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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _________ to _________
For the Quarter ended Commission File No.
June 30, 2004 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, Suite 3-C, Freehold, NJ 07728
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (732) 577-9981
_____________________________________________________________________
(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 and Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes ____ X No _____
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Yes ___ No _X_
The number of shares or other units outstanding of each of the
issuer's classes of securities as of August 2, 2004 was 3,421,334
shares.
MONMOUTH CAPITAL CORPORATION
FOR THE QUARTER ENDED JUNE 30, 2004
CONTENTS
PART I - FINANCIAL INFORMATION PAGE NO.
Item 1 - Financial Statements (Unaudited):
Consolidated Balance Sheets 3-4
Consolidated Statements of Income 5
Consolidated Statements of Cash Flow 6
Notes to Consolidated Financial 7-10
Statements
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 11-15
Item 3 - Quantitative and Qualitative Disclosure
About Market Risk
There have been no material changes to
information required regarding quantitative
and qualitative disclosures about market
risk from the end of the preceding year to
the date of this Form 10-Q.
Item 4 - Controls and Procedures 15 - 16
PART II - OTHER INFORMATION 17
SIGNATURES 18
2
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
June 30, December 31,
ASSETS 2004 2003
___________ ___________
Real Estate Investments:
Land $ 5,838,603 $5,838,603
Buildings, Improvements and
Equipment, net of accumulated
depreciation of $989,060 and
$613,750, respectively 16,874,334 17,249,644
___________ ___________
Total Real Estate Investments 22,712,937 23,088,247
Cash and Cash Equivalents 1,642,808 314,091
Securities Available for Sale,
at Fair Value:
Federal National Mortgage
Association 455,576 546,697
Government National Mortgage
Association 51,115 69,298
Other Securities Available for
Sale 13,860,214 14,827,914
Accounts Receivable 8,480 15,097
Loans Receivable, net of
allowance for losses of
$77,615 and $86,934,
respectively 1,331,078 1,515,625
Inventory 51,930 50,590
Prepaid Expenses and Other
Assets 178,066 111,553
Financing Costs, net of
accumulated amortization of
74,073 and $42,796, respectively 607,810 649,088
Leasing costs, net of
accumulated amortization of
$28,657 and $12,277,
respectively 364,428 380,808
___________ ___________
TOTAL ASSETS $41,264,442 $41,569,008
=========== ===========
3
-UNAUDITED-
See Notes to the Consolidated Financial Statements
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D.)
AS OF JUNE 30, 2004 AND DECEMBER 31, 2003
June 30, December 31,
2004 2003
___________ ___________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Mortgages Payable $15,604,796 $15,889,239
Convertible Subordinated Debentures 5,370,000 5,370,000
Loans Payable 4,947,547 5,576,824
Accounts Payable and Accrued Expenses 201,078 249,854
Other Liabilities 217,916 197,844
___________ ___________
Total Liabilities 26,341,337 27,283,761
___________ ___________
Minority Interest 1,914,118 1,914,242
___________ ___________
Shareholders' Equity:
Common Stock par value $1.00 per
share; authorized 10,000,000
shares; issued and outstanding
3,373,689 and 3,081,463
shares, respectively 3,373,689 3,081,463
Additional Paid-In Capital 8,876,749 7,266,839
Accumulated Other Comprehensive
Income 327,645 1,812,797
Retained Earnings 430,904 209,906
___________ ___________
Total Shareholders' Equity 13,008,987 12,371,005
___________ ___________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $41,264,442 $41,569,008
=========== ===========
4
-UNAUDITED-
See Notes to the Consolidated Financial Statements
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 2004 AND 2003
Three Months Ended Six Months Ended
6/30/04 6/30/03 6/30/04 6/30/03
_________ _________ _________ _________
Income:
Rental Income $ 606,826 $ 352,883 $ 1,241,971 700,561
Interest and Dividend
Income 342,011 187,044 626,213 524,051
Sales of Manufactured
Homes 50,000 155,500 81,000 198,756
Gain on Securities
Available for Sale
Transactions Net 77,467 147,432 872,377 275,843
Other Income 132,841 458 132,987 483
_________ _________ _________ _________
Total Income 1,209,145 843,317 2,954,548 1,699,694
_________ _________ _________ _________
Expenses:
Cost of Sales of
Manufactured Homes 54,439 76,711 84,923 118,706
Real Estate Taxes 44,453 37,051 75,061 66,104
Salaries and Employee
Benefits 74,511 39,849 126,213 70,451
Professional Fees 14,945 34,133 52,308 44,832
Interest Expense 387,523 187,688 788,925 385,980
Depreciation 185,636 63,357 375,310 126,715
Other Expenses 110,804 101,573 228,925 197,095
_________ _________ _________ _________
Total Expenses 872,311 540,362 1,731,665 1,009,883
_________ _________ _________ _________
Income Before Minority
Interest 336,834 302,955 1,222,883 689,811
Minority Interest 53,422 3,052 76,759 13,927
_________ _________ _________ _________
INCOME BEFORE
INCOME TAXES $ 283,412 $ 299,903 $ 1,146,124 $ 675,884
INCOME TAXES 30,000 -0- 105,000 -0-
_________ _________ _________ _________
NET INCOME $ 253,412 $ 299,903 $ 1,041,124 $ 675,884
========== ========== ========== ==========
NET INCOME PER
SHARE-BASIC AND DILUTED
Basic $ .08 $ .10 $ .33 $ .25
========= ========= ======== =========
Diluted $ .08 $ .10 $ .30 $ .25
========= ========= ========= =========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 3,256,753 2,842,682 3,184,571 2,657,936
========= ========= ========= =========
DILUTED 3,298,237 2,881,742 4,124,357 2,687,045
========= ========= ========= =========
-UNAUDITED-
See Notes to Consolidated Financial Statement
5
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003
2004 2003
__________ __________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,041,124 $ 675,884
Non-Cash Adjustments:
Income Allocated to Minority Interest 75,759 13,927
Depreciation and Amortization 422,967 135,116
Gain on Securities Available for Sale
Transactions, Net (872,377) (275,843)
Changes In Operating Assets and
Liabilities:
Accounts Receivable 6,617 17,893
Inventory 90,622 12,705
Prepaid Expenses and other assets (66,513) (13,165)
Accounts Payable and Accrued Expenses (48,796) (93,554)
Other Liabilities 20,072 -0-
__________ __________
Net Cash Provided by Operating
Activities 669,475 472,963
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES:
Collections and Other Decreases in
Loans Receivable 92,585 209,948
Purchase of Securities Available for
Sale (2,933,004) -0-
Proceeds from Sales and Other
Decreases in Securities
Available for Sale 3,397,233 3,801,144
__________ __________
Net Cash Provided by Investing
Activities 556,814 4,011,092
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Decrease in Loans Payable (629,277) (5,882,984)
Principal Payments on Mortgages (284,443) (163,480)
Refund of Financing Costs 10,001 -0-
Decrease in Minority Interest (75,883) (20,580)
Proceeds from the Issuance of Common
Stock 1,697,528 2,046,432
Proceeds from Exercise of Stock
Options -0- 55,000
Dividends Paid (615,498) (444,074)
__________ __________
Net Cash Provided by (Used In)
Financing Activities 102,428 4,409,686)
__________ __________
Net Increase in Cash 1,328,717 74,369
Cash at Beginning of Period 314,091 174,099
__________ __________
Cash at End of Period $ 1,642,808 $ 248,468
========== =========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
6
MONMOUTH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004
NOTE 1 - ORGANIZATION AND ACCOUNTING POLICY
The interim consolidated financial statements furnished herein reflect
all adjustments which were, in the opinion of management, necessary to
present fairly the financial position, results of operations, and cash
flows at June 30, 2004 and for all periods presented. All
adjustments made in the interim period were of a normal recurring
nature. Certain footnote disclosures which would substantially
duplicate the disclosures contained in the audited financial
statements and notes thereto included in the annual report of Monmouth
Capital Corporation (the Company) for the year ended December 31, 2003
have been omitted.
The Company has elected to be taxed as a real estate investment trust
(REIT). As a REIT, the Company would not be taxed on the portion of
its income which is distributed to shareholders, provided it meets
certain requirements.
Certain reclassifications have been made to the financial statements
for the prior period to conform to the current period presentation.
Employee Stock Options
The Company followed APB Opinion No. 25 in accounting for its stock
option plan prior to January 1, 2003, and accordingly no compensation
cost had been recognized for grants made prior to January 1, 2003.
The Company adopted the fair value recognition provisions of SFAS No.
123, "Accounting for Stock Based Compensation" on January 1, 2003.
Under the prospective method of adoption selected by the Company under
the provisions of SFAS No. 148, "Accounting for Stock Based
Compensation, Transition and Disclosure", no compensation costs have
been recognized in the six months ended June 30, 2004 and 2003, as the
Company did not grant stock-based employee compensation during the
those periods.
The Company's 1994 Stock Option Plan expired on December 31, 2003, as
such, no options were granted during the six months ended June 30,
2004. During the six months ended June 30, 2004, no participants
exercised their stock options, and no stock options expired. As of
June 30, 2004, there were options outstanding to purchase 80,000
shares under the Plan.
NOTE 2 - NET INCOME PER SHARE AND COMPREHENSIVE INCOME (LOSS)
Basic net income per share is calculated by dividing net income by the
weighted-average number of common shares outstanding during the
period. Diluted net income per share is calculated by dividing net
income plus interest expense related to the Company's Convertible
Subordinated Debentures (the Debentures) by the weighted-average
number of common shares outstanding plus the weighted-average number
of shares that would be issued upon exercise of stock options pursuant
to the treasury stock method, plus the number of shares resulting from
the possible
7
NOTE 2 - NET INCOME PER SHARE AND COMPREHENSIVE INCOME, (CONT'D.)
conversion of the Debentures. Options in the amount of 41,484 and
39,060 are included in the diluted weighted-average shares outstanding
for the three months ended June 30, 2004 and 2003, respectively and
options in the amount of 44,786 and 29,109 are included in the diluted
weighted-average shares outstanding for the six months ended June 30,
2004 and 2003 respectively. Interest expense of $214,800 relating to
the Debentures is added back to net income in the numerator for
diluted net income per share for the six months ended June 30, 2004.
Common stock relating to the Company's Debentures totaling 895,000
shares are also included in the diluted weighted-average shares
outstanding for the six months ended June 30, 2004. For the three
months ended June 30, 2004, the Company's outstanding Debentures are
excluded from the computation due to their antidilutive effect.
Accordingly there is no effect on net income in the calculation of
diluted EPS for the three months ended June 30, 2004.
The following table sets forth the components of the Company's
comprehensive income:
Three Three Six Six
Months Months Months Months
6/30/04 6/30/03 6/30/04 6/30/04
__________ _________ __________ ________
Net Income $253,412 $299,903 $1,041,124 $675,884
Increase
(decrease) in
unrealized
gains on
securities
available for
sale (1,213,967) 347,583 (1,485,152) 51,580
__________ _________ __________ ________
Comprehensive
Income (Loss) $ (960,555) $647,486 $ (444,028) 727,464
========= ======== ========= ========
NOTE 3 - SECURITIES AVAILABLE FOR SALE AND DERIVATIVE INSTRUMENTS
During the six months ended June 30, 2004, the Company sold or
redeemed $2,577,987 in securities available for sale, recognizing a
gain on sale of $819,246. The Company made additional purchases of
$2,933,004 in securities available for sale.
During the three months ended June 30, 2004, the Company invested in
futures contracts of ten-year treasury notes with a notional amount of
$3,000,000 with the objective of reducing the exposure of the debt
securities portfolio to market rate fluctuations. Changes in the
market value of these derivatives have been recorded in gain on
securities available for sale transactions with corresponding amounts
recorded in other liabilities on the balance sheet. The fair value of
the derivatives at June 30, 2004 was a liability of $53,906. During
June 2004, the Company recorded a realized gain on settled futures
contracts of $107,037, which is included in gain on securities
available for sale transactions.
8
NOTE 4 - LOANS PAYABLE
On January 26, 2004, the Company paid off the notes payable to Two
River Community Bank with an outstanding balance of $1,075,000 at
December 31, 2003. The notes were repaid with proceeds from the
Company's margin loan. On April 15, 2004, the Company closed on a
$1,000,000 line of credit with Two River Community Bank secured by the
Company's manufactured home loans. The interest rate is 5% for the
first two years and changes to the five-year FHLB of NY Regular Fixed
Rate plus 300bp for the remaining five years. The line of credit
expires in 2011. The balance on the line of credit at June 30, 2004
was $1,000,000. The Company's margin loan had a balance of $3,514,547
at June 30, 2004.
NOTE 5 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
For the six months ended June 30, 2004, the Company received
$1,697,528 from the Dividend Reinvestment and Stock Purchase Plan
(DRIP). There were 292,226 shares issued, resulting in 3,373,689
shares outstanding.
On June 15, 2004 the Company paid a dividend of $0.25 per share to
shareholders of record on May 17, 2004. Total dividends paid for the
six months ended June 30, 2004 were $820,106. Included in dividends
paid for the six month period is dividend reinvestments of $204,608,
which required no cash transfers.
NOTE 6 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and taxes during the six months ended June 30,
2004 and 2003 was as follows:
2004 2003
Interest $ 778,870 $ 385,980
Taxes 117,679 24,027
During the six months ended June 30, 2004 and 2003, the Company
repossessed the collateral for loans receivable of $91,962 and $41,254
respectively, and placed it into inventory.
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS
FASB Interpretation No. 46, Consolidation of Variable Interest
Entities "FIN 46" was issued in January 2003 and was reissued as
FASB Interpretation No. 46 (revised December 2003) (FIN 46R). For
public entities, FIN 46 or FIN 46R is applicable to all special-
purpose entities (SPEs) in which the entity holds a variable interest
no later than the end of the first reporting period ending after
December 15, 2003, and immediately to all entities created after
January 31, 2003. The effective dates of FIN 46R vary depending on
the type of reporting enterprise and the type of entity that the
enterprise is involved with. FIN 46 and FIN 46R may be applied
prospectively with a cumulative-effect adjustment as of the date on
which it is first applied or by restating previously issued financial
statements for one or more years with a cumulative-effect
9
NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS, (CONT'D)
adjustment as of the beginning of the first year restated. FIN 46 and
FIN 46R provides guidance on the identification of entities controlled
through means other than voting rights. FIN 46 and
FIN 46R specifies how a business enterprise should evaluate its
involvement in a variable interest entity to determine whether to
consolidate that entity. A variable interest entity must be
consolidated by its primary beneficiary if the entity does not
effectively disperse risks among the parties involved. Conversely,
effective dispersion of risks among the parties involved requires that
a company that previously consolidated a special purpose entity, upon
adoption of FIN 46 or FIN 46R, to deconsolidate such entity.
Management believes that this interpretation will not have a material
impact on the Company's consolidated financial statements
NOTE 8 - SUBSEQUENT EVENTS
On July 9, 2004, the Company purchased a 60,000 square foot industrial
building in Richmond, Virginia. This warehouse facility is 100% net
leased to Carrier Sales and Distribution, LLC for 7 years. The
purchase price, including closing costs, was approximately $4,100,000.
The Company borrowed approximately $3,100,000 against its securities
portfolio and drew down $1,000,000 on its line of credit.
10
MONMOUTH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS OF FINANCIAL CONDITION
Overview
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with
the Consolidated Financial Statements and notes thereto elsewhere
herein and the Company's December 31, 2003 annual report on Form 10-K.
The Company operates as a hybrid-diversified REIT. Currently, the
Company's primary business is the ownership of four industrial
properties subject to medium term leases and investing in marketable
securities. These securities include securities of other REITS and
mortgage backed securities. The Company also has loans receivable and
inventory related to the sales of manufactured homes. Prior to March
31, 2001, the Company was engaged in the manufactured home sales and
finance business.
The Company's revenue primarily consists of rental and related income
from the ownership of the industrial properties, interest and dividend
income, and gain on sale of securities. Sales of manufactured homes
relates to the sale of inventory which had been repossessed and
resold. Rental and occupancy revenue increased $541,410 or 77% for
the six months ended June 30, 2004 as compared to the six months ended
June 30, 2003. Gain on sales of securities available for sale was
$872,377 for the six months ended June 30, 2004. Revenue related to
manufactured home sales relates to the sale of repossessed homes.
Although the Company currently owns four industrial properties, (and
purchased one additional industrial property in July 2004) management
would consider other types of real estate acquisitions. Management
anticipates that the Company will acquire approximately $40,000,000 in
properties during 2004 and 2005. The current acquisitions environment
is competitive and management may not be able to locate suitable
properties for acquisition.
The Company has financed acquisitions through capital raised through
the Company's Dividend Reinvestment and Stock Purchase Plan, by
obtaining mortgages, and from private placement offerings, including
the Convertible Subordinated Debentures. If suitable acquisitions
cannot be found during 2004, the Company may invest additional capital
raised in REIT securities or pay down outstanding debt. The Company
invests in debt and equity securities of other REITs for liquidity and
additional income. The Company from time to time may purchase these
securities on margin when there is an adequate yield spread.
See PART I, Item 1- Business, of the Company's December 31, 2003
annual report on Form 10-K for a more complete discussion of the
economic and industry-wide factors relevant to the Company, the
Company's lines of business and principal products and services, and
the opportunities, challenges and risks on which the Company is
focused.
11
MATERIAL CHANGES IN RESULTS OF OPERATIONS
At June 30, 2004, the Company owned 4 industrial properties with total
square footage of approximately 289,000 compared to 3 industrial
properties with approximately 182,000 square feet at June 30, 2003.
Rental and occupancy charges increased $253,943 or 72% for the three
month ended June 30, 2004 as compared to the three months ended June
30, 2003 and increased $541,410 or 77% for the six months ended June
30, 2004 as compared to the six months ended June 30, 2003. The
increase is related to rent and occupancy charges of the Wheeling,
Illinois property purchased in August 2003.
Interest and dividend income increased $154,967 or 83% for the three
months ended June 30, 2004 as compared to the three months ended June
30, 2003. The increase is due mainly to a higher average balance of
securities for the three months ended June 30, 2004 (approximately
$14,755,000) as compared to the three months ended June 30, 2003
(approximately $10,148,000). Interest and dividend income increased
$102,162 or 19% for the six months ended June 30, 2004 as compared
to the six months ended June 30, 2003. The increase is due mainly
to a higher average balance of securities for the six months ended
June 30, 2004 (approximately $15,197,000) as compared to the six
months ended June 30, 2003 (approximately $11,133,000).
Gain on securities increased $596,534 for the six months ended June
30, 2004 as compared to the six months ended June 30, 2003. This
increase was primarily the result of the Company's decision to take
advantage of the rise in price of the securities portfolio in the
third and fourth quarter of 2003 and the first quarter of 2004.
Management does not expect to recognize the same level of realized
gains on sale of securities in future quarters due to the decrease in
market value of the securities occurring after the first quarter of
2004.
Other income increased $132,383 for the three months ended June 30,
2004 as compared to the three months ended June 30, 2003. The
increase relates to the proceeds received from the lawsuit against the
former owner of the Carlsdadt, New Jersey property and the engineering
firm used for due diligence.
Salaries and benefits increased $34,662 or 87% for the three months
ended June 30, 2004 as compared to the three months ended June 30,
2003. Salaries and benefits increased $55,762 or 79% for the six
months ended June 30, 2004 as compared to the six months ended June
30, 2003. The increase is due to an increase in employees as well as
salary increases. The Company added 2 full-time employees after March
31, 2003. The Company has been expanding its operations.
Interest expense increased $199,835 or 106% for the three months ended
June 30, 2004 as compared to the three months ended June 30, 2003.
Interest expense increased $402,945 or 104% for the six months ended
June 30, 2004 as compared to the six months ended June 30, 2003. The
increase in interest expense is due mainly to the interest on the 8%
Debentures issued in October 2003 and the mortgage related to the
property acquisition in Wheeling, Illinois in August 2003.
12
MATERIAL CHANGES IN RESULTS OF OPERATONS, (CONT'D.)
Depreciation expense increased $122,279 or 193% for the three months
ended June 30, 2004 as compared to the three months ended June 30,
2003. Depreciation expense increased $248,595 or 196% for the six
months ended June 30, 2004 as compared to the six months ended June
30, 2003. The increase is due to the property acquisition in
Wheeling, Illinois in August 2003.
Other expenses increased $9,231 or 9% for the three months ended June
30, 2004 as compared to the three months ended June 30, 2003. Other
expenses increased $31,830 or 16% for the six months ended June 30,
2004 as compared to the six months ended June 30, 2003. The increase
is due to the property acquisition in Wheeling Illinois and expanded
operations.
MATERIAL CHANGES IN FINANCIAL CONDITION
The Company operates as a hybrid-diversified REIT and invests in real
estate, mortgages, mortgage-backed securities and other REIT
securities. The Company generated net cash provided by operating
activities for the six months ended June 30, 2004 of $669,475. In
addition, the Company raised $1,697,528 from the issuance of shares of
common stock through its Dividend Reinvestment and Stock Purchase Plan
(DRIP) for the six months ended June 30, 2004.
Securities available for sale decreased $1,077,004 from December 31,
2003 to June 30, 2004 due to mainly to sales or returns of principal
of securities available for sale of $2,577,987 and a realized gain on
sale of securities available for sale of $819,246. The Company
purchased an additional $2,933,004 in securities available for sale.
The Company may purchase additional securities on margin from time to
time if the Company can earn an adequate yield spread on the
securities. However, if suitable real properties are identified by
management, the Company may decrease its securities portfolio and
invest in additional real property. The Company anticipates
additional property acquisitions of approximately $40,000,000 in 2004
and 2005.
During the three months ended June 30, 2004, the Company invested in
futures contracts of ten-year treasury notes with a notional amount of
$3,000,000, with the objective of reducing the exposure of the debt
securities portfolio to market rate fluctuations. Changes in the
market value of these derivatives have been recorded in gain on
securities available for sale with corresponding amounts recorded in
other liabilities on the balance sheet. The fair value of the
derivatives at June 30, 2004 was a liability of $53,906. During June
2004, the Company recorded a realized gain on settled futures
contracts of $107,037, which is included in gain on securities
available for sale transactions.
In January 2004, the Company paid off the notes payable to Two River
Community Bank with an outstanding balance of $1,075,000 at December
31, 2003. The notes were repaid with proceeds from the Company's
margin loan. In April 2004, the Company closed on a $1,000,000 line
of credit with Two River Community Bank secured by the Company's
manufactured home loans. The interest rate is 5% for the first two
years and changes to the FHLB of NY Regular Fixed Rate us 300bp for
the remaining five years. The line of credit expires in 2011. As of
June 30, 2004, the Company had a balance of $1,000,000 on the line of
credit.
13
FUNDS FROM OPERATIONS
Funds from operations (FFO), is defined as net income,
excluding gains (or losses) from sales of depreciable assets,
plus depreciation. FFO should be considered as a supplemental
measure of operating performance used by real estate
investment trusts (REITs).
FFO excludes historical cost depreciation as an expense and
may facilitate the comparison of REITs which have different
cost basis. The items excluded from FFO are significant
components in understanding and assessing the Company's
financial performance.
FFO (1) does not represent cash flow from operations as
defined by generally accepted accounting principles; (2)
should not be considered as an alternative to net income as a
measure of operating performance or cash flows from operating,
investing and financing activities; and (3) is not an
alternative to cash flow as a measure of liquidity. FFO, as
calculated by the Company, may not be comparable to similarly
entitled measures reported by other REITs.
The Company's FFO for the three and six months ended June 30,
2004 and 2003 is calculated as follows:
Three Months Six Months
6/30/04 6/30/03 6/30/04 6/30/03
_________ _________ _________ _________
Net Income $253,412 $299,903 $1,041,124 $675,884
Depreciation
Expense 185,636 63,357 375,310 126,715
_________ _________ _________ _________
FFO $439,048 $363,260 $1,416,434 $802,599
======== ========= ========= =========
The following are the cash flows provided (used) by operating,
investing and financing activities for the six months ended
June 30, 2004 and 2003:
2004 2003
________ __________
Operating Activities $669,475 $472,963
Investing Activities 556,814 4,011,092
Financing Activities 102,428 ( 4,409,686)
14
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.
SAFE HARBOR STATEMENT
This Form 10-Q 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 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.
CONTROLS AND PROCEDURES
The Company's President and Chief Executive Officer and Chief
Financial Officer, with the assistance of other members of the
Company's management, have evaluated the effectiveness of the
Company's disclosure controls and procedures as of the end of
the period covered by this Quarterly Report on Form 10-Q.
Based on such evaluation, the Company's President and Chief
Executive Officer and Chief Financial Officer have concluded
that the Company's disclosure controls and procedures are
effective.
15
CONTROLS AND PROCEDURES, (CONT'D)
The Company's President and Chief Executive Officer and Chief
Financial Officer have also concluded that there have not been
any changes in the Company's internal control over financial
reporting during the quarter ended June 30, 2004 that has
materially affected, or is
reasonably likely to materially affect, the Company's internal
control over financial reporting.
16
MONMOUTH CAPITAL CORPORATION
PART II - OTHER INFORMATION
FOR THE QUARTER ENDED JUNE 30, 2004
Item 1 - Legal Proceedings - None
Item 2 - Changes in Securities, Use of Proceeds and
Issuer Purchases of
Equity Securities- None
Item 3 - Defaults Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security
Holders - None
Item 5 - Other Information - None
Item 6 - Exhibits and Reports on Form 8-K -
(a) Exhibits
31.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
31.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
32
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(b) Reports on Form 8-K - None
17
SIGNATURES
Pursuant to the requirements 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
Date: August 11, 2004 /s/ Eugene W. Landy
EUGENE W. LANDY
President and Chief Executive Officer
Date: August 11, 2004 /s/ Anna T. Chew
ANNA T. CHEW
Chief Financial Officer
18