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, 2006
--------------------------
[ ] 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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes[ ] No[X]
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: 1,237,219 shares of common stock, par
value $1.00 per share, as of January 31, 2006
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 JANUARY 31, 2006
Seq. Page
Form 10-QSB Cover 1
Index to Form 10-QSB 2
Part I Financial Information 3
Item I Financial Statements 3
Consolidated Balance Sheet (unaudited) 3
Consolidated Statements of Operations (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Footnotes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 8
Item 3 Controls and Procedures 12
Part II - Other Information 12
Item 4 Submission of Matters to a Vote of Security Holders 12
Item 6 Exhibits 13
Signatures 13
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,
------ 2006
------------
REAL ESTATE
Rental property:
Land $ 3,017
Building and improvements 2,811,138
Machinery and equipment 146,842
------------
2,960,997
Less accumulated depreciation 2,483,671
------------
477,326
------------
Land held for development 558,466
------------
Total real estate, net 1,035,792
CASH AND CASH EQUIVALENTS 1,346,183
RENT RECEIVABLE, net of allowance for doubtful accounts of $48,813 79,490
CONDEMNATION ADVANCE PAYMENT RECEIVABLE 26,898,977
PREPAID EXPENSES AND OTHER ASSETS 198,158
PREPAID PENSION COSTS 1,162,504
------------
Total Assets $ 30,721,104
============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable and accrued expenses $ 843,492
Tenant security deposits payable 165,472
Income taxes payable 153,416
Deferred income taxes 9,889,135
------------
Total liabilities 11,051,515
------------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued 1,531,086
Additional paid-in capital 8,032,134
Retained earnings 11,946,855
------------
21,510,075
Less the cost of 293,867 shares of common stock held in the treasury (1,840,486)
------------
Total stockholders' equity 19,669,589
------------
Total liabilities and stockholders' equity $ 30,721,104
============
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,
------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
REVENUE FROM RENTAL PROPERTY $ 1,313,177 $ 1,534,315 $ 332,477 $ 506,771
----------- ----------- ----------- -----------
RENTAL PROPERTY EXPENSES:
Real estate taxes 155,573 114,742 74,664 39,508
Operating and maintenance 320,108 518,877 138,607 197,496
Interest expense 0 29,516 0 10,523
Depreciation 53,048 54,175 15,677 18,059
----------- ----------- ----------- -----------
TOTAL RENTAL PROPERTY EXPENSES 528,729 717,310 228,948 265,586
----------- ----------- ----------- -----------
INCOME FROM RENTAL PROPERTY 784,448 817,005 103,529 241,185
----------- ----------- ----------- -----------
GENERAL AND ADMINISTRATIVE EXPENSES 1,567,291 1,291,093 697,383 513,787
----------- ----------- ----------- -----------
OTHER INCOME:
Gain on condemnation of property 20,710,339 0 20,710,339 0
Gain on sale of real estate 1,136,705 87,439 0 87,439
Gain on sale of equipment 0 12,000 0 12,000
Interest on condemnation advance payment 583,977 0 583,977 0
Interest income 43,034 80,380 12,153 26,260
----------- ----------- ----------- -----------
TOTAL OTHER INCOME 22,474,055 179,819 21,306,469 125,699
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 21,691,212 (294,269) 20,712,615 (146,903)
PROVISION (BENEFIT) FOR INCOME TAXES 8,676,485 (117,708) 8,285,046 (58,762)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $13,014,727 $ (176,561) $12,427,569 $ (88,141)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ 10.61 $ (0.15) $ 10.08 $ (0.07)
=========== =========== =========== ===========
Diluted $ 10.23 $ (0.15) $ 9.75 $ (0.07)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,227,119 1,170,902 1,232,871 1,186,418
=========== =========== =========== ===========
Diluted 1,272,195 1,170,902 1,274,648 1,186,418
=========== =========== =========== ===========
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,
----------------------------
2006 2005
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,014,727 $ (176,561)
------------ ------------
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 85,796 85,978
Bad debt expense 18,000 54,000
Deferred income taxes 8,284,135 (117,708)
Pension expense 87,022 169,151
Gain on condemnation of property (20,710,339) 0
Gain on sale of equipment 0 (12,000)
Gain on sale of real estate (1,136,705) (87,440)
Changes in operating assets and liabilities:
Increase in assets:
Land development costs (256,434) (650,258)
Accounts receivable (35,181) (110,119)
Interest receivable on condemnation advance payment (583,977) 0
Prepaid expenses and other assets (47,784) (193,722)
Prepaid pension costs (50,000) 0
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 125,123 (16,488)
Income taxes payable 153,416 6,885
Tenant security deposits (63,812) 12,636
------------ ------------
Total adjustments (14,130,740) (859,085)
------------ ------------
Net cash used in operating activities (1,116,013) (1,035,646)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (3,080) (13,394)
Proceeds from sale of equipment 0 12,000
Proceeds from mortgage receivable 1,300,000 100,000
------------ ------------
Net cash provided by investment activities 1,296,920 98,606
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans payable (5,558) (7,956)
Proceeds from exercise of stock options 326,429 625,079
------------ ------------
Net cash provided by financing activities 320,871 617,123
------------ ------------
Net increase (decrease) in cash and cash equivalents 501,778 (319,917)
Cash and cash equivalents at beginning of period 844,405 1,562,643
------------ ------------
Cash and cash equivalents at end of period $ 1,346,183 $ 1,242,726
============ ============
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, 2006 and 2005.
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 nine month periods ended January 31,
2006 are not necessarily indicative of the results to be expected for the full
year.
2. Principle of Consolidation:
The accompanying consolidated financial statements include the accounts of
Gyrodyne Company of America, Inc. ("Company") and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
3. Earnings Per Share:
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Dilutive earnings per share gives effect to stock options and warrants which are
considered to be dilutive common stock equivalents. Basic loss per common share
was computed by dividing net loss by the weighted average number of shares of
common stock outstanding. Diluted loss per common share does not give effect to
the impact of options because their effect would have been anti-dilutive.
Treasury shares have been excluded from the weighted average number of shares.
The following is a reconciliation of the weighted average shares:
Nine months ended Three Months Ended
January 31, January 31,
-------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Basic 1,227,119 1,170,902 1,232,871 1,186,418
Effect of dilutive securities 45,076 0 41,777 0
--------- --------- --------- ---------
Diluted 1,272,195 1,170,902 1,274,648 1,186,418
========= ========= ========= =========
4. Condemnation Proceedings:
On November 2, 2005, the State University of New York at Stony Brook (the
"University") filed the requisite deed with the Suffolk County Clerk's Office
and vested title in 245 acres of our Flowerfield property in Stony Brook / Saint
James, N.Y. 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 litigated. 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 has been accrued
as of January 31, 2006. Under current law, both the advance payment and any
additional award from the Court of Claims bear interest at the rate of 9% simple
interest from the date of the taking. As of January 31, 2006, $583,977 of
interest has been accrued and is included in the condemnation advance payment
receivable. The estimated gain resulting from the condemnation of the property,
based upon the advance payment of $26.3 million, is approximately $20.7 million.
The rental revenue lost from tenants who occupied a portion of the condemned
property is approximately $52,000 a month.
Seq. Page 6
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
property is disposed of. Whether any taxable income is recognized depends on
whether the Company uses the proceeds to purchase replacement property. As a
result of the condemnation of the Flowerfield property, the Company has accrued
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. At January 31, 2006, $500,000 has been accrued in
connection with the termination fee.
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 8.50% at January
31, 2006. The line is secured by certain real estate and expires on June 1,
2006. As of statement date, there is a zero balance under this credit facility.
7. Reclassifications:
Certain reclassifications have been made to the consolidated financial
statements for the three and nine months ended January 31, 2005 to conform to
the classification used in the current fiscal year.
8. Stock Options:
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. Prior to adopting
FAS 123(R), the Company elected the disclosure only provision of FAS 123 in
accounting for employee stock options. 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 the nine months ended January 31, 2005 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. The Company had no share based
compensation expense for the three and nine months ended January 31, 2006.
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 nine months ended January 31, 2006
and 2005:
Nine Months Ended Three Months Ended
January 31, January 31,
------------------------ ------------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Pension Benefits
Service Cost $ 103,820 $ 97,475 $ 34,607 $ 32,492
Interest Cost 93,957 96,870 31,319 32,290
Expected Return on Plan Assets (171,168) (124,372) (57,056) (41,458)
Amortization of Prior-Service Cost 54,553 54,123 18,184 18,615
Amortization of Net Loss 5,860 45,055 1,953 15,019
---------- ---------- ---------- ----------
Net Periodic Benefit Cost After
Curtailments and Settlements $ 87,022 $ 169,151 $ 29,007 $ 56,958
========== ========== ========== ==========
During the nine months ended January 31, 2006, the Company made a $50,000
contribution to the plan. The Company has no minimum required contribution for
the April 30, 2006 plan year.
Seq. Page 7
10. Recent Accounting Pronouncements:
In March 2005, the FASB issued Financial Interpretation Number ("FIN") 47,
"Accounting for Conditional Asset Retirement Obligations, an interpretation of
SFAS 143 (Asset Retirement Obligations)". FIN 47 addresses diverse accounting
practices that have developed with regard to the timing of liability recognition
for legal obligations associated with the retirement of a tangible long-lived
asset in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. FIN 47
also clarifies when an entity should have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The provision is
effective for fiscal years ending after December 15, 2005. We do not expect the
adoption of SFAS No. 154 to have a significant impact on our results of
operations or financial position.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." This statement replaces APB No. 20 and SFAS No. 3 and changes the
requirements for the accounting for and reporting of a change in accounting
principle. APB No. 20 previously required that most voluntary changes in
accounting principle be recognized by including in net income for the period of
the change the cumulative effect of changing to the accounting principle. SFAS
No. 154 requires retrospective application to prior periods' financial
statements of voluntary changes in accounting principle. SFAS No. 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005. We do not expect the adoption of SFAS No. 154
to have a significant impact on our results of operations or financial position.
In February 2006, the FASB issued SFAS No. 155 "Accounting for Certain Hybrid
Financial Instruments," an amendment of FASB Statements No. 133 and 140. SFAS
No. 155 improves financial reporting by eliminating the exemption from applying
Statement No. 133 to interests in securitized financial assets so that similar
instruments are accounted for similarly regardless of the form of the
instruments. This Statement also improves financial reporting by allowing a
preparer to elect fair value measurement at acquisition, at issuance, or when a
previously recognized financial instrument is subject to a remeasurement (new
basis) event, on an instrument-by-instrument basis, in cases in which a
derivative would otherwise have to be split into two. This Statement is
effective for all financial instruments acquired or issued after the beginning
of an entity's first fiscal year that begins after September 15, 2006. Earlier
adoption is permitted as of the beginning of an entity's fiscal year, provided
the entity has not yet issued financial statements, including financial
statements for any interim period for that fiscal year. Provisions of this
Statement may be applied to instruments that an entity holds at the date of
adoption on an instrument-by-instrument basis. SFAS No. 155 is not expected to
have a material impact on our financial condition or results of operations.
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
Seq. Page 8
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, any future land development and
construction costs as well as real estate held for development, will include
interest, real estate taxes and related development and construction overhead
costs which will be capitalized during the development and construction period.
Net realizable value represents estimates, based on management's present plans
and intentions, of sale price less development and disposition cost, assuming
that disposition occurs in the normal course of business.
Long Lived Assets
-----------------
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property is
less than the carrying value of the property. Such 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
------------------------
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.
Condemnation Proceedings
------------------------
On November 2, 2005, the State University of New York at Stony Brook (the
"University") filed the requisite deed with the Suffolk County Clerk's Office
and vested title in 245 acres of our Flowerfield property in Stony Brook / Saint
James, N.Y. 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 litigated. 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. Under current law,
both the advance payment and any additional award from the Court of Claims bear
interest at the rate of 9% simple interest from the date of the taking, November
2, 2005. As we have reported in earlier disclosures on the potential
Seq. Page 9
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 NINE MONTHS ENDED JANUARY 31, 2006
AS COMPARED TO THE THREE AND NINE MONTHS ENDED JANUARY 31, 2005
The Company is reporting net income of $12,427,569 for the quarter ended January
31, 2006 compared to a net loss of $88,141 for the same period last year and net
income of $13,014,727 for the nine month period then ended compared to a net
loss of $176,561 for the first nine months of last year.
Diluted per share earnings and (losses) amounted to $9.75 and $(0.07) for the
three months ended January 31, 2006 and 2005, respectively, and $10.23 and
$(0.15) for the nine month periods of 2006 and 2005, respectively.
The current period results are primarily attributable to a $26,315,000 "Advance
Payment" notification in connection with the condemnation of 245 acres of the
Company's Flowerfield property located in Stony Brook/Saint James, New York. The
property, which has been under the threat of an eminent domain taking, was
condemned by the State University of New York at Stony Brook (Stony Brook
University) on November 2, 2005. A detailed description surrounding that event
is outlined in Footnote 4 of this filing. Additionally, as previously reported
in our prior quarterly filing, the Company received payment of $1,300,000
representing the remaining balance on a loan secured by a mortgage held on
certain properties sold in fiscal 2003.
Revenue from rental property declined during both reporting periods and was
mainly a result of the aforementioned condemnation which included a 45,000
square foot building occupied by two major tenants. For the current three month
period, revenue amounted to $332,477, a decrease of $174,294 when compared to
the $506,771 reported for the same period last year. Of that total decrease, the
two tenants lost via the condemnation accounted for $136,917. The balance of the
quarterly decline in revenue was primarily attributable to a lease termination
by one tenant. Revenue amounted to $1,313,177 and $1,534,315 for the nine months
ending January 31, 2006 and 2005, respectively, a decrease of $221,138 for the
period. Of that total decrease, $125,983 was attributable to the two tenants
lost via the condemnation and $99,900 was related to two other tenants who
terminated their occupancy at Flowerfield.
Rental property expenses declined in both the three and nine month reporting
periods totaling $228,948 and $528,729, respectively, for the current year and
$265,586 and $717,310, respectively, for the same periods during the prior year.
There were several contributing factors to the three month variance of $36,638;
salaries and benefits decreased by $25,041, fuel costs were reduced by $10,287
due to a milder winter, insurance premiums were reduced by $9,937, security
services and outside service costs related to property management were also
reduced by $8,705 and $11,085, respectively. Interest expense also declined by
$10,523 as a result of the Company having no borrowings outstanding against its
revolving credit facility. These decreases were partially offset by increased
real estate taxes of $35,156 which reflect the fact that pre condemnation real
estate taxes were capitalized to land development costs. For the nine months
ending January 31, 2006, expenses decreased by $188,581. Contributing factors
include the aforementioned decrease in salaries and benefits of $60,285, a
reduction in insurance premiums of $82,075, savings in security services of
$25,236 and a decrease in interest expense of $29,516 which again reflects the
fact that there were no outstanding borrowings against the Company's revolving
credit facility. The decrease in salaries and benefits is the result of a
downsizing in staffing levels and the reduction in insurance premiums is
attributable to the collection of $54,577 in tenant billings; the Company was
also able to reduce annual premiums by $27,498. In addition, maintenance and
repairs were below the prior year by $22,716 primarily reflecting a decrease in
air conditioning repair and maintenance of $16,786. The only major increase from
the prior year is reflected in the aforementioned pre condemnation real estate
taxes in the amount of $40,831.
As a result of the foregoing, income from rental property declined for both the
three and nine month reporting periods, totaling $103,529 compared to $241,185
for the quarter ending January 31, 2006 and 2005, respectively, and $784,448 and
$817,005 for the nine month periods of 2006 and 2005, respectively. Based on the
condemnation, we anticipate the current quarter results to be fairly reflective
of the future earnings capacity of the remaining rental property operation.
General and administrative expenses increased for the quarter ended January 31,
2006, totaling $697,383 compared to $513,787 for the same period last year. The
$183,596 increase was attributable to several factors primarily comprised of
expenses relating to the annual meeting and legal and financial consulting fees
related to the development of the Company's strategic plan totaling $157,218,
and condemnation costs of $48,288. There were also additional directors fees of
$15,923 primarily due to an increase in the number of Board meetings held in the
current quarter as well as increased salaries and benefits of $7,771, and
insurance premium increases of $8,971. Offsetting the foregoing were decreases
in bad debt expense and pension costs of $42,000 and $27,951, respectively. For
the current nine month period, expenses increased by $276,198 and totaled
$1,567,291 compared to $1,291,093 during the prior year. Major contributing
factors included the aforementioned quarterly expenses for annual meeting and
legal and financial consulting fees as well as condemnation costs. Expenses for
the nine month period also included $116,130 in fees associated with the
Seq. Page 10
engagement of investment bankers. The additional costs over the prior year also
included similar increases to the quarterly results with an increase of $17,995
in salaries and benefits, insurance premium increases of $26,915, and directors
fees of $27,678. Legal and consulting expenses also increased by $19,531.
Similar declines to the third quarter were also recorded during the nine month
period reflecting decreases in pension costs and bad debt expenses of $82,130
and $36,000, respectively.
Other income for the reporting period includes primarily the "Advance Payment"
from the condemnation, net of certain capitalized expenses and the carrying
value of the subject real estate which totaled $5,604,661 and the proceeds from
the mortgage payment mentioned above. The net gain before tax from the
condemnation amounted to $20,710,339 and is reflected in both the three and nine
month results. For the three month period ended January 31, 2006, other income
totaled $21,306,469 reflecting the accrual of the aforementioned condemnation
payment plus interest on the Advance Payment totaling $583,977 which is based on
the statutory rate of 9% established by New York State law; other income totaled
$125,699 for the same quarter during the prior year. For the nine month period
ending January 31, 2006, other income totaled $22,474,055, reflecting the same
accrued receivables described in the quarterly results. In addition, the year to
date results include $1,136,705 related to the proceeds from the mortgage
payment mentioned earlier in this report.
As a result, the Company is reporting income before taxes totaling $20,712,615
and $21,691,212 for the three and nine months ended January 31, 2006,
respectively, compared to a loss before taxes of $146,903 and $294,269 for the
three and nine month periods ended January 31, 2005, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,116,013 and $1,035,646 during the
nine months ended January 31, 2006 and 2005, respectively. The principal use of
cash in the current period was primarily related to proceeds received from the
gain on sale of real estate. 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 property by Stony Brook University.
Net cash provided by investing activities was $1,296,920 and $98,606 during the
nine months ended January 31, 2006 and 2005, respectively. The cash provided by
investing activities in the current period represents payment in full of the
Company's mortgage receivable while the cash provided by investing activities in
the prior period was primarily from a partial payment of the aforementioned
mortgage receivable.
Net cash provided by financing activities was $320,871 and $617,123 during the
nine months ended January 31, 2006 and 2005, 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 at
a rate of prime plus one percent which was 8.50% at January 31, 2006. 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 January 31, 2006, the Company had cash and cash equivalents of $1,346,183
and anticipates having the capacity to fund normal operating and administrative
expenses and its regular debt service requirements. Working capital, which is
the total of current assets less current liabilities as shown in the
accompanying chart, amounted to $27,324,355 at January 31, 2006. As a result of
the condemnation of the Company's Flowerfield property by Stony Brook
University, the Company recorded a receivable of $26.9 million which includes
the principal of $26.3 million plus interest, and wrote off costs attributable
to the residential golf course community and other land development costs
totaling $5.6 million. Net prepaid expenses and other assets shown in the
accompanying chart does not include $36,073 and $77,079 of furniture and
fixtures and loan origination fees for the nine months ended January 31, 2006
and 2005, respectively.
Seq. Page 11
January 31,
-------------------------
2006 2005
----------- -----------
Current assets:
Cash and cash equivalents $ 1,346,183 $ 1,242,726
Rent receivable, net 79,490 149,201
Condemnation receivable 26,898,977 0
Mortgage receivable 0 1,700,000
Net prepaid expenses and other assets 162,085 318,892
----------- -----------
Total current assets 28,486,735 3,410,819
----------- -----------
Current liabilities:
Accounts payable and accrued expenses 843,492 251,512
Tenant security deposits payable 165,472 207,612
Income taxes payable 153,416 0
Current portion of loans payable 0 7,411
----------- -----------
Total current liabilities 1,162,380 466,535
----------- -----------
Working capital $27,324,355 $ 2,944,284
=========== ===========
LIMITED PARTNERSHIP INVESTMENT
Our limited partnership investment in the Callery Judge Grove, LP is carried on
the Company's balance sheet at $0 as a result of recording losses equal to the
carrying value of the investment. This investment represents a 10.93% ownership
interest in a limited partnership that owns a 3500+ acre citrus grove in Palm
Beach County, Florida. The land is currently the subject of a change of zone
application for a mixed use of residential, commercial and industrial
development. We have no current forecast as to the likelihood of, or the timing
required to achieve, these entitlements that might impact the Grove's value.
(c) OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial conditions, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Item 3 CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of January 31, 2006. 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.
Part II Other Information
Items 1 through 3 and item 5 are not applicable to the three months ended
January 31, 2006.
Item 4 Submission of Matters to a Vote of Security Holders
The Company's annual shareholder meeting for Fiscal Year 2005 was held on
December 9, 2005. On each matter submitted to shareholders, the votes were as
follows:
Seq. Page 12
To elect two directors, Elliot H. Levine and Robert H. Beyer to serve for a term
of three years or until their successors shall be elected and shall qualify:
Elliot H. Levine; votes for 972,403, votes withheld 68,013; Robert H. Beyer;
votes for 795,013, votes withheld 245,403.
Messrs. Lamb, Maroney, Palmedo, Smith and Macklin continue to serve as directors
in accordance with their terms of office.
To ratify the engagement of Holtz Rubenstein Reminick, LLP as independent
certified public accountants and auditors for the fiscal year ending April 30,
2006; votes for 894,403, votes against 3,254, votes abstain 142,759.
Approval of the amendment of Gyrodyne's by-laws to allow shareholders holding an
aggregate of at least 30% of the outstanding shares of Gyrodyne common stock to
call special meetings; votes for 685,101, votes against 33,887, votes abstain
863.
Approval of the shareholder proposal to engage promptly an investment banking
firm to pursue a sale of the Company; votes for 221,511, votes against 488,134,
votes abstain 10,206.
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 Amended and Restated By-laws of Gyrodyne Company of America, Inc.
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: March 09, 2006 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer
and Treasurer
Date: March 09, 2006 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 13