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, 1997
[ ] 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
(State or other jurisdiction of incorporation or organization)
11-1688021
(IRS Employer Identification No.)
7 Flowerfield, Suite 28, St. James, N.Y. 11780
(Address of principal executive offices)
(516)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:
1,013,072 Common $1 P.V. as of January 31, 1997
INDEX TO QUARTERLY REPORT
QUARTER ENDED JANUARY 31, 1997
Form 10-QSB Cover
Index to Form 10-QSB
Consolidated Balance Sheet
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Footnotes to Financial Statements
Management's Discussion and Analysis or Plan of Operation
Part II - Other Information
Signatures
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
10-QSB
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
January 31, 1997
ASSETS (NOTE 1)
CURRENT ASSETS:
Cash and cash equivalents $761,615
Short-term investments
Accounts receivable, less allowance for
doubtful accounts of $6,000 (Note 3) 114,450
Prepaid expenses and other current assets (Note 6) 282,902
----------
Total current assets 1,158,967
INVESTMENT IN CITRUS GROVE PARTNERSHIP (Note 10) 1,585,104
PROPERTY, PLANT AND EQUIPMENT-NET (Note 5) 2,553,381
PREPAID PENSION COSTS (Note 2) 1,695,958
OTHER ASSETS (Note 7) 34,308
----------
TOTAL ASSETS $7,027,718
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $256,058
Loans payable - short term portion 70,000
Income taxes payable 0
----------
Total Current Liabilities 326,058
==========
LONG TERM LIABILITIES
Loans payable - long term portion (Note 9) 903,726
DEFERRED INCOME TAXES 1,231,114
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share
authorized 4,000,000 shares, 1,531,086 shares
issued at January 31, 1997 (including 518,014
shares held in treasury) (Note 8 & 11) 1,531,086
Capital in excess of par value (Note 1 & 8) 6,262,795
Retained earnings (Note 1) (237,603)
----------
7,556,278
Less cost of shares of common stock
held in treasury (Note 1 & 8) (2,989,458)
----------
Total stockholders' equity 4,566,820
----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $7,027,718
==========
See notes to consolidated financial statements
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
10-QSB
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
January 31, January 31,
REVENUE: 1997 1996 1997 1996
<S> <C> <C> <C> <C>
Rental income $1,503,409 $1,382,963 $512,407 $479,735
Aerospace income 104,606 705,500 10,000 700,000
---------- ---------- --------- ---------
Total Revenue from Operations 1,608,015 2,088,463 522,407 1,179,735
---------- ---------- --------- ---------
COSTS AND EXPENSES:
Cost of maintaining rental property 1,044,902 1,120,513 370,158 399,029
Aerospace 76,191 63,005 18,865 22,297
General and administrative (Note 8) 784,780 647,536 231,840 200,120
---------- ---------- --------- ---------
Total costs and expenses 1,905,873 1,831,054 620,863 621,446
---------- ---------- --------- ---------
GROSS OPERATING MARGIN (297,858) 257,409 (98,456) 558,289
OTHER INCOME AND EXPENSES:
Equity in earnings of Citrus Grove Partnership 0 0 0 0
Equity in earnings of Oil and Gas (Note 4) 91,589 24,254 39,908 21,103
Gain on sale of Gas Investments (Note 4) 0 172,176 0 0
Interest & Dividend Income 27,917 18,450 7,894 7,737
Pension Income\(Expense) (Note 2) (56,062) (28,568) (26,019) (9,523)
Interest Expense (78,442) (55,059) (25,837) (29,046)
Miscellaneous Income\(Expense) 0 (2,997) 0 (2,956)
---------- ---------- --------- ---------
Total Other Income\(Expense) (14,998) 128,256 (4,054) (12,685)
---------- ---------- --------- ---------
Income before income tax provision (312,856) 385,665 (102,510) 545,604
INCOME TAX PROVISION:
Current taxes (Note 6) (122,839) 154,266 (40,954) 218,242
Deferred taxes 0 0 0 0
---------- ---------- --------- ---------
Total tax provision (122,839) 154,266 (40,954) 218,242
---------- ---------- --------- ---------
NET INCOME (LOSS) ($190,017) $231,399 ($61,556) $327,362
========== ========== ========= =========
WEIGHTED AVG. NO. OF COMMON
SHARES OUTSTANDING 1,006,485 996,459 1,006,485 996,459
========== ========== ========= =========
PER SHARE INFORMATION:
Earnings per share of common stock ($0.19) $0.23 ($0.06) $0.33
========== ========== ========= =========
</TABLE>
See notes to consolidated financial statements
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
10-QSB
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings ($190,017) $231,399
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization of oil and gas investments 0 28,301
Depreciation and amortization of plant and equipment 77,796 55,129
Pension (income)\expense 56,061 28,568
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 345,058 (358,331)
Prepaid expenses and other assets (64,898) (128,529)
Other assets 180,980 31,605
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (90,616) 81,782
Taxes payable 0 124,789
-------- --------
Total adjustments 504,381 (136,686)
-------- --------
Net cash (used)/provided by operating activities 314,364 94,713
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short term investments 189,716 111,210
Decrease in oil and gas investments 0 112,405
Increase in property, plant and equipment (553,031) (547,321)
-------- --------
Net cash (used)/provided by investment activities (363,315) (323,706)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
New borrowings 0 1,266,000
Repayment of debt (54,949) (658,865)
Stock option exercise (Note 8) 152,287 145,007
-------- ---------
Net cash from financing activities 97,338 752,142
-------- ---------
Net increase (decrease) in cash and cash equivalents 48,387 523,149
Cash and cash equivalents at beginning of year 713,228 185,430
-------- ---------
Cash and cash equivalents at end of period (Note 7) $761,615 $708,579
</TABLE>
See notes to consolidated financial statements
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited Consolidated Statements of Income for the nine month
periods ended January 31, 1997 and January 31, 1996 and the Consolidated
Balance Sheet as of January 31, 1997 reflect all adjustments which, in the
opinion of Management, are necessary for the fair representation of results
of such periods. The results of operations for the nine month periods ended
January 31, 1997 and 1996 are not necessarily indicative of the results to
be expected for the full year.
2. The application of FASB 87 resulted in the Company's recognition, on the
basis of annual Actuarial reports, of $56,062 of net periodic pension expense
for the nine month period ended January 31, 1997 and $28,568 of net periodic
pension expense for the comparable period in Fiscal Year 1996. The projected
full year expense for FY 1997 will be $82,080 vs. $38,091 for FY 1996. The
expense increase from period to period is a result of the Pension Plan
restructuring. The revised plan calls for increased benefits to current and
retired employees.
3. At April 30, 1996, $6,000 had been provided as a reasonable reserve for
uncollectible accounts receivable. This reserve has not changed during the
first nine months of FY 1997.
4. In the comparable period last year, the Company completed the sale of
its Gas investments (July 1995). The sale price of $284,000 was reduced by
payables still outstanding on these wells which resulted in net proceeds to
the Company of $201,000. The effect on the Profit and Loss Statement from
this transaction is highlighted below.
<TABLE>
<CAPTION>
Nine months ended Third Quarter Ended
January 31, January 31,
1997 1996 1997 1996
Sales of Oil & Gas $180,046 $147,277 $69,205 $45,786
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Expenses:
Operating expenses 88,457 94,122 29,297 15,699
Depreciation 0 313 0 0
Amortization of intangible drilling cost 0 28,588 0 8,984
Total operating expenses 88,457 123,023 29,297 24,683
-------- -------- ------- -------
Income\(Loss) from operations $91,589 $24,254 $39,908 $21,103
======== ======== ======= =======
Revenue from sale of gas investments 0 283,980 0 0
Net investment in gas 0 111,804 0 0
-------- -------- ------- -------
Gain on sale of gas investments $0 $172,176 $0 $0
</TABLE>
5. Property, Plant and Equipment increased $553,000 in the first nine
months primarily due to work-in-progress on various capital projects which
include Master Plan developmental cost, relocation of drainage sump, suite
renovations and other smaller projects and purchases.
6. The calculation for the provision of current year taxes is based on the
actual gain or loss year-to-date. In the case of losses, an estimated refund
is calculated to offset a pretax loss. To date, in the current year, the
Company is reporting a pretax loss, which in turn is producing a potential
tax refund. For balance sheet presentation, this negative tax accrual has
been reclassified to the "Prepaid expenses and other current assets"
category in the asset section of the balance sheet.
7. Other Assets in the prior year included $200,000 of restricted cash
which was being held as collateral for the irrevocable letter of credit
given to the seller of the land purchased in October 1994. The letter of
credit was to insure that Gyrodyne performed certain land improvements
before October 5, 1996. These improvements were completed on time and the
Letter of Credit released. The cash has been invested in a CD and is
represented in the current period as "Cash and Cash Equivalents" on the
balance sheet. The current period cash flow includes return of the $200,000
to working capital, whereas the prior period does not.
8. To date, the Board of Directors has granted two groups of stock options
to employees. The first group of options was granted on August 6, 1994 for
35,000 shares at an option price of $9.89. During 1995, as a result of the
exercise of vested options at a market price of $15.25, an incentive kicker
attached to many of the options generated an additional 10,822 shares.
Against the 1994 grant, 14,023 shares were exercised and 8,332 were
surrendered in years 1995 and 1996 leaving 23,467 options remaining of which
8,254 are currently vested and exercisable. The second option group granted
on August 26, 1995 was for 25,750 shares of which 7,300 shares are currently
exercisable. The option price on the second grant is $15.25 per share vs. a
current market price ranging between $11.00 and $13.00 per share rendering
these options currently "under water". Taken together, outstanding options
total 49,217 shares of which 15,554 are currently exercisable. Four
restricted stock grants totaling 2,380 shares were exercised on August 6,
1996 against the August 6, 1994 Board grant. Employee compensation on this
transaction amounted to $26,329 which is reflected as an expense on the
current Income Statement in General and Administrative expense. On September
11th and 13th 7,813 shares were awarded to three consultants in partial
payment for their services. The cost of these awards amounted to $98,444 and
was charged to General and Administrative Expense in the Income Statement.
On December 17th 2,328 shares were issued to four Directors in payment for
1995 Directors Fees. The cost of these shares amounted to $27,514 and was
charged against accrued Directors Fees in the balance sheet. Combined these
three expenses, totaling $152,287, are reflected in the current year Cash
Flow Statement. In the second quarter of the prior year, the charge to
General and Administrative expense for option exercise amounted to $76,647.
This amount in combination with the $68,360 additional paid-in capital from
the purchased options is reflected as a $145,007 Stock Option Exercise in
the prior year Cash Flow Statement.
<TABLE>
<CAPTION>
A summary of employee stock options is as follows:
Stock Options Number of shares Total
<S> <C> <C>
Outstanding at July 30, 1995 35,000
Incentive awards at $9.89 per share 5,203
SAR'S at $9.89 5,619
Granted August 26, 1995 at $15.625 25,750
------
Total granted shares 71,572
Exercised options at $9.89 first year 6,910
Exercised awards at $9.89 first year 3,160
Exercised SAR's at $9.89 first year 1,573
Exercised awards at $9.89 second year 2,380
SAR's surrendered first year 2,535
Incentive kicker surrendered first year 1,573
Options surrendered upon SAR's exercised first year 2,713
SAR's surrendered second year 1,511
------
Total exercised or surrendered shares 22,355
------
Outstanding at January 31, 1996 49,217
------
Exercisable as of January 31, 1996 15,554
------
</TABLE>
9. In the second quarter of FY 1996 the company secured a $1,050,000 ten
year mortgage maturing in October 2005. This loan was used to pay off the
balance of the prior term loan and to finance the renovation of a portion of
Building #7. The loan has a fixed principal payment each month of $5,833.33
and interest at a floating rate at 2% above the prime rate. The loan is
secured by the assignment of rents and a first collateral mortgage on
Building #7 which is situated on six and one half acres in St. James NY.
The loan is also secured by the guarantees of Gyrodyne Petroleum Inc. and
Flowerfield Properties Inc. The principal balance of the loan at January 31,
1997 was $962,500. The remainder of the principal will be paid as follows:
Fiscal Year 1997 $17,500
Fiscal Year 1998 70,000
Fiscal Year 1999 70,000
Fiscal Year 2000 70,000
Fiscal Year 2001 70,000
Thereafter till October 2005 665,000
--------
962,500
Vehicle term loan bearing 10.9% interest
maturing August 1999 11,226
--------
973,726
less current portion 70,000
--------
Long term debt $903,726
10. In the fourth quarter of FY 1996 the Company adopted a change in the
accounting treatment of its investment in the Callery Judge Grove. Effective
May 1, 1995 the Company changed from the equity method to the cost method
with all previously recorded income or loss remaining as part of the book
value to the investment as of that date. The first three quarters of FY 1996
have been adjusted to reflect this change.
11. At the annual stockholders meeting held on October 25, 1996 the
stockholders approved increasing the authorized shares of the Company's
Common Stock from two million shares (2,000,000) to four million shares
(4,000,000). The Company has filed with the New York Department of State a
change in its Articles of Incorporation to reflect this and other changes.
The Company has no immediate plans to issue additional shares.
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
Total Revenues from Operations for the nine month period and quarter ended
01/31/97 were $480,448 and $657,328 lower respectively than the prior
periods. The decline in both periods is due to a one time $700,000
helicopter sale which took place in the third quarter of the prior period.
Excluding current year and prior year helicopter revenues, rental income
increased $120,446 and $32,672 respectively. This increase reflects a 95%
occupancy rate, up from 90% in the prior year, as well as higher rental
rates on lease renewals.
Cost of Sales for the six month period and quarter decreased by $75,611 and
$28,871 respectively. The cost reduction year-to-date and quarter-to-quarter
is mainly the function of reduced building maintenance cost. Capital
projects in the current year absorbed much of the cost and labor that were
previously expensed in normal building upkeep. The offset to this was higher
depreciation and other equipment expenses in both periods.
Public introduction of the Company's preliminary Master Plan was somewhat
hastened by the release of a Brookhaven Township funded study that addressed
the likely path and the ultimate impacts of a possible connecting road
between the State University of New York at Stony Brook and the Flowerfield
property. Once in the public forum, the Company conducted numerous briefing
sessions with local officials, planners, special interest groups and the
media. Numerous initial misconceptions and conjectures were addressed with
the final result that the Company established a broad base of support for
the conceptual underpinnings of the plan. Management estimates that a public
comment period of approximately one year will ensue before reappraisal and
formal submittal of the Master Plan to governmental authorities.
Aerospace expenses were higher for the year-to-date period but lower in the
quarter-to-quarter period by $13,186 and $3,432, respectively. Aerospace
expenses year-to-date reflect increased activity attributable to the
refurbishment of the Yron Rotorcycle and an advanced drone configuration,
the QH-50F, in prior quarters. Activity in the current quarter seems low
because it is being compared to a prior quarter in which two helicopters
were sold.
General and Administrative expense rose for the nine month and quarter
periods by $137,243 and $31,719, respectively, reflecting increased use of
outside professional services connected with land development. Further,
increased Directors' fees attributable to the addition of three new
directors and fee restructuring also contributed to the increase. At FY
1996 year end, the Company changed its method of reporting Citrus Grove
activity from the equity method to the cost method of accounting. The
change was precipitated due to the Company's reduced ownership percentage
and the Grove's coming change to a fiscal year ending June 30 1997 which
would have exacerbated the Company's existing financial reporting timing
differences.
Although Grove financial results are no longer reflected in the Company's
P&L, reports from the Grove show continuing improvement. The packing plant
is operating at thrice the capacity recorded last year at this time, the
crop set appears much superior this year, and marketing efforts by the Grove
have yielded results on numerous fronts. Brand-name marketing promotions have
resulted in increased direct sales to wholesalers and large retail
customers. The Grove also continues to attract attention as a source of land
for community infrastructure projects such as schools, shopping facilities,
and water and sewage treatment.
Excluding the gain on the sale of gas properties in the prior year, oil
income in the current year is up $67,335 vs. the prior year and $18,805 for
the comparable quarter. All expenses related to depreciation and
amortization have been completely exhausted and the corresponding assets
written off. As previously estimated, net oil income should, provided
current market conditions prevail, edge towards the top end of the $75,000-
$100,000 per year range.
Interest and Dividend income for the current nine month period and quarter-
to-quarter comparison is up $9,467 and $157 respectively. Year to date
reflects the influx of cash from a large tax refund coupled with the
proceeds from the sale of two helicopters which inflated the cash base for
several months. The quarter-to-quarter results reflect the comparable ending
cash balances; $761,615 and $708,579 respectively.
The Pension Fund generated a greater net expense during the current nine
months as a result of increased benefits and the lump sum payouts to two
former employees. The quarter-to-quarter comparison also reflects the higher
current year expense on a pro-rata basis.
Interest expense increased year-to-year reflecting the assumption of a new
loan during the second quarter of FY 96 which is $450,000 greater than the
original loan. Both loans were based on a fixed principal amortization
schedule with interest on the declining principal balance. The new loan has
a longer term, and the fixed principal payment is approximately half the old
rate ($5,833 vs. $10,000) with a commensurate increase in the monthly
interest expense. The quarter-to-quarter comparison reflects the interest on
the new loan only in both quarters. A lower floating interest rate coupled
with a smaller residual principal base led to a reduction in expense during
the current quarter.
The current ratio for the period ended January 31, 1997 increased to 3.55:1
from 3.27:1 at October 31, 1996 and decreased from 4.22:1 at January 31,
1996. The increase in the most current period is a result of lower payables.
The large decrease from January 1996 is the result of lower cash,
principally due to an increase in capital spending.
For the nine month period and the quarter ending January 31, 1997, the
Company is reporting an after tax loss of $190,017 or $0.19 per share and
$61,556 or $.06 per share, respectively. This compares to an adjusted gain
of $231,399 or $.23 per share and $327,362 or $.33 per share for the prior
periods. The prior period results include the one time helicopter sale of
$700,000. Results for the current period are not necessarily indicative of
nor should they be used to project full year results.
An analysis of the comparable nine month periods indicates that noncash
expenses during the current fiscal year, particularly depreciation, pension,
and stock transaction expenses amounted to $286,144, approximating the
pretax loss of $312,856. Factoring out the nonrecurring one time sale of two
helicopter platforms for $700,000 during FY 1996, the Company would have
reported a pretax loss of $314,335 of which $160,345 would have reflected
the aggregate depreciation, pension, and stock transaction expense. The net
result is that although the Company sustained losses during FY97, there has
been no reduction in liquid assets.
The Company is currently estimating an after tax loss of approximately
$250,000 for the full year. As a result of continued emphasis on
introduction of the Company's Master Plan to the public and ongoing work
such as traffic studies and impact analysis, expenses will continue to be
incurred with no corresponding revenue until actual financial commitments
are made and building projects come on-line. The Company anticipates that
substantial progress towards realizing the initial development goals set
under the Master Plan will occur during FY1998.
In order to continue husbanding cash, the Company has adopted a policy of
remunerating consultants, when deemed prudent, with a mix of cash and
equity. Management believes that this policy enhances the Company's ability
to take advantage of a broader range of development options while
maintaining momentum and enjoying steady progress.
Part II Other Information
Items 1 through 4 are not applicable to the November 1, 1996 through January
31, 1997 period.
Item 5. Other Information
On February 3, 1997 the Company filed a Form S-8 with the Securities and
Exchange Commission, incorporated herein by reference, which covers the 1996
Non-Employee Directors' Stock Option Plan and a Non-Employee Directors'
Compensation Plan.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required - None
(b) Reports on Form 8-K - None were filed by the Company for the third
quarter of FY 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GYRODYNE COMPANY OF AMERICA, INC.
(Registrant)
Date: February 13, 1997 SGD/Dimitri P. Papadakos
Dimitri P. Papadakos
President and Principal Executive Officer
Date: February 13, 1997 SGD/John A. Rohrs
John A. Rohrs
Treasurer, Controller and
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 761,615
<SECURITIES> 0
<RECEIVABLES> 120,450
<ALLOWANCES> (6,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,158,967
<PP&E> 5,914,244
<DEPRECIATION> 3,360,863
<TOTAL-ASSETS> 7,027,718
<CURRENT-LIABILITIES> 326,058
<BONDS> 903,726
0
0
<COMMON> 1,531,086
<OTHER-SE> 3,035,734
<TOTAL-LIABILITY-AND-EQUITY> 7,027,718
<SALES> 1,608,015
<TOTAL-REVENUES> 1,608,015
<CGS> 0
<TOTAL-COSTS> 1,121,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,442
<INCOME-PRETAX> (312,856)
<INCOME-TAX> (122,839)
<INCOME-CONTINUING> (190,017)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (190,017)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
