US Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended JULY 31, 2002
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _______________ to ________________
Commission file number 0-1684
Gyrodyne Company of America, Inc.
(Exact name of small business issuer as specified in its charter)
New York 11-1688021
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
102 Flowerfield, St. James, N.Y. 11780
(Address of principal executive offices)
(631) 584-5400
(Issuer's telephone number)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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 |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12,13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes. . No. . .
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: 1,111,897 Common $1 P.V. as of August
12, 2002
Seq. Page 1
INDEX TO QUARTERLY REPORT
QUARTER ENDED JULY 31, 2002
Seq. Page
Form 10-QSB Cover 1
Index to Form 10-QSB 2
Consolidated Balance Sheet 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Footnotes to Consolidated Financial Statements 6
Management's Discussion and Analysis or Plan of Operation 7
Part II - Other Information 8
Signatures 8
Certification 9
Exhibit 99.3 Certification
Seq. Page 2
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS July 31,
2002
----
REAL ESTATE
Rental property:
Land $ 4,746
Building and improvements 4,668,358
Machinery and equipment 116,851
-----------
4,789,955
Less accumulated depreciation 3,422,829
-----------
1,367,126
-----------
Land held for development:
Land 803,592
Land development costs 1,755,364
-----------
2,558,956
-----------
Total real estate, net 3,926,082
CASH AND CASH EQUIVALENTS 739,643
RENT RECEIVABLE, net of allowance for doubtful accounts of $89,723 46,773
PREPAID EXPENSES AND OTHER ASSETS 439,215
INVESTMENT IN CITRUS GROVE PARTNERSHIP 1,585,104
PREPAID PENSION COSTS 1,603,282
-----------
$ 8,340,099
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 467,368
Deposit on contract for sale of real estate 1,000,000
Tenant security deposits payable 258,669
Loans payable 684,654
Deferred income taxes 1,229,772
-----------
Total liabilities 3,640,463
-----------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued and outstanding 1,531,086
Additional paid-in capital 7,235,301
Deficit (1,505,663)
-----------
7,260,724
Less cost of shares of common stock held in treasury (2,561,088)
-----------
Total stockholders' equity 4,699,636
-----------
$ 8,340,099
===========
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
July 31,
--------
2002 2001
---- ----
REVENUE FROM RENTAL PROPERTY $ 665,167 $ 655,292
---------- ----------
RENTAL PROPERTY EXPENSE:
Real estate taxes 111,758 103,615
Operating and maintenance 84,004 160,961
Interest expense 14,598 15,764
Depreciation 25,995 26,092
---------- ----------
236,355 306,432
---------- ----------
INCOME FROM RENTAL PROPERTY 428,812 348,860
---------- ----------
GENERAL AND ADMINISTRATIVE 346,275 235,407
---------- ----------
INCOME FROM OPERATIONS 82,537 113,453
---------- ----------
OTHER INCOME:
Interest income 1,894 19,438
---------- ----------
1,894 19,438
---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES 84,431 132,891
PROVISION FOR INCOME TAXES 33,772 53,156
---------- ----------
NET INCOME $ 50,659 $ 79,735
========== ==========
NET INCOME PER COMMON SHARE:
Basic $ 0.05 $ 0.06
========== ==========
Diluted $ 0.04 $ 0.06
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,111,897 1,230,142
========== ==========
Diluted 1,127,316 1,244,121
========== ==========
See notes to consolidated financial statements
Seq. Page 4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
July 31,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 50,659 $ 79,735
----------- -----------
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 29,881 29,073
Bad debt expense 39,045 3,000
Deferred income tax provision 33,772 53,156
Pension expense 64,970 8,726
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (255,434) (63,405)
Accounts receivable (55,739) (31,422)
Prepaid expenses and other assets (314,267) (176,361)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 58,012 (208,846)
Tenant security deposits 4,791 8,289
----------- -----------
Total adjustments (394,969) (377,790)
----------- -----------
Net cash used in operating activities (344,310) (298,055)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (6,307) (15,417)
----------- -----------
Net cash used in investment activities (6,307) (15,417)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (15,530) (13,165)
----------- -----------
Net cash used in financing activities (15,530) (13,165)
----------- -----------
Net decrease in cash and cash equivalents (366,147) (326,637)
Cash and cash equivalents at beginning of period 1,105,790 2,688,838
----------- -----------
Cash and cash equivalents at end of period $ 739,643 $ 2,362,201
=========== ===========
See notes to consolidated financial statements
Seq. Page 5
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Quarterly Presentations:
The accompanying quarterly financial statements have been prepared in conformity
with generally accepted accounting principles. The financial statements of the
Registrant included herein have been prepared by the Registrant pursuant to the
rules and regulations of the Securities and Exchange Commission and, in the
opinion of management, reflect all adjustments which are necessary to present
fairly the results for the three month periods ended July 31, 2002, and 2001.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations; however,
management believes that the disclosures are adequate to make the information
presented not misleading.
This report should be read in conjunction with the financial statements and
footnotes therein included in the audited annual report on Form 10-KSB as of
April 30, 2002.
The results of operations for the three month periods ended July 31, 2002, and
2001 are not necessarily indicative of the results to be expected for the full
year.
2. Principle of Consolidation:
The accompanying consolidated financial statements include the accounts of
Gyrodyne Company of America, Inc. ("GCA") and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated.
3. Earnings Per Share:
Basic earnings per common share is computed by dividing the net income by the
weighted average number of shares of common stock outstanding during the period.
Dilutive earnings per share give effect to stock options and warrants which are
considered to be dilutive common stock equivalents. Treasury shares have been
excluded from the weighted average number of shares.
The following is a reconciliation of the weighted average shares:
Three Months Ended
July 31,
2002 2001
--------------------------------------------------------------------------
Basic 1,111,897 1,230,142
--------------------------------------------------------------------------
Effect of dilutive securities 15,419 13,979
--------------------------------------------------------------------------
Diluted 1,127,316 1,244,121
--------------------------------------------------========================
4. Income Taxes:
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
5. Reclassification:
The prior year quarterly results from the Consolidated Statements of Income
reflect a reclassification of tenant late charges from rental property expense
to revenue from rental property.
6. Management Agreement with DPMG, Inc. dba Landmark National:
As compensation for its services, Landmark National will receive various fees
from Gyrodyne for land development costs associated with the Golf Course,
Related Facilities, and Residential Development. These costs include, but are
not limited to, the following: A fixed fee of $5,000 per month, the "Golf Design
Fee," not to exceed $150,000; a fixed fee of $10,000 per month, the "Residential
Design Fee," not to exceed $300,000; a grading plan fee of $100,000, the
"Grading Plan Fee," which shall be payable within 15 days after the completion
of the rough grading plan for the Golf Course.
Seq. Page 6
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Not Applicable
(b) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results for the first three months of fiscal 2003 reflect income before tax of
$84,431 as compared to $132,891 for the same period last year. Net income after
tax amounted to $50,659 and $79,735 for the same periods, respectively.
Basic and diluted net income per common share for the reporting period amounted
to $0.05 and $0.04, respectively, compared to the prior year of $0.06 and $0.06,
respectively.
Although there was a continuation of an improved revenue stream coupled with a
reduction in expenses associated with the Company's rental property, earnings
were negatively impacted by increased costs pertaining to the Gyrodyne pension
fund and our provision for doubtful accounts.
For the three months ended July 31, 2002, revenues from rental property totaled
$665,167 compared to $655,292 during the prior year. Rental property expense
amounted to $236,355 for the reporting period and $306,432 for the same three
months last year, a reduction of $70,077. This decrease in expenses is primarily
attributable to a nonrecurring credit relating to a negotiated settlement on
utility charges which amounted to $64,968. As a result, income from rental
property increased by $79,952 for the quarter and amounted to $428,812 compared
to $348,860 the prior year.
As noted, pension expense increased by $56,243 for the reporting period and were
accompanied by increased provisions of $36,045 for doubtful accounts. Increased
pension costs are expected to continue throughout fiscal 2003. While we are
hopeful that collection of delinquent rents will be forthcoming, providing
reserves for a potential charge-off is clearly the prudent action at this
juncture. These two items account for $92,288 of the $110,868 increase in
general and administrative expenses. The remaining major contributing factor is
an increase of $18,388 in corporate governance.
Other income declined by $17,544 and is directly attributable to lower interest
bearing deposits as well as lower prevailing interest rates. Other income
amounted to $1,894 for the three months ended July 31, 2002 compared to $19,438
during the prior year.
Subsequent to the close of the quarter, the Company closed on the sale to an
existing tenant of approximately twelve (12) acres of property and certain
buildings related to an existing catering facility on the Flowerfield property.
The contract of sale amounted to $5.4 million under which the Company received a
cash payment of $3.6 million and holds a three year mortgage for $1.8 million
with an interest rate of 5%.
The estimated profit for the transaction is $4.7 million. In the second quarter
of fiscal year 2003, the Company will recognize a gain of approximately $3.1
million, the remaining profit of $1.6 million will be recognized upon
satisfaction of the mortgage. The Company anticipates the utilization of the tax
loss carry forward of approximately $1.5 million to offset a significant portion
of the gain. In addition, the Company anticipates that it will be able to
write-off a significant amount of the capitalized land development costs
associated with the abandoned "Master Plan" for income tax purposes, which will
also reduce the amount of tax gain from the sale of the catering facility.
Currently, the capitalized expenses are carried at $1.75 million on the
Company's balance sheet.
Although the sale will result in a significant decline in rental revenues for
the future, it has placed the Company in a stronger cash position and enables
the funding of predevelopment costs associated with the previously announced
plan for an upscale residential golf course community on the Flowerfield
property.
Several of the required components for a Draft Environmental Impact Study (DEIS)
associated with the planned development of Flowerfield are well underway and, in
some cases, being updated from earlier completion dates. We anticipate making
applications to the appropriate municipal authorities for a change in zoning to
accommodate the residential golf course community in October 2002.
As of July 31, 2002, the Company had cash and cash equivalents of $739,643 and
anticipates having the capacity to fund normal operating and administrative
expenses and its regular debt service requirements. This position should be
considerably enhanced with the proceeds from the sale of the catering facility
and related properties.
Seq. Page 7
The results of operations for the quarter ending July 31, 2002 are not
necessarily indicative of nor should they be used to project full year or future
results.
The statements made in this Form 10-QSB that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"anticipates," "expects," "projects," "estimates," "believes," "seeks," "could,"
"should," or "continue," the negative thereof, other variations or comparable
terminology. Important factors, including certain risks and uncertainties with
respect to such forward-looking statements that could cause actual results to
differ materially from those reflected in such forward looking statements
include, but are not limited to the effect of economic and business conditions,
including risk inherent in the Long Island, New York real estate market, the
ability to obtain additional capital and other risks detailed from time to time
in our SEC reports. We assume no obligation to update the information in this
Form 10-QSB.
Part II Other Information
Items 1 through 5 are not applicable to the May 1, 2002, through July 31, 2002,
period.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits Required: Exhibit 99.3 CEO/CFO Certification Pursuant to 18
USC, Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
(b) Reports on Form 8-K - None were filed by the Company for the first
quarter of FY 2003.
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.
GYRODYNE COMPANY OF AMERICA, INC.
(Registrant)
Date: September 10, 2002 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer and
Treasurer
Date: September 10, 2002 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 8
CERTIFICATION
I, Stephen V. Maroney, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Gyrodyne
Company of America, Inc. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
Date: September 10, 2002
/S/ Stephen V. Maroney
----------------------
Stephen V. Maroney,
President, Chief Executive Officer and
Chief Financial Officer
Seq. Page 9