U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

 

Commission File Number 0-7865.

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

(Exact name of issuer as specified in its charter)

 

 

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  ¨

 

        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  ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

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 x    NO  ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                                                                                            ¨Yes     xNo

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

 

  

 

 

 

 

 

 

 

Table of Contents

 

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

 

Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of June 30, 2013 and September 30, 2012	1
	Consolidated Statements of Income and Retained Earnings for the Three Month Periods ended and for the Nine Month Periods ended June 30, 2013 and 2012	2
	Condensed Consolidated Statements of Cash Flows for the Three Month Periods ended and for the Nine Month Periods ended June 30, 2013 and 2012	3
	Notes to the Consolidated Financial Statements	4-7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	8-9
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	9
Item 4.	Controls and Procedures	9
Part II	OTHER INFORMATION	10
Item 1.	Legal Proceedings	10
Item 1A.	Risk Factors	10
Item 2.	Unregistered Sales of Equity Securities and use of Proceeds	10
Item 3.	Defaults Upon Senior Securities	10
Item 4.	Reserved for Future Use	10
Item 5.	Other Information	10
Item 6.	Exhibits	10
	SIGNATURES	11-13

 

 

 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

 

CONSOLIDATED BALANCE SHEETS
				June 30,				September 30,
					2013			2012
				(unaudited)
ASSETS
CURRENT ASSETS
	Cash				$	41,738		$	48,767
	Receivables from tenants, net of allowance of $6,235 and $5,322
		at June 30, 2013 and September 30, 2012			450,399			398,338
		Total current assets			492,137			447,105
INVESTMENT PROPERTIES
	Investment properties for lease, net of accumulated depreciation				5,494,191			5,587,324
	Land and improvements held for investment or development				3,639,598			3,639,598
					9,133,789			9,226,922
OTHER ASSETS					78,091			83,802
					$	9,704,017		$	9,757,829
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
	Accounts payable and accrued expenses				$	294,210		$	382,242
	Income taxes payable				93,849			283,747
	Current maturities of notes payable				574,009			538,079
	Current maturities of deferred revenue				24,652			24,652
		Total current liabilities			986,720			1,228,720
LONG-TERM LIABILITIES
	Notes payable and line of credit, less current portion				3,091,945			3,136,794
	Deferred income taxes				770,399			771,847
	Deferred revenue, less current portion				22,582			41,071
		Total long-term liabilities			3,884,926			3,949,712
		Total liabilities			4,871,646			5,178,432
STOCKHOLDERS' EQUITY
	Common stock, par value $.10 per share; 30,000,000 shares authorized;
	5,243,107 shares issued and outstanding				524,311			524,311
	Additional paid-in capital				333,216			333,216
	Retained earnings				3,974,844			3,721,870
Total Equity					4,832,371			4,579,397
Liabilities and Equity					$	9,704,017		$	9,757,829
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
				For the Three Month							For the Nine Month
				Period Ended June 30,							Period Ended June 30,
				2013				2012			2013			2012
				(unaudited)				(unaudited)			(unaudited)			(unaudited)
OPERATING ACTIVITIES
	Net income				$	94,861		$	81,248		$	252,974		$	222,953
	Adjustments to reconcile net income to net cash provided
	by (used in) operating activities:
		Depreciation and amortization			32,948			32,948			98,844			98,324
		Changes in deferred and accrued amounts:			(377,526)			(20,356)			(349,928)			39,228
		Net cash provided by (used in) operating activities			(249,717)			93,840			1,890			360,505
INVESTING ACTIVITIES
Purchases of, and improvements to, investment properties					-			(7,800)			-			(7,800)
		Net cash used in investing activities			-			(7,800)			-			(7,800)
FINANCING ACTIVITIES
	Proceeds from shareholder				-			-			30,000			-
	Repayments to shareholder				-			-			(30,000)			-
	Proceeds from notes payable				404,235			-			404,235			-
	Principal payments on notes payable				(142,980)			(127,277)			(413,154)			(375,079)
		Net cash provided by (used in) financing activities			261,255			(127,277)			(8,919)			(375,079)
		Net increase (decrease) in cash			11,538			(41,237)			(7,029)			(22,374)
CASH, BEGINNING OF PERIOD					30,200			70,053			48,767			51,190
CASH, END OF PERIOD					$	41,738		$	28,816		$	41,738		$	28,816
SUPPLEMENTAL CASH FLOW INFORMATION:
	Cash paid for interest				$	66,839		$	63,642		$	182,728		$	197,391
	Cash paid for income taxes				$	335,613		$	35,000		$	375,613		$	66,000
NON-CASH FINANCING ACTIVITIES
	Refinancing of line of credit to term note				$	-		$	-		$	301,170		$	-
The accompanying notes are an integral part of these consolidated financial statements.
-3-

 

 

 

 

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

 

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, Article 8 of Regulation S-X 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, 2012 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 management’s 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 management’s 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 Company’s Form 10-K for the year ended September 30, 2012 for further information regarding its critical accounting policies.

 

 

-4-

 

 

 

Note  2 – Investment Properties

 

Investment properties leased or held for lease to others under operating leases consisted of the following at
June 30, 2013 and September 30, 2012:

 

			June 30,			September 30,
			2013			2012
			(unaudited)
National Plaza building, land and improvements			$	5,138,796		$	5,138,796
Evans Ground Lease, land and improvements			2,430,373			2,430,373
Commercial land and improvements			3,639,598			3,639,598
			11,208,767			11,208,767
Less accumulated depreciation			(2,190,712		)	(2,099,614		)
			9,018,055			9,109,153
Residential rental property			145,847			145,847
Less accumulated depreciation			(30,113		)	(28,078		)
			115,734			117,769
Investment properties for lease, net of accumulated depreciation			$	9,133,789		$	9,226,922

 

Depreciation expense totaled approximately $31,000 and $93,000 for both the three-month and nine-month periods ended June 30, 2013 and 2012.

 

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 Plaza’s 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.  In July 2013 the Company sold .5 acres of the land parcel that contains the above noted lease in Columbia County, Georgia for $156,000 to the Georgia Department of Transportation.  Of this amount, approximately $144,000 is obligated to go to principal pay down on the associated debt and the remaining approximately $12,000 will go to the lessee as a reduction of rental obligation.   Management does not believe that the sale of the parcel in question has any significant affect on the Evans Ground Lease or the Company’s ability to continue leasing the property or related rental revenues. 

 

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 Company’s National Plaza investment property.  The aggregate costs of these investment properties held for investment or development was $3,639,598 at June 30, 2013 and September 30, 2012.

 

 

(Continued)

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Note  2 – Investment Properties, (Continued)

 

Refer to the Company’s Form 10-K for the year ended September 30, 2012 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:

 

 

(Continued)

 

-6-

 

 

 

Note  3 – Notes Payable and Line of Credit, (Continued)

 

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).  Additionally, funding can be obtained from members of the Company’s Board of Directors.

 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $574,009.  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.

 

If the Company is unsuccessful in their efforts described above, the Company intends to seek additional financing or sell certain of its assets.

 

Note  4 – Income Taxes

 

As of September 30, 2012 the Company was in arrears in paying its income tax obligations, with a total outstanding income tax payable balance in the amount of $244,714.  Of this amount $202,950 was related to 2012 and the remaining $41,764 was related to the 2011 tax expense.  As of June 30, 2013 the Company believes it has paid all prior year income taxes payable in full and has made all estimated tax payments through March 31, 2013. 

 

Note  5 – Concentrations

 

Substantially all of the Company’s 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 Company’s revenues are earned from two of the Company’s investment properties, National Plaza and the Evans Ground Lease, which comprise approximately 51% and 48% of the Company’s 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  6 –  Related Party Transactions

 

The Company has hired an attorney who sits on the Company’s Board of Directors and who also serves a Vice President of the Company, to represent the Company in a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged.  It is the opinion of the Company’s management that the Company is not liable for this claim.

 

During the first quarter of 2013, the Company borrowed $30,000 from a member of the Company’s Board of Directors, who is also a member of the Flanagin family, to meet cash flow needs.  The entire amount was repaid during the first quarter with interest at a rate of 6%.  There were no additional borrowings from this related party during the current quarter.

 

 

 

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Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Results of Operations:

 

The Company’s results of operations for the nine months ended June 30, 2013, and a comparative analysis of the same period for 2012 are presented below:

 

							Increase (Decrease)
							2013 compared to 2012
		2013			2012		Amount			Percent
Rent revenue		$	1,085,150		$	1,059,418	$	25,732		2	%
Operating expenses		498,750			505,010		(6,260)			-1	%
Interest expense		177,726			196,017		(18,291)			-9	%
Income tax expense		155,700			135,438		20,262			15	%
Net income		252,974			222,953		30,021			13	%

 

Rent revenue consists primarily of rent revenue from the Company’s 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. 

 

Refer to the Company’s Form 10-K for the year ended September 30, 2012 for further information regarding the properties owned and their lease terms.

 

Total operating expenses for the nine months ended June 30, 2013 was consistent with the same period for 2012.  Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.

 

Interest expense for the nine month period ended June 30, 2013 decreased compared to 2012 due to the decrease in debt resulting from scheduled principal payments. Management expects interest expense for the remainder of the current fiscal year to increase slightly due to the additional borrowings in the current quarter.

 

Income tax expense for the nine month period ended June 30, 2013 increased compared to the same period for 2012 due mainly to increased rental income related higher tenant occupancy at National Plaza and  lower interest expense as noted above.  Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.

 

Liquidity and Sources of Capital:

 

The Company’s ratio of current assets to current liabilities at June 30, 2013 was 50%.  The ratio was 36% at September 30, 2012. 

 

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).  Additionally, funding can be obtained from members of the Board of Directors.

 

During the quarter, the Company obtained financing, using land as collateral, to pay tax amounts outstanding to the IRS and other outstanding liabilities.

 

 

-8-

 

 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $574,009.  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.

 

Cautionary Note Regarding Forward-Looking Statements:

 

The results of operations for the nine-month period ended June 30, 2013 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 Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders.  Such forward-looking statements are made based on management’s 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 Company’s 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 Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s 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 Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were ineffective.

 

(b)    There were no significant changes in the Company’s 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.

          

        As of September 30, 2012, the Company’s management evaluated the effectiveness of its internal control.  Based on the evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2012 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 Company’s financial condition, results of operations and cash flows for the periods presented.

 

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

 

 

 -9-

 

 

PART II - OTHER INFORMATION

 

Item  1. Legal Proceedings

During 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses charged.  It is the opinion of the Company's management that the Company is not liable for this claim.  The Company has accrued approximately $100,000 for professional fees and other expenses to defend its position.

Item  1A. Risk Factors

 

The Company, as a smaller reporting company, is not required to provide the information required by this item.

 

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item  3. Defaults Upon Senior Securities

 

None

 

Item  4. Reserved for Future Use

 

Item  5. Other Information

 

Management of the Company notes that no Forms 8-K were 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

 

 

 

 

 

 

 

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SIGNATURES

 

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)

 

By:	/s/ T. Greenlee Flanagin		August 12, 2013
	T. Greenlee Flanagin		Date
	President
	Chief Executive Officer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

-11-