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 |
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| For the quarterly period ended December 31, 2007 |
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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 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 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 December 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 December 31, 2007 and September 30, 2007 |
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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 |
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| December 31, |
| September 30, |
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| 2007 |
| 2007 |
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| (audited) |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 404,584 |
| $ | 347,024 |
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Receivables from tenants |
| 42,796 |
| 156,879 |
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Prepaid property taxes |
| — |
| 20,088 |
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Total current assets |
| 447,380 |
| 523,991 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
| 6,279,880 |
| 6,310,924 |
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Land and improvements held for investment or development |
| 2,712,789 |
| 2,711,464 |
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| 8,992,669 |
| 9,022,388 |
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OTHER ASSETS |
| 102,609 |
| 104,041 |
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| $ | 9,542,658 |
| $ | 9,650,420 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 58,622 |
| $ | 171,656 |
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Income taxes payable |
| 41,803 |
| 30,553 |
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Current maturities of notes payable |
| 329,266 |
| 324,283 |
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Current maturities of deferred revenue |
| 24,652 |
| 24,652 |
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Total current liabilities |
| 454,343 |
| 551,144 |
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LONG-TERM LIABILITIES |
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Notes payable, less current portion |
| 5,039,810 |
| 5,123,640 |
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Deferred income taxes |
| 470,090 |
| 467,091 |
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Deferred revenue, less current portion |
| 158,168 |
| 164,331 |
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Total long–term liabilities |
| 5,668,068 |
| 5,755,062 |
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Total liabilities |
| 6,122,411 |
| 6,306,206 |
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STOCKHOLDERS' EQUITY |
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Common stock, par value $.10 per share; |
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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 |
| 2,562,720 |
| 2,486,687 |
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| 3,420,247 |
| 3,344,214 |
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| $ | 9,542,658 |
| $ | 9,650,420 |
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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 Months Ended |
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| 2007 |
| 2006 |
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RENT REVENUE |
| $ | 342,180 |
| $ | 232,153 |
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OPERATING EXPENSES |
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Depreciation and amortization |
| 32,476 |
| 31,607 |
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Property taxes |
| 57,674 |
| 21,588 |
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Payroll and related costs |
| 15,060 |
| 14,295 |
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Insurance and utilities |
| 9,477 |
| 8,471 |
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Repairs and maintenance |
| 7,391 |
| 4,500 |
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Professional services |
| 7,020 |
| 13,618 |
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Other |
| 806 |
| 1,056 |
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| 129,904 |
| 95,135 |
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Operating income |
| 212,276 |
| 137,018 |
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OTHER EXPENSE |
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Interest |
| (87,808 | ) | (59,235 | ) | ||
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Income before income taxes |
| 124,468 |
| 77,783 |
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INCOME TAXES |
| 48,435 |
| 30,335 |
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Net income |
| 76,033 |
| 47,448 |
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RETAINED EARNINGS, BEGINNING OF PERIOD |
| 2,486,687 |
| 2,133,922 |
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RETAINED EARNINGS, END OF PERIOD |
| $ | 2,562,720 |
| $ | 2,181,370 |
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PER SHARE DATA |
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Net income per common share |
| $ | 0.01 |
| $ | 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
CONSOLIDATED STATEMENTS OF CASH FLOWS
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| For the Three Months Ended December 31, |
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| 2006 |
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OPERATING ACTIVITIES |
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Net income |
| $ | 76,033 |
| $ | 47,448 |
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Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
| 32,476 |
| 31,607 |
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Changes in deferred and accrued amounts: |
| 29,224 |
| (139,242 | ) | ||
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Net cash provided by (used in) operating activities |
| 137,733 |
| (60,187 | ) | ||
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INVESTING ACTIVITIES |
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Purchases of, and improvements to, investment properties |
| (1,325 | ) | — |
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FINANCING ACTIVITIES |
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Repayments to stockholders, net |
| — |
| (500 | ) | ||
Proceeds from line of credit |
| — |
| 239,791 |
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Principal payments on notes payable |
| (78,847 | ) | (112,020 | ) | ||
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Net cash provided by (used in) financing activities |
| (78,847 | ) | 127,271 |
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Net increase in cash and cash equivalents |
| 57,561 |
| 67,084 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
| 347,024 |
| 19,228 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 404,584 |
| $ | 86,312 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 91,755 |
| $ | 59,235 |
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Cash paid for income taxes |
| $ | 34,174 |
| $ | — |
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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, 2007 when reviewing interim financial statements.
The consolidated 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 three wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, and SLDC 2, 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 estimate, 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 its 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-KSB for the year ended September 30, 2007 for further information regarding its critical accounting policies.
4
Note 2 – Investment Properties
Investment properties leased or held for lease to others under operating leases consisted of the following at December 31, 2007and eptember 30, 2007:
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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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Evans Ground Lease, land and improvements |
| 2,535,588 |
| 2,535,588 |
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Commercial land and improvements |
| 2,712,789 |
| 2,711,464 |
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| 10,384,673 |
| 10,383,348 |
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Less accumulated depreciation |
| (1,522,669 | ) | (1,492,303 | ) | ||
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| 8,862,004 |
| 8,891,045 |
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Residential rental property |
| 145,847 |
| 145,847 |
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Less accumulated depreciation |
| (15,182 | ) | (14,504 | ) | ||
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| 130,665 |
| 131,343 |
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Investment properties for lease, net of accumulated depreciation |
| $ | 8,992,669 |
| $ | 9,022,388 |
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Depreciation expense totaled $124,176 for the year ended September 30, 2007. Depreciation expense totaled $31,044 and $31,044 for the three month period ended December 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.
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 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 is recognizing rents on a straight line basis over the lease term.
The Company also holds several parcels of land for investment or development purposes, including 14.57 acres of land in North Augusta, South Carolina, purchased in April 2007 for $2,180,246, and 84.4 acres of land in south Richmond County, Georgia.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2007, for further information on operating lease
agreements and land held for investment or development purposes.
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Note 3 – Notes Payable
Notes payable consisted of the following at:
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| December 31, |
| September 30, |
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| 2007 |
| 2007 |
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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%. |
| $ | 2,415,989 |
| $ | 2,474,553 |
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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 $21,234, including interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%. |
| 2,953,087 |
| 2,973,370 |
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| 5,369,076 |
| 5,447,923 |
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Less current maturities |
| (329,266 | ) | (324,283 | ) | ||
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| $ | 5,039,810 |
| $ | 5,123,640 |
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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 and in North Augusta, South Carolina. Approximately 100% of the Company’s revenues are earned from two of the Company’s investment properties, National Plaza, approx. 50%, and Evans Ground Lease, approx 50%. The anchor tenant for National Plaza is Publix Supermarkets, Inc. (“Publix”), a regional food supermarket chain, which leases approximately 81% of the space at National Plaza. The Company generates approximately 37% of its revenues though its lease with Publix. Approximately 50% 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.
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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 three months ended December 31, 2007, and a comparative analysis of the same
period for 2006 are presented below:
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Rent revenue |
| $ | 342,180 |
| $ | 232,153 |
| $ | 110,027 |
| 47 | % |
Operating expenses |
| 129,904 |
| 95,135 |
| 34,769 |
| 37 | % | |||
Interest expense |
| 87,808 |
| 59,235 |
| 28,573 |
| 48 | % | |||
Income tax expense |
| 48,435 |
| 30,335 |
| 18,100 |
| 59 | % | |||
Net income |
| 76,033 |
| 47,448 |
| 28,585 |
| 60 | % | |||
Rent revenue consists primarily of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Company’s 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. Rent revenue increased for the three months ended December 31 2007 primarily due to the completion of the development period of the long-term ground lease on the approximately 18 acres in Columbia County, Georgia in January 2007. Upon completion of the development period, in January 2007, the Company began earning full monthly revenue. During the development period the Company had been receiving $20,833 in monthly rent. Upon expiration of the development period, which was January 2007, the Company began receiving $41,677 in monthly rent.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2007 for further information regarding the properties owned and their lease terms.
Total operating expenses for the three months ended December 31, 2007 increased compared with the same period for 2006. There were increases in a number of expenses including property taxes and maintenance expense. Property taxes increased due to the purchase of the approximately 14.57 acres of land in North Augusta, South Carolina, in April 2007. Maintenance expense also increased slightly due to periodic maintenance on National Plaza. 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 increased compared to 2006 due to debt undertaken to procure the approximately 14.57 acres of land in North Augusta, South Carolina, purchased in April 2007. Management expects interest expense for the remainder of the current fiscal year to be comparable to the current operating period.
Income tax expense for the three month period ended December 31, 2007 increased primarily due to increased rent revenues related to the Evans Ground lease as noted above and the revenue increase’s impact on net income.
Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at December 31, 2007 was 98.5%. The ratio was 95% at September 30, 2007. 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.
7
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the three months ended December 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 December 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)
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By: | /s/ T. Greenlee Flanagin |
| February 12, 2008 | |||
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| T. Greenlee Flanagin | Date |
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| President |
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| Chief Executive Officer and Chief Financial Officer |
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9