Company Quick10K Filing
Quick10K
Security Land & Development
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-09-18 Other Events
8-K 2018-12-26 Enter Agreement
8-K 2018-06-27 Enter Agreement
EDRG Rokk3R 203
JUVF Juniata Valley Financial 115
RXII RXI Pharmaceuticals 46
PLYZ Plyzer Technologies 36
NRIS Norris Industries 17
SNNY Sunnyside Bancorp 13
PRKA Parks America 13
YBAO YBCC 3
JONE Jones Energy 2
LBRD Liberty Broadband 0
SLDV 2019-06-30
Note 1 - Basis of Presentation
Note 2 - Investment Properties
Note 3 - Notes Payable
Note 4 - Income Taxes
Note 5 - Concentrations
Note 6 - Related Party Transactions
Note 7 - Sale of National Plaza
Note 8 - Purchase of Bobby Jones Ground Lease
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Reserved for Future Use
Item 5. Other Information
Item 6. Exhibits
EX-31 slex31.htm
EX-32 slex32.htm

Security Land & Development Earnings 2019-06-30

SLDV 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 sl10q.htm U

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

 

Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

 

 

 

For the quarterly period ended June 30, 2019

 

 

 

 

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 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     NO  

 

        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                                                                                                        Accelerated filer

Non-accelerated filer (Do not check if a smaller reporting company)                       Smaller reporting company

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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     NO  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

                                                                                                                             Yes      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 August 14, 2019

Common Stock, $0.10 Par Value

 

3,766,290 shares

  

 


Table of Contents

 

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

 

Part I

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2019 and September 30, 2018

1

 

 

 

 

Consolidated Statements of Operations for the Three Months and Nine Months ended June 30, 2019 and 2018

2

 

 

 

 

Consolidated Statements of Changes in Stockholders' Equity for the Three Months and Nine Months ended June 30, 2019 and 2018

3

 

 

 

 

Consolidated Statements of Cash Flows for the Nine Months ended June 30, 2019 and 2018

4

 

 

 

 

Notes to the Consolidated Financial Statements

5-11

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations   

12-14

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

14

 

 

 

Item 4.

Controls and Procedures

14

 

 

 

Part II

OTHER INFORMATION

15

 

 

 

Item 1.

Legal Proceedings

15

 

 

 

Item 1A.

Risk Factors

15

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

15

 

 

 

Item 3.

Defaults Upon Senior Securities

15

 

 

 

Item 4.

Reserved for Future Use

15

 

 

 

Item 5.

Other Information

15

 

 

 

Item 6.

Exhibits

15

 

 

 

 

SIGNATURES

16

 

 

 

 

 


 

 

PART I.  FINANCIAL INFORMATION

 

 

 

 

 

 

 ITEMS 1.  Financial Statements

 SECURITY LAND AND DEVELOPMENT CORPORATION

 CONSOLIDATED BALANCE SHEETS

 

June 30

 

September 30

 

2019

 

2018

 

 (unaudited)

 

 (audited)

        ASSETS

 CURRENT ASSETS

   

 Cash

$

2,054,998

$

493,446

 Receivables from tenants, net of allowance of  $73,947 and
$73,927 at June 30, 2019 and September 30, 2018, respectively

 

125,008

 

    412,008

 Prepaid property taxes

 

                        -

 

   27,555

   

 Total current assets

 

2,180,006

 

933,009

 INVESTMENT PROPERTIES

   

 Investment properties for lease, net of accumulated depreciation and amortization

 

18,773,545

 

 6,554,718

 Land and improvements held for investment or development

 

  3,478,868

 

  3,804,728

   
 

 22,252,413

 

10,359,446

 OTHER ASSETS

 

 244,286

 

 12,716

   

 TOTAL ASSETS

$

24,676,705

$

11,305,171

 

        LIABILITIES AND STOCKHOLDERS' EQUITY

 CURRENT LIABILITIES

   

 Accounts payable and accrued expenses

$

251,507

$

234,381

 Income taxes payable

 

 329,260

 

        75,630

 Current maturities of notes payable

 

138,984

 

    407,554

   

 Total current liabilities

 

719,751

 

717,565

 LONG-TERM LIABILITIES

   

 Notes payable, less current portion and deferred financing cost

 

   1,191,927

 

  3,928,690

 Deferred income taxes

 

3,924,790

 

  1,006,252

   

 Total long-term liabilities

 

  5,116,717

 

  4,934,942

   

 Total liabilities

 

5,836,468

 

  5,652,507

 STOCKHOLDERS' EQUITY

   

 Common stock, par value $.10 per share, 30,000,000 shares authorized;

   

      3,766,290 shares issued and outstanding at June 30, 2019 and September 30, 2018

 

      376,629

 

     376,629

 Retained Earnings

 

18,463,608

 

5,276,035

   

 Total Stockholders' Equity

 

18,840,237

 

 5,652,664

   

 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

 24,676,705

$

 11,305,171

   

 The accompanying notes are an integral part of these consolidated financial statements.

 -1-

 

 


 

SECURITY LAND AND DEVELOPMENT CORPORATION

 CONSOLIDATED STATEMENTS OF OPERATIONS

 For the Three Months

 For the Nine Months

 Ended June 30,

 Ended June 30,

 2019

 2018

 2019

 2018

 (unaudited)

 (unaudited)

 (unaudited)

 (unaudited)

 OPERATING REVENUE

 Rent Revenue

 $         425,514

 $         418,894

 $     1,255,632

 $      1,321,191

 OPERATING EXPENSES

 Depreciation and amortization

284,906

 48,333

  646,988

 145,000

 Property taxes

 72,116

 70,024

  202,513

 210,071

 Payroll and related costs

  26,750

 23,113

  885,946

 114,286

 Insurance and utilities

  1,320

 24,897

  1,586

 42,921

 Repairs and maintenance

     250

 14,287

 10,074

 32,994

 Professional services

  9,080

 15,535

140,098

 65,802

 Bad debt expenses

  (3,457)

  -

 20

 -

 Other

  2,378

  (8,626)

 50,469

   (3,337)

 Total Operating Expenses

  393,343

 187,563

 1,937,694

  607,737

 Operating (Loss) Income

  32,171

   231,331

 (682,062)

  713,454

 OTHER INCOME (EXPENSE)

 Gain on sale

                               -

  -

 18,367,269

                               -

 Interest expense, net

 (9,189)

 (56,614)

 (58,095)

 (172,279)

 Total Other Income (Expense)

 (9,189)

(56,614)

 18,309,174

 (172,279)

 Income Before Income Taxes

 22,982

 174,717

 17,627,112

  541,175

 INCOME TAX PROVISION (BENEFIT)

 Income tax expense

 77,000

 54,640

  1,521,000

   178,460

 Income tax deferred (benefit) expense

 (17,210)

 (8,241)

  2,918,539

 (462,328)

 Total Income Tax Provision (Benefit)

  59,790

  46,399

  4,439,539

 (283,868)

 Net (Loss) Income

 $         (36,808)

 $         128,318

 $   13,187,573

 $         825,043

 PER SHARE DATA

Net (Loss) Income per Common Share,
basic and diluted

 $             (0.01)

 $               0.03

 $              3.50

 $               0.22

Weighted Average Shares Outstanding,
basic and diluted

 3,766,290

 3,766,290

 3,766,290

 3,766,290

 The accompanying notes are an integral part of these consolidated financial statements.

 -2-

 

 


 

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 Common

 

 Retained

 

 Stockholders'

 

 

 Stock

 

 Earnings

 

 Equity

 

 

 

 

 

 

 

Balance, September 30, 2017

 

 $        379,719

 

 $        4,505,515

 

 $         4,885,234

     Net Income

 

            -

 

 565,622

 

  565,622

     Purchase and retirement of common stock

 

  (2,455)

 

 (40,425)

 

  (42,880)

Balance, December 31, 2017 (unaudited)

 

 377,264

 

 5,030,712

 

  5,407,976

     Net Income

 

           -

 

    131,103

 

 131,103

     Purchase and retirement of common stock

 

    (635)

 

   (10,473)

 

    (11,108)

Balance, March 31, 2018 (unaudited)

 

376,629

 

 5,151,342

 

  5,527,971

     Net Income

 

           -

 

    128,318

 

 128,318

     Purchase and retirement of common stock

 

           -

 

         -

 

     -

Balance, June 30, 2018 (unaudited)

 

376,629

 

 5,279,660

 

  5,656,289

     Net Income

 

           -

 

     (3,631)

 

 (3,631)

     Purchase and retirement of common stock

 

           -

 

       6

 

    6

Balance, September 30, 2018

 

376,629

 

 5,276,035

 

   5,652,664

     Net Income

 

            -

 

 13,046,038

 

 13,046,038

Balance, December 31, 2018 (unaudited)

 

 376,629

 

 18,322,073

 

 18,698,702

     Net Income

 

           -

 

    178,343

 

   178,343

Balance, March 31, 2019 (unaudited)

 

                     376,629

 

  18,500,416

 

18,877,045

     Net Income

 

           -

 

(36,808)

 

(36,808)

Balance, June 30, 2019 (unaudited)

 

376,629

 

18,463,608

 

18,840,237

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

-3-

 

 

 


 

SECURITY LAND AND DEVELOPMENT CORPORATION

  CONSOLIDATED STATEMENTS OF CASH FLOWS

 For the Nine Months

 Ended June 30

 2019

 2018

 (unaudited)

 (unaudited)

 OPERATING ACTIVITIES

 Net income

 $ 13,187,573

 $     825,043

 Adjustments to reconcile net income to 

 net cash provided by

 Operating Activities:

 Gain on sale

   (18,367,269)

                      -

 Bad debts

               20

              8,886

 Deferred financing cost

           (16,146)

                      -

 Depreciation and amortization

          643,916

          145,000

 Interest on deferred financing

               3,072

             3,999

 Deferred income tax

       2,918,538

       (466,641)

 Changes in deferred and accrued amounts

          341,005

         35,509

 Net Cash (Used In) Provided By Operating Activities

     (1,289,291)

        551,796

 INVESTING ACTIVITIES

 Additions to investment properties and other assets

 for properties held for lease

   (15,157,916)

                      -

 Proceeds from sale of investment properties and other

 assets held for lease

    21,017,164

                      -

 Net Cash Provided By Investing Activities

       5,859,248

                      -

 FINANCING ACTIVITIES

 Purchase and retirement of common stock

                        -

         (53,988)

 Principal payments on notes payable

     (3,008,405)

       (289,877)

 Net Cash used In Financing Activities

     (3,008,405)

       (343,865)

 Net Increase in Cash

       1,561,552

          207,931

 CASH, BEGINNING OF PERIOD

          493,446

        254,522

 CASH, END OF PERIOD

 $   2,054,998

 $     462,453

 SUPPLEMENTAL CASH FLOW INFORMATION:

 Cash paid for interest

 $        89,820

 $     168,634

 Cash paid for income taxes

 $   1,267,370

 $     175,510

 The accompanying notes are an integral part of these consolidated financial statements.

 -4-

 

 

 


 

 SECURITY LAND AND DEVELOPMENT CORPORATION

 

 Notes to the Consolidated Financial Statements

 

Note 1 - Basis of Presentation

 

The accompanying unaudited consolidated financial statements are prepared in accordance with instructions for Form 10-Q, Article 8 of Regulation S-X 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-K for the year ended September 30, 2018 when reviewing these consolidated 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.

  

Significant 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 is 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 its 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-K for the year ended September 30, 2018 for further information regarding its critical accounting policies.

 

 

(Continued)

 

 -5-

 


Note 1 - Basis of Presentation, Continued

 

Recently Adopted Accounting Standards

 

In May 2014, the FASB issued guidance to change the recognition of revenue from contracts with customers in future periods. The core principle of the new guidance is that an entity should recognize revenue to reflect the transfer of goods and services to customers in an amount equal to the consideration the entity receives or expects to receive. The guidance is effective for the Company for reporting periods beginning October 1, 2018. We evaluated the revenue recognition for all contracts within this scope under existing accounting standards and under the new revenue recognition ASU and confirmed that there were no differences in the amounts recognized or the pattern of recognition. Therefore, the adoption of this ASU did not result in an adjustment to our retained earnings on October 1, 2018.

 

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 is effective for the Company for reporting periods beginning October 1, 2018. The Company applied the guidance using a modified retrospective approach.  

 

In March 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The amendments are effective for the Company for reporting periods beginning October 1, 2018.

 

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments are effective for the Company for reporting periods beginning October 1, 2018.

 

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments are effective for the Company for reporting periods beginning October 1, 2018.

 

In December 2016, the FASB issued technical corrections and improvements to the Revenue from Contracts with Customers Topic. These corrections make a limited number of revisions to several pieces of the revenue recognition standard issued in 2014. The effective date and transition requirements for the technical corrections are effective for the Company for reporting periods beginning October 1, 2018. The Company applied the guidance using a modified retrospective approach.

 

In November 2017, the FASB updated the Income Statement and Revenue from Contracts with Customers Topic of the Accounting Standards Codification. The amendments incorporate into the Accounting Standards Codification recent SEC guidance related to revenue recognition. The amendments were effective upon issuance.

 

Recently Issued Accounting Standards

 

In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No. 2016-2, Leases (Topic 842), which provides the principles for the recognition, measurement, presentation and disclosure of leases. This ASU significantly changes the accounting for leases by requiring lessees to recognize assets and liabilities for leases greater than 12 months on their balance sheet. The lessor model stays substantially the same; however, there were modifications to conform lessor accounting with the lessee model, eliminate real estate specific guidance, further define certain lease and non-lease components, and change the definition of initial direct costs of leases requiring significantly more leasing related costs to be expensed upfront.

 

                                                                                                                                                                                (Continued)

 

 -6-

 

 


 

Note 1 - Basis of Presentation, Continued

 
Recently Issued Accounting Standards, continued

 

The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows lessors to elect a practical expedient by class of underlying assets to not separate non-lease components from the lease component if certain conditions are met. The lessor's practical expedient election would be limited to circumstances in which the non-lease components otherwise would be accounted for under the new revenue guidance and both (i) the timing and pattern of transfer are the same for the non-lease component and the related lease component and (ii) the lease component would be classified as an operating lease. The Company expects to elect the practical expedient which would allow the Company the ability to combine the lease and non-lease components if the underlying asset meets the criteria above. ASU 2018-11 also includes an optional transition method in addition to the existing requirements for transition to the new standard by recognizing a cumulative effect adjustment to the opening balance sheet of retained earnings in the period of adoption. Consequently, a company's reporting for the comparative periods presented in the financial statements would continue to be in accordance with current GAAP (Topic 840).

    

In February 2016, the FASB amended the Leases topic of the Accounting Standards Codification to require all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease liability on the balance sheet at the date of lease commencement. Leases will be classified as either finance leases or operating leases. This distinction will be relevant for the pattern of expense recognition in the income statement. The amendments will be effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

 

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company's financial position, results of operations or cash flows.

 

 

 

 

 

 

 

 

 -7-

 

 


Note 2 - Investment Properties

 

Investment properties leased or held for lease to others under operating leases consisted of the following at
June 30, 2019 and September 30, 2018:

 

 

June 30,

2019

 

September 30,

2018

 

 

(unaudited)

 

(audited)

 

 

 

 

 

 

 

 

National Plaza building, land and improvements

$              

 

$              

5,322,260 

 

Bobby Jones Ground Lease, land and lease intangible

Evans Ground Lease, land and improvements

 

15,044,916 

2,382,674 

 

 

2,382,673 

 

Wrightsboro Road building, land and improvements

 

2,042,690 

 

 

1,929,690 

 

Commercial land and improvements

 

3,478,868 

 

 

3,804,728 

 

 

 

22,949,148 

 

 

13,439,351 

 

Less accumulated depreciation and amortization

 

(696,735)

 

 

(3,079,905)

 

 

 

 

 

 

 

 

Investment properties for lease, net of depreciation

$              

22,252,413 

 

$              

10,359,446 

 

and amortization

 

 

 

 

 

 

 

Depreciation and amortization expense totaled approximately $285,000 and $47,000 for the three-month periods ended June 30, 2019 and 2018, respectively and approximately $647,000 and $141,000 for the nine-month periods ended June 30, 2019 and 2018, respectively.  

 

National Plaza is a retail strip center located on Washington Road in Augusta Georgia. Approximately 81% of the rentable space at National Plaza is leased to Publix Supermarkets, Inc., National Plaza's anchor tenant. The company sold this property in December of 2018 for $21,000,000 and recognized a gain on the sale of $18,367,269.  See Note 7 for additional disclosures regarding the National Plaza retail strip center.

 

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 required annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16. The lessee has an option to renew in 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.

 

In September of 2015, the Company purchased a commercial building consisting of approximately 25,000 square feet of retail space and 27,000 square feet of warehouse space on approximately 3.5 acres of land located on Wrightsboro Road. The retail space is currently leased to a local retailer and rent commenced on October 1, 2015. The related lease term is 10 years with annual rental payments totaling $142,000, paid monthly, increasing to $153,000 per year in 2021. The warehouse space is available for lease. The Company is recognizing rents on a straight-line basis over the lease term. 

 

 

 

 

 

 

 

 

                                                                                                                                                                                (Continued)

 

 -8-

 


 

Note 2 - Investment Properties, continued

 

Purchase of Bobby Jones Ground Lease

 

In December of 2018, the Company purchased a tract of land, consisting of 19.32 acres, and a ground lease with a major discount retailer and building owned by the retailer for $15,044,916 using proceeds from the sale of National Plaza to fund the purchase, including $44,916 in transaction costs. The ground lease commenced on November 21, 2005 and the initial term expires on May 1, 2028.  The Company began recognizing rental income as of the date of closing. The original lease term is 20 years with sixteen five-year extension options.  Annual rental payments total $810,636 and rent is payable monthly.  The Company's management obtained an independent appraisal to determine the allocation of the purchase price, assigning $4,700,00 to land and $10,344,916 to the ground lease.  Per the appraisal, the Company's management also assumed the useful life of the lease should coincide with the remaining lease term, which is approximately 112 months, and has recorded amortization expense accordingly.

 

The Company 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.  This 1.1-acre parcel was included in the sale of the National Plaza investment property. The aggregate costs of these investment properties held for investment or development was $3,478,868 and $3,804,728 at June 30, 2019 and September 30, 2018, respectively.

 

Refer to the Company's Form 10-K for the year ended September 30, 2018 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:

      

 

June 30,
2019

(unaudited)

 

September 30,
2018

(audited)

 

A note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents.   The note was payable in monthly installments of $33,050, through August 2027, and accrued interest at an annual fixed rate of 4.3%.  The note payable was collateralized by National Plaza.  In December of 2018 the Company sold National Plaza and used a portion of the proceeds to pay off this note.

 

 

 

 

 

 $                     -

 

 

 

 

 

$         2,925,424

 

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 $17,896, including principal and interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%.  

1,358,165

 

1,457,207

 

 

1,358,165

 

4,382,631

Less deferred financing costs

(27,254)

 

(46,387)

Less current maturities of notes payable

         (138,984)

 

(407,554)

 

 

$    1,191,927

 

$       3,928,690

 

 -9-

 


 

Note 4 - Income Taxes                                                                                                                                                      

 

Income taxes have been provided using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax laws and rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

 

Deferred income taxes are the result of qualified tax-free exchanges of property transacted in current and prior years and reporting depreciation differently for income tax purposes.  The tax effects of temporary differences that give rise to the deferred tax liability are as follows as of:

 

 

June 30,

2019

 

September 30,
2018

Deferred income tax liabilities:

 

 

 

Basis in Investment Properties and Straight-line Rents

 

 

 

Receivable

$         3,924,790

 

$            1,006,252

 

Taxable gains deferred by the Company in prior years and in the current year qualified for tax-free like-kind exchanges. These deferred gains for tax reporting comprise a substantial portion of the Company's deferred income tax liabilities as of June 30, 2019 and September 30, 2018, net of the effects of depreciation.

                                                                                                                                                                               

The provision (benefit) for income taxes is as follows:

 

 

 

For the nine months ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Current expense

 

$

1,521,000

 

 

$

178,460

 

Deferred expense (benefit) 

 

 

2,918,539

 

 

 

(462,328

)

 

 

 

 

 

 

 

 

 

 

 

$

4,439,539

 

 

$

(283,868

)

 

 

The provision for income taxes for the nine months ended June 30, 2019 and 2018 differs from the amount obtained by applying the U.S. federal and state income tax rate to pretax income due to the following:

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

 

 

Net income before tax

 

$

17,627,112

 

 

$

541,175

 

 

 

 

 

 

 

 

 

 

Expected federal tax expense at June,

 

 

 

 

 

 

 

 

2019 and 2018 is 21% and 24.25% respectively

 

 

            3,701,694

 

 

 

               131,235

 

State tax expense, net of federal benefit 

 

 

                702,650

 

 

 

47,225

 

Federal (benefit) expense of tax rate change

 

 

-

 

 

 

(462,328

 

)

Other expense

    

 

          35,195

 

 

 

                  -

 

 

 

 

 

 

 

 

 

 

Tax expense (benefit)

 

$

4,439,539

 

 

$

(283,868

)

 

 -10-

 


Note 5 - Concentrations

 

Substantially all of the Company's assets consist of real estate located in Richmond and Columbia Counties in the state of Georgia and in Aiken County, South Carolina. Substantially all of the Company's rental revenues were earned from four of the Company's investment properties, National Plaza, the Evans Ground Lease, the Bobby Jones Ground Lease and the Wrightsboro Road Lease, which comprise approximately 13%, 40%, 38% and 9% of the Company's revenues, respectively, for the nine-month period ended June 30, 2019. The anchor tenant for National Plaza, Publix Supermarkets, Inc. ("Publix"), a regional food supermarket chain, leased approximately 81% of the space at National Plaza. Prior to the sale of National Plaza in December of 2018 the Company generated approximately 29% of its revenues through its lease with Publix.  See Note 7 for additional disclosures regarding the National Plaza retail strip center.

 

Note 6 - Related Party Transactions

 

During the nine months ended June 30, 2019, the Company paid a stockholder who is also the son of the President for accounting services. The Company's Board of Directors believes that the accounting services paid to the son of its President were not in excess of prices that would have been paid had the Company obtained accounting services from other sources.

 

In December of 2018, the Company paid bonuses of $787,500 to stockholders, who are also board members, related to the sale of National Plaza which is included in payroll and related costs.

 

In December of 2018, the Company paid legal fees of $25,000 to a stockholder, who is also a board member, related to resolving an operational matter with a tenant at National Plaza.

 

Note 7 - Sale of National Plaza

 

On June 27, 2018, the Company entered into an agreement with WSQ, LLC, a Georgia Limited Liability Company, for the sale of its retail strip center (the "National Plaza") along with two adjoining outparcels, located on Washington Road in Augusta, Georgia for a combined total sales price of $21,000,000. The closing of the sale occurred on December 13, 2018, and the Company recognized a gain on the sale of $18,367,269.

 

Note 8 - Purchase of Bobby Jones Ground Lease

 

On December 20, 2018, the Company purchased a tract of land, consisting of 19.32 acres, and a ground lease with a major discount retailer and building owned by the retailer for $15,044,916 using proceeds from the sale of National Plaza to fund the purchase, including $44,916 in transaction costs. The ground lease commenced on November 21, 2005 and the initial term expires on May 1, 2028.  The Company's management obtained an independent appraisal and which was utilized to allocate the purchase price, assigning $4,700,000 to land and $10,344,916 to the ground lease.  Based on the appraisal the Company's management has assumed the useful life of the lease should coincide with the remaining lease term, which is approximately 112 months, and has recorded amortization expense accordingly. 

 

 -11-

 


 

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 nine months ended June 30, 2019, and a comparative analysis of the same period for 2018 are presented below:

 

 

 

 

 

 

 

 

Increase (decrease)

 

 

 

 

 

 

 

2019 compared to 2018

 

2019

 

2018

 

Amount

 

Percent

 

 

 

 

 

 

 

 

 

 

 

Rent revenue

$

1,255,632

 

$

1,321,191

 

$

(65,559)

 

-5%

Gain on sale

 

18,367,269

 

 

              -

 

 

18,367,269

 

           -

Operating expenses

 

1,937,694

 

 

607,737

 

 

1,329,957

 

219%

Interest expense, net

 

58,095

 

 

172,279

 

 

  (114,184)

 

-66%

Income tax expense (benefit), net

 

      4,439,539

 

 

(283,868)

 

 

4,723,407

 

-1,664%

Net income

 

13,187,573

 

 

825,043

 

 

12,362,530

 

1,498%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent revenues consist of rent revenue from the Company's National Plaza, a strip center on Washington Road in Augusta, Georgia, the Evans Ground Lease in Evans, Georgia and the Bobby Jones Ground Lease. The Company also earned rent revenue from a lease on the Wrightsboro Road property with an apparel and home goods retailer and a ground lease with an auto-repair service operation on an out-parcel of National Plaza.  The Company sold National Plaza on December 13, 2018 and purchased the Bobby Jones Ground Lease on December 20, 2018.

 

Refer to the Company's Form 10-K for the year ended September 30, 2018 for further information regarding the properties owned and their lease terms.

 

Total operating expenses for the nine months ended June 30, 2019 increased compared to the same period for 2018 due primarily to legal and professional fees and bonuses related to the sale of National Plaza and the purchase of the Bobby Jones Ground Lease in 2018 that were not incurred in the prior period.  Management expects operating expenses for the remainder of the current fiscal year to decrease significantly compared to the first nine months as no additional bonuses are expected to be awarded and due to the sale of National Plaza, resulting in a reduction in related operating expenses.

 

Interest expense for the nine months ended June 30, 2019 decreased compared to the same period in prior year 2018 due to paying off the loan collateralized by National Plaza with proceeds from the sale of National Plaza in December of 2018. Management expects interest expense for the remainder of the current fiscal year to decrease compared to the same period in prior year 2018.

 

Income tax expense for the nine months ended June 30, 2019 increased significantly compared to the same period for 2018 due to the sale of National Plaza and the related proceeds.

 

 

 

 

 -12-

 


 

The Company's results of operations for the three months ended June 30, 2019, and a comparative analysis of the same period for 2018 are presented below:

 

 

 

 

 

 

 

 

Increase (decrease)

 

 

 

 

 

 

 

2019 compared to 2018

 

2019

 

2018

 

Amount

 

Percent

 

 

 

 

 

 

 

 

 

 

 

Rent revenue

$

425,514

 

$

418,894

 

$

6,620

 

2%

Operating expenses

 

393,343

 

 

187,563

 

 

205,780

 

110%

Interest expense, net

 

9,189

 

 

56,614

 

 

  (47,425)

 

-84%

Income tax expense (benefit), net

 

      59,790

 

 

46,399

 

 

13,391

 

29%

Net (loss) income

 

(36,808)

 

 

128,318

 

 

(165,126)

 

-129%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rent revenues for the three months ended June 30, 2019 are comparable to rent revenue for the three months ended June 30, 2018.

 

Total operating expenses for the three months ended June 30, 2019 increased compared to the same period for 2018 due primarily to increased amortization expense related to the purchase of the Bobby Jones Ground Lease in 2018.  Management expects operating expenses for the remainder of the current fiscal year to be comparable to the three months ended June 30, 2019.

 

Interest expense net of interest income decreased for the three months ended June 30, 2019 compared to the same period in 2018 due to paying off the loan collateralized by National Plaza with proceeds from the sale of National Plaza in December of 2018. Management expects interest expense for the remainder of the current fiscal year to decrease compared to the same period in prior year 2018.

 

Income tax expense for the three months ended June 30, 2019 increased compared to the same period for 2018 due to higher rent revenue as noted above.

 

Liquidity and Sources of Capital:

 

The Company's ratio of current assets to current liabilities at June 30, 2019 was 303%. The ratio was 130% at September 30, 2018. 

 

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing, and the appreciation in investment properties (which can be sold or mortgaged, if necessary). See Note 8 for additional disclosures regarding National Plaza retail strip center.

 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $138,984. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

 

Cautionary Note Regarding Forward-Looking Statements:

 

The results of operations for the nine months ended June 30, 2019 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.

 

 -13-

 


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 ineffective.

 

(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.

          

           As of September 30, 2018, the Company's management evaluated the effectiveness of its internal control. Based on the evaluation, the Company's management concluded that the Company's internal control over financial reporting was ineffective as of September 30, 2018 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.

 

           Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company's financial condition, results of operations and cash flows for the periods presented. There has been no change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

 

 

 

 

 

 

 

 -14-

 


 

PART II - OTHER INFORMATION

 

Item  1. Legal Proceedings

 

None 

 

Item  1A. Risk Factors

 

The Company, as a smaller reporting company, is not required to provide the information required by this item.

 

Item  2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item  3. Defaults Upon Senior Securities

 

None

 

Item  4. Reserved for Future Use

 

Item  5. Other Information

 

Management of the Company notes that a Form 8-K was filed during the period to disclose the purchase of the Bobby Jones Ground Lease.  Management is not aware of any un-reported matters occurring during the period that would require any additional disclosures in a Form 8-K. 

 

Item  6. Exhibits

 

(a)

 

Exhibit No.

 

Description

 

 

31.1

 

Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002

 

 

 

 

 

 

 

32.1

 

Certification Pursuant to Section 906 of Sarbanes-Oxley Act of 2002

         

 

 

101

 

The following financial information from Security Land and Development Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 is formatted in Extensible Business Reporting Language (XBRL):  (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Changes in Stockholders' Equity, (iv) the Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements.

 

 

                                                                                                                       

 

 

                           

 

 

 

 

 

 

 

 

 -15-

 


SIGNATURES

 

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 14, 2019

 

 

 

 

 

 

T. Greenlee Flanagin

 

Date

 

 

President

 

 

 

 

Chief Executive Officer and Chief Financial Officer

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 -16-