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 OCTOBER 31, 2004
|_| 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
incorporation or organization) Identification No.)
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: 1,179,407 shares of common stock, par
value $1.00 per share, as of October 31, 2004 Transitional Small Business
Disclosure Format (Check One): Yes |_| No |X|
Seq. Page 1
INDEX TO QUARTERLY REPORT
QUARTER ENDED OCTOBER 31, 2004
Seq. Page
Form 10-QSB Cover 1
Index to Form 10-QSB 2
Part I Financial Information 3
Item I Financial Statements 3
Consolidated Balance Sheet 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Footnotes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 8
Item 3 Controls and Procedures 11
Part II - Other Information 11
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification 14
Exhibit 32.1 CEO/CFO Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 15
Seq. Page 2
Part I Financial Information
Item I Financial Statements
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
October 31,
2004
------------
ASSETS
REAL ESTATE
Rental property:
Land $ 4,250
Building and improvements 3,925,421
Machinery and equipment 160,489
------------
4,090,160
Less accumulated depreciation 3,383,439
------------
706,721
------------
Land held for development:
Land 792,201
Land development costs 4,117,987
------------
4,910,188
------------
Total real estate, net 5,616,909
CASH AND CASH EQUIVALENTS 1,005,026
RENT RECEIVABLE, net of allowance for doubtful accounts of $77,261 196,693
MORTGAGE RECEIVABLE 1,800,000
PREPAID EXPENSES AND OTHER ASSETS 261,793
PREPAID PENSION COSTS 1,313,441
------------
$ 10,193,862
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 187,551
Deferred gain on sale of real estate 1,573,900
Tenant security deposits payable 202,180
Revolving credit line 696,287
Loans payable 23,467
Deferred income taxes 1,660,054
------------
Total liabilities 4,343,439
------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued 1,531,086
Additional paid-in capital 7,510,886
Deficit (1,018,644)
------------
8,023,328
Less the cost of 351,679 shares of common stock held in the treasury (2,172,905)
------------
Total stockholders' equity 5,850,423
------------
$ 10,193,862
============
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
October 31, October 31,
2004 2003 2004 2003
--------------------------------------------------------
REVENUE FROM RENTAL PROPERTY $ 1,027,544 $ 1,100,753 $ 527,622 $ 542,569
--------------------------------------------------------
RENTAL PROPERTY EXPENSES:
Real estate taxes 75,234 69,119 37,617 34,560
Operating and maintenance 291,548 228,100 156,709 115,027
Interest expense 18,993 21,250 9,941 8,897
Depreciation 36,116 38,919 18,058 19,486
--------------------------------------------------------
421,891 357,388 222,325 177,970
--------------------------------------------------------
INCOME FROM RENTAL PROPERTY 605,653 743,365 305,297 364,599
GENERAL AND ADMINISTRATIVE 807,139 793,340 391,244 433,574
--------------------------------------------------------
LOSS FROM OPERATIONS (201,486) (49,975) (85,947) (68,975)
OTHER INCOME:
Interest income 54,120 54,938 26,558 27,549
--------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAXES (147,366) 4,963 (59,389) (41,426)
(BENEFIT) PROVISION FOR INCOME TAXES (58,946) 1,985 (23,755) (16,570)
--------------------------------------------------------
NET (LOSS) INCOME $ (88,420) $ 2,978 $ (35,634) $ (24,856)
========================================================
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (0.08) $ 0.00 $ (0.03) $ (0.02)
========================================================
Diluted $ (0.08) $ 0.00 $ (0.03) $ (0.02)
========================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,163,144 1,120,980 1,170,451 1,124,960
========================================================
Diluted 1,163,144 1,142,633 1,170,451 1,124,960
========================================================
See notes to consolidated financial statements
Seq. Page 4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
October 31,
-----------
2004 2003
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (88,420) $ 2,978
--------------------------
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 57,231 58,785
Bad debt expense 6,000 2,000
Deferred income tax benefit (58,946) (19,958)
Stock compensation 0 76,606
Pension expense 112,194 118,435
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (483,674) (434,620)
Accounts receivable (109,611) (79,570)
Prepaid expenses and other assets (48,855) (54,496)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (45,258) (65,761)
Income taxes payable (28,306) 0
Tenant security deposits 7,204 (44)
--------------------------
Total adjustments (592,021) (398,623)
--------------------------
Net cash used in operating activities (680,441) (395,645)
--------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (13,394) (25,557)
--------------------------
Net cash used in investment activities (13,394) (25,557)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (5,486) (11,786)
Loan origination fees 0 73,519
Proceeds from exercise of stock options 141,704 227,707
--------------------------
Net cash provided by financing activities 136,218 289,440
--------------------------
Net decrease in cash and cash equivalents (557,617) (131,762)
Cash and cash equivalents at beginning of period 1,562,643 2,231,317
--------------------------
Cash and cash equivalents at end of period $ 1,005,026 $ 2,099,555
==========================
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 accounting principles generally accepted in the United States ("GAAP"). 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 (SEC) and, in the opinion of management, reflect all adjustments
which are necessary to present fairly the results for the three and six month
periods ended October 31, 2004 and 2003.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP 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, 2004.
The results of operations for the three and six month periods ended October 31,
2004 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. ("Company") and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
3. Earnings Per Share:
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Dilutive earnings per share gives 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:
Six months ended Three Months Ended
October 31, October 31,
2004 2003 2004 2003
-------------------------------------------------
Basic 1,163,144 1,120,980 1,170,451 1,124,960
-------------------------------------------------
Effect of dilutive securities 0 21,653 0 0
-------------------------------------------------
Diluted 1,163,144 1,142,633 1,170,451 1,124,960
=================================================
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. Revolving Credit Note:
The Company has a $1,750,000 revolving credit line with a bank, bearing interest
at a rate of prime plus one percent which was 5.75% at October 31, 2004. The
line is secured by certain real estate and expires on June 1, 2006.
6. Stock Options:
We have elected the disclosure only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123") in accounting for our employee stock options. Accordingly, no compensation
expense has been recognized. Had we recorded compensation expense for the stock
options based on the fair value at the grant date for awards in the three and
six months ended October 31, 2004 and 2003 consistent with the provisions of
SFAS 123, our net (loss) income and net (loss) income per share would have been
adjusted as follows:
Seq. Page 6
Six Months Ended Three Months Ended
---------------- ------------------
October, 31 October, 31
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Net (loss) income, as reported $ (88,420) $ 2,978 $ (35,634) $ (24,856)
Deduct: Total stock-based employee compensation
expense determined under fair value based method,
net of related tax effects 0 (95,000) 0 (1,000)
----------------------------------------------------
Pro forma net (loss) $ (88,420) $ (92,022) $ (35,634) $ (25,856)
====================================================
Net (loss) income per share:
Basic - as reported $ (0.08) $ 0.00 $ (0.03) $ (0.02)
----------------------------------------------------
Basic - pro forma $ (0.08) $ (0.08) $ (0.03) $ (0.02)
----------------------------------------------------
Diluted - as reported $ (0.08) $ 0.00 $ (0.03) $ (0.02)
----------------------------------------------------
Diluted - pro forma $ (0.08) $ (0.08) $ (0.03) $ (0.02)
----------------------------------------------------
7. Shareholder Rights Agreement:
On August 10, 2004, the Board of Directors of the Company adopted a Shareholder
Rights Agreement and declared a dividend distribution of one right for each
outstanding share of common stock of the Company held by stockholders of record
on August 27, 2004. Each right entitles the holder to purchase from the Company
one share of the Company's common stock at an exercise price of $75.00 per
share. Initially the rights will not be exercisable, certificates will not be
sent to stockholders, and the rights will automatically trade with the common
stock. The principal terms of the Shareholder Rights Agreement are as follows:
a. Unless previously redeemed by the Board of Directors, the rights become
exercisable upon the earlier of the tenth business day following the date
("Stock Acquisition Date") on which there is a public announcement that a
person or group of persons ("Acquiring Person") has acquired beneficial
ownership of 20% or more of the outstanding common stock of the Company or
the tenth business day after the date an Acquiring Person has offered to
purchase 20% or more of the Company's outstanding common stock.
b. If, after the time that a person or group of persons becomes an
Acquiring Person, the Company were to be acquired in a merger or other
business combination or more than 50% of the assets or earning power of
the Company and its subsidiaries were to be sold or transferred, each
holder of a right, other than the Acquiring Person, will have the right to
receive, upon payment of the exercise price, that number of shares of
common stock of the acquiring company having a market value at the time of
the transaction equal to two times the exercise price.
c. At any time prior to the acquisition by an Acquiring Person of 50% or
more of the outstanding common stock, the Board of Directors of the
Company may exchange the rights (other than rights owned by an Acquiring
Person), in whole or in part, at an exchange ratio of one share of common
stock per right (subject to adjustment).
d. At any time prior to the tenth business day after the Stock Acquisition
Date (or such later date as the Board of Directors may determine), the
Company may redeem the rights at a price of $0.005 per right.
e. The Company may amend the rights in any manner, with certain
exceptions.
f. Until a right is exercised, the holder will have no rights as a
stockholder of the Company, including the right to vote or to receive
dividends.
g. The rights will expire at the close of business on August 11, 2014 or,
if distributed before August 11, 2014, at the close of business on the
90th day following the distribution date.
8. Retirement Plans:
The Company records net periodic pension benefit cost pro rata throughout the
year. The following table provides the components of net periodic pension
benefit cost for the plan for the three and six months ended October 31, 2004
and 2003:
Six Months Ended Three Months Ended
---------------- ------------------
October, 31 October, 31
----------- -----------
2004 2003 2004 2003
---- ---- ---- ----
Pension Benefits
Service Cost $ 64,984 $ 43,358 $ 32,492 $ 21,679
Interest Cost 64,580 59,610 32,290 29,805
Expected Return on Plan Assets (82,916) (63,084) (41,458) (31,542)
Amortization of Prior-Service Cost 35,508 36,371 18,615 18,186
Amortization of Net Loss 30,038 42,180 15,019 21,090
-----------------------------------------------------
Net Periodic Benefit Cost After Curtailments and
Settlements $ 112,194 $ 118,435 $ 56,958 $ 59,218
=====================================================
During the six months ended October 31, 2004, the Company made no contributions
to the plan. The Company has no minimum required contribution for the April 30,
2005 plan year.
Seq. Page 7
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
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.
Critical Accounting Policies
The consolidated financial statements of the Company include accounts of the
Company and all majority-owned and controlled subsidiaries. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Company's consolidated financial statements and related notes. In
preparing these financial statements, management has utilized information
available including its past history, industry standards and the current
economic environment, among other factors, in forming its estimates and
judgments of certain amounts included in the consolidated financial statements,
giving due consideration to materiality. It is possible that the ultimate
outcome as anticipated by management in formulating its estimates inherent in
these financial statements might not materialize. However, application of the
critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of companies in similar businesses.
Revenue Recognition
Rental revenue is recognized on a straight-line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due, if any, is included in deferred rents receivable on the
Company's balance sheets. Certain leases also provide for tenant reimbursements
of common area maintenance and other operating expenses and real estate taxes.
Ancillary and other property related income is recognized in the period earned.
Real Estate
Rental real estate assets, including 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 life of ten to thirty years for buildings and improvements and three to
twenty years for machinery and equipment.
The Company is required to make subjective assessments as to the useful life 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.
Real estate held for development is stated at the lower of cost or net
realizable value. In addition to land, land development and construction costs,
real estate held for development includes interest, real estate taxes and
related development and construction overhead costs which are capitalized during
the development and construction period.
Net realizable value represents estimates, based on management's present plans
and intentions, of sale price less development and disposition cost, assuming
that disposition occurs in the normal course of business.
Seq. Page 8
Long Lived Assets
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property is
less than the carrying value of the property. Such cash flows consider factors
such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent impairment
occurs, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.
The Company is required to make subjective assessments as to whether there are
impairments in the value of its real estate properties and other investments.
These assessments have a direct impact on the Company's net income, since an
impairment charge results in an immediate negative adjustment to net income. In
determining impairment, if any, the Company has adopted Financial Accounting
Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets."
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, to account for stock-based employee
compensation plans and reports pro forma disclosures in its Form 10-KSB filings
by estimating the fair value of options issued and the related expense in
accordance with SFAS No. 123. Under this method, compensation cost is recognized
for awards of shares of common stock or stock options to directors, officers and
employees of the Company only if the quoted market price of the stock at the
grant date (or other measurement date, if later) is greater than the amount the
grantee must pay to acquire the stock.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2004
AS COMPARED TO THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2003
The Company is reporting a net loss of $35,634 for the quarter ending October
31, 2004 compared to a net loss of $24,856 for the same period last year and a
net loss of $88,420 for the first six months of this fiscal year. That loss
compares to net income of $2,978 for the same six month period of the prior
year.
Diluted per share (loss) earnings amounted to ($0.03) and ($0.02) for the three
months ending October 31, 2004 and 2003, respectively, and ($0.08) and $0.00 for
the six month periods of 2004 and 2003, respectively.
Revenue from rental property, which totaled $527,622 for the reporting period,
reflects a decrease of $14,947 compared to the same period last year when
revenues amounted to $542,569. For the six months ending October 31, revenue
from rental property amounted to $1,027,544 and $1,100,753 for 2004 and 2003,
respectively; a decline of $73,209. The decline for the six month period is
attributable to previously reported rent concessions which totaled $51,820 and a
net reduction in the rent roll of $20,591. For the quarter ending October 31,
2004, the decrease in revenues can be traced to similar causes with concessions
amounting to $26,760 and the rent roll reflecting an increase of $15,477 which
is attributable to a non-recurring event. The reduced rental activity has been
somewhat mitigated with new tenancies in recent months and we expect a slight
improvement in that downward trend.
Rental property expenses increased for both the three and six month reporting
periods, reflecting a $44,355 increase for the quarter and a $64,503 increase
for the six months ending October 31, 2004. The three month results reflect
expenses of $222,325 and $177,970 for 2004 and 2003, respectively, while the six
month expenses total $421,891 and $357,388, respectively. For the most part, and
in both cases, the increases are attributable to operating and maintenance
issues and increased real estate taxes. As previously reported, the Company has
experienced a major increase in the cost of property and casualty insurance
premiums which impacted the three and six month periods by $28,289 and $56,577,
respectively. Maintenance on buildings and grounds increased by $10,492 for the
quarter and $4,912 for the six months ending October 31, 2004. Real estate taxes
increased by $3,057 and $6,115 and salaries and benefits reflect an increase of
$6,147 and $5,829 for the quarter and six month reporting periods, respectively.
For the quarter, fuel and electric expenses were reduced by $4,221 and by $5,831
for the six months ending October 31, 2004.
As a result, income from rental property declined from $364,599 to $305,297 for
the quarter and from $743,365 to $605,653 for the six months ending October 31,
2004 and 2003, respectively. For the quarter, income declined by $59,302 or 16%
while the six month results reflect a decline of $137,712 or 19%.
General and administrative expenses declined by $42,330 from the $433,574
reported in the quarter ending October 31, 2003 to $391,244 in the current
reporting period. However, over the six month period, general and administrative
expenses increased by $13,799, amounting to $807,139 and $793,340 as of October
31, 2004 and 2003, respectively. Salaries and benefits decreased by $70,561 and
$64,135 for the three and six month reporting period. The most significant
factor accounting for this decline was a total expense of $76,606 related to
stock option compensation during the prior year. Increases in salaries and other
benefits, which account for the balance of the variances, amounted to $6,045 and
$12,471 for the three and six month periods, respectively. Reflecting for the
Seq. Page 9
most part the costs associated with establishing a shareholders rights plan,
stockholder expense increased by $23,802 and $65,122 for the three and six month
periods ending October 31, 2004. The balance of the variances between the
current periods and the prior year consist of increases in the cost of liability
insurance amounting to $6,672 for the quarter and $13,344 for the six month
reporting period. There were other minor variances and some timing differences
which basically offset each other during the current three and six month
periods.
As a result of the foregoing, the Company is reporting a loss from operations
totaling $85,947 for the current three month period as compared to a loss of
$68,975 for the same three month period last year. For the six months ending
October 31, the loss from operations amounted to $49,975 and $201,486 during
2003 and 2004, respectively.
Other income showed little change in both the three and six month periods ending
October 31, 2004 when compared with the prior year results. For the three months
then ended, other income amounted to $26,558 compared to $27,549 during the
prior year. The six month results reflect income of $54,120 and $54,938 for 2004
and 2003, respectively.
As a result, the Company is reporting a loss before income taxes for both the
three and six month current reporting periods. The current quarter reflects a
loss of $59,389 compared to a loss of $41,426 during the prior year. For the six
months ending October 31st, the current period reflects a loss of $147,366
compared to income before taxes of $4,963 during the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $680,441 and $395,645 during the six
months ended October 31, 2004 and 2003, respectively. The principal use of cash
in both periods were funds used in connection with planning and pre-construction
costs associated with land development plans for the golf course community. The
Company also incurred costs included in the capitalized land development costs
pertaining to legal, and communication costs to shareholders and the community
regarding the potential Stony Brook University condemnation of the Company's
real estate property.
Net cash used in investing activities was $13,394 and $25,557 during the six
months ended October 31, 2004 and 2003, respectively. The use of cash in both
periods was for the acquisition of property, plant and equipment.
Net cash provided by financing activities was $136,218 and $289,440 during the
six months ended October 31, 2004 and 2003, respectively. The net cash provided
during the current and prior period was primarily the result of proceeds from
the exercise of stock options. The prior period's results also reflect the
refinancing of mortgage debt on the Flowerfield property. The Company has a
$1,750,000 revolving credit line with a bank, bearing interest at a rate of
prime plus one percent which was 5.75% at October 31, 2004. The unused portion
of the credit line of $1,053,713 will enhance our financial position and
liquidity and be available, if needed, to fund any unforeseen expenses
associated with the Company's development plan.
As of October 31, 2004, the Company had cash and cash equivalents of $1,005,026
as well as a mortgage receivable of $1,800,000 due on August 8, 2005 and
anticipates having the capacity to fund normal operating and administrative
expenses, its regular debt service requirements and the remaining predevelopment
expenses related to securing entitlements for the planned residential golf
course community. To date, expenses associated with the development of the
Flowerfield property, which have been capitalized, total $4,117,987. As of
October 31, 2004, the portion of those expenses attributable to the residential
golf course community amount to $2,059,795. Working capital, which is the total
of current assets less current liabilities as shown in the accompanying chart,
amounted to $2,778,602 at October 31, 2004.
Seq. Page 10
October 31,
-----------
2004 2003
---- ----
Current assets:
Cash and cash equivalents $ 1,005,026 $ 2,099,555
Rent receivable, net 196,693 149,007
Mortgage receivable 1,800,000 0
Net prepaid expenses and other assets 174,025 177,333
--------------------------
Total current assets 3,175,744 2,425,895
--------------------------
Current liabilities:
Accounts payable and accrued expenses 187,551 183,863
Tenant security deposits payable 202,180 238,160
Current portion of loans payable 7,411 12,206
--------------------------
Total current liabilities 397,142 434,229
--------------------------
Working capital $ 2,778,602 $ 1,991,666
==========================
LIMITED PARTNERSHIP INVESTMENT
Our limited partnership investment in the Callery Judge Grove, LP is carried on
the Company's balance sheet at $0 as a result of recording losses equal to the
carrying value of the investment. This investment represents a 10.93% ownership
in a 3500+ acre citrus grove in Palm Beach County, Florida. The land is
currently the subject of a change of zone application for a mixed use of
residential, commercial and industrial development. We have no current forecast
as to the likelihood of, or the timing required to achieve these entitlements
that might impact the Grove's value.
(c) OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial conditions, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Item 3 CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of the end of the period covered by this report. Based upon that
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
has concluded that the disclosure controls and procedures were effective, in all
material respects, to ensure that information required to be disclosed in the
reports the Company files and submits under the Exchange Act is recorded,
processed, summarized and reports as and when required.
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation that occurred during the
Company's last fiscal quarter that has materially affected, or that is
reasonably likely to materially affect, the Company's internal control over
financial reporting.
Part II Other Information
Items 1 through 3 are not applicable to the August 1, 2004, through October 31,
2004, period.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's annual shareholder meeting for Fiscal Year 2004 was held on
November 11, 2004. On each matter submitted to shareholders, the votes were as
follows:
To elect one director, Elliot H. Levine, to serve for a term of one year and
three directors, Stephen V. Maroney, Philip F. Palmedo and Ronald J. Macklin to
serve for a term of three years or until their successors shall be elected and
shall qualify: Elliot H. Levine; votes for 1,038,786, votes withheld 26,620;
Stephen V. Maroney; votes for 967,219, votes withheld 98,187; Philip F. Palmedo;
votes for 967,219, votes withheld 98,187 and Ronald J. Macklin; votes for
967,114, votes withheld 98,292.
Seq. Page 11
Messrs. Lamb, Smith and Beyer continue to serve as directors in accordance with
their terms of office.
To ratify the engagement of Holtz Rubenstein Reminick, LLP as independent
certified public accountants and auditors for the fiscal year ending April 30,
2005; votes for 970,376, votes against 9,869, votes abstain 85,161.
Item 5 Other Information
The Company's Chief Executive Officer and Chief Financial Officer has furnished
a statement relating to this Form 10-QSB for the quarter ended October 31, 2004
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. The statement is attached hereto as Exhibit 31.1.
Item 6 Exhibits and Reports on Form 8-K
a. Exhibits:
4.1 Shareholder Rights Plan (incorporated herein by reference in the Form 8-K
filed with the Securities and Exchange Commission on August 13, 2004).
31.1 Rule 13a-14(a)/15d-14(a) Certification.
32.1 CEO/CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K. The Company filed the following Current Reports on
Form 8-K during the second quarter of fiscal year 2005 and through the
filing date:
Current Report on Form 8-K filed with the SEC on August 13, 2004 stating
that the Board of Directors declared a dividend distribution of one right
for each outstanding share of Common Stock, $1.00 par value per share, of
the Corporation held by stockholders of record on August 27, 2004, the
Record Date.
Current Report on Form 8-A filed with the SEC on August 13, 2004 stating
that the Board of Directors declared a dividend distribution of one right
for each outstanding share of Common Stock, $1.00 par value per share, of
the Corporation held by stockholders of record on August 27, 2004, the
Record Date. This Form 8-A amended the Form 8-K filed August 13, 2004 by
deleting Exhibit 99.1, a press release dated August 13, 2004 announcing
the adoption of a Shareholder Rights Plan.
Current Report on Form 8-K filed with the SEC on September 7, 2004
announcing that Robert F. Friemann, a member of the Company's Board of
Directors, resigned from the Board of Directors of the Company effective
as of August 19, 2004.
Current Report on Form 8-K filed with the SEC on October 13, 2004
attaching a press release and stating that the Registrant's Board of
Directors unanimously voted to appoint Elliot H. Levine as director to
fill the vacancy created by the resignation of Robert F. Friemann.
Current Report on Form 8-K filed with the SEC on October 20, 2004 stating
that the Registrant issued a press release announcing that Institutional
Shareholder Services ("ISS"), a national proxy advisory firm, recommended
that the Registrant's shareholders vote "FOR" the election of management's
slate of directors and ratification of the appointment of independent
auditors.
Seq. Page 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GYRODYNE COMPANY OF AMERICA, INC.
Date: December 10, 2004 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer
and Treasurer
Date: December 10, 2004 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
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