U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
| Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
For the quarterly period ended June 30, | |||
| |||
o | 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 ☒x NO ☐o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in rule 12b-2 of the Exchange Act.
|
| |
|
|
Large accelerated filer o Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒x NO ☐o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐oYes ☒NoxNo
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 | |
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 | |
| ||
| Consolidated Balance Sheets as of June 30, | 1 |
| 2 | |
|
|
|
| 3 | |
|
|
|
| 4-8 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of | 9-10 |
Item 3. | 10 | |
Item 4. |
| |
Part II | 11 | |
Item 1. | 11 | |
Item 1A. | 11 | |
Item 2. | 11 | |
Item 3. | 11 | |
Item 4. | 11 | |
Item 5. | 11 | |
Item 6. | 11 | |
| ||
12-14 |
PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
Item 1. Financial Statements |
SECURITY LAND AND DEVELOPMENT CORPORATION | |||
June 30, | September 30, | ||
2016 | 2015 | ||
(unaudited) | |||
ASSETS | |||
CURRENT ASSETS |
| ||
Cash | $ 540,897 | $ 412,847 | |
Receivables from tenants, net of allowance of $53,809 | |||
at June 30, 2016 and $52,255 at September 30, 2015 | 360,388 |
| 386,469 |
Prepaid property taxes | - | 23,251 | |
Income taxes receivable | 42,124 | 14,263 | |
Total current assets | 943,409 |
| 836,830 |
INVESTMENT PROPERTIES | |||
Investment properties for lease, net of accumulated depreciation | 6,952,129 |
| 7,075,175 |
Land and improvements held for investment or development | 3,804,728 |
| 3,752,863 |
10,756,857 | 10,828,038 | ||
OTHER ASSETS | 72,058 |
| 79,353 |
$ 11,772,324 |
| $ 11,744,221 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
CURRENT LIABILITIES | |||
Accounts payable and accrued expenses | $ 236,172 |
| $ 282,769 |
Current maturities of notes payable | 248,049 |
| 239,168 |
|
| ||
Total current liabilities | 484,221 |
| 521,937 |
LONG-TERM LIABILITIES | |||
Notes payable, less current portion | 2,838,761 |
| 3,025,458 |
Deferred income taxes | 1,414,442 |
| 1,413,187 |
Total long-term liabilities | 4,253,203 | 4,438,645 | |
Total liabilities | 4,737,424 | 4,960,582 | |
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 | 6,177,373 |
| 5,926,112 |
Total Stockholders' Equity | 7,034,900 |
| 6,783,639 |
| |||
Liabilities and Stockholders' Equity | $ 11,772,324 |
| $ 11,744,221 |
| |||
The accompanying notes are an integral part of these consolidated financial statements. | |||
-1- |
|
| June 30, | September 30, | ||
|
| 2015 | 2014 | ||
|
| (unaudited) | |||
ASSETS |
|
| |||
CURRENT ASSETS |
|
| |||
Cash | $ | 777,253 | $ | 65,982 | |
Receivables from tenants, net of allowance of $46,392 and $43,578 |
|
|
| ||
at June 30, 2015 and September 30, 2014, respectively |
| 359,424 |
| 527,579 | |
Total current assets |
| 1,136,677 |
| 593,561 | |
RESTRICTED CASH HELD BY QUALIFIED INTERMEDIARY |
| 1,791,839 |
| - | |
INVESTMENT PROPERTIES |
|
|
| ||
Investment properties for lease, net of accumulated depreciation |
| 5,208,797 |
| 5,459,560 | |
Land and improvements held for investment or development |
| 3,639,598 |
| 3,639,598 | |
|
| 8,848,395 |
| 9,099,158 | |
OTHER ASSETS |
| 81,636 |
| 76,239 | |
| $ | 11,858,547 | $ | 9,768,958 | |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
| ||
CURRENT LIABILITIES |
|
|
| ||
Accounts payable and accrued expenses | $ | 189,450 | $ | 452,669 | |
Income taxes payable |
| 49,902 |
| 229,031 | |
Current maturities of notes payable |
| 236,281 |
| 554,065 | |
Current maturities of deferred revenue |
|
|
| 18,489 | |
Current note payable to stockholder |
| - |
| 50,433 | |
Total current liabilities |
| 475,633 |
| 1,304,687 | |
LONG-TERM LIABILITIES |
|
|
| ||
Notes payable, less current portion |
| 3,086,192 |
| 2,435,541 | |
Deferred income taxes |
| 1,490,712 |
| 737,230 | |
Total long-term liabilities |
| 4,576,904 |
| 3,172,771 | |
Total liabilities |
| 5,052,537 |
| 4,477,458 | |
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 |
| 5,948,483 |
| 4,433,973 | |
Total Stockholders' Equity |
| 6,806,010 |
| 5,291,500 | |
Liabilities and Stockholders' Equity | $ | 11,858,547 | $ | 9,768,958 |
The accompanying notes are an integral part of these consolidated financial statements.
SECURITY LAND AND DEVELOPMENT CORPORATION | ||||||||
For the Three Months | For the Nine Months | |||||||
Ended June 30, | Ended June 30, | |||||||
2016 | 2015 | 2016 | 2015 | |||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||
OPERATING REVENUES | ||||||||
Rent revenues | $ 421,639 | $ 383,518 | $ 1,251,997 | $ 1,148,443 | ||||
OPERATING EXPENSES | ||||||||
Depreciation and amortization | 49,072 | 41,780 | 147,182 | 126,400 | ||||
Property taxes | 68,198 | 66,158 | 200,876 | 199,808 | ||||
Payroll and related costs | 24,049 | 19,368 | 137,975 | 61,461 | ||||
Insurance and utilities | 30,300 | 18,679 | 57,867 | 36,127 | ||||
Repairs and maintenance | 60,214 | 49,754 | 82,120 | 73,255 | ||||
Professional services | 11,250 | 11,763 | 60,128 | 54,707 | ||||
Bad debt | 1,553 | - | 1,553 | 2,814 | ||||
Penalties | - | 7 | - | 11,551 | ||||
Other | 2,913 | 1,738 | 8,694 | 4,180 | ||||
247,549 | 209,247 | 696,395 | 570,303 | |||||
Operating income | 174,090 | 174,271 | 555,602 | 578,140 | ||||
OTHER INCOME (EXPENSE) | ||||||||
Gain on sale of land | - | 1,862,235 | - | 1,862,235 | ||||
Interest expense | (38,414) | (40,296) | (118,752) | (131,609) | ||||
Other income | - | 138,868 | 7,616 | 138,868 | ||||
(38,414) | 1,960,807 | (111,136) | 1,869,494 | |||||
Income before income taxes | 135,676 | 2,135,078 | 444,466 | 2,447,634 | ||||
INCOME TAXES PROVISION | ||||||||
Income tax expense | 56,590 | 49,902 | 191,950 | 179,642 | ||||
Income tax deferred (benefit) expense | (7,637) | 760,473 | 1,255 | 753,482 | ||||
48,953 | 810,375 | 193,205 | 933,124 | |||||
Net income | 86,723 | 1,324,703 | 251,261 | 1,514,510 | ||||
RETAINED EARNINGS, BEGINNING | ||||||||
OF PERIOD | 6,090,650 | 4,623,780 | 5,926,112 | 4,433,973 | ||||
RETAINED EARNINGS, END OF PERIOD | $ 6,177,373 | $ 5,948,483 | $ 6,177,373 | $ 5,948,483 | ||||
PER SHARE DATA | ||||||||
Net income per common share | $ 0.02 | $ 0.25 | $ 0.05 | $ 0.29 | ||||
The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
-2- |
- 1 -
SECURITY LAND AND DEVELOPMENT CORPORATION For the Three Months For the Nine Months Ended June 30, Ended June 30, 2016 2015 2016 2015 (unaudited) (unaudited) (unaudited) (unaudited) OPERATING ACTIVITIES Net income $ 86,723 $ 1,324,703 $ 251,261 $ 1,514,510 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 49,072 41,780 147,182 126,400 Gain on sale of land - (1,862,235) - (1,862,235) Deferred income taxes (7,637) 760,473 1,255 753,482 Changes in deferred and accrued amounts (113,230) (96,116) (25,126) (290,612) Net cash provided by operating activities 14,928 168,605 374,572 241,545 INVESTING ACTIVITIES Sale of investment properties and other assets for improvements to property held for lease - 1,981,900 - 1,993,150 Additions to restricted cash held by a qualified intermediary - (1,791,839) - (1,791,839) Additions to investment properties and other assets for improvements to property held for lease (21,095) - (68,706) (11,949) Net cash (used in) provided by investing activities (21,095) 190,061 (68,706) 189,362 FINANCING ACTIVITIES Repayments to stockholder - - - (50,433) Proceeds from note payable - - - 1,500,000 Principal payments on notes payable (59,994) (45,724) (177,816) (1,169,203) Net cash (used in) provided by financing activities (59,994) (45,724) (177,816) 280,364 Net (decrease) increase in cash (66,161) 312,942 128,050 711,271 CASH, BEGINNING OF PERIOD 607,058 464,311 412,847 65,982 CASH, END OF PERIOD $ 540,897 $ 777,253 $ 540,897 $ 777,253 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 39,617 $ 47,752 $ 120,227 $ 137,956 Cash paid for income taxes $ 185,000 $ 125,737 $ 219,811 $ 351,880 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 30, |
| ||||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
|
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
OPERATING REVENUE |
|
|
|
|
|
|
|
|
|
|
|
|
Rent Revenue | $ | 383,518 |
| $ | 375,529 |
| $ | 1,148,443 |
| $ | 1,109,529 |
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 41,780 |
|
| 42,636 |
|
| 126,400 |
|
| 108,511 |
|
Property taxes |
| 66,158 |
|
| 67,549 |
|
| 199,808 |
|
| 199,519 |
|
Payroll and related costs |
| 19,368 |
|
| 18,777 |
|
| 61,461 |
|
| 58,840 |
|
Insurance and utilities |
| 18,679 |
|
| 19,762 |
|
| 36,127 |
|
| 37,897 |
|
Repairs and maintenance |
| 49,754 |
|
| 13,851 |
|
| 73,255 |
|
| 47,121 |
|
Professional services |
| 11,763 |
|
| 66,658 |
|
| 54,707 |
|
| 106,814 |
|
Bad debt |
| - |
|
| 16,466 |
|
| 2,814 |
|
| 16,466 |
|
Penalties |
| 7 |
|
| - |
|
| 11,551 |
|
| - |
|
Other |
| 1,738 |
|
| 1,011 |
|
| 4,180 |
|
| 3,584 |
|
|
| 209,247 |
|
| 246,710 |
|
| 570,303 |
|
| 578,752 |
|
Operating income |
| 174,271 |
|
| 128,819 |
|
| 578,140 |
|
| 530,777 |
|
OTHER INCOME (EXPENSE) |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Sale |
| 1,862,235 |
|
| - |
|
| 1,862,235 |
|
| - |
|
Interest |
| (40,296) |
|
| (47,250) |
|
| (131,609) |
|
| (142,619) |
|
Other Income |
| 138,868 |
|
| - |
|
| 138,868 |
|
| - |
|
|
| 1,960,807 |
|
| (47,250) |
|
| 1,869,494 |
|
| (142,619) |
|
Income before income taxes |
| 2,135,078 |
|
| 81,569 |
|
| 2,447,634 |
|
| 388,158 |
|
INCOME TAXES PROVISION (BENEFIT) |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
| 49,902 |
|
| 50,113 |
|
| 179,642 |
|
| 165,941 |
|
Income tax deferred expense (benefit) |
| 760,473 |
|
| (15,118) |
|
| 753,482 |
|
| (14,564) |
|
|
| 810,375 |
|
| 34,995 |
|
| 933,124 |
|
| 151,377 |
|
Net income |
| 1,324,703 |
|
| 46,574 |
|
| 1,514,510 |
|
| 236,781 |
|
RETAINED EARNINGS, BEGINNING OF PERIOD |
| 4,623,780 |
|
| 4,294,362 |
|
| 4,433,973 |
|
| 4,104,155 |
|
RETAINED EARNINGS, END OF PERIOD | $ | 5,948,483 |
| $ | 4,340,936 |
| $ | 5,948,483 |
| $ | 4,340,936 |
|
PER SHARE DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Net income per common share | $ | 0.25 |
| $ | 0.01 |
| $ | 0.29 |
| $ | 0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
-2-
SECURITY LAND AND DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| For the Three Month |
|
| For the Nine Month |
| ||||||
|
| Period Ended June 30, |
|
| Period Ended June 30, |
| ||||||
|
| 2015 |
|
| 2014 |
|
| 2015 |
|
| 2014 |
|
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
| (unaudited) |
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Net income | $ | 1,324,703 | $ | 46,574 | $ | 1,514,510 | $ | 236,781 |
| |||
Adjustments to reconcile net income to net cash provided |
|
|
|
|
|
|
|
|
|
|
|
|
by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 41,780 |
|
| 42,636 |
|
| 126,400 |
|
| 108,511 |
|
Gain on sale |
| (1,862,235) |
|
| - |
|
| (1,862,235) |
|
| - |
|
Deferred income tax |
| 760,473 |
|
| (15,118) |
|
| 753,482 |
|
| (14,564) |
|
Changes in deferred and accrued amounts: |
| (96,116) |
|
| 86,577 |
|
| (290,612) |
|
| 66,194 |
|
Net cash provided by operating activities |
| 168,605 |
|
| 160,669 |
|
| 241,545 |
|
| 396,922 |
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of investment properties |
| 1,981,900 |
|
| - |
|
| 1,993,150 |
|
| - |
|
Addition to restricted cash held by qualified intermediary | (1,791,839) | - | (1,791,839) | - | ||||||||
Additions to investment properties |
| - |
|
| (196,591) |
|
| (11,949) |
|
| (200,591) |
|
Net cash provided by (used in) investing activities |
| 190,061 |
|
| (196,591) |
|
| 189,362 |
|
| (200,591) |
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments to stockholder |
| - |
|
| - |
|
| (50,433) |
|
| - |
|
Proceeds from stockholder |
| - |
|
| - |
|
| - |
|
| 50,015 |
|
Proceeds from notes payable |
| - |
|
| 182,797 |
|
| 1,500,000 |
|
| 186,804 |
|
Principal payments on notes payable |
| (45,724) |
|
| (146,688) |
|
| (1,169,203) |
|
| (433,548) |
|
Net cash provided by (used in) financing activities |
| (45,724) |
|
| 36,109 |
|
| 280,364 |
|
| (196,729) |
|
Net increase (decrease) in cash |
| 312,942 |
|
| 187 |
|
| 711,271 |
|
| (398) |
|
CASH, BEGINNING OF PERIOD |
| 464,311 |
|
| 24,014 |
|
| 65,982 |
|
| 24,599 |
|
CASH, END OF PERIOD | $ | 777,253 |
| $ | 24,201 | $ | 777,253 |
| $ | 24,201 |
| |
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash paid for interest | $ | 47,752 |
| $ | 39,823 |
| $ | 137,956 |
| $ | 139,955 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes | $ | 125,737 |
| $ | 6,381 |
| $ | 351,880 |
| $ | 93,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 20142015 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.
Estimates of Useful Lives of Investment Properties for Purposes of Depreciation
Management has estimated useful lives of investment properties, except for land, that is 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 its 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, 20142015 for further information regarding its critical accounting policies.
-4-
Note 1 – Basis of Presentation, Continued
In May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts (Topic 606). The new standard is effective for reporting periods beginning after December 15, 20162017 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
- 4 -
Note 1 – Basis of Presentation, Continued
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. In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company is currently evaluating the impacts of adoption and the implementation approach to be used.
In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes. Under the amended guidance, deferred tax liabilities and assets are required to be classified as noncurrent in a classified statement of financial position. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption permitted as of the beginning of an interim or annual reporting period. The Company has not yet adopted the amended guidance. The Company is currently evaluating the impact of adoption.
In February 2016, the FASB issued new guidance to change accounting for leases and that will generally require most leases to be recognized on the balance sheet. The new lease standard only contains targeted changes to accounting by lessors, however, lessees will be required to recognize most leases in their balance sheets as lease liabilities for lease payments and right-of-use assets representing the lessee’s rights to use the underlying assets for the lease terms for lease arrangement longer than 12 months. Under this approach, a lessee will account for most existing capita/finance leases as Type A leases and most existing operating leases as Type B leases. Type A and Type B leases have unique accounting and disclosure requirements. Existing sale-leaseback guidance, including guidance for real estate, will be replaced with a new model applicable to both lessees and lessors. The new guidance will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted for all companies and organizations. Management is currently analyzing the impact of the adoption of this guidance on the company’s consolidated financial statements, including assessing changes that might be necessary to information technology system, processes and internal controls to capture new data and address changes in financial reporting.
In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
-5-
Note 2 – Investment Properties
Investment properties leased or held for lease to others under operating leases consisted of the following at
June 30, 20152016 and September 30, 2014:2015:
| June 30, | September 30, | |||
| 2015 | 2014 | |||
| (unaudited) |
|
| ||
National Plaza building, land and improvements | $ | 5,305,419 | $ | 5,325,348 | |
Evans Ground Lease, land and improvements |
| 2,382,673 |
| 2,382,673 | |
Commercial land and improvements |
| 3,639,598 |
| 3,639,598 | |
|
| 11,327,690 |
| 11,347,619 | |
Less accumulated depreciation |
| (2,479,295) |
| (2,360,803) | |
|
| 8,848,395 |
| 8,986,816 | |
Residential rental property |
| - |
| 145,847 | |
Less accumulated depreciation |
| - |
| (33,505) | |
|
| - |
| 112,342 | |
Investment properties for lease, net of accumulated |
|
|
|
| |
depreciation | $ | 8,848,395 | $ | 9,099,158 |
| June 30, 2016 |
| September 30, 2015 |
| ||
| (unaudited) |
|
|
| ||
|
|
|
|
|
|
|
National Plaza building, land and improvements | $ | 5,322,260 |
| $ | 5,305,419 |
|
Evans Ground Lease, land and improvements |
| 2,382,673 |
|
| 2,382,673 |
|
Wrightsboro Road Building, land and improvements |
| 1,905,875 |
|
| 1,905,875 |
|
Commercial land and improvements |
| 3,804,728 |
|
| 3,752,863 |
|
|
| 13,415,536 |
|
| 13,346,830 |
|
|
|
|
|
|
|
|
Less accumulated depreciation |
| (2,658,679) |
|
| (2,518,792) |
|
|
|
|
|
|
|
|
Investment properties for lease, net of depreciation | $ | 10,756,857 |
| $ | 10,828,038 |
|
|
|
|
|
|
|
|
Depreciation expense totaled approximately $39,000$47,000 and $42,000$39,000 for the three-month periods ended June 30, 20152016 and 2014,2015, respectively and approximately $120,000$140,000 and $105,000$120,000 for the nine-month periods ended June 30, 20152016 and 2014,2015, respectively.
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. In April 2015, the Company sold .038 acres of fee simple right-of-way, .191 acres of temporary easement for construction and .158 acres of permanent easement for construction. The sales proceeds from these transactions were $186,900. In June of 2015 the Company sold an outparcel approximating 1 acre in size on Stanley Drive and a rental house on Stanley Drive for $1,795,000. Together, the Company recognized a gain of approximately $1,862,000 on these sales. The Company is planning to reinvest the proceeds through a like kind exchange for other similar real estate held for development or lease and defer the related tax liability. The Company’s management has identified property suitable for investment and has made an offer on one. A qualified intermediary holds the proceeds from the sale approximating $1,792,000.
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 requiresrequired 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 September of 2015 the Company purchased a commercial building consisting of approximately 25,000 square feet of retail space and 27,000 square feet of warehouse space on approximately 3.5 acres of land located on Wrightsboro Road. The retail space is currently leased to a local retailer and rent commenced on October 1, 2015. The related lease term is 10 years with annual rental payments totaling $142,000, paid monthly, increasing to $153,000 per year in 2021. The warehouse space was available for lease as of September 30, 2015. The Company is recognizing rents on a straight-line basis over the lease term.
- 5 -
Note 2 – Investment Properties, Continued
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 acre1.1-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$3,804,728 and $3,752,863 at June 30, 20152016 and September 30, 2014.2015, respectively.
Refer to the Company’s Form 10-K for the year ended September 30, 20142015 for further information on operating lease agreements and land held for investment or development purposes.
Note 3 – Notes Payable |
|
|
|
|
|
Notes payable consisted of the following at: |
|
|
|
|
|
|
| June 30, |
|
| September 30, |
| (unaudited) |
| |||
In November of 2012, the Company converted the line of credit to a fixed rate loan due December 2017. The new term loan accrued interest at 5.5% annually with monthly installments of $3,287. The balance related to the purchase of the 1 acre adjoining the North Augusta, South Carolina property in May 2008 and was collateralized by the residential property on Stanley Drive in Augusta, Georgia. The note was paid off in March 2015.
|
|
|
|
|
|
$ | - |
| $ | 260,323 | |
A note payable to an insurance company, secured with a mortgage interest in National Plaza and an assignment of rents. The note was payable in monthly installments of $35,633, including principal and interest, through June 2015, and bore interest at a fixed rate of 7.875%. The note was paid off in March 2015.
|
|
|
|
|
|
|
|
|
| 310,423 | |
A note payable to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina. The note was payable in monthly installments of $7,563, including principal and interest, through July 2018, and bore interest at a fixed rate of 5%. The note was paid off in March 2015.
|
|
|
|
|
|
|
|
|
| 319,330 | |
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 principal and interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%.
|
|
|
|
|
|
| 1,839,603 |
|
| 1,918,026 | |
A note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents. The note is payable in monthly installments of $15,220, including principal and interest, through April 2025, and bears interest at a fixed rate of 4%. The proceeds were used to pay the Company’s outstanding income tax liability, four notes payable collateralized by the Company’s land held for lease and investment portfolio and one uncollateralized note payable to a shareholder. The proceeds were also used to fund improvements at National Plaza. |
|
|
|
|
|
| 1,482,870 |
|
| - |
-6-
- 6 -
Note 3 – Notes Payable Continued
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 $186,804. The loan converted to a note payable with monthly installments of $3,728 including principal and interest over a 60 month term with fixed interest of 4.25%. 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 note was paid off in March 2015. | - | 181,504 | |||
| |||||
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 matured in July 2015 and accrued interest at 5%. The note was paid off in March 2015. | |||||
| - | 50,433 | |||
| 3,322,473 | 3,040,039 | |||
Less current maturities | (236,281) | (604,498) | |||
$ | 3,086,192 | $ | 2,435,541 |
Notes payable consisted of the following at:
|
| June 30, |
| September 30, |
(unaudited) | ||||
| 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 principal and interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%. | $ 1,729,554 |
| $ 1,812,690 |
| A note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents. The note is payable in monthly installments of $15,220, including principal and interest, through April 2025, and bears interest at a fixed rate of 4%. The proceeds were used to pay the Company’s outstanding income tax liability, four notes payable collateralized by the Company’s land held for lease and investment portfolio and one uncollateralized note payable to a shareholder. The proceeds were also used to fund improvements at National Plaza. | 1,357,256 |
| 1,451,936 |
| 3,086,810 |
| 3,264,626 | |
| Less current maturities | (248,049) |
| (239,168) |
|
| $ 2,838,761 |
| $ 3,025,458 |
Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary).
Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $236,281.$248,049. 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.
Note 4 – Income Taxes
At September 30, 20142015 the Company had outstanding income taxes payablereceivable of $229,031, all of which was$14,263 related to the fiscal year 2014. In March 2015 the Company executed a note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents and used a portion of the related proceeds to pay the outstanding tax liability for the fiscal year 2014 in full.2015. As of June 30, 20152016, the Company’s outstandingCompany has income taxes payable is $49,902,receivable of $42,124, all of which relateswill be applied to 2015.estimated taxes due for the fourth quarter of 2016.
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 Aiken County, South Carolina. Substantially all of the Company’s revenues are earned from twothree of the Company’s investment properties, National Plaza, and the Evans Ground Lease, and the Wrightsboro Road Lease, which comprise approximately 56%51%, 40% and 44%9% of the Company’s revenues, respectively.respectively, for the three-month period ended June 30, 2016. 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 42%31% of its revenues though its lease with Publix.
-7-
Note 6 –- Related Party Transactions
The Company purchases insurance from an insurance company of which a member of the Company’s Board of Directors is President Emeritus. The Company’s Board of Directors believes that the insurance prices obtained from the insurance company were not in excess of prices that would have been paid had the Company obtained this insurance from other sources.
The Company hired an attorney who is also a member of the Company’s Board of Directors and who also serves as Vice President of the Company, to represent the Company in a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged. The matter was settled in June 2015.
During the second quarter of fiscal 2014, the Company borrowed $50,015 from a stockholder, who is also a member of the Flanagin family, to meet cash flow needs. This note was paid in full in March 2015.
- 7 -
Note 7-7 - Legal Matter
In June 2015, the Company settled a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged. The Company incurred approximately $11,000 in expenses duringcharged to the quarter and recognized other income of approximately $139,000 after adjustingtenant by the $150,000 previously accruedCompany. Refer to the Company’s Form 10-K for the matter.year ended September 30, 2015 for further information regarding this settlement.
Note 8- Property Transaction
On June 24, 2015 the Company sold approximately 1 acre of land, previously included as part of National Plaza, adjacent to Stanley Drive and a residential house on .43 acres of land held for lease on Stanley Drive. The gain was recognized in the quarter ended June 30, 2015. However, the Company has identified property and made an offer on one qualified property to purchase as part of a tax-free like kind exchange related to the June 2015 sale. The Company has 180 days from the June closing to purchase a qualified property and meet the requirements of the IRS regarding tax-free like kind exchanges.
-8-
- 8 -
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, 2015,2016, and a comparative analysis of the same period for 20142015 are presented below:
|
| Increase (Decrease) |
|
|
|
|
| Increase (decrease) | ||||||||||||
|
| 2015 compared to 2014 |
|
|
|
|
| 2016 compared to 2015 | ||||||||||||
| 2015 |
| 2014 |
|
| Amount | Percent |
| 2016 |
| 2015 |
| Amount |
| Percent | |||||
Rent revenue | $ 1,148,443 | $ 1,109,529 |
| $ | 38,914 | 4 % | ||||||||||||||
Gain on Sale | 1,862,235 | - |
| 1,862,235 | N/A | |||||||||||||||
|
|
|
|
|
|
|
|
| ||||||||||||
Rent revenues | $ | 1,251,997 |
| $ | 1,148,443 |
| $ | 103,554 |
| 9% | ||||||||||
Gain on sale of land | - | 1,862,235 | (1,862,235) | -100% | ||||||||||||||||
Operating expenses | 570,303 | 578,752 |
| (8,449) | -1 % |
| 696,395 |
| 570,303 |
| 126,092 |
| 22% | |||||||
Interest expense | 131,609 | 142,619 |
| (11,010) | -8 % |
| 118,752 |
| 131,609 |
|
| (12,857) |
| -10% | ||||||
Income tax expense | 933,124 | 151,377 |
| 781,747 | 516 % |
| 193,205 |
| 933,124 |
| (739,919) |
| -79% | |||||||
Other Income | 138,868 | - |
| 138,868 | N/A | |||||||||||||||
Other income |
| 7,616 |
| 138,868 |
| (131,252) |
| -95% | ||||||||||||
Net income | 1,514,510 | 236,781 |
| 1,277,729 | 540 % |
| 251,261 |
| 1,514,510 |
| (1,263,249) |
| -83% | |||||||
|
|
|
|
|
|
|
|
|
Rent revenue consists primarilyrevenues consist 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 lease on the Wrightsboro Road property with an apparel and home goods retailer and a ground lease with an auto-repair service operation on an out-parcel of National Plaza. Rental income for the nine months period ended June 30, 20152016 increased compared to the same period for 20142015 due to increased occupancy in the small shops at National Plaza.addition of the rent related to the Wrightsboro Road property lease which commenced on October 1, 2015.
Refer to the Company’s Form 10-K for the year ended September 30, 20142015 for further information regarding the properties owned and their lease terms.
In June of 2015 the Company recognized a gain on the sale of approximately 1 acre of land, previously included as part of National Plaza, adjacent to Stanley Drive and a residential house on .43 acres of land held for lease on Stanley Drive. The Company has identified property to purchase and made an offer on one property as part ofproceeds from this sale were used in a tax-freetax deferred like kind exchange related tofor the June 2015 sale.Wrightsboro Road property that was purchased in September 2015.
Total operating expenses for the nine months ended June 30, 2015 are consistent with2016 increased compared to the same period for 2014.2015 due to a bonus to the Company’s president in relation to the sale of an approximately 1 acre outparcel of National Plaza and the Stanley Drive house. The proceeds from this sale were used in a tax deferred like kind exchange for the Wrightsboro Road property that was purchased in September 2015. The Company’s operating expenses also increased due to the property tax expense for Wrightsboro Road property purchased during 2015. Refer to the Company’s Form 10-K for the year ended September 30, 2015 for further information regarding these transactions. In addition, operating expense also increased due to depreciation cost related to the Wrightsboro Road property acquired in 2015. Management expects operating expenses for the remainder of the current fiscal year to be comparabledecrease slightly relative to the current operating period.period as no other similar bonuses are anticipated in the current fiscal year.
Interest expense for the nine month periodmonths ended June 30, 20152016 decreased compared to 20142015 due to the decrease in debt resulting from scheduled principal payments and debt restructuring.payments. Management expects interest expense for the remainder of the current fiscal year to continue to increase given the increase indecrease as outstanding debt in March 2015.continues to amortize.
Income tax expense for the nine month period ended June 30, 2015 increased2016 decreased compared to the same period for 20142015 due to deferred tax expense recognized in 2015 related to the sale of the outparcel and rental house on Stanley driveDrive noted above. Management expects income tax expense for the remainder of the current fiscal year to decrease significantly as no similar sales are anticipated for the remainder of the fiscal year.
- 9 -
-9-
During 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses the Company charged in association with a tenant lease. It was the opinion of the Company's management that the Company was not liable for the claim. Beginning in 2011 the Company accrued approximately $150,000 for professional fees and otherexpenses to defend its position against the claim. The matter was settled in June 2015 and resulting costs totaled approximately $11,000. The remaining accrual of approximately $138,000 was written off and recognized as other income.income in June 2015.
Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at June 30, 20152016 was 238%195%. The ratio was 45%160% at September 30, 2014.2015.
Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary).
Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $236,281.$248,049. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the nine-month periodthree and nine months ended June 30, 20152016 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, 2014,2015, 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, 20142015 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.
- 10 -
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.
-10-
During 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses charged by the Company. It was the opinion of the Company's management that the Company was not liable for this claim. The Company accrued approximately $150,000 for professional fees and other expenses to defend its position through September 30, 2014.position. The matter was settled in Junethe year ended September 30, 2015 and resulting costs during the quarter totaled approximately $11,000.$139,000 was recognized as income as a result of the settlement.
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
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) |
| ||||
| 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, |
-11-
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)