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, 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 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: 1,145,462 shares of common stock, par
value $1.00 per share, as of January 31, 2004
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
INDEX TO QUARTERLY REPORT
QUARTER ENDED JANUARY 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 7
Item 3 Controls and Procedures 11
Part II - Other Information 11
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 31.1 Certification 13
Exhibit 32.1 Certification 14
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,
2004
------------
REAL ESTATE
Rental property:
Land $ 4,250
Building and improvements 3,925,421
Machinery and equipment 160,489
------------
4,090,160
Less accumulated depreciation 3,327,659
------------
762,501
------------
Land held for development:
Land 792,201
Land development costs 3,266,138
------------
4,058,339
------------
Total real estate, net 4,820,840
CASH AND CASH EQUIVALENTS 1,779,601
RENT RECEIVABLE, net of allowance for doubtful accounts of $28,261 199,169
MORTGAGE RECEIVABLE 1,800,000
PREPAID EXPENSES AND OTHER ASSETS 396,587
PREPAID PENSION COSTS 1,484,853
------------
$ 10,481,050
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Revolving credit line $ 696,287
Accounts payable and accrued expenses 330,013
Deferred gain on sale of real estate 1,573,900
Tenant security deposits payable 234,442
Notes payable 32,005
Deferred income taxes 1,826,326
------------
Total liabilities 4,692,973
------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued 1,531,086
Additional paid-in capital 7,467,444
Deficit (835,855)
------------
8,162,675
Less the cost of 385,624 shares of common stock held in the treasury (2,374,598)
------------
Total stockholders' equity 5,788,077
------------
$ 10,481,050
============
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,
2004 2003 2004 2003
---- ---- ---- ----
REVENUE FROM RENTAL PROPERTY $ 1,622,048 $ 1,777,086 $ 521,295 $ 554,323
--------------------------------------------------------
RENTAL PROPERTY EXPENSES:
Real estate taxes 105,717 246,783 36,598 47,169
Operating and maintenance 357,426 318,994 129,326 138,897
Interest expense 30,147 45,702 8,897 14,133
Depreciation 58,512 65,079 19,593 20,189
--------------------------------------------------------
551,802 676,558 194,414 220,388
--------------------------------------------------------
INCOME FROM RENTAL PROPERTY 1,070,246 1,100,528 326,881 333,935
--------------------------------------------------------
GENERAL AND ADMINISTRATIVE 1,185,540 1,129,238 392,200 420,060
--------------------------------------------------------
(LOSS) FROM OPERATIONS (115,294) (28,710) (65,319) (86,125)
--------------------------------------------------------
OTHER INCOME:
Gain on sale of real estate 0 3,124,307 0 0
Interest income 83,465 58,881 28,527 29,491
--------------------------------------------------------
83,465 3,183,188 28,527 29,491
--------------------------------------------------------
(LOSS) INCOME BEFORE INCOME TAX (31,829) 3,154,478 (36,792) (56,634)
(BENEFIT) PROVISION FOR INCOME TAXES (12,732) 1,261,791 (14,717) (22,654)
--------------------------------------------------------
NET (LOSS) INCOME $ (19,097) $ 1,892,687 $ (22,075) $ (33,980)
========================================================
NET (LOSS) INCOME PER COMMON SHARE:
Basic $ (0.02) $ 1.70 $ (0.02) $ (0.03)
========================================================
Diluted $ (0.02) $ 1.69 $ (0.02) $ (0.03)
========================================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,127,914 1,113,572 1,118,590 1,116,423
========================================================
Diluted 1,127,914 1,122,962 1,118,590 1,116,423
========================================================
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,
-----------
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (19,097) $ 1,892,687
----------- -----------
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 89,331 77,772
Bad debt expense 5,000 2,545
Deferred income tax provision (34,674) 1,261,792
Stock compensation 76,606 54,331
Pension expense 177,652 194,910
Gain on sale of real estate 0 (3,124,307)
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (821,484) (734,525)
Accounts receivable (132,732) (20,928)
Prepaid expenses and other assets (167,311) (376,773)
Prepaid pension costs 0 (186,473)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 80,389 (230,590)
Tenant security deposits (3,762) (15,758)
----------- -----------
Total adjustments (730,985) (3,098,004)
----------- -----------
Net cash used in operating activities (750,082) (1,205,317)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate 0 2,523,625
Acquisition of property, plant and equipment (29,754) (23,214)
----------- -----------
Net cash (used in) provided by investment activities (29,754) 2,500,411
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (14,837) (48,437)
Loan origination fees 73,519 0
Proceeds from exercise of stock options 269,438 18,258
----------- -----------
Net cash provided by (used in) financing activities 328,120 (30,179)
----------- -----------
Net (decrease) increase in cash and cash equivalents (451,716) 1,264,915
Cash and cash equivalents at beginning of period 2,231,317 1,105,790
----------- -----------
Cash and cash equivalents at end of period $ 1,779,601 $ 2,370,705
=========== ===========
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, 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/A as of
April 30, 2003.
The results of operations for the three and nine month periods ended January 31,
2004, and 2003 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:
Nine Months Ended Three Months Ended
January 31, January 31,
2004 2003 2004 2003
--------------------------------------------------------------------------------
Basic 1,127,914 1,113,572 1,118,590 1,116,423
--------------------------------------------------------------------------------
Effect of dilutive securities 0 9,390 0 0
--------------------------------------------------------------------------------
Diluted 1,127,914 1,122,962 1,118,590 1,116,423
-----------------------------------=============================================
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:
On May 29, 2003, the Company restructured its only outstanding mortgage debt on
the Flowerfield property. That amortizing loan, which had a balance of $622,868
at an average interest rate of 8.04% during fiscal 2003, was satisfied and
incorporated into a newly established revolving credit line in the amount of
$1,750,000 at prime plus one percent, currently 5.00%. 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
nine months ended January 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
Nine Months Ended Three Months Ended
January 31, January 31,
2004 2003 2004 2003
---- ---- ---- ----
Net (loss) income, as reported $ (19,097) $ 1,892,687 $ (22,075) $ (33,980)
Deduct: Total stock-based employee compensation expense
determined under fair value based method,
net of related tax effects (95,000) (133,000) (1,000) (1,000)
--------------------------------------------------------
Pro forma net (loss) income $ (114,097) $ 1,759,687 $ (23,075) $ (34,980)
========================================================
Net (loss) income per share:
Basic - as reported $ (0.02) $ 1.70 $ (0.02) $ (0.03)
--------------------------------------------------------
Basic - pro forma $ (0.10) $ 1.58 $ (0.02) $ (0.03)
--------------------------------------------------------
Diluted - as reported $ (0.02) $ 1.69 $ (0.02) $ (0.03)
--------------------------------------------------------
Diluted - pro forma $ (0.10) $ 1.57 $ (0.02) $ (0.03)
--------------------------------------------------------
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 accounting principles generally accepted
in the United States ("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, are included in deferred rents receivable on the
Company's balance sheets. Certain
Seq. Page 7
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 are
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 NINE MONTHS AND QUARTER ENDED JANUARY 31, 2004
AS COMPARED TO THE NINE MONTHS AND QUARTER ENDED JANUARY 31, 2003
The Company is reporting a net loss of $22,075 for the quarter ending January
31, 2004 compared to a net loss of $33,980 for the same period last year and a
net loss of $19,097 for the nine months then ended. This compares to net income
of $1,892,687 for the same nine month period in the previous year when results
were bolstered by the sale of certain real estate to a former tenant.
Diluted per share earnings amounted to ($0.02) and ($0.03) for the three months
ending January 31, 2004 and 2003, respectively, and ($0.02) and $1.69 for the
nine month periods, respectively.
Revenue from rental property, which amounted to $521,295 for the reporting
period, reflects a decrease of $33,028 compared to the same period last year
when revenues amounted to $554,323. For the nine months ending January 31, 2004,
revenue from rental property totaled $1,622,048 and reflects a $155,038 decline
from the $1,777,086 posted for the same period last year. The quarterly results
Seq. Page 8
were impacted by $16,228 in real estate tax reimbursements, associated with the
previously mentioned sale, which were recognized as rental revenue during the
prior year. Additionally, the Company negotiated a renewal lease for an existing
tenant who required less space; this reduced revenues by $16,112 for the three
month reporting period. For the nine months ending January 31, 2004, revenues
reflected the foregoing declines plus a $117,347 reduction in rent due to the
sale during the prior year.
Rental property expenses declined in both the three and nine month periods
ending January 31, 2004. During the third quarter, expenses associated with the
rental property decreased by $25,974, amounting to $194,414 compared with
$220,388 for the prior year. Contributing factors include a net reduction of
$10,571 in real estate taxes primarily due to the accounting treatment for taxes
paid by a former tenant during the prior year. These taxes were directly related
to the sale of certain land and buildings and accounted for a net reduction of
$22,594. This was partially offset by a $14,754 increase in the overall taxes on
the property. Operating and maintenance expenses declined by $9,571 for the
quarter and reflect decreases in building and grounds maintenance of $15,970 and
maintenance on equipment of $7,403. These were offset by increases in salaries
and benefits and utility charges of $5,314 and $9,950, respectively. The balance
of approximately $1,500 in cost reductions was the result of several
miscellaneous items during the three month period ending January 31, 2004.
Interest expense for the quarter declined by $5,236 and is the result of
restructuring the Company's debt. For the nine months ending January 31, 2004,
rental property expenses decreased by $124,756, totaling $551,802 for the
current reporting period, compared to $676,558 for the prior year. The major
contributing factor to this reduction was the overall decrease of $141,066 in
real estate taxes charged to operations. Of this total, $111,062 was capitalized
pursuant to the accounting treatment for the acreage associated with our
redevelopment plan and a reduction of $44,564 was the result of the sold
premises. These were partially offset by an overall increase of $14,560 in taxes
due on the property. Operating and maintenance expenses increased by $38,432. As
in the case of the three month results, there were several contributing factors.
Reflecting a colder climate and higher demand, the year to date increase
includes an $18,862 increase in utility costs coupled with the fact that the
previous year recorded a $64,968 nonrecurring utility refund. These increases
were mitigated by a reduction in salaries and benefits of $35,270 as a result of
staff reductions that affected this and earlier reporting periods. Building and
ground maintenance and maintenance on equipment decreased by $1,494 and $5,716,
respectively, and fees for outside services declined by $2,615.
As a result , income from rental property decreased by $7,054 for the three
months ending January 31, 2004, amounting to $326,881 and $333,935 for the
current quarter and prior year, respectively. For the nine months ending January
31, 2004, income from rental property declined by $30,282, amounting to
$1,070,246 and $1,100,528 for the current and prior year, respectively.
General and administrative expenses declined by $27,859 for the quarter ending
January 31, 2004 and increased by $56,302 for the nine month period then ended.
For the three month period, expenses totaled $392,200 compared to the $420,060
during the prior year. Several factors contributed to this net reduction and
include decreases of $4,179 in travel expense, $5,753 in costs associated with
our pension plan, and $37,489 in legal and consulting fees. We also experienced
reduced expenses of $20,776 in stockholder expense which is attributable to a
timing difference regarding annual reports and meetings. These reductions were
offset by increases in the cost of insurance premiums of $9,555, $5,487 in
equipment repairs and $3,498 in director's fees. Additionally, as previously
reported, the Company is now subject to rental payments on it's St. James
headquarters which totaled $13,125 for the period and expenses of $5,878 for
amortization of loan origination fees relating to the restructuring of existing
debt. These fees, which also include prepayment penalties incurred to complete
the transaction, are being amortized over a three year period.
For the nine month period ending January 31, 2004, general and administrative
expenses totaled $1,185,540 compared to the $1,129,238 for the same period last
year. As in the case of the quarterly results, this increase of $56,302 is
attributable to several factors. Salaries and benefits increased by $36,994, of
which $22,274 is related to stock option compensation; insurance premiums,
current year rent, and director's fees increased by $14,933, $43,750, and
$49,116, respectively. During the prior year, the Company had no rental
payments. The increase in director's fees is the result of having two additional
Board members and four additional meetings when compared to the prior year.
Amortization of loan origination fees accounted for an increased cost factor of
$15,674. These increases were offset by reductions in legal and consulting fees,
pension costs, and stockholder expense of $49,355, $17,257 and $30,490,
respectively. The reduction in stockholder expense is due to the fact that there
were two shareholder meetings conducted in the prior year nine month timeframe.
Additionally, fees for accounting services were reduced by $4,500 as were travel
expenses which decreased by $4,759.
Reflecting the above, the Company is reporting a loss from operations of $65,319
for the three month period ending January 31, 2004 compared to a loss of $86,125
for the same three months last year. For the nine month period ending January
31, 2004, the loss from operations amounted to $115,294, which is $86,584 above
last year's results when the Company reported a loss from operations of $28,710.
Other income for the quarter ending January 31, 2004 mirrored the results for
the same period last year totaling $28,527 and $29,491, respectively. On a year
to date basis for the nine months ending January 31, 2004, other income was
comprised solely of interest income amounting to $84,465. During the prior year,
the Company had other income totaling $3,183,188. Last year's results included
$58,881 in interest income and the nonrecurring partial proceeds from the
previously reported sale of land and buildings amounting to
Seq. Page 9
$3,124,307. The improvement in interest income is due primarily to a 5%,
$1,800,000 mortgage note associated with the aforementioned sale which matures
in August 2005.
For the three months ending January 31, 2004, the Company is reporting a loss
before tax of $36,792, compared to a loss of $56,634 for the same period last
year. For the nine month reporting period, the Company is reporting a loss
before tax of $31,829 compared to income before tax of $3,154,478.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $750,082 and $1,205,317 during the
nine months ended January 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.
Net cash (used in) provided by investing activities were $(29,754) and
$2,500,411 during the nine months ended January 31, 2004 and 2003, respectively.
The use of cash during the current period was for the acquisition of property,
plant and equipment. During the nine months ended January 31, 2003, the Company
purchased property, plant and equipment in the amount of $23,214 and received
proceeds from the sale of real estate totaling $2,523,625.
Net cash provided by (used in) financing activities was $328,120 and $(30,179)
during the nine months ended January 31, 2004 and 2003, respectively. The net
cash proceeds during the current period were primarily the result of the
restructuring of mortgage debt on the Flowerfield property. That amortizing
loan, which had a balance of $622,868 at an average interest rate of 8.04%
during fiscal 2003, was satisfied and incorporated into a newly established
revolving credit line in the amount of $1,750,000 at prime plus one percent,
currently 5.00%. The unused portion of the credit-line will enhance our
financial position and liquidity and be available, if needed, to fund any
unforeseen expenses associated with the Company's development plan. Also during
the nine months ended January 31, 2004, the Company received $269,438 in cash
proceeds from the exercise of stock options. During the nine months ended
January 31, 2003, funds were used to repay the aforementioned amortizing loan.
As of January 31, 2004, the Company had cash and cash equivalents of $1,779,601
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 $3,266,138. As of
January 31, 2004, the portion of those expenses attributable to the residential
golf course community amount to $1,627,368. Working capital, which is the total
of current assets less current liabilities as shown in the accompanying chart,
amounted to $1,693,456 at January 31, 2004.
January 31,
-----------
2004 2003
---- ----
Current assets:
Cash and cash equivalents $1,779,601 $2,370,705
Rent receivable, net 199,169 48,462
Net prepaid expenses and other assets 290,148 446,997
-----------------------
Total current assets 2,268,918 2,866,164
-----------------------
Current liabilities:
Accounts payable and accrued expenses 330,013 178,766
Tenant security deposits payable 234,442 238,120
Current portion of loans payable 11,007 71,230
-----------------------
Total current liabilities 575,462 488,116
-----------------------
Working capital $1,693,456 $2,378,048
=======================
Our limited partnership investment in the Callery Judge Grove, L.P. is carried
on the Company's balance sheet at $0 as a result of recording equity losses
equal to the carrying value of the investment. This represents a 10.93%
ownership in a 3,500-acre citrus grove in Palm Beach County, Florida. The land
is currently part of a 65,000-acre master planned community, which is under
review by local regulatory authorities. We have no current forecast as to the
likelihood of, or the timing required to achieve appropriate entitlements that
might impact the Grove's value.
Seq. Page 10
On November 7, 2003, the Company issued an announcement that according to
published reports in The Palm Beach Post (www.palmbeachpost.com) and a news
release issued by Scripps Research Institute ("Scripps") of La Jolla, California
(www.scripps.edu/news), Scripps confirmed its plans to establish a major science
center in Palm Beach County Florida within five miles of the Callery-Judge Grove
in Loxahatchee, Florida.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial
condition, 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
Management, including the Company's President, Chief Executive Officer and
Treasurer and Controller, 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 President, Chief Executive Officer and Treasurer and
Controller 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 as and when required.
There have been no significant changes in the Company's internal controls 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 November 1, 2003, through January
31, 2004, period.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's annual shareholder meeting for Fiscal Year 2003 was held on
December 9, 2003. On each matter submitted to shareholders, the votes were as
follows:
To elect one Director, Ronald J. Macklin, to serve for a term of one year and
two directors, Paul L. Lamb and Richard B. Smith, to serve for a term of three
years or until their successors shall be elected and shall qualify: Ronald J.
Macklin; votes for 972,509, votes withheld 63,382; Paul L. Lamb; votes for
975,228, votes withheld 60,663; Richard B. Smith; votes for 975,228, votes
withheld 60,663.
Messrs. Maroney, Palmedo, Beyer and Friemann 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, 2004; votes for
1,025,979, votes against 8,585, votes abstain 1,327.
Item 5 Other Information
The Company's Chief Executive Officer and Chief Financial Officer has furnished
a statement relating to its Form 10-QSB for the quarter ended January 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:
31.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To
Section 302 of The Sarbanes-Oxley Act of 2002.
32.1 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.
There were no Form 8-K reports issued in the current quarter.
Seq. Page 11
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.
(Registrant)
Date: March 19, 2004 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive
Officer and Treasurer
Date: March 19, 2004 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 12