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 March 31, 1998
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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 May 11, 1998, 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
Part II
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Item 1. Legal Proceedings....................................................8
Item 2. Changes in Securities................................................8
Item 3. Defaults upon Senior Securities......................................8
Item 4. Submission of Matters to a Vote of
Security Holders.................................................8
Item 5. Other Information....................................................8
Item 6. Exhibits and Reports on Form 8-K.....................................8
Signatures....................................................................8
<PAGE>
ARIZONA LAND INCOME CORPORATION
Balance Sheets
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<TABLE>
<CAPTION>
March 31, 1998 December 31,
(Unaudited) 1997
-------------- ------------
<S> <C> <C>
Assets
Cash and temporary investments $ 4,826,115 $ 3,246,825
------------ ------------
Investments -
Accrued interest receivable 169,120 255,061
Mortgages receivable 5,290,574 5,119,885
Investment in partnership 303,255 378,755
Other investments 145,312 87,188
Land held for sale 5,759,026 7,176,410
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11,667,287 13,017,299
Less - Reserve for losses (1,513,953) (1,513,953)
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Total investments, net 10,153,334 11,503,346
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Total assets $ 14,979,449 $ 14,750,171
============ ============
Liabilities
Accounts payable and other liabilities $ 27,779 $ 68,718
Accrued property taxes 40,858 37,211
Deferred tax liability 120,000 120,000
Dividends payable 236,008 --
------------ ------------
Total liabilities 424,645 225,929
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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 (9,472,286) (9,502,848)
------------ ------------
Total stockholders' equity 14,554,804 14,524,242
------------ ------------
Total liabilities and stockholders' equity $ 14,979,449 $ 14,750,171
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Operations
(Unaudited)
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<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
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<S> <C> <C>
Income
Interest on mortgages $ 137,842 $ 101,101
Interest on temporary investments 45,876 18,986
Other income 61,935 10,159
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Total income 245,653 130,246
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Expenses
Interest expense -- 1,747
Professional services 15,580 23,631
Advisory fee 10,165 10,192
Administration and general 13,837 8,456
Directors' fees 5,800 5,800
Property taxes 3,647 8,900
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Total expenses 49,029 58,726
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Income before gain on sale of properties 196,624 71,520
Gain on sale of properties 69,946 --
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Net income $ 266,570 $ 71,520
========== ==========
Earnings per common share $ 0.11 $ 0.03
Dividends declared per share $ 0.10 $ 0.00
Weighted average number of shares
of common stock outstanding 2,360,080 2,360,080
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Cash Flows
(Unaudited)
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<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 266,570 $ 71,520
Adjustments to reconcile net income to net cash provided by operating
activities-
Gain on sale of properties (69,946) --
Unrealized gain on investments and other non-cash income (58,124) --
Decrease in accrued interest receivable 85,941 87,377
Decrease in accounts payable and other liabilities (37,292) 1,141
----------- -----------
Net cash provided by operating activities 187,149 160,038
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Cash flows from investing activities:
Cash payments for assessments on land held for sale -- (186,980)
Cash proceeds from land sales 683,574 --
Principal payments received under mortgages 705,481 71,525
Cash payments to purchase land (49,528) --
Return of investment in partnership 75,500 --
Cash payments to purchase partial minority participation in Loan 3 (22,886) --
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Net cash provided by (used in) investing activities 1,392,141 (115,455)
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Increase in cash and temporary investments 1,579,290 44,583
Cash and temporary investments - beginning of period 3,246,825 1,191,853
----------- -----------
Cash and temporary investments - end of period $ 4,826,115 $ 1,236,436
=========== ===========
Schedule of Non-Cash Investing and Financing Activities:
Seller financing in conjunction with land sale 853,284 --
Dividends declared in excess of dividends paid 236,008 --
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ -- $ 1,747
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Arizona Land Income Corporation
Notes to Financial Statements
March 31, 1998
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 and the instructions to
Form 10-QSB. 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 months ended March 31,
1998, 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 January 1, 1997 through March 31, 1997,
and January 1, 1998 through March 31, 1998.
For the quarter ended March 31, 1998, the Company had total income of
$246,000 compared to $130,000 for the quarter ended March 31, 1997. This
increase was primarily attributable to an increase in interest on mortgages from
$101,000 to $138,000, an increase in earnings on temporary investments of
$27,000, and an increase in unrealized gains of $58,000. Such increases can be
attributed to an increase in the mortgage portfolio plus an increase in cash on
hand resulting from the sale of real estate properties plus payoffs of certain
mortgages. The investment appreciation resulted from marking to market the
unregistered stock received by the Company in 1997.
The Company expenses decreased to approximately $49,000 during the
first quarter of fiscal 1998 from approximately $59,000 in the first quarter of
fiscal 1997. This decrease is primarily attributable to a decrease of $8,000 in
professional services, and a decrease of $5,000 in property taxes.
The Company reported income before gain on sale of properties of
$197,000 for the quarter ended March 31, 1998, compared to $72,000 for the
quarter ended March 31, 1997. The Company reported gains on sale of properties
of $70,000 for 1998 compared to $0 for 1997. The Company reported net income of
$267,000 for the quarter ended March 31, 1998, compared to $72,000 for the
quarter ended March 31, 1997.
For the operating period of January 1, 1998 through March 31, 1998, the
Company reported an increase in cash and temporary investments of $1,579,000.
Such increase resulted primarily from the Company receiving cash payments on
land sales of $684,000, principal payments on mortgages of $705,000, and the
partial return of an investment in a partnership of $76,000.
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 adopted the
new standard in its 1997 year-end financial statements. All prior-period EPS
information, including interim EPS, was required to be restated, however,
because of the simple capital structure of the Company, SFAS 128 did not have a
material impact on the Company's reported EPS, and did not have a change on EPS
in the first quarter of 1997.
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. Nonetheless, the
Company will continue to vigorously assert any and all its legal rights in the
event of a default.
The Company had two land sales during the first quarter of 1998. The
first sale resulted from the sale of a 1 acre parcel of property located in
Phoenix, Arizona, which the Company acquired through foreclosure on Loan No. 17.
The Company received $495,000 in cash from this sale. The second sale was a 635
acre parcel of land which the Company acquired through foreclosure on Loan No.3.
The Company received a note for $853,000 and $189,000 in cash from this sale.
In addition to the above-referenced two land sales, the Company has
sales pending for two parcels of land which the Company obtained as a result of
the foreclosure on Loan No. 2 and Loan No. 11. Both of these parcels are in
escrow and are scheduled to close in the second and third quarters of 1998. If
such sales are consummated, the Company should receive $840,000 in cash or notes
receivable, however, there can be no assurance that such sales will be
consummated.
In January of 1998, the Company received a cash payoff of $557,000 on
Loan No. 3. In February 1998, the Company also received a cash payoff of $54,000
on Loan No. 17-1. These collections were in addition to periodic collections of
principal on other notes.
On March 27, 1998, the Company declared a dividend of $.10 per share,
payable April 15, 1998 to shareholders of record April 7, 1998.
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 intended 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 May 11, 1998, 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.
7
<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
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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
/s/ Thomas R. Hislop
May 11, 1998
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Date Thomas R. Hislop
Vice President and
Chief Financial Officer
8
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<CIK> 830748
<NAME> Arizona Land Income Corporation
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<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 4,826
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,514
<INVENTORY> 11,667
<CURRENT-ASSETS> 4,995
<PP&E> 0
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<TOTAL-ASSETS> 14,979
<CURRENT-LIABILITIES> 425
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,979
<SALES> 0
<TOTAL-REVENUES> 246
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<TOTAL-COSTS> 49
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<INCOME-PRETAX> 196
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<INCOME-CONTINUING> 266
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<NET-INCOME> 266
<EPS-PRIMARY> .11
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