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 January 31, 1996
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
January 31, July 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 35,535 $ 575,351
Restricted 224,062 188,510
----------- -----------
259,597 763,861
----------- -----------
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 952,637 1,092,875
Unrelated 10,424,349 12,365,021
----------- -----------
11,376,986 13,457,896
Accrued interest 97,222 108,796
Other (12,514) 48,232
----------- -----------
11,461,694 13,614,924
----------- -----------
Investment in Birdie's Golf Center (Note 2) 2,110,172 --
----------- -----------
Investment in rental properties 15,652,811 15,647,591
----------- -----------
Other investments:
Property held for sale and development 3,365,940 3,205,951
Property under development -- 1,341,798
Marketable securities 93,365 96,379
Restricted investments 221,199 270,650
Other, at cost 93,115 49,768
----------- -----------
3,773,619 4,964,546
----------- -----------
Other assets:
Vehicles and equipment, less
accumulated depreciation of
$202,953 and $189,628 32,546 25,497
Prepaid expenses 285,231 335,067
----------- -----------
317,777 360,564
----------- -----------
Total assets $33,575,670 $35,351,486
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
January 31, July 31,
1995 1995
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ 5,141,371 $ 6,679,398
----------- -----------
Installment contracts, mortgage
notes payable and notes payable:
Related parties 210,070 215,795
Unrelated 6,211,104 6,212,532
----------- -----------
6,421,174 6,428,327
----------- -----------
Debenture bonds 9,482,399 9,179,484
----------- -----------
Accrued expenses and other
liabilities:
Related parties 284,354 264,864
Unrelated parties 721,359 1,269,985
----------- -----------
1,005,713 1,534,849
----------- -----------
Federal income taxes:
Currently payable 332,624 16,849
Deferred 1,041,562 1,396,562
----------- -----------
1,374,186 1,413,411
----------- -----------
Total liabilities 23,424,843 25,235,469
----------- -----------
Commitments and contingencies
Redeemable Class A preferred stock,
$100 par value; $100 redeemable 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 (442,000) (468,000)
----------- -----------
598,000 572,000
----------- -----------
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
January 31, July 31,
1995 1995
----------- ------------
(Unaudited)
Stockholders' equity:
Class A common stock authorized
2,500,000 no par value shares,
$3 stated value; issued and
outstanding 1,919,673 and
1,958,067 shares $ 5,759,018 $ 5,874,202
Class B common stock authorized
30,000 no par value shares,
none issued -- --
Additional paid-in capital 1,802,699 1,747,027
Retained earnings 1,999,745 1,928,409
Unrealized loss on marketable
securities, net of deferred
income taxes (8,635) (5,621)
----------- -----------
Total stockholders' equity 9,552,827 9,544,017
----------- -----------
Total liabilities and
stockholders' equity $33,575,670 $35,351,486
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For Three Months
Ended January 31,
----------------------
1996 1995
---------- ----------
Income:
Rental $ 697,354 $ 709,348
Interest (related parties, $20,450
and $22,319, respectively) 303,250 353,613
Service fees and options -- 2,600
Amortization of discounts on
real estate contracts 83,530 18,045
Gain on sale of real estate 156,061 --
Other 44,504 11,529
---------- ----------
1,284,699 1,095,135
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 182,737 172,979
Interest 101,614 148,129
Other 351,130 326,171
---------- ----------
635,481 647,279
Interest (related parties, $10,000
and $7,661, respectively),
net of amount capitalized 339,278 296,250
Salaries and commissions 166,435 137,208
General and administrative 100,797 78,052
Depreciation 22,105 5,324
---------- ----------
1,264,096 1,164,113
---------- ----------
Income (loss) before federal income tax 20,603 (68,978)
Federal income tax provision (benefit) 5,115 (23,253)
---------- ----------
Net income (loss) 15,488 (45,725)
Less accretion of discount on
preferred stock (13,000) --
---------- ----------
Net income applicable to common
shareholders $ 2,488 $ (45,725)
========== ==========
Net income (loss) per common share $ .01 $ (.12)
========== ==========
Weighted average common shares
outstanding 1,937,973 1,961,376
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For Six Months
Ended January 31,
----------------------
1996 1995
---------- ----------
Income:
Rental $1,384,491 $1,419,534
Interest (related parties, $47,206
and $61,386, respectively) 636,467 705,803
Service fees and options -- 2,600
Amortization of discounts on
real estate contracts 97,959 51,707
Gain on sale of real estate 399,753 403,154
Other 70,274 13,854
---------- ----------
2,588,944 2,596,652
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 358,464 349,447
Interest 210,980 244,225
Other 671,726 615,032
---------- ----------
1,241,170 1,208,704
Interest (related parties, $22,487
and $17,104, respectively),
net of amount capitalized 657,869 614,626
Salaries and commissions 309,326 291,695
General and administrative 204,280 183,451
Depreciation 35,659 10,602
---------- ----------
2,448,304 2,309,078
---------- ----------
Income before federal income tax 140,640 287,574
Federal income tax provision 43,275 98,151
---------- ----------
Net income 97,365 189,423
Less accretion of discount on
preferred stock (26,000) --
---------- ----------
Net income applicable to common
shareholders $ 71,365 $ 189,423
========== ==========
Net income per common share $ .04 $ .10
========== ==========
Weighted average common shares
outstanding 1,942,634 1,961,376
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For Six Months
Ended January 31,
----------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Cash received from rentals $1,553,533 $1,496,116
Interest received 642,176 707,138
Cash paid to suppliers and employees (1,732,736) (1,077,721)
Interest paid, net of amounts
capitalized (627,801) (617,442)
Income taxes paid (82,500) (95,000)
---------- ----------
Net cash provided by (used
in) operating activities (247,328) 413,091
---------- ----------
Cash flows from investing activities:
Proceeds of sales of real estate 89,652 263,960
Collections on contracts, mortgages
and finance notes receivable 2,828,954 931,444
Investment in contracts, mortgages
and finance notes receivable (25,119) (198,246)
Additions to rental properties,
property held for sale, property
under development, vehicles and
equipment (1,634,009) (1,036,104)
Increase in restricted investments
and cash equivalents 12,787 (29,006)
---------- ----------
Net cash provided by (used in)
investing activities 1,272,265 (69,952)
---------- ----------
Cash flows from financing activities:
Net repayments under line-of-credit
agreement (1,538,027) (1,546,778)
Net proceeds from installment contracts,
mortgage notes and notes payable 612,858 1,700,000
Payments on installment contracts,
mortgage notes and notes payable (620,009) (715,597)
Proceeds from sales of debenture bonds 595,562 628,691
Redemption of debenture bonds (555,625) (837,872)
Purchase and retirement of
common stock (59,512) (37,255)
---------- ----------
Net cash used in financing activities (1,564,753) (808,811)
---------- ----------
Net decrease in cash and cash
equivalents (539,816) (465,672)
Cash and cash equivalents, beginning
of period 575,351 511,863
---------- ----------
Cash and cash equivalents, end of
period $ 35,535 $ 46,191
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited), Continued
For Six Months
Ended January 31,
----------------------
1996 1995
---------- ----------
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 97,365 $ 189,424
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 387,926 360,049
Deferred financing income realized (97,959) (54,258)
Interest accrued on debenture
bonds 262,978 237,176
Gain on sales of real estate (399,753) (403,154)
Change in assets and liabilities:
Accrued interest receivable 11,573 1,769
Prepaid expenses 46,113 33,272
Accrued expenses (533,746) (25,375)
Income taxes payable 315,775 6,797
Deferred taxes payable (355,000) (3,646)
Other, net 17,400 71,037
---------- ----------
Net cash provided by (used in)
operating activities $ (247,328) $ 413,091
========== ==========
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 612,858
Company financed sale of property 615,648 623,000
Accretion of discount on preferred stock 26,000
<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 six months ended January 31, 1996
and 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 five months ended January 31, 1996 are as follows:
Income:
Sales $ 69,906
Cost of sales (17,489)
----------
52,417
Other income 5,945
----------
Total revenue 58,362
----------
Expenses:
Depreciation 29,923
Salaries and commission 59,979
Professional 663
General and other insurance 5,986
Repairs and maintenance 6,913
Utilities 4,817
Advertising and promotions 16,070
Telephone 1,702
Travel and entertainment 6,765
Payroll taxes 8,115
Sales and business tax 341
Administrative 11,890
----------
Total operating expenses 153,164
----------
Net loss $ (94,802)
==========
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
---------------------------------
At January 31, 1996, the Company had total stockholders' equity of
approximately $9,553,000 and a total liabilities to equity ratio of
2.45 to 1, which improved from 2.64 to 1 at July 31, 1995. During the
first six months of the fiscal year, the Company's primary sources of
funds were approximately $90,000 from sales of real estate and
$2,829,000 in real estate contract collections. The primary uses of
funds were approximately $1,634,000 for property improvements and
approximately $1,505,000 in net repayment of interest-bearing debt.
The Company anticipates that cash flows from operations, sales of
debentures under its present offering and the availability of funds
under its $8,000,000 line-of-credit agreement, of which only
$5,141,371 was outstanding at January 31, 1996, 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 develop land held
for sale and development.
Results of Operations (Three Months)
------------------------------------
The Company's net income for the quarter ended January 31, 1996 was
approximately $2,000 compared with a net loss of approximately $46,000
for the quarter ended January 31, 1995. The gain was primarily
attributable to an increase in gain on sales of real estate and
greater amortization of discounts on real estate which more than
offset expenses associated with the operation of Birdies.
Rental income decreased by $11,994 (1.7%) to approximately $697,000 in
the quarter ended January 31, 1996 from approximately $709,000 in
1995. Rental income declined due to the sale of two rental properties
in the prior year.
Rental property expenses were $11,798 (1.8%) lower in fiscal 1996 than
for the comparable three months in 1995. This primarily resulted from
reduced interest expense of $46,515 (31.4%) due to the payoff of the
mortgage loan on the Hutton Building, which more than offset an
increase in depreciation of $9,758 (5.6%) and other operating expenses
of $24,959 (7.6%).
Interest income and amortized discount was $15,122 (4.1%) more for the
three months ended January 31, 1996 compared with the similar period
in 1995, primarily due to the payoff of one large contract which
resulted in a significant increase in amortized discount.
Interest expense, exclusive of interest on debt associated with rental
properties, increased by $43,028 in fiscal 1996 compared with fiscal
1995. This was primarily caused by an increase in rate on interest-
bearing debt.
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Results of Operations (Six Months), Continued
-----------------------------------------------
The Company's net income for the six months ended January 31, 1996 was
approximately $71,000 compared with net income of approximately
$189,000 for the six months ended January 31, 1995. In addition to
losses from the newly-opened Birdies, the decrease was due to the
decrease in rental income and gain on sales of real estate and a
decline in interest income and amortized discount on real estate
contracts in fiscal 1996 compared with fiscal 1995.
Rental income decreased by $35,043 (2.5%) to $1,384,491 in the six
months ended January 31, 1996 from $1,419,534 in fiscal 1995. This
primarily resulted from reduced rental income due to the sale of two
rental properties in the prior year.
Rental property expenses were $32,466 (2.7%) higher in fiscal 1996
than for fiscal 1995. This resulted from increased depreciation of
$9,017 (2.6%) and other operating expenses of $56,694 (9.2%) which
more than offset a decrease in interest expense of $33,245 (13.6%).
Interest income and amortized discount was $23,084 (3.2%) less for the
six months ended January 31, 1996 compared with the similar period in
1995 as the average balance in contracts and notes receivable declined
during the period.
Interest expense, exclusive of interest on debt associated with rental
properties, increased by $43,243 (7.0%) in fiscal 1996 compared with
fiscal 1995. This was primarily caused by an increase in rate on
interest-bearing debt.
Salaries and commissions increased by $17,631 (6.0%) in fiscal 1996
compared with fiscal 1995 primarily because of new personnel for
Birdies.
General and administrative expenses increased by $20,829 (11.4%) in
fiscal 1996 compared with fiscal 1995, primarily because of the new
Birdies operation.
Depreciation expense increased by $25,057 (236.3%) primarily because
of the new Birdies expense of $29,923 which more than offset
reductions elsewhere.
Federal income tax provision decreased by $54,876 (55.9%) in fiscal
1996 compared with fiscal 1995 due to the decrease in taxable income.
<PAGE>
Part II. Other Information
Items 1, 2, 3 and 5 are omitted from this report as they are
inapplicable.
Item 4 -- Submission of Matters to a Vote of Security Holders
-------------------------------------------------------------
At the annual meeting of Company shareholders held December 12, 1995,
the stockholders approved an amendment to Article V of the Articles of
Incorporation, creating a new Class B common stock, elected one
director and approved the engagement of Coopers & Lybrand L.L.P. as
independent certified public accountants for the Company for the
fiscal year ending July 31, 1996.
Article V of the Amended Articles of Incorporation was amended to add
the following language:
The Company shall be authorized to issue up to 30,000 shares of
Class B common stock, no par value. Each share of Class B common
stock shall be entitled to fifty votes on each matter in all
proceedings in which actions shall be taken by shareholders of the
Company, including the election of directors. Except as herein
provided, the common stock and Class B common stock shall be
identical in all respects and for all purposes.
Item 6 -- Exhibit 27 - Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
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> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 260
<SECURITIES> 93
<RECEIVABLES> 11462
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 235
<DEPRECIATION> 203
<TOTAL-ASSETS> 33576
<CURRENT-LIABILITIES> 0
<BONDS> 9482
598
0
<COMMON> 5759
<OTHER-SE> 3794
<TOTAL-LIABILITY-AND-EQUITY> 33576
<SALES> 2589
<TOTAL-REVENUES> 2589
<CGS> 1241
<TOTAL-COSTS> 1241
<OTHER-EXPENSES> 549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 658
<INCOME-PRETAX> 141
<INCOME-TAX> 43
<INCOME-CONTINUING> 97
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
