Mays J W Inc: Form 10-Q for the period ended Jan 31, 2023

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our financial statements and related notes thereto contained in this report. In this discussion, the words “Company”, “we”, “our” and “us” refer to J.W. Mays, Inc., and subsidiaries.

Forward Looking Statements:

The following can be interpreted as including forward looking statements under the Private Securities Litigation Reform Act of 1995. The words “outlook” “intend”, “plans”, “efforts”, “anticipates”, “believes”, “expects” or words of similar import typically identify such statements. Various important factors that could cause actual results to differ materially from those expressed in the forward-looking statements are identified under the heading “Cautionary Statement Regarding Forward-Looking Statements” below. Our actual results may vary significantly from the results contemplated by these forward-looking statements based on a number of factors including, but not limited to, availability of labor, marketing success, competitive conditions, and the change in economic conditions of the various markets we serve.

Critical Accounting Policies and Estimates:

Critical accounting policies are defined as those most important to the portrayal of a company’s financial condition and results and require the most difficult, subjective, or complex judgments. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements, the reported amount of revenues, and expenses during the reporting period and related disclosure of contingent assets and liabilities. We believe the critical accounting policies in Note 1 affect our more significant judgments and estimates used in the preparation of our financial statements. Estimates are based on historical experience, where applicable or other assumptions that management believes are reasonable under the circumstances. We have identified the policies described below as our critical accounting policies. Actual results may differ from these estimates under different assumptions and conditions. Recently adopted accounting standards are also disclosed in Note 1.

Results of Operations:

Three months ended January 31, 2023 compared to the three months ended January 31, 2022:

In the three months ended January 31, 2023, the Company reported net income of $44,738, or $.02 per share. In the comparable three months ended January 31, 2022, the Company reported net loss of $(195,830), or $(.10) per share. The change in the 2023 three months was primarily due to an increase in rental income from several new tenants combined with increased rents from existing tenants, a decrease in bad debt expense, and increases in the fair value of marketable securities; partially offset by increases in real estate taxes, building maintenance costs, and state capital-based franchise taxes.

Revenues in the current three months increased to $5,837,819 from $5,328,349 in the comparable 2022 three months primarily due to rental income from several new tenants, and increased rents from existing tenants.

Real estate operating expenses in the current three months increased to $3,958,144 from $3,670,065 in the comparable 2022 three months primarily due to increases in real estate taxes and building maintenance costs.

Administrative and general expenses in the current three months decreased to $1,406,855 from $1,417,412 in the comparable 2022 three months primarily due to decreases in bad debt expense and legal and professional fees; partially offset by increases in payroll costs and state capital-based franchise taxes.

Depreciation expense in the current three months decreased to $422,815 from $452,412 in the comparable 2022 three months.

Investment income exceeded interest expense in the current three months by $9,733. In the comparable 2022 three months period, interest expense exceeded investment income by $(63,290). The improvement in the 2023 three months was primarily due to increases in the fair value of marketable securities resulting in unrealized gains in the current period. The prior year comparative period had unrealized losses.

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Six months ended January 31, 2023 compared to the six months ended January 31, 2022:

In the six months ended January 31, 2023, the Company reported net income of $104,255, or $.05 per share. In the comparable six months ended January 31, 2022, the Company reported net loss of $(586,580), or $(.29) per share. The change in the 2023 six months was primarily due to an increase in rental income from several new tenants combined with increased rents from existing tenants, a decrease in bad debt expense, and increases in the fair value of marketable securities; partially offset by increases in real estate taxes, building maintenance costs, and state capital-based franchise taxes.

Revenues in the current six months increased to $11,607,553 from $10,407,896 in the comparable 2022 six months primarily due to rental income from several new tenants, and increased rents from existing tenants.

Real estate operating expenses in the current six months increased to $7,743,565 from $7,300,187 in the comparable 2022 six months primarily due to increases in real estate taxes and building maintenance costs.

Administrative and general expenses in the current six months decreased to $2,657,086 from $2,821,524 in the comparable 2022 six months primarily due to decreases in bad debt expense and legal and professional fees; partially offset by increases in payroll costs and state capital-based franchise taxes.

Depreciation expense in the current six months decreased to $841,311 from $903,682 in the comparable 2022 six months.

Interest expense and investment losses in the current year aggregated $(231,336) compared to $(190,083) in the comparable 2022 six months, primarily due to decreases in dividend and interest income; partially offset by decreases in unrealized loss on marketable securities and interest expense.

Liquidity and Capital Resources:

In August 2022, the Company leased 58,832 square feet at the Company’s Fishkill, New York building for use as storage space for six months which expired in February 2023. Total rent of $576,259 was prepaid at lease commencement and amortized as revenue over the entire term of the lease. Brokerage commissions were $27,084.

In August 2022, a tenant notified the Company of its intention to extend its leases for one year through September 30, 2023 as follows:

(1) 25,423 square feet at the Company’s 9 Bond Street building in Brooklyn, New York

(2) 38,109 square feet at the Company’s Jamaica, New York property

In September 2022, a tenant who occupies 10,000 square feet at the Company’s Levittown, New York property exercised its option to renew the lease for another five-year term through May 4, 2028.

On October 4, 2022, a tenant who occupies 1,140 square feet of retail space at the Company’s Nine Bond Street building in Brooklyn, New York agreed to terminate their lease effective October 31, 2022. The loss in rental income will approximate $70,000 per annum.

Effective November 1 2022, a tenant who occupies 10,000 square feet at the Company’s Jowein building in Brooklyn, New York agreed to terminate their lease. The loss in rental income will approximate $120,000 per annum.

In December 2022, a tenant who occupies 5,167 square feet at the Company’s Nine Bond Street building in Brooklyn, New York agreed to terminate their lease. The loss in rental income will approximate $204,000 per annum.

As of February 24, 2023, a tenant who occupies 46,421 square feet at the Company’s Nine Bond Street building in Brooklyn, New York has expressed its intent to terminate their lease effective March 31, 2023. The loss in rental income will be approximately $1,000,000 per annum.

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Cash Flows From Operating Activities:

Accounts Payable and Accrued Expenses: The Company had a balance due on January 31, 2023 for brokerage commissions of $278,402.

Cash Flows From Investing Activities:

During the six months ended January 31, 2023, the Company had expenditures at its Fishkill, New York building of:

(1) $346,771 for canopy work. The total cost was $1,498,410 and was completed in October 2022.

(2) $153,545 for elevator modernization. The total cost is $892,000 and is anticipated to be completed in May 2023.

During the six months ended January 31, 2023, the Company completed facade restoration at its 9 Bond Street building in Brooklyn, New York for a total cost of $321,013.

Related Party Transactions:

The Company has two operating leases with Weinstein Enterprises, Inc. (“Landlord”), an affiliated company, principally owned by the Chairman of the Board of Directors of both the Company and Landlord. One lease is for building, improvements, and land located at Jamaica Avenue at 169th Street, Jamaica, New York. Another lease is for Premises located at 504-506 Fulton Street, Brooklyn, New York.

In July 2022, the Company entered into lease agreements with Landlord as follows:

(1) Jamaica Avenue at 169th Street, Jamaica, New York - Giving the Company four five-year option periods to extend its lease beyond the current expiration date of May 31, 2030 for a total of twenty years through May 31, 2050. As of January 31, 2023, it is not reasonably certain such options to extend the lease will be exercised by the Company.

(2) 504-506 Fulton Street, Brooklyn, New York – Modification of the lease agreement to increase monthly lease payments from $30,188 per month to $34,716 per month commencing on May 1, 2026 through April 30, 2031.

Rent payments and expense relating to these two operating leases with Landlord follow:

The following summarizes assets and liabilities related to these two leases:

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Cautionary Statement Regarding Forward-Looking Statements:

This section, Management’s Discussion and Analysis of Financial Condition and Results of Operations, other sections of this Report on Form 10-Q, and other reports and verbal statements made by our representatives from time to time may contain forward-looking statements that are based on our assumptions, expectations and projections about us and the real estate industry. These include statements regarding our expectations about revenues, our liquidity, our expenses, and our continued growth, among others. Such forward-looking statements by their nature involve a degree of risk and uncertainty. We caution that a variety of factors, including but not limited to the factors listed below, could cause business conditions and our results to differ materially from what is contained in forward-looking statements:

• changes in the rate of economic growth in the United States;
• the ability to obtain credit from financial institutions and the related costs;
• changes in the financial condition of our customers;
• changes in regulatory environment;
• lease cancellations;
• changes in our estimates of costs;
• war, terrorist attacks, or civil unrest effecting facilities where services are or may be provided;
• outcomes of pending and future litigation;
• increasing competition by other companies;
• compliance with our loan covenants;
• recoverability of claims against our customers and others by us and claims by third parties against us;
• changes in estimates used in our critical accounting policies; and
• pandemics and the ongoing effects of COVID-19.

Other factors and assumptions not identified above were also involved in the formation of these forward-looking statements and the failure of such other assumptions to be realized, as well as other factors, may also cause actual results to differ materially from those projected. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described above in connection with any forward-looking statements that may be made by us.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to review any additional disclosures we make in proxy statements, quarterly reports on Form 10-Q, annual reports on Form 10-K and any Form 8-K reports filed with the United States Securities and Exchange Commission.

The Company uses fixed-rate debt to finance its capital requirements. These transactions do not expose the Company to market risk related to changes in interest rates. The Company does not use derivative financial instruments. On January 31, 2023, the Company had fixed-rate debt of $5,832,207.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective and provide reasonable assurance that the information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are likely to materially affect, our internal control over financial reporting.

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There have been no changes to our risk factors from those disclosed in our Annual Report on Form 10-K for our fiscal year ended July 31, 2022.