U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
x Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2006
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 small business issuer as specified in its charter)
Georgia |
| 58-1088232 |
(State or other Jurisdiction of |
| (I.R.S. Employer |
Incorporation or Organization) |
| 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
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 December 31, 2006 |
Common Stock, $0.10 Par Value |
| 5,247,107 shares |
Transitional Small Business Disclosure Format: YES o NO x
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARIES
Form 10-QSB
Index
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| Consolidated Balance Sheets as of December 31, 2006 and September 30, 2006 |
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| 4-6 | |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 7-8 | |
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| 8 | ||
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| 9 | ||
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| 9 |
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 |
| $ | 86,312 |
| $ | 19,228 |
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Receivables from tenants |
| 700 |
| 82,044 |
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Prepaid property taxes |
| — |
| 17,576 |
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Earnest money |
| 15,000 |
| — |
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Income taxes receivable |
| 122,397 |
| 122,397 |
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Total current assets |
| 224,409 |
| 241,245 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
| 6,404,056 |
| 6,435,100 |
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Land and improvements held for investment or development |
| 371,786 |
| 371,786 |
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| 6,775,842 |
| 6,806,886 |
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OTHER ASSETS |
| 37,593 |
| 38,156 |
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| $ | 7,037,844 |
| $ | 7,086,287 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 128,072 |
| $ | 375,406 |
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Income tax payable |
| 30,335 |
| — |
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Current maturities of notes payable |
| 276,289 |
| 319,465 |
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Current maturities of deferred revenue |
| 24,652 |
| 24,652 |
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Line of credit |
| 422,891 |
| 183,100 |
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Advances payable to stockholders |
| — |
| 500 |
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Total current liabilities |
| 882,239 |
| 903,123 |
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LONG-TERM LIABILITIES |
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Notes payable, less current portion |
| 2,478,381 |
| 2,547,225 |
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Deferred income taxes |
| 455,507 |
| 455,507 |
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Deferred revenue, less current portion |
| 182,820 |
| 188,983 |
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Total long-term liabilities |
| 3,116,708 |
| 3,191,715 |
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Total liabilities |
| 3,998,947 |
| 4,094,838 |
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STOCKHOLDERS' EQUITY |
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Common stock, par value $.10 per share; 30,000,000 shares authorized; 5,247,107 shares issued and outstanding |
| 524,711 |
| 524,711 |
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Additional paid-in capital |
| 332,816 |
| 332,816 |
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Retained earnings |
| 2,181,370 |
| 2,133,922 |
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| 3,038,897 |
| 2,991,449 |
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| $ | 7,037,844 |
| $ | 7,086,287 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
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| For the Three Months |
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| 2006 |
| 2005 |
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RENT REVENUE |
| $ | 232,153 |
| $ | 174,981 |
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OPERATING EXPENSES |
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Depreciation and amortization |
| 31,607 |
| 33,382 |
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Property taxes |
| 21,588 |
| 31,377 |
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Payroll and related costs |
| 14,295 |
| 15,766 |
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Insurance and utilities |
| 8,471 |
| 9,567 |
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Repairs and maintenance |
| 4,500 |
| 5,581 |
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Professional services |
| 13,618 |
| 19,383 |
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Other |
| 1,056 |
| 475 |
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| 95,135 |
| 115,531 |
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Operating income |
| 137,018 |
| 59,450 |
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OTHER EXPENSE |
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Interest |
| 59,235 |
| 61,559 |
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Income (loss) before income taxes |
| 77,783 |
| (2,109 | ) | ||
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INCOME TAXES |
| 30,335 |
| — |
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Net income (loss) |
| 47,448 |
| (2,109 | ) | ||
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RETAINED EARNINGS, BEGINNING OF PERIOD |
| 2,133,922 |
| 2,144,858 |
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RETAINED EARNINGS, END OF PERIOD |
| $ | 2,181,370 |
| $ | 2,142,749 |
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PER SHARE DATA |
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Net income (loss) per common share - basic |
| $ | 0.01 |
| $ | (0.01 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
2
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the Three Months |
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| 2006 |
| 2005 |
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OPERATING ACTIVITIES |
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Net income (loss) |
| $ | 47,448 |
| $ | (2,109 | ) |
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |
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Depreciation and amortization |
| 31,607 |
| 33,382 |
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Changes in deferred and accrued amounts: |
| (139,242 | ) | (28,268 | ) | ||
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Net cash (used in) provided by operating activities |
| (60,187 | ) | 3,005 |
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FINANCING ACTIVITIES |
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(Repayments to) advances from stockholders, net |
| (500 | ) | 65,758 |
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Proceeds from line of credit, net |
| 239,791 |
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Principal payments on notes payable |
| (112,020 | ) | (69,900 | ) | ||
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Net cash provided by (used in) financing activities |
| 127,271 |
| (4,142 | ) | ||
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Net increase (decrease) in cash and cash equivalents |
| 67,084 |
| (1,137 | ) | ||
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
| 19,228 |
| 5,180 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 86,312 |
| $ | 4,043 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 59,235 |
| $ | 61,559 |
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Cash paid for income taxes |
| $ | — |
| $ | — |
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The accompanying notes are an integral part of these consolidated financial statements.
3
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, 2006 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 two 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.
Note 2 — Investment Properties
Investment properties leased or held for lease to others under operating leases consisted of the following at December 31, 2006 and September 30, 2006:
| 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 land and improvements |
| 2,535,588 |
| 2,535,588 |
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| 7,671,884 |
| 7,671,884 |
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Less accumulated depreciation |
| (1,401,208 | ) | (1,370,843 | ) | ||
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| 6,270,676 |
| 6,301,041 |
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Residential rental property |
| 145,847 |
| 145,847 |
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Less accumulated depreciation |
| (12,467 | ) | (11,788 | ) | ||
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Investment properties for lease, net of accumulated depreciation |
| $ | 6,404,056 |
| $ | 6,435,100 |
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Depreciation expense totaled $128,964 for the year ended September 30, 2006. Depreciation expense totaled $31,044 and $32,819, respectively, for the three month period ended December 31, 2006 and 2005, respectively.
The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on the approximately 18 acres of land in Columbia County, Georgia. The agreement requires monthly rental payments $20,833 during the development period which is expected to be complete by 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 lease has an option to renew at year 21 and another option every 5 years thereafter for a possible total lease term of 50 years. The lease provides for the tenant to pay for insurance and property taxes.
4
Note 2 — Investment Properties, Continued
The National Plaza is a retail strip center located on Washington Road in Augusta Georgia. Approximately 81% of the rentable space at the National Plaza is leased to Publix Supermarkets, Inc., the National Plaza’s anchor tenant.
The Company also holds several parcels of land for investment or development purposes. Such investment properties include 84.4 acres of land in south Richmond County, Georgia.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2006 for further information on operating lease agreements and land held for investment or development purposes.
Note 3 — Line of Credit
The Company entered into a line of credit agreement with a regional financial institution in June 2006. The line of credit provides for a maximum principal amount of $501,100 and bears interest at the Prime rate (8.25% at December 31, 2006). The line of credit is secured by the Company’s long-term ground lease on the approximately 18 acres of land in Columbia County, Georgia. At December 31, 2006 and September 30, 2006, the Company had $422,891 and $183,100, respectively, outstanding on the line of credit which matures in June 2007.
Note 4 — Notes Payable
Notes payable consisted of the following at:
| December 31, |
| September 30, |
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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%. |
| $ | 2,643,506 |
| $ | 2,697,649 |
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A note payable to a regional financial institution, collateralized with property held by the Company in Richmond County, Georgia. The note was payable in monthly installments of $3,251, including interest, through December 2006, with the note’s then remaining principal balance paid in a lump-sum. The note had an interest rate of Prime (8.25% at December 31, 2006). The note, which was dated December 2003, was a refinancing of a prior note, which matured in November 2003. |
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| 45,277 |
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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 $1,332, including interest, through June 2008, with the note’s then remaining principal balance payable in a lump-sum. The note bears interest at a fixed rate of 6.25%. The note, which is dated June 2005, is a refinancing of a prior note, which matured in June 2005. |
| 74,344 |
| 77,403 |
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5
Note 4 — Notes Payable, Continued
A note payable to a regional financial institution, collateralized with property held by the Company in Richmond 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%. |
| 36,820 |
| 46,361 |
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| 2,754,670 |
| 2,866,690 |
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Less current maturities |
| (276,289 | ) | (319,465 | ) | ||
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| $ | 2,478,381 |
| $ | 2,547,225 |
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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. Approximately 73% of the Company’s revenues are earned from one of the Company’s investment properties, National Plaza. The anchor tenant, Publix Supermarkets, Inc. (“Publix”), a regional food supermarket chain, leases approximately 81% of the space at National Plaza. This regional food supermarket is the anchor tenant of National Plaza. The Company generates approximately 54% of its revenues though its lease with Publix.
6
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 properties for purposes of depreciation.
- Evaluation of long-lived investment assets for impairment.
- Estimates of income tax rates applicable to deferred taxes.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2006 for further information regarding its critical accounting policies
Results of Operations:
The Company’s results of operations for the three months ended December 31, 2006, and a comparative analysis of the same period for 2005 are presented below:
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| 2006 |
| 2005 |
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Rent revenue |
| $ | 232,153 |
| $ | 174,981 |
| $ | 57,172 |
| 33 | % |
Operating expenses |
| 95,135 |
| 115,531 |
| (20,396 | ) | (18 | )% | |||
Interest expense |
| 59,235 |
| 61,559 |
| (2,324 | ) | (4 | )% | |||
Net income (loss) |
| 47,448 |
| (2,109 | ) | 45,339 |
| 2150 | % | |||
Rent revenue consists primarily of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia. The Company also earned rent revenue from a ground lease with an auto-repair service operation on an out parcel of National Plaza. Rent revenue increased in 2006 primarily due to the Company earning revenue related to the long-term ground lease on the approximately 18 acres in Columbia County, Georgia beginning in the 3rd Quarter of 2006. The Company is receiving $20,833 in monthly rent until the expiration of the development period, which is January 2007, at which time the Company will begin receiving $41,677 a month.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2006 for further information regarding the properties owned and their lease terms.
Total operating expenses for the three months ended December 31, 2006 decreased compared with the same period for 2005. There was a decrease in a number of expenses including property taxes. 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 current operating period.
Interest expense for the current period is comparable to 2005 and, on an annualized basis, is comparable to the Company’s interest expense for the fiscal year ended September 30, 2006 when considering a decrease in the Company’s outstanding debt.
Income tax expense for the three month period ended December 31, 2006 is comparable with the same period in 2005, when considering the increase in the Company’s income.
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, Continued
Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at December 31, 2006 was 25%. The ratio was 27% at September 30, 2006. Management of the Company expects future liquidity needs of the Company to be funded from operating revenues of the Company, including the increased rents from the ground lease of the approximately 18 acres in Columbia County, Georgia, and appreciation in investment properties (which can be sold or mortgaged, if necessary). The Company continues to pursue additional sources of rent revenue and to evaluate opportunities to reduce operating costs. The Company has the ability to obtain additional short term financing, should it become necessary, until revenues and cash flow from operations can be sufficiently increased.
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the three months ended December 31, 2006 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.
8
Item 6. Exhibits and Reports on Form 8-K
(a) |
| 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 |
(b) |
| No reports on Form 8-K were filed during the three months ended December 31, 2006. |
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, 2007 |
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| T. Greenlee Flanagin |
| Date |
| President |
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| Chief Executive Officer |
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9