U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

ý

x

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

For the quarterly period ended June 30, 2014March 31, 2015

¨

o

Transition Report Pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period of              to            

Commission File Number 0-7865.

 


 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

(Exact name of issuer as specified in its charter)

Georgia

58-1088232

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

 

2816 Washington Road, #103, Augusta, Georgia 30909

(Address of Principal Executive Offices)

 

Issuers Telephone Number(706) 736-6334

 (Former

  (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Year)

 


Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES  ýx   NO  ¨o

 

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer” and "smaller“smaller reporting company"company” in rule 12b-2 of the Exchange Act.

Large accelerated filer ¨o

Accelerated filero

Accelerated filer ¨

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

Smaller reporting companyxý

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES ýx    NO  ¨o

 

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

o¨Yes      ýxNo

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date.

 

Class

Outstanding at AugustMay 11, 20142015

Common Stock, $0.10 Par Value

5,243,107 shares

 


Table of Contents

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

 

Part I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of June 30, 2014March 31, 2015 and September 30, 20132014

1

Consolidated Statements of Income and Retained Earnings for the Three Month Periods ended and for the NineSix Month Periods ended June 30,March 31, 2015 and 2014 and 2013

2

Condensed Consolidated Statements of Cash Flows for the Three Month Periods ended and for the NineSix Month Periods ended June 30,March 31, 2015 and 2014 and 2013 

3

Notes to the Consolidated Financial Statements

4-7

4-8

Item 2.

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

8-9

9-10

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

9

10

Item 4.

Controls and Procedures

9-10

10-11

Part II

OTHER INFORMATION

10

11

Item 1.

Legal Proceedings

10

11

Item 1A.

Risk Factors

10

11

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

10

11

Item 3.

Defaults Upon Senior Securities

10

11

Item 4.

Reserved for Future Use

10

11

Item 5.

Other Information

10

11

Item 6.

Exhibits

10

11

SIGNATURES

11-13

12-14



 


  

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS
       
   

June 30,

 September 30, 
    2014  2013 
    (unaudited)    
ASSETS      
CURRENT ASSETS        
   Cash  $24,201 $24,599 
   Receivables from tenants, net of allowance $19,938       
at June 30, 2014 and September 30, 2013  472,397  497,324 
   Prepaid property taxes   -  15,003 
         
      Total current assets   496,598  536,926 
         
INVESTMENT PROPERTIES        
   Investment properties for lease, net of accumulated depreciation 5,499,735  5,415,447 
   Land and improvements held for investment or development 3,639,598  3,639,598 
         
    9,139,333  9,055,045 
         
OTHER ASSETS   83,979  76,188 
         
   $9,719,910 $9,668,159 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY      
CURRENT LIABILITIES        
   Accounts payable and accrued expenses $392,425 $325,720 
   Income taxes payable   161,283  183,236 
   Current maturities of notes payable   647,612  584,491 
   Current maturities of deferred revenue  22,582  24,652 
         
      Total current liabilities   1,223,902  1,118,099 
         
LONG-TERM LIABILITIES        
   Notes payable, less current portion   2,497,031  2,807,314 
   Deferred income taxes   750,081  764,645 
   Deferred revenue, less current portion  -  16,419 
   Notes payable to stockholder   50,433  - 
         
      Total long-term liabilities   3,297,545  3,588,378 
         
      Total liabilities   4,521,447  4,706,477 
         
STOCKHOLDERS' EQUITY        
   Common stock, par value $.10 per share; 30,000,000 shares authorized;      
      5,243,107 shares issued and outstanding  524,311  524,311 
   Additional paid-in capital   333,216  333,216 
   Retained earnings   4,340,936  4,104,155 
         
Total Stockholders' Equity   5,198,463  4,961,682 
         
Liabilities and Stockholders' Equity  $9,719,910 $9,668,159 
         

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

  

-1-


SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

       
  March 31,  September 30, 
  2015  2014 
 (unaudited)    
ASSETS 
CURRENT ASSETS      
Cash $464,311  $65,982 
Receivables from tenants, net of allowance of $46,392 and $43,578 at March 31, 2015 and September 30, 2014, respectively  443,594   527,579 
         
Total current assets  907,905   593,561 
         
INVESTMENT PROPERTIES        
Investment properties for lease, net of accumulated depreciation  5,367,959   5,459,560 
Land and improvements held for investment or development  3,639,598   3,639,598 
         
   9,007,557   9,099,158 
         
OTHER ASSETS  83,919   76,239 
         
  $9,999,381  $9,768,958 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY 
CURRENT LIABILITIES        
Accounts payable and accrued expenses  289,908  $452,669 
Income taxes payable  125,637   229,031 
Current maturities of notes payable  219,933   554,065 
Current maturities of deferred revenue  6,163   18,489 
Current note payable to stockholder  -   50,433 
         
Total current liabilities  641,641   1,304,687 
         
LONG-TERM LIABILITIES        
Notes payable, less current portion  3,146,194   2,435,541 
Deferred income taxes  730,239   737,230 
         
Total long-term liabilities  3,876,433   3,172,771 
         
Total liabilities  4,518,074   4,477,458 
         
STOCKHOLDERS’ EQUITY        
Common stock, par value $.10 per share; 30,000,000 shares authorized; 5,243,107 shares issued and outstanding  524,311   524,311 
Additional paid-in capital  333,216   333,216 
Retained earnings  4,623,780   4,433,973 
         
Total Stockholders’ Equity  5,481,307   5,291,500 
         
Liabilities and Stockholders’ Equity $9,999,381  $9,768,958 

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

-1-

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

                     
  For the Three Month  For the Nine Month 
  Period Ended June 30,  Period Ended June 30, 
   2014    2013    2014    2013  
   (unaudited)    (unaudited)    (unaudited)    (unaudited)  
OPERATING REVENUE                    
   Rent Revenue $375,529   $363,097   $1,109,529   $$1,085,150  
                     
OPERATING EXPENSES                    
   Depreciation and amortization  42,636    32,948    108,511    98,844  
   Property taxes  67,549    64,292    199,519    198,653  
   Payroll and related costs  18,777    19,703    58,840    63,978  
   Insurance and utilities  19,762    11,240    37,897    30,933  
   Repairs and maintenance  13,851    9,488    47,121    23,575  
   Professional services  66,658    10,038    106,814    59,428  
   Bad debt  16,466    -    16,466    2,825  
   Other  1,011    6,880    3,584    20,514  
   246,710    154,589    578,752    498,750  
                     
      Operating income  128,819    208,508    530,777    586,400  
                     
OTHER EXPENSE                    
   Interest  (47,250)    (54,076)   (142,619)    (177,726) 
                     
      Income before income taxes  81,569    154,432    388,158    408,674  
                     
INCOME TAXES PROVISION                    
   Income Tax Expense  34,995    59,571    151,377    155,700  
                     
      Net income  46,574    94,861    236,781    252,974  
                     
RETAINED EARNINGS, BEGINNING OF PERIOD  4,294,362    3,879,983    4,104,155    3,721,870  
                     
RETAINED EARNINGS, END OF PERIOD $4,340,936   $$3,974,844   $4,340,936   $$3,974,844  
                     
PER SHARE DATA                    
   Net income per common share $0.01   $$0.02   $0.05   $$0.05  
                     
The accompanying notes are an integral part of these consolidated financial statements.
                     

             
  For the Three Month  For the Six Month 
  Period Ended March 31,  Period Ended March 31, 
  2015  2014  2015  2014 
 (unaudited)  (unaudited)  (unaudited)  (unaudited) 
OPERATING REVENUE            
Rent revenue $383,653  $360,252  $764,925  $734,000 
                 
OPERATING EXPENSES                
Depreciation and amortization  42,309   32,938   84,620   65,875 
Property taxes  69,228   64,107   133,650   131,970 
Payroll and related costs  20,222   19,930   42,093   40,063 
Insurance and utilities  8,677   10,500   17,448   18,135 
Repairs and maintenance  7,377   9,550   23,501   33,270 
Professional services  18,000   28,576   42,944   40,156 
Bad debt  -   -   2,814   - 
Penalties  7,026   -   11,544   - 
Other  728   1,969   2,442   2,573 
                 
   173,567   167,570   361,056   332,042 
                 
Operating income  210,086   192,682   403,869   401,958 
                 
OTHER EXPENSE                
Interest  46,426   47,970   91,313   95,369 
                 
Income before income taxes  163,660   144,712   312,556   306,589 
                 
INCOME TAXES PROVISION (BENEFIT)                
Income tax expense  69,723   53,897   129,740   115,828 
Income tax deferred expense (benefit)  (3,494)  1,035   (6,991)  554 
   66,229   54,932   122,749   116,382 
                 
Net income  97,431   89,780   189,807   190,207 
                 
RETAINED EARNINGS, BEGINNING OF PERIOD  4,526,349   4,204,582   4,433,973   4,104,155 
                 
RETAINED EARNINGS, END OF PERIOD $4,623,780  $4,294,362  $4,623,780  $4,294,362 
                 
PER SHARE DATA                
Net income per common share $0.02  $0.02  $0.04  $0.04 

  

-2-


SECURITY LAND AND DEVELOPMENT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

             
   

For the Three Month

  

For the Nine Month

   

Period Ended June 30,

  

Period Ended June 30,

   2014  2013  2014  2013
   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)

OPERATING ACTIVITIES

            

  Net income

$  46,574  $  94,861 $  236,781  $  252,974 

  Adjustments to reconcile net income to net cash provided

                    

    by (used in) operating activities:

                    
     Bad debts   16,466    -    16,466    - 

      Depreciation and amortization

   42,636    32,948     108,511    98,844  

      Changes in deferred and accrued amounts:

   54,993    (377,526)   35,164    (349,928)
                     

     Net cash provided by (used in) operating activities

   160,669    (249,717)   396,922    1,890  
                     

INVESTING ACTIVITIES

                    

           Additions to investment properties and other assets for 

                    

                        improvements to property held for lease

   (196,591)    -    (200,591)    - 
                     

     Net cash used in investing activities

   (196,591)    -    (200,591)    - 
                     

FINANCING ACTIVITIES

                    

  Repayments to stockholder

   -    -    -    (30,000) 

  Proceeds from stockholder

   -    -    50,015    30,000 

  Proceeds from notes payable

   182,797    404,235    186,804    404,235  

  Principal payments on notes payable

   (146,688)    (142,980)    (433,548)    (413,154) 
                     

     Net cash provided by (used in) financing activities

   36,109    261,255 )   (196,729)    (8,919))
                     

     Net increase (decrease) in cash

   187    11,538     (398)    (7,029)
                     

CASH, BEGINNING OF PERIOD

   24,014    30,200     24,599    48,767  
                     

CASH, END OF PERIOD

$  24,201  $  41,738  $  24,201 $  41,738 
                     

SUPPLEMENTAL CASH FLOW INFORMATION:

                    
                     

   Cash paid for interest

 $  39,823 $  66,839  $  139,955 $  182,728 

   

                    

   Cash paid for income taxes

$  6,381 $  335,613  $  93,216 $  375,613 
                     

NON-CASH FINANCING ACTIVITIES

                    

   Refinancing of line of credit to term note

$  - $  - $  - $  301,170 
                     

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

                     

 -3-


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

 

-2-

 

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

             
  For the Three Month  For the Six Month 
  Period Ended March 31,  Period Ended March 31, 
  2015  2014  2015  2014 
  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
OPERATING ACTIVITIES            
Net income $97,431  $89,780  $189,807  $190,207 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

                
Depreciation and amortization  42,309   32,938   84,620   65,875 
Deferred income tax  (3,494)  1,035   (6,991)  554 
Changes in deferred and accrued amount:  (188,600)  (30,032)  (194,496)  (20,383)
                 
Net cash (used in) provided by operating activities  (52,354)  93,721   72,940   236,253 
                 
INVESTING ACTIVITIES                

Sale of investment properties and other assets for improvements to property held for lease

  11,250   -   11,250   - 

Additions to investment properties and other assets for improvements to property held for lease

  (11,949)  (4,000)  (11,949)  (4,000)
                 
Net cash used in investing activities  (699)  (4,000)  (699)  (4,000)
                 
FINANCING ACTIVITIES                
Repayments to stockholder  (50,433)  -   (50,433)  - 
Proceeds from stockholder  -   50,015   -   50,015 
Proceeds from note payable  1,500,000   4,007   1,500,000   4,007 
Principal payments on notes payable  (962,485)  (144,710)  (1,123,479)  (286,860)
                 
Net cash provided by (used in) financing activities  487,082   (90,688)  326,088   (232,838)
                 
Net increase (decrease) in cash  434,029   (967)  398,329   (585)
                 
CASH, BEGINNING OF PERIOD  30,282   24,981   65,982   24,599 
                 
CASH, END OF PERIOD $464,311  $24,014  $464,311  $24,014 
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
                 
Cash paid for interest $46,815  $52,733  $90,204  $100,132 
                 
Cash paid for income taxes $188,241  $86,835  $226,143  $86,835 

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

 

-3-

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

 

Evaluation of Long-Lived Assets for Impairment

 

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

 

- 4 -

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.

- 4 -


 

Note 2 – Investment Properties

 

Investment properties leased or held for lease to others under operating leases consisted of the following at June 30, 2014March 31, 2015 and September 30, 2013:2014:

      

 

 

June 30,

 

September 30,

 

 March 31,  September 30, 

 

2014

 

2013

 

 2015  2014 

 

 

(unaudited)

 

 

 

 (unaudited)    

 

 

 

 

 

 

      

National Plaza building, land and improvements

 

 

$

5,325,349

 

$

5,138,796

 

 $5,325,348  $5,325,348 

Evans Ground Lease, land and improvements

 

 

2,382,673

 

2,382,673

 

  2,382,673   2,382,673 

Commercial land and improvements

 

 

3,639,598

 

3,639,598

 

  3,639,598   3,639,598 

 

 

11,347,620

 

11,161,067

 

  11,347,619   11,347,619 

 

 

 

 

 

 

        

Less accumulated depreciation

 

 

(2,321,307

)

(2,221,077

)

  (2,439,796)  (2,360,803)

 

 

9,026,313

 

8,939,990

 

  8,907,823   8,986,816 

 

 

 

 

 

 

        

Residential rental property

 

 

145,847

 

145,847

 

  134,597   145,847 

Less accumulated depreciation

 

 

(32,827

)

(30,792

)

  (34,863)  (33,505)

 

 

113,020

 

115,055

 

  99,734   112,342 

 

 

 

 

 

 

        

Investment properties for lease, net of accumulated depreciation

 

 

$

9,139,333

 

$

9,055,045

 

 $9,007,557  $9,099,158 

 

Depreciation expense totaled approximately $42,000$40,000 and $105,000$31,000 for the three-month and nine-month periods ended June 30,March 31, 2015 and 2014, respectively and approximately $32,000$80,000 and $96,000$62,000 for the three-month and nine-monthsix-month periods ended June 30, 2013.March 31, 2015 and 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 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.

- 5 -

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 June 30, 2014March 31, 2015 and September 30, 2013.

- 5 -


Note  2 – Investment Properties, Continued

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.

 

Note 3 – Notes Payable

 

Notes payable consisted of the following at:

 

 

June 30,
2014

 

September 30,
2013

(unaudited)

 
 In December 2011, the Company renewed its then line of credit to December 12, 2012, at the greater of prime plus 1% or 6%. In November of 2012, the Company converted the line of credit to a fixed rate loan due December 2017. The new term loan accrues interest at 5.5% annually with monthly installments of $3,287. The current balance relates to the purchase of the 1 acre adjoining the North Augusta, South Carolina property in May 2008 and is collateralized by the residential property on Stanley Drive in Augusta, Georgia.

254,108

 

$

284,531

     
 A note payable to an insurance company, secured with a mortgage interest in National Plaza and an assignment of rents.  The note is payable in monthly installments of $35,633, including interest, through June 2015, and bears interest at a fixed rate of 7.875%.

409,903  

 

696,892  

     
 A note payable to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina.  The note is payable in monthly installments of $7,563, including principal and interest, through July 2018, and bears interest at a fixed rate of 5%.

350,414

 

392,945

     
 A note payable to an insurance company collateralized with approximately 18 acres of land in Columbia County, Georgia, and an assignment of the long-term ground lease.  The note is payable in monthly installments of $17,896, including interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%. 

      1,943,414 

 

      2,017,437 

     
 A construction loan to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina.  The loan was procured to finance tenant improvements for the lease of in-line space at National Plaza executed on January 17, 2014.  In April, 2014 construction of the tenant improvements was completed and with total principal borrowed of $186,000.  Once all related construction payments have been made the loan will convert to a note payable with monthly installments of $3,727 including interest over a 60 month term with fixed interest of 4.5%.  The related lease agreement calls for monthly payments of this amount to be paid to the Company in addition to monthly minimum rental payments.  The tenant opened for business on April 16, 2014.

186,804

 

-

     

 

A note payable to a stockholder, who is also a member of the Flanagin Family, to meet the cash flow needs of the Company. The note matures in July 2015 and accrues interest at 5%.

50,433

 

-

       
  March 31,  September 30, 
  2015  2014 
  (unaudited)    
      

In November of 2012, the Company converted the line of credit to a fixed rate loan due December 2017. The new term loan accrued interest at 5.5% annually with monthly installments of $3,287. The balance related to the purchase of the 1 acre adjoining the North Augusta, South Carolina property in May 2008 and was collateralized by the residential property on Stanley Drive in Augusta, Georgia. The note was paid off in March 2015.

 $-  $260,323 
         

A note payable to an insurance company, secured with a mortgage interest in National Plaza and an assignment of rents. The note was payable in monthly installments of $35,633, including principal and interest, through June 2015, and bore interest at a fixed rate of 7.875%. The note was paid off in March 2015.

  -   310,423 
         
A note payable to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina. The note was payable in monthly installments of $7,563, including principal and interest, through July 2018, and bore interest at a fixed rate of 5%. The note was paid off in March 2015.  -   319,330 
         

A note payable to an insurance company collateralized with approximately 18 acres of land in Columbia County, Georgia, and an assignment of the long-term ground lease. The note is payable in monthly installments of $17,896, including principal and interest, through May 1, 2027, and bears interest at a fixed rate of 5.85%.

  1,866,127   1,918,026 
         
A note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents. The note is payable in monthly installments of $15,220, including principal and interest, through April 2025, and bears interest at a fixed rate of 4%. The proceeds were used to pay the Company’s outstanding income tax liability, four notes payable collateralized by the Company’s land held for lease and investment portfolio and one uncollateralized note payable to a shareholder. The proceeds were also used to fund improvements at National Plaza.  1,500,000   - 
         
A construction loan to a regional financial institution collateralized with 17.54 acres of land in North Augusta, South Carolina. The loan was procured to finance tenant improvements for the lease of in-line space at National Plaza executed on January 17, 2014. In April, 2014 construction of the tenant improvements was completed and with total principal borrowed of $186,804. The loan converted to a note payable with monthly installments of $3,728 including principal and interest over a 60 month term with fixed interest of 4.25%. The related lease agreement calls for monthly payments of this amount to be paid to the Company in addition to monthly minimum rental payments. The note was paid off in March 2015.  -   181,504 
         
A note payable to a stockholder, who is also a member of the Flanagin Family, to meet the cash flow needs of the Company. The note matured in July 2015 and accrued interest at 5%. The note was paid off in March 2015.  -   50,433 
         
   3,366,127   3,040,039 
Less current maturities  (219,933)  (604,498)
         
  $3,146,194  $2,435,541 

- 6 -

 

-6-Note 3 – Notes Payable,Continued


Note  3 – Notes Payable, Continued

 

 

 

 

 

 

3,195,076

 

3,391,805 

 

Less current maturities

       (647,612)

 

       (584,491)

 

 

 

 

 

 

 

2,547,464

 

2,807,314

 

 

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 $647,612.$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 taxes payable for income tax in the amount of $161,283 at June 30, 2014,$229,031, all of which iswas related to the fiscal year 2014. TheIn March 2015 the Company hasexecuted a totalnote 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 for income tax in the amount of $183,236 at September 30, 2013, all of which is related toliability for the fiscal year 2013.2014 in 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 53%56% and 46%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.

 

- 7 -

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 as 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%.   The note balance at June 30, 2014 is $50,433 which includes $418 of accrued interest.full in March 2015.

 

Note 7- Subsequent Events

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.

- 7 -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.


- 8 -

 

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 ninesix months ended June 30, 2014,March 31, 2015, and a comparative analysis of the same period for 20132014 are presented below:

 

 

 

 

 

 

Increase (Decrease)

 

       Increase (Decrease) 

 

 

 

 

 

2014 compared to 2013

 

       2015 compared to 2014 

 

2014

 

2013

 

Amount

 

Percent

 

 2015  2014  Amount  Percent 

 

 

 

 

 

 

 

 

 

            

Rent revenue

 

 $

   

1,109,529

 

 $

1,085,150

 

$

     24,379

 

2

 %

 $764,925  $734,000  $30,925   4%
                

Operating expenses

 

578,752

 

498,750

 

80,002

 

16

 %

  361,056   332,042   29,014   9%
                

Interest expense

 

142,619

 

177,726

 

(35,107)

 

-20

 %

  91,313   95,369   (4,056)  -4%
                

Income tax expense

 

151,377

 

155,700

 

(4,323)

 

 -3

 %

  122,749   116,382   6,367   5%
                

Net income

 

236,781

 

252,974

 

(16,193)

 

-7

%

  189,807   190,207   (400)  0%

 

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 ninesix months ended June 30, 2014March 31, 2015 increased compared to the same period for 20132014 due primarily to increased professional fees.  Professional feesdepreciation expense and income tax penalties. Depreciation expense increased due to increased 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 JuneCompany’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 ninesix month period ended June 30, 2014March 31, 2015 decreased compared to 20132014 due to the decrease in debt resulting from scheduled principal payments.payments and debt restructuring. Management expects interest expense for the remainder of the current fiscal year to continue to decrease slightly asincrease given the increase in outstanding debt is amortized.debt.

 

Income tax expense for the ninesix month period ended June 30, 2014 decreasedMarch 31, 2015 increased slightly compared to the same period for 20132014 due mainly to higher operating expensesrental income and decreased interest expense as noted above. Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.

 

- 9 -

 

- 8 -


Liquidity and Sources of Capital:

 

The Company’s ratio of current assets to current liabilities at June 30, 2014March 31, 2015 was 41%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 $647,612.$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 nine-monthsix-month period ended June 30, 2014March 31, 2015 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.

(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, 2014, 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, 2014 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.

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

- 10 -

 

(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 $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

 

(a)

Exhibit No.

Description

31.1

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

32.1

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

  101 

The following financial information from Security Land and Development Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014March 31, 2015 is formatted in Extensible Business Reporting Language (XBRL): (i) The Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Retained Earnings, (iii) the condensed Consolidated Statements of Cash Flows and (iv) Notes to Consolidated Financial Statements.

 

- 11 -

 

- 10 -


SIGNATURES

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SECURITY LAND AND DEVELOPMENT CORPORATION

(Registrant)

By:

/s/ T. Greenlee Flanagin

AugustMay 11, 2014

2015

T. Greenlee Flanagin

Date

President

Chief Executive Officer and Chief Financial Officer

 

- 11 -

- 12 -