Westland Dev 10-QSB 09.30.06

(MARK ONE)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2006

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ______________ to ______________

NEW MEXICO (State or other jurisdiction of incorporation or organization)		85-0165021 (I.R.S. Employer Identification No.)

401 Coors Blvd., N.W. Albuquerque, New Mexico 87121 (Address of principal executive offices)

(505)831-9600 (Issuer's telephone number)

N/A (Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities 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 o

WESTLAND DEVELOPMENT CO., INC. BALANCE SHEET (unaudited) September 30, 2006

ASSETS
Cash and cash equivalents:
Unrestricted		$	6,548,878
Restricted			4,192,340
		$	10,741,218
Receivables:
Real estate contract			50,621
Utility expansion charges			5,603,630
Other receivables			57,664
Federal tax overpayment			193,521
Prepaid expenses and other assets			176,717

Land and improvements held for future development			18,390,972

Income producing properties, net of accumulated depreciation of $2,879,556			13,325,200

Property and equipment, net of accumulated depreciation of $703,997			320,369



		$	48,859,912

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable, accrued expenses and other liabilities		$	514,624

Deferred income taxes			6,984,525

Notes and mortgages			14,242,918



Total liabilities			21,742,067

Stockholders' equity
Common stock - no par value; authorized, 736,668 shares; issued and outstanding, 709,827 shares	8,500

Class B common stock - $1.00 par value; authorized, 491,112 shares; issued and outstanding, 85,100 shares	85,100

Additional paid-in capital	490,661
Retained earnings	26,533,584		27,117,845

		$	48,859,912

WESTLAND DEVELOPMENT CO., INC. STATEMENTS OF OPERATIONS (unaudited)

	For the three months ended September 30,
	2006			2005

Revenues
Land	$	3,054,571		$	5,441,151
Rentals		347,898			344,067
		3,402,469			5,785,218
Costs and expenses
Cost of land revenues		1,338,811			1,738,008
Cost of rentals		117,943			114,266
General and administrative		1,109,885			959,149
		2,566,639			2,811,423

Income from operations		835,830			2,973,795

Other (income) expense
Interest income		(59,296	)		(41,057	)
Other		(540	)		(279	)
Interest expense		139,309			192,574
		79,473			151,238

Earnings before income taxes		756,357			2,822,557

Income tax expense		302,383			1,129,023

NET EARNINGS	$	453,974		$	1,693,534

Weighted average common shares outstanding		794,927			794,927

Earnings per common share, basic and diluted	$	0.57		$	2.13

WESTLAND DEVELOPMENT CO., INC. STATEMENTS OF CASH FLOWS (unaudited)
	For the three months ended September 30,
	2006			2005

Cash flows from operating activities
Cash received from land sales and collections on real estate contracts receivable	$	3,946,552		$	6,227,299
Development and closing costs paid on land sales		(3,606,676	)		(2,893,647	)
Cash received from rental operations		424,929			333,359
Cash paid for rental operations		(19,498	)		(19,071	)
Cash paid for property taxes		32,727			(42,111	)
Interest received		60,410			41,057
Interest paid		(103,814	)		(183,217	)
Income taxes paid		(209,953	)		(1,821,144	)
General and administrative costs paid		(1,919,702	)		(1,366,787	)
Other		1,505,579			279

Net cash provided by operating activities		110,554			276,017

Cash flows from investing activities
Capital expenditures		(908	)		--

Net cash used in investing activities		(908	)		--

Cash flows from financing activities
Borrowing on notes and mortgages		400,000			1,920,000
Repayments of notes and mortgages		(125,871	)		(417,026	)
Payment of dividends					(797,177	)
Purchase of common stock		(400	)		(400	)

Net cash provided by financing activities		273,729			705,397

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		383,375			981,414

Cash and cash equivalents at beginning of period		10,357,843			9,517,329

Cash and cash equivalents at end of period	$	10,741,218		$	10,498,743

Reconciliation of net earnings to net cash used in operating activities

Net earnings	$	453,974		$	1,693,534

Adjustments to reconcile net earnings to net cash used in operating activities
Depreciation		112,322			111,522
Deferred income taxes		(80,000	)
Change in:
Receivables		3,087,424			728,937
Land and improvements held for future development		(2,268,896	)		(1,155,639	)
Other assets		(42,198	)		(143,069	)
Accounts payable, accrued expenses and other liabilities		(1,152,072	)		(267,147	)
Income taxes payable		--			(692,121	)


Net cash provided by (used in) operating activities	$	110,554		$	276,017

The balance sheet at September 30, 2006, statements of cash flows and statements of operations for the three months ended September 30, 2006 and September 30, 2005 have been prepared by the Company without audit. In the opinion of management, all adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows, have been made. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted. It is suggested that these financial statements be read in conjunction with the Company's audited financial statements at June 30, 2006. The results of operations for the three months ended September 30, 2006 are not necessarily indicative of operating results for the full year.

In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect certain reported amounts and disclosures; accordingly, actual results could differ from those estimates.

The computation of earnings per common share has been based upon the weighted average number of shares of outstanding common stock and common stock issuable without further consideration, which for the three month periods ended September 30, 2006 and September 30, 2005 were 794,927 and 794,927, respectively.


	Land		Rentals		General corporate			Total
Three months ended September 30, 2006:

Revenues	$	3,054,571	$	347,898	$	--		$	3,402,469
Costs and expenses		1,338,811		117,943		1,109,885			2,566,639

Income from operations		1,715,760		229,955		(1,109,885	)		835,830

Interest income		--		--		(59,296	)		(59,296	)
Other income		--		--		(540	)		(540	)
Interest expense		--		139,309		--			139,309

Earnings (loss) before income taxes	$	1,715,760	$	90,646	$	(1,050,049	)	$	756,357


	Land		Rentals		General corporate			Total
Three months ended September 30, 2005:

Revenues	$	5,441,151	$	344,067	$	--		$	5,785,218
Costs and expenses		1,738,008		114,266		959,149			2,811,423

Income from operations		3,703,143		229,801		(959,149	)		2,973,795

Interest income		--		--		(41,057	)		(41,057	)
Other income		--		--		(279	)		(279	)
Interest expense		--		192,574		--			192,574

Earnings (loss) before income taxes	$	3,512,744	$	227,626	$	(917,813	)	$	2,822,557

The Company has entered into employment contracts with eight of its key officers and employees for periods from one to five years which are automatically renewed each year for one additional period. In the event of involuntary employee termination, these employees may receive from one to six times annual compensation. The remaining terms under the agreements range from one to six ye

The Company has deferred gains for tax reporting for the involuntary conversion of land by governmental authorities resulting in deferred tax liabilities. The deferral requires that the Company replace the land with the proceeds of conversion within specified time limits. As of September 30, 2006, the Company must purchase replacement property of at least $4,724,208 by June 30, 2006 (the company has requested an extension to June 30, 2007) in order to comply with the requirements of its election for income tax deferral. If replacement property is not purchased and the Company has not received approval for an extension, the Company may be required to pay income taxes on the conversions of approximately $1,890,000 for the tax year ended June 30, 2007.

This document contains statements that are not historical but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These include statements regarding the expectations, beliefs, intentions or strategies for the future. The Company intends that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act 1995. These forward-looking statements reflect the Company's views as of the date they are made with respect to future events and financial performance but are subject to many uncertainties and risks which could cause the actual results of the Company to differ materially from any future results expressed or implied by such forward-looking statements. Examples of such uncertainties and risks include, but are not limited to: fluctuations in occupancy levels and labor costs; the availability and cost of financing to redeem common shares and to expand the Company's business; and public resistance to privatization. Additional risk factors include those discussed in reports filed by the Company from time to time on forms 10-KSB, 10-QSB and 8-K. The Company does not undertake any obligation to update any forward-looking statements.

During the three months ended September 30, 2006, the Company's cash and cash equivalents increased by $383,375. During this period, operations provided $110,554 and financing activities provided $273,729. The Company borrowed $274,129, net. Except for short-term borrowing, the Company's primary source of cash is the sale of land. Although rental operations generated $424,929 in the first fiscal quarter, most of those receipts normally are used to service the mortgage debt for those properties. Other than trade payables and mortgages, the other significant debt is $5,170,000 on construction lines of credit. During the current quarter the Company capitalized $203,760 of interest expense in accordance with FAS 34 against current construction projects (predominantly the ‘Petroglyph’s’ Master Plan) compared to $28,834 during the same quarter in fiscal year 2006. This amount was greater than the corresponding period in fiscal year 2006 because the amount fluctuates based upon the level of construction activities and related indebtedness during the period. General and Administrative expenses increased by $150,736 in comparison with the first quarter of fiscal year 2006 primarily attributable to administrative activity related to the Company’s pending merger. The Company plans to continue to improve its land projects to create saleable product.

During the first quarter of the current fiscal year, the Company had revenues of $3,402,469 compared to $5,785,218 during the same period in the prior fiscal year. Land revenues decreased significantly due to both a decrease in the number of developed lot sales during the first quarter of fiscal year ended 2007 and large bulk land sales. Improved lot sales decreased by approximately $792,599 to $3,054,571. The decrease was primarily attributable to temporarily lower demand within the Company’s ‘Petroglyphs’ Master Plan Community. The Company anticipates that its developed lot sales will remain strong through the remainder of the year. The Company also had a single bulk land sale of $1,938,048 to an independent developer during the same quarter of the prior year which was not duplicated in this quarter. Cost of land sales decreased by $399,197 to $1,338,811. The decrease was attributable to the corresponding decrease in sales for the quarter. Total costs and expenses during the three months ended September 30, 2006, were $2,566,639 compared to $2,811,423 during the comparable period in 2005. The decrease was due principally to the associated decrease in cost of land revenues, which was partially offset by an increase in general and administrative expense related to the Company’s pending merger.

For the past ten years, governmental entities have been buying land from Westland pursuant to condemnation. The Company is allowed to defer federal and state income tax on the gain from these sales if it reinvests the proceeds within a specified time. The result has been a deferred tax liability. Of the approximately $21,399,000 received, the Company has remaining approximately $4,724,208 of replacement lands and property to acquire by June 30, 2007. In the event the Company does not replace the property sold pursuant to condemnation, it may need to utilize a substantial portion of its liquid investments for the payment of these taxes.

In recent years, the Company’s sales have predominantly been made on a cash basis and have been recognized under the full accrual method pursuant to paragraph 5 of SFAS 66. Some of the sales are basically raw land which has little more than its original cost of $2.60 per acre. Preconstruction costs such as land cost, initial engineering and other preliminary costs occurring prior to platting are allocated based upon the area method as calculation of the relative fair value is impracticable. Development costs which may include engineering, roads, sewer, sidewalk, etc. and can not be reasonably identified to a specific lot, or project, are allocated based upon relative sales value (where relative sales value can be determined) or, in the event that the relative sales value can not be readily determined at the time of capitalization, are allocated using the area method, in accordance with paragraph 11 of SFAS 67. This policy has been consistently applied.

Management periodically assesses the possibility that the carrying value of its assets is greater than its realizable value. For the most part, this question is obviated because the carrying cost of land is very low compared to any reasonable sale price. When property is improved for sale as individual lots, a commitment exists by contract obligating the purchaser prior to undertaking the development. However, the Company owns several properties held for the production of income, designed for a specific use, which could become impaired if the lessee vacated or rescinded its lease under bankruptcy. Management periodically determines by inspection that the properties are suitably maintained and insured and that the lessees are conducting proper operations.

The Company maintains disclosure controls and procedures designed to ensure that the information the Company must disclose in its filings with the Securities and Exchange Commission is recorded, processed, summarized and reported on a timely basis. The Company’s principal executive officer who is also the chief financial and accounting officer has reviewed and evaluated the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officer has concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in bringing to their attention on a timely basis material information relating to the Company required to be included in the Company’s periodic filings under the Exchange Act.

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

1. Maria Elena A. Rael, On Behalf of Herself and All Others Similarly Situated and Derivatively on Behalf of Westland Development, Inc., Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants, and Westland Development Company, Inc., Nominal Defendant. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 01756. This action was filed on March 2, 2006.

The verified complaint purported to be a shareholder class and derivative action on behalf of all shareholders of Westland and Westland. The action seeks declaratory relief, injunctive relief and compensatory and punitive damages arising out of Westland’s then-proposed merger with SHNM, and the currently-proposed merger with SunCal. The individual defendants are all directors of Westland.

The complaint purported to allege ten claims for relief against certain individual director defendants including: (1) that they breached their fiduciary duty by entering into the merger agreement with SHNM; (2) that they acquired Westland common stock while in possession of inside information; (3) that they misappropriated information relating to Westland’s financial condition; (4) that they conspired with one another to perform the wrongful acts listed in the complaint; and (5) that they engaged in corporate waste by awarding some director defendants lucrative severance contracts, enhanced indemnification provisions, obtaining additional director’s and officer’s liability insurance by removing restrictions on the transferability of certain shares of Westland stock and agreeing to severance payments.

Plaintiff sought declaratory, injunctive and compensatory relief including: (1) declaring that the individual defendants breached their fiduciary duties when they entered into the merger agreements with ANM and later with SHNM and that the agreements are “unlawful and unenforceable”; (2) enjoining the defendants from proceeding with the then-proposed merger with SHNM, “unless and until Westland adopts and implements a fair sale procedure or process”; (3) imposing a constructive trust in favor of Westland’s shareholders over all oil and gas rights owned by Westland; (4) ordering defendants to create and fund a permanent cultural heritage committee to oversee the creation and operation of a museum of Atrisco history as well as publishing certain information about Atrisco history; (5) ordering the defendants to ensure the perpetual operation of the cemeteries; (6) ordering the publication of all documents associated with the then-proposed merger with SHNM in Spanish as well as English; (7) ordering defendants to hold an annual shareholder meeting; (8) awarding an unspecified amount of compensatory damages; (9) awarding an unspecified amount of punitive damages; and (10) awarding plaintiffs’ costs and reasonable attorneys’ fees.

Westland and the individual defendants moved to dismiss the original complaint. Shortly before the hearings scheduled to address the motions in September 2006, Plaintiff filed an amended complaint. The amended complaint purports to allege ten claims for relief against certain individual director defendants including: (1) that they breached their fiduciary duty by entering into the merger agreements with ANM, SHNM and SunCal; (2) that they misappropriated information relating to Westland’s financial condition; (3) that they aided and abetted one another to perform the wrongful acts listed in the complaint; and (4) that they engaged in corporate waste, abuse of control and gross mismanagement by allegedly performing the acts described in the amended complaint.

Plaintiff seeks declaratory, injunctive and compensatory relief including: (1) declaring that the individual defendants breached their fiduciary duties when they entered into the merger agreements with ANM and later with SHNM and later with SunCal, and that the agreements are “unlawful and unenforceable”; (2) enjoining the defendants from proceeding with the proposed merger with SunCal, “unless or until they comply with their fiduciary duties”; (3) enjoining the defendants from consummating the proposed merger with SunCal “until the company adopts and implements a fair sales procedure or process”; (4) awarding an unspecified amount of compensatory damages; (5) ordering certain changes to the composition of the Atrisco Heritage Trust’s Board of Trustees; (6) ordering certain changes to the composition of Atrisco Oil & Gas LLC’s Board of Directors; (7) ordering the Company to engage in specified procedures with respect to the proxy solicitation process for the proposed SunCal merger; (8) awarding an unspecified amount of punitive damages; (9) declaring Westland’s Class B shares to be illegal and/or imposing a constructive trust in favor of Westland’s shareholders over the Class B shares; and (10) awarding plaintiffs’ costs and reasonable attorneys’ fees.

By letter dated September 27, 2006, the Court directed the parties to address the impact, if any, of the amended complaint on the issues raised by the motions to dismiss filed with respect to the original complaint. The Court also asked specific questions about three legal issues relating to the motions. Supplemental briefs were filed by both sides as directed by the Court. On October 19, 2006, the Court heard oral argument on the defense motions to dismiss. By letter ruling on November 1, 2006, the Court announced it would grant the motions to dismiss all claims in the case. A formal order has been circulated among counsel and is expected to be entered by the Court not later than November 13, 2006.

2. Lawrence Lane On Behalf of Himself and All Others Similarly Situated and Derivatively on Behalf of Westland Development, Inc., Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants, and Westland Development Company, Inc., Nominal Defendant. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02055. This action was filed on March 13, 2006.

3. Yolanda Apodaca, On Behalf of Herself and All Others Similarly Situated Plaintiff(s), vs. Barbara Page, Sosimo S. Padilla, Jose S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez and Doe Defendants 1-100, Defendants. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 02055. This action was filed March 16, 2006.

This action makes claims that Henry Gabaldon, Sr. sold 602 shares of Westland stock to Richard L. Gonzales in July 2005 after Mr. Gonzales allegedly had information about the interest of unnamed persons or entities in purchasing Westland’s stock. Plaintiffs claim Westland knew that various individuals were misrepresenting the true value of Westland stock to Westland shareholders, and therefore Westland had a duty to either suspend trading in Westland stock or to advise Westland shareholders of the “true value” of Westland stock prior to Mr. Gabaldon’s sale of the stock to Mr. Gonzales. Plaintiffs seek actual and treble damages, plus attorneys’ fees and costs.

Westland moved to dismiss the complaint in this case, and Plaintiffs agreed to the dismissal, but the court has permitted an amended complaint to be filed. Westland anticipates moving to dismiss all or portions of that complaint by December 4, 2006. Discovery is stayed until resolution of that motion. At this time, the ultimate outcome of this case cannot be predicted.

This action makes claims that Tracie Jernigan sold 2,160 shares of Westland stock to Richard L. Gonzales in July 2005 after Mr. Gonzales allegedly acquired inside information about the interest of unnamed persons or entities in purchasing Westland’s stock or assets. Plaintiff claims an “unknown Westland insider” provided such information to Mr. Gonzales. Plaintiff seeks actual, punitive and trebled damages, attorneys’ fees and costs, certain injunctive relief, and also seeks to enforce a previously unasserted purported demand for inspection of Westland’s books and records pursuant to the New Mexico Business Corporation Act.

6. Lawrence Lane, on behalf of himself and all others similarly situated vs. Barbara Page, Sosimo S. Padilla, Joe S. Chavez, Josie Castillo, Charles V. Pena, Georgia Baca, Troy K. Benavidez, Ray Mares, Jr., Randolph M. Sanchez, Westland Development Company, Inc. and SunCal Companies Group. United States District Court for the District Court of New Mexico, CIV 2006-01071 JB/ACT. This action was filed on November 3, 2006.

The complaint purports to be a shareholder class action on behalf of all holders of Westland common stock. The action seeks declaratory relief, injunctive relief and compensatory damages arising out of Westland’s proposed merger with SunCal. The individual defendants are all directors of Westland.

Plaintiff seeks declaratory, injunctive and compensatory relief including: (1) requiring “corrective” SEC filings by Westland; (2) declaring the proxy and other communications issued by Westland to be invalid; (3) enjoining the vote on the SunCal merger; and (4) awarding compensatory and other damages; and (5) awarding costs and attorneys’ fees.

On November 3, 2006, the day the suit was filed, plaintiff applied to the Court for an immediate temporary restraining order to enjoin the shareholders’ vote on the proposed SunCal merger. The Court conducted a hearing and denied the request for the restraining order, and denied the request for an order to show cause why a preliminary injunction should not issue.

7. Ricardo Chaves, Linda Chaves, Frank A. Chavez, Carol Chapman, and Joann Lyons, individually and on behalf of all others similarly situated, individually and derivatively on behalf of Westland Development Corp. vs. Westland Development Company, Inc., Barbara Page, Sosimo S. Castillo, Charles V. Pena, George Baca, Troy K. Benevidez and Ray Mares, Jr., Randolph M Sanchez, Leroy J. Chavez, Brent Laskey, Fred Ambrogi and Linda Blair. State of New Mexico, County of Bernalillo, Second Judicial District, CV 2006 09140. This action was filed on November 3, 2006.

The verified complaint purports to be a shareholder class and derivative action on behalf of all Class A shareholders of Westland and Westland. The action seeks a constructive trust, compensatory and punitive damages arising out of Westland’s proposed merger with SunCal. The individual defendants are officers and/or directors of Westland (Mr. Benavidez, Mr. Padilla and Mr. Lesley appear to have been named erroneously as “Benevidez”, “Castillo” and “Laskey”).

The complaint purports to allege three claims for relief against the defendants including: (1) that they breached their fiduciary duty by entering into the merger agreement with SunCal; (2) that they conspired with one another to cause damages to the plaintiffs; and (3) that they have been unjustly enriched by their actions in connection with the proposed SunCal merger.


	WESTLAND DEVELOPMENT CO., INC.

Date: November 14, 2006	By:	/s/ Barbara Page
		Barbara Page, President, Chief Executive Officer and Chief Accounting Officer

No Par Value Common:	709,827
Class B $1.00 Par Value Common:	85,100