FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________ to _______________
Commission file number 1-9900
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ARIZONA LAND INCOME CORPORATION
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(Exact name of registrant as specified in its charter)
Arizona 86-0602478
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2999 N. 44th Street, Suite 100, Phoenix, Arizona 85018
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(Address of principal executive offices)
(Zip Code)
(602) 952-6800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes N/A No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of May 12, 1999, 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
Part II
Item 1. Legal Proceedings..............................................8
Item 2. Changes in Securities..........................................8
Item 3. Defaults upon Senior Securities................................8
Item 4. Submission of Matters to a Vote of
Security Holders...........................................8
Item 5. Other Information..............................................8
Item 6. Exhibits and Reports on Form 8-K...............................8
Signatures..............................................................8
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ARIZONA LAND INCOME CORPORATION
Balance Sheets
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March 31, 1999 December 31,
(Unaudited) 1998
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Assets
Cash and temporary investments $ 4,510,939 $ 4,105,346
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Investments -
Accrued interest receivable 196,942 287,185
Mortgages receivable 6,998,917 7,153,207
Investment in partnership 333,472 333,472
Land held for sale 3,906,425 3,912,576
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11,435,756 11,686,440
Less - Reserve for losses (1,079,594) (1,082,286)
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Total investments, net 10,356,162 10,604,154
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Total assets $ 14,867,101 $ 14,709,500
============ ============
Liabilities
Accounts payable and other liabilities $ 17,421 $ 18,919
Accrued property taxes 9,289 9,289
Deferred tax liability 120,000 120,000
Dividends payable 236,008 --
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Total liabilities 382,718 148,208
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Stockholders' Equity
Common stock-Class A 236,008 236,008
Common stock-Class B 10 10
Additional paid-in capital 23,791,072 23,791,072
Distributions in excess of income (9,542,707) (9,465,798)
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Total stockholders' equity 14,484,383 14,561,292
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Total liabilities and stockholders' equity $ 14,867,101 $ 14,709,500
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Operations
(Unaudited)
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Three months ended Three months ended
March 31, 1999 March 31, 1998
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Income
Interest on mortgages $ 154,750 $ 137,842
Interest on temporary investments 47,083 45,876
Increase in investment's value -- 58,125
Farm lease income 3,400 3,810
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Total income before sale of properties 205,233 245,653
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Expenses
Professional services 25,230 15,580
Advisory fee 9,859 10,165
Administration and general 7,663 13,837
Directors' fees 5,800 5,800
Property taxes -- 3,647
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Total expenses before sale of properties 48,552 49,029
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Income before gain on sale of properties 156,681 196,624
Gain on sale of properties 2,418 69,946
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Net income $ 159,099 $ 266,570
========== ==========
Earnings per common share $ 0.07 $ 0.11
Dividends declared per share $ 0.10 $ 0.10
Weighted average number of shares
of common stock outstanding 2,360,080 2,360,080
The accompanying notes are an integral part of these statements.
4
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Cash Flows
(Unaudited)
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<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1999 March 31, 1998
------------------ ------=-----------
<S> <C> <C>
Cash Flows from operating activities:
Net income $ 159,099 $ 266,570
Adjustments to reconcile net income to net cash provided by operating
activities-
Gain on sale of properties (2,418) (69,946)
Unrealized gain on investments and other non-cash income -- (58,124)
Decrease in accrued interest receivable 90,243 85,941
Decrease in accounts payable and other liabilities (1,498) (37,292)
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Net cash provided by operating activities 245,426 187,149
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Cash flows from investing activities:
Cash proceeds from land sales 5,877 683,574
Principal payments received under mortgages 716,790 705,481
Cash payments to purchase land -- (49,528)
Return of investment in partnership -- 75,500
Cash payments to purchase mortgage interest (562,500) (22,886)
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Net cash provided by investing activities 160,167 1,392,141
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Increase in cash and temporary investments 405,593 1,579,290
Cash and temporary investments - beginning of period 4,105,346 3,246,825
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Cash and temporary investments - end of period $ 4,510,939 $ 4,826,115
=========== ===========
Schedule of Non-Cash Investing and Financing Activities:
Seller financing in conjunction with land sale -- 853,284
Dividends declared in excess of dividends paid 236,008 236,008
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Arizona Land Income Corporation
Notes to Financial Statements
March 31, 1999
Note 1 Basis of Presentation - The financial statements have been
prepared by Arizona Land Income Corporation (the "Company")
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and the instructions to
Form 10-QSB. In the opinion of the Company, the unaudited
financial statements contain all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly
the financial position, the results of operations and cash
flows for the periods presented.
Note 2 The results of operations for the three months ended March 31,
1999, are not necessarily indicative of the results to be
expected for the full year.
Note 3 See Item 2, Management's Discussion and Analysis of Financial
Condition and Results of Operations for a discussion of
mortgages in default. It is the Company's normal policy to
discontinue the accrual of interest for notes in default as of
the default date.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Arizona Land Income Corporation (the "Company") is an Arizona
corporation which has elected to be treated as a real estate investment trust (a
"REIT") under the Internal Revenue Code of 1986. The statements of operations
filed herewith cover the periods from January 1, 1999 through March 31, 1999,
and January 1, 1998 through March 31, 1998.
For the quarter ended March 31, 1999, the Company had total income of
$205,000 compared to $246,000 for the quarter ended March 31, 1998. This
decrease was primarily attributable to a decrease in increase in investment's
value from $58,000 to $0.
The Company's expenses for the quarters ended March 31, 1999 and 1998
were $49,000. The Company's professional services expense increased to $25,000
for the quarter ended March 31, 1999, compared to $16,000 for the quarter ended
March 31, 1998.
The Company reported income before gain on sale of properties of
$157,000 for the quarter ended March 31, 1999, compared to $197,000 for the
quarter ended March 31, 1998. The Company reported a gain on sale of properties
of $2,400 for 1999 compared to $70,000 for 1998. The Company reported net income
of $159,000 for the quarter ended March 31, 1999, compared to $267,000 for the
quarter ended March 31, 1998.
For the operating period of January 1, 1999 through March 31, 1999, the
Company reported an increase in cash and temporary investments of $406,000. This
increase resulted primarily from principal payments on these mortgages of
$717,000, a decrease in accrued interest receivable of $90,000, and the purchase
of a mortgage loan of $562,500. Loan No. 22 is a 50% loan participation interest
on a $1,125,000 loan which is secured by a first deed of trust on 9.9 acres of
land located in Surprise, Arizona, which for generations has been known as Sun
City West. Such loan is due December 15, 1999, and bears interest at 3% over the
prime rate never to be less than 10.75%, and interest is payable monthly. The
Company participates in the loan with a financial institute in Denver, Colorado.
A $14,000 loan origination fee was paid to an officer of the Company for the
Company's participation in the loan.
Adverse market conditions negatively affected real estate values in the
Southwest during the early 1990's resulting in a decline in real estate values
and an increase in mortgage defaults. The Southwest real estate market has begun
to improve and land values have stabilized and improved in certain instances.
The Company believes that such improvements will reduce the number of loan
defaults or modifications; however, there can be no assurances. Nonetheless, the
Company will continue to vigorously assert any and all its legal rights in the
event of a default.
The Company completed one land sale during the first quarter of 1999.
The sale was a 3 acre parcel of property located in Pinal County, Arizona, which
the Company acquired through foreclosure on Loan No. 6. The Company received
$5,877 in cash from this sale.
The Company has one sale pending on the property which the Company
obtained through foreclosure on Loan No. 11.
On March 26, 1999, the Company declared a dividend of $.10 per share,
payable April 15, 1999 to shareholders of record on April 6, 1999.
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.
The Company believes that funds generated from operations will be
sufficient to meet its capital requirements. No other arrangements, such as
lines of credit, have been made to obtain external sources of capital. While no
assurance can be given, the Company believes that such arrangements could be
obtained by the Company, if necessary.
As disclosed in the Company's prospectus used in connection with the
Company's 1988 initial public offering, the Company intended to dissolve within
approximately eight years from the date of such public offering. The precise
date on which the Company will dissolve will be determined by the Company's
Board of Directors and will depend upon market conditions and other pertinent
factors. The Board of Directors also has the discretion to indefinitely continue
the operation of the Company. As of May 12, 1999, the Board has not made a
decision regarding the dissolution of the Company.
The mortgage loan numbers referred to in the above paragraphs are
identifiers for those loans on the books and records of the Company.
Additionally, these numbers are identified in the Company's initial offering
prospectus dated June 6, 1988.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Furnish the exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description Method of Filing
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27 Financial Data Schedules Filed Herewith
(b) Reports of Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ARIZONA LAND INCOME CORPORATION
(S) Thomas R. Hislop
May 12, 1999
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Date Thomas R. Hislop
Vice President and
Chief Financial Officer
8
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