U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

☒xQuarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934
  
 For the quarterly period ended DecemberMarch 31, 20142015
  
☐oTransition 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  ☒x   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 accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

  
Large accelerated filer ☐o

Accelerated filer ☐o

Non-accelerated filer ☐o (Do not check if a smaller reporting company)Smaller reporting company ☒x

 

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 ☒x    NO  ☐o

 

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

☐ oYes      ☒ xNo

 

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

Class 
ClassOutstanding at FebruaryMay 11, 2015
Common Stock, $0.10 Par Value 5,243,107 shares

 

 
 

 

Table of Contents

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

Part IFINANCIAL INFORMATION 
   
Item 1.Financial Statements 
   
 Consolidated Balance Sheets as of DecemberMarch 31, 20142015 and September 30, 20141
   
 Consolidated Statements of Income and Retained Earnings for the Three Month Periods ended Decemberand for the Six Month Periods ended March 31, 20142015 and 201320142
   
 Condensed Consolidated Statements of Cash Flows for the Three Month Periods ended Decemberand for the Six Month Periods ended March 31, 20142015 and 201320143
   
 Notes to the Consolidated Financial Statements4-74-8
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations8-9
Item 3.Quantitative and Qualitative Disclosures About Market Risk9
Item 4.Controls and Procedures9-10
   
Part IIItem 3.OTHER INFORMATIONQuantitative and Qualitative Disclosures About Market Risk10
   
Item 1.4.Legal ProceedingsControls and Procedures1010-11
   
Item 1A.Part IIRisk FactorsOTHER INFORMATION1011
   
Item 2.1.Legal Proceedings11
Item 1A.Risk Factors11
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds1011
   
Item 3.Defaults Upon Senior Securities1011
   
Item 4.Reserved for Future Use1011
   
Item 5.Other Information1011
   
Item 6.Exhibits1011
   
 SIGNATURES11-1312-14

 

 
 

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

  

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

           
 December 31,  September 30,  March 31,  September 30, 
 2014  2014  2015  2014 
 (unaudited)   (unaudited)    
ASSETSASSETSASSETS 
CURRENT ASSETS           
Cash $30,284 $65,982  $464,311  $65,982 
Receivables from tenants, net of allowance of $46,392 and $43,578 at December 31, 2014 and September 30, 2014, respectively  380,695   527,579 
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  410,979   593,561   907,905   593,561 
             
INVESTMENT PROPERTIES             
Investment properties for lease, net of accumulated depreciation 5,419,385 5,459,560  5,367,959  5,459,560 
Land and improvements held for investment or development  3,639,598   3,639,598   3,639,598   3,639,598 
             
  9,058,983   9,099,158   9,007,557   9,099,158 
             
OTHER ASSETS  74,105   76,239   83,919   76,239 
             
 $9,544,067  $9,768,958  $9,999,381  $9,768,958 
             
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY 
CURRENT LIABILITIES             
Accounts payable and accrued expenses $283,941 $452,669  289,908  $452,669 
Income taxes payable 251,146 229,031  125,637  229,031 
Current maturities of notes payable 455,969 554,065  219,933  554,065 
Current maturities of deferred revenue 12,326 18,489  6,163  18,489 
Current note payable to stockholder  50,433   50,433   -   50,433 
             
Total current liabilities  1,053,815   1,304,687   641,641   1,304,687 
             
LONG-TERM LIABILITIES             
Notes payable, less current portion 2,372,643 2,435,541  3,146,194  2,435,541 
Deferred income taxes  733,733   737,230   730,239   737,230 
             
Total long-term liabilities  3,106,376   3,172,771   3,876,433   3,172,771 
             
Total liabilities  4,160,191   4,477,458   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  524,311  524,311 
Additional paid-in capital 333,216 333,216  333,216  333,216 
Retained earnings  4,526,349   4,433,973   4,623,780   4,433,973 
             
Total Stockholders’ Equity  5,383,876   5,291,500   5,481,307   5,291,500 
             
Liabilities and Stockholders’ Equity $9,544,067  $9,768,958  $9,999,381  $9,768,958 

 

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

 

- 1 --1-
 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

            
         For the Three Month  For the Six Month 
 For the Three Month
Period Ended December 31,		  Period Ended March 31,  Period Ended March 31, 
 2014  2013  2015  2014  2015  2014 
 (unaudited)  (unaudited)  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
OPERATING REVENUE                 
Rent revenue $381,272 $373,748  $383,653  $360,252  $764,925  $734,000 
                     
OPERATING EXPENSES                     
Depreciation and amortization 42,311 32,937  42,309  32,938  84,620  65,875 
Property taxes 64,422 67,863  69,228  64,107  133,650  131,970 
Payroll and related costs 21,871 20,133  20,222  19,930  42,093  40,063 
Insurance and utilities 8,771 7,635  8,677  10,500  17,448  18,135 
Repairs and maintenance 16,124 23,720  7,377  9,550  23,501  33,270 
Professional services 24,944 11,580  18,000  28,576  42,944  40,156 
Bad debt 2,814 -  -  -  2,814  - 
Penalties 4,518 -  7,026  -  11,544  - 
Other  1,714   604   728   1,969   2,442   2,573 
                     
  187,489   164,472   173,567   167,570   361,056   332,042 
                     
Operating income  193,783   209,276   210,086   192,682   403,869   401,958 
                     
OTHER EXPENSE                     
Interest  44,887   47,399   46,426   47,970   91,313   95,369 
                     
Income before income taxes  148,896   161,877   163,660   144,712   312,556   306,589 
                     
INCOME TAXES PROVISION (BENEFIT)                     
Income tax expense 60,017 61,931  69,723  53,897  129,740  115,828 
Income tax deferred benefit  (3,497) (481)
Income tax deferred expense (benefit)  (3,494)  1,035   (6,991)  554 
 56,520 61,450  66,229  54,932  122,749  116,382 
                     
Net income 92,376 100,427  97,431  89,780  189,807  190,207 
                     
RETAINED EARNINGS, BEGINNING OF PERIOD  4,433,973   4,104,155   4,526,349   4,204,582   4,433,973   4,104,155 
                     
RETAINED EARNINGS, END OF PERIOD $4,526,349  $4,204,582  $4,623,780  $4,294,362  $4,623,780  $4,294,362 
                     
PER SHARE DATA                     
Net income per common share $0.02  $0.02  $0.02  $0.02  $0.04  $0.04 

  

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

 

- 2 --2-
 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

            
         For the Three Month  For the Six Month 
 For the Three Month
Period Ended December 31,		  Period Ended March 31,  Period Ended March 31, 
 2014  2013  2015  2014  2015  2014 
 (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited) 
OPERATING ACTIVITIES                 
Net income $92,376 $100,427  $97,431  $89,780  $189,807  $190,207 
Adjustments to reconcile net income to net cash provided by operating activities:     

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

                
Depreciation and amortization 42,309 32,938  42,309  32,938  84,620  65,875 
Deferred income tax (3,497) (481) (3,494) 1,035  (6,991) 554 
Changes in deferred and accrued amounts  (5,894) 9,648 
Net cash provided by operating activities  125,294   142,532 
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  (160,994) (142,150)  (962,485)  (144,710)  (1,123,479)  (286,860)
                     
Net cash used in financing activities  (160,994) (142,150)
Net cash provided by (used in) financing activities  487,082   (90,688)  326,088   (232,838)
                     
Net (decrease) increase in cash (35,700) 382 
Net increase (decrease) in cash 434,029  (967) 398,329  (585)
                     
CASH, BEGINNING OF PERIOD  65,982   24,599   30,282   24,981   65,982   24,599 
                     
CASH, END OF PERIOD $30,282  $24,981  $464,311  $24,014  $464,311  $24,014 
                     
SUPPLEMENTAL CASH FLOW INFORMATION:                     
                     
Cash paid for interest $43,389  $47,399  $46,815  $52,733  $90,204  $100,132 
                     
Cash paid for income taxes $37,902  $-  $188,241  $86,835  $226,143  $86,835 

 

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

 

- 3 --3-
 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

NotesNotes 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, 2014 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 its carrying amount.

 

Estimates of Income Tax Rates Applicable to Deferred Taxes

 

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

 

Refer to the Company’s Form 10-K for the year ended September 30, 2014 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 DecemberMarch 31, 20142015 and September 30, 2014:

         
   December 31,
2014		 September 30,
2014		 
   (unaudited)    
         
 National Plaza building, land and improvements $5,325,348 $5,325,348 
 Evans Ground Lease, land and improvements  2,382,673  2,382,673 
 Commercial land and improvements  3,639,598  3,639,598 
    11,347,619  11,347,619 
         
 Less accumulated depreciation  (2,400,299) (2,360,803)
    8,947,320  8,986,816 
         
 Residential rental property  145,847  145,847 
 Less accumulated depreciation  (34,184) (33,505)
    111,663  112,342 
         
 Investment properties for lease, net of accumulated depreciation $9,058,983 $9,099,158 

       
  March 31,  September 30, 
  2015  2014 
  (unaudited)    
       
National Plaza building, land and improvements $5,325,348  $5,325,348 
Evans Ground Lease, land and improvements  2,382,673   2,382,673 
Commercial land and improvements  3,639,598   3,639,598 
   11,347,619   11,347,619 
         
Less accumulated depreciation  (2,439,796)  (2,360,803)
   8,907,823   8,986,816 
         
Residential rental property  134,597   145,847 
Less accumulated depreciation  (34,863)  (33,505)
   99,734   112,342 
         
Investment properties for lease, net of accumulated depreciation $9,007,557  $9,099,158 

 

Depreciation expense totaled approximately $40,000 for the three-month period ended December 31, 2014 and approximately $31,000 for the three-month periodperiods ended DecemberMarch 31, 2013.2015 and 2014, respectively and approximately $80,000 and $62,000 for the six-month periods ended 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.

 

- 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 DecemberMarch 31, 20142015 and September 30, 2014.

 

Refer to the Company’s Form 10-K for the year ended September 30, 2014 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:

          
   December 31,
2014		  September 30,
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 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. $254,046  $260,323 
          
 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 principal and interest, through June 2015, and bears interest at a fixed rate of 7.875%.  208,972   310,423 
          
 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%.  300,322   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%.  1,892,266   1,918,026  
          
 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.  173,006   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 matures in July 2015 and accrues interest at 5%.  50,433   50,433 
          
    2,879,045   3,040,039  
 Less current maturities  (506,402) (604,498)
          
   $2,372,643  $2,435,541 
       
  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 -
 

 

Note 3 – Notes Payable Continued,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 $506,402.$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

 

The Company has a total outstanding payable for income tax in the amount of $251,146 at December 31, 2014. Of this amount, $56,520 of which is related to the fiscal year 2015. At September 30, 2014 the Company had outstanding income taxtaxes payable of $229,031, all of which was related to the fiscal year 2014. 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 for the fiscal year 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 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 56% and 44%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 is 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 December 31, 2014 is $50,433 which includes $418 of accrued interest.full in March 2015.

 

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Note 7- Subsequent Events

 

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations:
The Company’s results of operations for the three months ended December 31, 2014, and a comparative analysis of the same period for 2013 are presented below:
               
       Increase (Decrease) 
       2014 compared to 2013 
   2014 2013 Amount Percent 
               
 Rent revenue $381,272 $373,748 $7,524  2%
               
 Operating expenses  187,489  164,472  23,017  14%
               
 Interest expense  44,887  47,399  (2,512) -5%
               
 Income tax expense  56,520  61,450  (4,930) -8%
               
 Net income  92,376  100,427  (8,051) -8%
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-parcel of National Plaza.
Refer to the Company’s Form 10-K for the year ended September 30, 2014 for further information regarding the properties owned and their lease terms.
Total operating expenses for the three months ended December 31, 2014 increased compared to the same period for 2013 due primarily to increased depreciation expense, professional fees and income tax penalties. Depreciation expense increased due to capital expenses incurred in relation to a tenant buildout in 2014. Professional fees increased due to increased legal fees compared 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 December 31, 2014. It is the opinion of the Company’s management that the Company does not owe any reimbursement. Tax penalties incurred in 2014 that were not incurred in 2013 relate to the Companies outstanding income tax balance at December 31, 2014. Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.
Interest expense for the three month period ended December 31, 2014 decreased compared to 2013 due to the decrease in debt resulting from scheduled principal payments. Management expects interest expense for the remainder of the current fiscal year to continue to decrease slightly as outstanding debt is amortized.
Income tax expense for the three month period ended December 31, 2014 decreased slightly compared to the same period for 2013 due mainly to higher operating expenses as noted above. Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.

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.

 

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Item 2. Management’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, 2015, and a comparative analysis of the same period for 2014 are presented below:

        Increase (Decrease) 
        2015 compared to 2014 
  2015  2014  Amount  Percent 
             
Rent revenue $764,925  $734,000  $30,925   4%
                 
Operating expenses  361,056   332,042   29,014   9%
                 
Interest expense  91,313   95,369   (4,056)  -4%
                 
Income tax expense  122,749   116,382   6,367   5%
                 
Net income  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-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, 2014 for further information regarding the properties owned and their lease terms.

Total operating expenses for the six months ended March 31, 2015 increased compared to the same period for 2014 due primarily to increased depreciation expense and income tax penalties. Depreciation expense increased due to capital 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 Company’s outstanding income tax balance at September 30, 2014. 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, 2015 decreased compared to 2014 due to the decrease in debt resulting from scheduled principal payments and debt restructuring. Management expects interest expense for the remainder of the current fiscal year to continue to increase given the increase in outstanding debt.

Income tax expense for the six month period ended March 31, 2015 increased slightly compared to the same period for 2014 due mainly to higher rental 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.

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Liquidity and Sources of Capital:
The Company’s ratio of current assets to current liabilities at December 31, 2014 was 39%. The ratio was 45% at September 30, 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 $506,402. 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 three-month period ended December 31, 2014 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.Quantitative and Qualitative Disclosures About Market Risks
Not applicable to smaller reporting companies
Item 4.Controls and Procedures

Liquidity and Sources of Capital:

The Company’s ratio of current assets to current liabilities at March 31, 2015 was 142%. The ratio was 45% at September 30, 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 $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.

Cautionary Note Regarding Forward-Looking Statements:

The results of operations for the six-month period ended March 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.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, 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.

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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.

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PART

PART II - OTHER INFORMATION

Item 1.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’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.Risk Factors

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

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

None

Item 3. DefaultsUpon Senior Securities

None

Item 4.Reserved for Future Use

Item 5.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.Exhibits

(a)Exhibit No.Description
 
Item 1. 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’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. Risk Factors
The Company, as a smaller reporting company, is not required to provide the information required by this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Reserved for Future Use
Item 5. Other Information
Management of the Company notes that 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. 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 DecemberMarch 31, 20142015 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.

 

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SIGNATURESSIGNATURES

 

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 FebruaryMay 11, 2015
    
 T. Greenlee Flanagin Date
President 
 PresidentChief Executive Officer and Chief Financial Officer  

 

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