SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 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
ARIZONA LAND INCOME CORPORATION
(Exact name of small business issuer in its charter)
Arizona 86-0602478
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2999 North 44th Street, Suite 100, Phoenix, Arizona 85018
(Address of principal executive offices) (Zip Code)
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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 registered
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Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title or Class)
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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, 1998 were
$981,082.
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 23, 1999, was approximately $6,665,281. 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 23, 1999
100 shares of Class B Common Stock outstanding on March 23, 1999
DOCUMENTS INCORPORATED BY REFERENCE
Materials from the registrant's Proxy Statement relating to the 1998 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 24
Total pages 26
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TABLE OF CONTENTS
Page
PART I....................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS........................................ 1
ITEM 2. DESCRIPTION OF PROPERTY........................................ 4
ITEM 3. LEGAL PROCEEDINGS.............................................. 4
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 4
PART II...................................................................... 5
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....... 5
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...... 6
ITEM 7. FINANCIAL STATEMENTS........................................... 9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................... 23
PART III..................................................................... 23
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.... 23
ITEM 10. EXECUTIVE COMPENSATION......................................... 23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT................................................ 23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 23
PART IV...................................................................... 24
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K............................... 24
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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 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 purchased only one First Mortgage Loan,
and has had to institute foreclosure proceedings with respect to certain
properties securing other First Mortgage Loans. See "Investment Objectives and
Criteria" below. See also Note 4 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 1998 fiscal year, the Company declared and paid four cash
distributions. The first distribution was for $.10 per share and was paid on
April 15, 1998 to shareholders of record on April 7, 1998. The second
distribution was for $.10 per share and was paid on July 15, 1998 to
shareholders of record on July 1, 1998. The third distribution was for $.10 per
share and was paid on October 15, 1998 to shareholders of record on October 1,
1998. The fourth distribution was for $.10 per share and was paid on December
31, 1998 to shareholders of record on December 17, 1998.
NO PRESENT INTENTION TO DISSOLVE. 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% of the aggregate outstanding
loan balance of the First Mortgage Loan until the First Mortgage Loan is sold or
repaid.
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QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST. The Company has
qualified for 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 continue, if it so chooses, REIT status for the tax year ended
December 31, 1998. 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 meet
a series of qualifications including: (i) restrict its investments principally
to assets that produce interest from mortgage loans collateralized by real
estate or which produce real property 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 capital gains as
dividends to its shareholders; (iv) hold less than 10% of the voting securities
of any single issuer; and (v) 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 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 did not acquire any additional First Mortgage
Loans from 1989 until 1998 (other than refinancings or restructuring of existing
First Mortgage Loans). However, in 1998 the Company acquired one First Mortgage
Loan identified in footnote four to the Financial Statements as loan number 21.
MANAGEMENT ARRANGEMENTS. The Company has no employees. The Company's
affairs are managed by its non-salaried officers under the supervision of its
Board of Directors. The Company and ALI Advisor, 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
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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 1998 and 1997, the Company paid the
Advisor a servicing fee of $40,699 and $41,269, 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 1998 or 1997.
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 1998 or 1997.
1998 TRANSACTIONS AND LOAN MODIFICATIONS. Set forth below is
information concerning the transactions and modifications which affect the First
Mortgage Loans and which occurred during 1998. 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 4 and 5 to the Company's
financial statements set forth in Item 7 hereof.
1998 LAND SALES. The Company had four land sales during the 1998 fiscal
year, which in the aggregate generated a $199,000 gain on sale of property. The
first sale was a one acre parcel of property located in Phoenix, Arizona, which
the Company acquired through foreclosure on loan 17. Proceeds to the Company
from this sale were $495,000 cash. The second sale was a 635 acre parcel of
property located in Pinal County, Arizona, in which the Company had a 80%
interest and had acquired through foreclosure on loan 3. Proceeds to the Company
from this sale were $189,000 cash and an 80% participation in a $1,066,000 note.
The third sale was a 33.5 acre parcel of property located in Chandler, Arizona,
which the Company acquired through foreclosure on loan 2. Proceeds to the
Company from this sale were $168,000 cash and a $649,000 note. The fourth sale
was a 9 acre parcel of property located in Phoenix, Arizona, which the Company
acquired through foreclosure on loan 19. Proceeds to the Company from this sale
were $834,000 cash.
In summary, the Company had four land sales during the 1998 fiscal year
which produced $1,686,000 cash, and 1,502,000 of receivables.
In addition to the above referenced land sales, in December 1998, the
Company issued loan 21 to a third party to fund the purchase of land in
Scottsdale, Arizona. The initial proceeds of $1,579,000 were used in partial
settlement of the purchase price, including a $53,000 mortgage broker fee paid
to an officer of the Company. The Company has committed to fund an additional
$195,000 to pay for the initial year of interest on the loan. The loan bears
interest at 12% and requires semi-annual interest payments through maturity.
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Balloon payment of the principal and accrued interest is due December 16, 2002.
The loan also bears contingent interest upon subsequent sale of the property.
The Company also received cash payoffs of $557,000 on loan 3, $296,000
on loan 9, and $53,000 on loan 17-1. These collections were in addition to
periodic collections of principal on other notes.
The Company also modified two loans during 1998. The maturity date on
loan 5 was extended to February 1, 2001, from February 1, 1999. The interest
rate on loan 10 was increased to 10% and the annual principal and interest
payments on loan 10 were reduced to $200,451 from $341,761. The maturity date
for the balloon payment of principal and accrued interest was extended to April
1, 2002, from April 2, 2001.
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 5 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 61, 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 56, 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 50, 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.
The Company's Class A Common Stock is listed for trading on the
American Stock Exchange ("AMEX"). As of March 23, 1999, there were approximately
60 holders of record of the Class A Common Stock. In the Company's estimation,
based upon 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 23, 1999 was $5 7/8 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 1997 and 1998 and the cash distributions paid
per share of Class A Common Stock for such periods.
On March 15, 1994, the Company's Board of Directors authorized the
repurchase of shares of the Company's Class A Common Stock in open market
transactions. Since authorizing the repurchase of shares of Common Stock, the
Company has repurchased 249,920 shares of Class A Common Stock. The Company
intends to continue to periodically make open market purchases of its Class A
Common Stock. No shares were repurchased during the 1998 fiscal year.
Dividends/Distributions
Declared Per Share of
Calendar Quarter High Low Class A Common Stock (1)(2)
- ---------------- ---- --- ---------------------------
1997
First Quarter 5 7/8 4 5/8 $0.0
Second Quarter 5 5/16 4 1/4 0.0
Third Quarter 5 3/4 4 7/8 0.25
Fourth Quarter 5 5/8 5 3/16 0.13
1998
First Quarter 7 3/16 5 1/16 0.10
Second Quarter 7 5 3/14 0.10
Third Quarter 7 6 0.10
Fourth Quarter 6 1/2 5 5/8 0.10
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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 1998, the Company declared and paid four cash
distributions. The first distribution was for $.10 per share and was paid
on April 15, 1998 to shareholders of record on April 7, 1998. The second
distribution was for $.10 per share and was paid on July 15, 1998 to
shareholders of record on July 1, 1998. The third distribution was for $.10
per share and was paid on October 15, 1998 to shareholders of record on
October 1, 1998. The fourth distribution was for $.10 per share and was
paid on December 31, 1998 to shareholders of record on December 17, 1998.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 VS. 1997. The Company had net income of
approximately $981,000 or $.42 per share of Class A Common Stock, for the year
ended December 31, 1998, compared to net income of approximately $784,000 or
$.33 per share of Class A Common Stock, for the year ended December 31, 1997.
The increase in the net income for the year ended December 31, 1998, is
primarily attributable to the increase in income from investment in partnership
interests on mortgages and the decrease in the tax provision from prior year.
Interest income from First Mortgage Loans increased to $464,000 in 1998 from
$384,000 in 1997. Gain on the sale of property decreased to $199,000 in 1998
from $452,000 in 1997.
The Company had other income of approximately $83,000 in 1998 compared
to other income of $56,000 in 1997. The other income received by the Company in
1998 is primarily attributable to lease rentals on land received by the Company
through foreclosure actions.
The Company's expenses increased in the aggregate to $189,000 in 1998,
compared to $179,000 in 1997. This increase of $10,000 is primarily attributable
to increases in the cost of professional services.
The Company did not record a loan loss reserve in 1998 because of the
stabilization of the Phoenix real estate market.
Net cash provided by operating activities was approximately $415,000 in
1998 compared to net cash provided by operating activities of $270,000 in 1997.
Net cash provided by investing activities in 1998 and 1997 was approximately
$1,387,000 and $2,681,000, respectively. Net cash used in financing activities
in 1998 and 1997 was approximately $944,000 and $897,000, 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.
YEAR 2000. The Company has discussed and considered the potential
effects of Year 2000 compliance internally, and with key advisors and suppliers.
Management believes that the Company has adequately addressed potential issues
as related to this problem and that no significant disruptions related to Year
2000 compliance will occur in the Company's computer hardware and software
systems. Company management believes that the Company's Year 2000 exposure is
limited because the Company's primary computer inter-connect is with its
financial institution; however, any failure of our computer system or the
systems of third parties to achieve Year 2000 compliance could adversely affect
our business.
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
property during the early 1990's. First, the shortage of available financing for
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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 4
and 5 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 1997 and 1998. The Company sold four parcels of land in 1998, and
anticipates that additional parcels will be sold in 1999. 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.
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
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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
In 1997, the Board declared two extraordinary cash distributions. The
first distribution was for $.25 per share and was paid on September 15, 1997 to
shareholders of record on September 1, 1997. The second distribution was for
$.13 per share and was paid on December 31, 1997 to shareholders of record on
December 17, 1997.
In 1998, the Company declared and paid four extraordinary cash
distributions. The first distribution was for $.10 per share and was paid on
April 15, 1998 to shareholders of record on April 7, 1998. The second
distribution was for $.10 per share and was paid on July 15, 1998 to
shareholders of record on July 1, 1998. The third distribution was for $.10 per
share and was paid on October 15, 1998 to shareholders of record on October 1,
1998. The fourth distribution was for $.10 per share and was paid on December
31, 1998 to shareholders of record on December 17, 1998.
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 10
Financial Statements-
Balance Sheet - December 31, 1998 11
Statements of Operations - For the Years Ended December 31,
1998 and 1997 12
Statements of Stockholders' Equity - For the Years Ended
December 31, 1998 and 1997 13
Statements of Cash Flows - For the Years Ended December 31,
1998 and 1997 14
Notes to Financial Statements - December 31, 1998 15
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, 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1998. 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, 1998, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Phoenix, Arizona, February 3, 1999.
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ARIZONA LAND INCOME CORPORATION
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
ASSETS:
Cash and cash equivalents $ 4,105,346
------------
Investments-
Accrued interest receivable 287,185
Mortgage notes receivable (Note 4) 7,153,207
Investment in partnership (Note 2) 333,472
Land held for sale (Note 5) 3,912,576
------------
11,686,440
Less - reserve for losses (1,082,286)
------------
Total investments, net 10,604,154
------------
$ 14,709,500
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other liabilities $ 18,919
Accrued property taxes 9,289
Deferred tax liability (Note 2) 120,000
------------
Total liabilities 148,208
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 (9,465,798)
------------
Total stockholders' equity 14,561,292
------------
$ 14,709,500
============
The accompanying notes are an integral part of this balance sheet.
11
<PAGE>
ARIZONA LAND INCOME CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
INCOME:
Interest on mortgages $ 464,233 $ 384,203
Interest on temporary investments 222,620 278,825
Income from investment in partnership 183,792 --
Other income 82,786 56,296
----------- ----------
Total income before gain on sale
of properties 953,431 719,324
----------- ----------
EXPENSES:
Property taxes 22,739 28,709
Professional services 65,612 56,138
Advisory fees to related party (Note 6) 40,699 41,269
Administration and general 36,350 28,275
Directors' fees 23,200 22,400
Interest expense 458 2,662
----------- ----------
Total expenses before gain on
sale of properties 189,058 179,453
----------- ----------
INCOME BEFORE GAIN ON SALE OF PROPERTIES 764,373 539,871
GAIN on sale of properties, net 198,923 451,666
----------- ----------
NET INCOME BEFORE TAXES 963,296 991,537
INCOME TAX (BENEFIT) PROVISION (17,786) 207,300
----------- ----------
Net income $ 981,082 $ 784,237
=========== ==========
INCOME PER COMMON SHARE $ .42 $ .33
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,360,080 2,360,080
=========== ==========
The accompanying notes are an integral part of these statements.
12
<PAGE>
ARIZONA LAND INCOME CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<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, 1996 2,360,180 $236,018 $23,791,072 $(9,390,255) $14,636,835
Dividends paid -- -- -- (896,830) (896,830)
Net Income -- -- -- 784,237 784,237
--------- -------- ----------- ----------- -----------
BALANCE, December 31, 1997 2,360,180 $236,018 23,791,072 (9,502,848) 14,524,242
Dividends paid -- -- -- (944,032) (944,032)
Net income -- -- -- 981,082 981,082
--------- -------- ----------- ----------- -----------
BALANCE, December 31, 1998 2,360,180 $236,018 $23,791,072 $(9,465,798) $14,561,292
========= ======== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
ARIZONA LAND INCOME CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 981,082 $ 784,237
Adjustments to reconcile net income to net cash
provided by operating activities-
Gain on sale of properties (198,923) (451,666)
Unrealized gain on investments and other
non-cash income (73,464) (87,188)
Income on investment in partnership (183,792) --
Changes in certain assets and liabilities
affecting operating activities-
Increase in accrued interest receivable (32,124) (48,397)
Decrease (increase) in accounts payable and
other liabilities (49,799) 6,578
Decrease in accrued property taxes (27,922) (53,085)
Increase in deferred tax liability -- 120,000
----------- -----------
Net cash provided by operating activities 415,058 270,479
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Return on partnership investment 229,075 --
Principal payments received under mortgage
notes receivable 1,072,247 199,954
Proceeds from sales of properties 1,685,978 2,946,295
Land improvements -- (464,926)
Issuance of mortgage notes receivable (1,579,744) --
Cash purchases of land and mortgage interest (180,713) --
Proceeds from sale of investment in equity
securities 160,652 --
----------- -----------
Net cash provided by investing activities 1,387,495 2,681,323
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (944,032) (896,830)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 858,521 2,054,972
CASH AND CASH EQUIVALENTS, beginning of year 3,246,825 1,191,853
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 4,105,346 $ 3,246,825
=========== ===========
SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
New mortgages related to sales of properties $ 1,502,939 $ 956,171
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 458 $ 2,662
Income taxes paid (refunds received) $ (17,786) $ 87,300
The accompanying notes are an integral part of these statements.
14
<PAGE>
ARIZONA LAND INCOME CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(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, 1998, cash
equivalents consisted of U.S. Treasury Notes of $3,004,000 which matured in
February 1999.
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
recorded income under the equity method of $183,792 and received a return on
capital related to this investment of $229,075 in 1998.
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.
15
<PAGE>
INCOME TAXES AND REIT STATUS
The Company has elected treatment as a real estate investment trust
(REIT) under Internal Revenue Code (IRC) Sections 856-860. A REIT is taxed in
the same manner as any corporation except that it may deduct distributions made
to shareholders and reduce or eliminate any potential income taxes. 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.
The Company previously elected to treat certain qualified property as
foreclosure property under IRC Section 856(e)(5). Accordingly, current federal
income tax of $87,300 was provided and paid on the 1997 net gains on an income
tax basis from sales of foreclosure property. During 1997, an additional
$120,000 deferred federal income tax provision was recorded to reflect the
cumulative book to tax difference on foreclosure property sales through December
31, 1997 and the expected future taxes to be paid when the gains are reflected
in the income tax returns. There was no change in this deferred tax liability in
1998. During 1998, a refund of $17,786 was received and recorded as income.
For income tax purposes, certain expenses or reserves for financial
reporting purposes are not allowed as current tax deductions. Similarly, the
Company may take certain current deductions for tax purposes that are not
current expenses for financial reporting purposes. For example, the Company
recognized gain on the sale of property for financial reporting purposes which
is in excess of the current taxable gain on the sales. As a result of these
cumulative differences, 1998 taxable income totaled approximately $970,000 and
the taxable income for 1997 was approximately $790,000 before deductions for
dividends paid and federal taxes. Net operating losses for federal income tax
purposes available to offset future taxable income totaled $2,240,000 at
December 31, 1998, and benefits from these losses will expire through the year
ending 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
1997, and did not have a material effect on the Company's financial position or
its results of operations. SFAS No. 121 requires the Company to recognize
impairment losses for long-lived assets whenever events or changes in
circumstances result in the carrying amount of the assets exceeding the sum of
the expected future cash flows associated with such assets.
16
<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).
(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, 1998, were originated within the last 1-5
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, 1998, the majority of the loans are
current, and all noncurrent loans are stated at amounts not in excess of net
realizable value of the collateral securing the loans. Therefore, no additional
adjustment for impairment is necessary.
17
<PAGE>
Mortgage notes receivable consist of the following at December 31,
1998:
<TABLE>
<CAPTION>
The Company's
Participation
Interest as a The Company's
Original Stated Final % of Current Participation at
Loan Collateral, Property Interest Maturity Principal December 31,
Number Location and Size Rate Date Periodic Payment Terms Balance 1998
- ------- ----------------- ---- ---- ---------------------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
2) 33.5 acres - Queen Creek 8% 07/15/03 Annual principal and interest 100% $649,155
and Gilbert Roads - payments of $96,743 through
Chandler, Arizona July 2002. Balloon payment
consisting of the unpaid
principal balance plus accrued
interest due July 15, 2003.
Loan is current and was
collected in full on January
24,1999.
3-1) 635 acres - Section 9, 8% 02/05/11 Annual interest payments 80% 853,285
Township 6 South Range 3 through February 2001, then
East of the Gila and Salt annual principal and interest
River Base and Meridian - payments of $158,955 through
Pinal County, Arizona maturity. Loan is current.
5) 18.8 acres - 1/2 mile 9% 02/01/99 In 1998, the loan was modified 100% 521,664
east of Pima Road and 1/4 for the borrower to make
mile South of Bell Road - annual principal payments of
Scottsdale, Arizona $25,000 plus semi-annual
accrued interest payments
through August 1, 2000.
Balloon payment consisting of
the unpaid principal plus
accrued interest due February
1, 2001. Loan is current.
6) 29 lots in Hidden Valley 9%-12.3% 07/01/05 Multiple borrowers (26)- 86.47% 83,936
Ranch, Pinal County, monthly payments of principal
Arizona. 12 parcels in and interest of varying
either Bellflower Ranch payment amounts. Approximately
or Butterfield Ranch in $45,000 of these loans are
Cochise County, Arizona late or in default but are
fully collateralized.
10) 7.47 acres - 16th Street 10% 04/01/02 On April 1, 1998, the loan was 80% 956,170
and Bell Road Phoenix, modified to annual principal
Arizona and interest payments of
$200,451 through April 1,
2001. Balloon payment
consisting of the unpaid
principal plus accrued
interest due April 1, 2002.
Loan is current.
15) 50.85 acres - South of 8% 08/30/00 Quarterly payments of 100% 503,035
the Southwest Corner of principal and interest of
Hawes and Brown Road - $18,700 through May 30, 2000.
Mesa, Arizona Balloon payment consisting of
the unpaid principal plus
accrued interest due August
30, 2000. Loan is current.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
16) 20 acres - West side of 9% 09/12/02 Annual payments of principal 100% 197,749
I-17; approximately 2-3/4 and interest of $20,583
miles north of Happy through September 12, 2001.
Valley Road - Maricopa Balloon payment consisting of
County, Arizona unpaid principal plus accrued
interest due September 12,
2002. Loan is current.
17-3) 2.11 acres (Lots 4 and 5, 8% 04/15/08 Monthly payments of principal 100% 79,300
Phoenix International and interest of $993. Loan is
Science Center) I-17 and current.
Deer Valley Road,
Phoenix, Arizona
18) 153.63 acres - Southwest 7% 03/27/10 Annual payments of principal 100% 1,729,169
Corner of Pecos Road and and interest of $144,258
Val Vista Drive - through March 27, 2009.
Maricopa County, Arizona Balloon payment consisting of
unpaid principal plus accrued
interest due March 27, 2010.
Loan is current.
21) 53 acres - Dixileta and 12% 12/16/02 Outstanding balance is a draw 100% 1,579,744
Scottsdale Roads on a total credit facility of
Scottsdale, Arizona $1,775,000. Interest for first
year to be paid using the
remainder of the credit
facility. Semi-annual interest
payments through maturity.
Balloon payment of the
principal balance plus accrued
interest due December 16,
2002. Contingent interest
payable upon certain events
defined in the note.
----------
$7,153,207
==========
</TABLE>
19
<PAGE>
Scheduled principal repayments of mortgage notes receivable at December 31, 1998
are as follows:
Year Amount
---- ------
1999 $ 223,552
2000 660,063
2001 642,898
2002 2,700,206
2003 549,234
Thereafter 2,377,254
----------
$7,153,207
==========
(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 fair value
less estimated costs to sell.
The following land is owned by the Company at December 31:
Original The Company's
Loan Participation
Number Interest 1998
------ -------- ----
6) 354.5 acres - Southwest corner of
Warner and Sossaman Roads -
Maricopa County, Arizona 86.47% $3,079,197
54.58 acres - Pinal County. 86.47 83,925
11) 8.4 acres - Corner of 95th and Olive
Avenues - Peoria, Arizona. 100.00 693,565
17) .01 acres - Southwest corner of
I-17 and Deer Valley Road -
Phoenix, Arizona. 100.00 55,889
----------
$3,912,576
==========
20
<PAGE>
(6) RELATED PARTY TRANSACTIONS:
The Company is a party to the following agreements with affiliates who
share common management and directors with the Company:
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.
In December 1998, the Company issued Loan 21 to a third party to fund
the purchase of land in Scottsdale, Arizona. The initial proceeds of $1,579,744
were used in settlement of the purchase price, including a $53,000 mortgage
broker fee paid to an officer of the Company. The Company has committed to fund
an additional $195,256 to pay for the initial year of interest on the loan. The
loan agreement provides for the Company to share in future profits from sales of
collateral parcels via contingent interest provisions. Additionally, the loan
agreement includes provisions for contingent service fees to be paid to PHS
Mortgage, Inc. upon certain events defined in the note. There were no contingent
service fees paid to PHS Mortgage, Inc. in 1998.
(7) DIVIDENDS PAID:
Distributions related to Class A dividends for 1998 are as follows:
Amount
Date Declared Record Date Date Paid Per Share Total Amount
------------- ----------- --------- --------- ------------
03/27/98 04/07/98 04/15/98 $.10 $236,008
06/19/98 07/01/98 07/15/98 .10 236,008
09/18/98 10/01/98 10/15/98 .10 236,008
12/10/98 12/17/98 12/31/98 .10 236,008
---- --------
$.40 $944,032
==== ========
Approximately 100% of the dividends per share in 1998 represent
distributions of ordinary taxable income.
21
<PAGE>
Distributions related to Class A dividends for 1997 are as follows:
Amount
Date Declared Record Date Date Paid Per Share Total Amount
------------- ----------- --------- --------- ------------
08/11/97 09/01/97 09/15/97 $.25 $590,020
12/09/97 12/17/97 12/31/97 .13 306,810
---- --------
$.38 $896,830
==== ========
Approximately 87% of the dividends per share in 1997 represent
distributions of ordinary taxable income. The remaining distributions represent
a return of capital or capital gain income.
22
<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 1999 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
"1999 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 1999 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, 1998. Additional information
responsive to this item is incorporated herein by reference to the "Executive
Compensation" section of the Company's 1999 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 1999 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 1999
Proxy Statement.
23
<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.
(a) Financial Statements.
Page or Method
of Filing
---------
Report of Independent Public Accountants Page 10
Financial Statements:
Balance Sheet - December 31, 1998 Page 11
Statements of Operations - For the Years Ended
December 31, 1998 and 1997 Page 12
Statements of Stockholders' Equity - For the Years
Ended December 31, 1998 and 1997 Page 13
Statements of Cash Flows - For the Years Ended
December 31, 1998 and 1997 Page 14
Notes to Financial Statements - December 31, 1998 and 1997 Page 15
(b) Exhibits.
<TABLE>
<CAPTION>
Exhibit Page or Method
Number Description Method of Filing of Filing
- ------ ---------------------------- --------------
<S> <C> <C>
3-A Articles of Incorporation of the Incorporated by Reference to
Company, as amended. 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.
10-A June 13, 1988 Advisory and Servicing Incorporated by Reference to
Agreement between ALI Advisor, Inc. and Exhibit 10-A to the Company's
the Company. Annual Report on Form 10-K for
the year ended December 31,
1998
10-B January 17, 1989 Stock Purchase and Sale Incorporated by Reference from
Agreement by between Young, Smith & the Company's Report on Form
Peacock Holdings, Inc., Young, Smith & 8-K dated January 30, 1989
Peacock, Inc., Barry W. Peacock, Thomas
R. Hislop and Larry P. Staley.
10-C Modification of Loan Document dated July Incorporated by Reference to
21, 1990, by between ALI Advisor, Inc. Exhibit 10-E to the Company's
and Pinnacle Peak Office/Resort Annual Report on Form 10-K for
Investors Limited Partnership, an the year ended December 31,
Arizona limited partnership (Loan 1). 1990 ( "1990 Form 10-K")
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page or Method
Number Description Method of Filing of Filing
- ------ ---------------------------- --------------
<S> <C> <C>
10-D Modification of Loan Documents dated Incorporated by Reference to
July 1, 1990, by between ALI Advisor, Exhibit 10-F to the 1990 Form
Inc. and North Scottsdale Horseman's 10-K
Park Limited Partnership III, an Arizona
limited partnership (Loan 5b).
10-E(1) Indemnification Agreement dated May 12, Incorporated by Reference to
1992 between Arizona Land Income Exhibit 10-L to the Company's
Corporation and Robert Blackwell. Annual Report on Form 10-K for
the year ended December 31,
1993
10-E(2) Indemnification Agreement dated October Incorporated by Reference to
1, 1991 between Arizona Land Income the Company's Annual Report on
Corporation and Burton Freireich. Form 10-K for the year ended
December 31, 1994
24 Powers of Attorney See Signature page
27 Financial Data Schedule Filed herewith
</TABLE>
(c) Reports on Form 8-K
During the last quarter of 1998, the Company filed no reports on Form
8-K.
25
<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 __th
day of March, 1999.
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.
Signature Title Date
--------- ----- ----
/s/ Barry W. Peacock President March __, 1999
- --------------------------
Barry W. Peacock
/s/ Thomas R. Hislop Chairman of the Board, Vice March __, 1999
- -------------------------- President Treasurer, Chief
Thomas R. Hislop Executive Officer and Chief
Financial Officer
/s/ Larry P. Staley Vice President March __, 1999
- --------------------------
Larry P. Staley
/s/ Robert Blackwell
- --------------------------
Robert Blackwell
/s/ Burton P. Freireich Unaffiliated Director March __, 1999
- --------------------------
Burton P. Freireich
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1998 AND THE RELATED STATEMENTS OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1998 OF ARIZONA LAND INCOME CORPORATION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THIS
EXHIBIT SHALL NOT BE DEEMED FILED FOR THE PURPOSE OF SECTION 11 OF THE
SECURITIES ACT OF 1933 AND SECTION 18 OF THE SECURITIES EXCHANGE ACT OF 1934, OR
OTHERWISE SUBJECT TO THE LIABILITY OF SUCH SECTIONS, NOR SHALL IT BE DEEMED A
PART OF ANY OTHER FILING WHICH INCORPORATES THIS REPORT BY REFERENCE, UNLESS
SUCH OTHER FILING EXPRESSLY INCORPORATES THIS EXHIBIT BY REFERENCE.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
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