Table of Contents

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

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:

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.

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:

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.

(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, 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.

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