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,June 30, 2015

☐

o

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

For the transition period of

to

Commission File Number 0-7865.

Commission File Number 0-7865.

 

 

SECURITY LAND AND DEVELOPMENT CORPORATION

 

(Exact name of issuer as specified in its charter) 

(Exact name of issuer as specified in its charter)

Georgia

58-1088232

(State or other Jurisdiction of

(I.R.S. Employer

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☐(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, 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).

o☐Yes   xNo

☒No

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 MayAugust 11, 2015

Common Stock, $0.10 Par Value

5,243,107 shares

 

 
 

 Table of Contents

 

SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

Index

 

Part I

FINANCIAL INFORMATION

 Item 1.

Financial Statements

Item 1.

Financial Statements

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

1

Consolidated Statements of Income and Retained Earnings for the Three Month PeriodsPeriod ended and for the Six

Nine Month PeriodsPeriod ended March 31,June 30, 2015 and 2014

2

Condensed Consolidated Statements of Cash Flows for the Three Month PeriodsPeriod ended and for the Six Nine

Month PeriodsPeriod ended March 31,June 30, 2015 and 2014

3

Notes to the Consolidated Financial Statements

4-8

Item 2.

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

9-10

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

10

Item 4.

Controls and Procedures

10-11

 Part II

OTHER INFORMATION

11

Part II Item 1.

OTHER INFORMATIONLegal Proceedings

11

 Item 1A.

Risk Factors

11

Item 1.

Legal Proceedings11
Item 1A.Risk Factors11
Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

11

Item 3.

Defaults Upon Senior Securities

11

Item 4.

Reserved for Future Use

11

 Item 5.

Other Information

11

Item 5.6.

Other InformationExhibits

11

SIGNATURES

Item 6.Exhibits11
SIGNATURES

12-14

 

 
 

PART I. FINANCIAL INFORMATION


Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

 

 

June 30,

  

September 30,

 

 

2015

  

2014

 

 

(unaudited)

   

ASSETS

 

 

   

CURRENT ASSETS

 

 

   

Cash

$

777,253

 

$

65,982

Receivables from tenants, net of allowance of $46,392 and $43,578

 

 

 

 

 

at June 30, 2015 and September 30, 2014, respectively

 

359,424

 

 

527,579

Total current assets

 

1,136,677

 

 

593,561

RESTRICTED CASH HELD BY QUALIFIED INTERMEDIARY

 

1,791,839

 

 

-

INVESTMENT PROPERTIES

 

 

 

 

 

Investment properties for lease, net of accumulated depreciation

 

5,208,797

 

 

5,459,560

Land and improvements held for investment or development

 

3,639,598

 

 

3,639,598

 

 

8,848,395

 

 

9,099,158

OTHER ASSETS

 

81,636

 

 

76,239

 

$

11,858,547

 

$

9,768,958

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable and accrued expenses

$

189,450

 

$

452,669

Income taxes payable

 

49,902

 

 

229,031

Current maturities of notes payable

 

236,281

 

 

554,065

Current maturities of deferred revenue

 

 

 

 

18,489

Current note payable to stockholder

 

-

 

 

50,433

Total current liabilities

 

475,633

 

 

1,304,687

LONG-TERM LIABILITIES

 

 

 

 

 

Notes payable, less current portion

 

3,086,192

 

 

2,435,541

Deferred income taxes

 

1,490,712

 

 

737,230

Total long-term liabilities

 

4,576,904

 

 

3,172,771

Total liabilities

 

5,052,537

 

 

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

 

5,948,483

 

 

4,433,973

Total Stockholders' Equity

 

6,806,010

 

 

5,291,500

Liabilities and Stockholders' Equity

$

11,858,547

 

$

9,768,958

 

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

- 1 -

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

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

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

 

 

For the Three Month

 

 

For the Nine Month

 

 

 

Period Ended June 30,

 

 

Period Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

OPERATING REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

Rent Revenue

$

383,518 

 

$

375,529 

 

$

1,148,443 

 

$

1,109,529 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

41,780 

 

 

42,636 

 

 

126,400 

 

 

108,511 

 

Property taxes

 

66,158 

 

 

67,549 

 

 

199,808 

 

 

199,519 

 

Payroll and related costs

 

19,368 

 

 

18,777 

 

 

61,461 

 

 

58,840 

 

Insurance and utilities

 

18,679 

 

 

19,762 

 

 

36,127 

 

 

37,897 

 

Repairs and maintenance

 

49,754 

 

 

13,851 

 

 

73,255 

 

 

47,121 

 

Professional services

 

11,763 

 

 

66,658 

 

 

54,707 

 

 

106,814 

 

Bad debt

 

- 

 

 

16,466 

 

 

2,814 

 

 

16,466 

 

Penalties

 

7 

 

 

- 

 

 

11,551 

 

 

- 

 

Other

 

1,738 

 

 

1,011 

 

 

4,180 

 

 

3,584 

 

 

 

209,247 

 

 

246,710 

 

 

570,303 

 

 

578,752 

 

Operating income

 

174,271 

 

 

128,819 

 

 

578,140 

 

 

530,777 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

Gain on Sale

 

1,862,235 

 

 

- 

 

 

1,862,235 

 

 

- 

 

Interest

 

(40,296)

 

 

(47,250)

 

 

(131,609)

 

 

(142,619)

 

Other Income

 

138,868 

 

 

- 

 

 

138,868 

 

 

- 

 

 

 

1,960,807 

 

 

(47,250)

 

 

1,869,494 

 

 

(142,619)

 

Income before income taxes

 

2,135,078 

 

 

81,569 

 

 

2,447,634 

 

 

388,158 

 

INCOME TAXES PROVISION (BENEFIT)

 

 

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

49,902 

 

 

50,113 

 

 

179,642 

 

 

165,941 

 

Income tax deferred expense (benefit)

 

760,473 

 

 

(15,118)

 

 

753,482 

 

 

(14,564)

 

 

 

810,375 

 

 

34,995 

 

 

933,124 

 

 

151,377 

 

Net income

 

1,324,703 

 

 

46,574 

 

 

1,514,510 

 

 

236,781 

 

RETAINED EARNINGS, BEGINNING OF PERIOD

 

4,623,780 

 

 

4,294,362 

 

 

4,433,973 

 

 

4,104,155 

 

RETAINED EARNINGS, END OF PERIOD

$

5,948,483 

 

$

4,340,936 

 

$

5,948,483 

 

$

4,340,936 

 

PER SHARE DATA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share

$

0.25 

 

$

0.01 

 

$

0.29 

 

$

0.05 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-2-

-1-
 

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGSCASH 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 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 

 

 

For the Three Month

 

 

For the Nine Month

 

 

 

Period Ended June 30,

 

 

Period Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

 

(unaudited)

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

1,324,703 

$

46,574 

$

1,514,510 

$

236,781 

 

Adjustments to reconcile net income to net cash provided

 

 

 

 

 

 

 

 

 

 

 

 

by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

41,780 

 

 

42,636 

 

 

126,400 

 

 

108,511 

 

Gain on sale

 

(1,862,235)

 

 

- 

 

 

(1,862,235)

 

 

- 

 

Deferred income tax

 

760,473 

 

 

(15,118)

 

 

753,482 

 

 

(14,564)

 

Changes in deferred and accrued amounts:

 

(96,116)

 

 

86,577 

 

 

(290,612)

 

 

66,194 

 

Net cash provided by operating activities

 

168,605 

 

 

160,669 

 

 

241,545 

 

 

396,922 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale of investment properties

 

1,981,900 

 

 

- 

 

 

1,993,150 

 

 

- 

 

 Addition to restricted cash held by qualified intermediary (1,791,839)  -  (1,791,839)  - 

Additions to investment properties

 

- 

 

 

(196,591)

 

 

(11,949)

 

 

(200,591)

 

Net cash provided by (used in) investing activities

 

190,061 

 

 

(196,591)

 

 

189,362 

 

 

(200,591)

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

Repayments to stockholder

 

- 

 

 

- 

 

 

(50,433)

 

 

- 

 

Proceeds from stockholder

 

- 

 

 

- 

 

 

- 

 

 

50,015 

 

Proceeds from notes payable

 

- 

 

 

182,797 

 

 

1,500,000 

 

 

186,804 

 

Principal payments on notes payable

 

(45,724)

 

 

(146,688)

 

 

(1,169,203)

 

 

(433,548)

 

Net cash provided by (used in) financing activities

 

(45,724)

 

 

36,109 

 

 

280,364 

 

 

(196,729)

 

Net increase (decrease) in cash

 

312,942 

 

 

187 

 

 

711,271

 

 

(398)

 

CASH, BEGINNING OF PERIOD

 

464,311 

 

 

24,014 

 

 

65,982 

 

 

24,599 

 

CASH, END OF PERIOD

$

777,253 

 

$

24,201 

 

$

777,253

 

$

24,201 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

$

47,752 

 

$

39,823 

 

$

137,956 

 

$

139,955 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for income taxes

$

125,737 

 

$

6,381 

 

$

351,880 

 

$

93,216 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

-3-

-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, 2014 when reviewing these interim financial statements.

The financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements include the accounts of Security Land and Development Corporation and its four wholly owned subsidiaries, Royal Palms Motel, Inc., SLDC, LLC, SLDC 2, LLC and SLDC III, LLC (described on a consolidated basis as the “Company”). Significant intercompany transactions and accounts are eliminated in consolidation.

Critical Accounting Policies:

Estimates of Useful Lives of Investment Properties for Purposes of Depreciation

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

Evaluation of Long-Lived Assets for Impairment

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

Estimates of Income Tax Rates Applicable to Deferred Taxes

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

Refer to the Company’s Form 10-K for the year ended September 30, 2014 for further information regarding its critical accounting policies.

- 4 -

Note 1 – Basis of Presentation, Continued

In May 2014, the FASB issued ASU No. 2014-09,Revenue from Contracts (Topic 606). The new standard is effective for reporting periods beginning after December 15, 2016 and early adoption is not permitted. The comprehensive new standard will supersede existing revenue recognition guidance and require revenue to be recognized when promised goods or services are transferred to customers in amounts that reflect the consideration to which the Company expects to be entitled in exchange for those goods or services. Adoption of the new rules could affect the timing of revenue recognition

- 4 -

Note 1 – Basis of Presentation, Continued

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.

Note 2 – Investment Properties

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

      
 March 31,  September 30, 
 2015  2014 

June 30,

 

September 30,

 (unaudited)    

2015

 

2014

      

(unaudited)

 

 

 

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

$

5,305,419 

 

$

5,325,348 

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

 

2,382,673 

 

 

2,382,673 

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

 

3,639,598 

 

 

3,639,598 

  11,347,619   11,347,619 

 

11,327,690 

 

 

11,347,619 

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

 

(2,479,295)

 

 

(2,360,803)

  8,907,823   8,986,816 
        

 

8,848,395 

 

 

8,986,816 

Residential rental property  134,597   145,847 

 

- 

 

 

145,847 

Less accumulated depreciation  (34,863)  (33,505)

 

- 

 

 

(33,505)

  99,734   112,342 

 

- 

 

 

112,342 

        
Investment properties for lease, net of accumulated depreciation $9,007,557  $9,099,158 

Investment properties for lease, net of accumulated

 

 

 

 

 

depreciation

$

8,848,395 

 

$

9,099,158 

 

Depreciation expense totaled approximately $40,000$39,000 and $31,000$42,000 for the three-month periods ended March 31,June 30, 2015 and 2014, respectively and approximately $80,000$120,000 and $62,000$105,000 for the six-monthnine-month periods ended March 31,June 30, 2015 and 2014, respectively.

The National Plaza is a retail strip center located on Washington Road in Augusta Georgia. Approximately 81% of the rentable space at the National Plaza is leased to Publix Supermarkets, Inc., the National Plaza’s anchor tenant.

In April 2015, the Company sold .038 acres of fee simple right-of-way, .191 acres of temporary easement for construction and .158 acres of permanent easement for construction. The sales proceeds from these transactions were $186,900. In June of 2015 the Company sold an outparcel approximating 1 acre in size on Stanley Drive and a rental house on Stanley Drive for $1,795,000. Together, the Company recognized a gain of approximately $1,862,000 on these sales. The Company is planning to reinvest the proceeds through a like kind exchange for other similar real estate held for development or lease and defer the related tax liability. The Company’s management has identified property suitable for investment and has made an offer on one. A qualified intermediary holds the proceeds from the sale approximating $1,792,000.

The Company entered into a long-term ground lease with a major national tenant and its developer in May 2006 on approximately 18 acres of land in Columbia County, Georgia. The agreement required monthly rental payments of $20,833 during the development period, which was completed in January 2007. Following the expiration of the development period, the lease requires annual rental payments of $500,000 for the first 5 years then increasing 5% in years 6, 11, and 16. The lessee has an option to renew at year 21 and another option every 5 years thereafter for a possible total lease term of 50 years. The lease provides for the tenant to pay for insurance and property taxes. The Company is recognizing rents on a straight-line basis over the lease term.

 

- 5 -

 

Note 2 – Investment Properties, Continued

The Company holds several parcels of land for investment or development purposes, including 19.38 acres of land in North Augusta, South Carolina, purchased in parcels during 2007 and 2008. The Company also owns approximately 85 acres of land in south Richmond County, Georgia and a 1.1 acre parcel along Washington Road in Augusta, Georgia that adjoins the Company’s National Plaza investment property. The aggregate costs of these investment properties held for investment or development was $3,639,598 at March 31,June 30, 2015 and September 30, 2014.

Refer to the Company’s Form 10-K for the year ended September 30, 2014 for further information on operating lease agreements and land held for investment or development purposes.

Note 3 – Notes Payable

 

 

 

 

 

Notes payable consisted of the following at:

 

 

 

 

 

 

 

June 30,
2015

 

 

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 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%.

 

 

 

 

 

 

 

1,839,603

 

 

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.

 

 

 

 

 

 

1,482,870

 

 

-

 

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 

- 6 -

 

Note 3 – Notes Payable, Continued,Continued

 

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 

 

 

3,322,473 

  

3,040,039 

Less current maturities

 

(236,281)

  

(604,498)

 

$

3,086,192 

 

$

2,435,541 


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.$236,281. 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, 2014 the Company had outstanding income taxes payable of $229,031, all of which was related to the fiscal year 2014. In March 2015 the Company executed a note payable to a regional financial institution, secured with a mortgage interest in National Plaza and an assignment of rents and used a portion of the related proceeds to pay the outstanding tax liability for the fiscal year 2014 in full.

As of June 30, 2015 the Company’s outstanding income taxes payable is $49,902, all of which relates to 2015.

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 two of the Company’s investment properties, National Plaza and the Evans Ground Lease, which comprise approximately 56% and 43%44% 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% of its revenues though its lease with Publix.

- 7 -

Note 6 – Related Party Transactions

The Company hired an attorney who is also a member of the Company’s Board of Directors and who also serves as Vice President of the Company, to represent the Company in a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged. It is the opinion of the Company’s management that the Company is not liable for this claim.

The matter was settled in June 2015.

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 note was paid in full in March 2015.

 

- 7 -

Note 7- Subsequent EventsLegal Matter

In June 2015, the Company settled a legal matter regarding a tenant’s claim for reimbursement of certain expenses charged. The Company incurred approximately $11,000 in expenses during the quarter and recognized other income of approximately $139,000 after adjusting the $150,000 previously accrued for the matter.

In AprilNote 8- Property Transaction

On June 24, 2015 the Company sold 0.159 acres as permanent easement and 0.038 acres as fee simple right of way, previously included in National Plaza, to the City of Augusta, Georgia, for a road realignment project. Also in April 2015, the Company entered into a contract to replace the roof at National Plaza.

In February 2015 the Company has entered into a contract to sell approximately one (1)1 acre of land, currentlypreviously 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 begain was recognized in the quarter ended June 15,30, 2015. TheHowever, the Company is searching forhas identified property and made an offer on one qualified property to purchase as part of a tax-free like kind exchange as part ofrelated to the June 2015 closing.sale. The Company has 180 days from the June closing to purchase a qualified property and meet the requirements of the IRS regarding tax-free like kind exchanges.

 

- 8 -

 

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

 

       Increase (Decrease) 
       2015 compared to 2014 

 

Increase (Decrease)

 2015  2014  Amount  Percent 

 

2015 compared to 2014

            

2015

 

2014

 

 

Amount

  

Percent

 

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

$ 1,148,443

$  1,109,529

 

$

38,914

  

4 %

                

Gain on Sale

1,862,235

-

 

1,862,235

  

N/A

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

570,303

578,752

 

(8,449)

  

-1 %

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

131,609

142,619

 

(11,010)

 

-8 %

                
Income tax expense  122,749   116,382   6,367   5%

933,124

151,377

 

781,747

 

516 %

                

Other Income

138,868

-

 

138,868

 

N/A

Net income  189,807   190,207   (400)  0%

1,514,510

236,781

 

1,277,729

 

540 %

 

Rent revenue consists primarily of rent revenue from the Company’s National Plaza, a strip center on Washington Road in Augusta, Georgia, and the Evans Ground Lease in Evans, Georgia. The Company also earned rent revenue from a ground lease with an auto-repair service operation on an out-parcel of National Plaza. Rental income for the sixnine months period ended March 31,June 30, 2015 increased compared to the same period for 2014 due to increased occupancy in the small shops at National Plaza.

Refer to the Company’s Form 10-K for the year ended September 30, 2014 for further information regarding the properties owned and their lease terms.

In June of 2015 the Company recognized a gain on the sale of approximately 1 acre of land, previously 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 Company has identified property to purchase and made an offer on one property as part of a tax-free like kind exchange related to the June 2015 sale.

Total operating expenses for the sixnine months ended March 31,June 30, 2015 increased compared toare consistent with the same period for 2014 due primarily to increased depreciation expense and income tax penalties. Depreciation expense increased due to capital expenses incurred in relation to a tenant build-out in 2014. Tax penalties incurred in 2015 that were not incurred in 2014 relate to the Company’s outstanding income tax balance at September 30, 2014. Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.

Interest expense for the sixnine month period ended March 31,June 30, 2015 decreased compared to 2014 due to the decrease in debt resulting from scheduled principal payments and debt restructuring. Management expects interest expense for the remainder of the current fiscal year to continue to increase given the increase in outstanding debt.

debt in March 2015.

Income tax expense for the sixnine month period ended March 31,June 30, 2015 increased slightly compared to the same period for 2014 due mainly to higherdeferred tax expense related to the sale of the outparcel and rental income and decreased interest expense ashouse on Stanley drive noted above. Management expects income tax expense for the remainder of the current fiscal year to be comparable todecrease significantly as no similar sales are anticipated for the current operating period.remainder of the fiscal year.

 

- 9 -

 

During 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses the Company charged in association with a tenant lease. It was the opinion of the Company's management that the Company was not liable for the claim. Beginning in 2011 the Company accrued approximately $150,000 for professional fees and other expenses to defend its position against the claim. The matter was settled in June 2015 and resulting costs totaled approximately $11,000. The remaining accrual of approximately $138,000 was written off and recognized as other income.

Liquidity and Sources of Capital:

The Company’s ratio of current assets to current liabilities at March 31,June 30, 2015 was 142%238%. The ratio was 45% at September 30, 2014.

Management of the Company expects future liquidity needs of the Company to be funded from rent revenues, refinancing and the appreciation in investment properties (which can be sold or mortgaged, if necessary). Additionally, funding can be obtained from members of the Board of Directors.

Current maturities of notes payable will require the Company to make payments over the next 12 months totaling $219,933.$236,281. 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-monthnine-month period ended March 31,June 30, 2015 are not necessarily indicative of the results that may be expected for the entire fiscal year. The Company may, from time to time, make written or oral forward-looking statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (the “Commission”) and its reports to stockholders. Such forward-looking statements are made based on management’s belief as well as assumptions made by, and information currently available to, management pursuant to “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, but not limited to, competition from other real estate companies, the ability of the Company to obtain financing for projects, and the continuing operations of tenants.

Item 3.Quantitative3. Quantitative and Qualitative Disclosures About Market Risks

Not applicable to smaller reporting companies

Item 4. Controls and Procedures

(a)

Within the 90 days prior to the filing date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934. Based upon that evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures were ineffective.

 

(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, 2014, the Company’s management evaluated the effectiveness of its internal control. Based on the evaluation, the Company’s management concluded that the Company’s internal control over financial reporting was ineffective as of September 30, 2014 and identified a material weakness related to the lack of segregation of duties, accounting personnel with the requisite knowledge of GAAP and the lack of written policies and procedures over financial reporting.

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

 

-  10 -

 

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.charged by the Company. It iswas the opinion of the Company’sCompany's management that the Company iswas not liable for this claim. The Company has accrued approximately $150,000 for professional fees and other expenses to defend its position.position through September 30, 2014. The matter was settled in June 2015 and resulting costs during the quarter totaled approximately $11,000.

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.Exhibits

Item 6. Exhibits

 

(a)

Exhibit No.

Description

 

31.1

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

101

The following financial information from Security Land and Development Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2015 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 -

 

 

SIGNATURESSIGNATURES

 

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

 

SECURITY LAND AND DEVELOPMENT CORPORATION

(Registrant)

By:

By:

/s/ T. Greenlee Flanagin

May

August 11, 2015

T. Greenlee Flanagin

Date

President

Chief Executive Officer and Chief Financial Officer

 

- 12 -

- 12 -