U.S.UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DCWashington, D.C. 20549
FORM
10-KSB [X]10-Kx ANNUAL REPORT
UNDERPURSUANT TO SECTION 13 OR15 (d)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(FEE REQUIRED)For the fiscal year ended September 30,
1996 [ ]2011or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(NO FEE REQUIRED)For the transition period from to
----------------- -----------------Commission File Number
0-7865. ------0-7865SECURITY LAND AND DEVELOPMENT CORPORATION
(A(A GEORGIA CORPORATION)
INTERNAL REVENUE SERVICE
EMPLOYER IDENTIFICATION NUMBER 58-1088232
2816 WASHINGTON ROAD, #103, AUGUSTA, GA 30909
TELEPHONE NUMBER 706-736-6334
Securities registered pursuant to Section 12(b) of the
ActAct:None
Securities registered pursuant to
Sectionsection 12(g) of theActAct:Common Stock
CheckIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES o NO x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o NO x
Indicate by check mark whether the
Issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that theRegistrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YESXx NO------ ------ CheckoIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if
there is noany, 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 oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-BS-K (§ 229.405 of this chapter) is not containedin this form,herein, and will not be contained, to the best ofregistrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-KSB10-K or any amendment to this Form10-KSB. [X]10-K. xIndicate 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. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller Reporting Company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x
The
registrant'sregistrant’s total revenues for the fiscal year ended September 30,19962011 were$617,164.$ 1,400,412.As of the close of the period covered by this report, registrant had outstanding
5,237,6075,243,107 shares of common stock. There is no established market for the common stock of the registrant. Therefore, the aggregate market value of the voting stock held by non-affiliates of the registrant is not known.DOCUMENTS
INCORPORATEDINCORPROATED BY REFERENCENONE
Cautionary Note Regarding Forward-Looking Statements:
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.
PART
I. ITEMIItem 1.
DESCRIPTION OF BUSINESSBusiness.Security Land and Development Corporation (the
"Company"“Company”) was organized and incorporated in Georgia in 1970. The Company, including its wholly ownedsubsidiary,subsidiaries, the Royal Palms Motel, Inc., SLDC, LLC, SLDC2, LLC and SLDC III, LLC has developed two (2) primary business activities, these activities being (1) the acquisition of undeveloped land for investment purposes and sale at a future date or development of the land and sale after developed and, (2) the acquisition or development of income producing properties for investment purposes and income from leasing activities. TheCompany'sCompany’s principal office is in Augusta, Georgia and principal activities are in Augusta,Georgia.Georgia, Evans, Georgia, and North Augusta, South Carolina.The
Company'sCompany’s primary development and income producing activities are:1.Retail
stipstrip center onapproximately 1515.24 acres on Washington Road inAugusta.Augusta, Georgia (the “National Plaza”). Approximately 56,000 square feet is being leased to Publix Supermarkets, Inc.and is operated as(“Publix”) who operates a retail food supermarket. The remaining approximately 13,000 square feet of rental space is available for lease tootheradditional tenants.The Company has obtained tenants for and is leasing approximately 40% of the 13,000 square feet. Subsequent toAt September 30,1996, the Company obtained additional tenants for this space, for a total occupancy of 80% of the 13,000 square feet. The Company is currently seeking additional tenants for the remaining space. The Company owns2011, approximately35 acres of undeveloped land adjacent to the strip center and is marketing this property for sale as commercial and residential real estate. 2. Building on approximately 1.6 acres of land in Augusta. Leased to a single tenant for operation as a restaurant. 3. Bulk warehouse storage facility in Athens, Georgia. The Company owns and has available for lease approximately 248,0005,200 square feet ofstorage space. 4. Commercial propertythis remaining space was leased.2.An outparcel of the National Plaza that is 0.89 acres and is leased commercially under a 20-year ground-lease to an auto-repair service operation.
3.Long-term ground lease (“Evans Ground Lease”) on approximately 18 acres in Evans, Georgia at the intersection of Washington Road and Industrial Park Drive to Lowe’s, a national home improvement retailer.
4.Residential Property on Stanley Drive, in Augusta, Georgia, currently
leasedfor lease as asingle family home.single-family residence.The Company owns certain other properties that are more fully described in Item
2.2, “Properties.”In January of 2007 construction of the Evans Ground Lease was completed and the Company began collecting full monthly rent. The Evans Ground Lease represents approximately 43% of the Company’s net leased assets at September 30, 2011. Rent revenue, including monthly rent, recognition of previously deferred revenue and property taxes from the Evans Ground Lease represented 48% and 47% of the Company’s total gross rent revenue for the years ended September 30, 2011 and 2010, respectively. The Company also expects the long-term ground lease in Evans, Georgia to provide a substantial portion of the Company’s revenue from leasing in future years.
Construction of the
retail strip center in AugustaNational Plaza was completed in May 1995 and the lease with Publix became effective May 15, 1995. ThecenterNational Plaza represents approximately90%55% of theCompany'sCompany’s net leasedassets. Leasingassets at September 30, 2011. Rent revenue, including monthly rent, recognition of previously deferred revenue, property taxes and common area maintenance from the lease with Publix Supermarkets, Inc. represented88%41% and71%42% of theCompany'sCompany’s totalleasinggross rent revenue for the years ended September 30,19962011 and1995,2010, respectively. Management of the Company expects this lease to continue to provide a substantial portion of theCompany'sCompany’s revenue from leasing. See"Description of Properties"Item 2, “Properties” for additional information related tothis propertythese properties and the leaseagreement. The land and building in Augusta leased for operation as a restaurant provided 7% and 17% of the Company's total leasing revenue for the years ended September 30, 1996 and 1995, respectively. See "Description of Properties" for additional information related to this property and lease agreement. 1The bulk storage warehouse facility in Athens provided 2% and 6% of the Company's total leasing revenue for the years ended September 30, 1996 and 1995, respectively. Occupancy of the warehouse has been less than 10% annually for the past three years. While there are no known competing bulk warehouses in Athens, the demand for bulk storage space has been insufficient to obtain substantial occupancy. Management of the Company does not expect leasing revenue from this facility to contribute substantially to the Company's continuing leasing revenue. See "Description of Properties" for additional information related to this property and leaseagreements.The Company owns additional undeveloped land in
Dublin,and around the Augusta, Georgia andin theNorth Augusta,GeorgiaSouth Carolina area that is being held for investment purposes.A significant portion of the Company's real estate owned is on or near Washington Road in Augusta, Georgia. The area contains a large number of business establishments.Management of the Company believesthat land in this area is in great demand andthat the market value of the property owned is greater thantheits carrying value. The Company presently hasthree part-timefour employees, all of whom are officersandand/or stockholders of the Company.ITEMItem 1A. Risk Factors.
The Company, as a smaller reporting company, is not required to provide the information required by this item.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
DESCRIPTION OF PROPERTIESProperties.The Company owns developed and undeveloped real estate in several locations in the State of
Georgia.Georgia and one undeveloped parcel in North Augusta, South Carolina. There are no limitations on the percentage of assets which may be invested in any one property or type of property. The Company acquires various properties for investment purposes and for leasing activities.The Company currently owns the following
properties:properties in fee simple interest:1.
StripRetail strip center on approximately1515.24 acres on Washington Road in Augusta,Georgia.Georgia (the “National Plaza”).2.
Approximately 35An outparcel of the National Plaza of 0.89 acresof undeveloped land onthat is frontage property to Washington Road in Augusta, Georgia.3.Approximately 17 acres of developed land in Evans, Georgia
adjacent toat thestrip center owned by the Company. 3. Approximately 1.6 acres with 3,300 square foot commercial building onintersection of Washington Roadin Augusta, Georgia.and Industrial Park Drive.4.
Bulk warehouse storage facility on approximately 15 acres in Athens, Georgia. 5. A 68% interest in 3.68 acres with a residential structure on Washington Road in Augusta, Georgia. 6. A 68% interest in 6.92 undeveloped acres on Washington Road in Augusta, Georgia. 7. 10884.4 undeveloped acres in south Richmond County, Georgia.8.5.A
one-acre0.85 acre lotadjacent to the Royal Palms Motelon Lumpkin Road in Augusta, Georgia.9. One lot6.Approximately 1.1 acres of undeveloped land held for investment purposes on Washington Road in Augusta, Georgia.
7.Approximately .43 acres with a residential structure on Stanley Drive in Augusta, Georgia.
210.8.Approximately 19.38 acres of undeveloped land held for future development on Edgefield Road near I-20 in North Augusta, South Carolina.
Description of real estate and operating data:
The Company holds approximately 12.77 acres of land in Evans, Georgia on Belair Road and North Belair Road Extension, at Washington Road. The land was purchased in five transactions. Initially, the Company acquired a two-thirds interest in 7.09 acres of land, with the remaining one-third interest held by two individuals, one of which is a principal stockholder and member of the Board of Directors. In 2000, the remaining one-third interest in the 7.09 acres of land was acquired from two individuals that each owned a one-sixth interest. One
undeveloped lotof the individuals that owned a one-sixth interest inDublin,the property is a principal stockholder and member of the Board of Directors of the Company. The aggregate purchase price of the land was $522,846. A third transaction, in 2000, was a purchase of approximately 3.86 acres in Evans, Georgia adjacent to the purchased property previously described. The land was jointly owned by principal stockholders and members of the Board of Directors of the Company and their families, and was acquired by the Company from these individuals. The purchase price of the land was $371,970. In a fourth transaction, the Company purchased an additional 1.03 acres for $342,122 on Old Evans Road in Evans, Georgia that adjoins the above described properties. And in the fifth and final transaction in 2004, the Company acquired a corner parcel of 0.79 acres adjoining the previously described three parcels from a member of the Board of Directors. The cost of the parcel acquired in 2004, was $467,874. The Company’s net book value of the investment properties acquired in these five transactions of $1,704,812, including the cost of improvements thereon, is approximately 17% of the Company’s total assets at September 30, 2011. The Company has a Federal tax basis in the investment property of $1,061,920. The Company signed a long-term ground lease for the development of a Lowe’s home improvement store on this property as well as the 4.61 acres, discussed below, during 2006. The Company began earning revenue related to the long-term ground lease on the approximately 18 acres in Columbia County, Georgia during the 3rd Quarter of 2006. The Company received $20,833 in monthly rent until the January 2007 expiration of the development period. 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 lease 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. A note payable to an insurance company is collateralized with the property 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 of a fixed rate of 5.85%. The balance of the loan was $2,352,188 at September 30, 2011. Property taxes paid on this property and the 4.61 acres described above in 2011 totaled $128,913.In 2001, the Company purchased an office building with land totaling approximately 4.61 acres located on Old Evans Road in Evans, Georgia. The property was purchased with replacement property funds held by a third party from a tax-deferred like-kind exchange transaction during 2000 of $511,726 and with approximately $250,000 of proceeds from a note payable. The office building was demolished during 2006. The Company’s net book value in this property is $693,167 at September 30, 2011. For tax purposes, the Company recognized a loss of $236,859 on the demolition of the building in 2006. The Company’s Federal tax basis in the property is approximately $175,261 at September 30, 2011. There is no outstanding debt on this property at September 30, 2011. Prior to the demolition, the property, excluding land cost, was being depreciated for financial reporting purposes using the straight-line method over 39 years. The property adjoins the 12.77 acres of land in Evans, Georgia. In July 2009, the Company sold an easement consisting of approximately .52 acres of the total Evans Ground Lease tract for $300,000. The Company recognized a gain of approximately $195,000. The proceeds were used by the Company to pay down debt related to an outstanding note payable collateralized by the Evans Ground Lease and related land and to compensate the Evans Ground Lease tenant per the related lease agreement. The Company’s management does not feel that the easement sale had any adverse impact on the existing lease or the Company’s ability to lease the land going forward.
The Company’s net book value of National Plaza, $3,160,646 at September 30, 2011, amounts to approximately 32% of the Company’s total assets at September 30, 2011.
Construction of the
retail strip center on Washington RoadNational Plaza was completed in May 1995.The centerNational Plaza has 69,000 square feet of available lease space. National Plaza was constructed with the intention of being operated as a retail strip center and is considered suitable and adequate for such purpose. The Company has leased 56,000 square feet to Publix,Supermarkets, Inc.,which, asthe center'sNational Plaza’s anchorstore,tenant, operates a retail food supermarket. The Company, as lessor, has atwenty yeartwenty-year lease agreement with Publix. The lease became effective May 15, 1995. The lease provides for annual rentals of$463,205,$463,200, and for the Company to receive 1.25% of thisstore'sPublix store’s annual gross sales in excess of approximately $37 million. For theCompany'sCompany’s years ended September 30,19962011 and1995,2010, the supermarket had not achieved this sales level. The lease also provides for Publix to reimburse the Company for property taxes paid on the facility on a pro rata basis of the space occupied by Publix. For19962011,this reimbursement was
approximately $29,000.$52,882. At thelessee'slessee’s option the lease may be extended infive yearfive-year increments for an additional twenty years on substantially the same lease terms. As part of the lease agreement, Publix contributed approximately$500,000$493,000 to the construction ofthe facility.National Plaza. The Company capitalized this contribution and is recognizingit asthe related revenue over thetwenty yeartwenty-year life of the lease.The center, excluding land, cost approximately $4,800,000.The Company
hasfinancedthe centerNational Plaza with a $4,300,000 loan, with interest that is fixed at 7.875%interest amortized monthly for twenty years.. Annual principal and interest paymentsaretotal $427,596. The balance of the loan was $1,384,507 at September 30, 2011. The loan matures in June 2015 and is scheduled to be fully amortized at that time. The loan is securedby the centerwith a mortgage interest in National Plaza andthean assignment of lease payments (rent) from the property. The property is located on Washington Road in Augusta, Georgia. Washington Road in Augusta is the location of numerous business establishments, including competing retail strip centers, and is a corridor for a high volume of traffic, providing potential customers for the Company’s tenants. The Company’s operation of National Plaza is dependent upon management’s ability to maintain an anchor tenant and to maintain a high occupancy of the 13,000 square feet available for lease to other tenants. The Company competes with other retail strip centers in the area to maintain stable occupancy. Management of the Company believes that the location and visibility of National Plaza provides for favorable conditions for maintaining occupancy. At September 30,1996,2011, the Company had leasedapproximately40% of the 13,000 square feet not leased to Publix.Subsequent to September 30, 1996, the Company obtained tenants for approximately an additional 40% of this space.These individual leases have termsofranging from three to five years, with monthly lease payments including Common Area Maintenance (“CAM”) ranging from$900$1,300 to$1,300.$1,617. Following iscertainselected statistical information regardingthe strip centerNational Plaza at September 30,1996:2011:Occupancy rate
- 93%.— 89% (Publix is the only tenant to occupy 10% or more of the leasable square feet.)Effective rental rates
- Square Feet Rental Per Leased Square Foot ------------ ----------- Publix Supermarkets, Inc. 56,146 $ 8.25 Other—
Square Feet
Rental Per
Leased
Square Foot
Publix Supermarkets, Inc.
56,000
$
8.25
Other tenants
5,200
11.37
The principal business of the other tenants
5,200 11.94 3Scheduleoccupying space as of September 30, 2011 includes a take-out restaurant, stock brokerage office, beauty supply store and a nail salon.A schedule of lease expirations at National Plaza for each of the next
tenfive years, beginning with theCompany's year endCompany’s year-end September 30,1997, (includes leases obtained subsequent to September 30, 1996, does2011 is presented below (does not include potentialextensions)extensions or ground leases on outparcels).
Total area in Percentage of Number of tenants square feet Annual rental gross annual whose leases will covered by represented by rental represented expire expiring leases expiring leases by expiring leases ----------------- --------------- --------------- -------------------1997 - 1998 - - $ - - % 1999 2 3,900 41,760 7 2000 2 3,900 56,556 10 2001 1 1,300 18,199 4 2002 1 1,300 15,450 3 2003 - 2006 - - - -
Total area in
Percentage of
Number of
square feet
Annual rental
gross annual
Year ending
tenants whose
covered by
represented by
rental represented
September 30,
leases will expire
expiring leases
expiring leases
by expiring leases
2012
—
—
—
—
2013
—
—
—
—
2014
2
2,600
26,935
1.9
%
2015
1
1,300
14,008
1.0
%
2016
1
1,300
16,800
1.2
%
The percentage of gross annual rents represented by expiring leases as presented above is based on the gross annual rental for the current year and was calculated as if each lease was in effect for the full twelve-month fiscal period. The Company is currently considering plans to make some renovations and improvements to National Plaza in the foreseeable future, however the timing has not been determined. Any renovations approved by the Company’s management and the Board of Directors will be contingent on obtaining financing at the time approved.
The Company’s Federal tax basis
of the center,in National Plaza at September 30, 2011, excluding landis $4,832,561. Accumulatedand before accumulated depreciation is$302,783. The building and structure$4,339,522. Federal tax basis accumulated depreciation isbeing depreciated by the straight-line method over 39 years. The site work of the center is being depreciated by the 150% declining balance method over 15 years. Total property$2,338,312. Property taxes on thecenterNational Plaza totaled $82,752 in 2011.During 2002, the Company purchased a house on Stanley Drive in Augusta, Georgia. At September 30, 2006 the property was collateral for
1996 were $36,304.a 6.25% note, the balance of this note was paid off in full with a portion of the Principal note that was taken out in 2007. The property was purchased for $145,847. The property is located adjacent to several properties held by theCompany. The location of this property may enhance the appreciation and future marketability of the property. The Company’s Federal tax basis in the property was $118,568. Property taxes paid on this property in 2011 totaled $2,627.
During 2007, the Company purchased approximately
3514.57 acres of undeveloped landadjacent to the strip center has a Federal tax basis of $212,976. Therefor $2,339,678 held for future development on Edgefield Road near I-20 in North Augusta, South Carolina. At September 30, 2011 there is no outstanding debt on the property.TheDuring 2008, the Company purchased an additional 1 acre of undeveloped landis accessed from Washington Road and Stanley Drive. The Company is currently marketing this propertyforsale as professional and residential real estate. The 1.6 acres with 3,300 square foot commercial structure on Washington Road in Augusta, Georgia is currently leased to an establishment that operates$160,000 for future development adjoining theproperty as a restaurant. The current lease agreement expires December 1997. Annual lease payments are $44,000. The lease requires the lessee to pay substantially all costs associated with the property including insurance, taxes and repairs. There14.57 acres. At September 30, 2011 there is no outstanding debt on this additional 1 acre. During 2008, theproperty.Company purchased an additional 1 acre of undeveloped land for $350,000 held for future development adjoining the 14.57 acres. During 2008, the Company purchased an additional 2.81 acres of undeveloped land for $421,500 held for future development adjoining the 14.57 acres. At September 30, 2011 the Company owes $142,838 on this additional 2.81 acres. TheFederal tax basis of theundeveloped land held for future development on Edgefield Road near I-20 in North Augusta, South Carolina totals 19.38 acres.No other property
excluding land, is $99,100. Accumulated depreciation is $25,530. The property is being depreciatedowned by thestraight-line method over 31.5 years. The Federal tax basis of the land is $300,900. The average effective annual rental rate for the building space was $13.45 per square foot for the year ended September 30, 1996. Property taxes on the land and building combined are $5,260. The warehousing facility located in Athens, Georgia is known as Chase Park and is located on approximately 15 acres of land on Barber, Oneta and Chase Streets. The facility consists of two structures with a combined total space of 248,000 square feet. There are thirty-five warehouse compartments that are individually leased. The structures are wood frame with metal siding and have brick fire walls separating warehouse compartments at various points. The facility was constructed in approximately 1902. Some of the 248,000 square feet is in need of repairs and is not in a leasable condition. This facility is currently for sale by the Company. Based on square feet, the warehouse was approximately 5% leasedCompany at September 30,1996. The Company is seeking additional tenants, however, the demand for bulk warehouse space in Athens has not been sufficient2011, had a book value amounting tomaintain tenants. The Company leases warehouse space on a relatively short- term basis, generally 4not extending beyond a one-year term. There is no debt on the property. The Federal tax basis10% or more of theproperty net of accumulated depreciation of $520,333 is $246,405 at September 30, 1996. The property is being depreciated by the straight-line method over an average life of eighteen years. Annual real estate taxes are approximately $6,000. Due to the low occupancytotal assets of thewarehouse, presentation of average annual effective rental rates would not provide meaningful information. The combined Federal tax basis, for depreciation purposes, of the remaining investment properties of the Company is approximately $150,000.Company.All of the properties owned by the Company are owned in fee simple
interest, except for properties where a percentage is stated.interest.In the opinion of management of the Company, all of the properties owned by the Company are adequately covered by insurance.
ManagementItem 3. Legal Proceedings.
During the fourth quarter of the fiscal year, 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
planning to construct a building at the west end of the retail strip center on land owned by the Company. The building will be leased by the Company as commercial property.not liable for this claim. The Companyis negotiating a leasehas accrued approximately $56,000 for professional fees and other expenses to defend its position.Item 4. Removed and Reserved.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
this property to Blockbuster Video. Substantially all planning and negotiations related to this potential construction and lease occurred subsequent to September 30, 1996. ITEM 3. LEGAL PROCEEDINGS The Company is presently not a party to any matters of litigation. ITEM 4. SUBMISSION OF MATTERS TO SECURITY HOLDERS No matters were submitted to a vote of the Company's security holders for the quarter ended September 30, 1996. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSEquity Securities.There is no public trading market for the
Company'sCompany’s securities. The approximate number of holders of theCompany'sCompany’s common stock is693.750.No dividends have been declared or paid during the two years
endingended September 30,1996.2011 and 2010. The Company has no restrictions that currently, or that may reasonably be expected to, limit materially the amount of dividends paid.5ITEMItem 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONSelected Financial Data.Not required.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The
Company'sCompany’s primary business activities are the acquisition, development and leasing of developed and undeveloped real estate. The objectives of the Company are capital appreciation from real estate investments and income from leasing.RESULTS OF OPERATIONS
INCREASE (DECREASE) 1996 COMPARED TO 1995 ------------------- 1996 1995 AMOUNT PERCENT -------- -------- --------- --------Leasing revenue $ 617,164 $258,981 $358,183 138.3 % Operating expenses 301,664 248,613 53,051 21.3 Interest expense 334,096 120,990 213,016 176.0 Timber sale 8,010 61,386 (53,376) (87.0) Land sale - 30,229 (30,229) (100.0) Net loss 19,368 24,021 (4,653) (19.4) Revenue from leasing activities is provided by the following properties: 1996 1995 ---------- -------- Retail strip center $544,537 $183,786 Bulk storage warehouse 14,220 15,891 Commercial building, operated as a restaurant 43,800 45,245 Other 14,607 14,059The retail strip center was completed in May 1995, with 1996 being the first full twelve month period of operations. Annual lease payments from Publix are $463,205. At September 30, 1996, the Company had leased approximately 40% of the additional space available for lease. However, due to these leases beginning near the fiscal year end, the positive impact on revenues will be greater in the Company's next fiscal year. In addition, the Company obtained tenants for an additional 40% of the remaining space shortly after year end. Management expects this increase in the occupancy of the center to provide approximately $100,000 annually in additional revenue. Management expects the strip center to continue to be a principal activity of the Company and to continue to provide a substantial portion of the Company's operating revenue. As discussed in Item 2, management is currently planning for an addition to this property. Revenue from the bulk storage warehouse has remained constant from 1995. Occupancy of the warehouse has been less than 10% annually for the last three years. Management is seeking additional tenants for the warehouse, however, management is not aware of developments in the Athens area that may increase the demand for warehouse space. As discussed in Item 2, this property is currently for sale by the Company. Revenue from the commercial building operated as a restaurant is consistent with the prior year due to a continuing lease agreement with the single tenant occupying the building. The revenue from 6the lease on this property represented 7% and 17% of total gross leasing revenue for the years ended September 30, 1996 and 1995, respectively. This property is located on Washington Road in Augusta. This road has a high traffic volume and is the location of many other business establishments. The Company believes the property is in a favorable location and that the demand for building space in this area will continue. The property is currently for sale by the Company. Payroll bonus expense decreased $45,000, or 100.0% from 1995. During 1995 the Company's Board of Directors approved a bonus to the President for his contributions during the building of the retail strip center. Depreciation expense increased $80,628, or 142.4% from 1995 due to 1996 being the first full twelve month period of depreciation on the retail strip center. Management expects depreciation for 1997 to be consistent with 1996. Repairs and maintenance expense increased $3,697, or 44.6% from 1995 due to costs related to a full year of operations of the strip center. Management expects repairs and maintenance expense for 1997 to be consistent with 1996. Property tax expense increased $23,025, or 65.4% from 1995. The 1996 property tax expense represents the first tax assessment of the strip center. Management expects property tax expense for 1997 to be consistent with 1996. Professional services expense decreased $17,965, or 55.0% from 1995 due to certain costs related to completion of the strip center occurring in 1995. Management expects professional services expense for 1997 to be consistent with 1996. Interest expense increased $213,106, or 176.1% from 1995 due to 1996 being the first full year of debt service on the strip center. Management expects interest expense for 1997 to be consistent with 1996. Revenue from timber sales and land sales have declined from 1995. These types of sales are not recurring activities of the Company and are not expected to be substantial or continuing sources of revenue for the Company. The liquidity of the Company declined during 1996 as the Company utilized current assets to fund operations. The ratio of current assets to current liabilities was .23 at September 30, 1996, and was .34 at September 30, 1995. The Company satisfied current year liquidity needs through operating revenue and a $24,000 short-term loan from a director of the Company. The loan was repaid this year. Management of the Company expects future liquidity needs to be met from operating revenues of the Company. Management of the Company expects the Company's future liquidity position to be enhanced by the additional lease revenues to be generated from the 80% occupancy of the additional space at the strip center.The Company believes that the market value of much of the real estate owned by the Company is greater than
theits originalcost andcost. The Company believes thatsignificant value has been added to the real estate bythe continued development and decreasing supply of vacant land in thearea.Augusta, Georgia area has resulted in substantial appreciation in value in many of the Company’s investment properties. These appreciated investment properties are available as a source of capital to the Company.Critical Accounting Policies:
Estimates of Useful Lives of Investment Properties for Purposes of Depreciation
Company management has estimated the useful lives of investment properties, except for land, that are leased, and Company management 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
Company management 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, Company management 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
Company management 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. Company management has estimated deferred income tax liabilities of $788,107 at September 30, 2011. 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.
Results of Operations:
Increase (Decrease)
2011 compared to
2010
2011
2010
Amount
Percent
Rent revenue
$
1,400,412
$
1,437,100
$
(36,688
)
-3
%
Operating expenses
671,790
611,561
60,229
10
%
Interest expense
287,950
324,494
(36,544
)
-11
%
Net income
269,499
313,638
(44,139
)
-14
%
Increase (Decrease)
2010 compared to
2009
2010
2009
Amount
Percent
Rent revenue
$
1,437,100
$
1,405,915
$
31,185
2
%
Gain on sale of investment property
—
194,785
(194,785
)
-100
%
Operating expenses
611,561
616,591
(5,030
)
-1
%
Interest expense
324,494
360,370
(35,876
)
-10
%
Net income
313,638
382,479
(68,841
)
-18
%
7
ITEM 7. FINANCIAL STATEMENTSRent revenue from leasing activities is provided by the following properties:
2011
2010
2009
National Plaza
$
670,331
$
706,049
$
697,823
Outparcel at National Plaza
56,400
56,400
56,160
Evans Ground Lease
667,681
668,651
645,932
Other
6,000
6,000
6,000
$
1,400,412
$
1,437,100
$
1,405,915
Years Ended September 30, 2011 and 2010
National Plaza consists of approximately 69,000 square feet. Approximately 56,000 square feet is leased to Publix as the investment property’s anchor tenant. See Item 2, “Properties” for additional information regarding the lease agreement with Publix. The remaining approximately 13,000 square feet is available for lease to additional tenants. This additional space was approximately 40% and 50% leased as of September 30, 2011 and 2010, respectively. Attempts are being made to lease vacant space. Also see Item 2, “Properties” for effective rental rates and lease expirations related to this property. Rent revenue from Publix and National Plaza decreased as compared with the prior years’ amounts due to lower common area maintenance rent reconciliations billed in 2011 as compared to 2010 and lower small shop occupancy and rent billed in 2011 as compared to 2010. In May 2006 the Company entered into a long-term ground lease with Lowes, a national home improvement retailer, with a portion of total monthly rent due during the construction period, which was completed in January 2007. Rent revenues for the Evans Ground Lease in 2011 remained relatively consistent with 2010. See Item 2, “Properties” for additional information regarding the Evans Ground Lease. Management expects both of the above two lease arrangements to continue to provide a substantial portion of the Company’s revenues.
Operating expenses increased by $60,229 (10%) from 2010. Operating costs of the Company consists mainly of the costs of managing National Plaza and property taxes related to the Company’s land holding portfolio. Operating costs for 2011 include approximately $56,000 of accrued costs for professional fees and other expenses related to a claim. Company management expects operating expenses for 2012 to be relatively consistent with 2010.
Interest expense decreased by $36,544 (-11%) from 2010. The Company’s interest costs relate to outstanding debt on the Company’s land holdings as discussed above in Item 2, “Properties”. Continued amortization of outstanding debt balances resulted in decreased interest expense in 2011. Company management expects interest expense for the year ending September 30, 2012 to decline from interest expense for the current fiscal year as the outstanding debt continues to amortize.
Years Ended September 30, 2010 and 2009
National Plaza consists of approximately 69,000 square feet. Approximately 56,000 square feet is leased to Publix as the investment property’s anchor tenant. See Item 2, “Properties” for additional information regarding the lease agreement with Publix. The remaining approximately 13,000 square feet is available for lease to additional tenants. This additional space was approximately 50% leased as of September 30, 2010 and 2009. Attempts are being made to lease the vacant space. Also see Item 2, “Properties” for effective rental rates and lease expirations related to this property. Rent revenue from Publix and National Plaza remained relatively consistent compared with the prior years’ amounts. In May 2006 the Company entered into a long-term ground lease with Lowes, a national home improvement retailer, with a portion of total monthly rent due during the construction period, which was completed in January 2007. Rent revenues in 2010 remained relatively consistent with 2009. See Item 2, “Properties” for additional information regarding the Evans Ground Lease. Management expects both of the above two lease arrangements to continue to provide a substantial portion of the Company’s revenues.
Operating expenses decreased slightly by $5,030 (-1%) from 2009. Operating costs of the Company consists mainly of the costs of managing National Plaza and property taxes related to the Company’s land holding portfolio.
Interest expense decreased by $35,876 (-10%) from 2009. The Company’s interest costs relate to outstanding debt on the Company’s land holdings as discussed above in Item 2, “Properties”. In 2009 the Company sold an easement on a portion of the tract of land related to the Evans Ground Lease described above. Management used a portion of the related proceeds to pay down outstanding long-term debt. This transaction and continued amortization of outstanding debt balances resulted in decreased interest expense in 2010.
In 2009 the Company sold an easement on a portion of the tract of land related to the Evans Ground lease described above. The Company recognized a gain of approximately $195,000 from the sale resulting in the increase in net income noted above. No such transactions occurred in 2010.
Liquidity and Sources of Capital:
The percentage of current assets to current liabilities was 39% at September 30, 2011, and was 40% at September 30, 2010. 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 in fiscal year 2012 totaling $504,660. 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 Company’s line of credit of $300,000 is due to be repaid in December 2012. The Company plans to secure refinancing of this line of credit prior to its maturity in December 2012. 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.
Capital Expenditure Commitments:
The Company currently has no significant commitments for capital expenditures for the next twelve months.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risk is the risk of loss from adverse changes in market prices and rates. Our market risk arises principally from the risk inherent in the credit quality of our tenants. Company management regularly evaluates the individual tenants considering their financial condition, credit history and current economic conditions.
Item 8. Financial Statements
The following consolidated financial statements of Security Land & Development Corporation
and Subsidiaryare included herein:
Page No. ---------Report of Independent Certified Public Accountants 9 Report of Independent Certified Public Accountants 10 Consolidated Balance Sheets as of September 30, 1996 and 1995 11 Consolidated Statements of Income for the years ended September 30, 1996 and 1995 12 Consolidated Statements of Stockholders' Equity for the years ended September 30, 1996 and 1995 13 Consolidated Statements of Cash Flows for the years ended September 30, 1996 and 1995 14 and 15 Notes to Consolidated Financial Statements 16 - 228[LETTERHEAD OF CHERRY, BEKAERT & HOLLAND GOES HERE.]Report of Independent Registered Public Accounting Firm
(audit of financial statements as of and for the years ended September 30, 2011 and 2010)
Consolidated Balance Sheets as of September 30, 2011 and 2010
Consolidated Statements of Income and Retained Earnings for the years ended September 30, 2011 and 2010
Consolidated Statements of Cash Flows for the years ended September 30, 2011 and 2010
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT
CERTIFIEDREGISTERED PUBLICACCOUNTANTSACCOUNTING FIRMTo the Board of Directors
Security Land and Development Corporation
and SubsidiaryAugusta, Georgia
We have audited the accompanying consolidated balance
sheetsheets of Security Land and Development Corporationand Subsidiary(“the Company”) as of September 30,1996,2011 and 2010, and the related consolidated statements of incomestockholders' equityand retained earnings and cash flows for theyearyears then ended. These consolidated financial statements are the responsibility of theCompany'sCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on ouraudit.audits.We conducted our
auditaudits in accordance withgenerally accepted auditing standards.the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that ouraudit providesaudits provide a reasonable basis for our opinion.In our opinion, the consolidated
financialbalance sheets as of September 30, 2011 and 2010 and the related consolidated statementsreferred to aboveof income and retained earnings and cash flows for the years then ended, present fairly, in all material respects, the financial position of Security Land and Development Corporationand Subsidiary as ofat September 30,1996,2011 and 2010, and the results of its operations and its cash flows for theyearyears then ended, in conformity with accounting principles generally acceptedaccounting principles. CHERRY, BEKAERT & HOLLAND, L.L.P. Augusta, Georgia /s/ CHERRY, BEKAERT & HOLLAND November 27, 1996 ----------------------------- 9[LETTERHEAD OF MAULDIN & JENKINS GOES HERE.] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors Security Land and Development Corporation and Subsidiary Augusta, Georgia We have audited the accompanying consolidated balance sheet of Security Land and Development Corporation and Subsidiary as of September 30, 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin thefinancial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial positionUnited States ofSecurity Land and Development Corporation and Subsidiary as of September 30, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. MAULDIN & JENKINS,America./s/ Elliott Davis LLC
December 22, 2011
Augusta, Georgia
/s/ MAULDIN & JENKINS, LLC December 12, 1995 -------------------------- 10SECURITY LAND AND DEVELOPMENT CORPORATION AND
SUBSIDIARYSUBSIDIARIESCONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND 1995 ASSETS
1996 1995 ---------- ----------CURRENT ASSETS Cash and cash equivalents $ 24,097 $ 77,811 Income tax receivable - 12,125 Other current assets 141 141 Lease payments receivable 29,406 - ---------- ---------- TOTAL CURRENT ASSETS 53,644 90,077 ---------- ---------- INVESTMENTS AND OTHER ASSETS Land and improvements, at cost 317,014 307,719 Property leased to others under operating leases, less accumulated depreciation 1996 $739,995; 1995 $602,741 5,640,400 5,777,392 Deferred income taxes 17,238 17,238 ---------- ---------- TOTAL INVESTMENTS AND OTHER ASSETS 5,974,652 6,102,349 ---------- ---------- $6,028,296 $6,192,426 ========== ==========LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIESAccounts payable $ 3,517 $ 3,517 Accrued expenses 12,920 14,253 Accrued bonus - 45,000 Accrued property taxes 60,957 34,414 Current maturities of long-term debt 101,766 113,935 Short-term loans 50,500 50,500 ---------- ---------- TOTAL CURRENT LIABILITIES 229,660 261,619 ---------- ---------- LONG-TERM DEBT, less current maturities 4,081,761 4,183,527 ---------- ---------- DEFERRED TAXES 20,260 6,646 ---------- ---------- DEFERRED INCOME 460,154 484,805 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, par value $.10 per share, authorized 30,000,000 shares; issued 6,237,607 shares 623,761 623,761 Additional paid-in capital 333,766 333,766 Retained earnings 378,934 398,302 ---------- ---------- 1,336,461 1,355,829 Less subscribed shares (1,000,000 shares) 100,000 100,000 ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 1,236,461 1,255,829 ---------- ---------- $6,028,296 $6,192,426 ========== ========== See notes to consolidated financial statements.11
September 30,
September 30,
2011
2010
ASSETS
CURRENT ASSETS
Cash
$
51,190
$
23,256
Receivables from tenants, net of allowance of $4,184 and $3,412 at September 30, 2011 and 2010, respectively
339,738
282,152
Total current assets
390,928
305,408
INVESTMENT PROPERTIES
Investment properties for lease, net of accumulated depreciation
5,711,502
5,833,179
Land and improvements held for investment or development
3,639,598
3,641,098
9,351,100
9,474,277
OTHER ASSETS
83,096
89,671
$
9,825,124
$
9,869,356
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
$
310,994
$
239,493
Income taxes payable
160,979
37,882
Current maturities of notes payable
504,660
469,729
Current maturities of deferred revenue
24,652
24,652
Total current liabilities
1,001,285
771,756
LONG-TERM LIABILITIES
Notes payable and line of credit, less current portion
3,674,873
4,179,783
Deferred income taxes
788,107
801,805
Deferred revenue, less current portion
65,723
90,375
Total long-term liabilities
4,528,703
5,071,963
Total liabilities
5,529,988
5,843,719
STOCKHOLDERS’ EQUITY
Common stock, par value $.10 per share; 30,000,000 shares authorized; 5,243,107 and 5,243,107 shares issued and outstanding in 2011 and 2010, respectively
524,311
524,311
Additional paid-in capital
333,216
333,216
Retained earnings
3,437,609
3,168,110
Total Stockholders’ Equity
4,295,136
4,025,637
Liabilities and Stockholders’ Equity
$
9,825,124
$
9,869,356
The accompanying notes are an integral part of these consolidated financial statements.
SECURITY LAND AND DEVELOPMENT CORPORATION AND
SUBSIDIARYSUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED SEPTEMBER 30, 1996AND1995
1996 1995 ----------- -----------REVENUE, rents earned $ 617,164 $ 258,981 ---------- ---------- OPERATING EXPENSES Payroll and related costs 40,922 37,157 Payroll bonus - 45,000 Depreciation 137,254 56,626 Repairs and maintenance 11,994 8,297 Property taxes 58,216 35,191 Commissions 3,144 7,070 Professional services 14,647 32,612 Insurance 9,460 8,553 Rent 5,200 3,500 Other 20,827 14,607 ---------- ---------- 301,664 248,613 ---------- ---------- Operating income 315,500 10,368 ---------- ---------- NONOPERATING INCOME (EXPENSE) Interest income 4,832 1,266 Interest expense ( 334,096) ( 120,990) Gain on sale of timber from investment property 8,010 61,386 Gain on sale of land - 30,229 ---------- ---------- ( 321,254) ( 28,109) ---------- ---------- (Loss) before income taxes ( 5,754) ( 17,741) APPLICABLE INCOME TAXES 13,614 6,280 ---------- ---------- Net (loss) $( 19,368) $( 24,021) ========== ========== (LOSS) PER COMMON SHARE $( 0.00) $( 0.00) ========== ==========SeeRETAINED EARNINGS
For the Years
Ended September 30
2011
2010
OPERATING REVENUE
Rent Revenue
$
1,400,412
$
1,437,100
OPERATING EXPENSES
Depreciation and amortization
130,752
130,751
Property taxes
252,010
269,681
Payroll and related costs
80,955
75,731
Insurance and utilities
47,542
45,891
Repairs and maintenance
42,428
33,618
Professional services
108,573
41,718
Bad Debt
6,568
11,241
Other
2,962
2,930
671,790
611,561
Operating income
728,622
825,539
OTHER INCOME (EXPENSE)
Interest
(287,950
)
(324,494
)
Other Income/Expense
5
51
(287,945
)
(324,443
)
Income before income taxes
440,677
501,096
INCOME TAXES PROVISION (BENEFIT)
Current Expense
184,876
175,545
Deferred Expense (Benefit)
(13,698
)
11,913
171,178
187,458
Net income
269,499
313,638
RETAINED EARNINGS, BEGINNING OF YEAR
3,168,110
2,854,472
RETAINED EARNINGS, END OF YEAR
$
3,437,609
$
3,168,110
PER SHARE DATA
Net income per common share
$
0.05
$
0.06
The accompanying notes
toare an integral part of these consolidated financial statements.12SECURITY LAND AND DEVELOPMENT CORPORATION AND
SUBSIDIARYSUBSIDIARIESCONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 30, 1996 AND 1995
Common Stock ------------------- Total Par Paid-In Retained Subscribed Stockholders' Shares Value Capital Earnings Shares Equity -------- --------- --------- --------- ---------- -------------BALANCE, SEPTEMBER 30, 1994 6,237,607 $623,761 $333,766 $422,323 $100,000 $1,279,850 Net (loss) - - - (24,021) - (24,021) --------- -------- -------- -------- -------- ---------- BALANCE, SEPTEMBER 30, 1995 6,237,607 623,761 333,766 398,302 100,000 1,255,829 Net (loss) - - - (19,368) - (19,368) --------- -------- -------- -------- -------- ---------- BALANCE, SEPTEMBER 30, 1996 6,237,607 $623,761 $333,766 $378,934 $100,000 $1,236,461 ========= ======== ======== ======== ======== ==========SeeCASH FLOWS
For Years
Ended September 30,
2011
2010
OPERATING ACTIVITIES
Net income
$
269,499
$
313,638
Adjustments to reconcile net income to net cash provided by operating activities:
Bad debts
6,568
11,241
Depreciation and Amortization
130,752
130,751
Deferred income tax
(13,698
)
13,913
Changes in deferred and accrued amounts:
Receivables from tenants
(64,154
)
(45,543
)
Prepaid property taxes
—
3,614
Accounts payable and accrued expenses
71,501
(3,805
)
Income taxes payable
123,097
(29,604
)
Deferred income
(24,652
)
(24,652
)
Net cash provided by operating activities
498,913
369,553
INVESTING ACTIVITIES
Improvements to property held for lease
(1,000
)
—
Net cash used in investing activities
(1,000
)
—
FINANCING ACTIVITIES
Proceeds from line of credit
—
57,231
Principal payments on notes payable
(469,979
)
(437,252
)
Net cash used in financing activities
(469,979
)
(380,021
)
Net increase (decrease) in cash
27,934
(10,468
)
CASH, BEGINNING OF YEAR
23,256
33,724
CASH, END OF YEAR
$
51,190
$
23,256
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
$
282,508
$
324,494
Cash paid for income taxes
$
20,000
$
140,420
The accompanying notes
toare an integral part of these consolidated financial statements.13SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995 ----------- -----------CASH FLOWS FROM OPERATING ACTIVITIES Cash received from leases $ 563,107 $ 250,764 Income tax refund 12,125 6,539 Interest received 4,832 1,266 Cash paid to suppliers and employees ( 184,200) ( 144,657) Interest paid ( 334,096) ( 120,990) ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 61,768 ( 7,078) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of timber 8,010 61,386 Proceeds from sale of land - 43,311 Purchase of property and equipment ( 9,557) ( 5,457) Disbursement on construction in progress - ( 24,083) Cash received for loan commitment - 64,500 ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ( 1,547) 139,657 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term loans 24,000 45,000 Repayments of short-term loans ( 24,000) ( 45,000) Principal payments on long-term debt ( 113,935) ( 67,271) ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES ( 113,935) ( 67,271) ---------- ---------- Net increase (decrease) in cash and cash equivalents ( 53,714) 65,308 Cash and cash equivalents Beginning 77,811 12,503 ---------- ---------- Ending $ 24,097 $ 77,811 ========== ==========14SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED YEARS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995 ----------- -----------RECONCILIATION OF NET (LOSS) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES Net (loss) $( 19,368) $( 24,021) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities Depreciation 137,254 56,626 Amortization of deferred income ( 24,651) ( 8,217) (Gain) on sale of timber ( 8,010) ( 61,386) (Gain) on sale of land - ( 30,229) Changes in assets and liabilities: Decrease in tax receivable 12,125 6,539 (Increase) in lease payments receivable ( 29,406) - Increase (decrease) in accounts payable and accrued expenses ( 19,790) 47,330 Increase in deferred tax liabilities 13,614 6,280 --------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 61,768 $( 7,078) ========= ========== SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING AND FINANCING ACTIVITIES Draws from construction loan, made through third- party developer $ - $2,814,582 ========= ========== Letter of credit from related party, returned when permanent financing was obtained $ - $ 64,500 ========= ========== Conversion of construction loan to permanent financing $ - $4,300,000 ========= ========== Contribution to construction costs, made by major tenant of property leased by the Company $ - $ 493,022 ========= ========== Transfer of land from investment to property leased to others $ - $ 300,000 ========= ==========See notes to consolidated financial statements. 15SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARYNOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995NOTE 1 -
NATURESUMMARY OFBUSINESS ANDSIGNIFICANT ACCOUNTING POLICIESNATURE OF BUSINESSAND ACTIVITIESBusiness activities
Security Land and Development Corporation (“the Company”) is engaged in the acquisition of developed and undeveloped real estate to be held for investment purposes or to be developed and leased as income producing property.
AcquiredSubstantially all investment properties held and leasedpropertiesby the Company are located within the State of Georgia,predominantlyin Richmond and Columbia counties andClark counties.in North Augusta, South Carolina.Royal Palms Motel, Inc., a
wholly-ownedwholly owned subsidiary of Security Land and Development Corporation, ispresently not engageda holding company for a parcel of land inbusiness operations. The assetsRichmond County, Georgia. During 2004, the Company organized, as its sole member, SLDC, LLC, a Georgia limited liability company. During 2007, the Company organized, as its sole member, SLDC2, LLC, a Georgia limited liability company. During 2008, the Company organized, as its sole member, SLDC III, LLC, a South Carolina limited liability company. SLDC, LLC, SLDC2, LLC, andliabilities ofSLDC III, LLC were organized by thesubsidiary are not significantCompany to hold title to certain real estate that theconsolidated statement presentation. For the years ended September 30, 1996Company plans to develop.During 2011 and
1995,2010, substantially all operating revenuesearnedand operating expensesincurredwere related tothe activity ofreal estate leasing.For 1996A substantial portion of rent revenues were earned from two investment properties, a commercial retail center, consisting of approximately 69,000 square feet on Washington Road in Augusta, Georgia (“National Plaza”) and1995,the Evans Ground Lease on Washington Road in Evans, Georgia (“Evans Ground Lease”). National Plaza provided approximately90%48% and 49% ofnet leased assets consistedgross rent revenue in 2011 and 2010, respectively. Approximately 81% ofa retail strip center of which approximately 80% isNational Plaza was leased to a regional foodsupermarket. Duringsupermarket, with annual rents from theyears ended September 30, 1996 and 1995, leasing revenues were received from predominantly two properties. A commercial building operated as a restaurantlease totaling $463,200. National Plaza comprises approximately 55% of the asset Investment Properties for Lease, net of Accumulated Depreciation. The Evans Ground Lease provided approximately10%48% and20%47% of grossleasing revenues for the years,rental revenue in 2011 and 2010, respectively.The building isThis property, leased to asingle tenant.national home improvement retailer, earned rents totaling $538,768 in both 2011 and 2010. Theretail strip center providedEvans Ground Lease comprises approximately90% and 70%43% ofgross leasing revenueinvestment properties held for lease, net, by theyears, respectively. Substantially all of this revenue was from the lease with the regional food supermarket. SIGNIFICANT ACCOUNTING POLICIESCompany at September 30, 2011.Basis of presentation
-The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the
- ---------------------accounts of Security Land and Development Corporation and itswholly-owned subsidiary,wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC2, LLC, and SLDC III, LLC (described on a consolidated basis as the"Company"“Company”).SignificantAll intercompany transactions and accounts are eliminated in consolidation.Use of estimates
-The
preparation ofconsolidated financial statementsin conformity with - ---------------- generally accepted accounting principles requires management to makeinclude estimates and assumptions that affect the reported amounts of assets and liabilities,andthe 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.Revenue recognition
-Rent revenue is recognized on a straight-line basis over the term of the related lease agreements. The Company
recognizes rentalis reimbursed by tenants for property taxes andlease payments as - -------------------other maintenance fees. These reimbursements totaled $255,791 and $258,495, which is included in rent revenue,infor thelease period to which the payment relates. Revenueyears ended September 30, 2011 and 2010, respectively.(Continued)
Gains, or losses, realized from sales of real estate
isare recognized substantially whenappropriate actionstitle to the property has passed and the risks and benefits of ownership have beencompleted by purchaser and sellertransferred tosupport revenue recognition. 16SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1996 AND 1995 NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES - CONTINUED Property, equipment and land - Property, equipment and land isthe buyer.Investment properties
Investment properties are stated at cost.
- ----------------------------Depreciation ofproperty and equipmentthe investment properties is computed principallybyusing thestraight- linestraight-line method over the following estimated useful lives:Property leased to others 30 - 40 years Fixtures and furnishings 5 - 7 years Maintenance
Buildings for lease
30 - 40 years
Land improvements on property for lease
15 years
Fixtures and furnishings
5 – 7 years
Major renewals or improvements on investment properties are capitalized, while maintenance and repairs
of property and equipment are charged to operations and major improvements whichthat do not improve or extend the usefullifelives of the assets arecapitalized.charged to expense when incurred. Upon retirement, sale or other disposition ofproperty and equipment,investment properties, the cost and accumulated depreciation are eliminated from the accounts and the gain or loss is included in income in the period of disposition.Cash and cash equivalents - For purposesThe Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
reportingan asset 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 is less than the carrying amount. The Company measures the impairment loss as the amount by which the asset’s carrying amount exceeds the fair value of the asset. At September 30, 2011 and 2010, the Company- ------------------------- considersbelieves that none of its long-lived assets are impaired.Receivables from tenants
Receivables from tenants consist of rents, property taxes and other maintenance fees payable under the terms of lease agreements. Receivables are carried at original invoice amount. Management estimates an allowance for doubtful accounts by regularly evaluating individual tenant receivables and considering the collectability of balances due based on each tenant’s financial
instrumentscondition, credit history, and current economic conditions. Receivables are written off when deemed uncollectible. Recoveries ofa demand nature to be cash equivalents.receivables previously written off are recognized in income when received. The Company has an allowance for uncollectible accounts of $4,184 and $3,412 at September 30, 2011 and 2010, respectively.Lease commissions
Lease commissions are capitalized and amortized over the term of the related leases, using the straight-line method. Lease commissions, net of accumulated amortization, of $28,878 and $31,973 at September 30, 2011 and 2010, respectively, are included in Other Assets in the accompanying consolidated balance sheets.
Loan Fees
Loan fees are capitalized and amortized over the term of the loan using the straight-line method. Loan fees, net of accumulated amortization, were $54,218 and $57,698 at September 30, 2011 and 2010, respectively. Loan fees are included in Other Assets in the accompanying consolidated balance sheets.
Income taxes
-The Company files a consolidated income tax return.
- ------------ Provisions for incomeIncome taxes arebased on amountsprovided for the tax effects of transactions reported in the consolidated financial statements and consist ofincome and includetaxes currently due plus deferred taxeson temporaryrelated primarily to differencesinbetween therecognitionfinancial reporting basis and income tax basis ofincomeassets andexpense forliabilities. Deferred tax assets andfinancial statement purposes.liabilities represent future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes arecomputed onadjusted for changes in tax laws and tax rates when those(Continued)
changes are enacted.
The Company has adopted the
liability method. Earningsprovisions under ASC Topic 740, “Income Taxes” (“ASC 740”) which requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon settlement. The Company recognizes accrued interest and penalties related to uncertain tax positions as a component of income tax expense in its financial statements. Management is not aware of any uncertain tax positions as of September 30, 2011 and 2010. The Company believes it is no longer subject to income tax examination for the years prior to 2008.Net income per common share
Net income per common share
- Earnings per share areis calculated on the basis of the- ------------------weighted average number of shares outstanding. The Company has no stock optionplans. Newplans, or other instruments resulting in earnings per share dilution. For 2011 and 2010 the weighted average number of shares outstanding was 5,243,107. Therefore, only basic net income per common share is presented.Recently issued accounting
pronouncement - DuringstandardsIn December 2010, the Business Combinations topic of the ASC was amended to specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current
fiscalyear had occurred as of the beginning of the comparable prior annual reporting period only. The amendment also requires that the supplemental pro forma disclosures include a description of the nature and amount of any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. This amendment is effective for the Company- ---------------------------- adopted Statement of Financial Accounting Standards No. 107, "Disclosures aboutfor business combinations for which the acquisition date is on or after January 1, 2011. The Company does not expect the amendment to have any impact on the financial statements.ASU 2011-04 was issued in May 2011 to amend the Fair Value Measurement topic of
Financial Instruments". The statement requires disclosurethe ASC by clarifying the application of existing fair value measurement and disclosure requirements and by changing particular principles or requirements for measuring fair value or for disclosing information about fair value measurements. The amendments will be effective for the Company beginning January 1, 2012 but are not expected to have a material effect on the financialinstrumentsstatements.The Comprehensive Income topic of the
Company. In cases where quoted market pricesASC was amended in June 2011. The amendment eliminates the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity. The amendment requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The amendments will be applicable to the Company on January 1, 2012 and will be applied retrospectively.Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not
available for certainexpected to have a material impact on the Company’s financialinstruments, fair valuesposition, results of operations or cash flows.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. In 2011 and 2010, approximately 100% of the Company’s revenues were rental related revenue. In 2011 and 2010, approximately 48% and 49%, respectively of the Company’s rental revenues were earned from National Plaza. Approximately 81% of National Plaza is leased to one tenant, a regional food supermarket. Approximately 48% and 47% of the Company’s rental revenues in 2011 and 2010, respectively, were earned from the Evans Ground Lease, which is 100% leased to a major national home improvement retailer.
(Continued)
The majority of the Company’s receivables from tenants at September 30, 2011 and 2010 were receivable from two tenants, the regional food supermarket that leases property at National Plaza, and the major national home improvement retailer under the Evans Ground Lease.
The Company places its cash with high quality financial institutions. At times the Company’s cash balances may be in excess of Federal Deposit Insurance Corporation limits.
Subsequent events
Subsequent eventsare
based onevents or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the balance sheet, including the estimatesusing present valueinherent in the process of preparing financial statements. Unrecognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management has reviewed events occurring through the date the financial statements were issued and no subsequent events occurred that require accrual orother valuation techniques. Those techniques are significantly affected by the assumptions used.disclosure.NOTE 2 - INVESTMENT
IN LEASES AND PROPERTY UNDER OPERATING LEASES PropertyPROPERTIESInvestment properties leased or held for lease
Investment properties leased or held for lease to others under operating leases
consistsconsist of the following at September30, 199630:
2011
2010
National Plaza building, land and improvements
$
5,138,796
$
5,136,296
Evans Ground Lease, land and improvements
2,430,373
2,430,373
Commercial land and improvements
3,639,598
3,641,098
11,208,767
11,207,767
Less accumulated depreciation
(1,978,150
)
(1,856,687
)
9,230,617
9,351,080
Residential rental property
145,847
145,847
Less accumulated depreciation
(25,364
)
(22,650
)
120,483
123,197
Investment properties for lease, net of depreciation
$
9,351,100
$
9,474,277
Depreciation expense totaled $124,176 in both 2011 and
1995:
1996 1995 ---------- ----------Land $ 813,660 $ 813,660 Warehouse and buildings 5,566,735 5,556,473 ---------- ---------- 6,380,395 6,380,133 Less accumulated depreciation 739,995 602,741 ---------- ---------- $5,640,400 $5,777,392 ========== ==========17SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1996 AND 1995 NOTE 2 - INVESTMENT IN LEASES AND PROPERTY UNDER OPERATING LEASES (CONTINUED) The Company's primary leasing activities are a retail strip center and a commercial building operated as a restaurant.2010.Approximately
80%81% ofthe retail strip centerNational Plaza is leased to a regional food supermarket. The lease requires minimum annual rental payments of $463,200, expires in 2015 and is renewable for a total of an additional twenty years at substantiallythe samesimilar lease terms. The lease provides for the supermarket to pay for interior maintenance and utilities and property taxes on a proportional basis.In construction of the retail strip center, the supermarket contributed approximately $500,000 to the cost of the construction. The Company has recorded this contribution as a deferred revenue and is recognizing the revenue using the straight-line method over the twenty-year life of the lease with the supermarket.The lease agreement also provides for the Company to receive each year 1.25% of the individual
supermarket'ssupermarket’s gross sales in excess of approximately $37 million. For19962011 and1995,2010, the supermarket did not achieve this gross sales level.In construction of National Plaza, the supermarket contributed approximately $493,000 to the cost of the construction. The
commercial buildingCompany recorded the $493,000 as deferred revenue and isleasedrecognizing $24,652 as revenue annually using the straight-line method over the twenty-year life of the lease with the supermarket.(Continued)
In 2003, the Company entered into a 20-year ground lease arrangement on an outparcel of National Plaza. The ground lease provides for minimum rent of $45,000 annually, for the first 10 years of the lease. The minimum rent increases by approximately 10% after year 10 and then again after year 15 of the ground lease. Other lease agreements at National Plaza range in terms from one to five years.
The Company entered into a
singlelong-term ground lease with a major national home improvement retailer tenantthat operates a restaurantand its developer in May 2006 on theproperty.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 of 2007. Following the expiration of the development period, the leaseagreementrequiresminimumannual rental payments of$44,400, expires December 1997,$500,000 for the first 5 years then increasing 5% in years 6, 11, andrequires16. The lease 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 thelesseetenant to payproperty taxes,for insurance andsubstantially all other costs associated with the property. At September 30, 1996, futureproperty taxes.Future minimum
lease paymentsrents receivable under the operating lease agreementsfor the retail strip center and the commercial buildingare as follows(not including potential extensions):for the years ending September 30:
1997 $ 507,600 1998 474,300 1999 463,200 2000 463,200 2001 463,200 Thereafter 5,867,200 ---------- $8,238,700 ==========
2012
$
1,095,572
2013
1,097,858
2014
1,080,910
2015
905,802
2016
584,300
Thereafter
6,152,815
$
10,917,257
Land and improvements held for investment or development
The Company
has other lease agreementsalso holds for investment or future development approximately 19.38 acres of undeveloped commercial 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 and a 1.1 acre parcel along Washington Road in Augusta, Georgia, thatare short-term in natureadjoins the Company’s National Plaza investment property. The aggregate cost of these investment properties held for investment or development was $3,639,598 andare not material for inclusion in the above presentation.$3,641,098 at September 30, 2011 and 2010, respectively.NOTE 3
- SHORT-TERM LOANS - RELATED PARTY Short-term loans from a director— NOTES PAYABLE AND LINE OF CREDITNotes payable and line of
the Companycredit consisted of the following at September30, 1996 and 1995:
1996 1995 ---- ----Cash advances, no stated interest rate or maturity date, unsecured $50,500 $50,500 ======= =======18SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1996 AND 1995 NOTE 4 - LONG-TERM DEBT Long-term debt consisted of the following at September 30, 1996 and 1995:30:
1996 1995 ---------- ----------8.5% note payable to a director of the Company, due in monthly payments of $4,055, including interest, through February 1996, collateralized by real estate. $ - $ 19,852 7.875% note payable to an insurance company due in monthly payments of $35,633, including interest, through June 2015, collateralized by retail strip center and assignment of lease payments from the property. 4,183,527 4,277,610 ---------- ---------- 4,183,527 4,297,462 Less current maturities 101,766 113,935 ---------- ---------- $4,081,761 $4,183,527 ========== ==========
2011
2010
A note payable to the seller of 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 of a fixed rate of 6%.
$
142,838
$
217,989
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. In January 2010 the Company renewed this line of credit and increased the open balance to $300,250. This agreement originally matured in February 2011. In December 2010, the Company renewed the line of credit to December 5, 2011, at the greater of prime plus 1% or 6%. In December 2011, the Company renewed the line of credit to December 12, 2012, at the greater of prime plus 1% or 6%. The current balance relates to the purchase of the 1 acre adjoining the North Augusta, South Carolina property in May 2008 and is collateralized by the residential property on Stanley Drive in Augusta, Georgia.
300,000
300,250
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%.
1,384,507
1,689,892
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%.
2,352,188
2,441,381
4,179,533
4,649,512
Less current maturities
(504,660
)
(469,729
)
$
3,674,873
$
4,179,783
Aggregate maturities of
long-term debt are due as follows:
1997 $ 101,766 1998 110,076 1999 119,064 2000 128,786 2001 139,302 Later 3,584,533 ---------- $4,183,527 ==========In 1996, total interest incurred and expensed was $334,096. In 1995, total interest incurred was $206,490, of which $85,500 was capitalized, and $120,990 was expensed. NOTE 5 - RELATED PARTY TRANSACTIONS The Company has entered into transactions with directors, officers and major stockholders or business entities in which these parties have significant financial interests. These transactions for 1996 and 1995 are summarized as follows:
1996 1995 ------ ------DIRECTOR AND STOCKHOLDER, rental commission $2,184 $3,360 ====== ====== DIRECTOR, PRESIDENT AND STOCKHOLDER, management fee $ 960 $ 900 ====== ======19SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1996 AND 1995 NOTE 5 - RELATED PARTY TRANSACTIONS (CONTINUED)
1996 1995 -------- --------DIRECTOR AND STOCKHOLDER: Short-term loans Beginning balance $ 50,500 $ 50,500 Advances 24,000 35,000 Payments (24,000) (35,000) -------- -------- Ending balance $ 50,500 $ 50,500 ======== ======== Payments on long-term debt $ 19,852 $ 44,881 ======== ======== Interest on long-term debt $ 424 $ 3,781 ======== ======== DIRECTOR AND STOCKHOLDER, short-term loan, (advanced and repaid in 1995) $ - $ 10,000 ======== ======== STOCKHOLDER, rental commission $ 2,600 $ - ======== ========NOTE 6 - INCOME TAXES The total income taxes in the consolidated statements of income are as follows:
Year Ended September 30, -------------------------- 1996 1995 ------- -------Deferred tax expense (benefit) $(1,224) $15,960 Net change, deferred tax valuation allowance 14,838 (9,680) ------- ------- Deferred tax expense $13,614 $ 6,280 ======= =======The Company's provision for income taxes differs from the amounts computed by applying the Federal income tax statutory rates to (loss) before income taxes. A reconciliation of the differences is as follows:
September 30, 1996 September 30, 1995 -------------------- ---------------------- Amount Percent Amount Percent ------- ------- ------- -------Tax (benefit) at statutory rate $(863) -% $(2,661) (15)% Increase (decrease) in income taxes resulting from: Valuation allowance 14,838 - 9,680 55 Other, net (361) - (739) (5) ------- ------- ------- ------- Provision for income taxes $13,614 -% $ 6,280 35% ======= ======= ======= =======20SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1996 AND 1995 NOTE 6 - INCOME TAXES - CONTINUED Net deferred tax assets consist of the following components as of September 30, 1996 and 1995:
1996 1995 ------- -------DEFERRED TAX ASSETS: Accrued compensation bonus $ - $ 6,750 Loss carryforwards 41,756 20,168 ------- ------- 41,756 26,918 Less valuation allowance 24,518 9,680 ------ ------- 17,238 17,238 ------- ------- DEFERRED TAX LIABILITIES, leased property 20,260 6,646 ------- ------- $(3,022) $10,592 ======= =======During the year ended September 30, 1995, the Company recorded a valuation allowance of $9,680 on the deferred tax assets. For the year ended September 30, 1996, the Company recorded a net adjustment to the valuation allowance of $14,838, for a total valuation allowance of $24,518. The valuation allowance is to reduce the recorded deferred tax assets to an amount that management believes will ultimately be realized. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. Net operating loss carryforwards for tax purposes as of September 30, 1996 have the following expiration dates:
Expiration date Amount --------------- --------2008 $ 86,191 2009 18,016 2010 173,323 -------- $277,530 ========NOTE 7 - FAIR VALUES OF FINANCIAL INSTRUMENTS Methods and assumptions of determining estimated fair value,notes payable and theestimated fair valuesline ofthe Company's financial instrument assets and liabilitiescredit are as follows at September 30,1996: Cash2011:
2012
$
504,660
2013
820,580
2014
492,727
2015
423,070
2016
119,414
Thereafter
1,819,082
$
4,179,533
All interest incurred for 2011 and
cash equivalents - Due2010 was expensed by the Company.(Continued)
In addition, the Company’s line of credit of $300,000 was due to
their demand nature,be repaid in December 2011. In December of 2011 theestimated fair value approximatescompany extended thecarrying amount. 21SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1996 AND 1995maturity date of the line of credit to December 2012.NOTE
7 - FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED) Short-term loans - These4 — INCOME TAXESDeferred income taxes are
loans from a related partythe result of qualified tax-free exchanges of property transacted in previous years and reporting depreciation differently for income tax purposes. The tax effects of temporary differences thathave no stated interest rate or stated maturity date. Duegive rise to thenaturedeferred tax liability are as follows as ofthese loans,September 30:
2011
2010
Deferred income tax liabilities:
Basis in Investment Properties
$
788,107
$
801,805
Taxable gains deferred by the Company in prior years through qualified tax-free like-kind exchanges totaled approximately $973,000. These deferred gains for tax reporting comprise a
comparable type instrument does not exist and an estimated fair value cannot be determined. Long-term debt - The fair valuesubstantial portion of thelong-term debtCompany’s deferred income tax liabilities as of September 30, 2011 and 2010, net of the effects of depreciation.The provision for income taxes is
estimated based on management's estimate of interest rates availableas follows:
For the years ended
September 30,
2011
2010
Current expense
$
184,876
$
175,545
Deferred expense (benefit)
(13,698
)
11,913
$
171,178
$
187,458
The provision for income taxes for the years ended September 30, 2011 and 2010 differs from the amount obtained by applying the U.S. federal and state income tax rate to pretax income due to the following:
2011
2010
Net income before tax
$
440,677
$
501,096
Expected federal tax expense at 34%
$
149,830
$
170,373
State tax expense, net of federal benefit
17,451
19,863
Other
3,897
(2,758
)
Tax expense
$
171,178
$
187,458
NOTE 5 — RELATED PARTY TRANSACTIONS
The Company
for comparable debt having similar remaining maturities and collateral requirements. The estimated fair value at September 30, 1996 was approximately $4,030,000, compared to the carrying amountpurchases insurance from an insurance company of$4,183,527. 22ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The independent certified public accountants reporting on the September 30, 1995 year resigned as of May 15, 1996. The accountants' report on the financial statements for eitherwhich a member of thepastCompany’s Board of Directors is President. The Company’s Board of Directors believes that the insurance prices obtained from such company were not in excess of prices that would have been paid had the Company obtained this insurance from other sources.The Company borrowed proceeds from two
years did not contain an adverse opinion or disclaimershareholders, one being a member ofopinion, nor were such reports modified as to uncertainty, audit scope, or accounting principle. The decision to change accountants was not recommended or approved bythe Board of Directors, to cover short-term cash expenditures related to 2010 property tax payments in November 2010. These funds were paid in full with interest at market rates as of December 7, 2010.Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
Our disclosure controls and procedures are our controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports we file or
an audit or similar committeesubmit under the Securities Exchange Act of 1934, as amended, is processed, summarized and reported within the time periods specified in the rules and forms of theBoardSEC. Disclosure controls and procedures include without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.Our management, with the participation of
Directors. Asour Chief Executive Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in 17 C.F.R. Sections 240.13a-15d—15(e)) as of September 30, 2011, and based on such evaluation, our Chief Executive Officer concluded that such controls and procedures were ineffective as of September 30, 2011 as explained by the material weakness described in internal control over financial reports.There were no significant changes in our internal controls over financial reporting that occurred during the fiscal year ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Internal Controls over Financial Reporting
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.
The Company’s management has evaluated the effectiveness of its internal control over financial reporting as of September 30, 2011. Based on this evaluation, the Company’s management has evaluated and concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2011 as explained by the material weakness described in internal control over financial reporting:
·Due to its relatively small size and the nature of its operations, having only two key employees, whom are also married to each other, actively involved in management and financial reporting of the Company there is a lack of necessary segregation of duties and accounting personnel with the requisite knowledge of accounting principles generally accepted in the United States of America (“GAAP”) and the financial reporting requirements of the Securities and Exchange Commission (“SEC”). There are insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the
Company's twocurrent requirements of GAAP and SEC disclosure requirements.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.
The Company will continue its assessment on an ongoing basis and when it becomes practicable, will make efforts to add personnel and resources to address the material weakness. There has been no change in its internal control over financial reporting that occurred during the Company’s most recent fiscal
yearsquarter that has materially affected, orany later interim period, there were no disagreements withis reasonably likely to materially affect, theaccountants on any matter of accounting principles or practices,Company’s internal control over financialstatement disclosures, or auditing scope or procedures, which, ifreporting.This annual report does not
resolved to the accountants' satisfaction, would have caused it to make reference to the subject matterinclude an attestation report of thedisagreement(s) in connection with the report.Company’s independent registered public accounting firm regarding internal control over financial reporting. Theaccountants didCompany’s independent registered public accounting firm was notadvise the Company of anyrequired nor engaged to issue an attestation on its internal controls over financial reporting pursuant to temporary rules of thefollowing: 1. That internal controls necessary to develop reliable financial statements did not exist; 2. That information has come to the attention of the former accountants which made it unwilling to rely on management's representation, un unwilling to be associated with the financial statements prepared by management, or 3. That the scope of the audit should be expanded significantly or information has come to the accountants' attention that it concluded will, or if further investigated might, materially impact the fairness or reliability of a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent audited financial statements (including information that might preclude the issuance of an unqualified audit report),Securities andthe issue was not resolved to the accountants' satisfaction prior to its resignation or dismissal.Exchange Commission.Item 9B. Other Information.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACTItem 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth certain information for the current directors and executive officers of the Company. There are no arrangements or understandings between any officers and any other persons pursuant to the election of the officers.
NAME, AGE AND
POSITION
LAST FIVE YEARS BUSINESS EXPERIENCE
W. Stewart Flanagin, Jr.
63-Chairman of Board of Directors since 1983;
Member of Board since 1983; brother of President.
Pharmacist and store owner of Hill Drug Company and past manager
48 - Chairman of Board of Directors since 1983;of Revco Drug Store, Inc.member of Board since 1983; brother of President; son of DirectorT. Greenlee Flanagin
Licensed realReal estate
agent 4762 - President and CEO since 1983; member of
Board since 1983; brother of Chairman of
Board; sonBoard.M. David Alalof
69 - member of
Director Melvin D. Barton FormerBoard since 1977.President of A.C.H.S. Insurance, an insurance company;
Past Chairman of the State Personnel Board of
Directors; past partner in Barton 53 -GeorgiaJohn C. Bell, Jr.
Attorney at Law
63— Vice President; Member of Board since
1977 Building Supply; president1983.Gregory B. Scurlock
Vice President, First Bank of
Barton Investment Co., Inc. M. David Alalof Former President; stockholder and agent with A.H.S., Inc., an 52Georgia, Augusta, GA63 - Secretary/Treasurer; member of Board since
1977 insurance concern E. R. Murphy Retired 78 - Assistant Secretary/Treasurer; member of Board since 1980 W. Stewart1983.Former Senior Vice President, Wachovia Bank, Augusta, GA
Robert M. Flanagin
Sr. Retired 82Real estate agent
54 - Member of Board since
1983; father of Chairman; father of President and Director John C. Bell, Jr. Attorney at Law 48 - Member of Board since 1983 Gregory B. Scurlock Senior Vice President, First Union Bank, Augusta, GA 48 - Member of Board since 1983 Robert M. Flanagin Licensed real estate agent 38 - Member of Board since 1987; brother of Chairman;1987.brother of President and
Director; son of DirectorChairman.Section 16(a) of the Securities Exchange Act of 1934, as amended, and regulations of the SEC thereunder require the
Company'sCompany’s executive officers and directors and persons who own more than 10% of theCompany'sCompany’s Common Stock, as well as certain affiliates of such persons, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and persons owning more than 10% of theCompany'sCompany’s Common Stock are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based solely on its review of the copies of such forms received by it and written representations that no other reports were required for those persons, the Company believes that during the fiscal year ended September 30,19962011 theCompany'sCompany’s executive officers, directors and owners of more than 10% of its Common Stock complied with all filing requirements.Gregory B. Scurlock and M. David Alalof serve on the Company’s audit committee, both also serve on the Board of Directors and are experienced in financial matters. The audit committee members are independent of management of the Company.
24
ITEM 10. EXECUTIVE COMPENSATIONItem 11. Executive Compensation.
The table below shows the compensation (including bonuses) of the Chief Executive Officer for the three most recent fiscal years.
There
NAME
COMPENSATION
DATE
T. Greenlee Flanagin
$
10,800
September 30, 2011
T. Greenlee Flanagin
$
10,800
September 30, 2010
T. Greenlee Flanagin
$
10,800
September 30, 2009
No bonuses were
no executive officers whose compensation exceeded $100,000.
NAME COMPENSATION DATET. Greenlee Flanagin $19,874 September 30, 1996 T. Greenlee Flanagin 19,034 September 30, 1995 T. Greenlee Flanagin 18,520 September 30, 1994Subsequent to September 30, 1995, the Board of Directors approved a bonus of $45,000 to be paid to T. Greenlee Flanagin for services relating to the construction period oversight and leasing of the strip center. This amount was accrued and expensed in the fiscal year ended 1995. This amount is not included in the totals above.awarded during 2011.There were no annuity, pension or retirement benefits paid during the fiscal year ended September 30,
19962011 and none are proposed to be paid to any officer or director of Security Land&and Development Corporation.The Company does not have a stock option
plan.plan and no stock or options were awarded to executives as compensation in the past 3 years.Each Director of the Company receives compensation of
$50$100 perDirector'sDirector’s meeting for services performed as a Director.ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENTThe audit committee members both receive compensation of $200 per month.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Principal Shareholders:
The following table sets forth certain information regarding the beneficial ownership of the common stock as of September 30,
19962011 by each person who is known to the Board of Directors of the Company to own beneficially five percent (5%) or more of the outstanding common stock.
NUMBER OF SHARES OF NAME OF COMMON STOCK PERCENT OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASST. Greenlee Flanagin (1) 781,205 14.9 Ann Flanagin Smith (1) 387,541 7.4 W. Stewart Flanagin, Jr. (1) 461,052 8.8 Robert Flanagin (1) 499,083 9.5 John C. Bell, Jr. 330,865 6.3
NUMBER OF SHARES OF
NAME OF
COMMON STOCK
PERCENT OF
BENEFICIAL OWNER
BENEFICIALLY OWNED
CLASS
T. Greenlee Flanagin (1)
251,784
4.8
Robert Flanagin (1)
523,147
10.0
W. Stewart Flanagin, Jr. (1)
487,114
9.3
Ann Flanagin Smith (1)
411,604
7.9
John C. Bell, Jr.
372,565
7.1
T. Greenlee Flanagin, Jr. (1)
292,959
5.6
R. Clayton Flanagin (1)
292,959
5.6
(1) Combined with the following, these individuals form the
"Flanagin family group"“Flanagin Family Group”:
W. Stewart Flanagin, Sr. 79,585 1.5Harriette
F.Flanagin34,008 0.666,836
1.3
25The Flanagin
family groupFamily Group owns2,242,4742,326,403 common shares, which is approximately43%44% ofallthe Company’s 5,243,107 shares of common stock outstanding.Security Ownership of Management:
The following table sets forth certain information with respect to the beneficial ownership of the common stock, as of September 30,
1996,2011, by Directors and executive officers:
NAME OF COMMON STOCK BENEFICIAL BENEFICIALLY PERCENT OWNER ADDRESS OWNED OF CLASSW. Stewart Flanagin, Jr. 1117 Glenn Avenue 461,052 8.8 Augusta, GA 30904 T. Greenlee Flanagin 3326 Wheeler Road 781,205 14.9 Augusta, GA 30903 Melvin D. Barton 1229 D'Antignac Street 25,000 0.5 Augusta, GA 30901 M. David Alalof P.O. Box 15637 27,526 0.5 Augusta, GA 30909 E. R. Murphy 2224 Anthony Road 50,000 0.9 Augusta, GA 30904 W. Stewart Flanagin, Sr. 3052 Skinner Mill Road 29,585 1.5 Augusta, GA 30909 John C. Bell, Jr. P.O. Box 1547 330,865 6.3 Augusta, GA 30903 Gregory B. Scurlock 821 Heard Avenue 500 0.1 Augusta, GA 30904 Robert M. Flanagin 3052 Skinner Mill Road 449,083 9.5 Augusta, GA 30909 All Directors and officers as a group consisting of nine 2,254,816 43.1 individuals
NAME OF
COMMON STOCK
BENEFICIAL
BENEFICIALLY
PERCENT
OWNER
ADDRESS
OWNED
OF CLASS
W. Stewart Flanagin, Jr.
1117 Glenn Avenue
487,114
9.3
Augusta, GA 30904
T. Greenlee Flanagin
3326 Wheeler Road
251,784
4.8
Augusta, GA 30909
M. David Alalof
P.O. Box 15637
106,360
2.0
Augusta, GA 30909
John C. Bell, Jr.
P.O. Box 1547
372,565
7.1
Augusta, GA 30903
Gregory B. Scurlock
1203 Reid Road
500
0.1
Augusta, GA 30909
Robert M. Flanagin
2002 Wrightsboro Road
523,147
10.0
Augusta, GA 30904
All Directors and officers as a group consisting of six individuals.
1,741,470
33.3
%
The Flanagin
familyFamily Group and all Directors and Officers as a group beneficially own2,676,3652,805,828 common shares which is approximately51.09%54% ofallthe Company’s 5,243,107 shares of common stock outstanding.26ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS InItem 13. Certain Relationships and Related Transactions, and Director Independence.
The Company purchased insurance from an insurance company of which a member of the
ordinary courseBoard ofbusiness,Directors is President and CEO. The Board of Directors believe that the insurance prices were not in excess of prices that would have been paid had the Companymay enter into transactionsobtained this insurance from other sources.The Company borrowed proceeds from two shareholders, one being a member of the Board of Directors, to cover short-term cash expenditures related to 2010 property tax payments in November 2010. These funds were paid in full with
Directors, officers or security holders. During 1996interest at market rates as of December 7, 2010.Item 14. Principal Accounting Fees and
1995,Services.The accounting fees billed to the Company
did not enter into any such transactionsby Elliott Davis, LLC related to the Company’s fiscal years ended September 30, 2011 and 2010 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our auditor that arerequiredreasonably related tobe presented under this Item. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-Kthe performance of the audit or review of our financial statements and that are not reported as Audit Fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.
2011
2010
(i)
Audit Fees
$
36,500
$
34,500
(ii)
Audit Related Fees
—
—
(iii)
Tax Fees
$
3,000
$
2,800
(iv)
All Other Fees
$
1,500
—
PART IV
Item 15. Exhibits, Financial Statement Schedules.
a)Exhibits required by Item 601 of Regulation S-B.
EXHIBIT NUMBER DESCRIPTION 11 Computation of Earnings Per Share 16 Letter on Change in Certifying Accountant 21 Subsidiaries of the Registrant 27 Financial data schedules b) The Company filed Form 8-K on August 6, 1996, to report that the Board of Directors of the Company had elected the firm of Cherry, Bekaert & Holland, L.L.P., to audit the Company's annual consolidated financial statements. 27INDEX TO EXHIBITS
PageEXHIBIT
NUMBER
DESCRIPTION
11
Computation of Earnings Per Share
29 16 Letter on Change in Certifying Accountant 30 and 3121
Subsidiaries of the Registrant
32 2731.1
Certification of Chief Executive Officer
32.1
Section 906 Certification of T. Greenlee Flanagin
101
The following financial information from Security Land and Development Corporation’s Annual Report on Form 10-K for the year ended September 30, 2011 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Retained Earnings, (iii) the Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial
data schedules 33 and 34Statements.28SIGNATURES
In accordance with[See General Instruction D]
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Registrantregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.SECURITY LAND & DEVELOPMENT CORPORATION
---------------------------------------(Registrant)
T. Greenlee Flanagin December 20, 1997 ------------------------------------------- T. GREENLEE FLANAGIN (Date)
/s/ T. Greenlee Flanagin
December 22, 2011
T. GREENLEE FLANAGIN
(Date)
President
Chief Executive Officer
In accordance withand ChiefFinancial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrantregistrant and in the capacities and on thedate sodates indicated.W. Stewart Flanagin, Jr. December 20, 1997 -------------------------------------------- W. STEWART FLANAGIN, JR. (Date)
/s/ W. Stewart Flanagin, Jr.
December 22, 2011
W. STEWART FLANAGIN, JR.
(Date)
Chairman of Board
/s/ M. David Alalof
December 22, 2011
M. DAVID ALALOF
(Date)
Director
/s/ Gregory B. Scurlock
December 22, 2011
GREGORY B. SCURLOCK
(Date)
Director and Secretary-Treasurer
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of
Board Chief Financial Officer Chief Accounting Officer W. S. Flanagin, Jr. December 20, 1997 - -------------------------------------------- W. S. FLANAGIN, SR. (Date) Director M. David Alalof December 20, 1997 -------------------------------------------- M. DAVID ALALOF (Date) Secretary-Treasurer E. R. Murphy December 20, 1997 - -------------------------------------------- E. R. MURPHY (Date) Assistant Secretary-Treasurer 29the Act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the ActNone.