U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JULY 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission file number 0-1684
GYRODYNE COMPANY OF AMERICA, INC.
(Exact name of small business issuer as specified in its charter)
NEW YORK
11-1688021
(State or other jurisdiction of incorporation or organization)(IRS Employer
Identification No.)
7 FLOWERFIELD, SUITE 28, ST. JAMES, N.Y. 11780
(Address of principal executive offices)
(516) 584-5400
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes..X. No...
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12,13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes.. No..
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,064,535 COMMON
$1 P.V. AS OF JULY 31, 1998
INDEX TO QUARTERLY REPORT
QUARTER ENDED JULY 31, 1998
Form 10-QSB Cover
Index to Form 10-QSB
Consolidated Balance Sheet
Consolidated Statements of Operations
Consolidated Statements of Cash Flows
Footnotes to Financial Statements
Management's Discussion and Analysis or Plan of Operation
Part II - Other Information
Signatures
<TABLE>
<CAPTION>
GYRODYNE COMPANY OF AMERICA, INC. 10-QSB
<S> <C>
AND SUBSIDIARIES Part 1
CONSOLIDATED BALANCE SHEET Item 1 (a) (1)
(UNAUDITED)
</TABLE>
July 31,
1998
<TABLE>
<CAPTION>
ASSETS (NOTE 1)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $660,148
Accounts receivable, less allowance for
doubtful accounts of $12,000 (Note 3) 76,414
Prepaid expenses and other current assets 185,517
Deferred income taxes 173,000
-----------
Total current assets 1,095,079
INVESTMENT IN CITRUS GROVE PARTNERSHIP 1,585,104
PROPERTY, PLANT AND EQUIPMENT-NET (Note 5) 2,818,778
PREPAID PENSION COSTS (Note 2) 1,562,888
OTHER ASSETS 26,598
-----------
TOTAL ASSETS $7,088,447
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $442,152
Current portion of long term debt (Note 6) 46,471
-----------
Total Current Liabilities 488,623
-----------
LONG TERM DEBT (Note 6) 826,870
DEFERRED INCOME TAXES 916,775
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share
authorized 4,000,000 shares, 1,531,086 shares
issued at July 31, 1998 (including 466,551 shares
held in treasury) 1,531,086
Additional paid in Capital (Note 1) 6,866,939
Deficit (Note 1) (843,425)
-----------
7,554,600
Less cost of shares of common stock held in treasury (2,698,421)
-----------
Total stockholders' equity 4,856,179
-----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $7,088,447
===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GYRODYNE COMPANY OF AMERICA, INC. 10-QSB
<S> <C>
AND SUBSIDIARIES Part 1
CONSOLIDATED STATEMENTS OF OPERATIONS Item 1 (a) (2)
(UNAUDITED)
</TABLE>
Three Months Ended
July 31, July 31,
<TABLE>
<CAPTION>
REVENUE: 1998 1997
<S> <C> <C>
Rental income $526,377 $524,725
Aerospace income 0 40,000
--------- ---------
Total Revenue from Operations 526,377 564,725
--------- ---------
COSTS AND EXPENSES:
Cost of maintaining rental property 374,994 339,844
Aerospace expense 60,888 25,853
General and administrative (Note 2) 214,601 322,162
--------- ---------
Total costs and expenses 650,483 687,859
--------- ---------
GROSS OPERATING LOSS (124,106) (123,134)
--------- ---------
OTHER INCOME AND EXPENSES:
Gain on Oil and Gas Investment (Note 4) 8,022 12,505
Interest Income 7,497 8,410
Interest Expense (18,738) (25,195)
--------- ---------
Total Other Income\(Expense) (3,219) (4,280)
--------- ---------
(LOSS) BEFORE INCOME TAXES (127,325) (127,414)
Income tax Benefit (50,225) (53,139)
--------- ---------
NET (LOSS) ($77,100) ($74,275)
========= =========
NET LOSS PER COMMON SHARE:
BASIC ($0.07) ($0.07)
========= ========
DILUTED ($0.07) ($0.07)
========= ========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING:
BASIC 1,060,886 1,032,478
========= =========
DILUTED 1,060,886 1,032,478
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GYRODYNE COMPANY OF AMERICA, INC. 10-QSB
AND SUBSIDIARIES Part 1
CONSOLIDATED STATEMENTS OF CASH FLOWS Item 1 (a) (3)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JULY 31, JULY 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($77,100) ($74,275)
-------- --------
Adjustments to reconcile net loss to net
cash (used in) operating activities:
Depreciation and amortization 27,343 27,142
Pension expense/(income) (16,030) 25,000
Deferred income tax benefit 50,225 53,139
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (6,529) 16,823
Prepaid expenses and other assets (94,092) (160,334)
Other assets (17,224) 6,731
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (16,163) (21,246)
-------- --------
Total adjustments (72,470) (52,745)
-------- --------
Net cash (used in) operating activities (149,570) (127,020)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in property, plant and equipment (96,506) (18,305)
-------- --------
Net cash used in investment activities (96,506) (18,305)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock option exercise 33,520 36,127
Repayment of long term debt (11,842) (19,187)
-------- --------
Net cash provided by financing activities 21,678 16,940
-------- --------
Net (decrease) in cash and cash equivalents (224,398) (128,385)
Cash and cash equivalents at beginning of period 884,546 909,010
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $660,148 $780,625
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10-QSB
Part 1
Item 1 (a) (4)
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited Consolidated Statements of Operations for the three month
periods ended July 31, 1998 and July 31, 1997 and the Consolidated Balance
Sheet as of July 31, 1998 reflect all adjustments which, in the opinion of
Management, are necessary for the fair representation of results of such
periods. The financial statements should be read in conjunction with the
summary of significant accounting policies and notes to financial statements
included in the Company's Form 10-KSB for the fiscal year ended April 30,
1998. The results of operations for the three month periods ended July 31,
1998 and 1997 are not necessarily indicative of the results to be expected
for the full year.
2. Pension income/(expense) is included in general and administrative
expense. The application of FASB 87 resulted in the Company's recognition,
on the basis of annual actuarial reports, of $16,030 of net periodic pension
income for the three month period ended July 31, 1998 and $25,000 of net
periodic pension expense for the comparable period in the prior year. The
full year pension income for FY 1999 is estimated at $64,119 vs. pension
expense of $123,081 recorded for FY 1998. This year's three month and full
year projected income reflects current actuarial assumptions recognizing
cash payouts to high benefit people and a shift in the actuarial mix.
3. As of July 31, 1998, $12,000 had been provided as a reasonable reserve
for uncollectible accounts receivable. This reserve has not changed during
the first quarter of FY 1999.
4. Proceeds from the sale of oil decreased in the current quarter as a
result of a decline in oil prices from the previous year from approximately
$19.53 a barrel to $13.22, a decrease of $6.31. Operating expenses decreased
in the current quarter by $9,716 primarily as a result of prior year's
nonrecurring repair costs on several wells in conjunction with reducing
continuing maintenance costs. The effect on the Profit and Loss Statement is
highlighted below
<TABLE>
<CAPTION>
First Quarter Ended
July 31,
1998 1997
<S> <C> <C>
Sales of Oil $33,606 $47,805
Operating expenses 25,584 35,300
------- -------
INCOME FROM OPERATIONS $8,022 $12,505
======= =======
</TABLE>
5. Property, Plant and Equipment increased $96,506 in the first three
months primarily as a result of work-in-progress on the Master Plan and
other capital projects.
10-QSB
Part 1
Item 1 (a) (4)
6. LONG-TERM DEBT:
<TABLE>
<CAPTION>
<S> <C>
Term loan, bank (a) $869,420
Installment loans, other 3,921
--------
873,341
Less current portion 46,471
--------
$826,870
========
</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.
Annual maturities of long-term debt are as follows:
Fiscal Years
Ending
APRIL 30, AMOUNT
- ------------ ------
1999 $34,629
2000 47,129
2001 49,761
2002 54,195
2003 59,025
Thereafter 628,602
--------
$873,341
10-QSB
Part 1
Item 2
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(A) NOT APPLICABLE
(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
On September 1, 1998 the Company announced the three year extension of its
building lease with Carco Group, Inc. at Gyrodyne's Flowerfield business
campus in Suffolk County, Long Island, New York. Carco, Gyrodyne's largest
office tenant, will occupy approximately 35,000 square feet as a result of
its fourth expansion in the past two years. The value of the pact is placed
in excess of one million dollars. The privately held and rapidly growing
Carco Group has two major divisions: one concentrates on servicing the auto
insurance industry while the other, the research division, conducts
background checks for businesses.
The Flowerfield business campus is home to more than 75 tenants who represent
a cross section of technology, service and manufacturing sectors. The
Company has promulgated a Master Plan for the mixed-use development of its
326 acre Flowerfield tract. Recent announcements include land leases with
Trammel Crow Residential MidAtlantic/NE Properties, Inc. (TCR) for a luxury
rental apartment complex and Marriott Senior Living Services (MSLS) for an
Assisted Living facility.
Trammel Crow Residential is one of the nation's most highly regarded and
active multifamily residential developers. The 500+ multifamily apartment
project represents a two phase development calling 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.
Marriott Senior Living Services has a major presence in the nascent assisted
living field. The proposed facility at Flowerfield is a 129 bed facility
which will include an Alzheimer unit. Because of the modest footprint of
the layout and the relatively benign environmental impacts, the Company is
striving to fast track the MSLS project.
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 a prior 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.
The lease provides for the Company to participate in camp revenues over and
above targeted levels. 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 first quarter also heralded the commencement of activities at the Lovin'
Oven catering facility housed in a new 7,500 square foot building. Tenant
financed, the new structure replaces a temporary structure which limited
year-round use of the facilities. The new building is the result of the
execution in FY98 of a 33 year land lease and parallel extension of the
associated building lease. The overall facility encompasses approximately
25,000 square feet and is situated on 9 acres.
The Company's operating expenses for real estate operations were comparable
for the first quarter. Timing differences in the recognition of construction
deposits received in first quarter of FY98, with actual expenses recorded in
the second quarter, gave the net appearance of lower expenses.
The outlook for the general real estate market on Long Island continues to
indicate strength for the remainder of 1998. Unsettled financial markets,
the turmoil in Washington and depressed world markets may unnerve investors
thus dampening demand. Fortunately, there is still little speculative
building on Long Island at this time leading to a conclusion that the realty
market should continue to be robust for a while longer.
General and Administrative expense decreased by $107,500 over the prior
corresponding period. Three factors contributed to the reduction. During
FY98's first quarter, pension expense decreased over $41,000 from the prior
year first quarter and the Company wrote off bad debts of approximately
$34,200. In addition, increased activity on the Flowerfield Master Plan
resulted in the capitalization of $18,700 for professional fees during the
current quarter.
The long term prospects for the development of the Callery-Judge Grove
remain 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
classification of the area surrounding the Grove: Is the area rural or
suburban? The issue is important because there are different parameters for
rural and suburban developments. Although the determination process 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 Grove as a whole, for the twelve months ended
June 30, 1998 show a loss on a consolidated basis of approximately 3.4
million dollars. Although the loss exceeded expectations, the numbers mask
several positive trends. The financials reflect the net results of sharply
increased citrus production attributable to culture care methods instituted
last year, improved fruit quality, a reduction in new tree mortality, an
increase in the number of productive trees per acre, and increased fruit
yield per tree. Dramatically lower grapefruit prices were the countervailing
negative in the earnings equation. Prospects for FY1999 are still clouded by
weak pricing, turmoil in Asia and a glut of fruit.
There were no sales of aircraft or parts in the current period. Expenses
increased $35,000 over last year representing efforts to develop a new
composite blade for the Company's one-manned helicopter dubbed Y-RON. The
development effort is on schedule with a sample blade having been produced
during August. It is estimated that the cost of completing this project will
result in additional expenses of $100,000.
The Company expects a substantial increase in aerospace revenue during the
third quarter. As was stated in the year end report, 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. Although some contract
conditions have changed, the contract price of $2,000,000 for the Technology
Data Package Transfer Agreement remains the same. In accordance with the
latest schedule provided, the Company now anticipates receiving $760,000 by
December 31, 1998.
Israel Aircraft Industries, Ltd. (IAI) extended its licensee agreement
through November 1998. Work on the Hellstar platform for the Israeli
Ministry of Defense is stalled for lack of funding. The Company does not
expect any change in IAI's situation during the fiscal year.
The after tax loss for the quarters ending July 31, 1998 and July 31, 1997
essentially mirrored the same results. For the three month period ending
July 31, 1998, the Company is reporting an after tax loss of ($77,100) or
($.07) per share as compared to an after tax loss of ($74,275) or ($.07) per
share for the same period last year. Results from operations for the current
quarter are not necessarily indicative of nor should they be used to project
full year results.
PART II OTHER INFORMATION
Items 1 through 4 are not applicable to the May 1, 1998 through July 31,
1998 period.
ITEM 5. OTHER INFORMATION
At the June 6, 1998 Board of Directors meeting the Board of Directors
selected October 30, 1998 at 11:30 AM, at the Company's Flowerfield Complex,
as the time and site for the next Annual Meeting of Stockholders. In
addition, the Board renewed the contract of Mr. Dimitri P. Papadakos for 5
(five) years along with an annual increase of $2,266.52.
As of July 20, 1998, Polk Bros. Foundation, Inc. reduced its total number of
shares of Gyrodyne Common Stock to 43,648. This reduced number of shares
lowered Polk Bros. market share from above 5% to 4.1%.
During the first quarter ended July 31, 1998, the Estate of Peter J.
Papadakos distributed its 362,668 shares to various beneficiaries. As a
result of this distribution, the following persons are now beneficial owners
of more than 5% of the Company's Common Stock $1 PV as follows:
1. Catherine Papadakos - Beneficial owner of 116,639 shares with an
approximate 11% ownership.
2. Peter P. Papadakos - Beneficial owner of 95,530 shares with an
approximate 9% ownership.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required - None
(b) Reports on Form 8-K - None were filed by the company for the first
quarter of FY 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GYRODYNE COMPANY OF AMERICA, INC.
(REGISTRANT)
Date: September 14, 1998 SGD/ DIMITRI P. PAPADAKOS
Dimitri P. Papadakos
President, Treasurer and Principal Executive
Officer
Date: September 14, 1998 SGD/ FRANK D'ALESSANDRO
Frank D'Alessandro
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1998
<CASH> 660,148
<SECURITIES> 0
<RECEIVABLES> 88,414
<ALLOWANCES> (12,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,095,079
<PP&E> 6,344,496
<DEPRECIATION> (3,525,718)
<TOTAL-ASSETS> 7,088,447
<CURRENT-LIABILITIES> 488,623
<BONDS> 826,870
0
0
<COMMON> 1,531,086
<OTHER-SE> 3,325,093
<TOTAL-LIABILITY-AND-EQUITY> 7,088,447
<SALES> 526,377
<TOTAL-REVENUES> 541,896
<CGS> 0
<TOTAL-COSTS> 650,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (18,738)
<INCOME-PRETAX> (127,325)
<INCOME-TAX> (50,225)
<INCOME-CONTINUING> (77,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (77,100)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
