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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 September 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.
September 30, 2004 811-01085
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) 577-9993
________________________________________________________________________
(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 November 1, 2004 was 3,594,631 shares.
Page 1
MONMOUTH CAPITAL CORPORATION
FOR THE QUARTER ENDED SEPTEMBER 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
Statements 7-11
Item 2 - Management's Discussion and Analysis of
Results of Operations and Financial
Condition 12-17
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 17
PART II - OTHER INFORMATION 18-19
SIGNATURES 20
Page 2
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
September 30, December 31,
ASSETS 2004 2003
_____________ ____________
Real Estate Investments:
Land $ 6,297,603 $ 5,838,603
Buildings, Improvements and
Equipment, net of accumulated
depreciation of $1,185,642
and $613,750, respectively 20,404,971 17,249,644
__________ __________
Total Real Estate Investments 26,702,574 23,088,247
Cash and Cash Equivalents 616,490 314,091
Securities Available for Sale,
at Fair Value:
Federal National Mortgage
Association 452,253 546,697
Government National Mortgage
Association 44,873 69,298
Other Securities Available for
Sale 15,443,725 14,827,914
Accounts Receivable 67,016 15,097
Loans Receivable, net of
allowance for losses of
$77,616 and $86,934,
respectively 1,212,190 1,515,625
Inventory 127,624 50,590
Prepaid Expenses and Other
Assets 98,288 111,553
Financing Costs, net of
accumulated amortization of
$88,112 and $42,796, respectively 593,771 649,088
Leasing costs, net of
accumulated amortization of
$36,847 and $12,277,
respectively 356,238 380,808
__________ __________
TOTAL ASSETS $45,715,042 $41,569,008
========== ==========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
Page 3
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D.)
AS OF SEPTEMBER 30, 2004 AND DECEMBER 31, 2003
September 30, December 31,
2004 2003
___________ ___________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Mortgages Payable $15,452,950 $15,889,239
Convertible Subordinated Debentures 5,370,000 5,370,000
Loans Payable 8,105,621 5,576,824
Accounts Payable and Accrued
Expenses 276,630 249,854
Other Liabilities 244,142 197,844
__________ __________
Total Liabilities 29,449,343 27,283,761
__________ __________
Minority Interest 1,918,453 1,914,242
__________ __________
Shareholders' Equity:
Common Stock par value $1.00
per share; authorized
10,000,000 shares; issued
and outstanding 3,513,246
and 3,081,463 shares
respectively 3,513,246 3,081,463
Additional Paid-In Capital 9,531,526 7,266,839
Accumulated Other Comprehensive
Income 888,013 1,812,797
Retained Earnings 414,461 209,906
_________ _________
Total Shareholders' Equity 14,347,246 12,371,005
__________ __________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $45,715,042 $41,569,008
========== ==========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
Page 4
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2004 AND 2003
Three Months Ended Nine Months Ended
9/30/04 9/30/03 9/30/04 9/30/03
Income: ________ ________ ________ ________
Rental and Occupancy
Charges $ 707,385 $ 443,926 $ 1,949,356 $ 1,144,487
Interest and Dividend
Income 340,633 255,612 966,846 854,663
Sales of Manufactured
Homes -0- 22,134 81,000 145,890
Gain (Loss) on
Securities Available
for Sale Transactions,
Net (195,344) 391,668 677,033 667,511
Other Income 110,360 20 243,347 503
_________ ________ __________ _________
Total Income 963,034 1,113,360 3,917,582 2,813,054
_________ ________ __________ _________
Expenses:
Cost of Sales of
Manufactured Homes -0- 22,932 84,923 141,638
Real Estate Taxes 99,453 24,222 174,514 90,326
Salaries and Employee
Benefits 75,789 31,124 202,002 130,423
Professional Fees 55,737 12,417 108,045 36,289
Interest Expense 426,089 218,442 1,215,014 604,422
Depreciation 196,582 88,468 571,892 215,183
Other Expenses 92,724 88,179 321,649 277,386
_________ _________ _________ _________
Total Expenses 946,374 485,784 2,678,039 1,495,667
_________ _________ _________ __________
Income Before Minority
Interest 16,660 627,576 1,239,543 1,317,387
Minority Interest 42,777 28,209 119,536 42,136
_________ _________ _________ _________
INCOME (LOSS) BEFORE
INCOME TAXES ($26,117) $ 599,367 $ 1,120,007 $ 1,275,251
INCOME TAXES (9,654) 20,000 95,346 20,000
__________ ________ _________ _________
NET INCOME (LOSS) ($16,463) $ 579,367 $ 1,024,661 $ 1,255,251
========= ========= ========= =========
NET INCOME PER
SHARE-BASIC AND DILUTED
Basic ($ .02) $ .21 $ .31 $ .46
========= ========= ========= ==========
Diluted ($ .02) $ .20 $ .31 $ .45
========= ========= ========= ==========
WEIGHTED AVERAGE
SHARES OUTSTANDING:
BASIC 3,446,349 2,936,289 3,272,521 2,751,740
========= ========= ========= =========
DILUTED 3,485,873 2,963,730 3,315,675 2,772,909
========= ========= ========= =========
-UNAUDITED-
See Notes to Consolidated Financial Statement
Page 5
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003
2004 2003
______ ______
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net Income $1,024,661 $1,255,251
Non-Cash Adjustments:
Income Allocated to Minority
Interest 119,536 42,136
Depreciation and Amortization 641,813 232,688
Gain on Securities Available for
Sale Transactions, Net (693,830) (667,511)
Changes In Operating Assets and
Liabilities:
Accounts Receivable (51,919) 18,097
Inventory 14,928 -0-
Prepaid Expenses and Other
Assets 13,265 (410,762)
Accounts Payable and Accrued
Expenses 26,741 (96,755)
Other Liabilities 46,298 -0-
__________ __________
Net Cash Provided by Operating
Activities 1,141,493 373,144
_________ _________
CASH FLOWS FROM INVESTING
ACTIVITIES:
Collections and Other Decreases in
Loans Receivable 211,473 302,633
Purchase of Securities Available
for Sale (4,188,459) (1,970,579)
Proceeds from Sales and Other
Decreases in Securities
Available for Sale 3,460,563 5,635,197
Purchase of Real Estate (4,186,219) (11,576,349)
__________ __________
Net Cash Used in Investing
Activities (4,702,642) (7,609,098)
__________ __________
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net Increase (Decrease) in Loans
Payable 2,528,797 (3,550,927)
Proceeds from Mortgages -0- 7,670,000
Principal Payments on Mortgages (436,289) (240,270)
Financing Costs on Debt -0- (116,525)
Refund of Financing Costs 10,001 -0-
Increase (Decrease) in Minority
Interest (115,325) 1,600,677
Proceeds from the Issuance of
Common Stock 2,491,862 2,374,939
Proceeds from Exercise of Stock
Options -0- 205,000
Dividends Paid (615,498) (444,074)
__________ __________
Net Cash Provided by Financing
Activities 3,863,548 7,498,820
__________ __________
Net Increase in Cash 302,399 262,866
Cash at Beginning of Period 314,091 174,099
__________ __________
Cash at End of Period $ 616,490 $ 436,965
========== ==========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
Page 6
MONMOUTH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 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 nine months ended September 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 (the 1994 plan) expired on
December 31, 2003. As such, no options were granted during the
nine months ended September 30, 2004 under the 1994 plan. On
September 28, 2004, the Company's shareholders approved and
ratified the 2004 Stock Option Plan (the 2004 plan) authorizing
the grant to officers and key employees of options to purchase up
to 750,000 shares of common stock. Options may be granted at any
time up to September 27, 2014. No option shall be available for
exercise beyond ten years. All options are exercisable after one
year from date of grant. The option price shall not be below the
fair market value at date of grant. Cancelled or expired options
are added back to the pool of shares available under the 2004
plan. No grants were made under the 2004 plan during the three
months ended September 30, 2004.
Page 7
During the nine months ended September 30, 2004, no
participants exercised their stock options, and no stock options
expired. As of September 30, 2004, there were options
outstanding to purchase 80,000 shares under the 1994 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 conversion
of the debentures.
Options in the amount of 39,524 and 27,441 are included in the
diluted weighted-average shares outstanding for the three months
ended September 30, 2004 and 2003, respectively. Options in the
amount of 43,154 and 21,169 are included in the diluted weighted
average shares outstanding for the nine months ended September
30, 2004 and 2003, respectively.
For the three and nine months ended September 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 and nine months ended September 30, 2004.
The following table sets forth the components of the
Company's comprehensive income:
Three Three Nine Nine
Months Months Months Months
9/30/04 9/30/03 9/30/04 9/30/03
_______ ________ _______ _______
Net Income (Loss) ($16,463) $ 579,367 $ 1,024,661 $ 1,255,251
Increase (decrease)
in unrealized
gains on
securities
available for
sale 560,368 (317,011) (924,784) (265,431)
_________ _________ _________ _________
Comprehensive
Income $543,905 $ 262,356 $ 99,877 $ 989,820
========= ========= ========= ==========
Page 8
NOTE 3 - REAL ESTATE INVESTMENTS
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.
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND DERIVATIVE INSTRUMENTS
During the nine months ended September 30, 2004, the Company sold
or redeemed $2,766,733 in securities available for sale,
recognizing a gain on sale of $822,581. The Company made
additional purchases of $4,188,459 in securities available for
sale.
During the three months ended September 30, 2004, the Company
invested in futures contracts of ten-year treasury notes with a
notional amount of $5,000,000 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, net with corresponding amounts recorded in other
liabilities on the balance sheet. The fair value of the
derivatives at September 30, 2004 was a liability of $16,797.
During the nine months ended September 30, 2004, the Company
recorded a realized loss on settled futures contracts of
$128,751, which is included in gain on securities available for
sale transactions, net.
NOTE 5 - LOANS PAYABLE
On January 26, 2004, the Company repaid 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 September 30, 2004 was $1,000,000. The Company's
margin loan had a balance of $6,670,402 at September 30, 2004.
NOTE 6 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
For the nine months ended September 30, 2004, the Company
received $2,491,862 from the Dividend Reinvestment and Stock
Purchase Plan (DRIP). There were 431,783 shares issued,
resulting in 3,513,246 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 nine months ended September 30, 2004 were $820,106.
Included in dividends paid for the nine month period is dividend
reinvestments of
Page 9
NOTE 6 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN CONT"D
$204,608, which required no cash transfers. On October 1, 2004,
the Company declared a dividend of $.25 per share to be paid on
December 15, 2004 to shareholders of record on November 15, 2004.
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and taxes during the nine months ended
September 30, 2004 and 2003 was as follows:
2004 2003
______ _______
Interest $1,097,559 $598,117
Taxes 125,189 44,027
During the nine months ended September 30, 2004 and 2003, the
Company repossessed the collateral for loans receivable of
$91,962 and $43,000 respectively, and placed it into inventory.
NOTE 8 - 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 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
Page 10
NOTE 9 - SUBSEQUENT EVENTS
During October, 2004, the Company sold approximately $1,500,000
of securities available for sale and recorded a net gain on
securities available for sale of approximately $14,900.
On October 1, 2004, the Company declared a dividend of $.25 per
share to be paid on December 15, 2004 to shareholders of record
on November 15, 2004.
Page 11
MONMOUTH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND 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 five
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 $804,869 or 70% for the nine months ended September 30,
2004 as compared to the nine months ended September 30, 2003.
Gain on securities available for sale transactions, net was $
677,033 for the nine months ended September 30, 2004. Net income
for the three and nine months ended September 30, 2004 decreased
$595,830 and $230,590, respectively, due mainly to reduced gains
on sales of securities and the realized loss on futures contracts
of $235,788 and $128,751 for the three and nine months ended
September 30, 2004, respectively.
Although the Company currently owns five industrial properties,
management would consider other types of real estate
acquisitions. Management anticipates that the Company will
acquire approximately $35,000,000 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, and 2005
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.
Page 12
MATERIAL CHANGES IN RESULTS OF OPERATIONS
At September 30, 2004, the Company owned 5 industrial properties
with total square footage of approximately 349,000 square feet
compared to 4 industrial properties with approximately 289,000
square feet at September 30, 2003.
Rental and occupancy charges increased $263,459 or 59% for the
three month ended September 30, 2004 as compared to the three
months ended September 30, 2003 and increased $804,869 or 70% for
the nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003. The increase is related to rent
and occupancy charges of the Wheeling, Illinois property
purchased in August 2003 and the Richmond, Virginia property
purchased in July 2004.
Interest and dividend income increased $85,021 or 33% for the
three months ended September 30, 2004 as compared to the three
months ended September 30, 2003. The increase is due mainly to a
higher average balance of securities for the three months ended
September 30, 2004 (approximately $15,132,000) as compared to the
three months ended September 30, 2003 (approximately $9,578,000).
Interest and dividend income increased $112,183 or 13% for the
nine months ended September 30, 2004 as compared to the nine
months ended September 30, 2003. The increase is due mainly to a
higher average balance of securities for the nine months ended
September 30, 2004 (approximately $15,254,000) as compared to the
nine months ended September 30, 2003 (approximately $10,687,000).
Sales of manufactured homes and cost of sales of manufactured
homes relate to the sale of repossessed homes which were financed
by the Company prior to 2001 when the Company was in the
manufactured home sales business.
Gain on sales of securities decreased $587,012 for the three
months ended September 30, 2004 as compared to the three months
ended September 30, 2003. Gain on sales of securities increased
$9,522 for the nine months ended September 30, 2004 as compared
to the nine months ended September 30, 2003. The decrease in
gains for the three months is due mainly to the loss recorded on
settled futures contracts of $235,788. The increase in gains for
nine months is due to increased gains on sales of securities for
the nine months ended September 30, 2004 ($822,581) as compared
with the nine months ended September 30, 2003 ($667,511),
partially offset by the realized losses on futures contracts for
the nine month ended September 30, 2004 of $128,751. During
2004, the Company began investing in futures contracts of ten-
year treasury notes as a way to mitigate the impact of market
rates on the Company's debt securities portfolio. As of
September 30, 2004, the Company had unrealized losses on open
futures contracts of $16,797 which is also included in gain on
sale of securities available for sale transactions, net.
Other income increased $110,340 for the three months ended
September 30, 2004 as compared to the three months ended
September 30, 2003. Other income increased $242,844 for the nine
months ended September 30, 2004 as compared to the nine months
ended September 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. Professional fees increased for the three and
nine months ended September 30, 2004 as compared to the three and
nine months ended September 30, 2003 due mainly to increased
legal fees related to this settlement.
Page 13
MATERIAL CHANGES IN RESULTS OF OPERATIONS (CONT'D)
Real estate taxes increased $75,321 for the three months ended
September 30, 2004 as compared to the three months ended
September 30, 2003 and increased $84,188 for the nine months
ended September 30, 2004 as compared to the nine months ended
September 30, 2003. The increase is due mainly to the Wheeling,
Illinois property which was purchased in August 2003.
Salaries and benefits increased $44,665 or 144% for the three
months ended September 30, 2004 as compared to the three months
ended September 30, 2003. Salaries and benefits increased
$71,579 or 55 % for the nine months ended September 30, 2004 as
compared to the nine months ended September 30, 2003. The
increase is due to an increase in employees as well as salary
increases. The Company has been expanding its operations.
Interest expense increased $207,647 or 95% for the three months
ended September 30, 2004 as compared to the three months ended
September 30, 2003. Interest expense increased $610,592 or 101%
for the nine months ended September 30, 2004 as compared to the
nine months ended September 30, 2003. The increase in interest
expense is due mainly to the interest on the 8% Debentures issued
in October 2003 and the mortgage interest related to the property
acquisition in Wheeling, Illinois in August 2003.
Depreciation expense increased $108,114 or 122% for the three
months ended September 30, 2004 as compared to the three months
ended September 30, 2003. Depreciation expense increased
$356,709 or 166% for the nine months ended September 30, 2004 as
compared to the nine months ended September 30, 2003. The
increase is due to the property acquisitions in Wheeling,
Illinois in August 2003 and in Richmond, Virginia in July 2004.
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 nine months ended September 30, 2004
of $1,114,493. In addition, the Company raised $2,491,862 from
the issuance of shares of common stock through its Dividend
Reinvestment and Stock Purchase Plan (DRIP) for the nine months
ended September 30, 2004.
Real estate investments increased $3,614,327 from December 31,
2003 to September 30, 2004 mainly due to the purchase of the
industrial building in Richmond, Virginia in July 2004 for
$4,186,219, partially offset by depreciation expense of $571,892
for the nine months ended September 30, 2004. The Company
financed this acquisition using its line of credit and its margin
loan.
Securities available for sale increased $496,942 from December
31, 2003 to September 30, 2004. The increase was mainly to
purchases of $4,188,459 partially offset by sales of $2,766,733.
The Company purchases securities on margin from time to time when
suitable property acquisitions are not available and 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
Page 14
MATERIAL CHANGES IN FINANCIAL CONDITION (CONT'D)
property. The Company anticipates additional property
acquisitions of approximately $35,000,000 in 2004 and 2005.
During the three months ended September 30, 2004, the Company
invested in futures contracts of ten-year treasury notes with a
notional amount of $5,000,000, 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, net
with corresponding amounts recorded in other liabilities on the
balance sheet. The fair value of the derivatives at September
30, 2004 was a liability of $16,797. During the nine months
ended September 30, 2004, the Company recorded a realized loss on
settled futures contracts of $128,751, which is included in gain
on securities available for sale transactions, net.
In January 2004, the Company repaid 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 September 30, 2004, the Company
had a balance of $1,000,000 on the line of credit.
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 nine months ended September
30, 2004 and 2003 is calculated as follows:
Page 15
FUNDS FROM OPERATIONS (CONT"D)
Three Months Nine Months
9/30/04 9/30/03 9/30/04 9/30/03
________ ________ ________ ________
Net Income
(Loss) ($16,463) $579,367 $1,024,661 $1,255,251
Depreciation
Expense 196,582 88,468 571,892 215,183
________ ________ _________ __________
FFO $180,119 $667,835 $1,596,553 $1,470,434
======== ======== ========= =========
The following are the cash flows provided (used) by operating,
investing and financing activities for the nine months ended
September 30, 2004 and 2003:
2004 2003
___________ ___________
Operating Activities $ 1,141,493 $ 373,144
Investing Activities (4,702,642) (7,609,098)
Financing Activities 3,863,548 7,498,820
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.
Page 16
SAFE HARBOR STATEMENT (CONT"D)
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.
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 September 30, 2004 that has
materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.
Page 17
MONMOUTH CAPITAL CORPORATION
PART II - OTHER INFORMATION
FOR THE QUARTER ENDED SEPTEMBER 30, 2004
Item 1 - Legal Proceedings - None
Item 2 - Unregistered Sales of Equity Securities and use
of Proceeds- None
Item 3 - Defaults Upon Senior Securities - None
Item 4 - Submission of Matters to a Vote of Security
Holders
An Annual Meeting of stockholders of the Company was held
September 28, 2004 for the purpose of considering and voting upon
the following matters:
1. Approval of the election of each of the Directors Anna T.
Chew, Neal Herstik, Eugene W. Landy, Michael P. Landy, Eugene D.
Rothenberg, Robert G. Sampson and Stephen B. Wolgin to serve for
a one-year term.
2. Approval of the adoption of the Company's 2004 Stock Option
Plan.
3. Approval of the appointment of Cowan Gunteski & Co., P.A.,
Certified Public Accountants, as independent accountants for the
Company for the year ending December 31, 2004.
The following table sets forth the results as to each matter
voted upon:
Proposal For Against Abstain
________ ___ _______ _______
No. 1 - Approval of Directors
Anna T. Chew 2,976,161 14,956 -0-
Neal Herstik 2,976,297 14,820 -0-
Eugene W. Landy 2,976,273 14,844 -0-
Michael P. Landy 2,976,473 14,644 -0-
Eugene D. Rothenberg 2,975,497 15,620 -0-
Robert G. Sampson 2,975,497 15,620 -0-
Stephen B. Wolgin 2,976,497 14,620 -0-
No. 2 - Approval of 2004 Stock Option 1,575,344 101,360 9,779
Plan
No. 3 - Approval of Cowan Gunteski & 2,971,247 1,105 18,765
Co., P.A.
Item 5 - Other Information -
Form 8-K dated July 12, 2004, was filed to report that
the Company issued a press release dated July 12, 2004
announcing a new property acquisition.
Form 8-K dated July 12, 2004, was filed to report the
purchase of an industrial building in Richmond, Virginia
and to disclose the material factors of the acquisition.
Page 18
Form 8-K dated September 28, 2004 was filed to report
the departure of Directors and the election of Directors.
Item 6 - 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
Page 19
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: November 12, 2004 /s/ Eugene W. Landy
EUGENE W. LANDY
President and Chief Executive Officer
Date: November 12, 2004 /s/ Anna T. Chew
ANNA T. CHEW
Chief Financial Officer
Page 20