U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

xý

 

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the quarterly period ended June 30, 20132014

 

 

 

¨

 

Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the transition period of              to            

 

Commission File Number 0-7865.

 


 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

(Exact name of issuer as specified in its charter)

 

Georgia

 

58-1088232

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

2816 Washington Road, #103, Augusta, Georgia 30909

(Address of Principal Executive Offices)

 

Issuers Telephone Number (706) 736-6334

 

 (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Year)

 


 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES xý    NO  ¨

 

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 

See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨

Accelerated filer ¨

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

Smaller reporting company xý

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES xý    NO  ¨

 

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

                                                                                                                            ¨Yes     xNo¨Yes      ý No

 

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

 

Class

 

Outstanding at August 12, 201311, 2014

Common Stock, $0.10 Par Value

 

5,243,107 shares

  

 

 

 


 


 


 

 

Table of Contents

 

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

 

Part I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 20132014 and September 30, 20122013

1

 

 

 

 

Consolidated Statements of Income and Retained Earnings for the Three Month Periods ended and for the Nine Month Periods ended June 30, 20132014 and 20122013

2

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Month Periods ended and for the Nine Month Periods ended June 30, 2014 and 2013 and 2012

3

 

 

 

 

Notes to the Consolidated Financial Statements

4-7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

8-9

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

9

 

 

 

Item 4.

Controls and Procedures

99-10

 

 

 

Part II

OTHER INFORMATION

10

 

 

 

Item 1.

Legal Proceedings

10

 

 

 

Item 1A.

Risk Factors

10

 

 

 

Item 2.

Unregistered Sales of Equity Securities and useUse of Proceeds

10

 

 

 

Item 3.

Defaults Upon Senior Securities

10

 

 

 

Item 4.

Reserved for Future Use

10

 

 

 

Item 5.

Other Information

10

 

 

 

Item 6.

Exhibits

10

 

 

 

 

SIGNATURES

11-13

 

 

 



 

 

 


 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

 

CONSOLIDATED BALANCE SHEETS

 

 

 

 

June 30,

 

September 30,

 

 

 

 

 

2013

 

2012

 

 

 

 

(unaudited)

 

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

 

$

41,738 

 

$

48,767 

 

Receivables from tenants, net of allowance of $6,235 and $5,322

 

 

 

 

 

 

at June 30, 2013 and September 30, 2012

 

450,399 

 

398,338 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

492,137 

 

447,105 

 

 

 

 

 

 

 

 

INVESTMENT PROPERTIES

 

 

 

 

 

 

Investment properties for lease, net of accumulated depreciation

 

5,494,191 

 

5,587,324 

 

Land and improvements held for investment or development

 

3,639,598 

 

3,639,598 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,133,789 

 

9,226,922 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

78,091 

 

83,802 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

9,704,017 

 

$

9,757,829 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

$

294,210 

 

$

382,242 

 

Income taxes payable

 

 

93,849 

 

283,747 

 

Current maturities of notes payable

 

 

574,009 

 

538,079 

 

Current maturities of deferred revenue

 

 

24,652 

 

24,652 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

986,720 

 

1,228,720 

 

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

Notes payable and line of credit, less current portion

 

3,091,945 

 

3,136,794 

 

Deferred income taxes

 

 

770,399 

 

771,847 

 

Deferred revenue, less current portion

 

 

22,582 

 

41,071 

 

 

 

 

 

 

 

 

 

 

Total long-term liabilities

 

 

3,884,926 

 

3,949,712 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

4,871,646 

 

5,178,432 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Common stock, par value $.10 per share; 30,000,000 shares authorized;

 

 

 

 

 

    5,243,107 shares issued and outstanding

 

524,311 

 

524,311 

 

Additional paid-in capital

 

 

333,216 

 

333,216 

 

Retained earnings

 

 

3,974,844 

 

3,721,870 

 

 

 

 

 

 

 

 

Total Equity

 

 

4,832,371 

 

4,579,397 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

$

9,704,017 

 

$

9,757,829 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

-1-

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
       
   

June 30,

 September 30, 
    2014  2013 
    (unaudited)    
ASSETS      
CURRENT ASSETS        
   Cash  $24,201 $24,599 
   Receivables from tenants, net of allowance $19,938       
at June 30, 2014 and September 30, 2013  472,397  497,324 
   Prepaid property taxes   -  15,003 
         
      Total current assets   496,598  536,926 
         
INVESTMENT PROPERTIES        
   Investment properties for lease, net of accumulated depreciation 5,499,735  5,415,447 
   Land and improvements held for investment or development 3,639,598  3,639,598 
         
    9,139,333  9,055,045 
         
OTHER ASSETS   83,979  76,188 
         
   $9,719,910 $9,668,159 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY      
CURRENT LIABILITIES        
   Accounts payable and accrued expenses $392,425 $325,720 
   Income taxes payable   161,283  183,236 
   Current maturities of notes payable   647,612  584,491 
   Current maturities of deferred revenue  22,582  24,652 
         
      Total current liabilities   1,223,902  1,118,099 
         
LONG-TERM LIABILITIES        
   Notes payable, less current portion   2,497,031  2,807,314 
   Deferred income taxes   750,081  764,645 
   Deferred revenue, less current portion  -  16,419 
   Notes payable to stockholder   50,433  - 
         
      Total long-term liabilities   3,297,545  3,588,378 
         
      Total liabilities   4,521,447  4,706,477 
         
STOCKHOLDERS' EQUITY        
   Common stock, par value $.10 per share; 30,000,000 shares authorized;      
      5,243,107 shares issued and outstanding  524,311  524,311 
   Additional paid-in capital   333,216  333,216 
   Retained earnings   4,340,936  4,104,155 
         
Total Stockholders' Equity   5,198,463  4,961,682 
         
Liabilities and Stockholders' Equity  $9,719,910 $9,668,159 
         

The accompanying notes are an integral part of these consolidated financial statements.

-1-


SECURITY LAND AND DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
                     
  For the Three Month  For the Nine Month 
  Period Ended June 30,  Period Ended June 30, 
   2014    2013    2014    2013  
   (unaudited)    (unaudited)    (unaudited)    (unaudited)  
OPERATING REVENUE                    
   Rent Revenue $375,529   $363,097   $1,109,529   $$1,085,150  
                     
OPERATING EXPENSES                    
   Depreciation and amortization  42,636    32,948    108,511    98,844  
   Property taxes  67,549    64,292    199,519    198,653  
   Payroll and related costs  18,777    19,703    58,840    63,978  
   Insurance and utilities  19,762    11,240    37,897    30,933  
   Repairs and maintenance  13,851    9,488    47,121    23,575  
   Professional services  66,658    10,038    106,814    59,428  
   Bad debt  16,466    -    16,466    2,825  
   Other  1,011    6,880    3,584    20,514  
   246,710    154,589    578,752    498,750  
                     
      Operating income  128,819    208,508    530,777    586,400  
                     
OTHER EXPENSE                    
   Interest  (47,250)    (54,076)   (142,619)    (177,726) 
                     
      Income before income taxes  81,569    154,432    388,158    408,674  
                     
INCOME TAXES PROVISION                    
   Income Tax Expense  34,995    59,571    151,377    155,700  
                     
      Net income  46,574    94,861    236,781    252,974  
                     
RETAINED EARNINGS, BEGINNING OF PERIOD  4,294,362    3,879,983    4,104,155    3,721,870  
                     
RETAINED EARNINGS, END OF PERIOD $4,340,936   $$3,974,844   $4,340,936   $$3,974,844  
                     
PER SHARE DATA                    
   Net income per common share $0.01   $$0.02   $0.05   $$0.05  
                     
The accompanying notes are an integral part of these consolidated financial statements.
                     

-2-


SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

             
   

For the Three Month

  

For the Nine Month

   

Period Ended June 30,

  

Period Ended June 30,

   2014  2013  2014  2013
   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)

OPERATING ACTIVITIES

            

  Net income

$  46,574  $  94,861 $  236,781  $  252,974 

  Adjustments to reconcile net income to net cash provided

                    

    by (used in) operating activities:

                    
     Bad debts   16,466    -    16,466    - 

      Depreciation and amortization

   42,636    32,948     108,511    98,844  

      Changes in deferred and accrued amounts:

   54,993    (377,526)   35,164    (349,928)
                     

     Net cash provided by (used in) operating activities

   160,669    (249,717)   396,922    1,890  
                     

INVESTING ACTIVITIES

                    

           Additions to investment properties and other assets for 

                    

                        improvements to property held for lease

   (196,591)    -    (200,591)    - 
                     

     Net cash used in investing activities

   (196,591)    -    (200,591)    - 
                     

FINANCING ACTIVITIES

                    

  Repayments to stockholder

   -    -    -    (30,000) 

  Proceeds from stockholder

   -    -    50,015    30,000 

  Proceeds from notes payable

   182,797    404,235    186,804    404,235  

  Principal payments on notes payable

   (146,688)    (142,980)    (433,548)    (413,154) 
                     

     Net cash provided by (used in) financing activities

   36,109    261,255 )   (196,729)    (8,919))
                     

     Net increase (decrease) in cash

   187    11,538     (398)    (7,029)
                     

CASH, BEGINNING OF PERIOD

   24,014    30,200     24,599    48,767  
                     

CASH, END OF PERIOD

$  24,201  $  41,738  $  24,201 $  41,738 
                     

SUPPLEMENTAL CASH FLOW INFORMATION:

                    
                     

   Cash paid for interest

 $  39,823 $  66,839  $  139,955 $  182,728 

   

                    

   Cash paid for income taxes

$  6,381 $  335,613  $  93,216 $  375,613 
                     

NON-CASH FINANCING ACTIVITIES

                    

   Refinancing of line of credit to term note

$  - $  - $  - $  301,170 
                     

The accompanying notes are an integral part of these consolidated financial statements.

                     

 -3-


 

 

 



 

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

For the Three Month

For the Nine Month

Period Ended June 30,

Period Ended June,

2013

2012

2013

2012

(unaudited)

(unaudited)

(unaudited)

(unaudited)

OPERATING REVENUE

Rent Revenue

 $      363,097

 $      357,312

 $   1,085,150

 $   1,059,418

OPERATING EXPENSES

Depreciation and amortization

           32,948

           32,948

           98,844

           98,324

Property taxes

           64,292

           63,795

         198,653

         190,601

Payroll and related costs

           19,703

           21,444

           63,978

           65,006

Insurance and utilities

           11,240

           11,520

           30,933

           32,124

Repairs and maintenance

             9,488

           14,680

           23,575

           32,289

Professional services

           10,038

           19,465

           59,428

           73,691

Bad Debt

                     -

             1,287

             2,825

             9,849

Other

             6,880

                270

           20,514

             3,126

         154,589

         165,409

         498,750

         505,010

Operating income

         208,508

         191,903

         586,400

         554,408

OTHER INCOME (EXPENSE)

Interest

         (54,076)

         (62,834)

       (177,726)

       (196,017)

Income before income taxes

         154,432

         129,069

         408,674

         358,391

INCOME TAXES PROVISION

Income Tax Expense

           59,571

           47,821

         155,700

         135,438

Net income

           94,861

           81,253

         252,974

         222,953

RETAINED EARNINGS, BEGINNING OF PERIOD

      3,879,983

      3,579,314

      3,721,870

      3,437,609

RETAINED EARNINGS, END OF PERIOD

 $   3,974,844

 $   3,660,567

 $   3,974,844

 $   3,660,562

PER SHARE DATA

Net income per common share

 $            0.02

 $            0.02

 $            0.05

 $            0.04

The accompanying notes are an integral part of these consolidated financial statements.

 



CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Month

 

For the Nine Month

 

 

 

 

Period Ended June 30,

 

Period Ended June 30,

 

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

94,861 

 

$

81,248 

 

$

252,974 

 

$

222,953 

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

 

 

 

  by (used in) operating activities:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

32,948 

 

32,948 

 

98,844 

 

98,324 

 

 

Changes in deferred and accrued amounts:

 

(377,526)

 

(20,356)

 

(349,928)

 

39,228 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) operating activities

 

(249,717)

 

93,840 

 

1,890 

 

360,505 

 

 

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

     Purchases of, and improvements to, investment properties

 

 

(7,800)

 

 

(7,800)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

 

(7,800)

 

 

(7,800)

 

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Proceeds from shareholder

 

 

 

 

30,000 

 

 

Repayments to shareholder

 

 

 

 

(30,000)

 

 

Proceeds from notes payable

 

 

404,235 

 

 

404,235 

 

 

Principal payments on notes payable

 

(142,980)

 

(127,277)

 

(413,154)

 

(375,079)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

261,255 

 

(127,277)

 

(8,919)

 

(375,079)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash

 

 

11,538 

 

(41,237)

 

(7,029)

 

(22,374)

 

 

 

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF PERIOD

 

 

30,200 

 

70,053 

 

48,767 

 

51,190 

 

 

 

 

 

 

 

 

 

 

 

 

CASH, END OF PERIOD

 

 

$

41,738 

 

$

28,816 

 

$

41,738 

 

$

28,816 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

$

66,839 

 

$

63,642 

 

$

182,728 

 

$

197,391 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

 

$

335,613 

 

$

35,000 

 

$

375,613 

 

$

66,000 

 

 

 

 

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Refinancing of line of credit to term note

 

$

 

$

 

$

301,170 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

-3-



SECURITY LAND AND DEVELOPMENT CORPORATION

 

 

Notes to the Consolidated Financial Statements

 

Note  1 – Basis of Presentation

 

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q, Article 8 of Regulation S-X and accounting principles generally accepted in the United States of America; therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows.  Such statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods.  Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the audited financial statements appearing in our Form 10-K for the year ended September 30, 20122013 when reviewing these interim financial statements.

 

The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.  The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the “Company”).  Significant intercompany transactions and accounts are eliminated in consolidation.

  

Critical Accounting Policies:

Estimates of Useful Lives of Investment Properties for Purposes of Depreciation

 

Management has estimated useful lives of investment properties, except for land, that areis leased, and the Company utilizes the straight-line method to compute depreciation over the estimated useful lives of the investment properties.  Actual depreciation of investment properties will vary from management’s estimates, and the value of investment properties is more directly impacted by market conditions and the physical condition of the investment properties.

 

Evaluation of Long-Lived Assets for Impairment

 

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of investment properties may not be recoverable.  In evaluating recoverability, the Company generally estimates future cash flows expected to result from the use of the asset and its eventual disposition.  An impairment loss is recognized when the expected future cash flows of the asset are less than the carrying amount.

 

Estimates of Income Tax Rates Applicable to Deferred Taxes

 

The Company has deferred income taxes through a series of tax-deferred like-kind exchange transactions on certain investment properties and through accelerated depreciation elections on certain other assets.  Actual income taxes that may become due when taxable gains are realized on the sale of assets may differ from management’s estimates as a result of changes in tax laws, the tax status of the Company, or the actual taxable earnings of the Company in the periods the deferred income taxes become due.

 

Refer to the Company’s Form 10-K for the year ended September 30, 20122013 for further information regarding its critical accounting policies.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts (Topic 606). The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company is currently evaluating the impacts of adoption and the implementation approach to be used.

-4-- 4 -


 


 

 

Note  2 – Investment Properties

 

Investment properties leased or held for lease to others under operating leases consisted of the following at
June 30, 20132014 and September 30, 2012:2013:

 

 

 

June 30,

 

September 30,

 

 

 

June 30,

 

September 30,

 

 

2013

 

2012

 

 

2014

 

2013

 

 

 

(unaudited)

 

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

National Plaza building, land and improvements

 

 

$

5,138,796

 

$

5,138,796

 

 

 

$

5,325,349

 

$

5,138,796

 

Evans Ground Lease, land and improvements

 

 

2,430,373

 

2,430,373

 

 

 

2,382,673

 

2,382,673

 

Commercial land and improvements

 

 

3,639,598

 

3,639,598

 

 

 

3,639,598

 

3,639,598

 

 

 

11,208,767

 

11,208,767

 

 

 

11,347,620

 

11,161,067

 

 

 

 

 

 

 

 

 

 

 

 

 

Less accumulated depreciation

 

 

(2,190,712

)

(2,099,614

)

 

 

(2,321,307

)

(2,221,077

)

 

 

9,018,055

 

                      9,109,153

 

 

 

9,026,313

 

8,939,990

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential rental property

 

 

145,847

 

145,847

 

 

 

145,847

 

145,847

 

Less accumulated depreciation

 

 

(30,113

)

(28,078

)

 

 

(32,827

)

(30,792

)

 

 

115,734

 

117,769

 

 

 

113,020

 

115,055

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment properties for lease, net of accumulated depreciation

 

 

$

9,133,789

 

$

9,226,922

 

 

 

$

9,139,333

 

$

9,055,045

 

 

Depreciation expense totaled approximately $31,000$42,000 and $93,000$105,000 for both the three-month and nine-month periods ended June 30, 20132014 and 2012.approximately $32,000 and $96,000 for the three-month and nine-month periods ended June 30, 2013.

 

The National Plaza is a retail strip center located on Washington Road in Augusta Georgia.  Approximately 81% of the rentable space at the National Plaza is leased to Publix Supermarkets, Inc., the National Plaza’s anchor tenant. 

 

The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on approximately 18 acres of land in Columbia County, Georgia.  The agreement required monthly rental payments of $20,833 during the development period, which was completed in January 2007.  Following the expiration of the development period, the lease requires annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16.  The lessee has an option to renew at year 21 and another option every 5 years thereafter for a possible total lease term of 50 years.  The lease provides for the tenant to pay for insurance and property taxes. The Company is recognizing rents on a straight-line basis over the lease term.  In July 2013, the Company sold .5approximately .24 acres of the land parcel that containstotal Evans ground Lease tract for $156,000.  The Company recognized a gain of approximately $108,000.  The proceeds were used by the above noted lease in Columbia County, Georgia for $156,000Company to the Georgia Department of Transportation.  Of this amount, approximately $144,000 is obligated to go to principal pay down on the associated debt and the remaining approximately $12,000 will gorelated to the lessee as a reduction of rental obligation.   Management does not believe that the sale of the parcel in question has any significant affect onan outstanding note payable collateralized by the Evans Ground Lease orand related land and to compensate the Company’s ability to continue leasingEvans Ground Lease tenant per the property or related rental revenues. agreement.

 

The Company holds several parcels of land for investment or development purposes, including 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008.  The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1 acre parcel along Washington Road in Augusta, Georgia that adjoins the Company’s National Plaza investment property.  The aggregate costs of these investment properties held for investment or development was $3,639,598 at June 30, 20132014 and September 30, 2012.2013.

- 5 -

(Continued)

-5-



 

Note  2 – Investment Properties, (Continued)Continued

 

Refer to the Company’s Form 10-K for the year ended September 30, 20122013 for further information on operating lease agreements and land held for investment or development purposes.

 

Note  3 – Notes Payable and Line of Credit

 

Notes payable and line of credit consisted of the following at:

 

 

 

June 30,
2013

 

 

September 30,
2012

 

 

 

 

(unaudited)

 

 

 

 

A note payable to the seller of approximately 2.81 acres of land in North Augusta, South Carolina, collateralized by the land. The note is payable in monthly installments of $7,182 through June 2013, and bears interest at a fixed rate of 6%.

 

 

$

-

 

 

$

63,052

 

 

 

 

 

 

 

 

 

 

 

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%.

 

 

788,862

 

 

1,054,186

 

 

 

 

 

 

 

 

 

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%.

 

 

2,183,010

 

 

2,257,635

 

 

 

 

 

 

 

 

 

A note payable with a regional financial institution.  In March 2008 the Company took out a line of credit with a regional financial institution for up to $251,934 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%. In November of 2012, the Company converted the line of credit to a fixed rate loan due December 2017.  The new term loan accrues interest at a 5.5% annually with monthly installments of $3,287.  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.

 

 

 

290,343

 

 

300,000

 

 

A note payable to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina. The note is payable in monthly installments of $7,653, including principal and interest, through July 2018, and bears interest at a fixed rate of 5%.

 

 

403,739

 

 

-

 

 

 

 

 

3,665,954

 

 

3,674,873

 

Less current maturities

 

 

(574,009

)

 

(538,079

)

 

 

 

$

3,091,945

 

 

$

3,136,794

 

(Continued)

 

 

June 30,
2014

 

September 30,
2013

(unaudited)

 
 In December 2011, the Company renewed its then line of credit to December 12, 2012, at the greater of prime plus 1% or 6%. In November of 2012, the Company converted the line of credit to a fixed rate loan due December 2017. The new term loan accrues interest at 5.5% annually with monthly installments of $3,287. 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.

254,108

 

$

284,531

     
 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%.

409,903  

 

696,892  

     
 A note payable to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina.  The note is payable in monthly installments of $7,563, including principal and interest, through July 2018, and bears interest at a fixed rate of 5%.

350,414

 

392,945

     
 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 $17,896, including interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%. 

      1,943,414 

 

      2,017,437 

     
 A construction loan to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina.  The loan was procured to finance tenant improvements for the lease of in-line space at National Plaza executed on January 17, 2014.  In April, 2014 construction of the tenant improvements was completed and with total principal borrowed of $186,000.  Once all related construction payments have been made the loan will convert to a note payable with monthly installments of $3,727 including interest over a 60 month term with fixed interest of 4.5%.  The related lease agreement calls for monthly payments of this amount to be paid to the Company in addition to monthly minimum rental payments.  The tenant opened for business on April 16, 2014.

186,804

 

-

     

 

A note payable to a stockholder, who is also a member of the Flanagin Family, to meet the cash flow needs of the Company. The note matures in July 2015 and accrues interest at 5%.

50,433

 

-

 

-6-


 


 

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

Note  3 – Notes Payable, Continued

 

 

 

 

 

 

3,195,076

 

3,391,805 

 

Less current maturities

       (647,612)

 

       (584,491)

 

 

 

 

 

 

 

2,547,464

 

2,807,314

 

 

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary).  Additionally, funding can be obtained from members of the Company’s Board of Directors.

 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $574,009.$647,612.  The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

 

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

 

Note  4 – Income Taxes

 

As of September 30, 2012 theThe Company was in arrears in paying its income tax obligations, withhas a total outstanding payable for income tax payable balance in the amount of $244,714.  Of this amount $202,950 was related to 2012 and the remaining $41,764 was$161,283 at June 30, 2014, all of which is related to the 2011fiscal year 2014.  The Company has a total outstanding for income tax expense.  Asin the amount of June$183,236 at September 30, 2013, all of which is related to the Company believes it has paid all priorfiscal year income taxes payable in full and has made all estimated tax payments through March 31, 2013.

 

Note  5 – Concentrations

 

Substantially all of the Company’s assets consist of real estate located in Richmond and Columbia Counties in the state of Georgia and in North Augusta, South Carolina.  Approximately 99% of the Company’s revenues are earned from two of the Company’s investment properties, National Plaza and the Evans Ground Lease, which comprise approximately 51%53% and 48%46% of the Company’s revenues, respectively.   The anchor tenant for National Plaza, Publix Supermarkets, Inc. (“Publix”), a regional food supermarket chain, leases approximately 81% of the space at National Plaza.  The Company generates approximately 37% of its revenues though its lease with Publix.

 

Note  6 –  Related Party Transactions

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

 

During the firstsecond quarter of 2013,fiscal 2014, the Company borrowed $30,000$50,015 from a member of the Company’s Board of Directors,stockholder, who is also a member of the Flanagin family, to meet cash flow needs.  The entire amount was repaid during the first quarter withmatures in July 2015 and accrues interest at a rate of 6%5%.   There were no additional borrowings from this related party during the current quarter.The note balance at June 30, 2014 is $50,433 which includes $418 of accrued interest.

 

-7-

- 7 -


 


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

 

Results of Operations:

 

The Company’s results of operations for the nine months ended June 30, 2013,2014, and a comparative analysis of the same period for 20122013 are presented below:

 

 

 

 

 

Increase (Decrease)

 

 

 

 

 

 

Increase (Decrease)

 

 

 

 

 

2013 compared to 2012

 

 

 

 

 

 

2014 compared to 2013

 

 

2013

 

2012

Amount

 

Percent

 

 

2014

 

2013

 

Amount

 

Percent

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent revenue

 

 $

   

1,085,150

 

 $

1,059,418

$

     25,732

 

2

 %

 

 $

   

1,109,529

 

 $

1,085,150

 

$

     24,379

 

2

 %

Operating expenses

 

498,750

 

505,010

(6,260)

 

-1

 %

 

578,752

 

498,750

 

80,002

 

16

 %

Interest expense

 

177,726

 

196,017

(18,291)

 

-9

 %

 

142,619

 

177,726

 

(35,107)

 

-20

 %

Income tax expense

 

155,700

 

135,438

20,262

 

15

 %

 

151,377

 

155,700

 

(4,323)

 

 -3

 %

Net income

 

252,974

 

222,953

30,021

 

    13

%

 

236,781

 

252,974

 

(16,193)

 

-7

%

 

Rent revenue consists primarily of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia.  The Company also earned rent revenue from a ground lease with an auto-repair service operation on an out parcel of National Plaza. 

 

Refer to the Company’s Form 10-K for the year ended September 30, 20122013 for further information regarding the properties owned and their lease terms.

 

Total operating expenses for the nine months ended June 30, 2013 was consistent with2014 increased compared to the same period for 2012.2013 due primarily to increased professional fees.  Professional fees increased due to increased legal fees compared to the prior year related to an ongoing dispute over a tenant’s claim for reimbursement of certain expenses charged.  This dispute is unresolved as of June 30, 2014. It is the opinion of the Company’s management that the Company does not owe any reimbursement.  Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.

 

Interest expense for the nine month period ended June 30, 20132014 decreased compared to 20122013 due to the decrease in debt resulting from scheduled principal payments. Management expects interest expense for the remainder of the current fiscal year to increasecontinue to decrease slightly due to the additional borrowings in the current quarter.as outstanding debt is amortized.

 

Income tax expense for the nine month period ended June 30, 2013 increased2014 decreased slightly compared to the same period for 20122013 due mainly to increased rental income related higher tenant occupancy at National Plaza and  lower interest expenseoperating expenses as noted above.  Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.

 

- 8 -


Liquidity and Sources of Capital:

 

The Company’s ratio of current assets to current liabilities at June 30, 20132014 was 50%41%.  The ratio was 36%48% at September 30, 2012.2013. 

 

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary).  Additionally, funding can be obtained from members of the Board of Directors.

 

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

-8-



Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $574,009.$647,612.  The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

 

If the Company is unsuccessful in their efforts described above, the Company intends to seek additional financing, sell certain of its fully owned and un-collateralized assets or borrow money from certain stockholders.

Cautionary Note Regarding Forward-Looking Statements:

 

The results of operations for the nine-month period ended June 30, 20132014 are not necessarily indicative of the results that may be expected for the entire fiscal year.  The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders.  Such forward-looking statements are made based on management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, but not limited to, competition from other real estate companies, the ability of the Company to obtain financing for projects, and the continuing operations of tenants.

 

Item  3. Quantitative and Qualitative Disclosures About Market Risks

 

   Not applicable to smaller reporting companies

 

 

Item  4. Controls and Procedures

 

(a)      Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934.  Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were ineffective.

 

(b)      There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Chief Executive Officer carried out the evaluation.

          

           As of September 30, 2012,2013, the Company’s management evaluated the effectiveness of its internal control.  Based on the evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 20122013 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.

- 9 -


 

           Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

 

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

 

 

 

 -9-



PART II - OTHER INFORMATION

 

Item  1. Legal Proceedings

During 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses charged.  It is the opinion of the Company's management that the Company is not liable for this claim.  The Company has accrued approximately $100,000$150,000 for professional fees and other expenses to defend its position.

Item  1A. Risk Factors

 

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

 

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

 

None

 

Item  3. Defaults Upon Senior Securities

 

None

 

Item  4. Reserved for Future Use

 

Item  5. Other Information

 

Management of the Company notes that no Forms 8-K were filed during the period and Management is not aware of any un-reported matters occurring during the period that would require disclosure in a Form 8-K. 

 

Item  6. Exhibits

 

(a)

 

Exhibit No.

 

Description

 

 

31.1

 

Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

32.1

 

Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

 

 

 

 

 

  101 

The following financial information from Security Land and Development Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 20132014 is  formatted in Extensible Business Reporting Language (XBRL):  (i) The Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Retained Earnings, (iii) the condensed Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.

 

 

                                                                                                                 

 

 

                           

 

 

 

 

 

 

 -10-


 


- 10 -


SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SECURITY LAND AND DEVELOPMENT CORPORATION

(Registrant)

 

 

 

 

 

 

By:

/s/ T. Greenlee Flanagin

 

August 12, 201311, 2014

 

 

 

 

 

 

T. Greenlee Flanagin

 

Date

 

 

President

 

 

 

 

Chief Executive Officer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                                                                                           

-11-

 

- 11 -