U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACTOF 1934 for the fiscal year ended. APRIL 30, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 for the transition period
from.....................................to
.............................................
Commission file number 0-1684
GYRODYNE COMPANY OF AMERICA, INC.
- ----------------------------------------------
(Name of small business issuer in its charter)
NEW YORK
- -------------------------------
(State or other jurisdiction of
incorporation or organization)
11-1688021
- ------------------------------------
(I.R.S. Employer Identification No.)
7 FLOWERFIELD, SUITE 28, ST. JAMES, NY 11780
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (516) 584-5400
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
COMMON STOCK, PAR VALUE $1.00 PER SHARE
- ---------------------------------------
Name of each exchange on which registered
NASDAQ SMALL CAP
- ----------------
Securities registered under Section 12(g) of the Exchange Act: NONE
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
a shorter period that the registrant was required to file such reports), and
(2) has been subject to such filling requirements for the past 90 days.
Yes....X........No.............
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [x]
The issuer's revenues for its most recent fiscal year were: $2,235,655
The aggregate market value of the 510,097 shares of voting stock held by
non-affiliates of the registrant on JULY 20, 1998 was $10,297,583. The
aggregate market value was computed by reference to the average bid and asked
prices of the common stock, on such date, on the NASDAQ system.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the issuer's Common $1.00 par value stock
as of JULY 20, 1998 was 1,061,992.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy statement to be filed pursuant to
regulation 14A for the FY 1998 annual meeting of Shareholders of the Company
are incorporated by reference into Part III hereof.
INDEX TO FORM 10-KSB
FISCAL YEAR 1998
ITEM #
PART I
1 -Business
2 -Properties
3 -Legal Proceedings
4 -Submission of Matters to a Vote of Security Holders
PART II
5 -Market for Registrant's Common Stock and
Related Stockholders' Matters
6 -Management's Discussion and Analysis of
Financial Position and Results of Operations
7 -Financial Statements and Supplementary Data
Independent Auditors' Reports
Consolidated Balance Sheet
Consolidated Statements of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
8 -Disagreements on Accounting and Financial Data
PART III
9 -Directors and Executive Officers of Registrant
10 -Compensation of Executive Officers and Directors
11 -Security Ownership of Certain Beneficial Owners and Management
12 -Certain Relationships and Transactions
13 -Exhibits, Financial Statement Schedules,and Reports on Form 8K
Signatures
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT:
Incorporated in New York in August 1946, Gyrodyne Company of
America, Inc. (GCA) was engaged in the design, development,
testing, and production of coaxial helicopters. Although still
involved in aerospace, the Company's primary focus is in
developing its real estate assets. Gyrodyne Petroleum, Inc.
(GPI), a wholly owned subsidiary, was incorporated in Delaware in
1965 and was established to diversify away from the aerospace
industry. In 1966, Flowerfield Properties, Inc. (FPI), a wholly
owned subsidiary, was incorporated in New York to manage
investments in marketable securities and to participate in a
citrus grove limited partnership in Florida.
GCA since its inception and for the next 25 years was primarily
engaged in design, testing, development and production of coaxial
helicopters. The Company's 326 acre Flowerfield property in St.
James, New York was originally purchased in 1951 for use as a
manufacturing facility and to provide sufficient space for flight
tests. In order to diversify away from sole reliance on military
contracts, the Company during the mid-sixties invested in limited
partnerships for oil and gas exploration and in the development of
raw land for citrus, the Callery-Judge Grove.
Substantially all aerospace work was conducted for the U.S. Navy,
with a small procurement by the Japanese Maritime Self-Defense
Force. From the mid-fifties to the early seventies, Gyrodyne
manufactured and sold approximately 800 coaxial helicopters from
its first small one-man helicopter, dubbed Rotorcycle, through its
remotely piloted models QH-50A through QH-50D, with total sales
amounting to approximately $200,000,000.
Following a sharp reduction in the Company's helicopter
manufacturing business by 1972, and the total elimination of it by
1975 (except for providing spare parts), the Company began
subdividing and renting out its idle manufacturing facilities in
order to derive income. Aerospace operations were essentially
halted until the mid-eighties when the Company negotiated two
separate technology transfer agreements: one with Dornier GmbH of
Germany and the other with Israel Aircraft Industries (IAI) of
Israel. Although subjected to extensive delays due to changing
world conditions, each licensee continues to show interest in the
coaxial helicopter's future prospects. From 1992-94, the Company
was engaged in the manufacture of replacement rotor blades for QH-50
helicopters still in service with the U.S. Navy. This was the
Company's first production contract in over twenty years.
In FY1997 the Company incorporated two wholly-owned subsidiaries:
Gyrodyne Rotorcycle Company Inc. (GRC) and Gyrodyne Coaxial
Helicopter Company Inc.(GCHC). These companies were created for the
express purpose of positioning the Company to realize economic
benefits from distinctly different markets. GRC includes all the
assets of the Company's one-manned Rotorcycle helicopter (a vehicle
with a Gross Takeoff Weight (GTOW) of less than 1,000 lbs.) while
GCHC exclusively controls the QH-50 assets (a vehicle with a GTOW of
1,500-3000 lbs.). As noted in a previous report, two YRON platforms
have been sold through Aviodyne U.S.A. with whom the GRC now has a
50/50 joint venture: Rotorcycle 2000, LLC.
Established in 1909, the Flowerfield property initially spanned
one thousand acres. Today the property is identified solely with
the Company's 326 acre parcel. Flowerfield increased to its
present size in 1994 with the purchase of five acres for
approximately one half million dollars. Flowerfield Realty, Inc.
a wholly owned subsidiary was incorporated in 1994 to handle the
transaction. Flowerfield is home to approximately 202,000 square
feet of buildings suitable for office, engineering, manufacturing
and warehouse space. Flowerfield is the Company's single largest
asset and primary focus.
Gyrodyne Petroleum, Inc. (GPI), was established primarily to invest
in oil and gas limited partnership interests. Beginning in 1965,
the initial major partners were Apache Oil and Austral Oil Company.
During 1976, all Apache Oil partnership interests were disposed of.
The Austral limited partnership assets through various acquisitions
and mergers came under the management of Mobil Oil Corporation in
1984. In January 1988, Mobil Oil Corporation, then our general
partner, divested itself of its interest in Rulison Field, Colorado.
Four nonaffiliated firms acquired individual leases and became the
operators for our then segmented Rulison Field interest.
In 1991 Parker and Parsley purchased Mobil's entire interest in
Ackerly Field, Texas, and in 1992, Meridian Oil Inc. acquired
Mobil's entire interest in the Basin Dakota Field, New Mexico. The
sale of Mobil's interests also signaled the demise of Oil
Participants Inc., the umbrella company which was the vehicle for
limited partnership investment by GPI. No longer a limited partner,
GPI became a working interest owner in these various properties. In
July 1995, the Company sold its interests in the Rulison and Basin
Dakota assets. In August 1997, Parker and Parsley merged with MESA
Operating Company which changed its name to Pioneer Natural
Resources USA, Inc. (Pioneer). Subsequently, in February 1998,
Henry Petroleum Corp. bought out Pioneer and is the current operator
in the Ackerly Field. The balance of the remaining oil assets,
Ackerly Field, is not deemed to be a significant portion of the
Company's total assets.
In 1966, Flowerfield Properties, Inc. (FPI), was incorporated to
manage investments in marketable securities and to participate in a
citrus grove limited partnership in Florida. Active management of a
securities portfolio was phased out in the late seventies. The
Callery-Judge Grove is located 16 miles west of Palm Beach, Florida
with a portion lying in the Indian River Basin. The Company's
initial net investment position, after payout per the partnership
agreement, was 17.5% which today, subsequent to two new equity
offerings, is approximately 12.74%. In accordance with the
partnership agreement, the Company has no active voice in the
Grove's management which authority rests solely with the Managing
Partner. The Grove interest is the Company's second largest asset.
Neither the Company nor any of its subsidiaries have ever been in
any bankruptcy, receivership or similar proceeding.
(b) BUSINESS OF ISSUER:
The Company is currently involved in four business segments. The
Company manages its real estate and helicopter activities while it is a
passive investor in the citrus operation and maintains a working
interest only in a single oil property, Ackerly Field. Below is a
summary of financial results by business segment for FY 1998 and 1997.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
APRIL 30, APRIL 30,
1998 1997
<S> <C> <C>
Rental Income $ 2,125,161 $ 2,020,979
Aerospace Income 110,494 104,606
Less: Rental costs and expenses 1,325,670 1,388,322
Net Aerospace expense 137,178 98,135
--------- ---------
Operating Margin $ 772,807 $ 639,128
========= =========
Other Income/(Loss):
Oil and Gas Income (Notes 1, $ 75,237 $ 126,467
2, & 3)
Other Expense (Net) (Notes 4 & 5 (63,946) (67,137)
--------- ----------
Total Other Income $ 11,291 $ 59,330
========= ==========
Identifiable Assets at Net
Carrying Value
Real Estate Fixed Assets (Note 6) $ 2,749,615 $ 2,555,953
========== ==========
</TABLE>
Note 1 - All inter-company transactions have been eliminated.
Note 2 - All company activity was within the United States of America.
Note 3 - See note number 3 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS."
Note 4 - See Other Income and expense discussion in Item 6 "Management's
Discussion."
Note 5 - See the Other Income and (Expenses) section of "CONSOLIDATED
STATEMENTS OF OPERATIONS."
Note 6 - See note number 2 of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS."
The Business Segments in the financial statements reflect the
unconsolidated real estate, aerospace and investment activities of
Gyrodyne Company of America, Inc. The oil and gas activity of Gyrodyne
Petroleum, Inc. is carried as investment income on the consolidated
statements of income under the heading "Other Income."
(1) Real Estate
The Company is not a real estate developer in the traditional sense.
Acquisition of additional real estate assets is solely for the
purpose of augmenting the development prospects of the Flowerfield
property. Gyrodyne owns a 326 acre site, primarily zoned for light
industry, approximately 50 miles east of New York City on the north
shore of Long Island. Purchased in 1951, the property was initially
surrounded by farm land. Major residential developments sprang up
in the sixties, most notably, those constructed by the Levitt
Organization. In the early sixties the State of New York began
construction of a campus which today is the State University of New
York (SUNY) at Stony Brook. Covering over one thousand acres, Stony
Brook University is a major research center complete with tertiary
care hospital and veterans hospital. The University's High
Technology Incubator already boasts numerous graduates creating an
ongoing need for research and development space.
There are two major industrially zoned parcels bracketing the
University, one to the east and Flowerfield to the west. The
eastern parcel, located solely in the township of Brookhaven, is
approximately one hundred acres in size with road accessibility
provided by a four lane east-west route. Currently the parcel is
approximately eighty percent under contract or already developed.
At the current rate of construction, the balance of the park should
be committed in two to three years with an aggregate total build out
of approximately 1,000,000 square feet.
The Flowerfield property is bisected by the town lines of Smithtown
and Brookhaven Townships. The existing buildings and approximately
144 acres are located in the town of St. James, Township of
Smithtown, and the contiguous balance of approximately 182 acres is
located in the town of Stony Brook, Township of Brookhaven.
The approximately 326 acres of land are zoned for use as shown
below:
Approximate Acreage
<TABLE>
<CAPTION>
Light Residential
Township Total Industry and/or Buffer
<S> <C> <C> <C>
Smithtown 144 120 24
Brookhaven 182 173 9
Total 326 293 33
===== ===== =====
</TABLE>
Flowerfield is the single largest undeveloped privately
owned industrially zoned parcel in the township of
Smithtown. All of the acreage is contiguous. However,
the Port Jefferson Branch of the Long Island Railroad
runs through the property, with 73.5 acres lying to the
north of the Railroad, and the balance to the south.
The site has several additional positive features.
Flowerfield's location places it in hydrological zone
VIII, one of the most liberal with respect to effluent
discharge rates. Flowerfield and Stony Brook
University share mirroring road frontage on a local
secondary road which has become the basis for a
road/bridge link between the two campuses. The
possible linkup could provide a regional traffic
solution. The pristine nature of the Flowerfield
property adds to planning flexibility thus permitting a
wide range of development plans such as corporate
headquarters buildings, satellite incubators and a
conference center.
Improvements to Flowerfield over the years include
nearly five miles of roads and approximately ten acres
of paved parking areas. There are five main building
groups with rental unit sizes ranging from 300 square
feet to 25,000 square feet, with the 1,000 square foot
units being most numerous. Where practical, separate
utilities have been provided for each suite. Given the
location and size of rental units, the Flowerfield
Industrial Park attracts small startup companies that
are not dependent on extensive material or product
handling. Flowerfield lies seven miles north of the
Long Island Expressway.
MANDATED INFRASTRUCTURE IMPROVEMENTS
<TABLE>
<CAPTION>
Project(s) Agency or Mandate Projected
Completion
<S> <C> <C>
Industrial building Suffolk County Department of
public water backflow Health on-going
prevention Suffolk County, New York
Inspection, maintenance N.Y.S. Department of
and/or removal of Environmental Control (DEC) on-going
in-ground oil tanks
Handicap access to Americans With Disabilities on-going
facilities Act
Hazardous material Environmental Protection on-going
disposal Agency (EPA)
</TABLE>
It is currently estimated that costs associated for
compliance with government regulations will cumulatively
approach $150,000 over the next few years. It must be
noted that there may be additional compliance costs in
the event that proposed approaches to various projects
are modified or nullified by pending changes in
regulations or adverse administrative interpretations.
The Company has undergone extensive reviews of
development possibilities, and in June 1996, the Board
of Directors adopted a preliminary Master Plan for
Development. A broad range of efforts are now underway
to further focus the preliminary plan and garner
community input and support. The adoption and
implementation of the development plan will be market
driven and should not be viewed as a short term project.
Further marketing and technical surveys must be
conducted prior to the promulgation and submittal of a
required environmental impact statement to village, town
and county officials.
With the exception of two individuals assigned to
aerospace activities, essentially all Company personnel
are directly involved in support of real estate
operations. Depending on seasonal requirements, total
full time personnel vary between twenty and twenty-five.
(2) Oil and Gas
As noted earlier, Henry Petroleum acquired Pioneer's
interest in the Ackerly Field, Texas property in
February 1998. GPI's interest is:
<TABLE>
<CAPTION>
Name Location % Avg. Net
of - FIELD County/State - GROSS ACREAGE Revenue - INTEREST
<S> <C> <C>
Ackerly Dawson, Texas - 6,540 Acres 4.5%
</TABLE>
GPI's initial acquisition of Ackerly was as an operating field and as
such, the field is well over thirty years old. Environmental
compliance expenses, particularly for casing leaks, have tended to
rise over time. The estimated monthly output is roughly seven
hundred and fifty barrels per month with gross revenues fluctuating
with the spot price of oil, currently $13.49/bbl (June 98 vs.
$18.00/bbl for FY98) range. Expenses, ad valorem taxes and mandated
maintenance reworks average approximately $8,500 per month.
(3) Citrus Grove
From its inception in 1965, the net worth of the Grove Partnership,
based on its appraised value, has increased approximately 600% while
cash distributions to the partners have amounted to $31 million or
500% on a base investment of $5.5 million. At the formation of the
Partnership, the Company's interest was 20%. However, as provided in
the Agreement, upon payout of each limited partner's initial equity
participation, the General Partner was granted a 12.5% share of Grove
earnings and equity which effectively reduced the Company's share of
the Partnership to 17.5%. Based on two recent capital infusions, in
which the Company did not participate, the Company's share has
declined to approximately 12.74%. During calendar year 1976, the
Grove realized its first profit from operations and by 1981 the
Limited Partners had recouped their original cash investment. To
date Flowerfield Properties Inc. has received, in cash, five times
its $1.1 million original investment.
In 1995 the Company signed an amendment to the Partnership agreement
which extends the life of the Partnership from 1999 to 2019. In
addition, it provides greater flexibility to the General Partner in
such areas as financing, cash distribution and bonuses. In April of
1995, a $6 million subscription program for additional capital was
instituted by the Grove as well as another subscription of $5 million
in June 1997. Existing Partners were given the opportunity to
subscribe to this financing at the same level as their current
investment. Gyrodyne deferred and did not participate in either
offering.
Although Management has determined that development of the
Callery-Judge Grove is in the best interests of the Partnership, the
requirement to husband cash and invest in the development of
Flowerfield's Master Plan far outweighs this alternative investment
opportunity.
Beginning May 1, 1995 (FY96) the Company changed from the equity
method of accounting to the cost method of accounting. Thereafter,
the Company's investment in the Grove only changes when capital
distributions are received or when cash payments are made to the
Grove. There were no such transactions in FY 1998. The Company does
not anticipated receiving any significant cash distributions from the
Grove prior to FY2000. The Company's last cash receipt from the
Grove was in calendar year 1991 and amounted to $294,000.
With a change in the Managing Partner in 1992, the Grove began
aggressively marketing not only the private Callery-Judge brand
through direct sales to institutions and individuals but also
directly to Japan. Acquisition of additional shares in the Ocean
Spray Co-Op has helped stabilize the juice-solids market while
receipts and savings from the packing house operation continue to
rise. However, a glut of grapefruit product throughout Florida
continues to be a dampening factor on earnings for the foreseeable
future.
In 1997 the Grove changed its financial reporting year from a
December 31 calendar year to a June 30 fiscal year.
(4) Aerospace:
The Company's primary aerospace product is the QH-50 model remotely
piloted coaxial helicopter. Although sold as an integrated package:
engine, fuselage, rotating controls, avionics, rotor blades,
actuators, fuel tank(s) and payloads to the U.S. Navy, Gyrodyne
currently specializes in the assembly and testing of dynamic
platforms only. This consists of the fuselage, rotating controls,
rotor blades and fuel tank(s). All chemical testing and processing
is subcontracted, and therefore, there is no environmental exposure.
From the late forties through the sixties, the Company ushered in
numerous technological milestones including the world's first
successful coaxial flight test, first convert-a-plane, first free
drone helicopter flight, and first fully composite rotor blade. The
Company's unique patented "tip brake" design solved directional
control problems inherent in the coaxial rotor system thus fostering
development. In 1993 the Company was granted a new patent on a
retractable tip brake which will permit the design of more efficient
blades in the future.
As a result of efforts during the 1980's, the Company negotiated two
multi-phased licensing agreements which cover both evaluation and
manufacturing stages for its QH-50 helicopters and derivatives.
Dornier, GmbH, a subsidiary of Daimler-Benz AG, Friedrichshafen,
Germany, was awarded a license (1986) for the European NATO countries
while Israel Aircraft Industries Ltd./Technologies Division (IAI),
Ben-Gurion International Airport, Israel received a license (1987)
for Israel.
The agreements provide for Gyrodyne to furnish Dornier and IAI with
technical assistance and technical data in order for them to evaluate
the suitability of the Gyrodyne helicopter for their various
applications. It is anticipated that, if the evaluations provide
favorable results, final licensing agreements will be signed whereby
Gyrodyne will furnish additional technical and manufacturing data to
enable each licensee to produce the remotely piloted QH-50
helicopters.
It was initially anticipated that the evaluation phase of each
licensing contract would last approximately two and one half to three
years. Numerous extended delays have been encountered by each
licensee with respect to the promulgation of air vehicle requirements
by their respective governments, securing incremental development
funding, and attracting third party customers. Both licensees have
opted to market the basic QH-50 configured platform with modern
customized electronics, updated software and a new power plant. Each
version of the QH-50 is capable of handling varied mission
requirements and/or integrating various payloads such as sensors,
radars, armaments, and communications gear.
For the evaluation phase, the Company received fees of $500,000.
Should both final agreements be executed, additional fees of
approximately $3 million plus royalties are possible. The licensing
agreements would remain in effect in perpetuity and provide for
staged royalty payments. The exclusive sales territories for Dornier
are the European NATO nations and for IAI, Israel. An amendment to
extend the Agreement has been issued to IAI. All licenses and sales
are subject to the approval of the U.S. Department of State.
On September 6, 1995, Gyrodyne signed a contract with Dornier GmbH for
the sale of two re-manufactured QH 50 helicopters for $700,000. The
vehicles were used for the VTOL UAV Demonstrator Program conducted for
the German government. The second platform was shipped to Dornier in
April 1996 with the on-site technical assistance portion of the
agreement concluded in June 1996.
During FY1998, the Company redrafted its original Technology Transfer
Agreement with Dornier GmbH in response to a modified set of
procurement parameters issued by the German Ministry of Defense
(MOD), Dornier's primary customer. The decision by the German MOD to
greatly expand the number of naval ships that qualify for Dornier's
SEAMOS program has enhanced the likelihood that the program will be
deployed. Although the purchase price of the technology and general
terms of the agreement remain the same, the funding timeline has been
altered, an exemption has been granted on any royalties on the first
fifty production platforms, and Dornier's marketing area has been
expanded with the inclusion of a non-exclusive worldwide license
except Israel. In January 1998, $50,000 in income was realized from
the Dornier Technical Data Package Transfer Agreement. Another
$760,000 is anticipated in September 1998 from that same agreement.
ITEM 2. DESCRIPTION OF PROPERTY
(c) Description of Real Estate and Operating Data
Gyrodyne Company of America, Inc. (Consolidated) owns, in fee,
approximately 326 acres located on the north shore of Suffolk County,
Long Island, New York just west of the State University of New York
at Stony Brook. The Company currently has approximately 202,000
square feet of industrial building space and maintains its corporate
office and manufacturing facilities on site. In 1994, approximately
5 acres of land adjacent to the Company's property were purchased.
For a more detailed description, see Item 1. DESCRIPTION OF BUSINESS
(b) (1) Real Estate.
The land and land improvements are carried on the Company's books at
cost in the amount of $808,338, while the 202,000 square feet of
space is carried at a depreciated cost of $1,351,158. At the current
time, the property and buildings that are used by the Real Estate
segment of the business, except for Building #7 and the surrounding 6
1/2 acres which are encumbered by a 10 year collateral mortgage in
the amount of $1,050,000, are entirely without financial
encumbrances. The balance of the mortgage as of April 30, 1998 is
$879,634.
The average age of all the buildings is nearly thirty-eight years,
and the facilities are undergoing continuous maintenance repair
cycles for roofs, paved areas, and building exteriors. The external
appearance of all buildings is that of well maintained mature
properties. The general condition of internal infrastructure HVAC,
electrical and plumbing is above average for facilities of this age.
The grounds feature extensive landscaping and are neatly groomed
commensurate with other business parks.
A Phase I Environmental Study was conducted by Lockwood, Kessler &
Bartlett, Inc., September 1993, with the resulting assessment that
"...there appear to be no significant grounds for concern regarding
hazardous materials use, storage, or contamination at the subject
site." For further discussion on environmental issues, see Item 1.
DESCRIPTION OF BUSINESS (b) (1) Real Estate.
On June 13, 1996, the Board of Directors adopted a preliminary Master
Plan for the development of the Flowerfield property. The plan,
generated by consultants Henderson and Bodwell L.L.P. of Plainview,
New York, is based on a planned unit development concept. A more
detailed discussion follows in Item 6. MANAGEMENT'S DISCUSSION AND
ANALYSIS.
The Company's official address is:
Gyrodyne Company of America, Inc.
7 Flowerfield Suite 28
St. James, New York 11780-1551
The Company currently maintains a $10 million dollar liability
umbrella policy and has selectively insured certain buildings and
rent receipts predicated on an analysis of risk, exposure, and loss
history. Of the five large noncontiguous industrial buildings: two,
are constructed of prefabricated metal panels; two, of cement blocks
with metal deck roofing; and one, clay brick and stucco with a gabled
wood roof. One of the block buildings has an in-place sprinkler
system which is currently functional but not recognized for insurance
purposes. It is Management's opinion that the premises are adequately
insured.
Almost all available space has been subdivided and is available for
rent, except for approximately 18,000 square feet which has been
reserved for Company use. Of the 184,000 gross square footage
available for rent, approximately 15,000 square feet comprise common
areas such as hallways, foyers and rest rooms. A summary of
operating results:
<TABLE>
<CAPTION>
Fiscal Operating Occupancy Nominal
Year $ Revenue $ Expenses $ Margin Rate in Pct. $ Rate per sqft*
<S> <C> <C> <C> <C> <C>
1995 1,667,067 1,167,325 499,742 82 10.15
1996 1,879,287 1,430,192 449,095 86 11.35
1997 2,020,979 1,388,322 632,657 85 11.57
1998 2,125,161 1,325,670 799,491 86 11.91
</TABLE>
*EXCLUSIVE OF LAND RENTALS BUT INCLUSIVE OF THE CATERING
FACILITY AND BUS TERMINAL.
In FY 1998 three tenants individually exceeded 10% of total
rental income, representing an aggregate 46%, with one tenant
exceeding 22%. Correspondingly, in FY 1997, three tenants
each exceeded 10% of total rental income for a 44% aggregate
total. The leases of these major tenants all contain
periodic cost of living escalators as well as various
pass-through increases for such items as real estate taxes,
fuel oil increases, security services and building insurance.
For tenants with stand alone buildings, certain pass-throughs
do not apply because the associated service costs are fully
assumed by the tenants.
As of April 30, 1998, the Company had a 14.4% vacancy
rate vs.15.0% for the same period last year.
Most of the Company's tenants are startup or small
businesses that seek small spaces and short term leases.
The average square footage of tenants whose leases
expire within twelve months is approximately 1,900 sqft.
The Company's exposure to short term market rental rate
conditions is reflected in the accompanying table. A
summary of lease terms:
FY 1998 LEASE SUMMARY
<TABLE>
<CAPTION>
BALANCE OF # OF TOTAL RELATIVE RELATIVE APPROXIMATE
TIME TENANTS SQUARE PCT PCT DOLLAR
REMAINING FOOTAGE OF TOTAL OF TOTAL VALUE OF
ON LEASE RENTED DOLLAR RENTALS
SPACE VALUE
<S> <C> <C> <C> <C> <C>
Up to 1 year 46 60,711 35.5% 26.0% $ 552,000
From 1 to 2 yrs 14 47,003 27.5% 21.7% 462,000
over 2 years 11 63,397 37.0% 52.3% 1,111,000
Total 71 171,111 100.0% 100.0% $2,125,000
=== ======= ====== ====== ==========
</TABLE>
A summary of occupancies at April 30 1998:
<TABLE>
<CAPTION>
TYPE OF OCCUPANCY SQUARE FOOTAGE PERCENT OF
TOTAL
<S> <C> <C>
Office 31,889 18.6%
Manufacturing/R & D 39,122 22.9%
Service/Misc. 100,100 58.5%
TOTAL 171,111 100.0%
======= =======
</TABLE>
Depending on the type of prospective occupancy, there are approximately
5,100 square feet of long term vacancies that require extensive
renovation. Management estimates that the cost of renovation will be
approximately $30/sqft. or $153,000. Upon securing viable tenants, the
Company may seek outside financing for such renovations. Rental units
turned over in the normal course of business are refurbished from internal
cash flow.
Depreciable asset categories and rates are enumerated in Footnote 2 to the
Financial Statements. Real estate taxes paid to the township of Smithtown
for FY1998 were $240,563.10 based on a rate of $104.89/$100 of assessed
value. Real estate taxes paid to the township of Brookhaven for FY98
were $114,933.68 based on a rate of $152.23/$100 of assessed value.
ITEM 3. LEGAL PROCEEDINGS.
The Company is named as a defendant in a number of legal proceedings
arising in the normal course of business. Management, after
reviewing all actions and proceedings pending against or involving
the Company considers that the aggregate loss, if any, resulting from
the final outcome of these proceedings will not be material.
None of the Company's subsidiaries is party to, nor is any
subsidiary-owned property subject to, any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders during the
fourth quarter of either Fiscal Year 1997 or 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
(a) Market information:
The Company's Common Stock $1 P.V. (symbol: "GYRO") is traded in the
NASDAQ Small-Cap Market. Set forth below are the high and low bid
and asked prices as reported by NASDAQ for the periods indicated.
Such prices reflect inter-dealer quotations, without retail markup,
markdown or commission, and do not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
Bid Price Asked Price
QUARTER ENDED Low High
<S> <C> <C>
Fiscal 1997
July 31, 1996 $12.00 $13.75
October 31, 1996 $11.06 $12.38
January 31, 1997 $11.25 $12.38
April 30, 1997 $12.00 $13.00
Fiscal 1998
July 31, 1997 $17.00 $19.25
October 31, 1997 $20.88 $20.88
January 31, 1998 $19.50 $19.50
April 30, 1998 $20.50 $20.50
</TABLE>
(b) Approximate Number of Equity Security Holders, including shares held in
Street name by brokers.
Number of Holders
TITLE OF CLASS AS OF JULY 20, 1998
----------------------------- -------------------
Common Stock, $1.00 Par Value 1,673
(c) There were no dividends declared in the current or prior
fiscal year.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
DISCUSSION
Subsequent to the close of the fiscal year, the Company consummated its
first major land lease agreement on June 5, 1998 with TCR
MidAlantic/NE Properties, Inc. (TCR). Trammel Crow Residential is
one of the nation's most highly regarded and active multifamily
residential developers. The two phase agreement calls for the
construction of a luxury apartment community of approximately 250
units on twenty-five acres with an option for an additional 25 acres
for a Phase II development. The Agreement to Lease specifies a
99-year ground lease which is conditioned upon the completion of a
feasibility and due diligence period, closing on the ground lease
which has been negotiated and commencement of construction by
December 31, 2000.
The TCR residential development will be part of a Planned Development
District (PDD) submitted by the Company to the Town of Brookhaven.
The PDD will require a substantial investment in the development of a
comprehensive environmental impact statement, a sewage treatment
plant (STP) and infrastructure improvements. During the past three
months, the Company has contracted for the update of the 1993 Phase I
Environmental Study, begun the engineering design study for the STP
and defined the infrastructure requirements for the Master Plan
Development of Flowerfield.
As noted in last year's report, the Company's northern boundary is
located along an historic corridor. In order to minimize
environmental impacts, generate revenues and maintain a green buffer,
the Company entered into a lease on June 17, 1998 with MNM Camp
Corporation d/b/a Flowerfield Country Day Camp for approximately 15
acres of Gyrodyne's Flowerfield property along New York State Route
25A. The salient terms of the agreement include a minimum aggregate
rent of $2.7 million and a lease encompassing 11 camp seasons.
Constructed by the Company, the camp is scheduled to commence
operations in 1999. The facility will be comprised of a central
activities and administration building, swimming pools, tennis courts
and ball fields. The Company intends to utilize the summer camp
acreage as a basis for requesting higher building densities on other
portions of the Flowerfield property.
The Company has entered into serious negotiations with a well
established provider of assisted living quarters for seniors.
Substantial progress has been made to date. As with all proposed
uses that deviate from the Company's basic light industrial zoning,
governmental approval will be required. The timing of any such
approvals can not be estimated at this time.
Subsequent to the adoption of the new Technology Data Package Transfer
Agreement (TDPTA) with Dornier, a Letter of Intent was executed
which provides for a change in the funding mechanism in Dornier's
program with the German Ministry of Defense. The Company now
anticipates receiving $760,000 in August or September, 1998 towards
payment of the TDPTA contract price of $2,000,000. At this juncture,
the IAI Hellstar program is in abeyance with no recent developments
to report. The Company is not anticipating any change in status in
the near future.
Rotorcycle 2000, LLC was created to address the two primary factors
constraining the manufacture of the one-manned YRON helicopter: the
lack of an economically viable power plant and the need for a modern
rotor blade. Rotorcycle 2000 partner Aviodyne has procured a
commercially available engine which it is adapting for the YRON.
Gyrodyne Company has developed a new all-composite rotor blade, a
prototype of which was produced in July 1998. Quality control tests
and evaluations are scheduled for the fall of 1998. The rotorcycle
will be marketed to high-end business customers and recreational
enthusiasts.
As stated in previous reports, the long term prospects for the development
of the Callery-Judge Grove are excellent. Several factors are
currently adversely affecting the present development efforts. There
are jurisdictional disputes between various county and city agencies
resolution of which hinges on the definition of the area surrounding
the Grove as to whether it is rural or suburban. The issue is
important because there are different parameters for rural and
suburban developments. Although it may result in a protracted study
period, it seems likely that a countywide study encompassing two
additional large groves in the area will be necessary for the
promulgation of a master development plan. Within that framework,
each grove's individual development plan will be evaluated.
Unaudited figures for the eleven months ended May 31, 1998 for the
Grove indicate a loss on a consolidated basis in excess of three
million dollars. Although the loss exceeded expectations, the
numbers mask several positive trends. The financials reflect the net
results of sharply increased citrus production and dramatically lower
grapefruit prices. Fruit quality was also higher than last year.
New culture care methods instituted last year have reduced tree
mortality, increased the number of productive trees per acre and
increased the yield per tree.
The Grove has redirected its marketing efforts towards the gift fruit
and institutional sales segments and has abandoned direct retail
distribution. Better management controls have yielded a substantial
improvement in the packing house operation which had a profit in
excess of one million dollars for the eleven months. The collapse of
the Asian market also negatively impacted grapefruit earnings.
Prospects for FY1999 are still clouded by weak pricing, turmoil in
Asia and a glut of fruit.
The Company continues to maintain its interest in the Grove as a long
term investment. The timing of the Grove's development, return to
operating profitability and continued dilution are under active
review by both Management and the Board of Directors.
The Company's interest in petroleum is based solely on the Ackerly
property in Texas. Given the softness in the petroleum market, the
Company plans to maintain its position in Ackerly.
REVENUES
Slightly higher rental rates contributed to increased real estate
revenue of $104,000. Coupled with aerospace sales, total revenue for
the fiscal year ended April 30, 1998 increased $110,000 to $2,236,000
from the previous year's $2,126,000.
.
OPERATING COSTS
The year-to-year cost of operating rental property remained
essentially flat. A mild winter, few unanticipated repairs and low
tenant turnover contributed to the stability. FY1999 rental revenue
may decrease reflecting a new rental agreement with a major tenant
that is based on a net net lease. Expenses should show a
corresponding decrease as well. The Company's development of a new
composite rotor blade and administrative work associated with the
Dornier TDPTA contributed to higher aerospace expenses. It is
anticipated that Aerospace expenses will continue at an elevated
level throughout the blade test and evaluation period. In addition,
technical support for Dornier's project will continue in FY1999.
GENERAL AND ADMINISTRATIVE EXPENSES
On a consolidated basis for the year ended April 30, 1998, General
and Administrative expense were $1,210,577 versus $1,271,616 for the
year ended April 30, 1997. It should be noted that pension expense
is now included in General and Administrative expense on the
Company's Consolidated Statement of Operations. FY1997 has been
adjusted to reflect this change.
For analysis purposes, the Company divides General and Administrative
Expenses into four expense pools: 1) REMUNERATION: which includes all
compensation expenses related to executive and support staff; 2)
CORPORATE GOVERNANCE: which includes all expenses related to the
Board of Directors and its subcommittees, maintenance of stockholder
records, NASDAQ listing requirements, and long range strategic
planning; 3) OVERHEAD: corporate overhead expenses for accounting
services, depreciation, maintenance, utility charges, insurance,
etc., and 4) SPECIAL PROJECTS: expenses related to the Master Plan
for the Flowerfield property, acquisitions, financing charges and
consulting expenses for project advisement.
<TABLE>
<CAPTION>
G&A SEGMENTS
G&A Expenses FY98 FY97
<S> <C> <C>
REMUNERATION $748,634 $596,384
CORPORATE GOVERNANCE $232,384 $258,445
OVERHEAD $229,559 $172,787
SPECIAL PROJECTS* $0 $244,000
Total $1,210,577 $1,271,616
</TABLE>
REMUNERATION: On a cash basis Remuneration rose approximately $19,000
reflecting salary increases. Noncash expenses during FY98 included stock
options exercised and stock awards granted. The total exceeded FY97
expenses by approximately $100,000. In addition, Pension expense for the
current year was $123,000 compared to $82,000 for the prior year, an
increase of $41,000. No contributions to the plan by the Company were
required during fiscal years 1998 or 1997.
CORPORATE GOVERNANCE: During FY1998, Corporate Governance decreased in
accordance with the Black-Scholes formula utilized to calculate the future
value of options to participants. The Company took a charge of $11,400
for the current year versus a charge of $67,500 in FY1997. This was
partially offset by increased directors fees of $22,000 related to an
increase in committee meetings over the previous year. With the exception
of travel expense, reimbursement which is paid in cash, all other expenses
related to the Board of Directors, although charged to earnings, are being
paid in Company stock according to the adopted "1996 Non-Employee
Directors' Compensation Plan" thus closely aligning the directors with
shareholder interests.
OVERHEAD: Corporate overhead rose primarily reflecting expenses related
to the write off of bad debts, $37,500, and an increase in the bad debt
provision, $6,000. Legal action against tenants resulted in judgments in
the amount of $29,500. The Company has obtained some tenant assets as a
result of these judgments. Any revenue generated from these efforts will
be recorded as income when collected.
*SPECIAL PROJECTS: In line with expectations, expenses rose for legal,
real estate development and architectural consultants. The Company began
capitalizing Master Plan related expenses during the fiscal year.
$285,000 of these expenses were capitalized in FY1998.
OTHER INCOME AND (EXPENSE)
Lower net oil income was the primary factor resulting in the year-to-year
decline in "Other Income and Expense." The price of oil dropped nearly $7.00 a
barrel from June 97 to June 98.
RESULTS FROM OPERATIONS
After giving effect to the exercise of stock options, results from operations
after taxes were a loss of ($0.26) per share for the period ended April 30,
1998, versus a loss of ($0.37) per share for the prior year. The pretax loss
of $426,479 generated an income tax benefit of $155,404 and resulted in a net
loss of $271,075 compared to a loss of $376,862 in FY 1997.
LIQUIDITY AND CAPITAL RESERVES
In 1995, the Company engaged McCarthy & Associates to develop, predicated on
budgeted forecasts, a financial plan suitable for presentation to financial
institutions. The Company also commissioned Henderson & Bodwell, L.L.P.
consulting engineers to draw up a preliminary Master Plan for the development
of the Company's Flowerfield property. In conjunction with these efforts, the
law firm of Cahn Wishod & Lamb was called upon to examine the ramifications of
alternate development scenarios. As a result of these joint efforts, the Board
of Directors adopted a preliminary Master Plan in June 1996. In the current
fiscal year, Gyrodyne engaged Cameron Engineering to develop an engineering
report and facility plan for sewage treatment and site evaluations. In
addition, Freudenthal & Elkowitz Consulting Group was asked to review site
inspections and prepare an ecological inventory. The firm of Hawkins, Webb and
Jaeger prepared multiple land surveys, and Weidersum Associates provided
architectural drawings for two building projects.
As noted earlier in this report, certain additional specialists must be engaged
to provide qualified studies and opinions in diverse areas such as marketing,
traffic pattern studies, environmental impacts and community interface.
The Company estimated in numerous prior reports that the cost of adopting a
presentation caliber Master Plan proposal would be at least $250,000. This
plateau has been reached, and the Company is readying its modified Master Plan
for submittal. The cost of this next phase will approach $1,000,000. Costs
may escalate if the approval process becomes contentious. In order to mitigate
the effect of these large expenses on cash reserves, the Company has negotiated
arrangements to compensate certain consultants, in part, with restricted
investment type common stock.
EFFECTS OF INFLATION
It is the Company's policy to have multi-year leases contain cost pass-through
provisions for increases in real estate taxes, fuel costs, building insurance,
cartage and security guard services, as applicable. The balance of the
Company's operations, including rental rates, income from the Grove and
petroleum revenue are subject to free market forces.
YEAR 2000 IMPACT
The Company utilizes the latest version of commercially available software for
its accounting and systems applications which are Y2K compatible. With respect
to facilities maintenance, there is no exposure to electromechanical system
failure attributable to a possible Y2K problem.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See following pages.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Gyrodyne Company of America, Inc.St. James,
New York
We have audited the accompanying consolidated balance sheet of Gyrodyne Company
of America, Inc. and Subsidiaries as of April 30, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Gyrodyne Company of America, Inc. and Subsidiaries as of April 30, 1998 and the
results of their operations and their cash flows for each of the two years in
the period ended April 30, 1998, in conformity with generally accepted
accounting principles.
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
June 26, 1998
GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 1998
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS:
<S> <C>
Cash and cash equivalents $884,546
Accounts receivable, less allowance for doubtful accounts of $12,000 69,885
Prepaid expenses and other current assets 91,425
Deferred income taxes (Note 5) 173,000
----------
Total current assets 1,218,856
INVESTMENT IN CITRUS GROVE PARTNERSHIP 1,585,104
PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 9) 2,749,615
PREPAID PENSION COSTS (Note 6) 1,546,858
OTHER ASSETS 9,373
----------
$7,109,806
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $357,865
Current portion of long term debt (Note 9) 46,471
----------
Total current liabilities 404,336
----------
LONG TERM DEBT (Note 9) 838,712
----------
DEFERRED INCOME TAXES (Note 5) 967,000
----------
COMMITMENTS (Notes 6 and 12)
STOCKHOLDERS' EQUITY: (Note 8)
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued and outstanding 1,531,086
Additional paid-in capital 6,843,290
Deficit (766,325)
----------
7,608,051
Less cost of shares of common stock held in treasury (2,708,293)
----------
4,899,758
----------
$7,109,806
==========
</TABLE>
See notes to consolidated financial statements
GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
APRIL 30,
1998 1997
REVENUE: ---------- -----------
<S> <C> <C>
Rental income (Note 4) $2,125,161 $2,020,979
Aerospace income 110,494 104,606
---------- ----------
2,235,655 2,125,585
COSTS AND EXPENSES (Note 6):
Cost of maintaining rental property 1,325,670 1,388,322
Aerospace expense 137,178 98,135
General and administrative 1,210,577 1,271,616
---------- ----------
2,673,425 2,758,073
---------- ----------
OPERATING LOSS (437,770) (632,488)
---------- ----------
OTHER INCOME AND (EXPENSES):
Gain on oil and gas investment (Note 3) 75,237 126,467
Interest income 31,290 36,153
Interest expense (95,236) (103,290)
---------- ----------
11,291 59,330
---------- ----------
LOSS BEFORE INCOME TAXES (426,479) (573,158)
INCOME TAX BENEFIT (Note 5) (155,404) (196,296)
---------- ----------
NET LOSS $(271,075) $(376,862)
========== ==========
NET LOSS PER COMMON SHARE (Note 8):
Basic $(.26) $(.37)
====== ======
Diluted $(.26) $(.37)
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
Basic 1,044,252 1,012,190
========= =========
Diluted 1,048,801 1,012,190
========= =========
</TABLE>
See notes to consolidated financial statements
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
$ 1 Par Value
Common Stock Treasury Stock
------------ Additional --------------
Par Paid in Total
Shares Value Capital (Deficit) Shares Cost Equity
------ ----- ------- --------- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1996 1,531,086 $1,531,086 $6,172,311 $ (47,588) 530,535 $(3,051,260) $4,604,549
Issuance of stock
for services 160,099 (24,812) 142,685 302,784
Issuance of stock grants 16,975 (3,080) 17,710 34,685
Exercise of stock options 4,827 (1,166) 6,705 11,532
Directors stock options
issued 67,500 67,500
Net Loss (376,862) (376,862)
---------- ---------- ---------- --------- ------- ----------- ----------
Balance at April 30, 1997 $1,531,086 $1,531,086 $6,421,712 $(424,450) 501,477 $(2,884,160) $4,644,188
Issuance of stock for
services 170,142 (13,633) 78,400 248,542
Issuance of stock grants 48,416 (5,460) 31,400 79,816
Exercise of stock options 54,790 (70,800) (11,491) 66,067 50,057
Issuance of directors stock 71,654 71,654
and other options issued
Tax benefit from exercise
of stock options 76,576 76,576
Net Loss (271,075) (271,075)
---------- ---------- ---------- --------- ------- ----------- ----------
Balance at April 30, 1998 1,531,086 $1,531,086 $6,843,290 $(766,325) 470,893 $(2,708,293) $4,899,758
========== ========== ========== ========= ======= =========== ==========
</TABLE>
See notes to consolidated financial statements
GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
APRIL 30,
-----------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (271,075) $ (376,862)
---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 108,571 106,738
Deferred income tax benefit (157,424) (203,114)
Non-cash compensation 400,012 404,969
Pension expense 123,081 82,080
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable 21,187 368,434
Prepaid expenses and other (40,733) 167,311
Other assets 7,058 198,858
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 106,775 (95,584)
---------- ----------
Total adjustments 568,527 1,029,692
---------- ----------
Net cash provided by operating activities 297,452 652,830
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short term government securities - 189,716
Acquisition of property, plant and equipment (302,233) (584,544)
---------- ----------
Net cash used in investment activities (302,233) (394,828)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (69,740) (73,752)
Proceeds from exercise of stock options 50,057 11,532
---------- ----------
Net cash used in financing activities (19,683) (62,220)
---------- ----------
Net (decrease) increase in cash and cash equivalents (24,464) 195,782
Cash and cash equivalents at beginning of year 909,010 713,228
---------- ----------
Cash and cash equivalents at end of year $884,546 $909,010
========== ==========
</TABLE>
See notes to consolidated financial statements
GYRODYNE COMPANY OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TWO YEARS ENDED APRIL 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. ORGANIZATION AND NATURE OF OPERATIONS
Gyrodyne Company of America, Inc. and Subsidiaries (the "Company") is primarily
a lessor of industrial and commercial real estate to unrelated diversified
entities located in Long Island, New York. The Company also has investments in
a citrus grove partnership and in oil and gas properties. Prior to 1975, the
Company's primary business was the design, testing, development and production
of coaxial helicopters. Although the Company cannot be considered an active
airframe manufacturer, it is involved in certain licensing agreements that, if
exercised, would enable the licensees to produce the Gyrodyne coaxial
helicopter.
b. PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Gyrodyne Company of America, Inc. ("GCA") and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
c. INVESTMENTS
The Company accounts for its investment in the citrus grove under the cost
method. Under this method any distributions by the citrus grove will be income
in the year of distribution and capital contributions by the Company will
increase the value of the investment.
d. DEPRECIATION AND AMORTIZATION
Property, plant and equipment is depreciated using straight line and
accelerated methods over the estimated useful lives of the related assets.
e. STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
f. NET INCOME (LOSS) PER COMMON SHARE
In the third quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share". Basic earnings
per common share is computed by dividing the net income (loss) by the weighted
average number of shares of common stock outstanding during the period.
Dilutive earnings per share give effect to stock options and warrants which are
considered to be dilutive common stock equivalents. Treasury shares have been
excluded from the weighted average number of shares. Net income (loss) per
share has been retroactively restated to reflect SFAS No. 128 for all periods
presented.
g. 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.
h. IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standard No. 121,
*Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of,* an impairment loss is recognized whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
i. STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation to employees. Stock compensation to
non-employees is accounted for at fair value in accordance with Statement of
Financial Accounting Standard No. 123, *Accounting for Stock-Based
Compensation.*
j. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
k. RECLASSIFICATIONS
Certain reclassifications have been made to the financial statements for the
year ended April 30, 1997 to conform with the classifications used in 1998.
l. NEW ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements issued by the Financial Accounting Standards
Board which the Company is not required to adopt at this time include Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"), Statement of Financial Accounting Standard No. 131, "Disclosure
About Segments of an Enterprise" ("SFAS 131") and Statement of Financial
Accounting Standard No. 132, "Disclosure About Pensions and Other
Postretirement Benefits" ("SFAS 132"). The Company intends to comply with the
disclosure requirements of SFAS 130, SFAS 131 and SFAS 132 and does not expect
these pronouncements to have a material effect on the Consolidated Financial
Statements.
2. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment as of April 30, 1998 consists of the following:
<TABLE>
<CAPTION>
Estimated Allowance for Net
Lives Cost Depreciation Asset
<S> <C> <C> <C> <C>
Land - $ 808,338 $ - $ 808,338
Land development - 457,924 - 457,924
Buildings and improvements 20-33 yrs. 4,470,267 3,119,109 1,351,158
Machinery and equipment
and furniture and fixtures 3-10 yrs. 511,462 379,267 132,195
---------- ---------- ----------
$6,247,991 $3,498,376 $2,749,615
========== ========== ==========
</TABLE>
Substantially all buildings and improvements are held for lease. Certain leases
serve as collateral for the Company's outstanding bank debt.
3. INVESTMENT IN OIL AND GAS PROPERTIES:
The results of operations from the Company's investment in oil and gas
properties are summarized as follows:
Years Ended
APRIL 30,
---------------------
1998 1997
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
Sales of oil and gas $187,711 $242,752
Oil and gas production expenses 112,474 116,285
-------- --------
Gain from operations $75,237 $126,467
======== ========
</TABLE>
4. MAJOR CUSTOMERS:
For the year ended April 30, 1998 rental income from three tenants represented
22%, 14% and 10% of total rental income.
For the year ended April 30, 1997 rental income from three tenants represented
21%, 13% and 10% of total rental income.
5. INCOME TAXES:
The Company files a consolidated U.S. federal income tax return that includes
all 80% or more owned subsidiaries. State tax returns are filed on a
consolidated, or separate basis depending on the applicable laws.
The (benefit) provision for income taxes is comprised of the following:
Years Ended
APRIL 30,
-------------------
1998 1997
---- ----
Current: $ - $ -
Federal 2,020 6,818
--------- --------
State 2,020 6,818
--------- --------
Deferred: (120,910) (158,500)
Federal (36,514) (44,614)
--------- --------
State (157,424) (203,114)
--------- --------
$(155,404) $(196,296)
========== ==========
The components of the net deferred tax liability at April 30, 1998 are as
follows:
Deferred tax assets:
Stock compensation $ 141,000
Accrued sick and vacation 26,000
Provision for bad debt 7,000
Tax loss carry forwards 763,000
Contribution carryover 24,000
Tax credit carry forwards 13,000
--------
Total deferred tax assets 974,000
Valuation allowance (73,000)
--------
Net deferred tax assets 901,000
--------
Deferred tax liabilities:
Prepaid pension costs (747,000)
Unrealized gain on investment in Citrus Grove (948,000)
----------
Total deferred tax liabilities (1,695,000)
----------
Net deferred income taxes $ (794,000)
==========
The Company has net operating loss carry forwards of approximately $1,916,000
which can be used to reduce future taxable income through 2013.
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
Years Ended
APRIL 30,
-----------------
1998 1997
---- ----
U.S. Federal statutory income rate 34.0% 34.0%
State income tax, net of federal tax benefits 7.5 7.5
Permanent differences (0.6) -
Change in valuation allowance (4.3) (4.0)
Other differences, net (.2) (3.5)
---- ----
36.4% 34.0%
==== ====
6. RETIREMENT PLANS:
The Company has a noncontributory defined benefit pension plan covering
substantially all of its employees. The benefits are based on annual average
earnings for the highest sixty (60) months (whether or not continuous)
immediately preceding the Participant's termination date. Annual contributions
to the plan are at least equal to the minimum amount, if any, required by the
Employee Retirement Income Security Act of 1974 but no greater than the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date but
also those expected to be earned in the future. Due to the overfunded status
of the plan, no contributions have been made for each of the two years in the
period ended April 30, 1998.
Net periodic pension expense consists of the following components:
Years Ended
APRIL 30,
-----------------
1998 1997
---- ----
Service cost $123,858 $107,068
Interest costs 195,524 195,867
Expected return on assets (222,219) (199,263)
Net amortization 25,918 (21,592)
-------- --------
Pension expense $123,081 $ 82,080
======== ========
The Plan's funded status is as follows:
<TABLE>
<CAPTION>
APRIL 30,
---------------------
1998 1997
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
<S> <C> <C>
- -Vested $(1,836,747) $(1,882,798)
- -Non-vested (12,312) (8,959)
----------- -----------
- -Total $(1,849,059) $(1,891,757)
=========== ===========
Projected benefit obligation $(2,083,828) $(2,355,323)
Assets at fair value 3,201,875 2,889,049
Unrecognized net (asset) obligation (534,718) (668,398)
Unrecognized prior service cost 622,134 694,872
Unrecognized net loss 341,395 1,109,739
----------- -----------
Prepaid pension cost $ 1,546,858 $ 1,669,939
=========== ===========
</TABLE>
Assumption used in accounting for the Company's defined benefit pension plan
are as follows:
Discount rate 8.0%
Rate of increase in compensation 8.0%
Expected long-term rate of return on plan assets 8.0%
7. TECHNOLOGY TRANSFER AGREEMENTS:
The Company was a party to an agreement with Dornier GmbH of Germany whereby
the Company was to provide technological documentation and assistance related
to the Company's coaxial helicopters which would result in a $2,000,000 payment
for manufacturing rights. The Company has reached a new agreement with the
licensee to restructure the accord by modifying certain agreements and
extending the contract terms. The two million dollar license fee remains in
the new agreement.
In May 1987, the Company entered into an agreement with Israel Aircraft of
Israel whereby the Company provided technological documentation and assistance
related to helicopters. The agreement contained an option to purchase the
technology which expired on November 6, 1997. However the Company is
negotiating an extension of the Agreement. In the event the option is
exercised, the Company will receive a $1,000,000 fee and future royalties based
on sales using the technology.
8. STOCK OPTIONS PLANS:
The Company has an incentive stock option plan (the "Plan") under which
participants may be granted either Incentive Stock Options ("ISO's"),
Non-Qualified Stock Options ("NQSO's") or Stock Grants. The purpose of the
Plan is to promote the overall financial objectives of the Company and its
shareholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in shareholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. Such options or grants become exercisable at various intervals based
upon vesting schedules as determined by the Compensation Committee. The
options expire between August 1999 and August 2002.
The ISOs may be granted to employees and consultants of the Company at a price
not less than the fair market value on the date of grant. All such options are
authorized and approved by the Board of Directors, based on recommendations of
the Compensation Committee.
ISOs may be granted along with Stock Appreciation Rights which permit the
holder to tender the option to the Company in exchange for stock, at no cost to
the optionee, that represents the difference between the option price and the
fair market value on date of exercise. NQSOs may be issued with Limited Stock
Appreciation Rights which are exercisable, for cash, in the event of a change
of control. In addition, an incentive kicker may be provided for Stock Grants,
ISOs and NQSOs, which increases the number of grants or options based on the
market price of the shares at exercise versus the option price. A reload
feature may also be attached which permits the optionee to tender previously
purchased stock, in lieu of cash, for the purchase of the options and receive
additional options equal to the number of shares tendered.
Information as to the stock options and stock grants is summarized as follows:
<TABLE>
<CAPTION>
Stock Stock
Stock Options and Grants: Options Grants Total
------- ------ -----
<S> <C> <C> <C>
Available at April 30, 1996 44,662 6,935 51,597
Stock grants exercised - (3,080) (3,080)
Stock options exercised at $9.89 per share (1,166) - (1,166)
------ ----- ------
Available at April 30, 1997 43,496 3,855 47,351
Stock grants awarded - 7,455 7,455
Stock options issued at $9.89 to $19.61 per share 45,657 - 45,657
Stock grants exercised - (5,460) (5,460)
Stock options exercised at $9.89 per share (16,491) - (16,491)
------ ----- ------
Available at April 30, 1998 72,662 5,850 78,512
====== ===== ======
Exercisable at April 30, 1998 22,526 - 22,526
====== ===== ======
</TABLE>
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
The Company adopted a non-qualified stock option plan for all non-employee
Directors of the Company in October 1996. Each non-employee Director was given
initial option grants when the plan was adopted, which are exercisable in three
equal annual installments commencing on the first anniversary of the grant.
Each non-employee Director will also be given 1,250 option grants (annual
option grants) which will be granted on January 1 for calendar year 1997
through 2000. Each option is exercisable on the anniversary of the grant.
<TABLE>
<CAPTION>
Number Option
of Shares Prices
--------- ------
<S> <C> <C>
Total options outstanding at April 30, 1996 - -
Initial stock option grants 17,500 $11.82
Annual stock option grants 8,750 $11.80
------
Total options outstanding at April 30, 1997 26,250
Initial stock option grants 5,000 $11.82 - $21.01
Annual stock option grants 12,500 $19.98
Total options exercised (3,750) $11.80 - $11.82
------
Total options outstanding at April 30, 1998 40,000 $11.80 - $21.01
======
</TABLE>
Shares reserved for future issuance at April 30, 1998 are comprised of the
following:
<TABLE>
<CAPTION>
<S> <C>
Shares issuable upon exercise of stock options under the
Company's Non-Employee Director Stock Option Plan 71,250
Shares issuable under the Company's Non-Employee
Director Stock Compensation Plan 34,873
Shares issuable upon excise of stock options under
the Company's stock incentive plan 227,412
Shares issuable under the Company's stock grant incentive plan 9,100
-------
342,635
=======
</TABLE>
In accordance with APB Opinion No. 25, no compensation expense has been
recognized for the stock option plans. Had the Company recorded compensation
expense for the stock options based on the fair value at the grant date for
awards in the years ended April 30, 1998 consistent with the provisions of SFAS
No. 123, the Company's net loss and net loss per share would have increased to
the following pro forma amounts:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net loss, as reported $(271,075) $(376,862)
Net loss, pro forma (296,670) (376,862)
Basic loss per share, as reported (.26) (.37)
Basic loss per share, pro forma (.28) (.37)
Diluted loss per share, as reported (.26) (.37)
Diluted loss per share, pro forma (.28) (.37)
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black Scholes option pricing model with the following range of weighted-average
assumptions used for grants in years ended April 30, 1998; expected volatility
of 18.6%; risk-free interest rate averaging 5.0%; and expected lives of 1.5
years.
9. LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
Term loan, bank (a) $879,634
Installment loans, other 5,549
--------
885,183
Less current portion 46,471
--------
$838,712
========
</TABLE>
(a)In March 1998, the Company exercised an option to modify the interest rate
of its existing bank loan. The modified terms require monthly installment
payments of $9,643, including interest at 8.45% per annum through September
2005 when the remaining unpaid principal of approximately $470,000 is payable.
The loan provides for an adjustment to the fixed interest rate on every fifth
anniversary based upon the U.S. Treasury note rate. The loan is secured by the
assignment of rents and a first collateral mortgage on certain real estate. At
April 30, 1998 the Company was in technical default of one its financial
convenants on the loan. The Company has obtained a waiver of this covenant
from the bank.
Annual maturities of long-term debt is as follows:
Fiscal Years
Ending
April 30, Amount
------------ --------
1999 $ 46,471
2000 47,129
2001 49,761
2002 54,195
2003 59,025
Thereafter 628,602
--------
$885,183
========
10. CONCENTRATION OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents and long-term
investments. The Company places its temporary cash investments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure in any one financial institution. The Company is affected by the
economics of the Oil and the Citrus industries due to its investments therein.
Management does not believe significant credit risk exists at April 30, 1998.
11. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Years Ended
APRIL 30,
------------------
1998 1997
---- ----
Cash paid during the year for:
Interest $95,236 $103,290
======= ========
Income taxes $ - $2,694
======= ========
12. COMMITMENTS:
The Company has an employment agreement with an officer which expires in July
2002. The aggregate commitment for future salary, excluding bonuses, under the
agreement is approximately $528,000. The Agreement provides for increases
based upon annual cost-of-living increases plus certain benefits. The
Agreement also provides for the payment of salary and benefits for a period of
five years in the event of a change in corporate control, as defined.
The aggregate minimum commitment under this agreement is as follows:
Fiscal Years
Ending
APRIL 30, Amount
------------ --------
1999 $124,000
2000 124,000
2001 124,000
2002 124,000
2003 32,000
In addition, upon termination of the officer for other than disablement or
incapacitation, the agreement provides for the Company to pay the difference
between the vested portion of accrued pension benefits to the officer as of
the date of termination and the expected accrued pension benefits through
the end of the officer's employment term. As of April 30, 1998 this
difference approximates $239,000.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The methods and assumptions used to estimate the fair value of the following
classes of financial instruments were:
CURRENT ASSETS AND CURRENT LIABILITIES: The carrying amount of cash, current
receivables and payables and certain other short term financial instruments
approximate their fair value.
The estimated fair value of the Company's investment in the Citrus Grove
Partnership at April 30, 1998, based upon an independent third party appraisal
report, is approximately $6,400,000 based on the Company's ownership
percentage.
The book value of the Company's long term debt, including the current portion,
approximates its fair value.
14. SUBSEQUENT EVENTS:
Subsequent to year end, the Company entered into two land leases. The first
lease, for approximately 15 acres, extends for 11 years beginning on January 1,
1999, with an initial annual rent payment of $125,000. The second lease, for
approximately 25 acres, is for 99 years beginning with commencement of
construction, with an initial annual rent payment of approximately $500,000.
Both leases provide for annual incremental increases.
Item 8 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
In connection with the audits for the three most recent years, there have
been no disagreements with Holtz Rubenstein & Co., LLP, on any matter of
accounting principles or practices, financial statement disclosures, or
auditing scope or procedure.
PART III
ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) The following table lists the name, ages and positions of all executive
officers and directors and all persons nominated or chosen to become such.
Each director has been elected to the term indicated. Directors whose term of
office ends in 1998 shall serve until the next Annual Meeting of Stockholders
or until their successors are elected and qualified.
<TABLE>
<CAPTION>
Name & Principal Occupation or Employment Age First Became a Current Board
Director Term Expires
<S> <C> <C> <C>
Dimitri P. Papadakos 53 1968 to 1976 1999
President, Treasurer, CEO and Director of the Company 1992
Peter Pitsiokos 38 ---
Vice President, Secretary & General Counsel of the Company
Josef Markowski 46 ---
Vice President, Operations of the Company
Frank D'Alessandro 52 ---
Controller of the Company
Joseph L. Dorn 83 1992 1998
Former Secretary / Treasurer of the Company
Director of the Company
Robert H. Beyer 65 1977 1999
Sr. Inertial Guidance Engineer, Naval Air Systems Command
Director of the Company
Nicholas Goudes 77 1992 2000
Real Estate Investor
Director of the Company
Peter P. Papadakos 35 1993 1999
Secretary / Treasurer and Director, Sa-Tu Corporation
Director of the Company
Stephen V. Maroney 56 1996 1998
Consultant to the Company and Former President of Extebank
Director of the Company
John H. Marburger III 57 1996 2000
Director of Brookhaven National Laboratory
Director of the Company
Philip F. Palmedo 64 1996 1998
Chairman of International Resources Group
Director of the Company
Paul L. Lamb 52 1997 2000
Partner of Cahn, Wishod and Lamb, LLP
Director of the Company
</TABLE>
(b) Business Experience
Dimitri P. Papadakos, age 53, was appointed to the Board of Directors on
April 25, 1992. He was elected CEO and President on May 30, 1992. He is
also President and Director of all the Company's subsidiaries. He was
employed by Gyrodyne from 1972-1976 and served as Vice President of
Flowerfield Properties, Inc. In 1981, he rejoined Gyrodyne Company as
Director of Real Estate Operations. In 1983, he became Assistant Secretary
of the Gyrodyne Company and in 1988 became Vice President. In April 1992 he
was appointed to the Board of Directors of the Company and on May 30, 1992
was elected CEO and President. Mr. Papadakos holds graduate degrees in both
business and communications from New York Institute of Technology.
Peter Pitsiokos, age 38, was elected to serve as Vice President on November
28, 1992, and had served as Assistant Secretary and General Counsel since
joining Gyrodyne Company of America, Inc. He has since become Secretary of
the Company. Mr. Pitsiokos was formerly the Executive Assistant District
Attorney in Suffolk County, New York. He also served as the Assistant
Director of Economic Development and the Director of Water Resources in the
Town of Brookhaven. He holds a Law degree from Villanova University and a
BA degree from the State University of New York at Stony Brook.
Josef Markowski, age 46 has been Vice President of Operations since October
26, 1995. Prior to joining the Company he was President of Logical Device
Software (LDS), a company he started in 1988. LDS produced and marketed
software programs for accounting and production control, and in addition
wrote custom applications for a variety of fields. Mr. Markowski has
substantial experience in manufacturing and holds a degree in Technical
Electronics from the State University of New York at Farmingdale.
Frank D'Alessandro, age 52, joined the Company in March, 1997 as its
Controller. Prior to joining the Company, he was Controller of Cornucopia
Pet Foods Inc., a distributor of all natural pet foods. Previous to that he
spent many years in various financial positions. Mr. D'Alessandro holds an
MBA degree in Finance as well as a BBA in Accounting, both from Hofstra
University.
Joseph L. Dorn, age 83, Joined the Company in 1951 as Comptroller and in
1965 was elected Secretary and Assistant Treasurer. In April 1992 he was
appointed to the Board of Directors of the Company and on May 30, 1992 he
became Treasurer. Prior to joining Gyrodyne, Mr. Dorn worked for the
Securities and Exchange Commission and the United States Navy Cost Office.
Mr. Dorn is a Certified Public Accountant of the State of New York and is a
graduate of Georgetown University. He retired from the Company in 1995.
Robert Beyer, age 65, has been a Director of the company since November 28,
1977. He is also a Director of the Company's subsidiaries. He retired from
the United States Naval Reserve in 1993 with the rank of Captain. He
retired from his position as Senior Inertial Systems Engineer with the Naval
Air Systems Command in 1998. He has an electrical engineering degree from
New York University and a graduate degree in International Business from
Sophia University in Tokyo, Japan. Mr. Beyer was employed by Gyrodyne from
1962-1973. He was stationed in Japan as a Technical Representative for the
Company's remotely piloted helicopters from 1963 to 1970.
Nicholas T. Goudes, age 77, was appointed to the Board of Directors on
November 28, 1992. He was previously employed by Gyrodyne from 1950 to 1955
and served as a member of the finance committee. Between 1953 & 1957 he was
a Director and Vice President of Flowerfield Realty, Inc. and Helicopter
Securities, Inc. A Director and Secretary/Treasurer of Piedmont
Enterprises, a recreational and food service company, Mr. Goudes has
extensive experience in management and real estate operations. From 1987 to
1991 Mr. Goudes served as a Director of North Carolina State University
Foundation.
Peter P. Papadakos, age 35, was appointed to the Board of Directors on
October 30, 1993, increasing the board to six members. Mr. Papadakos is the
son of the late Chairman and founder of Gyrodyne Company of America, Inc. He
currently resides in Reno, Nevada and is Secetary/Treasurer and Board member
of the Sa-Tu Corporation of Nevada. He was previously employed by Gyrodyne
Company of America from August 1986 thru July 1987 in the aerospace
division. Mr. Peter Papadakos holds a Bachelor of Science degree from the
University of Nevada at Reno.
Stephen V. Maroney, age 56, was appointed to the Board of Directors on July
13, 1996. Mr. Maroney is the former President and Chief Operating Officer of
Extebank, a billion dollar Long Island bank. Mr. Maroney's extensive
community contacts and familiarity with Long Island real estate led to his
engagement as a consultant by Gyrodyne. Mr. Maroney provides the Company
with financial and operational support services and now spearheads the
Company's introduction of its Master Plan.
John H. Marburger III, age 57, was appointed to the Board of Directors on
July 13, 1996. Mr. Marburger was the former President of the State
University of New York at Stony Brook (SUNY). During his stewardship of the
University, SUNY established itself as a class A research center generating
a substantial portion of its operating funds from grants. In addition, Mr.
Marburger's business community outreach programs resulted in the creation of
a high-tech business incubator and numerous collaborative programs. He is
currently the Director of the Brookhaven National Laboratory as well as the
President of Brookhaven Science Associates. He has a Ph.D. in Applied
Physics from Stanford University.
Philip F. Palmedo, age 64, was appointed to the Board of Directors on July
13, 1996, increasing the board to 9 members. Mr. Palmedo is Chairman of
International Resources Group and former President of the Long Island
Research Institute. He has shepherded numerous fledgling businesses into the
financial and technological markets completing several financing and joint
venture technology agreements. He has M.S. and Ph.D. degrees from M.I.T.
Paul L. Lamb, age 52, has been a Director since 1997. He is a founding
partner in the law firm of Cahn, Wishod and Lamb; a past President of the
Suffolk County Bar Association; and a Dean of the Suffolk Academy of Law.
He holds a B.A. from Tulane University, a J.D. from the University of
Kentucky and an LL.M. from the University of London, England.
(c) Compliance with Section 16(a) of the Exchange Act
A review of all Forms 3 & 4 filed with the Registrant indicates that there
were no late filings of any required Forms 3 or Forms 4 with the Securities
and Exchange Commission for fiscal year 1998. A review of current year
filings indicates that no 10% holder of Gyrodyne Common Stock $1 P.V. failed
to file timely reports.
ITEM 10 EXECUTIVE COMPENSATION
(a) Executive Compensation
During the fiscal year ended April 30, 1998 two Directors or Officers
received remuneration in excess of $100,000 in such capacity.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Long term Compensation Pay
Annual Compensation Awards outs
---------------------------------- ---------------------------- ------ -----------
Name and Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal Position Year ($) ($) Compensation stock Underlying Payout Compensation
($) award ($) Options/LSARs ($)
- --------------------- ----- -------- ----- ------------ ----------- ----------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dimitri P. Papadakos 1998 123,312 0 60,239(A) 0 23,350 0 0
President & CEO 1997 118,379 0 (A) 0 0 0 0
Stephen V. Maroney 1998 80,000 0 60,500(B) 0 4,250 0 0
Dir.of Real Estate Devlp 1997 72,308 0 43,255(B) 0 3,750 0 0
</TABLE>
(A) The Registrant has concluded that aggregate amounts of personal
benefits to any of the current executives does not exceed the lesser of
$50,000 or 10% of compensation and bonuses reported above for the named
executive officers, and that the information set forth in tabular form above
is not rendered materially misleading by virtues of the omission of such
personal benefits. The 1998 "Other Annual Compensation" represents the
difference between the fair market value and the option price on the date
of grant for 7,157 shares exercised.
(B) Pursuant to his Consulting Agreement with the Company, Mr. Maroney
received stock payments in lieu of cash with a fair market value of $45,000
in FY98 and $34,500 in FY97. Mr. Maroney also received shares for his
services as Company Director with a fair market value of $15,500 in FY98 and
$8,755 in FY97.
OPTIONS/LSAR GRANTS IN FISCAL YEAR
<TABLE>
<CAPTION>
Number of % of Total
Options/LSARs Options/LSAR Exercise Expiration
NAME Granted Granted Price Date
- ----------------------------- ------------- ------------ -------- ----------
<S> <C> <C> <C> <C>
Dimitri P. Papadakos, (CEO) 14,600 42% $17.256 7/19/02
Stephen V. Maroney - Director 3,000 9% $17.256 7/19/02
</TABLE>
AGGREGATED OPTION/LSAR EXERCISED IN LAST FISCAL YEAR
AND FY-END OPTION/LSAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/LSAR's at Options/LSAR's at
Acquired on Value April 30, 1998 April 30, 1998 ($)
NAME Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- -------------------------- ----------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dimitri P. Papadakos (CEO) 7,157 $60,239 9,375/28,350 $70,781/$93,748
Stephen V. Maroney - Director - - 3,750/4,250 $32,575/$10,388
</TABLE>
(b) Compensation of Directors
In calendar year 1997, each Director was entitled to receive a fee of $7,500
a year, $1,000 per Board meeting attended and $500 for each Committee
meeting attended. All compensation was paid in stock. For the calendar year
1997, 5,458 shares of stock were issued in January 1998. Reimbursement for
travel and Company business related expenses will continue to be paid in
cash.. The Company continued its policy which states that Directors who are
also employees of the Company do not receive any additional compensation for
their services as Directors.
(c) Employment Contracts
(c-1) On July 15, 1993 effective as of June 28, 1993, the Board of
Directors by their compensation committee entered into a restrictive five
year employment contract with Dimitri P. Papadakos as President and CEO, at
a salary of $110,000 per year subject to a minimum annual cost-of-living
increase commencing July 1, 1994 based on the Consumer Price Index in effect
for the month of May preceding the July 1 in question for all Urban
Consumers for the New York, New York and Northeastern New Jersey Region (all
items) published by the Bureau of Labor Statistics, United States Department
of Labor. He will be eligible for all benefits offered to other executive
employees. The company is providing a $1,000,000 24-hour worldwide travel
accident policy and a $250,000 group travel accident policy with his estate
as beneficiary. The company will also provide the employee with an
automobile and will cover all operating costs associated therewith. The
contract also contains a provision not to compete during the term of the
contract or for a period of two years following termination. In case of
employee's death or total incapacitation during the contract period, the
contract provides for compensation to continue for the unexpired term of the
employment period or any renewal period. In case of termination as a result
of change in control, merger, change in make-up of Board of Directors or
discharge of employee by company for any reason other than death or
incapacitation, his salary and all other ancillary benefits to which the
employee is entitled, shall be paid for a period of five full years to the
employee or in case of death, to his estate. During Fiscal Year 1998 Mr.
Papadakos received an annual increase of $5,200 bringing his annual salary
to $124,212.
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) The following table sets forth as of June 6, 1998 those persons or
entities known by the Company to be Beneficial Owners of more than 5%
of the Company's Common Stock $1 P.V., its only equity security.
<TABLE>
<CAPTION>
TYPE OF NUMBER OF PERCENT OF
NAME AND ADDRESS OWNERSHIP SHARES OWNED CLASS
- --------------------------- ------------- --------------- ----------
<S> <C> <C> <C>
Gyrodyne Company of America,
Inc. Beneficial 78,346 7.38
St. James, NY 11780(aa)
Polk Bros. Foundation
420 No. Wabash Ave
Chicago, IL 60611 Beneficial 62,648 5.90
Estate of Peter J. Papadakos
c/o Chase Manhattan Bank,
NA(TTEE)
1211 Ave of the Americas Beneficial 362,668 34.15
New York, NY 10036
</TABLE>
(aa) As Gyrodyne has the authority to direct the Chase Manhattan Bank &
Trust Co., the Trustee of the Gyrodyne Pension Plan, to vote the
securities of the Company held by the Pension Fund, Gyrodyne Company
of America,Inc. has been listed above as the beneficial owner of the
78,346 shares held by the Chase Manhattan Bank and Trust Co. as
Trustee for the Gyrodyne Pension Fund.
(b) In addition, the following table as of June 6, 1998includes the
outstanding voting securities beneficially owned by the executive
officers and the directors, and the number of shares owned by
directors and executive officers as a group.
<TABLE>
<CAPTION>
Name & Principal Occupation or Shares of Pct. of
Employment stock Common Stock
Beneficially Owned
Owned
- -------------------------------------- ------------- ------- ----------------
<S> <C> <C> <C>
Dimitri P. Papadakos 26,890 (A) 2.50
President, Treasurer, CEO and Director
of the Company
Peter Pitsiokos 4,613 (D) (B)
Vice President, Secretary & General
Counsel of the Company
Josef Markowski 203 (B)
Vice President, Operations
Joseph L. Dorn 10,594 (B)
Director of the Company
Robert H. Beyer 4,462 (C) (B)
Director of the Company
Nicholas Goudes 6,564 (B)
Owner and Operator of Sharon View
Country Club
Director of the Company
Peter P. Papadakos 9,530 (E) (B)
Secretary/Treasurer Sa-Tu Corporation
Director of the Company
Stephen V. Maroney 9,043 (B)
Consultant to the Company and Former
President of Extebank
Director of the Company
John H. Marburger III 1,695 (B)
Director of Brookhaven National
Laboratory
Director of the Company
Philip F.Palmedo 5,427 (B)
Chairman of International Resources
Group
Director of the Company
Paul L. Lamb 1,063 (B)
Partner of Cahn, Wishod and Lamb
Director of the Company
All Directors and Executive
Officers as a Group (11 persons) 80,084 7.54
</TABLE>
(A) Does not include his wife's and adult children's ownership of
12,291 Shares in which he denies beneficial interest.
(B) Less than 1%.
(C) Does not include his wife's ownership of 1,638 shares in which he denies
any beneficial interest.
(D) Does not include wife's and minor children's ownership of 447 shares in
which he denies any beneficial interest.
(E) Does not include wife's ownership of 14 shares in which he denies any
beneficial interest.
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others
No officer or director or security holder named in answer to Item 12
or any relative or spouse of the foregoing persons had any direct or
indirect interest in any transaction involving the Company or its
subsidiaries which exceeded $60,000.
(b) Certain Business Relationships
There were no material business relationships between the Company
and its subsidiaries and the directors, their spouses, relatives, or
affiliated business interests.
(c) Indebtedness of Management
No loans were made to any officer, director, or any member of their
immediate families during the fiscal year just ended, nor were any
amounts due and owing the Company or its subsidiaries from those
parties at fiscal year end.
ITEM 13 EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
(1) Independent Auditors' Reports
(2) Consolidated Balance Sheet April 30,1998
(3) Consolidated Statements of Operations for the Two Years
Ended April 30, 1998 and April 30,1997
(4) Consolidated Statement of Stockholder's Equity for the
Two Years Ended April 30, 1998 and April 30, 1997
(5) Consolidated Statements of Cash Flows for the Two
Years Ended April 30, 1998 and April 30, 1997
(6) Notes to Consolidated Financial Statements
(7) Schedules
(a) The information required by the following schedules
has been included in the financial statements, is not
applicable, or not required.
Schedule I, II, III, IV, V,VI, VII, VIII, IX, X, XI, X11 and XIII.
(b) Reports on Form 8-K
None
(c) Exhibits
None
SIGNATURES
Pursuant to the requirements of
Section 13 or 15 (d) 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.
SGD/ Dimitri P. Papadakos
- ---------------------------------
Dimitri P. Papadakos, President,
Treasurer, Director and Principal Executive Officer
Date: July 28, 1998
SGD/ Frank D'Alessandro
- ------------------------------
Frank D'Alessandro, Controller
Date: July 28, 1998
********************
Pursuant to the requirements of the
Securities Exchange Act of 1934,
this report has been signed below by
the following on behalf of the
Registrant and in the capacities and
on the dates indicated.
SGD/ John H. Marburger III
- -------------------------------
John H. Marburger III, Director
Date: July 28, 1998
SGD/ Philip F. Palmedo
- ----------------------------
Philip F. Palmedo, Director,
Date: July 28, 1998
SGD/ Stephen V. Maroney
- ----------------------------
Stephen V. Maroney, Director
Date: July 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> APR-30-1998
<CASH> 884,546
<SECURITIES> 0
<RECEIVABLES> 81,885
<ALLOWANCES> (12,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,218,856
<PP&E> 6,247,991
<DEPRECIATION> (3,498,376)
<TOTAL-ASSETS> 7,109,806
<CURRENT-LIABILITIES> 404,336
<BONDS> 838,712
0
0
<COMMON> 1,531,086
<OTHER-SE> 3,368,672
<TOTAL-LIABILITY-AND-EQUITY> 7,109,806
<SALES> 2,235,655
<TOTAL-REVENUES> 2,342,182
<CGS> 0
<TOTAL-COSTS> 2,673,425
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (95,236)
<INCOME-PRETAX> (426,479)
<INCOME-TAX> (155,404)
<INCOME-CONTINUING> (271,075)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (271,075)
<EPS-PRIMARY> (0.26)
<EPS-DILUTED> (0.26)
</TABLE>
