Attached files
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EX-32.1 - EX-32.1 - SECURITY LAND & DEVELOPMENT CORP | a10-3576_1ex32d1.htm |
EX-31.1 - EX-31.1 - SECURITY LAND & DEVELOPMENT CORP | a10-3576_1ex31d1.htm |
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended December 31, 2009 |
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o |
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Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the transition period of to |
Commission File Number 0-7865.
SECURITY LAND AND DEVELOPMENT CORPORATION
(Exact name of issuer as specified in its charter)
Georgia |
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58-1088232 |
(State or other Jurisdiction of Incorporation or Organization) |
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(I.R.S. Employer Identification Number) |
2816 Washington Road, #103, Augusta, Georgia 30909
(Address of Principal Executive Offices)
Issuers Telephone Number (706) 736-6334
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Year)
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date.
Class |
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Outstanding at February 8, 2010 |
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Common Stock, $0.10 Par Value |
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5,243,107 shares |
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SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARIES
Form 10-Q
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Consolidated Balance Sheets as of December 31, 2009 and September 30, 2009 |
1 |
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2 |
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3 |
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4-7 |
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
7-8 |
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8 |
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9 |
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9 |
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9 |
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9 |
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9 |
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9 |
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9 |
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10 |
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10 |
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11-13 |
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
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December 31, |
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September 30, |
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2009 |
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2009 |
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(unaudited) |
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ASSETS |
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CURRENT ASSETS |
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Cash |
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$ |
22,887 |
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$ |
33,724 |
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Receivables from tenants |
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253,570 |
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249,850 |
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Prepaid salaries |
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3,614 |
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Total current assets |
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276,457 |
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287,188 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
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5,926,312 |
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5,957,356 |
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Land and improvements held for investment or development |
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3,641,098 |
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3,641,098 |
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9,567,410 |
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9,598,454 |
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OTHER ASSETS |
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94,601 |
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96,245 |
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$ |
9,938,468 |
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$ |
9,981,887 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
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$ |
221,916 |
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$ |
243,298 |
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Income taxes payable |
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45,391 |
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67,486 |
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Due to shareholder |
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21,000 |
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Current maturities of notes payable and line of credit |
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445,148 |
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680,268 |
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Current maturities of deferred revenue |
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24,652 |
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24,652 |
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Total current liabilities |
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758,107 |
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1,015,704 |
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LONG-TERM LIABILITIES |
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Notes payable, less current portion |
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4,234,942 |
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4,349,265 |
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Line of credit |
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250,000 |
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Deferred income taxes |
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485,175 |
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483,382 |
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Deferred revenue, less current portion |
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108,864 |
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115,027 |
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Total long-term liabilities |
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5,078,981 |
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4,947,674 |
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Total liabilities |
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5,837,088 |
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5,963,378 |
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STOCKHOLDERS EQUITY |
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Common stock, par value $.10 per share; 30,000,000 shares authorized; 5,243,107 shares issued and outstanding |
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524,311 |
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524,311 |
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Additional paid-in capital |
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333,216 |
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333,216 |
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Retained earnings |
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3,243,853 |
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3,160,982 |
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Total equity |
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4,101,380 |
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4,018,509 |
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Liabilities and equity |
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$ |
9,938,468 |
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$ |
9,981,887 |
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The accompanying notes are an integral part of these consolidated financial statements.
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
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For the Three Month |
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Period Ended December 31, |
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2009 |
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2008 |
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(unaudited) |
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(unaudited) |
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OPERATING REVENUE |
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Rent revenue |
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358,594 |
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353,659 |
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OPERATING EXPENSES |
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Depreciation and amortization |
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32,688 |
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31,948 |
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Property taxes |
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67,244 |
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69,540 |
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Payroll and related costs |
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17,467 |
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15,135 |
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Insurance and utilities |
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7,067 |
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10,265 |
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Repairs and maintenance |
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7,832 |
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8,892 |
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Professional services |
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14,150 |
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18,510 |
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Other |
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367 |
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592 |
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146,815 |
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154,882 |
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Operating income |
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211,779 |
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198,777 |
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OTHER INCOME (EXPENSE) |
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Interest |
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(84,481 |
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(94,998 |
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Other income/expense |
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889 |
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(84,481 |
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(94,109 |
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Income before income taxes |
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127,298 |
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104,668 |
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INCOME TAXES PROVISION |
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44,427 |
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35,558 |
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Net income |
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82,871 |
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69,110 |
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RETAINED EARNINGS, BEGINNING OF PERIOD |
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3,160,982 |
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2,773,541 |
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RETAINED EARNINGS, END OF PERIOD |
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3,243,853 |
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2,842,651 |
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PER SHARE DATA |
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Net income per common share |
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$ |
0.02 |
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$ |
0.01 |
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The accompanying notes are an integral part of these consolidated financial statements.
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the Three Month |
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Period Ended December 31, |
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2009 |
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2008 |
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(unaudited) |
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(unaudited) |
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OPERATING ACTIVITIES |
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Net income |
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$ |
82,871 |
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$ |
69,110 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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32,688 |
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31,948 |
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Changes in deferred and accrued amounts |
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(47,953 |
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(5,147 |
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Net cash provided by operating activities |
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67,606 |
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95,911 |
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INVESTING ACTIVITIES |
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Proceeds from the sale of investments |
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249,918 |
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Net cash provided by investing activities |
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249,918 |
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FINANCING ACTIVITIES |
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Proceeds from shareholder |
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21,000 |
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Proceeds from line of credit, net |
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6,981 |
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Principal payments on notes payable |
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(106,424 |
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(284,699 |
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Net cash used in financing activities |
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(78,443 |
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(284,699 |
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Net increase (decrease) in cash |
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(10,837 |
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61,130 |
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CASH BEGINNING OF PERIOD |
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33,724 |
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24,764 |
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CASH END OF PERIOD |
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$ |
22,887 |
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$ |
85,894 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
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$ |
84,481 |
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$ |
94,998 |
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Cash paid for income taxes |
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$ |
64,729 |
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$ |
1,020 |
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The accompanying notes are an integral part of these consolidated financial statements.
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q and accounting principles generally accepted in the United States of America; therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows. Such statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the audited financial statements appearing in our Form 10-K for the year ended September 30, 2009 when reviewing interim financial statements.
The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the Company). Significant intercompany transactions and accounts are eliminated in consolidation.
Critical Accounting Policies:
Estimates of Useful Lives of Investment Properties for Purposes of Depreciation
Management has estimated useful lives of investment properties, except for land, that are leased, and the Company utilizes the straight-line method to compute depreciation over the estimated useful lives of the investment properties. Actual depreciation of investment properties will vary from managements estimates, and the value of investment properties is more directly impacted by market conditions and the physical condition of the investment properties.
Evaluation of Long-Lived Assets for Impairment
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of investment properties may not be recoverable. In evaluating recoverability, the Company generally estimates future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when the expected future cash flows of the asset are less than the carrying amount.
Estimates of Income Tax Rates Applicable to Deferred Taxes
The Company has deferred income taxes through a series of tax-deferred like-kind exchange transactions on certain investment properties and through accelerated depreciation elections on certain other assets. Actual income taxes that may become due when taxable gains are realized on the sale of assets may differ from managements estimates as a result of changes in tax laws, the tax status of the Company, or the actual taxable earnings of the Company in the periods the deferred income taxes become due.
Refer to the Companys Form 10-K for the year ended September 30, 2009 for further information regarding its critical accounting policies.
Note 2 Investment Properties
Investment properties leased or held for lease to others under operating leases consisted of the following at December 31, 2009 and September 30, 2009:
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December 31, |
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September 30, |
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2009 |
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2009 |
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(unaudited) |
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National Plaza building, land and improvements |
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$ |
5,136,296 |
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$ |
5,136,296 |
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Evans Ground Lease, land and improvements |
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2,430,373 |
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2,430,373 |
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Commercial land and improvements |
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3,641,098 |
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3,641,098 |
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11,207,767 |
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11,207,767 |
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Less accumulated depreciation |
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(1,765,590 |
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(1,735,224 |
) |
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9,442,177 |
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9,472,543 |
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Residential rental property |
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145,847 |
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145,847 |
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Less accumulated depreciation |
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(20,614 |
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(19,936 |
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125,233 |
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125,911 |
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Investment properties for lease, net of accumulated depreciation |
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$ |
9,567,410 |
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$ |
9,598,454 |
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Depreciation expense totaled $31,044 for both the three-month period ended December 31, 2009 and 2008.
The National Plaza is a retail strip center located on Washington Road in Augusta Georgia. Approximately 81% of the rentable space at the National Plaza is leased to Publix Supermarkets, Inc., the National Plazas anchor tenant.
The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on approximately 18 acres of land in Columbia County, Georgia. The agreement required monthly rental payments of $20,833 during the development period, which was completed in January 2007. Following the expiration of the development period, the lease requires annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16. The lessee has an option to renew at year 21 and another option every 5 years thereafter for a possible total lease term of 50 years. The lease provides for the tenant to pay for insurance and property taxes. The Company is recognizing rents on a straight-line basis over the lease term.
The Company holds several parcels of land for investment or development purposes, including 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008. The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1 acre parcel along Washington Road in Augusta, Georgia that adjoins the Companys National Plaza investment property. The aggregate costs of these investment properties held for investment or development was $3,641,098 at December 31, 2009 and September 30, 2009.
Refer to the Companys Form 10-K for the year ended September 30, 2009, for further information on operating lease agreements and land held for investment or development purposes.
Note 3 Notes Payable and Line of Credit
Notes payable and line of credit consisted of the following at:
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December 31, |
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September 30, |
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(unaudited) |
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A note payable to the seller of approximately 2.81 acres of land in North Augusta, South Carolina, collateralized by the land. The note is payable in monthly installments of $7,182 through June 2013, and bears interest at a fixed rate of 6%. |
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$ |
271,444 |
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$ |
288,773 |
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A note payable to an insurance company, secured with a mortgage interest in National Plaza and an assignment of rents. The note is payable in monthly installments of $35,633, including interest, through June 2015, and bears interest at a fixed rate of 7.875%. |
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1,903,704 |
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1,972,223 |
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A note payable to an insurance company collateralized with approximately 18 acres of land in Columbia County, Georgia, and an assignment of the long-term ground lease. The note is payable in monthly installments of $19,137, including interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%. |
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2,504,942 |
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2,525,518 |
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4,680,090 |
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4,786,514 |
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Less current maturities |
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(445,148 |
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(437,249 |
) |
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$ |
4,234,942 |
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$ |
4,349,265 |
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A line of credit with a regional financial institution for up to $251,934 procured in March 2008 with a floating interest rate based on prime and originally payable in full in April 2009. In April 2009 the Company refinanced the $243,019 line of credit with a regional financial institution. The Company entered into an agreement with the same regional financial institution to borrow the outstanding balance of $243,019, bearing interest based on the greater of prime or 6% with interest payments due monthly, maturing in April 2010. The line of credit is collateralized by the residential property on Stanley Drive. The line was increased to $300,250 in January 2010 and its maturity was extended to February 2011. |
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$ |
250,000 |
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$ |
243,019 |
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Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancings and the appreciation in investment properties (which can be sold or mortgaged, if necessary).
Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $445,148. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that his will occur.
In addition, the Companys line of credit of $250,000 at December 31, 2009 and $300,250 as of January 22, 2010 was refinanced in January 2010 and is due to be repaid in February 2011. The Company expects to extend the maturity date of the line of credit through refinancing upon its maturity in 2011. Although the company expects to secure this refinancing prior to the maturity of the line of credit, there can be no assurances that such refinancing will be secured or that such refinancing will be on terms acceptable to the Company.
If the Company is unsuccessful in either of their efforts described above, the Company intends to seek additional financing or sell certain of its assets.
Note 4 Concentrations
Substantially all of the Companys assets consist of real estate located in Richmond and Columbia Counties in the state of Georgia and in North Augusta, South Carolina. Approximately 99% of the Companys revenues are earned from two of the Companys investment properties, National Plaza and the Evans Ground Lease, which comprise approximately 52% and 47% of the Companys revenues, respectively. The anchor tenant for National Plaza, Publix Supermarkets, Inc. (Publix), a regional food supermarket chain, leases approximately 81% of the space at National Plaza. The Company generates approximately 37% of its revenues though its lease with Publix.
Note 5 Subsequent Events
In January 2010, the Company secured an addition to the line of credit in the amount of $50,250, bringing the total line of credit to $300,250. These funds were drawn and used to pay property taxes due on the Companys investment properties. In addition, the maturity of the line of credit was extended from April 2010 to February 2011.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations:
The Companys results of operations for the three months ended December 31, 2009, and a comparative analysis of the same period for 2008 are presented below:
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Increase (Decrease) |
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2009 compared to 2008 |
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2009 |
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2008 |
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Amount |
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Percent |
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Rent revenue |
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$ |
358,594 |
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$ |
353,659 |
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$ |
4,935 |
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1 |
% |
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Operating expenses |
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146,815 |
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154,882 |
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(8,067 |
) |
-5 |
% |
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Interest expense |
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84,481 |
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94,998 |
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(10,517 |
) |
-11 |
% |
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Income tax expense |
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44,427 |
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35,558 |
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8,869 |
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25 |
% |
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Net income |
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82,871 |
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69,110 |
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13,761 |
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20 |
% |
Rent revenue consists primarily of rent revenue from the Companys National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia. The Company also earned rent revenue from a ground lease with an auto-repair service operation on an out parcel of National Plaza. Rent revenue increased slightly for the three months ended December 31, 2009 primarily due to minor rent increases of existing tenants and increased recoverable property taxes billable to tenants.
Refer to the Companys Form 10-K for the year ended September 30, 2009 for further information regarding the properties owned and their lease terms.
Total operating expenses for the three months ended December 31, 2009 decreased slightly compared with the same period for 2008. This decrease was due largely to slight decreases in insurance and utilities and professional services for the quarter ended December 31, 2009 as compared to the same period in 2008 due to timing differences of when expenses were incurred for each period. Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.
Interest expense for the three month period ended December 31, 2009 decreased compared to 2008 due to the decrease in debt due to scheduled principle payments and the easement sale of a portion of the land containing the Evans Ground Lease. A portion of the proceeds from the easement sale were used to pay down debt collateralized by the Evans Ground Lease and related property.
Income tax expense for the three month period ended December 31, 2009 increased as the Companys net income increased due to decreased operating and interest expense noted above.
Liquidity and Sources of Capital:
The Companys ratio of current assets to current liabilities at December 31, 2009 was 27%. The ratio was 28% at September 30, 2009.
Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary).
Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $445,148. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.
In addition the Companys line of credit of $250,000 at December 31, 2009 and $300,250 as of January 22, 2010 was refinanced in January 2010 and is due to be repaid in February 2011. The Company expects to extend the maturity date of the line of credit through refinancing upon its maturity in 2011. Although the Company expects to secure this refinancing prior to the maturity of the line of credit, there can be no assurances that such refinancing will be secured or that such refinancing will be on the terms acceptable to the Company.
If the Company is unsuccessful in either of their efforts described above, the Company intends to seek additional financing or sell certain of its assets.
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the three-month period ended December 31, 2009 are not necessarily indicative of the results that may be expected for the entire fiscal year. The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Companys filings with the Securities and Exchange Commission (the Commission) and its reports to stockholders. Such forward-looking statements are made based on managements belief as well as assumptions made by, and information currently available to, management pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Companys actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, but not limited to, competition from other real estate companies, the ability of the Company to obtain financing for projects, and the continuing operations of tenants.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Not applicable to smaller reporting companies
Item 4. Controls and Procedures
(a) Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Based upon that evaluation, the Companys Chief Executive Officer concluded that the Companys disclosure controls and procedures were effective.
(b) There were no significant changes in the Companys internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Chief Executive Officer carried out the evaluation.
Item 4T. Controls and Procedures
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Exchange Act Rules 13a-15(f). A system of internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
As of September 30, 2009, the Companys management evaluated the effectiveness of its internal control. Based on the evaluation, the Companys management concluded that the Companys internal control over financial reporting was ineffective as of September 30, 2009 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.
Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Companys financial condition, results of operations and cash flows for the periods presented.
There has been no change in the Companys internal control over financial reporting that occurred during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
None
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
None
(Continued)
PART II - OTHER INFORMATION, Continued
Management of the Company notes that no Forms 8-K was filed during the period and Management is not aware of any un-reported matters occurring during the period that would require disclosure in a Form 8-K.
Item 6. Exhibits and Reports on Form 8-K
(a) |
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Exhibit No. |
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Description |
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31.1 |
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Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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(b) |
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No reports on Form 8-K were filed during the three-months ended December 31, 2009. |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SECURITY LAND AND DEVELOPMENT CORPORATION
(Registrant)
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By: |
/s/ T. Greenlee Flanagin |
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February 11, 2010 |
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T. Greenlee Flanagin |
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Date |
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President |
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Chief Executive Officer and Chief Financial Officer |
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