Table of Contents
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
x | Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2004
¨ | 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 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 ¨
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 April 30, 2004 | |
Common Stock, $.10 Par Value | 5,247,107 shares |
Transitional Small Business Disclosure Format: YES ¨ NO x
Table of Contents
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARY
Form 10-QSB
Index
Part I | ||||
Item 1. | Financial Statements | |||
1 | ||||
2 | ||||
Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2004 and 2003 | 3 | |||
4-5 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 5-6 | ||
Item 3. | 7 | |||
Part II | ||||
Item 6. | 7 | |||
8 |
This amended Form 10-QSB is being filed to reflect an adjustment to the gain on sale of real estate previously reported for the quarter ending December 31, 2003. The gain on sale of real estate previously reported was incorrect in that the basis of the property sold had not been fully included in the gain calculation.
Table of Contents
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARY
Condensed Consolidated Balance Sheet
(Unaudited)
March 31, 2004 | |||
ASSETS | |||
Current assets | |||
Cash | $ | 72,719 | |
Lease payment receivable | 27,000 | ||
Total current assets | 99,719 | ||
Investments and other assets | |||
Replacement funds | 409,728 | ||
Land and improvements, at cost | 2,021,478 | ||
Property leased to others under operating leases, less accumulated depreciation $1,099,920 | 4,458,489 | ||
Deferred tax asset | 12,516 | ||
Deferred commission, net | 43,686 | ||
Other assets | 5,000 | ||
6,950,897 | |||
$ | 7,050,616 | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
Current liabilities | |||
Accounts payable and accrued expenses | $ | 134,406 | |
Current portion of long-term debt | 241,804 | ||
Current tax liability | 82,376 | ||
Total current liabilities | 458,586 | ||
Long-term debt, less current maturities | 3,179,118 | ||
Deferred taxes | 294,976 | ||
Deferred income | 275,264 | ||
Stockholders’ equity | |||
Common stock, at par value | 623,761 | ||
Paid-in capital | 333,766 | ||
Retained earnings | 1,985,145 | ||
2,942,672 | |||
Less subscribed shares | 100,000 | ||
2,842,672 | |||
$ | 7,050,616 | ||
See notes to condensed consolidated financial statements.
1
Table of Contents
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARY
Condensed Consolidated Statements of Income and Comprehensive Income
(Unaudited)
Three Months Ended March 31, 2004 | Six Months | Three Months Ended March 31, 2003 | Six Months | |||||||||||||
Revenues, rent earned | $ | 195,813 | $ | 411,852 | $ | 193,830 | $ | 376,747 | ||||||||
Operating expenses: | ||||||||||||||||
Payroll and related costs | 19,489 | 36,098 | 19,367 | 35,682 | ||||||||||||
Depreciation/ amortization | 33,394 | 66,862 | 36,194 | 72,388 | ||||||||||||
Property taxes | 28,272 | 59,629 | 24,248 | 51,601 | ||||||||||||
Repairs and maintenance | 9,830 | 18,125 | 11,496 | 25,996 | ||||||||||||
Professional services | 11,771 | 11,771 | 8,582 | 14,580 | ||||||||||||
Insurance | 366 | 816 | 2,024 | 3,600 | ||||||||||||
Other | 9,527 | 19,985 | 10,497 | 17,973 | ||||||||||||
112,649 | 213,286 | 112,408 | 221,820 | |||||||||||||
Operating income | 83,164 | 198,566 | 81,422 | 154,927 | ||||||||||||
Nonoperating income and (expense): | ||||||||||||||||
Gain on sale of real estate | — | 205,928 | — | — | ||||||||||||
Interest income | 34 | 72 | 136 | 379 | ||||||||||||
Interest expense | (65,968 | ) | (133,079 | ) | (70,261 | ) | (141,504 | ) | ||||||||
(65,934 | ) | 72,921 | (70,125 | ) | (141,125 | ) | ||||||||||
Income before income taxes | 17,230 | 271,487 | 11,297 | 13,802 | ||||||||||||
Applicable income taxes | 5,723 | 86,876 | 3,124 | 3,816 | ||||||||||||
Net income | $ | 11,507 | $ | 184,611 | $ | 8,173 | $ | 9,986 | ||||||||
Income per common share | $ | .00 | $ | 0.04 | $ | .00 | $ | .00 | ||||||||
See notes to condensed consolidated financial statements.
2
Table of Contents
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARY
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2004 and 2003
(Unaudited)
2004 | 2003 | |||||||
Cash flows from operating activities | ||||||||
Cash received from leases | $ | 440,906 | $ | 417,105 | ||||
Interest received | 72 | 379 | ||||||
Cash paid to suppliers and employees | (176,305 | ) | (197,082 | ) | ||||
Interest paid | (133,079 | ) | (141,504 | ) | ||||
Net cash provided by operating activities | 131,594 | 78,898 | ||||||
Cash flows from financing activities | ||||||||
Principal payments on debt | (102,155 | ) | (99,781 | ) | ||||
Net cash used in financing activities | (102,155 | ) | (99,781 | ) | ||||
Net increase (decrease) in cash | 29,439 | (20,883 | ) | |||||
Cash at beginning of period | 43,280 | 116,385 | ||||||
Cash at end of period | $ | 72,719 | $ | 95,502 | ||||
Reconciliation of net income to net cash provided by operating activities: | ||||||||
Net income | $ | 184,611 | $ | 9,986 | ||||
Deferred income taxes | (4,250 | ) | 3,816 | |||||
Depreciation/ amortization | 66,862 | 72,388 | ||||||
Gain on sale of real estate | (205,928 | ) | — | |||||
Net change in assets and liabilities | 90,299 | (7,292 | ) | |||||
Net cash provided by operating Activities | $ | 131,594 | $ | 78,898 | ||||
See notes to condensed consolidated financial statements.
3
Table of Contents
SECURITY LAND AND DEVELOPMENT CORPORATION
AND SUBSIDIARY
Notes to Condensed Consolidated Financial Statements
Note 1 - Summary of significant accounting policies
The accompanying financial statements are presented in accordance with the requirements of Form 10-QSB and consequently do not include all of the disclosures normally required by accounting principles generally accepted in the United States of America or those normally made in the Company’s annual Form 10-KSB filing. Accordingly, the reader of this Form 10-QSB may wish to refer to the Company’s Form 10-KSB for the year ended September 30, 2003 for further information.
The financial information has been prepared in accordance with the Company’s customary accounting practices and has not been audited. In the opinion of management, the information presented reflects all adjustments necessary for a fair statement of interim results. All such adjustments are of a normal and recurring nature.
Earnings per share are based on the weighted average number of shares outstanding for the applicable period. For all periods presented the weighted average number of shares were 5,247,107. The Company does not have any equity or debt instruments that cause diluted earnings per share.
Note 2 - Investment in leases and property under operating leases
Property leased or held for lease to others under operating leases consists of the following at March 31, 2004:
Land | $ | 385,874 | |
Warehouse and buildings | 5,172,535 | ||
5,558,409 | |||
Less accumulated depreciation | 1,099,920 | ||
$ | 4,458,489 | ||
Refer to the Company’s Form 10-KSB for the year ended September 30, 2003 for further information on operating lease agreements and terms.
During the quarter ending December 31, 2003 the Company sold the investment property located at 4269 Washington Road. The sale transaction has been structured as a tax-deferred like-kind exchange. As of March 31, 2004 the Company had identified potential replacement properties but had not yet completed the acquisition of the replacement property. The funds for acquisition are being held by a third-party intermediary and are presented on the Company’s balance sheet as Replacement Property Funds. The property located at 4269 was sold by the Company for a net (after normal closing costs) sales price of $409,728. All of this net sales price was received by the Company in cash (placed directly with an intermediary for the completion of the Section 1031 exchange.) The cost basis of the property sold was $203,800. The gain was calculated as the difference between the net sales price and the cost basis of the property.
4
Table of Contents
Note 3 - Long-term debt
Long-term debt consisted of the following at March 31, 2004:
7.875% note payable to an insurance company due in monthly payments of $35,633, including interest, through June 2015, collateralized by real estate and assignment of lease payments from the property. | $3,186,834 | ||
4% note payable to financial institution due in monthly payments of $3,251, including interest, through January 2005, with a balloon payment due at that time, interest adjusted based on changes in the prime rate, collateralized by real estate. | 131,736 | ||
Prime rate note payable to financial institution due in monthly payments of $1,330, including interest, through December 2006, with a balloon payment due at that time, interest adjusted based on changes in the prime rate, collateralized by real estate. | 102,352 | ||
3,420,292 | |||
Less current maturities | 241,804 | ||
$ | 3,179,118 | ||
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical accounting Policies
Management of the Company has identified the following as critical accounting policies:
• | Estimates of useful lives of investment property for depreciation purposes. |
• | Evaluation of long-lived assets for impairment. |
Results of operations
The Company’s results of operations for the six month period ended March 31, 2004, and a comparative analysis of the same period for the 2003 year are presented below:
Increase (Decrease) 2004 Compared to 2003 | |||||||||||||
2004 | 2003 | Amount | Percent | ||||||||||
Leasing revenue | $ | 411,852 | $ | 376,747 | $ | 35,105 | 9.32 | % | |||||
Operating expenses | 213,286 | 221,820 | (8,534 | ) | (3.85 | )% | |||||||
Interest expense | 133.079 | 141.504 | (8,425 | ) | (5.95 | )% |
Revenue from leasing consists primarily of revenue from the Company’s strip center on Washington Road in Augusta, Georgia, revenue from the office building on old Evans Road in Evans, Georgia, and revenue from a ground lease with a retail store on outparcel property near the strip center. Revenue from leasing increased from 2003 to 2004 due primarily to the ground lease on the outparcel property which was not in effect in the six months ended March 31, 2004.
5
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Refer to the Company’s Form 10-KSB for the year ended September 30, 2003 for further information regarding the properties owned and lease terms.
Operating expenses for the six months ended March 31, 2004 have increased as compared to the six months ended March 31, 2003. The increase is primarily due to increases in depreciation, property taxes, and repairs and maintenance. The increase in depreciation expense is a result of additional depreciable leasing property acquired by the Company. The increase in property taxes is a result of an increase in the assessments by the taxing authorities. The increase in repairs and maintenance is a result of additional repair costs incurred related to the strip center. Management of the Company expects operating expenses for the remainder of the current fiscal year to be comparable to the present three-month period. Interest expense for the current period is comparable to 2003 and, on an annualized basis, is comparable to the Company’s interest expense for the fiscal year ended September 30, 2003.
During the quarter ended December 31, 2003 the Company sold the property located at 4269 Washington Road, Augusta, Georgia. The Company recognized a gain of $205,928 on the sale. The sale transaction has been structured as a tax-deferred like-kind exchange under Section 1031 of the Internal Revenue Code. The Company has identified potential replacement properties but has not completed the property acquisition. The funds for acquisition are being held by a third-party intermediary and are presented on the Company’s balance sheet as Replacement Property Funds.
The Company’s ratio of current assets to current liabilities at March 31, 2004 was .22. The ratio was .21 at March 31, 2003.
During the current quarter the Company satisfied liquidity needs through operating revenues. Management of the Company continues to expect future liquidity needs to be met from operating revenues of the Company.
The Company does not expect any significant change in the number of employees.
Cautionary Note Regarding Forward-Looking Statements:
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.
6
Table of Contents
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.
Item 6. Exhibits and Reports on Form 8-K
. |
(a)
| Exhibit No. | Description | |||
31.1 | Certification Pursuant to Section 302 of the Sarbanes – Oxley Act of 2002 | ||||
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 March 31, 2004. |
7
Table of Contents
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 | August 13, 2004 | ||
T. Greenlee Flanagin | Date | |||
President | ||||
Chief Executive Officer |
8