U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the quarterly period ended December 31, 2012 | ||
o | Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 | |
For the transition period of to |
x Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2012
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"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”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, 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 xNo
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 |
Common Stock, $0.10 Par Value |
| 5,243,107 shares |
Table of Contents
SECURITY LAND AND DEVELOPMENT CORPORATION
Form 10-Q
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| Consolidated Balance Sheets as of | 1 |
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| 3 | |
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| 4-7 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 8-9 | |
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9 | ||
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9-10 | ||
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10 | ||
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10 | ||
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10 | ||
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10 | ||
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10 | ||
Item 4. | 10 | |
Item 5. | 10 | |
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Item | 10 | |
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11-13 | ||
SECURITY LAND AND DEVELOPMENT CORPORATION
SECURITY LAND AND DEVELOPMENT CORPORATION | |||||||||
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| December 31, |
| September 30, | |||
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| 2012 |
| 2012 | |||
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| (Unaudited) |
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ASSETS | |||||||||
CURRENT ASSETS |
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| Cash |
| $ | 25,134 |
| $ | 48,767 | ||
| Receivables from tenants, net of allowance of $8,454 and $5,322 |
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| at December 31, 2012 and September 30, 2012 |
| 281,092 |
| 398,338 | |||
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| Total current assets |
| 306,226 |
| 447,105 | ||
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INVESTMENT PROPERTIES |
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| Investment properties for lease, net of accumulated depreciation |
| 5,556,280 |
| 5,587,324 | ||||
| Land and improvements held for investment or development |
| 3,639,598 |
| 3,639,598 | ||||
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| 9,195,878 |
| 9,226,922 | ||
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OTHER ASSETS |
| 81,898 |
| 83,802 | |||||
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| $ | 9,584,002 |
| $ | 9,757,829 |
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LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
CURRENT LIABILITIES |
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| Accounts payable and accrued expenses |
| $ | 237,259 |
| $ | 382,242 | ||
| Income taxes payable |
| 308,240 |
| 283,747 | ||||
| Current maturities of notes payable and line of credit |
| 531,924 |
| 538,079 | ||||
| Current maturities of deferred revenue |
| 24,652 |
| 24,652 | ||||
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| Total current liabilities |
| 1,102,075 |
| 1,228,720 | ||
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LONG-TERM LIABILITIES |
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| Notes payable and line of credit, less current portion |
| 3,012,191 |
| 3,136,794 | ||||
| Deferred income taxes |
| 772,490 |
| 771,847 | ||||
| Deferred revenue, less current portion |
| 34,907 |
| 41,071 | ||||
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| Total long-term liabilities |
| 3,819,588 |
| 3,949,712 | ||
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| Total liabilities |
| 4,921,663 |
| 5,178,432 | ||
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STOCKHOLDERS' EQUITY |
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| Common stock, par value $.10 per share; 30,000,000 shares authorized; 5,243,107 |
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| shares issued and outstanding |
| 524,311 |
| 524,311 | ||||
| Additional paid-in capital |
| 333,216 |
| 333,216 | ||||
| Retained earnings |
| 3,804,812 |
| 3,721,870 | ||||
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Total Equity |
| 4,662,339 |
| 4,579,397 | |||||
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Liabilities and Equity |
| $ | 9,584,002 |
| $ | 9,757,829 | |||
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The accompanying notes are an integral part of these consolidated financial statements. | |||||||||
-1- |
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| June 30, |
| September 30, |
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| 2012 |
| 2011 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
| $ | 28,816 |
| $ | 51,190 |
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Receivables from tenants |
| 306,816 |
| 339,738 |
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Total current assets |
| $ | 335,632 |
| $ | 390,928 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
| 5,618,369 |
| 5,711,502 |
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Land and improvements held for investment or development |
| 3,639,598 |
| 3,639,598 |
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| 9,257,967 |
| 9,351,100 |
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OTHER ASSETS |
| 85,705 |
| 83,096 |
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| $ | 9,679,304 |
| $ | 9,825,124 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 267,621 |
| $ | 310,994 |
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Income taxes payable |
| 247,057 |
| 160,979 |
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Current maturities of notes payable and line of credit |
| 832,581 |
| 504,660 |
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Current maturities of deferred revenue |
| 24,652 |
| 24,652 |
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Total current liabilities |
| 1,371,911 |
| 1,001,285 |
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LONG-TERM LIABILITIES |
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Notes payable and line of credit, less current portion |
| 2,971,873 |
| 3,674,873 |
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Deferred income taxes |
| 770,197 |
| 788,107 |
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Deferred revenue, less current portion |
| 47,234 |
| 65,723 |
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Total long-term liabilities |
| 3,789,304 |
| 4,528,703 |
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Total liabilities |
| 5,161,215 |
| 5,529,988 |
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STOCKHOLDERS’ EQUITY |
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Common stock, par value $.10 per share; 30,000,000 shares authorized; 5,243,107 shares issued and outstanding |
| 524,311 |
| 524,311 |
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Additional paid-in capital |
| 333,216 |
| 333,216 |
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Retained earnings |
| 3,660,562 |
| 3,437,609 |
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Total Equity |
| 4,518,089 |
| 4,295,136 |
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Liabilities and Equity |
| $ | 9,679,304 |
| $ | 9,825,124 |
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The accompanying notes are an integral part of these consolidated financial statements.
SECURITY LAND AND DEVELOPMENT CORPORATION | |||||
For the Three Month | |||||
Period Ended December 31, | |||||
2012 | 2011 | ||||
(Unaudited) | (Unaudited) | ||||
OPERATING REVENUE | |||||
Rent Revenue | $ | 359,103 | $ | 352,085 | |
OPERATING EXPENSES | |||||
Depreciation and amortization | 32,948 | 32,688 | |||
Property taxes | 64,625 | 63,011 | |||
Payroll and related costs | 22,479 | 22,888 | |||
Insurance and utilities | 14,019 | 10,520 | |||
Repairs and maintenance | 9,210 | 10,829 | |||
Professional services | 18,001 | 33,662 | |||
Bad Debt | 4,405 | 1,282 | |||
Other | 4,726 | 1,719 | |||
170,413 | 176,599 | ||||
Operating income | 188,690 | 175,486 | |||
OTHER EXPENSE | |||||
Interest | (55,612) | (67,746) | |||
(55,612) | (67,746) | ||||
Income before income taxes | 133,078 | 107,740 | |||
INCOME TAXES PROVISION | |||||
Income Tax Expense | 49,493 | 37,912 | |||
Income Tax Deferred | 643 | 1,889 | |||
50,136 | 39,801 | ||||
Net income | 82,942 | 67,939 | |||
RETAINED EARNINGS, BEGINNING OF PERIOD | 3,721,870 | 3,437,609 | |||
RETAINED EARNINGS, END OF PERIOD | $ | 3,804,812 | $ | 3,505,548 | |
PER SHARE DATA | |||||
Net income per common share | $ | 0.02 | $ | 0.01 | |
The accompanying notes are an integral part of these consolidated financial statements. | |||||
-2- |
SECURITY LAND AND DEVELOPMENT CORPORATION | |||||||
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| For the Three Month | ||||
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| Period Ended December 31, | ||||
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| 2012 |
| 2011 | ||
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| (Unaudited) |
| (Unaudited) | ||
OPERATING ACTIVITIES |
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| Net income | $ | 82,942 |
| $ | 67,939 | |
| Adjustments to reconcile net income to net cash provided |
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| by operating activities: |
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| Depreciation and amortization | 32,948 |
| 32,688 | ||
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| Changes in deferred and accrued amounts: | (8,765) |
| (5,550) | ||
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| Net cash provided by operating activities | 107,125 |
| 95,077 | ||
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FINANCING ACTIVITIES |
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| Repayments to shareholder | (30,000) |
| - | |||
| Proceeds from shareholder | 30,000 |
| - | |||
| Principal payments on notes payable | (130,758) |
| (122,790) | |||
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| Net cash used in financing activities | (130,758) |
| (122,790) | ||
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| Net decrease in cash | (23,633) |
| (27,713) | ||
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CASH, BEGINNING OF PERIOD | 48,767 |
| 51,190 | ||||
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CASH, END OF PERIOD | $ | 25,134 |
| $ | 23,477 | ||
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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| Cash paid for interest | $ | 55,612 |
| $ | 67,746 | |
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| Cash paid for income taxes | $ | 25,000 |
| $ | - | |
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NON-CASH FINANCING ACTIVITIES |
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| Refinancing of line of credit to term note | $ | 301,170 |
| $ | - | |
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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
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| For the Three Month |
| For the Nine Month |
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| Period Ended June 30, |
| Period Ended June 30, |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
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OPERATING REVENUE |
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Rent Revenue |
| $ | 357,312 |
| $ | 347,465 |
| $ | 1,059,418 |
| $ | 1,051,254 |
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OPERATING EXPENSES |
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Depreciation and amortization |
| 32,948 |
| 32,688 |
| 98,324 |
| 98,064 |
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Property taxes |
| 63,795 |
| 64,239 |
| 190,601 |
| 189,119 |
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Payroll and related costs |
| 21,444 |
| 19,071 |
| 65,006 |
| 60,327 |
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Insurance and utilities |
| 11,520 |
| 11,520 |
| 32,124 |
| 31,982 |
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Repairs and maintenance |
| 14,680 |
| 7,716 |
| 32,289 |
| 25,630 |
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Professional services |
| 19,465 |
| 16,595 |
| 73,691 |
| 49,148 |
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Bad Debt |
| 1,287 |
| 1,315 |
| 9,849 |
| 4,642 |
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Other |
| 270 |
| 1,067 |
| 3,126 |
| 2,706 |
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| 165,409 |
| 154,211 |
| 505,010 |
| 461,618 |
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Operating income |
| 191,903 |
| 193,254 |
| 554,408 |
| 589,636 |
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OTHER INCOME (EXPENSE) |
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Interest |
| (62,834 | ) | (71,993 | ) | (196,017 | ) | (222,796 | ) | ||||
Other Income |
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| 5 |
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| (62,834 | ) | (71,993 | ) | (196,017 | ) | (222,791 | ) | ||||
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Income before income taxes |
| 129,069 |
| 121,261 |
| 358,391 |
| 366,845 |
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INCOME TAXES PROVISION |
| 47,821 |
| 51,131 |
| 135,438 |
| 142,017 |
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Net income |
| 81,248 |
| 70,130 |
| 222,953 |
| 224,828 |
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RETAINED EARNINGS, BEGINNING OF PERIOD |
| 3,579,314 |
| 3,322,808 |
| 3,437,609 |
| 3,168,110 |
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RETAINED EARNINGS, END OF PERIOD |
| $ | 3,660,562 |
| $ | 3,392,938 |
| $ | 3,660,562 |
| $ | 3,392,938 |
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PER SHARE DATA |
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Net income per common share |
| $ | 0.02 |
| $ | 0.01 |
| $ | 0.04 |
| $ | 0.04 |
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SECURITY LAND AND DEVELOPMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the Three Month |
| For the Nine Month |
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| Period Ended June 30, |
| Period Ended June 30, |
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| 2012 |
| 2011 |
| 2012 |
| 2011 |
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| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
| (Unaudited) |
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OPERATING ACTIVITIES |
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Net income |
| $ | 81,248 |
| $ | 70,130 |
| $ | 222,953 |
| $ | 224,828 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
| 32,948 |
| 32,688 |
| 98,324 |
| 98,064 |
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Changes in deferred and accrued amounts |
| (20,356 | ) | 14,687 |
| 39,228 |
| 24,722 |
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Net cash provided by operating activities |
| 93,840 |
| 117,505 |
| 360,505 |
| 347,614 |
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INVESTING ACTIVITIES |
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Proceeds from the sale of land |
| — |
| — |
| — |
| 1,500 |
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Additions to investment property and other assets |
| (7,800 | ) | — |
| (7,800 | ) | (1,000 | ) | ||||
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Net cash provided by (used in) investing activities |
| (7,800 | ) | — |
| (7,800 | ) | 500 |
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FINANCING ACTIVITIES |
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Principal payments on notes payable |
| (127,277 | ) | (118,465 | ) | (375,079 | ) | (349,371 | ) | ||||
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Net cash used in financing activities |
| (127,277 | ) | (118,465 | ) | (375,079 | ) | (349,371 | ) | ||||
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Net decrease in cash |
| (41,237 | ) | (960 | ) | (22,374 | ) | (1,257 | ) | ||||
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CASH, BEGINNING OF PERIOD |
| 70,053 |
| 22,959 |
| 51,190 |
| 23,256 |
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CASH, END OF PERIOD |
| $ | 28,816 |
| $ | 21,999 |
| $ | 28,816 |
| $ | 21,999 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 63,642 |
| $ | 71,993 |
| $ | 197,391 |
| $ | 222,796 |
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Cash paid for income taxes |
| $ | 35,000 |
| $ | 20,000 |
| $ | 66,000 |
| $ | 56,677 |
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The accompanying notes are an integral part of these consolidated financial statements.
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, 20112012 when reviewing interim financial statements.
The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.
Critical Accounting Policies:
Estimates of Useful Lives of Investment Properties for Purposes of Depreciation
Management has estimated useful lives of investment properties, except for land, that are leased, and the Company utilizes the straight-line method to compute depreciation over the estimated useful lives of the investment properties. Actual depreciation of investment properties will vary from management’s estimates, and the value of investment properties is more directly impacted by market conditions and the physical condition of the investment properties.
Evaluation of Long-Lived Assets for Impairment
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of investment properties may not be recoverable. In evaluating recoverability, the Company generally estimates future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when the expected future cash flows of the asset are less than the carrying amount.
Estimates of Income Tax Rates Applicable to Deferred Taxes
The Company has deferred income taxes through a series of tax-deferred like-kind exchange transactions on certain investment properties and through accelerated depreciation elections on certain other assets. Actual income taxes that may become due when taxable gains are realized on the sale of assets may differ from management’s estimates as a result of changes in tax laws, the tax status of the Company, or the actual taxable earnings of the Company in the periods the deferred income taxes become due.
Refer to the Company’s Form 10-K for the year ended September 30, 20112012 for further information regarding its critical accounting policies.
Note 2 —– Investment Properties
Investment properties leased or held for lease to others under operating leases consisted of the following atJune 30, December 31, 2012 and September 30, 2011:2012:
|
| June 30, |
| September 30, |
| December 31, |
| September 30, | ||||
|
| 2012 |
| 2011 |
| 2012 |
| 2012 | ||||
|
| (unaudited) |
|
|
| (unaudited) |
|
| ||||
|
|
|
|
|
|
|
|
| ||||
National Plaza building, land and improvements |
| $ | 5,138,796 |
| $ | 5,138,796 |
| $ | 5,138,796 |
| $ | 5,138,796 |
Evans Ground Lease, land and improvements |
| 2,430,373 |
| 2,430,373 |
| 2,430,373 |
| 2,430,373 | ||||
Commercial land and improvements |
| 3,639,598 |
| 3,639,598 |
| 3,639,598 |
| 3,639,598 | ||||
|
| 11,208,767 |
| 11,208,767 |
| 11,208,767 |
| 11,208,767 | ||||
|
|
|
|
|
|
|
|
| ||||
Less accumulated depreciation |
| (2,069,248 | ) | (1,978,150 | ) | (2,129,980 | ) | (2,099,614 | ||||
|
|
|
|
|
| 9,078,787 |
| 9,109,153 | ||||
|
| 9,139,519 |
| 9,230,617 |
|
|
|
| ||||
|
|
|
|
|
| |||||||
Residential rental property |
| 145,847 |
| 145,847 |
| 145,847 |
| 145,847 | ||||
Less accumulated depreciation |
| (27,399 | ) | (25,364 | ) | (28,756 | ) | (28,078 | ||||
|
| 118,448 |
| 120,483 |
| 117,091 |
| 117,769 | ||||
|
|
|
|
|
|
|
|
| ||||
Investment properties for lease, net of accumulated depreciation |
| $ | 9,257,967 |
| $ | 9,351,100 |
| $ | 9,195,878 |
| $ | 9,226,922 |
Depreciation expense totaled approximately $31,000 and $93,000 for botheach of the three-month and nine-month periods ended June 30,December 31, 2012 and 2011.
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. As of June 30,December 31, 2012, the Company is working with Publix on plans to renovate and upgrade this center. Currently the Company is working with creditors to finance the planned renovation.
The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on approximately 18 acres of land in Columbia County, Georgia. The agreement required monthly rental payments of $20,833 during the development period, which was completed in January 2007. Following the expiration of the development period, the lease requires annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16. The lessee has an option to renew at year 21 and another option every 5 years thereafter for a possible total lease term of 50 years. The lease provides for the tenant to pay for insurance and property taxes. The Company is recognizing rents on a straight-line basis over the lease term.
The Company holds several parcels of land for investment or development purposes, including 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008. The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1 acre parcel along Washington Road in Augusta, Georgia that adjoins the 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,December 31, 2012 and September 30, 2011.2012.
Refer to the Company’s Form 10-K for the year ended September 30, 20112012 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, |
| September 30, |
|
|
| December 31, |
|
| September 30, |
| ||||
|
| (unaudited) |
|
|
|
|
| (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%. |
| $ | 83,449 |
| $ | 142,838 |
|
|
| $ | 42,349 |
|
| $ | 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%. |
| 1,139,212 |
| 1,384,507 |
|
|
| 967,474 |
|
| 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%. |
| 2,281,793 |
| 2,352,188 |
|
|
| 2,233,122 |
|
| 2,257,635 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
A line of credit with a regional financial institution for up to $251,934 procured in March 2008 with a floating interest rate based on prime and originally payable in full in April 2009. In April 2009 the Company refinanced the $243,019 line of credit with a regional financial institution. The Company entered into an agreement with the same regional financial institution to borrow the outstanding balance of $243,019, bearing interest based on the greater of prime or 6% with interest payments due monthly, maturing in April 2010. In January 2010 the Company renewed this line of credit and increased the open balance to $300,250. This agreement originally matured in February 2011. In December 2010, the Company renewed the line of credit to December 5, 2011, at the greater of prime plus 1% or 6%. In December 2011, the Company renewed the line of credit to December 12, 2012, at the greater of prime plus 1% or 6%. The current balance relates to the purchase of the 1 acre adjoining the North Augusta, South Carolina property in May 2008 and is collateralized by the residential property on Stanley Drive in Augusta, Georgia. |
| 300,000 |
| 300,000 |
| |||||||||||
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.
|
|
| 301,170 |
|
| 300,000 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| 3,804,454 |
| 4,179,533 |
|
|
| 3,544,115 |
|
| 3,674,873 |
| ||||
Less current maturities |
| (832,581 | ) | (504,660 | ) |
|
| (531,924 | ) |
| (538,079 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| $ | 2,971,873 |
| $ | 3,674,873 |
|
|
| $ | 3,012,191 |
|
| $ | 3,136,794 |
|
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 $832,581, including the line of credit of $300,000.$531,924. 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.
The Company expects to renew the $300,000 line of credit through refinancing prior to its maturity in December 2012. Although the company expects to secure this refinancing prior to the maturity of the line of credit, there can be no assurances that such refinancing will be secured or that such refinancing will be on terms acceptable to the Company. (Continued)
- 6 -
(Continued)
Note 3 —– Notes Payable and Line of Credit, (Continued)
If the Company is unsuccessful in either of their efforts described above, the Company intends to seek additional financing or sell certain of its assets.
Note 4 —– Income Taxes
The Company has a total outstanding income tax payable in the amount of $308,240. Of this amount, $49,493 is related to the first quarter of 2013, $202,950 is related to 2012 and the remaining $55,797 is related to the 2011 tax expense. An additional $5,000 was paid in January 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 52% and 47% 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 41%37% of its revenues though its lease with Publix.
Note 5 —6 – Related Party Transactions
The Company hired an attorney who sits on the Company’s Board of Directors and who also serves asa 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 quarter, the Company borrowed $30,000 from a member of the Company’s Board of Directors, who is also a member of the Flanagin family, to meet cash flow needs. The amount was repaid during the quarter also with interest at a rate of 6%.
As of January 2013 the Company is involved in an agreement with the Georgia Department of Transportation regarding the potential sale of .5 acres of the land parcel that contains the Evans Ground Lease in Columbia County, Georgia for $156,000. Of this amount, approximately $144,000 is obligated to go to principal pay down on the associated debt and the remaining approximately $12,000 will go to the lessee. Management does not believe that the parcel in question has any significant affect on the Evans Ground Lease or the Company’s ability to continue leasing the property or related rental revenues. As of January 2013, Management expects this sale to close before February 28, 2013.
- 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 ninethree months ended June 30,December 31, 2012, and a comparative analysis of the same period for 2011 are presented below:
|
|
|
|
|
| Increase (Decrease) |
|
|
|
|
| Increase (Decrease) |
| ||||||||||
|
|
|
|
|
| 2012 compared to 2011 |
|
|
|
|
| 2012 compared to 2011 |
| ||||||||||
|
| 2012 |
| 2011 |
| Amount |
| Percent |
|
| 2012 |
| 2011 | Amount |
| Percent |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Rent revenue |
| $ | 1,059,418 |
| $ | 1,051,254 |
| $ | 8,164 |
| 1 | % |
| $ |
359,103 |
| $ | 352,085 | $ | 7,018 |
| 2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating expenses |
| 505,010 |
| 461,618 |
| 43,392 |
| 9 | % |
| 170,413 |
| 176,599 | (6,186) |
| -4 | % | ||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Interest expense |
| 196,017 |
| 222,796 |
| (26,779 | ) | -12 | % |
| 55,612 |
| 67,746 | (12,134) |
| -18 | % | ||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Income tax expense |
| 135,438 |
| 142,017 |
| (6,579 | ) | -4 | % |
| 50,136 |
| 39,801 | 10,335 |
| 26 | % | ||||||
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Net income |
| 222,953 |
| 224,828 |
| (1,875 | ) | -1 | % |
| 82,942 |
| 67,939 | 15,003 |
| 22 | % |
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, 20112012 for further information regarding the properties owned and their lease terms.
Total operating expenses for the ninethree months ended June 30,December 31, 2012 increaseddecreased slightly compared to the same period for 2011 due primarily to increased bad debt expense anddecreased professional fees. Bad debt expense increasedProfessional fees decreased due to the write-off of an accounts receivable management deemed uncollectible. Professional fees increased due to increaseddecreased 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 December 31, 2012. 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 ninethree month period ended June 30,December 31, 2012 decreased compared to 2011 due to the decrease in debt resulting from scheduled principle payments. Management expects interest expense for the remainder of the current fiscal year to continue to decrease slightly as outstanding debt is amortized.
Income tax expense for the ninethree month period ended June 30,December 31, 2012 decreased slightlyincreased compared to the same period for 2011.2011 due mainly to increased income as a result of lower professional fees and interest expense as noted above. Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.
- 8 -
Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at June 30,December 31, 2012 was 24%28%. The ratio was 39%37% at September 30, 2011.2012.
Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary). Additionally, funding can be obtained from members of the Board of Directors.
Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $832,581, including the Company’s line of credit of $300,000.$531,924. 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.
The Company’s line of credit of $300,000 at June 30, 2012 is due to be repaid in December 2012. The Company expects to renew the $300,000 line of credit through refinancing prior to its maturity in December 2012. Although the company expects to secure this refinancing prior to the maturity of the line of credit, there can be no assurances that such refinancing will be secured or that such refinancing will be on terms acceptable to the Company.
If the Company is unsuccessful in either of their efforts described above, the Company intends to seek additional financing or sell certain of its assets.fully owned and un-collateralized assets or borrowing money from certain shareholders.
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the nine-monththree-month period ended June 30,December 31, 2012 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, 2011, 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, 2011
(a) | Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were ineffective. |
(b) | There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Chief Executive Officer carried out the evaluation. |
As of September 30, 2012, the Company’s management evaluated the effectiveness of its internal control. Based on the evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2012 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting. |
- 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.
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’sCompany's management that the Company is not liable for this claim. The Company has accrued approximately $72,000$100,000 for professional fees and other expenses to defend its position.
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.
(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 |
|
|
|
| The following financial information from Security Land and Development |
* Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive Data Files as Exhibit 101 in an amendment to this Form 10-Q within the permitted 30 days from the filing of this report.
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)
|