U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
ý | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| For the quarterly period ended December 31, 2004 |
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o | Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934 |
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| For the transition period of to |
Commission File Number 0-7865.
SECURITY LAND AND DEVELOPMENT CORPORATION
(Exact name of small business issuer as specified in its charter)
Georgia |
| 58-1088232 |
(State or other Jurisdiction of |
| (I.R.S. Employer |
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2816 Washington Road, #103, Augusta, Georgia 30909 | ||
(Address of Principal Executive Offices) | ||
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Issuers Telephone Number (706) 736-6334 | ||
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(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 ý NO o
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 January 31 2005 |
Common Stock, $0.10 Par Value |
| 5,247,107 shares |
Transitional Small Business Disclosure Format: YES o NO ý
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARIES
Form 10-QSB
Index
2
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
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| December 31, |
| September 30, |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 13,705 |
| $ | 11,548 |
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Receivable from tenants |
| — |
| 53,340 |
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Prepaid expenses |
| 5,787 |
| — |
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Total current assets |
| 19,492 |
| 64,888 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
| 4,872,678 |
| 4,905,496 |
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Land and improvements held for investment or development |
| 2,142,382 |
| 2,142,382 |
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| 7,015,060 |
| 7,047,878 |
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OTHER ASSETS |
| 42,093 |
| 42,656 |
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| $ | 7,076,645 |
| $ | 7,155,422 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 81,757 |
| $ | 110,343 |
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Income taxes payable |
| — |
| 84,466 |
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Current portion of notes payable and deferred income |
| 379,867 |
| 347,072 |
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Advances payable to stockholders |
| 54,381 |
| 95,500 |
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Total current liabilities |
| 516,005 |
| 637,381 |
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LONG-TERM LIABILITIES |
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Notes payable, less current portion |
| 3,001,402 |
| 2,981,876 |
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Deferred income taxes |
| 389,178 |
| 389,178 |
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Deferred income, less current portion |
| 232,124 |
| 238,287 |
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Total long-term liabilities |
| 3,622,704 |
| 3,609,341 |
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Total liabilities |
| 4,138,709 |
| 4,246,722 |
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STOCKHOLDERS’ EQUITY |
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Common stock, par value $.10 per share, authorized 30,000,000 shares; issued and outstanding 5,247,107 shares |
| 524,711 |
| 524,711 |
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Additional paid-in capital |
| 332,816 |
| 332,816 |
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Retained earnings |
| 2,080,409 |
| 2,051,173 |
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| 2,937,936 |
| 2,908,700 |
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| $ | 7,076,645 |
| $ | 7,155,422 |
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The accompanying notes are an integral part of these consolidated financial statements.
3
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
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| For the Three Months |
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| 2004 |
| 2003 |
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RENT REVENUE |
| $ | 208,652 |
| $ | 216,038 |
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OPERATING EXPENSES |
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Depreciation and amortization |
| 33,382 |
| 33,468 |
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Property taxes |
| 24,629 |
| 31,357 |
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Payroll and related costs |
| 20,034 |
| 16,609 |
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Insurance and utilities |
| 8,765 |
| 6,540 |
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Repairs and maintenance |
| 6,541 |
| 8,295 |
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Professional services |
| 12,182 |
| — |
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Other |
| 891 |
| 4,367 |
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| 106,424 |
| 100,636 |
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Operating income |
| 102,228 |
| 115,402 |
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OTHER INCOME (EXPENSE) |
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Interest |
| (63,246 | ) | (67,111 | ) | ||||
Gain on sale of investment property |
| — |
| 370,854 |
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| (63,246 | ) | 303,781 |
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Income before income taxes |
| 38,982 |
| 419,183 |
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INCOME TAXES |
| 9,746 |
| 167,673 |
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Net income |
| 29,236 |
| 251,510 |
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RETAINED EARNINGS, BEGINNING OF PERIOD |
| 2,051,173 |
| 1,800,743 |
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RETAINED EARNINGS, END OF PERIOD |
| $ | 2,080,409 |
| $ | 2,052,253 |
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PER SHARE DATA |
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Net income per common share, basic and diluted |
| $ | 0.01 |
| $ | 0.05 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the Three Months |
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| 2004 |
| 2003 |
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OPERATING ACTIVITIES |
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Net income |
| $ | 29,236 |
| $ | 251,510 |
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Adjustments to reconcile net income to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
| 33,382 |
| 33,468 |
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Provision for income taxes deferred |
| — |
| 17,745 |
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Gain on sale of investment property |
| — |
| (370,854 | ) | ||
Changes in deferred and accrued amounts |
| (71,662 | ) | 110,303 |
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Net cash (used in) provided by operating activities |
| (9,044 | ) | 42,172 |
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FINANCING ACTIVITIES |
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Repayment of advances from stockholders |
| (41,119 | ) | — |
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Proceeds from note payable |
| 110,000 |
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Principal payments on notes payable |
| (57,680 | ) | (47,482 | ) | ||
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Net cash provided by (used in) financing activities |
| 11,201 |
| (47,482 | ) | ||
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Net increase (decrease) in cash and cash equivalents |
| 2,157 |
| (5,310 | ) | ||
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
| 11,548 |
| 43,290 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 13,705 |
| $ | 37,980 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 63,246 |
| $ | 67,111 |
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Cash paid for income taxes |
| $ | 100,000 |
| $ | — |
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The accompanying notes are an integral part of these consolidated financial statements.
5
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARIES
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-QSB 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-KSB for the year ended September 30, 2004 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 wholly owned subsidiaries, Royal Palms Motel, Inc. and SLDC, LLC, (described on a consolidated basis as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.
The results of the three month period ended December 31, 2003 have been restated for the correction of an error in previously reported gain on sale of investment property. During the audit of the Company’s financial statements as of and for the year ended September 30, 2004, management determined that the gain on sale of investment property had been understated. A gain on sale of investment property of $370,854 has been recognized in the accompanying financial statements for the three month period ended December 31, 2003. The correction of this error, net of related income taxes, increased the report amount of net income for the three month period ended December 31, 2003 by $78,615.
Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 presentation. Such reclassifications had no effect on reported amounts of net income or retained earnings.
Note 2 – Investment Properties
Investment properties leased or held for lease to others under operating leases consisted of the following at December 31, 2004 and September 30, 2004:
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| December 31, |
| September 30, |
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National Plaza building, land and improvements |
| $ | 5,136,296 |
| $ | 5,136,296 |
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Commercial rental buildings, land and improvements |
| 788,887 |
| 788,887 |
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| 5,925,183 |
| 5,925,183 |
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Less accumulated depreciation |
| (1,191,314 | ) | (1,159,174 | ) | |||
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| 4,733,869 |
| 4,766,009 |
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Residential rental property |
| 145,847 |
| 145,847 |
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Less accumulated depreciation |
| (7,038 | ) | (6,360 | ) | |||
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Investment properties for lease, net of accumulated depreciation |
| $ | 4,872,678 |
| $ | 4,905,496 |
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6
Depreciation expense totaled $131,276 for the year ended September 30, 2004. Depreciation expense totaled $32,819 and $33,468, respectively, for the three month periods ended December 31, 2004 and 2003.
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 center’s anchor tenant.
The Company also holds several parcels of land for investment or development purposes. Such investment properties include 17.38 acres of land in Columbia County, Georgia, and 84.4 acres of land in south Richmond County, Georgia. The Company is actively marketing the 17.38 acres of land in Columbia County, Georgia, to lease the property under a long-term ground lease.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2004 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 December 31, 2004 and at September 30, 2004:
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| December 31, |
| September 30, |
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A note payable to an insurance company, secured with a mortgage interest in the 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%. |
| $ | 3,048,310 |
| $ | 3,094,587 |
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A note payable to a regional financial institution, collateralized with property held by the Company in Columbia County, Georgia. The note is payable in monthly installments of $3,251, including interest, through December 2006, with the note’s then remaining principal balance payable in a lump-sum. The note bears interest at the Prime rate (5.25% at December 31, 2004). The note, which is dated December 2003, is a refinancing of the prior year note, which matured in November 2003. |
| 104,407 |
| 113,045 |
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A note payable to a regional financial institution, collateralized by the Company’s residential rental property. The note is payable in monthly installments of $1,330, including interest, through June 2005, with the note’s then remaining principal balance payable in a lump-sum. The note bears interest at the Prime rate, plus 0.25% (5.5% at December 31, 2004). |
| 93,900 |
| 96,664 |
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A note payable to a regional financial institution, collateralized by real estate in Columbia County, Georgia. The note is payable in monthly installments of $3,454, including interest, through November 2007, with the note’s then remaining principal balance payable in a lump-sum. The note bears interest at a fixed rate of 6.25%. |
| 110,000 |
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| 3,356,617 |
| 3,304,296 |
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Less current maturities |
| (355,215 | ) | (322,420 | ) | ||
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| $ | 3,001,402 |
| $ | 2,981,876 |
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Note 4 – Concentrations
Substantially all of the Company’s assets consist of real estate located in Richmond and Columbia Counties in the state of Georgia. Approximately 88% of the Company’s revenues are earned from one of the Company’s investment properties, the National Plaza. Approximately 81% of the National Plaza is leased to one tenant, Publix Supermarkets, Inc. This regional food supermarket is the anchor tenant of the National Plaza.
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Accounting Policies:
Management of the Company has identified the following as critical accounting policies:
• Estimates of useful lives of investment property for purposes of depreciation.
• Evaluation of long-lived investment assets for impairment.
• Estimates of income tax rates applicable to deferred taxes
Results of Operations:
The Company’s results of operations for the three-months ended December 31, 2004, and a comparative analysis of the same period for 2003 are presented below:
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| Increase (Decrease) |
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| 2004 |
| 2003 |
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Rent revenue |
| $ | 208,652 |
| $ | 216,038 |
| $ | (7,386 | ) | (3 | )% |
Operating expenses |
| 106,424 |
| 100,636 |
| 5,788 |
| 6 | % | |||
Interest expense |
| 63,246 |
| 67,111 |
| (3,865 | ) | (6 | )% | |||
Gain on sale of investment property |
| — |
| 370,854 |
| (370,854 | ) | n/a |
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Net income |
| 29,236 |
| 251,510 |
| 222,274 |
| (88 | )% | |||
Rent revenue from leasing consists primarily of revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia. The Company also earns rent revenue from an office building on Old Evans Road in Evans, Georgia, and revenue from a ground lease with a auto-repair service operation on an outparcel of the National Plaza. Rent revenue decreased from 2004 to 2003 due primarily to the fact that in the three months ended December 31, 2003, the Company received an initial rent payment from the ground lease that included additional fees due under the lease. Also, in the first quarter of the prior year, the Company earned rent revenue from a residential property that was sold in December 2003.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2004 for further information regarding the properties owned and lease terms.
Operating expenses for the three months ended December 31, 2004 have increased as compared to the same period for 2003. The increase is primarily due to an increase in payroll and related costs and professional services expenses. These increases were offset by a decrease in property taxes, repairs and maintenance, and other expenses. The decrease in property taxes is attributable to the sale of property prior to the calendar year 2004 and the purchase of property at the end of the calendar year 2004. Property taxes are levied on a calendar year basis in Richmond and Columbia Counties. Management expects operating expenses for the remainder of the current fiscal year to be comparable to the present three-month period.
Interest expense for the current period is comparable to 2003 and, on an annualized basis, is comparable to the Company’s interest expense for the fiscal year ended September 30, 2004.
In the year ended September 30, 2004, the Company sold investment property for a gain of $370,854. The Company utilized the proceeds from the sale to acquire property in Columbia County, Georgia, that adjoined other parcels of land the Company was holding for investment or development purposes. The Company is actively marketing the 17.38 acres of land in Columbia County, Georgia; to lease the property under a long-term ground lease.
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Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at December 31, 2004 was 0.03. The ratio was 0.10 at September 30, 2004. Management of the Company expects future liquidity needs of the Company to be funded from operating revenues of the Company and appreciation in investment properties (which can be sold or mortgaged, if necessary).
To fund its income tax liability for the year ended September 30, 2004 and for working capital, the Company borrowed from certain stockholders and from a regional financial institution under a mortgage note agreement.
The Company’s cash flow from operations has been less than what is required to fund the scheduled retirement of the Company’s existing long-term notes payable. In the last quarter of the year ended September 30, 2003, the Company entered into a ground lease that provided additional minimum annual rent revenue of approximately $45,000.
Management of the Company believes the Company has the ability to obtain short term financing, should it become necessary, until revenues and cash flow from operations can be sufficiently increased. The Company is actively marketing to ground lease its investment property(s) on Washington Road in Evans, Georgia. The investment properties being actively marketed for a ground lease include the 12.77 acres in Evans, Georgia on Belair Road and North Belair Road Extension, at Washington Road and the adjoining 4.61 acres, on which is currently situated a commercial office building that is leased under short term leases.
During the current quarter the Company satisfied liquidity needs through operating revenues and proceeds from a note payable. Management of the Company continues to expect future liquidity needs to be met from operating revenues of the Company and appreciation in investment properties (which can be sold or mortgaged, if necessary).
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the three-months ended December 31, 2004 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. Controls and Procedures
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 Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be included in the Company’s SEC filings. Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Chief Executive Officer carried out the evaluation.
10
Item 6. Exhibits and Reports on Form 8-K
| Exhibit No. |
| Description | |
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| 31.1 |
| Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002 |
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| 32.1 |
| Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002 |
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(b) |
| No reports on Form 8-K were filed during the three months ended December 31, 2004. |
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SECURITY LAND AND DEVELOPMENT CORPORATION
(Registrant)
By: | /s/ T. Greenlee Flanagin |
| February 14, 2005 |
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| T. Greenlee Flanagin |
| Date |
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| President |
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| Chief Executive Officer |
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11