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 June 30, 1998
--------------------------------------------------
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
- --------------------------------------------------------------------------------
(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 [ ]
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 [ ]
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 August 10, 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
Item 1. Financial Statements.............................................3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............7-8
Part II
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-K.................................9
Signatures...............................................................9
<PAGE>
ARIZONA LAND INCOME CORPORATION
Balance Sheets
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June 30, 1998 December 31,
(Unaudited) 1997
----------- ------------
Assets
Cash and temporary investments $ 4,706,955 $ 3,246,825
Investments -
Accrued interest receivable 144,599 255,061
Mortgages receivable 5,230,622 5,119,885
Investment in partnership 303,255 378,755
Other Investments 160,313 87,188
Land held for sale 5,802,244 7,176,410
------------ ------------
11,641,033 13,017,299
Less - Reserve for losses (1,513,953) (1,513,953)
------------ ------------
Total investments, net 10,127,080 11,503,346
------------ ------------
Total assets $ 14,834,035 $ 14,750,171
============ ============
Liabilities
Accounts payable and other liabilities $ 30,201 $ 68,718
Accrued property taxes 18,918 37,211
Deferred tax liability 120,000 120,000
Dividends payable 236,008 --
------------ ------------
Total liabilities 405,127 225,929
------------ ------------
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 (9,598,182) (9,502,848)
------------ ------------
Total stockholders' equity 14,428,908 14,524,242
------------ ------------
Total liabilities & stockholders' equity $ 14,834,035 $ 14,750,171
============ ============
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Operations
(Unaudited)
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<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1998 June 30,1997 June 30, 1998 June 30, 1997
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Income
Interest on mortgages $ 90,608 $ 78,658 $ 228,450 $ 179,759
Interest on temporary investments 61,390 42,051 107,266 61,037
Increase in investment's value 15,000 -- 73,125 --
Farm lease income 2,200 13,319 6,010 23,478
--------- --------- --------- ---------
Total income before sale of properties 169,198 134,028 414,851 264,274
--------- --------- --------- ---------
Expenses
Interest expense -- -- -- 1,747
Professional services 26,798 12,634 42,379 36,265
Advisory fee 10,308 10,235 20,473 20,427
Administration and general 12,531 10,363 26,368 18,819
Directors' fees 5,800 5,000 11,600 10,800
Property taxes 3,648 8,900 7,295 17,800
--------- --------- --------- ---------
Total expenses 59,085 47,132 108,115 105,858
--------- --------- --------- ---------
Income before gain on sale of properties 110,113 86,896 306,736 158,416
Gain on sale of properties -- 444,509 69,946 444,509
--------- --------- --------- ---------
Net income $ 110,113 $ 531,405 $ 376,682 $ 602,925
========== ========== ========== ==========
Earnings per common share $ 0.05 $ 0.23 $ 0.16 $ 0.26
Dividends declared per share $ 0.10 $ 0.00 $ 0.20 $ 0.00
Weighted average number of shares of
common stock outstanding 2,360,080 2,360,080 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)
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 376,682 $ 602,925
Adjustments to reconcile net income to net cash
provided by operating activities-
Gain on land sale (69,946) (444,509)
Change in accrued interest receivable 110,462 68,858
Change in accounts payable and other liabilities (56,810) (30,887)
Other changes (73,125) 11,599
----------- -----------
Net cash provided by operating activities 287,263 207,986
----------- -----------
Cash flows from investing activities:
Cash payments for assessments and planning on
land held for sale -- (412,150)
Cash proceeds from land sale 683,574 2,894,353
Principal payments received under mortgages 765,433 131,343
Cash purchases of land and mortgage interest (115,632) --
Return of investment in partnership 75,500 --
----------- -----------
Net cash provided by investing activities 1,408,875 2,613,546
----------- -----------
Cash flows from financing activities:
Payment of dividends (236,008) --
----------- -----------
Net cash used in financing activities (236,008) --
----------- -----------
Increase in cash and temporary investments 1,460,130 2,821,532
Cash and temporary investments - beginning of period 3,246,825 1,191,853
----------- -----------
Cash and temporary investments - end of period $ 4,706,955 $ 4,013,385
=========== ===========
Schedule of Non-Cash Investing and Financing Activities:
Seller financing in conjunction with land sale $ 853,284 $ 959,170
Dividends declared in excess of dividends paid 236,008 65
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Arizona Land Income Corporation
Notes to Financial Statements
June 30, 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.
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 six months ended June 30,
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 April 1, 1998 through June 30, 1998, and
January 1, 1998 through June 30, 1998.
For the quarter ended June 30, 1998, the Company had total income of
$169,000 compared to $134,000 for the quarter ended June 30, 1997. This increase
was primarily attributable to an increase of $12,000 in interest on mortgage
receivables and an increase of $19,000 in interest on temporary investments.
The Company expenses increased to approximately $59,000 during the
second quarter of fiscal 1998 from approximately $47,000 in the second quarter
of fiscal 1997. This increase is primarily attributable to an increase of
approximately $14,000 in professional services.
The Company reported net income of $110,000 for the quarter ended June
30, 1998, compared to $531,000 for the quarter ended June 30, 1997. The net
income for 1997 included a gain on the sale of properties of $445,000. The
Company's net income for the second quarter 1997, without regard to said gain
was $87,000.
The Company reported income totaling $415,000 for the operating period
of January 1, 1998 through June 30, 1998, compared to $264,000 for the same
period during fiscal 1997. This increase resulted from an increase of $49,000 in
interest on mortgages, an increase on temporary investments of $46,000, and an
increase in investment's value of $73,000. For the operating period of January
1, 1998 through June 30, 1998, the Company reported expenses of $108,000
compared to $106,000 for the same period during fiscal 1997.
The Company reported net income of $377,000 for the period from January
1, 1998 through June 30, 1998. Such net income includes $70,000 of gain on sale
of properties. The net income for the comparable prior period was $603,000,
which included a gain on sale of properties of $445,000.
The Company reported an increase in cash and temporary investments of
$1,460,000. This increase resulted primarily from $684,000 cash proceeds from
land sales and $765,000 principal payments received under mortgages. The Company
also distributed $236,000 in cash dividends during the operationg period of
January 1, 1998 through June 30, 1998.
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 two land sales during the first half 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 July of 1998, the Company received a cash payoff of $256,000 on Loan
No. 9. 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.
In addition to the above-referenced land sales, the Company has a sale
pending for a parcel of land which the Company obtained as a result of the
foreclosure on Loan No. 19. On July 17, 1998 the Company completed a sale of
property, which the Company acquired through foreclosure on Loan No. 2. The
Company received a note for $649,000 and $168,000 in cash from this sale.
On June 19, 1998, the Board of Directors declared a $.10 per share
dividend with a record date of July 1, 1998, and payable July 15, 1998. The
total amount distributed to shareholders was approximately $236,000. The Company
also paid a dividend of $.10 per share, distributed to shareholders of record on
April 7, 1998, with a payable date of April 15, 1998.
7
<PAGE>
The Company has not yet completed its evaluation of the impact the Year
2000 computer problem may have on its business. However, the Company does not
expect the consequences of incomplete or untimely resolution of the problem to
materially impact the operation of its business.
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 August 10, 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.
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.
(a) The Company held the Annual Meeting of Shareholders on May 13, 1998.
(b) Thomas Hislop, Burton Freireich and Robert Blackwell were
elected directors of the Company at the Annual Meeting.
(c) Tabulation of the voting was as follows:
Votes Votes Broker
Name of Nominee Votes For Against Withheld Nonvotes
--------------- --------- ------- -------- --------
Thomas R. Hislop 2,122,086 0 0 0
Burton P. Freireich 2,122,086 0 0 0
Robert Blackwell 2,122,086 0 0 0
(d) 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
(S) Thomas R. Hislop
August 10, 1998
- --------------- ------------------------------------------
Date Thomas R. Hislop
Vice President and Chief Financial Officer
9
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 4,707
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,514
<INVENTORY> 11,496
<CURRENT-ASSETS> 4,852
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,834
<CURRENT-LIABILITIES> 405,000
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,834
<SALES> 0
<TOTAL-REVENUES> 415
<CGS> 0
<TOTAL-COSTS> 108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 377
<INCOME-TAX> 0
<INCOME-CONTINUING> 377
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 377
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
