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 JANUARY 31, 2005
|_| 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: 1,208,870 shares of common stock, par
value $1.00 per share, as of January 31, 2005
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
INDEX TO QUARTERLY REPORT
QUARTER ENDED JANUARY 31, 2005
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 (unaudited) 3
Consolidated Statements of Operations (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Footnotes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 8
Item 3 Controls and Procedures 12
Part II - Other Information 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 5 Other Information 12
Item 6 Exhibits 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)
ASSETS January 31,
2005
------------
REAL ESTATE
Rental property:
Land $ 4,250
Building and improvements 3,925,421
Machinery and equipment 137,414
------------
4,067,085
Less accumulated depreciation 3,378,422
------------
688,663
------------
Land held for development:
Land 792,201
Land development costs 4,284,571
------------
5,076,772
------------
Total real estate, net 5,765,435
CASH AND CASH EQUIVALENTS 1,242,726
RENT RECEIVABLE, net of allowance for doubtful accounts of $88,163 149,201
MORTGAGE RECEIVABLE 1,700,000
PREPAID EXPENSES AND OTHER ASSETS 395,971
PREPAID PENSION COSTS 1,256,484
------------
$ 10,509,817
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 251,512
Deferred gain on sale of real estate 1,486,460
Tenant security deposits payable 207,612
Revolving credit line 696,287
Loans payable 20,997
Deferred income taxes 1,601,292
------------
Total liabilities 4,264,160
------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued 1,531,086
Additional paid-in capital 7,824,849
Deficit (1,106,785)
------------
8,249,150
Less the cost of 322,216 shares of common stock held in the treasury (2,003,493)
------------
Total stockholders' equity 6,245,657
------------
$ 10,509,817
============
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended Three Months Ended
January 31, January 31,
2005 2004 2005 2004
--------------------------------------------------------
REVENUE FROM RENTAL PROPERTY $ 1,534,315 $ 1,622,048 $ 506,771 $ 521,295
--------------------------------------------------------
RENTAL PROPERTY EXPENSES:
Real estate taxes 114,742 105,717 39,508 36,598
Operating and maintenance 474,129 357,426 182,581 129,326
Interest expense 29,516 30,147 10,523 8,897
Depreciation 54,175 58,512 18,059 19,593
--------------------------------------------------------
672,562 551,802 250,671 194,414
--------------------------------------------------------
INCOME FROM RENTAL PROPERTY 861,753 1,070,246 256,100 326,881
--------------------------------------------------------
GENERAL AND ADMINISTRATIVE 1,335,841 1,185,540 528,702 392,200
--------------------------------------------------------
LOSS FROM OPERATIONS (474,088) (115,294) (272,602) (65,319)
--------------------------------------------------------
OTHER INCOME:
Interest income 80,380 83,465 26,260 28,527
Gain on sale of equipment 12,000 0 12,000 0
Gain on sale of real estate 87,439 0 87,439 0
--------------------------------------------------------
179,819 83,465 125,699 28,527
--------------------------------------------------------
LOSS BEFORE INCOME TAXES (294,269) (31,829) (146,903) (36,792)
BENEFIT FOR INCOME TAXES (117,708) (12,732) (58,762) (14,717)
--------------------------------------------------------
NET LOSS $ (176,561) $ (19,097) $ ( 88,141) $ (22,075)
========================================================
NET LOSS PER COMMON SHARE:
Basic $ (0.15) $ (0.02) $ (0.07) $ (0.02)
========================================================
Diluted $ (0.15) $ (0.02) $ (0.07) $ (0.02)
========================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,170,902 1,127,914 1,186,418 1,118,590
========================================================
Diluted 1,170,902 1,127,914 1,186,418 1,118,590
========================================================
See notes to consolidated financial statements
Seq. Page 4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
January 31,
-----------
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (176,561) $ (19,097)
----------- -----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 85,978 89,331
Bad debt expense 54,000 5,000
Deferred income tax benefit (117,708) (34,674)
Stock compensation 0 76,606
Pension expense 169,151 177,652
Gain on sale of equipment (12,000) 0
Gain on sale of real estate (87,440) 0
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (650,258) (821,484)
Accounts receivable (110,119) (132,732)
Prepaid expenses and other assets (193,722) (167,311)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (16,488) 80,389
Income taxes payable 6,885 0
Tenant security deposits 12,636 (3,762)
----------- -----------
Total adjustments (859,085) (730,985)
----------- -----------
Net cash used in operating activities (1,035,646) (750,082)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (13,394) (29,754)
Proceeds from sale of equipment 12,000 0
Proceeds from mortgage receivable 100,000 0
----------- -----------
Net cash provided by (used in) investment activities 98,606 (29,754)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (7,956) (14,837)
Loan origination fees 0 73,519
Proceeds from exercise of stock options 625,079 269,438
----------- -----------
Net cash provided by financing activities 617,123 328,120
----------- -----------
Net decrease in cash and cash equivalents (319,917) (451,716)
Cash and cash equivalents at beginning of period 1,562,643 2,231,317
----------- -----------
Cash and cash equivalents at end of period $ 1,242,726 $ 1,779,601
=========== ===========
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 nine month
periods ended January 31, 2005 and 2004.
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 nine month periods ended January 31,
2005 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.Basic loss per
common share was computed by dividing net loss by the weighted average number of
shares of common stock outstanding.Diluted loss per common share does not give
effect to the impact of options because their effect would have been
anti-dilutive. Treasury shares have been excluded from the weighted average
number of shares.
The following is a reconciliation of the weighted average shares:
Nine months ended Three Months Ended
January 31, January 31,
2005 2004 2005 2004
----------------------------------------------------------------------------------------------------
Basic 1,170,902 1,127,914 1,186,418 1,118,590
----------------------------------------------------------------------------------------------------
Effect of dilutive securities 0 0 0 0
----------------------------------------------------------------------------------------------------
Diluted 1,170,902 1,127,914 1,186,418 1,118,590
-------------------------------------------=========================================================
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 6.25% at January 31, 2005.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,"AccountingforStock-BasedCompensation" ("SFAS 123")
in accounting for our employee stock options.Accordingly, no compensationexpense
has beenrecognized.Had werecordedcompensation expense for the stock options
based on the fair value at the grant date for awards in the three and nine
months ended January 31, 2005 and 2004 consistent with the provisions of SFAS
123, our net loss and net loss per share would have been adjusted as follows:
Seq. Page 6
Nine Months Ended Three Months Ended
----------------- ------------------
January, 31 January, 31
----------- -----------
2005 2004 2005 2004
---- ---- ---- ----
Net loss, as reported $ (176,561) $ (19,097) $ (88,141) $ (22,075)
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 $ (176,561) $ (114,097) $ (88,141) $ (23,075)
========================================================
Net loss per share:
Basic - as reported $ (0.15) $ (0.02) $ (0.07) $ (0.02)
--------------------------------------------------------
Basic - pro forma $ (0.15) $ (0.10) $ (0.07) $ (0.02)
--------------------------------------------------------
Diluted - as reported $ (0.15) $ (0.02) $ (0.07) $ (0.02)
--------------------------------------------------------
Diluted - pro forma $ (0.15) $ (0.10) $ (0.07) $ (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.
Seq. Page 7
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 nine months ended January 31, 2005 and 2004:
Nine Months Ended Three Months Ended
----------------- ------------------
January, 31 January, 31
----------- -----------
2005 2004 2005 2004
---- ---- ---- ----
Pension Benefits
Service Cost $ 97,475 $ 65,038 $ 32,492 $ 21,679
Interest Cost 96,870 89,415 32,290 29,805
Expected Return on Plan Assets (124,372) (94,625) (41,458) (31,542)
Amortization of Prior-Service Cost 54,123 54,554 18,615 18,186
Amortization of Net Loss 45,055 63,271 15,019 21,090
----------------------------------------------
Net Periodic Benefit Cost After Curtailments and
Settlements $ 169,151 $ 177,653 $ 56,958 $ 59,218
==============================================
During the nine months ended January 31, 2005, the Company made no contributions
to the plan.The Company has no minimum required contribution for the April 30,
2005 plan year.
9. Recent Accounting Pronouncements:
In December 2004, the FASB issued Statement No. 123(R),("FAS 123(R)")
"Share-Based Payment".This statement replaces FASB Statement No. 123,
"Accounting for Stock-Based Compensation", and supersedes APB Opinion No.
25,"Accounting for Stock Issued to Employees".FAS 123(R) covers a wide range of
share-based compensation, including stock options, and requires that the
compensation cost relating to share-based transactions be measured at fair value
and recognized in the financial statements.Public entities filing as small
business issuers will be required to apply Statement 123(R) in the first interim
or annual reporting period beginning after December 15, 2005. Management is
evaluating the impact that this Statement will have on the Company's
consolidated financial statements.
Item 2MANAGEMENT'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
Seq. Page 8
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.
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 NINE MONTHS ENDED JANUARY 31, 2005
AS COMPARED TO THE THREE AND NINE MONTHS ENDED JANUARY 31, 2004
The Company is reporting a net loss of $88,141 for the quarter ended January 31,
2005compared to a net loss of $22,075 for the same period last year and a net
loss of $176,561 for the nine month period then ended; the net loss for the same
nine month period last year amounted to $19,097.
Seq. Page 9
Diluted per share losses amounted to $(0.07) and $(0.02) for the three months
ended January 31, 2005 and 2004, respectively, and $(0.15) and $(0.02) for the
nine month periods of 2005 and 2004, respectively.
Revenue from rental property totaled $506,771 for the current three month period
which is $14,524 below the $521,295 posted during the same quarter last year.
For the nine month reporting period, revenues totaled $1,534,315 and reflect an
$87,733 shortfall to the $1,622,048 generated during the first nine months of
the prior year. As we have previously reported, rental revenues have been
impacted by renegotiated lease terms with a major tenant who required less space
and certain temporary rent concessions to another. For the quarter ended January
31, 2005, revenues have been reduced by $6,219 and $28,546 by the renegotiated
lease and the temporary concessions, respectively. On a nine month year to date
basis, the renegotiated lease has reduced revenues by $56,863 while the rent
concessions have had an $85,638 negative impact. Evidenced by the fact that the
decline in revenues for both reporting periods is less than the total of these
two events, new tenancies accounting for $124,200 in annualized revenues, which
began to materialize after May 2004, have helped to mitigate the impact
associated with the renegotiated lease and the temporary concessions. We believe
that prior to that timeframe, the uncertainties brought about by the threat of
an eminent domain condemnation of the entire 314 acre Flowerfield property by
Stony Brook University had impacted our ability to attract tenants and
contributed to the need to negotiate the rent concessions previously mentioned.
May 2004 marked the announcement by the University that it would seek a partial
condemnation of 246 acres, leaving a significant portion of the rental property
intact, and may have removed some of the doubt surrounding the future of
Flowerfield tenancies.
Rental property expenses increased for both the three and nine month reporting
periods. For the quarter ending January 31, 2005, expenses totaled $250,671
which is $56,257 over the $194,414 reported for the same period last year.
Operating and maintenance costs account for $53,255 of the increased expenses
and include an $18,546 increase in property and casualty insurance premiums.
Other contributing factors include increases in building and grounds maintenance
of $24,942, salaries and benefits of $7,813, real estate taxes of $2,910, and
interest expense of $1,626.
Rental property expenses totaled $672,562 and $551,802 for the nine months
ending January 31, 2005 and 2004, respectively, representing a $120,760 increase
over the prior year. The major contributing factor again is a $116,703 increase
in operating and maintenance expenses accompanied by a $9,025 increase in real
estate taxes and a reduction in depreciation expenses amounting to $4,337.
Contributing factors to the increased operating and maintenance costs include
increases in property and casualty insurance premiums of $75,124, building and
grounds maintenance of $36,956, and salaries and benefits of $13,643. Expenses
associated with equipment maintenance declined by $9,409 during the period.
As a result of the foregoing, income from rental property declined for both the
three and nine month reporting periods, totaling $256,100 compared to $326,881
for the quarter ending January 31, 2005 and 2004, respectively, and $861,753
compared to $1,070,246 for the nine month periods of 2005 and 2004,
respectively.
As in the case of the rental property expenses, general and administrative
expenses increased during both the three and nine month reporting periods.
Reflecting primarily the costs associated with establishing a shareholder rights
plan, general and administrative expenses increased by $136,502 during the
quarter ending January 31st, amounting to $528,702 and $392,200 in 2005 and
2004, respectively. Costs associated with establishing a shareholder rights plan
accounted for $67,236 of the increase as did a $45,000 increase in the Company's
bad debt reserve. Other contributing factors included increases of $7,729 in
salaries and benefits, $7,486 in directors fees, and $5,100 in legal and
consulting fees. The additional entry to our bad debt reserve reflects our
ongoing concern over delinquent rental payments in connection with the tenant to
whom we have made the temporary rent concessions previously reported.
For the current nine month period, general and administrative expenses increased
by $150,301, totaling $1,335,841 compared to $1,185,540 for the same period last
year. Again, the primary contributing factor to this increase was the
shareholder rights plan which accounted for $127,041 in expenses during the
period. Additionally, the Company is reporting a $49,000 increase in bad debt
reserves, a $9,825 increase in corporate governance expenses, increased
insurance premiums of $13,141, and a business travel expense increase of $8,830.
Salaries and benefits decreased by $56,404 based on the net result of increases
of $20,202 being offset by the fact that the prior year included $76,606 in
stock option compensation.
As a result of the foregoing, the Company is reporting a $272,602 loss from
operations for the three month period ending January 31, 2005 compared to a loss
of $65,319 for the same period last year. For the current nine month reporting
period, the loss from operations amounted to $474,088compared to $115,294 for
the same period last year.
Other income, which typically includes onlyincome on interest bearing deposits
and a mortgage receivable, reflects increases in both the three and nine month
reporting periods as a result of the sale of a used piece of heavy equipment and
a prepayment on a mortgage receivable.For the quarter, other income totaled
$125,699, an increase of $97,172 over the $28,527 posted last year. The increase
is comprised of a $12,000 gain on the sale of equipment and the recognition of
an $87,439 gain on the sale of real estate, resulting from a $100,000 prepayment
on a $1.8 million mortgage receivable that matures in August 2005. Interest
income declined during the quarter
Seq. Page 10
by $2,267 from $28,527 to $26,260. For the nine months ending January 31st,
other income totaled $179,819 and $83,465 for 2005 and 2004, respectively. This
$96,354 increase reflects the same sale of equipment and the gain from the
mortgage prepayment coupled with a decline in interest income of $3,085 from
$83,465 to $80,380 for the current nine month reporting period.
As a result, the Company is reporting a loss before income taxes for both the
three and nine month periods ending January 31, 2005. The current quarter
reflects a loss of $146,903 compared to a loss of $36,792 for the same period
last year. For the nine month reporting period, losses before income taxes
amounted to $294,269 and $31,829 as of January 31, 2005 and 2004, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,035,646 and $750,082 during the
nine months ended January 31, 2005 and 2004, 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 provided by (used in) investing activities was $98,606 and $(29,754)
during the nine months ended January 31, 2005 and 2004, respectively. The cash
provided by investing activities in the current period represents a prepayment
of $100,000 to the Company's mortgage receivable as well as proceeds from the
sale of heavy equipment for $12,000. The use of cash in both periods was for the
acquisition of property, plant and equipment.
Net cash provided by financing activities was $617,123 and $328,120 during the
nine months ended January 31, 2005 and 2004, 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 6.25% at January 31, 2005. 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 January 31, 2005, the Company had cash and cash equivalents of $1,242,726
as well as a mortgage receivable of $1,700,000 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 $4,284,571. As of
January 31, 2005, the portion of those expenses attributable to the residential
golf course community amount to $2,140,651. Working capital, which is the total
of current assets less current liabilities as shown in the accompanying chart,
amounted to $2,944,284 at January 31, 2005.
January 31,
-----------
2005 2004
---- ----
Current assets:
Cash and cash equivalents $1,242,726 $1,779,601
Rent receivable, net 149,201 199,169
Mortgage receivable 1,700,000 0
Net prepaid expenses and other assets 318,892 290,148
---------- ----------
Total current assets 3,410,819 2,268,918
---------- ----------
Current liabilities:
Accounts payable and accrued expenses 251,512 330,013
Tenant security deposits payable 207,612 234,442
Current portion of loans payable 7,411 11,007
---------- ----------
Total current liabilities 466,535 575,462
---------- ----------
Working capital $2,944,284 $1,693,456
========== ==========
Seq. Page 11
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
interest in a limited partnership that owns 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 January 31, 2005. 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
reported within the time periods specified in the rules and forms off the
Securities and Exchange Commission.
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rule 13a-15 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 November 1, 2004, through January
31, 2005, period.
Item 4 Submission of Matters to a Vote of Security Holders
On November 11, 2004, the Company held its Annual Meeting of Shareholders, at
which two proposals were submitted to a vote of security holders.The results of
the vote for directors and the ratification of the Company's independent auditor
were disclosed in the Company's Quarterly Report on Form 10-QSB for the quarter
ended October 31, 2004.
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 January 31, 2005
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
a. Exhibits:
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.
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: February 28, 2005 /s/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer
and Treasurer
Date: February 28, 2005 /s/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 13