-1-

-2-

-3-

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

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

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

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

SECURITY LAND AND DEVELOPMENT CORPORATION 

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

SECURITY LAND AND DEVELOPMENT CORPORATION

Notes to the Consolidated Financial Statements

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements were prepared in accordance with instructions for Form 10-Q, Article 8 of Regulation S-X and accounting principles generally accepted in the United States of America; therefore, they do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows. Such statements are unaudited but, in the opinion of management, reflect all adjustments, which are of a normal recurring nature and necessary for a fair presentation of results for the selected interim periods. Users of financial information produced for interim periods are encouraged to refer to the footnotes contained in the audited financial statements appearing in our Form 10-K for the year ended September 30, 20132014 when reviewing these interim financial statements.

The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.

Critical Accounting Policies:

Estimates of Useful Lives of Investment Properties for Purposes of Depreciation

Management has estimated useful lives of investment properties, except for land, that areis leased, and the Company utilizes the straight-line method to compute depreciation over the estimated useful lives of the investment properties. Actual depreciation of investment properties will vary from management’s estimates, and the value of investment properties is more directly impacted by market conditions and the physical condition of the investment properties.

Evaluation of Long-Lived Assets for Impairment

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of investment properties may not be recoverable. In evaluating recoverability, the Company generally estimates future cash flows expected to result from the use of the asset and its eventual disposition. An impairment loss is recognized when the expected future cash flows of the asset are less than theits carrying amount.

Estimates of Income Tax Rates Applicable to Deferred Taxes

The Company has deferred income taxes through a series of tax-deferred like-kind exchange transactions on certain investment properties and through accelerated depreciation elections on certain other assets. Actual income taxes that may become due when taxable gains are realized on the sale of assets may differ from management’s estimates as a result of changes in tax laws, the tax status of the Company, or the actual taxable earnings of the Company in the periods the deferred income taxes become due.

Refer to the Company’s Form 10-K for the year ended September 30, 20132014 for further information regarding its critical accounting policies.

Note 1 – Basis of Presentation, Continued

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts (Topic 606). The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition for certain transactions. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years and one requiring prospective application of the new standard with disclosure of results under old standards. The Company is currently evaluating the impacts of adoption and the implementation approach to be used.

Note 2 – Investment Properties

Investment properties leased or held for lease to others under operating leases consisted of the following at
March 31, 20142015 and September 30, 2013:2014:

Depreciation expense totaled approximately $40,000 and $31,000 for the three-month periods ended March 31, 2015 and 2014, respectively and approximately $80,000 and $62,000 for the six-month periods ended March 31, 20142015 and 2013,2014, respectively.

The National Plaza is a retail strip center located on Washington Road in Augusta Georgia. Approximately 81% of the rentable space at the National Plaza is leased to Publix Supermarkets, Inc., the National Plaza’s anchor tenant.

The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on approximately 18 acres of land in Columbia County, Georgia. The agreement required monthly rental payments of $20,833 during the development period, which was completed in January 2007. Following the expiration of the development period, the lease requires annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16. The lessee has an option to renew at year 21 and another option every 5 years thereafter for a possible total lease term of 50 years. The lease provides for the tenant to pay for insurance and property taxes. The Company is recognizing rents on a straight-line basis over the initial lease term.  In July 2013, the Company sold approximately .24 acres of the total Evans ground Lease tract for $156,000.  The Company recognized a gain of approximately $108,000.  The proceeds were used by the Company to pay down debt related to an outstanding note payable collateralized by the Evans Ground Lease and related land and to compensate the Evans Ground Lease tenant per the related agreement.

Note 2 – Investment Properties, Continued

The Company holds several parcels of land for investment or development purposes, including 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008. The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1 acre parcel along Washington Road in Augusta, Georgia that adjoins the Company’s National Plaza investment property. The aggregate costs of these investment properties held for investment or development was $3,639,598 at March 31, 20142015 and September 30, 2013.2014.

Refer to the Company’s Form 10-K for the year ended September 30, 20132014 for further information on operating lease agreements and land held for investment or development purposes.

- 5 -

Note 3 – Notes Payable

Notes payable consisted of the following at:

-6-

Note 3 – Notes Payable,Continued

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary). Additionally, funding can be obtained from members of the Company’s Board of Directors.

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $605,470.$219,933. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

If the Company is unsuccessful in their efforts described above, the Company intends to seek additional financing or sell certain of its assets.

Note 4 – Income Taxes

TheAt September 30, 2014 the Company has a totalhad outstanding income taxtaxes payable in the amount of $122,209 at March 31, 2014.  Of this amount, $115,828 is$229,031, all of which was related to the fiscal year 20142014. In March 2015 the Company executed a note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents and used a portion of the related proceeds to pay the outstanding tax liability and $6,381 is related to 2013 tax expense. At September 30, 2013for the Company had a total of $183,236fiscal year 2014 in income tax payable.full.

Note 5 – Concentrations

Substantially all of the Company’s assets consist of real estate located in Richmond and Columbia Counties in the state of Georgia and in North Augusta,Aiken County, South Carolina. Approximately 99% of the Company’s revenues are earned from two of the Company’s investment properties, National Plaza and the Evans Ground Lease, which comprise approximately 52%56% and 47%43% of the Company’s revenues, respectively. The anchor tenant for National Plaza, Publix Supermarkets, Inc. (“Publix”), a regional food supermarket chain, leases approximately 81% of the space at National Plaza. The Company generates approximately 37%42% of its revenues though its lease with Publix.

Note 6 – Related Party Transactions

The Company hired an attorney who sits onis also a member of the Company’s Board of Directors and who also serves aas Vice President of the Company, to represent the Company in a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged. It is the opinion of the Company’s management that the Company is not liable for this claim.

During the second quarter of fiscal 2014, the Company borrowed $50,015 from a stockholder, who is also a member of the Flanagin family, to meet cash flow needs. The amount maturesThis note was paid in July 2015 and accrues interest at a rate of 5%.full in March 2015.

Note 7- Subsequent Events

- 7 -

In April 2015 the Company sold 0.159 acres as permanent easement and 0.038 acres as fee simple right of way, previously included in National Plaza, to the City of Augusta, Georgia, for a road realignment project. Also in April 2015, the Company entered into a contract to replace the roof at National Plaza.

In February 2015 the Company has entered into a contract to sell approximately one (1) acre of land, currently included as part of National Plaza, adjacent to Stanley Drive and a residential house on .43 acres of land held for lease on Stanley Drive. The closing for this sale is expected to be June 15, 2015. The Company is searching for property to purchase as part of a tax-free like kind exchange as part of the June 2015 closing.

Item 2. Management’s DiscussionManagement’sDiscussion and Analysis of Financial Condition and Results of Operations

Results of Operations:

The Company’s results of operations for the six months ended March 31, 2014,2015, and a comparative analysis of the same period for 20132014 are presented below:

Rent revenue consists primarily of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia. The Company also earned rent revenue from a ground lease with an auto-repair service operation on an out parcelout-parcel of National Plaza. Rental income for the six months period ended March 31, 2015 increased compared to the same period for 2014 due to increased occupancy in the small shops at National Plaza.

Refer to the Company’s Form 10-K for the year ended September 30, 20132014 for further information regarding the properties owned and their lease terms.

Total operating expenses for the six months ended March 31, 2014 decreased slightly2015 increased compared to the same period for 20132014 due primarily to decreased professional fees.  Professional fees decreasedincreased depreciation expense and income tax penalties. Depreciation expense increased due to decreased legal fees comparedcapital expenses incurred in relation to a tenant build-out in 2014. Tax penalties incurred in 2015 that were not incurred in 2014 relate to the prior year related to an ongoing dispute over a tenant’s claim for reimbursement of certain expenses charged.  This dispute is unresolved as of March 31,Company’s outstanding income tax balance at September 30, 2014. It is the opinion of the Company’s management that the Company does not owe any reimbursement. Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.

Interest expense for the six month period ended March 31, 20142015 decreased compared to 20132014 due to the decrease in debt resulting from scheduled principle payments.principal payments and debt restructuring. Management expects interest expense for the remainder of the current fiscal year to continue to increase compared withgiven the first six months due to new notes payable.increase in outstanding debt.

Income tax expense for the six month period ended March 31, 20142015 increased slightly compared to the same period for 20132014 due mainly to lowerhigher rental income and decreased interest and operating expensesexpense as noted above. Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.

- 8 -

Liquidity and Sources of Capital:

The Company’s ratio of current assets to current liabilities at March 31, 20142015 was 43%142%. The ratio was 48%45% at September 30, 2013. 2014.

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary). Additionally, funding can be obtained from members of the Board of Directors.

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $605,470.$219,933. The Company projects that it will be able to fund the payment of its current maturities of notes payable through cash flows generated from its operations and cash on hand, but there can be no assurance that this will occur.

If the Company is unsuccessful in their efforts described above, the Company intends to seek additional financing, sell certain of its fully owned and un-collateralized assets or borrow money from certain stockholders.

Cautionary Note Regarding Forward-Looking Statements:

The results of operations for the six-month period ended March 31, 20142015 are not necessarily indicative of the results that may be expected for the entire fiscal year. The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders. Such forward-looking statements are made based on management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, but not limited to, competition from other real estate companies, the ability of the Company to obtain financing for projects, and the continuing operations of tenants.

Item 3. Quantitative3.Quantitative and Qualitative Disclosures About Market Risks

Not applicable to smaller reporting companies

Item 4. Controls and Procedures

(a)      Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934.  Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were ineffective.

(b)      There were no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date the Chief Executive Officer carried out the evaluation.

           As of September 30, 2013, the Company’s management evaluated the effectiveness of its internal control.  Based on the evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2013 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.

- 9 -

           Notwithstanding the existence of this material weakness in our internal control over financial reporting, our management believes that the consolidated financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.

There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal1.Legal Proceedings

During 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses charged. It is the opinion of the Company'sCompany’s management that the Company is not liable for this claim. The Company has accrued approximately $100,000$150,000 for professional fees and other expenses to defend its position.

Item 1A. Risk1A.Risk Factors

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

Item 2. Unregistered2.Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults UponDefaultsUpon Senior Securities

None

Item 4. Reserved4.Reserved for Future Use

Item 5. Other5.Other Information

Management of the Company notes that no Forms 8-K were filed during the period and Management is not aware of any un-reported matters occurring during the period that would require disclosure in a Form 8-K.

Item 6. Exhibits6.Exhibits