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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 March 31, 2003
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.
March 31, 2003 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 ____
The number of shares or other units outstanding of each of the
issuer's classes of securities as of November 4, 2002 was
2,103,033 shares.
MONMOUTH CAPITAL CORPORATION
FOR THE QUARTER ENDED MARCH 31, 2003
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 7-9
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-12
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 12
PART II - OTHER INFORMATION 13
SIGNATURES 14
Page 2
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 2003 2002
Real Estate Investments:
Land $2,099,065 $2,099,065
Buildings, Improvements and Equipment,
net of accumulated depreciation of
$349,210 and $285,852, respectively 9,686,790 9,750,148
__________ __________
Total Real Estate Investments 11,785,855 11,849,213
Cash and Cash Equivalents 183,861 174,099
Securities Available for Sale, at Fair Value:
Federal National Mortgage Association 1,963,722 3,348,671
Government National Mortgage Association 126,785 149,758
Other Securities Available for Sale 8,472,960 9,346,508
Accounts Receivable 39,266 27,625
Loans Receivable, net of allowance for
losses of 100,845, at March 31, 2003
and December 31, 2002 1,753,876 1,888,094
Inventory 137,534 118,009
Prepaid Expenses and Other Assets 25,424 13,942
Unamortized Financing Costs 181,412 185,613
__________ __________
TOTAL ASSETS $24,670,695 $27,101,532
========== ==========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
Page 3
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED BALANCE SHEETS (CONT'D.)
March 31, December 31,
2003 2002
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages Payable $8,537,721 $8,616,405
Accounts Payable and Accrued Expenses 243,127 327,391
Loans Payable 4,458,914 8,660,162
Other Liabilities 35,000 35,000
__________ __________
Total Liabilities 13,274,762 17,638,958
__________ __________
Minority Interest 342,439 352,564
__________ __________
Shareholders' Equity:
Common Stock (par value $1.00 per
share; authorized 10,000,000 shares;
issued and outstanding 2,817,444 and
2,277,537 shares respectively 2,817,444 2,277,537
Additional Paid-In Capital 6,316,905 4,993,306
Accumulated Other Comprehensive
Income 1,438,186 1,734,189
Retained Earnings (Deficit) 480,959 104,978
__________ __________
Total Shareholders' Equity 11,053,494 9,110,010
__________ __________
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $24,670,695 $27,101,532
========== ==========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
Page 4
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
MARCH 31, 2003 AND 2002
2003 2002
____ ____
Income:
Interest and Dividend Income $337,007 $278,755
Rental and Occupancy Charges 347,678 215,770
Sales of Manufactured Homes 43,256 1,500
Other Income 128,436 144,165
__________ __________
Total Income 856,377 640,190
__________ __________
Expenses:
Cost of Sales of Manufactured
Homes 41,995 1,500
Professional Fees 41,301 95,107
Interest Expense 198,292 186,398
Depreciation Expense 63,358 36,302
Other Expenses 124,575 131,309
__________ __________
Total Expenses 469,521 450,616
__________ __________
Income(Loss) Before Gain on
Sale of Real Estate
Investment and Minority
Interest 386,856 189,574
__________ __________
Minority Interest 10,875 13,400
__________ __________
INCOME BEFORE INCOME TAXES 375,981 176,174
INCOME TAXES -0- 50,000
__________ __________
NET INCOME $375,981 $126,174
========== ==========
NET INCOME (LOSS) PER SHARE -
BASIC AND DILUTED $ .15 $ .07
========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING
Basic 2,471,138 1,725,576
========== ==========
Diluted 2,492,686 1,731,177
========== ==========
-UNAUDITED-
See Notes to Consolidated Financial Statements
Page 5
MONMOUTH CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE QUARTER ENDED MARCH 31, 2003 AND 2002
2003 2002
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $375,981 $126,174
Income Allocated to Minority Interest 10,875 13,400
Depreciation and Amortization 67,559 39,401
Provision for Loan Losses -0- 20,000
Gain on Sale of Securities Available
for Sale (128,412) (143,828)
Changes In Operating Assets and
Liabilities:
Accounts Receivable (11,641) 130,902
Inventory 21,729 -0-
Prepaid Expenses and Other
Current Assets (11,482) 32,613
Accounts Payable and Accrued
Expenses (84,264) 162,664
Other Assets and Liabilities -0- (24,824)
__________ __________
Net Cash Provided by Operating
Activities 240,345 356,502
__________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Collections and Other Decreases in
Loans Receivable 92,964 59,645
Purchase of Securities Available for
Sale -0- (705,986)
Proceeds from Sales and Other
Decreases in Securities Available
for Sale 2,113,879 1,019,494
__________ __________
Net Cash Provided by Investing
Activities 2,206,843 373,153
__________ __________
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Loans Payable and
Inventory Financing (4,201,248) (1,231,107)
Principal Payments of Mortgage (78,684) (34,119)
Decrease in Minority Interest (21,000) (10,290)
Proceeds from the Issuance of Class A
Common Stock 1,808,506 200,037
Proceeds from exercise of stock
options 55,000 -0-
__________ __________
Net Cash Used in Financing Activities (2,437,426) (1,075,479)
__________ __________
Net Increase (Decrease) in Cash 9,762 (345,824)
Cash at Beginning of Period 174,099 607,443
__________ __________
Cash at End of Period $183,861 $261,619
========== ==========
-UNAUDITED-
See Notes to the Consolidated Financial Statements
Page 6
MONMOUTH CAPITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
NOTE 1 - 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 March 31, 2003 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, 2002 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.
NOTE 2 - 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. 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. Options in the amount of 21,548 and
5,601 for the quarter ended March 31, 2003 and 2002,
respectively, are included in the diluted weighted average shares
outstanding.
NOTE 3 - COMPREHENSIVE INCOME
Total comprehensive income, including unrealized gains (loss) on
securities available for sale, amounted to $79,978 and $146,908
for the quarter ended March 31, 2003 and 2002, respectively.
NOTE 4 - SECURITIES AVAILABLE FOR SALE AND LOANS PAYABLE
During the quarter ended March 31, 2003, the Company sold
$727,875 of securities for a net gain of $128,412 which has been
included in Other Income.
Page 7
NOTE 5 - DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
For the quarter ended March 31, 2003, the Company received
$1,808,506 from the Dividend Reinvestment and Stock Purchase
Plan. There were 519,907 shares issued, resulting in 2,817,444
shares outstanding.
NOTE 6 - EMPLOYEE STOCK OPTIONS
The Company had elected to follow APB Opinion No. 25 in
accounting for its stock option plan prior to January 1, 2003,
and accordingly no compensation cost had been recognized prior to
January 1, 2003. Had compensation cost been determined
consistent with SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma
amounts as follows:
3 Months 3 Months
3/31/03 3/31/02
_________ _________
Net Income as Reported $375,981 $126,174
Compensation expense if the
Fair Value method had been -0- 500
applied
__________ __________
Net Income Pro forma 375,981 125,674
========== ==========
Net Income per share -
Basic and Diluted
As Reported $ .15 $ .07
Pro forma $ .15 $ .07
The fair value of each option is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 2002: dividend
yield of 10%; expected volatility of 25%; risk free interest
rates of 3.4%; and expected lives of five years.
The Company adopted the fair value recognition provisions of SFAS
No. 123, "Accounting for Stock Based Compensation". 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 2003, as the Company did not grant stock-
based employee compensation during the quarter ended March 31,
2003.
Two participants exercised their stock options and purchased
20,000 shares for a total of $55,000 during the quarter ended
March 31, 2003.
As of March 31, 2003, there were options outstanding to purchase
130,000 shares and 150,000 shares available for grant under the
Company's stock option plan.
Page 8
NOTE 7 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and taxes during the quarter ended March
31, 2003 and 2002 were as follows:
2003 2002
Interest $198,292 $186,398
Taxes 24,027 38,535
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In December, 2002, the Financial Accounting Standards Board
(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 statements. The
additional disclosure requirements of SFAS No. 148 are effective
for fiscal years ended after December 15, 2002.
At March 31, 2003, the Company had one stock-based employee
compensation plan. Prior to fiscal year 2003, the Company
accounted for this plan under the recognition and measurement
provision of APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and the related interpretations. No stock-based
employee compensation was reflected in net income prior to fiscal
2003. Effective December 31, 2002, the Company adopted the fair
value recognition provisions of SFAS No. 123, "Accounting for
Stock Based Compensation". Under the prospective method of
adoption selected by the Company under the provisions of SFAS No.
148, no compensation costs have been recognized in 2003 as the
Company has not issued stock-based employee compensation during
the three months ended March 31, 2003.
Page 9
MONMOUTH CAPITAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
On March 30, 2001, the Company exited the manufactured home sales
business since it has not proven to be profitable. On September
26, 2001, the Company adopted a change in fiscal year end from
June 30 to December 31, effective for the short year ended
December 31, 2001. The Company has elected to be taxed as a real
estate investment trust (REIT).
The Company generated net cash provided by operating activities
of $240,345. The Company raised $1,808,506 from the issuance of
shares of common stock through its Dividend Reinvestment and
Stock Purchase Plan (DRIP).
Securities available for sale decreased by $2,281,470 primarily
as a result of a decrease in the unrealized gain of $296,003, by
sales of other securities of $727,875, and principal repayments
of $1,386,004 on the mortgage-backed securities.
Loans receivable decreased by $134,218 during the quarter ended
March 31, 2003. This was primarily the result of collections and
other decreases of $92,964 and repossession of the collateral for
loans of $41,254.
Mortgages payable decreased by $78,684 due to principal
repayments.
Loans payable decreased by $4,201,248 during the quarter ended
March 31, 2003. This was primarily the result of repayments.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Income is comprised primarily of interest and dividend income and
rental and occupancy charges.
Interest and dividend income increased by $58,252 for the quarter
ended March 31, 2003 as compared to the quarter ended March 31,
2002. This was primarily due to purchases of other securities
available for sale. Other securities available for sale were
$6,695,395 at March 31, 2002.
Rental and occupancy charges increased by $131,908 for the
quarter ended March 31, 2003 as compared to the quarter ended
March 31, 2002 primarily due to the purchase of the leasehold
interest in a facility during 2002.
Other income decreased by $15,729 for the quarter ended March 31,
2003 as compared to the quarter ended March 31, 2002. This was
due primarily to gains on sales of securities available for sale
during 2002.
Page 10
MATERIAL CHANGES IN RESULTS OF OPERATIONS, (CONT'D.)
Sales of manufactured homes and Cost of sales of manufactured
homes for the quarter ended March 31, 2003 relate to the
disposition of repossessed inventory.
For the quarter ended March 31, 2003, the decrease in
professional fees is due to decreased personnel costs.
Interest expense increased from $186,398 for the quarter ended
March 31, 2002 to $198,292 for the quarter ended March 31, 2003
This was primarily the result of the purchases of securities
available for sale on margin and the mortgages on the new
acquisition.
Depreciation expense increased from $36,302 for the quarter ended
March 31, 2002 to $63,358 for the quarter ended March 31, 2003
due to the new acquisition during 2002.
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
bases. 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 to 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 months ended March 31, 2003 and
2002 is calculated as follows:
2003 2002
Net Income $375,981 $126,174
Depreciation 63,358 36,302
expense
__________ __________
FFO $439,339 $162,476
========== ==========
The following are the cash flows provided (used) by operating,
investing and financing activities for the three months ended
March 31, 2003 and 2002:
2003 2002
____ ____
Operating Activities $ 240,345 $ 356,502
Investing Activities 2,206,843 373,153
Financing Activities (2,437,426) (1,075,479)
Page 11
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.
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 that 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-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.
Page 12
MONMOUTH CAPITAL CORPORATION
PART II - OTHER INFORMATION
FOR THE QUARTER ENDED MARCH 31, 2003
Item 1 - Legal Proceedings - None
Item 2 - Changes in 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
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
(b) Reports on Form 8-K
Form 8-K dated March 28, 2003, announcing the
Company's financial results for the year and fourth
quarter ended December 31, 2002.
Page 13
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: May 12, 2003 By: /s/ Eugene W. Landy
EUGENE W. LANDY
President and
Chief Executive Officer
Date: May 12, 2003 By: /s/ Anna T. Chew
ANNA T. CHEW
Controller
Page 14