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, 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:
1,115,862 Common $1 P.V. as of November 19, 2002
Seq. Page 1
INDEX TO QUARTERLY REPORT
QUARTER ENDED OCTOBER 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 10
Seq. Page 2
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS October 31,
2002
------------
REAL ESTATE
Rental property:
Land $ 4,250
Building and improvements 3,915,361
Machinery and equipment 116,851
------------
4,036,462
Less accumulated depreciation 3,228,528
------------
807,934
------------
Land held for development:
Land 792,201
Land development costs 1,985,725
------------
2,777,926
------------
Total real estate, net 3,585,860
CASH AND CASH EQUIVALENTS 2,749,773
RENT RECEIVABLE, net of allowance for doubtful accounts of $40,862 62,476
MORTGAGE RECEIVABLE 1,800,000
PREPAID EXPENSES AND OTHER ASSETS 314,794
INVESTMENT IN CITRUS GROVE PARTNERSHIP 1,585,104
PREPAID PENSION COSTS 1,724,785
------------
$ 11,822,792
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 225,766
Tenant security deposits payable 238,366
Loans payable 668,977
Deferred income taxes 2,480,445
Deferred gain on sale of real estate 1,573,899
------------
Total liabilities 5,187,453
------------
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 7,272,197
Retained earnings 370,345
------------
9,173,628
Less cost of shares of common stock held in treasury (2,538,289)
------------
Total stockholders' equity 6,635,339
------------
$ 11,822,792
============
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended Three Months Ended
October 31, October 31,
2002 2001 2002 2001
---------- ---------- ----------- ----------
REVENUE FROM RENTAL PROPERTY $1,222,763 $1,327,578 $ 557,596 $ 672,286
---------- ---------- ----------- ----------
RENTAL PROPERTY EXPENSES:
Real estate taxes 199,614 207,230 87,856 103,615
Operating and maintenance 180,097 296,980 96,093 136,019
Interest expense 31,569 31,554 16,971 15,790
Depreciation 44,890 52,805 18,895 26,713
---------- ---------- ----------- ----------
456,170 588,569 219,815 282,137
---------- ---------- ----------- ----------
INCOME FROM RENTAL PROPERTY 766,593 739,009 337,781 390,149
---------- ---------- ----------- ----------
GENERAL AND ADMINISTRATIVE 709,178 557,189 362,903 321,782
---------- ---------- ----------- ----------
INCOME (LOSS) FROM OPERATIONS 57,415 181,820 (25,122) 68,367
---------- ---------- ----------- ----------
OTHER INCOME:
Gain on sale of real estate 3,124,307 0 3,124,307 0
Gain on sale of equipment 0 6,500 0 6,500
Interest income 29,390 34,023 27,496 14,585
---------- ---------- ----------- ----------
3,153,697 40,523 3,151,803 21,085
---------- ---------- ----------- ----------
INCOME BEFORE INCOME TAX 3,211,112 222,343 3,126,681 89,452
PROVISION FOR INCOME TAXES 1,284,445 93,937 1,250,673 40,781
---------- ---------- ----------- ----------
NET INCOME $1,926,667 $ 128,406 $ 1,876,008 $ 48,671
========== ========== =========== ==========
NET INCOME PER COMMON SHARE:
Basic $1.73 $0.11 $1.69 $0.04
===== ===== ===== =====
Diluted $1.71 $0.11 $1.67 $0.04
===== ===== ===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,112,149 1,118,311 1,112,402 1,118,311
========== ========== =========== ==========
Diluted 1,126,235 1,130,476 1,125,242 1,129,933
========== ========== =========== ==========
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,
----------------------------
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,926,667 $ 128,406
----------- -----------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 53,156 58,766
Bad debt expense 40,862 6,000
Deferred income tax provision 1,284,445 88,937
Stock compensation 54,331 0
Pension expense 129,940 17,451
Gain on sale of equipment 0 (6,500)
Gain on sale of real estate (3,124,307) 0
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (552,451) (64,020)
Accounts receivable (73,259) (72,691)
Prepaid expenses and other assets (187,194) (37,248)
Prepaid pension costs (186,473) 0
(Decrease) increase in liabilities:
Accounts payable and accrued expenses (183,590) (327,364)
Tenant security deposits (15,512) 6,827
----------- -----------
Total adjustments (2,760,052) (329,842)
----------- -----------
Net cash used in operating activities (833,385) (201,436)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate 2,523,625 0
Proceeds from sales of equipment 0 6,500
Acquisition of property, plant and equipment (20,414) (57,086)
----------- -----------
Net cash provided by (used in) investment activities 2,503,211 (50,586)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (31,207) (26,304)
Proceeds from exercise of stock options 5,364 0
----------- -----------
Net cash used in financing activities (25,843) (26,304)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,643,983 (278,326)
Cash and cash equivalents at beginning of period 1,105,790 2,688,838
----------- -----------
Cash and cash equivalents at end of period $ 2,749,773 $ 2,410,512
=========== ===========
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES:
Mortgage receivable $ 1,800,000 $ 0
=========== ===========
Deferred gain on sale of real estate $ 1,573,899 $ 0
=========== ===========
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 and six month periods ended October 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 and six month periods ended October 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:
Six months ended Three Months Ended
October 31, October 31,
2002 2001 2002 2001
Basic 1,112,149 1,118,311 1,112,402 1,118,311
Effect of dilutive securities 14,086 12,165 12,840 11,622
--------- --------- --------- ---------
Diluted 1,126,235 1,130,476 1,125,242 1,129,933
========= ========= ========= =========
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. Sale of Real Estate
On August 8, 2002, the Company sold approximately twelve acres of property and
certain buildings to an existing tenant. The contract of sale amounted to
approximately $5.4 million under which the Company received a cash payment of
approximately $3.6 million and a three year mortgage for $1.8 million with
interest at 5%. The profit on the sale of the land and buildings was $4.7
million. Pursuant to Statement of Financial Accounting Standards No. 66,
approximately $1.6 million of the gain on this sale has been deferred as of
October 31, 2002. The deferred gain will be recognized upon collection of the
mortgage receivable.
6. Reclassification:
The prior year to date results from the Consolidated Statements of Income
reflect a reclassification of tenant late charges from rental property expenses
to revenue from rental property.
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 second quarter ending October 31, 2002 reflect net income of
$1,876,008 compared to $48,671 for the same period last year. This significant
increase is due to recognition of a $3.1 million gain from the sale of
approximately 12 acres of land and buildings to an existing tenant.
Net income for the six months ending October 31, 2002 amounted to $1,926,667
compared to $128,406 for the same period last year.
Diluted per share earnings amounted to $1.67 and $1.71 for the current three and
six month periods compared to $0.04 and $0.11 for the like periods last year.
Reversing the established trend of improved earnings from rental property
operations, revenues declined to $557,596 for the three month period and
$1,222,763 for the six months then ended. This compares to $672,286 and
$1,327,578 for the prior year periods, respectively. For the most part, the
decrease is directly attributable to the loss of rental income brought about by
the above cited sale. Additionally, a major tenant on the Flowerfield property
reduced the amount of square footage it required. In combination, these events
impacted revenues by $114,690 and $104,815 for the three and six month reporting
periods, respectively.
Rental property expenses, which continue to reflect reductions, amounted to
$219,815 compared to $282,137 for the three month period, a decrease of $62,322.
Contributing factors include reduced salaries and benefits of $21,298, building
and equipment maintenance totaling $17,096, and a decrease in depreciation
expense and real estate taxes , associated with the above referenced sale,
totaling $7,818 and $15,759, respectively. Expenses for the six month period
amounted to $456,170 and also compare favorably to the $588,569 posting for the
prior year. This decrease of $132,399 also reflects reductions in salaries and
benefits of $30,023, building and equipment maintenance of $19,761, and a
decrease in depreciation and real estate taxes of $7,915 and $7,616,
respectively. Additionally, as reported in an earlier filing, the Company
negotiated a settlement on utility charges and received a nonrecurring credit of
$64,968.
As a result, income from rental property declined for the three month period by
$52,368 and amounted to $337,381 for the current quarter compared to $390,149
during the prior year. For the six months ending October 31, 2002, income from
rental property totaled $766,593, $27,584 above last years result of $739,009.
General and administrative expenses amounted to $362,903 for the quarter ending
October 31, 2002 compared to $321,782 for the same period last year. This
increase of $41,121 included several contributing factors. Salaries and
benefits, which included stock option expenses of $54,331, increased by $63,869,
corporate governance expenses increased $17,748 and ongoing increases in pension
fund expenses impacted the quarterly results by $56,243. Expenses declined for
legal, consulting and outside services by $59,661 as did directors fees by
$8,896. Additionally, our provision for doubtful accounts decreased by $39,500
for the three month period. A number of other smaller items accounted for the
remainder of the variance.
For the six month period ending October 31, 2002, general and administrative
expenses increased by $151,989 and totaled $709,178 compared to $557,189 for the
same period last year. Mirroring the major contributing factors of the quarterly
results, salaries and benefits increased $61,390 over the prior year period,
corporate governance increased by $43,749 and pension costs increased by
$112,486. Expenses attributable to legal, consulting and outside services
declined by $63,505 and directors fees were $16,599 below last year.
Reflecting the foregoing, the Company experienced a loss from operations for the
three month period of $25,122 as compared to income of $68,367 for the same
quarter last year. For the six months ending October 31, 2002, income from
operations amounts to $57,415 compared to $181,820 the prior year.
Including the $3.1 million from the sale of certain properties mentioned
earlier, other income for the quarter amounted to $3,151,803 compared to $21,085
last year. Six month comparisons are similar and amount to $3,153,697 and
$40,523 as of October 31, 2002 and 2001, respectively.
Seq. Page 7
As of October 31, 2002, the Company had cash and cash equivalents totaling
$2,749,773 and anticipates having the capacity to fund normal operating and
administrative expenses and its regular debt service requirements. At statement
date, working capital amounted to $2,541,716. For the three month period ending
October 31, 2002, capitalized expenses related to the development of a golf
course community totaled $230,361.
In connection with the sale of approximately 12 acres of land and buildings to
an existing tenant, the Company holds a mortgage for $1.8 million with an
interest rate of 5%. The mortgage interest payments will be received on a
quarterly basis over the next three years. The principal balance of $1.8 million
will be received at the end of the three years.
The results of operations for both the three and six month periods ending
October 31,2002, are not necessarily indicative of , nor should they be used to
project, full year or future results.
With regard to the previously announced plan to develop a world class golf
course community on the Flowerfield property, the Company filed initial
municipal applications to secure the required entitlements in the latter part of
October, 2002.
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 August 1, 2002, through October 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 second
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: December 10, 2002 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer and
Treasurer
Date: December 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;
4. The registrant's certifying officer is responsible for establishing
and maintaining disclosure controls and procedures ( as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. Based on the most recent evaluation, the registrant's certifying
officer is also responsible to disclose, to the registrant's
auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. I have indicated in this quarterly report if there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of the
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: December 10, 2002
/S/ Stephen V. Maroney
----------------------
Stephen V. Maroney,
President, Chief Executive Officer and
Chief Financial Officer
Seq. Page 9