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, 2005.
--------------
[ ] 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 FLOWERFIELD, ST. JAMES, NY 11780
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(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: $2,039,170
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The aggregate market value of the 1,032,317 shares of voting stock held by
non-affiliates of the issuer on June 10, 2005 was $43,099,235. 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 June 10, 2005 was 1,213,678.
DOCUMENTS INCORPORATED BY REFERENCE
None
----
Transitional Small Business Disclosure Format (Check One): Yes [ ] No [X]
1
INDEX TO FORM 10-KSB
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FISCAL YEAR 2005
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ITEM # PAGE
------ ----
PART I
1 -Description of Business 3
2 -Description of Property 4
3 -Legal Proceedings 6
4 -Submission of Matters to a Vote of Security Holders 6
PART II
5 -Market for Common Equity, Related Stockholder Matters and
Small Business Issuer Purchases of Equity Securities 6
6 -Management's Discussion and Analysis or Plan of Operation 7
7 -Financial Statements 11
8 -Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
8A -Controls and Procedures 11
8B -Other Information 11
PART III
9 -Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 11
10 -Executive Compensation 14
11 -Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 15
12 -Certain Relationships and Related Transactions 17
13 -Exhibits 18
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 178,890 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. Due to the announced
intentions by Stony Brook University (the "University") to condemn a major
portion of the Flowerfield property, the approval process to secure the
appropriate development rights has been delayed in the local municipalities.
The University has indicated that it 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 the University on June 21, 2004 and the
Company has since commenced certain litigation to challenge the authority of the
University to acquire property by eminent domain and the amount of acreage as
excessive for the University's intended purpose. In a decision dated April 25,
2005, the court rendered a decision that the University had complied with the
applicable standards and issued a decision in favor of the University. On June
8, 2005, the Company appealed this decision. The Company cannot predict what the
ultimate effect will be on the Company as a result of the University's actions.
See, "Item 1(b) Business of Issuer, Real Estate," and "Item 3, Legal
Proceedings."
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 9 full time
employees involved in support of the real estate operation and development
plans. Competition among industrial and office rental properties on 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 tenant's
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 2005, the Company had no material
expenses related to environmental issues.
3
During the past four 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 DPMG, Inc., dba Landmark
National ("Landmark") 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.
As mentioned in Item 1(a) above, progress in obtaining the required approvals
has been delayed due to the fact that, in April, 2003, the Board of Trustees of
the State University of New York adopted a resolution which empowered the
University to commence eminent domain proceedings to acquire part of 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 in management's opinion, 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 challenging the University's proposed taking of the
property. The Court concluded that the University's condemnation of part of the
Flowerfield property could proceed. The Appellate Division of the New York State
Supreme Court, 2nd Department, upheld the lower court decision. The Company is
seeking an appeal of the Court's decision.
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, the Company's share is now approximately 10.93%. At
the time of the capital infusions, Management had determined that funding the
development of the Flowerfield property was a priority when compared with this
alternative investment opportunity.
The original limited partner investment of $1.1 million, which was made in 1965,
has since yielded distributions of approximately $5.5 million in the aggregate.
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.
Major Customers
---------------
For the year ended April 30, 2005, rental income from the three largest tenants
represented 14%, 13% and 10% of total rental income. For the year ended April
30, 2004, rental income from the three largest tenants represented 17%, 13% and
12% of total rental income.
Item 2 Description of Property
(b) Investment Policies
-------------------
The Company's policy has been to primarily hold its commercially developed
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 the
12 acre parcel sold to a former tenant in 2002, as described above. As a result
of prepayments by this tenant, the balance at April 30, 2005 was $1.3 million.
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, a single
family residence, an office building and vacant land.
4
(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 178,890
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 $651,651. Prior to May 29, 2003, the property and buildings were
unencumbered, except for Building #7 and the surrounding 6 1/2 acres, which were
encumbered by a 10 year collateral mortgage in the amount of $1,050,000. 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. This outstanding balance was reduced to zero
as of April 30, 2005. 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 45 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, and benefits from an easement on, the property.
The Company currently maintains a $100 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, 2005 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. 178,890 84% $1,944,032 $10.87 59 1
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 $293,604. This specific lease has been renewed on a short term
basis over the past several years with the current lease expiring on November
30, 2005.
The following table sets forth the Company's lease expiration table as of April
30, 2005:
Number of Square Total % of Gross Annual
Leases Feet Annual Rental Represented
Fiscal Year End Expiring Expiring Rent By Such Leases
--------------- -------- -------- ---- --------------
2006 56 135,941 $1,745,164 89.8%
2007 1 1,042 $12,348 0.6%
2008 1 420 $4,800 0.3%
2020 1 12,980 $181,720 9.3%
The Company's property is zoned for light industrial use and is located in the
hamlets of St. James and Stony Brook, New York. The federal tax basis
depreciation approximates the GAAP basis. Depreciation for tax purposes is being
recorded on a double declining balance method. The estimated useful lives for
buildings and improvements range from 10 to 30 years.
5
Item 3 Legal Proceedings
As described earlier in this report, Stony Brook 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 the
University on June 21, 2004 and the Company has since commenced certain
litigation to challenge the University's authority to commence a condemnation
proceeding and to claim that the acreage is excessive for the intended purpose.
On April 25, 2005, the court rendered a decision in favor of the University,
finding that the University had complied with applicable standards. On June 8,
2005, the Company appealed the decision. 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 a vote of security holders during the fourth
quarter of Fiscal Year 2005.
PART II
Item 5 Market for Common Equity, Related Stockholder Matters and Small Business
Issuer Purchases of Equity Securities
(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
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Fiscal 2004
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July 31, 2003 $16.72 $24.50
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October 31, 2003 $21.00 $26.00
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January 31, 2004 $22.73 $28.10
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April 30, 2004 $26.40 $28.28
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Fiscal 2005
---------------------------------------------------------------
July 31, 2004 $27.00 $35.15
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October 31, 2004 $30.00 $36.90
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January 31, 2005 $34.00 $39.75
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April 30, 2005 $34.00 $44.00
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(b) Approximate Number of Equity Security Holders, including shares held in
Street name by brokers.
Number of Holders of Record
Title of Class as of June 10, 2005
----------------------------------------------------------------
Common Stock, $1.00 Par Value 899
(c) There were no cash dividends declared on the Company's Common Stock in the
fiscal years ended April 30, 2005 and April 30, 2004.
(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.
6
Item 6 Management's Discussion and Analysis or Plan of Operation
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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 risks inherent in the Long Island, New York and Palm Beach County,
Florida real estate markets, the ability to obtain additional capital in order
to develop the existing real estate 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.
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.
7
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, 2005
AS COMPARED TO THE YEAR ENDED APRIL 30, 2004
The Company is reporting a net loss of $137,648 for the year ended April 30,
2005 compared to a net loss of $113,466 for the prior year. Diluted per share
losses amounted to ($0.12) and ($ 0.10) for fiscal 2005 and 2004, respectively.
Revenue from rental property amounted to $2,039,170, a 2% decline of $47,517 to
the $2,086,687 posted during the prior year. Both periods were impacted by
renegotiated terms with two major tenants. Those adjustments, which reduced the
2005 results by $125,684, were partially mitigated by new tenant leases and
annual incremental adjustments totaling $78,167.
Rental property expenses increased by $223,015 or 29%, amounting to $996,784 in
fiscal 2005. The prior year expenses amounted to $773,769. Of that total
increase, $220,126 is attributable to operating and maintenance costs. Salaries
and benefits, including nonrecurring expenses of $26,830 associated with an
early retirement package, increased by $46,364. Real estate taxes and the cost
of fuel oil increased by $11,863 and $22,910, respectively. In addition, the
Company experienced a $93,030 increase in property and casualty insurance
premiums and a $59,585 expense associated with remedial treatment of our septic
and storm drainage systems. A number of other operating expenses, including
utilities, building, grounds, and equipment maintenance, reflected decreases
totaling $11,567; the largest contributing factor was a decrease in utility
expense of $7,628 for the year.
As a result, income from rental property amounted to $1,042,386, representing a
$270,532 or 21% decline when compared to the prior year total of $1,312,918.
Based on the fact that some of the contributing factors to the decline this year
were nonrecurring in nature, we anticipate that income from our rental property
operation will be restored to the fiscal 2004 levels.
General and administrative expenses reflect an increase of 12% for the current
reporting period, amounting to $1,823,847 compared to $1,628,344 for the prior
year; an increase of $195,503. Corporate governance expenses, which totaled
$330,374 for the year, increased by $208,833 for the reporting period. A major
portion of this increase is attributable to the establishment of a Shareholders
Rights Plan which accounted for $130,345. Other issues relating to shareholder
filings and SEC requirements for publicly traded companies accounted for $34,666
and $43,822 of the increase, respectively. Other increases included Directors
fees and bad debt expense which increased by $9,794 and $9,000, respectively.
Finally, as activities surrounding the Company's investment in the Florida grove
property increased, so too did our need to incur additional travel expense and
make regular visits to the area. In an effort to keep abreast of developments in
the industry, management also attended several corporate governance and real
estate related seminars. The cost of all of these activities accounted for
$21,927 of the increased expenses. Offsetting some of the increase in general
and administrative expenses was an overall decrease in salaries and benefits and
costs associated with the Company's pension plan. Salaries and benefits
decreased by $40,947, reflecting the fact that there was no stock option expense
in the current period; in fiscal 2004, that expense amounted to $76,606. The
Company's pension expense, which amounted to $226,109 in fiscal 2005, decreased
by $10,761 when compared to the prior year. We anticipate that the cost
associated with the plan will be reduced by an additional $100,000 for the
fiscal 2006 period.
8
Net of general and administrative expenses, the Company experienced an operating
loss of $781,461 compared to a loss of $315,426 for the prior year.
Other income increased by $440,326, amounting to $552,047 and $111,721 for
fiscal 2005 and 2004, respectively. The major contributing factor to this
increase was the recognition of principal prepayments to a $1.8 million mortgage
held by the Company which amounted to $437,194. The balance of the mortgage,
$1.3 million as of April 30, 2005, matures in August 2005.
As a result of the foregoing, the Company experienced a loss before taxes of
$229,414 for the period ending April 30, 2005, compared to a loss of $203,705
for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $1,130,127 and $1,067,419 in fiscal
2005 and 2004, respectively. The principal use of cash in both periods was funds
used in connection with planning and pre-construction costs associated with land
development plans for the golf course community. The Company also incurred costs
included in the capitalized land development costs pertaining to legal, and
communication costs to shareholders and the community regarding the potential
condemnation of the Company's real estate property by the University.
Net cash provided by (used in) investing activities was $449,042 and ($29,754)
in fiscal 2005 and 2004, respectively. The cash provided by investing activities
in the current period represents a prepayment of $500,000 to the Company's
mortgage receivable as well as proceeds from the sale of heavy equipment for
$12,000. The use of cash in both periods was for capital expenditures.
Net cash (used in) provided by financing activities was ($37,153) and $428,499
in fiscal 2005 and 2004, respectively. The net cash (used in) both periods were
a result of the Company's repayment of loans payable. The net cash provided
during the current and prior period was primarily the result of proceeds from
the exercise of stock options. The prior period's results also reflect the
refinancing of mortgage debt on the Flowerfield property. The Company has a
$1,750,000 revolving credit line with a bank, bearing interest at a rate of
prime plus one percent which was 6.75% at April 30, 2005. The unused portion of
the credit line, which is the total line of $1,750,000, will enhance the
Company's financial position and liquidity and is available, if needed, to fund
any unforeseen expenses.
As of April 30, 2005, the Company had cash and cash equivalents of $844,405 as
well as a mortgage receivable of $1,300,000 due on August 8, 2005 and
anticipates having the capacity to fund normal operating and administrative
expenses and its regular debt service requirements. To date, expenses associated
with the development of the Flowerfield property, which have been capitalized,
total $4,432,766. As of April 30, 2005, the portion of those expenses
attributable to the residential golf course community amount to $2,219,128.
Working capital, which is the total of current assets less current liabilities
as shown in the accompanying chart, amounted to $1,871,701 at April 30, 2005.
The following table presents the Company's working capital for the fiscal years
2005 and 2004:
April 30,
--------------------------
2005 2004
--------------------------
Current assets:
Cash and cash equivalents $844,405 $1,562,643
Rent receivable, net 62,309 93,082
Mortgage receivable 1,300,000 0
Net prepaid expenses and other assets 106,464 125,170
--------------------------
Total current assets 2,313,178 1,780,895
--------------------------
Current liabilities:
Accounts payable and accrued expenses 204,782 232,809
Tenant security deposits payable 229,284 194,976
Current portion of loans payable 7,411 9,808
Income tax payable 0 28,306
--------------------------
Total current liabilities 441,477 465,899
--------------------------
Working capital $1,871,701 $1,314,996
==========================
9
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, 2005, the Company had no outstanding indebtedness against
this credit facility. 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. The 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, 2005:
Payments Due By Period
Less than 1-3 3-5 More than
Contractual Obligation Total 1 Year Years Years 5 Years
Long-term Debt $19,145 $7,411 $11,734 - -
Operating Lease 55,104 55,104 - - -
--------------------------------------------------------------
Total Contractual Obligations $74,249 $62,515 $11,734 - -
==============================================================
LIMITED PARTNERSHIP INVESTMENT
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 limited partnership that owns 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, 2005 the carrying value of the Company's investment was
$0. Based upon the most recent independent third party appraisal, which was
conducted by Pinel Appraisal Services, Inc. in June 2004, the Company's
investment has a current estimated fair value of approximately $8.3 million. In
the latter part of 2003, the Scripps Research Institute headquartered in La
Jolla, California, announced that it would be developing a major east coast
center on property located 4.5 miles north of the Callery-Judge Grove. Although
the Company believes, based on press reports, that this announcement has been
the catalyst behind the sale of thousands of acres of land to national
developers in the general vicinity of the Grove, we have no current forecast of
the likelihood of, or the timing required to achieve approvals for, the
development of the Grove.
DEVELOPMENT OF FLOWERFIELD PROPERTY
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 payments of
$5,000 with a maximum total of $150,000. At April 30, 2005, the Company has paid
this obligation in full. 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, 2005,
the Company has also paid this obligation in full. 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 commencing upon completion of the
golf and clubhouse facilities. 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. Due to the announced intentions by the
University to condemn a major portion of the Flowerfield property, the approval
process to secure the appropriate development rights has been delayed in the
local municipalities.
10
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 Consolidated Financial Statements and accompanying Notes to Consolidated
Financial Statements commencing on the Contents page followed by Page F-1.
Consolidated Financial Statements include:
(1) Report of Independent Registered Public Accounting Firm
(2) Consolidated Balance Sheets as of April 30, 2005 and April 30, 2004
(3) Consolidated Statements of Operations for the years ended April 30,
2005 and April 30, 2004
(4) Consolidated Statement of Stockholders' Equity for the years ended
April 30, 2005 and April 30, 2004
(5) Consolidated Statements of Cash Flows for the years ended April 30,
2005 and April 30, 2004
(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
There have been no changes in, or disagreements on any matter of accounting
principles or practices, financial statement disclosures, or auditing scope or
procedure, with the Company's principal independent accountant for the fiscal
period ended April 30, 2005.
Item 8A Controls and Procedures
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
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 to ensure that information required to be disclosed in
the reports the Company files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
There have been no significant 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 have materially affected, or that
are reasonably likely to materially affect, the Company's internal controls over
financial reporting.
Item 8B Other Information
None.
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 2005 shall serve until the next Annual Meeting of
Stockholders or until their successors are elected and qualified.
11
Name & Principal Occupation or Employment Age First Became a Current Board
Director Term Expires
----------------------------------------------------------------------------------------------------------------------------
Stephen V. Maroney 63 1996 2007
President, CEO, CFO, Treasurer, and Director of the Company
Peter Pitsiokos 46 ---
COO, Secretary, Chief Compliance Officer & General Counsel of the Company
Frank D'Alessandro 59 ---
Controller of the Company
Paul L. Lamb 59 1997 2006
Partner of Lamb & Barnosky, LLP
Chairman of the Board of Directors
of the Company
Robert H. Beyer 72 1977 2005
Consultant
Director of the Company
Philip F. Palmedo 71 1996 2007
Chairman of International Resources Group
Director of the Company
Elliot H. Levine 52 2004 2005
CPA and Senior Member of Levine & Seltzer, LLP
Director of the Company
Richard B. Smith 50 2002 2006
Consultant
Director of the Company
Ronald J. Macklin 43 2003 2007
Assistant General Counsel for KeySpan Corporate Services
Director of the Company
(b) Business Experience
Stephen V. Maroney, age 63, 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 46, joined the Company in July 1992 as its Assistant
Secretary and General Counsel and has been the Company's Chief Operating Officer
and Chief Compliance Officer since 2004. He has also been Secretary and General
Counsel of the Company for over five years. 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 59, 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.
12
Paul L. Lamb, age 59, 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 72, 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 71, 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.
Elliot H. Levine, age 52, was appointed to the Board of Directors in October
2004. Mr. Levine is a founding member of the accounting firm Levine & Seltzer,
LLP Certified Public Accountants, a graduate (1975) of Queens College, City
University of New York. He became a member of the American Institute of
Certified Public Accountants in February, 1978. Mr. Levine's work experience
includes five years at Arthur Young, ten and a half years as partner and
director of taxes of Leslie Sufrin & Co. P.C., a one year tenure as senior tax
manager at Margolin, Winer & Evans CPAs and 12 years as senior member of Levine
& Seltzer.
Richard B. Smith, age 50, was appointed to the Board of Directors in November
2002. He served as Senior Vice President for Private Banking at Suffolk County
National Bank until February, 2005. 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 and also serves as a Trustee for St. Catherine's Medical Center in
Smithtown, NY.
Ronald J. Macklin, age 43, 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.
(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 ("10% Holder") 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 copies of Forms 3 and 4 received by us, during
fiscal 2005 and Forms 5 and amendments there to received by us with respect to
fiscal 2005 or written representations from certain reporting persons, that no
Form 5 is required. Gyrodyne believes that none of the Company's executive
officers, directors or 10% Holders failed to file on a timely basis reports
required by section 16(a) of the Exchange Act during fiscal 2005 or prior fiscal
years.
(d) Audit Committee Financial Expert
The Board of Directors has a standing Audit Committee established in accordance
with section 3(a) (58)(a) of the Exchange Act, which currently consists of
Messrs. Smith, Levine 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. Levine, a CPA, qualifies as an "audit
committee financial expert" as a result of relevant experience as a partner in
the accounting firm of Levine & Seltzer, LLP. In addition, Mr. Levine has 10.5
years of accounting experience as a partner and director of taxes at Leslie
Sufrin & CO. P.C. as well as several other years of experience in the field of
public accounting.
(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.
13
Item 10 Executive Compensation
(a) Executive Compensation
During the fiscal years ended April 30, 2005, April 30, 2004, and April 30,
2003, two directors or officers received remuneration in excess of $100,000 in
such capacity.
SUMMARY COMPENSATION TABLE
Long term Compensation
--------------------------------------
Annual Compensation Awards Payouts
----------------------------------- --------------------------- ---------
Securities
Other Annual Restricted Underlying LTIP
Name and Salary Bonus Compensation Stock Options/SARs Payouts All Other
Principal Position Year ($) ($) ($) Awards ($) (#) ($) Compensation
---------------------------------------------------------------------------------------------------------------------------------
Stephen V. Maroney
President & CEO 2005 209,500 0 29,688 (A) 0 0 0 0
2004 209,500 0 49,628 (A) 0 17,500 0 0
2003 209,500 0 22,422 (A) 0 20,355 0 0
Peter Pitsiokos
COO, and Secretary 2005 152,500 10,000 0 0 0 0 0
2004 152,500 0 70,188 (B) 0 13,500 0 0
2003 148,990 0 17,797 (B) 0 13,945 0 0
(A) In FY 05, Mr. Maroney exercised 1,375 director options and received an equal
number of shares with a value of $29,688. In FY 04, Mr. Maroney exercised 4,125
director 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
perquisites and other personal benefits, securities or property to any of the
current executives does not exceed the lesser of $50,000 or 10% of the total of
annual salary and bonuses reported above for such 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.
(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 $17,797.
During the fiscal year ended April 30, 2005, there were no Option/SAR Grants
issued to any directors or officers.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
---------------------------------------------------
AND FY-END OPTION/SAR VALUES
----------------------------
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SAR's at Options/SAR's at
Acquired on Value April 30, 2005 April 30, 2005 ($)
Name Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- -------- -------- ------------------------- -------------------------
Stephen V. Maroney
President and CEO 7,946 $178,971 64,530/0 $1,609,322/$0
Peter Pitsiokos 31,600 $814,859 0/0 $0/$0
COO 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. In addition, the
Chairman of the Board is entitled to receive a Chairman's fee of $24,000 a year
which commenced in September, 2004. 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.
14
(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 June 10, 2005
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.
Number of Percent of
--------- ----------
Name and Address Shares Beneficially Class (12)
---------------- ------------------- ----------
Of Beneficial Owner Owned
------------------- -----
More Than 5% Shareholders
--------------------------------------------
Gerard Scollan 103,741(1) 8.55
80 Browns River Road
Sayville, NY 11782
Gyrodyne Company of America, Inc.
St. James, NY 11780 67,580(2) 5.57
Private Capital Management, Inc.
8889 Pelican Bay Blvd., Suite 500 74,935(3) 6.17
Naples, Florida 34108
Bruce Sherman
8889 Pelican Bay Blvd., Suite 500 130,837(3) 10.78
Naples, Florida 34108
Kellogg/Everest
14 Wall Street, 27th Floor 92,296(4) 7.60
New York, NY 10005
Goldstein/Dakos
60 Heritage Drive 135,569(5) 11.17
Pleasantville, NY 10570
Directors and Executive Officers
--------------------------------------------
Stephen V. Maroney 92,894(6) 7.27
c/o Gyrodyne Company of America, Inc.
102 Flowerfield
St. James, NY 11780
15
Peter Pitsiokos 35,205(7) 2.70
c/o Gyrodyne Company of America, Inc.
102 Flowerfield
St. James, NY 11780
Paul L. Lamb 22,864(8) 1.88
c/o Lamb & Barnosky, LLP
534 Broadhollow Road
Melville, NY 11747
Robert H. Beyer 14,634(9) 1.20
10505 Indigo Lane
Fairfax, Virginia 22032
Philip F. Palmedo 12,749(10) 1.05
4 Piper Lane
St. James, NY 11780
Richard B. Smith 1,000 (11)
697 Short Beach Road
St. James, NY 11780
Ronald J. Macklin 200 (11)
c/o Keyspan
175 E. Old Country Road
Hicksville, NY 11801
Elliot H. Levine 0 (11)
c/o Levine & Seltzer, LLP
150 East 52nd Street
New York, NY 10022
All executive officers and 179,546 13.96
directors as a group (8 persons)
(1) Includes 99,241 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 67,580 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 74,935 shares held by Private Capital Management, LP's clients and disclaims
the existence of a group.
(4) As of the close of business on May 20, 2005, Kellogg Capital Group, LLC and
Everest Special Situations Fund, L.P. filed a joint Schedule 13D/A with the
Securities and Exchange Commission in which both companies may be deemed to own
beneficially in the aggregate 92,296 shares of Gyrodyne stock.
(5) On May 18, 2005, Phillip Goldstein and Andrew Dakos filed a joint Schedule
13D/A with the Securities and Exchange Commission stating that Mr. Phillip
Goldstein is deemed to be the beneficial owner of 102,519 shares of Gyrodyne
stock. Mr. Dakos is deemed to be the beneficial owner of 33,050 shares of
Gyrodyne stock. Power to dispose of securities resides solely with Mr. Goldstein
for 102,519 shares. Power to vote securities resides solely with Mr. Goldstein
for 6,560 shares and jointly for 1,000 shares. Power to dispose and vote
securities resides solely with Mr. Dakos for 33,050 shares.
16
(6) Includes 64,530 shares issuable upon the exercise of stock options to
purchase Company Stock which are exercisable within 60 days of April 30, 2005.
(7) Does not include his wife's and minor children's ownership of 1,089 shares
in which he denies any beneficial interest.
(8) Includes 13,747 shares held by Lamb & Barnosky, LLP Profit Sharing Trust.
Mr. Lamb is a trustee of the Profit Sharing Trust. Includes 2,750 shares
issuable upon the exercise of stock options to purchase Company Stock which are
exercisable within 60 days of April 30, 2005.
(9) Does not include his wife's ownership of 1,801 shares in which he denies any
beneficial interest. Includes 2,750 shares issuable upon the exercise of stock
options to purchase Company Stock which are exercisable within 60 days of April
30, 2005.
(10) Does not include his wife's ownership of 4,125 shares in which he denies
any beneficial interest. Includes 2,750 shares issuable upon the exercise of
stock options to purchase Company Stock which are exercisable within 60 days of
April 30, 2005.
(11) Less than 1%.
(12) The percent of class is calculated on the basis of the number of shares
outstanding, which is 1,213,678 as of June 30, 2005 plus, for each person or
group, any shares that person or group has the right to acquire within 60 days
of April 30, 2005 pursuant to options, warrants, conversion privileges or other
rights.
(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 91,030 $15.87 -
--------------------------------------------------------------------------------
Equity
Compensation
Plans not
Approved by
Security holders - - -
--------------------------------------------------------------------------------
Total 91,030 $15.87 -
--------------------------------------------------------------------------------
Item 12 Certain Relationships and Related Transactions
The Company currently has a mortgage receivable in the principal amount of
$1,300,000 due from Gerard Scollan. Mr. Scollan is considered a principal
shareholder of the Company because he has beneficial ownership of 8.55% of the
Company shares. The terms of the mortgage are described in greater detail in
Note 2 of the Financial Statements. 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
17
$86,361 in interest during fiscal 2005 and $90,000 in the prior fiscal year.
Interest payments received in fiscal 2005 were lower than in fiscal 2004 as the
result of the prepayment of part of the principal.
The Company had engaged the firm of Lamb & Barnosky, LLP as outside legal
counsel until December 31, 2004. Director Lamb is a partner in the firm to which
Gyrodyne incurred legal fees of $109,550 and $228,962 in FY 2005 and FY 2004,
respectively. As of January 1, 2005 the relationship with the aforementioned law
firm has ended and the Company has engaged a new outside legal counsel.
No loans were made to any officer, director, or any member of their immediate
families during the fiscal year just ended, nor were any loan amounts due and
owing the Company or its subsidiaries from those parties at fiscal year end.
Item 13 Exhibits
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. (4)
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)
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)
10.11 Second Amended and Restated Agreement of Limited Partnership
of Callery-Judge Grove, dated as of February 9, 2005, 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. (4)
21.1 List of all subsidiaries. (1)
31.1 Rule 13a-15(e)/15d-15(e) Certifications. (4)
32.1 CEO/CFO Certifications Pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (4)
(1) Incorporated herein by reference in the Annual Report on Form
10KSB/A, filed with the Securities and Exchange Commission on
September 5, 2001.
18
(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.
(4) Filed as part of this report.
Item 14 Principal Accountant Fees and Services
The following is a summary of the fees billed to us by Holtz Rubenstein Reminick
LLP, our independent auditors, for professional services rendered for the fiscal
years ended April 30, 2005 and 2004:
----------------------------------------------------------------------------
Fee Category Fiscal 2005 Fees Fiscal 2004 Fees
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Audit Fees (1) $43,100 $40,000
----------------------------------------------------------------------------
Audit-Related Fees (2) 17,444 8,800
----------------------------------------------------------------------------
Tax Fees (3) 22,900 13,100
----------------------------------------------------------------------------
All Other Fees (4) - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Fees $83,444 $61,900
----------------------------------------------------------------------------
(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, 2005 and
2004, 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
by our principal accountant for tax compliance, tax advice and tax planning. The
amounts disclosed consist of fees paid for the preparation of federal and state
income tax returns.
(4) All Other Fees consist of aggregate fees billed for products and services
provided by Holtz Rubenstein Reminick LLP, our principal accountants, 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 and Principal Executive Officer
Date: June 30, 2005
/S/ Frank D'Alessandro
------------------------------------------------------------------------
Frank D'Alessandro, Controller
Date: June 30, 2005
********************
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: June 30, 2005
/S/ Elliot H. Levine
------------------------------------------------------------------------
Elliot H. Levine, Director
Date: June 30, 2005
/S/ Ronald J. Macklin
------------------------------------------------------------------------
Ronald J. Macklin, Director
Date: June 30, 2005
/S/ Stephen V. Maroney
------------------------------------------------------------------------
Stephen V. Maroney, Director
Date: June 30, 2005
20
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Contents
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004 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-18
--------------------------------------------------------------------------------
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, 2005 and 2004 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, 2005 and 2004
and the results of their operations and their cash flows for the years then
ended in conformity with U.S. generally accepted accounting principles.
s/s Holtz Rubenstein Reminick LLP
Melville, New York
June 10, 2005
--------------------------------------------------------------------------------
F-1
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
-----------------------------------------------------------------------------------------
April 30, 2005 2004
-----------------------------------------------------------------------------------------
Assets
Real Estate:
Rental property:
Land $ 4,250 $ 4,250
Building and improvements 3,955,011 3,925,421
Machinery and equipment 146,842 160,489
-------------------------------
4,106,103 4,090,160
Less accumulated depreciation 3,397,082 3,347,322
-------------------------------
709,021 742,838
-------------------------------
Land held for development:
Land 792,201 792,201
Land development costs 4,432,766 3,634,313
-------------------------------
5,224,967 4,426,514
-------------------------------
Total Real Estate, net 5,933,988 5,169,352
Cash and Cash Equivalents 844,405 1,562,643
Rent Receivable, net of allowance for doubtful
accounts of $37,000 and $71,000, respectively 62,309 93,082
Mortgage Receivable 1,300,000 1,800,000
Prepaid Expenses and Other Assets 183,121 220,658
Prepaid Pension Costs 1,199,526 1,425,635
-------------------------------
Total Assets $ 9,523,349 $ 10,271,370
===============================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 204,782 $ 232,809
Deferred gain on sale of real estate 1,136,705 1,573,900
Tenant security deposits payable 229,284 194,976
Revolving credit line - 696,287
Loans payable 19,145 28,953
Income taxes payable - 28,306
Deferred income taxes 1,605,000 1,719,000
-------------------------------
Total Liabilities 3,194,916 4,474,231
-------------------------------
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 7,841,066 7,505,313
Deficit (1,067,872) (930,224)
-------------------------------
Total Stockholders' Equity 8,304,280 8,106,175
Less Cost of Shares of Common Stock Held in Treasury;
317,408 shares and 375,354 shares, respectively (1,975,847) (2,309,036)
-------------------------------
Total Stockholders' Equity 6,328,433 5,797,139
-------------------------------
Total Liabilities and Stockholders' Equity $ 9,523,349 $ 10,271,370
===============================
-----------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-2
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
--------------------------------------------------------------------------------
Years Ended April 30, 2005 2004
--------------------------------------------------------------------------------
Revenue from Rental Property $ 2,039,170 $ 2,086,687
----------------------------
Rental Property Expense:
Real estate taxes 155,196 143,333
Operating and maintenance 733,536 513,410
Interest expense 35,217 38,850
Depreciation 72,835 78,176
----------------------------
Total Rental Property Expense 996,784 773,769
----------------------------
Income from Rental Property 1,042,386 1,312,918
General and Administrative Expenses 1,823,847 1,628,344
----------------------------
Loss from Operations (781,461) (315,426)
Other Income:
Gain on sale of real estate 437,195 -
Gain on sale of equipment 12,000 -
Interest income 102,852 111,721
----------------------------
Total Other Income 552,047 111,721
----------------------------
Loss Before Income Tax Benefit (229,414) (203,705)
Income Tax Benefit (91,766) (90,239)
----------------------------
Net Loss $ (137,648) $ (113,466)
============================
Net Loss Per Common Share:
Basic $ (0.12) $ (0.10)
============================
Diluted $ (0.12) $ (0.10)
============================
Weighted Average Number of Common Shares
Outstanding:
Basic 1,180,469 1,133,896
============================
Diluted 1,180,469 1,133,896
============================
--------------------------------------------------------------------------------
See notes to consolidated financial statements. F-3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
-----------------------------------------------------------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
-----------------------------------------------------------------------------------------------------------------------------------
$1 Par Value
Common Stock Treasury Stock
------------------------- Additional --------------------------
Par Paid in Total
Shares Value Capital Deficit Shares Cost Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at May 1, 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
Exercise of stock options - - 335,753 - (57,946) 333,189 668,942
Net loss - - - (137,648) - - (137,648)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at April 30, 2005 1,531,086 $ 1,531,086 $ 7,841,066 $(1,067,872) 317,408 $(1,975,847) $ 6,328,433
=========== =========== =========== =========== =========== =========== ===========
-----------------------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. F-4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------
Years Ended April 30, 2005 2004
--------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (137,648) $ (113,466)
----------------------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 115,607 119,945
Bad debt expense 57,000 48,000
Deferred income tax benefit (114,000) (142,000)
Stock based compensation - 76,606
Pension expense 226,109 236,870
Gain on sale of equipment (12,000) -
Gain on sale of real estate (437,195) -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Land development costs (798,453) (1,189,659)
Accounts receivable (26,227) (69,645)
Prepaid expenses and other assets 18,705 (2,333)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (28,027) (16,815)
Income taxes payable (28,306) 28,306
Tenant security deposits 34,308 (43,228)
----------------------------
Total adjustments (992,479) (953,953)
----------------------------
Net Cash Used in Operating Activities (1,130,127) (1,067,419)
----------------------------
Cash Flows from Investing Activities:
Acquisition of property, plant and equipment (62,958) (29,754)
Proceeds from sale of equipment 12,000 -
Proceeds from mortgage receivable 500,000 -
----------------------------
Net Cash Provided by (Used in) Investing Activities 449,042 (29,754)
----------------------------
Cash Flows from Financing Activities:
Repayment of loans payable (706,095) (17,889)
Loan origination fees - 73,519
Proceeds from exercise of stock options 668,942 372,869
----------------------------
Net Cash (Used in) Provided by Financing Activities (37,153) 428,499
----------------------------
Net Decrease in Cash and Cash Equivalents (718,238) (668,674)
Cash and Cash Equivalents, beginning of year 1,562,643 2,231,317
----------------------------
Cash and Cash Equivalents, end of year $ 844,405 $ 1,562,643
============================
--------------------------------------------------------------------------------
See notes to consolidated financial statements. F-5
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
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. See Note 15.
The State University of New York at Stony Brook has announced plans to
acquire 246 acres of the Company's 314-acre parcel through either a
negotiated purchase or eminent domain. See Note 15.
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
--------------------------------------------------------------------------------
F-6
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations are capitalized.
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 Emerging Issue Task
Force ("EITF") Topic D-46 "Accounting for Limited Partnership Investments"
and the guidance in paragraph 8 of AICPA Statement of Position ("SOP")
78-9, "Accounting for Investments in Real Estate Ventures."
Cash equivalents - The Company considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash equivalents.
Net loss per common share and per common equivalent share - The
reconciliations for the years ended April 30, 2005 and 2004 are as follows:
Year Ended April 30, 2005 Loss Shares Per Share
---------------------------------------------------------------------------------------------------
Basic EPS $ (137,648) 1,180,469 $ (.12)
Effect of Dilutive Securities - common stock options - - -
--------------------------------------
Diluted EPS $ (137,648) 1,180,469 $ (.12)
======================================
Year Ended April 30, 2004 Income 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)
======================================
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 Accounting Principles Board
("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 ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
--------------------------------------------------------------------------------
F-7
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
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, 2005 and 2004
consistent with the provisions of SFAS No. 123, the Company's net loss and
net loss per share would have been adjusted to the following pro forma
amounts:
2005 2004
---------------------------------------------------------------------------
Net Loss, as reported $ (137,648) $ (113,466)
Net Loss, pro forma (138,648) (230,466)
Basic Loss Per Share, as reported (.12) (.10)
Basic Loss Per Share, pro forma (.12) (.20)
Diluted Loss Per Share, as reported (.12) (.10)
Diluted Loss Per Share, pro forma (.12) (.20)
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. There
were no stock options granted during the fiscal year ended April 30, 2005.
Years Ended April 30, 2005 2004
---------------------------------------------------------------------------
Dividend Yield - 0.0%
Volatility - 32.0%
Risk-Free Interest Rate - 2.0%
Expected Life - 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 2004, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 123(R), ("SFAS 123(R)")
"Share-Based Payment". This statement replaces SFAS No. 123, "Accounting
for Stock-Based Compensation", and supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees". SFAS 123(R) covers a wide range
of share-based compensation, including stock options, and requires that the
compensation cost relating to share-based transactions be measured at fair
value and recognized in the financial statements. Public entities filing as
small business issuers are required to apply SFAS No. 123(R) in their first
annual reporting period beginning after December 15, 2005. Management is
evaluating the impact that this Statement will have on the Company's
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchange of Non-monetary
Assets", an amendment of APB Opinion No. 29, which differed from the
International Accounting Standards Board's ("IASB") method of accounting
for exchanges of similar productive assets. SFAS No. 153 replaces the
exception from fair value measurement in APB No. 29, with a general
exception from fair value measurement for exchanges of non-monetary assets
that do not have commercial substance. The statement is to be applied
prospectively
--------------------------------------------------------------------------------
F-8
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
and is effective for non-monetary asset exchanges occurring in fiscal
periods beginning after June 15, 2005. The Company does not believe that
SFAS No. 153 will have a material impact on its results of operations or
cash flows.
2. Mortgage Receivable
A mortgage receivable in the original principal amount of $1,800,000 is 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.
During the year ended April 30, 2005, the mortgagor prepaid $500,000 of the
principal amount.
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, 2005 and 2004, the carrying
value of the Company's investment was $0.
The Grove has reported to its limited partners that in June 2004 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,
2005, strictly on a pro-rata basis, the estimated fair value of the
Company's interest in the Grove would be approximately $8,279,000. 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, 2004 and 2003 is as follows:
Years Ended June 30, 2004 2003
---------------------------------------------------------------------------
(in thousands) (in thousands)
Total Current Assets $ 5,662 $ 7,970
Total Assets 20,917 23,048
Total Current Liabilities 3,071 2,495
Total Liabilities 19,076 20,012
Total Partners' Capital 1,841 3,036
Total Revenues 3,213 8,827
Net Loss (1,195) (1,586)
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, 2005 2004
---------------------------------------------------------------------------
Current:
Federal $ - $ 101,203
State 22,234 (49,442)
---------------------------
22,234 51,761
---------------------------
--------------------------------------------------------------------------------
F-9
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
Deferred:
Federal (96,000) (103,000)
State (18,000) (39,000)
---------------------------
(114,000) (142,000)
---------------------------
$ (91,766) $ (90,239)
===========================
The components of the net deferred tax liabilities are as follows:
April 30, 2005 2004
---------------------------------------------------------------------------
Deferred Tax Assets:
Stock compensation $ 3,000 $ 13,000
Accrued sick and vacation 14,000 13,000
Provision for bad debt 15,000 30,000
Tax loss carryforwards 27,000 -
Contribution carryforwards 3,000 -
---------------------------
Total Deferred Tax Assets 62,000 56,000
Deferred Tax Liabilities:
Prepared pension costs (490,000) (599,000)
Unrealized gain on investment in
Citrus Grove (569,000) (569,000)
Land development costs (600,000) (600,000)
Accumulated depreciation (8,000) (7,000)
---------------------------
Total Deferred Tax Liabilities (1,667,000) (1,775,000)
---------------------------
Net Deferred Income Taxes $(1,605,000) $(1,719,000)
===========================
The Company has federal net operating loss carryforwards of approximately
$78,000, which can be used to reduce future taxable income through 2025.
A reconciliation of the federal statutory rate to the Company's effective
tax rate is as follows:
Years Ended April 30, 2005 2004
---------------------------------------------------------------------------
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 (1.5)% 2.8%
---------------------------
40.0% 44.3%
===========================
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 years ended April 30, 2005 and April 30, 2004, the
Company 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, 2005 and 2004
--------------------------------------------------------------------------------
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, 2005, and a statement of the funded status as of April 30
of both years:
April 30, 2005 2004
---------------------------------------------------------------------------
Pension Benefits
Reconciliation of Benefit Obligation:
Obligation $ 1,996,981 $ 1,763,513
Service cost 129,967 86,717
Interest cost 129,160 119,220
Actuarial loss 269,299 197,779
Benefit payments (163,040) (170,248)
---------------------------
Obligation at April 30 $ 2,362,367 $ 1,996,981
===========================
April 30, 2005 2004
---------------------------------------------------------------------------
Reconciliation at Fair Value of Plan Assets:
Fair value of plan assets at May 1 $ 2,163,701 $ 1,572,364
Actual return on plan assets 937,964 761,585
Benefit payments (163,040) (170,248)
---------------------------
Fair Value of Plan Assets at April 30 $ 2,938,625 $ 2,163,701
---------------------------
Funded Status:
Funded status at April 30 $ 576,258 $ 166,720
Unrecognized prior-service cost 112,968 185,706
Unrecognized loss 510,300 1,073,209
---------------------------
Net Amount Recognized $ 1,199,526 $ 1,425,635
===========================
The accumulated benefit obligation was $1,993,167 and $1,779,282 as of
April 30, 2005 and 2004, respectively.
The following table provides the components of net periodic benefit cost
for the plans for fiscal years 2005 and 2004:
April 30, 2005 2004
---------------------------------------------------------------------------
Pension Benefits
Service Cost $ 129,967 $ 86,717
Interest Cost 129,160 119,220
Expected Return on Plan Assets (165,830) (126,166)
Amortization of Prior-Service Cost 72,738 72,738
Amortization of Net Loss 60,074 84,361
---------------------------
Net Periodic Benefit Cost After Curtailments
and Settlements $ 226,109 $ 236,870
===========================
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, 2005 and 2004
--------------------------------------------------------------------------------
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, 2005 2004
---------------------------------------------------------------------------
Pension Benefits
Weighted-Average Assumptions as of April 30:
Discount rate 5.75% 6.50%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase 5.00% 4.00%
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, 2005 2004
---------------------------------------------------------------------------
Common Stock - Gyrodyne Company of America, Inc. 93.7% 90.6%
United States Government Securities 1.1% 1.5%
Corporate Equity Securities 0.3% 0.7%
Other Funds 4.9% 7.2%
---------------------------
Total 100.0% 100.0%
===========================
Securities of the Company included in plan assets are as follows:
April 30, 2005 2004
---------------------------------------------------------------------------
Number of Shares 67,580 72,580
Market Value $ 2,753,885 $ 1,961,112
Expected approximate future benefit payments are as follows:
Years Ending April 30, Amount
---------------------------------------------------------------------------
2006 $ 135,000
2007 127,000
2008 143,000
2009 141,000
2010 133,000
2011 - 2015 694,000
--------------------------------------------------------------------------------
F-12
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
6. Stock Option Plans
Incentive Stock Option Plan - The Company had a stock option plan (the
"Plan") which expired in October 2003, under which participants were
granted Incentive Stock Options ("ISOs"), Non-Qualified Stock Options
("NQSOs") or Stock Grants. The purpose of the Plan was 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 were instrumental in achieving this
growth. Such options or grants became exercisable at various intervals
based upon vesting schedules as determined by the Compensation Committee.
The options expire between August 2005 and May 2008.
The ISOs were 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 were authorized and approved by the Board of Directors, based on
recommendations of the Compensation Committee.
ISOs were granted along with Stock Appreciation Rights, which permitted the
holder to tender the option to the Company in exchange for stock, at no
cost to the optionee, that represented the difference between the option
price and the fair market value on date of exercise. NQSOs were issued with
Limited Stock Appreciation Rights, which were exercisable, for cash, in the
event of a change of control. In addition, an incentive kicker was provided
for Stock Grants, ISOs and NQSOs, which increased the number of grants or
options based on the market price of the shares at exercise versus the
option price.
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. The options expire between November 2005 and January
2007.
A summary of the Company's various fixed stock option plans as of April 30,
2005 and 2004, and changes during the years then ended is presented below:
Years Ended April 30, 2005 2004
----------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Fixed Stock Options Shares Price Shares Price
----------------------------------------------------------------------------------------------------
Outstanding, beginning of year 164,650 $ 16.30 174,740 $ 15.28
Granted - - 38,500 16.87
Exercised options (73,620) 16.83 (38,670) 12.62
Canceled - - (9,920) 14.91
---------- ----------
Outstanding, end of year 91,030 15.87 164,650 16.30
========== ==========
Options Exercisable at year end 91,030 15.87 164,650 16.30
========== ==========
Weighted-Average Fair Values of
Options Granted During Year $ - $ 5.31
========== ==========
--------------------------------------------------------------------------------
F-13
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding
at April 30, 2005:
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
---------------------------------------------------------- --------------------------
$13.46-14.23 19,800 .43 $ 13.91 19,800 $ 13.91
$15.46-16.87 64,355 2.47 $ 16.20 64,355 $ 16.20
$18.44 6,875 1.67 $ 18.44 6,875 $ 18.44
Shares reserved for future issuance at April 30, 2005 are comprised of the
following:
Shares issuable upon exercise of stock options under
the Company's Non-Employee Director Stock Option Plan 17,875
Shares issuable upon exercise of stock options under
the Company's stock incentive plan 73,155
-----------
91,030
===========
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
April 30, 2005 2004
---------------------------------------------------------------------------
Revolving Line of Credit - 696,287
Installment Loans, other 19,145 28,953
-------------------------
$ 19,145 $ 725,240
=========================
The line of credit has a maximum borrowing limit of $1,750,000, bears
interest at the lending institution's prime-lending rate (5.75% at April
30, 2005) plus 1%, and is subject to certain financial covenants. The line
is secured by certain real estate and expires on June 1, 2006. As of April
30, 2005, $1,750,000 was available under this agreement and the Company was
in compliance with the financial covenants.
--------------------------------------------------------------------------------
F-14
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
Annual maturities of loans payable is as follows:
Years Ending April 30, Amount
---------------------------------------------------------------------------
2006 $ 7,411
2007 7,411
2008 4,323
-----------
$ 19,145
===========
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 SFAS No. 66, approximately $1,570,000
of the gain on this sale was deferred. The deferred gain will be recognized
upon collection of the related mortgage receivable.
During the fiscal year ended April 30, 2005, the Company received cash
payments from its mortgage receivable totaling $500,000 and recognized a
gain on the sale of real estate of approximately $437,000.
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, 2005 and 2004.
10. Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Years Ended April 30, 2005 2004
---------------------------------------------------------------------------
Interest $ 35,217 $ 38,850
=========================
Income Taxes $ 30,000 $ 204,768
=========================
--------------------------------------------------------------------------------
F-15
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
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
---------------------------------------------------------------------------
2006 $ 969,000
2007 186,000
2008 186,000
2009 182,000
2010 182,000
Thereafter 1,802,000
-------------
$ 3,507,000
=============
The Company is leasing office space in St. James, New York on a
month-to-month basis. Rental expense approximated $54,000 and $57,000 for
the years ended April 30, 2005 and 2004, respectively.
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, 2005, the Company has
paid $150,000.
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, 2005, the Company has
paid $300,000.
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.
--------------------------------------------------------------------------------
F-16
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
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.
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, 2005, based upon an independent third party
appraisal report, is approximately $8,279,000 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 $110,000 and $229,000 for the years
ended April 30, 2005 and 2004, respectively. As of January 1, 2005, the
relationship with the aforementioned law firm has ended and the Company has
engaged a new outside law firm.
14. Major Customers
For the year ended April 30, 2005 rental income from the three largest
tenants represented 14%, 13% and 10% of total rental income.
For the year ended April 30, 2004 rental income from the three largest
tenants represented 17%, 13% and 12% of total rental income.
--------------------------------------------------------------------------------
F-17
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------
Years Ended April 30, 2005 and 2004
--------------------------------------------------------------------------------
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 part of 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").
On April 25, 2005, the Appellate Division Second Judicial Department of the
Supreme Court of the State of New York issued its Decision and Judgment In
the Matter of Gyrodyne Company of America, Inc., petitioner, v. State
University of New York at Stony Brook. The Court rejected the Company's
challenges to the University's proposed taking of the property concluding
that the University had sufficient statutory jurisdiction and authority for
this proposed public project and rejecting the Company's contention that
the taking was excessive. Based upon these conclusions, the Court denied
the Company's petition and dismissed the proceeding. The Company has
appealed the Court's decision.
In the event the University moves forward with the eminent domain
proceeding, management intends to take all appropriate steps to seek
maximum value for the Property.
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 may be due as discussed in Note 11.
--------------------------------------------------------------------------------
F-18