FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 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
- ------------------------------- -------------------
(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, including 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 November 9, 1999, there were 2,343,580 shares of Class A common stock
and 100 shares of Class B common stock issued and outstanding.
<PAGE>
TABLE OF CONTENTS
Page
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PART I
Item 1. Financial Statements ........................................... 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 7 & 8
PART II
Item 1. Legal Proceedings .............................................. 9
Item 2. Changes in Securities .......................................... 9
Item 3. Defaults upon Senior Securities ................................ 9
Item 4. Submission of Matters to a Vote of
Security Holders ........................................... 9
Item 5. Other Information .............................................. 9
Item 6. Exhibits and Reports on Form 8-K8 .............................. 9
Signatures .............................................................. 9
2
<PAGE>
ARIZONA LAND INCOME CORPORATION
Balance Sheets
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September 30, December 31,
1999 1998
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(Unaudited)
ASSETS
Cash and temporary investments $ 2,268,221 $ 4,105,346
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Investments -
Accrued interest receivable 227,215 287,185
Mortgages receivable 7,170,771 7,153,207
Investment in partnerships 333,472 333,472
Land held for sale 3,182,034 3,912,576
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10,913,492 11,686,440
Less - Reserve for losses (618,769) (1,082,286)
------------ ------------
Total investments, net 10,294,723 10,604,154
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Total assets $ 12,562,944 $ 14,709,500
============ ============
LIABILITIES
Accounts payable and other liabilities $ 25,766 $ 18,919
Accrued property taxes 12,980 9,289
Deferred tax liability 120,000 120,000
Dividends payable 235,327 --
------------ ------------
Total liabilities 394,073 148,208
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STOCKHOLDERS' EQUITY
Common stock-Class A 234,358 236,008
Common stock-Class B 10 10
Additional paid-in capital 23,711,361 23,791,072
Distributions in excess of income (11,776,858) (9,465,798)
------------ ------------
Total stockholders' equity 12,168,871 14,561,292
------------ ------------
Total liabilities and stockholders' equity $ 12,562,944 $ 14,709,500
============ ============
The accompanying notes are an integral part of these balance sheets.
3
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Operations
(Unaudited)
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<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INCOME
Interest on mortgages $ 164,908 $ 113,695 $ 497,825 $ 342,145
Interest on temporary investments 19,521 62,823 113,179 170,089
Increase in investment's value -- 339 -- 73,464
Miscellaneous income 3,100 -- 9,700 6,010
---------- ---------- ---------- ----------
Total income before sale of properties 187,529 176,857 620,704 591,708
---------- ---------- ---------- ----------
EXPENSES
Interest expense -- 458 -- 458
Professional services 8,822 14,300 42,824 56,679
Advisory fee 9,928 10,217 29,754 30,690
Administration and general 3,347 3,394 29,286 29,762
Directors' fees 5,800 5,800 17,000 17,400
Property taxes 6,396 3,647 12,796 10,942
---------- ---------- ---------- ----------
Total expenses 34,293 37,816 131,660 145,931
---------- ---------- ---------- ----------
Income before gain on sale of properties 153,236 139,041 489,044 445,777
Gain on sale of properties 254,750 142,341 267,319 212,287
---------- ---------- ---------- ----------
Net income before income taxes 407,986 281,382 756,363 658,064
---------- ---------- ---------- ----------
Net income $ 407,986 $ 281,382 $ 756,363 $ 658,064
========== ========== ========== ==========
Earnings per common share $ 0.17 $ 0.12 $ 0.32 $ 0.28
Dividends declared per share $ 0.10 $ 0.10 $ 0.30 $ 0.30
Weighted average number of shares of
common stock outstanding 2,351,784 2,360,080 2,357,284 2,360,080
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
ARIZONA LAND INCOME CORPORATION
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 756,363 $ 658,064
Adjustments to reconcile net income to net cash provided
by operating activities-
Gain on land sale (267,319) (212,287)
Change in accrued interest receivable 59,970 72,052
Change in accounts payable and other liabilities 10,538 (64,293)
Other changes -- (73,464)
----------- -----------
Net cash provided by operating activities 559,552 380,072
----------- -----------
Cash Flows from Investing Activities:
Cash proceeds from land sales 516,287 852,611
Proceeds from sale of investment in equity securities -- 160,652
Principal payments received under mortgages 789,709 1,056,997
Cash purchases of land & mortgage interest (789,216) (180,713)
Return of investment in partnership -- 75,500
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Net cash provided by investing activities 516,780 1,965,047
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Cash Flows from Financing Activities:
Payment of dividends (2,832,096) (472,016)
Repurchase of shares of Class A common stock (81,361) --
----------- -----------
Net cash used in financing activities (2,913,457) (472,016)
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Increase in Cash and Temporary Investments (1,837,125) 1,873,103
Cash and temporary investments - beginning of period 4,105,346 3,246,825
----------- -----------
Cash and temporary investments - end of period $ 2,268,221 $ 5,119,928
=========== ===========
Schedule of Non-Cash Investing and Financing Activities:
Seller financing in conjunction with land sale $ 18,057 $ 1,502,439
Dividends declared in excess of dividends paid 235,327 236,008
Supplemental Disclosures of Cash Flow Information:
Interest -- 458
Income Taxes -- 65,500
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
Arizona Land Income Corporation
Notes to Financial Statements
September 30, 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 nine months ended September
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 July 1, 1999 through September 30, 1999, and
January 1, 1999 through September 30, 1999
For the quarter ended September 30, 1999, the Company had total income
before sale of properties of $188,000 compared to $177,000 for the quarter ended
September 30, 1998.
The Company's expenses for the quarter ended September 30, 1999 were
$34,000 compared to $38,000 for the quarter ended September 30, 1998.
The Company reported net income of $408,000 for the quarter ended September
30, 1999 compared to $281,000 for the quarter ended September 30, 1998. This
increase was primarily attributable to gain on sale of properties of $255,000,
compared to $142,000 for the comparable prior period. Without regard to property
sale gains, the net income was $153,000 compared to $139,000.
The Company reported total income before sale of properties of $621,000 for
the nine months ended September 30, 1999 compared to $592,000 for the same
period in the prior fiscal year. This increase can be attributed to an increase
in mortgage income of $156,000, a decrease in temporary investment interest of
$57,000, and an extraordinary increase in investment's value of $73,000 in 1998
For the nine months ended September 30, 1999, the Company's expenses
totaled $132,000 compared to $146,000 for the same period in the prior fiscal
year. The Company reported net income of $756,000 for the nine months ended
September 30, 1999 compared to $658,000 in 1998.
The Company reported a decrease in cash and temporary investments of
$1,837,000. This decrease resulted primarily from the distribution of $2,832,000
in cash dividends during the operating period of January 1, 1999 through
September 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
improved and land values have stabilized and improved in certain instances. The
Company believes that such improvements will reduce the number of loan defaults
or modifications; however, there can be no assurances in this regard.
Nonetheless, the Company will continue to vigorously assert any and all its
legal rights in the event of a default.
The Company completed two land sales during the period of July 1, 1999
through September 30, 1999. The first sale resulted from the sale of
approximately 8 acres of property located in Peoria, Arizona, which the Company
acquired through foreclosure on Loan No. 11. The Company received approximately
$508,000 in cash from this sale. The second sale was a 4.4 acre parcel of land
which the Company acquired through foreclosure on Loan No. 6. The Company
received a note in the amount $4,700 and $736 in cash from this sale. During the
first half of 1999, the Company completed three land sales totaling
approximately 15 acres of property located in Pinal County, Arizona, which the
Company acquired through foreclosure on Loan No. 6. The Company received
approximately $8,000 in cash and $15,500 in notes receivable from these sales.
On September 13, 1999 the Company announced that it had purchased in open
market transactions 16,500 shares of its Class A Common Stock in the past 45
days. It is the Company's intent to retire these shares. The purchases were made
pursuant to a continuing authorization granted by the Company's board of
directors. That authorization provides that the Company may from time to time
purchase shares of Arizona Land Income Corporation stock in transactions
effected in the open market or through privately negotiated transactions. The
board has authorized the repurchase of up to 500,000 shares at such times as
management may determine that a purchase under the program is in the best
interests of the Company and its shareholders.
7
<PAGE>
ITEM 2. (CONT.)
On September 15, 1999, the Company purchased an 11.4286% interest in a
$1,232,000 Note with the Unity Church. The note with the Unity Church resulted
from property acquired through foreclosure on Loan No. 10. The purchase price of
this transaction was approximately $138,000.
On September 21, 1999, the Company declared a $.10 per share dividend with
a record date of October 1, 1999, and payable on October 15, 1999. The total
amount distributed to shareholders was approximately $235,000. During the third
quarter of 1999, the Company paid a dividend of $1.10 per share 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 on April 15, 1999, distributed to shareholders of record on April
6, 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 November 9, 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.
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
<PAGE>
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
---------------------------------
Thomas R. Hislop
Vice President and
Chief Financial Officer
November 9, 1999
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Date
9
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,268
<SECURITIES> 333
<RECEIVABLES> 7,171
<ALLOWANCES> (619)
<INVENTORY> 3,182
<CURRENT-ASSETS> 12,563
<PP&E> 0
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<TOTAL-ASSETS> 12,563
<CURRENT-LIABILITIES> 394
<BONDS> 0
0
0
<COMMON> 235
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<TOTAL-LIABILITY-AND-EQUITY> 12,563
<SALES> 0
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<CGS> 0
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<INCOME-PRETAX> 756
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<INCOME-CONTINUING> 756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 756
<EPS-BASIC> .32
<EPS-DILUTED> .32
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