Business Context and Reporting Period
Company: J.W. Mays, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: January 31, 2009 (Six months ended January 31, 2009)
Business Overview: The Company operates as a real estate enterprise, deriving revenue primarily from rental income across properties in Brooklyn, New York, Jamaica, New York, Fishkill, New York, and Circleville, Ohio. The Company discontinued its retail department store segment in 1989.
Key Financial Metrics
| Metric | Six Months Ended Jan 31, 2009 | Six Months Ended Jan 31, 2008 |
|---|---|---|
| Total Revenues | $8,419,741 | $7,212,651 |
| Net Income (Loss) | $320,934 | $(280,818) |
| Earnings Per Share | $0.16 | $(0.14) |
| Operating Cash Flow | $1,130,473 | $(1,343,690) |
| Cash and Equivalents (Ending) | $1,229,063 | $1,876,427 |
| Total Assets | $56,066,397 | $57,283,328 |
| Total Liabilities | $16,639,701 | $17,829,783 |
| Long-Term Debt | $11,225,173 | $11,883,934 |
Debt Structure: As of January 31, 2009, the Company held $11,388,510 in fixed-rate debt and $380,000 in variable-rate debt. A $1,000,000 note payable to a related party (former director) remains outstanding.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased by approximately 16.7% ($1.2 million) compared to the prior six-month period. This increase is attributed to leasing space to five additional tenants at properties in Brooklyn and Circleville.
- Turnaround to Profitability: The Company reported a net income of $320,934, reversing a net loss of $280,818 in the comparable 2008 period.
- Real Estate Tax Recovery: A significant non-recurring item contributed to revenue: a recovery of $536,827 in prior years' real estate taxes (net of legal expenses), compared to $91,043 in the prior year.
- Investment Impairment: Investment income turned negative ($26,632 loss) due to a $99,976 write-down/impairment of preferred stock in Lehman Brothers Holdings Inc. In the prior year, investment income was $112,517.
- Expense Management: Real estate operating expenses increased slightly ($131k) due to higher taxes and payroll, while administrative expenses remained relatively flat despite increased legal and insurance costs, offset by a bad debt expense incurred in the prior year.
Outlook, Risks, and Contingencies
- Liquidity: Management considers current working capital and borrowing capabilities adequate. Cash decreased by $246,327 during the period, primarily due to debt repayments and capital expenditures.
- Capital Projects: The Company is constructing two new elevators at its Bond Street building. Total estimated cost is $1.1 million; $325,550 has been expended, with $850,000 available to be financed under an existing term loan.
- Legal Contingency: The Company is involved in litigation regarding a termination notice for its tenancy in the Jowein building in Brooklyn. A preliminary injunction was granted in May 2007 preventing eviction. Management believes the resolution will not have a material adverse effect, though the outcome is unpredictable.
- Market Risk: The Company has limited exposure to interest rate risk ($380,000 variable debt). A 100 basis point increase in rates would decrease net income by approximately $3,800.
- Concentration Risk: Two tenants accounted for 11.16% and 16.86% of rental income during the six months ended January 31, 2009.
Investor Verification Checklist
- Lehman Brothers Impairment: Verify the valuation methodology and recoverability of the remaining marketable securities portfolio, which holds a gross unrealized loss of $638,196.
- Jowein Building Litigation: Monitor the status of the lawsuit regarding the lease termination notice and potential costs to cure defaults.
- Debt Maturities: Review the repayment schedule for the $764,648 loan on the Jowein building, which is due April 1, 2009, and the $300,000 partial payment made in September 2008.
- Tax Recovery Sustainability: Assess the extent to which the $536,827 real estate tax recovery is a one-time event versus a recurring revenue stream.
- Internal Controls: Note the Company's disclosure that its Accounting Department consists of only four persons, making complete segregation of duties impossible; verify the effectiveness of compensating controls.