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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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RESULTS OF OPERATIONS
The Company reported net income of approximately $339,000 ($0.33 per share) and $337,000 ($0.33 per share) for the three and nine months ended September 30, 2019, respectively. The Company reported a net loss of approximately $501,000 ($0.49 per share) for the three months ended September 30, 2018, and net income of approximately $4.6 million ($4.56 per share) for the nine months ended September 30, 2018.
REVENUES
Rentals and related revenues for the three and nine months ended September 30, 2019 were approximately $19,000 and $56,000, respectively and primarily consists of rent from the Advisor to CII for its corporate office. For the three and nine months ended September 30, 2018 rental and related revenues were $18,000 and $54,000, respectively.
Net realized and unrealized gains from investments in marketable securities:
Net realized gain from the sale of marketable securities for the three and nine months ended September 30, 2019 was approximately $17,000 and $6,000, respectively. Unrealized net loss from investments in marketable securities for the three months ended September 30, 2019 was approximately $5,000. Unrealized net gain from investments in marketable securities for the nine months ended September 30, 2019 was approximately $247,000. Net realized gain from investments in marketable securities for the three and nine months ended September 30, 2018 was approximately $39,000 and $35,000, respectively. Unrealized net loss from investments in marketable securities for the three and nine months ended September 30, 2018 was approximately $37,000 and $9,000, respectively. For further details refer to Note 4 to Condensed Consolidated Financial Statements (unaudited).
Equity gain (loss) from operations in residential real estate partnerships:
Equity gain (loss) from operations in residential real estate partnerships for the three and nine months ended September 30, 2019 was approximately $3,000 from interest income earned from member contributions prior to construction of multi-family residential apartments in Fort Myers, FL. Equity loss from operations in residential real estate partnerships for the nine months ended September 30, 2018 was approximately$144,000 relating to the multi-family residential apartments which property was sold in February 2018 and the Company recognized a gain on the sale of approximately $5.47 million, net of incentive fee in the first quarter of 2018.
Net income from other investments:
Net income from other investments for the three and nine months ended September 30, 2019 was approximately $479,000 and $654,000, respectively. Net income from other investments for the three and nine months ended September 30, 2018 was approximately $80,000 and $371,000, respectively. For further details refer to Note 5 to Condensed Consolidated Financial Statements (unaudited).
Interest, dividend and other income:
Interest, dividend and other income for the three and nine months ended September 30, 2019 was approximately $137,000 and $375,000, respectively. Interest, dividend and other income for the three and nine months ended September 30, 2018 was approximately $83,000 and $271,000, respectively. The increases in the three and nine-month comparable periods was primarily due to increased interest income from investments in US T-bills.
EXPENSES
Rental and other properties operating expenses for the three and nine months ended September 30, 2019 as compared with the same periods in 2018 decreased by $312,000 (91%) and $307,000 (80%), respectively. The decreases were primarily the result of non-recurring estimated environmental remediation costs relating the Company’s property located in Montpelier, Vermont.
General and administrative expenses for the three and nine months ended September 30, 2019 as compared with the same periods in 2018 decreased by $51,000 (56%) and $62,000 (29%), respectively. The decreases were primarily attributable to decreased dues and subscriptions expenses relating to Courtland Investments, Inc. and decreased non-recurring costs relating to a proposed real estate venture in Orlando which was not pursued, and the related deposits were written off in 2018.
Interest expense for the nine months ended September 30, 2019 as compared with the same period in 2018 decreased by approximately $25,000 (37%). The decrease was primarily due to decreased interest rates.
EFFECT OF INFLATION:
Inflation affects the costs of holding the Company's investments. Increased inflation would decrease the purchasing power of our mainly liquid investments.
LIQUIDITY, CAPITAL EXPENDITURE REQUIREMENTS AND CAPITAL RESOURCES
The Company's material commitments primarily consist of a note payable to the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) of approximately $1.0 million due on demand, contributions committed to other investments of approximately $919,000 due upon demand. The $9.93 million in margin is primarily related to the purchase of US T-bills at quarter end. The T-bills were sold in October 2019 and the related margin was repaid. The purchase of T-bills at each fiscal quarter end is for the purposes of qualifying for the REIT asset test. The funds necessary to meet these obligations are expected from the proceeds from the sales of investments, distributions from investments and available cash.
MATERIAL COMPONENTS OF CASH FLOWS
For the nine months ended September 30, 2019, net cash used in operating activities was approximately $537,000, primarily consisting of operating expenses less interest, dividend and other income.
For the nine months ended September 30, 2019, net cash used in investing activities was approximately $2.19 million. This consisted primarily of contributions to investment in residential real estate partnership (Fort Myers, FL) of $3.0 million, purchases of marketable securities of $960,000, contribution to other investments of $920,000 and purchases and improvements of properties of $66,000. These uses of funds were partially offset by sources of cash consisting primarily of $1.10 million of net proceeds from sales and redemptions of marketable securities, distributions from other investments of $1.44 million and distribution from affiliate of $221,000.
For the nine months ended September 30, 2019, net cash used in financing activities was approximately $778,000, consisting of $507,000 dividends paid and $340,000 principal payment on note due to affiliate. These uses of funds were partially offset by increased margin borrowings (net of repayments) of $69,000.
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Item 3.
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Quantitative and Qualitative Disclosures about Market Risk
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Not applicable
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Item 4.
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Controls and Procedures
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(a)
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Evaluation of Disclosure Controls and Procedures.
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Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q 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 Securities Exchange Act of 1934, was made known to them by others within those entities and reported within the time periods specified in the SEC's rules and forms.
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(b)
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Changes in Internal Control Over Financial Reporting.
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There were no changes in the Company's internal controls over financial reporting identified in connection with the evaluation of such internal control over financial reporting that occurred during our last fiscal quarter which have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings: None
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds:
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As previously reported on December 14, 2018, HMG announced that its Board of Directors has authorized the purchase of up to $500,000 of HMG common stock on the open market or through privately negotiated transactions. The program will be in place through December 31, 2021. During the nine months ended September 30, 2019, there were no shares purchased as part of this publicly announced program.
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Item 3.
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Defaults Upon Senior Securities: None.
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Item 4.
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Mine Safety Disclosures: Not applicable.
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Item 5.
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Other Information: None
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(a) Certifications pursuant to 18 USC Section 1350-Sarbanes-Oxley Act of 2002. Filed herewith.
