FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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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
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ARIZONA LAND INCOME CORPORATION
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(Exact name of registrant as specified in its charter)
Arizona 86-0602478
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2999 N. 44th Street, Suite 100, Phoenix, Arizona 85018
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(Address of principal executive offices)
(Zip Code)
(602) 952-6800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes N/A No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of November 10, 1997, there were 2,360,080 shares of Class A common
stock and 100 shares of Class B common stock issued and outstanding.
<PAGE>
Table of Contents
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Page
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Part I
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Item 1. Financial Statements ...............................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ..................7 & 8
Part II
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Item 1. Legal Proceedings ..................................................9
Item 2. Changes in Securities ..............................................9
Item 3. Defaults upon Senior Securities ....................................9
Item 4. Submission of Matters to a Vote of
Security Holders 9
Item 5. Other Information ..................................................9
Item 6. Exhibits and Reports on Form 8-K8 ..................................9
Signatures ..................................................................9
<PAGE>
ARIZONA LAND INCOME CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
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September 30,
1997 December 31,
(Unaudited) 1996
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<S> <C> <C>
Assets
Cash and temporary investments $ 3,437,185 $ 1,191,853
------------ ------------
Investments -
Accrued interest receivable 229,656 206,664
Mortgages receivable 5,142,593 4,363,668
Investment in partnerships 378,755 378,755
Land held for sale 7,180,683 10,162,284
------------ ------------
12,931,687 15,111,371
Less - Reserve for losses (1,513,953) (1,513,953)
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Total investments, net 11,417,734 13,597,418
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Other assets, net 103,767 --
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Total assets $ 14,958,686 $ 14,789,271
============ ============
Liabilities
Accounts payable and other liabilities $ 53,039 $ 62,140
Accrued property taxes 80,644 90,296
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Total liabilities 133,683 152,436
------------ ------------
Stockholders' Equity
Common stock-Class A 236,008 236,008
Common stock-Class B 10 10
Additional paid-in capital 23,791,072 23,791,072
Distributions in excess of income (9,202,087) (9,390,255)
------------ ------------
Total stockholders' equity 14,825,003 14,636,835
------------ ------------
Total liabilities and stockholders' equity $ 14,958,686 $ 14,789,271
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
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Three months Three months Nine months Nine months
ended ended ended ended
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Interest on Mortgages $ 105,590 $ 117,419 $ 285,349 $ 380,278
Interest on Temporary Investments 88,230 29,909 149,267 65,634
Non-cash Income from Temporary Investments 75,000 -- 75,000 --
Farm Lease Income 10,259 11,054 33,737 32,162
---------- ---------- ---------- ----------
Total income before sale of properties 279,079 158,382 543,353 478,074
---------- ---------- ---------- ----------
Expenses
Interest Expense 915 1,457 2,662 5,371
Professional Services 9,475 7,610 45,740 57,221
Advisory Fee 10,547 12,016 30,974 41,326
Administration and General 2,679 2,540 21,498 27,507
Directors' Fees 5,800 5,800 16,600 17,400
Property Taxes 8,900 19,363 26,700 96,953
---------- ---------- ---------- ----------
Total expenses before sale of properties 38,316 48,786 144,174 245,778
---------- ---------- ---------- ----------
Income before gain (loss) on sale of properties 240,763 109,596 399,179 232,296
Gain (loss) on sale of properties -- -- 444,509 --
---------- ---------- ---------- ----------
Net income (loss) before Income Taxes 240,763 109,596 843,688 232,296
Income taxes 65,500 -- 65,500 --
---------- ---------- ---------- ----------
Net income $ 175,263 $ 109,596 $ 778,188 $ 232,296
========== ========== ========== ==========
Earnings per common share $ 0.07 $ 0.04 $ 0.33 $ 0.09
Dividends declared per share $ 0.25 $ 0.00 $ 0.25 $ 0.30
Weighted average number of shares of
common stock outstanding 2,360,080 2,522,580 2,360,080 2,522,580
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
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Nine months ended Nine months ended
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 778,188 $ 232,296
Adjustments to reconcile net income to net cash provided by
operating activities-
Gain on land sale (444,509) --
(Increase) decrease in accrued interest receivable (22,992) 127,094
Decrease in accounts payable and other liabilities 18,753 2,790
Increase in restricted investment stock (75,000) --
Other changes (28,767) 43,524
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Net cash provided by operating activities 225,673 405,704
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Cash Flows from Investing Activities:
Cash payments for assessments and planning on land held for sale (464,919) (234,641)
Cash proceeds from land sales 2,894,353 684,887
Principal payments received under mortgages 180,245 2,010,135
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Net cash provided by investing activities 2,609,679 2,460,381
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Cash Flows from Financing Activities:
Payment of dividends (590,020) (759,774)
Purchase of investment in partnership -- (72,000)
Repurchase of shares of Class A common stock -- (50,033)
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Net cash used in financing activities (590,020) (881,807)
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Increase in Cash and Temporary Investments 2,245,332 1,984,278
Cash and temporary investments - beginning of period 1,191,853 1,391,357
----------- -----------
Cash and temporary investments - end of period $ 3,437,185 $ 3,375,635
=========== ===========
Schedule of Non-Cash Investing and Financing Activities:
Seller financing in conjunction with land sale $ 959,170 $ --
Dividends declared in excess of dividends paid 65 65
Supplemental Disclosures of Cash Flow Information:
Interest 2,662 5,371
Income Taxes 65,500 --
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Arizona Land Income Corporation
Notes to Financial Statements
September 30, 1997
Note 1 Basis of Presentation - The financial statements have been prepared by
Arizona Land Income Corporation (the "Company") without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
In the opinion of the Company, the unaudited financial statements
contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position, the
results of operations and cash flows for the periods presented.
Note 2 The results of operations for the three and nine months ended September
30, 1997, are not necessarily indicative of the results to be expected
for the full year.
Note 3 See Item 2, Management's Discussion and Analysis of Financial Condition
and Results of Operations for a discussion of mortgages in default. It
is the Company's normal policy to discontinue the accrual of interest
for notes in default as of the default date.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Arizona Land Income Corporation (the "Company") is an Arizona
corporation which has elected to be treated as a real estate investment trust (a
"REIT") under the Internal Revenue Code of 1986. The statements of operations
filed herewith cover the periods from July 1, 1997 through September 30, 1997.
For the quarter ended September 30, 1997, the Company had total income
before sale of properties of $279,000 compared to $158,000 for the quarter ended
September 30, 1996. This increase was primarily attributable to an extraordinary
increase in interest of temporary investments from $30,000 in 1996 to $88,000 in
1997, and the receipt of one year restricted stock of a NASDAQ listed company
which the Company has valued at $75,000. This interest income and stock resulted
from a bridge loan funded by the Company, and as such, the Company believes that
this is a one time event and not likely to be repeated.
The Company's expenses decreased to approximately $38,000 during the
third quarter of fiscal 1997 from approximately $49,000 in the third quarter of
fiscal 1996. This decrease is primarily attributable to a reduction in property
tax expense from $19,000 in 1996 to $9,000 in 1997.
For the nine months ended September 30, 1997, the Company reported
total income before sale of properties of $543,000 compared to $478,000 for the
same period in the prior fiscal year. This increase can be attributed to an
increase in interest of temporary investments from $66,000 in fiscal 1996 to
$149,000 in the first three quarters of fiscal 1997.
For the nine months ended September 30, 1997, the Company's expenses
declined to $144,000 from $246,000 in 1996. This decrease is primarily
attributable to a $70,000 decrease in property taxes.
For the quarter ended September 30, 1997, the Company reported net
income of $175,000, or $0.07 per share of Class A Common Stock, compared to a
net income of $110,000, or $0.04 per share for the comparable period in the
prior fiscal year. This increase resulted from the Company receiving temporary
investment interest of $88,000 in 1997 compared to $30,000 in 1996, the
Company's receipt of 15,000 shares of restricted stock which the Company has
valued at $75,000, and the Company's payment of $65,000 in income taxes as a
result of its sales of foreclosure properties at a profit in the second quarter
of 1997.
For the first nine months of fiscal 1997, the Company reported net
income of $778,000, or $0.33 per share of Class A Common Stock, compared to a
net income of $232,000, or $0.09 per share for the comparable period in the
prior fiscal year. For the nine month period ending September 30, 1997, the
income is reflective of a $444,000 gain on sale of properties. Without this gain
considered, the Company earned $399,000 for the nine month period ending
September 30, 1997, compared to $232,000 for the comparable prior period. The
gain on property sales also caused a payment of income taxes totaling $65,000
which reduced net earnings
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share." The new standard simplifies the computation of earnings per share (EPS)
and increases comparability to international standards. The Company is required
to adopt the new standard in its fiscal year 1997 financial statements. All
prior- period EPS information, including interim EPS, is required to be restated
at that time; however, because of the simple capital structure of the Company,
SFAS 128 is not expected to have a material impact on the Company's reported
EPS, and on a pro forma basis would not have changed EPS in either the first
three quarters of 1997 or in 1996.
Adverse market conditions negatively affected real estate values in the
Southwest during the early 1990's resulting in a decline in real estate values
and an increase in mortgage defaults. The Southwest real estate market has begun
to improve and land values have stabilized and improved in certain instances.
The Company believes that such improvements will reduce the number of loan
defaults or modifications; however, there can be no assurances in this regard.
Nonetheless, the Company will continue to vigorously assert any and all its
legal rights in the event of a default.
The Company completed four land sales during the second quarter of
1997. The first resulted from the sale of a 15 acre parcel of property located
in Phoenix, Arizona, which the Company acquired through foreclosure on Loan No.
10. This sale netted the Company $868,000 cash and a note receivable totaling
$959,000. The second sale was an 8 acre parcel which had secured Loan No. 17 and
was received through foreclosure by the Company. This sale netted the Company
$954,000 cash, plus a receivable of $38,000. The third sale was a 3.36 acre
parcel of property which the Company acquired through foreclosure on Loan No.
17. This sale netted the Company $623,000 cash. The fourth sale resulted from
the sale of a 2 acre parcel of property located in Phoenix, Arizona, which the
Company acquired through foreclosure on Loan No. 17. This sale netted the
Company $448,000 cash.
The Company has 2 parcels of land in escrow. The first sale is a 1 acre
parcel and was received through foreclosure on Loan No. 17. The second escrow is
640 acres in Pinal County, which had secured Loan No. 3. One of these escrows is
scheduled to close during the fourth quarter of 1997 and one in the first
quarter of 1998; however there can be no assurance that such transactions will
be consummated.
7
<PAGE>
Item 2. (Cont.)
On August 11, 1997, the Company declared a $.25 per share dividend with
a record date of September 1, 1997, and payable September 15, 1997. The total
amount distributed to shareholders was approximately $590,000.
The Company believes that funds generated from operations will be
sufficient to meet its capital requirements. No other arrangements, such as
lines of credit, have been made to obtain external sources of capital. While no
assurance can be given, the Company believes that such arrangements could be
obtained by the Company, if necessary.
As disclosed in the Company's prospectus used in connection with the
Company's 1988 initial public offering, the Company intends to dissolve within
approximately eight years from the date of such public offering. The precise
date on which the Company will dissolve will be determined by the Company's
Board of Directors and will depend upon market conditions and other pertinent
factors. The Board of Directors also has the discretion to indefinitely continue
the operation of the Company. As of November 7, 1997, the Board has not made a
decision regarding the dissolution of the Company.
The mortgage loan numbers referred to in the above paragraphs 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.
Except for the historical information, the matters discussed herein
contain forward looking statements which are based largely on the Company's
expectations and are subject to various business risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from these forward looking statements as a result of such risks. In
light of these risks and uncertainties, there can be no assurance that the
forward looking statements contained herein will in fact transpire or prove to
be accurate. A more complete listing of cautionary statements and risk factors
is contained in the Company's filings with the Securities and Exhcange
Commission.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Furnish the exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description Method of Filing
----------- ----------- ----------------
27 Financial Data Schedules Filed Herewith
(b) Reports of Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARIZONA LAND INCOME CORPORATION
November 10, 1997 /s/ Thomas R. Hislop
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Date Thomas R. Hislop
Vice President and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 830748
<NAME> Arizona Land Income Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 3,437
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,514
<INVENTORY> 12,752
<CURRENT-ASSETS> 3,667
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,959
<CURRENT-LIABILITIES> 134
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,959
<SALES> 0
<TOTAL-REVENUES> 543
<CGS> 0
<TOTAL-COSTS> 144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 844
<INCOME-TAX> 65
<INCOME-CONTINUING> 778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 778
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
