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 March 31, 2007
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)
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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
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES o NO x
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 March 31, 2007 |
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 March 31, 2007 and September 30, 2006 |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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| March 31, |
| September 30, |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 80,079 |
| $ | 19,228 |
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Receivable from tenants |
| 42,408 |
| 82,044 |
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Prepaid property taxes |
| — |
| 17,576 |
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Earnest money and prepaid loan fees |
| 80,000 |
| — |
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Income taxes receivable |
| 104,848 |
| 122,397 |
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Total current assets |
| 307,335 |
| 241,245 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
| 6,373,012 |
| 6,435,100 |
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Land and improvements held for investment or development |
| 371,786 |
| 371,786 |
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| 6,744,798 |
| 6,806,886 |
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OTHER ASSETS |
| 37,031 |
| 38,156 |
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| $ | 7,089,164 |
| $ | 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 |
| $ | 82,800 |
| $ | 375,406 |
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Income taxes payable |
| 78,223 |
| — |
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Current portion of notes payable |
| 276,289 |
| 319,465 |
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Current portion of deferred income |
| 24,652 |
| 24,652 |
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Line of credit |
| 419,890 |
| 183,100 |
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Advances payable to stockholders |
| — |
| 500 |
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Total current liabilities |
| 881,854 |
| 903,123 |
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LONG-TERM LIABILITIES |
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Notes payable, less current portion |
| 2,410,484 |
| 2,547,225 |
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Deferred income taxes |
| 460,642 |
| 455,507 |
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Deferred income, less current portion |
| 176,657 |
| 188,983 |
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Total long-term liabilities |
| 3,047,783 |
| 3,191,715 |
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Total liabilities |
| 3,929,637 |
| 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 |
| 2,302,000 |
| 2,133,922 |
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| 3,159,527 |
| 2,991,449 |
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| $ | 7,089,164 |
| $ | 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 INCOME AND RETAINED EARNINGS
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| For the Three Month |
| For the Six Month |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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RENT REVENUE |
| $ | 338,194 |
| $ | 187,949 |
| $ | 570,347 |
| $ | 362,930 |
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OPERATING EXPENSES |
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Depreciation and amortization |
| 31,607 |
| 33,381 |
| 63,214 |
| 66,763 |
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Property taxes |
| 34,500 |
| 31,840 |
| 56,088 |
| 63,217 |
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Payroll and related costs |
| 15,170 |
| 10,547 |
| 29,465 |
| 26,313 |
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Insurance and utilities |
| 9,119 |
| 8,749 |
| 17,590 |
| 18,316 |
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Repairs and maintenance |
| 6,900 |
| 5,089 |
| 11,400 |
| 10,670 |
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Professional services |
| 8,751 |
| 967 |
| 22,369 |
| 20,350 |
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Other |
| 300 |
| 172 |
| 1,356 |
| 647 |
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| 106,347 |
| 90,745 |
| 201,482 |
| 206,276 |
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Operating income |
| 231,847 |
| 97,204 |
| 368,865 |
| 156,654 |
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OTHER EXPENSE |
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Interest |
| (56,825 | ) | (59,118 | ) | (116,060 | ) | (120,677 | ) | ||||
Income before income taxes |
| 175,022 |
| 38,086 |
| 252,805 |
| 35,977 |
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INCOME TAXES |
| 54,392 |
| — |
| 84,727 |
| — |
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Net income |
| 120,630 |
| 38,086 |
| 168,078 |
| 35,977 |
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RETAINED EARNINGS, BEGINNING OF PERIOD |
| 2,181,370 |
| 2,142,749 |
| 2,133,922 |
| 2,144,858 |
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RETAINED EARNINGS, END OF PERIOD |
| $ | 2,302,000 |
| $ | 2,180,835 |
| $ | 2,302,000 |
| $ | 2,180,835 |
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PER SHARE DATA |
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Net income per common share |
| $ | 0.02 |
| $ | 0.01 |
| $ | 0.03 |
| $ | 0.01 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the Three Month |
| For the Six Month |
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| 2007 |
| 2006 |
| 2007 |
| 2006 |
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OPERATING ACTIVITIES |
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Net income |
| $ | 120,630 |
| $ | 38,086 |
| $ | 168,078 |
| $ | 35,977 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
| 31,607 |
| 33,381 |
| 63,214 |
| 66,763 |
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Changes in deferred and accrued amounts |
| (87,573 | ) | 17,112 |
| (226,815 | ) | (11,156 | ) | ||||
Net cash provided by operating activities |
| 64,664 |
| 88,579 |
| 4,477 |
| 91,584 |
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FINANCING ACTIVITIES |
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(Repayments to) advances from stockholders, net |
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| (13,215 | ) | (500 | ) | 52,543 |
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Proceeds from (repayments to) line of credit, net |
| (3,000 | ) | — |
| 236,791 |
| — |
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Principal payments on notes payable |
| (67,897 | ) | (72,062 | ) | (179,917 | ) | (141,962 | ) | ||||
Net cash used in (provided by) financing activities |
| (70,897 | ) | (85,277 | ) | 56,374 |
| (89,419 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
| (6,233 | ) | 3,302 |
| 60,851 |
| 2,165 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
| 86,312 |
| 4,043 |
| 19,228 |
| 5,180 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 80,079 |
| $ | 7,345 |
| $ | 80,079 |
| $ | 7,345 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 56,825 |
| $ | 59,118 |
| $ | 116,060 |
| $ | 120,677 |
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Cash paid for income taxes |
| $ | — |
| $ | 13,247 |
| $ | — |
| $ | 13,247 |
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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 March 31, 2007 and September 30, 2006:
| March 31, |
| September 30, |
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| 2007 |
| 2006 |
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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 |
| 2,535,588 |
| 2,535,588 |
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| 7,671,884 |
| 7,671,884 |
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Less accumulated depreciation |
| (1,431,573 | ) | (1,370,843 | ) | ||
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| 6,240,311 |
| 6,301,041 |
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Residential rental property |
| 145,847 |
| 145,847 |
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Less accumulated depreciation |
| (13,146 | ) | (11,788 | ) | ||
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Investment properties for lease, net of accumulated depreciation |
| $ | 6,373,012 |
| $ | 6,435,100 |
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Depreciation expense totaled $128,964 for the year ended September 30, 2006. Depreciation expense totaled $62,088 and $65,638, respectively, for the six month period ended March 31, 2007 and 2006.
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.
4
Note 2 — Investment Properties, Continued
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 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 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.
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 — Notes Payable
Notes payable consisted of the following at:
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| March 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%. |
| $ | 2,588,290 |
| $ | 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 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 (8.25% at September 30, 2006). The note, which is dated December 2003, is 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. |
| 69,173 |
| 77,403 |
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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 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%. |
| 29,310 |
| 46,361 |
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| 2,686,773 |
| 2,866,690 |
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Less current maturities |
| (276,289 | ) | (319,465 | ) | ||
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| $ | 2,410,484 |
| $ | 2,547,225 |
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5
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 55% 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 40% of its revenues though its lease with Publix. Approximately 44% of the Company’s revenues are earned from the long-term ground lease with a major national tenant and its developer on the approximately 18 acres of land in Columbia County, Georgia.
Note 5 — Subsequent Events
On April 20, 2007, the Company entered into a $3,000,000 note agreement with an insurance company. The note is collateralized with the 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 $21,234, including interest through May 1, 2027, and bears interest at a fixed rate of 5.85%. On April 26, 2007, the Company used the note proceeds to purchase approximately 14 acres of land in North Augusta, South Carolina and subsequently paid-off the line of credit and the two notes payable to a regional financial institution. The land was purchased by a new formed, wholly owned subsidiary, SLDC2, LLC.
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 six month period ended March 31, 2007, and a comparative analysis of the same period for 2006 are presented below:
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| Increase (Decrease) |
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| 2007 |
| 2006 |
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| Percent |
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Rent revenue |
| $ | 570,347 |
| $ | 362,930 |
| $ | 207,417 |
| 57 | % |
Operating expenses |
| 201,482 |
| 206,276 |
| (4,794 | ) | (2 | )% | |||
Interest expense |
| 116,060 |
| 120,677 |
| (4,617 | ) | (4 | )% | |||
Net income |
| 168,078 |
| 35,977 |
| 131,101 |
| 465 | % | |||
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 earns rent revenue from a ground lease with an auto-repair service operation on an outparcel of National Plaza. Rent revenue increased from 2006 to 2007 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 received $20,833 in monthly rent until the expiration of the development period which was in January 2007, at which time the Company began 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 lease terms.
Total operating expenses for the six months ended March 31, 2007 is consistent with the same period for 2006. Management expects operating expenses for the remainder of the current fiscal year to be comparable to the present six month period.
Interest expense for the current period is comparable to 2006 and, on an annualized basis, is comparable to the Company’s interest expense for the fiscal year ended September 30, 2006.
Income tax expense increased for the six months ended March 31, 2007 compared with the same period for 2006. The income tax expense for the six months ended March 31, 2006 was offset by a reduction in the Company’s current tax liability. Thus, for the six month’s ended March 31, 2006, no income tax expense is reported.
7
Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at March 31, 2007 was 35%. 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 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 month period and six month period ended March 31, 2007 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 |
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(b) |
| No reports on Form 8-K were filed during the three months ended March 31, 2007. |
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 |
| May 9, 2007 |
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| T. Greenlee Flanagin |
| Date |
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| President |
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| Chief Executive Officer |
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9