U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 


 

x

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

For the quarterly period ended March 31, 20152016

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  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"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

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

Smaller reporting companyx

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 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

Outstanding at May 11, 201512, 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

Item 1. Financial Statements

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

      
 

March 31,

 

September 30,

 

2016

 

2015

 

(unaudited)

   

ASSETS

CURRENT ASSETS

  

  

  

Cash

$

 607,058

 $

 412,847

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

     

at both March 31, 2016 and September 30, 2015

 

311,650

  

 

386,469

Prepaid property taxes

 

-

  

23,251

Income taxes receivable

 

-

  

14,263

      

Total current assets

 

918,708

  

 

836,830

      

INVESTMENT PROPERTIES

     

Investment properties for lease, net of accumulated depreciation

 

6,996,784

  

 

7,075,175

Land and improvements held for investment or development

 

3,785,618

  

 

3,752,863

      
  

10,782,402

  

10,828,038

      

OTHER ASSETS

 

74,490

  

 

79,353

      
 $

 11,775,600

  

$

 11,744,221

      

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

     

Accounts payable and accrued expenses

$

 172,254

  

$

 282,769

Income taxes payable

 

86,286

  

 

-

Current maturities of notes payable

 

245,051

  

 

239,168

  

 

  

 

Total current liabilities

 

503,591

  

 

521,937

      

LONG-TERM LIABILITIES

     

Notes payable, less current portion

 

2,901,753

  

 

3,025,458

Deferred income taxes

 

1,422,079

  

 

1,413,187

      

Total long-term liabilities

 

4,323,832

  

4,438,645

      

Total liabilities

 

4,827,423

  

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

 

6,090,650

  

 

5,926,112

      

Total Stockholders' Equity

 

6,948,177

  

 

6,783,639

   

  

  

Liabilities and Stockholders' Equity

$

 11,775,600

  

$

 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 Months

 

For the Six Months

  

Ended March 31,

 

Ended March 31,

  

2016

 

2015

 

2016

 

2015

  

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

OPERATING REVENUES

            

Rent Revenues

 $

 419,998 

 $

 383,653 

 $

 830,358 

 $

 764,925 

             

OPERATING EXPENSES

            

Depreciation and amortization

  

49,054 

  

42,309 

  

98,110 

  

84,620 

Property taxes

  

68,199 

  

69,228 

  

132,678 

  

133,650 

Payroll and related costs

  

29,295 

  

20,222 

  

113,926 

  

42,093 

Insurance and utilities

  

16,600 

  

8,677 

  

27,567 

  

17,448 

Repairs and maintenance

  

14,276 

  

7,377 

  

21,906 

  

23,501 

Professional services

  

18,750 

  

18,000 

  

48,878 

  

42,944 

Bad debt

  

  

  

  

2,814 

Penalties

  

  

7,026 

  

  

11,544 

Other

  

1,879 

  

728 

  

5,781 

  

2,442 

             
   

198,053 

  

173,567 

  

448,846 

  

361,056 

             

Operating income

  

221,945 

  

210,086 

  

381,512 

  

403,869 

             

OTHER INCOME (EXPENSE)

            

Interest expense

  

(39,810)

  

(46,426)

  

(80,338)

  

(91,313)

Other income

  

-

  

  

7,616 

  

-

             
   

(39,810)

  

(46,426)

  

(72,722)

  

(91,313)

             

Income before income taxes

  

182,135 

  

163,660 

  

308,790 

  

312,556 

             

INCOME TAXES PROVISION (BENEFIT)

            

Income tax expense

  

77,544 

  

69,723 

  

135,360 

  

129,740 

Income tax deferred (benefit) expense

  

(7,611)

  

(3,494)

  

8,892 

  

(6,991)

   

69,933 

  

66,229 

  

144,252 

  

122,749 

             

Net income

  

112,202 

  

97,431 

  

164,538 

  

189,807 

RETAINED EARNINGS, BEGINNING

            

OF PERIOD

  

5,978,448 

  

4,526,349 

  

5,926,112 

  

4,433,973 

             

RETAINED EARNINGS, END OF PERIOD

 $

 6,090,650 

 $

 4,623,780 

 $

 6,090,650 

 $

 4,623,780 

             

PER SHARE DATA

            

Net income per common share

 $

 0.02 

 $

 0.02 

 $

 0.03 

 $

 0.04 

             

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 Months

 

For the Six Months

 

Ended March 31,

 

Ended March 31,

  

2016

  

2015

  

2016

  

2015

  

(unaudited)

  

(unaudited)

  

(unaudited)

  

(unaudited)

OPERATING ACTIVITIES

           

Net income

$

 112,202 

 $

 97,431 

 $

 164,538 

 $

 189,807 

Adjustments to reconcile net income to net cash provided by

           

(used in) operating activities:

           

Depreciation and amortization

 

49,054 

  

42,309 

  

98,110 

  

84,620 

Deferred income tax

 

(7,611)

  

(3,494)

  

8,892 

  

(6,991)

Changes in deferred and accrued amounts

 

(17,084)

  

(188,600)

  

88,104 

  

(194,496)

        

 

  

 

Net cash provided by (used in) operating activities

 

136,561 

  

(52,354)

  

359,644 

  

72,940 

            

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

 

(39,906)

  

(11,949)

  

(47,611)

  

(11,949)

            

Net cash used in investing activities

 

(39,906)

  

(699)

  

(47,611)

  

(699)

            

FINANCING ACTIVITIES

           

Repayments to stockholder

 

  

(50,433)

  

-

  

(50,433)

Proceeds from note payable

 

  

1,500,000 

  

-

  

1,500,000 

Principal payments on notes payable

 

(59,268)

  

(962,485)

  

(117,822)

  

(1,123,479)

            

Net cash (used in) provided by financing activities

 

(59,268)

  

487,082 

  

(117,822)

  

326,088 

            

Net increase in cash

 

37,387 

  

434,029 

  

194,211

  

398,329 

            

CASH, BEGINNING OF PERIOD

 

569,671 

  

30,282 

  

412,847 

  

65,982 

            

CASH, END OF PERIOD

$

 607,058 

 $

 464,311 

 $

 607,058 

 $

 464,311 

            

SUPPLEMENTAL CASH FLOW INFORMATION:

           
            

Cash paid for interest

$

 39,817 

 $

 46,815 

 $

 80,610 

 $

 90,204 

            

Cash paid for income taxes

$

 34,326 

 $

 188,241 

 $

 34,811 

 $

 226,143 

            

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

-3-


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 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 

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, 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-

- 4 -

 


Note 1 – Basis of Presentation, Continued

Recently Issued Accounting Standards

 

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.

 

In November 2015, the FASB amended the Income Taxes topic of the Accounting Standards Codification to simplify the presentation of deferred income taxes. Under the amended guidance, deferred tax liabilities and assets are required to be classified as noncurrent in a classified statement of financial position. The amendments are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption permitted as of the beginning of an interim or annual reporting period. The Company has not yet adopted the amended guidance.  The Company is currently evaluating the impact of adoption.

In February 2016, the FASB issued new guidance to change accounting for leases and that will generally require most leases to be recognized on the balance sheet. The new lease standard only contains targeted changes to accounting by lessors, however, lessees will be required to recognize most leases in their balance sheets as lease liabilities for lease payments and right-of-use assets representing the lessee’s rights to use the underlying assets for the lease terms for lease arrangement longer than 12 months. Under this approach, a lessee will account for most existing capita/finance leases as Type A leases and most existing operating leases as Type B leases. Type A and Type B leases have unique accounting and disclosure requirements. Existing sale-leaseback guidance, including guidance for real estate, will be replaced with a new model applicable to both lessees and lessors. The new guidance will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018. Early adoption is permitted for all companies and organizations. Management is currently analyzing the impact of the adoption of this guidance on the company’s consolidated financial statements, including assessing changes that might be necessary to information technology system, processes and internal controls to capture new data and address changes in financial reporting.

Note 2 – Investment Properties

 

Investment properties leased or held for lease to others under operating leases consisted of the following at
March 31, 20152016 and September 30, 2014:2015:

      
 March 31,  September 30, 
 2015  2014 

March 31,

2016

 

September 30,

2015

 

 (unaudited)    

(unaudited)

 

 

 

      

 

 

 

 

 

 

National Plaza building, land and improvements $5,325,348  $5,325,348 

$

5,320,274

 

$

5,305,419

)

Evans Ground Lease, land and improvements  2,382,673   2,382,673 

 

2,382,673

 

 

2,382,673

 

Wrightsboro Road Building, land and improvements

 

1,905,875

 

 

1,905,875

 

Commercial land and improvements  3,639,598   3,639,598 

 

3,785,619

 

 

3,752,863

 

  11,347,619   11,347,619 

 

13,394,441

 

 

13,346,830

 

        

 

 

 

 

 

 

Less accumulated depreciation  (2,439,796)  (2,360,803)

 

(2,612,039

)

 

(2,518,792

)

  8,907,823   8,986,816 

 

 

 

 

 

 

Investment properties for lease, net of depreciation

$

10,782,402

 

$

10,828,038

 

        

 

 

 

 

 

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$45,000 and $31,000$40,000 for the three-month periods ended March 31, 20152016 and 2014,2015, respectively and approximately $80,000$93,000 and $62,000$80,000 for the six-month periods ended March 31, 2016 and 2015, and 2014, respectively.

 

The -5-


Note 2 – Investment Properties, Continued

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.

 

- 5 -

Note 2 – Investment Properties, ContinuedIn 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 per year 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. 

 

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$3,785,618 and $3,752,863 at March 31, 20152016 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:

       
  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 

 

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March 31,
2016

 

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%.

1,757,672 

 

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.

1,389,132 

 

1,451,936 

 

3,146,804 

 

3,264,626 

 

Less current maturities

(245,051)

 

(239,168)

 

 

$ 2,901,753 

 

$ 3,025,458 

     

 


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 $219,933.$245,051. 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

 

At September 30, 20142015 the Company had outstanding income taxes payablereceivable of $229,031, all of which was$14,263 related to the fiscal year 2014. In2015. As of March 201531, 2016 the Company executed a noteCompany’s outstanding income taxes payable is $86,286, all of which relates 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.2016.

 

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 43%9% 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 42%35% of its revenues though its lease with Publix.

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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 Emeritus. 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 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. This noteThe matter was paidsettled in full in MarchJune 2015.

 

Note  7- Subsequent Events7 - Legal Matter

 

In AprilJune 2015, the Company sold 0.159 acres as permanent easement and 0.038 acres as fee simple rightsettled a legal matter regarding a tenant’s claim for reimbursement of way, previously included in National Plaza,certain expenses charged to the City of Augusta, Georgia,tenant by the Company. Refer to the Company’s Form 10-K for a road realignment project. Also in Aprilthe year ended September 30, 2015 the Company entered into a contract to replace the roof at National Plaza.for further information regarding this settlement.

-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.


 

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Item  2. Management’sDiscussionManagement’s Discussion 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, 2015,2016, and a comparative analysis of the same period for 20142015 are presented below:

 

       Increase (Decrease) 

 

 

 

 

 

Increase (decrease)

       2015 compared to 2014 

 

 

 

 

 

2016 compared to 2015

 2015  2014  Amount  Percent 

2016

 

2015

 

Amount

 

Percent

            

 

 

 

 

 

 

 

 

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

$

830,358

 

$

764,925

 

$

65,433

 

9%

Operating expenses  361,056   332,042   29,014   9%

 

448,846

 

361,056

 

87,790

 

24%

Interest expense

 

80,338

 

91,313

 

 

(10,975)

 

-12%

Income tax expense

 

144,252

 

122,749

 

21,503

 

18%

Other income

 

7,616

 

-

 

7,616

 

N/A

Net income

 

164,538

 

189,807

 

(25,269)

 

-13%

                

 

 

 

 

 

 

 

 

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 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 the six months period ended March 31, 20152016 increased compared to the same period for 20142015 due to increased occupancy in the small shops at National Plaza.addition of the rent related to the Wrightsboro Road property lease.

 

Refer to the Company’s Form 10-K for the year ended September 30, 20142015 for further information regarding the properties owned and their lease terms.

 

Total operating expenses for the six months ended March 31, 20152016 increased compared to the same period for 20142015 due primarily to increased depreciation expensea bonus to the Company’s president in relation to the sale of an approximately 1 acre outparcel of National Plaza and incomethe Stanley Drive house. The proceeds from this sale were used in a tax penalties. Depreciation expensedeferred like kind exchange for the Wrightsboro Road property that was purchased in September 2015. The Company’s operating expenses also 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 relatethe property tax expense for Wrightsboro Road property purchased during 2015. Refer to the Company’s outstanding income tax balance atForm 10-K for the year ended September 30, 2014.2015 for further information regarding these transactions. In addition, operating expense also increased due to depreciation cost related to the Wrightsboro Road property acquired in 2015.  Management expects operating expenses for the remainder of the current fiscal year to be comparabledecrease slightly relative to the current operating period.period as no other similar bonuses are anticipated in the current fiscal year.

 

Interest expense for the six month periodmonths ended March 31, 20152016 decreased compared to 20142015 due to the decrease in debt resulting from scheduled principal payments and debt restructuring.payments. Management expects interest expense for the remainder of the current fiscal year to continue to increase given the increase indecrease as outstanding debt.debt continues to amortize.

 

Income tax expense for the six month periodmonths ended March 31, 20152016 increased slightly compared to the same period for 20142015 due mainly to higher rentalincreased revenues and resulting net income and decreased interest expensefor the current quarter 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 March 31, 20152016 was 142%182%. The ratio was 45%160% at September 30, 2014.2015. 

 

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.$245,051. 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 periodthree and six months ended March 31, 20152016 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.

(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.

As of September 30, 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, 2015 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.

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.

 

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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 ischarged by the opinion of the Company’s management that the Company is not liable for this claim.Company. The Company has accrued approximately $150,000 for professional fees and other expenses to defend its position. The matter was settled in the year ended September 30, 2015 and the $150,000 was recognized as income as a result of the settlement. 

 

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. DefaultsUponDefaults Upon 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 March 31, 20152016 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.

 

- 11 -

 

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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

May 11, 201512, 2016

T. Greenlee Flanagin

Date

President

Chief Executive Officer and Chief Financial Officer

 

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