SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 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
(Exact name of small business issuer in its charter)
Arizona 86-0602478
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2999 North 44th Street, Suite 100
Phoenix, Arizona 85018
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (602) 952-6800
Securities registered pursuant to Section 12(b) of the Act:
Title or class Name of each exchange on which registered
-------------- -----------------------------------------
Common Stock, no par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title or Class)
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, 1999 were
$1,076,000.
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 16, 2000, was approximately $4,234,100. Shares of voting stock held by
each executive 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.
2,201,880 shares of Class A Common Stock outstanding on March 15, 2000
100 shares of Class B Common Stock outstanding on March 15, 2000
DOCUMENTS INCORPORATED BY REFERENCE
Materials from the registrant's Proxy Statement relating to the 2000
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]
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TABLE OF CONTENTS
Page
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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........................... 22
PART III................................................................... 22
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT.................................................. 22
ITEM 10. EXECUTIVE COMPENSATION........................................ 22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................... 22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 22
PART IV.................................................................... 22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.............................. 22
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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 two First Mortgage Loans,
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 has not identified any opportunities to make new loans; therefore, in
the event of a loan maturity or sale of property, the Company currently intends
to distribute the proceeds, beyond what is needed for day-to-day operations of
the Company, to its shareholders.
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 1999 fiscal year, the Company declared and paid four cash
distributions. The first distribution was for $.10 per share and was paid on
April 15, 1999 to shareholders of record on April 6, 1999. The second
distribution was for $1.10 per share and was paid on July 15, 1999 to
shareholders of record on July 1, 1999. The third distribution was for $.10 per
share and was paid on October 15, 1999 to shareholders of record on October 1,
1999. The fourth distribution was for $.10 per share and was paid on January 14,
2000 to shareholders of record on December 30, 1999.
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.
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
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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, 1999. 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 that 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). In 1998, the Company acquired one First Mortgage Loan
identified in footnote four to the Financial Statements as loan 21. The Company
also acquired one First Mortgage Loan identified in footnote four to the
Financial Statements as loan 22 in 1999.
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 the 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
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.
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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 1999 and 1998, the Company paid the
Advisor a servicing fee of approximately $38,000 and $40,700, 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 1999 or 1998.
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 1999 or 1998.
1999 TRANSACTIONS AND LOAN MODIFICATIONS. Set forth below is
information concerning the transactions and modifications that affect the First
Mortgage Loans and which occurred during 1999. 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.
1999 LAND SALES. The Company had five land sales during the 1999 fiscal
year, which in the aggregate generated a $267,000 gain on sale of properties.
The Company completed three small land sales during the first half of
1999. The Company acquired these three parcels of property, located in Pinal
County, Arizona, through foreclosure on loan 6. The first sale was a 3 acre
parcel of property; proceeds to the Company from this sale were approximately
$5,900 cash. The second sale was an 8.69 acre parcel of property; proceeds to
the Company from this sale were approximately $900 cash and a $10,400 note. The
third sale was a 3.3 acre parcel of property; proceeds to the Company from this
sale were approximately $1,000 cash and a $3,000 note.
The Company completed two land sales during the period of July 1, 1999
through September 30, 1999. The first sale was approximately an 8 acre parcel of
property located in Peoria, Arizona, which the Company acquired through
foreclosure on loan 11. Proceeds to the Company from this sale were $507,800
cash. The second sale was a 4.4 acre parcel of property located in Pinal County,
Arizona, which the Company acquired through foreclosure on loan 6. Proceeds to
the Company from this sale were approximately $700 cash and a $4,700 note.
In summary, the Company had five land sales during the 1999 fiscal year
that produced approximately $516,300 cash and $18,100 of receivables.
In addition to the above referenced land sales, for the operating
period of January 1, 1999 through March 31, 1999, the Company issued loan 22 to
a third-party to fund the purchase of land in Surprise, Arizona. The initial
proceeds of $562,000 were used in partial settlement of the purchase price, and
a $14,000 mortgage broker fee was paid to an officer of the Company. Loan 22 is
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a 50% loan participation interest on a $1,125,000 loan that is secured by a
first deed of trust on 9.99 acres of land located in Surprise, Arizona. Such
loan was due December 15, 1999, bears interest at 3% over the prime rate never
to be less than 10.75%, and requires monthly interest payments.
On January 13, 1999, the Company also received a total cash payoff on
loan 2 in the amount of approximately $675,100, which included approximately
$649,200 of principal and approximately $26,000 of interest. This collection was
in addition to periodic collections of principal on other notes.
The Company also modified one loan during 1999. The maturity date on
loan 22 was extended to June 15, 2000, from December 15, 1999.
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 62, 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 57, has served as the Company's Vice President
from its inception in 1988. 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 51, 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 in 1989.
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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 15, 2000, there were approximately
58 holders of record of the Class A Common Stock. In the Company's estimation,
based upon information available to the Company, there are approximately 450
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 16, 2000 was $4 3/8 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 1998 and 1999 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 301,520 shares of Class A Common Stock. The Company
intends to continue to periodically make open market purchases of its Class A
Common Stock. During the 1999 fiscal year, 51,600 shares were repurchased.
Dividends/Distributions
Declared Per Share of
Calendar Quarter High Low Class A Common Stock (1)(2)
---------------- ---- --- ---------------------------
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
1999
First Quarter 6 1/16 5 3/4 0.10
Second Quarter 6 3/4 5 5/8 1.10
Third Quarter 5 7/8 4 5/8 0.10
Fourth Quarter 4 7/8 4 1/4 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 1999, the Company declared and paid four cash
distributions. The first distribution was for $.10 per share and was paid
on April 15, 1999 to shareholders of record on April 6, 1999. The second
distribution was for $1.10 per share and was paid on July 15, 1999 to
shareholders of record on July 1, 1999. The third distribution was for $.10
per share and was paid on October 15, 1999 to shareholders of record on
October 1, 1999. The fourth distribution was for $.10 per share and was
paid on January 14, 2000 to shareholders of record on December 30, 1999.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 VS. 1998. The Company had net income of
approximately $1,043,000 or $.44 per share of Class A Common Stock, for the year
ended December 31, 1999, compared to net income of approximately $981,000 or
$.42 per share of Class A Common Stock, for the year ended December 31, 1998.
The increase in the net income for the year ended December 31, 1999 is primarily
attributable to the increase in income on mortgages and the increase in the tax
benefit from the prior year. Interest income from First Mortgage Loans increased
to approximately $664,900 in 1999 from $464,000 in 1998. Gain on the sale of
property increased to approximately $267,300 in 1999 from $199,000 in 1998.
The Company had other income of approximately $12,700 in 1999 compared
to other income of $83,000 in 1998. The other income received by the Company in
1999 is primarily attributable to lease rentals on land received by the Company
through foreclosure actions.
The Company's expenses decreased in the aggregate to $153,000 in 1999,
compared to $189,000 in 1998. This decrease of $36,000 is primarily attributable
to the decrease in professional services from approximately $65,600 in 1998 to
approximately $46,100 in 1999.
The Company did not record any loan loss reserve or land write-downs in
1999 or 1998 because of the stabilization of the Phoenix real estate market.
Net cash provided by operating activities was approximately $673,000 in
1999 compared to net cash provided by operating activities of $415,000 in 1998.
Net cash provided by investing activities in 1999 and 1998 was approximately
$440,000 and $1,387,000, respectively. Net cash used in financing activities in
1999 and 1998 was approximately $3,311,000 and $944,000, 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.
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 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 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 began to
stabilize in the middle to late 1990's. 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 were under government supervision, 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
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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 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 land
held for sale. The Company has not identified any opportunities to make new
loans; therefore, in the event of a loan maturity or sale of property, the
Company currently intends to distribute the proceeds, beyond what is needed for
day-to-day operations of the Company, to its shareholders.
The Company believes that the market for unimproved real property in
Phoenix continues to improve, as evidenced by the number of land sales for the
Company during 1999 and 1998. The Company sold five parcels of land in 1999, and
anticipates that additional parcels will be sold in 2000. 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 Loan is sold or repaid.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes that the funds generated from interest on and
payments 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 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 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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In 1999, the Company declared and paid four cash distributions. The
first distribution was for $.10 per share and was paid on April 15, 1999 to
shareholders of record on April 6, 1999. The second distribution was for $1.10
per share and was paid on July 15, 1999 to shareholders of record on July 1,
1999. The third distribution was for $.10 per share and was paid on October 15,
1999 to shareholders of record on October 1, 1999. The fourth distribution was
for $.10 per share and was paid on January 14, 2000 to shareholders of record on
December 30, 1999.
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
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Report of Independent Public Accountants 10
Financial Statements-
Balance Sheet - December 31, 1999 11
Statements of Operations - For the Years Ended
December 31, 1999 and 1998 12
Statements of Stockholders' Equity - For the Years
Ended December 31, 1999 and 1998 13
Statements of Cash Flows - For the Years Ended
December 31, 1999 and 1998 14
Notes to Financial Statements - December 31, 1999 and 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, 1999, and the related
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Phoenix, Arizona,
February 3, 2000.
10
<PAGE>
ARIZONA LAND INCOME CORPORATION
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
ASSETS:
Cash and cash equivalents $ 1,907,438
------------
Investments-
Accrued interest receivable 282,406
Mortgage notes receivable (Note 4) 7,247,564
Investment in partnership (Note 2) 325,538
Land held for sale (Note 5) 3,182,034
------------
11,037,542
Less - reserve for losses (618,769)
------------
Total investments, net 10,418,773
------------
$ 12,326,211
============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other liabilities $ 25,362
Accrued property taxes 7,671
Dividends payable 233,533
------------
Total liabilities 266,566
------------
COMMITMENTS AND CONTINGENCIES (Note 2)
STOCKHOLDERS' EQUITY (Notes 1 and 8):
Class A common stock, $.10 stated value, 10,000,000
shares authorized, 2,308,480 shares issued and
outstanding 230,848
Class B common stock, $.10 stated value, 10,000
shares authorized, 100 shares issued and
outstanding 10
Additional paid-in capital 23,551,348
Distributions in excess of earnings (11,722,561)
------------
Total stockholders' equity 12,059,645
------------
$ 12,326,211
============
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, 1999 AND 1998
1999 1998
----------- -----------
INCOME:
Interest on mortgages $ 664,909 $ 464,233
Interest on temporary investments 139,428 222,620
(Loss) income from investment in partnership (7,934) 183,792
----------- -----------
Other income 12,710 82,786
----------- -----------
Total income before gain on sale
of properties 809,113 953,431
----------- -----------
EXPENSES:
Property taxes 12,796 22,739
Professional services 46,056 65,612
Advisory fees to related party (Note 6) 37,993 40,699
Administration and general 33,629 36,350
Directors' fees 22,800 23,200
Interest expense -- 458
----------- -----------
Total expenses 153,274 189,058
----------- -----------
INCOME BEFORE GAIN ON SALE OF PROPERTIES 655,839 764,373
GAIN on sale of properties, net 267,319 198,923
----------- -----------
NET INCOME BEFORE TAXES 923,158 963,296
INCOME TAX BENEFIT (Note 2) (120,000) (17,786)
----------- -----------
Net income $ 1,043,158 $ 981,082
=========== ===========
INCOME PER COMMON SHARE $ .44 $ .42
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 2,349,041 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, 1999 AND 1998
<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, 1997 2,360,180 $ 236,018 $ 23,791,072 $ (9,502,848) $ 14,524,242
Dividends declared -- -- -- (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
Repurchase of Class A
common stock (51,600) (5,160) (239,724) -- (244,884)
Dividends declared -- -- -- (3,299,921) (3,299,921)
Net income -- -- -- 1,043,158 1,043,158
---------- --------- ------------ ------------ ------------
BALANCE, December 31, 1999 2,308,580 $ 230,858 $ 23,551,348 $(11,722,561) $ 12,059,645
========== ========= ============ ============ ============
</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, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,043,158 $ 981,082
Adjustments to reconcile net income to net
cash provided by operating activities --
Gain on sale of properties (267,319) (198,923)
Unrealized gain on investments and other
non-cash income -- (73,464)
(Loss) income on investment in partnership 7,934 (183,792)
Changes in certain assets and liabilities
affecting operating activities --
Decrease (increase) in accrued interest receivable 4,779 (32,124)
Increase (decrease) in accounts payable and other
liabilities 6,443 (49,799)
Decrease in accrued property taxes (1,618) (27,922)
Decrease in deferred tax liability (120,000) --
----------- -----------
Net cash provided by operating activities 673,377 415,058
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Return on partnership investment -- 229,075
Principal payments received under mortgage notes
receivable 813,388 1,072,247
Proceeds from sales of properties 516,287 1,685,978
Purchase of mortgage notes receivable (889,688) (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 439,987 1,387,495
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends (3,066,388) (944,032)
Repurchase of Class A common stock (244,884) --
----------- -----------
Net cash used in financing activities (3,311,272) (944,032)
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,197,908) 858,521
CASH AND CASH EQUIVALENTS, beginning of year 4,105,346 3,246,825
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,907,438 $ 4,105,346
=========== ===========
SCHEDULE OF NON--CASH INVESTING AND FINANCING ACTIVITIES:
New mortgages related to sales of properties $ 18,057 $ 1,502,939
Dividends declared in excess of dividends paid $ 233,533 $ --
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ 458
Income tax refunds received $ -- $ 17,786
</TABLE>
The accompanying notes are an integral part of these statements.
14
<PAGE>
ARIZONA LAND INCOME CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 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, 1999, cash equivalents consisted of
U.S. Treasury Notes of $1,799,603 which mature in February 2000.
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
accounts for this investment under the equity method. The Company recorded a
loss of $7,934 in 1999 and income of $183,792 in 1998, related to this
investment, and received a return on capital of $-0- and $229,075 in 1999 and
1998, respectively.
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 certain qualifying 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, during 1997, a
$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. During 1999, the Company determined it would not have
to pay taxes on any future foreclosure property sales based on certain tax
planning strategies. Thus, the deferred tax liability was removed and a
corresponding $120,000 income tax benefit was recorded in the accompanying 1999
statement of operations. During 1998, a tax 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 amount from the sales. As a result of these differences, taxable
income totaled approximately $650,000 and $970,000 for 1999 and 1998,
respectively, before deductions for dividends paid. Net operating losses for
federal income tax purposes available to offset future taxable income totaled
approximately $2,240,000 at December 31, 1999, and expire through the year
ending 2010. Capital loss carry-forwards total approximately $196,000 and will
expire if unused in 2005.
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, is utilized to determine if write-downs are
required related to land held for sale. 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, 1999, were originated within the last 1-6
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, 1999, all loans are current, except as
described below, 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.
Mortgage notes receivable consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
The Company's
Participation
Interest as a The Company's
Original Stated Final % of Current Participation at
Loan Collateral, Property Interest Maturity Periodic Principal December 31,
Number Location and Size Rate Date Payment Terms Balance 1999
------ ----------------- ---- ---- ------------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
3-1 635 acres - Section 9, 8% 02/05/11 Annual interest payments 80% $ 853,285
Township 6 South Range 3 East through February 2001,
of the Gila and Salt River then annual principal and
Base and Meridian - Pinal interest payments of
County, Arizona $158,955 through maturity.
Loan is current.
5) 18.8 acres - 1/2 mile east of 9% 02/01/01 In 1998, the loan was 100% 496,664
Pima Road and1/4mile south of modified for the borrower
Bell Road - Scottsdale, to make annual principal
Arizona payments of $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) 27 lots in Hidden Valley 9%-12.3% 07/01/05 Multiple borrowers (26) -86.47% 62,800
Ranch, Pinal County, Arizona. monthly payments of
12 parcels in either principal and interest of
Bellflower Ranch or varying payment amounts.
Butterfield Ranch in Cochise Approximately $14,000 of
County, Arizona. these loans are late or in
default but are fully
collateralized.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
The Company's
Participation
Interest as a The Company's
Original Stated Final % of Current Participation at
Loan Collateral, Property Interest Maturity Periodic Principal December 31,
Number Location and Size Rate Date Payment Terms Balance 1999
------ ----------------- ---- ---- ------------- ------- ----
<S> <C> <C> <C> <C> <C> <C>
10) 7.47 acres - 16th Street and 10% 04/01/02 On April 1, 1998, the loan 91.43% 1,055,455
Bell Road - Phoenix, Arizona was modified to annual
principal 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 the 8% 08/30/00 Quarterly payments of 100% 467,421
Southwest Corner of Hawes and principal and interest of
Brown Road - Mesa, Arizona $18,700 through May 30,
2000. Balloon payment
consisting of the unpaid
principal plus accrued
interest due August 30,
2000. Loan is current.
16) 20 acres - West side of I-17; 9% 09/12/02 Annual payments of 100% 194,964
approximately 2-3/4 miles principal and interest of
north of Happy Valley Road - $20,583 through September
Maricopa County, Arizona 12, 2001. Balloon payment
consisting of 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 100% 73,515
Phoenix International Science principal and interest of
Center) I-17 and Deer Valley $993. Loan is current.
Road, Phoenix, Arizona.
18) 153.63 acres - Southwest 7% 03/27/10 Annual payments of 100% 1,705,960
corner of Pecos Road and Val principal and interest of
Vista Drive - Maricopa County, $144,258 through March 27,
Arizona. 2009. 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 100% 1,775,000
Scottsdale Roads - Scottsdale, draw on a total credit
Arizona facility of $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.
22) 9.99 acres - Northwest corner 11.5% 06/15/00 Interest payable quarterly 50% 562,500
of Brookside Lane and Bell with principal originally
Road - Surprise, Arizona due 12/15/99. Borrower
exercised option to extend
principal payment to
6/15/00. ----------
$7,247,564
==========
</TABLE>
18
<PAGE>
Scheduled principal repayments of mortgage notes receivable at December 31,
1999, are as follows:
Year Amount
---- ------
2000 $1,172,792
2001 599,314
2002 2,956,541
2003 107,392
2004 115,881
Thereafter 2,295,644
----------
$7,247,564
==========
(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 1999
------ -------- ----
6) 354.5 acres - Southwest corner of Warner 86.47% $3,079,197
and Sossaman Roads - Maricopa County,
Arizona
30.53 acres - Pinal County 86.47% 46,948
17) .01 acres - Southwest corner of I-17 and
Deer Valley Road - Phoenix, Arizona 100% 55,889
----------
$3,182,034
==========
The reserve for losses of $618,769 at December 31, 1999, relates to loan 6
above. These reserves are absorbed as the specific land sales occur. Reserves of
$463,417 and $431,667 were absorbed in conjunction with land sales during 1999
and 1998, respectively. No additional reserves were provided in 1999 or 1998.
19
<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 1999 or 1998.
In February 1999, the Company issued loan 22 to a third-party to fund the
purchase of land in Surprise, Arizona. The initial proceeds of $562,000 were
used in partial settlement of the purchase price, including a $14,000 mortgage
broker fee paid to an officer of the Company.
(7) DIVIDENDS PAID:
Distributions related to Class A dividends for 1999 are as follows:
Amount
Date Declared Record Date Date Paid Per Share Total Amount
------------- ----------- --------- --------- ------------
03/26/99 04/06/99 04/15/99 $ .10 $ 236,008
06/21/99 07/01/99 07/15/99 1.10 2,596,022
09/21/99 10/01/99 10/15/99 .10 234,358
11/17/99 12/30/99 01/14/00 .10 233,533
----- ----------
$1.40 $3,299,921
===== ==========
Approximately 32% of the dividends per share in 1999 represent distributions of
ordinary taxable income. The remainder represented a return of capital or
capital gain income.
20
<PAGE>
Distributions related to Class A dividends for 1998 were 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
===== ========
100% of the dividends per share in 1998 represent distributions of ordinary
taxable income.
(8) SUBSEQUENT REPURCHASE OF SHARES:
In January 2000, the Company repurchased 106,600 shares in two transactions for
$458,116. Upon repurchase of the shares, the Company canceled the shares.
21
<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 2000 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
"2000 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 2000 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, 1999. Additional information
responsive to this item is incorporated herein by reference to the "Executive
Compensation" section of the Company's 2000 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 2000 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 2000
Proxy Statement.
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.
22
<PAGE>
Financial Statements
Page or Method
of Filing
---------
Report of Independent Public Accountants Page 10
Financial Statements:
Balance Sheet - December 31, 1999 Page 11
Statements of Operations - For the Years Ended
December 31, 1999 and 1998 Page 12
Statements of Stockholders' Equity - For the Years Ended
December 31, 1999 and 1998 Page 13
Statements of Cash Flows - For the Years Ended
December 31, 1999 and 1998 Page 14
Notes to Financial Statements - December 31, 1999 and 1998 Page 15
(a) Exhibits.
Exhibit Page or Method
Number Description Method of Filing
- ------ ----------- ----------------
3-A Articles of Incorporation of the Incorporated by Reference
Company, as amended. to 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
Agreement between ALI Advisor, Inc. to Exhibit 10-A to the
and the Company. Company's Annual Report on
Form 10-K for the year
ended December 31, 1998
10-B January 17, 1989 Stock Purchase and Incorporated by Reference
Sale Agreement between Young, Smith from the Company's Report
& Peacock Holdings, Inc., Young, on Form 8-K dated January
Smith & Peacock, Inc., Barry W. 30, 1989
Peacock, Thomas R. Hislop and Larry
P. Staley.
23
<PAGE>
Exhibit Page or Method
Number Description Method of Filing
- ------ ----------- ----------------
10-C Modification of Loan Document dated Incorporated by Reference
July 21, 1990, between ALI Advisor, to Exhibit 10-E to the
Inc. and Pinnacle Peak Office/Resort Company's Annual Report on
Investors Limited Partnership, an Form 10-K for the year
Arizona limited partnership (Loan ended December 31, 1990
1). ("1990 Form 10-K")
10-D Modification of Loan Documents dated Incorporated by Reference
July 1, 1990, between ALI Advisor, to Exhibit 10-F to the 1990
Inc. and North Scottsdale Horseman's Form 10-K
Park Limited Partnership III, an
Arizona limited partnership (Loan
5b).
10-E(1) Indemnification Agreement dated May Incorporated by Reference
12, 1992 between Arizona Land Income to Exhibit 10-L to the
Corporation and Robert Blackwell. Company's Annual Report on
Form 10-K for the year
ended December 31, 1993
10-E(2) Indemnification Agreement dated Incorporated by Reference
October 1, 1991 between Arizona Land to the Company's Annual
Income Corporation and Burton Report on Form 10-K for the
Freireich. year ended December 31,
1994
24 Powers of Attorney See Signature page
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
During the last quarter of 1999, the Company filed no reports
on Form 8-K.
24
<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 27th day of March, 2000.
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 27, 2000
- ---------------------------
Barry W. Peacock
/s/ Thomas R. Hislop Chairman of the Board, Vice March 27, 2000
- --------------------------- President Treasurer, Chief
Thomas R. Hislop Executive Officer and Chief
/s/ Larry P. Staley Financial Officer
- --------------------------- Vice President March 27, 2000
Larry P. Staley
/s/ Robert Blackwell Unaffiliated Director March 27, 2000
- ---------------------------
Robert Blackwell
/s/ Burton P. Freireich Unaffiliated Director March 27, 2000
- ---------------------------
Burton P. Freireich
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1999 AND THE RELATED STATEMENTS OF OPERATIONS FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1999 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>
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<FISCAL-YEAR-END> DEC-31-1999
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0
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