UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
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 Q-6673
PACIFIC SECURITY COMPANIES
-----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 91-0669906
-------------------------------- ---------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
N. 10 Post Street
525 Peyton Building
Spokane, Washington 99201 (509) 624-0183
-------------------------------- ---------------------------
(Address of principal Registrant's telephone number,
executive offices) including area code)
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.
[ X ] Yes [ ] No
<PAGE>
Part I. Financial Information
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
October 31, July 31,
1995 1995
----------- ------------
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 53,554 $ 575,351
Restricted 204,201 188,510
----------- -----------
257,755 763,861
----------- -----------
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 1,092,064 1,092,875
Unrelated 12,330,125 12,365,021
----------- -----------
13,422,189 13,457,896
Accrued interest 102,632 108,796
Other 131,443 48,232
----------- -----------
13,656,264 13,614,924
----------- -----------
Investment in Birdie's Golf Center (Note 2) 1,698,243
----------- -----------
Investment in rental properties 15,614,991 15,647,591
----------- -----------
Other investments:
Property held for sale 3,166,378 3,205,951
Property under development -- 1,341,798
Marketable securities 93,024 96,379
Restricted investments 270,880 270,650
Other, at cost 88,870 49,768
----------- -----------
3,619,152 4,964,546
----------- -----------
Other assets:
Vehicles and equipment, less
accumulated depreciation of
$200,355 and $197,217,
respectively 35,144 25,497
Prepaid expenses 325,873 335,067
----------- -----------
361,017 360,564
----------- -----------
Total assets $35,207,422 $35,351,486
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), Continued
October 31, July 31,
1995 1995
----------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable, bank $ 6,590,925 $ 6,679,398
----------- -----------
Installment contracts and
mortgage notes payable:
Related parties 213,114 215,795
Unrelated 6,422,895 6,212,532
----------- -----------
6,636,009 6,428,327
----------- -----------
Debenture bonds 9,252,543 9,179,484
----------- -----------
Accrued expenses and other
liabilities:
Related parties 274,034 264,864
Unrelated parties 833,112 1,269,985
----------- -----------
1,107,146 1,534,849
----------- -----------
Federal income taxes:
Currently payable 32,509 16,849
Deferred 1,396,562 1,396,562
----------- -----------
1,429,071 1,413,411
----------- -----------
Total liabilities 25,015,694 25,235,469
----------- -----------
Commitments and contingencies
Redeemable Class A preferred stock,
$100 par value; authorized 20,000
shares; issued and outstanding
10,400 shares 1,040,000 1,040,000
Less: Net discount on issuance of
preferred stock (455,000) (468,000)
----------- -----------
585,000 572,000
----------- -----------
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited), Continued
October 31, July 31,
1995 1995
----------- ------------
Stockholders' equity:
Common stock authorized 2,500,000
no par value shares, $3 stated
value; issued and outstanding
1,956,272 and 1,958,067
shares, respectively) $ 5,868,817 $ 5,874,202
Additional paid-in capital 1,749,629 1,747,027
Retained earnings 1,997,257 1,928,409
Unrealized loss on marketable
securities, net of deferred
income taxes (8,975) (5,621)
----------- -----------
Total stockholders' equity 9,606,728 9,544,017
----------- -----------
Total liabilities and
stockholders' equity $35,207,422 $35,351,486
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For Three Months
Ended October 31,
----------------------
1995 1994
---------- ----------
Income:
Rental $ 687,137 $ 710,186
Interest (related parties $26,756
and $39,067, respectively) 333,217 352,190
Amortization of discounts on
real estate contracts 14,429 33,662
Gain on sale of real estate 243,692 403,154
Other (Note 2) 25,770 2,325
---------- ----------
1,304,245 1,501,517
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 175,727 176,468
Interest 109,366 96,096
Other 320,596 288,861
---------- ----------
605,689 561,425
Interest (related parties $12,487
and $9,443, respectively),
net of amount capitalized 318,591 318,376
Salaries and commissions (Note 2) 142,891 154,487
General and administrative (Note 2) 103,483 105,399
Depreciation (Note 2) 13,554 5,278
---------- ----------
1,184,208 1,144,965
---------- ----------
Income before federal income tax 120,037 356,552
Federal income tax provision 38,160 121,404
---------- ----------
Net income 81,877 235,148
Less accretion of discount on
preferred stock (13,000) 0
---------- ----------
Net income applicable to common
shareholders $ 68,877 $ 235,148
========== ==========
Net income per common share $ .04 $ .12
========== ==========
Weighted average common shares
outstanding 1,957,170 1,965,595
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For Three Months
Ended October 31,
----------------------
1995 1994
---------- ----------
Cash flows from operating activities:
Cash received from rentals $ 628,201 $ 762,237
Interest received 333,517 352,007
Cash paid to suppliers and employees (1,028,940) (452,201)
Interest paid, net of amounts
capitalized (293,057) (304,604)
Income taxes paid (22,500) (30,000)
---------- ----------
Net cash provided by (used
in) operating activities (382,779) 327,439
---------- ----------
Cash flows from investing activities:
Proceeds of sales of real estate 56,270 263,960
Collections on contracts, mortgages
and finance notes receivable 546,223 505,584
Investment in contracts, mortgages
and finance notes receivable (18,303) (15,989)
Additions to rental properties,
property held for sale, property
under development, vehicles and
equipment (763,425) (754,842)
Increase in restricted investments
and cash equivalents (18,782) (2,718)
---------- ----------
Net cash used in investing
activities (198,017) (4,005)
---------- ----------
Cash flows from financing activities:
Net payments under line-of-credit
agreement (88,473) (1,990,503)
Installment contracts, mortgage
notes and notes payable 547,551 1,700,000
Payments on installment contracts,
mortgage notes and notes payable (339,866) (443,725)
Proceeds of sales of debenture bonds 180,538 359,776
Redemption of debenture bonds (237,969) (438,114)
Purchase and retirement of
treasury stock (2,782) 0
---------- ----------
Net cash provided by (used in)
financing activities 58,999 (812,566)
---------- ----------
Net decrease in cash and cash
equivalents (521,797) (489,132)
Cash and cash equivalents, beginning
of period 575,351 511,863
---------- ----------
Cash and cash equivalents, end of
period $ 53,554 $ 22,731
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
For Three Months
Ended October 31,
----------------------
1995 1994
---------- ----------
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 81,877 $ 235,148
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 195,240 181,746
Deferred income tax provision 89,607
Deferred financing income realized (20,294) (33,845)
Interest accrued on debenture
bonds 130,489 118,313
Gain on sale of real estate (243,692) (403,154)
Change in assets and liabilities:
Accrued interest receivable 6,164 (2)
Prepaid expenses 5,472
Accrued expenses (431,382) 50,195
Income taxes payable 15,660 1,797
Other, net (122,313) 87,634
---------- ----------
Net cash provided by (used in)
operating activities $ (382,779) $ 327,439
========== ==========
Supplemental schedule of noncash investing
and financing activities:
Additions to investment in rental
properties and properties held
for sale through contract
foreclosures $ -- $ 6,060
Mortgages and contracts payable
financing related to investments
in properties 562,000
Utility assessment on rental property
Company financed sale of property 467,648 623,000
Accretion of discount on preferred stock 13,000
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Pacific
Security Companies and its subsidiaries ("Company"). In the opinion
of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Company's
financial position, results of operations and cash flows for the
periods presented.
These consolidated financial statements should be read in conjunction
with the consolidated financial statements and the related disclosures
contained in the Company's annual report on Form 10-K for the year
ended July 31, 1995, filed with the Securities and Exchange
Commission.
The results of operations for the three months ended October 31, 1995
are not necessarily indicative of the results to be expected for the
full year.
<PAGE>
NOTES TO UNAUDITED FINANCIAL STATEMENTS, CONTINUED
Note 2. Other Operations
In September 1995, the Company completed construction of and began
operating Birdies Golf Center (Birdies). The facility consists of a
driving range, lighted fairway with five target greens, a pro shop, a
putting green and teaching studios. The financial position and
results of operations of Birdies are included in the consolidated
financial statements. The results of operations related to Birdies for
the months of September and October 1995 are as follows:
Income:
Sales $ 16,712
Cost of sales (2,712)
----------
14,000
Other income 2,105
----------
Total revenue 16,105
----------
Expenses:
Depreciation 10,415
Salaries and commission 20,564
Professional 663
Insurance 1285
Repairs and maintenance 10,287
Utilities 774
Advertising and promotions 10,784
Telephone 1,146
Travel and entertainment 4,637
Payroll taxes 4,107
Sales and business tax 99
Administrative 9,014
----------
Total operating expenses 73,775
----------
Net loss $ (57,670)
==========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At October 31, 1995, the Company had total stockholder's equity of
approximately 9,606,728 and a total liabilities to equity ratio of
2.60 to 1, which improved from 2.64 to 1 at July 31, 1995. During the
quarter, the Company's primary sources of funds were approximately
$56,000 from sales of real estate and 546,000 in real estate contract
collections. The primary uses of funds were approximately $763,000
for property improvements and approximately $383,000 for operations.
The Company anticipates that cash flows from operations, sales of
debentures under its present offering and the available of funds under
its $8,000,000 line-of-credit agreement, of which only 6,590,925 was
outstanding at October 31, 1995, will be sufficient to provide for the
retirement of maturing debentures and mortgage obligations. The
Company plans to continue using funds to make improvements to its
existing office buildings and to improve property held for sale and
development, including Birdies Golf Center which commenced operations
in September 1995.
Results of Operations
The Company's net income for the quarter ended October 31, 1995 was
approximately $82,000 compared with net income of approximately
$235,000 for the quarter ended October 31, 1994. The reduction was
primarily attributable to a reduction of $159,000 in gain on sale of
real estate in 1995 from 1994. In addition, the commencement of
operations of the Birdies Golf Center resulted in a loss for Birdies
of approximately $58,000 due to high start-up costs for the quarter.
Rental income decreased by $23,000 (3.2%) to approximately 687,000 in
the quarter ended October 31, 1995 from approximately $710,000 in
1994. This primarily resulted from reduced rental income due to the
sale of two rental properties in the prior year.
Rental property expenses were $44,264 (7.9%) higher in 1995 than for
the comparable three months in 1994. This primarily resulted from
increased interest expense of $13,270 (13.8%) and operating expense of
$31,735 (11.0%) which more than offset a reduction in depreciation of
$741 (.4%).
Interest income and amortized discount was $38,206 (11.0%) less for
the three months ended October 31, 1995 compared with the similar
period in 1994 as the average outstanding balance in contracts and
notes receivable declined during the period.
Interest expense, exclusive of interest on debt associated with rental
properties, net of amounts capitalized, remained approximately the
same in 1995 and 1994.
<PAGE>
Part II. Other Information
Items 1, 2, 3, 4 and 5 -- Not applicable.
Item 6 -- Exhibits and reports on Form 8-K
Exhibit 27 - Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly casued this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PACIFIC SECURITY COMPANIES
/s/ Wayne E. Guthrie
---------------------------------
Wayne E. Guthrie
President/Chief Executive Officer
/s/ Donald J. Migliuri
---------------------------------
Donald J. Migliuri, Secretary/
Treasurer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> OCT-31-1995
<CASH> 258
<SECURITIES> 93
<RECEIVABLES> 13656
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 235
<DEPRECIATION> 200
<TOTAL-ASSETS> 35207
<CURRENT-LIABILITIES> 0
<BONDS> 9253
<COMMON> 5869
585
0
<OTHER-SE> 3738
<TOTAL-LIABILITY-AND-EQUITY> 35207
<SALES> 1304
<TOTAL-REVENUES> 1304
<CGS> 606
<TOTAL-COSTS> 606
<OTHER-EXPENSES> 260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 319
<INCOME-PRETAX> 120
<INCOME-TAX> 38
<INCOME-CONTINUING> 82
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
