U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


 

FORM 10-Q


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

For the quarterly period ended December 31, 20142015

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

Georgia58-1088232

(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 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  ☒  NO  ☐

 

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large"large accelerated filer,” “accelerated filer”" "accelerated filer" and “smaller"smaller reporting company”company" in rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐

Accelerated filer ☐

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

Smaller reporting company ☒

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site,Website, 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 ☒   NO  ☐

 

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

☐Yes      ☒ No

 

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

Class

Class

Outstanding at February 11, 20155, 2016

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

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

 

  

 

 

December 31,

 

 

September 30,

 

2015

 

 

2015

 

(unaudited)

 

  

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

  

 

 

Cash

$

569,671

 

 

$

412,847

Receivables from tenants, net of allowance of $52,255

 

 

 

 

 

 

at both December 31, 2015 and September 30, 2015

 

254,277

 

  

 

386,469

Prepaid property taxes

 

-

 

 

 

23,251

Income taxes receivable

 

-

 

 

 

14,263

 

 

 

 

 

 

 

Total current assets

 

823,948

 

  

 

836,830

 

 

 

 

 

 

 

INVESTMENT PROPERTIES

 

 

 

 

 

 

Investment properties for lease, net of accumulated depreciation

 

7,028,552

 

  

 

7,075,175

Land and improvements held for investment or development

 

3,760,568

 

  

 

3,752,863

 

 

 

 

 

 

 
 

 

10,789,120

 

 

 

10,828,038

 

 

 

 

 

 

 

OTHER ASSETS

 

76,921

 

  

 

79,353

 

 

 

 

 

 

 
 

$

11,689,989

 

  

$

11,744,221

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable and accrued expenses

$

175,184

 

 

$

282,769

Income taxes payable

 

43,068

 

 

 

-

Current maturities of notes payable

 

242,091

 

 

 

239,168

 

 

 

 

 

 

 

Total current liabilities

 

460,343

 

 

 

521,937

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

Notes payable, less current portion

 

2,963,981

 

 

 

3,025,458

Deferred income taxes

 

1,429,690

 

 

 

1,413,187

 

 

 

 

 

 

 

Total long-term liabilities

 

4,393,671

 

 

 

4,438,645

 

 

 

 

 

 

 

Total liabilities

 

4,854,014

 

 

 

4,960,582

 

 

 

 

 

 

 

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

 

5,978,448

 

 

 

5,926,112

 

 

 

 

 

 

 

Total Stockholders’ Equity

 

6,835,975

 

 

 

6,783,639

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

$

11,689,989

 

 

$

11,744,221

 

 

 

 

 

 

 

 

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

 

Period Ended December 31,

 

2015

 

2014

 

(unaudited)

 

(unaudited)

OPERATING REVENUES

   

 

 

Rent revenues

$

410,360

 

$

381,272

    

 

 

OPERATING EXPENSES

   

 

 

Depreciation and amortization

 

49,056

 

 

42,311

Property taxes

 

64,479

 

 

64,422

Payroll and related costs

 

84,631

 

 

21,871

Insurance and utilities

 

10,967

 

 

8,771

Repairs and maintenance

 

7,630

 

 

16,124

Professional services

 

30,128

 

 

24,944

Bad debt

 

-

 

 

2,814

Penalties

 

-

 

 

4,518

Other

 

3,902

 

 

1,714

    

 

 
  

250,793

 

 

187,489

    

 

 

Operating income

 

159,567

 

 

193,783

    

 

 

OTHER INCOME (EXPENSE)

   

 

 

Interest expense

 

(40,528)

 

 

(44,887)

Other income

 

7,616

 

 

-

    

 

 
  

(32,912)

 

 

(44,887)

    

 

 

Income before income taxes

 

126,655

 

 

148,896

    

 

 

INCOME TAX PROVISION (BENEFIT)

   

 

 

Income tax expense

 

57,816

 

 

60,017

Income tax deferred expense (benefit)

 

16,503

 

 

(3,497)

  

74,319

 

 

56,520

    

 

 

Net income

 

52,336

 

 

92,376

    

 

 

RETAINED EARNINGS, BEGINNING OF PERIOD

 

5,926,112

 

 

4,433,973

    

 

 

RETAINED EARNINGS, END OF PERIOD

$

5,978,448

 

$

4,526,349

    

 

 
    

 

 

PER SHARE DATA

   

 

 

Net income per common share

$

0.01

 

$

0.02

    

 

 

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

 

Period Ended December 31,

 

2015

 

2014

 

(unaudited)

 

(unaudited)

OPERATING ACTIVITIES

 

  

 

 

Net income

$

52,336

 

$

92,376

Adjustments to reconcile net income to net cash provided

 

  

 

 

by operating activities:

 

  

 

 

Depreciation and amortization

 

49,056

 

 

42,311

Deferred income taxes

 

16,503

 

 

(3,497)

Changes in deferred and accrued amounts:

 

105,188

 

 

(5,896)

 

 

 

 

 

 

Net cash provided by operating activities

 

223,083

 

 

125,294

 

 

  

 

 

INVESTING ACTIVITIES

 

  

 

 

Additions to investment properties and improvements

 

  

 

 

to property held for development

 

(7,705)

 

 

-

 

 

  

 

 

Net cash used in investing activities

 

(7,705)

 

 

-

 

 

  

 

 

FINANCING ACTIVITIES

 

  

 

 

Principal payments on notes payable

 

(58,554)

 

 

(160,994)

 

 

  

 

 

Net cash used in financing activities

 

(58,554)

 

 

(160,994)

 

 

  

 

 

Net increase (decrease) in cash

 

156,824

 

 

(35,700)

 

 

  

 

 

CASH, BEGINNING OF PERIOD

 

412,847

 

 

65,982

 

 

  

 

 

CASH, END OF PERIOD

$

569,671

 

$

30,282

 

 

  

 

 
 

 

  

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

  

 

 
 

 

  

 

 

Cash paid for interest

$

40,793

$

43,389

 

 

  

 

 

Cash paid for income taxes

$

485

 

$

37,902

 

 

  

 

 

 

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

-3-

        


SECURITY LAND AND DEVELOPMENT CORPORATION
CONSOLIDATED BALANCE SHEETS

         
  December 31,  September 30, 
  2014  2014 
  (unaudited)     
ASSETS
CURRENT ASSETS        
Cash $30,284  $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 
         
Total current assets  410,979   593,561 
         
INVESTMENT PROPERTIES        
Investment properties for lease, net of accumulated depreciation  5,419,385   5,459,560 
Land and improvements held for investment or development  3,639,598   3,639,598 
         
   9,058,983   9,099,158 
         
OTHER ASSETS  74,105   76,239 
         
  $9,544,067  $9,768,958 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES        
Accounts payable and accrued expenses $283,941  $452,669 
Income taxes payable  251,146   229,031 
Current maturities of notes payable  455,969   554,065 
Current maturities of deferred revenue  12,326   18,489 
Current note payable to stockholder  50,433   50,433 
         
Total current liabilities  1,053,815   1,304,687 
         
LONG-TERM LIABILITIES        
Notes payable, less current portion  2,372,643   2,435,541 
Deferred income taxes  733,733   737,230 
         
Total long-term liabilities  3,106,376   3,172,771 
         
Total liabilities  4,160,191   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  4,526,349   4,433,973 
         
Total Stockholders’ Equity  5,383,876   5,291,500 
         
Liabilities and Stockholders’ Equity $9,544,067  $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
Period Ended December 31,
 
  2014  2013 
  (unaudited)  (unaudited) 
OPERATING REVENUE        
Rent revenue $381,272  $373,748 
         
OPERATING EXPENSES        
Depreciation and amortization  42,311   32,937 
Property taxes  64,422   67,863 
Payroll and related costs  21,871   20,133 
Insurance and utilities  8,771   7,635 
Repairs and maintenance  16,124   23,720 
Professional services  24,944   11,580 
Bad debt  2,814   - 
Penalties  4,518   - 
Other  1,714   604 
         
   187,489   164,472 
         
Operating income  193,783   209,276 
         
OTHER EXPENSE        
Interest  44,887   47,399 
         
Income before income taxes  148,896   161,877 
         
INCOME TAXES PROVISION (BENEFIT)        
Income tax expense  60,017   61,931 
Income tax deferred benefit  (3,497) (481)
   56,520   61,450 
         
Net income  92,376   100,427 
         
RETAINED EARNINGS, BEGINNING OF PERIOD  4,433,973   4,104,155 
         
RETAINED EARNINGS, END OF PERIOD $4,526,349  $4,204,582 
         
PER SHARE DATA        
Net income per common share $0.02  $0.02 

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
Period Ended December 31,
 
  2014  2013 
  (Unaudited)  (Unaudited) 
OPERATING ACTIVITIES        
Net income $92,376  $100,427 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization  42,309   32,938 
Deferred income tax  (3,497) (481)
Changes in deferred and accrued amounts  (5,894) 9,648 
Net cash provided by operating activities  125,294   142,532 
         
FINANCING ACTIVITIES        
Principal payments on notes payable  (160,994) (142,150)
         
Net cash used in financing activities  (160,994) (142,150)
         
Net (decrease) increase in cash  (35,700) 382 
         
CASH, BEGINNING OF PERIOD  65,982   24,599 
         
CASH, END OF PERIOD $30,282  $24,981 
         
SUPPLEMENTAL CASH FLOW INFORMATION:        
         
Cash paid for interest $43,389  $47,399 
         
Cash paid for income taxes $37,902  $- 

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

- 3 -

SECURITY LAND AND DEVELOPMENT CORPORATION

 

N

otesNotes 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, 20142015 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, 20142015 for further information regarding its critical accounting policies.

 

-4-


Note 1 – Basis of Presentation, Continued

In May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2014-09,Revenue from Contracts (Topic 606).. The new standard is effective for reporting periods beginning after December 15, 20162017 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 December 31, 20142015 and September 30, 2014:2015:

         
   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 

 

 

 

December 31,

 

September 30,

 

 

 

2015

 

2015

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

National Plaza building, land and improvements

 

 

$

5,305,419

 

   $

5,305,419

 

Evans Ground Lease, land and improvements

 

 

2,382,673

 

2,382,673

 

Wrightsboro Road Building land and improvements

 

 

1,905,875

 

1,905,875

 

Commercial land and improvements  

3,760,568

 

3,752,863

 

 

 

 

13,354,535

 

13,346,830

 

 

 

 

 

 

 

 

Less accumulated depreciation

 

 

(2,565,415

)

(2,518,792

)

       
Investment properties for lease, net of depreciation  $

10,789,120

    $

10,828,038

 

 

Depreciation expense totaled approximately $48,000 and $40,000 for the three-month periodperiods ended December 31, 2015 and 2014, and approximately $31,000 for the three-month period ended December 31, 2013.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 requiresrequired 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 September of 2015 the Company purchased a commercial building consisting of approximately 25,000 square feet of retail space and 27,000 square feet of warehouse space on approximately 3.5 acres of land located on Wrightsboro Road. The retail space is currently leased to a local retailer and rent commenced on October 1, 2015. The related lease term is 10 years with annual rental payments totaling $142,000, paid monthly, increasing to $153,000 at year 6. The warehouse space was available for lease as of September 30, 2015. The Company is recognizing rents on a straight-line basis over the lease term. 

- 5 -

-5-


      

Note 2 – Investment Properties, Continuedcontinued

 

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$3,760,568 and $3,752,863 at December 31, 20142015 and September 30, 2014.2015, respectively.

 

Refer to the Company’s Form 10-K for the year ended September 30, 20142015 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 


 

- 6 -

 

 

December 31,
2015

 

September 30,
2015

  

(unaudited)

  

 

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%.

1,785,381

 

1,812,690

 

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.

1,420,691

 

1,451,936

 

 

3,206,072

 

3,264,626 

 

Less current maturities

(242,091)

 

(239,168)

 

 

$

2,963,981

 

$

3,025,458

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 $506,402.$242,091. 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, 2015 the Company has a total outstanding payable forhad income tax in the amounttaxes receivable of $251,146 at December 31, 2014. Of this amount, $56,520 of which is$14,263 related to the fiscal year 2015. At September 30, 2014As of December 31, 2015 the Company hadCompany’s outstanding income taxtaxes payable of $229,031,is $43,068, all of which was relatedrelates to the fiscal year 2014.2016.

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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%Substantially all of the Company’s revenues are earned from twothree of the Company’s investment properties, National Plaza, and the Evans Ground Lease, and Wrightsboro Road Lease, which comprise approximately 56%50%, 40% and 44%10% 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%35% of its revenues though its lease with Publix.

Note  6 - Related Party Transactions

The Company purchases insurance from an insurance company of which a member of the Company’s Board of Directors is President. The Company’s Board of Directors believes that the insurance prices obtained from such company were not in excess of prices that would have been paid had the Company obtained this insurance from other sources.

 

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 isThe matter was settled in June 2015.

Note  7 - Legal Matter

In June 2015, the opinionCompany settled a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged to the tenant by the Company. Refer to the Company’s Form 10-K for the year ended September 30, 2015 for further information regarding this settlement.

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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, 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 revenues

 

$

 

410,360

 

$

381,272

 

$

29,088

 

8

%

Operating expenses

 

250,793

 

187,489

 

63,304

 

34

%

Interest expense

 

40,528

 

44,887

 

(4,359

)

-10

%

Income tax expense

 

74,319

 

56,520

 

17,799

 

31

%

Other income

 

7,616

 

-

 

7,616

 

N/A

 

 

Net income

 

52,336

 

92,376

 

(40,040)

 

-43

%

 

 

 

 

 

 

 

 

 

 

             

Rent revenue consists of rent revenue from the Company’s management thatNational Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia. The Company is not liablealso earned rent revenue from a lease on the Wrightsboro Road property with an apparel and home goods retailer and a ground lease with an auto-repair service operation on an out-parcel of National Plaza. Rental income for this claim.the three months ended December 31, 2015 increased compared to the same period for 2014 due to the addition of the rent related to the Wrightsboro Road property lease.

 

DuringRefer to the second quarterCompany’s Form 10-K for the year ended September 30, 2015 for further information regarding the properties owned and their lease terms.

Total operating expenses for the three months ended December 31, 2015 increased compared to the same period for 2014 due to a bonus to the Company’s president in relation to the sale of fiscal 2014,an approximately 1 acre outparcel of National Plaza and the Company borrowed $50,015Stanley Drive house. The proceeds from this sale were used in a stockholder, who is also a membertax deferred like kind exchange for the Wrightsboro Road property that was purchased in September 2015. Refer to the Company’s Form 10-K for the year ended September 30, 2015 for further information regarding these transactions. Management expects operating expenses for the remainder of the Flanagin family,current fiscal year to meet cash flow needs. decrease relative to the current operating period as no other similar bonuses are anticipated in the current fiscal year.

Interest expense for the three months ended December 31, 2015 decreased compared to 2014 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 as outstanding debt continues to amortize.

Income tax expense for the three months ended December 31, 2015 increased compared to the same period for 2014 due to increased revenues for the current quarter as noted above.

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Liquidity and Sources of Capital:

The amount matures in July 2015 and accrues interest at a rateCompany’s ratio of 5%. The note balancecurrent assets to current liabilities at December 31, 2014 is $50,433 which includes $418 of accrued interest.2015 was 179%. The ratio was 160% at September 30, 2015. 

 

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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). 

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $242,091. 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 three months ended December 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

 

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.

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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
(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, 2014,2015, 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, 20142015 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 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 by the Company. The Company accrued approximately $150,000 for professional fees and other expenses to defend its position. The matter was settled in 2015 and the $150,000 was recognized as income as a result of the settlement. 

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

31.1

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

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 December 31, 20142015 is formatted in Extensible Business Reporting Language (XBRL): (i) Thethe 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.

 

- 10 -

 

S

-10-


IGNATURESSIGNATURES

 

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

February 11, 20155, 2016

T. Greenlee Flanagin

Date

President

Chief Executive Officer and Chief Financial Officer

 

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