U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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| Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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For the quarterly period ended March 31, 2009 | ||
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| 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 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.
Large accelerated filer o |
| Accelerated filer o |
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Non-accelerated filer o |
| Smaller reporting company x |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
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 May 13, 2009 |
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Common Stock, $0.10 Par Value |
| 5,247,107 shares |
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SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARIES
Form 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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| Consolidated Balance Sheets as of March 31, 2009 and September 30, 2008 | 1 |
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| 4-7 | |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 7-8 | |
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SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES
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| March 31, |
| September 30, |
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| 2009 |
| 2008 |
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| * |
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ASSETS |
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CURRENT ASSETS |
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Cash and cash equivalents |
| $ | 31,077 |
| $ | 24,764 |
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Investments |
| — |
| 250,000 |
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Receivables from tenants |
| 137,604 |
| 221,061 |
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Income taxes receivable |
| 17,290 |
| 30,002 |
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Total current assets |
| 185,971 |
| 525,827 |
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INVESTMENT PROPERTIES |
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Investment properties for lease, net of accumulated depreciation |
| 6,124,660 |
| 6,186,748 |
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Land and improvements held for investment or development |
| 3,641,098 |
| 3,641,098 |
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| 9,765,758 |
| 9,827,846 |
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OTHER ASSETS |
| 100,589 |
| 98,312 |
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| $ | 10,052,318 |
| $ | 10,451,985 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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CURRENT LIABILITIES |
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Accounts payable and accrued expenses |
| $ | 133,454 |
| $ | 275,320 |
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Current maturities of notes payable and line of credit |
| 673,852 |
| 842,622 |
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Current maturities of deferred revenue |
| 24,652 |
| 24,652 |
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Total current liabilities |
| 831,958 |
| 1,142,594 |
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LONG-TERM LIABILITIES |
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Notes payable and line of credit, less current portion |
| 4,843,977 |
| 5,063,231 |
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Deferred income taxes |
| 480,179 |
| 475,413 |
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Deferred revenue, less current portion |
| 127,353 |
| 139,679 |
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Total long-term liabilities |
| 5,451,508 |
| 5,678,323 |
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Total liabilities |
| 6,283,467 |
| 6,820,917 |
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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 |
| 2,911,324 |
| 2,773,541 |
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Total Equity |
| 3,768,851 |
| 3,631,068 |
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Liabilities and Equity |
| $ | 10,052,318 |
| $ | 10,451,985 |
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* Derived from the 10KSB for the year ended September 30, 2008.
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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| Period Ended March 31 |
| Period Ended March 31 |
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| 2008 |
| 2009 |
| 2008 |
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RENT REVENUE |
| $ | 352,604 |
| $ | 360,620 |
| $ | 706,263 |
| $ | 702,800 |
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OPERATING EXPENSES |
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Depreciation and amortization |
| 31,948 |
| 32,476 |
| 63,895 |
| 64,953 |
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Property taxes |
| 66,295 |
| 60,383 |
| 135,835 |
| 118,057 |
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Payroll and related costs |
| 16,578 |
| 16,256 |
| 31,713 |
| 31,315 |
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Insurance and utilities |
| 9,971 |
| 11,599 |
| 20,236 |
| 21,077 |
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Repairs and maintenance |
| 22,554 |
| 7,924 |
| 31,446 |
| 15,314 |
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Professional services |
| 12,551 |
| 17,341 |
| 31,061 |
| 24,361 |
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Other |
| 233 |
| 2,583 |
| 826 |
| 3,391 |
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| 160,130 |
| 148,562 |
| 315,012 |
| 278,468 |
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Operating income |
| 192,474 |
| 212,058 |
| 391,251 |
| 424,332 |
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OTHER INCOME (EXPENSE) |
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Interest |
| (90,446 | ) | (88,544 | ) | (185,445 | ) | (176,319 | ) | ||||
Other income/expense |
| (73 | ) | — |
| 816 |
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| (90,519 | ) | (88,544 | ) | (184,628 | ) | (176,319 | ) | ||||
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Income before income taxes |
| 101,954 |
| 123,514 |
| 206,622 |
| 248,013 |
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INCOME TAXES PROVISION |
| 33,281 |
| 44,601 |
| 68,839 |
| 93,037 |
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Net income |
| 68,673 |
| 78,913 |
| 137,783 |
| 154,976 |
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RETAINED EARNINGS, BEGINNING OF PERIOD |
| 2,842,651 |
| 2,562,720 |
| 2,773,541 |
| 2,486,687 |
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RETAINED EARNINGS, END OF PERIOD |
| 2,911,324 |
| 2,641,633 |
| 2,911,324 |
| 2,641,663 |
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PER SHARE DATA |
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Net income per common share |
| $ | 0.01 |
| $ | 0.02 |
| $ | 0.03 |
| $ | 0.03 |
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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 Month |
| For the Six Month |
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| Period Ended March 31, |
| Period Ended March 31, |
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| 2008 |
| 2009 |
| 2008 |
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OPERATING ACTIVITIES |
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Net income |
| $ | 68,673 |
| $ | 78,913 |
| $ | 137,783 |
| $ | 154,976 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
| 31,948 |
| 32,476 |
| 63,896 |
| 64,953 |
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Changes in deferred and accrued amounts: |
| (48,109 | ) | (68,605 | ) | (53,256 | ) | (39,413 | ) | ||||
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Net cash provided by operating activities |
| 52,512 |
| 42,784 |
| 148,423 |
| 180,516 |
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INVESTING ACTIVITIES |
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Cash paid for other assets |
| (4,085 | ) | — |
| (4,085 | ) | — |
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Proceeds from the sale of investments |
| 82 |
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| 250,000 |
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Purchases of, and improvements to, investment properties |
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| (86,524 | ) | — |
| (87,849 | ) | ||||
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Net cash provided by (used in) investing activities |
| (4,003 | ) | (86,524 | ) | 245,915 |
| (87,849 | ) | ||||
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FINANCING ACTIVITIES |
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Proceeds from line of credit |
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| 1,934 |
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| 1,934 |
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Principal payments on notes payable and line of credit |
| (103,326 | ) | (5,372 | ) | (388,025 | ) | (84,219 | ) | ||||
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Net cash used in financing activities |
| (103,326 | ) | (3,438 | ) | (388,025 | ) | (82,285 | ) | ||||
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Net increase (decrease) in cash and cash equivalents |
| (54,817 | ) | (47,178 | ) | 6,313 |
| 10,382 |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
| 85,894 |
| 404,584 |
| 24,764 |
| 347,024 |
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CASH AND CASH EQUIVALENTS, END OF PERIOD |
| $ | 31,077 |
| $ | 357,406 |
| $ | 31,077 |
| $ | 357,406 |
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SUPPLEMENTAL CASH FLOW INFORMATION: |
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Cash paid for interest |
| $ | 90,446 |
| $ | 92,197 |
| $ | 185,445 |
| $ | 183,952 |
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Cash paid for income taxes |
| $ | 50,342 |
| $ | 95,320 |
| $ | 51,362 |
| $ | 129,494 |
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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 un-audited consolidated financial statements were prepared in accordance with instructions for Form 10-Q 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 un-audited 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, 2008 when reviewing interim financial statements.
The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.
Critical Accounting Policies:
Estimates of Useful Lives of Investment Properties for Purposes of Depreciation
Management has estimated useful lives of investment properties, except for land, that are leased, and the Company utilizes the straight-line method to compute depreciation over the estimated useful lives of the investment properties. Actual depreciation of investment properties will vary from management’s estimates, and the value of investment properties is more directly impacted by market conditions and the physical condition of the investment properties.
Evaluation of Long-Lived Assets for Impairment
The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of investment properties may not be recoverable. In evaluating recoverability, the Company generally estimates future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when the expected future cash flows of the asset are less than the carrying amount.
Estimates of Income Tax Rates Applicable to Deferred Taxes
The Company has deferred income taxes through a series of tax-deferred like-kind exchange transactions on certain investment properties and through accelerated depreciation elections on certain other assets. Actual income taxes that may become due when taxable gains are realized on the sale of assets may differ from management’s estimates as a result of changes in tax laws, the tax status of the Company, or the actual taxable earnings of the Company in the periods the deferred income taxes become due.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2008 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 March 31, 2009 and September 30, 2008:
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| March 31, |
| September 30, |
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| 2009 |
| 2008 |
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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 |
| 3,641,098 |
| 3,641,098 |
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| 11,312,982 |
| 11,312,982 |
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Less accumulated depreciation |
| (1,674,493 | ) | (1,613,763 | ) | ||
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| 9,638,489 |
| 9,699,219 |
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Residential rental property |
| 145,847 |
| 145,847 |
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Less accumulated depreciation |
| (18,578 | ) | (17,220 | ) | ||
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| 127,269 |
| 128,627 |
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Investment properties for lease, net of accumulated depreciation |
| $ | 9,765,758 |
| $ | 9,827,846 |
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Depreciation expense totaled $62,088 for both the six-month periods ended March 31, 2009 and 2008. Depreciation expense totaled $124,176 for the year ended September 30, 2008.
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 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008. The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1 acre parcel along Washington Road in Augusta, Georgia that adjoins the Company’s National Plaza investment property. The aggregate costs of these investment properties held for investment or development was $3,641,098 at March 31, 2009 and September 30 2008.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2008, for further information on operating lease agreements and land held for investment or development purposes.
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Note 3 — Notes Payable and Line of Credit
Notes payable and line of credit consisted of the following at:
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| March 31, |
| September 30, |
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A note payable to the seller of approximately 2.81 acres of land in North Augusta, South Carolina, collateralized by the land. The note is payable in monthly installments of $7,182 through June 2013, and bears interest at a fixed rate of 6%. |
| $ | 322,609 |
| $ | 355,446 |
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A line of credit agreement with a national financial institution to procure site work on the North Augusta, South Carolina property during the second quarter of 2008 and also to purchase an additional acre adjoining the North Augusta, South Carolina property in May 2008. This loan was secured by an Auction Rate Security account held as part of the Company’s investments at September 30, 2008. The note carried an interest rate of prime plus 2.125% (7.125% at September 30, 2008). During November 2008 the Security was sold and the loan balance has been paid in full as of March 31, 2009. |
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| 183,850 |
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A line of credit with a regional financial institution for up to $251,934 procured in March 2008 with a floating interest rate based on prime (3.25% at March 31, 2009) and originally payable in full in April 2009. The current balance relates to the purchase of the 1 acre adjoining the North Augusta, South Carolina property in May 2008. The line of credit is collateralized by the residential property on Stanley Drive. |
| 243,019 |
| 243,019 |
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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%. |
| 2,105,292 |
| 2,233,240 |
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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%. A portion of the proceeds from the loan was used to pay down other notes payable. |
| 2,846,909 |
| 2,890,298 |
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| 5,517,829 |
| 5,905,853 |
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Less current maturities |
| (673,852 | ) | (842,622 | ) | ||
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| $ | 4,843,977 |
| $ | 5,063,231 |
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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 98% of the Company’s revenues are earned from two of the Company’s investment properties, National Plaza and the Evans Ground Lease comprise approximately 48% and 48% of the Company’s revenues, respectively. The anchor tenant for National Plaza, Publix Supermarkets, Inc. (“Publix”), a regional food supermarket chain, leases approximately 81% of the space at National Plaza. The Company generates approximately 37% of its revenues though its lease with Publix.
6
Note 5 — Subsequent Events
In April 2009 the Company refinanced the $243,019 line of credit with a regional financial institution. The Company entered into an agreement with the same regional financial institution to borrow the outstanding balance of $243,019, bearing interest based on the greater of prime or 6%, with interest payments due monthly, maturing in April 2010.
As of April 2009 the Company is negotiating an agreement with Columbia County regarding the potential sale of .5 acres of the land parcel that contains the Evans Ground Lease in Columbia County, Georgia. Management does not believe that the sale of the parcel in question would have any significant affect on the Evans Ground Lease or the Company’s ability to continue leasing the property or related rental revenues. As of April 2009, Management expects this sale to close before May 31, 2009.
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 six months ended March 31, 2009, and a comparative analysis of the same period for 2008 are presented below:
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| Increase (Decrease) |
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| 2009 compared to 2008 |
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Rent revenue |
| $ | 706,263 |
| $ | 702,800 |
| $ | 3,463 |
| 0.5 | % |
Operating expenses |
| 315,012 |
| 278,468 |
| 36,544 |
| 13 | % | |||
Interest expense |
| 184,628 |
| 176,319 |
| 8,309 |
| 5 | % | |||
Income tax expense |
| 68,840 |
| 93,037 |
| (24,197 | ) | -26 | % | |||
Net income |
| 137,783 |
| 154,976 |
| (17,193 | ) | -11 | % | |||
Rent revenue consists primarily of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia. The Company also earned rent revenue from a ground lease with an auto-repair service operation on an out parcel of National Plaza. Rent revenue increased for the six months ended March 31, 2009 primarily due to minor rent increases of existing tenants and increased recoverable property taxes billable to tenants.
Refer to the Company’s Form 10-KSB for the year ended September 30, 2008 for further information regarding the properties owned and their lease terms.
Total operating expenses for the six months ended March 31, 2009 increased compared with the same period for 2008. This increase was due mainly to maintenance incurred for the National Plaza shopping center in late March 2009, increased property taxes on un-leased property held for investment or development for 2009 and increased legal and professional fees. Also, property taxes increased in relation to the purchase of the approximately 19 acres of land in North Augusta, South Carolina, in April 2007. 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 slightly compared to 2008 due to debt undertaken during 2008 to procure 2 additional parcels in 2008 adjoining the North Augusta site previously purchased during 2007.
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Income tax expense for the six month period ended March 31, 2009 decreased as the Company’s net income decreased due to increased operating and interest expense was offset by the differences between the reporting of deferred revenue for financial accounting purposes and income tax purposes.
Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at March 31, 2009 was 22%. The ratio was 46% at September 30, 2008. 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 are sufficiently increased.
Cautionary Note Regarding Forward-Looking Statements:
The results of operations for the six-month period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the entire fiscal year. The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders. Such forward-looking statements are made based on management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, but not limited to, competition from other real estate companies, the ability of the Company to obtain financing for projects, and the continuing operations of tenants.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Not applicable to smaller reporting companies
Item 4. Controls and Procedures
(a) Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were effective.
(b) There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Chief Executive Officer carried out the evaluation.
The Company is involved in legal proceedings regarding the potential condemnation of .1 acres, of the approximate 19 acre parcel of land located in North Augusta, South Carolina. Management of the Company does not believe that these proceedings have any material impact on the future marketability or development of this tract. Management does not expect this matter to have any material impact on business going forward, regardless of the outcome.
Not Applicable
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Management of the Company notes that no Forms 8K was filed during the period and Management is not aware of any un-reported matters occurring during the period that would require disclosure in a Form 8K.
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 six months ended March 31, 2009. |
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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 |
| May 14, 2009 |
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| T. Greenlee Flanagin |
| Date |
| President |
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| Chief Executive Officer and Chief Financial Officer |
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