest or penalties by major tax jurisdictions,
although any such assessments historically have been minimal and immaterial to
our financial results. In the event we have received an assessment for interest
and/or penalties, it has been classified in the financial statements as selling,
general and administrative expense.
Depreciation and
Amortization. Depreciation of properties held for
investment is computed using the straight-line method over the estimated useful
lives of the properties, which range up to 39.5 years. Deferred
mortgage and leasing costs are amortized over the shorter of the respective term
of the related indebtedness or life of the asset. Depreciation and
amortization expense for the years ended December 31, 2009 and 2008 was
approximately $1,318,000 and $1,385,000, respectively. The Grove Isle yacht
slips were being depreciated on a straight-line basis over their estimated
useful life of 20 years and are fully depreciated. The Monty’s marina
is being depreciated on a straight-line basis over its estimated useful life of
15 years.
Fair Value of Financial
Instruments. The carrying value of financial instruments
including other receivables, notes and advances due from related parties,
accounts payable and accrued expenses and mortgages and notes payable
approximate their fair values at December 31, 2009 and 2008, due to their
relatively short terms
or variable interest rates.
31
We
adopted ASC Topic 820-10 (formerly Statement of Financial Accounting Standards
No. 157, Fair Value Measurements (“SFAS 157”), which defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. The standard provides a consistent
definition of fair value which focuses on an exit price that would be received
upon sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The topic also
prioritizes, within the measurement of fair value, the use of market-based
information over entity specific information and establishes a three-level
hierarchy for fair value measurements based on the nature of inputs used in the
valuation of an asset or liability as of the measurement date.
The
three-level hierarchy for fair value measurements is defined as
follows:
·
|
Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active
markets;
|
·
|
Level
2 – inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable
for the asset or liability other than quoted prices, either directly or
indirectly including inputs in markets that are not considered to be
active;
|
·
|
Level
3 – inputs to the valuation methodology are unobservable and significant
to the fair value measurement
|
An
investment’s categorization within the valuation hierarchy is based upon the
lowest level of input that is significant to the fair value
measurement.
Cash
equivalents are classified with Level 1 or Level 2 of the fair value hierarchy
because they are valued using quoted market prices, broker or dealer quotations,
or alternative pricing sources with reasonable levels of
transparency.
The
valuation of non-public investments requires significant judgment by the
Company’s management due to the absence of quoted market values, inherent lack
of liquidity and long-term nature of such assets. Such investments
are valued initially based upon transaction price. Valuations are
reviewed periodically utilizing available market data and additional factors to
determine if the carrying value of these investments should be
adjusted. In determining valuation adjustments, emphasis is placed on
market participants’ assumptions and market-based information over
entity-specific information. Nonpublic investments are included in
Level 3 of the valuation hierarchy.
Marketable
Securities. The entire marketable securities portfolio is
classified as trading consistent with the Company's overall investment
objectives and activities. Accordingly, all unrealized gains and losses on the
Company's marketable securities investment portfolio are included in the
consolidated statements of comprehensive income.
32
Gross
gains and losses on the sale of marketable securities are based on the first-in
first-out method of determining cost.
Marketable
securities from time to time are pledged as collateral pursuant to broker margin
requirements. At December 31, 2009 and 2008 there are no significant
margin balances outstanding.
Notes and other
receivables. Management periodically performs a review of
amounts due on its notes and other receivable balances to determine if they are
impaired based on factors affecting the collectibility of those balances.
Management's estimates of collectibility of these receivables requires
management to exercise significant judgment about the timing, frequency and
severity of collection losses, if any, and the underlying value of collateral,
which may affect recoverability of such receivables. As of December
31, 2009 the Company has reserved $50,000 in provision for bad debt from one
tenant at the Monty’s property and has written off $150,000 loan receivable
which became uncollectible. As of December 31, 2008 there were no receivables
that required an allowance.
Equity
investments. Investments in which the Company does not have a
majority voting or financial controlling interest but has the ability to
exercise influence are accounted for under the equity method of accounting, even
though the Company may have a majority interest in profits and losses. The
Company follows ASC Topic 323-30 (formerly EITF Topic D-46) in accounting for
its investments in limited partnerships. This guidance requires the
use of the equity method for limited partnership investments of more than 3 to 5
percent.
The
Company has no voting or financial controlling interests in its other
investments which include entities that invest venture capital funds in growth
oriented enterprises. These other investments are carried at cost
less adjustments for other than temporary declines in value.
Comprehensive Income
(Loss). The Company reports comprehensive income (loss) in
both its consolidated statements of comprehensive income and the consolidated
statements of changes in stockholders' equity. Comprehensive income
(loss) is the change in equity from transactions and other events from nonowner
sources. Comprehensive income (loss) includes net income (loss) and
other comprehensive income (loss). For the years ended December 31, 2009 and
2008 comprehensive loss consisted of unrealized gain (loss) from interest rate
swap agreement of $506,000 and ($815,500), respectively.
Loss per common
share. Net loss per common share (basic and diluted) is based on the net
loss income divided by the weighted average number of common shares outstanding
during each year. Diluted net loss per share includes the dilutive
effect of options to acquire common stock. Common shares outstanding
include issued shares less shares held in treasury.
33
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 2009 and
2008.
Cash and Cash
Equivalents. For purposes of the consolidated statements of
cash flows, the Company considers all highly liquid investments with an original
maturity of three months or less to be cash and cash equivalents.
Concentration of Credit
Risk. Financial instruments that potentially subject the
Company to concentration of credit risk are cash and cash equivalent deposits in
excess of federally insured limits, marketable securities, other receivables and
notes and mortgages receivable. From time to time the Company may have bank
deposits in excess of federally insured limits. The Company evaluates
these excess deposits and transfers amounts to brokerage accounts and other
banks to mitigate this exposure.
As of
December 31, 2009 the Company had approximately $2.1 million in excess of
insured limits in one bank. The federally insured limit is presently
$250,000.
Interest Rate Swap
Contract.
The
Company may or may not use interest rate swap contracts to reduce interest rate
risk.
Interest
rate swap contracts designated and qualifying as cash flow hedges are reported
at fair value. The gain or loss on the effective portion of the hedge initially
is included as a component of other comprehensive income and is subsequently
reclassified into earnings when interest on the related debt is
paid.
Inventories. Inventories
consist primarily of food and beverage and are stated at the lower of cost or
market. Cost is determined on a first-in, first-out
basis.
Goodwill and Other
Intangible Assets. The Company recognizes goodwill and other
non-amortizing intangible assets (such as deferred loan costs) in accordance
with ASC Topic 350. Under this Topic, goodwill is recorded at its carrying value
and is tested for impairment at least annually or more frequently if impairment
indicators exist at a level of reporting referred to as a reporting unit. The
Company recognizes goodwill in accordance with the Topic and tests the carrying
value for impairment during the fourth quarter of each year. The goodwill
impairment analysis is a two-step process. The first step used to identify
potential impairment involves comparing each reporting unit’s estimated fair
value to its carrying value, including goodwill. To estimate the fair value of
its reporting units, the Company used a discounted cash flow model. Significant
judgment is required by management in developing the assumptions for the
discounted cash flow model. These assumptions include cash flow projections
utilizing revenue growth rates, profit margin percentages, discount rates,
market/economic conditions, etc. If the estimated fair value of a reporting unit
exceeds its carrying value, goodwill is considered to not be impaired. If the
carrying value exceeds estimated fair value, there is an indication of potential
impairment and the second step is performed to measure the amount of impairment.
The second step of the process involves the calculation of an implied fair value
of goodwill for each reporting unit for which step one indicated a potential
impairment. The implied fair value of goodwill is determined by measuring the
excess of the estimated fair value of the reporting unit as calculated in step
one, over the estimated fair values of the individual assets, liabilities and
identified intangibles.
34
The
Company’s fair value estimates are subject to change as a result of many factors
including, among others, any changes in its business plans, changing economic
conditions and the competitive environment. Should actual cash flows
and future estimates vary adversely from those estimates used, the Company may
be required to recognize goodwill impairment charges in future
years.
The
Company’s entire goodwill balance of $7.8 million as of December 31, 2009
relates to its Monty’s property which operates in two of the Company reportable
segments (Restaurant and real estate/marina rentals and related).
Deferred
loan costs are amortized on a straight line basis over the life of the
loan. This method approximates the effective interest rate
method.
Reclassifications. Certain
amounts in the prior year's consolidated financial statements have been reclassified to conform
to the current year's presentation.
Non controlling
Interest. Non controlling interest (formerly referred to as minority
interest) represents the non controlling or minority partners' proportionate
share of the equity of the Company's majority owned subsidiaries. A summary for
the years ended December 31, 2009 and 2008 is as follows:
2009
|
2008
|
|||||||
Non
controlling interest balance at beginning of year
|
$ | 3,990,000 | $ | 3,052,000 | ||||
Non
controlling partners’ interest in operating losses of
consolidated
subsidiaries
|
(36,000 | ) | (72,000 | ) | ||||
Net
contributions from non controlling partners
|
26,000 | 1,828,000 | ||||||
Unrealized
gain (loss) on interest rate swap agreement
|
506,000 | (815,000 | ) | |||||
Other
|
- | (3,000 | ) | |||||
Non
controlling interest balance at end of year
|
$ | 4,486,000 | $ | 3,990,000 |
Revenue
Recognition. The Company is the lessor of various real estate
properties. All of the lease agreements are classified as operating
leases and accordingly all rental revenue is recognized as earned based upon
total fixed cash flow over the initial term of the lease, using the straight
line method. Percentage rents are based upon tenant sales levels for
a specified period and are recognized on the accrual basis, based on the
lessee’s monthly sales. Reimbursed expenses for real estate taxes,
common area maintenance, utilities and insurance are recognized in the period in
which the expenses are incurred, based upon the provisions of the tenant’s
lease. In addition to base rent, the Company may receive participation rent
consisting of a portion of the tenant’s operating surplus, as defined in the
lease agreement. Participation rent is due at end of each lease year
and recognized when earned. Revenues earned from restaurant and marina
operations are in cash or cash equivalents with an insignificant amount of
customer receivables.
35
Impairment of Long-Lived
Assets. The Company periodically reviews the carrying value of
its properties and long-lived assets in relation to historical results, current
business conditions and trends to identify potential situations in which the
carrying value of assets may not be recoverable. If such reviews
indicate that the carrying value of such assets may not be recoverable, the
Company would estimate the undiscounted sum of the expected future cash flows of
such assets or analyze the fair value of the asset, to determine if such sum or
fair value is less than the carrying value of such assets to ascertain if a
permanent impairment exists. If a permanent impairment exists, the
Company would determine the fair value by using quoted market prices, if
available, for such assets, or if quoted market prices are not available, the
Company would discount the expected future cash flows of such assets and would
adjust the carrying value of the asset to fair value.
Share-Based
Compensation.
The
Company accounts for share-based compensation in accordance with ASC Topic 718
(formerly Statement of Financial Accounting Standards 123 (revised 2004),
‘Share-Based Payments: (SFAS 123(R)’). The Company has used the Black-Scholes
option pricing model to estimate the fair value of stock options on the dates of
grant.
Recent Accounting
Pronouncements.
In
September 2009, Accounting Standards Codification (“ASC”) became the source
of authoritative U.S. GAAP recognized by the Financial Accounting Standards
Board (“FASB”) for nongovernmental entities, except for certain FASB Statements
not yet incorporated into ASC. Rules and interpretive releases of the SEC under
federal securities laws are also sources of authoritative U.S. GAAP for
registrants. The discussion below includes the applicable ASC
reference.
The
Company adopted ASC Topic 810-10 Consolidation (formerly SFAS No. 160, Non
controlling Interests in Consolidated Financial Statements – an amendment of ARB
No. 51) effective January 2, 2009. Topic 810-10 changes the
manner of presentation and related disclosures for the non controlling interest
in a subsidiary (formerly referred to as a minority interest) and for the
deconsolidation of a subsidiary. The presentation changes are reflected
retrospectively in the Company’s unaudited condensed consolidated financial
statements.
ASC Topic
815-10 Derivatives and Hedging (formerly SFAS No. 161, Disclosures about
Derivative Instruments and Hedging Activities) was adopted by the Company
effective January 2, 2009. The guidance under Topic 815-10 changes the
manner of presentation and related disclosures of the fair values of derivative
instruments and their gains and losses.
36
The
Company adopted ASC Topic 825-10 Financial Instruments (formerly, FASB Staff
Position No. SFAS 107-1 and APB No. 28-1, Disclosures about the Fair
Value of Financial Instruments), which requires quarterly disclosure of
information about the fair value of financial instruments within the scope of
Topic 825-10. The Company adopted this pronouncement effective April 1,
2009. This disclosure is in included in Note 7 to the condensed consolidated
financial statements.
In April
2009, the Company adopted ASC Topic 820-10-65 Fair Value Measurements and
Disclosures (formerly, FASB Staff Position No. SFAS 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly). The
standard provides additional guidance for estimating fair value in accordance
with Topic 820-10-65 when the volume and level of activity for the asset or
liability have significantly decreased and includes guidance on identifying
circumstances that indicate if a transaction is not orderly. The Company adopted
this pronouncement effective April 1, 2009 with no impact on its
consolidated financial statements.
The
Company adopted, ASC Topic 855-10 Subsequent Events (formerly SFAS 165,
Subsequent Events) effective April 1, 2009. This pronouncement changes the
general standards of accounting and disclosure of events that occur after the
balance sheet date but before financial statements are issued or are available
to be issued. Management has evaluated the impact of events occurring
after December 31, 2009 up to the date of issuance of these financial
statements. These statements contain all necessary adjustments and
disclosures resulting from that evaluation.
In June
2009, the FASB finalized SFAS No. 167, Amending FASB interpretation
No. 46(R), which was included in ASC Topic 810. The provisions of ASC 810
amend the definition of the primary beneficiary of a variable interest entity
and will require the Company to make an assessment each reporting period of its
variable interests. The provisions of this pronouncement are effective
January 1, 2010. The Company is evaluating the impact of the statement on
its consolidated financial statements.
In July
2009, the FASB issued SFAS No. 168, The Hierarchy of Generally Accepted
Accounting Principles. SFAS 168 codified all previously issued accounting
pronouncements, eliminating the prior hierarchy of accounting literature, in a
single source for authoritative U.S. GAAP recognized by the FASB to be applied
by nongovernmental entities. SFAS 168, now ASC Topic 105-10 Generally Accepted
Accounting Principles, is effective for financial statements issued for interim
and annual periods ending after September 15, 2009. The adoption of this
pronouncement did not have an effect on the consolidated financial
statements.
In August
2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-05,
Measuring Liabilities at Fair Value, which clarifies, among other things, that
when a quoted price in an active market for the identical liability is not
available, an entity must measure fair value using one or more specified
techniques. The Company adopted the pronouncement effective July 1, 2009
with no impact on its consolidated financial statements.
37
In
October 2009, the FASB issued ASU No. 2009-13, Multiple-Deliverable Revenue
Arrangements, which revises the existing multiple-element revenue arrangements
guidance and changes the determination of when the individual deliverables
included in a multiple-element revenue arrangement may be treated as separate
units of accounting, modifies the manner in which the transaction consideration
is allocated across the separately identified deliverables and expands the
disclosures required for multiple-element revenue arrangements. The
pronouncement is effective for financial statements issued after
December 31, 2010. The Company does not expect the pronouncement to have a
material effect on its consolidated financial statements.
38
2.
INVESTMENT PROPERTIES
The
components of the Company’s investment properties and the related accumulated
depreciation information follow:
December
31, 2009
|
||||||||||||
Accumulated
|
||||||||||||
Cost
|
Depreciation
|
Net
|
||||||||||
Commercial Properties:
|
||||||||||||
Monty’s
restaurant and retail mall (Coconut Grove, FL) -
Building
& Improvements (1)
|
$ | 6,906,528 | $ | 918,810 | $ | 5,987,718 | ||||||
Monty’s
restaurant and retail mall (Coconut Grove, FL) -
furniture,
fixtures and equipment (F,F &E) (1)
|
1,870,487 | 1,069,320 | 801,167 | |||||||||
Corporate
Office - (Coconut Grove, FL) – Building
|
645,362 | 213,935 | 431,427 | |||||||||
Corporate
Office – (Coconut Grove, FL) – Land
|
325,000 | - | 325,000 | |||||||||
Other
(Montpelier, Vermont) – Buildings
|
52,000 | 52,000 | - | |||||||||
Other
(Montpelier, Vermont) - Land and improvements (5.4
acres)
|
108,538 | - | 108,538 | |||||||||
9,907,915 | 2,254,065 | 7,653,850 | ||||||||||
Grove Isle Hotel, club and spa facility (Coconut
Grove, FL):
|
||||||||||||
Land
|
1,338,518 | - | 1,338,518 | |||||||||
Hotel
and club building and improvements
|
6,819,032 | 6,144,872 | 674,160 | |||||||||
Spa
building and improvements
|
2,318,170 | 538,042 | 1,780,128 | |||||||||
Spa
F, F & E
|
436,107 | 364,422 | 71,685 | |||||||||
10,911,827 | 7,047,336 | 3,864,491 | ||||||||||
Marina Properties (Coconut Grove,
FL):
|
||||||||||||
Monty’s
marina - 132 slips and improvements (1)
|
3,465,480 | 1,158,519 | 2,306,961 | |||||||||
Grove
Isle marina (6 slips company owned, 79 privately owned)
|
333,334 | 320,908 | 12,426 | |||||||||
3,798,814 | 1,479,427 | 2,319,387 | ||||||||||
Land Held for Development:
|
||||||||||||
Hopkinton,
Rhode Island (approximately 50 acres)
|
27,689 | - | 27,689 | |||||||||
27,689 | - | 27,689 | ||||||||||
Totals
|
$ | 24,646,245 | $ | 10,780,828 | $ | 13,865,417 |
(1)
|
The
Monty’s property is subject to a ground lease with the City of Miami,
Florida expiring in 2035. Lease payments due under the lease
consist of percentage rent ranging from 8% to 15% of gross revenues from
various components of the property.
|
39
December
31, 2008
|
||||||||||||
Accumulated
|
||||||||||||
Cost
|
Depreciation
|
Net
|
||||||||||
Commercial Properties:
|
||||||||||||
Monty’s
restaurant and retail mall (Coconut Grove, FL) -
Building
& Improvements (1)
|
$ | 6,679,686 | $ | 688,473 | $ | 5,991,213 | ||||||
Monty’s
restaurant and retail mall (Coconut Grove, FL) -
furniture,
fixtures and equipment (F,F &E) (1)
|
1,851,876 | 750,145 | 1,101,731 | |||||||||
Corporate
Office - (Coconut Grove, FL) – Building
|
641,572 | 198,012 | 443,560 | |||||||||
Corporate
Office – (Coconut Grove, FL) – Land
|
325,000 | - | 325,000 | |||||||||
Other
(Montpelier, Vermont) – Buildings
|
52,000 | 52,000 | - | |||||||||
Other
(Montpelier, Vermont) - Land and improvements
|
100,261 | - | 100,261 | |||||||||
9,650,395 | 1,688,630 | 7,961,765 | ||||||||||
Grove Isle Hotel, club and spa facility (Coconut
Grove, FL):
|
||||||||||||
Land
|
1,338,518 | - | 1,338,518 | |||||||||
Hotel
and club building and improvements
|
6,819,032 | 5,815,975 | 1,003,057 | |||||||||
Spa
building and improvements
|
2,272,944 | 418,644 | 1,854,300 | |||||||||
Spa
F, F & E
|
429,457 | 286,506 | 142,951 | |||||||||
10,859,951 | 6,521,125 | 4,338,826 | ||||||||||
Marina Properties (Coconut Grove,
FL):
|
||||||||||||
Monty’s
marina - 132 slips and improvements (1)
|
3,465,480 | 917,104 | 2,548,376 | |||||||||
Grove
Isle marina (6 slips company owned, 79 privately owned)
|
333,334 | 315,647 | 17,687 | |||||||||
3,798,814 | 1,232,751 | 2,566,063 | ||||||||||
Land Held for Development:
|
||||||||||||
Hopkinton,
Rhode Island (approximately 50 acres)
|
27,689 | - | 27,689 | |||||||||
27,689 | - | 27,689 | ||||||||||
Totals
|
$ | 24,336,849 | $ | 9,442,506 | $ | 14,894,343 |
(1) The
Monty’s property is subject to a ground lease with the City of Miami, Florida
expiring in 2035. Lease payments due under the lease consist of
percentage rent ranging from 8% to 15% of gross revenues from various components
of the property.
40
3.
MONTY’S RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE,
FLORIDA
The
Company owns a 50% equity interest in two entities, Bayshore Landing, LLC
(“Landing”) and Bayshore Rawbar, LLC (“Rawbar”), (collectively, “Bayshore”)
which own and operate a restaurant, office/retail and marina property located in
Coconut Grove (Miami), Florida known as Monty’s (“Monty’s”). The other 50% owner
of Bayshore is The Christoph Family Trust (“CFT”). Members of CFT are
experienced real estate and marina operators. The Monty’s property is
subject to a ground lease with the City of Miami, Florida which expires on May
31, 2035. Under the lease Bayshore pays percentage rents ranging from
8% to 15% of gross revenues from various components of the
project. Total rent paid for the years ended December 31, 2009 and
2008 was approximately $885,000 and $838,000, respectively.
The
Monty’s property consists of a two story building with approximately 40,000
rentable square feet and approximately 3.7 acres of submerged land with a
132-boat slip marina. It includes a 16,000 square foot indoor-outdoor raw bar
restaurant and 24,000 square feet of office/retail space of which approximately
22,000 are presently leased to tenants operating boating and marina related
businesses. As of December 31, 2009 there are approximately 1,800
square feet of potential leased retail space to be leased.
The
excess of capitalized cost assigned to specific assets over the 2004 purchase
price of Monty’s is approximately $7,729,000 and was recorded as
goodwill. Since goodwill is an indefinite-lived intangible asset it
is reviewed for impairment at each reporting period or whenever an event occurs
or circumstances change that would more likely than not reduce fair value below
carrying amount. Goodwill is carried at historical cost if its estimated fair
value is greater than its carrying amounts. However, if its estimated
fair value is less than the carrying amount, goodwill is reduced to its
estimated fair value through an impairment charge to the consolidated statements
of comprehensive income. There was no impairment of goodwill at
December 31, 2009 and 2008.
Since the
acquisition in August 2004, improvements totaling approximately $6.2 million
have been made to the Monty’s property, net of disposals. These
improvements primarily consisted of the expansion of the restaurant to provide
an indoor area, improvements to the office/retail space which includes
approximately 24,000 square feet leased or available for lease as of December
31, 2009 and parking lot and landscaping improvement to the
property.
The
Monty’s property was purchased with proceeds from an acquisition and
construction bank loan secured by the property in the amount of $13.3 million
plus approximately $3.9 million in cash. As of December 31, 2009 and
2008 the outstanding balance of the loan was $11.2 million and $11.8 million,
respectively. The loan calls for monthly principal payments necessary to fully
amortize the principal amount over the remaining life of the loan maturing in
February 2021, plus accrued interest. The outstanding principal balance of the
bank loan bears interest at a rate of 2.45% per annum in excess of the LIBOR
Rate. At acquisition in 2004 Bayshore entered into an interest rate
swap agreement with the same lender to manage its exposure to interest rate
fluctuation through the entire term of the mortgage. The effect of
the swap agreement is to provide a fixed interest rate of 7.57%.
41
Summarized
combined statements of income for Landing and Rawbar for the years ended
December 31, 2009 and 2008 are presented below (Note: the Company’s ownership
percentage in these operations is 50%):
Summarized
combined statements of income
Bayshore
Landing, LLC and
Bayshore
Rawbar, LLC
|
For
the year
ended
December
31, 2009
|
For
the year
ended
December
31, 2008
|
||||||
Revenues:
|
||||||||
Food
and Beverage Sales
|
$ | 6,271,000 | $ | 6,697,000 | ||||
Marina
dockage and related
|
1,187,000 | 1,235,000 | ||||||
Retail/mall
rental and related
|
549,000 | 476,000 | ||||||
Total
Revenues
|
8,007,000 | 8,408,000 | ||||||
Expenses:
|
||||||||
Cost
of food and beverage sold
|
1,616,000 | 1,794,000 | ||||||
Labor
and related costs
|
1,294,000 | 1,336,000 | ||||||
Entertainers
|
201,000 | 221,000 | ||||||
Other
food and beverage related costs
|
611,000 | 588,000 | ||||||
Other
operating costs (including bad debts)
|
333,000 | 267,000 | ||||||
Repairs
and maintenance
|
281,000 | 435,000 | ||||||
Insurance
|
608,000 | 626,000 | ||||||
Management
fees
|
133,000 | 267,000 | ||||||
Utilities
|
306,000 | 308,000 | ||||||
Rent
|
885,000 | 838,000 | ||||||
Interest
expense, net of interest income
|
873,000 | 930,000 | ||||||
Depreciation
|
756,000 | 779,000 | ||||||
Total
Expenses
|
7,897,000 | 8,389,000 | ||||||
Net
income
|
$ | 110,000 | $ | 19,000 |
42
4.
INVESTMENTS IN MARKETABLE SECURITIES
Investments
in marketable securities consist primarily of large capital corporate equity and
debt securities in varying industries or issued by government agencies with
readily determinable fair values (see table below). These securities
are stated at market value, as determined by the most recently traded price of
each security at the balance sheet date. Consistent with the Company's overall
current investment objectives and activities its entire marketable securities
portfolio is classified as trading. Accordingly all unrealized gains and losses
on this portfolio are recorded in the consolidated statements of comprehensive
income. For the years ended December 31, 2009 and 2008 net unrealized gain
(loss) on trading securities were approximately $1,129,000 and ($1,383,000),
respectively.
December 31, 2009 | December 31, 2008 | |||||||||||||||||||||||
Cost
|
Fair
|
Unrealized
|
Cost
|
Fair
|
Unrealized
|
|||||||||||||||||||
Description
|
Basis
|
Value
|
Gain (loss)
|
Basis
|
Value
|
Gain (loss)
|
||||||||||||||||||
Real
Estate
Investment
Trusts
|
$ | 435,000 | $ | 444,000 | $ | 9,000 | $ | 417,000 | $ | 266,000 | $ | (151,000 | ) | |||||||||||
Mutual
Funds
|
749,000 | 670,000 | (79,000 | ) | 804,000 | 583,000 | (221,000 | ) | ||||||||||||||||
Other
Equity Securities
|
1,438,000 | 1,547,000 | 109,000 | 1,768,000 | 1,269,000 | (499,000 | ) | |||||||||||||||||
Total Equity
Securities
|
2,622,000 | 2,661,000 | 39,000 | 2,989,000 | 2,118,000 | (871,000 | ) | |||||||||||||||||
Debt
Securities
|
1,662,000 | 1,848,000 | 186,000 | 1,211,000 | 1,177,000 | (34,000 | ) | |||||||||||||||||
Total
|
$ | 4,284,000 | $ | 4,509,000 | $ | 225,000 | $ | 4,200,000 | $ | 3,295,000 | $ | (905,000 | ) | |||||||||||
As of
December 31, 2009, debt securities are scheduled to mature as
follows:
Cost
|
Fair Value
|
|||||||||
2010 – 2014 | $ | 702,000 | $ | 807,000 | ||||||
2015-2019 | 603,000 | 677,000 | ||||||||
2020
– thereafter
|
357,000 | 364,000 | ||||||||
$ | 1,662,000 | $ | 1,848,000 |
43
Net gain
from investments in marketable securities for the years ended December 31, 2009
and 2008 is summarized below:
Description
|
2009
|
2008
|
Net
realized loss from sales of
marketable
securities
|
($4,000)
|
($53,000)
|
Net
unrealized gain (loss) from
marketable
securities
|
1,129,000
|
(1,383,000)
|
Total
net gain (loss) from investments in marketable
securities
|
$1,125,000
|
($1,436,000)
|
Net
realized gain from sales of marketable securities consisted of approximately
$261,000 of gains net of $265,000 of losses for the year ended December 31,
2009. The comparable amounts in fiscal year 2008 were gains of
approximately $435,000 net of $488,000 of losses.
Consistent
with the Company’s overall current investment objectives and activities the
entire marketable securities portfolio is classified as trading (versus
available for sale, as defined by generally accepted accounting
principles). Unrealized gains or loss of marketable securities on
hand are recorded in the consolidated statements of comprehensive
income.
Investment
gains and losses on marketable securities may fluctuate significantly from
period to period in the future and could have a significant impact on the
Company's net earnings. However, the amount of investment gains or losses on
marketable securities for any given period has no predictive value and
variations in amount from period to period have no practical analytical
value.
Investments
in marketable securities give rise to exposure resulting from the volatility of
capital markets. The Company attempts to mitigate its risk by
diversifying its marketable securities portfolio.
44
5. OTHER
INVESTMENTS
The
Company’s other investments consist primarily of nominal equity interests in
various privately-held entities, including limited partnerships whose purpose is
to invest venture capital funds in growth-oriented enterprises. The
Company does not have significant influence over any investee and the Company’s
investment represents less than 3% of the investee’s ownership. None
of these investments meet the criteria of accounting under the equity method and
are carried at cost less distributions and other than temporary unrealized
losses.
The
Company’s portfolio of other investments consists of approximately 25 individual
investments primarily in limited partnerships with varying investment objectives
and focus. Management has categorized these investments by investment focus
(technology & communications, diversified businesses/distressed debt, real
estate related and stock & debt funds).
As of
December 31, 2009 and 2008 other investments had an aggregate carrying value of
$3.5 million and $3.7 million, respectively. The Company has
committed to fund an additional $919,000 as required by agreements with the
investees. The carrying value of these investments is equal to
contributions less distributions and loss valuation
adjustments. During the years ended December 31, 2009 and 2008 the
Company contributed approximately $527,000 and $659,000, respectively, toward
these commitments and received distributions from these investments (consisting
of cash and stock distributions) of $393,000 and $1.8 million,
respectively.
The
Company’s other investments are summarized below.
Carrying
values as of December 31,
|
||||||||
Investment
Focus
|
2009
|
2008
|
||||||
Venture
capital funds – technology and communications
|
$ | 526,000 | $ | 637,000 | ||||
Venture
capital funds – diversified businesses
|
1,386,000 | 1,404,000 | ||||||
Real
estate and related
|
1,362,000 | 1,387,000 | ||||||
Stock
and debt funds
|
- | 300,000 | ||||||
Other
|
250,000 | 5,000 | ||||||
Totals
|
$ | 3,524,000 | $ | 3,733,000 | ||||
45
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):
2009
|
2008
|
|||||||
Partnerships
owning stocks and
bonds
(a)
|
$ | 22,000 | $ | 392,000 | ||||
Venture
capital funds – diversified
businesses
(b)
|
31,000 | 208,000 | ||||||
Venture
capital funds – technology
&
communications
|
12,000 | 22,000 | ||||||
Income
from investment in 49%
owned
affiliate (c)
|
74,000 | 40,000 | ||||||
Other
|
15,000 | 5,000 | ||||||
Total net income from other
investments
|
$ | 154,000 | $ | 665,000 |
(a)
|
In
2009 and 2008 amounts consist of gains from the full redemption of
investments in private equity funds that invested in equities, debt or
debt like securities.
|
(b)
|
In
2008 amounts consist primarily of gains from distributions of investments
in two private limited partnerships which own interests in various
diversified businesses, primarily in the manufacturing and production
related sectors.
|
(c)
|
This
gain represents income from the Company’s 49% owned affiliate, T.G.I.F.
Texas, Inc. (“TGIF”). The increase in income is due to increase net income
of TGIF as a result of reduced operating expenses. In December 2009 and
2008 TGIF declared and paid a cash dividend of the Company’s portion of
which was approximately $140,000 and $224,000, respectively. 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 losses from other investments
For the
years ended December 31, 2009 and 2008 approximately$423,000 and $37,000,
respectively, of valuation losses from other than temporary impairment losses
from other investments were recorded. In 2009 this primarily consisted of
valuation losses of $150,000 from two private partnerships investing in
technology and communication business, $130,000 from two private partnerships
investing in diversified businesses and $138,000 from three investments in
private partnerships owning real estate. In 2008 the valuation loss was in one
investment owning a limited real estate partnership interest.
46
2009
|
2008
|
|||||||
Venture
capital funds – diversified
businesses
(a)
|
$ | (130,000 | ) | - | ||||
Real
estate and related (b)
|
(138,000 | ) | $ | (37,000 | ) | |||
Venture
capital funds – technology
&
communications (c)
|
(150,000 | ) | - | |||||
Other
|
(5,000 | ) | - | |||||
Total other than temporary
impairment loss from other
investments
|
$ | (423,000 | ) | $ | (37,000 | ) |
(b)
|
In
2009 amount consist of write downs of two investments in private limited
partnerships owning real diversified businesses. These investments
experienced other than temporary impairment in value of approximately
$130,000.
|
(c)
|
In
2009 amount consist of write downs of three investments in private limited
partnerships owning real estate interests. These investments experienced
other than temporary impairment in value of approximately $138,000. In
2008 amount consist of one write down of approximately $37,000 in an
investment owning a limited partnership real estate
interest.
|
(d)
|
In
2009 amount primarily consists of write downs of two investments in
private limited partnerships owning technology related entities. These
investments experienced other than temporary impairment in value of
approximately $150,000.
|
Net gain
or loss from other investments may fluctuate significantly from period to period
in the future and could have a significant impact on the Company's net earnings.
However, the amount of investment gain or loss from other investments for any
given period has no predictive value and variations in amount from period to
period have no practical analytical value.
In
accordance with ASC Topic 320-10-65 (formerly FASB Staff Position (FSP) FAS
115-2 and FAS 124-2), Recognition and Presentation of Other-Than-Temporary
Impairments, which amends the recognition guidance for other-than-temporary
impairments (OTTI) of debt securities and expands the financial statement
disclosure for OTTI on debt and equity securities (this FSP only applies to the
Company’s other investments, not its investment in marketable equity and debt
securities for which mark to market adjustments are already recorded in the
Company’s income statement ).
47
The
following tables present gross unrealized losses and fair values for those
investments that were in an unrealized loss position as of December 31,
2008 and December 31, 2009, aggregated by investment category and the length of
time that investments have been in a continuous loss position:
As
of December 31, 2008
|
||||||||||||||||||||||||
Less than 12
Months
|
Greater
than 12 Months
|
Total
|
||||||||||||||||||||||
Investment Description
|
Fair Value
|
Unrealized
Loss
|
Fair Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
||||||||||||||||||
Partnerships
owning investments in technology
related industries
|
$ | 109,000 | $ | (51,000 | ) | $ | 275,000 | $ | (86,000 | ) | $ | 384,000 | $ | (137,000 | ) | |||||||||
Partnerships
owning diversified businesses
|
112,000 | (4,000 | ) | 366,000 | (147,000 | ) | 478,000 | (151,000 | ) | |||||||||||||||
Total
|
$ | 221,000 | $ | (55,000 | ) | $ | 641,000 | $ | (233,000 | ) | $ | 862,000 | $ | (288,000 | ) | |||||||||
As
of December 31, 2009
|
||||||||||||||||||||||||
Less than 12
Months
|
Greater
than 12 Months
|
Total
|
||||||||||||||||||||||
Investment Description
|
Fair Value
|
Unrealized
Loss
|
Fair Value
|
Unrealized
Loss
|
Fair Value
|
Unrealized
Loss
|
||||||||||||||||||
Partnerships
owning investments in technology
related industries
|
$ | 17,000 | $ | (9,000 | ) | $ | 80,000 | $ | (30,000 | ) | $ | 97,000 | $ | (39,000 | ) | |||||||||
Partnerships
owning diversified businesses
|
425,000 | (105,000 | ) | 100,000 | (15,000 | ) | 525,000 | (120,000 | ) | |||||||||||||||
Partnerships
owning real estate and related
investments
|
281,000 | (164,000 | ) | 0 | 0 | 281,000 | (164,000 | ) | ||||||||||||||||
Total
|
$ | 723,000 | $ | (278,000 | ) | $ | 180,000 | $ | (45,000 | ) | $ | 903,000 | $ | (323,000 | ) | |||||||||
6. INTEREST
RATE SWAP CONTRACT
The
Company is exposed to interest rate risk through its borrowing
activities. In order to minimize the effect of changes in interest
rates, the Company has entered into an interest rate swap contract under which
the Company agrees to pay an amount equal to a specified rate of 7.57% times a
notional principal approximating the outstanding loan balance, and to receive in
return an amount equal to 2.45% plus the one-month LIBOR Rate times the same
notional amount. The Company designated this interest rate swap
contract as a cash flow hedge. As of December 31, 2009 and 2008 the
fair value of the cash flow hedge was a loss of approximately $1,144,000 and
$2,156,000, respectively, which has been recorded as other comprehensive loss
and will be reclassified to interest expense over the life of the swap
contract.
48
The
following tables present the required disclosures in accordance with ASC Topic
815-10 (formerly, SFAS 161):
Fair Values of Derivative Instruments: |
Liability Derivative
|
|||
December 31, 2009
|
December 31, 2008
|
|||
|
Balance
Sheet
Location
|
Fair
Value
|
Balance
Sheet
Location
|
Fair
Value
|
Derivatives
designated as hedging instruments under
Statement
133:
|
|
|
|
|
Interest
rate swap contract
|
Liabilities
|
$ 1,144,000
|
Liabilities
|
$ 2,156,000
|
Total
derivatives designated as hedging instruments under
ASC
Topic 815 (formerly SFAS 133)
|
|
$ 1,144,000
|
|
$
2,156,000
|
The Effect of Derivative
Instruments on the Statements of Comprehensive Income
for the Years Ended December
31, 2009 and 2008:
Derivatives in ASC Topic 815 Cash Flow Hedging
Relationships
|
Amount
of Gain or (Loss)
Recognized
in OCI on
Derivative
(Effective
Portion)
|
|
For
the year
ended
December
31,
2009
|
For
the year
ended
December
31,
2008
|
|||||||
Interest
rate swap contracts
|
$ 506,000
|
($ 815,000)
|
|||||||
Total
|
$ 506,000
|
($ 815,000)
|
|||||||
49
7. FAIR
VALUE INSTRUMENTS
In
accordance with ASC Topic 820 (formerly SFAS 157), the Company measures cash
equivalents, marketable securities, other investments and interest rate swap
contract at fair value. Our cash equivalents, marketable securities and interest
rate swap contract are classified within Level 1 or Level 2. This is because our
cash equivalents, marketable securities and interest rate swap are valued using
quoted market prices or alternative pricing sources and models utilizing market
observable inputs. Our other investments are classified within Level 3 because
they are valued using valuation models which use some inputs that are
unobservable and supported by little or no market activity and are
significant.
Assets
and liabilities measured at fair value on a recurring basis are summarized
below:
Fair value measurement at reporting date using
|
||||||||||||||||
Description
|
December 31,
2009
|
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
|
$ | 52,000 | $ | — | $ | 52,000 | $ | — | ||||||||
Money
market
mutual funds
|
663,000 | 663,000 | — | — | ||||||||||||
Cash
equivalents –
restricted
|
||||||||||||||||
Money
market
mutual funds
|
2,401,000 | 2,401,000 | — | — | ||||||||||||
Marketable
securities:
|
||||||||||||||||
Corporate
debt
securities
|
1,848,000 | — | 1,848,000 | — | ||||||||||||
Marketable
equity
securities
|
2,661,000 | 2,661,000 | — | — | ||||||||||||
Total
assets
|
$ | 7,625,000 | $ | 5,725,000 | $ | 1,900,000 | $ | — | ||||||||
Liabilities
|
||||||||||||||||
Interest
rate
swap contract
|
$ | 1,144,000 | $ | — | $ | 1,144,000 | $ | — | ||||||||
Total
liabilities
|
$ | 1,144,000 | $ | — | $ | 1,144,000 | $ | — | ||||||||
50
Assets
measured at fair value on a nonrecurring basis are summarized below:
Description
|
December 31,
2009
|
Quoted Prices in Active
Markets for Identical Assets
(Level
1)
|
Significant Other
Observable Inputs
(Level
2)
|
Significant
Unobservable Inputs
(Level
3)
|
Total
Loss
|
||||||||||||||||
Investment
in
various
technology
related
partnerships
|
$ | 526,000 | $ | — | $ | — | $ | 526,000 | $ | 1,074,000 | |||||||||||
Investment
in
various
partnerships
investing in
diversified
businesses
|
494,000 | — | — | 494,000 | 130,000 | ||||||||||||||||
Investment
in
various
partnerships
owning real
estate
|
75,000 | — | — | 75,000 | 75,000 | ||||||||||||||||
Total
|
$ | 1,095,000 | $ | — | $ | — | $ | 1,095,00 | 1,279,000 | ||||||||||||
As of
December 31, 2009 the Company’s investments in five technology and communication
related partnerships with an aggregate pre adjustment carrying value of
approximately $1,600,000 have been written down to fair value of approximately
$526,000. Approximately $150,000 out of the total loss of $1,074,000 was
recorded in 2009 and $924,000 was recorded in years prior to 2008.
The
Company’s investments in two private partnerships which invest in diversified
businesses with an aggregate pre adjustment carrying value of approximately
$624,000 were written down to fair value of $494,000. The resulting impairment
loss of $130,000 is included in 2009 other than temporary impairment
loss.
The
Company’s investment in a private partnerships owning real estate with an
aggregate pre adjustment carrying value of $150,000 was written down to fair
value of $75,000. The resulting impairment loss of $75,000 is included in 2009
other than temporary impairment loss.
No other
than temporary impairments were recognized for the year ended December 31,
2008.
Effective
January 1, 2008, we also adopted ASC Topic 825-10 (formerly SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of FASB Statement No. 115), which allows
an entity to choose to measure certain financial instruments and liabilities at
fair value on a contract-by-contract basis. Subsequent fair value measurement
for the financial instruments and liabilities an entity chooses to measure will
be recognized in earnings. As of December 31, 2009, we did not elect such
option for our financial instruments and liabilities.
51
8. INVESTMENT
IN AFFILIATE
Investment
in affiliate consists of CII’s 49% equity interest in T.G. I.F. Texas, Inc.
(T.G.I.F.). T.G.I.F. is a Texas Corporation which holds promissory
notes receivable from its shareholders, including CII and Maurice Wiener, the
Chairman of the Company and T.G.I.F. Reference is made to Note 10 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, 2009 and 2008 income from investment in affiliate amounted to approximately
$74,000 and $40,000, respectively and is included in net income from other
investments in the consolidated statements of comprehensive
income. In December 2009 and 2008 T.G.I.F. declared and paid a cash
dividend of $.05 and $.08 per share, respectively. CII received
$140,000 and $224,000, respectively in 2009 and 2008 from this dividend and it
was recorded as a reduction in the carrying amount of CII investment in T.G.I.F.
as required under the equity method of accounting.
9. LOANS,
NOTES AND OTHER RECEIVABLES
As of December 31,
|
||||||||
Description
|
2009
|
2008
|
||||||
Mortgage
loan participation
|
$ | 111,000 | $ | 111,000 | ||||
Promissory
note and accrued interest due from
individual
(a)
|
403,000 | 403,000 | ||||||
Other
(b)
|
208,000 | 107,000 | ||||||
Total
loans, notes and other receivables
|
$ | 722,000 | $ | 621,000 |
(a)
|
In
December 2007 the Company loaned $400,000 to a local real estate developer
who is well known to the Company and which loan is secured by numerous
real estate interests. The loan calls for interest only
payments at an annual rate of 9% with all principal due on June 30, 2010
(as extended). All interest payments due have been
received.
|
(b)
|
Other
receivables primarily are due from a major tenant at the Monty’s
property. For the year ended December 31, 2009 $50,000 out of
approximately $155,000 in pre adjustment tenant receivables were reserved
as uncollectible.
|
10. NOTES
AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES
The
Company has an agreement (the "Agreement") with HMG Advisory Corp. (the
"Adviser") for its services as investment adviser and administrator of the
Company's affairs. All officers of the Company who are officers of
the Adviser are compensated solely by the Adviser for their
services.
The
Adviser is majority owned by Mr. Wiener, the Company’s Chairman, with the
remaining shares owned by certain officers including Mr.
Rothstein. The officers and directors of the Adviser are as follows:
Maurice Wiener, Chairman of the Board and Chief Executive Officer; Larry
Rothstein, President, Treasurer, Secretary and Director; and Carlos Camarotti,
Vice President - Finance and Assistant Secretary.
Under the
terms of the Agreement, the Adviser serves as the Company's investment adviser
and, under the supervision of the directors of the Company, administers the
day-to-day operations of the Company. All officers of the Company,
who are officers of the Adviser are compensated solely by the Adviser for their
services. The Agreement is renewable annually upon the approval of a
majority of the directors of the Company who are not affiliated with the Adviser
and a majority of the Company's shareholders. The contract may be
terminated at any time on 120 days written notice by the Adviser or upon 60 days
written notice by a majority of the unaffiliated directors of the Company or the
holders of a majority of the Company's outstanding shares.
52
In 2009
the shareholders approved the renewal and amendment of the Advisory Agreement
between the Company and the Adviser for a term commencing January 1, 2010, and
expiring December 31, 2010.
For the
years ended December 31, 2009 and 2008, the Company and its subsidiaries
incurred Adviser fees of approximately $1,020,000 and $1,076,000, respectively.
This was comprised of $1,020,000 regular compensation and approximately $56,000
represented incentive compensation for 2008. There was no incentive compensation
for 2009. The Adviser is also the manager for certain of the Company's
affiliates and received management fees of approximately $19,000 and $44,000 in
2009 and 2008, respectively for such services. Included in fees for 2008 was
$25,000 of management fees earned relating to management of the Monty’s
restaurant operations. No such fee was earned in 2009.
At
December 31, 2009 and 2008, the Company had amounts due from the Adviser and
subsidiaries of approximately $290,000 and $288,000, respectively. The amount
due from the Adviser and subsidiaries bears interest at prime plus 1% and is due
on demand.
The
Adviser leases its executive offices from CII pursuant to a lease
agreement. This lease agreement is at the going market rate for
similar property and calls for base rent of $48,000 per year payable in equal
monthly installments. Additionally, the Adviser is responsible for
all utilities, certain maintenance, and security expenses relating to the leased
premises. The lease term is five years, expiring in November
2014.
In August
2004 HMG Advisory Bayshore, Inc. (“HMGABS”) (a wholly owned subsidiary of the
Adviser) was formed for the purposes of overseeing the Monty’s restaurant
operations acquired in August 2004. No fees were earned in 2009. For
the year ended December 31, 2008 HMGABS earned approximately $25,000, in such
management fees.
The
Company, via its 75% owned joint venture (SBA), has a note receivable from
Transco (a 46% shareholder of the Company) of $300,000. This note
bears interest at the prime rate and is due on demand.
53
Mr.
Wiener is an 18% shareholder and the chairman and director of T.G.I.F. Texas,
Inc., a 49% owned affiliate of CII (See Note 8). As of December 31,
2009 and 2008, T.G.I.F. had amounts due from CII in the amount of approximately
$3,561,000 and $3,661,000, respectively. These amounts are due on
demand and bear interest at the prime rate. All interest due has been
paid.
T.G.I.F.
also owns 10,000 shares of the Company’s common stock it purchased at market
value in 1996.
As of
December 31, 2009 and 2008 T.G.I.F. had amounts due from Mr. Wiener in the
amount of approximately $707,000. These amounts bear interest at the
prime rate and principal and interest are due on demand. All interest
due has been paid.
Mr.
Wiener received consulting and director’s fees from T.G.I.F totaling $22,000 and
$37,000 for the years ended December 31, 2009 and 2008,
respectively.
11. OTHER
ASSETS
The
Company’s other assets consisted of the following as of December 31, 2009 and
2008:
Description
|
2009
|
2008
|
||||||
Deferred
loan costs, net of accumulated amortization
|
$ | 160,000 | $ | 170,000 | ||||
Prepaid
expenses and other assets
|
372,000 | 343,000 | ||||||
Food/beverage
& spa inventory
|
83,000 | 80,000 | ||||||
Utility
deposits
|
90,000 | 75,000 | ||||||
Deferred
leasing costs
|
82,000 | 221,000 | ||||||
Total
other assets
|
$ | 787,000 | $ | 889,000 |
12.
MORTGAGES AND NOTES PAYABLES
December
31,
|
||||||||
2009
|
2008
|
|||||||
Collateralized by Investment Properties (Note
2)
|
||||||||
Monty’s
restaurant, marina and retail rental space:
Mortgage
loan payable with interest 7.57% after taking
into
effect interest rate swap; principal and interest
payable
in equal monthly payments of approximately
$127,000
per month until maturity on 2/19/21. (a).
|
$ | 11,210,000 | $ | 11,818,000 | ||||
Grove
Isle hotel, private club, yacht slips and spa:
Mortgage
loan payable with interest at 2.5% plus the
one-month
LIBOR Rate (2.71% as of 12/31/09).
Monthly
payments of principal of $10,000 (plus accrued
interest)
with all unpaid principal and interest payable at
maturity
on 9/29/10.
|
3,699,000 | 3,819,000 | ||||||
Other (unsecured) (Note 8):
|
||||||||
Note
payable to affiliate:
Note
payable is to affiliate T.G.I.F., interest at prime
(3.25%
at 12/31/09) payable monthly. Principal
outstanding
is due on demand.
|
3,561,000 | 3,661,000 | ||||||
Totals
|
$ | 18,470,000 | $ | 19,298,000 | ||||
(a)
|
The
loan is guaranteed by the Company as well as a personal guaranty from the
trustee of CFT. The loan includes certain covenants including debt
service coverage. The Company is in compliance with all debt covenants as
of December 31, 2009.
See
Note 6 for discussion of interest rate swap agreement related to this
loan.
|
54
A summary
of scheduled principal repayments or reductions for all types of notes and
mortgages payable is as follows:
Year ending December 31,
|
Amount
|
|||
2010
|
$ | 8,130,000 | ||
2011
|
715,000 | |||
2012
|
767,000 | |||
2013
|
831,000 | |||
2014
|
897,000 | |||
2015
and thereafter
|
7,130,000 | |||
Total
|
$ | 18,470,000 |
13. LEASE
COMMITMENTS
The
Company’s 50% owned subsidiary (Landing), as lessee, leases land and submerged
lands on which it operates the Monty’s property under a lease with the City of
Miami which expires on May 31, 2035. Under the lease, the Company
pays percentage rents ranging from 8% to 15% of gross revenues from various
components of the property’s operations. Total rent paid to the City
of Miami for the years ended December 31, 2009 and 2008 was approximately
$885,000 and $838,000, respectively.
14. INCOME
TAXES
The
Company (excluding CII) qualifies as a real estate investment trust and
distributes its taxable ordinary income to stockholders in conformity with
requirements of the Internal Revenue Code and is not required to report deferred
items due to its ability to distribute all taxable income. In addition, net
operating losses can be carried forward to reduce future taxable income but
cannot be carried back. Distributed capital gains on sales of real estate as
they relate to REIT activities are not subject to taxes; however, undistributed
capital gains may be subject to corporate tax.
The
Company’s 95%-owned subsidiary, CII, files a separate income tax return and its
operations are not included in the REIT’s income tax return.
55
The
Company accounts for income taxes in accordance with ASC Topic 740 (formerly
Statement of Financial Accounting Standards (SFAS) No. 109), “Accounting
for Income Taxes”. SFAS No. 109 requires a Company to use the asset and
liability method of accounting for income taxes. Under this method, deferred
income taxes are recognized for the tax consequences of "temporary differences"
by applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. Under SFAS No. 109, the effect on
deferred income taxes of a change in tax rates is recognized in income in the
period that includes the enactment date. Deferred taxes only pertain
to CII. As a result of timing differences associated with the carrying value of
other investments and depreciable assets and the future benefit of a net
operating loss, the Company has recorded a net deferred tax asset as of December
31, 2009 and 2008 of $458,000 and $366,000, respectively. A valuation
allowance against deferred tax asset has not been established as it is more
likely than not, based on the Company’s previous history, that these assets will
be realized.
As of
December 31, 2009 the Company (excluding CII) has an estimated net operating
loss carryover of approximately $3.1 million of which $798,000 expires in 2029,
$422,000 expires in 2028, $500,000 expires in 2027, $786,000 expires in 2026 and
$571,000 in 2025.
As of
December 31, 2009 CII has an estimated net operating loss carryover (NOL) of
approximately $774,000 which expires as follows:
NOL |
Expiration Year
|
||
$236,000 | 2029 | ||
$81,000 | 2028 | ||
$13,000 | 2026 | ||
$14,000 | 2024 | ||
$386,000 | 2022 | ||
$44,000 | 2018 | ||
$774,000 |
Total
|
||
56
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, 2009 and
2008 were as follows:
2009
|
2008
|
|||||||
Loss
before income taxes
|
$ | (177,000 | ) | $ | (1,747,000 | ) | ||
Computed
tax at federal statutory rate of 34%
|
$ | (60,000 | ) | $ | (594,000 | ) | ||
State
taxes at 5.5%
|
(10,000 | ) | (96,000 | ) | ||||
REIT
related adjustments – current year
|
215,000 | 419,000 | ||||||
Unrealized (gain)
from marketable securities for book not tax
|
(368,000 | ) | 390,000 | |||||
Investment
losses (gains) for book in excess of tax
|
125,000 | (161,000 | ) | |||||
Recaptured
tax loss from investments
|
- | 49,000 | ||||||
Utilization
of net operating loss carry forward
|
- | (14,000 | ) | |||||
Other
items, net
|
6,000 | (123,000 | ) | |||||
Benefit
from income taxes
|
$ | (92,000 | ) | $ | (130,000 | ) |
The REIT
related adjustments – current year represents the difference between estimated
taxes on undistributed income and/or capital gains and book taxes computed on
the REIT’s income before income taxes. In 2009 the Company recorded
unrealized gains from investments in marketable securities which are not
included in taxable income of approximately $931,000. The estimated
tax effect of these unrealized book gains in excess of tax gains was
$368,000. Also, in 2009 the Company recorded valuation losses
for book purposes in excess of tax of $316,000. The estimated tax effect of
these book investment losses in excess of tax losses was approximately
$125,000.
The
benefit from income taxes in the consolidated statements of comprehensive income
consists of the following:
Year
ended December 31,
|
2009
|
2008
|
||||||
Current:
|
||||||||
Federal
|
- | - | ||||||
State
|
- | 3,000 | ||||||
- | - | |||||||
Deferred:
|
||||||||
Federal
|
$ | (83,000 | ) | $ | (114,000 | ) | ||
State
|
(9,000 | ) | (19,000 | ) | ||||
(92,000 | ) | (133,000 | ) | |||||
Total
|
$ | (92,000 | ) | $ | (130,000 | ) |
57
As of
December 31, 2009 and 2008, the components of the deferred tax assets and
liabilities are as follows:
As
of December 31, 2009
|
As
of December 31, 2008
|
|||||||||||||||
Deferred
tax
|
Deferred
tax
|
|||||||||||||||
Assets
|
Liabilities
|
Assets
|
Liabilities
|
|||||||||||||
Net
operating loss carry forward
|
$ | 271,000 | $ | 146,000 | ||||||||||||
Excess
of book basis of 49% owned
corporation
over tax basis
|
||||||||||||||||
$ | 551,000 | $ | 717,000 | |||||||||||||
Excess
of tax basis over book basis
of
investment
property
|
285,000 | 273,000 | ||||||||||||||
Unrealized
gain/loss on marketable securities
|
72,000 | 278,000 | ||||||||||||||
Excess
of tax basis over book basis of other
investments
|
546,000 | 21,000 | 488,000 | 102,000 | ||||||||||||
Totals
|
$ | 1,102,000 | $ | 644,000 | $ | 1,185,000 | $ | 819,000 |
15. STOCK-BASED
COMPENSATION
In
November 2000, the Company’s Board of Directors authorized the 2000 Stock Option
Plan, which was approved by the shareholders in June 2001. The Plan provides for
the grant of options to purchase up to 120,000 shares of the Company’s common
stock to the officers and directors of the Company. Under the 2000
Plan, options are vested immediately upon grant and may be exercised at any time
within ten years from the date of grant. Options are not transferable
and expire upon termination of employment, except to a limited extent in the
event of retirement,
disability
or death of the grantee. On June 25, 2001, options were granted to
all officers and directors to purchase an aggregate of 86,000 common shares at
no less than 100% of the fair market value at the date of grant. The average exercise
price of the options granted in 2001 was $7.84 per share. The
Company’s stock price on the date of grant was $7.57 per share. The stock
options expire June 25, 2011.
There
were no options granted, exercised or forfeited in 2009 and 2008.
58
A summary
of the status of the Company’s stock option plan as of December 31, 2009 and
2008, and changes during the years ending on those dates are presented
below:
As
of December 31, 2009
|
As
of December 31, 2008
|
|||||||||||||||
Shares
|
Weighted-Average
Exercise
Price
|
Shares
|
Weighted-Average
Exercise
Price
|
|||||||||||||
|
|
|||||||||||||||
Outstanding
at beginning of year
|
102,100 | $ | 8.83 | 102,100 | $ | 8.83 | ||||||||||
Granted
|
-- | -- | -- | -- | ||||||||||||
Exercised
|
-- | -- | -- | -- | ||||||||||||
Forfeited
|
-- | -- | -- | -- | ||||||||||||
Outstanding
at end of year
|
102,100 | $ | 8.83 | 102,100 | $ | 8.83 | ||||||||||
Options
exercisable at year-end
|
102,100 | $ | 8.83 | 102,100 | $ | 8.83 | ||||||||||
Weighted
average fair value of
options
granted during the year
|
-- | -- | -- | -- |
59
16. OPERATING
LEASES AS LESSOR
Lease of Grove Isle hotel
property. In November 2008 the lessee of Grove Isle, Westgroup Grove Isle
Associates, Ltd., an affiliate of Noble House Resorts, Inc. (“NHR”) assigned its
leasehold interest to Grove Hotel Partners, LLC an affiliate of Grand Heritage
Hotel Group, LLC (“GH”). GH operates over a dozen independent hotels and resorts
across North America and Mexico. The Company approved the assignment of the
lease to GH which assumed all terms of the original lease with
NHR. The lease termination date remains November 30, 2016, if not
extended as provided in the lease. Base rent was $1,184,000 for the year ended
December 31, 2009 and will remain the same in 2010. The lease also calls for
participation rent consisting of a portion of operating surplus, as
defined. Participation rent when and if due is payable at end of each
lease year. There has been no participation rent since the inception of the
lease.
In
conjunction with the aforementioned lease assignment, NHR also assigned its 50%
interest in the Grove Isle Spa (“GS”) to GH which will manage the day to day
operations of the spa under the same management agreement as the Company
previously had with NHR. GS sub-leases the Grove Isle Spa property from GH under
a lease agreement which expires on November 30, 2016, with GS having the right
to extend the term for two additional consecutive 20 year
terms. Annual base rent of the sublease is $10,000, plus GS pays real
estate taxes, insurance, utilities and all other costs relating to operation of
the spa. GS began operations in the first quarter of 2005. The spa operates
under the name “Spa Terre at the Grove” and offers a variety of body treatments,
salon services, facial care and massage therapies.
Lease of Monty’s
property. Bayshore, as landlord, leases various office and
dock space under non-cancelable operating leases that expire at various dates
through 2035. Annual minimum lease payments due from leases to
non-combined, third party tenants under non-cancelable operating leases are
included in the table below.
Minimum lease payments
receivable. The Company leases its commercial and
industrial properties under agreements for which substantially all of the leases
specify a base rent and a rent based on tenant sales (or other benchmark)
exceeding a specified percentage. There was no percentage rent in
2009 and 2008.
These
leases are classified as operating leases and generally require the tenant to
pay all costs associated with the property. Minimum annual rentals on
non-cancelable leases in effect at December 31, 2009, are as
follows:
Year ending December 31,
|
Amount
|
||
2010
|
$2,022,000 | ||
2011
|
1,890,000 | ||
2012
|
1,908,000 | ||
2013
|
1,873,000 | ||
2014
|
1,888,000 | ||
Subsequent years | 7,486,000 | ||
Total |
$17,067,000
|
60
17. SEGMENT
INFORMATION
The
Company has three reportable segments: Real estate rentals; Food and Beverage
sales; and other investments and related income. The Real estate and
rentals segment primarily includes the leasing of its Grove Isle property,
marina dock rentals at both Monty’s and Grove Isle marinas, and the leasing of
office and retail space at its Monty’s property. The Food and
Beverage sales segment consists of the Monty’s restaurant
operation. Lastly, the Other investment and related income segment
includes all of the Company’s other investments, marketable securities, loans,
receivables and the Grove Isle spa operations which individually do not meet the
criteria as a reportable segment.
For
the years ended December 31,
|
||||||||||||
2009
|
2008
|
|||||||||||
Net Revenues:
|
||||||||||||
Real
estate and marina rentals
|
$ | 3,493,069 | $ | 3,437,335 | ||||||||
Food
and beverage sales
|
6,270,728 | 6,696,816 | ||||||||||
Spa
revenues
|
503,963 | 799,011 | ||||||||||
Total
Net Revenues
|
$ | 10,267,760 | $ | 10,933,162 | ||||||||
Income (loss) before income
taxes:
|
||||||||||||
Real
estate and marina rentals
|
$ | 576,114 | $ | 364,518 | ||||||||
Food
and beverage sales
|
(8,614 | ) | 29,537 | |||||||||
Spa,
other investments and related income
|
(744,759 | ) | (2,141,126 | ) | ||||||||
Total
net loss before income taxes attributable to
the
Company
|
$ | (177,259 | ) | $ | (1,747,071 | ) | ||||||
For
the years ended December 31,
|
||||||||||||
Identifiable Assets:
|
2009 | 2008 | ||||||||||
Real
estate rentals
|
$ | 14,802,290 | $ | 15,751,386 | ||||||||
Food
and beverage sales
|
603,484 | 957,182 | ||||||||||
Spa,
other investments and related income
|
16,242,425 | 16,385,880 | ||||||||||
Total
Identifiable Assets
|
$ | 31,648,199 | $ | 33,094,448 | ||||||||
A
summary of changes in the Company’s goodwill
during
the years ended December 31, 2009 and 2008
is
as follows:
|
||||||||||||
Summary of changes in
goodwill:
|
01/01/09
|
Acquisitions
|
12/31/09
|
|||||||||
Real
estate and marina rentals
|
$ | 4,776,291 | - | $ | 4,776,291 | |||||||
Food
& Beverage sales
|
2,952,336 | - | 2,952,336 | |||||||||
Other
investments and related income
|
- | - | - | |||||||||
Total
goodwill
|
$ | 7,728,627 | - | $ | 7,728,627 | |||||||
01/01/08
|
Acquisitions
|
12/31/08
|
||||||||||
Real
estate and marina rentals
|
$ | 4,776,291 | - | $ | 4 ,776,291 | |||||||
Food
& Beverage sales
|
2,952,336 | - | 2,952,336 | |||||||||
Spa,
other investments and related income
|
- | - | - | |||||||||
Total
goodwill
|
$ | 7,728,627 | - | $ | 7,728,627 |
61
18. AMENDMENT
TO CERTIFICATE OF INCORPORATION
On
December 11, 2009 an Information Statement was filed with the SEC in connection
with the approval by the holders of a majority of our voting stock of certain
amendments to the Company’s certificate of incorporation to (i) decrease the
number of our authorized Common stock from one million five hundred thousand
(1,500,000) shares par value $1 to one million two hundred thousand (1,200,000)
shares par value $1, (ii) to decrease the number of our authorized Excess common
stock from five hundred thousand (500,000) shares par value $1 to one hundred
thousand (100,000) shares par value $1 and (iii) to eliminate our entire
authorized class of preferred stock par value $1.
The
amendments to the Company’s certificate of incorporation were effective on
December 31, 2009.
On
November 4, 2009 the Company’s board of directors passed resolutions authorizing
shareholder action to consider amendments to our certificate of incorporation
and the filing of such amendments with the Delaware Secretary of
State.
On
December 1, 2009 the holders of a majority of the outstanding shares of the
Company’s common stock entitled to vote executed a written consent in accordance
with the provisions set forth in §228 of the Delaware Corporation Law that
approved the amendments to our certificate of incorporation.
The
primary reason for reducing our authorized Common stock and Excess common stock,
and eliminating our entire authorized class of Preferred stock is to decrease
the number of shares available for issuance and to save the Company a
significant portion (approximately $10,000 per annum) of the franchise taxes
payable under the Delaware Corporation Law.
62
Item
8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Item
8A. Controls and Procedures.
(a)
|
Evaluation
of Disclosure Controls and Procedures. The Company’s Chief Executive
Officer and Chief Financial Officer, after evaluating the effectiveness of
our disclosure controls and procedures (as defined in the Exchange Act
Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this
Form 10-K have concluded that, based on such evaluation, our disclosure
controls and procedures were effective and designed to ensure that
material information relating to us and our consolidated subsidiaries,
which we are required to disclose in the reports we file or submit under
the Exchange Act, was made known to them by others within those entities
and reported within the time periods specified in the SEC's rules and
forms.
|
(b)
|
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Exchange Act Rule
13a-15(f). Our management conducted an evaluation of the effectiveness of
our internal control over financial reporting based on the framework in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, our management concluded that our internal control over
financial reporting was effective as of December 31, 2009. This
Annual Report on Form 10-K does not include an attestation report of our
independent registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to
attestation by our independent registered public accounting firm pursuant
to temporary rules of the Securities and Exchange Commission that permit
us to provide only management’s report in the Annual Report on Form
10-K.
|
(c)
|
There
was no change in our internal controls or in other factors that could
affect these controls during our last fiscal quarter that has materially
affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
|
Item 8B. Other
Information.
None.
63
Item
9. Directors, Executive Officers and Corporate
Governance.
Listed
below is certain information relating to the executive officers and directors of
the Company:
Name and Office
|
Age
|
Principal Occupation and Employment other than With the
Company
During the Past Five
Years - Other
Directorships
|
Maurice
Wiener; Chairman of
the
Board of Directors and
Chief
Executive Officer
|
68
|
Chairman
of the Board and Chief Executive Officer of the
Adviser;
Executive Trustee, Transco; Director, T.G.I.F. Texas,
Inc
|
Larry
Rothstein; Director,
President,
Treasurer and
Secretary
|
57
|
Director,
President and Secretary of the Adviser; Trustee and
Vice
President of Transco; Vice President and Secretary,
T.G.I.F.
Texas, Inc.
|
Carlos
Camarotti; Vice
President-Finance
and Assistant
Secretary
|
49
|
Vice
President - Finance and Assistant Secretary of the
Adviser;
|
Walter
Arader; Director
|
91
|
President,
Walter G. Arader and Associates (financial and
management
consultants).
|
Harvey
Comita; Director
|
80
|
Business
Consultant; Trustee of Transco Realty Trust.
|
Clinton
Stuntebeck; Director
|
71
|
Attorney/Business
and Investment Consultant
|
All
executive officers of the Company were elected to their present positions to
serve until their successors are elected and qualified at the 2010 annual
organizational meeting of directors immediately following the annual meeting of
shareholders. All directors of the Company were elected to serve
until the next annual meeting of shareholders and until the election and
qualification of their successors. On March 25, 2010 Mr. Stuntebeck
communicated to the Board of Directors he was not seeking reelection at the next
annual meeting of shareholders.
All
directors and executive officers have been in their present position for more
than five years.
Code of
Ethics.
The
Company has adopted a Code of Ethics that applies to directors and officers
including principal executive officer, principal financial officer, principal
accounting officer and controller and HMG Advisory Corp. and subsidiaries
(“HMGA”) and its employees in all instances in which HMGA is acting on behalf of
the Company. The Company will provide to any person without charge, upon written
request, a copy of the Code of Ethics including any amendments as well as any
waivers that are required to be disclosed by the rules of the SEC or the NYSE
Amex Stock Exchange.
Audit Committee and Audit
Committee Financial Expert.
The
Company has a separately designated standing Audit Committee established in
accordance with Section 3(a) (58) (A) of the Securities Exchange act of 1934, as
amended (the "Exchange Act"). The members of the Audit Committee are Messrs.
Arader and Comita. The Board of Directors has determined that each of Messrs.
Arader and Comita is (1) an " audit committee financial expert," as that term is
defined in Item 401(e) of Regulation S-B of the Exchange Act, and (2)
independent as defined by the listing standards of the NYSE Amex Stock Exchange
and Section 10A(m)(3) of the Exchange Act.
64
Item 10.
Executive Compensation.
Executive
officers received no cash compensation from the Company in their capacity as
executive officers. Reference is made to Item 1. Business and
Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations
for information concerning fees paid to the Adviser.
Compensation
of Directors. The following table summarizes
director’s compensation for the year ended December 31, 2009:
Director
|
Annual
Fee
|
Board
Meeting Fee
|
Committee
Meeting Fee
|
Total
Compensation
|
||||||||||||
Maurice
Wiener
|
$ | 17,000 | $ | 3,000 | - | $ | 20,000 | |||||||||
Larry
Rothstein
|
17,000 | 3,000 | 3,000 | $ | 23,000 | |||||||||||
Walter
Arader
|
12,000 | 2,250 | 1,500 | $ | 15,750 | |||||||||||
Harvey
Comita
|
12,000 | 3,000 | 3,000 | $ | 18,000 | |||||||||||
Clinton
Stuntebeck
|
12,000 | 3,000 | 3,000 | $ | 18,000 | |||||||||||
Totals
|
$ | 70,000 | $ | 14,250 | $ | 10,500 | $ | 94,750 |
Annual
director's fees are paid at the beginning of each quarter and board and
committee meeting fees are paid for each meeting a director attends. The annual
fee for directors is $12,000 per year plus meeting fees $750 per
meeting.
Outstanding Equity Awards to
Executive Officers.
The
following table summarizes all outstanding equity awards to the Company’s
executive officers as of December 31, 2009. These options are all
exercisable, with no unearned options outstanding and expiration date of June
25, 2011.
Executive
Officer
|
Number
of Options
|
Exercise Price |
Expiration
Date
|
||
Maurice
Wiener
|
28,500 |
$8.33
per share
|
June
25, 2011
|
||
Maurice
Wiener
|
12,000 |
$12.25
per share
|
June
25, 2011
|
||
Larry
Rothstein
|
24,900 |
$7.57
per share
|
June
25, 2011
|
||
Larry
Rothstein
|
5,000 |
$12.10
per share
|
June
25, 2011
|
Stock
Options. In November 2000, the Company’s Board of Directors
authorized the 2000 Stock Option Plan (the “Plan”), which was approved by the
shareholders in June 2001. The Plan, which permits the grant of qualified and
non-qualified options expires in June 2011, and is intended to provide
incentives to the directors and employees (the “employees") of the Company, as
well as to enable the Company to obtain and retain the services of such
employees. The Plan is administered by a Stock Option Committee (the
"Committee") appointed by the Board of Directors. The Committee
selects those key officers and employees of the Company to whom options for
shares of common stock of the Company shall be granted. The Committee
determines the purchase price of shares deliverable upon exercise of an option;
such price may not, however, be less than 100% of the fair market value of a
share on the date the option is granted. Payment of the purchase price may be
made in cash, Company stock, or by delivery of a promissory note, except that
the par value of the stock must be paid in cash or Company stock. Shares
purchased by delivery of a note must be pledged to the
Company. Shares subject to an option may be purchased by the optionee
within ten years from the date of the grant of the option. However,
options automatically terminate if the optionee's employment with the Company
terminates other than by reason of death, disability or
retirement. Further, if, within one year following exercise of any
option, an optionee terminates his employment other than by reason of death,
disability or retirement, the shares acquired upon exercise of such option must
be sold to the Company at a price equal to the lesser of the purchase price of
the shares or their fair market value.
65
On June
25, 2001, options were granted to all officers and directors to purchase an
aggregate of 86,000 common shares at no less than 100% of the fair market value
at the date of grant. The average exercise
price of the options granted in 2001 is $7.84 per share. The
Company’s stock price on the date of grant was $7.57 per share.
There
were no options granted, exercised or forfeited in 2009 and 2008.
66
Item
11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.
Set forth
below is certain information concerning common stock ownership by directors,
executive officers, directors and officers as a group, and holders of more than
5% of the outstanding common stock.
|
|||||||||||||||||||||
Shares Held as of
March 31, 2010
|
|||||||||||||||||||||
Name(7), (8)
|
Shares
Owned by
Named
Persons &
Members
of His
Family (1)
|
Additional
Shares in Which
the
named Person Has, or
Participates
in, the Voting or
Investment Power (2)
|
Total
Shares &
Percent of Class
|
||||||||||||||||||
Maurice
Wiener
|
51,100 | (4 | ) | 541,830 | (3), (5) | 592,930 | 53% | ||||||||||||||
Larry
Rothstein
|
47,900 | (4 | ) | 541,830 | (3) | 589,730 | 52% | ||||||||||||||
Walter
G. Arader
|
15,400 | (4 | ) | 15,400 | 1% | ||||||||||||||||
Harvey
Comita
|
10,000 | (4 | ) | 477,300 | (6) | 487,300 | 43% | ||||||||||||||
Clinton
Stuntebeck
|
5,000 | (4 | ) | 5,000 | * | ||||||||||||||||
All
Directors and
Officers
as a Group
|
157,700 | (4 | ) | 541,830 | (3) | 699,530 | 62% | ||||||||||||||
Transco Realty Trust | 477,300 | (5 | ) | 477,300 | 42% | ||||||||||||||||
1870
S. Bayshore Drive
Coconut
Grove, FL 33133
|
|||||||||||||||||||||
Comprehensive
Financial Planning,
Inc.
3950 Fairland Drive Dacula,
GA 30019
|
97,904 | (9 | ) | 97,904 | 9.6% |
* less
than 1%
___________________________
(1)
|
Unless
otherwise indicated, beneficial ownership is based on sole voting and
investment power.
|
(2)
Shares
listed in this column represent shares held by entities with which directors or
officers are associated.
Directors, officers and
members of their families have no
ownership interest in these shares.
(3)
|
This
number includes the number of shares held by Transco Realty Trust (477,300
shares), HMG Advisory Corp. (54,530 shares) and T.G.I.F. Texas, Inc.
(10,000 shares). Several of the directors of the Company are
directors, trustees, officers or shareholders of certain of those
firms.
|
(4)
|
This
number includes options granted under the 2000 Stock Option
Plan. These options have been granted to Mr. Wiener, 40,500;
Mr. Rothstein, 29,900; 5,000 each to Mr. Arader, Mr. Comita and Mr.
Stuntebeck; and 16,700 to two officers. Reference is made to
Item
11. Executive Compensation for further information about
the 2000 Stock Option Plan.
|
(5)
|
Mr.
Wiener holds approximately 34% and 57% of the stock of Transco and HMG
Advisory Corp., respectively, and may therefore be deemed to be the
beneficial owner of the shares of the Company held by Transco and HMG
Advisory Corp.
|
67
(6)
This
number represents the number of shares held by Transco Realty Trust, of which,
Mr. Comita is a Trustee.
(7)
|
Except
as otherwise set forth, the address for these individuals is 1870 South
Bayshore Drive, Coconut Grove, Florida
33133.
|
(8)
|
No
shares of stock of the executive officers and directors have been pledged
as collateral.
|
(9) Comprehensive
Financial Planning, Inc. has shared investment power on all shares and sole
voting power on all shares.
Item 12.
Certain Relationships and Related Transactions and Director
Independence. The following discussion describes the
organizational structure of the Company’s subsidiaries and
affiliates.
Transco Realty Trust
(“Transco”).
Transco
is a 47% shareholder of the Company of which Mr. Wiener is its executive trustee
and holds 34% of its stock.
HMG Advisory Corp. (the
“Adviser”) and subsidiaries.
The
day-to-day operations of the Company are handled by the Adviser, as described
above under Item 1.
Business "Advisory Agreement." The Adviser is majority owned
by Mr. Wiener, its Chairman and CEO.
In August
2004 the HMG Advisory Bayshore, Inc. (“HMGABS”) (a wholly owned subsidiary of
the Adviser) was formed for the purposes of overseeing the Monty’s restaurant
operations acquired in August 2004. HMGABS will receive a management
fee of $25,000 per year from Bayshore Rawbar, LLC. In 2009 no
management fee was due HMGABS. For each of the years ended December
31, 2004 through December 2008, HMGABS earned $25,000 per year in management
fees. HMGABS is owed approximately $108,000 from Bayshore Rawbar, LLC
for such fees as of December 31, 2009.
Reference
is made to Item 1.
Business and Item 1. Business and
Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations
for further information about the remuneration of the Adviser.
Courtland Investments, Inc.
(“CII”).
The
Company holds a 95% non-voting interest and Masscap Investment Company
("Masscap") holds a 5% voting interest in CII. In May 1998, the
Company and Masscap entered into a written agreement in order to confirm and
clarify the terms of their previous continuing arrangement with regard to the
ongoing operations of CII, all of which provide the Company with complete
authority over all decision making relating to the business, operation, and
financing of CII consistent with the Company’s status as a real estate
investment trust.
CII and
its wholly-owned subsidiary own 100% of Grove Isle Club, Inc., Grove Isle Yacht
Club Associates, Grove Isle Marina, Inc., CII Spa, LLC, Courtland Bayshore
Rawbar, LLC and it also owns 15% of Grove Isle Associates, Ltd., (the Company
owns the other 85%).
T.G.I.F. Texas, Inc.
(“T.G.I.F.”).
CII owns
approximately 49% of the outstanding shares of T.G.I.F. Mr.
Wiener is a director and chairman of T.G.I.F. and owns, directly and indirectly,
approximately 18% of the outstanding shares of T.G.I.F. T.G.I.F also
owns 10,000 shares of the Company’s stock.
68
The
following discussion describes all material transactions, receivables and
payables involving related parties. All of the transactions described
below were on terms as favorable to the Company as comparable transactions with
unaffiliated third parties.
The
Adviser.
As of
December 31, 2009 and 2008 the Adviser owed the Company (net of amounts due to
HMGABS described above) approximately $290,000 and $288,000,
respectively. Amounts due from the Adviser bear interest at the prime
rate plus 1% payable monthly, with principal due on demand.
The
Adviser leases its executive offices from CII pursuant to a lease
agreement. This lease agreement is at the going market rate for
similar property and calls for base rent of $48,000 per year payable in equal
monthly installments. Additionally, the Adviser is responsible for
all utilities, maintenance, and security expenses relating to the leased
premises. The lease term is five years expiring in November
2014.
South Bayshore Associates
(“SBA”).
SBA is a
joint venture in which Transco and the Company hold interests of 25% and 75%,
respectively. The sole major asset of SBA is a demand note from
Transco, bearing interest at the prime rate, with an outstanding balance of
approximately $300,000 in principal and interest as of December 31, 2009 and
2008.
The
Company also holds a demand note from SBA bearing interest at the prime rate
plus 1% with an outstanding balance as of December 31, 2009 and 2008 of
approximately $1,125,000 and $1,106,000, in principal and accrued interest,
respectively. Interest payments of $10,000 and $15,000 were made in 2009 and
2008, respectively. Accrued and unpaid interest is not added to the
principal. Because the Company consolidates SBA, the note payable and
related interest income is eliminated in consolidation.
CII.
The
Company holds a demand note due from its 95%-owned consolidated subsidiary, CII,
bearing interest at the prime rate plus 1% with an outstanding balance of
$2,473,000 and $2,563,000 as of December 31, 2009 and 2008,
respectively. Advances from the Company to CII during 2009 and 2008
were $100,000 and $210,000, respectively. Repayments from CII to the
Company during 2009 and 2008 were $190,000 and $1.6 million,
respectively. Because CII is a consolidated subsidiary of the
Company, the note payable and related interest is eliminated in
consolidation.
In 1986,
CII acquired from the Company the rights to develop the marina at Grove Isle for
a promissory note of $620,000 payable at an annual rate equal to the prime
rate. The principal is due on demand. Interest payments
are due annually in January. Because the Company consolidates CII,
the note payable and related interest income is eliminated in
consolidation.
69
Courtland Houston, Inc.
(“CHI”)
CHI is
80%-owned by CII and 20% owned by Bernard Lerner, its sole
employee. CHI was formed with a $140,000 investment by CII and
engages in commercial leasing activities in Texas and earns commission and other
consulting revenue. Mr. Lerner is a cousin of the Company’s Chairman
and CEO Mr. Maurice Wiener. For the years ended December 31, 2009 and 2008 Mr.
Lerner was paid a salary of $85,000. For the years ended December 31,
2009 and 2008 CHI reported revenues of approximately $50,000 and $168,000,
respectively.
CII Spa,
LLC.
As more
fully discussed in Item 2.Description of
Property, in September 2004 the Company entered into an agreement with
the lessee and operator of the Grove Isle property to develop and operate the
Grove Isle Spa. A subsidiary of the Company, CII Spa, LLC (“CIISPA”)
and the lessee formed a Delaware limited liability company, Grove Spa, LLC
(“GS”) which is owned 50% by CIISPA and 50% by the tenant operator of Grove
Isle, Grand Heritage Hotel Group, LLC (“GH”). Operations commenced in March 2005
and GS sub-leases the Spa property from the GH for $10,000 per year, plus GS
pays all real estate taxes, insurance, utilities and all other costs relating to
Grove Isle Spa. The initial term of the sublease commenced on September 15, 2004
and ends on November 30, 2016, with the GS having the right to extend the term
for two additional consecutive 20 year terms on the same terms as the original
sublease.
T.G.I.F.
As of
December 31, 2009 and 2008, CII owed approximately $3,561,000 and $3,661,000,
respectively, to T.G.I.F. All advances between CII and T.G.I.F. are
due on demand and bear interest at the prime rate plus 1%. All
interest due has been paid.
As of
December 31, 2009 and 2008, T.G.I.F. had amounts due from Mr. Wiener of
approximately $707,000. These amounts are due on demand and bear
interest at the prime rate. All interest due has been
paid. Mr. Wiener received consulting and director’s fees from T.G.I.F
of approximately $22,000 and $37,000 for the years ended December 31, 2009 and
2008, respectively. Also, T.G.I.F. owns 10,000 shares of the Company which were
purchased in 1996 at the market value. In 2009 and 2008 T.G.I.F.
declared and paid a cash dividend of $.05 and $.08 per share,
respectively. CII’s portion of the dividends was approximately
$140,000 and $224,000, respectively.
Item 13.
Principal Accountants Fees and Services.
The
following table sets forth fees billed to the Company by the Company's
independent auditors for the year ended December 31, 2009 and December 31, 2008
for (i) services rendered for the audit of the Company's annual financial
statements and the review of the Company's quarterly financial statements, (ii)
services rendered that are reasonably related to the performance of the audit or
review of the Company's financial statements that are not reported as Audit
Fees, and (iii) services rendered in connection with tax preparation,
compliance, advice and assistance. The Audit Committee pre-approved
all services rendered by the Company’s independent auditors.
70
Principal
Accountant Fees and Services
For
the fiscal year ended
|
December
31, 2009
|
December
31, 2008
|
||||||
Audit
fees including quarterly reviews
|
$ | 94,000 | $ | 101,000 | ||||
Tax
return preparation fees
|
20,000 | 22,000 | ||||||
Total
Fees
|
$ | 114,000 | $ | 123,000 | ||||
Part IV. |
Item 14.
Exhibits and Financial Statement Schedules.
(a) Exhibits
listed in the Index to Exhibits.
71
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
HMG/Courtland
Properties, Inc.
|
||
March
31, 2010
|
by: /s/Maurice
Wiener
|
|
Maurice
Wiener
|
||
Chairman
and Chief Executive Officer
|
||
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant
and in the capacities and on the date indicated.
|
||
/s/Maurice
Wiener
|
March
31, 2010
|
|
Maurice
Wiener
|
||
Chairman
of the Board
|
||
Chief
Executive Officer
|
||
/s/Larry
Rothstein
|
March
31, 2010
|
|
Larry
Rothstein
|
||
Director,
President, Treasurer and Secretary
|
||
Principal
Financial Officer
|
||
/s/Walter
G. Arader
|
March
31, 2010
|
|
Walter
G. Arader, Director
|
||
/s/Harvey
Comita
|
March
31, 2010
|
|
Harvey
Comita, Director
|
||
/s/Clinton
Stuntebeck
|
March
31, 2010
|
|
Clinton
Stuntebeck, Director
|
||
/s/Carlos
Camarotti
|
March
31, 2010
|
|
Carlos
Camarotti
|
||
Vice
President - Finance and Controller
|
||
Principal
Accounting Officer
|
72
Description
|
||||
(3)
|
Included
herein.
|
|||
(b)
|
By-laws
|
Incorporated
by reference to Exhibit 6.1 to the Registration Statement of Hospital
Mortgage Group, Inc. on Form S-14, No. 2-64, 789, filed July 2,
1979.
|
||
(10)
|
(a)
|
Amended
and restated lease agreement between Grove Isle Associates, Ltd. and
Westgroup Grove Isle Associates, Ltd. dated November 19,
1996.
|
Incorporated
by reference to Exhibit 10(d) to the 1996 Form 10-KSB
|
|
(b)
|
Master
agreement between Grove Isle Associates, Ltd. Grove Isle Clubs Inc., Grove
Isle Investments, Inc. and Westbrook Grove Isle Associates, Ltd. dated
November 19, 1996.
|
Incorporated
by reference to Exhibit 10(e) to the 1996 Form 10-KSB
|
||
(c)
|
Agreement
Re: Lease Termination between Grove Isle Associates, Ltd. and Grove Isle
Club, Inc. dated November 19, 1996.
|
Incorporated
by reference to Exhibit 10(f) to the 1996 Form 10-KSB
|
||
(d)
|
Amended
and restated agreement between NAF Associates and the Company, dated
August 31, 1999.
|
Incorporated
by reference to Exhibit 10(f) to the 1999 Form 10-KSB
|
||
(e)
|
Amendment
to Amended and restated lease agreement between Grove Isle Associates,
Ltd. and Westgroup Grove Isle Associates, Ltd. dated December 1,
1999.
|
Incorporated
by reference to Exhibit 10(g) to the 1999 Form 10-KSB
|
||
|
(f)
|
Lease
agreement between Courtland Investments, Inc. and HMG Advisory Corp. dated
December 1, 1999.
|
Incorporated
by reference to Exhibit 10(h) to the 1999 Form 10-KSB
|
|
73
(g)
|
2000
Incentive Stock Option Plan of HMG/ Courtland Properties,
Inc.
|
Incorporated
by reference to Exhibit 10(h) to the 2001 Form 10-KSB
|
||
(h)
|
Amended
and Restated Advisory Agreement between the Company and HMG Advisory Corp.
effective January 1, 2003.
|
Incorporated
by reference to Exhibit 10(i) and 10(j) to the 2002 Form
10-KSB
|
||
(i)
|
Second
Amendment to Amended and restated lease agreement included herein between
Grove Isle Associated, Ltd. and Westgroup Grove Isle Associates, Ltd.
dated September 15, 2004
|
Incorporated
by reference to Exhibit 10(i) to the 2004 Form 10-KSB
|
||
(j)
|
Operating
Agreement of Grove Spa, LLC dated September 15, 2004
|
Incorporated
by reference to Exhibit 10(j) to the 2004 Form 10-KSB
|
||
(k)
|
Sublease
between Westgroup Grove Isle Associates, Ltd. and Grove Spa, LLC dated
September 15, 2004
|
Incorporated
by reference to Exhibit 10(k) to the 2004 Form 10-KSB Included
herein.
|
||
(l)
|
Purchase
and Sale Agreement (“Acquisition of Monty’s”) between Bayshore Restaurant
Management Corp. and Bayshore Landing, LLC dated August 20,
2004
|
Incorporated
by reference to Exhibit 10(l) to the 2004 Form 10-KSB
|
||
(m)
|
Ground
Lease between City of Miami and Bayshore Landing, LLC dated August 20,
2004 and related document
|
Incorporated
by reference to Exhibit 10(m) to the 2004 Form 10-KSB
|
||
(n)
|
Loan
Agreement between Wachovia Bank and Bayshore Landing, LLC dated August 20,
2004
|
Incorporated
by reference to Exhibit 10(n) to the 2004 Form 10-KSB
|
||
(o)
|
Operating
Agreement of Bayshore Landing, LLC dated August 19, 2004
|
Incorporated
by reference to Exhibit 10(o) to the 2004 Form 10-KSB
|
||
(p)
|
Management
Agreement for Bayshore Rawbar , LLC executed by RMI, LLC
|
Incorporated
by reference to Exhibit 10(p) to the 2004 Form 10-KSB
|
||
74
(q)
|
Management
Agreement for Bayshore Rawbar, LLC executed by HMG Advisory Bayshore,
Inc.
|
Incorporated
by reference to Exhibit 10(q) to the 2004 Form 10-KSB
|
||
(r)
|
Management
and Leasing Agreement for Bayshore Landing, LLC executed by RCI Bayshore,
Inc.
|
Incorporated
by reference to Exhibit 10(r) to the 2004 Form 10-KSB
|
||
(s)
|
Assignment
and Assumption of Management Agreement by Noble House Grove Isle,
Ltd.
To
GH-Grove Isle Management LLC
And
Consent by Grove Spa, LLC
|
Incorporated
by reference to Exhibit 10(s) to the 2008 Form 10-K
|
||
(t)
|
Third
Amendment to Amended and Restated Lease Agreement
|
Incorporated
by reference to Exhibit 10(t) to the 2008 Form 10-K
|
||
(u)
|
Assignment
and Assumption of Lease and Consent of Landlord
|
Incorporated
by reference to Exhibit 10(u) to the 2008 Form 10-K
|
||
(v)
|
Amendment
to Operating Agreement of Grove Spa, LLC, A Delaware Limited Liability
Company
|
Incorporated
by reference to Exhibit 10(v) to the 2008 Form 10-K
|
||
(w)
|
First
Amendment to Management Agreement
|
Incorporated
by reference to Exhibit 10(w) to the 2008 Form 10-K
|
||
(14)
|
Code
of Ethics for Chief Executive Officer and Senior Financial Officers dated
May 2003
|
Incorporated
by reference to Exhibit 14 to the 2004 Form 10-KSB
|
||
(21)
|
Included
herein.
|
|||
(31)
|
Included
herein.
|
|||
Included
herein.
|
||||
75
(32)
|
Included
herein.
|
|||
Included
herein.
|
||||
76