HMG 10QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)
 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly period ended June 30, 2006
OR
 
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________to______________

Commission file number 1-7865

HMG/COURTLAND PROPERTIES, INC.
(Exact name of small business issuer as specified in its charter)

Delaware
59-1914299
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)

1870 S. Bayshore Drive,     Coconut Grove,     Florida     33133
(Address of principal executive offices)                 (Zip Code)

305-854-6803
(Registrant's telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes [ ]     No [ X]
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.

1,023,955 Common shares were outstanding as of June 30, 2006.

 
 
 
 

HMG/COURTLAND PROPERTIES, INC.
 
Index
 
 
 PAGE
NUMBER
PART I. Financial Information
 
   
 
   
 
   
 
 
  
 
   
   
 
   
   
PART II. Other Information
  
13 

Cautionary Statement. This Form 10-QSB 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 Form 10-QSB 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.


 
 
 
 
 

         
CONDENSED CONSOLIDATED BALANCE SHEETS
          
   
 
  
 
  
   
June 30,
  
December 31,
  
   
2006
  
2005
  
ASSETS
  
(UNAUDITED)
      
Investment properties, net of accumulated depreciation:
          
Commercial properties
  
$
7,271,030
  
$
6,513,793
  
Commercial properties- construction in progress
    
387,136
    
171,727
  
Hotel, club and spa facility
    
5,677,725
    
5,845,030
  
Marina properties
    
3,008,055
    
2,899,085
  
Land held for development
    
589,419
    
589,419
  
Total investment properties, net
    
16,933,365
    
16,019,054
  
               
Cash and cash equivalents
    
1,965,029
    
2,350,735
  
Investments in marketable securities
    
5,879,008
    
6,576,954
  
Other investments
    
5,269,709
    
5,119,179
  
Investment in affiliate
    
3,155,411
    
3,074,530
  
Loans, notes and other receivables
    
1,964,002
    
2,037,651
  
Notes and advances due from related parties
    
759,165
    
767,768
  
Deferred taxes
    
70,000
    
88,000
  
Goodwill
    
7,728,627
    
7,728,627
  
Interest rate swap contract asset
    
411,000
    
-
  
Other assets
    
606,645
    
640,602
  
TOTAL ASSETS
  
$
44,741,961
  
$
44,403,100
  
           
LIABILITIES
              
Mortgages and notes payable
  
$
21,247,972
  
$
20,823,764
  
Accounts payable and accrued expenses
    
967,873
    
1,266,561
  
Margin payable to broker
    
1,302,755
    
1,211,925
  
Interest rate swap contract payable
    
-
    
266,000
  
TOTAL LIABILITIES
    
23,518,600
    
23,568,250
  
               
Minority interests
    
3,549,078
    
2,674,740
  
           
STOCKHOLDERS' EQUITY
              
Preferred stock, $1 par value; 2,000,000 shares
              
    authorized; none issued
    
-
    
-
  
Excess common stock, $1 par value; 500,000 shares authorized;
              
    none issued
    
-
    
-
  
Common stock, $1 par value; 1,500,000 shares authorized;
              
    1,317,535 shares issued and outstanding
              
    as of June 30, 2006 and December 31, 2005
    
1,317,535
   
1,317,535
 
Additional paid-in capital
    
26,585,595
   
26,585,595
 
Undistributed gains from sales of properties, net of losses
    
41,315,056
   
41,315,056
 
Undistributed losses from operations
    
(49,183,569
)
  
(49,046,362
)
Accumulated other comprehensive income (loss)
    
205,500
    
(133,000
)
     
20,240,117
   
20,038,824
 
Less: Treasury stock, at cost (293,580 & 244,500 shares as of
              
    June 30, 2006 and December 31, 2005, respectively)
    
(2,565,834
)
  
(1,878,714
)
TOTAL STOCKHOLDERS' EQUITY
    
17,674,283
    
18,160,110
  
               
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
  
$
44,741,961
  
$
44,403,100
  
           
See notes to the condensed consolidated financial statements
              
 
 

 
 
(1)
 
 

HMG/COURTLAND PROPERTIES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
 
   
Three months ended
June 30,
  
Six months ended
June 30,
  
REVENUES
  
2006
  
2005
  
2006
  
2005
  
Real estate rentals and related revenue
  
$
411,192
  
$
382,182
  
$
826,422
  
$
765,137
  
Food & beverage sales
    
1,800,940
   
1,448,145
   
3,586,991
   
3,012,593
 
Marina revenues
    
416,621
   
385,399
   
844,435
   
779,622
 
Spa revenues
    
179,368
   
94,918
   
308,498
   
156,042
 
Net (loss) gain from investments in marketable securities
    
(110,746
)
  
50,734
   
25,607
   
58,514
 
Net income (loss) from other investments
    
196,893
   
77,334
   
309,711
    
(6,297
)
Interest, dividend and other income
    
189,580
    
135,992
    
320,042
    
278,411
  
Total revenues
    
3,083,848
    
2,574,704
    
6,221,706
    
5,044,022
  
EXPENSES
                          
Operating expenses:
                          
Rental and other properties
    
162,157
    
182,074
    
416,609
    
386,588
  
Food and beverage cost of sales
    
508,919
    
435,945
    
1,039,315
    
887,703
  
Food and beverage labor and related costs
    
334,234
    
320,311
    
670,163
    
617,029
  
Food and beverage other operating costs
    
567,180
    
488,003
    
1,106,916
    
965,065
  
Marina expenses
    
272,852
    
214,777
    
532,868
    
442,209
  
Spa expenses
    
193,228
    
84,809
    
345,513
    
136,576
  
Depreciation and amortization
    
286,169
    
269,252
    
547,452
    
496,301
  
Adviser's base fee
    
225,000
    
225,000
    
450,000
    
450,000
  
General and administrative
    
81,822
    
88,842
    
160,099
    
160,644
  
Professional fees and expenses
    
67,983
    
59,994
    
146,631
    
118,412
  
Directors' fees and expenses
    
16,711
    
18,987
    
33,011
    
35,719
  
Total operating expenses
    
2,716,255
    
2,387,994
    
5,448,577
    
4,696,246
  
                           
Interest expense
    
425,929
    
321,545
    
823,749
    
664,239
  
Minority partners' interests in operating income (loss) of
                          
    consolidated entities
    
33,716
    
(29,489
)
  
68,587
   
31,531
 
Total expenses
    
3,175,900
    
2,680,050
    
6,340,913
    
5,392,016
  
                   
Loss before income taxes
    
(92,052
)
  
(105,346
)
  
(119,207
)
  
(347,994
)
                           
(Benefit from) provision for income taxes
    
(30,000
)
  
(36,000
)
  
18,000
    
(421,000
)
Net (loss) income
    
($62,052
)
  
($69,346
)
  
($137,207
)
$
73,006
  
                   
Other comprehensive income (loss):
                          
     Unrealized gain (loss) on interest rate swap agreement
  
$
75,500
    
($275,000
)
$
338,500
    
($128,500
)
Total other comprehensive income (loss)
    
75,500
    
(275,000
)
  
338,500
    
(128,500
)
                           
Comprehensive income (loss)
  
$
13,448
    
($344,346
)
$
201,293
    
($55,494
)
                   
Net (Loss) Income Per Common Share:
                          
Basic
 
  
($0.06
)
  
($0.06
)
  
($0.13
)
$
0.07
  
Diluted
  
 
($0.06
)
  
($0.06
)
  
($0.13
)
$
0.07
  
Weighted average common shares outstanding
    
1,023,955
    
1,078,635
    
1,036,971
    
1,083,856
  
Weighted average common shares outstanding - Diluted
    
1,035,888
    
1,097,446
    
1,051,896
    
1,105,397
  
                           
See notes to the condensed consolidated financial statements
                          
 
 
 
 
(2)
 
 
 
 
HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES     
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
      
       
 
  
Six months ended June 30,
  
   
2006
  
2005
  
CASH FLOWS FROM OPERATING ACTIVITIES:
              
  Net (loss) income
    
($137,207
)
$
73,006
  
    Adjustments to reconcile net (loss) income to net cash provided by
              
        (used in) operating activities:
              
        Depreciation and amortization
    
547,452
   
496,301
 
        Net (income) loss from other investments, before incentive fee
    
(329,719
)
  
6,297
  
        Net gain from investments in marketable securities
    
(25,607
)
  
(58,514
)
        Minority partners' interest in operating income
    
68,587
    
31,531
  
        Deferred income tax expense (benefit)
    
18,000
    
(176,000
)
        Changes in assets and liabilities:
              
    Decrease (increase) in other assets and other receivables
    
53,450
   
(67,768
)
    Net proceeds from sales and redemptions of securities
    
1,311,430
   
957,533
 
    Increase in investments in marketable securities
    
(587,877
)
  
(620,995
)
    Decrease in accounts payable and accrued expenses
    
(298,688
)
  
(199,468
)
    Increase (decrease) in margin payable to brokers and other liabilities
    
90,830
   
(473,087
)
    Decrease in income taxes payable
    
-
   
(245,000
)
Total adjustments
    
847,858
    
(348,170
)
Net cash provided by (used in) operating activities
    
710,651
    
(275,164
)
           
CASH FLOWS FROM INVESTING ACTIVITIES:
              
        Purchases and improvements of properties
    
(1,447,651
)
  
(1,572,073
)
        Decrease in notes and advances from related parties
    
8,603
   
112,596
 
        Additions in mortgage loans and notes receivables
    
-
    
(250,000
)
        Collections of mortgage loans and notes receivables
    
40,046
   
100,000
 
        Distributions from other investments
    
538,638
   
395,433
 
        Contributions to other investments
    
(440,331
)
  
(325,507
)
        Net cash used in investing activities
    
(1,300,695
)
  
(1,539,551
)
           
CASH FLOWS FROM FINANCING ACTIVITIES:
              
        Additional borrowings, mortgages and notes payables
    
615,327
   
741,974
 
        Repayment of mortgages and notes payables
    
(191,119
)
  
(69,383
)
        Purchase of treasury stock
    
(687,120
)
  
-
  
        Contributions from minority partners
    
467,250
    
32,402
 
        Net cash provided by financing activities
    
204,338
   
704,993
  
           
        Net decrease in cash and cash equivalents
    
(385,706
)
  
(1,109,722
)
               
        Cash and cash equivalents at beginning of the period
    
2,350,735
   
3,410,408
 
           
        Cash and cash equivalents at end of the period
  
$
1,965,029
  
$
2,300,686
  
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
      
    Cash paid during the period for interest
  
$
824,000
  
$
664,000
  
           
See notes to the condensed consolidated financial statements
              

 
 
(3)
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements prepared in accordance with instructions for Form 10-QSB, include all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the results for the periods presented. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the Company's Annual Report for the year ended December 31, 2005. The balance sheet as of December 31, 2005 was derived from audited financial statements as of that date. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the results to be expected for the full year.

The condensed consolidated financial statements include the accounts of HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company owns a majority voting interest or controlling financial interest. All material transactions and balances with consolidated and unconsolidated entities have been eliminated in consolidation or as required under the equity method.

2. RECENT ACCOUNTING PRONOUNCEMENT 
In May 2005, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. This Statement provides guidance on accounting for reporting of accounting changes and error corrections. It establishes, unless impracticable, retrospective application as the required method for reporting a change in accounting principle in the absence of explicit transition requirements specific to the newly adopted accounting principle. This Statement also provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. This Statement also provides guidance on the correction of an error by restating previously issued financial statements.  This Statement shall be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect Financial Accounting Standards Board Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections to have a material effect on its financial statements.
 
3. RESULTS OF OPERATIONS FOR MONTY’S RESTAURANT, MARINA AND OFFICE/RETAIL PROPERTY, COCONUT GROVE, FLORIDA
The Company, through two 50%-owned entities, Bayshore Landing, LLC (“Landing”) and Bayshore Rawbar, LLC (“Rawbar”), (collectively, “Bayshore”) owns a restaurant, office/retail and marina property located in Coconut Grove (Miami), Florida known as Monty’s (the “Monty’s Property”).
 

 
(4)
 
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)
 
Summarized combined statement of income for Landing and Rawbar for the three and six months ended June 30, 2006 and 2005 is 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 three
months ended
June 30, 2006
  
For the three
months ended
June 30, 2005
  
For the six
months ended
June 30, 2006
  
For the six
 months ended
June 30, 2005
  
                           
Revenues:
                          
Food and Beverage Sales
  
$
1,801,000
  
$
1,449,000
  
$
3,587,000
  
$
3,013,000
  
Marina dockage and related
    
304,000
    
279,000
    
620,000
    
560,000
  
Retail/mall rental and related
    
67,000
    
28,000
    
140,000
    
60,000
  
Total Revenues
    
2,172,000
    
1,756,000
    
4,347,000
    
3,633,000
  
                           
Expenses:
                          
Cost of food and beverage sold
    
509,000
    
436,000
    
1,039,000
    
888,000
  
Labor and related costs
    
282,000
    
257,000
    
566,000
    
500,000
  
Entertainers
    
52,000
    
63,000
    
104,000
    
117,000
  
Other food and beverage related costs
    
135,000
    
109,000
    
231,000
    
203,000
  
Other operating costs
    
120,000
    
100,000
    
246,000
    
188,000
  
Repairs and maintenance
    
79,000
    
52,000
    
169,000
    
113,000
  
Insurance
    
89,000
    
82,000
    
177,000
    
165,000
  
Management fees
    
99,000
    
97,000
    
192,000
    
193,000
  
Utilities
    
106,000
    
73,000
    
201,000
    
149,000
  
Ground rent - City of Miami, FL
    
175,000
    
185,000
    
347,000
    
391,000
  
Interest
    
254,000
    
188,000
    
494,000
    
412,000
  
Depreciation and amortization
    
131,000
    
91,000
    
240,000
    
181,000
  
Total Expenses
    
2,031,000
    
1,733,000
    
4,006,000
    
3,500,000
  
                           
Net Income
  
$
141,000
  
$
23,000
  
$
341,000
  
$
133,000
  
 
 
 
(5)
 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)

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. These securities are stated at market value, as determined by the most recent traded price of each security at the balance sheet date. Consistent with the Company's overall current investment objectives and activities its entire marketable securities portfolio is classified as trading.

Net gain from investments in marketable securities for the three and six months ended June 30, 2006 and 2005 is summarized below:

   
Three months ended
June 30,
  
Six months ended
June 30,
  
Description
  
2006
  
2005
  
2006
  
2005
  
Net realized gain from sales of securities
  
$
84,000
  
$
49,000
  
$
113,000
  
$
91,000
  
Unrealized net (loss) gain in trading securities
    
(195,000
)
  
2,000
    
(87,000
)
  
(32,000
)
Total net (loss) gain from investments in marketable securities
    
($111,000
)
$
51,000
  
$
26,000
  
$
59,000
  


For the three and six months ended June 30, 2006 net realized gain from sales of marketable securities of approximately $84,000 and $113,000, respectively, consisted of approximately $147,000 of gross gains net of $63,000 of gross losses for the three month period and $311,000 of gross gains and $198,000 of gross losses for the six month period. For the three and six months ended June 30, 2005 net realized gain from sales of marketable securities of approximately $49,000 and $91,000, respectively, consisted of approximately $61,000 of gross gains net of $12,000 of gross losses for the three month period and $110,000 of gross gains and $19,000 of gross losses for the six month period.

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.

5. OTHER INVESTMENTS
As of June 30, 2006, the Company has committed to invest approximately $12.9 million in other investments primarily in private capital funds, of which approximately $11.5 million has been funded. The carrying value of other investments (which reflects distributions and valuation adjustments) is approximately $5.3 million as of June 30, 2006.

During the six months ended June 30, 2006 the Company made initial contributions to three new investments totaling $355,000 and made follow-on contributions to three existing investments of approximately $85,000. During this same period the Company received approximately $536,000 in distributions from investments including from one investment in which the partial redemption of $100,000 was requested and granted.

 
 
(6)
 

HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)

Net income (loss) from other investments for the three and six months ended June 30, 2006 and 2005, is summarized below:

   
Three months ended June 30,
  
Six months ended June 30,
  
Description
  
2006
  
2005
  
2006
  
2005
  
Partnership owning diversified operating companies
  
$
35,000
  
$
50,000
  
$
35,000
  
$
67,000
  
Technology-related venture fund
    
--
    
23,000
    
50,000
    
43,000
  
Real estate development and operation
   
60,000
    
--
    
61,000
    
1,000
  
Distressed debt fund
   
34,000
    
--
    
73,000
    
--
  
Income from investment in 49% owned affiliate (T.G.I.F. Texas, Inc.)
    
57,000
    
7,000
    
81,000
    
36,000
  
Others, net
    
11,000
    
(3,000
)
  
10,000
    
(153,000
)
Total net gain (loss) from other investments
  
$
197,000
  
$
77,000
  
$
310,000
    
($6,000
)


During the six months ended June 30, 2006, the Company received cash distributions from two funds, one from a high yield distressed debt fund the other from a technology venture fund. These distributions exceeded the carrying amount of the investments and accordingly were recognized as income.

In March 2005, the Company reduced the remaining carrying value (approximately $147,000) of one of its investments in a privately held company in the personal cosmetic industry. This investment experienced a decline in demand for its product which is believed to result in other-than-temporary decline in the value of the investment. This write down is included under the caption “Others, net” in the table above.

6. DERIVATIVE FINANCIAL INSTRUMENTS
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 the one month LIBOR rate plus 2.45% times the same notional amount. The Company designated this interest rate swap contract as a cash flow hedge. As of June 30, 2006 the fair value (net of 50% minority interest) was an unrealized gain of approximately $206,000 and as of December 31, 2005 the fair value (net of 50% minority interest) of the cash flow hedge was an unrealized loss of approximately $133,000. These amounts have been recorded as other comprehensive gain (loss) and will be reclassified to interest expense over the life of the swap contract.

7. PURCHASE OF TREASURY STOCK
In February 2006 the Company purchased 49,080 shares of the Company’s common stock from one shareholder for $687,000, or $14 per share.


 
(7)
 

 
HMG/COURTLAND PROPERTIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(Unaudited)

8. 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, notes and other receivables and the Grove Isle spa operations which individually do not meet the criteria as a reportable segment.

   
Three months ended
  
Six months ended
  
   
June 30,
  
June 30,
  
   
2006
 
2005
 
2006
 
2005
 
Net Revenues:
                  
Real estate and marina rentals
  
$
827,813
  
$
767,581
  
$
1,670,857
  
$
1,544,759
  
Food and beverage sales
    
1,800,940
   
1,448,145
   
3,586,991
   
3,012,593
 
Other investments and related income
    
455,095
   
358,978
   
963,858
   
486,670
 
Total Net Revenues
  
$
3,083,848
  
$
2,574,704
  
$
6,221,706
  
$
5,044,022
  
                   
Loss before income taxes:
                          
Real estate and marina rentals
  
$
51,580
  
$
61,265
  
$
46,607
  
$
148,492
  
Food and beverage sales
    
74,784
   
11,755
   
147,847
   
73,035
 
Other investments and related income
    
(218,416
)
  
(178,366
)
  
(313,661
)
  
(569,523
)
Total loss before income taxes
    
($92,052
)
  
($105,346
)
  
($119,207
)
  
($347,994
)



 
(8)
 
Item 2.  Management's Discussion and Analysis of
       Financial Condition and Results of Operations

RESULTS OF OPERATIONS
The Company reported a net loss of approximately $62,000 (or $.06 per share) and $137,000 (or $.13 per share) for the three and six months ended June 30, 2006. This is as compared with a net loss of approximately $69,000 (or $.06 per share) and net income of $73,000 (or $.07 per share) for the three and six months ended June 30, 2005, respectively.

As discussed further below, total revenues for the three and six months ended June 30, 2006 as compared with the same periods in 2005, increased by approximately $509,000 or 20% and $1.2 million or 23%, respectively. Total expenses for the three and six months ended June 30, 2006, as compared with the same periods in 2005, increased by approximately $496,000 or 18% and $949,000 or 18%, respectively.

REVENUES
Real estate rental operations:
Rentals and related revenues for the three and six months ended June 30, 2006 as compared with the same periods in 2005 increased by $29,000 (8%) and $61,000 (8%), respectively. These increases were primarily due to increased rental revenue from the Monty’s retail mall after renovations were completed in late 2005 to accommodate three new tenants.

Restaurant operations:
Summarized statements of income for the Company’s Monty’s restaurant for the three and six months ended June 30, 2006 and 2005 are presented below (the Company’s ownership in these operations is 50%):
 
   
For the three months
  
For the six months
  
   
ended June 30,
  
ended June 30,
  
   
2006
 
2005
 
2006
 
2005
  
Revenues:
                          
Food and Beverage Sales
  
$
1,801,000
  
$
1,449,000
  
$
3,587,000
  
$
3,013,000
  
                           
Expenses:
                          
Cost of food and beverage sold
    
509,000
    
436,000
    
1,039,000
    
888,000
  
Labor and related costs
    
282,000
    
257,000
    
566,000
    
500,000
  
Entertainers
    
52,000
    
63,000
    
104,000
    
117,000
  
Other food and beverage direct costs
    
68,000
    
50,000
    
138,000
    
104,000
  
Other operating costs
    
77,000
    
74,000
    
145,000
    
135,000
  
Repairs and maintenance
    
52,000
    
38,000
    
107,000
    
73,000
  
Insurance
    
46,000
    
46,000
    
92,000
    
93,000
  
Management fees
    
81,000
    
81,000
    
162,000
    
162,000
  
Utilities
    
52,000
    
45,000
    
104,000
    
97,000
  
Rent (as allocated)
    
192,000
    
155,000
    
360,000
    
301,000
  
Total Expenses
    
1,411,000
    
1,245,000
    
2,817,000
    
2,470,000
  
                           
Income before depreciation and minority interest
  
$
390,000
  
$
204,000
  
$
770,000
  
$
543,000
  

The restaurant operations which are primarily outdoors benefited from less rain in the first two quarters of 2006 as compared to 2005 and from the substantial completion of construction at the Monty’s property in December 2005.
 

 
 
(9)
 

Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)

Marina operations:
Summarized statements of income for the Company’s marina operations for the three and six months ended June 30, 2006 are presented below:
(The Company owns 50% of the Monty’s marina and 95% of the Grove Isle marina)

   
For the three months
  
For the six months
  
   
ended June 30,
  
ended June 30,
  
   
2006
  
2005
  
2006
  
2005
  
Marina Revenues:
                  
Monty's dockage fees and related income
  
$
305,000
  
$
280,000
  
$
620,000
  
$
561,000
  
Grove Isle marina slip owners dues and dockage fees
    
111,000
    
106,000
    
224,000
    
219,000
  
Total marina revenues
    
416,000
    
386,000
    
844,000
    
780,000
  
                           
Marina Expenses:
                          
Labor and related costs
    
58,000
    
42,000
    
112,000
    
99,000
  
Insurance
    
45,000
    
43,000
    
85,000
    
86,000
  
Management fees
    
19,000
    
12,000
    
28,000
    
23,000
  
Utilities
    
43,000
    
24,000
    
78,000
    
42,000
  
Rent to City of Miami and bay bottom lease
    
58,000
    
53,000
    
117,000
    
107,000
  
Repairs and maintenance
    
26,000
    
16,000
    
65,000
    
40,000
  
Other
    
24,000
    
24,000
    
48,000
    
45,000
  
Total marina expenses
    
273,000
    
214,000
    
533,000
    
442,000
  
                           
Income before depreciation and minority interest
  
$
143,000
  
$
172,000
  
$
311,000
  
$
338,000
  

The primary change in marina revenues relates to the operations of the Monty’s marina. The Monty’s marina dockage fee and related income for the three and six months ended June 30, 2006 as compared to the same periods in 2005 increased by approximately $25,000 (or 9%) and $59,000 (or 10%), respectively. These increases were the result of increased dockage after repairs and improvements to the marina were completed in December 2005. Marina expenses for the three and six months ended June 30, 2006 and 2005 increased by $59,000 (or 27%) and $91,000 (or 21%), respectively. These increases were primarily attributable to increased labor and utilities costs.

Spa operations:
Spa revenues for the three and six months ended June 30, 2006 were $179,000 and $308,000, respectively. Spa expenses (excluding depreciation and interest expense) for the same periods were $193,000 and $345,000, respectively. The Grove Isle Spa began operations in the first quarter of 2005 and comparisons to the prior year are not meaningful at this time.
 
Marketable securities:
Net loss from investments in marketable securities for the three months ended June 30, 2006 was approximately $110,000 and a net gain for the six months ended June, 30, 2006 of $26,000. This is as compared with a net gain from investments in marketable securities of approximately $51,000 and $59,000 for the three and six months ended June 30, 2005, respectively. For further details refer to Note 4 to Condensed Consolidated Financial Statements (unaudited).

 
 
(10)
 

Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)

Other investments:
Net gain from other investments for the three and six months ended June 30, 2006 was approximately $197,000 and $310,000, respectively. This is as compared with a net gain (loss) of approximately $77,000 and ($6,000) for the same comparable periods in 2005, respectively. For further details refer to Note 5 to Condensed Consolidated Financial Statements (unaudited).

Interest, dividend and other income:
Interest and dividend income for the three and six months ended June 30, 2006 increased by approximately $54,000 (or 39%) and $42,000 (or 15%) as compared with the same comparable periods in 2005, respectively. The increases from last year consist primarily of approximately $67,000 of non-recurring real estate consulting fee income received in June 2006.

EXPENSES
Expenses for rental and other properties for the three months ended June 30, 2006 decreased by approximately $20,000 (or 10%) as compared to that for the three months ended June 30, 2005. This decrease was primarily due to decreased rent expense related to the Monty’s rental activity. Expenses for rental and other properties for the six months ended June 30, 2006 increased by approximately $30,000 (or 8%) as compared to that for the six months ended June 30, 2005. This increase was primarily due to a management fee of $100,000 paid to the manager of the HMG-Fieber joint venture which sold its last property in August 2005.
 
For comparisons of all food and beverage related expenses refer to Restaurant Operations (above) summarized statement of income for Monty’s restaurant.

For comparisons of all marina related expenses refer to Marina Operations (above) for summarized and combined statements of income for marina operations.

Depreciation and amortization expense for the three and six months ended June 30, 2006 increased as compared with the same periods in 2005 by approximately $17,000 (or 6%) and $51,000 (or 10%), respectively, primarily due to increase properties placed in service in 2006. This includes the completion of the Grove Spa property in the first quarter of 2005 and substantial completion of renovations to the Monty’s property in December 2005.

Professional fees expense for the three and six months ended June 30, 2006 increased as compared with the same periods in 2005 by approximately $8,000 (or 13%) and $28,000 (or 24%), respectively. This increase was primarily the result of an increase in accounting fees.

Interest expense for the three and six months ended June 30, 2006 increased as compared with the same periods in 2005 by approximately $104,000 (or 32%) and $159,000 (or 24%), respectively. This was primarily due to increased outstanding bank loan balances relating to borrowings for improvements made to the Monty’s property.
 

 
 
(11)
 

Management's Discussion and Analysis of Financial
Condition and Results of Operations
(continued)
 
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 in 2006 primarily consist of maturities of debt obligations of approximately $4.0 million and commitments to fund private capital investments of approximately $1.5 million due upon demand. The funds necessary to meet these obligations are expected to be available from the proceeds of sales of properties or investments, refinancing, distributions from investments and available cash. The majority of maturing debt obligations for 2006 is a note payable to the Company’s 49% owned affiliate, T.G.I.F. Texas, Inc. (“TGIF”) of approximately $3.7 million. This amount is due on demand. It is expected that this obligation when due to TGIF would be paid with funds available from distributions from its investment in TGIF and from available cash.
 
MATERIAL COMPONENTS OF CASH FLOWS
For the six months ended June 30, 2006, net cash provided by operating activities was approximately $710,000. Included in this amount are proceeds and redemptions of marketable securities of $1.3 million partially offset by increased investments in marketable securities of approximately $588,000.

For the six months ended June 30, 2006, net cash used in investing activities was approximately $1.3 million. This consisted primarily of improvements to the Monty’s property.
 
For the six months ended June 30, 2006, net cash provided by financing activities was approximately $204,000. This consisted of $615,000 of additional borrowings relating to the Monty’s property renovations and $467,000 of contributions from minority partners. These sources of funds were partially offset by the purchase of treasury stock of $687,000 and repayment of mortgages and notes payable of $191,000.


 
(12)
 
 
Item 3.  Controls and Procedures
(a)      
Evaluation of Disclosure Controls and Procedures.
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-QSB have concluded that, based on such evaluation, our disclosure controls and procedures were adequate 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.
 
  (b)  
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter covered by this report or from the end of the reporting period to the date of this Form 10-QSB.


PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings:  None.
 
Item 2. Changes in Securities and Small Business Issuers Purchase of Equity Securities: None.

Item 3. Defaults Upon Senior Securities: None.

Item 4. Submission of Matters to a Vote of Security Holders: None
 
Item 5. Other Information: None
 

Item 6. Exhibits and Reports on Form 8-K:
 
 (a)
Certifications pursuant to 18 USC Section 1350-Sarbanes-Oxley Act of 2002. Filed herewith.
(b)          
Reports on Form 8-K filed for the quarter ended June 30, 2006: None.


 
(13)
 


SIGNATURES

Pursuant to the requirements 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.
   
   
   
   
 
___________________________________
Dated: August 14, 2006
/s/ Lawrence Rothstein
 
President, Treasurer and Secretary
 
Principal Financial Officer
   
   
   
   
   
   
   
 
____________________________________
Dated: August 14, 2006
/s/ Carlos Camarotti
 
Vice President- Finance and Controller
 
Principal Accounting Officer

(14)