PART
II
Item 5.
Market for Registrant’s Common Equity and Related
Stockholder Matters
The
following tables set forth the high and low reported sales prices for the common
stock of the company as reported for each calendar quarter commencing after
December 31, 2005:
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2007
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2006
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High
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Low
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High
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Low
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|
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|
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|
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First
Quarter
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$
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3.50
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$
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2.25
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$
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2.25
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$
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0.85
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Second
Quarter
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3.35
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2.70
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2.10
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0.75
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Third
Quarter
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3.00
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2.50
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1.90
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1.05
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Fourth
Quarter
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2.53
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1.02
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2.30
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1.25
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The
company's common stock was delisted and trading was suspended during October of
1991 by the Midwest Stock Exchange and the American Stock Exchange. Since that
date, the common stock of the company has been traded in the non-Nasdaq
over-the-counter markets. The high and low bid information was obtained from
Pink Sheets from trading information as reported by the National Association of
Securities Dealers composite feed or other qualified inter-dealer quotation
medium. These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. As of March
19, 2008, there were 646 holders of record of the company's common stock. These
numbers do not include stockholders who hold their shares in “street name” or in
“nominee” accounts with banks, brokerage firms and other authorized holding
institutions.
On August
15, 2005, the company declared a dividend of $0.10 per share on the company's
common stock, payable in four quarterly installments of $0.025 per share, to
shareholders of record at the close of business on August 25, 2005, November 25,
2005, February 25, 2006, and May 25, 2006, respectively. On August 26, 2006, the
company declared a dividend of $0.10 per share on the company's common stock,
payable in four quarterly installments of $0.025 per share, to shareholders of
record at the close of business on September 8, 2006, November 30, 2006,
February 28, 2007, and May 31, 2007, respectively. On August 10,
2007, November 6, 2007, and February 13, 2008, the company declared a special
dividend of $0.025 on the company’s common stock to shareholders of record at
close of business on August 24, 2007, November 22, 2007, and February 24, 2008,
respectively. Dividend payments are generally payable on the first
business day which is ten days after each respective record date.
The
company did not sell or purchase any shares of the company’s common stock during
2007.
Item 6.
Selected Financial Data
Not
applicable.
Item 7.
Management’s Discussion and Analysis of Financial
Condition and Results of Operation
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 the first of its operating companies in
2003 and has continued to rebuild its business through acquisitions and
expansion as discussed in Item 1. 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 and comments on its current financial
condition are as follows:
Revenue
Real estat
e sales at South
Padre totaled 30 lots and 96 houses during 2007, generating $19,674,625 in
revenue, compared to 82 lots and 93 houses closed in 2006, generating
$22,187,252 in revenue. The real estate market in the lower Rio Grande Valley
where the South Padre project is located is both a primary and secondary home
market with a significant portion of the market comprised of “winter Texans”
from the upper mid-west. As discussed in Item 2, the company acquired
approximately 1,800 acres adjoining the South Padre development in 2007 and
anticipates phased development of the property to meet future demand in this
long-term project. The dramatic slow down in real estate sales
nationwide has reached south Texas. Although South Padre’s 2007 real
estate sales revenue was only 11% below 2006, it has worked through its backlog
of pending sales contracts, reducing the backlog from eighty contracts at
December 31, 2006 to only four contracts at December 31, 2007. The
company anticipates 2008 real estate sales revenue to be significantly lower
than 2007.
Golf
related revenue totaled
$1,866,531 in 2007, comprised of $1,264,805 from course revenue, $296,999 from
merchandise sales, and $304,727 from food and beverage sales. This
compares to total golf revenue of $1,758,736 during 2006, comprised of course
revenue of $1,291,693, merchandise sales of $304,286 and food and beverage sales
of $162,757. Paid golf rounds totaled 31,639 in 2007 and 31,846 in
2006. The golf course is a public, daily fee course, but is operated primarily
as an amenity for the surrounding real estate development. During 2006, South
Padre expanded its golf clubhouse to include a full service restaurant and bar
that opened for business in December 2006 and, during 2007, completed a new
nine-hole executive golf course. The new course was developed
primarily to provide golf frontage for residential lot development and will be
used primarily as a practice facility until demand for golf play justifies its
operation as a daily fee facility. While the company anticipates
increases in golf play as more golfers move into the residential community,
weather and other factors could adversely affect future golf
operations.
Management and consulting
agreements generated $2,276,017 and $5,352,436 in fee revenue in the
years ended December 31, 2007 and 2006, respectively. The company was also
reimbursed for out-of-pocket expenses related to the agreements in the amounts
of $1,755,063 in 2007 and $1,364,344 in 2006. Most of the company’s golf
management contracts are on a short term basis that may be cancelled on thirty
to ninety days notice. As discussed in the company’s Form 8-K filed on February
16, 2007, the company’s contract to manage the Gyrodyne property in New York was
cancelled in February 2007 and a new contract was entered into whereby the
company agreed to provide consulting services related to Gyrodyne’s eminent
domain lawsuit against the State University of NY at Stony Brook. In 2006, the
company recognized $2,000,000 in management and consulting revenue under the
management contract with Gyrodyne; the new contract provides for additional fees
totaling $1,000,000 over a three year period.
In late
2005, the company executed design, construction management and golf operating
agreements for three new projects in Missouri, Maryland and Barbados. The
construction project in Missouri was completed in 2007. As discussed
in Item 1, the company is also an investor in the projects in Maryland and
Barbados. While the company will continue to pursue management contracts with
unaffiliated third parties, it is anticipated that more effort will be directed
to those properties in which the company may have an equity
interest.
Costs
of Revenues
Costs of real estate sold
,
including land, development, construction, and closing costs, totaled
$12,987,515 in 2007 and $14,231,593 in 2006. Gross profit margins differ between
lot development and vertical house construction, among different subdivisions
and among various models of houses. Gross profit on real estate sales averaged
34% in 2007 and 36% in 2006. The lower gross margins realized in 2007
reflect both product mix and reduced demand.
Real estate operating
expenses
not included in
costs of real estate sold
totaled $2,113,180 in 2007 compared to $1,349,585 in
2006. Cost increases were experienced in an expanded rental pool
operation, increased homeowners’ association subsidies, increased administrative
staffing, and street repairs.
Costs of golf merchandise and food
and beverage sold
in 2007 totaled $336,921 (56% of related sales),
compared to costs of $254,083 in 2006 (54% of related sales).
Golf operating expenses
totaled $1,862,666 in 2007 compared to $1,526,105 in 2006. Increased
costs result primarily from operation of the full service restaurant beginning
in December 2006 and maintenance of the new nine-hole executive golf course as
it grew in during 2007.
Management and consulting payroll
and related expenses
totaled $3,923,672 in 2007, compared to $3,352,703
in 2006. The increased costs reflect primarily the personnel costs of
three new employees hired near the end of 2005, two additions in 2006, and one
in 2007, plus salary increases for other employees.
Depreciation and amortization
included in the company’s consolidated statement of operations was $588,164 in
2007 and $801,605 in 2006. The cost of intangible contract rights acquired is
amortized as revenue is received from those contracts. Amortization
in 2006 included $500,000 related to the Gyrodyne contract discussed under
management fee revenue above. There was no amortization of intangible
contract costs in 2007; however, depreciation of the airplane began in 2007 and
totaled $400,000 for the year.
General,
administrative and other expenses
General, administrative and other
expenses
totaled $2,457,401 in 2007 and $1,042,500 in 2006. The
increase reflects, primarily, the operating costs of the new corporate
airplane.
Other
income and expense
Equity in income (loss) of
unconsolidated affiliates
reflects the company’s share of the operating
income or loss of Landmark Developments of Spain, SL and Apes Hill Development
SRL in Barbados. The Spanish company was organized in March 2003 and reported
losses until 2007. The company’s 50% share of the Spanish company’s
2007 income was $414,116; its share of losses was $176,403 in
2006. The Barbados company began operations in December 2005 and also
reported losses until 2007. The company’s 33.3% share of the Barbados company’s
2007 income was $186,620; its share of losses was $375,222 in
2006. Presidential Golf Club, LLC has capitalized all costs incurred
through December 31, 2007 and is expected to open its golf course for business
in 2008. See Note 1 to the Consolidated Financial Statements for
information on potential changes to the company’s ownership interest in this
affiliate.
Interest income
increased
from $175,868 in 2006 to $248,731 in 2007 primarily reflecting the larger cash
balances invested in overnight funds pending investment in future
projects.
Interest expense
totaled
$630,907 in 2007 compared to $347,488 in 2006. The 2007 increase
results primarily from the interest paid on the financing of the corporate
airplane.
Federal
and state income taxes
Effective
January 1, 2007, the company implemented Financial Accounting Standards Board
Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income
Taxes.
Please see Note 13 to the Consolidated Financial
Statements in Part 4 for additional information on the effect of FIN No. 48 on
the 2007 financial statements.
The
company reported a loss before income taxes of $233,786 for the year ended
December 31, 2007. Certain stock based compensation, airplane
expenses, and meals which cannot be deducted for income tax purposes, (permanent
differences in book and taxable income) account for the difference in the
benefit recognized ($21,000) and the amount that normally would have been
recognized on the $233,786 loss. Separate returns are required for
each entity for state taxes. Tax liabilities and benefits from
different states cannot be offset against each other; consequently, there is a
provision of $87,718 for state taxes in 2007.
For the
year ended December 31, 2006, the company reported income before taxes of
$6,017,006. Permanent and temporary differences between GAAP and tax reporting
increased taxable income to approximately $7,500,000. In its 2006
federal income tax return, the company used approximately $6,962,000 of the 2002
net operating loss carryover to offset 2006 taxable income. FASB proposed
interpretations required that the company provide for income taxes on the 2006
taxable income without recognizing the tax benefit provided by the 2002 net
operating loss carryover. Accordingly, the 2006 tax provision in the amount of
$2,126,181 reflects changes in other deferred tax assets and liabilities, but no
benefit for the use of the 2002 net operating loss carryover.
Liquidity
and capital resources
Current assets
total
$6,336,679 at December 31, 2007 and $9,322,894 at December 31, 2006 reflecting
the decrease in real estate sales deposits held in escrow at South Padre and the
increased investment in real estate development there.
Real estate and golf management
contract rights
reflect the unamortized purchase price of contract rights
acquired in 2003. As discussed under management fee revenue above,
the company’s contract with Gyrodyne was terminated in 2007 and its acquisition
cost and accumulated amortization were removed from the balance
sheet. Amortization of the remaining unamortized cost will resume
when approvals are in place and development commences under the company’s
contract on the New York property. No new contracts were purchased in
2007 or 2006.
Real estate
held for either
development or sale increased from $12,458,697 at December 31, 2006 to
$15,856,753 at December 31, 2007 reflecting, primarily, the purchase of
approximately 1,800 acres of vacant land at South Padre. Composition of the
inventory is described in Item 2 of this Form 10-K and in Notes 3 and 4 to the
Consolidated Financial Statements.
Property and equipment
increased $3,694,055 during 2007, reflecting the cost of the corporate airplane
offset, in part, by depreciation recorded for the year. See Note 2 to
the Consolidated Financial Statements for additional information on the
composition of property and equipment.
Other assets
increased by
$5,070,039 during 2007, resulting, primarily, from the company’s recognition of
deferred tax assets related to the implementation of FIN No. 48 as discussed in
Note 13 to the Consolidated Financial Statements.
Liabilities
increased from
$16,987,527 at December 31, 2006 to $19,970,149 at December 31, 2007, primarily
reflecting the increase in bank loans for the purchase of the airplane and the
vacant land at South Padre. South Padre finances its real estate development
primarily with loans from local and regional banks. The loans are secured by
deeds of trust on the real property and by guarantees issued by the company.
Debt is typically repaid from real estate sales proceeds. Details of
the various loans from banks and affiliates are included in Notes 9 and 10 to
the Consolidated Financial Statements. Approximately $7.6 million of
construction debt scheduled to mature in 2008 has been renewed or is in the
process of being renewed, subsequent to December 31, 2007, with maturity dates
in 2009. Debt to affiliates in the approximate amount of $1.2 million
is due on demand, but is owed to stockholders of the company who advanced the
funds in prior years to provide working capital liquidity.
Stockholders’ equity
increased by $6,193,313 in 2007 reflecting primarily the company’s recognition
of deferred tax assets from the implementation of FIN No. 48 on January 1,
2007. That increase in capital was partially offset by the company’s
payment of cash dividends on common and preferred shares, all as discussed in
Notes 5 and 13 to the Consolidated Financial Statements.
The
company believes that its available capital and credit sources will be adequate
to fund anticipated operations. While the company continues to seek other
investment opportunities, there are no outstanding investment commitments at
December 31, 2007.
Critical
accounting policies
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates. The critical accounting policies and
the possible effect of changes in estimates on our financial results and
statements are discussed below. Management discusses the ongoing development and
selection of these critical accounting policies with the audit committee of the
board of directors.
Income taxes
: 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. A valuation
allowance is recorded to reduce tax assets to an amount for which realization is
more likely than not.
The
estimated net future benefit available to the company from all its deferred tax
positions is approximately $50,117,000 at December 31, 2007; however,
realization of that benefit is dependent on the company’s ability to generate
taxable income in the future. In view of historical earnings, the
company has established a valuation allowance against the asset in the
approximate amount of $45,449,000, reducing the net benefit to $4,668,000
included on the December 31, 2007 balance sheet. The valuation
allowance will be adjusted if changes in circumstances cause a change in
management’s judgment about the realizability of the deferred tax assets in
future years. A change in the valuation allowance could materially
affect the tax benefit or provision reported in the period of the
change.
Impairment of long-lived
assets
: In accordance with SFAS No. 144,
Accounting for the Disposal of
Long-Lived Asset
s, management evaluates the company’s contract rights
acquired to determine whether events or changes in circumstances indicate that
the carrying value of the asset may be impaired. An impairment loss is
recognized when the asset’s carrying value is not recoverable and exceeds its
fair value. Recoverability is based upon the undiscounted estimated
future cash flows expected to result from the use of the asset, including
disposition. Cash flow estimates used in evaluating for impairment represent
management’s best estimates using appropriate assumptions and projections at the
time.
Item 8
. Financial Statements and Supplementary Data
The
following financial statements of Landmark Land Company, Inc. are included in
this report on Form 10-K immediately following Part IV, Item 14 and immediately
preceding the Signatures pages of this report:
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1.
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Report of Independent Registered
Public Accounting Firm.
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2.
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Consolidated
Balance Sheets as of December 31, 2007 and
2006.
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3.
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Consolidated
Statements of Operations for Years Ended December 31, 2007 and
2006.
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4.
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Consolidated
Statements of Comprehensive Income or Loss for the Years Ended December
31, 2007 and 2006.
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5.
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Consolidated
Statements of Stockholders’ Equity for Years Ended December 31, 2007 and
2006.
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6.
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Consolidated
Statements of Cash Flows for the Years Ended December 31, 2007 and
2006.
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7.
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Notes
to Consolidated Financial
Statements.
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Item 9.
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
There have been no disagreements with Aronson & Company on any
matter of accounting principles or practices, financial statement disclosures,
or auditing scope or procedures during our two most recent fiscal years or any
subsequent interim period.
Item 9.A.
Controls and Procedures
We have
carried out an evaluation, under the supervision and with the participation of
our management including our principal executive officer and principal financial
officer, of the effectiveness of the design and operation of our disclosure
controls and procedures, as that term is defined in Rules 13a-15(e) under the
Securities Exchange Act of 1934, as amended. Based on that
evaluation, our principal executive officer and principal financial officer
concluded that as of December 31, 2007, which is the end of the period covered
by this Annual Report on Form 10-K, our disclosure controls and procedures were
effective.
Management’s
Report on Internal Control Over Financial Reporting
Management
of the company, together with its consolidated subsidiaries (we, us, or the
company), is responsible for establishing and maintaining adequate internal
controls over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over
financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles (GAAP). Our internal control over financial reporting
includes those policies and procedures that:
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(i)
|
pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
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(ii)
|
provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company
are being made only in accordance with authorization of management and
directors of the company; and
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(iii)
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could
have a material effect on the financial
statements.
|
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as
of December 31, 2007. In making this assessment, management used the
criteria described in the “Internal Control-Integrated Framework” set forth by
the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
Based on
our assessment and those criteria, management has concluded that the company’s
internal control over financial reporting was effective as of December 31,
2007.
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the
company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
There
have been no changes in our internal control over financial reporting in the
quarter ended December 31, 2007 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Item 9.B.
Other Information
Not
applicable.
Item 14.
Principal Accounting Fees and Services
The
following table sets forth fees for services Aronson & Company provided in
2007 and 2006:
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2007
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2006
|
|
|
|
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Audit
feess (1)
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$
|
94,138
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$
|
92,424
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Audit-related
fee(2)
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-
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|
|
-
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Tax
fees (3)
|
|
|
-
|
|
|
|
-
|
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All
other fees (4)
|
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11,248
|
|
|
|
-
|
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Total
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$
|
105,386
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$
|
92,424
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(1)
|
Represents
fees for professional services rendered by the principal accountant for
the audit of the company’s annual financial statements and review of
financial statements included in the company’s Form 10Q or services that
are normally provided by the accountant in connection with statutory and
regulatory filings or engagements for those fiscal
years.
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(2)
|
Represents
fees for assurance and related services by the principal accountant that
are reasonably related to the performance of the audit or review of the
company’s financial statements that are not reported as Audit fees
above.
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(3)
|
Represents
fees for professional services rendered by the principal accountant for
tax compliance, tax advice and tax planning.
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(4)
|
Represents
fees for products and services provided by the principal accountant other
than the services reported as Audit fees, Audit-related fees or Tax
fees. Of the $11,248 which are characterized as All other fees,
approximately $1,100 was billed for services relating to the auditor’s
consent filed as an exhibit to the company’s Form S8 filing on January 9,
2007 and approximately $10,150 was billed as fees for the principal
accountant’s review of a proposed acquisition which was not consummated
during 2007.
|
The Audit
Committee approves in advance audit and non-audit services to be provided by the
independent accountant. In other cases, in accordance with Rule 2-01(c)(7) of
Securities and Exchange Commission Regulation S-X, the Audit Committee may
delegate pre-approval authority to the Chairman of the Audit Committee for
matters which arise or otherwise require approval between regularly scheduled
meetings of the Audit Committee, provided that the Chairman report such
approvals to the Audit Committee at the next regularly scheduled meeting of the
Audit Committee. The Audit Committee was formed on May 1, 2003 and after such
formation 100% of the services provided by the independent accountant were
pre-approved by the Audit Committee.
Item 15
. Exhibits, Financial Statement
Schedules
Financial
Statement Schedules
|
Consolidated
Balance Sheets
|
F-3
– F-4
|
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Consolidated
Statements of Operations
|
F-5
|
|
Consolidated
Statements of Comprehensive (Loss) Income
|
F-6
|
|
Consolidated
Statements of Stockholders’ Equity
|
F-7
|
|
Consolidated
Statements of Cash Flows
|
F-8
|
|
Notes
to Consolidated Financial Statements
|
F-9
– F-23
|
Exhibits
|
|
3.1
|
Certificate
of Incorporation (incorporated by reference to Form 10-KSB for the year
ended December 31, 2001 filed with the Commission on February 7,
2003)
|
|
|
3.2
|
Bylaws
of the Company (incorporated by reference to Form 10-KSB for the year
ended December 31, 2001 filed with the Commission on February 7,
2003)
|
|
|
10.1
|
The
2006 Landmark Land Company, Inc. Incentive Stock Option Plan (incorporated
by reference to Form S-8 dated January 4, 2007 and filed with the
Commission on January 9, 2007)
|
|
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10.2
|
Form
of Stock Option Agreement for Outside Directors and Outside Counsel to the
Board (incorporated by reference to Form S-8 dated January 4, 2007 and
filed with the Commission on January 9,
2007)
|
|
|
10.3
|
Agreement
and Plan of Acquisition of shares of KES, Inc. entered into effective
August 31, 2003 (incorporated by reference to Form 8K dated August 26,
2003 filed with the Commission on September 10,
2003)
|
|
|
10.4
|
A
purchase agreement entered into on October 1, 2004 between DPMG Inc. and
New Delos Partners, L.P. to purchase South Padre Island Development, L.P.
(incorporated by reference to Form 8K dated October 1, 2004 and filed with
the Commission on October 7, 2004)
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|
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10.5
|
A
Member’s Agreement of Apes Hill Development SRL entered into between LML
Caribbean, Ltd. and C.O. Williams Investments, Inc. in December 2005
(incorporated by reference to Form 10KSB dated December 31, 2005 and filed
with the Commission on March 23,
2006)
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|
|
10.6
|
An
agreement between DPMG Inc. and Gyrodyne Company of America, Inc.
providing for consulting services to Gyrodyne and terminating the Golf
Operating Agreement and the Asset Management Agreement (incorporated by
reference to Form 8K dated February 15, 2007 and filed with the Commission
on February 16, 2007)
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|
|
10.7
|
Purchase
Agreement between Landmark Land Company, Inc. and Dixie South Texas
Holdings, Ltd. entered into on April 13, 2007 (incorporated by reference
to Form 8K dated April 13, 2007 filed with the Commission on April 17,
2007)
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|
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21.1*
|
Subsidiaries
of the Registrant
|
|
|
23.1*
|
Consent
of Aronson & Company
|
|
|
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
|
|
|
__________________________
|
Landmark
Land Company, Inc.
Financial Statements
Table
of Contents
|
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Page
|
|
|
|
|
Report
of Independent Registered Accounting Firm
|
F-2
|
|
Consolidated
Financial Statements
|
|
|
|
|
F-3
- F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
|
|
|
|
F-8
|
|
|
|
F-9
- F-23
|
Report
of Independent Registered Public Accounting Firm
Board of
Directors
Landmark
Land Company, Inc.
Upper
Marlboro, MD
We have
audited the accompanying Consolidated Balance Sheets of
Landmark Land Company, Inc. and
Subsidiaries
(the Company) as of December 31, 2007 and 2006, and the
related Consolidated Statements of Operations, Comprehensive Income,
Stockholders’ Equity, and Cash Flows for the years then ended. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we
express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of
Landmark Land Company, Inc. and
Subsidiaries
as of December 31, 2007 and 2006, and the consolidated
results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
As
discussed in Note 13 to the financial statements, the Company adopted Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes – an interpretation of FASB Statement No. 109
, January 1,
2007.
Rockville,
Maryland
March 26,
2008
|
Landmark
Land Company, Inc.
|
|
|
Consolidated Balance Sheets
|
|
|
December
31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
2007
|
|
|
2006
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
4,934,820
|
|
|
$
|
5,437,186
|
|
|
Accounts
receivable
|
|
|
315,932
|
|
|
|
2,790,318
|
|
|
Receivable
from affiliates
|
|
|
733,771
|
|
|
|
645,123
|
|
|
Inventories
|
|
|
117,028
|
|
|
|
95,541
|
|
|
Other
current assets
|
|
|
235,128
|
|
|
|
261,726
|
|
|
Deferred
tax asset
|
|
|
-
|
|
|
|
93,000
|
|
|
Total
current assets
|
|
|
6,336,679
|
|
|
|
9,322,894
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and golf management
contract rights acquired,
net of
|
|
|
|
|
|
|
|
|
|
accumulated
amortization of $924,472 and $1,482,389 in 2007 and
|
|
|
|
|
|
|
|
|
|
2006,
respectively
|
|
|
2,361,115
|
|
|
|
2,361,115
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate
|
|
|
|
|
|
|
|
|
|
Real
estate held for sale
|
|
|
1,379,203
|
|
|
|
792,382
|
|
|
Real
estate held for or under development
|
|
|
14,477,550
|
|
|
|
11,666,315
|
|
|
Total
real estate
|
|
|
15,856,753
|
|
|
|
12,458,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net of accumulated depreciation
|
|
|
|
|
|
|
|
|
|
of
$785,818 and $202,216 in 2007 and 2006, respectively
|
|
|
4,960,701
|
|
|
|
1,266,646
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
|
|
|
Investment
in unconsolidated affiliates
|
|
|
4,587,466
|
|
|
|
4,096,627
|
|
|
Deposits
|
|
|
100,000
|
|
|
|
135,800
|
|
|
Deferred
tax assets, non-current
|
|
|
4,668,000
|
|
|
|
53,000
|
|
|
Total
other assets
|
|
|
9,355,466
|
|
|
|
4,285,427
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
38,870,714
|
|
|
$
|
29,694,779
|
|
The
accompanying notes to Consolidated Financial Statements are an integral part of
these financial statements.
|
Landmark
Land Company, Inc.
|
|
Consolidated
Balance Sheets
|
|
December
31, 2007 and 2006
|
|
|
|
Liabilities
and Stockholders' Equity
|
|
2007
|
|
|
2006
|
|
Current
liabilities
|
|
|
|
|
|
|
Current
portion of notes payable to others
|
|
$
|
8,353,641
|
|
|
$
|
669,361
|
|
|
Current
portion of liabilities to affiliates
|
|
|
1,192,074
|
|
|
|
1,192,074
|
|
|
Accounts
payable and accrued expenses
|
|
|
623,629
|
|
|
|
714,039
|
|
|
Accrued
payroll and related expenses
|
|
|
326,309
|
|
|
|
269,763
|
|
|
Accrued
interest due affiliates
|
|
|
845,845
|
|
|
|
771,140
|
|
|
Accrued
interest due others
|
|
|
300,168
|
|
|
|
239,776
|
|
|
Dividends
payable
|
|
|
-
|
|
|
|
382,698
|
|
|
Other
liabilities and deferred credits
|
|
|
311,393
|
|
|
|
1,579,402
|
|
|
Current
income taxes
|
|
|
76,000
|
|
|
|
2,532,000
|
|
|
Total
current liabilities
|
|
|
12,029,059
|
|
|
|
8,350,253
|
|
|
|
|
Long
term liabilities
|
|
Notes
payable to others
|
|
|
7,941,090
|
|
|
|
8,637,274
|
|
|
|
|
Total
liabilities
|
|
|
19,970,149
|
|
|
|
16,987,527
|
|
|
|
|
Stockholders'
equity
|
|
Preferred
stock, Series C, non-voting, $0.50 par value; $100
|
|
|
|
|
|
|
|
|
|
|
liquidation
value; $10 cumulative annual dividend;
|
|
|
|
|
|
|
|
|
|
|
50,000
shares authorized; 10,000 shares issued and
|
|
|
|
|
|
|
|
|
|
|
outstanding
stated at liquidation value
|
|
|
1,000,000
|
|
|
|
1,000,000
|
|
|
Common
stock, $0.50 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
|
|
|
30,424,367
|
|
|
|
30,304,044
|
|
|
Treasury
stock, at cost, 1,236,938 shares
|
|
|
(1,299,820
|
)
|
|
|
(1,299,820
|
)
|
|
Accumulated
deficit
|
|
|
(15,560,779
|
)
|
|
|
(21,649,514
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
(65,437
|
)
|
|
|
(49,692
|
)
|
|
Total
stockholders' equity
|
|
|
18,900,565
|
|
|
|
12,707,252
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
38,870,714
|
|
|
|
$29,694,779
|
|
The
accompanying notes to Consolidated Financial Statements are an integral part of
these financial statements.
|
Landmark
Land Company, Inc.
|
|
|
Consolidated
Statements of Operations
|
|
|
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Revenues
|
|
|
|
|
|
|
|
Real
estate sales
|
|
$
|
19,674,625
|
|
|
$
|
22,187,252
|
|
|
Golf
course revenue
|
|
|
1,264,805
|
|
|
|
1,291,693
|
|
|
Golf
merchandise sales
|
|
|
296,999
|
|
|
|
304,286
|
|
|
Food
and beverage sales revenue
|
|
|
304,727
|
|
|
|
162,757
|
|
|
Management
and consulting revenue
|
|
|
2,276,017
|
|
|
|
5,352,436
|
|
|
Reimbursement
of out-of-pocket expenses
|
|
|
1,755,063
|
|
|
|
1,364,344
|
|
|
Total
|
|
|
25,572,236
|
|
|
|
30,662,768
|
|
|
|
|
|
Costs
of revenues
|
|
|
|
|
|
|
|
|
|
Cost
of real estate sold
|
|
|
12,987,515
|
|
|
|
14,231,593
|
|
|
Real
estate operating expenses
|
|
|
2,113,180
|
|
|
|
1,349,585
|
|
|
Cost
of golf merchandise sold
|
|
|
188,543
|
|
|
|
182,403
|
|
|
Cost
of food and beverage sold
|
|
|
148,378
|
|
|
|
71,680
|
|
|
Golf
operating expenses
|
|
|
1,862,666
|
|
|
|
1,526,105
|
|
|
Out-of-pocket
expenses
|
|
|
1,755,063
|
|
|
|
1,364,344
|
|
|
Management
and consulting payroll and related expenses
|
|
|
3,923,672
|
|
|
|
3,352,703
|
|
|
Depreciation
and amortization
|
|
|
588,164
|
|
|
|
801,605
|
|
|
Total
|
|
|
23,567,181
|
|
|
|
22,880,018
|
|
|
|
|
|
Operating
income
|
|
|
2,005,055
|
|
|
|
7,782,750
|
|
|
|
|
|
General,
administrative and other expenses
|
|
|
(2,457,401
|
)
|
|
|
(1,042,500
|
)
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
|
Equity
in income (loss) of unconsolidated affiliates
|
|
|
600,736
|
|
|
|
(551,624
|
)
|
|
Interest
income
|
|
|
248,731
|
|
|
|
175,868
|
|
|
Interest
expense
|
|
|
(630,907
|
)
|
|
|
(347,488
|
)
|
|
Total
other income (expenses)
|
|
|
218,560
|
|
|
|
(723,244
|
)
|
|
|
|
|
(Loss) income
before income taxes
|
|
|
(233,786
|
)
|
|
|
6,017,006
|
|
|
|
|
|
Federal
and state income taxes
|
|
|
(66,718
|
)
|
|
|
(2,126,181
|
)
|
|
|
|
|
Net
(loss) income
|
|
$
|
(300,504
|
)
|
|
$
|
3,890,825
|
|
|
|
|
|
Basic
(loss) income per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.50
|
|
|
|
|
|
Diluted
(loss) income per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.49
|
|
|
|
|
|
Basic
weighted average shares outstanding
|
|
|
7,567,530
|
|
|
|
7,649,915
|
|
|
|
|
|
Diluted
weighted average shares outstanding
|
|
|
7,567,530
|
|
|
|
7,655,077
|
|
The
accompanying notes to Consolidated Financial Statements are an integral part of
these financial statements.
|
Landmark
Land Company, Inc.
|
|
|
Consolidated
Statements of
Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
Years
ended December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(300,504
|
)
|
|
$
|
3,890,825
|
|
|
Other
comprehensive (loss) income
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(15,745
|
)
|
|
|
(20,077
|
)
|
|
|
|
|
Comprehensive
(loss) income
|
|
$
|
(316,249
|
)
|
|
$
|
3,870,748
|
|
The
accompanying notes to Consolidated Financial Statements are an integral part of
these financial statements.
|
Landmark
Land Company, Inc.
|
|
|
Consolidated
Statements of
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
Common
|
|
|
Preferred
|
|
|
Paid
In
|
|
|
Treasury
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
Total
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Stock
|
|
|
Deficit
|
|
|
(Loss)
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2006
|
|
$
|
9,743,243
|
|
|
$
|
4,402,234
|
|
|
$
|
1,000,000
|
|
|
$
|
30,190,861
|
|
|
$
|
(1,142,527
|
)
|
|
$
|
(24,677,710
|
)
|
|
$
|
(29,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
counsel
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock compensation
|
|
|
13,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,183
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock purchased, 92,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
shares
|
|
|
(157,293
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(157,293
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income for the year
|
|
|
3,890,825
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,890,825
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
(759,066
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(759,066
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on preferred stock
|
|
|
(103,563
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(103,563
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(20,077
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(20,077
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
12,707,252
|
|
|
|
4,402,234
|
|
|
|
1,000,000
|
|
|
|
30,304,044
|
|
|
|
(1,299,820
|
)
|
|
|
(21,649,514
|
)
|
|
|
(49,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options issued to directors
|
|
|
67,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
67,686
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
stock compensation
|
|
|
52,637
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,637
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
impact of change in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
accounting for uncertainties in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income taxes
|
|
|
6,867,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,867,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
(300,504
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(300,504
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on common stock
|
|
|
(377,761
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(377,761
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared on preferred stock
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(100,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
|
|
(15,745
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(15,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$
|
18,900,565
|
|
|
$
|
4,402,234
|
|
|
$
|
1,000,000
|
|
|
$
|
30,424,367
|
|
|
$
|
(1,299,820
|
)
|
|
$
|
(15,560,779
|
)
|
|
$
|
(65,437
|
)
|
The
accompanying notes to Consolidated Financial Statements are an integral part of
these financial statements.
|
Landmark
Land Company, Inc.
|
|
|
|
Consolidated
Statements of
Cash Flows
|
|
|
|
|
|
|
|
|
|
Years
ended December 31,
|
|
|
|
2007
|
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
Net
(loss) income for the period
|
|
$
|
(300,504
|
)
|
|
$
|
3,890,825
|
|
|
Adjustments
to reconcile net (loss) income to net cash
|
|
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
588,164
|
|
|
|
801,605
|
|
|
Stock
bonus and options expensed
|
|
|
120,323
|
|
|
|
113,183
|
|
|
Equity
in (income) loss of unconsolidated affiliates
|
|
|
(600,736
|
)
|
|
|
551,624
|
|
|
(Increase)
decrease in
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
2,474,386
|
|
|
|
(2,424,522
|
)
|
|
Receivable
from affiliates
|
|
|
154,253
|
|
|
|
1,765,074
|
|
|
Inventories
|
|
|
(21,487
|
)
|
|
|
606
|
|
|
Other
current assets
|
|
|
26,598
|
|
|
|
(19,118
|
)
|
|
Deposits
|
|
|
35,800
|
|
|
|
(135,800
|
)
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
(90,410
|
)
|
|
|
167,959
|
|
|
Accrued
payroll and related expenses
|
|
|
56,546
|
|
|
|
73,169
|
|
|
Accrued
interest
|
|
|
135,097
|
|
|
|
136,326
|
|
|
Income
tax liability
|
|
|
(111,000
|
)
|
|
|
2,083,000
|
|
|
Other
liabilities and deferred credits
|
|
|
(1,268,009
|
)
|
|
|
815,168
|
|
|
Net
cash provided by operating activities
|
|
|
1,199,021
|
|
|
|
7,819,099
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(4,298,942
|
)
|
|
|
(626,976
|
)
|
|
Sale
of property and equipment, net
|
|
|
16,723
|
|
|
|
37,762
|
|
|
Purchase
and development of real estate
|
|
|
(16,643,774
|
)
|
|
|
(18,729,336
|
)
|
|
Sale
of real estate inventory
|
|
|
13,245,719
|
|
|
|
14,585,826
|
|
|
Investment
in unconsolidated affiliate
|
|
|
(148,750
|
)
|
|
|
(4,551,250
|
)
|
|
Net
cash used by investing activities
|
|
|
(7,829,024
|
)
|
|
|
(9,283,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from debt to others
|
|
|
19,572,018
|
|
|
|
16,208,679
|
|
|
Repayments
of debt to others
|
|
|
(12,583,922
|
)
|
|
|
(13,228,759
|
)
|
|
Cash
dividends paid on stock
|
|
|
(860,459
|
)
|
|
|
(864,570
|
)
|
|
Purchase
of common stock for treasury
|
|
|
-
|
|
|
|
(157,293
|
)
|
|
Net
cash provided by financing activities
|
|
|
6,127,637
|
|
|
|
1,958,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash during period
|
|
|
(502,366
|
)
|
|
|
493,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
balance, beginning of period
|
|
|
5,437,186
|
|
|
|
4,944,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
balance, end of period
|
|
$
|
4,934,820
|
|
|
$
|
5,437,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest, including $80,000 and $100,000 paid to
|
|
|
|
|
|
|
|
|
|
|
affiliates
in 2007 and 2006
|
|
$
|
1,151,389
|
|
|
$
|
668,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
178,960
|
|
|
$
|
43,131
|
|
The
accompanying notes to Consolidated Financial Statements are an integral part of
these financial statements.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
1. Organization
and significant accounting policies
(I)
Landmark Land Company, Inc. (the company)
Landmark
Land Company, Inc. is a Delaware corporation that, prior to October, 1991, was
in the business of real estate development and sales, including owning and
operating (1) resort golf courses and tennis clubs, (2) a savings bank, (3) a
mortgage banking company, (4) a life insurance company, and (5) other financial
services companies. Substantially all of the company’s operations were owned and
its businesses conducted, by subsidiaries of Oak Tree Savings Bank, S.S.B.
(OTSB), Landmark’s savings bank subsidiary headquartered in New Orleans,
Louisiana.
In 1991,
as a result of regulations and requirements of the Financial Institutions
Reform, Recovery, and Enforcement Act of 1989 (FIRREA), the Office of Thrift
Supervision (OTS) seized substantially all of the company’s assets and
transferred them to a newly chartered federal thrift institution in which the
company and its shareholders had no interest. Subsequent to this seizure, the
company had little operational activity and extremely limited capital resources
and liquidity. Between 1991 and March 2002, the company was essentially dormant,
except for the pursuit of a lawsuit captioned Landmark Land Company, Inc. v.
United States (Case No. 95-502-C in the United States Court of Federal Claims).
The suit included claims by the company for breach of contract, restitution, and
deprivation of property without just compensation or due process of
law.
During
2000, the company was awarded a judgment against the United States in the
above-referenced suit in the amount of $21,458,571, which judgment was affirmed
on appeal in July of 2001. The further appeal period expired during the first
quarter of 2002 without an appeal being filed and the company received the full
amount of the judgment in March 2002. After settling various claims remaining
from its previous operations, the company began to rebuild as discussed
herein.
(II)
Landmark of Spain, Inc.
In
February 2003, the company formed Landmark of Spain, Inc., a Delaware
corporation. In March 2003, Landmark of Spain, Inc. and a local Spanish entity
formed a new Spanish company, Landmark Developments of Spain, SL to pursue real
estate development opportunities in Spain and Portugal. Landmark of Spain, Inc.
owns 50% of the Spanish company and accounts for its investment on the equity
method. Landmark Developments of Spain, SL’s functional currency is the Euro
(€).
The
company was obligated to fund 1,000,000 € ($1,250,587 at time of funding) to the
Spanish company during its first two years of operations. Through December 31,
2007, the company’s 50% share of the Spanish company’s operating losses totaled
$1,099,941, resulting in net equity investment of $150,646. At December 31,
2006, the company’s share of the Spanish company’s accumulated deficit was
$1,493,488 and exceeded its investment by $242,901. This excess loss
has been deducted from its receivable from this unconsolidated affiliate in the
December 31, 2006 balance sheet. The assets and liabilities of the company’s
foreign operations are translated at rates of exchange in effect at year end,
and revenue, expenses, gains and losses are translated at the average rates of
exchange for the year
.
Landmark
Developments of Spain, SL reported the following condensed financial position
and profit (loss) for the periods ended December 31, 2007 and 2006, translated
into U.S. dollars.
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
1,036,976
|
|
|
$
|
904,325
|
|
|
Liabilities
|
|
|
726,037
|
|
|
|
1,390,128
|
|
|
Stockholders’
equity (deficit)
|
|
|
310,939
|
|
|
|
(485,803
|
)
|
|
Net
profit (loss)
|
|
|
852,891
|
|
|
|
(382,307
|
)
|
(III)
DPMG, Inc.
Effective
August 31, 2003, the company acquired all the outstanding stock of KES, Inc., an
Ohio corporation that owned directly or indirectly 100% of (1) DPMG, Inc., a
Delaware corporation formed in January 1996, (2) OTP, Inc., an Oklahoma
corporation formed in September 1994, (3) Delos Partners, Inc., an Ohio
corporation formed in December 1993, and (4) Landmark Hellas, Inc. (formerly
Landmark International Corp.), an Oklahoma corporation formed in December 1998.
The primary assets of the acquired companies consist of interests in undeveloped
land and golf and real estate management and development contracts.
Effective
June 30, 2004, KES, Inc., Landmark Hellas, Inc., Delos Partners, Inc., and OTP,
Inc. were merged into DPMG, Inc. in a tax-free reorganization under Internal
Revenue Code Section 368.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
(IV)
South Padre Island Development, LLC
On
October 1, 2004, the company’s wholly-owned subsidiary, DPMG, Inc. purchased all
the limited partnership interest in South Padre Island Development, L.P., a
Delaware limited partnership and all the outstanding stock of SPID, Inc., a
Delaware corporation, its sole general partner (collectively, “South Padre”).
South Padre is the owner of South Padre Island Golf Club and the related
residential lot and housing development activities in the town of Laguna Vista,
Texas. DPMG, Inc. had been managing the golf and real estate development
activities at South Padre since 1995. Effective June 1, 2006, South Padre Island
Development, L.P. was converted from a limited partnership to a limited
liability company. Effective August 31, 2006, SPID, Inc., the former general
partner of South Padre Island Development, L.P., was merged into DPMG, Inc. and
DPMG, Inc. transferred its 100% member interest in South Padre Island
Development, LLC to the company. SPIBS, LLC owns the liquor license for food and
beverage operations at the golf club which it operates under a lease from South
Padre.
(V)
LML Caribbean, Ltd.
On
November 25, 2005, the company organized LML Caribbean, Ltd. (“Caribbean”) under
the International Business Companies Act, 1999 of Saint Lucia, to pursue real
estate and golf development business in the Caribbean. The company owns 100% of
Caribbean.
In
December 2005, LML Caribbean, Ltd. and C. O. Williams Investments, Inc., a local
Barbados company (“Williams”), created Apes Hill Development SRL (“Apes Hill”),
a society incorporated under the provisions of Society With Restricted Liability
Act Cap. 318B of the Laws of Barbados. Caribbean owns one-third and Williams
owns two-thirds of Apes Hill. Apes Hill is developing a golf course, resort, and
residential community on approximately 470 acres on the island of
Barbados. It closed its first lot sales in the development in
December 2007.
Caribbean
accounts for its investment in Apes Hill on the equity method. Its $4,000,000
investment commitment to Apes Hill was funded in January 2006. Caribbean’s share
of Apes Hill’s profit (loss) in 2007, 2006, and 2005 was $186,620, ($375,222),
and ($79,402), respectively, for a cumulative loss of
($268,004).
Caribbean’s
functional currency is the Eastern Caribbean dollar. Apes Hill’s functional
currency is the Barbados dollar. Conversions of Barbados dollars into U.S.
dollars requires approval of the Central Bank of Barbados
(“Bank”). Therefore, the company’s ability to repatriate profits and
capital from Apes Hill may be limited or delayed depending on the level of
international reserves under the Bank’s control. Apes Hill reported
the following condensed financial position and profit (loss) for the periods
ended December 31, 2007 and 2006, translated into U.S. dollars.
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
79,013,098
|
|
|
$
|
35,241,722
|
|
|
Liabilities
|
|
|
67,817,013
|
|
|
|
24,605,484
|
|
|
Stockholders’
equity
|
|
|
11,196,085
|
|
|
|
10,636,238
|
|
|
Net
profit (loss)
|
|
|
559,847
|
|
|
|
(1,125,556
|
)
|
(VI)
Presidential Golf Club, LLC
Effective
as of December 8, 2005, DPMG, Inc. and V.O.B. Limited Partnership, a Maryland
limited partnership (“VOB”), formed Presidential Golf Club, LLC, a Maryland
limited liability company (“Presidential”). Presidential will develop and
operate an 18-hole championship golf course on approximately 240 acres of land
in Upper Marlboro, Maryland.
DPMG owns
50% of Presidential and accounts for its investment on the equity method. Its
initial investment was funded in January 2006. The investment totaled
$700,000 and $551,250 at December 31, 2007 and 2006, respectively.
Presidential’s costs incurred through 2007 were directly related to the golf
course development and were capitalized as development in progress. Presidential
reported the following condensed financial position at December 31, 2007 and
2006.
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
$
|
16,512,301
|
|
|
$
|
9,010,754
|
|
|
Liabilities
|
|
|
15,112,301
|
|
|
|
7,908,254
|
|
|
Stockholders’
equity
|
|
|
1,400,000
|
|
|
|
1,102,500
|
|
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
In the
summer of 2007, VOB requested that the Presidential limited liability agreement
be amended to restructure the equity and debt being provided by VOB for
construction of the golf facilities. Current drafts of the proposed
amendment anticipate that VOB 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. If an agreement is reached along
the lines of the current proposal, the company’s equity ownership percentage in
Presidential will be reduced to approximately 7.5%, reflecting the increased
equity investment by VOB.
(VII)
Consolidated entities
The
accompanying consolidated financial statements include the accounts of Landmark
Land Company, Inc., Landmark of Spain, Inc., DPMG, Inc., South Padre Island
Development, LLC, SPIBS, LLC, SPID, Inc. and LML Caribbean, Ltd., collectively
referred to as “the companies”. All material inter-company accounts and
transactions have been eliminated in the consolidated financial
statements.
(VIII)
Accounting policies
Use of estimates:
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash equivalents:
Cash
equivalents consist of financial instruments with original maturities of less
than three months. The companies maintain cash accounts that may exceed
federally insured limits during the year. The companies do not believe that this
results in any significant credit risk.
Merchandise inventories:
Golf
merchandise inventory is carried at the lower of cost or market. Cost is
determined by the weighted average cost method. Inventory at December 31, 2007
and 2006 totaled $117,028 and $95,541 respectively.
Accounts receivable and
concentrations of credit risk:
Accounts receivable are stated at the
amount the companies expect to collect. The companies maintain allowances for
doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. Management considers the following factors
when determining the collectibility of specific customer accounts: customer
credit worthiness, past transaction history with the customer, current economic
industry trends, and changes in customer payment terms. If the financial
condition of the companies’ customers were to deteriorate, adversely affecting
their ability to make payments, additional allowances would be required. Based
on management’s assessment, the companies provide for estimated uncollectible
amounts through a charge to earnings and a credit to a valuation allowance.
Balances that remain outstanding after the companies have used reasonable
collection efforts are written off through a charge to the valuation allowance
and a credit to accounts receivable. No allowance was considered necessary in
2006 and 2005. During 2007, the company created an allowance of
$50,000 and charged off $23,424 of uncollectible accounts. There
remains an allowance balance of $26,576 at December 31, 2007.
Property and equipment:
Property and equipment are recorded at cost. Depreciation is computed based on
the straight-line method over the estimated useful lives of the related assets
as follows:
|
Leasehold
improvements
|
Shorter
of estimated life or lease term
|
|
Furniture
and fixtures
|
7-10
years
|
|
Machinery
and equipment
|
3-8
years
|
|
Aircraft
|
10
years
|
|
Software
|
3
years
|
|
Buildings
|
40
years
|
Depreciation
expense totaled $588,164 and $114,203 for the years ended December 31, 2007 and
2006, respectively.
Real estate and golf management
contract rights:
The company, through its DPMG subsidiary, owns
management, development, and profit participation contract rights in various
real estate and golf properties in the United States, Spain, and the Caribbean.
At December 31, 2007 and 2006, these contracts were reflected on the company’s
balance sheets as follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Allocated
acquisition cost
|
|
$
|
3,285,587
|
|
|
$
|
4,765,587
|
|
|
Impairment
loss allowance
|
|
|
-
|
|
|
|
(922,083
|
)
|
|
Accumulated
amortization
|
|
|
(924,472
|
)
|
|
|
(1,482,389
|
)
|
|
Net
book value
|
|
$
|
2,361,115
|
|
|
$
|
2,361,115
|
|
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
Amortization
of golf management contracts is recognized on a straight-line basis over three
years. Amortization of real estate development and management contracts is
recorded on the gross revenue method over the expected life of each contract of
six to eighteen years. The principal contract with remaining unamortized costs
at December 31, 2007 is currently on hold, pending zoning and development
approval to start development; consequently, no amortization expense was
recognized for the year ended December 31, 2007. Amortization was
$687,402 for 2006. Estimated amortization for the next five years is
as follows:
|
Year
Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2008
|
|
$
|
37,254
|
|
|
2009
|
|
|
7,442
|
|
|
2010
|
|
|
195,712
|
|
|
2011
|
|
|
252,972
|
|
|
2012
|
|
|
293,005
|
|
Recognition
of revenue:
Property management:
Fees for
property management and golf design are recognized when earned under the related
contracts, generally when the services are performed. Revenue earned under
construction supervision contracts is earned on the percentage of completion
method as construction costs are incurred.
Land development:
South Padre
is engaged in the development of various land parcels. The company’s accounting
policies follow the provisions of Financial Accounting Standards Board (FASB)
Statement 66,
Accounting for
Sales of Real Estate
, which specifies minimum down payment requirements,
financing terms, and other reporting requirements for sales of real estate.
Sales are reported for financial reporting purposes when the transaction is
closed and title transfers.
Golf revenue:
Golf revenue is
recognized when rounds are played or merchandise is sold.
Real estate under development:
Land costs include direct and indirect acquisition costs, off-site and on-site
improvements, and carrying charges for projects under active development.
Interest and other carrying costs on projects not under development are charged
to operations.
Improvement
costs and carrying charges are allocated to development phases and to individual
lots in proportion to their estimated fair value. At the time sales are
recognized, accumulated costs are relieved from land inventory and charged to
cost of sales based on the cost accumulations and allocations. Real estate held
for development and sale is carried at the lower of cost or net realizable
value.
Income taxes:
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. A valuation
allowance is recorded to reduce tax assets to an amount for which realization is
more likely than not. The effect of changes in tax rates is recognized in the
period in which the rate change occurs.
Marketing costs:
The company’s
policy is to expense marketing costs as incurred. Marketing expense included in
the consolidated statement of operations for the years ended December 31, 2007
and 2006 was $524,263 and $487,150, respectively.
Foreign currency translation:
The assets and liabilities of the company’s foreign operations are translated at
rates of exchange in effect at year end, and revenue, expenses, gains, and
losses are translated at the average rates of exchange for the
year. The aggregate foreign currency translation gain included on the
Statement of Operations was $29,168 and $20,424 in 2007 and 2006,
respectively. Gains and losses resulting from translation of the
foreign entity’s year-end balance sheet are accumulated as a separate component
of stockholders’ equity until the respective assets or liabilities are
liquidated.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
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. The following is a
reconciliation of the numerators and denominators used in the calculation of
earnings per share:
|
|
|
Year
Ending December 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income
|
|
$
|
(300,504
|
)
|
|
$
|
3,890,825
|
|
|
Less: Preferred
dividends
|
|
|
100,000
|
|
|
|
103,563
|
|
|
Net
(loss) income available to common stockholders
|
|
|
(400,504
|
)
|
|
|
3,787,262
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
7,567,530
|
|
|
|
7,649,915
|
|
|
Incremental
shares from assumed exercise of dilutive options
|
|
|
-
|
|
|
|
5,162
|
|
|
Diluted
weighted average common shares outstanding
|
|
|
7,567,530
|
|
|
|
7,655,077
|
|
|
Basic
(loss) income per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.50
|
|
|
Diluted
(loss) income per common share
|
|
$
|
(0.05
|
)
|
|
$
|
0.49
|
|
The
dilutive effect of the employees’ and directors’ stock options is reported using
the treasury stock method (i.e., the assumed proceeds received from exercise of
the options are assumed to be used to purchase treasury shares at the average
market price for the period). In accordance with Statement of
Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share
, if there
is a loss from continuing operations, the common stock equivalents are deemed
antidilutive and diluted earnings per share is calculated in the same manner as
basic earnings per share.
Impairment of long-lived
assets:
In accordance with SFAS No. 144,
Accounting for the Disposal of
Long-Lived Assets
, management evaluates intangible assets whenever events
or changes in circumstances indicate that the carrying value of the asset may be
impaired. An impairment loss is recognized when the asset’s carrying value is
not recoverable and exceeds its fair value. Recoverability is based
upon the undiscounted estimated future cash flows expected to result from the
use of the asset, including disposition. Cash flow estimates used in evaluating
for impairment represent management’s best estimates using appropriate
assumptions and projections at the time.
Fair value of financial
instruments:
The company measures its financial assets and liabilities in
accordance with accounting principles generally accepted in the United States of
America. The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The fair value of cash, receivables, and payables approximates cost due to the
short period of time to maturity.
Warranty accruals:
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 .5%
of gross house sales. The summary of the warranty accruals for 2007 and 2006
follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Warranty
accrual balance January 1
|
|
$
|
146,635
|
|
|
$
|
82,260
|
|
|
Provision
for warranty
|
|
|
85,384
|
|
|
|
84,968
|
|
|
Payments
|
|
|
(99,854
|
)
|
|
|
(20,593
|
)
|
|
Warranty
accrual balance December 31
|
|
$
|
132,165
|
|
|
$
|
146,635
|
|
Customer deposits:
As part of
the company’s homebuilding operations, homebuyers are required to pay an upfront
deposit with the company when a home purchase contract is executed. The company
records this deposit as a liability until such time as the contract actually
closes and title passes to the purchasers. As of December 31, 2007 and 2006, the
company had customer deposits totaling $153,264 and $1,360,640,
respectively. These deposits are included in other liabilities and
deferred credits on the company’s balance sheets.
Out of pocket expenses:
The
company’s management, construction, and development agreements require customers
to pay a management fee plus reimbursement for the out of pocket expenses
incurred on behalf of the customer. Consistent with EITF Topic 01-14, “Income
Statement Characterization of Reimbursements Received For Out of Pocket Expenses
Incurred”, the company recognizes this reimbursement as a separate component of
revenue and operating expenses on the Consolidated Statement of
Operations.
Reclassifications:
Certain
reclassifications have been made in the 2006 financial statements to conform to
the 2007 presentation. These reclassifications had no impact on previously
reported net income.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
2.
Property and equipment
At
December 31, 2007 and 2006, property and equipment consist of the
following:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Aircraft
|
|
$
|
4,047,280
|
|
|
$
|
-
|
|
|
Golf
course improvements
|
|
|
282,752
|
|
|
|
273,536
|
|
|
Buildings
|
|
|
562,925
|
|
|
|
526,828
|
|
|
Automobiles
|
|
|
50,831
|
|
|
|
10,095
|
|
|
Furniture,
machinery, and equipment
|
|
|
802,731
|
|
|
|
658,403
|
|
|
|
|
|
5,746,519
|
|
|
|
1,468,862
|
|
|
Less: Accumulated
depreciation
|
|
|
(785,818
|
)
|
|
|
(202,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
property and equipment
|
|
$
|
4,960,701
|
|
|
$
|
1,266,646
|
|
Property
and equipment is carried at cost, less accumulated depreciation.
3.
Real estate held for sale
The
company, through subsidiaries, owns the following interests in real estate held
for sale at December 31, 2007 and 2006:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Laguna
Vista, TX – developed single family lots
|
|
$
|
1,020,681
|
|
|
$
|
425,882
|
|
|
Laguna
Vista, TX – completed homes, including models
|
|
|
358,522
|
|
|
|
366,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
real estate held for sale
|
|
$
|
1,379,203
|
|
|
$
|
792,382
|
|
4.
Real estate held for or under development
At
December 31, 2007 and 2006, the company, through its subsidiaries, owns real
estate held for or under development in Texas and Hawaii as
follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Laguna
Vista, TX – developed lots for future home construction
|
|
$
|
1,633,670
|
|
|
$
|
942,623
|
|
|
Laguna
Vista, TX – home construction costs in progress
|
|
|
4,262,515
|
|
|
|
5,968,296
|
|
|
Laguna
Vista, TX – lot development costs in progress
|
|
|
2,280,776
|
|
|
|
3,001,796
|
|
|
Laguna
Vista, TX – vacant land
|
|
|
5,011,995
|
|
|
|
477,356
|
|
|
Total
real estate held for or under development at South Padre
|
|
|
13,188,956
|
|
|
|
10,390,071
|
|
|
|
|
|
|
|
|
|
|
|
|
Hana,
HI – 45% interest in approximately 128 acres
|
|
|
1,288,594
|
|
|
|
1,276,244
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
real estate held for or under construction
|
|
$
|
14,477,550
|
|
|
$
|
11,666,315
|
|
Real
estate held for or under development is valued at the lower of cost or net
realizable value. All of the real estate held for sale as development
in Texas is pledged as collateral for development loans. See Note 10
for details. See Note 12 for additional information on the company’s
purchase of vacant land for development.
The
company capitalizes interest costs related to land development activities as the
land is prepared for its intended use. Capitalization ceases when the
development is substantially complete. Interest on debt associated with
operations and equipment is expensed as incurred. See Notes 9 and 10 for details
on debt and amounts of interest capitalized to real estate or expensed to
operations.
5.
Stockholders’ equity
In
November 2006, the company purchased 92,525 common shares at $1.70 per share.
The $157,293 purchase price was charged to the treasury stock
account.
Effective
January 1, 2007, the company implemented Financial Accounting Standards Board
Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income
Taxes,
recognizing $6,867,000 of deferred tax assets not previously
included on the
balance
sheet. The same amount was credited to accumulated deficit
as described more
completely in Note 13, Income taxes.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
The
company has declared dividends on common stock during the years 2007 and 2006 as
shown in the following table. In each case, the dividend was payable
on the first business day that was ten days after the record
date. The dividends paid during 2007 represented a return of capital
rather than a distribution of earnings and profits.
|
Declaration Date
|
|
Amount Per Share
|
|
Record Date
|
|
|
|
|
|
|
|
11/6/07
|
|
$0.025
|
|
11/22/07
|
|
8/10/07
|
|
$0.025
|
|
8/24/07
|
|
8/26/06
|
|
$0.025
|
|
5/31/07
|
|
8/26/06
|
|
$0.025
|
|
2/28/07
|
|
8/26/06
|
|
$0.025
|
|
11/30/06
|
|
8/26/06
|
|
$0.025
|
|
9/8/06
|
During
2007 and 2006, the company granted stock purchase options to its outside
directors, legal counsel, and certain employees as discussed in Note 6 Stock
option plans. The Company is accounting for the options using the grant date
fair value method. Using the Black Scholes Merton model, the directors and legal
counsel options granted May 1, 2006 for 200,000 shares were valued at $0.50 per
share, the grant on May 23, 2007 for 50,000 shares was valued at $0.73 per share
and the grant on August 10, 2007 for 50,000 shares at $0.63 per
share. Since these options are immediately exercisable, the total
value of the options was charged to expense and credited to paid-in capital in
the amounts of $67,686 in 2007 and $100,000 in 2006.
The Black
Scholes Merton model was also used to value the options granted to employees
during 2007 and 2006 as summarized in the following table:
|
Date of
Grant
|
No. of
Shares
|
Exercise
Price /
Share
|
Option Value /
Share
|
|
|
|
|
|
|
6/1/06
|
185,000
|
$1.74
|
$
.60
|
|
11/18/06
|
62,500
|
1.60
|
.43
|
|
5/23/07
|
199,000
|
2.85
|
1.03
|
|
8/10/07
|
2,500
|
2.55
|
.87
|
|
11/30/07
|
270,000
|
1.70
|
.43
|
Since the
employees’ options vest at the end of five years, the estimated option value is
being expensed over the five-year vesting period. The December 31, 2007 and 2006
financial statements include expense for the employee options in the amounts of
$52,637 and $13,183, respectively, with the same amounts credited to paid-in
capital.
In
December 2005, the company sold 10,000 shares of Series C preferred stock, $0.50
par value, $100 liquidation value with a $10 cumulative annual dividend per
share, for $1,000,000. The proceeds were credited to the preferred stock
account. Dividends were paid in the amount of $100,000 in 2007 and
$103,563 in 2006.
6.
Stock option plans
On
December 31, 2007, the company had two share-based compensation plans, which are
described below. The compensation cost related to options granted, based on the
grant date fair value, was estimated in accordance with the provisions of SFAS
No. 123R and has been charged against income for the twelve-months ended
December 31, 2007 and 2006 in the total amount of $120,323 and $113,183,
respectively. The deferred income tax benefit related to these share-based
compensation arrangements was approximately $24,000 for the twelve months ended
December 31, 2007 and $36,000 for the twelve months ended December 31,
2006. No options were granted under the plans prior to the second
quarter of 2006.
Incentive
stock option plan
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 shareholders on
November 18, 2006. The Plan permits the grant of stock options for up to 766,000
shares of common stock to company employees. Option awards are generally granted
with an exercise price determined by the Board of Directors pursuant to the
Plan, but not less than the fair market value of the company’s stock at the time
of grant. Generally, options must be granted within ten years of the plan
adoption date with vesting five years from date of grant and must be exercised
within five years from date of vesting.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
The fair
value of each option award is estimated on the date of grant using a Black
Scholes Merton option valuation model that uses the assumptions noted in the
following table. Expected volatility is estimated based upon the historical
volatility of entities with characteristics (size, industry, etc.) similar to
the company and the company’s own historical volatility. The expected term of
the options granted represents the period of time that options granted are
expected to be outstanding. The expected forfeiture rate represents the
percentage of options expected to be forfeited before vesting. The risk free
rate is based upon the U.S. Treasury constant maturity yield for a period
comparable to the expected term. The dividend rate is an estimate of the
expected yield on the company stock over the expected term.
|
Assumption
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
volatility
|
|
43%
|
|
43%-44%
|
|
Expected
term (in years)
|
|
7.5
|
|
7.5
|
|
Expected
forfeiture
|
|
10%
|
|
5%-10%
|
|
Risk
free rate
|
|
3.64%-4.80%
|
|
4.66%-5.01%
|
|
Expected
dividends
|
|
3.50%-5.88%
|
|
4.00%-6.00%
|
A summary
of option activity under the Plan since inception is presented
below:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
Average
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
Grant-Date
|
|
Options
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2006
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Granted
|
|
248,500
|
|
1.70
|
|
-
|
|
-
|
|
$0.56
|
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Forfeited
or expired
|
|
(1,000)
|
|
1.74
|
|
-
|
|
-
|
|
$0.60
|
|
Outstanding
at December 31, 2006
|
|
247,500
|
|
1.70
|
|
9.5
years
|
|
$85,475
|
|
$0.56
|
|
Exercisable
at December 31, 2006
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1, 2007
|
|
247,500
|
|
1.70
|
|
-
|
|
-
|
|
$0.56
|
|
Granted
|
|
471,500
|
|
2.19
|
|
-
|
|
-
|
|
$0.69
|
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Forfeited
or expired
|
|
(11,000)
|
|
1.71
|
|
-
|
|
-
|
|
$0.60
|
|
Outstanding
at December 31, 2007
|
|
708,000
|
|
2.03
|
|
9.3
years
|
|
-
|
|
$0.64
|
|
Exercisable
at December 31, 2007
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
As of
December 31, 2007 and 2006, there was $354,977 and $117,267, respectively, of
total unrecognized compensation cost related to non-vested share-based
compensation arrangements granted under the Plan. The December 31, 2007 cost is
expected to be recognized over the remaining 4.3 years vesting period for
outstanding grants under the Plan.
Other
stock option agreements
The
company has entered into agreements with its outside directors and legal counsel
under which it granted options to purchase the company’s common shares. On May
1, 2006, May 23, 2007 and August 10, 2007, six individuals were granted options
to purchase a total of 300,000 shares. The options were granted with an exercise
price equal to the fair market value at the time of grant. These options are
immediately vested and expire five years from the date of grant.
The fair
value of each option award is estimated on the date of grant using a Black
Scholes Merton option valuation model that uses the assumptions noted in the
following table. Expected volatility is estimated based upon the historical
volatility of entities with characteristics (size, industry, etc.) similar to
the company and the company’s own historical volatility. The expected term of
the options granted represents the period of time that options are expected to
be outstanding. The risk free rate is based upon the U.S. Treasury constant
maturity yield for a period comparable to the expected term. The dividend rate
is an estimate of the expected yield on the company stock over the expected
term.
|
Assumption
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Expected
volatility
|
|
43%
|
|
43%
|
|
Expected
term (in years)
|
|
2.5
|
|
2.5
|
|
Risk
free rate
|
|
4.51%-4.79%
|
|
4.87%
|
|
Expected
dividends
|
|
3.50%-3.92%
|
|
4.00%
|
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
A summary
of option activity under the agreements during 2007 and 2006 is presented
below:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
Weighted
|
|
Average
|
|
|
|
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|
Options
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at January 1
|
|
200,000
|
|
2.00
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Granted
|
|
100,000
|
|
2.70
|
|
-
|
|
-
|
|
200,000
|
|
2.00
|
|
-
|
|
-
|
|
Exercised
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Forfeited
or expired
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
Outstanding
at December 31
|
|
300,000
|
|
2.23
|
|
3.7
years
|
|
-
|
|
200,000
|
|
2.00
|
|
4.3
years
|
|
$10,000
|
|
Exercisable
at December 31
|
|
300,000
|
|
2.23
|
|
3.7
years
|
|
-
|
|
200,000
|
|
2.00
|
|
4.3
years
|
|
$10,000
|
The
company recognized a total of $67,686 as directors’ fees in 2007 and $100,000 as
directors’ fees and legal cost during 2006 related to these agreements with
directors and legal counsel. There was no related unrecognized cost
as of December 31, 2007 and 2006.
7.
Leasing activities
Real estate:
DPMG leases
offices ($1,500 per month and, in 2007, an additional $760 per month) in Upper
Marlboro, Maryland, airplane hangar space ($2,800 per month in 2007 only) in
Easton, Maryland and, in 2006, an apartment in New York state, all on a
month-to-month basis. Rent expense related to these leases is included in
general and administrative expenses in the amounts of $65,492 in 2007 and
$27,975 in 2006. South Padre leases office space in Laguna Vista,
Texas and, for several months in 2006, model homes in the development on a
month-to-month basis. At December 31, 2007, South Padre was obligated for office
rental payments of approximately $1,600 each month. Rent expense of $18,738 and
$28,040 is included in real estate operating expenses in 2007 and 2006,
respectively.
Equipment:
DPMG
leases a mobile storage container on a month-to- month basis. South
Padre was obligated under operating leases for use of golf cars, golf
maintenance equipment, and construction equipment, some of which expired in
2007. The remaining leases require payments of $4,926 per month through November
2009 for the golf cars and $485 per month through June 2010 for golf utility
cars. On a month-to-month basis, South Padre also leases a mobile construction
storage bin and various construction equipment on short term rentals as
needed. South Padre also leases global positioning equipment
installed on the golf cars. Lease charges are based on a per-round usage fee,
billed monthly. The consolidated statement of operations for 2007 and 2006
includes lease expense on these obligations and miscellaneous equipment rentals
in the total amount of $116,063 and $107,862, respectively. Minimum
annual payments due under these leases in the future are as
follows:
|
Year
Ending December 31
|
|
Amount
|
|
|
|
|
|
|
|
2008
|
|
$
|
64,920
|
|
|
2009
|
|
|
59,994
|
|
|
2010
|
|
|
2,904
|
|
|
Total
|
|
$
|
127,818
|
|
8.
Management agreements with unconsolidated affiliates
Landmark
of Spain, Inc. has a consulting agreement with Landmark Developments of Spain,
S.L. During 2007, the company refunded $58,554 of fees recognized under this
agreement in prior years. Fees earned in 2006 totaled $392,613.
Fees and reimbursable expenses were due to the company under this
agreement in the amounts of $281,814 at December 31, 2007, and $590,020 (before
deducting negative investment balance of $242,901) in
2006. Amendments to the consulting agreement are being negotiated to
reflect the company’s reduced responsibilities for the operating management of
the Arcos Gardens project and its anticipated role in future
projects.
In
December 2005, DPMG entered into management agreements with Presidential Golf
Club, LLC to provide golf course design, construction supervision, and golf
operations management for the 18-hole championship golf course to be built near
Upper Marlboro, Maryland. Fees earned under the contract totaled $201,945 and
$402,581 in 2007 and 2006, respectively. The company owns 50% of Presidential
Golf Club, LLC, but that percentage may be reduced as discussed in Note
1.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
Also in
December 2005, DPMG entered into management agreements with Apes Hill
Development SRL to provide business plans, golf course design, project
management, construction management, marketing, and operations management for
its proposed 470 acre development in Barbados. Fees earned under the contract
totaled $1,319,825 and $1,139,969 in 2007 and 2006, respectively. The company
owns 33.3% of Apes Hill Development SRL as discussed in Note 1.
In
September 2005, DPMG entered into an agreement with Newco XXV, Inc. (“Newco”),
an entity affiliated with Gerald G. Barton, the company’s chairman, whereby DPMG
agreed to provide consulting services to Newco relating to the planning, design,
and development of certain real property owned by Newco. The agreement provides
that these services are to be provided at the same rates quoted by DPMG to
non-affiliated third party entities. No fees were earned under this contract
during 2007. Fees earned in 2006 totaled $13,345.
A summary
of receivables due from unconsolidated affiliates under these contracts at
December 31, 2007 and 2006 follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Landmark
Developments of Spain, S.L.
|
|
$
|
281,818
|
|
|
$
|
347,119
|
|
|
Presidential
Golf Club, LLC
|
|
|
6,040
|
|
|
|
66,548
|
|
|
Apes
Hill Development SRL
|
|
|
445,915
|
|
|
|
231,200
|
|
|
Newco
XXV, Inc.
|
|
|
-
|
|
|
|
256
|
|
|
|
|
$
|
733,773
|
|
|
$
|
645,123
|
|
9.
Notes and advances payable to affiliates
The
companies have the following notes and advances payable to various affiliates as
of December 31, 2007 and 2006:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Advances
payable to Newco, an affiliate of the chairman and major stockholder
of
|
|
|
|
|
|
|
|
the
company, bearing interest at 15%, payable on demand. Accrued
interest on these advances totaled $327,756 and $357,716 at December 31,
2007 and 2006, respectively
|
|
$
|
333,599
|
|
|
$
|
333,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances
payable to Newco, an affiliate of the chairman and major stockholder
of
|
|
|
|
|
|
|
|
|
|
the
company, bearing interest at 12%, payable on demand. Accrued
interest on these advances totaled $363,361 and $296,344 at December 31,
2007 and 2006, respectively
|
|
|
558,475
|
|
|
|
558,475
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to a stockholder of the company, bearing interest at the prime
rate
|
|
|
|
|
|
|
|
|
|
plus
1%, due on demand. Accrued interest on these notes totaled
$154,728 and $117,080 at December 31, 2007 and 2006,
respectively. Interest is due and payable annually as it
accrues.
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes and advances payable to affiliates
|
|
|
1,192,074
|
|
|
|
1,192,074
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
portion due in one year
|
|
|
(1,192,074
|
)
|
|
|
(1,192,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
notes and advances payable to affiliates
|
|
$
|
-
|
|
|
$
|
-
|
|
The
company’s consolidated statement of operations includes interest expense on
these notes and advances in the amount of $154,705 and $151,595 in 2007 and
2006, respectively. At December 31, 2007 and 2006 all liabilities to
affiliates are payable on demand.
10.
Notes payable to others
Real estate development and
construction loans:
At December 31, 2007 and 2006, land acquisition,
development, and construction loans are payable to International Bank of
Commerce and Texas State Bank in the total amount of $11,935,719 and $8,637,274,
respectively. The loans are secured by deeds of trust on land and improvements
at South Padre with an additional guaranty by the company. Interest
rates on loans outstanding at December 31, 2007 range from prime rate (7.25%) to
prime plus 1%. The loans require principal payments as lots and houses are
settled and mature on various dates from January 2008 to August
2009. Subsequent to December 31, 2007, the loans maturing in 2008
were renewed or are in the process of being renewed with new maturity dates in
2009.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
Equipment loans:
On
January 11, 2007, the company borrowed $3,900,000 from Key Equipment Finance to
purchase an Astra 1125 aircraft for corporate use. The note is
secured by a lien on the airplane with an additional guaranty by the
company. The note bears interest at 30-day LIBOR plus 1.51% and
requires 84 monthly payments of principal and interest beginning at $35,000 per
month with a balloon payment of $2,535,000 in March 2014. At December 31, 2007,
the company owed $3,759,012 on the loan.
At
December 31, 2006, lease-purchase obligations on equipment at South Padre are
payable to Citicapital in the principal amount of $69,361. Financing rate was
7.7% with monthly payments extending to December 2007 when the loans were
completely repaid. The loans were secured by liens on the operating
equipment.
Operating capital note:
In
2002, DPMG executed a $600,000 note payable to a third party to fund its
operating needs. The unsecured note is due on demand and bears interest at the
prime rate plus 2% (9.25% at December 31, 2007). The note has an outstanding
principal balance of $600,000 plus accrued interest of $296,668 and $212,926 at
December 31, 2007 and 2006, respectively.
A summary
of notes payable to others with principal balances outstanding at December 31,
2007 and 2006 follows:
|
|
|
|
|
|
|
Funds
|
|
|
Principal
Outstanding
|
|
|
|
|
Interest
|
|
|
|
Available
at
|
|
|
December
31,
|
|
|
Lender
|
|
Rate
|
|
Maturity
|
|
12/31/2007
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
Estate Development Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Int’l
Bank of Commerce
|
|
Prime
+ 1%
|
|
1/24/08
|
|
$
|
2,999,893
|
|
|
$
|
5,000,107
|
|
|
$
|
6,793,411
|
|
|
Int’l
Bank of Commerce
|
|
Prime
|
|
8/29/09
|
|
|
134,069
|
|
|
|
4,365,931
|
|
|
|
-
|
|
|
Texas
State Bank
|
|
|
7.25%-8.0
|
%
|
3/01/08
|
|
|
1,022,782
|
|
|
|
2,569,681
|
|
|
|
1,843,863
|
|
|
Subtotal
- real estate development loans
|
|
|
|
|
|
|
|
4,022,675
|
|
|
|
11,935,719
|
|
|
|
8,637,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Citicapital
|
|
|
7.7
|
%
|
12/01/07
|
|
|
-
|
|
|
|
-
|
|
|
|
69,361
|
|
|
|
|
30-day
Libor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Key
Equipment Finance
|
|
|
+1.51
|
%
|
3/01/14
|
|
|
-
|
|
|
|
3,759,012
|
|
|
|
-
|
|
|
Subtotal
- equipment loans
|
|
|
|
|
|
|
|
|
|
|
|
3,759,012
|
|
|
|
69,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Capital Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRG,
Inc.
|
|
Prime
+ 2%
|
|
Demand
|
|
|
|
|
|
|
600,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable to others
|
|
|
|
|
|
|
|
|
|
|
|
16,294,731
|
|
|
|
9,306,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
portion due in one year
|
|
|
|
|
|
|
|
|
|
|
|
(8,353,641
|
)
|
|
|
(669,361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
term notes payable to others
|
|
|
|
|
|
|
|
|
|
|
$
|
7,941,090
|
|
|
$
|
8,637,274
|
|
Interest
on these notes and advances for the years ended December 31, 2007 and 2006
totaled $1,153,267 and $653,340, respectively. Interest capitalized to real
estate development totaled $687,997 in 2007 and $457,449 in 2006. Interest
expensed to operations totaled $465,270 and $195,891 in 2007 and 2006,
respectively.
The prime
rate was 7.25% and 8.25% at December 31, 2007 and 2006, respectively.
The carrying amount of the loans reasonably approximates the fair value as their
terms are similar to what is currently available from lenders.
At
December 31, 2007, future minimum principal payments due under the loans were as
listed below. Real estate loans maturing in 2008 in the amount of
$7,570,000 were renewed or are in the process of being renewed, subsequent to
December 31, 2007, with new maturities in 2009.
|
Year
Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2008
|
|
$
|
8,353,641
|
|
|
2009
|
|
|
4,562,611
|
|
|
2010
|
|
|
209,659
|
|
|
2011
|
|
|
223,496
|
|
|
2012
|
|
|
237,703
|
|
|
After
2012
|
|
|
2,707,621
|
|
|
Total
|
|
$
|
16,294,731
|
|
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
11.
Retirement plan
The
company sponsors a 401(k) defined contribution plan covering all eligible
employees effective July 1, 2001. Employees may elect to contribute to the plan
on a pre-tax basis, within certain percentage limitations. Effective January
2006, the plan was amended to include the South Padre employees and to provide
for the company to match 100% of employee elective contributions up to 3% of
employee wages plus 50% of employee elective contributions between 3% and 5%.
Company contributions to the plan totaled $160,026 and $144,815 in 2007 and
2006, respectively.
12.
Commitments and contingencies
Litigation:
The company and
its subsidiaries have been named as defendant in various claims, complaints, and
other legal actions arising in the normal course of business. In the opinion of
management, the outcome of these matters will not have a material adverse effect
upon the financial condition, results of operations, or cash flows of the
company.
Backlog:
At
December 31, 2007, South Padre had 4 contracts for lots and houses under
construction with a total sales value of $747,000. At December 31,
2006, there were 80 non-contingent contracts with a total sales value of
approximately $13,347,000.
Land purchase option:
South
Padre entered into a rolling purchase option agreement dated April 1, 1995,
which granted a series of options to purchase all or part of approximately 1,050
acres of land in Laguna Vista, Texas. South Padre purchased approximately 206
acres under the agreement prior to the company’s acquisition of South Padre in
October 2004. The option agreement was amended December 13, 2004 and then
required South Padre to purchase a minimum of twenty-five acres each calendar
year in 2005 - 2007 to maintain its purchase option rights under the
agreement. The company purchased approximately 82 acres ($12,408 per
acre) in 2006, respectively, under the amended agreement. In August
2007, the company purchased all of the option property, plus all of the seller’s
other holdings adjacent to the South Padre development totaling approximately
1,800 acres for a purchase price of $4.5 million
.
Airplane:
On November 22,
2006, the company entered into an agreement to buy a 1988 Astra Jet for
$3,900,000, subject to a detailed inspection of the plane by an authorized Astra
service center. In 2006, the company deposited a total of $135,800 with the
title escrow agent and the inspection facility, which amount is included in “
Deposits” on the company’s balance sheet at December 31, 2006. The company
accepted delivery of the airplane on January 11, 2007 and the deposit was used
as part of the purchase price. See Note 10 for details of the
financing terms.
13.
Income taxes
A
reconciliation of the expense for income taxes calculated at statutory rates to
the actual expense recognized in the financial statements for the years ended
December 31, 2007 and 2006, is as follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Federal
income tax (benefit) computed at statutory rate
|
|
$
|
(79,487
|
)
|
|
$
|
2,045,782
|
|
|
Increase
(decrease) in income taxes:
|
|
|
|
|
|
|
|
|
|
State
income tax provision, net
|
|
|
50,160
|
|
|
|
99,392
|
|
|
Incentive
stock options
|
|
|
17,897
|
|
|
|
4,482
|
|
|
Personal
airplane usage
|
|
|
53,233
|
|
|
|
-
|
|
|
Non-deductible
meals
|
|
|
16,451
|
|
|
|
8,525
|
|
|
Change
in valuation allowance
|
|
|
-
|
|
|
|
(32,000
|
)
|
|
Other
|
|
|
8,464
|
|
|
|
-
|
|
|
Provision
for income taxes
|
|
$
|
66,718
|
|
|
$
|
2,126,181
|
|
The
company reported a loss before income taxes of $233,786 for the year ended
December 31, 2007 and a profit before income taxes of $6,017,006 in
2006. Certain stock based compensation, airplane expenses, and meals
which cannot be deducted for income tax purposes, (permanent differences in book
and taxable income) account for the difference in the benefit recognized and the
amount that would have been recognized on the $233,786 loss. The
various entities included in the company’s Consolidated Financial Statements and
consolidated federal income tax return are each taxed separately in the various
states in which they operate. The state tax provision shown above
represents the estimated state income tax payable on income reported in the
various states each year, less the 34% federal tax benefit of deducting such
taxes in the federal return. During 2007, the company recorded $7,430
for penalties and interest related to underpayment of estimated 2006 Maryland
income tax.
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
Financial
Accounting Standards Board Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income
Taxes
was issued in July 2006 and interprets SFAS No. 109,
Accounting for Income
Taxes
. FIN 48 requires all taxpayers to analyze all
material positions they have taken or plan to take in all tax returns that have
been filed or should have been filed with all taxing authorities for all years
still subject to challenge by those taxing authorities. If the
position taken is “more-likely-than-not” to be sustained by the taxing authority
on its technical merits and if there is more than a 50% likelihood that the
position would be sustained if challenged and considered by the highest court in
the relevant jurisdiction, the tax consequences of that position should be
reflected in the taxpayer’s GAAP financial statements. Earlier
proposed interpretations of SFAS 109 had recommended a “probable” standard for
recognition of tax consequences rather than the “more-likely-than-not” standard
finally adopted.
The
company was required to implement FIN 48 at the beginning of
2007. Consequently, the company analyzed its tax positions and
adjusted its balance sheet effective January 1, 2007 to recognize a deferred tax
benefit from tax positions that meet the “more-likely-than-not” standard but did
not meet the earlier “probable” standard for recognition in the GAAP financial
statements. The principal adjustment relates to the company’s net
operating loss reported in the 2002 federal and state tax returns upon final
resolution of the company’s litigation with the U. S. government as discussed in
Note 1. The adjustment increased deferred tax assets by $4,500,000
representing benefits to be realized in future years, reduced current tax
liabilities by $2,367,000 representing the benefit utilized to offset taxable
income in the 2006 federal return and reduced the accumulated deficit by
$6,867,000 -- the total benefit which we recognized on the company’s balance
sheet on January 1, 2007.
The
company had no material unrecognized tax benefits at December 31, 2007 nor does
it expect any significant change in that status during the next twelve
months. No accrued interest or penalties on uncertain tax positions
have been included on the statements of operations or the consolidated balance
sheet. 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.
The
estimated net future benefit available to the company from all its deferred tax
positions is approximately $50,117,000 at December 31, 2007; however,
realization of that benefit is dependent on the company’s ability to generate
taxable income in the future. In view of historical earnings, the
company has established a valuation allowance against the asset in the
approximate amount of $45,449,000, reducing the net benefit to $4,668,000
included on the December 31, 2007 balance sheet.
The
components of the deferred income tax asset at December 31, 2007 and 2006, are
as follows:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
50,384,000
|
|
|
$
|
265,000
|
|
|
Basis
difference in foreign operation
|
|
|
470,000
|
|
|
|
684,000
|
|
|
Basis
difference in other South Padre assets
|
|
|
90,000
|
|
|
|
92,000
|
|
|
Acquisition
costs capitalized for tax
|
|
|
43,000
|
|
|
|
43,000
|
|
|
Management
fees capitalized for tax
|
|
|
27,000
|
|
|
|
43,000
|
|
|
Warranty
reserve
|
|
|
45,000
|
|
|
|
50,000
|
|
|
Accrued
vacation
|
|
|
90,000
|
|
|
|
74,000
|
|
|
Depreciation
|
|
|
27,000
|
|
|
|
6,000
|
|
|
Accrued
interest
|
|
|
196,000
|
|
|
|
178,000
|
|
|
Allowance
for uncollectible accounts
|
|
|
10,000
|
|
|
|
-
|
|
|
Directors’
stock options
|
|
|
60,000
|
|
|
|
36,000
|
|
|
Gross
deferred tax asset
|
|
|
51,442,000
|
|
|
|
1,471,000
|
|
|
Valuation
allowance
|
|
|
(45,449,000
|
)
|
|
|
-
|
|
|
Net
deferred tax asset
|
|
|
5,993,000
|
|
|
|
1,471,000
|
|
|
Basis
difference in contract rights
|
|
|
(850,000
|
)
|
|
|
(850,000
|
)
|
|
Basis
difference in other real estate assets
|
|
|
(450,000
|
)
|
|
|
(450,000
|
)
|
|
Basis
difference in South Padre golf improvements
|
|
|
(25,000
|
)
|
|
|
(25,000
|
)
|
|
Total
net deferred tax asset
|
|
|
4,668,000
|
|
|
|
146,000
|
|
|
Less
deferred tax asset, current
|
|
|
-
|
|
|
|
93,000
|
|
|
Deferred
tax asset, non-current
|
|
$
|
4,668,000
|
|
|
$
|
53,000
|
|
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
At
December 31, 2007, the company’s net operating loss carryovers available to
reduce future federal and state taxable income expires as follows:
|
Year
Ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2018
|
|
$
|
1,640
|
|
|
2019
|
|
|
1,310
|
|
|
2020
|
|
|
10,297
|
|
|
2021
|
|
|
171,363
|
|
|
2022
|
|
|
146,934,307
|
|
|
2023
|
|
|
14,693
|
|
|
2024
|
|
|
511,239
|
|
|
2025
|
|
|
472,959
|
|
|
Total
|
|
$
|
148,117,808
|
|
Future
tax benefits from the net operating losses above may be subject to IRS
limitation as to timing and amount, based on the amount and character of the
loss carryovers, the expiration of the loss carryover periods, and the
availability of carryover benefits as a result of ownership
changes.
The
company will provide income taxes for undistributed earnings of its foreign
equity investees that are not considered permanently reinvested in these
operations.
14.
Geographical information
Operations
in geographical areas are summarized below for the years ended December 31, 2007
and 2006:
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
|
|
|
|
|
|
United
States
|
|
$
|
23,050,520
|
|
|
$
|
27,889,119
|
|
|
Caribbean
|
|
|
2,572,729
|
|
|
|
2,136,590
|
|
|
Spain
(a)
|
|
|
(51,013
|
)
|
|
|
637,059
|
|
|
|
|
$
|
25,572,236
|
|
|
$
|
30,662,768
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$
|
28,614,139
|
|
|
$
|
16,653,455
|
|
|
Caribbean
|
|
|
3,731,996
|
|
|
|
3,545,376
|
|
|
Spain
|
|
|
187,900
|
|
|
|
37,254
|
|
|
|
|
$
|
32,534,035
|
|
|
$
|
20,236,085
|
|
|
(a)
|
The
company is negotiating amendments to its management agreement with
Landmark Developments of Spain, S.L. and, in 2007, refunded approximately
$58,000 of fees charged in the prior
year.
|
Landmark
Land Company, Inc.
Notes
to Consolidated Financial Statements
15.
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 2007 and 2006 operations by segment:
|
|
|
2007
|
|
|
|
|
Real
Estate
|
|
|
Golf
|
|
|
Management
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
19,674,625
|
|
|
$
|
1,866,531
|
|
|
$
|
4,031,080
|
|
|
$
|
-
|
|
|
Costs
of revenue
|
|
|
(15,100,695
|
)
|
|
|
(2,199,587
|
)
|
|
|
(5,678,735
|
)
|
|
|
-
|
|
|
Depreciation
and amortization
|
|
|
(31,139
|
)
|
|
|
(119,661
|
)
|
|
|
(31,319
|
)
|
|
|
(406,045
|
)
|
|
Operating
income (loss)
|
|
|
4,542,791
|
|
|
|
(452,717
|
)
|
|
|
(1,678,974
|
)
|
|
|
(406,045
|
)
|
|
General
and administrative expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,457,401
|
)
|
|
Other
income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
218,560
|
|
|
Federal
& state income taxes
|
|
|
(1,221,553
|
)
|
|
|
112,900
|
|
|
|
442,806
|
|
|
|
599,129
|
|
|
Net
income (loss)
|
|
$
|
3,321,238
|
|
|
$
|
(339,817
|
)
|
|
$
|
(1,236,168
|
)
|
|
$
|
(2,045,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
16,208,686
|
|
|
$
|
1,099,418
|
|
|
$
|
3,699,384
|
|
|
$
|
11,526,548
|
|
|
Other
assets
|
|
|
622,384
|
|
|
|
282,000
|
|
|
|
1,140,530
|
|
|
|
4,291,765
|
|
|
Total
assets
|
|
$
|
16,831,070
|
|
|
$
|
1,381,418
|
|
|
$
|
4,839,914
|
|
|
$
|
15,818,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
Real
Estate
|
|
|
Golf
|
|
|
Management
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
22,187,252
|
|
|
$
|
1,758,736
|
|
|
$
|
6,716,780
|
|
|
$
|
-
|
|
|
Costs
of revenue
|
|
|
(15,581,178
|
)
|
|
|
(1,780,188
|
)
|
|
|
(4,717,047
|
)
|
|
|
-
|
|
|
Depreciation
and amortization
|
|
|
(15,600
|
)
|
|
|
(67,466
|
)
|
|
|
(718,539
|
)
|
|
|
-
|
|
|
Operating
income (loss)
|
|
|
6,590,474
|
|
|
|
(88,918
|
)
|
|
|
1,281,194
|
|
|
|
-
|
|
|
General
and administrative expense
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,042,500
|
)
|
|
Other
expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(723,244
|
)
|
|
Federal
& state income taxes
|
|
|
(2,328,823
|
)
|
|
|
31,420
|
|
|
|
(452,725
|
)
|
|
|
623,947
|
|
|
Net
income (loss)
|
|
$
|
4,261,651
|
|
|
$
|
(57,498
|
)
|
|
$
|
828,469
|
|
|
$
|
(1,141,797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived
assets
|
|
$
|
11,227,818
|
|
|
$
|
1,117,713
|
|
|
$
|
4,292,177
|
|
|
$
|
3,598,377
|
|
|
Other
assets
|
|
|
1,296,574
|
|
|
|
312,303
|
|
|
|
3,151,807
|
|
|
|
4,698,010
|
|
|
Total
assets
|
|
$
|
12,524,392
|
|
|
$
|
1,430,016
|
|
|
$
|
7,443,984
|
|
|
$
|
8,296,387
|
|
16.
Recent accounting pronouncements
In
September 2006, the FASB issued FAS No. 157,
Fair Value Measurement
, (“FAS
157”), which establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value
measurements. FAS 157 is effective for interim periods beginning after November
15, 2007 and is not expected to have a material impact on the Company’s
consolidated financial position or results of operations.
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
(“FAS 159”). This statement gives
entities the option to report most financial assets and liabilities at fair
value, with changes in fair value recorded in earnings. This statement, which is
effective for fiscal years beginning after November 15, 2007, is not expected to
have a material impact on the Company’s consolidated financial position or
results of operations.