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, 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
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
----- -----
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 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
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-K8 ...................................9
Signatures ...................................................................9
<PAGE>
ARIZONA LAND INCOME CORPORATION
Balance Sheets
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<TABLE>
<CAPTION>
September 30,
1998 December 31,
(UNAUDITED) 1997
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<S> <C> <C>
Assets
Cash and temporary investments $ 5,119,928 $ 3,246,825
------------ ------------
Investments -
Accrued interest receivable 183,009 255,061
Mortgages receivable 5,588,213 5,119,885
Investment in partnerships 303,255 378,755
Other investments -- 87,188
Land held for sale 4,819,884 7,176,410
------------ ------------
10,894,361 13,017,299
Less - Reserve for losses (1,142,363) (1,513,953)
------------ ------------
Total investments, net 9,751,998 11,503,346
------------ ------------
Total assets $ 14,871,926 $ 14,750,171
============ ============
Liabilities
Accounts payable and other liabilities $ 19,071 $ 68,718
Accrued property taxes 22,565 37,211
Deferred tax liability 120,000 120,000
Dividends payable 236,008 --
------------ ------------
Total liabilities 397,644 225,929
------------ ------------
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 (9,552,808) (9,502,848)
------------ ------------
Total stockholders' equity 14,474,282 14,524,242
------------ ------------
Total liabilities and stockholders' equity $ 14,871,926 $ 14,750,171
============ ============
</TABLE>
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 Nine months Nine months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Interest on mortgages $ 113,695 $ 105,590 $ 342,145 $ 285,349
Interest on temporary investments 62,823 88,230 170,089 149,267
Increase in investment's value 339 75,000 73,464 75,000
Farm lease income - 10,259 6,010 33,737
-------------- ------------ ------------ --------------
Total income before sale of properties 176,857 279,079 591,708 543,353
-------------- ------------ ------------ --------------
Expenses
Interest expense 458 915 458 2,662
Professional services 14,300 9,475 56,679 45,740
Advisory fee 10,217 10,547 30,690 30,974
Administration and general 3,394 2,679 29,762 21,498
Directors' fees 5,800 5,800 17,400 16,600
Property taxes 3,647 8,900 10,942 26,700
-------------- ----------- ------------ --------------
Total expenses 37,816 38,316 145,931 144,174
-------------- ----------- ------------ --------------
Income before gain on sale of properties 139,041 240,763 445,777 399,179
Gain on sale of properties 142,341 - 212,287 444,509
-------------- ----------- ------------ --------------
Net income before income taxes 281,382 240,763 658,064 843,688
Income taxes - 65,500 - 65,500
-------------- ----------- ------------ --------------
Net income $ 281,382 $ 175,263 $ 658,064 $ 778,188
============== =========== ============ ==============
Earnings per common share $0.12 $0.07 $0.28 $0.33
Dividends declared per share $0.10 $0.25 $0.30 $0.25
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>
Nine months ended Nine months ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 658,064 $ 778,188
Adjustments to reconcile net income to net cash provided by
operating activities-
Gain on land sale (212,287) (444,509)
Change in accrued interest receivable 72,052 (22,992)
Change in accounts payable and other liabilities (64,293) 18,753
Other changes (73,464) (103,767)
----------- -----------
Net cash provided by operating activities 380,072 225,673
----------- -----------
Cash Flows from Investing Activities:
Cash payments for assessments and planning on land held for sale -- (464,919)
Cash proceeds from land sales 852,611 2,894,353
Proceeds from sale of investment in equity securities 160,652 --
Principal payments received under mortgages 1,056,997 180,245
Cash purchases of land & mortgage interest (180,713) --
Return of investment in partnership 75,500 --
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Net cash provided by investing activities 1,965,047 2,609,679
----------- -----------
Cash Flows from Financing Activities:
Payment of dividends (472,016) (590,020)
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Net cash used in financing activities (472,016) (590,020)
----------- -----------
Increase in Cash and Temporary Investments 1,873,103 2,245,332
Cash and temporary investments - beginning of period 3,246,825 1,191,853
----------- -----------
Cash and temporary investments - end of period $ 5,119,928 $ 3,437,185
=========== ===========
Schedule of Non-Cash Investing and Financing Activities:
Seller financing in conjunction with land sale $ 1,502,439 $ 959,170
Dividends declared in excess of dividends paid 236,008 65
Supplemental Disclosures of Cash Flow Information:
Interest 458 2,662
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, 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 nine months ended
September 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 July 1, 1998 through September 30, 1998,
and January 1, 1998 through September 30, 1998
For the quarter ended September 30, 1998, the Company had total income
of $177,000 compared to $279,000 for the quarter ended September 30, 1997. The
total income for the quarter ended September 30, 1997, included an extraordinary
gain of $75,000 which resulted from compensation received on a bridge loan
transaction by the Company. Without this gain, the income for the quarter ended
September 30, 1997 would have been $204,000.
The Company's expenses for the quarter ended September 30, 1998 were
$38,000 compared to $38,000 for the quarter ended September 30, 1997. The
Company paid income taxes of $65,500 in the third quarter of 1997.
The Company reported net income of $281,000 for the quarter ended
September 30, 1998 compared to $175,000 for the quarter ended September 30,
1997. This increase was primarily attributable to a gain on sale of properties
of $142,000. Without this sale, the Company's income would have been $139,000.
The Company reported total income of $592,000 for the nine months ended
September 30, 1998 compared to $543,000 for the same period in the prior fiscal
year. This increase can be attributed to an increase in mortgage income of
$57,000, an increase in temporary investments income of $21,000 offset by a
decrease in farm income of $28,000.
For the nine months ended September 30, 1998, the Company's expenses
totaled $146,000 compared to $144,000 for the same period in the prior fiscal
year. The Company reported net income of $658,000 for the nine months ended
September 30, 1998 compared to $778,000 in 1997.
The Company reported an increase in cash and temporary investments of
$1,873,000. This increase resulted primarily from $853,000 cash proceeds from
land sales and $1,057,000 principal payments received under mortgages. The
Company also distributed $472,000 in cash dividends during the operating period
of January 1, 1998 through September 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 three land sales during the period of January 1,
1998 through September 30, 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. The third sale was a 33 acre
parcel of raw land in Chandler, Arizona. This property was acquired through the
foreclosure on Loan No. 2. The Company received $168,000 in cash and a note for
$649,000 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.
The Company has two sales pending for parcels of land which the Company
obtained as a result of the foreclosure on Loan No. 11 and Loan No. 19.
On September 18, 1998, the Company declared a $.10 per share dividend
with a record date of October 1, 1998, and payable on October 15, 1998. The
total amount distributed to shareholders was approximately $236,000. During the
second quarter of 1998, the Company paid a dividend of $.10 per share,
distributed to shareholders of record on July 1, 1998, with a payable date of
July 15, 1998. The Company also paid a dividend of $.10 per share on April 15,
1998, distributed to shareholders of record on April 7, 1998.
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.
7
<PAGE>
ITEM 2. (CONT.)
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 November 4, 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.
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
NOVEMBER 11, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 5,120
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 1,142
<INVENTORY> 10,408
<CURRENT-ASSETS> 5,303
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,872
<CURRENT-LIABILITIES> 398
<BONDS> 0
0
0
<COMMON> 236
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,872
<SALES> 0
<TOTAL-REVENUES> 592
<CGS> 0
<TOTAL-COSTS> 146
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<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 658
<INCOME-TAX> 0
<INCOME-CONTINUING> 658
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 658
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
