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, 2003
|_| 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: 1,117,062 Common $1 P.V. as of
February 25, 2003
Seq. Page 1
INDEX TO QUARTERLY REPORT
QUARTER ENDED JANUARY 31, 2003
Seq. Page
Form 10-QSB Cover 1
Index to Form 10-QSB 2
Consolidated Balance Sheet 3
Consolidated Statements of Operations 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 9
Certification 10
Exhibit 10 Material Contracts 11
Exhibit 99.3 Certification 20
Seq. Page 2
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
January 31,
2003
----
ASSETS
REAL ESTATE
Rental property:
Land $ 4,250
Building and improvements 3,915,361
Machinery and equipment 153,906
-----------
4,073,517
Less accumulated depreciation 3,248,717
-----------
824,800
-----------
Land held for development:
Land 792,201
Land development costs 2,167,799
-----------
2,960,000
-----------
Total real estate, net 3,784,800
CASH AND CASH EQUIVALENTS 2,370,705
RENT RECEIVABLE, net of allowance for doubtful accounts of $40,862 48,462
MORTGAGE RECEIVABLE 1,800,000
PREPAID EXPENSES AND OTHER ASSETS 502,746
INVESTMENT IN CITRUS GROVE PARTNERSHIP 1,585,104
PREPAID PENSION COSTS 1,659,815
-----------
$11,751,632
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 178,766
Tenant security deposits payable 238,120
Loans payable 688,802
Deferred income taxes 2,457,792
Deferred gain on sale of real estate 1,573,899
-----------
Total liabilities 5,137,379
-----------
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 7,278,191
Retained earnings 336,365
-----------
9,145,642
Less cost of shares of common stock held in treasury (2,531,389)
-----------
Total stockholders' equity 6,614,253
-----------
$11,751,632
===========
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,
2003 2002 2003 2002
---- ---- ---- ----
REVENUE FROM RENTAL PROPERTY $ 1,777,086 $1,959,974 $ 554,323 $ 632,396
----------- ---------- ----------- -----------
RENTAL PROPERTY EXPENSES:
Real estate taxes 246,783 316,274 47,169 109,044
Operating and maintenance 318,994 449,943 138,897 152,963
Interest expense 45,702 46,782 14,133 15,228
Depreciation 65,079 80,030 20,189 27,225
----------- ---------- ----------- -----------
676,558 893,029 220,388 304,460
----------- ---------- ----------- -----------
INCOME FROM RENTAL PROPERTY 1,100,528 1,066,945 333,935 327,936
----------- ---------- ----------- -----------
GENERAL AND ADMINISTRATIVE 1,129,238 894,412 420,060 337,223
----------- ---------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (28,710) 172,533 (86,125) (9,287)
----------- ---------- ----------- -----------
OTHER INCOME:
Gain on sale of real estate 3,124,307 0 0 0
Gain on sale of equipment 0 6,500 0 0
Interest income 58,881 43,427 29,491 9,404
----------- ---------- ----------- -----------
3,183,188 49,927 29,491 9,404
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX 3,154,478 222,460 (56,634) 117
PROVISION (BENEFIT) FOR INCOME TAXES 1,261,791 93,984 (22,654) 47
----------- ---------- ----------- -----------
NET INCOME (LOSS) $ 1,892,687 $ 128,476 ($ 33,980) $ 70
=========== ========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 1.70 $ 0.11 ($ 0.03) $ 0.00
=========== ========== =========== ===========
Diluted $ 1.69 $ 0.11 ($ 0.03) $ 0.00
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,113,572 1,118,311 1,116,423 1,118,311
=========== ========== =========== ===========
Diluted 1,122,962 1,128,145 1,116,423 1,123,639
=========== ========== =========== ===========
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,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,892,687 $ 128,476
----------- -----------
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 77,772 88,973
Bad debt expense 2,545 9,000
Deferred income tax provision 1,261,792 88,984
Stock compensation 54,331 0
Pension expense 194,910 26,177
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 (734,525) (100,645)
Accounts receivable (20,928) (17,979)
Prepaid expenses and other assets (376,773) (113,344)
Prepaid pension costs (186,473) 0
(Decrease) increase in liabilities:
Accounts payable and accrued expenses (230,590) (346,841)
Tenant security deposits (15,758) 10,738
----------- -----------
Total adjustments (3,098,004) (361,437)
----------- -----------
Net cash used in operating activities (1,205,317) (232,961)
----------- -----------
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 (23,214) (60,067)
----------- -----------
Net cash provided by (used in) investment
activities 2,500,411 (53,567)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (48,437) (41,204)
Proceeds from exercise of stock options 18,258 0
----------- -----------
Net cash used in financing activities (30,179) (41,204)
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,264,915 (327,732)
Cash and cash equivalents at beginning of period 1,105,790 2,688,838
----------- -----------
Cash and cash equivalents at end of period $ 2,370,705 $ 2,361,106
=========== ===========
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 nine month periods ended January 31, 2003,
and 2002.
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 nine month periods ended January 31,
2003, and 2002 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:
Nine months ended Three Months Ended
January 31, January 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Basic 1,113,572 1,118,311 1,116,423 1,118,311
Effect of dilutive securities 9,390 9,834 0 5,328
--------- --------- --------- ---------
Diluted 1,122,962 1,128,145 1,116,423 1,123,639
========= ========= ========= =========
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. Commitments:
Effective January 23, 2003, in an effort to provide for the stability of
management during the development period of the Flowerfield property, the
Company amended the existing employment contracts with Stephen V. Maroney as
President, Chief Executive Officer, and Treasurer and with Peter Pitsiokos as
Executive Vice President, Secretary, and General Counsel. The terms of the
agreements were extended from one to three years and provide for a severance
payment equivalent to three years salary in the event of a change in control.
6. Reclassification:
The prior year to date results from the Consolidated Statements of Operations
reflect a reclassification of tenant late charges from rental property expenses
to revenue from rental property.
Seq. Page 6
7. Cash Flow Supplemental Information:
During the nine months ended January 31, 2003, the Company incurred an
installment obligation of $37,055 for the purchase of equipment.
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 third quarter ending January 31, 2003 reflect a net loss of
$33,980 compared to a breakeven for the same period last year. Net income for
the nine months then ended totaled $1,892,687 compared to $128,476 during the
prior year.
Diluted per share earnings amounted to ($0.03) and $1.69 for the current three
and nine month periods compared to $0.00 and $0.11 for the like periods last
year.
Revenue from rental property declined for the reporting period, amounting to
$554,323 and $1,777,086 for the current three and nine months then ended. These
results compare to $632,396 and $1,959,974 for the same periods last year,
respectively. The single most significant factor to this decline is the loss of
rental income brought about by the sale of 12 acres of land and buildings
related to the operation of a former tenant's catering facility. This sale and
the foreseen loss of revenues were previously reported in the Company's October
31, 2002 filing. Revenues declined by $78,073 and $182,888 for the three and
nine month reporting periods, respectively.
Expenses associated with the rental property operation also declined and as a
result, overall profitability was not impaired. Expenses totaled $220,388
compared to $304,460 for the three months ending January 31, 2003 and 2002 and
$676,558 compared to $893,029 for the nine months then ended, respectively. For
the most part, the three month reduction of $84,072 was the product of reduced
real estate taxes of $61,875 which are being capitalized in conjunction with our
filed application to develop a residential golf course community. The remaining
contributing factors are reductions in salaries and benefits of $22,172 and
$7,036 in depreciation expenses. These savings were partially offset by
increases and variations in a number of other items, the largest of which was an
increase in roofing repairs amounting to $12,248.
The $216,471 reduction in the current nine month year to date expenses includes
decreases of $69,491 in real estate taxes, $52,196 in salaries and benefits and
a previously reported utility adjustment of $64,968. Various other items, the
largest being a reduction in depreciation expense of $14,951, contributed to the
balance of the variance between periods.
As a result, income from rental property operations improved moderately for both
the current three and nine month reporting periods, totaling $333,935 and
$1,100,528, respectively. These results compare to $327,936 and $1,066,945 for
the same quarter and nine month periods of the prior year.
General and administrative expenses increased to $420,060 for the three month
period ending January 31, 2003 as compared to the $337,223 posted for the same
quarter of the prior year. For the nine months ending January 31, 2003, these
expenses totaled $1,129,238 compared to $894,412 the prior year. Salaries and
benefits increased by $16,476 and $77,865 for the three and nine month periods,
respectively. The nine month results included a $54,331 stock option expense as
previously reported. Additionally, the expense of conducting two annual meetings
and the related costs of corporate governance matters are reflected in an
increase of $49,748 and $93,498 for the three and nine month periods,
respectively. Pension expense continued to reflect the previously reported and
significant increases which amounted to $56,243 and $168,729 for the three and
nine months ending January 31, 2003. Various other expenses were reduced for the
period. Among the most significant reductions for the three months ending
January 31, 2003 were $42,085 in legal and consulting expenses. For the nine
month reporting period the Company experienced reductions of $89,652 in legal
and consulting fees, $18,599 in directors fees, and $16,820 in other fees for
outside services.
Reflecting the foregoing, the Company experienced a loss from operations of
$86,125 and $28,710 for the three and nine months ending January 31, 2003
compared to a loss of $9,287 for the same quarter last year and income from
operations of $172,533 for the nine month period of the prior year.
Other income for the quarter ending January 31, 2003 totaled $29,491 and
includes $22,500 of interest on the catering facility mortgage; the balance
being income from our interest bearing deposits. Prior year results total $9,404
and represents income from interest bearing deposits only. For the nine months
ending January 31, 2003, other income totaled $3,183,188 and includes partial
proceeds of
Seq. Page 7
$3,124,307 from the catering facility sale and interest income of $58,881,
$43,250 of which is from the mortgage receivable. For the prior year nine month
period, other income totaled $49,927.
At January 31, 2003, the Company had cash and cash equivalents totaling
$2,370,705 and anticipates having the capacity to fund normal and administrative
expenses and its regular debt service requirements. At statement date, working
capital amounted to $2,378,048. For the three month period ending January 31,
2003, capitalized expenses related to the development of the residential golf
course community on the Company's 314 acre Flowerfield property amounted to
$181,936.
The results of operations for both the three and nine month periods ending
January 31, 2003, are not necessarily indicative of, nor should they be used to
project, full year or future results.
The statements made in this Form 10-QSB that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, which can
be identified by the use of forward-looking terminology such as "may," "will,"
"anticipates," "expects," "projects," "estimates," "believes," "seeks," "could,"
"should," or "continue," the negative thereof, other variations or comparable
terminology. Important factors, including certain risks and uncertainties with
respect to such forward-looking statements that could cause actual results to
differ materially from those reflected in such forward looking statements
include, but are not limited to the effect of economic and business conditions,
including risk inherent in the Long Island, New York real estate market, the
ability to obtain additional capital and other risks detailed from time to time
in our SEC reports. We assume no obligation to update the information in this
Form 10-QSB.
Part II Other Information
Items 1, 2 and 3 are not applicable to the November 1, 2002, through January 31,
2003, period.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's annual shareholder meeting for Fiscal Year 2002 was held on
January 23, 2003. On each matter submitted to shareholders, the votes were as
follows:
To elect one Director, Richard B. Smith, to serve for a term of one year and two
directors, Robert F. Friemann and Robert H. Beyer, to serve for a term of three
years or until their successors shall be elected and shall qualify: Richard B.
Smith; votes for 804,740, votes withheld 181,587; Robert F. Friemann; votes for
807,130, votes withheld 179,197; Robert H. Beyer; votes for 808,760, votes
withheld 177,567.
Messrs. Lamb, Maroney, and Palmedo continue to serve as Directors in accordance
with their terms of office.
To ratify the engagement of Holtz, Rubenstein & Co., LLP as certified public
accountants and auditors for the fiscal year ending April 30, 2003; votes for
890,498, votes against 94,348, votes abstain 1,481.
Item 5 Other information
Effective January 23, 2003, in an effort to provide for the stability of
management during the development period of the Flowerfield property, the
Company amended the existing employment contracts with Stephen V. Maroney as
President, Chief Executive Officer, and Treasurer and with Peter Pitsiokos as
Executive Vice President, Secretary, and General Counsel. The terms of the
agreements were extended from one to three years and provide for a severance
payment equivalent to three years salary in the event of a change in control.
See Exhibit 10 Material Contracts.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 10 Material Contracts.
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 - One Form 8-K was filed by the Company for the
third quarter of FY 2003. On November 27, 2002, the Company filed a Form 8-K
reporting an increase in the number of directors from five to six and appointing
Richard B. Smith as its sixth director. In addition, the Record Date for the
determination of shareholders entitled to notice of, and to vote at, the Annual
Meeting was set as well as the Date for the Annual Meeting of Shareholders. The
Board also announced the three nominees for director.
Seq. Page 8
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: March 12, 2003 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer and Treasurer
Date: March 12, 2003 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 9
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: March 12, 2003
/S/ Stephen V. Maroney
----------------------
Stephen V. Maroney,
President, Chief Executive Officer
and Chief Financial Officer
Seq. Page 10