US Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended OCTOBER 31, 2005
-----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number 0-1684
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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: 1,230,767 shares of common stock, par
value $1.00 per share, as of October 31, 2005
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
Seq. Page 1
INDEX TO QUARTERLY REPORT OF GYRODYNE COMPANY OF AMERICA, INC.
QUARTER ENDED OCTOBER 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 11
Part II - Other Information 12
Item 6 Exhibits 12
Signatures 12
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification 13
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 14
Seq. Page 2
Part I Financial Information
Item I Financial Statements
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS October 31,
------ 2005
------------
REAL ESTATE
Rental property:
Land $ 4,250
Building and improvements 3,955,011
Machinery and equipment 146,842
------------
4,106,103
Less accumulated depreciation 3,434,453
------------
671,650
------------
Land held for development:
Land 792,201
Land development costs 4,651,417
------------
5,443,618
------------
Total real estate, net 6,115,268
CASH AND CASH EQUIVALENTS 1,904,645
RENT RECEIVABLE, net of allowance for doubtful accounts of $42,813 93,695
PREPAID EXPENSES AND OTHER ASSETS 204,355
PREPAID PENSION COSTS 1,191,511
------------
Total Assets $ 9,509,474
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable and accrued expenses $ 286,577
Tenant security deposits payable 218,523
Income taxes payable 231,405
Deferred income taxes 1,605,000
------------
Total liabilities 2,341,505
------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued 1,531,086
Additional paid-in capital 7,995,182
Deficit (480,714)
------------
9,045,554
Less the cost of 300,319 shares of common stock held in the treasury (1,877,585)
------------
Total stockholders' equity 7,167,969
------------
Total liabilities and stockholders' equity $ 9,509,474
============
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Six Months Ended Three Months Ended
October 31, October 31,
-------------------------- --------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
REVENUE FROM RENTAL PROPERTY $ 980,700 $ 1,027,544 $ 486,166 $ 527,622
----------- ----------- ----------- -----------
RENTAL PROPERTY EXPENSES:
Real estate taxes 80,909 75,234 40,455 37,617
Operating and maintenance 181,501 321,380 92,573 171,625
Interest expense 0 18,993 0 9,941
Depreciation 37,371 36,116 18,685 18,058
----------- ----------- ----------- -----------
TOTAL RENTAL PROPERTY EXPENSES 299,781 451,723 151,713 237,241
----------- ----------- ----------- -----------
INCOME FROM RENTAL PROPERTY 680,919 575,821 334,453 290,381
GENERAL AND ADMINISTRATIVE EXPENSES 869,908 777,307 429,776 376,328
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (188,989) (201,486) (95,323) (85,947)
OTHER INCOME:
Gain on sale of real estate 1,136,705 0 874,388 0
Interest income 30,881 54,120 13,369 26,558
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 1,167,586 54,120 887,757 26,558
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 978,597 (147,366) 792,434 (59,389)
PROVISION (BENEFIT) FOR INCOME TAXES 391,439 (58,946) 316,973 (23,755)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 587,158 $ (88,420) $ 475,461 $ (35,634)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.48 $ (0.08) $ 0.39 $ (0.03)
=========== =========== =========== ===========
Diluted $ 0.46 $ (0.08) $ 0.37 $ (0.03)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,224,243 1,163,144 1,230,761 1,170,451
=========== =========== =========== ===========
Diluted 1,270,968 1,163,144 1,278,290 1,170,451
=========== =========== =========== ===========
See notes to consolidated financial statements
Seq. Page 4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
October 31,
--------------------------
2005 2004
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 587,158 $ (88,420)
----------- -----------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 59,202 57,231
Bad debt expense 12,000 6,000
Deferred income tax benefit 0 (58,946)
Pension expense 58,015 112,194
Gain on sale of real estate (1,136,705) 0
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (218,651) (483,674)
Accounts receivable (43,386) (109,611)
Prepaid expenses and other assets (43,065) (48,855)
Prepaid pension costs (50,000) 0
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 66,355 (45,258)
Income taxes payable 231,405 (28,306)
Tenant security deposits (10,761) 7,204
----------- -----------
Total adjustments (1,075,591) (592,021)
----------- -----------
Net cash used in operating activities (488,433) (680,441)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment 0 (13,394)
Proceeds from mortgage receivable 1,300,000 0
----------- -----------
Net cash provided by (used in) investment activities 1,300,000 (13,394)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (3,705) (5,486)
Proceeds from exercise of stock options 252,378 141,704
----------- -----------
Net cash provided by financing activities 248,673 136,218
----------- -----------
Net increase (decrease) in cash and cash equivalents 1,060,240 (557,617)
Cash and cash equivalents at beginning of period 844,405 1,562,643
----------- -----------
Cash and cash equivalents at end of period $ 1,904,645 $ 1,005,026
=========== ===========
See notes to consolidated financial statements
Seq. Page 5
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Quarterly Presentations:
The accompanying quarterly financial statements have been prepared in conformity
with accounting principles generally accepted in the United States ("GAAP"). The
financial statements of the Registrant included herein have been prepared by the
Registrant pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) and, in the opinion of management, reflect all adjustments
which are necessary to present fairly the results for the three and six month
periods ended October 31, 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 audited financial statements
and footnotes therein included in the Annual Report on Form 10-KSB for the
fiscal year ended April 30, 2005.
The results of operations for the three and six month periods ended October 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:
Six months ended Three Months Ended
October 31, October 31,
2005 2004 2005 2004
---------- ---------- ---------- ----------
Basic 1,224,243 1,163,144 1,230,761 1,170,451
Effect of dilutive securities 46,725 0 47,529 0
---------- ---------- ---------- ----------
Diluted 1,270,968 1,163,144 1,278,290 1,170,451
========== ========== ========== ==========
4. Condemnation Proceedings:
On November 2, 2005, the State University of New York at Stony Brook (the
"University") filed the necessary maps with the Suffolk County Clerk's Office
and vested title in approximately 245 acres of our Flowerfield property in Stony
Brook / Saint James, N.Y. property. This action was taken by the University
pursuant to the Eminent Domain Procedural Law (EDPL) which governs condemnation
authority in the State of New York. Earlier actions by the University included
an Advance Payment Notice which proposed to acquire the subject acreage for a
total purchase price of $26.3 million. The Company rejected that proposal since
it did not represent the current value of the property and filed notice that it
will pursue additional compensation in the New York State Court of Claims where
valuation disputes are settled. Payment of the $26.3 million amount, which the
Company has elected under the EDPL to accept as an advance payment, is due and
payable to the Company within a reasonable and practical timeframe and any
additional award from the Court of Claims bears interest at the current rate of
9% simple interest from the date of the taking. The estimated gain resulting
from the condemnation of the property, based upon the advance payment of $26.3
million, is approximately $21.3 million. The rental revenue lost from tenants
who occupied a portion of the condemned property is approximately $52,000 a
month.
According to Section 1033 of the Internal Revenue Code, if the Company were to
replace the condemned property with like kind property within three years (or
such extended period if requested and approved by the Internal Revenue Service
at its discretion) after the close of the current fiscal year, the Company may
defer the recognition of the gain and defer paying tax until the newly acquired
Seq. Page 6
property is disposed of. Whether any taxable income is recognized, for tax
purposes, depends on whether the Company uses the proceeds to purchase
replacement property. Management is currently considering the tax implications
of the condemnation. As a result of the condemnation of the Flowerfield
property, the Company may owe a termination fee to DPMG Inc., dba Landmark
National, related to a contractual agreement to design and build a golf course
as part of the proposed residential community at Flowerfield.
5. 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.
6. Revolving Credit Note:
The Company has $1,750,000 available under a revolving credit line with a bank,
bearing interest at a rate of prime plus one percent which was 7.75% at October
31, 2005. The line is secured by certain real estate and expires on June 1,
2006.
7. Reclassifications:
Certain reclassifications have been made to the consolidated financial
statements for the three and six months ended October 31, 2004 to conform to the
classification used in the current fiscal year.
8. 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 the Company recorded compensation expense for
the stock options based on the fair value at the grant date for awards in the
three and six months ended October 31, 2005 and 2004 consistent with the
provisions of SFAS 123, the net effect on net income (loss) and net income
(loss) per share would not have been material.
9. Retirement Plans:
The Company records net periodic pension benefit cost pro rata throughout the
year. The following table provides the components of net periodic pension
benefit cost for the plan for the three and six months ended October 31, 2005
and 2004:
Six Months Ended Three Months Ended
October 31, October 31,
---------------------- ----------------------
2005 2004 2005 2004
--------- --------- --------- ---------
Pension Benefits
Service Cost $ 69,213 $ 64,984 $ 34,607 $ 32,492
Interest Cost 62,638 64,580 31,319 32,290
Expected Return on Plan Assets (114,112) (82,916) (57,056) (41,458)
Amortization of Prior-Service Cost 36,369 35,508 18,185 18,615
Amortization of Net Loss 3,907 30,038 1,953 15,019
--------- --------- --------- ---------
Net Periodic Benefit Cost After Curtailments
and Settlements $ 58,015 $ 112,194 $ 29,008 $ 56,958
========= ========= ========= =========
During the six months ended October 31, 2005, the Company made a $50,000
contribution to the plan. The Company has no minimum required contribution for
the April 30, 2006 plan year.
10. 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.
Seq. Page 7
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 (the "Exchange Act") 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 and
Palm Beach County, Florida real estate markets, the ability to obtain additional
capital in order to develop our existing real estate and other risks detailed
from time to time in our SEC reports. We assume no obligation to update the
information in this Form 10-QSB.
Critical Accounting Policies
----------------------------
The consolidated financial statements of the Company include accounts of the
Company and all majority-owned and controlled subsidiaries. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Company's consolidated financial statements and related notes. In
preparing these financial statements, management has utilized information
available including its past history, industry standards and the current
economic environment, among other factors, in forming its estimates and
judgments of certain amounts included in the consolidated financial statements,
giving due consideration to materiality. It is possible that the ultimate
outcome as anticipated by management in formulating its estimates inherent in
these financial statements might not materialize. However, application of the
critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of companies in similar businesses.
Revenue Recognition
-------------------
Rental revenue is recognized on a straight-line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due, if any, is included in deferred rents receivable on the
Company's balance sheets. Certain leases also provide for tenant reimbursements
of common area maintenance and other operating expenses and real estate taxes.
Ancillary and other property related income is recognized in the period earned.
Real Estate
-----------
Rental real estate assets, including land, buildings and improvements,
furniture, fixtures and equipment are recorded at cost. Tenant improvements,
which are included in buildings and improvements, are also stated at cost.
Expenditures for ordinary maintenance and repairs are expensed to operations as
they are incurred. Renovations and/or replacements, which improve or extend the
life of the asset, are capitalized and depreciated over their estimated useful
lives.
Depreciation is computed utilizing the straight-line method over the estimated
useful life of ten to thirty years for buildings and improvements and three to
twenty years for machinery and equipment.
The Company is required to make subjective assessments as to the useful life of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net income.
Real estate held for development is stated at the lower of cost or net
realizable value. In addition to land, land development and construction costs,
real estate held for development includes interest, real estate taxes and
related development and construction overhead costs which are capitalized during
the development and construction period.
Net realizable value represents estimates, based on management's present plans
and intentions, of sale price less development and disposition cost, assuming
that disposition occurs in the normal course of business.
Seq. Page 8
Long Lived Assets
-----------------
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property is
less than the carrying value of the property. Such future cash flow estimates
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.
Condemnation Proceedings
------------------------
Subsequent to the close of business for this reporting period, on November 2,
2005, the State University of New York at Stony Brook (the "University") filed
the necessary maps with the Suffolk County Clerk's Office and vested title in
approximately 245 acres of our Flowerfield property in Stony Brook / Saint
James, N.Y. property. This action was taken by the University pursuant to the
Eminent Domain Procedural Law (EDPL) which governs condemnation authority in the
State of New York. Earlier actions by the University included an Advance Payment
Notice which proposed to acquire the subject acreage for a total purchase price
of $26.3 million. The Company rejected that proposal since it did not represent
the current value of the property and filed notice that it will pursue
additional compensation in the New York State Court of Claims where valuation
disputes are settled. Payment of the $26.3 million amount, which the Company has
elected under the EDPL to accept as an advance payment, is due and payable to
the Company within a reasonable and practical timeframe and any additional award
from the Court of Claims bears interest at the current rate of 9% simple
interest from the date of the taking, November 2, 2005. As we have reported in
earlier discussions on the potential condemnation of all or some of the
Flowerfield acreage, the Court of Claims, among other things, reviews the
highest and best use of the property and the probability that the highest and
best use could have been achieved. Although we cannot predict the outcome of our
action in the Court of Claims or the potential that the University or the State
of New York will attempt to negotiate a settlement, we are confident that the
Company can present a credible case for additional compensation for the
condemned property.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2005
AS COMPARED TO THE THREE AND SIX MONTHS ENDED OCTOBER 31, 2004
The Company is reporting net income of $475,461 for the quarter ending October
31, 2005 compared to a net loss of $35,634 for the same period last year and net
income of $587,158 for the six month period then ended compared to a net loss of
$88,420 in the prior year.
Diluted per share earnings for the current three and six month periods amounted
to $0.37 and $0.46, respectively compared to losses per share of ($0.03) and
($0.08) for the same periods last year, respectively.
Revenue from rental property which totaled $486,166 for the quarter reflected a
decline of $41,456 when compared to the same period last year when revenue
amounted to $527,622. This decline is attributable to the termination of four
leases partially offset by an equal number but smaller new tenancies. For the
six months ending October 31, 2005, rental revenues totaled $980,700, a decrease
of $46,844 to the $1,027,544 posted during the same period last year. Once
again, the decline is primarily attributable to the aforementioned new and
terminated tenancies.
Rental property expenses for the current three and six month periods reflect
decreases when compared to the prior year results. For the quarter ending
October 31, 2005, expenses amounted to $151,713, an $85,528 (36%) decline from
the $237,241 recorded last year. Major contributing factors include decreases of
$24,516 in salary and benefits, $27,475 in maintenance on building and grounds
and $25,957 attributable to a reduction in insurance premiums and reimbursements
from tenants. Additionally interest expense was reduced by $9,941 as a result of
Seq. Page 9
our paying down the balance on our revolving credit facility. The decrease in
salaries and benefits is the result of staff reductions which took place towards
the end of our last fiscal year. Likewise, expenses for the six month reporting
period amounted to $299,781 which was $151,942, or 34%, below the $451,723 for
the same period during the prior year. For the six months ending October 31,
2005, salaries and benefits decreased by $35,244, utilities declined by $4,505,
and maintenance on building and grounds decreased by $29,560. Insurance premiums
for the reporting period declined by $72,138 and reflect both a reduction in
premiums and reimbursement from tenants pursuant to our rental agreements. As in
the quarterly results, interest expense decreased by $18,993 due to the pay down
on the Company's credit facility. Offsetting these favorable impacts to the
rental property operation, real estate taxes increased by $5,675, equipment
maintenance increased by $10,532, and fees for outside services increased by
$6,348.
As a result of the foregoing, income from rental property increased for both the
three and six month reporting periods. For the quarter, income amounted to
$334,453, representing a 15% increase of $44,072 over the $290,381 results for
the same period last year. For the six months ending October 31, 2005, income
from rental property increased by $105,098, or 18%, totaling $680,919 compared
to $575,821 during the prior year.
General and administrative expenses increased for both the three and six month
periods amounting to $429,776 and $869,908, respectively. The three month
results are $53,448 (14%) over the prior year expenses of $376,328 and the six
month results are $92,601 (12%) over the $777,307 recorded last year. The
quarterly results were impacted by increases in salaries and benefits of $5,856,
legal and consulting fees of $19,996, corporate governance issues of $41,086,
insurance premium increases of $8,971 and directors fees of $7,285. Costs
associated with the Company's pension plan were reduced by $27,950 during the
same period. The six months ending October 31, 2005, expenses were impacted by
similar increases of $10,225 in salaries and benefits, $22,016 in legal and
consulting fees, $66,773 in corporate governance issues, and $11,765 in
directors fees. Additionally, there were increases of $17,944 in insurance
premiums, $5,113 in computer technology updates, $8,138 in expenses related to
attending meetings at the Callery-Judge Grove and for other professional
seminars connected to the pending condemnation at Flowerfield, and $4,736 in
fees associated with outside services. Pension expense decreased by $54,179 for
the six month period. The increase in corporate governance expense in both
periods is primarily related to the engagement of investment bankers to explore
strategic alternatives for the Company.
As a result, the Company is reporting a loss from operations of $95,323 for the
three months ending October 31, 2005, compared to a loss of $85,947 during the
prior year. For the six month period, the Company experienced a loss from
operations of $188,989 compared to a loss of $201,486 for the same period last
year.
Interest income declined in both reporting periods as a direct result of the
payment in full of a $1.8 million mortgage receivable which matured in August;
income was reduced by $21,528 and $29,541 for the quarter and six months ending
October 31, 2005, respectively. Income from interest bearing deposits increased
by $8,338 and $6,302, respectively, for the quarter and six month periods.
Reflecting the receipt of the mortgage proceeds, the Company is recognizing a
gain on the sale of real estate of $874,388 and $1,136,705 for the three and six
month periods ending October 31, 2005, respectively.
Based on the foregoing, the Company is reporting income before taxes totaling
$792,434 for the current quarter compared to a loss before taxes of $59,389 for
the same period last year. For the current six month period, the Company is
reporting income before taxes totaling $978,597 compared to a loss before taxes
of $147,366 during the previous year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $488,433 and $680,441 during the six
months ended October 31, 2005 and 2004, respectively. The principal use of cash
in the current period was primarily related to land development costs. The
primary use of cash in the prior year 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 condemnation of the
Company's real estate property by Stony Brook University.
Net cash provided by (used in) investing activities was $1,300,000 and $(13,394)
during the six months ended October 31, 2005 and 2004, respectively. The cash
provided by investing activities in the current period represents payment in
full of the Company's mortgage receivable while the use of cash in the prior
period was for capital expenditures.
Seq. Page 10
Net cash provided by financing activities was $248,673 and $136,218 during the
six months ended October 31, 2005 and 2004, respectively. The net cash provided
during both periods was primarily the result of proceeds from the exercise of
stock options. 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 7.75% at October
31, 2005. The unused portion of the credit line, which is the total line of
$1,750,000, will enhance the Company's financial position and liquidity and is
available, if needed, to fund any unforeseen expenses.
As of October 31, 2005, the Company had cash and cash equivalents of $1,904,645
and anticipates having the capacity to fund normal operating and administrative
expenses and its regular debt service requirements. To date, expenses associated
with the development of the Flowerfield property, which have been capitalized,
total $4,651,417. As of October 31, 2005, the portion of those expenses
attributable to the residential golf course community amount to $2,376,083.
Working capital, which is the total of current assets less current liabilities
as shown in the accompanying chart, amounted to $1,425,079 at October 31, 2005.
In the subsequent quarter, as a result of the condemnation of the Company's
Flowerfield property by the State University of New York at Stony Brook, the
Company will record a receivable of $26.3 million and write off costs
attributable to the residential golf course community and the majority of other
land development costs.
October 31,
-----------------------
2005 2004
---------- ----------
Current assets:
Cash and cash equivalents $1,904,645 $1,005,026
Rent receivable, net 93,695 196,693
Mortgage receivable 0 1,800,000
Net prepaid expenses and other assets 163,244 174,025
---------- ----------
Total current assets 2,161,584 3,175,744
---------- ----------
Current liabilities:
Accounts payable and accrued expenses 286,577 187,551
Tenant security deposits payable 218,523 202,180
Income taxes payable 231,405 0
Current portion of loans payable 0 7,411
---------- ----------
Total current liabilities 736,505 397,142
---------- ----------
Working capital $1,425,079 $2,778,602
========== ==========
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 October 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 of the
Securities and Exchange Commission. It should be noted that design of any system
of controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions regardless of
how remote.
There have been no changes in the Company's internal controls 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.
Seq. Page 11
Part II Other Information
Items 1 through 5 are not applicable to the three months ended October 31, 2005.
Item 6 Exhibits
3.1 Restated Certificate of Incorporation of Gyrodyne Company of America,
Inc. incorporated herein by reference to the Annual Report on Form
10-KSB/A filed with the Securities and Exchange Commission on September
5, 2001.
3.2 Restated By-laws of Gyrodyne Company of America, Inc. incorporated
herein by reference to the Annual Report on Form 10-KSB filed with the
Securities and Exchange Commission on July 5, 2005.
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.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GYRODYNE COMPANY OF AMERICA, INC.
Date: December 09, 2005 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer and Treasurer
Date: December 09, 2005 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 12