SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
|
[X]
|
QUARTERLY
REPORT UNDER SECTION 13 OR
15(d)
OF THE SECURITIES
EXCHANGE ACT OF 1934
|
|
|
|
For
the quarterly period ended:
September 30,
2008
|
|
|
|
[ ]
|
TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
|
|
For
the transition period from ____________________ to
_____________
|
|
Commission
file number
__________________________
|
|
LANDMARK LAND COMPANY,
INC.
(Exact
Name of Registrant as specified in its Charter)
|
|
DELAWARE
(State
or Other Jurisdiction of Incorporation or Organization)
|
77-0024129
(I.R.S.
Employer Identification No.)
|
|
2817 Crain Highway,
Upper Marlboro, Maryland
(Address
of Principal Executive Offices)
|
20774
(Zip
Code)
|
|
(301)
574-3330
(Registrant's
Telephone Number, Including Area Code)
|
|
______________________________________________________________________________________________
(Former
name, former address and former fiscal year, if changed since last
report)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or
15(d)
of the Securities
Exchange Act of 1934 during the preceding 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 reported 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 is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
|
[ ]
Yes [√] No
|
APPLICABLE
ONLY TO CORPORATE ISSUERS
The
number of shares outstanding of the issuer's common stock, $0.50 par value as of
November 12, 2008 was 7,567,530.
Landmark
Land Company, Inc.
INDEX
TO QUARTERLY REPORT ON FORM 10-Q
QUARTER
ENDED SEPTEMBER 30, 2008
|
PART I
|
FINANCIAL
INFORMATION
|
Page
Number
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Financial Statements
|
3
|
|
|
|
|
|
Condensed
Consolidated Balance Sheet as of September 30, 2008 (unaudited) and
December 31, 2007
|
4
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations (unaudited) for the three months and
nine months ended September 30, 2008 and 2007
|
6
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statement of Comprehensive Income (unaudited) for the three
months and nine months ended September 30, 2008 and 2007
|
7
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows (unaudited) for the nine months
ended September 30, 2008 and 2007
|
8
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|
|
|
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
9
|
|
|
|
|
|
|
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
14
|
|
|
|
|
|
Quantitative
and Qualitative Disclosures about Market Risk
|
17
|
|
|
|
|
|
Controls
and Procedures
|
17
|
|
|
|
PART
II
|
OTHER
INFORMATION
|
|
|
|
|
|
|
|
|
Legal
Proceedings
|
17
|
|
|
|
|
|
Risk
Factors
|
17
|
|
|
|
|
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
17
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|
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Defaults
Upon Senior Securities
|
17
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|
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Submission
of Matters to a Vote of Security Holders
|
17
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Other
Information
|
17
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|
|
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|
|
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|
|
Exhibits
|
17
|
|
|
|
|
Signatures
|
|
|
|
Exhibit
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IMPORTANT
ADVISORY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
|
This
report and the documents incorporated into this report contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 ("PSLRA"), including, but not limited to, statements relating to the
company's business objectives and strategy. Such forward-looking statements are
based on current expectations, management beliefs, certain assumptions made by
the company's management, and estimates and projections about the company's
industry. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "forecasts," "is likely," "predicts,"
"projects," "judgment," variations of such words and similar expressions are
intended to identify such forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict with respect to timing, extent,
likelihood and degree of occurrence. Therefore, actual results and outcomes may
differ materially from those expressed, forecasted, or contemplated by any such
forward-looking statements.
Factors
that could cause actual events or results to differ materially include, but are
not limited to, the following: early terminations of existing golf course
management agreements; the company's ability to expand its golf management
business; general demand for the company's services or products, intense
competition from other golf course managers and residential developers/builders;
the company's limited cash flow from operations; changes in laws and regulations
affecting the company and/or its services; the outcomes of future litigation and
contingencies; trends in the golf and housing industry; changes in local,
national and international economies; local and global uncertainties created by
the terrorist acts of September 11 and the current war against terrorism; risks
arising from natural disasters; risks involved in doing business in
foreign countries; and risks inherent in and associated with doing business in a
recreational and/or interest rate sensitive industry. Given these uncertainties,
investors are cautioned not to place undue reliance on any such forward-looking
statements.
Unless
required by law, the company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review the risk factors
set forth in other reports or documents that the company files from time to time
with the Securities and Exchange Commission (the "SEC"), particularly Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on
Form 8-K.
PART I – FINANCIAL INFORMATION
.
Item
1.
Condensed
Consolidated Financial Statements
|
Landmark
Land Company, Inc.
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Assets
|
|
(Unaudited)
|
|
|
|
|
|
Current
assets
|
|
|
Cash
and cash equivalents
|
|
$
|
1,154,430
|
|
|
$
|
4,934,820
|
|
|
Accounts
receivable
|
|
|
531,695
|
|
|
|
315,932
|
|
|
Receivable
from affiliates
|
|
|
672,497
|
|
|
|
733,771
|
|
|
Inventories
|
|
|
134,486
|
|
|
|
117,028
|
|
|
Other
current assets
|
|
|
140,225
|
|
|
|
235,128
|
|
|
Total
current assets
|
|
|
2,633,333
|
|
|
|
6,336,679
|
|
|
|
|
|
Real
estate and golf management contract rights acquired,
|
|
|
|
|
|
|
|
|
|
net
of accumulated amortization of $961,726 and $924,472
|
|
|
|
|
|
|
|
|
|
in
2008 and 2007, respectively
|
|
|
2,323,861
|
|
|
|
2,361,115
|
|
|
|
|
|
Real
estate
|
|
|
Real
estate held for sale
|
|
|
1,151,156
|
|
|
|
1,379,203
|
|
|
Real
estate held for or under development
|
|
|
14,037,949
|
|
|
|
14,477,550
|
|
|
Total
real estate
|
|
|
15,189,105
|
|
|
|
15,856,753
|
|
|
|
|
|
Property and equipment,
net of accumulated depreciation
|
|
|
of
$1,228,264 and $785,818 in 2008 and 2007, respectively
|
|
|
5,421,540
|
|
|
|
4,960,701
|
|
|
|
|
|
Other
assets
|
|
|
Investment
in unconsolidated affiliates
|
|
|
9,949,652
|
|
|
|
4,587,466
|
|
|
Receivable
from affiliates, non-current
|
|
|
592,650
|
|
|
|
-
|
|
|
Deposits
|
|
|
180,181
|
|
|
|
100,000
|
|
|
Deferred
tax assets
|
|
|
4,400,000
|
|
|
|
4,668,000
|
|
|
Total
other assets
|
|
|
15,122,483
|
|
|
|
9,355,466
|
|
|
|
|
|
Total
assets
|
|
$
|
40,690,322
|
|
|
$
|
38,870,714
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
|
Landmark
Land Company, Inc.
|
|
|
Condensed
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Liabilities
and Stockholders' Equity
|
|
(Unaudited)
|
|
|
|
|
|
Current
liabilities
|
|
|
Current
portion of notes payable to others
|
|
$
|
12,682,675
|
|
|
$
|
8,353,641
|
|
|
Current
portion of liabilities to affiliates
|
|
|
1,192,074
|
|
|
|
1,192,074
|
|
|
Accounts
payable and accrued expenses
|
|
|
571,210
|
|
|
|
623,629
|
|
|
Accrued
payroll and related expenses
|
|
|
338,793
|
|
|
|
326,309
|
|
|
Accrued
interest due affiliates
|
|
|
935,377
|
|
|
|
845,845
|
|
|
Accrued
interest due others
|
|
|
350,531
|
|
|
|
300,168
|
|
|
Other
liabilities and deferred credits
|
|
|
130,810
|
|
|
|
311,393
|
|
|
Current
income taxes
|
|
|
7,561
|
|
|
|
76,000
|
|
|
Total
current liabilities
|
|
|
16,209,031
|
|
|
|
12,029,059
|
|
|
|
|
|
Notes payable to others, due
after one year
|
|
|
3,381,817
|
|
|
|
7,941,090
|
|
|
|
|
|
Total
liabilities
|
|
|
19,590,848
|
|
|
|
19,970,149
|
|
|
|
|
|
Stockholders'
equity
|
|
|
Preferred
stock, Series C, non-voting, $.50 par value; $100
|
|
|
|
|
|
|
|
|
|
liquidation
value; $10 cumulative annual dividend; 50,000 shares
|
|
|
|
|
|
|
|
|
|
authorized;
20,000 shares and 10,000 shares issued and outstanding
|
|
|
|
|
|
|
in
2008 and 2007 respectively, stated at liquidation value
|
|
|
2,000,000
|
|
|
|
1,000,000
|
|
|
Common
stock, $.50 par value; 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
8,804,468
shares issued; 7,567,530 shares outstanding
|
|
|
4,402,234
|
|
|
|
4,402,234
|
|
|
Additional
paid-in capital
|
|
|
30,487,840
|
|
|
|
30,424,367
|
|
|
Treasury
stock, at cost, 1,236,938 shares
|
|
|
(1,299,820
|
)
|
|
|
(1,299,820
|
)
|
|
Accumulated
deficit
|
|
|
(14,433,606
|
)
|
|
|
(15,560,779
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(57,174
|
)
|
|
|
(65,437
|
)
|
|
Total
stockholders' equity
|
|
|
21,099,474
|
|
|
|
18,900,565
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
40,690,322
|
|
|
$
|
38,870,714
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
|
Landmark
Land Company, Inc.
|
|
|
Condensed
Consolidated Statements of Operations
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
|
Nine
months ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate sales
|
|
$
|
1,207,699
|
|
|
$
|
4,149,806
|
|
|
$
|
4,460,011
|
|
|
$
|
17,489,740
|
|
|
Golf
course revenue
|
|
|
201,910
|
|
|
|
283,506
|
|
|
|
950,175
|
|
|
|
1,025,215
|
|
|
Golf
merchandise sales
|
|
|
56,302
|
|
|
|
63,552
|
|
|
|
204,410
|
|
|
|
219,704
|
|
|
Food
and beverage sales
|
|
|
211,446
|
|
|
|
62,252
|
|
|
|
529,205
|
|
|
|
235,852
|
|
|
Management
and consulting fees
|
|
|
835,094
|
|
|
|
478,548
|
|
|
|
2,752,065
|
|
|
|
1,676,678
|
|
|
Reimbursement
of out-of-pocket expenses
|
|
|
344,297
|
|
|
|
401,945
|
|
|
|
1,162,952
|
|
|
|
1,214,386
|
|
|
Total
revenues
|
|
|
2,856,748
|
|
|
|
5,439,609
|
|
|
|
10,058,818
|
|
|
|
21,861,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
of revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of real estate sold
|
|
|
773,011
|
|
|
|
2,486,071
|
|
|
|
3,044,995
|
|
|
|
11,438,259
|
|
|
Real
estate operating expenses
|
|
|
443,434
|
|
|
|
477,762
|
|
|
|
1,492,546
|
|
|
|
1,482,268
|
|
|
Cost
of golf merchandise sold
|
|
|
37,023
|
|
|
|
37,863
|
|
|
|
140,032
|
|
|
|
133,585
|
|
|
Cost
of food and beverage sold
|
|
|
97,056
|
|
|
|
30,181
|
|
|
|
233,075
|
|
|
|
110,386
|
|
|
Golf
operating expenses
|
|
|
558,513
|
|
|
|
473,109
|
|
|
|
1,631,990
|
|
|
|
1,383,083
|
|
|
Out-of-pocket
expenses
|
|
|
344,297
|
|
|
|
401,945
|
|
|
|
1,162,952
|
|
|
|
1,214,386
|
|
|
Management
and consulting payroll and related expenses
|
|
|
1,029,040
|
|
|
|
931,621
|
|
|
|
3,187,959
|
|
|
|
2,887,795
|
|
|
Depreciation
and amortization
|
|
|
148,386
|
|
|
|
151,237
|
|
|
|
481,541
|
|
|
|
438,313
|
|
|
Total
costs of revenue
|
|
|
3,430,760
|
|
|
|
4,989,789
|
|
|
|
11,375,090
|
|
|
|
19,088,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
(574,012
|
)
|
|
|
449,820
|
|
|
|
(1,316,272
|
)
|
|
|
2,773,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General,
administrative and other expenses
|
|
|
(482,200
|
)
|
|
|
(614,497
|
)
|
|
|
(1,553,845
|
)
|
|
|
(1,855,558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in profit (loss) of unconsolidated affiliates
|
|
|
(342,068
|
)
|
|
|
(12,444
|
)
|
|
|
5,340,493
|
|
|
|
(137,199
|
)
|
|
Interest
income
|
|
|
2,787
|
|
|
|
69,173
|
|
|
|
51,387
|
|
|
|
188,641
|
|
|
Interest
expense
|
|
|
(144,982
|
)
|
|
|
(155,482
|
)
|
|
|
(469,551
|
)
|
|
|
(448,522
|
)
|
|
Total
other income (expenses)
|
|
|
(484,263
|
)
|
|
|
(98,753
|
)
|
|
|
4,922,329
|
|
|
|
(397,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) before income taxes
|
|
|
(1,540,475
|
)
|
|
|
(263,430
|
)
|
|
|
2,052,212
|
|
|
|
520,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
and state income taxes
|
|
|
3,271
|
|
|
|
47,442
|
|
|
|
(280,008
|
)
|
|
|
(308,718
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,537,204
|
)
|
|
$
|
(215,988
|
)
|
|
$
|
1,772,204
|
|
|
$
|
212,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
income (loss) per common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.22
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
income (loss) per common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.22
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,725,538
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
|
Landmark
Land Company, Inc.
|
|
|
Condensed
Consolidated Statements of Comprehensive Income
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Three
months ended September 30,
|
|
|
Nine
months ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,537,204
|
)
|
|
$
|
(215,988
|
)
|
|
$
|
1,772,204
|
|
|
$
|
212,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(632
|
)
|
|
|
(8,817
|
)
|
|
|
8,263
|
|
|
|
(15,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$
|
(1,537,836
|
)
|
|
$
|
(224,805
|
)
|
|
$
|
1,780,467
|
|
|
$
|
197,120
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
|
Landmark
Land Company, Inc.
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
|
|
Nine
Months Ended September 30, 2008 and 2007
|
|
|
(Unaudited)
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income for the period
|
|
$
|
1,772,204
|
|
|
$
|
212,144
|
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
|
provided
(used) by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
481,541
|
|
|
|
438,313
|
|
|
Director
and employee bonus paid in stock or options
|
|
|
63,473
|
|
|
|
102,728
|
|
|
Equity
in (profit) loss of unconsolidated affiliates
|
|
|
(5,340,493
|
)
|
|
|
137,199
|
|
|
(Increase)
decrease in
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(215,763
|
)
|
|
|
2,321,301
|
|
|
Receivable
from affiliates
|
|
|
(544,807
|
)
|
|
|
175,205
|
|
|
Inventories
|
|
|
(17,458
|
)
|
|
|
(12,262
|
)
|
|
Other
current assets
|
|
|
94,903
|
|
|
|
27,877
|
|
|
Deposits
|
|
|
(80,181
|
)
|
|
|
35,800
|
|
|
Deferred
tax assets
|
|
|
268,000
|
|
|
|
93,000
|
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(52,419
|
)
|
|
|
(322,657
|
)
|
|
Accrued
payroll and related expenses
|
|
|
12,484
|
|
|
|
81,096
|
|
|
Accrued
interest
|
|
|
139,895
|
|
|
|
90,145
|
|
|
Other
liabilities and deferred credits
|
|
|
(180,583
|
)
|
|
|
(1,113,064
|
)
|
|
Current
income taxes
|
|
|
(68,439
|
)
|
|
|
38,000
|
|
|
Net
cash provided (used) by operating activities
|
|
|
(3,667,643
|
)
|
|
|
2,304,825
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment , net
|
|
|
(50,380
|
)
|
|
|
(4,267,596
|
)
|
|
Purchase
and development of real estate inventory
|
|
|
(3,422,333
|
)
|
|
|
(14,909,521
|
)
|
|
Sale
of real estate inventory
|
|
|
3,235,238
|
|
|
|
11,622,192
|
|
|
Investment
in unconsolidated affiliate
|
|
|
-
|
|
|
|
(148,750
|
)
|
|
Net
cash (used) by investing activities
|
|
|
(237,475
|
)
|
|
|
(7,703,675
|
)
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds
from debt to others
|
|
|
2,445,595
|
|
|
|
18,157,593
|
|
|
Repayments
on debt to others
|
|
|
(2,675,836
|
)
|
|
|
(11,082,282
|
)
|
|
Sale
of preferred stock
|
|
|
1,000,000
|
|
|
|
-
|
|
|
Cash
dividends on common stock
|
|
|
(567,565
|
)
|
|
|
(571,271
|
)
|
|
Cash
dividends on preferred stock
|
|
|
(77,466
|
)
|
|
|
(75,000
|
)
|
|
Net
cash provided by financing activities
|
|
|
124,728
|
|
|
|
6,429,040
|
|
|
|
|
|
Net
increase (decrease) in cash during period
|
|
|
(3,780,390
|
)
|
|
|
1,030,190
|
|
|
|
|
|
Cash
balance, beginning of period
|
|
|
4,934,820
|
|
|
|
5,437,186
|
|
|
|
|
|
Cash
balance, end of period
|
|
$
|
1,154,430
|
|
|
$
|
6,467,376
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest, including $80,000 paid to affiliates in
|
|
|
|
|
|
|
|
|
|
2007
and $20,000 in 2008
|
|
$
|
729,231
|
|
|
$
|
846,666
|
|
|
Housing
units leased to others, transferred from Real estate held
for
|
|
|
|
|
|
|
|
|
|
development
to Property and equipment at cost
|
|
$
|
840,612
|
|
|
$
|
-
|
|
The
accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
Landmark
Land Company, Inc.
Notes
To Condensed Consolidated Financial Statements
(Unaudited)
1. Basis
of Presentation
The
accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for condensed interim financial
information and with the instructions to Form 10-Q and Article 3 of Regulation
S-X promulgated by the Securities and Exchange Commission. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the nine-month
period ended September 30, 2008 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31,
2008. There have been no significant changes to accounting policies
or critical estimates during the third quarter of 2008. For further
information, please refer to the audited financial statements and footnotes
thereto included in the company’s Form 10-K for the year ended December 31,
2007, as filed with the Securities and Exchange Commission.
The
accompanying financial statements include the assets, liabilities, revenues and
expenses of Landmark Land Company, Inc. and its wholly-owned subsidiaries,
Landmark of Spain, Inc., DPMG, Inc., LML Caribbean, LTD., Lake Presidential
Beverage Company, Inc., South Padre Island Development, L.P., and SPIBS,
LLC. The two entities related to the South Padre project, South Padre
Island Development, L.P. and SPIBS, LLC, are sometimes collectively referred to
as “South Padre”. In addition, South Padre Island Realty, LLC has
been formed to conduct brokerage activities at the South Padre
development. There was no activity in this entity during the third
quarter of 2008. All significant inter-company accounts and
transactions have been eliminated in consolidation.
Landmark of Spain, Inc.
owns a
50% interest in a Spanish company, Landmark Developments of Spain, SL (“Landmark
Spain”). Landmark of Spain, Inc. accounts for its investment on the
equity basis. Landmark Spain’s functional currency is the
Euro. Landmark Spain reported the following results for the periods
shown below, converted to US dollars at the approximate average rate of exchange
during each period:
|
|
|
Three
Months Ended September 30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
9,111
|
|
|
$
|
736,170
|
|
|
$
|
312,782
|
|
|
$
|
2,008,379
|
|
|
Gross
profit (loss)
|
|
$
|
(65,570
|
)
|
|
$
|
336,241
|
|
|
$
|
(354,327
|
)
|
|
|
745,913
|
|
|
Profit
(loss) from continuing operations
|
|
$
|
(65,570
|
)
|
|
$
|
336,241
|
|
|
$
|
(354,327
|
)
|
|
|
745,913
|
|
|
Net
income (loss)
|
|
$
|
(65,570
|
)
|
|
$
|
336,241
|
|
|
$
|
(354,327
|
)
|
|
|
745,913
|
|
The
company has a receivable from this affiliate of $606,081 as of September 30,
2008. In addition, the company has recorded cumulative losses
from this investment totaling $1,264,018 which have reduced its original capital
investment of $1,250,587 to a net negative carrying value of $13,431 at
September 30, 2008. The negative carrying value has been offset
against the receivable from this affiliate in the September 30, 2008 balance
sheet.
LML Caribbean, LTD
owns one
third interest in Apes Hill Development SRL (“Apes Hill”) and accounts for its
investment on the equity basis. Apes Hill began development and
marketing of a golf-oriented real estate project in Barbados in the fourth
quarter of 2005 and closed the first sales of residential lots in the fourth
quarter of 2007. Apes Hill’s functional currency is the Barbados
dollar. Apes Hill reported the following results for periods
shown below, converted to US dollars at the exchange rate of two Barbados
dollars to one US dollar:
|
|
|
Three Months Ended September
30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
$
|
1,059,373
|
|
|
|
-
|
|
|
$
|
32,182,248
|
|
|
|
-
|
|
|
Gross
profit (loss)
|
|
$
|
542,377
|
|
|
$
|
(541,707
|
)
|
|
$
|
19,052,088
|
|
|
$
|
(1,530,480
|
)
|
|
Profit
(loss) from continuing operations
|
|
$
|
(927,851
|
)
|
|
$
|
(541,707
|
)
|
|
$
|
16,552,968
|
|
|
$
|
(1,530,480
|
)
|
|
Net
profit (loss)
|
|
$
|
(927,851
|
)
|
|
$
|
(541,707
|
)
|
|
$
|
16,552,968
|
|
|
$
|
(1,530,480
|
)
|
Apes Hill
closed two lot sales in the third quarter of 2008 generating US $1,010,000 in
revenue. At September 30, 2008, Apes Hill reported 49 lots and 2
houses under contract with a total sales value of approximately US $52,172,000,
including a bulk sale of 30 lots to one purchaser with a sales value of
approximately US $31,157,000.
The
company has a receivable from Apes Hill in the amount of $646,813 at September
30, 2008 representing unpaid management fees and out-of-pocket
expenses. The amount is reported in the balance sheet as Receivable
from affiliates.
In
December 2005, the company’s subsidiary, DPMG Inc., entered into a limited
liability company agreement with V.O.B. Limited Partnership (“V.O.B.”), the
owner and developer of the approximately 1,200 acre Beechtree residential
development located near Upper Marlboro, Maryland (a suburb of Washington,
D.C.). Each of V.O.B. and DPMG Inc. owned 50% of
Presidential Golf Club, LLC
(“Presidential”). V.O.B. contributed approximately 240 acres of real
property to Presidential and each of V.O.B. and DPMG Inc. contributed $700,000
in equity for the development of an 18-hole championship golf
course. V.O.B. loaned Presidential the remaining funds to complete
the golf facility which DPMG Inc. manages.
During
the first quarter of 2008, DPMG Inc. and V.O.B. agreed to amendments to the
Presidential Golf Club, LLC operating agreement that restructured V.O.B.’s
contributions for the construction of the golf course and related facilities
effective July 31, 2007. Under the amended agreement, V.O.B. will
write off a portion of the cost of the golf course against its surrounding real
estate development and convert the remainder of its funding from debt to
equity. DPMG, Inc.’s $700,000 investment in Presidential now
represents a 7.45% ownership interest that the company accounts for using the
cost method. Presidential opened its golf course for play on May 1,
2008. Until that time substantially all costs were
capitalized. The company has a $25,684 receivable from Presidential,
representing current fees and reimbursements due at September 30, 2008, included
in the balance sheet as Receivable from affiliates.
Lake Presidential Beverage Company,
LLC
is a wholly owned subsidiary of the company formed on November 7,
2007 to hold the alcoholic beverage license and to operate the food and beverage
services for the Lake Presidential Golf Club in Maryland. The
beverage company breaks even on the food and beverage operations, paying lease
rentals to Lake Presidential Golf Club in the approximate amount of any revenues
in excess of operating expenses. The company’s statement of
operations for the period ended September 30, 2008 includes food and beverage
revenue of approximately $285,000 and a corresponding amount for cost of food
and beverage sold and for operating expenses, reflecting operations from May 1,
2008 when the club opened for business.
2. Earnings
Per Share
Earnings
per share (EPS) are computed using weighted average number of common shares
outstanding during the year. Diluted earnings per share reflect the
common stock options granted to employees, directors and legal counsel in 2006
and 2007. The following is a reconciliation of the numerators and
denominators used in the calculation of earnings per share:
|
|
|
Three
Months Ended
September
30,
|
|
|
Nine
Months Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Net
income (loss)
|
|
$
|
(1,537,204
|
)
|
|
$
|
(215,988
|
)
|
|
$
|
1,772,204
|
|
|
$
|
212,144
|
|
|
Less: Preferred
dividends
|
|
|
(27,466
|
)
|
|
|
(25,000
|
)
|
|
|
(77,466
|
)
|
|
|
(75,000
|
)
|
|
Net
income (loss) available to common shareholders
|
|
$
|
(1,564,670
|
)
|
|
$
|
(240,988
|
)
|
|
$
|
1,694,738
|
|
|
$
|
137,144
|
|
|
Weighted
average common shares outstanding
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
Incremental
shares from assumed exercise of dilutive options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
158,008
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,567,530
|
|
|
|
7,725,538
|
|
|
Basic
income (loss) per common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.22
|
|
|
$
|
0.02
|
|
|
Diluted
income (loss) per common share
|
|
$
|
(0.21
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
0.22
|
|
|
$
|
0.02
|
|
The
dilutive effect of the employee stock options and directors’ options is reported
using the treasury stock method.
3. Stock
Option Plans
The 2006
Landmark Land Company, Inc. Incentive Stock Option Plan (“Plan”) was adopted by
the Board of Directors on April 29, 2006 and approved by the shareholders on
November 18, 2006. Generally, options must be granted within ten
years of the plan adoption date, vest five years from the date of grant, and be
exercised within five years from the date of vesting.
A summary
of options issued to employees under the company’s incentive stock option plan
as of September 30, 2008, and changes during the nine months then ended is
presented below:
|
Options
|
|
Shares
|
|
Weighted-Average
Grant-Date
Fair Value
|
|
Outstanding
at January 1, 2008
|
|
708,000
|
|
$0.64
|
|
Granted
|
|
-
|
|
-
|
|
Vested
|
|
-
|
|
-
|
|
Forfeited
|
|
17,000
|
|
-
|
|
Outstanding
at September 30, 2008
|
|
691,000
|
|
$0.64
|
|
Exercisable
at September 30, 2008
|
|
-
|
|
-
|
During
the first nine months of 2008, the company recognized share-based compensation
costs in the amount of $63,473. As of September 30, 2008, there was
$291,504 of total unrecognized compensation costs related to non-vested
share-based compensation arrangements granted under the plan. That
cost is expected to be recognized over the remaining 4.2 years vesting period
for outstanding grants under the plan.
The
company has also entered into agreements with its outside directors and legal
counsel under which it granted options to purchase the company’s common
shares. Options to purchase a total of 300,000 shares have been
granted under these agreements with an exercise price equal to the fair market
value at the time of grant. These options vest immediately and expire
five years from the date of grant.
A summary
of options issued under the agreements with directors and legal counsel as of
September 30, 2008, and changes during the nine months then ended is presented
below:
|
Options
|
Shares
|
|
Weighted-Average
Exercise
Price
|
|
Weighted-
Average Remaining Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding
at January 1, 2008
|
300,000
|
|
$2.23
|
|
-
|
|
-
|
|
Granted
|
-
|
|
-
|
|
-
|
|
-
|
|
Exercised
|
-
|
|
-
|
|
-
|
|
-
|
|
Forfeited
or expired
|
-
|
|
-
|
|
-
|
|
-
|
|
Outstanding
at September 30, 2008
|
300,000
|
|
$2.23
|
|
3.2
years
|
|
-
|
|
Exercisable
at September 30, 2008
|
300,000
|
|
$2.23
|
|
3.2
years
|
|
-
|
There was
no related unrecognized cost related to the directors and legal counsel options
as of September 30, 2008.
4. Reclassifications
Certain
reclassifications have been made in the 2007 financial statements to conform to
the 2008 presentation. These changes had no effect on net
income.
5. Commitments
The
company’s subsidiary, South Padre, provides a one-year latent defects warranty
and a ten-year structural warranty on the houses it builds. The
accompanying financial statements include a provision for warranty expense
calculated as approximately .5% of gross house sales. The summary of
warranty accruals for the nine months ended September 30, 2008 and 2007
follows:
|
|
|
2008
|
|
|
2007
|
|
|
Warranty
accrual balance January 1,
|
|
$
|
132,165
|
|
|
$
|
146,635
|
|
|
Provision
for warranty
|
|
|
20,090
|
|
|
|
74,440
|
|
|
Payments
|
|
|
(55,413
|
)
|
|
|
(87,808
|
)
|
|
Warranty
accrual balance September 30,
|
|
$
|
96,842
|
|
|
$
|
133,267
|
|
6. Income
Taxes
The
company reported income before income taxes of $2,052,212 for the nine-month
period ended September 30, 2008. The provision for federal and state income
taxes is a net provision of $280,008 and is comprised of estimated current state
taxes of $12,008 and deferred federal and state taxes of $794,000 offset by a
decrease in the deferred tax asset valuation allowance in the amount of
$526,000. The deferred federal tax liability relates primarily to
income from a foreign affiliate that will be taxed in the United States only
when the profits are brought back to the US, at which time the liability is
expected to be offset by utilization of existing deferred tax benefits related
to net operating losses carried forward from prior years.
It should
be noted that the estimated net future benefit available to the company from all
its deferred tax positions is approximately $49,323,000 at September 30, 2008;
however, realization of that benefit is dependent on the company’s ability to
generate taxable income in the future. The company has established a
deferred tax asset valuation allowance to reduce the carrying value of the
deferred tax asset to an amount that is more likely than not to be realized in
the future. Based on a current evaluation of historical and
prospective earnings, the company decreased the valuation allowance during the
first nine months of 2008 by approximately $526,000 to a balance of $44,923,000,
reducing the net deferred tax benefit to $4,400,000 as of September 30,
2008.
The
company had no material unrecognized tax benefits at September 30, 2008, nor
does it expect any significant change in that status during the next 12
months. No accrued interest or penalties on uncertain tax positions
have been included on the statements of operations or the statement of financial
condition as of September 30, 2008. Should the company adopt tax
positions for which it would be appropriate to accrue interest and penalties,
such costs would be reflected in the tax expense for the period in which such
costs accrued. The company is subject to U.S. federal income tax and
to several state and foreign jurisdictions. Returns filed for tax
periods ending after December 31, 2003 are still open to examination by those
relevant taxing authorities.
7.
Segment Information
The
company’s operations are comprised of four segments – real estate, golf,
management services, and corporate investments and
administration. The following table summarizes the three months and
nine months ended September 30, 2008 and 2007 operations by
segment:
|
|
|
Three
Months Ended September 30, 2008
|
|
|
|
|
Real
Estate
|
|
|
Golf
|
|
|
Management
|
|
|
Corporate
|
|
|
Total
|
|
|
Revenue
|
|
$
|
1,207,699
|
|
|
$
|
469,658
|
|
|
$
|
1,179,391
|
|
|
$
|
-
|
|
|
$
|
2,856,748
|
|
|
Costs
of revenue
|
|
|
(1,216,445
|
)
|
|
|
(692,592
|
)
|
|
|
(1,373,337
|
)
|
|
|
-
|
|
|
|
(3,282,374
|
)
|
|
Depreciation
and amortization
|
|
|
(8,235
|
)
|
|
|
(31,036
|
)
|
|
|
(7,472
|
)
|
|
|
(101,643
|
)
|
|
|
(148,386
|
)
|
|
Operating (loss)
|
|
|
(16,981
|
)
|
|
|
(253,970
|
)
|
|
|
(201,418
|
)
|
|
|
(101,643
|
)
|
|
|
(574,012
|
)
|
|
General
and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(482,200
|
)
|
|
|
(482,200
|
)
|
|
Other (expenses)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(484,263
|
)
|
|
|
(484,263
|
)
|
|
Federal
& state income taxes
|
|
|
8,316
|
|
|
|
102,799
|
|
|
|
84,723
|
|
|
|
(192,567
|
)
|
|
|
3,271
|
|
|
Net (loss)
|
|
$
|
(8,665
|
)
|
|
$
|
(151,171
|
)
|
|
$
|
(116,695
|
)
|
|
$
|
(1,260,673
|
)
|
|
$
|
(1,537,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
16,427,238
|
|
|
$
|
1,090,960
|
|
|
$
|
5,468,489
|
|
|
$
|
14,477,652
|
|
|
$
|
37,464,339
|
|
|
Other
assets
|
|
|
604,624
|
|
|
|
247,740
|
|
|
|
1,562,009
|
|
|
|
811,610
|
|
|
|
3,225,983
|
|
|
Total
assets
|
|
$
|
17,031,862
|
|
|
$
|
1,338,700
|
|
|
$
|
7,030,498
|
|
|
$
|
15,289,262
|
|
|
$
|
40,690,322
|
|
|
|
|
|
|
|
Three
Months Ended September 30, 2007
|
|
|
|
|
Real
Estate
|
|
|
Golf
|
|
|
Management
|
|
|
Corporate
|
|
|
Total
|
|
|
Revenue
|
|
$
|
4,149,806
|
|
|
$
|
409,310
|
|
|
$
|
880,493
|
|
|
$
|
-
|
|
|
$
|
5,439,609
|
|
|
Costs
of revenue
|
|
|
(2,963,833
|
)
|
|
|
(541,153
|
)
|
|
|
(1,333,566
|
)
|
|
|
-
|
|
|
|
(4,838,552
|
)
|
|
Depreciation
and amortization
|
|
|
(8,221
|
)
|
|
|
(32,495
|
)
|
|
|
(8,452
|
)
|
|
|
(102,069
|
)
|
|
|
(151,237
|
)
|
|
Operating income
(loss)
|
|
|
1,177,752
|
|
|
|
(164,338
|
)
|
|
|
(461,525
|
)
|
|
|
(102,069
|
)
|
|
|
449,820
|
|
|
General
and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(614,497
|
)
|
|
|
(614,497
|
)
|
|
Other (expenses)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(98,753
|
)
|
|
|
(98,753
|
)
|
|
Federal
& state income taxes
|
|
|
(1,165,406
|
)
|
|
|
107,740
|
|
|
|
380,721
|
|
|
|
724,387
|
|
|
|
47,442
|
|
|
Net
income (loss)
|
|
$
|
12,346
|
|
|
$
|
(56,598
|
)
|
|
$
|
(80,804
|
)
|
|
$
|
(90,932
|
)
|
|
$
|
(215,988
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
16,105,315
|
|
|
$
|
1,127,435
|
|
|
$
|
3,726,733
|
|
|
$
|
10,628,840
|
|
|
$
|
31,588,323
|
|
|
Other
assets
|
|
|
1,493,950
|
|
|
|
219,067
|
|
|
|
1,184,986
|
|
|
|
5,092,861
|
|
|
|
7,990,864
|
|
|
Total
assets
|
|
$
|
17,599,265
|
|
|
$
|
1,346,502
|
|
|
$
|
4,911,719
|
|
|
$
|
15,721,701
|
|
|
$
|
39,579,187
|
|
|
|
|
Nine
Months Ended September 30, 2008
|
|
|
|
|
Real
Estate
|
|
|
Golf
|
|
|
Management
|
|
|
Corporate
|
|
|
Total
|
|
|
Revenue
|
|
$
|
4,460,011
|
|
|
$
|
1,683,790
|
|
|
$
|
3,915,017
|
|
|
$
|
-
|
|
|
$
|
10,058,818
|
|
|
Costs
of revenue
|
|
|
(4,537,541
|
)
|
|
|
(2,005,097
|
)
|
|
|
(4,350,911
|
)
|
|
|
-
|
|
|
|
(10,893,549
|
)
|
|
Depreciation
and amortization
|
|
|
(25,479
|
)
|
|
|
(92,141
|
)
|
|
|
(58,991
|
)
|
|
|
(304,930
|
)
|
|
|
(481,541
|
)
|
|
Operating (loss)
|
|
|
(103,009
|
)
|
|
|
(413,448
|
)
|
|
|
(494,885
|
)
|
|
|
(304,930
|
)
|
|
|
(1,316,272
|
)
|
|
General
and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,553,845
|
)
|
|
|
(1,553,845
|
)
|
|
Other
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,922,329
|
|
|
|
4,922,329
|
|
|
Federal
& state income taxes
|
|
|
40,457
|
|
|
|
162,382
|
|
|
|
194,367
|
|
|
|
(677,214
|
)
|
|
|
(280,008
|
)
|
|
Net
income (loss)
|
|
$
|
(62,552
|
)
|
|
$
|
(251,066
|
)
|
|
$
|
(300,518
|
)
|
|
$
|
2,386,340
|
|
|
$
|
1,772,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months Ended September 30, 2007
|
|
|
|
|
Real
Estate
|
|
|
Golf
|
|
|
Management
|
|
|
Corporate
|
|
|
Total
|
|
|
Revenue
|
|
$
|
17,489,740
|
|
|
$
|
1,480,771
|
|
|
$
|
2,891,064
|
|
|
$
|
-
|
|
|
$
|
21,861,575
|
|
|
Costs
of revenue
|
|
|
(12,920,527
|
)
|
|
|
(1,627,054
|
)
|
|
|
(4,102,181
|
)
|
|
|
-
|
|
|
|
(18,549,762
|
)
|
|
Depreciation
and amortization
|
|
|
(19,302
|
)
|
|
|
(92,629
|
)
|
|
|
(23,722
|
)
|
|
|
(302,660
|
)
|
|
|
(438,313
|
)
|
|
Operating income
(loss)
|
|
|
4,549,911
|
|
|
|
(238,912
|
)
|
|
|
(1,234,839
|
)
|
|
|
(302,660
|
)
|
|
|
2,773,500
|
|
|
General
and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,855,558
|
)
|
|
|
(1,855,558
|
)
|
|
Other (expenses)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(397,080
|
)
|
|
|
(397,080
|
)
|
|
Federal
& state income taxes
|
|
|
(2,696,759
|
)
|
|
|
141,605
|
|
|
|
731,896
|
|
|
|
1,514,540
|
|
|
|
(308,718
|
)
|
|
Net
income (loss)
|
|
$
|
1,853,152
|
|
|
$
|
(97,307
|
)
|
|
$
|
(502,943
|
)
|
|
$
|
(1,040,758
|
)
|
|
$
|
212,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Financial
Position
Although
the company is operating profitably in 2008, its profits from the Barbados
project are being reinvested in further development there. As a
consequence, the company’s cash reserves are being depleted and the company is
currently exploring ways to cut expenses through staff reductions, sale of the
corporate aircraft and other measures. The company is also seeking
ways to raise additional capital through the sale of preferred stock and/or
issuance of debt, however, the illiquid nature of the current capital
and debt markets has adversely affected the availability of cash to small real
estate based entities such as the company.
Real
estate sales at South Padre have been depressed during 2008 and management
anticipates that sales will not increase above current levels during the near
term. As a result, while the company believes that the collateral
value of its real estate assets is sufficient to support the existing lines of
credit, the company recognizes that its real estate lenders may be reluctant to
renew such credit on current terms as it matures during the second and third
quarters of 2009. The company’s lenders in South Padre have been
financing the company’s development and construction activity for over 5 years
and the company is currently in discussions with its largest creditor regarding
such a renewal, however, no assurances can be given at this time.
9. Recent
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157 (“SFAS 157”), “Fair Value Measurements”. This statement defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. This Statement applies under other accounting pronouncements that
require or permit fair value measurements, the FASB having previously concluded
in those accounting pronouncements that fair value is the relevant measurement
attribute. Accordingly, this Statement does not require any new fair value
measurements.
SFAS 157,
among other things, defines fair value, establishes a consistent framework for
measuring fair value and expands disclosure for each major asset and liability
category measured at fair value on either a recurring or nonrecurring basis.
SFAS 157 clarifies that fair value is an exit price, representing the amount
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a
market-based measurement that should be determined based on assumptions that
market participants would use in pricing an asset or liability. As a basis for
considering such assumptions, SFAS 157 establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as
follows:
Level 1.
Observable inputs such as quoted prices in active markets;
Level 2.
Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and
Level 3.
Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years.
However
in February 2008, the FASB issued FASB Staff Position (“FSP”) No.157-2 which
delays the effective date of SFAS 157 for all non-financial assets and
liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis (at least annually). This FSP
partially defers the effective date of SFAS 157 to fiscal years beginning after
November 15, 2008, and interim periods within those fiscal years for items
within the scope of the FSP. Effective January 2008, the Company
adopted SFAS 157 except as it applies to those non-financial assets and
non-financial liabilities as noted in FSP 157-2. The company is still evaluating
the impact of the adoption of SFAS 157 for non-financial assets and
non-financial liabilities, however, SFAS 157 is not expected to have
a material impact on the financial results of the company.
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159 (“SFAS 159”), “The Fair Value Option for Financial Assets and Financial
Liabilities — Including an Amendment of FASB Statement No. 115”. SFAS 159
permits entities to choose to measure many financial instruments and certain
other items at fair value. Entities that elect the fair value option will report
unrealized gains and losses in earnings at each subsequent reporting date. The
fair value option may be elected on an instrument-by-instrument basis, with few
exceptions. SFAS 159 also establishes presentation and disclosure requirements
to facilitate comparisons between companies that choose different measurement
attributes for similar assets and liabilities. The company did not elect to
apply the provisions of SFAS 159 to its existing financial instruments at
January 1, 2008.
In
December 2007, the FASB issued the following statements of financial accounting
standards
applicable
to business combinations:
|
|
•
|
|
Statement
of Financial Accounting Standards No. 141 (revised 2007) (“SFAS 141(R)”),
“Business Combinations;” and
|
|
|
|
|
|
|
|
•
|
|
Statement
of Financial Accounting Standards No. 160 (“SFAS 160”), “Non-controlling
Interests in Consolidated Financial Statements — an amendment of ARB No.
51.”
|
SFAS
141(R) provides guidance on how an entity will recognize and measure the
identifiable assets acquired (including goodwill), liabilities assumed, and
non-controlling interests, if any, acquired in a business combination. SFAS 160
will change the accounting and reporting for minority interests, which will be
treated as non-controlling interests and classified as a component of equity.
Both standards are effective for fiscal years beginning after December 15, 2008,
and are applicable to the company for fiscal 2009. Early adoption is prohibited.
The company is currently evaluating both standards.
In
March 2008, the FASB issued Statement of Financial Accounting Standards No.
161, (“SFAS 161”), “Disclosures about Derivative Instruments and Hedging
Activities, an amendment of FASB Statement No. 133”, which requires additional
disclosures about the objectives of the derivative instruments and hedging
activities, the method of accounting for such instruments under SFAS No. 133 and
its related interpretations, and a tabular disclosure of the effects of such
instruments and related hedged items on the company’s financial position,
financial performance, and cash flows. SFAS No. 161 is effective for interim
periods beginning after November 15, 2008. This company does not believe this
statement will impact future disclosures because the company does not engage in
hedging activities nor invest in derivative instruments.
In August
2008, the SEC announced that it will issue for comment a proposed roadmap
regarding the potential use of International Financial Reporting Standards
(“IFRS”) for the preparation of financial statements by U.S. registrants. IFRS
are standards and interpretations adopted by the International Accounting
Standards Board. Under the proposed roadmap, the company would be required to
prepare financial statements in accordance with IFRS in fiscal 2014, including
comparative information also prepared under IFRS for fiscal 2013 and fiscal
2012. The company is currently assessing the potential impact of IFRS on its
financial statements and will continue to follow the proposed roadmap for future
developments.
Item
2.
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The
company, through subsidiaries, owns and manages for others, interests in real
estate and golf oriented real estate developments. After a long
period of relative dormancy, the company acquired its first operating companies,
DPMG, Inc. and its affiliates, on August 31, 2003 and subsequently, South Padre
Island Development, L.P. on October 1, 2004. In subsequent years, the
company expanded into Europe and the Caribbean. The company’s
consolidated statements of operations and cash flows for the nine months ended
September 30, 2008 and 2007 include the operations of the company and its
subsidiaries identified in Note 1 to the financial statements. Year to year
comparisons should be analyzed carefully and historical results should not be
assumed to be indicative of the company’s future operations.
Management’s
analysis of the company’s operations during the three and nine month periods
ended September 30, 2008 and 2007 and comments on its current financial
condition are as follows:
Revenue
Real estate sales
at South
Padre totaled 4 lots and 19 houses during the nine months ended September 30,
2008, generating $4,460,000 in revenue, including 2 lots and 5 houses sold in
the three months ended September 30, 2008 for total sales of
$1,208,000. In the first nine months of 2007, South Padre reported 30
lot sales and 81 house sales generating $17,490,000 in revenue, including 2 lots
and 17 houses closed in the third quarter for total sales of
$4,150,000. The dramatic decrease in real estate sales appears to
reflect apprehension about the continuing fallout from the current credit
crisis, reaction to record high fuel prices, and fear of a possible
recession. On July 23, 2008, Hurricane Dolly made landfall in the
immediate vicinity of South Padre, causing minor damage to South Padre’s golf
facilities and to a number of the residential units in the South Padre
community, but significant damage to tourist facilities on South Padre Island
itself. The most important economic effect of the storm to South
Padre will likely be the adverse effect on regional tourism that may further
decrease the number of golfers and prospective purchasers for South Padre’s
residential units.
Golf
related revenue,
including food and beverage sold in golf restaurants, totaled $1,684,000 during
the nine months ended September 30, 2008. Paid golf rounds totaled
23,900. In the same period of 2007, South Padre played 25,400 rounds
generating revenue of $1,481,000. For the three months September 30,
2008, the company realized $470,000 in revenue from 4,300 rounds, compared to
the same period of 2007 when we realized $409,000 in golf revenue on 6,300
rounds played. The increase in revenue in 2008 reflects food and
beverage sales of approximately $285,000 by Lake Presidential Beverage Company
as discussed in Note 1 to the financial statements.
The South
Padre golf course is a public, daily fee course, but is operated primarily as an
amenity for the surrounding real estate development. The company
anticipates phased development of the land adjoining the golf course to meet
future demand in this long-term development property. While the
company anticipates a good long-term real estate market and increases in golf
play as more golfers move into the residential community, the current depressed
real estate sales are evidence that buyer psychology and other factors outside
management’s control often affect golf and real estate operations.
Management and consulting
agreements generated $835,000 in fee revenue in the quarter ended September 30,
2008 compared to $479,000 during the same period of 2007. For the
first nine months of 2008 fee revenue totaled $2,752,000 compared to $1,677,000
for the same period in 2007. The 2008 increase reflects higher
planning and construction fees earned in Barbados and consulting fees recognized
in Spain. The company was also reimbursed for out-of-pocket expenses
related to its management agreements during the nine-month period in the amount
of $1,163,000 in 2008 and $1,214,000 in 2007.
Costs
of Revenues
Cost of real estate sold,
including land, development, construction, and closing costs, totaled
$773,000 or 64% of sales in the third quarter of 2008 compared to $2,486,000 or
60% of real estate sales in the same quarter of 2007. Costs for the
nine months ended September 30, 2008 were $3,045,000, or 68% of sales, compared
to $11,438,000 or 65% of sales in the same period of
2007. Gross profit margins are generally higher on lot
development than on vertical construction, but differ among various subdivision
lot developments and various house models as well; consequently, the gross
profit margin realized in any reporting period will vary according to the mix of
products sold during the period. The higher cost of sales realized in
2008 reflects a higher percentage of houses sold compared to lots, and the
market constraints that limited our ability to increase sales prices to recover
continuing increases in costs.
Real estate operating expenses
not included in
cost of
real estate sold
totaled $443,000 and $1,493,000 respectively in the
three-month and nine-month periods ended September 30, 2008 compared to $478,000
and $1,482,000 in the same periods of 2007. The company’s decision to
maintain a basic real estate development and construction capacity through what
is anticipated to be a temporary slump in sales has resulted in relatively
little change in operating expenses at South Padre.
Cost of golf merchandise sold
in the three-month and nine-month periods ending September 30, 2008
totaled $37,000 (66% of sales) and $140,000 (68% of sales) respectively,
compared to $38,000 (60% of sales) and $134,000 (61% of sales) for the same
periods of 2007.
Cost of food and beverage
sold
in the three-month and nine-month periods ending September 30, 2008
totaled $97,000 (46% of sales) and $233,000 (44% of sales) respectively,
compared to $30,000 (49% of sales) and $110,000 (47% of sales) in the same
periods of 2007. The increased dollar cost and improved cost
percentage reflects results from the Lake Presidential Beverage Company that
began operations May 1, 2008 as discussed in Note 1 to the financial
statements.
Golf operating expenses
totaled $559,000 in the third quarter of 2008 and $1,632,000 for the first nine
months of 2008 compared to $473,000 and $1,383,000 in the same periods of
2007. Increases in 2008 reflect approximately $171,000 of operating
costs for Lake Presidential Beverage Company and increased costs at South Padre,
primarily in golf maintenance.
Management and consulting payroll
and related expenses
totaled $1,029,000 and $3,188,000 respectively
during the three-month and nine-month periods ending September 30, 2008 compared
to $932,000 and $2,888,000 for the same periods in 2007. Increases
reflect salary increases granted in December 2007 plus the addition of a new
vice president in September 2007.
Depreciation and amortization
included in the company’s consolidated statement of operations was $148,000 and
$482,000, respectively, in the three-month and nine-month periods
ended September 30, 2008. In the same periods of 2007, the company
reported $151,000 and $438,000. The increase reported in 2008 relates
to the amortization of intangible real estate management contracts, the costs of
which are amortized as fees are earned under those contracts.
General,
administrative and other expense
General, administrative and other
expenses
totaled $482,000 and $1,554,000 respectively in the third
quarter and first nine months of 2008 compared to $614,000 and $1,856,000 in the
same periods of 2007. The decrease in 2008 reflects, primarily, lower
franchise fees in Texas in 2008 that resulted from changes in the legal and
ownership structure of the South Padre entities in 2006, less use of the
corporate airplane, and a larger portion of airplane operating costs reimbursed
by clients.
Other
income and expense
Equity in profit ( loss) of
unconsolidated affiliates
reflects the company’s share of the operating
profits or losses of the following unconsolidated affiliates:
|
|
|
|
|
|
Three Months Ended September
30,
|
|
|
Nine Months Ended September
30,
|
|
|
|
|
Ownership
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
Landmark
Developments of Spain, S.L.
|
|
|
50%
|
|
|
$
|
(33,000
|
)
|
|
$
|
168,000
|
|
|
$
|
(177,000
|
)
|
|
$
|
373,000
|
|
|
Apes
Hill Development SRL
|
|
|
33%
|
|
|
|
(309,000
|
)
|
|
|
(180,000
|
)
|
|
|
5,518,000
|
|
|
|
(510,000
|
)
|
|
|
|
|
|
|
|
$
|
(342,000
|
)
|
|
$
|
(12,000
|
)
|
|
$
|
5,341,000
|
|
|
$
|
(137,000
|
)
|
Interest income
decreased
from $69,000 and $189,000, respectively, in the third quarter and
first nine months of 2007 to $3,000 and $51,000 in the same periods this year,
reflecting lower cash balances invested in overnight funds.
Interest expense
totaled
$145,000 in the third quarter and $470,000 in the first nine months of 2008
compared to $155,000 and $449,000 in the same periods last year. The
decrease for the quarter reflects lower interest rates. The increase
for the nine months ended September 30, 2008 results from the debt used to
purchase additional land at South Padre in the third quarter of 2007, partially
offset by lower interest rates.
Federal
and state income taxes
The
company reported a loss before income taxes of $1,540,000 in the third quarter
of 2008 and a profit before taxes of $2,052,000 for the first nine months of the
year. The provision for federal and state income taxes reflects a net
provision of $280,000 for the nine months ended September 30, 2008 and is
comprised of current state taxes, deferred federal and state taxes and changes
in the deferred tax valuation allowance as discussed in Note 6 to the financial
statements. In 2007, the company realized income before taxes of
$521,000 in the first nine months of the year and provided for federal and state
income taxes in the amount of $309,000.
Net
income
The
company reported a net loss of $1,537,000 for the third quarter of 2008 and a
net profit of $1,772,000 for the first nine months of the year. In
2007, the company reported a net loss of $216,000 for the third quarter and a
net profit of $212,000 for the first nine months. The increase in
year-to-date profits in 2008 results primarily from recognition of the company’s
share of profitable real estate sales in the Barbados development during the
first quarter of the year, offset partially by lower real estate sales in South
Padre.
Liquidity
and capital resources
Current assets
total
$2,633,000 at September 30, 2008 compared to $6,337,000 at December 31, 2007,
reflecting use of cash to pay operating expenses and to pay down
debt. Although the company is operating profitably in 2008, its
profits from the Barbados project are being reinvested in further development
there. As a consequence, the company’s cash reserves are being
depleted and the company is currently exploring ways to cut expenses through
staff reductions, sale of the corporate aircraft and other
measures. The company is also seeking ways to raise additional
capital through the sale of preferred stock and/or issuance of debt, however,
the illiquid nature of the current capital and debt markets has
adversely affected the availability of cash to small real estate based entities
such as the company.
Current liabilities
total
$16,209,000 at September 30, 2008, including approximately $11,828,000 due to
Texas banks, secured by the real estate at South Padre. Real estate
sales at South Padre have been depressed during 2008 and management anticipates
that sales will not increase above current levels during the near
term. As a result, while the company believes that the collateral
value of its real estate assets is sufficient to support the existing lines of
credit, the company recognizes that its real estate lenders may be reluctant to
renew such credit on current terms as it matures during the second and third
quarters of 2009. The company’s lenders in South Padre have been
financing the company’s development and construction activity for over 5 years
and the company is currently in discussions with its largest creditor regarding
such a renewal, however, no assurances can be given at this
time. Debt and interest due to affiliates in the approximate amount
of $2,127,000 is due on demand, but is owed to stockholders of the company who
advanced the funds in prior years to provide working capital
liquidity.
Real estate and golf management
contract rights acquired
remained unchanged during the first nine months
of 2008 except for $37,000 amortization recorded on the Spain
contract. At September 30, 2008, the only contract in this asset
group with unamortized costs relates to a property in the Hudson Valley of New
York state. While no fees are currently being realized from that
contract as government approvals are pending for the proposed development, the
company expects to recover the remaining unamortized costs from future
construction supervision fees and profit incentive fees.
Real estate
held for either
development or sale totaled $15,189,000 at September 30, 2008 compared to
$15,857,000 at December 31, 2007. During the third quarter of 2008,
the company negotiated one-year leases on seven completed housing units and
transferred the cost of those units, totaling approximately $840,000, to
Property and equipment.
Property and equipment
increased approximately $461,000, reflecting primarily the transfer of
completed houses from inventory to operating rental property as discussed in the
previous paragraph, partially offset by depreciation recorded in the first nine
months of 2008.
Other assets
increased
approximately $5,767,000 in the first nine months of 2008 reflecting the
$5,362,000 increase in
investments in unconsolidated
affiliates
resulting from the undistributed profits recognized in Apes
Hill in Barbados and the $593,000
receivable from affiliates
(Landmark Developments of Spain, SL) which may not be collected within
the current business cycle. These increases were partially offset by
the $268,000 net decrease in
deferred tax assets
– the
result
of a net
increase in deferred tax liabilities of approximately $794,000 that was
partially offset by a $526,000 decrease in the asset valuation
allowance.
Liabilities
totaled
$19,591,000 at September 30, 2008 – a decrease of approximately $379,000 from
December 31, 2007. Net reductions in real estate and airplane
debt and in real estate sales deposits were partially offset by increased
interest accumulated on debt to affiliates.
The
company has no
off-balance
sheet arrangements
that have or are reasonably likely to have a material
current or future effect on the company’s financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures, or capital resources.
Stockholders’ equity
increased by approximately $2,199,000 in the first nine months of 2008,
reflecting the company’s net income of $1,772,000, the benefit of employee stock
option compensation in the amount of $63,000, the sale of preferred stock in the
amount of $1,000,000 and the unrealized gain from currency translation in the
amount of $9,000, all of which were partially offset by $645,000 of
dividends paid on common and preferred stock.
There
were no commitments regarding purchase or sale of the company's stock at
September 30, 2008; however, see Note 3 to the financial statements regarding
stock options outstanding.
Critical
accounting estimates
Future
realization of the significant deferred tax asset is dependent on the company’s
ability to generate taxable income in future years. The company has
established a valuation allowance to reduce the carrying value of the asset to
an amount likely to be realized. While estimates of future income are
always uncertain, the diversification of the company’s investments into foreign
real estate affiliates makes current estimates even more
challenging. Realization of the tax asset will be significantly
affected by, among other factors, whether the company’s investments are
profitable and whether or when those profits are taxable in the
U.S. Any significant change in the various factors affecting the
company’s expectations of future taxable earnings could require a change in the
valuation allowance. Any change in the valuation allowance is reflected in the
company’s statement of operations for the period such change is
recognized.
Item 3.
Quantitative and
Qualitative Disclosures About Market Risk
N/A
Item 4.
Controls and
Procedures
The
company maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934 (“Exchange Act”) is recorded, processed, summarized and
reported within the specified time periods. The company’s Chief
Executive Officer and its Chief Financial Officer (collectively, the “Certifying
Officers”) are responsible for maintaining disclosure controls for the
company. The controls and procedures established by the company are
designed to provide reasonable assurance that information required to be
disclosed by the issuer in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Commission’s rules and forms.
As of the
end of the period covered by this report, the Certifying Officers evaluated the
effectiveness of the company’s disclosure controls and
procedures. Based on the evaluation, the Certifying Officers
concluded that as of September 30, 2008, the company’s disclosure controls and
procedures were effective to provide reasonable assurance that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the applicable rules and forms, and that it is accumulated
and communicated to our management, including the Certifying Officers, as
appropriate to allow timely decisions regarding required
disclosure.
The
Certifying Officers have also concluded that there was no change in the
company’s internal controls over financial reporting identified in connection
with the evaluation that occurred during the company’s third fiscal quarter that
has materially affected, or is reasonably likely to materially affect, the
company’s internal control over financial reporting.
PART
II – OTHER INFORMATION
Item 1.
Legal
Proceedings
The
company is not currently involved in any pending legal proceedings, except for
routine litigation that is incidental to the company's business.
Items 1A
through 5 of this report on Form 10-Q are not
applicable.
Item
6.
Exhibits
|
|
31.1*
|
Certification
of the Chief Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2004
|
|
|
31.2*
|
Certification
of the Chief Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2004
|
|
|
32.1*
|
Certification
of the Chief Executive Officer filed pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2004
|
|
|
32.2*
|
Certification
of the Chief Financial Officer filed pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2004
|
|
|
__________________________
|
Signatures
and Certifications of the Chief Executive Officer and the Chief Financial
Officer of the Company
The
following pages include the Signatures page for this report and Exhibits
containing the Certifications of the Chief Executive Officer and the Chief
Financial Officer of the company.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
LANDMARK
LAND COMPANY, INC.
|
|
|
|
|
|
|
|
/s/ Gerald G. Barton
|
|
Gerald
G. Barton
|
|
Chairman
and Chief Executive Officer
|
|
November
13, 2008
|
|
LANDMARK
LAND COMPANY, INC.
|
|
|
|
|
|
|
|
/s/ Joe V. Olree
|
|
Joe
V. Olree
|
|
Senior
Vice President and Chief Financial Officer
|
|
November
13, 2008
|
LANDMARK
LAND COMPANY, INC.
FORM
10-Q
EXHIBIT INDEX
Exhibit
Number
|
31.1*
|
Certification
of the Chief Executive Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2004
|
|
|
|
|
31.2*
|
Certification
of the Chief Financial Officer filed pursuant to Section 302 of the
Sarbanes-Oxley Act of 2004
|
|
|
|
|
32.1*
|
Certification
of the Chief Executive Officer filed pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2004
|
|
|
|
|
32.2*
|
Certification
of the Chief Financial Officer filed pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2004
|
______________________
* Filed
herewith
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