FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 2008
[ ] TRANSITION REPORT PURSUANT TO 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.
---------------------------------
(Exact name of registrant as specified in its charter)
New York 11-1688021
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1 FLOWERFIELD, SUITE 24, ST. JAMES, NY 11780
-------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(631) 584-5400
(Registrant's telephone number)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes __ No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
1,289,878 SHARES, $1.00 PAR VALUE, AS OF APRIL 30, 2008
Seq. Page 1
INDEX TO QUARTERLY REPORT OF GYRODYNE COMPANY OF AMERICA, INC.
QUARTER ENDED MARCH 31, 2008
Seq. Page
Form 10-Q Cover 1
Index to Form 10-Q 2
PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements. 3
Consolidated Balance Sheets (unaudited) 3
Consolidated Statements of Operations (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Footnotes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Item 4. Controls and Procedures. 10
PART II - OTHER INFORMATION 11
Item 1. Legal Proceedings. 11
Item 6. Exhibits. 11
SIGNATURES 12
Exhibit Index 13
Seq. Page 2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS March 31, December 31,
------ 2008 2007
(Unaudited)
------------ ------------
REAL ESTATE
Rental property:
Land $ 2,303,017 $ 2,303,017
Building and improvements 10,497,195 10,345,449
Machinery and equipment 179,335 179,335
------------ ------------
12,979,547 12,827,801
Less accumulated depreciation 2,713,456 2,651,084
------------ ------------
10,266,091 10,176,717
------------ ------------
Land held for development:
Land 558,466 558,466
Land development costs 815,109 781,426
------------ ------------
1,373,575 1,339,892
------------ ------------
Total real estate, net 11,639,666 11,516,609
Cash and Cash Equivalents 3,608,541 3,455,141
Investment In Marketable Securities 9,930,627 10,816,269
Rent Receivable, net of allowance for doubtful
accounts of $17,000 and $14,000, respectively 102,745 94,693
Interest Receivable 59,316 64,712
Prepaid Expenses And Other Assets 410,169 352,477
Prepaid Pension Costs 1,122,299 1,125,328
------------ ------------
Total Assets $ 26,873,363 $ 27,425,229
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
LIABILITIES:
Accounts payable $ 218,036 $ 617,558
Accrued liabilities 184,409 174,007
Tenant security deposits payable 290,487 275,343
Mortgage payable 5,481,305 5,502,623
Deferred income taxes 7,832,000 7,832,000
------------ ------------
Total Liabilities 14,006,237 14,401,531
------------ ------------
Commitments And Contingencies
STOCKHOLDERS' EQUITY:
Common stock, $1 par value; authorized 4,000,000
shares; 1,531,086 shares issued; 1,289,878
shares outstanding 1,531,086 1,531,086
Additional paid-in capital 7,978,395 7,978,395
Accumulated Other Comprehensive Income:
Unrealized Gain from Marketable Securities 119,490 148,415
Balance of undistributed income other than gain
or loss on sales of properties 4,775,852 4,903,499
------------ ------------
14,404,823 14,561,395
Less cost of 241,208 shares of common stock held in treasury (1,537,697) (1,537,697)
------------ ------------
Total Stockholders' Equity 12,867,126 13,023,698
------------ ------------
Total Liabilities and Stockholders' Equity $ 26,873,363 $ 27,425,229
============ ============
See notes to consolidated financial statements
Seq. Page 3
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
March 31,
2008 2007
------------ ------------
Revenues
Rental Income $ 660,867 $ 286,859
Interest Income 168,691 382,634
------------ ------------
829,558 669,493
------------ ------------
Expenses
Rental expenses 254,041 200,258
General and administrative expenses 561,793 665,251
Depreciation 62,373 15,217
Interest expense 78,998 -
------------ ------------
957,205 880,726
------------ ------------
Loss from Operations Before Benefit for Income Taxes (127,647) (211,233)
Benefit for Income Taxes - (25,805)
------------ ------------
Net Loss $ (127,647) $ (185,428)
============ ============
Net Loss Per Common Share:
Basic $ (0.10) $ (0.15)
============ ============
Diluted $ (0.10) $ (0.15)
============ ============
Weighted Average Number Of Common
Shares Outstanding:
Basic 1,289,878 1,249,276
============ ============
Diluted 1,289,878 1,249,276
============ ============
See notes to consolidated financial statements
Seq. Page 4
GYRODYNE COMPANY OF AMERICA, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
2008 2007
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (127,647) $ (185,428)
------------ ------------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 65,848 17,851
Bad debt expense 6,000 6,000
Net periodic pension benefit cost (income) 3,029 (10,684)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Land development costs (33,683) (131,761)
Accounts receivable (14,052) 16,086
Interest receivable 5,396 19,756
Prepaid expenses and other assets (56,742) 121,655
(Decrease) increase in liabilities:
Accounts payable (399,522) (469,950)
Accrued liabilities 10,402 (2,025,434)
Tenant security deposits 15,144 12,190
------------ ------------
Total adjustments (398,180) (2,444,291)
------------ ------------
Net cash used in operating activities (525,827) (2,629,719)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Costs associated with property, plant and equipment (156,172) (118,959)
Proceeds from sale of marketable securities - 3,462,037
Principal repayments on investment in marketable securities 856,717 2,919,315
------------ ------------
Net cash provided by investment activities 700,545 6,262,393
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage (21,318) -
Proceeds from exercise of stock options - 76,050
------------ ------------
Net cash (used in) provided by financing activities (21,318) 76,050
------------ ------------
Net increase in cash and cash equivalents 153,400 3,708,724
Cash and cash equivalents at beginning of period 3,455,141 2,951,287
------------ ------------
Cash and cash equivalents at end of period $ 3,608,541 $ 6,660,011
============ ============
Supplemental cash flow information:
Noncash Investing and Financing Activities:
Declared but unpaid cash distributions - $ 5,160,157
============ ============
See notes to consolidated financial statements
Seq. Page 5
FOOTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Quarterly Presentations:
The accompanying quarterly financial statements have been prepared in conformity
with accounting principles generally accepted in the United States ("GAAP"). The
financial statements of the Registrant included herein have been prepared by the
Registrant pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC) and, in the opinion of management, reflect all adjustments
which are necessary to present fairly the results for the three month periods
ended March 31, 2008 and 2007.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with GAAP have been condensed or omitted
pursuant to such rules and regulations; however, management believes that the
disclosures are adequate to make the information presented not misleading.
This report should be read in conjunction with the audited financial statements
and footnotes therein included in the Annual Report on Form 10-K for the year
ended December 31, 2007.
The results of operations for the three month period ended March 31, 2008 are
not necessarily indicative of the results to be expected for the full year.
2. Principle of Consolidation:
The accompanying consolidated financial statements include the accounts of
Gyrodyne Company of America, Inc. ("Company") and its wholly-owned subsidiaries.
All intercompany balances and transactions have been eliminated.
3. Investment in Marketable Securities:
The Company's marketable securities consist of debt securities classified as
available-for-sale and are reported at fair value, with the unrealized gains and
losses excluded from operating results and reported as a separate component of
stockholders' equity net of the related tax effect. These debt securities
consist of hybrid mortgage-backed securities fully guaranteed by agencies of the
U.S. Government and are managed by and held in an account with a major financial
institution.
4. Earnings Per Share:
Basic earnings per common share are computed by dividing net income by the
weighted average number of shares of common stock outstanding during the period.
Dilutive earnings per share give effect to stock options and warrants which are
considered to be dilutive common stock equivalents. Basic loss per common share
was computed by dividing net loss by the weighted average number of shares of
common stock outstanding. Diluted loss per common share does not give effect to
the impact of options because their effect would have been anti-dilutive.
Treasury shares have been excluded from the weighted average number of shares.
As of March 20, 2007, all outstanding stock options were either exercised or
expired.
5. Income Taxes:
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
6. Mortgage Payable:
In June 2007, in connection with the purchase of the Port Jefferson Professional
Park in Port Jefferson Station, New York, the Company assumed a $5,551,191
mortgage payable to a bank (the "Mortgage"). The Mortgage bears interest at
5.75% through February 1, 2012 and adjusts to the higher of 5.75% or 275 basis
points in excess of the Federal Home Loan Bank's five year Fixed Rate Advance
("Fixed Rate Advance") thereafter. The Mortgage is payable in monthly
installments of principal and interest totaling $33,439 through February 2012.
From March 1, 2012 through February 1, 2022, the minimum monthly installment
will be no less than $33,439 and will vary based upon the Fixed Rate Advance. In
February 2022, a balloon payment is due of approximately $3,668,000. The
Mortgage is collateralized by the Port Jefferson Professional Park.
7. Retirement Plans:
The Company records net periodic pension benefit cost pro rata throughout the
year. The following table provides the components of net periodic pension
benefit cost for the plan for the three months ended March 31, 2008 and 2007:
Seq. Page 6
Three Months Ended
March 31,
2008 2007
---------- ----------
Pension Benefits
Service Cost $ 23,314 $ 30,348
Interest Cost 33,493 33,027
Expected Return on Plan Assets (55,560) (74,589)
Amortization of Actuarial (Gain)/ Loss 1,782 -
---------- ----------
Net Periodic Benefit Cost (Income) After
Curtailments and Settlements $ 3,029 $ (11,214)
========== ==========
During the three months ended March 31, 2008 and 2007, the Company did not make
a contribution to the plan. The Company has no minimum required contribution for
the December 31, 2008 plan year.
8. Commitments and Contingencies:
Lease revenue commitments - The future minimum revenues from rental property
under the terms of all noncancellable tenant leases, assuming no new or
renegotiated leases are executed for such premises, for future years are
approximately as follows:
Twelve Months Ending March 31, Amount
------------------------------------------------------------
2009 $ 1,589,000
2010 872,000
2011 504,000
2012 170,000
2013 53,000
Thereafter 4,000
-------------
$ 3,192,000
=============
Employment agreements - The Company has employment contracts with two officers
that provide for annual salaries aggregating approximately $381,000 and a
severance payment equivalent to three years salary and other benefits in the
event of a change in control, termination by the Company without cause or
termination by the officer for good reason.
Land consulting agreement - The Company retained Landmark National, commencing
on March 1, 2007, in recognition of services rendered between 2004 and 2006, and
for general consulting, review of pertinent documents, consultations regarding
land planning and economic feasibility studies and coordination with project
engineers associated with the Company's claim for additional compensation in its
condemnation litigation (See Item 1: Legal Proceedings). The agreement provides
for equal monthly payments of $27,778 terminating on February 1, 2010.
9. Revolving Credit Note:
The Company's line of credit has a borrowing limit of $1,750,000, bears interest
at the lending institution's prime-lending rate (5.25 % at March 31, 2008) plus
1%, and is subject to certain financial covenants. The line is secured by
certain real estate and expires on June 1, 2009. As of March 31, 2008 and .
December 31, 2007, $1,750,000 was available under this agreement and the Company
was in compliance with the financial covenants.
10. Recent Accounting Pronouncements:
In March 2008, the Financial Accounting Standards Board ("FASB") issued FAS 161,
"Disclosures about Derivative Instruments and Hedging Activities--an amendment
of FASB Statement No. 133". This Statement applies to all entities. This
Statement changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under Statement 133 and
its related interpretations, and (c) how derivative instruments and related
hedged items affect an entity's financial position, financial performance, and
cash flows. This Statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with early
application encouraged. This Statement encourages, but does not require,
comparative disclosures for earlier periods at initial adoption. The Company
does not believe this pronouncement will have a material effect on its financial
statements.
Seq. Page 7
11. Special Distributions:
On March 13, 2007 the Board of Directors declared a special distribution in the
amount of $4.00 per share payable on April 9, 2007 for all shareholders of
record on March 26, 2007.
12. Subsequent Event:
On April 17, 2008, the Company announced that it has agreed to purchase the
Cortlandt Medical Center (the "Center"), in Cortlandt Manor, New York for a
purchase price of $7 million.
To secure the purchase of this property, the Company made a $500,000 security
deposit on April 16, 2008.
This transaction qualifies for tax deferral treatment under Section 1033 of the
Internal Revenue Code and is also a qualified REIT Investment.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The statements made in this Form 10-Q that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, 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, uncertainties associated with the Company's
litigation against the State of New York for just compensation for the
Flowerfield property taken by eminent domain, and other risks detailed from time
to time in the Company's SEC reports. The Company assumes no obligation to
update the information in this Form 10-Q. We qualify all of our forward-looking
statements by the foregoing cautionary statements.
Critical Accounting Policies
----------------------------
The consolidated financial statements of the Company include accounts of the
Company and all majority-owned and controlled subsidiaries. The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions in certain circumstances that affect amounts reported
in the Company's consolidated financial statements and related notes. In
preparing these financial statements, management has utilized information
available including its past history, industry standards and the current
economic environment, among other factors, in forming its estimates and
judgments of certain amounts included in the consolidated financial statements,
giving due consideration to materiality. It is possible that the ultimate
outcome as anticipated by management in formulating its estimates inherent in
these financial statements might not materialize. However, application of the
critical accounting policies below involves the exercise of judgment and use of
assumptions as to future uncertainties and, as a result, actual results could
differ from these estimates. In addition, other companies may utilize different
estimates, which may impact comparability of the Company's results of operations
to those of companies in similar businesses.
Revenue Recognition
-------------------
Rental revenue is recognized on a straight-line basis, which averages minimum
rents over the terms of the leases. The excess of rents recognized over amounts
contractually due, if any, is included in deferred rents receivable on the
Company's balance sheets. Certain leases also provide for tenant reimbursements
of common area maintenance and other operating expenses and real estate taxes.
Ancillary and other property related income is recognized in the period earned.
Real Estate
-----------
Rental real estate assets, including land, buildings and improvements,
furniture, fixtures and equipment are recorded at cost. Tenant improvements,
which are included in buildings and improvements, are also stated at cost.
Expenditures for ordinary maintenance and repairs are expensed to operations as
they are incurred. Renovations and/or replacements, which improve or extend the
life of the asset, are capitalized and depreciated over their estimated useful
lives.
Seq. Page 8
Depreciation is computed utilizing the straight-line method over the estimated
useful life of ten to thirty nine years for buildings and improvements and three
to twenty years for machinery and equipment.
The Company is required to make subjective assessments as to the useful life of
its properties for purposes of determining the amount of depreciation to reflect
on an annual basis with respect to those properties. These assessments have a
direct impact on the Company's net income. Should the Company lengthen the
expected useful life of a particular asset, it would be depreciated over more
years, and result in less depreciation expense and higher annual net income.
Real estate held for development is stated at the lower of cost or net
realizable value. In addition to land, land development and construction costs,
real estate held for development includes interest, real estate taxes and
related development and construction overhead costs which are capitalized during
the development and construction period. Net realizable value represents
estimates, based on management's present plans and intentions, of sale price
less development and disposition cost, assuming that disposition occurs in the
normal course of business.
Long Lived Assets
-----------------
On a periodic basis, management assesses whether there are any indicators that
the value of the real estate properties may be impaired. A property's value is
impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property is
less than the carrying value of the property. Such future cash flow estimates
consider factors such as expected future operating income, trends and prospects,
as well as the effects of demand, competition and other factors. To the extent
impairment occurs, the loss will be measured as the excess of the carrying
amount of the property over the fair value of the property.
The Company is required to make subjective assessments as to whether there are
impairments in the value of its real estate properties and other investments.
These assessments have a direct impact on the Company's net income, since an
impairment charge results in an immediate negative adjustment to net income. In
determining impairment, if any, the Company has adopted Financial Accounting
Standards Board ("FASB") Statement No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets."
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2008
AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2007
The Company is reporting a net loss of $127,647 for the three month period
ending March 31, 2008 compared to a loss of $185,428 for the same period of the
prior year. Diluted per share losses amounted to $(0.10) and $(0.15) for the
2008 and 2007 first quarters, respectively.
Revenues increased by $160,065 totaling $829,558 compared to $669,493 during the
prior year. Reflecting the June 2007 acquisition of the Port Jefferson
Professional Park and an improvement in the Flowerfield operation, rental income
totaled $660,867, an increase of $374,008 over the 2007 results of $286,859.
Port Jefferson accounted for $255,179 of the increase while Flowerfield
experienced a $118,829 (41%) increase for the quarter. As of the beginning of
the quarter, Port Jefferson and Flowerfield had occupancy rates of 97% and 90%,
respectively. Interest income totaled $168,691, a decline of $213,943 when
compared to the 2007 total of $382,634. The decrease is due to a reduced amount
of investments in marketable securities coupled with lower interest rates. The
reduction in investment activities is primarily the result of our use of funds
to acquire the Port Jefferson facility and a cash distribution to shareholders
which, when combined, amounted to approximately $8.5 million.
Expenses increased by $76,479 for the current quarter, amounting to $957,205
compared to $880,726 during the prior year. With the exception of general and
administrative expenses declining by $103,458, the Company experienced increases
in rental expenses, depreciation, and interest expense amounting to $53,783,
$47,156, and $78,998, respectively. General and administrative expenses reflect
decreases in legal and consulting fees totaling $124,619 as well as decreases of
$13,558 and $12,646 in fees for outside services and accounting fees,
respectively. These were partially offset by increased expenses of $25,923
associated with our condemnation litigation, $13,713 in pension plan expenses,
and $8,622 in salaries and benefits. Rental expenses increased by $53,783
primarily due to the June 2007 acquisition of the Port Jefferson facility.
Rental expenses for Port Jefferson totaled $75,025 for the current quarter and
were offset by a decline in Flowerfield expenses of $21,242. Likewise, the
increases in depreciation and interest expense are attributable to the
acquisition of the Port Jefferson property in 2007.
As a result, the Company is reporting a loss from operations totaling $127,647
compared to the 2007 results when the loss amounted to $211,233. In 2007, a
benefit for income taxes of $25,805 reduced the net loss for the quarter to
$185,428 compared to a net loss of $127,647 for the current reporting period.
Seq. Page 9
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $525,827 and $2,629,719 during the
three months ended March 31, 2008 and 2007, respectively. The cash used in
operating activities in the current period was primarily related to increased
payments to vendors of $399,522. The cash used in operating activities in the
prior period was primarily related to the payment of $2,000,000 to Landmark in
connection with an agreement to terminate two agreements, the Golf Operating
Agreement and the Asset Management Agreement, both dated April 9, 2002.
Net cash provided by investing activities was $700,545 and $6,262,393 during the
three months ended March 31, 2008 and 2007, respectively. Cash provided by
investing activities in the current period was primarily related to principal
repayments of marketable securities of $856,717. The cash provided by investing
activities in the prior period was primarily related to the sale and principal
repayments of marketable securities for $3,462,037 and $2,919,315, respectively.
Net cash (used in) provided by financing activities was $(21,318) and $76,050
during the three months ended March 31, 2008 and 2007, respectively. The net
cash used in financing activities in the current period was in connection with
principal payments on the mortgage. The net cash provided during the prior
period was the result of proceeds from the exercise of stock options.
The Company has a $1,750,000 revolving credit line with a bank, bearing interest
at a rate of prime plus one percent which was 6.25% at March 31, 2008. The
unused portion of the credit line, which is the total line of $1,750,000, will
enhance the Company's financial position and liquidity and be available, if
needed, to fund any unforeseen expenses.
As of March 31, 2008, the Company had cash and cash equivalents of $3,608,541
and anticipates having the capacity to fund normal operating, general and
administrative expenses, and its regular debt service requirements.
LIMITED PARTNERSHIP INVESTMENT
Our limited partnership investment in the Callery Judge Grove, LP (the "Grove")
is carried on the Company's balance sheet at $0 as a result of recording losses
equal to the carrying value of the investment. This investment represents a
10.93% ownership interest in a limited partnership that owns a 3500+ acre citrus
grove in Palm Beach County, Florida. The Grove is the subject of a development
plan consisting of 2,996 residential units and 235,000 square feet of mixed
commercial, retail, and office space. The plan recently was recommended for
approval by the Palm Beach County Planning Commission and subsequently, on April
29, 2008, received the endorsement of the Palm Beach County Board of
Commissioners. The proposal will now be reviewed by the State Department of
Community Affairs before coming back to the County Commission for a final
approval.
(c) OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on its financial conditions, changes
in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting companies.
Item 4. CONTROLS AND PROCEDURES
We maintain a set of disclosure controls and procedures designed to reasonably
assure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms. Disclosure controls
are also designed reasonably to assure that information required to be disclosed
is accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer. The evaluation of our disclosure controls
performed by our Chief Executive Officer and Chief Financial Officer included
obtaining an understanding of the design and objective of the controls, the
implementation of those controls and the results of the controls on this report
on Form 10-Q. In the course of the evaluation of disclosure controls, we
reviewed the controls that are in place to record, process, summarize and
report, on a timely basis, matters that require disclosure in our reports filed
under the Exchange Act. We also considered the adequacy of the items disclosed
in this report on Form 10-Q.
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) as of March 31, 2008. Based upon that evaluation, each of the
Company's Chief Executive Officer and Chief Financial Officer has concluded that
the disclosure controls and procedures were effective, in all material respects,
to provide reasonable assurance 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
rules and forms of the Securities and Exchange Commission. It should be noted
that design of any system of controls is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions regardless of how remote.
Seq. Page 10
There have been no changes in the Company's internal control over financial
reporting identified in connection with the evaluation required by paragraph (d)
of Exchange Act Rule 13a-15 that occurred during the Company's last fiscal
quarter that has materially affected, or that is reasonably likely to materially
affect, the Company's internal control over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Gyrodyne Company of America, Inc. v. The State University of New York at Stony
------------------------------------------------------------------------------
Brook
-----
On November 2, 2005, the State University of New York at Stony Brook (the
"University") filed an acquisition map with the Suffolk County Clerk's office
and vested title in 245.5 acres of the Company's Flowerfield property pursuant
to the New York Eminent Domain Procedure Law (the "EDPL"). On March 27, 2006,
the Company received payment from the State of New York in the amount of
$26,315,000, which the Company had previously elected under the EDPL to accept
as an advance payment for the Property. Under the EDPL, both the advance payment
and any additional award from the Court of Claims bear interest at the current
statutory rate of 9% simple interest from the date of the taking through the
date of payment.
Notwithstanding the foregoing, although the Company had been assured by counsel
for the State that the statutory interest rate of 9% was due and payable on the
advance payment, the State of New York has taken the position that a lesser
interest rate was applicable. As a result, the Company reversed an interest
receivable amounting to $332,377 as of December 31, 2007 and plans on pursuing
the loss of interest in its claim for additional compensation.
On May 1, 2006, the Company filed a Notice of Claim with the Court of Claims of
the State of New York seeking $158 million in damages from the University
resulting from the condemnation of the 245.5 acres of the Company's Flowerfield
property. While the Company believes that a credible case for substantial
additional compensation can be made, it is possible that the Company may be
awarded a different amount than is being requested, including no compensation,
or an amount that is substantially lower than the Company's claim for $158
million. It is also possible that the Court of Claims could ultimately permit
the State to recoup part of its advance payment to the Company.
The current deadline to exchange appraisals is set for May 6, 2008; however, the
State has given indication that they will request an extension of this deadline
from the Court.
Faith Enterprises v. Gyrodyne, Supreme Court, Suffolk County, Index # 3511/2007.
--------------------------------------------------------------------------------
Faith Enterprises ("Faith") a tenant at 7 Flowerfield failed to fulfill its
rental payment obligation. In February 2007, the Company served Faith with a
notice of default. Faith subsequently sued the Company in Suffolk Supreme Court,
seeking $7 million in damages on each of three claims (breach of contract,
fraudulent inducement and tortuous interference with business) and also seeking
to enjoin the Company from commencing a non-payment eviction proceeding (which
the Court denied). The Company thereafter commenced a non-payment proceeding, in
which Faith agreed to an order to vacate the premises and for a judgment of past
due rent of $115,051. Faith vacated the premises in April 2007. Faith continues
to pursue its claims for damages in the Suffolk Supreme Court action. In
November 2007, the Company commenced a third-party action against the guarantors
of Faith's lease, Thomas O. Dodge, Cathleen Dodge, Michael Maurer and Kelly
Maurer. In January 2008, Plaintiff (Faith) filed a motion to consolidate this
case with another matter it had commenced against the entities from whom Faith
purchased the business, which was granted on March 28, 2008. The Court also
scheduled a conference on the matter for June 5, 2008.
In addition, in the normal course of business, the Company is a party to various
legal proceedings. After reviewing all actions and proceedings pending against
or involving the Company, Management considers the aggregate loss, if any, will
not be material.
Items 2 through 5 are not applicable to the three months ended March 31, 2008.
Item 6. Exhibits.
3.1 Restated Certificate of Incorporation of Gyrodyne Company of America,
Inc. (1)
3.2 Restated Bylaws of Gyrodyne Company of America, Inc. (3)
4.1 Form of Stock Certificate of Gyrodyne Company of America, Inc. (1)
Seq. Page 11
4.2 Rights Agreement, dated as of August 10, 2004, by and between Gyrodyne
Company of America, Inc. and Registrar and Transfer Company, as Rights
Agent, including as Exhibit B the forms of Right Certificate and of
Election to Exercise. (2)
31.1 Rule 13a-14(a)/15d-14(a) Certification. (4)
32.1 CEO/CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (4)
(1) Incorporated herein by reference to the Annual Report on Form
10-KSB/A, filed with the Securities and Exchange Commission on
September 5, 2001.
(2) Incorporated herein by reference to Form 8-K, filed with the
Securities and Exchange Commission on August 13, 2004.
(3) Incorporated herein by reference to the Annual Report on Form 10-K,
filed with the Securities and Exchange Commission on March 15, 2007.
(4) Filed as part of this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GYRODYNE COMPANY OF AMERICA, INC.
Date: May 5, 2008 /S/ Stephen V. Maroney
----------------------
By Stephen V. Maroney
President, Chief Executive Officer and Treasurer
Date: May 5, 2008 /S/ Frank D'Alessandro
----------------------
By Frank D'Alessandro
Controller
Seq. Page 12
Exhibit Index
3.1 Restated Certificate of Incorporation of Gyrodyne Company of America,
Inc. (1)
3.2 Restated Bylaws of Gyrodyne Company of America, Inc. (3)
4.1 Form of Stock Certificate of Gyrodyne Company of America, Inc. (1)
4.2 Rights Agreement, dated as of August 10, 2004, by and between Gyrodyne
Company of America, Inc. and Registrar and Transfer Company, as Rights
Agent, including as Exhibit B the forms of Right Certificate and of
Election to Exercise. (2)
31.1 Rule 13a-14(a)/15d-14(a) Certification. (4)
32.1 CEO/CFO Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (4)
(1) Incorporated herein by reference to the Annual Report on Form 10-KSB/A,
filed with the Securities and Exchange Commission on September 5, 2001.
(2) Incorporated herein by reference to Form 8-K, filed with the Securities and
Exchange Commission on August 13, 2004.
(3) Incorporated herein by reference to the Annual Report on Form 10-K, filed
with the Securities and Exchange Commission on March 15, 2007.
(4) Filed as part of this report.
Seq. Page 13