US Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2007
--------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number 0-1684
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Gyrodyne Company of America, Inc.
---------------------------------
(Exact name of small business issuer as specified in its charter)
New York 11-1688021
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 Flowerfield, Suite 24, St. James, N.Y. 11780
----------------------------------------------
(Address of principal executive offices)
(631) 584-5400
--------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer __ Accelerated Filer __ Non-accelerated Filer X
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes __ No X
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
1,289,878 SHARES, $1.00 PAR VALUE, AS OF APRIL 30, 2007
Seq. Page 1
INDEX TO QUARTERLY REPORT OF GYRODYNE COMPANY OF AMERICA, INC.
QUARTER ENDED MARCH 31, 2007
Seq. Page
Form 10-Q Cover 1
Index to Form 10-Q 2
Part I Financial Information 3
Item I Financial Statements 3
Consolidated Balance Sheet (unaudited) 3
Consolidated Statements of Operations (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Footnotes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
Item 4 Controls and Procedures 12
Part II - Other Information 12
Item 1 Legal Proceedings 12
Item 6 Exhibits 13
Signatures 13
Exhibits:
---------
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification
Exhibit 32.1 CEO/CFO Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Seq. Page 2
Part I Financial Information
Item I Financial Statements
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS March 31, December 31,
------ 2007 2006
(Unaudited)
------------ ------------
REAL ESTATE
Rental property:
Land $ 3,017 $ 3,017
Building and improvements 3,259,291 3,140,332
Machinery and equipment 179,335 179,335
------------ ------------
3,441,643 3,322,684
Less accumulated depreciation 2,516,124 2,500,907
------------ ------------
925,519 821,777
------------ ------------
Land held for development:
Land 558,466 558,466
Land development costs 453,275 321,514
------------ ------------
1,011,741 879,980
------------ ------------
Total real estate, net 1,937,260 1,701,757
Cash and Cash Equivalents 6,660,011 2,951,287
Investment In Marketable Securities 17,337,724 23,797,515
Deposit On Property 504,000 504,000
Rent Receivable, net of allowance for doubtful accounts
of $41,000 and $46,000, respectively 84,873 106,959
Interest Receivable 448,923 468,679
Prepaid Expenses And Other Assets 212,756 337,045
Prepaid Pension Costs 1,091,157 1,080,473
------------ ------------
Total Assets $ 28,276,704 $ 30,947,715
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable $ 217,433 $ 687,384
Accrued liabilities 149,027 2,174,460
Cash distribution payable 5,160,157 -
Tenant security deposits payable 171,975 159,785
Deferred income taxes 8,135,000 8,135,000
------------ ------------
Total Liabilities 13,833,592 11,156,629
------------ ------------
Commitments And Contingencies
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000 shares;
1,531,086 shares issued 1,531,086 1,531,086
Additional paid-in capital 7,978,395 8,205,134
Accumulated Other Comprehensive Income:
Unrealized Gain from Marketable Securities 201,603 280,042
Balance of undistributed income other than gain or loss on
sales of properties 6,269,725 11,615,310
------------ ------------
15,980,809 21,631,572
Less cost of shares of common stock held in treasury; 241,208 and
293,867 shares, respectively
(1,537,697) (1,840,486)
------------ ------------
Total Stockholders' Equity 14,443,112 19,791,086
------------ ------------
Total Liabilities and Stockholders' Equity $ 28,276,704 $ 30,947,715
============ ============
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2007 2006
------------ ------------
Revenues
Rental Income $ 286,859 $ 311,536
Interest Income 382,634 558,025
------------ ------------
669,493 869,561
------------ ------------
Expenses
Rental expenses 200,258 213,974
General and administrative expenses 665,251 721,914
Depreciation 15,217 15,774
------------ ------------
880,726 951,662
------------ ------------
Loss from Operations Before Benefit for Income Taxes (211,233) (82,101)
Benefit for Income Taxes (25,805) (32,841)
------------ ------------
Net Loss $ (185,428) $ (49,260)
============ ============
Net Loss Per Common Share:
Basic $ (0.15) $ (0.04)
============ ============
Diluted $ (0.15) $ (0.04)
============ ============
Weighted Average Number Of Common
Shares Outstanding:
Basic 1,249,276 1,237,147
============ ============
Diluted 1,249,276 1,237,147
============ ============
See notes to consolidated financial statements
Seq. Page 4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
----------------------------
2007 2006
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (185,428) $ (49,260)
------------ ------------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 17,851 26,689
Bad debt expense 6,000 6,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Land development costs (131,761) -
Accounts receivable 16,086 24,220
Interest receivable 19,756 (538,556)
Condemnation receivable - 26,315,000
Prepaid expenses and other assets 121,655 (48,498)
Prepaid pension costs (10,684) 29,007
(Decrease) increase in liabilities:
Accounts payable (469,950) 37,884
Accrued liabilities (2,025,434) (29,034)
Income taxes payable - 126,808
Deferred income taxes - (238,549)
Tenant security deposits 12,190 (44,176)
------------ ------------
Total adjustments (2,444,291) 25,666,795
------------ ------------
Net cash (used in) provided by operating activities (2,629,719) 25,617,535
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs associated with property, plant and equipment (118,959) (61,333)
Proceeds from purchase of marketable securities - (26,323,990)
Proceeds from sale of marketable securities 3,462,037 -
Principal repayments on investment in marketable securities 2,919,315 -
------------ ------------
Net cash provided by (used in) investment activities 6,262,393 (26,385,323)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 76,050 74,052
------------ ------------
Net cash provided by financing activities 76,050 74,052
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,708,724 (693,736)
Cash and cash equivalents at beginning of period 2,951,287 1,626,052
------------ ------------
Cash and cash equivalents at end of period $ 6,660,011 $ 932,316
============ ============
Supplemental cash flow information:
Noncash Investing and Financing Activities:
Declared but unpaid cash distributions $ 5,160,157 $ -
============ ============
See notes to consolidated financial statements
Seq. Page 5
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Quarterly Presentations:
The accompanying quarterly financial statements have been prepared in conformity
with accounting principles generally accepted in the United States ("GAAP"). The
financial statements of the Registrant included herein have been prepared by the
Registrant pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) and, in the opinion of management, reflect all adjustments
which are necessary to present fairly the results for the three month periods
ended March 31, 2007 and 2006.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations; however, management believes that the
disclosures are adequate to make the information presented not misleading.
This report should be read in conjunction with the audited financial statements
and footnotes therein included in the Transition Report on Form 10-K for the
eight months ended December 31, 2006.
The results of operations for the three month period ended March 31, 2007 are
not necessarily indicative of the results to be expected for the full year.
2. Principle of Consolidation:
The accompanying consolidated financial statements include the accounts of
Gyrodyne Company of America, Inc. ("Company") and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
3. Investment in Marketable Securities
The Company's marketable securities consist of debt securities classified as
available-for-sale and are reported at fair value, with the unrealized gains and
losses excluded from operating results and reported as a separate component of
stockholders' equity net of the related tax effect. These debt securities
consist of agency hybrid mortgage backed securities on deposit with a major
financial institution.
4. Earnings Per Share:
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Dilutive earnings per share gives effect to stock options and warrants which are
considered to be dilutive common stock equivalents. Basic loss per common share
was computed by dividing net loss by the weighted average number of shares of
common stock outstanding. Diluted loss per common share does not give effect to
the impact of options because their effect would have been anti-dilutive.
Treasury shares have been excluded from the weighted average number of shares.
The following is a reconciliation of the weighted average shares:
Three months ended
March 31,
2007 2006
---------- ----------
Basic 1,249,276 1,237,147
Effect of dilutive securities - -
---------- ----------
Diluted 1,249,276 1,237,147
========== ==========
5. Income Taxes:
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
6. Revolving Credit Note:
The Company's line of credit has a maximum borrowing limit of $1,750,000, bears
interest at the lending institution's prime-lending rate ( 8.25 % at March 31,
2007) plus 1%, and is subject to certain financial covenants. The line is
secured by certain real estate and expires on June 1, 2009. As of March 31, 2007
and December 31, 2006, $1,750,000 was available under this agreement and the
Company was in compliance with the financial covenants.
Seq. Page 6
7. Stock Options:
The Company's results for the three month period ended March 31, 2007 include
share-based compensation expense totaling $0.
The following table represents the Company's stock options granted, exercised
and forfeited during the three months of fiscal 2007.
Weighted Weighted
Average Average
Exercise Remaining Aggregate
Number price Contractual Intrinsic
Stock Options of Shares per Share Term Value
---------- ---------- ---------- ----------
Outstanding at January 1, 2007 67,105 $ 16.42 - -
Granted - - - -
Exercised (67,105) $ 16.42 - -
Forfeited/expired - - - -
Outstanding at March 31, 2007 - $ - - -
========== ========== ========== ==========
Vested and Exercisable at
March 31, 2007 - $ - - -
========== ========== ========== ==========
8. Retirement Plans:
The Company records net periodic pension benefit cost pro rata throughout the
year. The following table provides the components of net periodic pension
benefit cost for the plan for the three months ended March 31, 2007 and 2006:
Three Months Ended
March 31,
---------
2007 2006
-------- --------
Pension Benefits
Service Cost $ 30,348 $ 21,624
Interest Cost 33,027 21,350
Expected Return on Plan Assets (74,589) (39,775)
Amortization of Prior-Service Cost - 10,057
-------- --------
Net Periodic Benefit Cost After Curtailments
and Settlements $(11,214) $ 13,256
======== ========
During the three months ended March 31, 2007 and 2006, the Company did not make
a contribution to the plan. The Company has no minimum required contribution for
the December 31, 2007 plan year.
9. Commitments and Contingencies
Lease commitments - The future minimum revenues from rental property under the
terms of all noncancellable tenant leases, assuming no new or renegotiated
leases are executed for such premises, for future years are approximately as
follows:
Twelve Months Ending March 31, Amount
-----------------------------------------------------------------------------
2008 $ 740,000
2009 276,000
2010 108,000
2011 27,000
2012 -
Thereafter -
---------------
$ 1,151,000
===============
Employment agreements - The Company has employment contracts with two officers
that provide for annual salaries aggregating approximately $381,000 and a
severance payment equivalent to three years salary and other benefits in the
event of a change in control, termination by the Company without cause or
termination by the officer for good reason.
Seq. Page 7
Land development contract - On February 12, 2007, the Company entered into an
agreement with Landmark National to terminate two agreements, the Golf Operating
Agreement and the Asset Management Agreement, both dated April 9, 2002. In
addition to abandoning its claim for 10% of all proceeds related to the
condemnation and any sale and/or development of the remaining Flowerfield
acreage, Landmark agreed to provide consulting services in connection with the
eminent domain litigation against the State University of New York at Stony
Brook. See Part II, Item 1, Legal Proceedings. The agreement also includes
consideration for previously provided services. The Company paid Landmark
$2,000,000, of which $500,000 was accrued by the Company during its year ended
April 30, 2006. In addition, the Company retained Landmark and will pay it
$1,000,000 over the next thirty-six months, commencing on March 1, 2007, for
general consulting, review of pertinent documents, consultations regarding land
planning and economic feasibility studies and coordination with project
engineers associated with the Company's claim for additional compensation in the
eminent domain litigation. As a result of the initial payment due of $2,000,000,
the Company accrued $1,500,000 as additional condemnation expense for the eight
months ended December 31, 2006. The Company intends to add the $2,000,000 to the
existing claim for additional compensation with regard to the condemnation.
Purchase agreement - On October 12, 2006, the Company entered into a Contract of
Sale (the "Contract"), which was amended in January 2007, by and between the
Company and Frank M. Pellicane Realty, LLC and Pelican Realty, LLC
(collectively, the "Seller") to acquire land and buildings comprising, in
significant part, a medical office complex known as Port Jefferson Professional
Park in Port Jefferson Station, New York. The Contract relates specifically to
ten office buildings, located at 1-6, 8, 9 and 11 Medical Drive and 5380
Nesconset Highway, which are situated on 5.16 acres with approximately 40,000
square feet of rentable space (the "Property") with a current occupancy rate of
97%. The purchase price per square foot is $221.25 and the aggregate monthly
rent flow from the property is currently $73,941.50. Other than with respect to
the Contract itself, there is no material relationship between the Company and
the Seller.
The purchase price for the Property is $8.85 million, $500,000 of which was paid
as a refundable deposit upon the signing of the Contract, and the remainder,
subject to any adjustments, is required to be paid at closing. Under the
Contract, the Company has the right to elect either to pay all cash at closing
or apply to assume the terms of an existing mortgage loan due February 1, 2022
at a current interest rate of 5.75%. The Company has applied for and has been
approved to assume the mortgage if it so desires. The bank required an
additional deposit of $4,000 relating to the assumption of the existing
mortgage. Upon acquisition, the Company intends to continue to operate the
office space pursuant to existing leases. It is anticipated that the transaction
will close in May 2007. The contract was amended in January 2007 to provide that
the seller will be responsible for the cost of remediating the contaminated
on-site sanitary waste disposal systems and stormwater drywells, which was
discovered by the Company during the due diligence examination.
10. Recent Accounting Pronouncements:
In February 2007, the Financial Accounting Standards Board ("FASB") issued FAS
159, "The Fair Value Option for Financial Assets and Financial
Liabilities--Including an amendment of FASB Statement No. 115". This Statement
applies to all entities, including not-for-profit organizations. Most of the
provisions of this Statement apply only to entities that elect the fair value
option. However, the amendment to FASB Statement No. 115, Accounting for Certain
Investments in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities. Some requirements apply differently
to entities that do not report net income. This Statement is effective as of the
beginning of an entity's first fiscal year that begins after November 15, 2007.
The Company does not believe this pronouncement will have a material effect on
its financial statements.
11. Special Distributions:
On March 13, 2007 the Board of Directors declared a special distribution in the
amount of $4.00 per share payable on April 9, 2007 for all shareholders of
record on March 26, 2007. This special distribution was paid from the advance
payment funds received as a result of the condemnation.
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements made in this Form 10-Q that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") both as
amended, which can be identified by the use of forward-looking terminology such
as "may," "will," "anticipates," "expects," "projects," "estimates," "believes,"
"seeks," "could," "should," or "continue," the negative thereof, other
variations or comparable terminology. Important factors, including certain risks
and uncertainties with respect to such forward-looking statements, that could
cause actual results to differ materially from those reflected in such forward
looking statements include, but are not limited to, the effect of economic and
business conditions, including risk inherent in the Long Island, New York and
Palm Beach County, Florida real estate markets, the ability to obtain additional
capital in order to develop the Company's existing real estate and other risks
detailed from time to time in its SEC reports. The Company assumes no obligation
to update the information in this Form 10-Q.
Seq. Page 8
Critical Accounting Policies
----------------------------
The consolidated financial statements of the Company include accounts of the
Company and all majority-owned and controlled subsidiaries. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Company's consolidated financial statements and related notes. In
preparing these financial statements, management has utilized information
available including its past history, industry standards and the current
economic environment, among other factors, in forming its estimates and
judgments of certain amounts included in the consolidated financial statements,
giving due consideration to materiality. It is possible that the ultimate
outcome as anticipated by management in formulating its estimates inherent in
these financial statements might not materialize. However, application of the
critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of companies in similar businesses.
Revenue Recognition
-------------------
Rental revenue is recognized on a straight-line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due, if any, is included in deferred rents receivable on the
Company's balance sheets. Certain leases also provide for tenant reimbursements
of common area maintenance and other operating expenses and real estate taxes.
Ancillary and other property related income is recognized in the period earned.
Real Estate
-----------
Rental real estate assets, including land, buildings and improvements,
furniture, fixtures and equipment are recorded at cost. Tenant improvements,
which are included in buildings and improvements, are also stated at cost.
Expenditures for ordinary maintenance and repairs are expensed to operations as
they are incurred. Renovations and/or replacements, which improve or extend the
life of the asset, are capitalized and depreciated over their estimated useful
lives.
Depreciation is computed utilizing the straight-line method over the estimated
useful life of ten to thirty years for buildings and improvements and three to
twenty years for machinery and equipment.
The Company is required to make subjective assessments as to the useful life of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net income.
Real estate held for development is stated at the lower of cost or net
realizable value. In addition to land, land development and construction costs,
real estate held for development includes interest, real estate taxes and
related development and construction overhead costs which are capitalized during
the development and construction period. Net realizable value represents
estimates, based on management's present plans and intentions, of sale price
less development and disposition cost, assuming that disposition occurs in the
normal course of business.
Long Lived Assets
-----------------
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property is
less than the carrying value of the property. Such future cash flow estimates
consider factors such as expected future operating income, trends and prospects,
as well as the effects of demand, competition and other factors. To the extent
impairment occurs, the loss will be measured as the excess of the carrying
amount of the property over the fair value of the property.
The Company is required to make subjective assessments as to whether there are
impairments in the value of its real estate properties and other investments.
These assessments have a direct impact on the Company's net income, since an
impairment charge results in an immediate negative adjustment to net income. In
determining impairment, if any, the Company has adopted Financial Accounting
Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets."
Seq. Page 9
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007
AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2006
The Company is reporting a loss of $185,428 for the three month period ending
March 31, 2007 compared to a loss of $49,260 for the same period during the
prior year. Current year results include an income tax benefit of $25,805 which
represents a refund associated with the fiscal year ending April 30, 2006 while
the prior year results include a tax benefit of $32,841. The diluted per share
loss for the current period amounted to $(0.15) compared to $(0.04) for the
prior year.
Revenues declined by $200,068, amounting to $669,493 for the current reporting
period compared to $869,561 for the same three months of last year. The major
contributing factor was a $175,391 decrease in interest income brought about by
the fact that the previous year included $538,556 in interest pertaining to the
$26.3 million Advance Payment on the condemnation of Flowerfield acreage. That
variance was somewhat mitigated by an increase in interest income from the
investment of the Advance Payment in marketable securities and interest bearing
deposits of $344,626 and $19,502, respectively.
Additionally, rental income declined by $24,677 due to the fact that delinquent
payments from one tenant totaling $57,380 were not accrued for the entire three
month period. That tenant has subsequently surrendered the premises associated
with their lease agreement and the Company is pursuing legal remedies to secure
payment of all past due obligations. Partially offsetting this decrease was an
overall increase in other rental revenues totaling $32,703.
Expenses declined by $70,936, amounting to $880,726 for the three months ending
March 31, 2007 compared to $951,662 for the same period last year. Rental
expenses declined by $13,716 while general and administrative expenses decreased
by $56,663 for the reporting period. Depreciation expense was relatively
unchanged, totaling $15,217.
Rental expenses totaled $200,258 for the current quarter compared to $213,974
during the prior year. Major contributing factors included a decrease of $40,879
in real estate taxes resulting from the fact that certain of our property taxes
are being capitalized in conjunction with the Company's development plan for the
remaining Flowerfield acreage and an increase of $25,211 in maintenance and
repair costs.
General and administrative expenses, which totaled $665,251 and $721,914 for the
first quarter of the current year and the same period last year, respectively,
were affected by several factors. Although total expenses in this category
decreased from the prior year, the Company did experience increased consulting
fees associated with the conversion of its accounting system and regulatory
reporting requirements totaling $32,652; $81,109 in legal, consulting and
accounting fees; $22,606 in corporate governance expense; and $10,472 in
Directors fees. General and administrative expenses that declined from the prior
year included $22,898 in salaries and benefits; $13,921 in rental costs; $58,943
in condemnation expense; and $39,691 in pension costs. The prior year also
included $68,235 in costs associated with the Company's strategic plan for which
there were none in the current period.
As a result, the Company is reporting a loss from operations of $211,233
compared to a loss of $82,101 to the first quarter of the prior year. As noted
above, certain tax benefits totaling $25,805 and $32,841 for the first quarter
of 2007 and 2006, respectively, reduced the losses to $185,428 and $49,260,
respectively.
FUNDS FROM OPERATIONS
The Company defines Funds from Operations ("FFO"), a non-GAAP measure,
consistent with the National Association of Real Estate Investment Trusts
definition, as net income available to common shareholders, plus depreciation
and amortization of assets uniquely significant to the real estate industry,
reduced by gains and increased by losses on (i) sales of investment property and
(ii) extraordinary items.
The Company considers FFO to be an appropriate supplemental measure of a REIT's
operating performance as it is based on a net income analysis of property
portfolio performance that excludes non-cash items such as depreciation. The
historical accounting convention used for real estate assets requires
straight-line depreciation of buildings and improvements, which implies that the
value of real estate assets diminishes predictably over time. Since real estate
values historically rise and fall with market conditions, presentations of
operating results for a REIT, using historical accounting for depreciation,
could be less informative. The use of FFO is recommended by the REIT industry as
a supplemental performance measure.
Presentation of this information is intended to assist the reader in comparing
the operating performance of different REITs, although it should be noted that
not all REITs calculate FFO the same way, so comparisons with other REITs may
not be meaningful. Furthermore, FFO is not necessarily indicative of cash flow
available to fund cash needs and should not be considered as an alternative to
net income as an indication of the Company's performance.
Seq. Page 10
FFO is calculated as follows:
Three Months Ended March 31, 2007
Net Loss $ (185,428)
Depreciation 6,855
Funds from operations (178,573)
===========
Funds from operations per share - diluted $ (0.14)
===========
Weighted average common shares outstanding - diluted 1,249,276
===========
LIQUIDITY AND CAPITAL RESOURCES
Net cash (used in) provided by operating activities was $(2,629,719) and
$25,617,535 during the three months ended March 31, 2007 and 2006, respectively.
The cash (used in) operating activities in the current period was primarily
related to the payment of $2,000,000 to Landmark in connection with an agreement
to terminate two agreements, the Golf Operating Agreement and the Asset
Management Agreement, both dated April 9, 2002. The cash provided by operating
activities in the prior period consists of the receipt of $26,315,000 from the
State of New York on the condemnation advance payment.
Net cash provided by (used in) investing activities were $6,262,393 and
$(26,385,323) during the three months ended March 31, 2007 and 2006,
respectively. The cash provided by investing activities in the current period
was primarily related to the sale and principal repayments of marketable
securities for $3,462,037 and $2,919,315, respectively. The principal use of
cash in the prior period was related to the purchase of marketable securities of
$26,323,990.
Net cash provided by financing activities was $76,050 and $74,052 during the
three months ended March 31, 2007 and 2006, respectively. The net cash provided
during both periods was the result of proceeds from the exercise of stock
options. The Company has a $1,750,000 revolving credit line with a bank, bearing
interest at a rate of prime plus one percent which was 9.25% at March 31, 2007.
The unused portion of the credit line, which is the total line of $1,750,000,
will enhance the Company's financial position and liquidity and be available, if
needed, to fund any unforeseen expenses.
As of March 31, 2007, the Company had cash and cash equivalents of $6,660,011
and anticipates having the capacity to fund normal operating, general and
administrative expenses, and its regular debt service requirements. Working
capital, which is the total of current assets less current liabilities as shown
in the accompanying chart, amounted to $19,529,132 at March 31, 2007. Net
prepaid expenses and other assets shown in the accompanying chart does not
include $20,563 and $32,714 of furniture and fixtures, net, and loan origination
fees, net, for the three months ended March 31, 2007 and 2006, respectively.
March 31,
---------
2007 2006
------------ ------------
Current assets:
Cash and cash equivalents $ 6,660,011 $ 932,316
Investment in marketable securities 17,337,724 26,323,301
Deposit on property 504,000 -
Rent receivable, net 84,873 81,863
Interest receivable 448,923 921,385
Net prepaid expenses and other assets 192,193 116,650
------------ ------------
Total current assets 25,227,724 28,375,515
------------ ------------
Current liabilities:
Accounts payable 217,433 170,736
Accrue liabilities 149,027 651,263
Cash distribution payable 5,160,157 -
Tenant security deposits payable 171,975 167,963
Income taxes payable - 126,808
------------ ------------
Total current liabilities 5,698,592 1,116,770
------------ ------------
Working capital $ 19,529,132 $ 27,258,745
============ ============
Seq. Page 11
LIMITED PARTNERSHIP INVESTMENT
Our limited partnership investment in the Callery Judge Grove, LP (the "Grove")
is carried on the Company's balance sheet at $0 as a result of recording losses
equal to the carrying value of the investment. This investment represents a
10.93% ownership interest in a limited partnership that owns a 3500+ acre citrus
grove in Palm Beach County, Florida. The land is currently the subject of a
change of zone application for a mixed use of residential, commercial and
industrial development. We have no current forecast as to the likelihood of, or
the timing required to achieve these entitlements that might impact the Grove's
value.
(c) OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial conditions, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes there have been no significant changes in market risk from
that disclosed in the Company's Transition Report on Form 10-K for the eight
months ended December 31, 2006.
Item 4 CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of March 31, 2007. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer has concluded that the disclosure
controls and procedures were effective, in all material respects, to ensure that
information required to be disclosed in the reports the Company files and
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission. It should be noted that design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions regardless of how remote.
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rule 13a-15 that occurred during the Company's last fiscal
quarter that has materially affected, or that is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Part II Other Information
Item 1 Legal Proceedings
Gyrodyne Company of America, Inc. v. The State University of New York at Stony
------------------------------------------------------------------------------
Brook
-----
On November 2, 2005, the State University of New York at Stony Brook (the
"University") filed an acquisition map with the Suffolk County Clerk's office
and vested title in approximately 245.5 acres of the Company's property known as
Flowerfield (the "Property") pursuant to the New York Eminent Domain Procedure
Law (the "EDPL"). On March 27, 2006, the Company received payment from the State
of New York in the amount of $26,315,000, which the Company had previously
elected under the EDPL to accept as an advance payment for the Property. Under
the EDPL, both the advance payment and any additional award from the Court of
Claims generally bear interest at the current statutory rate of 9% simple
interest from the date of the taking through the date of payment.
On May 1, 2006, the Company filed a Notice of Claim with the Court of Claims of
the State of New York seeking $158 million in damages from the University
resulting from the condemnation of the Property. While the Company believes that
a credible case for substantial additional compensation can be made, it is
possible that the Company may be awarded a different amount than is being
requested, including no compensation, or an amount that is substantially lower
than the Company's claim for $158 million. It is also possible that the Court of
Claims could ultimately permit the State to recoup part of its advance payment
to the Company.
Seq. Page 12
Faith Enterprises D.C. LLC v. Gyrodyne Company of America, Inc.
----------------------------------------------------------------
Faith Enterprises, an operator of a child care center as a franchisee of Kiddie
Academy, leased a suite of offices from the Company under a 15-year lease which
commenced in March 2005 with a five-year option. Beginning approximately July
2005 and continuing to the present, Faith Enterprises failed to pay the full
monthly rent due under the lease and remain current with their obligations. The
Company served Faith Enterprises with a series of default notices. The
franchisor was also notified of the default but has not chosen to terminate the
franchise agreement nor pay the rent deficiency on behalf of the franchisee. In
February 2007, the Company served Faith Enterprises with a 10-day notice of
default. Faith Enterprises then commenced this action in New York State Supreme
Court for Suffolk County seeking damages for breach of contract, fraudulent
inducement and tortuous interference with business, claiming that the Company's
issuance of press releases in December 2006 and January 2007 about its
submission of an application to the Town of Smithtown to rezone its property
caused Faith Enterprises financial damages in lost clientele. Faith Enterprises
is seeking $7 million in damages on each of the three claims and is requesting
that it not pay rent during the pendency of the proceeding. Faith Enterprises
also filed an application for a Yellowstone injunction and a preliminary
injunction to forestall the Company from proceeding with the non-payment
eviction proceeding. The Company opposed that application and, in an order dated
February 21, 2007, the Court denied Faith Enterprises' request in its entirety.
The Company also served and filed a motion to dismiss the entire case. That
motion is currently returnable on June 27, 2007. Faith served an amended
complaint. By agreement with Plaintiff's counsel, Gyrodyne will be filing an
amended motion to dismiss the amended complaint, making it returnable on June
27, 2007. Gyrodyne's amended motion papers are due to be served by May 21, 2007.
Faith will then have until June 18th to serve its opposition papers. Gyrodyne's
reply papers are due June 26th. The Company also commenced a proceeding in the
District Court seeking to evict Faith Enterprises for non-payment of rent. That
proceeding was commenced in March 2007, upon the Supreme Court's decision
denying Faith Enterprises' request for injunctive relief. Faith agreed to an
order in the District Court to vacate the premises and for a judgment for past
due rent. Faith vacated the premises on April 6, 2007.
In addition, in the normal course of business, the Company is a party to various
legal proceedings. After reviewing all actions and proceedings pending against
or involving the Company, Management considers the aggregate loss, if any, will
not be material.
Items 2 through 5 are not applicable to the three months ended March 31, 2007.
Item 6 Exhibits
31.1 Rule 13a-14(a)/15d-14(a) Certification.
32.1 CEO/CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GYRODYNE COMPANY OF AMERICA, INC.
Date: May 14, 2007 /S/ Stephen V. Maroney
----------------------
Stephen V. Maroney
President, Chief Executive Officer
and Treasurer
Date: May 14, 2007 /S/ Frank D'Alessandro
----------------------
Frank D'Alessandro
Controller
Seq. Page 13