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 ACT OF
1934 for the fiscal year ended, APRIL 30, 2004.
|_| 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 11-1688021
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
102 FLOWERFIELD, ST. JAMES, NY 11780
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (631) 584-5400
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act: COMMON STOCK
$1.00 PAR VALUE
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 filing 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: $2,086,687
The aggregate market value of the 1,007,602 shares of voting stock held by
non-affiliates of the issuer on July 8, 2004 was $31,356,574. 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.
The number of shares outstanding of the issuer's Common $1.00 Par Value stock as
of July 8, 2004 was 1,155,732.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check One): Yes |_| No |X|
1
INDEX TO FORM 10-KSB
FISCAL YEAR 2004
ITEM # PAGE
------ ----
PART I
1 -Description of Business 3
2 -Description of Property 4
3 -Legal Proceedings 5
4 -Submission of Matters to a Vote of Security Holders 5
PART II
5 -Market for Common Equity and Related Stockholder Matters 5
6 -Management's Discussion and Analysis or Plan of Operations 6
7 -Financial Statements 10
8 -Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 10
8A -Controls and Procedures 11
PART III
9 -Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 11
10 -Executive Compensation 13
11 -Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 14
12 -Certain Relationships and Related Transactions 17
13 -Exhibits and Reports on Form 8-K 17
14 -Principal Accountant Fees and Services 19
Signatures 20
2
PART I
Item 1 Description of Business
(a) Business Development
Incorporated in New York in 1946, Gyrodyne Company of America, Inc. (the
"Company") was, from its inception and for the next 25 years, engaged in design,
testing, development, and production of coaxial helicopters primarily for the US
Navy. Following a sharp reduction in the Company's helicopter manufacturing
business and its elimination by 1975, the Company began converting its vacant
manufacturing facilities and established its rental property operation.
The Company concentrates its efforts on the development of its real estate
holdings in St. James and Stony Brook, New York. The converted buildings consist
of approximately 184,000 rentable square feet housing 59 tenants in space
suitable for office, engineering, manufacturing, and warehouse use. This rental
property operation is the principal business of the Company and currently
represents its sole source of revenue. The property, which is known as
Flowerfield, consists of 314 acres. Approximately 30 acres are utilized for the
rental property and the balance of 284 remain undeveloped. Flowerfield is
currently the subject of a development plan to construct an upscale residential
golf course community consisting of 336 home sites.
Neither the Company nor any of its subsidiaries have ever been in any
bankruptcy, receivership or similar proceeding.
References to the Company contained herein include its wholly owned
subsidiaries, except where the context otherwise requires.
(b) Business of Issuer
The Company manages its real estate operation and is a passive investor as a
limited partner in the Callery Judge Grove, L.P. which owns a large citrus grove
in Palm Beach County, Florida. The Company currently has a total of 10 full time
employees involved in support of the real estate operation and development
plans. Competition among industrial and office rental properties in Long Island
is intense. There are numerous commercial properties that compete with the
Company in attracting tenants, many of which are substantially larger than the
Company. See Item 2 below for a further discussion regarding dependence on major
tenants.
Real Estate
Gyrodyne owns a 314 acre site, primarily zoned for light industry, and is
located approximately 50 miles east of New York City on the north shore of Long
Island. Flowerfield's location also places it in hydrological zone VIII, one of
the most liberal with respect to effluent discharge rates.
The Flowerfield property is bisected by the town lines of Smithtown and
Brookhaven Townships. The existing buildings and approximately 132 acres are
located in the hamlet of St. James, Township of Smithtown, and the contiguous
balance of approximately 182 acres is located in the hamlet of Stony Brook,
Township of Brookhaven. The vacant property in St. James and Stony Brook is one
of the largest undeveloped industrially zoned parcels on Long Island. During the
latter part of fiscal 2002, the Company entered into a contract of sale in the
amount of $5,370,000 for 12 acres and buildings related to an existing tenants
catering facility. That transaction was completed in August, 2002 and the total
acres referred to above reflect that sale.
Environmental studies have been updated and numerous other studies including
archeological, ecological, and traffic have been conducted in connection with
development plans -- all with no significant adverse findings. The Company
believes that it does not incur material costs in connection with compliance
with environmental laws. During fiscal year 2004, the Company had no material
expenses related to environmental issues.
During the past three years, several evaluations of highest and best use for the
property have resulted in the adoption of the plan to develop an upscale
residential golf course community at Flowerfield.
In that regard, Gyrodyne executed agreements with Landmark National to design
and develop an 18 hole championship golf course community at Flowerfield. The
contractual arrangements with Landmark were included as exhibits to the
Company's 2002 10-KSB annual report. Having completed the design phase for both
the golf course and the residential components of the development plan, the
Company filed its applications for a change of zone to achieve the appropriate
entitlements. Those applications were filed in the Towns of Brookhaven and
Smithtown in October, 2002 and June 2003, respectively.
3
Limited Partnership Investment in Callery-Judge Grove, L.P. (the "Grove")
The Company's initial participation in the Grove through its wholly owned
subsidiary, Flowerfield Properties, Inc., represented a 20% limited partner's
interest in the Grove. Based on three subsequent capital infusions in which the
Company did not participate, our share is now approximately 10.93%. Although
Management has determined that development of the real estate owned by the Grove
is in the best interests of the Grove and its partners, the requirement to
invest in achieving shareholder value from the Flowerfield property has
outweighed this alternative investment opportunity.
The original limited partner investment of $1.1 million, which was made in 1965,
has over the years yielded distributions of approximately $5.5 million. Due to
recurring losses of the Grove, the investment is carried on the books of the
Company at $0 as a result of recording the Company's pro-rata share of losses
under the equity method of accounting. In fiscal 2000, when the Company's share
of losses equaled the carrying value of the investment, the equity method of
accounting was suspended, and no additional losses have been charged to
operations.
Item 2 Description of Property
(b) Investment Policies
The Company's policy has been to primarily hold its commercial rental real
estate for income and to hold its other real estate investments for future
development and/or sale. The Company has not recently made any new real estate
investments. Although the Company does not invest regularly in real estate
mortgage loans, the Company holds a purchase money mortgage loan on a 12 acre
parcel sold to a former tenant in 2002. The mortgage loan bears interest at 5%
per annum with interest only payments due quarterly until August 2005, when the
entire unpaid principal balance and accrued interest is due and payable. The
mortgaged property includes industrial and residentially zoned property and
includes a catering facility, single family residences, an office building and
vacant land.
(c) Description of Real Estate and Operating Data
The Company owns a 314 acre tract of land located on the north shore of Suffolk
County, Long Island, New York. The Company currently has approximately 184,000
square feet of rental space and has 59 tenants.
The land is carried on the Company's balance sheet at cost in the amount of
$796,451 while the buildings and improvements are carried at a depreciated cost
of $679,649. Prior to May 29, 2003, the property and buildings, except for
Building #7 and the surrounding 6 1/2 acres, were encumbered by a 10 year
collateral mortgage in the amount of $1,050,000, and were entirely without
financial encumbrances. On May 29, 2003, the Company restructured its debt by
securing a revolving line of credit in the amount of $1,750,000. The existing
mortgage, as described above, was satisfied and the outstanding balance of
$622,868 was incorporated into the newly established credit facility. Collateral
for the credit line consists of the same 6 1/2 acres and Building #7.
The average age of all the buildings is approximately 44 years and the
facilities continually undergo maintenance repair cycles for roofs, paved areas,
and building exteriors. The general condition of internal infrastructure, HVAC,
electrical, and plumbing is considered above average for facilities of this age.
The grounds feature extensive landscaping, are neatly groomed, and well
maintained.
There are five main building groups with rental unit sizes ranging from 130 to
27,774 square feet. Given the location and size of rental units, the Flowerfield
Industrial Park attracts many smaller companies that are not dependent on
extensive material or product handling. The Port Jefferson Branch of the Long
Island Railroad runs through the property.
The Company currently maintains a $10 million dollar liability umbrella policy
and has insured certain buildings and rent receipts predicated on an analysis of
risk, exposure, and loss history. It is Management's opinion that the premises
are adequately insured.
The following table sets forth certain information as of April 30, 2004 for the
total Company property.
Annual Number Of
Base Tenants Who
Rentable Annual Rent Number Occupy 10%
Square Percent Base Per Leased Of Or More Of
Property Feet Leased Rent SQ. FT. Tenants Rentable Sq. Ft.
-------- ---- ------ ---- ------- ------- ----------------
St. James, N.Y. 184,000 75% $1,951,080 $10.60 59 1
4
The Company has one tenant with over 10% of the rentable square footage. The
principal nature of this tenant's business is doing background security checks
on individuals as well as working with insurance companies by providing photo
inspections of vehicles for collision insurance. The principal provisions of
their lease include the rental of 27,774 square feet of space with an annual
base rent of $278,981. The current lease expires on November 30, 2004.
The following table sets forth the Company's lease expiration table as of April
30, 2004:
Number of Square Total % of
Leases Feet Annual Rentable
Fiscal Year End Expiring Expiring Rent Square Feet
--------------- -------- -------- ---- -----------
2005 49 103,095 $1,282,017 56.0%
2006 4 18,745 $ 353,770 10.2%
2007 3 16,422 $ 92,265 8.9%
Item 3 Legal Proceedings
As described in greater detail below, the State University of New York at Stony
Brook ( the "University" ), has announced plans to acquire 246 acres of the
Company's 314 acre Flowerfield property through either a negotiated purchase or
eminent domain. A public hearing was held by Stony Brook University on June 21,
2004 and the Company has commenced certain litigation to obtain further
information. The Company cannot predict what the ultimate effect will be on the
Company as a result of the University's actions.
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.
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 Fiscal Year 2004.
PART II
Item 5 Market for Common Equity and Related Stockholder Matters
(a) Market information
The Company's Common Stock, $1 Par Value (symbol: "GYRO") is traded in the
NASDAQ Small-Cap Market. Since June 10, 1948, the NASDAQ Small-Cap Market has
been the principal market in which the Company's stock is publicly traded. Set
forth below are the high and low sales prices for the Company's stock for each
full quarter within the two most recent fiscal years:
-------------------------------------------------------
Sales Price Sales Price
Quarter Ended Low High
-------------
-------------------------------------------------------
Fiscal 2003
-------------------------------------------------------
July 31, 2002 $14.95 $18.25
-------------------------------------------------------
October 31, 2002 $13.95 $16.99
-------------------------------------------------------
January 31, 2003 $12.56 $17.37
-------------------------------------------------------
April 30, 2003 $15.26 $17.55
-------------------------------------------------------
Fiscal 2004
-------------------------------------------------------
July 31, 2003 $16.72 $24.50
-------------------------------------------------------
October 31, 2003 $21.00 $26.00
-------------------------------------------------------
January 31, 2004 $22.73 $28.10
-------------------------------------------------------
April 30, 2004 $26.40 $28.28
-------------------------------------------------------
5
(b) Approximate Number of Equity Security Holders, including shares held in
Street name by brokers.
Number of Holders
Title of Class as of July 8, 2004
-----------------------------------------------------------------
Common Stock, $1.00 Par Value 1,055
(c) There were no cash dividends declared on the Company's Common Stock in the
fiscal years ended April 30, 2004 and April 30, 2003.
(d) Equity Compensation Plan Information. See Item 11 for information
regarding the Company's equity compensation plans and footnote 6 to the
financial statements for a description of the Company's stock option
plans.
Item 6 Management's Discussion and Analysis or Plan of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The statements made in this Form 10-KSB 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, 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 real estate market, the
ability to obtain additional capital and other risks detailed from time to time
in our SEC reports. We assume no obligation to update the information in this
Form 10-KSB.
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 accounting principles generally accepted
in the United States ("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, are 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 lives of ten to thirty years for buildings and improvements and three to
twenty years for machinery and equipment.
6
The Company is required to make subjective assessments as to the useful lives 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 are
less than the carrying value of the property. Such cash flows 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".
Stock-Based Compensation
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees, and related interpretations, to account for stock-based employee
compensation plans and reports pro forma disclosures in its Form 10-KSB filings
by estimating the fair value of options issued and the related expense in
accordance with SFAS No. 123. Under this method, compensation cost is recognized
for awards of shares of common stock or stock options to directors, officers and
employees of the Company only if the quoted market price of the stock at the
grant date (or other measurement date, if later) is greater than the amount the
grantee must pay to acquire the stock.
RESULTS OF OPERATIONS FOR THE YEAR ENDED APRIL 30, 2004
AS COMPARED TO THE YEAR ENDED APRIL 30, 2003
The Company is reporting a net loss of $113,466 for the fiscal year ending April
30, 2004 compared to net income of $1,769,668 for the prior year. Last year's
after tax results were improved by $1,742,614 earned from the sale of certain
buildings and 12 acres of property to a former tenant. Diluted per share
earnings amounted to ($0.10) and $1.58 for 2004 and 2003, respectively.
Revenue from rental property amounted to $2,086,687 and reflects a decrease of
$257,709 ( 11% ) when compared to the prior year's total of $2,344,396. This
decline was the result of several contributing factors, the most significant of
which was a $157,917 loss of income attributable to the aforementioned sale. In
addition, the Company negotiated a renewal lease for an existing tenant who
required less space, reducing the rent base by $40,280, and in another instance
agreed to temporary concessions of $35,000 while negotiating an existing long
term lease.
Rental property expenses decreased by $131,495 (14.5%), totaling $773,769 for
fiscal 2004 and $905,264 in 2003, respectively. The major contributing factor to
this reduction was the overall decrease of $151,865 in real estate taxes charged
to operations. Of this total, $135,443 represents capitalized expenses related
to the acreage associated with the Company's redevelopment plan. Additionally,
there was a reduction of $44,564 attributable to the sold premises which was
partially offset by an annual increase of $28,142 in taxes due on the property.
Operating and maintenance expenses increased by $20,372. Reflecting a colder
winter and higher demand, the Company experienced a $21,166 increase in utility
costs coupled with the fact that the previous year's results included a $64,968
nonrecurring utility refund. These increases were somewhat mitigated by a
reduction of $38,343 in salaries and benefits resulting from reduced staffing
levels. Additionally, interest expense declined by $17,761 in connection with
the restructuring of the Company's debt.
7
As a result of the foregoing, income from rental property declined by 8.8% for
the year and amounted to $1,312,918, a decrease of $126,214 from the 2003 total
of $1,439,132.
General and administrative expenses reflect a 10 % increase of $150,596,
amounting to $1,628,344 compared to the 2003 total of $1,477,748. This increase
is attributable to several factors. Salaries and benefits increased by $35,706,
of which $22,274 is related to stock option compensation; insurance premiums,
current year rent, and director's fees increased by $37,802, $57,227, and
$52,212, respectively. During the prior year, the Company had no rental
payments. The increase in director's fees is the result of having two additional
Board members and four additional meetings when compared to the prior year.
Amortization of loan origination fees accounted for an increased cost factor of
$21,551. Additionally, our reserve for bad debt expense increased by $45,455 as
did dues and memberships by $4,658, and donations increased by $4,895. The
increase in bad debt reserves reflects a trend in rent delinquencies which
appears to be coincidental with the threat of an eminent domain condemnation of
the Flowerfield property and the uncertainties brought about by such an action.
Although we are not predicting a continuation of this trend, it is possible that
additional reserves could be required in the event that does occur. Details of
the potential eminent domain action by Stony Brook University are outlined on
page 10 of this report. These increases were offset by reductions in legal and
consulting fees, pension costs, and stockholder expense of $50,411, $23,010 and
$37,121, respectively. The reduction in stockholder expense is due to the fact
that there were two shareholder meetings conducted in the prior year as opposed
to one meeting in 2004.
Net of general and administrative expenses, the Company had an operating loss of
$315,426 compared to the prior year loss of $38,616.
Other income for fiscal 2004 is comprised entirely of interest income and
amounted to $111,721 which is $24,600 above the $87,121 posted in the prior
year. This increase is almost exclusively related to the interest income from
the $1.8 million mortgage receivable for a full twelve months in the current
year. The prior year had slightly less than nine months of interest.
Additionally, last year's results were bolstered by the previously mentioned
gain on the sale of property which amounted to $3,124,307 on a pretax basis.
As a result, the Company experienced a loss before taxes of $203,705 for the
current year compared to income before taxes of $3,172,812 for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,067,419 in fiscal 2004 and
$1,339,266 in fiscal 2003. The principal use of cash in both periods were funds
used in connection with planning and pre-construction costs associated with land
development plans for the golf course community.
Net cash (used in) provided by investing activities was $(29,754) and $2,477,109
in fiscal 2004 and 2003, respectively. The use of cash during the current period
was for the acquisition of property, plant, and equipment. During fiscal 2003,
the Company purchased property, plant, and equipment in the amount of $46,516
and received proceeds from the sale of real estate totaling $2,523,625.
Net cash provided by (used in) financing activities was $428,499 and $(12,316)
in fiscal 2004 and 2003, respectively. The net cash proceeds during the current
period were primarily the result of cash proceeds of $372,869 from the exercise
of stock options. In addition, during the current period we restructured
mortgage debt on the Flowerfield property. That amortizing loan, which had a
balance of $622,868 at an average interest rate of 8.04% during fiscal 2003, was
satisfied and incorporated into a newly established revolving credit line in the
amount of $1,750,000 at prime plus one percent, currently 5.00 %.The unused
portion of the credit-line will enhance our financial position and liquidity and
will be available, if needed, to fund any unforeseen expenses associated with
the Company's development plan. During fiscal 2003, funds were used to repay the
aforementioned amortizing loan.
As of April 30, 2004, the Company had cash and cash equivalents of $1,562,643
and anticipates having the capacity to fund normal operating and administrative
expenses, its regular debt service requirements and the remaining predevelopment
expenses related to securing entitlements for the planned residential golf
course community. To date, expenses associated with the development of the
Flowerfield property, which have been capitalized, total $3,634,313. As of April
30, 2004, the portion of those expenses attributable to the residential golf
course community amount to $1,823,101. Working capital, which is the total of
current assets less current liabilities as shown in the accompanying chart,
amounted to $1,314,996 at April 30, 2004.
8
April 30,
--------------------------
2004 2003
--------------------------
Current assets:
Cash and cash equivalents $1,562,643 $2,231,317
Rent receivable, net 93,082 71,437
Net prepaid expenses and other assets 125,170 193,369
--------------------------
Total current assets 1,780,895 2,496,123
--------------------------
Current liabilities:
Accounts payable and accrued expenses 232,809 249,624
Tenant security deposits payable 194,976 238,204
Current portion of loans payable 9,808 17,788
Income tax payable 28,306 0
--------------------------
Total current liabilities 465,899 505,616
--------------------------
Working capital $1,314,996 $1,990,507
==========================
As mentioned above, during fiscal 2004, the Company restructured an outstanding
mortgage loan on the Flowerfield property. That loan was satisfied and
incorporated into a newly established revolving credit line in the amount of
$1,750,000 at prime plus one percent. At April 30, 2004, the outstanding balance
of this credit facility was $696,287 leaving an available balance of $1,053,713.
Additionally, the Company holds a $1.8 million purchase money mortgage loan in
connection with the sale of certain buildings and 12 acres during fiscal 2003.
That mortgage loan bears an interest rate of 5% and matures in August 2005.
The following table presents the Company's expected cash requirements for
contractual obligations outstanding as of April 30, 2004.
Payments Due By Period
More
Contractual Obligation Less than 1 1-3 3-5 than 5
Total Year Years Years Years
Long-term Debt $ 28,953 9,808 19,145 -- --
Revolving Credit Line 696,287 -- 696,287
Operating Lease 53,456 53,456 -- -- --
Other Contractual Obligations 90,000 90,000 -- -- --
-------- -------- -------- -------- --------
Total Contractual Obligations $868,696 153,264 715,432 -- --
======== ======== ======== ======== ========
The Company has a limited partnership investment in the Callery-Judge Grove
located in Palm Beach County, Florida. The investment represents a 10.93%
ownership in a 3,500+ acre citrus grove. The property is the subject of a plan
for a mixed use of residential, commercial, and industrial development which is
under review by the local municipal authorities. The Company is accounting for
the investment under the equity method. As of April 30, 2004 the carrying value
of the Company's investment was $0. Based upon the most recent independent third
party appraisal, which was conducted in June 2003, the Company's investment has
a current estimated fair value of approximately $6.7 million. In November 2003,
the Company issued an announcement that according to published reports in the
Palm Beach Post and a confirming news release by Scripps Research Institute of
La Jolla, California, a major science center is to be developed within five
miles of the Callery-Judge Grove location. Although properties in the general
vicinity of the Grove are the subject of major development plans, we have no
current forecast of the likelihood of, or the timing required to achieve
approvals for the development of the Grove. On July 6, 2004 in a public letter
to a Palm Beach County official, the general manager of the Grove proposed that
the Grove partner with the County to locate the planned Scripps Florida facility
on the Grove. The outcome of the proposed development can not be predicted with
any degree of certainty.
The Company is party to two contractual agreements with Landmark National to
design and develop an 18 hole championship golf course community with 336 home
sites on the Company's 314 acre Flowerfield property located in Stony Brook /
Saint James, New York. Those contractual agreements were exhibited in our April
30, 2002 10-KSB filing. The golf course agreement calls for monthly
9
payments of $5,000 with a maximum total of $150,000. At April 30, 2004, the
Company has paid a total of $120,000 of this obligation. Additionally, there is
a one-time fee of $100,000 for a grading report on the course layout, which was
completed and paid during fiscal 2003. The residential land planning and design
contract includes monthly payments of $10,000 with a maximum payment totaling
$300,000. At April 30, 2004, the Company has paid a total of $240,000 of this
obligation. Landmark is also entitled to a construction management fee of 4.5%
of construction costs. The balance of Landmark's compensation is incentive
driven and based on a 10% participation in future profits from the residential
golf course development. Additionally, in a separate agreement for the future,
Landmark is under contract to manage the completed golf and clubhouse facilities
under a long-term management agreement. The annual fee for such service is
$100,000. The contracts also provide for termination fees, currently amounting
to $500,000, which are more clearly defined in Note 11 to the financial
statements. Various required exhibits, including an archaeological report and
economic and traffic impact studies have been completed and applications have
been filed with the Towns of Brookhaven and Smithtown seeking the appropriate
change of zone to accommodate the development plan. Those applications are being
pursued and the Company had its first public hearing in the Town of Smithtown in
February 2004.
In April, 2003, the Board of Trustees of the State University of New York
adopted a resolution which empowered Stony Brook University to commence eminent
domain proceedings to acquire the Company's Flowerfield property through
condemnation. This action followed statements of interest by the University to
purchase the property for a range of values that were clearly below its market
value. In a filing dated May 21, 2004, the University announced the completion
of a Draft Generic Environmental Impact Study ( DGEIS ) which outlined its plan
to acquire 246 acres of the Flowerfield property through either a negotiated
transaction or eminent domain proceedings. Since no genuine attempt to negotiate
a transaction has been forthcoming, the Company is not in a position to comment
on any such proposal. On June 21, 2004, as required by law, the University held
a public meeting to review the DGEIS and its plan to acquire the 246 acres of
the Flowerfield property for the purpose of developing a Research and
Development Campus. Immediately following that meeting, the Company filed a
lawsuit in New York State Supreme Court in an effort to require the University
to comply with the requirements of the State Environmental Quality Review Act
(SEQRA). The Company has engaged condemnation counsel to represent its interest
and remains confident that in the event the University proceeds with
condemnation, the "highest and best use" for the Flowerfield property, which is
the anticipated benchmark used in establishing land values in eminent domain
proceedings, is the planned residential golf course community. However, there is
clearly no way to predict the outcome of any such proceedings.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial conditions, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Item 7 Financial Statements
See Financial Statements and accompanying Notes to Consolidated Financial
Statements commencing on the Contents page followed by Page F-1.
Financial Statements include:
(1) Report of Independent Registered Public Accounting Firm
(2) Consolidated Balance Sheets as of April 30, 2004 and April 30, 2003
(3) Consolidated Statements of Operations for the years ended April 30,
2004 and April 30, 2003
(4) Consolidated Statement of Stockholders' Equity for the years ended
April 30, 2004 and April 30, 2003
(5) Consolidated Statements of Cash Flows for the years ended April 30,
2004 and April 30, 2003
(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, XII and
XIII.
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.
10
Item 8A 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 the end of the period covered by this report. 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 reports as and when required.
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation 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 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 names, 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 2004 shall serve until the next Annual Meeting of Stockholders or until
their successors are elected and qualified.
Name & Principal Occupation or Employment Age First Became a Current Board
Director Term Expires
-------------------------------------------------------------------------------------------------------------------
Stephen V. Maroney 62 1996 2004
President, CEO, Treasurer, and Director of the Company
Peter Pitsiokos 44 --
Executive Vice President, Secretary & General Counsel of the Company
Frank D'Alessandro 58 --
Controller of the Company
Paul L. Lamb 58 1997 2006
Partner of Lamb & Barnosky, LLP
Chairman of the Board of Directors of the Company
Robert H. Beyer 71 1977 2005
Consultant
Director of the Company
Philip F. Palmedo 70 1996 2004
Chairman of International Resources Group
Director of the Company
Robert F. Friemann 57 1998 2005
CPA and a Self-Employed Consultant
Director of the Company
Richard B. Smith 49 2002 2006
Senior Vice President for Private Banking at Suffolk County National Bank
Director of the Company
Ronald J. Macklin 42 2003 2004
Assistant General Counsel for KeySpan Corporate Services
Director of the Company
11
(b) Business Experience
Stephen V. Maroney, age 62, was initially engaged by the Company as an outside
consultant in June 1996 and elected to the Board of Directors in July of that
same year. Mr. Maroney is the former President of Extebank, a Long Island based
commercial bank with a presence in Nassau and Suffolk Counties and New York
City. Prior to that appointment, he served as Extebank's Chief Financial
Officer. Mr. Maroney was appointed to the position of President, CEO and
Treasurer by the Gyrodyne Board of Directors on March 14, 1999. His career on
Long Island spans a period of over 40 years and includes involvement in numerous
civic, charitable and professional organizations.
Peter Pitsiokos, age 44, joined the Company in November 1992, is the Executive
Vice President, and serves as the Company's Secretary and General Counsel. 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.
Frank D'Alessandro, age 58, 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.
Paul L. Lamb, age 58, has been a Director since 1997 and became Chairman of the
Board on March 14, 1999. He is a founding partner in the law firm of Lamb &
Barnosky, LLP; 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.
Robert Beyer, age 71, has been a Director of the company since November 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.
Philip F. Palmedo, age 70, was appointed to the Board of Directors in July 1996.
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.
Robert F. Friemann, age 57, was appointed to the Board of Directors in October
1998. He is currently a CPA, self-employed consultant and a retired partner of
Albrecht, Viggiano, Zureck & Company, P.C. Mr. Friemann is a member of the
American Institute of Certified Public Accountants and the New York State
Society of Certified Public Accountants. He has been an instructor for the New
York State Society of Certified Public Accountants and is the author of numerous
articles on issues including taxation, accounting and auditing. Mr. Friemann has
taken a leave of absence following his April, 2004 conviction of filing a false
tax return. Mr. Friemann will remain on leave until his post-trial motion to
dismiss has been decided.
Richard B. Smith, age 49, was appointed to the Board of Directors in November
2002. He currently serves as Senior Vice President for Private Banking at
Suffolk County National Bank. Previously, he worked for 10 years at Key Bank
(Dime Savings Bank) and for 3 years at L.I. Trust/Apple Bank. He received an MBA
in Finance from SUNY Albany in 1983. Mr. Smith serves as the Mayor of the
Incorporated Village of Nissequogue and as a Trustee of the Smithtown Historical
Society.
Ronald J. Macklin, age 42, was appointed to the Board of Directors in June 2003.
Mr. Macklin currently serves as Assistant General Counsel for KeySpan Corporate
Services where he has held various positions within the Office of General
Counsel from 1991 to present. Previously, he was associated with the law firms
of Roseman & Colin and Cullen & Dykman. He received a B.A. degree from Stony
Brook University and his Juris Doctorate from Union University's Albany Law
School.
12
(c) Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires that the Company directors, executive
officers, and any person holding more than ten percent of Gyrodyne Common Stock,
$1.00 par value per share, file with the SEC reports of ownership changes, and
that such individuals furnish the Company with copies of the reports.
Based solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, Gyrodyne believes that
all of our executive officers and directors complied with Section 16(a) filing
requirements applicable to them.
(d) Audit Committee Financial Expert
The Board of Directors has a standing Audit Committee which currently consists
of Messrs. Smith, Palmedo and Macklin. All members are "financially literate"
and have been determined to be "independent" within the meaning of SEC
regulations and NASDAQ rules. At least one member, Mr. Smith, qualifies as an
"audit committee financial expert" as a result of relevant experience as Mayor
of the Incorporated Village of Nissequogue and a Trustee of the Smithtown
Historical Society. In addition, Mr. Smith has experience as Senior Vice
President for Private Banking at Suffolk County National Bank on Long Island,
New York. He has over twenty years experience in the banking industry and
received his MBA in Finance from the State University New York-Albany.
(e) Code of Ethics
The Company has adopted a written Code of Ethics that applies to all of its
directors, officers and employees. It is available on the Company's website at
www.gyrodyne.com and shareholders may obtain a paper copy by writing to the
Secretary at the address set forth on page 1. Any amendments to the Code of
Ethics, or waiver thereof, will be disclosed on the website promptly after this
date.
Item 10 Executive Compensation
(a) Executive Compensation
During the fiscal years ended April 30, 2004, April 30, 2003, and April 30,
2002, two directors or officers received remuneration in excess of $100,000 in
such capacity.
SUMMARY COMPENSATION TABLE
Annual Compensation
Long term Compensation
--------------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------------------------
Securities
Other Annual Restricted Underlying LTIP
Name and Salary Bonus Compensation Stock Options/LSARs Payout All Other
Principal Position Year ($) ($) ($) Award ($) (#) ($) Compensation
------------------------------------------------------------------------------------------------------------------------------------
Stephen V. Maroney
President & CEO 2004 209,500 0 49,628(A) 0 17,500 0 0
2003 209,500 0 22,422(A) 0 20,355 0 0
2002 190,750 0 0 0 13,750 0 0
Peter Pitsiokos
Exec.V.P. and Secretary 2004 152,500 0 70,188(B) 0 13,500 0 0
2003 148,990 0 17,797(B) 0 13,945 0 0
2002 123,128 0 0 0 14,300 0 0
(A) In FY 04, Mr. Maroney exercised 4,125 options and received an equal number
of shares with a value of $49,628. In FY 03, Mr. Maroney received 1,430 shares
from stock awards granted with a value of $22,422. 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 virtue of
the omission of such personal benefits.
13
(B) In FY 04, Mr. Pitsiokos exercised 6,600 options with SAR's and received
2,922 shares with a value of $70,188. In FY 03, Mr. Pitsiokos received 1,135
shares from stock awards granted with a value of $17,797.
Option/SAR Grants in Last Fiscal Year
--------------------------------------------------------------------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (#) Fiscal Year Price ($/Sh) Date
--------------------------------------------------------------------------------------
Stephen V. Maroney 17,500 45.5% $16.870 05/13/08
Peter Pitsiokos 13,500 35.1% $16.870 05/13/08
AGGREGATED OPTION/LSAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/LSAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/LSAR's at Options/LSAR's at
Acquired on Value April 30, 2004 April 30, 2004 ($)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
Stephen V. Maroney -- -- 74,155/0 $888,400/$0
President and CEO
Peter Pitsiokos -- -- 39,685/0 $473,326/$0
Exec. V.P. and Secretary
(b) Compensation of Directors
Each Director is entitled to receive a fee of $12,000 a year, $1,000 per
Board meeting attended and $500 for each Committee meeting attended and is
reimbursed for travel and Company business related expenses. 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
Effective January 23, 2003, the Company entered into an amended and
restated employment agreement with Stephen V. Maroney as President, Chief
Executive Officer, and Treasurer and Peter Pitsiokos as Executive Vice
President, Secretary, and General Counsel. Their annual salaries are currently
at $209,500 and $152,500, respectively. The terms of the agreements were
extended from one to three years, contain evergreen provisions, and provide for
a severance payment equivalent to three years salary in the event of a change in
control. Both agreements were attached as Exhibit 10, Material Contracts, in the
10-QSB dated January 31, 2003.
Item 11 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
(a) The following table sets forth certain information as of July 8, 2004
regarding the beneficial ownership of our common shares by (i) each person who
we believe to be beneficial owner of more than 5% of our outstanding common
shares, (ii) each present director, (iii) each person listed in the Summary
Compensation Table under "Executive Compensation," and (iv) all of our present
executive officers and directors as a group.
14
Number of Approximate
Name and Address Shares Beneficially Percent of
Of Beneficial Owner Owned Class (12)
------------------- ----- ----------
More Than 5% Shareholders
------------------------------------------
Gerard Scollan 111,496(1) 8.44
80 Browns River Road
Sayville, NY 11782
Gyrodyne Company of America, Inc. 72,580(2) 5.50
St. James, NY 11780
Private Capital Management, Inc. 77,105(3) 5.84
8889 Pelican Bay Blvd., Suite 500
Naples, Florida 34108
Bruce Sherman 123,402(3) 9.35
8889 Pelican Bay Blvd., Suite 500
Naples, Florida 34108
Kellogg/Everest 91,396(4) 6.92
14 Wall Street, 27th Floor
New York, NY 10005
Directors and Executive Officers
------------------------------------------
Stephen V. Maroney 94,573(5) 7.16
c/o Gyrodyne Company of America, Inc.
102 Flowerfield
St. James, NY 11780
Peter Pitsiokos 47,760(6) 3.62
c/o Gyrodyne Company of America, Inc.
102 Flowerfield
St. James, NY 11780
Paul L. Lamb 22,864(7) 1.73
c/o Lamb & Barnosky, LLP
534 Broadhollow Road
Melville, NY 11747
Robert H. Beyer 15,263(8) 1.16
10505 Indigo Lane
Fairfax, Virginia 22032
Philip F. Palmedo 14,124(9) 1.07
4 Piper Lane
St. James, NY 11780
Robert F. Friemann 8,791(10) (11)
194 East Shore Road
Huntington Bay, NY 11743
Richard B. Smith 1,000 (11)
c/o Suffolk County National Bank
3880 Veterans Highway
Bohemia, NY 11716
Ronald J. Macklin 0 (11)
c/o Keyspan Energy
175 E. Old Country Road
Hicksville, NY 11801
All executive officers and 204,375 15.48
directors as a group (8 persons)
15
(1) Includes 102,241 shares of Company stock held by Lovin Oven Catering of
Suffolk, Inc., of which Mr. Scollan is the majority shareholder.
(2) As Gyrodyne has the authority to direct HSBC Bank, USA, 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 72,580 shares held by HSBC Bank, USA as Trustee for the Gyrodyne
Pension Fund.
(3) Mr. Sherman is the CEO of Private Capital Management, LP, and in this
capacity he exercises shared dispositive and shared voting power with regard to
the shares held by Private Capital Management, LP's clients and managed by
Private Capital Management, LP. Mr. Sherman disclaims beneficial ownership of
the 77,105 shares held by Private Capital Management, LP's clients and disclaims
the existence of a group.
(4) As of the close of business on July 8, 2004, Kellogg Capital Group, LLC and
Everest Special Situations Fund, L.P. filed a joint Schedule-13D with the
Securities and Exchange Commission in which both companies may be deemed to own
beneficially in the aggregate 91,396 shares of Gyrodyne stock.
(5) Includes 74,155 shares issuable upon the exercise of stock options to
purchase Company Stock which are exercisable within 60 days of April 30, 2004.
(6) Does not include his wife's and minor children's ownership of 1,089 shares
in which he denies any beneficial interest. Includes 39,685 shares issuable upon
the exercise of stock options to purchase Company Stock which are exercisable
within 60 days of April 30, 2004.
(7) Includes 13,747 shares held by Lamb & Barnosky, LLP Profit Sharing Trust.
Mr. Lamb is a trustee of the Profit Sharing Trust. Includes 6,875 shares
issuable upon the exercise of stock options to purchase Company Stock which are
exercisable within 60 days of April 30, 2004.
(8) Does not include his wife's ownership of 1,801 shares in which he denies any
beneficial interest. Includes 4,125 shares issuable upon the exercise of stock
options to purchase Company Stock which are exercisable within 60 days of April
30, 2004.
(9) Does not include his wife's ownership of 2,750 shares in which he denies any
beneficial interest. Includes 4,125 shares issuable upon the exercise of stock
options to purchase Company Stock which are exercisable within 60 days of April
30, 2004.
(10) Includes 5,500 shares issuable upon the exercise of stock options to
purchase Company Stock which are exercisable within 60 days of April 30, 2004.
(11) Less than 1%.
(12) The approximate percent of class is calculated by dividing the number of
shares beneficially owned by the sum of: the "Number of Shares Outstanding,"
which is 1,155,732 plus 164,650 total shares issuable upon the exercise of stock
options to purchase Company Stock which are exercisable within 60 days of April
30, 2004. The total of these two numbers is 1,320,382 shares.
--------------------------------------------------------------------------------
16
(c) Equity Compensation Plans
--------------------------------------------------------------------------------
Number of
Securities
Remaining
Number of Available for
Securities to be Future Issuance
Issued upon Under Equity
Exercise of Compensation
Outstanding Weighted-average Plans (excluding
Options, exercise price of Securities
Plan Warrants and outstanding options Reflected in
Category Rights warrants and rights Column (a))
(a) (b) (c)
-------------------------------------------------------------------------------------------
Equity
Compensation
Plans approved
By security
Holders 164,650 $16.30 --
-------------------------------------------------------------------------------------------
Equity
Compensation
Plans not
Approved by
Security holders -- -- --
-------------------------------------------------------------------------------------------
Total 164,650 $16.30 --
-------------------------------------------------------------------------------------------
Item 12 Certain Relationships and Related Transactions
The Company currently has a mortgage receivable in the principal amount of
$1,800,000 due from Gerard Scollan. Mr. Scollan is considered a principal
shareholder of the Company because he has beneficial ownership of 8.44% of the
Company shares. The terms of the mortgage are described in greater detail in
Note 2 of the Financial Statements and Item 2(b). The Company believes that the
terms of the mortgage are no less favorable to the Company than could have been
obtained from an unaffiliated third party. The Company received $90,000 in
interest during the current fiscal year and less than $60,000 in the prior
fiscal year.
The Company has engaged the firm of Lamb & Barnosky, LLP as outside legal
counsel for a number of years. Director Lamb is a partner in the firm to which
Gyrodyne incurred legal fees of $228,962 and $119,201 in FY 2004 and FY 2003,
respectively.
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 and Reports on Form 8-K
(a) Exhibits. The following Exhibits are either filed as part of this
report or are incorporated herein by reference:
3.1 Restated Certificate of Incorporation of Gyrodyne
Company of America, Inc. (1)
3.2 Restated Bylaws of Gyrodyne Company of America, Inc. (1)
4.1 Form of Stock Certificate of Gyrodyne Company of
America, Inc.(1)
10.1 1993 Stock Incentive Plan. (1)
10.2 1996 Non-Employee Directors' Stock Option Plan. (1)
17
10.3 Carco Group, Inc. Lease Amendment, dated May 3, 1999.
(1)
10.4 Amendment No. 1 to Lease Agreement with Carin Perez and
Luis Perez, dated October 7, 1997. (1)
10.5 Incentive Compensation Plan. (1)
10.6 Amended and Restated Agreement of Limited Partnership of
Callery-Judge Grove, dated as of May 8, 1995, by and
among CJG Management, Ltd., as the general partner and
those persons and entities whose names and addresses
appear on the books and records of the Partnership as
partners. (1)
10.7 Amended and Restated Employment Agreement, with Stephen
V. Maroney, dated January 23, 2003. (2)
10.8 Amended and Restated Employment Agreement, with Peter
Pitsiokos, dated January 23, 2003. (2)
10.9 Asset Management Agreement with DPMG, Inc. dba Landmark
National, dated April 9, 2002. (3)
10.10 Golf Operating Agreement with DPMG, INC., dated April 9,
2002. (3)
21.1 List of all subsidiaries. (1)
31.1 Rule 13a-15(e)/15d-15(e) 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.
(1) Incorporated herein by reference in the Annual Report on Form
10KSB/A, filed with the Securities and Exchange Commission on
September 5, 2001.
(2) Incorporated herein by reference in the Quarterly Report on
Form 10QSB, filed with the Securities and Exchange Commission
on March 12, 2003.
(3) Incorporated herein by reference in the Annual Report on Form
10KSB, filed with the Securities and Exchange Commission on
July 26, 2002.
(b) Reports on Form 8-k. The Company filed the following Current Reports
on Form 8-K during the fourth quarter of fiscal year 2004 and
through the filing date:
Current Report on Form 8-K filed with the SEC on April 29, 2004
announcing that Robert F. Friemann, a member of the Company's Board
of Directors, was taking an immediate leave of absence from the
Board pending final determination of a Rule 29 post verdict motion
for a judgment of acquittal by the court, which would be filed in an
ongoing case having nothing to do with the Company.
Current Report on Form 8-K filed with the SEC on May 25, 2004
attaching a press release concerning an announced public hearing to
be held by the State University of New York regarding plans to
acquire the Company's real estate for use by the University's Stony
Brook campus.
Current Report on Form 8-K filed with the SEC on June 21, 2004
attaching a press release regarding a speech delivered by John V.N.
Klein on behalf of the Company at a public hearing held by the State
University of New York at Stony Brook on June 21, 2004 concerning
plans to acquire the Company's real estate for use by the
University's Stony Brook campus.
Current Report on Form 8-K filed with the SEC on July 9, 2004
stating that the Callery-Judge Grove located in Palm Beach County,
Florida, sent a letter to Palm Beach County Commission Chairwoman
Karen Marcus proposing that the Grove partner with the County to
locate the planned Scripps Florida facility on the Grove.
18
Item 14 Principal Accountant Fees and Services
The following is a summary of the fees billed to us by Holtz Rubenstein & Co.,
LLP, our independent auditors, for professional services rendered for the fiscal
years ended April 30, 2004 and 2003:
--------------------------------------------------------------------------------
Fee Category Fiscal 2004 Fees Fiscal 2003 Fees
--------------------------------------------------------------------------------
Audit Fees (1) $40,000 $38,500
--------------------------------------------------------------------------------
Audit-Related Fees (2) 8,800 11,575
--------------------------------------------------------------------------------
Tax Fees (3) 13,100 12,000
--------------------------------------------------------------------------------
All Other Fees (4) -- --
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Total Fees $61,900 $62,075
--------------------------------------------------------------------------------
(1) Audit Fees consist of aggregate fees billed for professional services
rendered for the audit of our annual financial statements and review of the
interim financial statements included in quarterly reports for services that are
normally provided by the independent auditors in connection with statutory and
regulatory filings or engagements for the fiscal years ended April 30, 2004 and
2003, respectively.
(2) Audit-Related Fees consist of aggregate fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of our financial statements and are not reported under "Audit Fees."
(3) Tax Fees consist of aggregate fees billed for professional services rendered
for the preparation of our federal and state income tax returns.
(4) All Other Fees consist of aggregate fees billed for products and services
provided by Holtz Rubenstein, other than those disclosed above.
The Audit Committee is responsible for the appointment, compensation and
oversight of the work of the independent auditors and approves in advance any
services to be performed by the independent auditors, whether audit-related or
not. The Audit Committee reviews each proposed engagement to determine whether
the provision of services is compatible with maintaining the independence of the
independent auditors. All of the fees shown above were pre-approved by the Audit
Committee.
19
SIGNATURES
In accordance with the requirements of Section 13 or 15 (d) 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.
/S/ Stephen V. Maroney
--------------------------------------------------------------------
Stephen V. Maroney, President, Treasurer, Director and Principal
Executive Officer
Date: July 27, 2004
/S/ Frank D'Alessandro
--------------------------------------------------------------------
Frank D'Alessandro, Controller
Date: July 27, 2004
********************
In accordance with the requirements of the Exchange Act, this report has been
signed below by the following on behalf of the Registrant and in the capacities
and on the dates indicated.
/S/ Richard B. Smith
--------------------------------------------------------------------
Richard B. Smith, Director,
Date: July 27, 2004
/S/ Philip F. Palmedo
--------------------------------------------------------------------
Philip F. Palmedo, Director
Date: July 27, 2004
/S/ Ronald J. Macklin
---------------------
Ronald J. Macklin, Director
Date: July 27, 2004
20
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Contents
================================================================================
Years Ended April 30, 2004 and 2003 Pages
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statement of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-17
--------------------------------------------------------------------------------
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Gyrodyne Company of America, Inc.
St. James, New York
We have audited the accompanying consolidated balance sheets of Gyrodyne Company
of America, Inc. and Subsidiaries as of April 30, 2004 and 2003 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and 2003
and the results of their operations and their cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
Holtz Rubenstein & Co., LLP
Melville, New York
June 16, 2004
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
===========================================================================================================
April 30, 2004 2003
-----------------------------------------------------------------------------------------------------------
Assets
Real Estate:
Rental property:
Land $ 4,250 $ 4,250
Building and improvements 3,925,421 3,915,361
Machinery and equipment 160,489 156,292
------------------------------
4,090,160 4,075,903
Less Accumulated Depreciation 3,347,322 3,269,147
------------------------------
742,838 806,756
------------------------------
Land held for development:
Land 792,201 792,201
Land development costs 3,634,313 2,444,654
------------------------------
4,426,514 3,236,855
------------------------------
Total Real Estate, net 5,169,352 4,043,611
Cash and Cash Equivalents 1,562,643 2,231,317
Rent Receivable, net of allowance for doubtful
accounts of $71,000 and $41,000, respectively 93,082 71,437
Mortgage Receivable 1,800,000 1,800,000
Prepaid Expenses and Other Assets 220,658 244,598
Prepaid Pension Costs 1,425,635 1,662,505
------------------------------
Total Assets $ 10,271,370 $ 10,053,468
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 232,809 $ 249,624
Deferred gain on sale of real estate 1,573,900 1,573,900
Tenant security deposits payable 194,976 238,204
Revolving credit line 696,287 --
Loans payable 28,953 669,610
Income taxes payable 28,306 --
Deferred income taxes 1,719,000 1,861,000
------------------------------
Total Liabilities 4,474,231 4,592,338
------------------------------
Commitments
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 7,505,313 7,278,191
Deficit (930,224) (816,758)
------------------------------
Total Stockholders' Equity 8,106,175 7,992,519
Less Cost of Shares of Common Stock Held in Treasury; 375,354 shares and
414,024 shares, respectively (2,309,036) (2,531,389)
------------------------------
Total Stockholders' Equity 5,797,139 5,461,130
------------------------------
Total Liabilities and Stockholders' Equity $ 10,271,370 $ 10,053,468
==============================
================================================================================
See notes to consolidated financial statements. F-2
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
===========================================================================================================
Years Ended April 30, 2004 2003
-----------------------------------------------------------------------------------------------------------
Revenue from Rental Property $ 2,086,687 $ 2,344,396
------------------------------
Rental Property Expense:
Real estate taxes 143,333 295,198
Operating and maintenance 513,410 467,946
Interest expense 38,850 56,611
Depreciation 78,176 85,509
------------------------------
773,769 905,264
------------------------------
Income from Rental Property 1,312,918 1,439,132
------------------------------
General and Administrative 1,628,344 1,477,748
------------------------------
Loss from Operations (315,426) (38,616)
------------------------------
Other Income:
Gain on sale of real estate -- 3,124,307
Interest income 111,721 87,121
------------------------------
111,721 3,211,428
------------------------------
(Loss) Income Before Provision for Income Taxes (203,705) 3,172,812
(Benefit) Provision for Income Taxes (90,239) 1,403,144
------------------------------
Net (Loss) Income $ (113,466) $ 1,769,668
==============================
Net (Loss) Income Per Common Share:
Basic $ (0.10) $ 1.59
==============================
Diluted $ (0.10) $ 1.58
==============================
Weighted Average Number of Common Shares Outstanding:
Basic 1,133,896 1,114,422
==============================
Diluted 1,133,896 1,121,465
==============================
================================================================================
See notes to consolidated financial statements. F-3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
====================================================================================================================================
Years Ended April 30, 2004 and 2003
------------------------------------------------------------------------------------------------------------------------------------
$1 Par Value
Common Stock Treasury Stock
------------------------- Additional --------------------------
Par Paid in Total
Shares Value Capital Deficit Shares Cost Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 1, 2002 1,531,086 $ 1,531,086 $ 7,235,301 $(2,586,426) 519,835 $(2,561,088) $ 3,618,873
Issuance of treasury stock for
payment of 10% stock dividend -- -- -- -- (100,646) -- --
Exercise of stock options -- -- 8,483 -- (1,700) 9,775 18,258
Issuance of stock for services -- -- 34,407 -- (3,465) 19,924 54,331
Net income -- -- -- 1,769,668 -- -- 1,769,668
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at April 30, 2003 1,531,086 1,531,086 7,278,191 (816,758) 414,024 (2,531,389) 5,461,130
Exercise of stock options -- -- 227,122 -- (38,670) 222,353 449,475
Net loss -- -- -- (113,466) -- -- (113,466)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at April 30, 2004 1,531,086 $ 1,531,086 $ 7,505,313 $ (930,224) 375,354 $(2,309,036) $ 5,797,139
=========== =========== =========== =========== =========== =========== ===========
================================================================================
See notes to consolidated financial statements. F-4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
===========================================================================================================
Years Ended April 30, 2004 2003
-----------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net (loss) income $ (113,466) $ 1,769,668
------------------------------
Adjustments to reconcile net (loss) income to net cash used in
operating activities:
Depreciation and amortization 119,945 102,721
Bad debt expense 48,000 3,045
Deferred income tax (benefit) provision (142,000) 1,220,000
Stock compensation 76,606 54,331
Pension expense 236,870 259,880
Gain on sale of real estate -- (3,124,307)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Land development costs (1,189,659) (1,011,379)
Accounts receivable (69,645) (44,403)
Prepaid expenses and other assets (2,333) (139,283)
Prepaid pension costs -- (254,133)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (16,815) (159,732)
Income taxes payable 28,306 --
Tenant security deposits (43,228) (15,674)
------------------------------
Total adjustments (953,953) (3,108,934)
------------------------------
Net Cash Used in Operating Activities (1,067,419) (1,339,266)
------------------------------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (29,754) (46,516)
Proceeds from sale of real estate -- 2,523,625
------------------------------
Net Cash (Used in) Provided by Investing Activities (29,754) 2,477,109
------------------------------
Cash Flows from Financing Activities:
Repayment of loans payable (17,889) (30,574)
Loan origination fees 73,519 --
Proceeds from exercise of stock options 372,869 18,258
------------------------------
Net Cash Provided by (Used in) Financing Activities 428,499 (12,316)
------------------------------
Net (Decrease) Increase in Cash and Cash Equivalents (668,674) 1,125,527
Cash and Cash Equivalents, beginning of year 2,231,317 1,105,790
------------------------------
Cash and Cash Equivalents, end of year $ 1,562,643 $ 2,231,317
==============================
================================================================================
See notes to consolidated financial statements. F-5
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies
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.
In April 2002, the Company announced redevelopment plans of a significant
portion of real estate holdings, for the construction of an 18-hole
championship golf course and 336 luxury residential units. In connection
with this redevelopment plan, the Company executed agreements with
Landmark National to design and develop the golf course community.
Principles of consolidation - The accompanying consolidated financial
statements include the accounts of Gyrodyne Company of America, Inc.
("GCA") and all majority owned subsidiaries. Investments in affiliates in
which the Company has the ability to exercise significant influence, but
not control, would be accounted for under the equity method. Investment
interests in excess of 5% in limited partnerships are accounted for under
the equity method.
All consolidated subsidiaries are wholly owned. All significant
inter-company transactions have been eliminated.
Rental real estate - Rental real estate assets are stated at cost, and
reported net of accumulated depreciation and amortization. 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.
Real estate held for development - 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 are less than the carrying value
of the property. Such cash flows 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.
Depreciation and amortization - Depreciation and amortization are provided
on the straight-line method over the estimated useful lives of the assets,
as follows:
Buildings and Improvements 10 to 30 years
Machinery and Equipment 3 to 20 years
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations are capitalized.
================================================================================
F-6
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
Revenue recognition - Minimum revenues from rental property are recognized
on a straight-line basis over the terms of the related leases. The excess
of rents recognized over amounts contractually due, if any, are 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.
Allowance for doubtful accounts - Management must make estimates of the
uncollectability of accounts receivable. Management specifically analyzes
accounts receivable and analyzes historical bad debts, customer
concentrations, customer credit-worthiness, current economic trends and
changes in customer payment terms when evaluating the adequacy of the
allowance for doubtful accounts.
Investments - The Company has a 10.93% limited partnership interest in
Callery-Judge Grove, L.P. (the "Grove") that owns a 3500-acre citrus grove
in Palm Beach County, Florida. The Company is accounting for this
investment under the equity method in accordance with EITF Topic D-46
"Accounting for Limited Partnership Investments" and the guidance in
paragraph 8 of SOP 78-9, "Accounting for Investments in Real Estate
Ventures."
Cash equivalents - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
Net (loss) income per common share and per common equivalent share - The
reconciliations for the years ended April 30, 2004 and 2003 are as
follows:
Year Ended April 30, 2004 Loss Shares Per Share
-------------------------------------------------------------------------------------------------
Basic EPS $ (113,466) 1,133,896 $(.10)
Effect of Dilutive Securities - common stock options -- -- --
--------------------------------------
Diluted EPS $ (113,466) 1,133,896 $(.10)
======================================
Year Ended April 30, 2003 Income Shares Per Share
-------------------------------------------------------------------------------------------------
Basic EPS $ 1,769,668 1,114,422 $1.59
Effect of Dilutive Securities - common stock options -- 7,043 (.01)
--------------------------------------
Diluted EPS $ 1,769,668 1,121,465 $1.58
======================================
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.
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."
In accordance with APB Opinion No. 25, no compensation expense has been
recognized for the employee stock option plans. Had the Company recorded
compensation expense for the employee stock options based on the fair
value at the grant date for awards in the years ended April 30, 2004 and
2003 consistent with the provisions of SFAS No. 123, the Company's net
(loss) income and net (loss) income per share would have been adjusted to
the following pro forma amounts:
================================================================================
F-7
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
2004 2003
--------------------------------------------------------------------------
Net (Loss) Income, as reported $(113,466) $1,769,668
Net (Loss) Income, pro forma (230,466) 1,636,095
Basic (Loss) Income Per Share, as reported (.10) 1.59
Basic (Loss) Income Per Share, pro forma (.20) 1.47
Diluted (Loss) Income Per Share, as reported (.10) 1.58
Diluted (Loss) Income Per Share, pro forma (.20) 1.46
For the purposes of the pro forma presentation, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes
option-pricing model. The following range of weighted-average assumptions
were used for grants during the fiscal years ended April 30, 2004 and
2003.
Years Ended April 30, 2004 2003
--------------------------------------------------------------------------
Dividend Yield 0.0% 0.0%
Volatility 32.0% 47.0%
Risk-Free Interest Rate 2.0% 2.0%
Expected Life 5 Years 5 Years
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect 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. The most significant assumptions and estimates relate to
depreciable lives and the valuation of real estate.
New accounting pronouncements - In December 2003, the FASB issued SFAS No.
132 (revised December 2003), "Employers' Disclosures about Pensions and
Other Postretirement Benefits." This Statement replaced the disclosure
requirements in FASB Statements No. 87, "Employers' Accounting for
Pensions", No. 88, "Employers' Accounting for Settlements and Curtailments
of Defined Benefit Pension Plans and for Termination Benefits", and No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions". Application of this Statement is required in the Company's
financial statements for the year ended April 30, 2004. This Statement
addresses disclosure only; it does not address measurement or recognition.
The objective of this Statement was to (a) improve the content and
organization of annual disclosures about defined benefit pension plans,
(b) determine what, if any, disclosure would be required for
interim-period financial reports, and (c) determine whether the
disclosures to be required for defined benefit pension plans also would be
required for other post retirement plans. See Note 5 for further
discussion.
In December 2003, the FASB issued FASB Interpretation No. 46 (revised
December 2003) ("Interpretation 46"), "Consolidation of Variable Interest
Entities". Application of this interpretation is required in the Company's
financial statements for the year ended April 30, 2004. Interpretation 46
addresses the consolidation of business enterprises to which the usual
condition (ownership of a majority voting interest) of consolidation does
not apply. This interpretation focuses on controlling financial interests
that may be achieved through arrangements that do not involve voting
interests. It concludes that in the absence of clear control through
voting interests, a company's exposure (variable interest) to the economic
risks and potential rewards from the variable interest entity's assets and
activities are the best evidence of control. If an enterprise holds a
majority of the variable interests of an entity, it would be considered
the primary beneficiary. The primary beneficiary is required to include
assets, liabilities and the results of operations of the variable interest
entity in its financial statements. The Company determined that it does
not have any arrangements or relationships with special-purpose entities.
================================================================================
F-8
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
2. Mortgage Receivable
Mortgage receivable in the principal amount of $1,800,000 due from a
former tenant in connection with sale of real estate (Note 8). The
mortgage bears interest at 5% per annum with interest only payments due
quarterly, commencing in November 2002. The principal and any unpaid
interest are due and payable in August 2005. The mortgage is secured by
the related real estate along with a third party guarantee of
approximately $1,430,000.
3. Investment in Grove Partnership:
The Company has a 10.93% limited partnership interest in the Callery-Judge
Grove, L.P. (the "Grove"). As of April 30, 2004 and 2003, the carrying
value of the Company's investment was $0.
The Grove has reported to its limited partners that in June 2003 it
received an independent appraisal report of the citrus grove property,
which is now the subject of development applications. Based upon the
appraised value of the citrus grove operations and property, at April 30,
2004, strictly on a pro-rata basis, the estimated fair value of the
Company's interest in the Grove would be approximately $6,705,000. The
Company cannot predict what, if any, value it will ultimately realize from
this investment.
The fiscal year end of the Grove is June 30. Summarized financial
information of the Grove as of June 30, 2003 and 2002 is as follows:
Years Ended June 30, 2003 2002
--------------------------------------------------------------------------
(in thousands) (in thousands)
Total Current Assets $ 7,970 $ 2,826
Total Assets 23,048 22,625
Total Current Liabilities 24,095 17,011
Total Liabilities 20,012 18,002
Total Partners' Capital 3,036 4,623
Total Revenues 8,827 13,771
Net Loss (1,586) (3,101)
4. Income Taxes
The Company files a consolidated U.S. federal income tax return that
includes all 100% 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, 2004 2003
--------------------------------------------------------------------------
Current:
Federal $ 101,203 $ --
State (49,442) 183,144
------------------------------
51,761 183,144
------------------------------
Deferred:
Federal (103,000) 985,000
State (39,000) 235,000
------------------------------
(142,000) 1,220,000
------------------------------
$ (90,239) $ 1,403,144
==============================
================================================================================
F-9
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
The components of the net deferred tax liabilities are as follows:
April 30, 2004 2003
-------------------------------------------------------------------------------
Deferred Tax Assets:
Stock compensation $ 13,000 $ 53,000
Accrued sick and vacation 13,000 13,000
Provision for bad debt 30,000 17,000
Tax loss carryforwards -- 10,000
---------------------------
Total Deferred Tax Assets 56,000 93,000
Deferred Tax Liabilities:
Prepared pension costs (599,000) (697,000)
Unrealized gain on investment in Citrus Grove (569,000) (658,000)
Land development costs (600,000) (599,000)
Accumulated depreciation (7,000) --
---------------------------
Total Deferred Tax Liabilities (1,775,000) (1,954,000)
---------------------------
Net Deferred Income Taxes $(1,719,000) $(1,861,000)
===========================
There was no current federal tax provision for the year ended April 30,
2003, as the Company was able to apply net operating loss carry forwards
to its federal taxable income.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
Years Ended April 30, 2004 2003
--------------------------------------------------------------------------
U.S. Federal Statutory Income Rate 34.0% 34.0%
State Income Tax, net of federal tax benefits 7.5% 7.5%
Other Differences, net 2.8% 2.7%
-----------------
44.3% 44.2%
=================
5. 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. During the year ended April 30, 2003, the Company
contributed approximately $254,000 to the Plan. During the year ended
April 30, 2004, the client made no contributions to the Plan. The Company
has no minimum required contribution for the April 30, 2005 plan year.
================================================================================
F-10
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
The following tables provide a reconciliation of the changes in the plan's
benefit obligations and fair value of assets over the two-year period
ending April 30, 2004, and a statement of the funded status as of April 30
of both years:
April 30, 2004 2003
--------------------------------------------------------------------------
Pension Benefits
Reconciliation of Benefit Obligation:
Obligation $ 1,763,513 $ 1,412,369
Service cost 86,717 97,139
Interest cost 119,220 122,120
Actuarial loss 197,779 376,991
Benefit payments (170,248) (245,106)
--------------------------
Obligation at April 30 $ 1,996,981 $ 1,763,513
==========================
April 30, 2004 2003
--------------------------------------------------------------------------
Reconciliation at Fair Value of Plan Assets:
Fair value of plan assets at May 1 $ 1,572,364 $ 1,496,256
Actual return on plan assets 761,585 67,081
Employer contributions -- 254,133
Benefit payments (170,248) (245,106)
--------------------------
Fair Value of Plan Assets at April 30 $ 2,163,701 $ 1,572,364
--------------------------
Funded Status:
Funded status at April 30 $ 166,720 $ (191,149)
Unrecognized prior-service cost 185,706 258,444
Unrecognized loss 1,073,209 1,595,210
--------------------------
Net Amount Recognized $ 1,425,635 $ 1,662,505
==========================
The accumulated benefit obligation was $1,779,282 and $1,572,133 as of
April 30, 2004 and 2003, respectively.
The following table provides the components of net periodic benefit cost
for the plans for fiscal years 2004 and 2003:
April 30, 2004 2003
--------------------------------------------------------------------------------------
Pension Benefits
Service Cost $ 86,717 $ 97,139
Interest Cost 119,220 122,120
Expected Return on Plan Assets (126,166) (115,487)
Amortization of Prior-Service Cost 72,738 72,738
Amortization of Net Loss 84,361 83,370
-----------------------
Net Periodic Benefit Cost After Curtailments and Settlements $ 236,870 $ 259,880
=======================
The prior-service costs are amortized on a straight-line basis over the
average remaining service period of active participants. Gains and losses
in excess of 10% of the greater of the benefit obligation and the
market-related value of assets are amortized over the average remaining
service period of active participants.
================================================================================
F-11
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
The Plan's expected return on plan assets assumption is derived from a
detailed periodic review conducted by the Plan's actuaries and the Plan's
asset management group. The review includes an analysis of the asset
allocation strategy, anticipated future long-term performance of
individual asset classes, risks and correlations for each of the asset
classes that comprise the funds' asset mix. While the review gives
appropriate consideration to recent fund performance and historical
returns, the assumption is primarily a long-term, prospective rate.
The assumptions used in the measurement of the Company's benefit
obligation are shown in the following table:
April 30, 2004 2003
--------------------------------------------------------------------------
Pension Benefits
Weighted-Average Assumptions as of April 30:
Discount rate 6.5% 7.5%
Expected return on plan assets 8.0% 8.0%
Rate of compensation increase 4.0% 4.0%
The Plan's investment objectives are expected to be achieved through a
portfolio mix of U.S. stocks, international stocks, U.S. fixed income
securities, and Company stock which reflect the Plan's desire for
investment return while controlling total portfolio risk to an acceptable
level.
The defined benefit plan had the following asset allocations as of their
respective measurement dates:
April 30, 2004 2003
--------------------------------------------------------------------------
Common Stock - Gyrodyne Company of America, Inc. 90.6% 88.5%
United States Government Securities 1.5% 3.5%
Corporate Equity Securities 0.7% 1.6%
Other Funds 7.2% 6.4%
----- -----
Total 100.0% 100.0%
===== =====
Securities of the Company included in plan assets are as follows:
April 30, 2004 2003
--------------------------------------------------------------------------
Number of Shares 72,580 82,580
Market Value $1,961,112 $1,391,473
6. Stock Options Plans
Incentive Stock Option Plan - The Company has a stock option plan (the
"Plan") which expired in October 2003, under which participants may be
granted either Incentive Stock Options ("ISOs"), Non-Qualified Stock
Options ("NQSOs") 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 October 2004 and May 2008.
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.
================================================================================
F-12
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
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.
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. The plan expired in September 2000. Each
non-employee Director was granted an initial 2,500 options on the date of
adoption of the plan. These options are exercisable in three equal annual
installments commencing on the first anniversary date subsequent to the
grant. Additionally, each non-employee Director was granted 1,250 options
on each January 1, 1997 through 2000, respectively. These additional
options are exercisable in full on the first anniversary date subsequent
to the date of grant.
A summary of the Company's various fixed stock option plans as of April
30, 2004 and 2003, and changes during the years then ended is presented
below:
Years Ended April 30, 2004 2003
------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Stock Options Shares Price Shares Price
------------------------------------------------------------------------------
Outstanding, beginning of year 174,740 $15.28 142,340 $15.13
Granted 38,500 16.87 41,800 15.70
Exercised options (38,670) 12.62 (1,700) 10.74
Canceled (9,920) 14.91 (7,700) 13.97
------- -------
Outstanding, end of year 164,650 16.30 174,740 15.28
======= =======
Options Exercisable at year end 164,650 16.30 174,740 15.28
======= =======
Weighted-Average Fair Values of
Options Granted During Year $ 5.31 $ 5.56
====== ======
The following table summarizes information about stock options outstanding
at April 30, 2004:
Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Outstanding Price
--------------------------------------------------------------------------
$13.46-14.86 24,150 1.42 $13.95 24,150 $13.95
$15.46-16.87 108,600 3.49 $16.23 108,600 $16.23
$18.16-19.10 31,900 1.11 $18.33 31,900 $18.33
================================================================================
F-13
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
Shares reserved for future issuance at April 30, 2004 are comprised of the
following:
Shares issuable upon exercise of stock options under the Company's
Non-Employee Director Stock Option Plan 31,625
Shares issuable upon exercise of stock options under the Company's
stock incentive plan 133,025
-------
164,650
=======
Incentive compensation plan - The Company has an incentive compensation
plan for all full-time employees and members of the Board in order to
promote shareholder value. The benefits of the incentive compensation plan
are realized only upon a change in control of the Company. Change in
control is defined as the accumulation by any person, entity or group of
30% or more of the combined voting power of the Company's voting stock or
the occurrence of certain other specified events. In the event of a change
in control, the Company's plan provides for a cash payment equal to the
difference between the plan's "establishment date" price of $15.39 per
share and the per share price of the Company's common stock on the closing
date, equivalent to 100,000 shares of Company common stock. The payment
amount would be distributed to eligible participants based upon their
respective weighted percentages (ranging from .5% to 18%).
7. Loans Payable and Revolving Credit Line
April 30, 2004 2003
--------------------------------------------------------------------------
Term Loan, bank $ -- $628,450
Revolving Line of Credit 696,287 --
Installment Loans, other 28,953 41,160
-------------------------
$725,240 $669,610
=========================
On May 29, 2003, the Company entered into a revolving line of credit
agreement with a new lending institution. The line of credit has a maximum
borrowing limit of $1,750,000, bears interest at the lending institution's
prime-lending rate (4.00% at April 30, 2004) plus 1%, and is subject to
certain financial covenants. The line is secured by certain real estate
and expires on June 1, 2006. Proceeds from the revolving line of credit
were used to pay-off the balance of the bank term loan. As of April 30,
2004, the Company was in compliance with the financial covenants.
Annual maturities of loans payable is as follows:
Years Ending April 30, Amount
--------------------------------------------------------------------------
2005 $ 9,808
2006 7,411
2007 703,698
2008 4,323
--------
$725,240
========
================================================================================
F-14
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
8. Sale of Real Estate
On August 8, 2002, the Company sold approximately twelve acres of property
and certain buildings with a carrying value of approximately $559,000 to
an existing tenant. The contract of sale amounted to $5,370,000 under
which the Company received a cash payment of approximately $3,600,000 and
a three-year mortgage for $1,800,000 with interest at 5%. The profit on
the sale of the land and buildings was $4,700,000 net of transaction costs
of approximately $113,000. Pursuant to Statement of Financial Accounting
Standards No. 66, approximately $1,570,000 of the gain on this sale has
been deferred as of April 30, 2004 and 2003. The deferred gain will be
recognized upon collection of the related mortgage receivable.
9. 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. At times the Company maintains bank account balances which
exceed FDIC limits. The Company has not experienced any losses in such
accounts and believes that it is not exposed to any significant credit
risk on cash. Management does not believe significant credit risk exists
at April 30, 2004 and 2003.
10. Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Years Ended April 30, 2004 2003
--------------------------------------------------------------------------
Interest $ 38,850 $ 60,049
=========================
Income Taxes $204,768 $270,000
=========================
11. Commitments
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:
Years Ending April 30, Amount
--------------------------------------------------------------------------
2005 $1,282,000
2006 354,000
2007 92,000
----------
$1,728,000
==========
In April 2003, the Company entered into a noncancellable operating lease
for office space in St. James, New York. The lease expires on March 31,
2005. Rental expense approximated $57,000 and $0 for the years ended April
30, 2004 and 2003, respectively.
================================================================================
F-15
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
Employment agreements - Effective January 23, 2003, the Company amended
the existing employment contracts with two officers, which provide for
annual salaries aggregating $362,000. The terms of the agreements were
extended from one to three years and provide for a severance payment
equivalent to three years salary in the event of a change in control.
Land development contract - The Company has entered into a Golf Operating
and Asset Management Agreement (the "Agreement") with Landmark National
("Landmark") for the design and development of an 18-hole championship
golf course community. The Agreement provides for Landmark to design,
construct and manage the golf course and related facilities, and to design
and plan the proposed residential community. Fees for Landmark's services
is as follows:
Golf Course Design and Operations -
o $5,000 per month, not to exceed $150,000, for the design of the golf
course and related facilities. As of April 30, 2004, the Company has
paid $120,000.
o A $100,000 golf course grading plan fee after completion of the
grading plan, which was paid during the year ended April 30, 2003.
o If Landmark designs the golf course as a "Signature Landmark
Course," a one time licensing fee not to exceed $250,000 is due.
o A monthly builders fee, upon commencement of construction of the
golf course, equal to 4.5% of the total cost of the golf course and
related facilities.
o Upon commencement of the operations of the golf course, a $100,000
annual management fee.
Residential Community Planning and Design -
o $10,000 per month, not to exceed $300,000, for the design and
planning of the residential community. As of April 30, 2004, the
Company has paid $240,000.
o $75,000 annual fee commencing upon the beginning of the operations,
sales and marketing phase of the residential community, and
terminating upon the sale of all building lots.
Total Project -
o A monthly builders fee, upon commencement of construction of the
golf course and the residential community, equal to 4.5% of the
total construction costs, as defined.
o An incentive fee equal to 10% of the pre-tax income of the Project,
as defined.
Termination -
Should the Company terminate the Agreement prior to completion without
cause, a termination fee is payable to Landmark as follows:
a. $500,000 prior to the completion of the design and master plan phase
of the golf course and related facilities;
b. $1,000,000 after the completion of the design and master plan phase
of the golf course and related facilities and prior to the opening
of the golf course to third parties;
c. If termination occurs after the golf course and related facilities
are open for use by third parties a sum equal to 50% of the entire
amount of unearned fees that would have been earned by Landmark
through the expiration date of the agreement.
The Agreement expires on April 9, 2017.
================================================================================
F-16
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
================================================================================
Years Ended April 30, 2004 and 2003
--------------------------------------------------------------------------------
12. Fair Value of Financial Instruments
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
The carrying amount of cash, 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, 2004, based upon an independent third party
appraisal report, is approximately $6,705,000 based on the Company's
ownership percentage.
The book value of the Company's loans payable approximates its fair value.
13. Related Party Transactions
A law firm related to a director provided legal services to the Company
for which it was compensated approximately $229,000 and $119,000 for the
years ended April 30, 2004 and 2003, respectively.
14. Major Customers
For the year ended April 30, 2004 rental income from three tenants
represented 17%, 13% and 12% of total rental income.
For the year ended April 30, 2003 rental income from three tenants
represented 17%, 13% and 11% of total rental income.
15. Contingencies
In December 2002, Stony Brook University (the "University") approached the
Company with an interest in discussing the purchase of the Company's 314
acre Flowerfield property located in Stony Brook/St. James, New York.
Those discussions were eventually discontinued, as the Company had
concluded that the University's suggested range of the purchase price for
the property was not reflective of its value.
In April 2003, the University announced that the Board of Trustees of the
State University of New York had adopted a resolution, which empowered the
University to commence eminent domain proceedings to acquire the property.
In a filing dated May 21, 2004, the University announced the completion of
a Draft Generic Environmental Impact Study ("DGEIS") which outlined its
plan to acquire 246 acres of the Flowerfield property through either a
negotiated purchase or eminent domain. The announcement also included a
Notice of Public Hearing establishing a date of June 21, 2004 to review
the DGEIS and to review the public purpose of an eminent domain
condemnation.
In June 2004, the Company filed a lawsuit in New York State Supreme Court
in an effort to require the University to comply with the requirements of
the State Environmental Quality Review Act ("SEQRA").
If the University is successful in condemning the Flowerfield property,
the Company will be forced to cancel its land development contract with
Landmark and a termination fee will be due as discussed in Note 11.
================================================================================
F-17