SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to __________________
Commission File Number 1-9900
ARIZONA LAND INCOME CORPORATION
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(Exact name of small business issuer in its charter)
Arizona 86-0602478
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2999 North 44th Street, Suite 100, Phoenix, Arizona 85018
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (602) 952-6800
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Securities registered pursuant to Section 12(b) of the Act:
Title or class Name of each exchange on which
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registered
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Common Stock, no par value American Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title or Class)
Page 1 of 31 pages
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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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
The issuer's revenues for the fiscal year ended December 31. 1996 were
$648,625.
The aggregate market value of the voting stock held by non-affiliates
of the registrant, based upon the average of the high and the low prices of the
registrant's Series A Common Stock as reported by the American Stock Exchange on
March 18, 1997, was approximately $8,753,418. Shares of voting stock held by
each officer and director and by each person who owns 5% or more of the
outstanding voting stock have been excluded in that such persons may be deemed
affiliates. This determination of affiliate status is not necessarily
conclusive.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
2,360,080 shares of Class A Common Stock outstanding on March 18, 1997
100 shares of Class B Common Stock outstanding on March 18, 1997
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DOCUMENTS INCORPORATED BY REFERENCE
Materials from the registrant's Proxy Statement relating to the 1997
Annual Meeting of Shareholders (the "Proxy Statement") have been incorporated by
reference into Part III, Items 9, 10, 11 and 12.
Transitional Small Business Disclosure Format
Yes [ ] No [X]
Exhibit Index at page 29
Total pages 31
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TABLE OF CONTENTS
Page
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PART I ......................................................................4
ITEM 1. DESCRIPTION OF BUSINESS.............................4
ITEM 2. DESCRIPTION OF PROPERTY.............................8
ITEM 3. LEGAL PROCEEDINGS...................................8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS....................................8
PART II ......................................................................9
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION...............................11
ITEM 7. FINANCIAL STATEMENTS...............................14
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...............................28
PART III .....................................................................28
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT..................28
ITEM 10. EXECUTIVE COMPENSATION.............................28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT..............................28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.......................................28
PART IV .....................................................................29
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...................29
SIGNATURES....................................................................31
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Background. Arizona Land Income Corporation (the "Company") is a real
estate investment trust organized as an Arizona corporation on March 10, 1988.
On that same date, the Company issued 100 shares of the Company's Class B Common
Stock to YSP Holdings, Inc., the Company's sponsor, in return for an initial
capital contribution of $1,000. Operations of the Company commenced on June 13,
1988.
In June of 1988, the Company began investing in first mortgage loans on
unimproved real property located in the metropolitan Phoenix area. Such loans
included mortgage loans secured or collateralized by first mortgages, first
deeds of trust and real property subject to agreements for sale and subdivision
trusts ("First Mortgage Loans"). From its inception until December 31, 1991, the
Company purchased interests totaling $34,120,000 in twenty First Mortgage Loans.
Since January 1, 1992, the Company has not purchased any additional interests in
any First Mortgage Loans, and has had to institute foreclosure proceedings with
respect to certain properties securing such loans. See "Investment Objectives
and Criteria" below. See also Note 3 to the financial statements included in
Item 7 for additional information concerning the Company's First Mortgage Loans.
The Company's goal has been to pay distributions of available cash to
shareholders and to preserve and protect shareholders' net capital investment.
The Company pays extraordinary cash distributions to its shareholders when such
distributions are warranted based upon the Company's cash reserves at the time
of the distribution as well as the Company's projected need for operating
capital. During the 1996 fiscal year, the Company declared and paid two cash
distributions. The first distribution of $.30 per share was paid on April 15,
1996 to shareholders of record on April 1, 1996. The second distribution of
$1.00 per share was paid on December 16, 1996 to shareholders of record on
December 2, 1996.
Potential Dissolution. As disclosed in the Company's prospectus used in
connection with the Company's 1988 initial public offering, the Company's intent
at the time of the public offering was to dissolve within approximately eight
years after the date of such offering. The Company currently has no immediate
plans to dissolve and may not voluntarily dissolve anytime in the immediate
future. Any decision by the Company to dissolve will be determined by the
Company's Board of Directors and will depend upon market conditions and other
pertinent factors. The Company's Board of Directors possesses the discretion to
(i) continue to operate the Company and hold such First Mortgage Loans or real
property until the Company's Board of Directors determines that it is the
Company's best interest to dispose of such investments; (ii) sell such First
Mortgage Loans or real property on or about the dissolution date, in which case
the sale proceeds in excess of monies owed by the Company to creditors will be
distributed to the shareholders on a pro rata basis, or (iii) issue to the
shareholders participating interests in such First Mortgage Loans or real
property on a basis proportionate to their respective stock ownership interests
in the Company. In the event the Company issues to its shareholders
participating interests in a First Mortgage Loan, the Advisor (defined below)
will continue to act as servicing agent for the First Mortgage Loan and will be
paid a quarterly servicing fee equal to 1/16 of 1%
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of the aggregate outstanding loan balance of the First Mortgage Loan until the
First Mortgage Loan is sold or repaid.
Qualification as a Real Estate Investment Trust. The Company has
attained real estate investment trust ("REIT") status for all tax years since
its inception, and management and the Company's Board of Directors believes that
the Company has completed the necessary steps to permit the Company to elect, if
it so chooses, REIT status for the tax year ended December 31, 1996. REIT status
allows the Company to deduct from its federal taxable income (and not pay taxes
upon) dividends paid to its shareholders. See Item 6 - Management's Discussion
and Analysis or Plan of Operation.
Generally, if the Company is to maintain its REIT status, it must: (i)
restrict its investments principally to assets that produce interest from
mortgage loans collateralized by real estate or which produce rental income;
(ii) pay out at least 95% of its taxable income (excluding capital gains) to its
shareholders; (iii) pay taxes at corporate tax rates on capital gains or
distribute at least 95% of capital gains as dividends to its shareholders; (iv)
realize less than 30% of its gross income from the sale of certain securities
and real estate assets (excluding real property acquired through the foreclosure
proceeding) held for less than four years; (v) hold less than 10% of the voting
securities of any single issuer; and (vi) have an independent manager or advisor
for its assets. If the Company fails to maintain its status as a REIT, the
Company would not be entitled to deduct from its federal taxable income (and not
pay federal tax upon) dividends paid to shareholders.
Investment Objectives and Criteria. In evaluating potential
investments, the Company has historically considered such factors as: (i) the
borrower's cash investment in the real property securing the First Mortgage
Loan; (ii) the loan-to-value ratio of the First Mortgage Loan; (iii) the
maturity date of the First Mortgage Loan; (iv) the appraised value, if any, or
past purchase prices of the real property securing the First Mortgage Loan; (v)
the existence, if any, of significant debt junior to the first lien; (vi) the
potential that the real property will appreciate in value; (vii) the identity,
financial strength and payment history (if any) of the borrower under the First
Mortgage Loan; (viii) the growth, tax and regulatory environment of the
communities in which the properties are or will be located; (ix) the location
and condition of the real property; (x) the supply of, and demand for,
properties of similar type in the vicinity; (xi) the prospects for liquidity
through the sale or foreclosure of the real property; and (xii) such other
factors that become relevant in the course of the Company's evaluation process.
The Company's historical investment objective was to locate First
Mortgage Loans which satisfied the foregoing investment criteria. Due to
generally poor economic conditions in Arizona and in metropolitan Phoenix during
the early 1990's, the Company has not acquired any additional First Mortgage
Loans since 1989 (other than refinancings or restructuring of existing First
Mortgage Loans). Although general economic and real estate market conditions in
such areas have improved, the Company does not anticipate acquiring any
additional First Mortgage Loans.
Management Arrangements. The Company has no employees. The Company's
affairs are managed by its non-salaried officers and Board of Directors. The
Company and ALI Advisor,
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Inc. (the "Advisor") entered into an advisory and servicing agreement (the
"Advisory Agreement") at the time of the Company's incorporation. The Advisory
Agreement has expired by its own terms; however, the Company and the Advisor
have agreed to continue to operate as if the terms and conditions of the
Advisory Agreement are still in effect.
Pursuant to the Advisor's agreement with the Company, the Advisor is
authorized to: (i) purchase First Mortgage Loans, subject to review and
ratification by the Company's Board of Directors; (ii) serve as exclusive
investment and financial advisor and provide research, economic and statistical
data in connection with investments and financial policies; (iii) investigate,
select and conduct relations with accountants, attorneys, brokers, investors,
and others as necessary; (iv) maintain bank accounts and records deemed
appropriate or requested by the Company's Board; (v) perform or obtain
accounting and other services; (vi) collect and remit principal and interest
payments due on the First Mortgage Loans; and (vii) perform such other services
as set forth in the Advisory Agreement.
The Company has agreed to pay the Advisor a servicing fee for servicing
the Company's First Mortgage Loans. The servicing fee is payable quarterly and
equals 1/16 of 1% of the sum of (i) the aggregate outstanding loan balance of
the First Mortgage Loans in the Company's mortgage loan portfolio, and (ii) the
recorded value of property acquired by the Company through foreclosure, as of
the first day of each fiscal quarter. During 1996 and 1995, the Company paid the
Advisor a servicing fee of $53,425 and $52,582, respectively.
The Company also agreed to pay the Advisor a management fee for aiding
the Company in developing investment policies and analyzing and recommending
investments to the Company. The management fee will be paid for each quarter the
shareholders' cumulative return on capital investment as of the end of such
quarter exceeds 12.7%, and will equal 30% of the Company's available cash in
excess of that necessary to provide shareholders with a cumulative return on
capital investment in excess of 12.7%. The Company did not accrue or pay a
management fee to the Advisor in 1996 or 1995.
The Company also agreed to reimburse the Advisor quarterly for other
expenses incurred in servicing the Company's First Mortgage Loans, such as
legal, accounting and transfer agent fees and copying and mailing costs incurred
in preparing and mailing periodic reports to shareholders. The Company did not
reimburse the Advisor for any such expenses in 1996 or 1995.
1996 Transactions and Loan Modifications. Set forth below is a review
of the transactions and modifications which affect the First Mortgage Loans and
which occurred during the 1996 fiscal year. The mortgage loan numbers referred
to below are identifiers for those loans on the books and records of the
Company. Additionally, these numbers are identified in the Company's initial
offering prospectus dated June 6, 1988 and in Notes 3 and 4 to the Company's
financial statements set forth in Item 7 hereof.
The Company had three land sales during the 1996 fiscal year, which in
the aggregate generated a $137,860 gain on sale of property. The first resulted
from the sale of a five-acre parcel of property located in Phoenix, Arizona,
which the Company acquired through foreclosure
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on Loan No. 17. This sale netted the Company $412,000 cash. The second sale was
a three-acre parcel which had secured Loan No. 17. This sale netted the Company
$273,000. The Company also sold a three-acre portion of its property located at
16th Street and Bell Road in Phoenix, Arizona. This property was acquired
through foreclosure on Loan No. 10. The sale closed October 2, 1996, and netted
the Company $691,000.
In addition to the above-referenced three land sales, the Company has
parcels of land resulting from foreclosure on Loan No. 17. All of these parcels
are in escrow, currently scheduled to close in the second quarter of 1997. If
such sales are consummated, the Company should receive $2,400,000 in cash;
however, there can be no assurance that such sales will be consummated. In its
endeavor to sell the property associated with Loan No. 17, the Company
anticipates an expenditure of approximately $400,000 to $500,000 to fund
additional planning/zoning requirements of the City of Phoenix and to access
improvements required by the purchasers.
In summary, the Company had three land sales during the 1996 fiscal
year which produced $1,376,000 cash.
During the second quarter of 1996, the Company received $78,631 as the
payoff on Loan No. 17-2, which is associated with the sale of property received
through foreclosure on Loan No. 17. During the third quarter of 1996, the
Company received cash in payoffs for three of its loans. Loan No. 1, with a
principal amount of $449,000, Loan No. 12, with a principal amount of
$1,092,000, and Loan No. 20, with a principal amount of $128,000, were all paid
off and cash was received. During the fourth quarter of 1996, the Company
received $352,000 as a partial payoff on Loan No. 9, which is associated with
the sale of property received through foreclosure on Loan No. 9. These
collections were in addition to periodic collections of principal on other
notes.
Common Stock Purchases. On March 15, 1994, the Company's Board of
Directors authorized the repurchase of shares of the Company's Common Stock in
open market transactions. Since authorizing the repurchase of shares of Common
Stock, the Company has repurchased 249,920 shares of Common Stock including,
172,500 shares that were repurchased and retired during the 1996 fiscal year.
The Company intends to continue to periodically make open market purchases of
its Common Stock.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal offices are located at the offices of Peacock,
Hislop, Staley and Given ("PHS&G"), 2999 North 44th Street, Suite 100, Phoenix,
Arizona, 85018. Messrs. Peacock, Hislop, Staley and Given are officers and/or
directors of the Company, and Messrs. Peacock, Hislop and Staley are the
shareholders of ALI Advisor. The Company does not pay for the use of PHS&G's
facilities.
Information regarding the status of real property acquired by the
Company pursuant to the foreclosure of certain First Mortgage Loans is set forth
in Note 4 to the Company's financial Statements contained in Item 7.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE COMPANY.
Barry W. Peacock, age 59, has served as the Company's President from
its inception in 1988. Mr. Peacock is Chairman of the Board of Peacock, Hislop,
Staley and Given ("PHS&G"), a position he has held since the inception of that
Company in June 1989. Mr. Peacock served as a senior executive with Young, Smith
& Peacock, Inc. ("YSP") from 1964 until June 1989, and most recently as Managing
Director--Municipal Bonds.
Larry P. Staley, age 54, has served as the Company's Vice President
from the Company's inception. Mr. Staley is Vice-Chairman of the Board of PHS&G,
a position he has held since June 1989. Prior to that date, Mr. Staley served in
various capacities with YSP, where he was employed from 1973 until he joined
PHS&G in 1989.
David W. Miller, age 48, has served as Secretary of the Company since
his election to such office on September 22, 1988. Mr. Miller has served as
Senior Vice President, Chief Financial Officer and a member of the Board of
Directors of PHS&G since June 1989. Prior to that date, Mr. Miller served in
various capacities with YSP, where he was employed from 1971 until he joined
PHS&G.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company has two classes of common equity securities, Class A Common
Stock and Class B Common Stock. All 100 shares of the Company's Class B Common
Stock were purchased by YSP Holdings, Inc. ("YSP Holdings"), the Company's
sponsor, in connection with the formation of the Company and are currently owned
by YSP Holdings. The Company's Class B Common Stock is not traded on any
exchange.
On March 15, 1994, the Company's Board of Directors authorized the
repurchase of shares of the Company's Common Stock in open market transactions.
Since authorizing the repurchase of shares of Common Stock, the Company has
repurchased 249,920 shares of Common Stock including, 172,500 shares that were
repurchased and retired during the 1996 fiscal year. The Company intends to
continue to periodically make open market purchases of its Common Stock.
The Company's Class A Common Stock is listed for trading on the
American Stock Exchange ("AMEX"). As of March 18, 1997, there were approximately
79 holders of record of the Class A Common Stock. In the Company's estimation,
based upon reliable information available to the Company, there are over 600
beneficial owners of the Company's Class A Common Stock. The market price of
Class A Common Stock at the close of trading on March 18, 1997 was $5.125 per
share. The following table sets forth the high and low prices on AMEX of the
Class A Common Stock for each quarterly period in 1995 and 1996 and the cash
distributions paid per share of Class A Common Stock for such periods.
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Sales Price Dividends/Distributions
----------- Declared Per Share of
Calendar Quarter High Low Class A Common Stock(1)(2)
- ---------------- ---- --- --------------------------
1995
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First Quarter 6 1/4 4 3/16 .75
Second Quarter 5 1/4 4 1/2 - 0 -
Third Quarter 5 4 11/16 - 0 -
Fourth Quarter 5 4 3/4 - 0 -
1996
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First Quarter 6 4 3/4 -0-
Second Quarter 5 5/16 4 7/8 .30
Third Quarter 5 1/2 4 7/8 -0-
Fourth Quarter 6 1/4 4 7/16 1.00
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(1) See Note 7 to the financial statements included in Item 7.
(2) The Company pays extraordinary cash distributions to its shareholders
when such distributions are warranted based upon the Company's cash
reserves at the time of the distribution as well as the Company's
projected need for operating capital. During the 1996 fiscal year, the
Company declared and paid two cash distributions. The first
distribution of $.30 per share was paid on April 15, 1996 to
shareholders of record on April 1, 1996. The second distribution of
$1.00 per share was paid on December 16, 1996 to shareholders of record
on December 2, 1996.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 vs. 1995. The Company had net income of
approximately $503,000 or $.20 per share of Class A Common Stock, for the year
ended December 31, 1996, compared to net income of approximately $465,000 or
$.18 per share of Class A Common Stock, for the year ended December 31, 1995.
The increase in the net income for the year ended December 31, 1996, is
primarily attributable to an increase in interest income as well as a decrease
of $45,000 in property taxes. Interest income from First Mortgage Loans
decreased to $476,000 in 1996 from to $480,000 in 1995. Gain on the sale of
property decreased to $138,000 in 1996 from $204,000 in 1995.
Income from temporary investments increased to $128,000 in 1996
compared to $64,000 in 1995 due to larger cash balances held by the Company. The
Company had other income of $44,000 compared to other income of $50,000 in 1995.
The other income received by the Company in 1996 and 1995 is primarily
attributable to lease rentals on land received by the Company through
foreclosure actions.
The Company's expenses decreased in the aggregate to $283,000 in 1996,
compared to $333,000 in 1995. This decrease of $50,000 is primarily attributable
to decreases in porperty taxes.
The Company did not record a loan loss reserve in 1996 because of the
stabilization of the Phoenix real estate market.
Net cash provided by operating activities was $508,000 in 1996 compared
to net cash used in operating activities of $68,000 in 1995. Net cash provided
by investing activities in 1996 and 1995 was $3,386,000 and $3,169,000,
respectively. Net cash used in financing activities in 1996 and 1995 was
$4,094,000 and $2,025,000, respectively.
OUTLOOK.
Forward-Looking Statements. The following discussion contains
forward-looking statements, as well as a discussion of risks and uncertainties
that could affect the Company. Due to the risks and uncertainties, the Company's
actual results may differ materially from the results discussed in the
forward-looking statements.
Real Estate Investment Outlook. Refinancing of the loan or sale of the
underlying real property serves as a principal method for borrowers to repay
mortgage loans on unimproved real property such as the Company's First Mortgage
Loans. In Arizona in general, and in metropolitan Phoenix in particular, a
number of factors have combined to negatively impact borrowers' ability to
refinance their loans on unimproved real property or sell the underlying
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property during the early 1990's. First, the shortage of available financing for
real estate development and improvement reduced the demand for unimproved real
property, causing a lack of liquidity in the market for unimproved property.
Second, real estate values in metropolitan Phoenix had been in decline and only
recently have begun to stabilize. Third, the lack of liquidity and decline in
values resulted in a large number of defaults on mortgage loans on unimproved
real property. In turn, this resulted in the acquisition of large real estate
portfolios by Arizona financial institutions. These financial institutions, some
of which are under government supervision, have contributed to the illiquidity
in the market by holding their portfolios for extended periods of time.
The Company believes these and other factors have negatively impacted
borrowers' ability to pay on their First Mortgage Loans. Because interest
payments on First Mortgage Loans constitute the Company's primary source of
income, borrowers' failure to pay on their First Mortgage Loans have had a
significant adverse impact on the Company's operating results. In appropriate
circumstances, the Company has modified a First Mortgage Loan at the request of
the borrower. These modifications have included the deferral by the Company of
principal due, the deferral of interest and, in certain instances, a decrease in
the interest rate paid by the borrower. In other circumstances, the Company has
instituted foreclosure and other legal proceedings to protect its interest in
the First Mortgage Loan and the underlying property. As a result, the Company
now owns, and is attempting to sell, a number of properties. See also Notes 3
and 4 to the financial statements, included in Item 7 for additional information
concerning the Company's First Mortgage Loans and for information regarding
properties held for sale.
The Company believes that the market for unimproved real property in
Phoenix has begun to improve as evidenced by the number of land sales for the
Company during 1995 and 1996. The Company sold three parcels of land in 1996,
and anticipates that additional parcels will be sold in 1997. However, no
assurance can be made that such sales will occur.
Potential Dissolution. As disclosed in the Company's prospectus used in
connection with the Company's 1988 initial public offering, the Company's intent
at the time of the public offering was to dissolve within approximately eight
years after the date of such offering. The Company currently has no immediate
plans to dissolve and may not voluntarily dissolve anytime in the immediate
future. Any decision by the Company to dissolve will be determined by the
Company's Board of Directors and will depend upon market conditions and other
pertinent factors. The Company's Board of Directors possesses the discretion to
(i) continue to operate the Company and hold such First Mortgage Loans or real
property until the Company's Board of Directors determines that it is the
Company's best interest to dispose of such investments; (ii) sell such First
Mortgage Loans or real property on or about the dissolution date, in which case
the sale proceeds in excess of monies owed by the Company to creditors will be
distributed to the shareholders on a pro rata basis, or (iii) issue to the
shareholders participating interests in such First Mortgage Loans or real
property on a basis proportionate to their respective stock ownership interests
in the Company. In the event the Company issues to its shareholders
participating interests in a First Mortgage Loan, the Advisor will continue to
act as servicing agent for the First Mortgage Loan and will be paid a quarterly
servicing fee equal to 1/16 of 1% of the aggregate outstanding loan balance of
the First Mortgage Loan until the First Mortgage Loans is sold or repaid.
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LIQUIDITY AND CAPITAL RESOURCES.
The Company believes that the funds generated from the payment of First
Mortgage Loans as well as the sale of its properties will be sufficient to meet
the Company's working capital requirements and to finance any additional
investments. No other arrangements, such as lines of credit, have been made to
obtain external sources of liquidity. However, the Company believes that such
arrangements could be obtained by the Company, if necessary.
The Company currently has no commitments for any material capital
expenditures and does not anticipate any such expenditures in the foreseeable
future.
DIVIDENDS.
During the 1995 fiscal year, the Board declared one extraordinary cash
distribution of $.75 per share, which was paid on April 18, 1995 to shareholders
of record on March 31, 1995.
During the 1996 fiscal year the Company declared and paid two
extraordinary cash distributions. The first distribution was for $.30 per share
and was paid on April 15, 1996 to shareholders of record on April 1, 1996. The
second distribution was for $1.00 per share and was paid on December 16, 1996 to
shareholders of record on December 1, 1996.
In order for the Company to maintain its status as a qualified REIT, it
must, among other requirements, pay out in the form of dividends at least 95% of
its taxable income (excluding capital gains) to shareholders and must pay taxes
at corporate tax rates on capital gains or distribute at least 95% of capital
gains as dividends to shareholders. If the Company fails to maintain its status
as a REIT, the Company would no longer be entitled to deduct from its federal
taxable income (and not pay federal taxes on) dividends paid to shareholders.
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Item 7. FINANCIAL STATEMENTS
INDEX
Page
Report of Independent Public Accountants 15
Financial Statements-
Balance Sheet - December 31, 1996 16
Statements of Operations - For the Years Ended December 31,
1996 and 1995 17
Statements of Stockholders' Equity - For the Years Ended
December 31, 1996 and 1995 18
Statements of Cash Flows - For the Years Ended December 31,
1996 and 1995 19
Notes to Financial Statements - December 31, 1996 and 1995 20
Certain schedules are omitted as the information is not required.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Arizona Land Income Corporation:
We have audited the accompanying balance sheet of ARIZONA LAND INCOME
CORPORATION (an Arizona corporation) as of December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Arizona Land Income Corporation
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
February 25, 1997.
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ARIZONA LAND INCOME CORPORATION
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
ASSETS:
Cash and cash equivalents $ 1,191,853
--------------
Investments-
Accrued interest receivable 206,664
Mortgage notes receivable (Note 4) 4,363,668
Investment in partnership 378,755
Land held for sale (Note 5) 10,162,284
--------------
15,111,371
Less- Reserve for losses (1,513,953)
--------------
Total investments, net 13,597,418
--------------
$ 14,789,271
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other liabilities $ 62,140
Accrued property taxes 90,296
--------------
Total liabilities 152,436
--------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (Notes 1 and 8):
Class A common stock, $.10 stated value, 10,000,000 shares
authorized, 2,360,080 shares issued and outstanding 236,008
Class B common stock, $.10 stated value, 10,000 shares
authorized, 100 shares issued and outstanding 10
Additional paid-in capital 23,791,072
Distributions in excess of earnings (9,390,255)
--------------
Total stockholders' equity 14,636,835
--------------
$ 14,789,271
==============
The accompanying notes are an integral part of this balance sheet.
16
<PAGE>
ARIZONA LAND INCOME CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ---------
<S> <C> <C>
INCOME:
Interest on mortgages $ 476,215 $ 480,269
Interest on temporary investments 128,194 63,619
Other income 44,216 50,327
------------- -------------
Total income before sale of properties 648,625 594,215
------------- -------------
EXPENSES:
Property taxes 106,476 151,118
Professional services 61,849 52,700
Advisory fees to related party (Note 6) 53,425 52,582
Administration and general 32,874 45,351
Directors' fees 23,200 27,400
Interest expense 5,287 3,761
------------- -------------
Total expenses before sale of properties 283,111 332,912
------------- -------------
INCOME BEFORE GAIN ON SALE OF PROPERTIES 365,514 261,303
GAIN ON SALE OF PROPERTIES, net 137,860 204,079
------------- -------------
NET INCOME $ 503,374 $ 465,382
============= =============
INCOME PER COMMON SHARE $ .20 $ .18
======= ======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,521,160 2,534,686
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
ARIZONA LAND INCOME CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional Distributions Total
------------------------ Paid-in in Excess Stockholders'
Shares Amount Capital of Earnings Equity
----------- ----------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 2,562,180 $ 256,218 $ 24,708,118 $ (5,177,220) $ 19,787,116
Dividends paid - - - (1,899,435) (1,899,435)
Purchase and retirement of
Class A common stock (29,500) (2,950) (122,948) - (125,898)
Net income - - - 465,382 465,382
----------- ----------- -------------- ------------- --------------
Balance, December 31, 1995 2,532,680 253,268 24,585,170 (6,611,273) 18,227,165
Dividends paid - - - (3,282,356) (3,282,356)
Purchase and retirement of
Class A common stock (172,500) (17,250) (794,098) - (811,348)
Net income - - - 503,374 503,374
----------- ----------- -------------- ------------- --------------
Balance, December 31, 1996 2,360,180 $ 236,018 $ 23,791,072 $ (9,390,255) $ 14,636,835
=========== =========== ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
ARIZONA LAND INCOME CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 503,374 $ 465,382
Adjustments to reconcile net income to net cash provided by (used in)
operating activities-
Gain on sale of properties (137,860) (204,079)
Accretion of loan discounts - (885)
Changes in certain assets and liabilities affecting operating
activities-
Decrease in other assets, net 64,418 19,019
(Increase) decrease in accrued interest receivable 96,815 (127,672)
Increase (decrease) in accounts payable and other liabilities (33,271) 25,615
Increase (decrease) in accrued property taxes 14,437 (245,265)
------------- --------------
Net cash provided by (used in) operating activities 507,913 (67,885)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Partnership investments (72,000) (80,000)
Principal payments received under mortgage notes receivable 2,360,026 279,802
Proceeds from sales of properties 1,375,610 2,968,972
Land improvements (284,064) -
Purchase of bonds (906,959) -
Proceeds from redemption of bonds 913,674 -
------------- -------------
Net cash provided by investing activities 3,386,287 3,168,774
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (3,282,356) (1,899,435)
Repurchase of Class A common stock (811,348) (125,898)
------------- --------------
Net cash used in financing activities (4,093,704) (2,025,333)
------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (199,504) 1,075,556
CASH AND CASH EQUIVALENTS, beginning of year 1,391,357 315,801
------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 1,191,853 $ 1,391,357
============= ==============
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
New mortgages related to sales of properties $ - $ 3,289,340
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 5,287 $ 3,761
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
ARIZONA LAND INCOME CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(1) ORGANIZATION AND OPERATIONS:
Arizona Land Income Corporation (the Company) was incorporated in the State of
Arizona on March 10, 1988 as a wholly owned subsidiary of YSP Holdings, Inc. and
completed an initial public offering on June 13, 1988. The net proceeds of the
initial public offering of $25,808,600 were used to acquire and originate
mortgage loans secured by unimproved real property located in the Phoenix
metropolitan area. The Company has two classes of common stock, Class A and
Class B. The Class A shares are listed for trading on the American Stock
Exchange.
The current capitalization of the Company and minimal cash flow requirements
afford the Company the ability to hold the properties and to finance future
sales with a cash downpayment and terms.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and Cash Equivalents
Investments with an original maturity of less than 90 days when purchased are
considered cash equivalents. At December 31, 1996, cash equivalents consist of
reverse repurchase agreements in U.S. Treasury Notes of $1,194,000, which
matured in January of 1997.
Mortgage Notes Receivable
Mortgage notes receivable are presented at cost in the accompanying balance
sheet. It is the Company's policy to discontinue the accrual of interest for
notes in default as of the default date. In management's opinion, mortgage notes
receivable are stated at amounts not in excess of net realizable value.
Investment in Partnership
During 1991, the Company purchased a 21.6% limited partnership interest in
Pinnacle Peak Office/Resort Investors, the borrower on Loan 1. The Company's
semi-annual contributions are netted with the portion of interest income related
to the Company's ownership of Pinnacle Peak Office/Resort Investors. The net
amount invested in 1996 and 1995 was $64,448 and $66,675, respectively.
Additionally, the Company has a commitment to fund $66,166 of additional,
noninterest bearing subscriptions.
20
<PAGE>
Revenue Recognition
Revenue from land sales is recognized in accordance with Statement of Financial
Accounting Standards (SFAS) No. 66, Accounting for Sale of Real Estate, when the
parties to the sale are bound by the terms of a contract, an adequate
downpayment is received, a reasonable likelihood exists that any related
receivable will be collected and all conditions precedent to the closing have
been performed.
Income Taxes and REIT Status
The Company has elected treatment as a real estate investment trust (REIT) under
Internal Revenue Code Sections 856-860. A REIT is taxed in the same manner as
any corporation except that it may deduct and not pay income taxes on
distributions made to shareholders. This distribution deduction must be at least
95% of the REIT's taxable income. For all years presented, the Company has met
the 95% distribution requirement. Therefore, no income tax provision is included
in the accompanying financial statements.
For income tax purposes, certain expenses (principally related to reserves for
losses) for financial reporting purposes are not allowed as tax deductions until
realized upon sale of the property. In addition, the Company may take certain
deductions related to their investment in Pinnacle Peak Office/Resort Investors
(see Note 2) that are not allowed for book purposes. Accordingly, 1996 taxable
income totaled approximately $474,000 and the taxable loss for 1995 was
approximately $435,000. Net operating losses for federal income tax purposes
available to offset future taxable income totaled $1,800,000 at December 31,
1996, and all benefits from these losses will expire through 2010.
Income Per Common Share
Income per common share is computed based upon the weighted average number of
shares of common stock outstanding during the year. There are no stock options,
warrants or other common stock equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and 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 these estimates.
Long-Lived Assets
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, was adopted by the Company in fiscal 1996,
and did not have a material effect on the Company's financial position or its
results of operations.
21
<PAGE>
(3) CONCENTRATIONS OF CREDIT RISK:
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of short-term investments and mortgage notes receivable.
The Company's short-term investments are in high-quality securities placed with
a major bank. The Company's investment policy limits its exposure to
concentrations of credit risk.
The Company's mortgage notes receivable result primarily from the sale of
property to a broad base of borrowers although several loans are a significant
portion of total assets (see Note 4).
22
<PAGE>
(4) MORTGAGE NOTES RECEIVABLE:
Management determines the rate and related terms on its individual mortgage
notes receivable based on the underlying collateral, the quality of the
borrower, and the down payment received. The majority of the mortgage notes
receivable outstanding at December 31, 1996, were originated within the last 2-4
years and in management's opinion, the factors used to determine the rates and
related terms have not changed significantly. Based on this, management believes
that the fair market values of its mortgage notes receivable approximate their
carrying amounts. As of December 31, 1996, the majority of the loans are
current, and all noncurrent loans are stated at amounts not in excess of net
realizable value. Therefore, no additional adjustment for impairment is
necessary.
Mortgage notes receivable consist of the following at December 31, 1996:
<TABLE>
<CAPTION>
The Company's
Participation
Interest as a The Company's
Original Stated Final % of Current Participation at
Loan Collateral, Property Interest Maturity Periodic Principal December 31,
Number Location and Size Rate Date Payment Terms Balance 1996
- ----------- ---------------------- ----------- ------------- --------------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
3) 70 acres - West side 8.25% 08/05/04 On October 29,1996, the 76.36% $ 563,456
of Hawes Road loan was modified for
(84th Street) - 1/2 the borrower to make
mile north of monthly interest and
Thomas Road - principal payments of
Mesa, Arizona $15,000 until the 1996
annual payment of
$125,550 is paid in full.
Interest on the modified
payments is accruing at 11%.
On January 29, 1997, another
modification was made to
further change the payment
schedule to biweekly interest
and principal payments of
$5,000 until the 1996 payment
is paid in full. Interest is
accruing at 15% on this second
modification. Loan is current
according to this latest
modification.
5) 18.8 acres - 1/2 9.00% 02/01/99 Semi-annual principal 100% 621,664
mile east of Pima payments of $25,000 plus
Road and 1/4 mile accrued interest through
South of Bell Road - August 1, 1998. Balloon
Scottsdale, Arizona payment consisting of
the unpaid principal plus
accrued interest due
February 1, 1999. Loan
is current.
6) 29 lots in Hidden 9.00%- 03/15/97 Multiple borrowers 85.29% 155,120
Valley Ranch, Pinal 12.30% 07/01/05 (37) - monthly payments
County, Arizona. of principal and interest
12 parcels in either of varying payment
Bellflower Ranch amounts. Certain of
or Butterfield Ranch these loans are in default.
in Cochise County,
Arizona
9) 19.29 acres - Southwest 7.50% 03/30/02 Annual payments of 81.35% 337,887
corner of Union Hills principal and interest
Drive and 91st Avenue - of $83,221. Loan is
Peoria, Arizona current.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
The Company's
Participation
Interest as a The Company's
Original Stated Final % of Current Participation at
Loan Collateral, Property Interest Maturity Periodic Principal December 31,
Number Location and Size Rate Date Payment Terms Balance 1996
- ----------- ---------------------- ----------- ------------- --------------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
15) 50.85 acres - South of 8.00% 08/30/00 Quarterly payments of 100% 566,322
the Southwest Corner principal and interest of
of Hawes and Brown $18,700 through May 30,
Road - Mesa, Arizona 2000. Balloon payment
consisting of the unpaid
principal plus accrued
interest due August 30,
2000. Loan is current.
16) 20 acres - West side 9.00% 09/12/02 Annual payments of 100% 202,649
of I-17; approximately principal and interest
2-3/4 miles north of of $20,583 through
Happy Valley Road - September 12, 2001.
Maricopa County, Balloon payment
Arizona consisting of unpaid
principal plus accrued
interest due September 12,
2002. Loan is current.
17-1) .95 acres (lot 6, Phoenix 9.00% 03/01/08 Monthly payments 100% 55,846
International Science of principal and
Center) I-17 and Deer interest of $659.
Valley Road, Phoenix, Loan is current.
Arizona
17-3) 2.11 acres (lots 4 and 5, 8.00% 04/15/08 Monthly payments 100% 89,575
Phoenix International of principal and
Science Center), I-17 and interest of $993.
Deer Valley Road, Loan is current.
Phoenix, Arizona
18) 153.63 acres - Southwest 7.00% 03/27/10 Annual payments of 100% 1,771,149
Corner of Pecos Road principal and interest
and Val Vista Drive - of $144,258 through
Maricopa County, March 27, 2009. Balloon
Arizona payment consisting of
unpaid principal plus
accrued interest due
March 27, 2010. Loan
is current.
------------
$ 4,363,668
============
</TABLE>
24
<PAGE>
Scheduled principal repayments of mortgage notes receivable at December 31, 1996
are as follows:
Year Amount
-------- --------------
1997 $ 286,260
1998 251,846
1999 726,254
2000 639,719
2001 174,854
Thereafter 2,284,735
--------------
$ 4,363,668
==============
(5) LAND HELD FOR SALE:
The Company has received land as a result of foreclosures on several loans.
Interest accrual ceases at the date of default. The mortgage receivable balance,
related accrued interest and foreclosure costs are transferred to land held for
sale at cost on the date the title is transferred. In management's opinion, land
held for sale is stated at amounts not in excess of net realizable value.
The following land is owned by the Company at December 31:
<TABLE>
<CAPTION>
Original The Company's
Loan Participation
Number Interest 1996
-------- ------------- --------------
<S> <C> <C> <C>
2) 33.5 acres - Queen Creek and Gilbert
Roads - Chandler, Arizona. 91.15% $ 982,296
3) 635 acres - Section 9, Township
6 South Range 3 East of the Gila and
Salt River Base and Meridian -
Pinal County, Arizona. 76.36% 925,691
6) 354.5 acres - Southwest corner of
Warner and Sossaman Roads -
Maricopa County, Arizona. 85.29% 3,023,531
57 acres - Pinal County. 85.29% 100,648
10) 14.47 acres - Southwest corner
Bell Road and 16th Street -
Phoenix, Arizona. 80.00% 1,499,226
11) 8.4 acres - Corner of 95th and Olive
Avenues - Peoria, Arizona. 100.00% 693,565
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Original The Company's
Loan Participation
Number Interest 1996
-------- ------------- --------------
<S> <C> <C> <C>
17) 16.411 acres - Southwest corner of
I-17 and Deer Valley Road -
Phoenix, Arizona. 100.00% 2,029,954
19) 9.11 acres - Lots 4, 5, and 7, Paradise
Valley Auto Park at 20th Street and
Bell Road - Phoenix, Arizona. 100.00% 907,373
--------------
Total $ 10,162,284
==============
</TABLE>
(6) RELATED PARTY TRANSACTIONS:
The Company is a party to the following agreements with affiliates:
Affiliate Agreement
----------------------- ------------------------------------------------
ALI Advisor, Inc. Management fees of 30% of available cash, as
defined, will be paid in any quarter when the
cumulative return to investors is in excess of
12.7%. A servicing fee for servicing loans of
1/16 of 1% of total assets, as defined, will be
paid quarterly. In addition, certain other
overhead expenses will also be paid.
PHS Mortgage, Inc. All loans made after the initial purchase at
June 13, 1988 have been originated by the
mortgage company and origination fees were paid
by the borrowers.
Peacock, Hislop, Staley The Company utilizes PHS&G on certain investment
& Given (PHS&G) transactions involving excess cash. No fees are
paid for such services.
(7) DIVIDENDS PAID:
Distributions related to Class A dividends for 1996 are as follows:
Amount
Date Declared Record Date Date Paid Per Share Total Amount
- ------------- ----------- ------------- ------------- ------------
03/21/96 04/01/96 04/15/96 $ .30 $ 759,774
10/28/96 12/02/96 12/16/96 1.00 2,522,582
------ ----------
$ 1.30 $3,282,356
====== ==========
Approximately 15% of the dividends per share in 1996 represent distributions of
ordinary taxable income. The remaining distributions represent a return of
capital or capital gain income.
26
<PAGE>
Distributions related to Class A dividends for 1995 are as follows:
Amount
Date Declared Record Date Date Paid Per Share Total Amount
- ------------- ----------- ------------- ------------- ------------
03/23/95 03/31/95 04/18/95 $ .75 $1,899,435
===== ==========
Dividends per share in 1995 represent a return of capital or capital gain
income.
(8) RETIREMENT OF CLASS A COMMON STOCK:
During 1996, the Company paid $811,348 to repurchase 172,500 shares of its Class
A common stock which were then retired. In addition, during 1995 the Company
paid $125,898 to repurchase 29,500 shares of its Class A common stock which were
then retired.
27
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
Information responsive to this item is incorporated herein by reference
to the "Information Concerning Directors and Nominees" section contained in the
Company's Proxy Statement relating to its 1997 Annual Meeting of Shareholders,
which will be filed with the Securities and Exchange Commission in accordance
with Rule 14a-6(c) promulgated under the Securities Exchange Act of 1934 (the
"1997 Proxy Statement"). With the exception of the foregoing information and
other information specifically incorporated by reference into this Form 10-KSB
Report, the Company's 1997 Proxy Statement is not being filed as a part hereof.
Information respecting executive officers of the Company who are not continuing
directors or nominees is set forth at Part I of this Report.
No disclosure is required with respect to Item 405 of Regulation S-B,
"Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 10. EXECUTIVE COMPENSATION.
The Company did not compensate its executive officers for their
services in the fiscal year ending December 31, 1996. Additional information
responsive to this item is incorporated herein by reference to the "Executive
Compensation" section of the Company's 1997 Proxy Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information concerning the Class A Common Stock beneficially owned by
each director of the Company, by all officers and directors of the Company as a
group and by each shareholder known by the Company to be the beneficial owner of
more than 5% of the outstanding Class A Common Stock is incorporated herein by
reference to the "Security Ownership of Principal Shareholders and Management"
section of the Company's 1997 Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information responsive to this item is incorporated herein by reference
to the "Certain Transactions and Relationships" section of the Company's 1997
Proxy Statement.
28
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
The following is a list of the financial statements of Arizona Land
Income Corporation included at Item 7 of Part II.
Financial Statements.
<TABLE>
<CAPTION>
Page or
Method of Filing
----------------
<S> <C>
Report of Independent Public Accountants Page 15
Financial Statements:
Balance Sheets - December 31, 1996 Page 16
Statements of Operations - For the Years Ended December Page 17
31, 1996 and 1995
Statements of Stockholders' Equity - For the Years Ended Page 18
December 31, 1996 and 1995
Statements of Cash Flows - For the Years Ended December Page 19
31, 1996 and 1995
Notes to Financial Statements - December 31, 1996 and Page 20
1995
</TABLE>
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Page or
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C> <C>
3-A Articles of Incorporation of the Company, as amended. Incorporated by
Reference to Exhibit
3-A to Amendment
No. 3 to S-18 No.
33-20625.
3-B Bylaws of the Company, as amended. Incorporated by
Reference to Exhibit
3-B to Amendment
No. 3 to S-18 No.
33-20625.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page or
Number Description Method of Filing
------ ----------- ----------------
<S> <C> <C>
* 10-A June 13, 1988 Advisory and Servicing Agreement Incorporated by
between ALI Advisor, Inc. and the Company. Reference to Exhibit
10-A to the Company's
Annual Report on Form
10-K for the year
ended December 31,
1988.
10-B January 17, 1989 Stock Purchase and Sale Agreement Incorporated by
between Young, Smith & Peacock Holdings, Inc., reference from the
Young, Smith & Peacock, Inc., Barry W. Peacock, Company's Report on
Thomas R. Hislop and Larry P. Staley. Form 8-K dated
January 30, 1989.
10-C Modification of Loan Document dated July 21, 1990, Incorporated by
between ALI Advisor, Inc. and Pinnacle Peak reference to Exhibit
Office/Resort Investors Limited Partnership, an 10-E to the Company's
Arizona limited partnership (Loan 1). Annual Report on Form
10-K for the year
ended December 31,
1990 (the "1990 Form
10-K").
10-D Modification of Loan Documents dated July 1, 1990, Incorporated by
between ALI Advisor, Inc. and North Scottsdale reference to Exhibit
Horseman's Park Limited Partnership III, an Arizona 10-F to the 1990 Form
limited partnership (Loan 5b). 10-K.
* 10-E(1) Indemnification Agreement dated May 12, 1992 Incorporated by
between Arizona Land Income Corporation and Robert Reference to Exhibit
Blackwell. 10-L to the Company's
Annual Report on Form
10-K for the year
ended December 31,
1993.
* 10-E(2) Indemnification Agreement dated October 1, 1991 Incorporated by
between Arizona Land Income Corporation and Burton reference to the
Freireich. Company's Annual
Report on Form 10-K
for the year ended
December 31, 1994.
24 Powers of Attorney See Signature Page
27 Financial Data Schedule Filed Herewith
</TABLE>
* Indicates management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-KSB
(b) Reports on Form 8-K
During the last quarter of 1996, the Company filed no reports on Form
8-K.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report on Form 10-KSB to
be signed on its behalf by the undersigned, thereunto duly authorized, this 31st
day of March, 1997.
ARIZONA LAND INCOME CORPORATION
By: /s/ Thomas R. Hislop
-------------------------------------
Thomas R. Hislop
Vice President and
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Barry W. Peacock, Thomas R. Hislop and
Larry P. Staley, and each of them, his true and lawful attorneys-in-fact and
agents, with full powers of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
to this Form 10-KSB Annual Report, and to file the same, with all exhibits
thereto, and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-KSB has been signed below by the following persons on
behalf of the Company and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Barry W. Peacock President March 31, 1997
- -------------------------------------------
Barry W. Peacock
/s/ Thomas R. Hislop Chairman of the Board, Vice President, March 31, 1997
- -------------------------------------------
Thomas R. Hislop Treasurer, Chief Executive Officer and
Chief Financial Officer
/s/ Larry P. Staley Vice President March 31, 1997
- -------------------------------------------
Larry P. Staley
/s/ Robert Blackwell Unaffiliated Director March 31, 1997
- -------------------------------------------
Robert Blackwell
/s/ Burton P. Freireich Unaffiliated Director March 31, 1997
- -------------------------------------------
Burton P. Freireich
</TABLE>
31
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 830748
<NAME> Arizona Land Income Corporation
<MULTIPLIER> 1000
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,192
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,514
<INVENTORY> 15,111
<CURRENT-ASSETS> 1,398
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,789
<CURRENT-LIABILITIES> 152
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,789
<SALES> 0
<TOTAL-REVENUES> 648
<CGS> 0
<TOTAL-COSTS> 145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 503
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 503
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
