FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 20172018
Commission file number1-3647
J.W. Mays, Inc.
(Exact name of registrant as specified in its charter)
New York | 11-1059070 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
9 Bond Street, Brooklyn, New York | 11201-5805 | |
(Address of principal executive offices) | (Zip Code) |
(Registrant's telephone number, including area code)718-624-7400
Not Applicable
(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X No .
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filer ____ Accelerated filer ____ Non-accelerated filer ____
Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company ☐ |
Non-accelerated filer ☐ | Smaller reporting Company ☒ |
If an emerging growth company,X . indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes NoX .
Indicate the number of shares outstanding of the issuer's common stock, as of the latest practicable date.
Class | Outstanding at June | |
Common Stock, $1 par value | 2,015,780 shares | |
This report contains |
-1-
J. W. MAYS, INC.
INDEX
Page No. | |||||
Part I - Financial Information: | |||||
Item 1. Financial Statements | |||||
Condensed Consolidated Balance Sheets – April 30, | |||||
and July 31, | 3 | ||||
Condensed Consolidated Statements of Operations and Retained Earnings | |||||
– Three and nine months ended April 30, 2018 and 2017 | 4 | ||||
Condensed Consolidated Statements of Comprehensive Income | |||||
– Three and nine months ended April 30, 2018 and 2017 | 5 | ||||
Condensed Consolidated Statements of Cash Flows | |||||
– Nine months ended April 30, 2018 and 2017 | 6 | ||||
Notes to Condensed Consolidated Financial Statements | 7 - 15 | ||||
Item 2. Management's Discussion and Analysis of Financial Condition | |||||
and Results of Operations | 16 - 19 | ||||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 19 | ||||
Item 4. Controls and Procedures | 20 | ||||
Part II - Other Information: | |||||
Item 1. Legal Proceedings | 21 | ||||
Item 1A. Risk Factors | 21 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 21 | ||||
Item 3. Defaults Upon Senior Securities | 21 | ||||
Item 4. Mine Safety Disclosures | 21 | ||||
Item 5. Other Information | 21 | ||||
Item 6. Exhibits and Reports on Form 8-K | 21 - 22 | ||||
Signatures | 23 | ||||
Exhibit 31 Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |||||
31.1 - Chief Executive Officer | 24 | ||||
31.2 - Chief Financial Officer | 25 | ||||
Exhibit 32 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |||||
18 U.S.C. Section 1350 | 26 |
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Part 1 - Financial Information
Item 1 - Financial Statements
J. W. MAYS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30 | July 31 | |||||||||||
2017 | 2016 | |||||||||||
(Unaudited) | (Audited) | April 30 | July 31 | |||||||||
ASSETS | 2018 | 2017 | ||||||||||
(Unaudited) | (Audited) | |||||||||||
Property and Equipment - Net (Notes 5 and 6) | $ | 49,447,142 | $ | 49,064,737 | $ | 50,004,769 | $ | 49,485,089 | ||||
Current Assets: | ||||||||||||
Cash and cash equivalents (Note 4) | 5,369,079 | 5,228,826 | 6,478,050 | 5,381,195 | ||||||||
Receivables (Note 4) | 139,672 | 293,317 | 63,153 | 164,716 | ||||||||
Income taxes refundable | 22,612 | 17,004 | 47,260 | 6,891 | ||||||||
Security deposit | 14,185 | – | ||||||||||
Restricted cash | 100,721 | 15,905 | ||||||||||
Prepaid expenses | 865,774 | 1,553,217 | 953,346 | 1,675,019 | ||||||||
Total current assets | 6,411,322 | 7,092,364 | 7,642,530 | 7,243,726 | ||||||||
Other Assets: | ||||||||||||
Deferred charges | 3,715,026 | 3,348,031 | 3,485,550 | 3,465,062 | ||||||||
Less: accumulated amortization | 1,605,167 | 1,404,267 | 1,606,742 | 1,384,142 | ||||||||
Net | 2,109,859 | 1,943,764 | 1,878,808 | 2,080,920 | ||||||||
Security deposits | 1,279,999 | 1,159,338 | ||||||||||
Unbilled receivables (Notes 4 and 8) | 2,062,185 | 2,222,846 | ||||||||||
Restricted cash | 1,513,841 | 1,279,829 | ||||||||||
Unbilled receivables (Notes 4 and 7) | 1,739,632 | 1,943,648 | ||||||||||
Marketable securities (Notes 3 and 4) | 2,721,419 | 2,062,205 | 2,722,917 | 2,815,727 | ||||||||
Total other assets | 8,173,462 | 7,388,153 | 7,855,198 | 8,120,124 | ||||||||
TOTAL ASSETS | $ | 64,031,926 | $ | 63,545,254 | $ | 65,502,497 | $ | 64,848,939 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||
Long-Term Debt: | ||||||||||||
Long-Term Liabilities: | ||||||||||||
Mortgage payable (Note 5) | $ | 5,445,516 | $ | 5,549,600 | $ | 5,301,391 | $ | 5,409,908 | ||||
Security deposits payable | 1,018,626 | 897,965 | 1,232,629 | 1,020,292 | ||||||||
Payroll and other accrued liabilities | 30,459 | 90,917 | ||||||||||
Deferred Income Taxes (Note 1) | 5,349,000 | 4,617,000 | ||||||||||
Total long-term debt | 11,843,601 | 11,155,482 | ||||||||||
Deferred income taxes (Note 1) | 3,610,000 | 5,637,000 | ||||||||||
Total long-term liabilities | 10,144,020 | 12,067,200 | ||||||||||
Current Liabilities: | ||||||||||||
Accounts payable | 96,100 | 80,343 | 18,400 | 79,103 | ||||||||
Payroll and other accrued liabilities | 2,350,983 | 2,153,850 | 1,855,135 | 2,515,616 | ||||||||
Security deposit payable | 14,185 | – | ||||||||||
Deferred revenue (Note 13) | 145,832 | 1,020,833 | ||||||||||
Other taxes payable | 5,400 | 6,963 | 6,300 | 8,135 | ||||||||
Current portion of note payable - related party (Note 7) | - | 1,000,000 | ||||||||||
Current portion of long-term debt (Note 5) | 161,123 | 156,846 | ||||||||||
Current portion of mortgage payable (Note 5) | 167,002 | 162,569 | ||||||||||
Current portion of security deposits payable | 101,221 | 15,905 | ||||||||||
Total current liabilities | 2,773,623 | 4,418,835 | 2,148,058 | 2,781,328 | ||||||||
TOTAL LIABILITIES | 14,617,224 | 15,574,317 | 12,292,078 | 14,848,528 | ||||||||
Shareholders' Equity: | ||||||||||||
Common stock, par value $1 each share (shares - 5,000,000 | ||||||||||||
authorized; 2,178,297 issued) | 2,178,297 | 2,178,297 | ||||||||||
Common stock, par value $1 each share (shares - 5,000,000 authorized; 2,178,297 issued) | 2,178,297 | 2,178,297 | ||||||||||
Additional paid in capital | 3,346,245 | 3,346,245 | 3,346,245 | 3,346,245 | ||||||||
Unrealized gain on available-for-sale securities - net of deferred taxes of | ||||||||||||
$162,000 at April 30, 2017 and $136,000 at July 31, 2016 | 316,485 | 264,541 | ||||||||||
Unrealized gain on available-for-sale securities - net of deferred taxes of $226,000 at April 30, 2018 and $190,000 at July 31, 2017 | 410,988 | 368,476 | ||||||||||
Retained earnings | 44,861,527 | 43,469,706 | 48,562,741 | 45,395,245 | ||||||||
50,702,554 | 49,258,789 | 54,498,271 | 51,288,263 | |||||||||
Less common stock held in treasury, at cost - 162,517 | ||||||||||||
shares at April 30, 2017 and at July 31, 2016 (Note 11) | 1,287,852 | 1,287,852 | ||||||||||
Less common stock held in treasury, at cost - 162,517 shares at April 30, 2018 and at July 31, 2017 (Note 10) | 1,287,852 | 1,287,852 | ||||||||||
Total shareholders' equity | 49,414,702 | 47,970,937 | 53,210,419 | 50,000,411 | ||||||||
Contingencies (Notes 9 and 14) | ||||||||||||
Contingencies (Notes 13) | ||||||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 64,031,926 | $ | 63,545,254 | $ | 65,502,497 | $ | 64,848,939 | ||||
See Notes to Condensed Consolidated Financial Statements. |
See Notes to Condensed Consolidated Financial Statements.
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J. W. MAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Three Months Ended | Nine Months Ended | Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||
April 30 | April 30 | April 30 | April 30 | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Rental income (Notes 4 and 8) | $ | 4,660,787 | $ | 4,383,471 | $ | 13,674,289 | $ | 12,976,805 | ||||||||||||||||||||||||
Rental income (Notes 4 and 7) | $ | 4,854,910 | $ | 4,660,787 | $ | 14,431,671 | $ | 13,674,289 | ||||||||||||||||||||||||
Recovery of real estate taxes | – | – | 10,952 | – | – | – | – | 10,952 | ||||||||||||||||||||||||
Revenue to temporarily vacate lease (Note 13) | 291,667 | 291,667 | 875,001 | 875,001 | ||||||||||||||||||||||||||||
Revenue to temporarily vacate lease (Note 12) | – | 291,667 | – | 875,001 | ||||||||||||||||||||||||||||
Total revenues | 4,952,454 | 4,675,138 | 14,560,242 | 13,851,806 | 4,854,910 | 4,952,454 | 14,431,671 | 14,560,242 | ||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||
Real estate operating expenses | 2,512,506 | 2,508,975 | 7,735,755 | 7,488,630 | 2,918,858 | 2,512,506 | 8,491,805 | 7,735,755 | ||||||||||||||||||||||||
Administrative and general expenses | 1,092,032 | 1,031,623 | 3,381,034 | 3,340,676 | 1,062,316 | 1,092,032 | 3,433,154 | 3,381,034 | ||||||||||||||||||||||||
Depreciation and amortization (Note 6) | 423,791 | 408,886 | 1,253,091 | 1,223,036 | ||||||||||||||||||||||||||||
(Gain) on disposition of property and equipment | – | (500 | ) | – | (500 | ) | ||||||||||||||||||||||||||
Depreciation (Note 6) | 443,697 | 423,791 | 1,311,386 | 1,253,091 | ||||||||||||||||||||||||||||
Total expenses | 4,028,329 | 3,948,984 | 12,369,880 | 12,051,842 | 4,424,871 | 4,028,329 | 13,236,345 | 12,369,880 | ||||||||||||||||||||||||
Income from operations before investment income, | ||||||||||||||||||||||||||||||||
interest expense and income taxes | 924,125 | 726,154 | 2,190,362 | 1,799,964 | ||||||||||||||||||||||||||||
Income from operations before investment income, interest expense and income taxes | 430,039 | 924,125 | 1,195,326 | 2,190,362 | ||||||||||||||||||||||||||||
Investment income and interest expense: | ||||||||||||||||||||||||||||||||
Investment income (Note 3) | 41,906 | 9,653 | 80,470 | 16,795 | 15,909 | 41,906 | 90,131 | 80,470 | ||||||||||||||||||||||||
Interest expense (Notes 5, 7 and 10) | (50,797 | ) | (40,416 | ) | (173,011 | ) | (175,267 | ) | ||||||||||||||||||||||||
Interest expense (Notes 5, 9 and 13) | (44,776 | ) | (50,797 | ) | (191,961 | ) | (173,011 | ) | ||||||||||||||||||||||||
(8,891 | ) | (30,763 | ) | (92,541 | ) | (158,472 | ) | (28,867 | ) | (8,891 | ) | (101,830 | ) | (92,541 | ) | |||||||||||||||||
Income from operations before income taxes | 915,234 | 695,391 | 2,097,821 | 1,641,492 | 401,172 | 915,234 | 1,093,496 | 2,097,821 | ||||||||||||||||||||||||
Income taxes provided | 309,000 | 244,000 | 706,000 | 566,000 | ||||||||||||||||||||||||||||
Income taxes provided (benefit) | 83,000 | 309,000 | (2,074,000 | ) | 706,000 | |||||||||||||||||||||||||||
Net income | 606,234 | 451,391 | 1,391,821 | 1,075,492 | 318,172 | 606,234 | 3,167,496 | 1,391,821 | ||||||||||||||||||||||||
Retained earnings, beginning of period | 44,255,293 | 42,576,047 | 43,469,706 | 41,951,946 | 48,244,569 | 44,255,293 | 45,395,245 | 43,469,706 | ||||||||||||||||||||||||
Retained earnings, end of period | $ | 44,861,527 | $ | 43,027,438 | $ | 44,861,527 | $ | 43,027,438 | $ | 48,562,741 | $ | 44,861,527 | $ | 48,562,741 | $ | 44,861,527 | ||||||||||||||||
Income per common share (Note 2) | $ | .30 | $ | .22 | $ | .69 | $ | .53 | $ | .16 | $ | .30 | $ | 1.57 | $ | .69 | ||||||||||||||||
Dividends per share | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||||||||
Average common shares outstanding | 2,015,780 | 2,015,780 | 2,015,780 | 2,015,780 | 2,015,780 | 2,015,780 | 2,015,780 | 2,015,780 |
See Notes to Condensed Consolidated Financial Statements.
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J. W. MAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended | Nine Months Ended | ||||||||||||
April 30 | April 30 | ||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||
Net income | $ | 606,234 | $ | 451,391 | $ | 1,391,821 | $ | 1,075,492 | |||||
Unrealized gain (loss) on available-for-sale securities: | |||||||||||||
Unrealized gains (losses) arising during the period, | |||||||||||||
net of taxes (benefit) of $19,000 and $23,000 for the three | |||||||||||||
months ended April 30, 2017 and 2016, respectively, | |||||||||||||
and $26,000 and ($5,000) for the nine months ended | |||||||||||||
April 30, 2017 and 2016, respectively. | 38,715 | 43,213 | 51,944 | (10,241 | ) | ||||||||
Comprehensive income | $ | 644,949 | $ | 494,604 | $ | 1,443,765 | $ | 1,065,251 |
Three Months Ended | Nine Months Ended | |||||||||||||||
April 30 | April 30 | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Net income | $ | 318,172 | $ | 606,234 | $ | 3,167,496 | $ | 1,391,821 | ||||||||
Unrealized gain (loss) on available-for-sale securities: | ||||||||||||||||
Unrealized gains (losses) arising during the period, net of taxes (benefit) of ($27,037) and $33,500 for the three months ended April 30, 2018 and 2017, respectively, and $43,963 and $40,000 for the nine months ended April 30, 2018 and 2017, respectively. | (117,213 | ) | 66,410 | 57,969 | 78,785 | |||||||||||
Reclassification adjustment for net gains included in net income, net of taxes of $7,770 and $14,500 for the three months ended April 30, 2018 and 2017, respectively, and $7,963 and $14,000 for the nine months ended April 30, 2018 and 2017, respectively. | (17,630 | ) | (27,695 | ) | (15,457 | ) | (26,841 | ) | ||||||||
Unrealized gains (losses) on available for sale securities, net of taxes | (134,843 | ) | 38,715 | 42,512 | 51,944 | |||||||||||
Comprehensive income | $ | 183,329 | $ | 644,949 | $ | 3,210,008 | $ | 1,443,765 |
See Notes to Condensed Consolidated Financial Statements.
-5-
J. W. MAYS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended | Nine Months Ended | |||||||||||||||
April 30 | April 30 | |||||||||||||||
2017 | 2016 | 2018 | 2017 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Cash Flows From Operating Activities: | ||||||||||||||||
Net income | $ | 1,391,821 | $ | 1,075,492 | $ | 3,167,496 | $ | 1,391,821 | ||||||||
Adjustments to reconcile net income to | ||||||||||||||||
net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 1,253,091 | 1,223,036 | ||||||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 1,311,386 | 1,253,091 | ||||||||||||||
Amortization of deferred charges | 200,900 | 238,804 | 222,600 | 200,900 | ||||||||||||
Deferred finance costs included in interest expense | 17,154 | 17,100 | 17,154 | 17,154 | ||||||||||||
Realized (gain) loss on sale of marketable securities | (23,734 | ) | 36,999 | 805 | (23,734 | ) | ||||||||||
Gain on disposition of property and equipment | - | (500 | ) | |||||||||||||
Other assets - unbilled receivables | 160,661 | 288,034 | 204,016 | 160,661 | ||||||||||||
- deferred charges | (366,995 | ) | (63,105 | ) | (20,488 | ) | (366,995 | ) | ||||||||
Deferred income taxes | 706,000 | 497,000 | ||||||||||||||
Provision (benefit) for deferred income taxes | (2,063,000 | ) | 706,000 | |||||||||||||
Deferred revenue | (875,001 | ) | (875,001 | ) | – | (875,001 | ) | |||||||||
Changes in: | ||||||||||||||||
Receivables | 153,645 | 457,070 | 101,563 | 153,645 | ||||||||||||
Income taxes refundable | (5,608 | ) | 162,399 | (40,369 | ) | (5,608 | ) | |||||||||
Prepaid expenses | 687,443 | 603,501 | 721,673 | 687,443 | ||||||||||||
Accounts payable | 15,757 | 56,361 | (60,703 | ) | 15,757 | |||||||||||
Payroll and other accrued liabilities | 136,675 | (588,570 | ) | (660,481 | ) | 136,675 | ||||||||||
Other taxes payable | (1,563 | ) | (1,536 | ) | (1,835 | ) | (1,563 | ) | ||||||||
Cash provided by operating activities | 3,450,246 | 3,127,084 | 2,899,817 | 3,450,246 | ||||||||||||
Cash Flows From Investing Activities: | ||||||||||||||||
Capital expenditures | (1,635,496 | ) | (2,254,034 | ) | ||||||||||||
Security deposits | (134,846 | ) | (34,560 | ) | ||||||||||||
Acquisition of property and equipment | (1,831,066 | ) | (1,635,496 | ) | ||||||||||||
Restricted cash | (318,828 | ) | (134,846 | ) | ||||||||||||
Marketable securities: | ||||||||||||||||
Receipts from sales or maturities | 282,434 | 314,008 | ||||||||||||||
Receipts from sales | 268,857 | 282,434 | ||||||||||||||
Payments for purchases | (839,970 | ) | (338,436 | ) | (98,340 | ) | (839,970 | ) | ||||||||
Cash (used) by investing activities | (2,327,878 | ) | (2,313,022 | ) | (1,979,377 | ) | (2,327,878 | ) | ||||||||
Cash Flows From Financing Activities: | ||||||||||||||||
Increase - security deposits | 134,846 | 32,261 | ||||||||||||||
Increase - security deposits payable | 297,653 | 134,846 | ||||||||||||||
Mortgage and other debt payments | (1,116,961 | ) | (112,274 | ) | (121,238 | ) | (1,116,961 | ) | ||||||||
Cash (used) by financing activities | (982,115 | ) | (80,013 | ) | ||||||||||||
Cash provided (used) by financing activities | 176,415 | (982,115 | ) | |||||||||||||
Increase in cash and cash equivalents | 140,253 | 734,049 | 1,096,855 | 140,253 | ||||||||||||
Cash and cash equivalents at beginning of period | 5,228,826 | 4,085,704 | 5,381,195 | 5,228,826 | ||||||||||||
Cash and cash equivalents at end of period | $ | 5,369,079 | $ | 4,819,753 | $ | 6,478,050 | $ | 5,369,079 |
See Notes to Condensed Consolidated Financial Statements.
-6-
J. W. MAYS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. | Accounting Records and Use of Estimates: |
The accounting records are maintained in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the Company’s financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. The estimates that we make include allowance for doubtful accounts, depreciation, | |
The interim financial statements are prepared pursuant to the requirements for reporting on Form 10-Q. The July 31, | |
2018. The computation of the annual expected effective tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected operating income for the year and future periods, projections of the proportion of income (or loss), and permanent and temporary differences. The accounting estimates used to compute the provision for income taxes may change as new events occur, more experience is acquired, or as additional information is obtained. To the extent | |
As of July 31, | |
New York State and New York City taxes | |
Due to the application of the capital-based tax while the net operating loss still applies, or due to the possible absence of State taxable income in the years beyond 2021 to which the State loss can be carried, the Company has not recorded the tax benefit of its New York State and New York City net operating loss carryforwards. |
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On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the Company has utilized to calculate the transition impacts, including impacts from changes to current year Recently issued accounting standards not yet adopted: In May 2014, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2014-09 “Revenue from Contracts with Customers” (“ASU 2014-09”) establishing ASC Topic 606 Revenue from Contracts with Customers. ASU 2014-09 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. ASU 2014-09 requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. ASU 2014-09 is effective for interim and annual reporting in fiscal years that begin after December 15, 2016. ASU 2015-14 extended the implementation date for fiscal years beginning after December 31, 2017. The adoption of this ASU on August 1, 2018 Subsequent to the issuance of ASU 2014-09, the FASB issued ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing”, ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients”, and ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers." The additional ASU's clarified certain provisions of ASU 2014-09 in response to recommendations from the Transition Resource Group established by the FASB and have the same effective date and transition requirements as ASU 2014-09. The adoption of these updates on August 1, 2018 In January 2016, the FASB issued ASU No. 2016-01 "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities." ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments, including the requirement to measure certain equity investments at fair value with changes in fair value recognized in net income. ASU No. 2016-01 will be effective for interim and annual periods beginning after December 15, 2017. The adoption of this ASU |
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In February 2016, the FASB issued ASU 2016-02, “Leases.” ASU 2016-02 is intended to increase transparency and comparability among organizations of accounting for leasing arrangements. This guidance establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. Lessor accounting remains similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard (ASU 2014-09). ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Entities will be required to recognize and measure leases as of the earliest period presented using a modified retrospective approach. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The new standard will be effective for the Company for the fiscal year beginning August 1, 2019. Early adoption is permitted. The adoption of this guidance is expected to result in an increase in assets and liabilities on the Company’s balance sheet, with no material impact on the statement of operations. However, the ultimate impact of adopting this ASU will depend on the Company’s lease portfolio as of the adoption date. |
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In November 2016, the FASB issued ASU 2016-18, “Restricted Cash”. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the statement of cash flows upon adoption of this standard. ASU 2016-18 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017. The adoption of the ASU will not have a significant impact on our consolidated financial statements. | |
In February 2018, the FASB issued ASU 2018-02, “Income Statement—Reporting Comprehensive Income (Topic 220)”. ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the December 22, 2017 Tax Act. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted, including adoption in any interim period, (1) for public business entities for reporting periods for which financial statements have not yet been issued and (2) for all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this ASU should be applied either in the period of adoption or retrospectively to each period (or periods) in which the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. We are in the process of evaluating the impact of this standard on the consolidated financial statements. | |
2. | Income Per Share of Common Stock: |
Income per share has been computed by dividing the net income for the periods by the weighted average number of shares of common stock outstanding during the periods, adjusted for the purchase of treasury stock. Shares used in computing income per share were 2,015,780 for the three and nine months ended April 30, | |
3. | Marketable Securities: |
The Company categorizes marketable securities as either trading, available-for-sale or held-to-maturity. Trading securities are carried at fair value with unrealized gains and losses included in income. Available-for-sale securities are carried at fair value measurements using quoted prices in active markets for identical assets or liabilities with unrealized gains and losses recorded as a separate component of shareholders' equity. Held-to-maturity securities are carried at amortized cost. Dividends and interest income are accrued as earned. Realized gains and losses are determined on a specific identification basis. The Company reviews marketable securities for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recovered. The Company did not classify any securities as trading or held to maturity during the nine months ended April 30, |
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The Company follows GAAP which establishes a fair value hierarchy that prioritizes the valuation techniques and creates the following three broad levels, with Level 1 valuation being the highest priority: |
Level 1 valuation inputs are quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date (e.g., equity securities traded on the New York Stock Exchange). | ||||
Level 2 valuation inputs are from other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted market prices of similar assets or liabilities in active markets, or quoted market prices for identical or similar assets or liabilities in markets that are not active). | ||||
Level 3 valuation inputs are unobservable (e.g., an entity’s own data) and should be used to measure fair value to the extent that observable inputs are not available. | ||||
Following is a description of the valuation methodologies used for assets measured at fair value on a recurring basis. There have been no changes in the methodologies used at April 30, 2017. | ||||
Equity securities are valued at the closing price reported on the active market on which the individual securities are traded that the Company has access to. | ||||
Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Company are open-end mutual funds that are registered with the Securities and Exchange Commission. These funds are required to publish their daily net asset value (“NAV”) and to transact at that price. The mutual funds held by the Company are deemed to be actively traded. |
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In accordance with the provisions of Fair Value Measurements, the following are the Company's financial assets measured on a recurring basis presented at fair value.
Fair value measurements at reporting date | |||||||||||||||||||||||
Total | Total | ||||||||||||||||||||||
April 30, | July 31, | ||||||||||||||||||||||
Description | 2018 | Level 1 | Level 2 | Level 3 | 2017 | Level 1 | Level 2 | Level 3 | |||||||||||||||
Assets: | |||||||||||||||||||||||
Marketable securities - available-for-sale | $ | 2,722,917 | $ | 2,722,917 | $ | – | – | $ | 2,815,727 | $ | 2,815,727 | $ | – | $ | – |
Fair value measurements at reporting date-10- Total Total April 30, July 31, Description 2017 Level 1 Level 2 Level 3 2016 Level 1 Level 2 Level 3 Assets: Marketable securities - available-for-sale $ 2,721,419 $ 2,721,419 $ – $ – $ 2,062,205 $ 2,062,205 $ – $ –
As of April 30, 20172018 and July 31, 2016,2017, the Company's marketable securities were classified as follows:
April 30, 2017 | July 31, 2016 | April 30, 2018 | July 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||
Gross | Gross | Gross | Gross | Gross | Gross | Gross | Gross | |||||||||||||||||||||||||||||||||||||||||
Unrealized | Unrealized | Fair | Unrealized | Unrealized | Fair | Unrealized | Unrealized | Fair | Unrealized | Unrealized | Fair | |||||||||||||||||||||||||||||||||||||
Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | Cost | Gains | Losses | Value | |||||||||||||||||||||||||||||||||
Noncurrent: | ||||||||||||||||||||||||||||||||||||||||||||||||
Available-for-sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Mutual funds | $ | 714,965 | $ | 170,613 | $ | – | $ | 885,578 | $ | 551,573 | $ | 143,026 | $ | – | $ | 694,599 | $ | 773,158 | $ | 197,217 | $ | – | $ | 970,375 | $ | 716,463 | $ | 193,932 | $ | – | $ | 910,395 | ||||||||||||||||
Equity securities | 1,527,969 | 310,161 | 2,289 | 1,835,841 | 1,110,091 | 258,869 | 1,354 | 1,367,606 | 1,312,772 | 453,562 | 13,792 | 1,752,542 | 1,540,788 | 364,544 | – | 1,905,332 | ||||||||||||||||||||||||||||||||
$ | 2,242,934 | $ | 480,774 | $ | 2,289 | $ | 2,721,419 | $ | 1,661,664 | $ | 401,895 | $ | 1,354 | $ | 2,062,205 | $ | 2,085,930 | $ | 650,779 | $ | 13,792 | $ | 2,722,917 | $ | 2,257,251 | $ | 558,476 | $ | – | $ | 2,815,727 |
The Company's equity securities, gross unrealized losses and fair value, aggregated by investment category and length of time that the investment securities have been in a continuous unrealized loss position are as follows:
April 30, 2017 | July 31, 2016 | |||||||||||
Less Than | Less Than | |||||||||||
Fair Value | 12 Months | Fair Value | 12 Months | |||||||||
Corporate equity securities | $ | 261,965 | $ | 2,289 | $ | 120,288 | $ | 1,354 |
Investment income consists of the following:
Three Months Ended Nine Months Ended April 30 April 30 2017 2016 2017 2016 Gain (loss) on sale of marketable securities $ 31,155 $ 1,539 $ 23,734 $ (36,999 ) Interest income 2,941 3,785 9,287 5,450 Dividend income 7,810 4,329 47,449 48,344 Total $ 41,906 $ 9,653 $ 80,470 $ 16,795
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April 30, 2018 | July 31, 2017 | ||||||||||||
Less Than | Less Than | ||||||||||||
Fair Value | 12 Months | Fair Value | 12 Months | ||||||||||
Corporate equity securities | $ | 120,188 | $ | 13,792 | $ | – | $ | – | |||||
Investment income consists of the following: | |||||||||||||
Three Months Ended | Nine Months Ended | ||||||||||||
April 30 | April 30 | ||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||
Gain (loss) on sale of marketable securities | $ | 912 | $ | 31,155 | $ | (805 | ) | $ | 23,734 | ||||
Interest income | 5,737 | 2,941 | 12,488 | 9,287 | |||||||||
Dividend income | 9,260 | 7,810 | 78,448 | 47,449 | |||||||||
Total | $ | 15,909 | $ | 41,906 | $ | 90,131 | $ | 80,470 |
4. | Financial Instruments and Credit Risk Concentrations: |
Financial instruments that are potentially subject to concentrations of credit risk consist principally of marketable securities, cash and cash equivalents and receivables. Marketable securities and cash and cash equivalents are placed with multiple financial institutions and multiple instruments to minimize risk. No assurance can be made that such financial institutions and instruments will minimize all such risk. | |
The Company derives rental income from approximately fifty tenants, of which one tenant accounted for | |
The Company has no irrevocable Letters of Credit at April 30, 2018 and had one irrevocable Letter of Credit totaling $230,000 at | |
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5. | Long-Term Debt – Mortgage: |
April 30, 2017 | July 31, 2016 | ||||||||||||||||
Current | |||||||||||||||||
Annual | Final | Due | Due | Due | Due | ||||||||||||
Interest | Payment | Within | After | Within | After | ||||||||||||
Rate | Date | One Year | One Year | One Year | One Year | ||||||||||||
Bond St. building, Brooklyn, NY | 3.54% | 2/1/2020 | $ | 161,123 | $ | 5,508,441 | $ | 156,846 | $ | 5,629,679 | |||||||
Less: Deferred financing costs | – | 62,925 | – | 80,079 | |||||||||||||
Total | $ | 161,123 | $ | 5,445,516 | $ | 156,846 | $ | 5,549,600 |
April 30, 2018 | July 31, 2017 | ||||||||||||||||
Current | |||||||||||||||||
Annual | Final | Due | Due | Due | Due | ||||||||||||
Interest | Payment | Within | After | Within | After | ||||||||||||
Rate | Date | One Year | One Year | One Year | One Year | ||||||||||||
Bond St. building, Brooklyn, NY | 3.54 | % | 2/1/2020 | $ | 167,002 | $ | 5,341,439 | $ | 162,569 | $ | 5,467,110 | ||||||
Less: Deferred financing costs | – | 40,048 | – | 57,202 | |||||||||||||
Total | $ | 167,002 | $ | 5,301,391 | $ | 162,569 | $ | 5,409,908 |
On January 9, 2015, the Company refinanced its loan with a bank for $6,000,000, which included the outstanding balance as of January 2015 in the amount of $5,347,726 and an additional borrowing of $652,274. The loan is for a period of five years with a payment based on a twenty-five year amortization period. The interest rate for this period is fixed at 3.54% per annum. The mortgage loan is secured by the Bond Street building in Brooklyn, New York. |
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6. | Property and Equipment – at cost: |
April 30 | July 31 | |||||
2018 | 2017 | |||||
Property: | ||||||
Buildings and improvements | $ | 82,515,948 | $ | 80,825,601 | ||
Improvements to leased property | 1,478,012 | 1,478,012 | ||||
Land | 6,067,805 | 6,067,805 | ||||
Construction in progress | 785,528 | 644,809 | ||||
90,847,293 | 89,016,227 | |||||
Less accumulated depreciation | 40,926,729 | 39,648,642 | ||||
Property - net | 49,920,564 | 49,367,585 | ||||
Fixtures and equipment and other: | ||||||
Fixtures and equipment | 144,545 | 144,545 | ||||
Other fixed assets | 193,015 | 193,015 | ||||
337,560 | 337,560 | |||||
Less accumulated depreciation | 253,355 | 220,056 | ||||
Fixtures and equipment and other - net | 84,205 | 117,504 | ||||
Property and equipment - net | $ | 50,004,769 | $ | 49,485,089 | ||
Construction in progress includes: | ||||||
April 30 | July 31 | |||||
2018 | 2017 | |||||
Building improvements at 9 Bond Street in Brooklyn, NY | $ | – | $ | 644,809 | ||
Building improvements at Jamaica, NY building | 551,901 | |||||
Building improvements at Fishkill, NY building | 233,627 | – | ||||
$ | 785,528 | $ | 644,809 |
April 30 | July 31 | ||||||
2017 | 2016 | ||||||
Property: | |||||||
Buildings and improvements | $ | 80,448,661 | $ | 77,693,718 | |||
Improvements to leased property | 1,478,012 | 1,478,012 | |||||
Land | 6,067,805 | 6,067,805 | |||||
Construction in progress | 554,809 | 1,697,292 | |||||
88,549,287 | 86,936,827 | ||||||
Less accumulated depreciation | 39,230,402 | 38,008,810 | |||||
Property - net | 49,318,885 | 48,928,017 | |||||
Fixtures and equipment and other: | |||||||
Fixtures and equipment | 144,545 | 144,545 | |||||
Other fixed assets | 193,016 | 195,478 | |||||
337,561 | 340,023 | ||||||
Less accumulated depreciation | 209,304 | 203,303 | |||||
Fixtures and equipment and other - net | 128,257 | 136,720 | |||||
Property and equipment - net | $ | 49,447,142 | $ | 49,064,737 | |||
Construction in progress includes: | |||||||
April 30 | July 31 | ||||||
2017 | 2016 | ||||||
Building improvements at 9 Bond Street in Brooklyn, NY | $ | 554,809 | $ | – | |||
Building improvements at 25 Elm Place in Brooklyn, NY | – | 1,697,292 | |||||
$ | 554,809 | $ | 1,697,292 |
7. | |
| |
Unbilled Receivables and Rental Income: | |
Unbilled receivables represent the excess of scheduled rental income recognized on a straight-line basis over rental income as it becomes receivable according to the provisions of each lease. |
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8. | Employees' Retirement Plan: | |
The Company sponsors a noncontributory Money Purchase Plan covering substantially all of its non-union employees. Operations were charged | ||
Multi-employer plan: | ||
The Company contributes to a union sponsored multi-employer pension plan covering its union employees. The Company contributions to the pension plan were | ||
Contingent Liability for Pension Plan: | ||
Information as to the Company’s portion of accumulated plan benefits and plan assets is not reported separately by the pension plan. Under the Employee Retirement Income Security Act, upon withdrawal from a multi-employer benefit plan, an employer is required to continue to pay its proportionate share of the plan’s unfunded vested benefits, if any. Any liability under this provision cannot be determined: however, the Company has not made a decision to withdraw from the plan. | ||
Information for contributing employer’s participation in the multi-employer plan: |
Legal name of Plan: | United Food and Commercial | |
Workers Local 888 Pension Fund | ||
Employer identification number: | 13-6367793 | |
Plan number: | 001 | |
Date of most recent Form 5500: | December 31, | |
Certified zone status: | Critical and declining status | |
Status determination date: | January 1, | |
Plan used extended amortization provisions in status | ||
calculation: | Yes | |
Minimum required contribution: | ||
Employer contributing greater than 5% of Plan | ||
contributions for year ended December 31, | Yes | |
Rehabilitation plan implemented: | Yes | |
Employer subject to surcharge: | Yes | |
Contract expiration date: | November 30, 2019 |
For the plan years 2017-2019, under the pension fund’s rehabilitation plan, the Company agreed to pay a minimum contribution rate equal to 9.1% of the prior year total contribution rate. The Company has 29 employees and has a contract, expiring November 30, 2019, with a union covering rates of pay, hours of employment and other conditions of employment for approximately 24% of its employees. The Company considers that its labor relations with its employees and union are good.
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Cash Flow Information: | ||
For purposes of reporting cash flows, the Company considers cash equivalents to consist of short-term highly liquid investments with maturities of three (3) months or less, which are readily convertible into cash. |
Supplemental disclosure: | Nine Months Ended | |||||
April 30 | ||||||
2017 | 2016 | |||||
Interest paid, net of capitalized interest of $16,514 (2017) | ||||||
and $49,084 (2016) | $ | 163,022 | $ | 159,082 | ||
Income taxes paid | $ | 159,096 | $ | 87,804 |
Supplemental disclosure: | Nine Months Ended | ||||
April 30 | |||||
2018 | 2017 | ||||
Interest paid, net of capitalized interest of $23,609 (2018) and $16,514 (2017) | $ | 175,718 | $ | 163,022 | |
Income taxes paid | $ | 31,994 | $ | – |
10. | Common Stock: | |
The Company has one class of common stock with identical voting rights and rights to liquidation. |
Accumulated Other Comprehensive Income: | ||
The only component of accumulated other comprehensive income is unrealized gain (loss) on available-for-sale securities. | ||
A summary of the changes in accumulated other comprehensive income for the three and nine months ended April 30, |
Three Months Ended | Nine Months Ended | |||||||||||||||
April 30 | April 30 | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
Beginning balance, net of tax effect | $ | 277,770 | $ | 142,579 | $ | 264,541 | $ | 196,033 | ||||||||
Other comprehensive income, net of tax effect: | ||||||||||||||||
Unrealized gain (loss) on available-for-sale securities | 99,910 | 66,213 | 118,785 | (15,241 | ) | |||||||||||
Tax effect | (33,500 | ) | (23,000 | ) | (40,000 | ) | 5,000 | |||||||||
Unrealized gain (loss) on available-for-sale | ||||||||||||||||
securities, net of tax effect | 66,410 | 43,213 | 78,785 | (10,241 | ) | |||||||||||
Amounts reclassified from accumulated other | ||||||||||||||||
comprehensive income, net of tax effect: | ||||||||||||||||
Unrealized gain on available-for-sale securities reclassified | (42,195 | ) | - | (40,841 | ) | - | ||||||||||
Tax effect | 14,500 | - | 14,000 | - | ||||||||||||
Amount reclassified, net of tax effect | (27,695 | ) | - | (26,841 | ) | - | ||||||||||
Ending balance, net of tax effect | $ | 316,485 | $ | 185,792 | $ | 316,485 | $ | 185,792 |
A summary of the line items in the Condensed Consolidated Statements of Income and Retained Earnings affected by the amounts reclassified from accumulated other comprehensive income is as follows: |
Details about accumulated other | Affected line item in the statement | |||
comprehensive income components | where net income is presented | |||
Other comprehensive income reclassified | Investment income | |||
tax effect | Income taxes provided |
-14-
Entry into a Material Definitive Agreement: | |
On June 16, 2014, the Company entered into a Second Amendment of Lease (the "Amendment") with 33 Bond St. LLC ("Bond"), its landlord, for certain truck bays and approximately 1,000 square feet located at the cellar level within a garage at Livingston and Bond Street ("Premises"). Pursuant to the Amendment, (1) a lease option for the Premises was exercised extending the lease until December 8, 2043, (2) the Company, simultaneously with the execution of the Amendment, vacated the Premises so that Bond may demolish the building in which the Premises is located in order to develop and construct a new building at the location, and (3) Bond agreed to redeliver to the Company possession of the reconfigured Premises after construction. | |
As consideration under the Amendment, Bond agreed to pay the Company a total of $3,500,000. Upon execution of the Amendment, the Company recorded $3,500,000 to deferred revenue to be amortized to revenue to temporarily vacate the premises over the expected vacate period of 36 months. Bond tendered $2,250,000 simultaneously with the execution of the Amendment, and the balance due of $1,250,000 on June 16, 2015 had been received by the Company. The Company re-occupied the premises in October 2017. | |
In connection with the Amendment, the parties also agreed to settle a pending lawsuit in the Supreme Court of the State of New York, Kings County, Index No. 50796/13 (the "Action"), in which the Company sought, among other things, a declaratory judgment that it validly renewed the lease for the Premises, and Bond sought, among other things, a declaratory judgment that the lease expired by its terms on December 8, 2013. Pursuant to a stipulation of settlement, filed on June 16, 2014, the Action, including all claims and counterclaims, has been discontinued with prejudice, without costs or attorneys' fees to any party as against the other. The stipulation of settlement also contains general releases by both parties of all claims. | |
Contingencies: | |
Due to defective workmanship and breach of contract, the Company continues to pursue damages and return in full of a $376,467 deposit paid a contractor when construction commenced to replace a roof and various other work on the Fishkill, New York building. Both the contractor and subcontractors have claimed the Company tortuously interfered with the construction contracts arguing for fees and costs which approximate $700,000. While the Company strongly disputes the claims, it is possible that the court may rule against the Company and may assess damages in amounts up to approximately $700,000. It is also possible that the court may rule in favor of the Company and that no damages would be awarded against the Company and the Company could obtain an order for the return of all or a portion of amounts previously paid. A charge to real estate operating expenses in the amount of $279,213 was recorded for the fiscal year ended July 31, 2016. Following initial court decisions, another $141,132 was charged to operating expenses in October, 2016 and this amount was ordered by the Court to be paid, plus interest in the amount of $48,116, in a judgment dated September 14, 2017. This amount of $189,248 was paid in October, 2017. The testimony phase of the trial has been completed and the parties await further decisions and orders of the court. | |
There are various other lawsuits and claims pending against the Company. It is the opinion of management that the resolution of these matters will not have a material adverse effect on the | |
If the Company sells, transfers, disposes of or demolishes 25 Elm Place, Brooklyn, New York, then the Company may be liable to create a condominium unit for the loading dock. The necessity of creating the condominium unit and the cost of such condominium unit cannot be determined at this time. | |
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Item 2.
J. W. MAYS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and related notes thereto contained in this report. In this discussion, the words “Company”, “we”, “our” and “us” refer to J.W. Mays, Inc. and subsidiaries.
Forward Looking Statements:
The following can be interpreted as including forward looking statements under the Private Securities Litigation Reform Act of 1995. The words “outlook”, “intend”, “plans”, “efforts”, “anticipates”, “believes”, “expects” or words of similar import typically identify such statements. Various important factors that could cause actual results to differ materially from those expressed in the forward-looking statements are identified under the heading “Cautionary Statement Regarding Forward-Looking Statements” below. Our actual results may vary significantly from the results contemplated by these forward-looking statements based on a number of factors including, but not limited to, availability of labor, marketing success, competitive conditions and the change in economic conditions of the various markets we serve.
Critical Accounting Policies and Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. We believe the critical accounting policies in Note 1 to the Condensed Consolidated Financial Statements disclose our more significant judgments and estimates used in the preparation of our financial statements. Actual results may differ from these estimates under different assumptions and conditions. (See Note 1 on pages 7 and 8through 9 to the Condensed Consolidated Financial Statements herein and Note 1 on pages 9 through 12 to the Consolidated Financial Statements in the Annual Report to Shareholders for the fiscal year ended July 31, 2016)2017).
Results of Operations:
Three months ended April 30, 20172018 compared to the three months ended April 30, 2016:2017:
In the three months ended April 30, 2018, the Company reported net income of $318,172, or $.16 per share. In the comparable three months ended April 30, 2017, the Company reported net income of $606,234, or $.30 per share. In the comparable three months ended April 30, 2016, the Company reported net income of $451,391, or $.22 per share.
Revenues in the current three months increaseddecreased to $4,952,454$4,854,910 from $4,675,138$4,952,454 in the comparable 20162017 three months primarily due to the decrease in revenue to temporarily vacate a lease in the 2017 three months, partially offset by increased rental income from existing tenants.tenants and one new office tenant at the Company’s Jowein building in Brooklyn, New York.
Real estate operating expenses in the current three months increased to $2,512,506$2,918,858 from $2,508,975$2,512,506 in the comparable 20162017 three months primarily due to increases in real estate taxes utilities and licenses and permits costs partially offset by decreases in maintenance costs.
Administrative and general expenses in the current three months increaseddecreased to $1,092,032$1,062,316 from $1,031,623$1,092,032 in the comparable 20162017 three months primarily due to increasesdecreases in medical costs and legal and professional costs and pension costs.
Depreciation and amortization expense in the current three months increased to $423,791$443,697 from $408,886$423,791 in the comparable 20162017 three months primarily due to improvements in the Nine Bond StreetJowein building in Brooklyn, New York.
There was a $500 gain on disposition of property and equipment in the three months ended April 30, 2016. There was no gain or loss in the comparable 2017 period.
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Interest expense exceeded investment income in the current three months by $8,891$28,867 and by $30,763$8,891 in the comparable 20162017 three months. The decrease isincrease was primarily due to a gain on saledecrease in investment income partially offset by scheduled repayment of marketable securities in the 2017 three months.debt.
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Nine months ended April 30, 20172018 compared to the nine months ended April 30, 2016:2017:
In the nine months ended April 30, 2018, the Company reported net income of $3,167,496, or $1.57 per share. In the comparable nine months ended April 30, 2017, the Company reported net income of $1,391,821, or $.69 per share. InThe increase was primarily due to the comparable nine months ended April 30, 2016,enactment of the Company reportedU.S Tax Act on December 22, 2017. These changes required an adjustment to our deferred tax assets and liabilities to the lower federal rates resulting in an estimated net incometax benefit of $1,075,492, or $.53 per share.approximately $2.4 million.
Revenues in the current nine months increaseddecreased to $14,560,242$14,431,671 from $13,851,806$14,560,242 in the comparable 20162017 nine months primarily due to the decrease in revenue to temporarily vacate a lease in the 2017 nine months, partially offset by increased rental income from existing tenants.tenants and one new office tenant at the Company’s Jowein building in Brooklyn, New York.
The recovery of real estate taxes in the current2017 nine months in the amount of $10,952, net of legal expenses, represents recovery of prior years’ real estate taxes from one of the Company’s properties. The comparable 20162018 nine months did not have a recovery of real estate taxes.
Real estate operating expenses in the current nine months increased to $7,735,755$8,491,805 from $7,488,630$7,735,755 in the comparable 20162017 nine months primarily due to increases in real estate taxes utilities, licenses and permitsmaintenance costs, and a charge for litigation against a contractor in the amount of $141,132 (see Note 14), partially offset by decreasesa decrease in maintenanceutility costs and leasing commissionlicense and permit costs.
Administrative and general expenses in the current nine months increased to $3,381,034$3,433,154 from $3,340,676$3,381,034 in the comparable 20162017 nine months primarily due to increases in payrollinsurance costs, medical costs and directors fees partially offset by decreases in legal and professionalpension costs.
Depreciation and amortization expense in the current nine months increased to $1,253,091$1,311,386 from $1,223,036$1,253,091 in the comparable 20162017 nine months primarily due to improvements in the Nine Bond StreetJowein building in Brooklyn, New York.
There was a $500 gain on disposition of property and equipment in the nine months ended April 30, 2016. There was no gain or loss in the comparable 2017 period.
Interest expense exceeded investment income in the current nine months by $92,541$101,830 and by $158,472$92,541 in the comparable 20162017 nine months. The decrease isincrease was primarily due to interest on litigation (see Note 13) partially offset by increased investment income and scheduled repayment of debt.
As explained above, the enactment of the U.S Tax Act required an adjustment to our deferred tax assets and liabilities to the lower federal rates resulting in an estimated net federal tax benefit of approximately $2.4 million. Income taxes provided (benefit) for the current nine months changed to a gain on salebenefit of marketable securitiesapproximately $2.1 million from an expense of approximately $.7 million in the comparable 2017 nine months, whereas the 2016 nine months had a loss on sale of marketable securities.months.
Liquidity and Capital Resources:
Management considers current working capital and borrowing capabilities adequate to cover the Company’s planned operating and capital requirements. The Company’s cash and cash equivalents amounted to $5,369,079$6,478,050 at April 30, 2017.
In May 2015, the Company entered into a 20 year lease agreement with a new tenant (cancellation clause after the 10th year) to occupy 17,425 square feet of office space at the Jowein building in Brooklyn, New York. Occupancy commenced in March 2017 and rent will commence three months later. The amount of brokerage commissions and construction costs were $496,266 and $1,750,570, respectively. The construction was completed in November 2016.
In August 2016, a tenant at the Company’s Circleville, Ohio property leased an additional 12,000 square feet of warehouse space effective August 16, 2016.
In October 2016, a tenant at the Company’s Levittown, New York property extended its lease for an additional five years expiring May 3, 2023.
In October 2016, a tenant who occupies 2,680 square feet of retail space at the Company’s Jamaica, New York property vacated the space. The space was leased to an existing tenant at a higher annual rental income effective November 2016.
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On December 15, 2016, the Company made a payment in the amount of $1,000,000, which was payment in full for the unsecured note to a related party (see Note 7).
In December 2016, a tenant who occupies 47,100 square feet of retail space at the Company’s Jamaica, New York building extended its lease for an additional two years expiring May 31, 2019.
In February 2017, a tenant who occupies 25,423 square feet of office space at the Company’s Nine Bond Street, Brooklyn, New York building, whose lease expired on March 31, 2017, extended the lease until December 31, 2017.
In February 2017, a tenant who occupies 41,385 square feet of office space at the Company’s Jowein building in Brooklyn, New York surrendered 10,569 square feet and extended the remaining 30,816 square feet from May 31, 2019 until May 31, 2020. The 10,569 square feet surrendered was leased to a new tenant in February 2017 for a period of five years.2018.
In March 2017, the Company leased 7,700 square feet to a medical facility at its Nine Bond Street, Brooklyn, New York building, for a term of ten years with two five year option periods. To accommodate this tenant, an existing tenant surrendered 400 square feet of retail space. The cost of renovations for this tenant will be approximately $420,000$400,000 and brokerage commissions will bewere $216,052. The tenant is anticipated to take occupancy and commence payment of rent in November 2017.late 2018.
On April 4,In August, 2017, a tenant in our Nine Bond Street building in Brooklyn, New York filed for Chapter 11 protection. This tenant accounted for 2.45% of our annual net rental income for the year ended July 31, 2016. While we cannot ascertain what the effect of this filing will be on the Company cash flows would be adversely affected by approximately $37,000 per month should the tenant reject the lease and vacate the premises.
A tenant who occupies 99,992leased 1,423 square feet of retail space to an existing tenant for a period of 18.5 years at the Company’s Fishkill,Nine Bond Street, Brooklyn, New York building. Rent and occupancy is anticipated to occur in late 2018.
In September, 2017, an office tenant who occupies 2,000 square feet at the Company’s Jamaica, New York building plannedvacated the space. The loss in annual rent will be $58,000.
In September, 2017, the Company leased 5,167 square feet of retail space to vacatea tenant at the Company’s Nine Bond Street, Brooklyn, New York building for a period of ten years, effective January, 2018.
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In November, 2017, the Company extended a lease with the existing dental office tenant at its Nine Bond Street, Brooklyn, New York building for an additional ten years, expiring January 15, 2028.
In November, 2017, the Company leased an additional 3,005 square feet to an existing tenant for warehouse space butat its Jowein building in Brooklyn, New York.
In March 2018, the Company leased the 20,000 square feet of area available at its Massapequa, New York property to a restaurant until May 20172030. Rent is anticipated to commence in late 2018.
In April 2018, the Company extended a lease with an agreement was reached giving them occupancyexisting tenant who occupies 84,000 square feet for warehouse space at the Company’s Circleville, Ohio building for an additional three years expiring on a month to month basis.October 31, 2021.
In May 2017,2018, the Company extended a lease with an existing tenant who occupies 8,3003,300 square feet of office space at the Company’s Jowein building in Brooklyn, New York surrendered 5,000 square feet. The 5,000for an additional five years expiring on June 30, 2023.
In May 2018, an office tenant who occupies 3,080 square feet surrendered was leasedat the Company’s Nine Bond Street Brooklyn, New York building informed the Company that it intends to a new tenantvacate the premises in May 2017 for a period of ten years.October 2018. The annual loss in rent will be $112,000.
Cash Flows From Operating Activities:
Deferred Charges: The Company incurred expenditures in the amount of $366,995 for brokerage commissions for one new retail tenant and one existing tenant at the Company’s Jamaica, New York building, one new office tenant at the Company’s Jowein building in Brooklyn, New York and one new tenant which is a medical facility at the Company’s Nine Bond Street building in Brooklyn, New York.
Payroll and Other Accrued Liabilities: The Company incurred additionalhad a balance due at April 30, 2018 for brokerage commissions of $134,346. Brokerage commissions in the amount of $366,995 which related to one new retail tenant, one existing retail tenant, one new office tenant and one new tenant which is a medical facility. The Company also made payments for brokerage commissions$188,191 were paid in the amountnine months ended April 30, 2018.
Provision (Benefit) for Deferred Income Taxes: Enactment of $219,407, which reduced the balance dueU.S Tax Act on December 22, 2017, as explained above, resulted in an estimated net federal tax benefit of approximately $2.4 million. Although the adjustment increased the Company’s net income, it did not increase cash. To reconcile net income to $463,698.net cash provided by operating activities, provision (benefit) for deferred income taxes changed to a benefit of approximately $2.1 million for the current nine months compared to an expense of approximately $.7 million for the comparable 2017 nine months.
Cash Flows From Investing Activities:
The Company had expenditures for elevator upgrade work in the amount of $370,085$227,672 for the nine months ended April 30, 2017 at its Jowein building in Brooklyn, New York for renovations for an existing tenant. The cost of the project was $370,085 and was completed in September 2016. The Company had expenditures of $129,561 for renovations to a new tenant. The cost of the project was $129,561 and was completed in March 2017. The Company also had expenditures of $35,126 for roof projects.
The Company had expenditures of $53,278 for the nine months ended April 30, 2017, for a new office tenant at its Jowein building in Brooklyn, New York. The cost of the project was $1,750,570, which has been paid in full as of April 30, 2017. The project was completed in November 2016.
The Company had expenditures of $221,442 in the nine months ended April 30, 2017 for façade restoration work2018, at the Company’s Nine Bond Street, Brooklyn, New York building. The total cost of the project was $221,442$627,333, and it was completed in March 2017. The Company had expenditures of $115,606 for additional façade work. The cost of the project was $146,767 and was completed in May 2016. The Company had expenditures for elevator work in the amount of $317,699. The cost of the project will be approximately $635,000 and will be completed by October, 2017. The Company had expenditures of $216,660$45,006 for a new tenant. The cost of the project will be approximately $420,000$400,000 of which $290,154 has been paid, and willis expected to be completed in June 2017.late 2018. The Company also had expenditures of $44,488$282,975 for various other construction projects.
The Company had expenditures for electrical work in the amount of $107,661 for the nine months ended April 30, 2018, at its Jowein, Brooklyn, New York building. The work was completed in January, 2018.
The Company had expenditures for elevator upgrade work in the amount of $551,901 for the nine months ended April 30, 2018, at the Company’s Jamaica, New York building. The total cost of the project will be approximately $800,000, and is anticipated to be completed in August, 2018. The Company had expenditures of $278,184 for renovation work for two existing tenants. Work was completed in March, 2018. The Company also had expenditures of $50,470 for various other construction projects.
The Company had expenditures for parking lot lights in the amount of $59,559 for the nine months ended April 30, 2018, at its Fishkill, New York building. The total cost was $168,675 and was completed in May 2018. The Company also had expenditures of $52,810 for paving of the parking lot. The total cost was $175,000 and was completed in May 2018. The Company also had expenditures of $174,828 for various other construction projects.
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The Company had expenditures of $108,514 in the nine months ended April 30, 2017 for various construction projects at its Jamaica, New York building.
Cash Flows From Financing Activities:
On December 15, 2016, the Company made a payment in the amount of $1,000,000, which was payment in full for the unsecured note to a related party (see Note 7).
Cautionary Statement Regarding Forward-Looking Statements:
This section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, other sections of this Report on Form 10-Q and other reports and verbal statements made by our representatives from time to time may contain forward-looking statements that are based on our assumptions, expectations and projections about us and the real estate industry. These include statements regarding our expectations about revenues, our liquidity, our expenses and our continued growth, among others. Such forward-looking statements by their nature involve a degree of risk and uncertainty. We caution that a variety of factors, including but not limited to the factors listed below, could cause business conditions and our results to differ materially from what is contained in forward-looking statements:
● | changes in the rate of economic growth in the United States; |
● | the ability to obtain credit from financial institutions and the related costs; |
● | changes in the financial condition of our customers; |
● | changes in regulatory environment; |
● | lease cancellations; |
● | changes in our estimates of costs; |
● | war and/or terrorist attacks on facilities where services are or may be provided; |
● | outcomes of pending and future litigation; |
● | increasing competition by other companies; |
● | compliance with our loan covenants; |
● | recoverability of claims against our customers and others by us and claims by third parties against us; and |
● | changes in estimates used in our critical accounting policies. |
Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us.
We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to review any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and any Form 8-K reports filed with the United States Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures About Market Risk:
The Company uses fixed-rate debt to finance its capital requirements. These transactions do not expose the Company to market risk related to changes in interest rates. The Company does not use derivative financial instruments. At April 30, 2017,2018, the Company had fixed-rate debt of $5,669,564.$5,508,441.
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Item 4. Controls and Procedures:
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective and provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are likely to materially affect, our internal control over financial reporting.
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Part II - Other Information
Sequentially | |||||
Exhibit | Numbered | ||||
Number | Exhibit | Page | |||
(3) | Articles of Incorporation and Bylaws | N/A | |||
(10) | Material contracts Employment Agreements with Messrs. Shulman, Greenblatt, Lyke and Silva, each originally dated August 1, 2005, were incorporated by reference to Registrant’s Form 8-K dated August 1, 2005. Each of these Employment Agreements had been extended on multiple occasions, the most recent as of August 1, 2017 for three year periods. Each Employment Agreement dated as of August 1, 2017 and scheduled to end on July 31, 2020 is attached as an Exhibit to the Form 10-Q. | 24-59 | |||
(11) | Statement recomputation of per share earnings | N/A | |||
(12) | Statement recomputation of ratios | N/A | |||
(14) | Code of ethics | N/A | |||
(15) | Letter reunaudited interim financial information | N/A | |||
(18) | Letter rechange in accounting principles | N/A | |||
(19) | Report furnished to security holders | N/A | |||
(31) | Additional exhibits - Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||
(31.1) Chief Executive Officer | 60 | ||||
(31.2) Chief Financial Officer | 61 | ||||
(32) | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | 62 | |||
(95) | Mine safety disclosure | N/A | |||
EX-101.INS | XBRL Instance Document | ||||
EX-101.SCH | XBRL Taxonomy Extension Schema | ||||
EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase | ||||
EX-101.LAB | XBRL Taxonomy Extension Label Linkbase | ||||
EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||||
EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase |
Sequentially | |||||
Exhibit | Numbered | ||||
Number | Exhibit | Page | |||
(3) | Articles of Incorporation and Bylaws | N/A | |||
(10) | Material contracts | N/A | |||
(11) | Statement re computation of per share earnings | N/A | |||
(12) | Statement re computation of ratios | N/A | |||
(14) | Code of ethics | N/A | |||
(15) | Letter re unaudited interim financial information | N/A | |||
(18) | Letter re change in accounting principles | N/A | |||
(19) | Report furnished to security holders | N/A | |||
(31) | Additional exhibits - Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||||
(31.1) Chief Executive Officer | 24 | ||||
(31.2) Chief Financial Officer | 25 | ||||
(32) | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350 | 26 | |||
(95) | Mine safety disclosure | N/A |
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EX-101.INS | XBRL Instance Document | ||
EX-101.SCH | XBRL Taxonomy Extension Schema | ||
EX-101.PRE | XBRL Taxonomy Extension Presentation Linkbase | ||
EX-101.LAB | XBRL Taxonomy Extension Label Linkbase | ||
EX-101.CAL | XBRL Taxonomy Extension Calculation Linkbase | ||
EX-101.DEF | XBRL Taxonomy Extension Definition Linkbase |
(b) | Reports on Form 8-K – | |
|
Items reported:
The Company reported its financial results for the three and six months ended January 31, 2018.Date of report filed - March 8, 2018.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
J.W. MAYS, Inc. | |||||||
Date: | June 7, 2018 | Lloyd J. Shulman | |||||
Lloyd J. Shulman | |||||||
President | |||||||
| Chief Executive Officer | ||||||
Date: | June 7, 2018 | Mark S. Greenblatt | |||||
Vice President | |||||||
Chief Financial Officer |
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