SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2999 N. 44th Street, Suite 100, Phoenix, Arizona 85018
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(Address of principal executive offices) (Zip Code)
(602) 952-6800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [N/A] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of August 10, 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
Page
----
Part I
Item 1. Financial Statements............................................. 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 7-8
Part II
Item 1. Legal Proceedings................................................ 9
Item 2. Changes in Securities............................................ 9
Item 3. Defaults upon Senior Securities.................................. 9
Item 4. Submission of Matters to a Vote of
Security Holders............................................... 9
Item 5. Other Information................................................ 9
Item 6. Exhibits and Reports on Form 8-K................................. 9
Signatures............................................................... 9
2
<PAGE>
ARIZONA LAND INCOME CORPORATION
Balance Sheets
June 30, 1999 December 31,
(Unaudited) 1998
------------ ------------
Assets
Cash and temporary investments $ 4,476,052 $ 4,105,346
------------ ------------
Investments -
Accrued interest receivable 131,495 287,185
Mortgages receivable 7,056,157 7,153,207
Investment in partnership 333,472 333,472
Land held for sale 3,887,989 3,912,576
------------ ------------
11,409,113 11,686,440
Less - Reserve for losses (1,066,344) (1,082,286)
------------ ------------
Total investments, net 10,342,769 10,604,154
------------ ------------
Total assets $ 14,818,821 $ 14,709,500
============ ============
Liabilities
Accounts payable and other liabilities $ 18,579 $ 18,919
Accrued property taxes 6,581 9,289
Deferred tax liability 120,000 120,000
Dividends payable 2,596,088 --
------------ ------------
Total liabilities 2,741,248 148,208
------------ ------------
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 (11,949,517) (9,465,798)
------------ ------------
Total stockholders' equity 12,077,573 14,561,292
------------ ------------
Total liabilities & stockholders' equity $ 14,818,821 $ 14,709,500
============ ============
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 1999 June 30,1998 June 30, 1999 June 30, 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income
Interest on mortgages $ 178,167 $ 90,608 $ 332,917 $ 228,450
Interest on temporary investments 46,576 61,390 93,658 107,266
Increase in investment's value -- 15,000 -- 73,125
Farm lease income 3,200 2,200 6,600 6,010
---------- ---------- ---------- ----------
Total income before sale of properties 227,943 169,198 433,175 414,851
---------- ---------- ---------- ----------
Expenses
Professional services 8,771 26,798 34,002 42,379
Advisory fee 9,967 10,308 19,826 20,473
Administration and general 18,276 12,531 25,939 26,368
Directors' fees 5,400 5,800 11,200 11,600
Property taxes 6,400 3,648 6,400 7,295
---------- ---------- ---------- ----------
Total expenses 48,814 59,085 97,367 108,115
---------- ---------- ---------- ----------
Income before gain on sale of properties 179,129 110,113 335,808 306,736
Gain on sale of properties 10,150 -- 12,569 69,946
---------- ---------- ---------- ----------
Net income $ 189,279 $ 110,113 $ 348,377 $ 376,682
========== ========== ========== ==========
Earnings per common share $ 0.08 $ 0.05 $ 0.15 $ 0.16
Dividends declared per share $ 1.10 $ 0.10 $ 1.20 $ 0.20
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)
Six months ended Six months ended
June 30, 1999 June 30, 1998
----------- -----------
Cash Flows from Operating Activities:
Net income $ 348,377 $ 376,682
Adjustments to reconcile net income to net
cash provided by operating activities-
Gain on land sale (12,569) (69,946)
Change in accrued interest receivable 155,690 110,462
Change in accounts payable and other
liabilities (3,048) (56,810)
Other changes -- (73,125)
---------- ----------
Net cash provided by operating activities 488,450 287,263
---------- ----------
Cash flows from investing activities:
Cash proceeds from land sale 7,811 683,574
Principal payments received under mortgages 767,738 765,433
Cash payments to purchase mortgage interest (657,285) (115,632)
Return of investment in partnership -- 75,500
---------- ----------
Net cash provided by investing activities 118,264 1,408,875
---------- ----------
Cash flows from financing activities:
Payment of dividends (236,008) (236,008)
---------- ----------
Net cash used in financing activities (236,008) (236,008)
---------- ----------
Increase in cash and temporary investments 370,706 1,460,130
Cash and temporary investments -
beginning of period 4,105,346 3,246,825
---------- ----------
Cash and temporary investments -
end of period $4,476,052 $4,706,955
========== ==========
Schedule of Non-Cash Investing and
Financing Activities:
Seller financing in conjunction with land sale $ 13,403 $ 853,284
Dividends declared in excess of dividends paid 2,596,088 236,008
The accompanying notes are an integral part of these statements.
5
<PAGE>
Arizona Land Income Corporation
Notes to Financial Statements
June 30, 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. In the opinion of the Company, the unaudited financial
statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position, the results of operations and cash flows for the periods
presented.
Note 2 The results of operations for the three and six months ended June 30,
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 April 1, 1999 through June 30, 1999, and January
1, 1999 through June 30, 1999.
For the quarter ended June 30, 1999, the Company had total income of
$228,000 compared to $169,000 for the quarter ended June 30, 1999. This increase
was primarily attributable to an increase of $87,000 in interest on mortgages.
The Company expenses decreased to approximately $49,000 during the second
quarter of fiscal 1999 from approximately $59,000 in the second quarter of
fiscal 1998. This decrease is primarily attributable to an decrease of
approximately $18,000 in professional services.
The Company reported net income of $189,000 for the quarter ended June 30,
1999, compared to $110,000 for the quarter ended June 30, 1998. The net income
for 1999 included a gain on the sale of properties of $10,000. The Company's net
income for the second quarter 1999, without regard to said gain was $179,000.
The Company reported income totaling $433,000 for the operating period of
January 1, 1999 through June 30, 1999, compared to $415,000 for the same period
during fiscal 1998. This increase resulted from an increase of $105,000 in
interest on mortgages less $73,000 of increase in investment's value in the
previous year. For the operating period of January 1, 1999 through June 30,
1999, the Company reported expenses of $97,000 compared to $108,000 for the same
period during fiscal 1998.
The Company reported net income of $348,000 for the period from January 1,
1999 through June 30, 1999. Such net income includes $13,000 of gain on sale of
properties. The net income for the comparable prior period was $377,000, which
included a gain on sale of properties of $70,000.
The Company reported an increase in cash and temporary investments of
$371,000. This increase resulted primarily from $768,000 principal payments
received under mortgages. The Company also distributed $236,000 in cash
dividends during the operationg period of January 1, 1999 through June 30, 1999.
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 small land sales during the first half of 1999.
The Company acquired the three parcels of property located in Pinal County,
Arizona, through foreclosure on Loan No. 6. The first sale was a 3 acre parcel
of property; the Company received $5,877 in cash from this sale. The second sale
was an 8.69 acre parcel of land which the Company received a note for $12,000
and $1,079 in cash. The third sale was a 3.3 acre parcel of land which the
Company received a note for $3,500 and $1,157 in cash.
The Company has one land sale pending on the property which the Company
obtained through foreclosure on Loan No. 6.
On July 19, 1999 the Company completed a sale of property, which the
Company acquired through foreclosure on Loan No. 11. The Company received
approximately $508,000 in cash from this sale.
7
<PAGE>
On June 21, 1999, the Board of Directors declared a $1.10 per share
dividend with a record date of July 1, 1999, and payable July 15, 1999. The
total amount distributed to shareholders was approximately $2,596,000. The
Company also paid a dividend of $.10 per share, distributed to shareholders of
record on April 6, 1999, with a payable date of April 15, 1999.
The Company has not yet completed its evaluation of the impact the Year
2000 computer problem may have on its business. However, the Company does not
expect the consequences of incomplete or untimely resolution of the problem to
materially impact the operation of its business.
The Company believes that funds generated from operations will be
sufficient to meet its capital requirements. No other arrangements, such as
lines of credit, have been made to obtain external sources of capital. While no
assurance can be given, the Company believes that such arrangements could be
obtained by the Company, if necessary.
As disclosed in the Company's prospectus used in connection with the
Company's 1988 initial public offering, the Company intended to dissolve within
approximately eight years from the date of such public offering. The precise
date on which the Company will dissolve will be determined by the Company's
Board of Directors and will depend upon market conditions and other pertinent
factors. The Board of Directors also has the discretion to indefinitely continue
the operation of the Company. As of August 10, 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.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held the Annual Meeting of Shareholders on May 13, 1999.
(b) Thomas Hislop, Burton Freireich and Robert Blackwell were elected
directors of the Company at the Annual Meeting.
(c) Tabulation of the voting was as follows:
Votes Votes Broker
Name of Nominee Votes For Against Withheld Nonvotes
--------------- --------- ------- -------- --------
Thomas R. Hislop 1,956,221 0 0 0
Burton P. Freireich 1,956,221 0 0 0
Robert Blackwell 1,956,221 0 0 0
(d) Not Applicable
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Furnish the exhibits required by Item 601 of Regulation S-K.
Exhibit No. Description Method of Filing
----------- ----------- ----------------
27 Financial Data Schedule 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
August 10, 1999 /s/ Thomas R. Hislop
- --------------------- ------------------------------------------
Date Thomas R. Hislop
Vice President and Chief Financial Officer
9
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