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SECURITY LAND AND DEVELOPMENT CORPORATION

Form 10-Q

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED BALANCE SHEETS

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

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SECURITY LAND AND DEVELOPMENT CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

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

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SECURITY LAND AND DEVELOPMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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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, 20102011 when reviewing 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 are 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 the 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, 20102011 for further information regarding its critical accounting policies.

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Note  3 — Notes Payable and Line of Credit, (Continued)

If the Company is unsuccessful in either of their efforts described above, the Company intends to seek additional financing or sell certain of its assets.

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Note  4 — 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 North Augusta, South Carolina.  Approximately 99% of the Company’s revenues are earned from two of the Company’s investment properties, National Plaza and the Evans Ground Lease, which comprise approximately 52% and 47% 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 41% of its revenues though its lease with Publix.

Note  5 —  Application of SEC Staff Accounting Bulletin No. 108Related Party Transactions

The Company has applied SEC Staff Accounting Bulletin No. 108 (SAB No. 108), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.  SAB No. 108 states that registrants must quantify the impact of correcting all misstatements, including both the carryover (iron curtain method) and reversing (rollover method) effects of prior-year misstatementshired an attorney who sits on the current-year financial statements,Company’s Board of Directors and by evaluating the error measured under each method in lightwho also serves a Vice President of quantitative and qualitative factors.  Under SAB No. 108, prior-year misstatements which, if corrected in the current year would be material to the current year, must be corrected by adjusting prior year financial statements, even though such correction previously was and continues to be immaterial to the prior-year financial statements.  Correcting prior-year financial statements for such “immaterial errors” does not require previously filed reports to be amended.  Such corrections will be made the next time the Company, files the prior-year financial statements.

In applying the requirements of SAB No. 108,to represent the Company adjusted its deferred income tax expense accrual, which had been understated by $288,834 asin a legal matter regarding a tenant’s claim for reimbursement of September 30, 2006.  Such understatement resulted fromcertain expenses charged.  It is the use of an incorrect deferred tax rate in this period and eachopinion of the subsequent three years.  The financial statementsCompany’s management that the Company is not liable for the quarter ended June 30, 2010 have been retroactively restated to correct this error.  This adjustment decreased retained earnings as of September 30, 2008 by $301,457.  Retained earnings at June 30, 2010 was decreased by $310,428.claim.

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Item  2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations:

The Company’s results of operations for the ninethree months ended June 30,December 31, 2011, and a comparative analysis of the same period for 2010 are presented below:

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.  Rent revenue decreased slightly for the nine months ended June 30, 2011 primarily due to two small shop tenants at National Plaza vacating during 2010, one the first quarter of 2010 and one in the fourth quarter of 2010, and one small shop tenant at National Plaza receiving rent relief beginning in the third quarter of 2010.  In addition the Publix 2009 CAM reconciliation billed in 2010 was greater than the 2010 reconciliation billed in 2011.

Refer to the Company’s Form 10-K for the year ended September 30, 20102011 for further information regarding the properties owned and their lease terms.

Total operating expenses for the ninethree months ended June 30,December 31, 2011 is comparableincreased compared to the same period for 2010.2010 due primarily to increase property taxes and professional fees.  In the first quarter of 2011 the Company appealed the property tax assessment on the North Augusta, South Carolina property.  The appeal process is still ongoing, however the company paid a reduced amount of 80% of the previous assessment at 2010 and 2011. This reduced amount was less than the estimated amount owed at September 30, 2010 resulting in a decrease for the three-month period ended December 31, 2010 versus the three-month period ended December 31, 2011.  Professional fees increased due to increased legal fees related to an ongoing dispute over a tenant’s claim for reimbursement of certain expenses charged.  It is the opinion of the Company’s management that the Company does not owe any reimbursement.  Management expects operating expenses for the remainder of the current fiscal year to be comparable to the current operating period.

Interest expense for the ninethree month period ended June 30,December 31, 2011 decreased compared to 2010 due to the decrease in debt resulting from scheduled principle payments. Management expects interest expense for the remainder of the current fiscal year to continue to decrease slightly as outstanding debt is amortized.

Income tax expense for the ninethree month period ended June 30,December 31, 2011 is comparabledecreased slightly compared to the same period for 2010.  Management expects income tax expense for the remainder of the current fiscal year to be comparable to the current operating period.

Liquidity and Sources of Capital:

The Company’s ratio of current assets to current liabilities at June 30,December 31, 2011 was 26%23%.  The ratio was 40%39% at September 30, 2010.2011.

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There has been no change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item  1. Legal Proceedings

NoneDuring 2011, the Company was notified by a tenant of a claim for reimbursement of certain expenses charged.  It is the opinion of the Company’s management that the Company is not liable for this claim.  The Company has accrued approximately $56,000 for professional fees and other expenses to defend its position.

Item  1A. Risk Factors

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

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

None

Item  3. Defaults Upon Senior Securities

None

Item  4. Reserved for Future Use

Item  5. Other Information

Management of the Company notes that no Forms 8-K were filed during the period and Management is not aware of any un-reported matters occurring during the period that would require disclosure in a Form 8-K.

Item  6. Exhibits

(a)

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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)

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