US Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 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
(State or other jurisdiction of incorporation or organization)
11-1688021
(IRS Employer Identification No.)
7 FLOWERFIELD, SUITE 28, ST. JAMES, N.Y. 11780
(Address of principal executive offices)
(516) 584-5400
(Issuer's telephone number)
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes. .X . No. . .
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12,13 or 15 (d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes. . No. . .
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,076,788 COMMON $1 P.V.
AS OF DECEMBER 15, 1998
INDEX TO QUARTERLY REPORT QUARTER ENDED OCTOBER 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
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
October 31,
1998
ASSETS (NOTE 1)
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 629,211
Accounts receivable, less allowance for
doubtful accounts of $12,000 (Note 3) 157,523
Prepaid expenses and other current assets 57,204
Deferred income taxes 173,000
----------
Total current assets 1,016,938
INVESTMENT IN CITRUS GROVE PARTNERSHIP 1,585,104
PROPERTY, PLANT AND EQUIPMENT-NET (Note 5) 2,911,907
PREPAID PENSION COSTS (Note 2) 1,578,918
OTHER ASSETS 24,565
----------
TOTAL ASSETS $7,117,432
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $418,223
Current portion of long term debt (Note 6) 46,471
----------
Total Current Liabilities 464,694
----------
LONG TERM DEBT 815,900
DEFERRED INCOME TAXES 878,968
STOCKHOLDERS' EQUITY:
Common stock, par value $1 per share
authorized 4,000,000 shares, 1,531,086 shares
issued at October 31, 1998 (including 456,725 shares
held in treasury) 1,531,086
Additional paid in capital (Note 1) 7,009,565
Deficit (Note 1) (941,889)
----------
7,598,762
Less cost of shares of common stock
held in treasury (2,640,892)
----------
Total stockholders' equity 4,957,870
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,117,432
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
October 31, October 31,
REVENUE: 1998 1997 1998 1997
<S> <C> <C> <C> <C>
Rental income $1,062,756 $1,049,323 $536,379 $524,598
Aerospace income 0 60,494 0 20,494
---------- ---------- --------- ---------
Total Revenue from Operations 1,062,756 1,109,817 536,379 545,092
---------- ---------- --------- ---------
COSTS AND EXPENSES:
Cost of maintaining rental property 610,853 664,400 235,859 324,556
Aerospace expense (Note 7) 59,291 63,520 36,740 37,667
General and administrative (Note 2) 485,658 650,468 271,056 328,306
Aerospace research and development (Note 7) 114,864 0 76,528 0
---------- ---------- --------- ---------
Total costs and expenses 1,270,666 1,378,388 620,183 690,529
---------- ---------- --------- ---------
LOSS FROM OPERATIONS (207,910) (268,571) (83,804) (145,437)
---------- ---------- --------- ---------
OTHER INCOME AND EXPENSES:
Gain on Oil and Gas Investment (Note 4) 15,297 27,199 7,275 14,694
Interest Income 13,789 16,355 6,292 7,945
Interest Expense (37,523) (50,253) (18,785) (25,058)
---------- ---------- --------- ---------
Total Other Income/(Expense) (8,437) (6,699) (5,218) (2,419)
---------- ---------- --------- ---------
(LOSS) BEFORE INCOME TAXES (216,347) (275,270) (89,022) (147,856)
Income tax benefit (85,826) (110,108) (35,601) (56,969)
---------- ---------- --------- ---------
NET (LOSS) ($130,521) ($165,162) ($53,421) ($90,887)
========== ========== ========= =========
NET LOSS PER COMMON SHARE:
Basic ($0.12) ($0.16) ($0.05) ($0.09)
========== ========== ========= =========
Diluted ($0.12) ($0.16) ($0.05) ($0.09)
========== ========== ========= =========
WEIGHTED AVG. NO. OF COMMON
SHARES OUTSTANDING:
Basic 1,066,046 1,036,592 1,071,207 1,040,705
========== ========== ========= =========
Diluted 1,066,046 1,036,592 1,071,207 1,040,705
========== ========== ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ($130,521) ($165,162)
--------- --------
Adjustments to reconcile net (loss) to net
cash (used in) operating activities:
Depreciation and amortization 54,785 54,285
Pension expense/(income) (32,060) 53,297
Deferred income tax benefit (86,856) 0
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (87,638) 33,924
Prepaid expenses and other assets 34,221 (141,199)
Other assets (15,192) 2,043
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 59,181 108,002
--------- --------
Total adjustments (73,559) 110,352
--------- --------
Net cash (used in) operating activities (204,080) (54,810)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in property, plant and equipment (217,077) (81,712)
--------- --------
Net cash (used in) investment activities (217,077) (81,712)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term debt (22,811) (38,013)
Stock option exercise 188,633 81,915
--------- --------
Net cash provided by financing activities 165,822 43,902
--------- --------
Net (decrease) in cash and cash equivalents (255,335) (92,620)
Cash and cash equivalents at beginning of period 884,546 909,010
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $629,211 $816,390
========= ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited Consolidated Statements of Operations for the six month
periods ended October 31, 1998 and October 31, 1997 and the Consolidated
Balance Sheet as of October 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 six
month periods ended October 31, 1998 and 1997 are not necessarily
indicative of the results to be expected for the full year.
2. Pension income/(expense) is now included in general and administrative
expense. Prior year numbers have been adjusted to reflect this change.
The application of FASB 87 resulted in the Company's recognition, on the
basis of annual actuarial reports, of $32,060 of net periodic pension
income for the six month period ended October 31, 1998 and $53,297 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 six 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. At October 31, 1998, $12,000 had been provided as a reasonable reserve
for uncollectible accounts receivable. This reserve has not changed during
the second 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 $18.69 a barrel to $12.84, a decrease of $5.85. Operating
expenses decreased in the current quarter by $5,125 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>
Six months ended Second Quarter Ended
October 31, October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Sales of Oil $68,956 $95,699 $35,350 $47,894
Operating expenses 53,659 68,500 28,075 33,200
------- ------- ------- -------
INCOME FROM OPERATIONS $15,297 $27,199 $7,275 $14,694
======= ======= ======= =======
</TABLE>
5. Property, Plant and Equipment increased $217,077 in the first six
months primarily as a result of work-in-progress on the Master Plan
and other capital projects.
6. LONG-TERM DEBT:
Term loan, bank (a) $859,194
Installment loans, other 3,177
--------
862,371
Less current portion 46,471
--------
$815,900
========
(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 $23,659
2000 47,129
2001 49,761
2002 54,195
2003 59,025
Thereafter 628,602
--------
$862,371
========
7. AEROSPACE RESEARCH AND DEVELOPMENT - In the second quarter of the
current fiscal year, Gyrodyne reclassified its first quarter
development costs for the YRON blade out of aerospace expense and into
aerospace research and development. This decision was made to isolate
development costs as well as to prevent distortion of recurring
aerospace expenses. These expenses are now in line with each other
for the six months ended 10/31/98 to 10/31/97.
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
After the current quarter's close in November, 1998, Gyrodyne completed
the first phase of its Technology Transfer Agreement (TTA) with Dornier
GmbH of Friedrichshafen, Germany. The Company delivered plans and
specifications for evaluation for its remotely piloted helicopters and
received an initial payment of $760,000. This income will be applied to
the "Consolidated Statements of Operations" in the third quarter.
The overall TTA pact is valued at $2,000,000 plus royalties, and the
Company will continue to provide technical support for the balance of the
evaluation phase of the program. The Technology Transfer Agreement is
based on Gyrodyne's model QH-50C/D remotely piloted coaxial rotor system
which was developed and deployed by the U.S. Navy. The procurement by
the Navy of the QH-50 remains the largest drone helicopter order ever
recorded.
There were no sales of aircraft or parts in the current quarter.
Aerospace expenses dipped slightly versus the same six month period in
FY98. A separate financial statement line item was created to record
expenses related to the development of a new composite rotor blade for the
Company's YRON one-manned helicopter. The Company has manufactured a
prototype set of blades and has successfully logged over 25 hours of whirl
test time. These proof of concept blades will be integrated into the
one-manned helicopter assets. Due to liability exposure in the general
aviation category, the Company is considering selling the Gyrodyne
Rotorcycle Company, Inc. subsidiary. The close-out of the YRON blade
effort will begin upon completion of the 35 hour whirl test program and
final acceptance of the blade tooling. Total cost attributable to the
blade program is approximately $150,000. The Company had determined at
the inception of the blade program that the incorporation of a proof of
concept blade was required to either enter a joint development venture or
make the YRON hardware inventory and engineering package marketable to a
prospective purchaser.
During the current period, extensive progress was recorded in several real
estate study areas including: archeological, environmental, and
ecological. An archeological report was issued on approximately 30% of
the Brookhaven acreage of 182 acres. The initial area surveyed included
both the Trammel Crow Residential MidAtlantic/NE Properties, Inc. and the
Marriott Senior Living Services sites. There were no significant findings
that could hamper or alter development plans. An updated Phase I
environmental assessment for the entire 326 acre Flowerfield tract was
completed. There were no significant adverse findings. An ecological
report on the 182 acre Brookhaven portion of Flowerfield was completed.
There were no significant findings that could hamper or alter development
plans.
As indicated in the annual report, the Company is estimating a cost of
$1,000,000 for the next phase of the Master Plan submittal which includes
the above cited studies. To date in fiscal year 1999, approximately
$250,000 of Master Plan expenses have been incurred. In addition, the
Company has applied to the Towns of Smithtown and Brookhaven for permits
with respect to realignment of roads and minor site work. It is
anticipated that these current issues will be resolved during the third or
fourth fiscal quarter.
After assessing all proposed infrastructure improvement costs envisioned
in the Flowerfield Master Plan Development, the Company has elected to
finance the purchase of heavy equipment which will be utilized to reduce
construction costs. The residual value of the construction equipment
along with anticipated savings provide a substantial safety net for this
strategy.
The Company's gross operating margin for real estate operations improved
during the first half ended October 31, 1998. Although timing differences
affected quarterly results, the recognition of tenant apportionable
construction charges accounted for the decrease in expense. In addition,
G&A expenses were noticeably lower reflecting a swing from expense to
income in the pension plan.
Unsettled financial markets, the turmoil in Washington and depressed
world markets may unnerve investors thus dampening demand for financial
instruments. During the second quarter, a flight to liquidity
following the hammering of equities temporarily pumped up the bond
market. Equities have rebounded sharply, albeit unevenly, since the
sell off with debt instruments settling into a narrower trading band.
The net result has been a drying-up of REIT money which is beginning to
show some tangible adverse effects in certain building categories. At
this time, speculative building on Long Island is isolated indicating
that the real estate market may continue to remain healthy.
Although reduced from FY98 year end balances, the Company's cash
reserves are adequate for ongoing operations and cash dependent
development expenses. The Current and Quick ratios exceeded 2.0 at
October 31, 1998. As noted earlier, the Company received a $760,000
cash payment in November 1998 from helicopter licensee Dornier GmbH
which will substantially bolster the January 31, 1999 financial ratio
figures.
For the six month period and the quarter ending October 31, 1998, the
Company is reporting an after tax loss of $130,521 or $0.12 per share
and $53,421 or $.05 per share, respectively. This compares to a loss of
$165,162 or $.16 per share and $90,887 or $.09 per share for the prior
periods. Results for the current period 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 August 1, 1998 through
October 31, 1998 period.
ITEM 5. OTHER INFORMATION
The following Directors: Robert F. Friemann, Stephen V. Maroney and
Philip F. Palmedo were elected at the Annual Meeting of Stockholders on
October 30, 1998 held at the Company's Flowerfield Complex. Their terms
will expire at the Shareholders meeting in the year 2001. In addition, the
stockholders approved the following amendments and propositions:
To ratify the engagement of Holtz Rubenstein & Company, LLP as independent
auditors for Fiscal Year 1999.
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
second 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: December 15, 1998 SGD/DIMITRI P.PAPADAKOS
Dimitri P. Papadakos
President, Treasurer and Principal
Executive Officer
Date: December 15, 1998 SGD/FRANK D'ALESSANDRO
Frank D'Alessandro
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 629,211
<SECURITIES> 0
<RECEIVABLES> 169,523
<ALLOWANCES> (12,000)
<INVENTORY> 0
<CURRENT-ASSETS> 1,016,938
<PP&E> 6,465,068
<DEPRECIATION> (3,553,161)
<TOTAL-ASSETS> 7,117,432
<CURRENT-LIABILITIES> 464,694
<BONDS> 815,900
0
0
<COMMON> 1,531,086
<OTHER-SE> 3,426,784
<TOTAL-LIABILITY-AND-EQUITY> 7,117,432
<SALES> 1,062,756
<TOTAL-REVENUES> 1,091,842
<CGS> 0
<TOTAL-COSTS> 1,308,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (37,523)
<INCOME-PRETAX> (216,347)
<INCOME-TAX> (85,826)
<INCOME-CONTINUING> (130,521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130,521)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
