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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (C) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24282
Monmouth Capital Corporation
(Exact name of registrant as specified in its charter)
New Jersey 21-0740878
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Juniper Business Plaza, 3499 Route 9 North, Freehold, NJ 07728
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code:(732)577-9993
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1.00 par value
Indicate by check mark whether the registrant (1) has filed all
reports required 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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of voting stock held by non-affiliates
of the Registrant was $3,985,883 (based on 1,383,987 shares of
common stock at $2.88 per share, the closing price on March 14,
2003).
The number of shares outstanding of issuer's common stock as of
March 14, 2003 was 2,575,310 shares.
PART I
ITEM 1. BUSINESS
General Development of Business
Monmouth Capital Corporation (the Company) is a corporation
organized in the State of New Jersey. The Company commenced
operations in 1961.
Prior to fiscal 1994, the Company operated as a small
business investment company under the Small Business Investment
Company Act of 1958 and as an investment company under the
Investment Company Act of 1940. As such, the Company was able to
distribute its income prior to income taxes as dividends to
shareholders. The Company was allowed a deduction from taxable
income for these distributions.
With shareholder approval, the Company surrendered its
license to operate as a small business investment company and
deregistered as an investment company. On January 15, 1993, the
Small Business Administration approved the surrender of the
Company's license. On July 20, 1993, the Securities and Exchange
Commission entered an Order that the Company had ceased to be an
investment company.
Certain members of the Company's Board of Directors manage
two real estate investment trusts. In 1995, the Company success
fully completed a Rights Offering to its shareholders. The
Company raised approximately $1,600,000 after expenses bringing
total equity to approximately $4,500,000.
Change in Year End to Calendar Year
On September 26, 2001 the Company adopted a change from a
fiscal year end of March 31 to a calendar year end, effective for
the short year ended December 31, 2001. Form 8-K was filed with
the Securities and Exchange Commission. The Company elected to
be taxed as a real estate invesement trust (REIT) effective for
the transition period ended December 31, 2001.
For purposes of this Annual Report, the Company has
furnished consolidated financial statements for the proceeding
fiscal year ended March 31, 2001. The Company does not believe
that seasonality has a material adverse effect on the
comparability of information or trends reflected by the
consolidated financial statements. The Company has also
furnished Pro Forma financial information for the corresponding
period of the prior year (See Note 14). Certain amounts in the
consolidated financial statements for the prior periods have been
reclassified to conform to the statement presentation for the
current year. These reclassifications have no effect on net
income.
-2-
ITEM 1. BUSINESS, (CONT'D.)
Narrative Description of the Business
During fiscal 1994, the Company formed a wholly-owned
subsidiary, The Mobile Home Store, Inc., to finance and sell
manufactured homes. This sales operation was conducted at
manufactured home communities owned by United Mobile Homes, Inc.
(United), a related REIT. On March 30, 2001, the Company sold
all of its existing inventory to United at the Company's carrying
value. The Company exited the manufactured home sales business
since it proved to be unprofitable.
On March 31, 1994, the Company purchased a net leased
industrial building in Bethlehem, Pennsylvania. During fiscal
2000, this building was sold at a gain of $245,419. As an
interim measure, the Company is investing in securities of REITs.
The Company has also invested in mortgage backed securities
issued by the Federal National Mortgage Association. The Company
has purchased these securities on margin since the interest and
dividend yields exceed the cost of funds. Such securities are
subject to risk arising from adverse changes in market rates and
prices, primarily interest rate risk relating to debt securities
and equity price risk relating to equity securities.
On July 20, 2001, Palmer Terrace Realty Associates, LLC
(Palmer Terrace), a 51% owned subsidiary of the Company,
purchased a 59,400 square foot warehouse facility in Carlstadt,
New Jersey from WXIII/MWL Real Estate Limited Partnership, an
unrelated entity.
On December 20, 2001, the Company purchased a 59,425 square
foot warehouse facility in White Bear Lake, Minnesota from Jones
Development Company, LLC, an unrelated entity.
On September 18, 2002, the Company purchased a leasehold
interest in a 62,986 square foot warehouse facility in
Cheekowaga, New York, from FedJones Cheekowaga, LLC, an unrelated
entity.
The Company is currently operating as a hybrid REIT
investing in (a) real estate equities; (b) mortgages; (c)
mortgage backed securities; and (d) other REIT securities. The
Company's capital is limited, and there is no assurance the
Company can or will operate as a hybrid REIT. The Company will
consider alternative plans or proposals.
Management
The management of the Company currently operates Monmouth
Real Estate Investment Corporation (MREIC) and United, two REITs.
MREIC is now specializing in net leased industrial properties to
rated tenants on medium term leases. United specializes in
investments in manufactured home communities. It is intended
that the Company will invest in real estate ventures that do not
qualify under the investment objectives of MREIC and United. To
the extent that there may be conflicts of interest as to
prospective investments, the Company may be deprived of
investment opportunities.
-3-
ITEM 1. BUSINESS, (CONT'D.)
Risk Factors
Real Estate Industry Risks - The Company may be adversely
affected by general economic conditions and local real estate
conditions. When a lease expires, a tenant may elect not to
renew it. The Company may not be able to relet the property on
similar terms, or even at all.
Governmental Regulations - Local zoning and use laws,
environmental statutes and other governmental requirements may
restrict expansion, rehabilitation and reconstruction activities.
These regulations may prevent the Company from taking advantage
of economic opportunities. Legislation such as the Americans
with Disabilities Act may require the Company to modify its
properties. Future legislation may impose additional
requirements. No prediction can be made as to what requirements
may be enacted or what changes may be implemented to existing
legislation.
Environmental Liability Risks - Current and former real
estate owners and operators may be required by law to investigate
and clean up hazardous substances released at the properties they
own or operate or have owned or operated. They may be liable to
the government or to third parties for property damage,
investigation costs and cleanup costs. Contamination may
adversely affect the owner's ability to sell or lease real estate
or to borrow using the real estate as collateral. There is no
way of determining at this time the magnitude of any potential
liability to which the Company may be subject arising out of
unknown environmental conditions or violations with respect to
the properties it owns. Environmental laws today can impose
liability on a previous owner or operator of a property that
owned or operated the property at a time when hazardous or toxic
substances were disposed of, or released from, the property. A
conveyance of the property, therefore, does not relieve the owner
or operator from liability. The Company is not aware of any
environmental liabilities relating to its properties which would
have a material adverse effect on its business, assets, or
results of operations. However, no assurance can be given that
environmental liabilities will not arise in the future.
Insurance Considerations - The Company generally maintains
insurance policies related to its business, including casualty,
general liability and other policies covering business
operations, employees and assets. The Company may be required to
bear all losses that are not adequately covered by insurance.
Although management believes that the Company's insurance
programs are adequate, no assurance can be given that the Company
will not incur losses in excess of its insurance coverage, or
that the Company will be able to obtain insurance in the future
at acceptable levels and reasonable cost.
Financing Risks - The Company finances a portion of its
investments through debt. This debt creates risks, including
a) rising interest rates on floating rate debt; b) failure to
repay or refinance existing debt as it matures, which may result
in forced disposition of assets on disadvantageous terms; c)
refinancing terms less favorable than the terms of the existing
debt; and d) failure to meet required payments of principal
and/or interest.
-4-
ITEM 1. BUSINESS, (CONT'D.)
Amendment of Business Policies - The Board of Directors
determines the growth, investment, financing, capitalization,
borrowing, REIT status, operating and distribution policies.
Although the Board of Directors has no present intention to amend
or revise any of these policies, these policies may be amended or
revised without notice to shareholders. Accordingly,
shareholders may not have control over changes in Company
policies.
Market Perception of Common Stock - The market value of
the Company's common stock may be based primarily upon the
market's perception of the Company's growth potential and current
and future cash dividends, and may be secondarily based upon the
real estate market value of the Company's underlying assets. The
market price of the Company's common stock is influenced by the
dividend on the Company's common stock relative to market
interest rates. Rising interest rates may lead potential buyers
of the Company's common stock to expect a higher dividend rate,
which would adversely affect the market price of the Company's
common stock. In addition, rising interest rates would result in
increased expense, thereby adversely affecting cash flow and the
Company's ability to service the Company's indebtedness and pay
dividends.
Qualification as a REIT - The Company intends to qualify as
a REIT. If it fails to do so, it will not be allowed to deduct
distributions to shareholders in computing taxable income and
will be subject to Federal and state income taxes, including any
applicable alternative minimum tax, at regular corporate rates.
In addition, the Company may be barred from qualification as a
REIT for the four years following disqualification. The
additional tax incurred at regular corporate rates would reduce
significantly the cash flow available for distribution to
shareholders and for debt service. Furthermore, the Company
would no longer be required to make any distributions to
shareholders as a condition to REIT qualification. Any
distributions to shareholders that otherwise would have been
subject to tax as a capital gain dividend would be taxable as
ordinary income to the extent of the Company's current and
accumulated earnings and profits. Corporate distributees,
however, may be eligible for the dividends received deduction on
the distributions, subject to limitations under the Internal
Revenue Code. To qualify as a REIT, the Company must comply with
certain highly technical and complex requirements. Management
cannot be certain that the Company have complied with these
requirements since there are few judicial and administrative
interpretations of these provisions. In addition, facts and
circumstances that may be beyond the Company's control may affect
the Company's ability to qualify as a REIT. No assurance can be
given that new legislation, regulations, administrative
interpretations or court decisions will not change the tax laws
significantly with respect to qualification as a REIT or with
respect to the Federal income tax consequences of qualification.
The Company intend to qualify as a REIT. However, no assurance
can be given that the Company qualifies as a REIT or will remain
qualified as a REIT. Notwithstanding the Company's status as a
REIT, the Company is subject to various Federal, state and local
taxes on income and property. The Company will be taxed at
regular corporate rates on any undistributed taxable income,
including undistributed net capital gains. The Company may also
have to pay some state income or franchise taxes because not all
states treat REITS in the same manner as they are treated for
Federal income tax purposes.
-5-
ITEM 1. BUSINESS, (CONT'D.)
Number of Employees
At March 14, 2003, the Company had five full-time employees.
A Board of Directors consisting of nine directors is responsible
for the general policies of the Company.
ITEM 2. PROPERTIES
On July 20, 2001, Palmer Terrace Realty Associates, LLC
(Palmer Terrace), a 51% owned subsidiary of the Company,
purchased a 59,400 square foot warehouse facility in Carlstadt,
New Jersey from WXIII/MWL Real Estate Limited Partnership, an
unrelated entity. This warehouse facility is 100% net leased to
Macy's East, Inc., an Ohio corporation. The purchase price was
approximately $3,100,000. The average monthly rental over the
term of the lease is $29,082. This lease expires on April 5,
2009.
On December 20, 2001, the Company purchased a 59,425 square
foot warehouse facility in White Bear Lake, Minnesota from Jones
Development Company, LLC, an unrelated entity. This warehouse
facility is 100% net leased to Federal Express Corporation. The
purchase price was approximately $4,800,000. The monthly rental
over the term of the lease is $36,100. This lease expires on
April 1, 2011.
On September 18, 2002, the Company purchased a leasehold
interest in a 62,986 square foot warehouse facility in
Cheekowaga, New York from FedJones Cheekowaga, LLC (FedJones), an
unrelated entity. This lease was between FedJones and the Erie
County Industrial Development Agency (ECIDA). This warehouse
facility is 100% subleased to FedEx Ground Package System, Inc.
under a net lease. The purchase price was approximately
$4,200,000. The monthly rental over the term of the lease is
$33,800.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-6-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Prior to October 19, 1995, the shares of the Company were
traded on the over-the-counter market. As of October 19, 1995,
the Company's shares are traded on the National Association of
Securities Dealers Automatic Quotations (NASDAQ) Small
Capitalization market under the symbol "MONM". The per share
range of high and low market during each quarter of the last
three fiscal years were as follows:
Year Ended Short Year Ended Year Ended
December 31, December 31, March 31,
2002 2001 2001
Market Price Market Price Market Price
Low High Low High Low High
Quarter 1 2.77 3.30 N/A N/A 2-7/16 3
Quarter 2 3.29 3.92 2.65 3.05 2-3/8 2-3/4
Quarter 3 3.25 4.00 2.66 3.45 2-7/16 2-7/8
Quarter 4 3.19 3.95 2.70 3.25 2-7/16 3-1/2
The over-the-counter market quotations reflect the inter-
dealer prices, without retail mark-up, mark-down or commission,
and may not necessarily represent actual transactions.
As of December 31, 2002, there were approximately 405
holders of the Company's common stock based on the number of
record owners.
For the year ended December 31, 2002, the short year ended
December 31, 2001, and the year ended March 31, 2001, total
dividends paid by the Company amounted to $748,497 or $.35 per
share ($.2309 taxed as ordinary income and $.1191 taxed as a long-
term capital gain), $413,627 or $.25 per share (all taxed as
ordinary income), and $76,123 or $.05 per share (all taxed as
ordinary income).
Future dividend policy will depend on the Company's
earnings, capital requirements, financial condition, availability
and cost of bank financing and other factors considered relevant
by the Board of Directors.
-7-
ITEM 6. SELECTED FINANCIAL DATA
CAPTION
For the Years Ended March 31,
For the
For the Short
Year Ended Year Ended
December 31, December 31,
2002 2001 2001 2000 1999
Income
Statement
Data:
Total Income $2,840,077 $1,444,163 $5,831,320 $5,453,916 $5,965,265
Total Expenses 2,239,932 1,026,565 5,906,020 5,685,135 6,178,666
Gain on Sale
of Real
Estate
Investments -0- -0- -0- 245,419 -0-
Minority Taxes 45,507 9,393 -0- -0- -0-
Net Income
(Loss) 554,638 398,205 (74,700) 14,200 (213,401)
Net Income
(Loss)
Per Share .29 .25 (0.05) 0.01 (0.14)
=========================================================================
Balance Sheet Data:
Total Assets $27,101,532 $23,037,800 $15,494,536 $9,068,788 $7,760,765
Mortgages
Payable 8,616,405 5,719,724 -0- -0- -0-
Shareholders'
Equity 9,110,010 7,325,722 6,463,842 5,273,879 5,348,223
=========================================================================
Cash Dividends
Per Share $.35 $0.25 $0.05 $0.05 $0.05
Average Number
of Shares
Outstanding:
Basic 1,924,860 1,597,213 1,534,759 1,516,528 1,496,727
Diluted 1,941,477 1,602,787 1,534,759 1,516,528 1,496,727
-8-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Liquidity and Capital Resources
The Company's ability to generate cash adequate to meet its
needs is dependent primarily on income from its real estate
investments and its securities portfolio, the sale of real estate
investments and securities, refinancing of mortgage debt,
leveraging of real estate investments, availability of bank
borrowings, proceeds from the Dividend Reinvestment and Stock
Purchase Plan, and access to the capital markets. Purchases of
new properties, purchases of securities, payments of expenses
related to real estate operations, capital improvements programs,
debt service, management and professional fees, and dividend
requirements place demands on the Company's liquidity.
The Company intends to operate its existing properties from
the cash flows generated by the properties. However, the
Company's expenses are affected by various factors, including
inflation. Increases in operating expenses raise the breakeven
point for a property and, to the extent that they cannot be
passed on through higher rents, reduce the amount of available
cash flow which can adversely affect the market value of the
property.
Net cash provided by operating activities for the year
ended December 31, 2002, the short year ended December 31, 2001
and the fiscal year March 31, 2001 amounted to $1,401,577,
$287,493 and $178,452, respectively. The increases during 2002
and 2001 were due primarily to profitable operations.
Total real estate investments increased by $4,242,698 during
the year ended December 31, 2002. This was due primarily to the
purchase of a new warehouse facility. The Company expects to
make additional real estate investments from time to time.
Loans receivable decreased by $509,604 during the year
ended December 31, 2002. This decrease was the primarily the
result of collections of $297,096 and a provision for losses of
$68,500 partially offset by new loans of $110,600. The Company
also repossessed the collateral for loans receivable of $254,608
and placed it into inventory.
Securities available for sale increased by $1,188,167
primarily as a result of purchases of $3,617,631 and an increase
in the unrealized gain of $45,055, partially offset by sales of
$2,474,519. The securities portfolio at December 31, 2002 has
experienced an approximate 13.5% increase in value from cost.
Unamortized financing costs and mortgages payable increased
by $52,704 and $2,896,681, respectively, due primarily to the new
acquisition during 2002.
Loans payable decreased by $789,771 primarily as a result
of a decrease in the margin loan payable. The Company purchased
securities on margin since the interest and dividend yields
exceeded the cost of funds.
-9-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
Results of Operations
Year Ended December 31, 2002 vs. Short Year Ended December 31,
2001
Income is comprised primarily of interest and dividend
income and rental income. On March 30, 2001, the Company exited
the manufactured home sales business since it proved to be
unprofitable. During 2002, sales of manufactured homes, cost of
sales of manufactured home, selling expense and other expenses
are directly attributable to the sale of repossessed manufactured
homes.
Interest and dividend income increased by $299,888 during
2002 primarily due to the purchases of securities available for
sale during 2002 and 2001.
Rental income increased by $810,343 primarily due to the new
acquisitions in 2002 and 2001.
Other income, consisting primarily of the gain on sales of
securities available for sale, decreased by $73,317 during the
year ended December 31, 2002.
Real estate taxes and depreciation expense increased by
$100,539 and $128,521, respectively, due to the new acquisitions
in 2002 and 2001.
Salaries and employee benefits and professional fees
remained relatively stable.
Interest Expense increased by $419,508 due primarily to the
new mortgages.
Other expenses increased by $165,973 due primarily to an
increase in stock record costs and public relations.
-10-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
Short Year Ended December 31, 2001 vs. Year Ended March 31, 2001
Income is comprised primarily of interest and dividend
income and rental income. On March 30, 2001, the Company exited
the manufactured home sales business since it proved to be
unprofitable. Sales of manufactured homes, cost of sales of
manufactured home, selling expense, other expenses and salaries
and employee benefits decreased during the short year ended
December 31, 2001 as compared to the year ended March 31, 2001.
These changes are directly attributable to the exiting of the
manufactured home sales business.
Interest and dividend income increased by $71,713 during the
short year ended December 31, 2001 as compared to the year ended
March 31, 2001 primarily due to the purchases of securities
available for sale.
Rental income increased by $195,560 during the short year
ended December 31, 2001 as compared to the year ended March 31,
2001 primarily due to the purchase of two warehouse facilities
during the short year ended December 31, 2001.
Other income increased by $100,763 during the short year
ended December 31, 2001 as compared to the year ended March 31,
2001 primarily due an increase in the gain on sales of securities
available for sale.
Professional fees annualized, remained relatively stable.
Interest expense increased due primarily to the mortgages on
the new acquisitions.
Critical Accounting Policies and Estimates
The Company's most critical accounting policies relate to
the evaluation of impairment of real estate and investment
securities. The Company evaluates the need for an impairment
loss on its real estate assets when indicators of impairment are
present and the undiscounted cash flows are not sufficient to
recover the asset's carrying amount. The impairment loss is
measured by comparing the fair value of the asset to its carrying
amount. In addition, estimates are used when accounting for the
allowance for doubtful accounts, potentially excess and obsolete
inventory and contingent liabilities, among others. These
estimates are susceptible to change and actual results could
differ from these estimates. The effects of changes in these
estimates are recognized in the period they are determined.
-11-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS, (CONT'D.)
The Company evaluates other than temporary impairment on
individual securities in its investment portfolio when a security
has experienced a sustained decline in fair value below amortized
cost. Management considers several factors, including the length
of time such security has experienced a decline, the relationship
to peer group stock performance and the financial condition and
near-term prospects of the issuer. These evaluations are
subjective in nature. Other than temporary declines in value
result in a charge to net income reducing the carrying value of
the security.
Recent Accounting Pronouncements
In December, 2002, the Financial Accounting Standards Boards
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No. 148, "Accounting for Stock-Based Compensation, Transition and
Disclosure." SFAS No. 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. SFAS No.
148 also requires that disclosures of the pro forma effect of
using the fair value method of accounting for stock-based
employee compensation be displayed more prominently and in a
tabular format. Additionally, SFAS No. 148 requires disclosure
of the pro forma effect in interim financial statement. The
additional disclosure requirements of SFAS No. 148 are effective
for fiscal years ended after December 15, 2002. The Company has
adopted the expanded disclosure requirements as of December 31,
2002.
Controls and Procedures
Within the 90 days prior to the date of this report, the
Company carried out an evaluation, under the supervision of the
Company's Chief Executive Officer and Chief Financial Officer and
with the participation of the Company's management, including the
effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to the Securities
Exchange Act Rule 13A-14. Based upon the evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the
Company required to be included in the Company's periodic
Securities and Exchange Commission filings. No significant
changes were made in the Company's internal controls or in other
factors that could significantly affect these controls subsequent
to the date of their evaluation.
Safe Harbor Statement
This Form 10-K contains various "forward-looking statements"
within the meaning of the Securities Act of 1933 and the
Securities Exchange Act of 1934, and the Company intends that
such forward-looking statements be subject to the safe harbors
created thereby. The words "may", "will", "expect", "believe",
"anticipate", "should", "estimate", and similar expressions
identify forward-looking statements. These forward looking
statements reflect the Company's current views with respect to
future events and finance performance, but are based upon
current assumptions regarding the Company's operations,
future results and prospects, and are subject
-12-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION, (CONT'D.)
to many uncertainties and factors relating to the Company's
operations and business environment which may cause the actual
results of the Company to be materially different from any future
results expressed or implied by such forward-looking statements.
Such factors include, but are not limited to, the following:
(i) changes in the general economic climate, including interest
rates; (ii) increased competition in the geographic areas in
which the Company operates; and (iii) changes in government laws.
The Company undertakes no obligation to publicly update or revise
any forward-looking statements whether as a result of new
information, future events, or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The Company is exposed to interest rate changes primarily as
a result of its line of credit and long-term debt used to
maintain liquidity and fund capital expenditures and expansion of
the Company's real estate investment portfolio and operations.
The Company's interest rate risk management objectives are to
limit the impact of interest rate changes on earnings and cash
flows and to lower its overall borrowing costs. To achieve its
objectives, the Company borrows primarily at fixed rates. At
December 31, 2002, the Company had $8,616,405 of fixed rate
mortgages payable, of which $3,278,967 matures in 2011,
$3,069,924 matures in 2017, and $2,267,514 matures in 2021. The
average interest rate on these mortgages is 7.17%. At December
31, 2002, the fair value of these mortgages amounted to
$8,831,285.
The Company also has approximately $8.7 million in variable
rate debt due on demand. This debt is primarily margin loans
secured by marketable securities. The interest rate on these
margin loans range from 1.8% to 3% at December 31, 2002. The
carrying value of the Company's variable rate debt approximates
fair value at December 31, 2002.
The Company also invests in both debt and equity securities
of other REITs and is primarily exposed to equity price risk from
adverse changes in market rates and conditions. All securities
are classified as available for sale and are carried at fair
value. The Company has no significant interest rate risk
relating to debt securities as they are short-term in nature.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in
Part IV, Item 14 (a)(1) are incorporated herein by reference and
filed as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-13-
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITY OF
THE REGISTRANT
Several of the Directors and Officers of the Company also
serve as directors of Monmouth Real Estate Investment Corporation
(MREIC) and United Mobile Homes, Inc. (United), both publicly-
owned real estate investment trusts.
CAPTION
Director
Since/
Principal Occupation Shares Owned
and
Name, Age and Title Past Five Years % of Total
Ernest V. Treasurer (1961 to 1961
Bencivenga present), Secretary (1967 Owns 7,925 shs
(84) to present) and Director. .35% (1)
Secretary/Treasurer Financial Consultant (1976
And Director to present); Treasurer and
Director (1968 to present)
of Monmouth Real Estate
Investment Corporation;
Secretary/Treasurer (1984
to present) and Director
(1969 to present) of United
Mobile Homes, Inc.
Anna T. Chew Vice President (2001 to 1994
(44) present) Controller (1991 Owns 17,707
Vice President to present) and Director. shs
And Director Certified Public .78 % (2)
Accountant; Vice President
and Chief Financial Officer
(1995 to present),
Controller (1991 to 1995)
and Director (1994 to
present) of United Mobile
Homes, Inc.; Controller
(1991 to present) and
Director (1993 to present)
of Monmouth Real Estate
Investment Corporation.
Neal Herstik Attorney at Law, Gross, 2002
(44) Truss & Herstik, PC (1997 Owns 500 shs
Director to present); First Vice .02%
President, Marlboro
Community Players, Inc., a
non-profit corporation
(2000 to present); Co-
founder and former
President, Manalapan-
Englishtown Education
Foundation, Inc., a non-
profit corporation (1995 to
2001).
-14-
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITY
OF THE REGISTRANT, (CONT'D.)
Director
Since/
Principal Occupation Shares Owned
and
Name, Age and Title Past Five Years % of Total
Charles P. Director. Investor; 1970
Kaempffer Director (1974 to present) Owns 15,331
(65) of Monmouth Real Estate shs
Director Investment Corporation; .67 % (3)
Director (1969 to present)
of United Mobile Homes,
Inc.; Vice Chairman and
Director (1996 to present)
of Community Bank of New
Jersey.
Eugene W. Landy President (1961 to present) 1961
(69) and Director. Attorney at Owns 285,899
President Law; Chairman of the Board shs
And Director (1995 to present), 12.28 % (4)
President (1969 to 1995)
and Director (1969 to
present) of United Mobile
Homes, Inc.; President and
Director (1968 to present)
of Monmouth Real Estate
Investment Corporation.
Michael Landy Investor. President (1998 2001
(41) to 2001) of Siam Records, Owns 38,726
Director L.L.C.; Chief Engineer and shs
Technical Director (1987 to 1.70% (5)
1998) of GRP Recording
Company.
Samuel A. Landy Director. Attorney at Law; 1994
(42) President (1995 to Owns 120,839
Director present), Vice President shs
(1991 to 1995) and Director 5.19 % (6)
(1992 to present) of United
Mobile Homes, Inc.;
Director (1989 to present)
of Monmouth Real Estate
Investment Corporation.
Eugene Rothenberg Director. Investor; 2001
(70) Director (1977 to present) Owns 4,772 shs
Director of United Mobile Homes, .21 %
Inc.
Robert G. Sampson Director. Investor; 1963
(76) Director (1968 to 2001) of Owns 16,986
Director Monmouth Real Estate shs
Investment Corporation; .75 %
Director (1969 to present)
of United Mobile Homes,
Inc.; General Partner (1983
to present) of Sampco,
Ltd., an investment group.
TOTAL 508,685 shs
21.40%
-15-
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITY OF
THE REGISTRANT, (CONT'D.)
(1) Includes 6,262 shares held by Mr. Bencivenga's wife.
(2) Held jointly with Ms. Chew's husband.
(3) Includes (a) 726 shares in joint name with Mrs. Kaempffer;
(b) 270 shares held by Mr. Kaempffer's wife; and (c) 7,000
shares in joint name with Mrs. Kaempffer held as Trustees
for Defined Benefit Pension Plan.
(4) Includes (a) 8,882 shares held by Mr. Landy's wife; (b)
32,835 shares held in the Landy & Landy Employees' Pension
Plan, of which Mr. Landy is a Trustee with power to vote;
(c) 69,051 shares held in the Landy & Landy Employees'
Profit Sharing Plan, of which Mr. Landy is Trustee with
power to vote; and (d) 14,545 shares held by Landy
Investments, Ltd. of which Mr. Landy has power to vote; and
(e) 10,000 shares held in the Eugene W.. and Gloria Landy
Family Foundation, a charitable trust, of which Mr. Landy
has power to vote. Also includes 50,000 shares issuable
upon exercise of a stock option.
(5) Includes 10,692 shares in custodial accounts for Mr. Landy's
children under the Uniform Gift to Minor's Act in which he
disclaims any beneficial interest, but has power to vote.
(6) Includes (a) 14,268 shares held by Mr. Landy's wife; (b)
16,269 shares in custodial accounts for Mr. Landy's
children under the Uniform Gift to Minor's Act in which he
disclaims any beneficial interest, but has power to vote;
and (c) 27,550 shares in the Samuel Landy Family Limited
Partnership. Also includes 50,000 shares issuable upon
exercise of a stock option.
-16-
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following Summary Compensation Table shows compensation
paid by the Company to its chief executive officer for services
rendered during the year ended December 31, 2002, short year
ended December 31, 2001, and the fiscal year ended March 31,
2001. Because no executive officers received total annual salary
and bonus exceeding $100,000, only the compensation paid to the
chief executive officer is to be disclosed under the Securities
and Exchange Commission disclosure requirements.
Name and Principal Compensation
Position Salary Bonus Other (1)
Eugene W. Landy 12/31/02 $50,000 None $20,700
Chief Executive 12/31/01 $37,500 None $ 1,600
Officer 3/31/01 $50,000 None $ 3,200
(1) Represents base compensation and directors' fees. Also
includes legal fees of $17,500 in 2002.
Stock Option Plan
The following table sets forth for the executive officer
named in the Summary Compensation Table, information regarding
stock options outstanding at December 31, 2002:
Number of Value of
Unexercised Unexercised
Options at Options
Year-End at Year-End
Shares Value Exercisable/ Exercisable/
Name Exercised Realized Unexercisable Unexercisable
Eugene W. -0- N/A $50,000/ $ -0- $11,500/ $ -0-
Landy
Compensation of Directors
The Directors receive a fee of $800 for each Board meeting
attended. Directors appointed to house committees receive $150
for each meeting attended. Those specific committees are
Compensation Committee, Audit Committee and Stock Option
Committee.
-17-
ITEM 11. EXECUTIVE COMPENSATION, (CONT'D.)
Report of the Compensation Committee
Overview and Philosophy
The Company has a Compensation Committee consisting of three
independent outside Directors. This Committee is responsible for
making recommendations to the Board of Directors concerning
executive compensation. The Compensation Committee takes into
consideration three major factors in setting compensation.
The first consideration is the overall performance of the
Company. The Committee believes that the financial interests of
the executive officers should be aligned with the success of the
Company and the financial interests of its shareholders.
The second consideration is the individual achievements made
by each officer. The Company is relatively small. The Committee
is aware of the contributions made by each officer and makes an
evaluation of individual performance based on their own
familiarity with the officer.
The final criteria in setting compensation is comparable
wages in the industry.
Evaluation
The Committee reviewed the progress made by Eugene W. Landy,
Chief Executive Officer, in locating alternative business and
investment opportunities. The Committee decided to continue Mr.
Landy's annual compensation of $50,000.
Other Information
Except for specific agreements, the Company has no
retirement plan in effect for officers, directors or employees
and, at present, has no intention of instituting such a plan.
-18-
ITEM 11. EXECUTIVE COMPENSATION, (CONT'D.)
Comparative Performance
The following line graph compares the total return of the
Company's Common Stock for the last five fiscal years to the
NASDAQ Total Return Index and the NASDAQ Financial Stocks Total
Return Index. The total return reflects stock price appreciation
and dividend reinvestment for all three comparative indices. The
information herein has been obtained from sources believed to be
reliable, but neither its accuracy nor its completeness is
guaranteed.
Monmouth
Year Ended Capital NASDAQ NASDAQ
December 31, Corporation Total Financial
1997 100 100 100
1998 123 141 97
1999 91 261 97
2000 91 157 104
2001 109 125 115
2002 155 86 118
-19-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of December 31, 2002, no person owned of record or was
known by the Company to beneficially own more than 5% of the
shares, except as follows:
Name and Address Shares Owned Percent of
Of Beneficial Owner Beneficially Class
Eugene W. Landy
20 Tuxedo Road
Rumson, NJ 07760 285,899 12.28%
Samuel A. Landy
124 Federal Road
Monroe Twp., NJ 08831 120,839 5.19%
The Company believes that during 2002, all persons required to
report ownership and changes in ownership of common stock
pursuant to Section 16(a) of the Securities Exchange Act of 1934
have complied.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain relationships and related party transactions are
incorporated herein by reference to part IV, Item 14(a)(1)(vi),
Note 10 of the Notes to Consolidated Financial Statements-
Payments to Afiliated Persons and Related Party Transactions.
-20-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND
REPORTS ON FORM 8-K
(a) (1) The following Financial Statements are filed as part of
this report:
Page
_____
(i) Auditors' Report 23
(ii) Consolidated Balance Sheets 24-25
(iii) Consolidated Statements of Income 26
(iv) Consolidated Statements of Shareholders' 27
Equity
(v) Consolidated Statements of Cash Flows 28
(vi) Notes to Consolidated Financial Statements 29-44
(a)(2) Financial Statement schedules are omitted for the reason
that they are not required, are not applicable, or the
required information is set forth in the financial
statements or notes thereto.
(a)(3) The Exhibits set forth in the following index of Exhibits
are filed as a part of this Report.
Exhibit No. Description
(3) Articles of Incorporation and By-Laws - Reference is
hereby made to that filed with the Securities and Exchange
Commission with the Company's Form 10-K/A No. 2 for the
year ended March 31, 1994.
(21) Subsidiaries of the Registrant - During fiscal 1994, the
Registrant formed a wholly-owned subsidiary, The Mobile Home
Store, Inc. to finance and sell manufactured homes. This
subsidiary merged into the Registrant during 2001. During
2001, the Registrant formed a subsidiary, Palmer Terrace
Realty Associates, LLC to purchases a warehouse facility in
Carlstadt, New Jersey.
-21-
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K, (CONT'D.)
Exhibit Description
No.
99.1 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
99.3 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.4 Certification pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(a)(3)(b) Reports on Form 8-K - None
-22-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Monmouth Capital Corporation
Freehold, New Jersey
We have audited the accompanying consolidated balance sheets
of Monmouth Capital Corporation as of December 31, 2002 and 2001,
and the related consolidated statements of income, shareholders'
equity and cash flows for the year ended December 31, 2002, the
short year ended December 31, 2001 and the year ended March 31,
2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing
standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Monmouth Capital Corporation at December
31, 2002 and 2001, and the consolidated results of their
operations and their cash flows for the year ended December 31,
2002, the short year ended December 31, 2001 and the year ended
March 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Cowan, Gunteski & Co.
March 17, 2003
Toms River, New Jersey
-23-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
ASSETS 2002 2001
____________ ____________
Real Estate Investments:
Land $2,099,065 $1,659,065
Buildings, Improvements and
Equipment, net of accumulated
depreciation of $285,852 and
$80,000, respectively 9,750,148 6,155,971
___________ ___________
Total Real Estate Investments 11,849,213 7,815,036
Loans Receivable, net of allowance
for losses of $100,845 and
$58,770, respectively 1,888,094 2,397,698
Cash and Cash Equivalents 174,099 607,443
Accounts Receivable 27,625 157,292
Securities Available for Sale, at
Fair Value:
Federal National Mortgage
Association 3,348,671 5,327,937
Government National Mortgage
Association 149,758 205,533
Other Securities Available for
Sale 9,346,508 6,123,300
Inventory 118,009 253,404
Prepaid Expenses and Other
Current Assets 13,942 17,248
Unamortized Financing Costs 185,613 132,909
___________ ___________
TOTAL ASSETS $27,101,532 $23,037,800
=========== ===========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-24-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT.)
December 31, December 31,
2002 2001
____________ ____________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Mortgages Payable $8,616,405 $5,719,724
Accounts Payable and Accrued
Expenses 327,391 158,711
Loans Payable 8,660,162 9,449,933
Other Liabilities 35,000 34,657
___________ ___________
Total Liabilities 17,638,958 15,363,025
___________ ___________
Minority Interest 352,564 349,053
Shareholders' Equity: ___________ ___________
Common Stock (par value $1.00
per share; Authorized
10,000,000 shares; issued
and outstanding 2,277,537
and 1,697,014 shares
respectively) 2,277,537 1,697,014
Additional Paid-In Capital 4,993,306 3,640,737
Accumulated Other Comprehensive
Income 1,734,189 1,689,134
Retained Earnings 104,978 298,837
___________ ___________
Total Shareholders' Equity 9,110,010 7,325,722
___________ ___________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $27,101,532 $23,037,800
=========== ===========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-25-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the
For the Short For the
Year Ended Year Ended Year Ended
December 31, December 31, March 31,
2002 2001 2001
___________ ___________ ___________
Income:
Sales of Manufactured
Homes $394,500 $35,500 $4,790,693
Interest and Dividend
Income 1,247,379 947,491 875,778
Rental Income 1,016,513 206,170 10,610
Other Income 181,685 255,002 154,239
__________ __________ __________
Total Income 2,840,077 1,444,163 5,831,320
__________ __________ __________
Expenses:
Cost of Sales of
Manufactured Homes 390,003 33,836 4,192,175
Selling Expense 5,066 -0- 425,620
Real Estate Taxes 102,955 2,416 -0-
Salaries and Employee
Benefits 178,586 136,346 254,518
Professional Fees 81,554 86,201 129,590
Interest Expense 792,667 373,159 364,690
Depreciation 208,521 80,000 50,519
Other Expenses 480,580 314,607 488,908
__________ __________ __________
Total Expenses 2,239,932 1,026,565 5,906,020
__________ __________ __________
Income (Loss) Before
Minority Interest 600,145 417,598 (74,700)
Minority Interest 45,507 19,393 -0-
__________ __________ __________
NET INCOME (LOSS) $554,638 $398,205 $ (74,700)
=========== =========== ===========
NET INCOME (LOSS) PER
SHARE-BASIC AND DILUTED $.29 $ .25 $ (0.05)
=========== =========== ===========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 1,924,860 1,597,213 1,534,759
=========== =========== ===========
DILUTED 1,941,477 1,602,787 1,534,759
=========== =========== ===========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-26-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Accumulated
Additional Other Com- Compre-
Common Stock Paid-In Prehensive Retained hensive
Number Amount Capital Income Earnings Income
Balance
March 31, 2000 1,522,280 $1,522,280 $3,319,346 $ (32,829) $ 465,082
Common
Stock Issued
with the DRIP* 51,510 51,510 90,151 -0- -0-
Net Loss -0- -0- -0- -0- (74,700) $ (74,700)
Distributions -0- -0- -0- -0- (76,123)
Unrealized
Net Holding
Gains on
Securities
Available for
Sale -0- -0- -0- 1,199,125 -0- 1,199,125
_________ _________ _________ _________ ________ _________
Balance
March 31, 2001 1,573,790 1,573,790 3,409,597 1,166,296 314,259 $1,124,425
=========
Common Stock
Issued with
DRIP 123,224 123,224 231,240 -0- -0-
Net Income -0- -0- -0- -0- 398,205 $ 398,205
Distributions -0- -0- -0- -0- (413,627)
Unrealized
Net Holding
Gains on
Securities
Available for
Sale -0- -0- -0- 522,838 -0- 522,838
_________ _________ _________ _________ _________ _________
Balance
December 31,
2001 1,697,014 1,697,014 3,640,737 1,689,134 298,837 $ 921,043
=========
Common Stock
Issued with
DRIP 580,523 580,523 1,352,569 -0- -0-
Net Income -0- -0- -0- -0- 54,638 $ 554,638
Distributions -0- -0- -0- -0- (748,497)
Unrealized
Net Holding
Gains on
Securities
Available for
Sale -0- -0- -0- 45,055 -0- 45,055
_________ _________ _________ _________ ________ _________
Balance
December 31,
2002 2,277,537 $2,277,537 $4,993,306 $1,734,189 $ 104,978 $ 599,693
========= ========= ========= ========= ======== =========
*Dividend Reinvestment and Stock Purchase Plan
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-27-
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the For the Short For the
Year Ended Year Ended Year Ended
December 31, December 31, March 31,
2002 2001 2002
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Income (Loss) $554,638 $ 398,205 $ (74,700)
Adjustments to reconcile net
income to net cash provided
by operating activities:
Income Allocated to Minority
Interest 45,507 19,393 -0-
Depreciation and Amortization 221,935 81,500 60,519
Provision for Loan Losses 68,500 134,400 -0-
Gain on Sale of Securities
Available for Sale (181,002) (254,684) (31,598)
Changes In Operating Assets and
Liabilities:
Accounts Receivable 129,667 (109,587) 82,893
Inventory 390,003 -0- 489,317
Prepaid Expenses and Other
Current Assets 3,306 (17,973) 25,297
Accounts Payable and Accrued
Expenses 168,680 29,096 (330,397)
Other Liabilities 343 7,143 (42,879)
_________ _________ __________
Net Cash Provided by Operating
Activities 1,401,577 287,493 178,452
_________ _________ __________
CASH FLOWS FROM INVESTING
ACTIVITIES
Loans Made (110,600) -0- (1,291,195)
Collections and Other Decreases
in Loans Receivable 297,096 263,206 747,291
Purchase of Securities
Available for Sale (3,617,631) (204,907) (8,198,342)
Proceeds from Sales and Other
Decreases in Securities
Available for Sale 2,655,521 1,602,957 225,674
Additions to Real Estate
Investments (4,242,698) (7,883,971) (103,430)
Proceeds from Sale of Real
Estate Investments -0- -0- 389,834
Disposition of Inventory -0- -0- 2,261,624
__________ __________ __________
Net Cash Used by Investing
Activities (5,018,312) (6,222,715) (5,968,544)
__________ __________ __________
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from Mortgages 3,100,000 5,736,250 -0-
Proceeds from Loans -0- 900,000 -0-
Net (Decrease) Increase in
Margin Loans Payable and
Inventory Financing (789,771) (323,632) 5,609,061
Principal Payments of
Mortgages (203,319) (16,526) -0-
Financing Costs on Debt (66,118) (116,374) -0-
Increase in Minority Interest (41,996) 329,660 -0-
Dividends Paid (551,994) (320,264) (54,973)
Proceeds from the Issuance of
Class A Common Stock 1,736,589 261,101 120,511
__________ __________ __________
Net Cash Provided by Financing
Activities 3,183,391 6,450,215 5,674,599
__________ __________ __________
Net (Decrease) Increase in Cash
and Cash Equivalents (433,344) 514,993 (115,493)
Cash and Cash Equivalents at
Beginning of Year 607,443 92,450 207,943
__________ __________ __________
Cash and Cash Equivalents at
End of Year $ 174,099 $ 607,443 $ 92,450
========== ========= =========
See Accompanying Independent Auditors' Report and
Notes to Consolidated Financial Statements
-28-
MONMOUTH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
NOTE 1 - CHANGE IN YEAR END TO CALENDAR YEAR
On September 26, 2001 Monmouth Capital Corporation (the
Company) adopted a change from a fiscal year end of March 31 to a
calendar year end, effective for the short year ended December
31, 2001. Form 8-K was filed with the Securities and Exchange
Commission.
For purposes of this Annual Report, the Company has
furnished consolidated financial statements for the proceeding
fiscal year ended March 31, 2001. The Company does not believe
that seasonality has a material adverse effect on the
comparability of information or trends reflected by the
consolidated financial statements. The Company has also
furnished Pro Forma financial information for the corresponding
period of the prior year (See Note 14).
In conjunction with the change in year end, the Company
elected to be taxed as a real estate investment trust (REIT)
effective for the transition period ended December 31, 2001.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principals of Consolidation and Minority Interests
The Company formed a wholly-owned subsidiary, The Mobile
Home Store, Inc. (MHS), to finance and sell manufactured homes.
MHS was incorporated in the State of New Jersey on July 28, 1993.
MHS was merged into the Company on December 6, 2001. The Company
consolidates the results of certain operations that have minority
interest. All inter-company transactions and balances have been
eliminated in consolidation.
Description of the Business
The Company is a corporation organized in New Jersey which
commenced operations in 1961. Prior to fiscal 1994, the Company
was an investment company under the Investment Company Act of
1940 and a small business investment company licensed under the
Small Business Investment Company Act of 1958.
During fiscal 1994, the Company formed MHS to finance and
sell manufactured homes at manufactured home communities owned by
United Mobile Homes, Inc. (United), a related REIT. On March 30,
2001, the Company sold all of its existing inventory to United at
the Company's carrying value. The Company exited the
manufactured home sales business since it proved to be
unprofitable.
-29-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
On March 31, 1994, the Company purchased a net leased
industrial building in Bethlehem, Pennsylvania. During fiscal
2000, this building was sold at a gain of $245,419. As an
interim measure, the Company is investing in securities of REITs.
The Company has also invested in mortgage backed securities
issued by the Federal National Mortgage Association. The Company
has purchased these securities on margin since the interest and
dividend yields exceed the cost of funds. Such securities are
subject to risk arising from adverse changes in market rates and
prices, primarily interest rate risk relating to debt securities
and equity price risk relating to equity securities.
On July 20, 2001, Palmer Terrace Realty Associates, LLC
(Palmer Terrace), a 51% owned subsidiary of the Company,
purchased a 59,400 square foot warehouse facility in Carlstadt,
New Jersey from WXIII/MWL Real Estate Limited Partnership, an
unrelated entity.
On December 20, 2001, the Company purchased a 59,425 square
foot warehouse facility in White Bear Lake, Minnesota from Jones
Development Company, LLC, an unrelated entity.
On September 18, 2002 the Company purchased a leasehold
interest in a 62,986 square foot warehouse facility in
Cheekowaga, New York from FedJones Cheekowaga, LLC, an unrelated
entity.
Revenue Recognition
Sale of manufactured homes is recognized on the full accrual
basis when certain criteria are met. Interest income on loans
receivable is not accrued when, in the opinion of management, the
collection of such interest appears doubtful. Rental income is
recognized on the straight-line basis over the term of the lease.
Use of Estimates
The preparation of the financial statements in conformity
with generally accepted accounting principles accepted in the
United States of America requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ
from those estimates.
Buildings, Improvements and Equipment
Buildings, Improvements and Equipment are stated at the
lower of depreciated cost or net realizable value. Depreciation
is computed based on the straight-line method over the estimated
useful life of the assets (39 years). If there is an event or
change in circumstances that indicates that the basis of an
investment property may not be recoverable, management assesses
the possible impairment of value through evaluation of the
estimated future cash flows of the property, on an undiscounted
basis, as compared to the property's current carrying value. A
property's carrying value would be adjusted, if necessary, to
reflect an impairment in the value of the property.
-30-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
Securities Available for Sale
The Company's securities consist primarily of debt and
common and preferred stock of other REITs, as well as mortgaged
backed securities issued by the Federal National Mortgage
Association and the Government National Mortgage Association.
These securities are all publicly traded and purchased on the
open market. These securities are classified as Available-for-
Sale, and are carried at fair value. Gains or losses on the sale
of securities are based on identifiable cost and are accounted
for on a trade date basis. Unrealized holding gains and losses
are excluded from earnings and reported as a separate component
of Shareholders' Equity until realized. A decline in the market
value of any security below cost that is deemed to be other than
temporary results in a reduction in the carrying amount to fair
value. Any impairment is charged to earnings and a new cost
basis for the security is established.
Inventories
Inventories, consisting of manufactured homes for sale, are
valued at the lower of cost, which includes costs associated with
the repossession of a home, or market value and are determined by
the specific identification method. All inventories were
considered finished goods.
Income Taxes
The Company has elected to be taxed as a REIT under Sections
856-858 of the Internal Revenue Code. The Company will not be
taxed on the portion of its income which is distributed to
shareholders, provided it distributes at least 90% of its taxable
income, has at least 75% of its assets in real estate investments
and meets certain other requirements for qualification as a REIT.
Additionally, at April 1, 2001, the Company had certain assets
with built-in gains. If these assets are sold within a ten-year
period, any gain may be taxable.
The Company previously accounted for income taxes in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". Income taxes were
accounted for by the asset/liability method.
Net Income Per Share
Basic net income per share is calculated by dividing net
income by the weighted-average number of common shares
outstanding during the period (1,924,860, 1,597,213 and 1,534,759
for the year ended December 31, 2002, the short year ended
December 31, 2001 and the year ended March 31, 2001,
respectively). Diluted net income per share is calculated by
dividing net income by the weighted-average number of common
shares outstanding plus the weighted-average number of net shares
that would be issued upon exercise of stock options pursuant to
the treasury stock method (1,941,477, 1,602,787 and 1,534,759 for
the year ended December 31, 2002, the short year ended December
31, 2001 and the year ended March 31, 2001, respectively). (See
Note 7). Options in the amount of 16,617, 5,574, and -0- are
included in the diluted weighted average shares outstanding for
the year ended December 31, 2002, the short year ended December
31, 2001 and the year ended March 31, 2001, respectively.
-31-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONT'D.)
Stock Option Plan
The Company's stock option plan is accounted for under the
intrinsic value based method as prescribed by Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees". As such, compensation expense would be
recorded on the date of grant only if the current market price on
the underlying stock exceeds the exercise price. The following
are the pro forma disclosures required by SFAS No. 123,
"Accounting for Stock-Based Compensation," which assumes the fair
value based method of accounting has been adopted:
12/31/02 12/31/01 3/31/01
Net Income (Loss) as
reported $554,638 $398,205 $(74,700)
Compensation expense
if the fair value
method had been
applied 2,000 28,289 16,581
Net Income (Loss) Pro
forma 552,638 369,916 (91,281)
Net Income (Loss) Per
Share:
As reported .29 .25 (.05)
Pro forma .29 .22 (.06)
The fair value of each option grant is estimated on the date
of the grant using the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants;
dividend yield of 10% for the year ended December 31, 2002 and .3
% for the short year ended December 31, 2001 and the year ended
March 31, 2001; expected volatility of 25%; risk-free interest
rates of 3.4% for the year ended December 31, 2002 and 6.5% for
the short year ended December 31, 2001 and the year ended March
31, 2001; and expected lives of five years.
Other Comprehensive Income
Comprehensive income consists of net income and net
unrealized gains or losses on securities available for sale and
is presented in the consolidated statements of shareholders'
equity.
Reclassifications
Certain amounts in the consolidated financial statements for
the prior periods have been reclassified to conform to the
statement presentation for the current year. These
reclassifications have no effect on net income.
-32-
NOTE 3 - REAL ESTATE INVESTMENTS
On July 20, 2001, Palmer Terrace Realty Associates, LLC
(Palmer Terrace), a 51% owned subsidiary of the Company,
purchased a 59,400 square foot warehouse facility in Carlstadt,
New Jersey from WXIII/MWL Real Estate Limited Partnership, an
unrelated entity. This warehouse facility is 100% net leased to
Macy's East, Inc., an Ohio corporation. The purchase price,
including closing costs, was approximately $3,200,000. Palmer
Terrace paid approximately $860,000 in cash and obtained a
mortgage of approximately $2,340,000. This mortgage payable is
at an interest rate of 7.75% and is due August 15, 2021.
On December 20, 2001, the Company purchased a 59,425 square
foot warehouse facility in White Bear Lake, Minnesota from Jones
Development Company, LLC, an unrelated entity. This warehouse
facility is 100% net leased to Federal Express Corporation. The
purchase price, including closing costs, was approximately
$4,800,000. The Company paid approximately $300,000 in cash,
borrowed approximately $1,100,000 against its securities
portfolio and obtained a mortgage of approximately $3,400,000.
This mortgage is at an interest rate of 7.04% and is due January
1, 2012.
On September 18, 2002, the Company purchased a leasehold
interest in a 62,986 square foot warehouse facility in Erie
County, Cheektowaga, New York from FedJones Cheektowaga, LLC
(FedJones), an unrelated entity. This lease was between FedJones
and the Erie County Industrial Development Agency (ECIDA). This
warehouse facility is 100% subleased to FedEx Ground Package
System, Inc. under a net lease (FedEx lease). The purchase
price was approximately $4,200,000. The Company borrowed
approximately $1,100,000 against its security portfolio with
Prudential Securities and obtained a mortgage of approximately
$3,100,000. This mortgage payable is at an interest rate of
6.78% and is due October 1, 2017. At the end of the lease term,
the Company may purchase the warehouse facility from ECIDA for
$10.
The following is a summary of the cost and accumulated
depreciation of the Company's land, buildings, improvements and
equipment at December 31, 2002 and 2001:
2002 2001
_________________________ _________________________
Buildings, Buildings,
Improvements Improvements
And Accumulated And Accumulated
Equipment Depreciation Equipment Depreciation
_____________________________________________________
New Jersey
Industrial Building $ 2,492,000 $ 93,226 $2,491,971 $32,000
Minnesota
Industrial Building 3,744,000 144,000 3,744,000 48,000
New York
Industrial Building 3,800,000 48,626 -0- -0-
___________ ________ __________ _______
TOTAL $10,036,000 $285,852 $6,235,971 $80,000
=========== ======== ========== =======
-33-
NOTE 4 - LOANS RECEIVABLE
The following is a summary of the loans held by the Company
at December 31, 2002 and 2001:
Balance
Rate Date 2002 2001
________________________________________
Financed
Manufactured
Homes 10%-15% Various $1,963,468 $2,409,734
Other Various Various 25,471 46,734
__________ __________
Total Loans Receivable 1,988,939 2,456,468
Allowance for Losses (100,845) (58,770)
__________ __________
Net Loans Receivable $1,888,094 $2,397,698
========== ==========
From 1994 through March 2001, the Company sold and financed
manufactured home units. At December 31, 2002 and 2001, financed
manufactured homes consist of 88 and 112 loans, respectively.
These loans range from approximately $1000 to approximately
$60,000. Loans receivable for financed manufactured homes are
secured by the property financed. Generally, the terms of the
loans do not exceed 20 years.
-34-
NOTE 5 - SECURITIES AVAILABLE FOR SALE
The Company's securities available for sale consist
primarily of debt securities and common and preferred stock of
other REITs. The Company does not own more than 10% of the
outstanding shares of any of these securities, nor does it have
controlling financial interest.
The following is a summary of investments in debt and equity
securities at December 31, 2002:
Description Shares Cost Fair Value
___________ ______ ____ __________
Equity Securities-Preferred Stock:
Apartment Inv and
Management Co 10% 1000 $ 6,220 $ 26,250
Associated Estates Realty
Corp 9.75% Class A 15,500 246,779 357,740
Avalonbay 8% SerD Callable 6,000 151,500 150,900
CBL Assoc. 8.75% SrB 2,000 101,200 103,800
Colonial Ppty Tr 8.75% Ser A 300 7,552 7,506
Crown American Realty Trust 11% 16,200 585,933 896,670
Developers Div Dep Sh 8.375% 2,000 49,000 49,700
Equity Inns Inc 9.5% Series A 12,400 201,783 288,920
Felcor Loding 9% Series B 25,000 496,592 615,000
Felcor Lodging Trust Inc 1.95% 5,000 86,390 104,250
G&L Realty Corp 10.25%
Series A 1,000 15,683 22,650
Glenborough Realty Trust
7.75% Series A 6,000 87,823 126,900
Glimcher Realty Trust 9.25%
Series B 4,000 62,418 99,400
HRPT PP 9.875% Ser A 4,000 107,680 105,600
HRPT PP 8.75% Ser B 17,000 425,160 434,180
Health Care Property Inves.
7.875% Series A 8,000 133,417 199,200
Health Care Property Inves.
8.7% Series B 3,000 50,860 76,200
Highwoods Properties Inc 8%
Series D 1,000 17,170 22,350
Hospitality Properties
Trust 9.5% Series A 6,400 127,413 168,896
Innkeepers USA Trust 8.625%
Series A 10,000 182,513 242,000
Istar Financial Inc. 8%
Series D 4,500 80,915 107,325
JDN Realty Corp 9-3/8%
Series A 19,000 384,180 479,750
Kimco Realty 8.50% PRB 5,500 140,345 140,305
Kramont Realty Trust 9.5%
Series D 25,200 444,723 633,780
Lasalle Hotel Prop. 10.25% SRA 8,000 202,400 212,000
Mid America Apartment Communities
Inc. 9.5% Series A 1,200 24,525 30,420
Mid America Apartment Communities
Inc. 8.825% Series B 12,500 219,501 311,250
Mills Corp 9% Rfd B 2,000 50,600 51,500
New Plan Excel Realty Trust
8.625% Series B 12,000 291,835 302,400
Parkway Prop 8.75% Sr A 1,000 26,030 25,650
-35-
NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
Description Shares Cost Fair Value
___________ ______ ____ __________
Prime Retail Inc. Series B 1,000 5,185 5,250
Sizeler PP PFD 9.75% 1,000 25,000 26,300
Sovran Self Storage Inc
9.85% Series B 1,000 19,245 26,000
Thornburg Mortgage Asset
Corp 9.68% Series A 1,700 33,423 45,900
Vornado Realty Trust 8.5%
Series C 1,000 19,683 25,400
__________ __________
Total Equity Securities -
Preferred Stock 5,130,676 6,521,342
__________ __________
Equity Securities-Common Stock:
Center Trust Inc 10,000 45,560 78,000
Crown American 30,000 268,800 276,000
Five Star Quality Care Inc 40 300 55
HRPT Properties Trust 40,000 343,316 329,600
JDN Realty 64 -0- 701
LaSalle Hotel Properties 1,000 12,308 14,000
Monmouth Real Estate 1,000 7,160 6,920
New Plan Excel Realty
Trust Inc 6,243 90,726 119,179
Phoenix Companies Inc 478 -0- 3,633
Sizeler Properties
Investors Inc 137,000 1,122,761 1,272,729
Tork Time Control Inc 1,500 10,125 15,000
Trizec PPTYS Inc 6,500 75,945 61,035
United Mobile Homes,
Inc.(a related entity) 11,000 84,824 148,939
__________ __________
Total Equity Securities-
Common Stock 2,061,825 2,325,791
__________ __________
Total Equity Securities 7,192,501 8,847,133
__________ __________
Debt Securities:
Sizeler PPTY SubDeb CPN 9%
Due 7/15/09 500,000 499,375
Federal National Mortgage
Association 6.09% 7/1/39 2,840,476 2,916,507
Federal National Mortgage
Association 6.86% 11/1/30 430,800 432,164
Government National Mortgage
Association 6.5% 2/20/14 146,971 149,758
__________ ___________
Total Debt Securities 3,918,247 3,997,804
__________ __________
Total Securities Available
for Sale $11,110,748 $12,844,937
========== ==========
-36-
NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
The following is a summary of investments in debt and equity
securities at December 31, 2001:
Description Shares Cost Fair Value
Equity Securities-Preferred Stock:
Apartment Inv and Management Co 10% 1,000 $ 26,220 $ 25,900
Associated Estates Realty Corp
9.75% Class A 19,500 310,459 485,550
Crescent Real Estate Equities
Co 6.75% 2,000 27,266 38,700
Crown American Realty Trust 11% 20,200 730,605 1,045,277
Equity Inns Inc 9.5% Series A 12,400 201,783 275,776
Equity Office Properties Trust
8.98% Series A 1,000 21,995 25,500
Felcor Lodging Trust Inc 1.95% 16,000 281,072 374,240
Felcor Lodging Trust Inc. 9%
Series B 4,000 66,520 81,600
G&L Realty Corp 10.25% Series A 1,000 15,683 17,650
Glenborough Realty Trust 7.75%
Series A 6,000 87,823 126,600
Glimcher Realty Trust
9.25% Series B 4,000 62,418 98,000
Health Care Property Investors
7.875% Series A 3,000 50,860 75,450
Health Care Property Investors
8.7% Series B 8,000 133,417 196,800
Highwoods Properties Inc 8%
Series D 1,000 17,170 23,340
Hospitality Properties Trust
9.5% Series A 6,400 127,413 163,968
Innkeepers USA Trust 8.625%
Series A 10,000 182,513 232,500
Instar Financial Inc. 8% Series D 4,500 80,915 96,075
JDN Realty Corp 9-3/8% Series A 14,000 253,484 346,780
Kramont Realty Trust 9.5% Series D 22,700 382,548 544,800
Mid America Apartment
Communities Inc. 9.5% Series A 12,500 219,501 314,375
Mid America Apartment
Communities Inc 8.825% Series B 1,200 24,525 29,976
-37-
NOTE 5 - SECURITIES AVAILABLE FOR SALE, (CONT'D.)
Description Shares Cost Fair Value
New Plan Excel Realty Trust
8.5% Series A 1,000 20,558 25,500
New Plan Excel Realty Trust
8.625% Series B 2,000 38,990 49,800
Prime Retail Inc. Series B 1,000 5,185 3,000
Sovran Self Storage Inc 9.85%
Series B 1,000 19,245 26,500
Thornburg Mortgage Asset Corp
9.68% Series A 1,700 33,423 44,880
Vornado Realty Trust 8.5% 1,000 19,683 25,050
Series C
_________ _________
Total Equity Securities -
Preferred Stock 3,441,274 4,793,587
_________ _________
Equity Securities-Common Stock:
Annaly Mortgage Management Inc. 7,500 66,115 120,000
HRPT Properties Trust 4,000 28,150 34,640
LaSalle Hotel Properties 1,000 12,308 11,740
New Plan Excel Realty Trust Inc 5,000 70,188 95,250
Sizeler Properties
Investors Inc 102,000 789,217 920,040
Tork Time Control Inc 1,500 10,125 14,063
United Mobile Homes, Inc.
(a related entity) 11,000 84,826 133,980
_________ _________
Total Equity Securities-
Common Stock 1,060,929 1,329,713
_________ _________
Total Equity Securities 4,502,203 6,123,300
_________ _________
Debt Securities:
Federal National Mortgage
Association 6.09% 7/1/39 4,512,639 4,579,156
Federal National Mortgage
Association 6.86% 11/1/30 743,188 748,781
Government National Mortgage
Association 6.5% 2/20/14 209,606 205,533
_________ _________
Total Debt Securities 5,465,433 5,533,470
_________ __________
Total Securities Available for Sale $9,967,636 $11,656,770
========== ==========
-38-
NOTE 6 - MORTGAGES PAYABLE AND LOANS PAYABLE
Mortgages Payable
The following is a summary of mortgages payable at December
31, 2002:
Interest
Property Rate Maturity 2002 2001
________ _______ ________ ________ ________
New Jersey 7.75% 2021 $2,267,514 $2,319,724
Minnesota 7.04% 2011 3,278,967 3,400,000
New York 6.78% 2017 3,069,924 -0-
_________ _________
Total Mortgages Payable $8,616,405 $5,719,724
========= =========
Principal on the foregoing debt is scheduled to be paid as
follows:
2003 $ 323,218
2004 346,801
2005 372,111
2006 399,272
2007 428,420
Thereafter 6,746,583
_________
$8,616,405
=========
Loans Payable
The Company purchases securities on margin. At December 31,
2002 and 2001, the margin loans amounted to $7,293,496 and
$8,549,933, respectively. The interest rate ranged from 1.8% to
3% at December 31, 2002 and from 2.5% to 3.875% at December 31,
2001. These loans were secured by investment securities with a
market value of $12,844,937 and $11,656,770, respectively. These
margin loans are due on demand.
On August 31, 2001 the Company received a $500,000 loan
from Two River Community Bank. This loan is at an interest rate
based on the five-year Treasury note plus 2.75% and is due on
August 31, 2003. The balance on this loan at December 31, 2002
and 2001 was $466,666 and $500,000, respectively. This loan is
personally guaranteed by Eugene W. Landy, Chairman and President.
On December 18, 2001, the Company received a $400,000 loan
from United, secured by loans receivable of approximately
$600,000. This loan is at an interest rate of 10% and is due on
December 18, 2006.
-39-
NOTE 6 - MORTGAGES PAYABLE AND LOANS PAYABLE, (CONT'D.)
On August 15, 2002, the Company received an additional
$500,000 loan from Two River Community Bank. This loan is at an
interest rate of 6.11% per annum and is due on August 15, 2004.
NOTE 7 - EMPLOYEE STOCK OPTION PLAN
On July 14, 1994, the shareholders approved and ratified the
Company's 1994 Stock Option Plan authorizing the grant to
officers and key employees of options to purchase up to 300,000
shares of common stock. Options may be granted any time up to
December 31, 2003. No option shall be available for exercise
beyond ten years. All options are exercisable after one year
from the date of grant. The option price shall not be below the
fair market value at date of grant. Canceled or expired options
are added back to the "pool" of shares available under the plan.
A summary of the status of the Company's stock option plans
as of December 31, 2002 and 2001 and March 31, 2001, and changes
during the periods then ended are as follows:
12/31/02 12/31/01 3/31/01
________________ _________________ _________________
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
Beginning of
period 140,000 $3.02 90,000 $2.86 70,000 $2.93
Issued 10,000 2.90 50,000 3.30 20,000 2.62
Expired/
Cancelled -0- -0- -0- -0- -0- -0-
______ ______ ______
Outstanding
at end of
period 150,000 3.01 140,000 3.02 90,000 2.86
======= ======= =======
Weighted-average
fair value of
options granted
during the
year .20 1.57 .94
====== ====== ======
-40-
NOTE 7 - EMPLOYEE STOCK OPTION PLAN, (CONT'D.)
The following is a summary of stock options outstanding as
of December 31, 2002:
Number Number
Date of of of Option Expiration
Grant Employees Shares Price Date
_______ _______ _______ _______ __________
4/8/98 2 20,000 2.75 4/8/03
9/28/98 1 50,000 3.00 9/28/03
10/4/00 2 20,000 2.625 10/4/05
10/4/01 1 50,000 3.30 10/4/09
1/16/02 2 10,000 2.90 1/16/07
_______
150,000
=======
As of December 31, 2002, there were 150,000 shares available
for grant under the Plan.
NOTE 8 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Effective August 28, 1995, the Company implemented a
Dividend Reinvestment and Stock Purchase Plan (DRIP). Under the
terms of the DRIP, shareholders who participate may reinvest all
or part of their dividends in additional shares of the Company at
approximately 95% of the market price.
Shareholders may also purchase additional shares at
approximately 95% of its market price by making optional cash
payments. For the year ended December 31, 2002, the short year
ended December 31, 2001 and the year ended March 31, 2001, the
Company received $1,933,092, $354,464 and $141,661 from the DRIP,
respectively. There were 580,523, 123,224 and 51,510 new shares
issued, respectively.
On December 16, 2002, the Company paid $748,497 as a
dividend of $.35 per share to shareholders of record November 15,
2002.
NOTE 9 - INCOME TAXES
The Company has elected to be taxed as a REIT. As the
Company has not distributed all of its income currently, a
provision for federal excise and other taxes of $50,000 and
$35,193 has been made for the year ended December 31, 2002 and
the short year ended December 31, 2001.
NOTE 10 - PAYMENTS TO AFFILIATED PERSONS AND RELATED PARTY
TRANSACTIONS
Management currently operates Monmouth Real Estate
Investment Corporation and United Mobile Homes, Inc., two REITs.
Certain overhead expenses are shared among these companies.
-41-
NOTE 10 - PAYMENTS TO AFFILIATED PERSONS AND RELATED PARTY
TRANSACTIONS, (CONT'D.)
Payments to Affiliated Persons
Total payments to all officers, directors and affiliated
persons during the year ended December 31, 2002, the short year
ended December 31, 2001, and the year ended March 31, 2001,
amounted to $117,400, $50,300, $98,000, respectively. Eugene W.
Landy, President of the Company, received $70,700, $39,100 and
$53,200 in salary, legal and director fees.
Transactions with United Mobile Homes, Inc.
MHS had rental expenses to United. United owns and operates
manufactured home communities. Seven Directors of the Company
are also Directors and shareholders of United. MHS paid United
market rent on sites where MHS had a home for sale. Total site
rental expense to United amounted to $22,690 and $82,087,
respectively, for the short year ended December 31, 2001 and the
year ended March 31, 2001. MHS also leased space from United to
be used as sales lots, at market rates, at most of United's
communities. Total rental expense relating to these sales lots
amounted to $-0- and $153,480 for the short year ended December
31, 2001 and for the year ended March 31, 2001, respectively.
During the year ended March 31, 2001, MHS acquired certain
inventory from United. These purchases amounted to $124,890,
representing 3%, of total purchases made by MHS during fiscal
2001. This inventory was available through United, but could have
been acquired from a third-party at approximately the same cost.
During the year ended December 31, 2002, the short year
ended December 31, 2001 and the year ended March 31, 2001, MHS
sold to United 2, -0-, and 10 homes, respectively, for a total
sales price of $43,181, $-0- and $161,487, respectively, at
MHS's cost. These sales represented 11%, 0% and 3%,
respectively, of total sales made by MHS. These manufactured
homes were available through MHS, but could have been acquired by
United from a third party at approximately the same price.
In addition to the above sales, on March 30, 2001, United
purchased at carrying value all of the remaining inventory of
MHS. This amounted to $2,261,624. United also assumed the
inventory financing of $ 1,833,871.
NOTE 11 - GROUP CONCENTRATIONS OF CREDIT RISK
The Company's loan portfolio is diversified. Generally,
loans are collateralized by the manufactured homes. At December
31, 2002 and 2001 and March 31, 2001, all loans were secured.
The Company owns three properties totaling 181,811 square
feet of which two or 122,411 square feet are leased to Federal
Express Corporation and subsidiaries (FedEx). Rental income from
FedEx totaled approximately $589,000 and $13,974 for the year
ended December 31, 2002 and the short year ended December 31,
2001, respectively.
-42-
NOTE 12 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose certain information
about fair values of financial instruments, as defined in
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments".
Limitations
Estimates of fair value are made at a specific point in time
based upon where available, relevant market prices and
information about the financial instrument. Such estimates do not
include any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a
particular financial instrument. All of the Company's securities
available for sale have quoted market values. However, for a
portion of the Company's financial instruments, no quoted market
value exists. Therefore, estimates of fair value are necessarily
based on a number of significant assumptions (many of which
involve events outside the control of management). Such
assumptions include assessments of current economic conditions,
perceived risks associated with these financial instruments and
their counterparties, future expected loss experience and other
factors. Given the uncertainties surrounding these assumptions,
the reported fair values represent estimates only, and,
therefore, cannot be compared to the historical accounting model.
Use of different assumptions or methodologies is likely to result
in significantly different fair value estimates.
The fair value of cash and cash equivalents and loans
receivable approximates their current carrying amounts since all
such items are short-term in nature. The fair value of securities
available for sale is based upon quoted market values (See Note
5). At December 31, 2002, the fair and carrying value of
mortgages payable amounted to $8,831,285 and $8,616,405,
respectively. The fair value of loans payable approximates their
current carrying amounts since such amounts payable are at a
current market rate of interest. At December 31, 2001, the fair
value of mortgages payable and loans payable approximates their
current carrying amounts since such amounts payable are at a
current market rate of interest.
-43-
NOTE 13 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year ended December 31, 2002, the
short year ended December 31, 2001, and the year ended March
31, 2001 for interest and taxes are as follows:
12/31/02 12/31/01 3/31/01
_________ _________ _________
Interest $792,667 $373,159 $364,690
Taxes $ 58,535 $ 8,193 $ 13,071
During the year ended December 31, 2002, the short year
ended December 31, 2001, and the year ended March 31, 2001, the
Company had dividend reinvestments of $196,503, $93,363 and
$21,150, respectively, which required no cash transfers.
During the year ended December 31, 2002 and the short year
ended December 31, 2001, the collateral for loans receivable of
$254,608 and $253,404, respectively, was repossessed and placed
in inventory.
NOTE 14 - PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following is the unaudited pro forma financial
information for the comparable prior year period ended December
31, 2000:
Total Income $ 4,274,921
Total expenses 4,289,491
_________
Net Loss $ (14,570)
=========
-44-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MONMOUTH CAPITAL CORPORATION
BY: /s/ Eugene W. Landy
EUGENE W. LANDY
President and Chief Executive
Officer
Dated: March 16, 2003
Pursuant to the requirements of the Securities and Exchange
Act of 1934, this report has been duly signed below by the
following persons on behalf of the registrant and in the
capacities and on the date indicated.
Title Date
President/Director
/s/ Eugene W. Landy and Chief Executive
EUGENE W. LANDY Officer March 16, 2003
/s/ Ernest V. Bencivenga Secretary/Treasurer
ERNEST V. BENCIVENGA and Director March 16, 2003
/s/ Anna T. Chew Controller and March 16, 2003
ANNA T. CHEW Director
/s/ Neal Herstik
NEAL HERSTIK Director March 16, 2003
/s/ Charles P. Kaempffer
CHARLES P. KAEMPFFER Director March 16, 2003
/s/ Michael P. Landy March 16, 2003
MICHAEL P. LANDY Director
/s/ Samuel A. Landy
SAMUEL A. LANDY Director March 16, 2003
/s/ Robert G. Sampson
ROBERT G. SAMPSON Director March 16, 2003
/s/ Eugene Rothenberg
EUGENE ROTHENBERG Director March 16, 2003
-45-