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, 1997
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,
1997 1996
----------- ------------
(Unaudited)
ASSETS
Cash:
Cash and cash equivalents:
Unrestricted $ 17,342 $ 462,471
Restricted 164,221 154,346
----------- -----------
181,563 616,817
----------- -----------
Receivables:
Contracts, mortgages and finance
notes receivable, net:
Related parties 842,003 845,672
Unrelated 9,796,525 9,647,272
----------- -----------
10,638,528 10,492,944
Accrued interest 89,109 90,111
Other 27,591 72,542
----------- -----------
10,755,228 10,655,597
----------- -----------
Investment in Birdie's Golf Center (Note 2) 2,104,762 2,124,230
----------- -----------
Investment in rental properties 12,831,058 15,150,040
----------- -----------
Other investments:
Property held for sale and development 3,805,202 3,797,395
Marketable securities 83,495 75,880
Restricted investments 277,617 221,840
Other, at cost 20,931 20,931
----------- -----------
4,187,245 4,116,046
----------- -----------
Other assets:
Vehicles and equipment, less
accumulated depreciation of
$187,030 and $207,506 29,711 30,983
Prepaid expenses 227,660 283,042
Golf center inventories 49,486 83,352
----------- -----------
306,857 397,377
----------- -----------
Total assets $30,366,713 $33,060,107
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
January 31, July 31,
1997 1996
----------- ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable to bank $ 2,830,708 $ 4,448,010
----------- -----------
Installment contracts, mortgage
notes payable and notes payable:
Related parties 200,933 204,136
Unrelated 5,373,183 6,403,773
----------- -----------
5,574,116 6,607,909
----------- -----------
Debenture bonds 9,773,449 9,718,260
----------- -----------
Accrued expenses and other
liabilities:
Related parties 276,087 165,438
Unrelated parties 123,163 786,166
----------- -----------
399,250 951,604
----------- -----------
Federal income taxes:
Currently payable 8,739 244,944
Deferred 1,070,964 1,068,375
----------- -----------
1,079,703 1,313,319
----------- -----------
Total liabilities 19,657,226 23,039,102
----------- -----------
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 (390,000) (416,000)
----------- -----------
650,000 624,000
----------- -----------
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
January 31, July 31,
1997 1996
----------- ------------
(Unaudited)
Stockholders' equity:
Class A common stock authorized
2,500,000 no par value shares,
$3 stated value; issued and
outstanding 1,892,436 and
1,918,085 shares $ 5,677,309 $ 5,754,256
Class B common stock authorized
30,000 no par value shares,
none issued
Additional paid-in capital 1,842,191 1,805,000
Retained earnings 2,550,487 1,853,275
Unrealized loss on marketable
securities, net of deferred
income taxes (10,500) (15,526)
----------- -----------
Total stockholders' equity 10,059,487 9,397,005
----------- -----------
Total liabilities and
stockholders' equity $30,366,713 $33,060,107
=========== ===========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
For Three Months
Ended January 31,
----------------------
1997 1996
---------- ----------
Income:
Rental $ 601,573 $ 697,354
Interest (related parties, $19,373
and $20,450, respectively) 252,065 303,250
Amortization of discounts on
real estate contracts 5,871 83,530
Gain on sale of real estate 49,638 156,061
Golf center sales (including lessons
of $2,805 and $3,840) 28,837 57,035
Other 20,372 2,246
---------- ----------
958,356 1,299,476
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 160,539 182,737
Interest 91,825 101,614
Other 269,928 351,130
---------- ----------
522,292 635,481
Interest (related parties, $10,426
and $10,000, respectively),
net of amount capitalized 300,484 339,278
Salaries and commissions 157,516 166,435
General and administrative 157,345 100,797
Depreciation 24,310 22,105
Cost of golf merchandise sales 14,580 14,777
---------- ----------
1,176,527 1,278,873
---------- ----------
Income (loss) before federal income tax (218,171) 20,603
Federal income tax provision (benefit) (71,593) 5,115
---------- ----------
Net income (loss) (146,578) 15,488
Less accretion of discount on
preferred stock (13,000) (13,000)
---------- ----------
Net income (loss) applicable to common
shareholders $ (159,578) 2,488
========== ==========
Net income (loss) per common share $ (.08) $ .01
========== ==========
Weighted average common shares
outstanding 1,894,017 1,937,973
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
For Six Months
Ended January 31,
----------------------
1997 1996
---------- ----------
Income:
Rental $1,308,814 $1,384,491
Interest (related parties, $38,841
and $47,206, respectively) 493,462 636,467
Amortization of discounts on
real estate contracts 16,016 97,959
Gain on sale of real estate 858,222 399,753
Golf center sales (including lessons
of $11,470 and $5,945) 109,879 75,851
Other 20,428 11,912
---------- ----------
2,806,821 2,606,433
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 335,640 358,464
Interest 193,905 210,980
Other 584,287 671,726
---------- ----------
1,113,832 1,241,170
Interest (related parties, $18,907
and $22,487, respectively),
net of amount capitalized 566,204 657,869
Salaries and commissions 326,323 309,326
General and administrative 270,965 204,280
Depreciation 48,459 35,659
Cost of gold merchandise sales 43,946 17,489
Uncollectible accounts 2,788 --
---------- ----------
2,372,517 2,465,793
---------- ----------
Income before federal income tax 434,304 140,640
Federal income tax provision 157,675 43,275
---------- ----------
Net income 276,629 97,365
Less accretion of discount on
preferred stock (26,000) (26,000)
---------- ----------
Net income applicable to common
shareholders $ 250,629 $ 71,365
========== ==========
Net income per common share $ .13 $ .04
========== ==========
Weighted average common shares
outstanding 1,905,261 1,942,634
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
For Six Months
Ended January 31,
----------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Cash received from rentals $1,476,411 $1,553,533
Interest received 494,463 642,176
Cash paid to suppliers and employees (1,165,359) (1,732,736)
Interest paid, net of amounts
capitalized (495,572) (627,801)
Income taxes paid (455,000) (82,500)
---------- ----------
Net cash used in operating activities (145,057) (247,328)
---------- ----------
Cash flows from investing activities:
Proceeds of sales of real estate 2,032,053 89,652
Collections on contracts, mortgages
and finance notes receivable 1,525,669 2,828,954
Investment in contracts, mortgages
and finance notes receivable (279,942) (25,119)
Additions to rental properties,
property held for sale, property
under development, vehicles and
equipment (601,510) (1,634,009)
Increase in restricted investments
and cash equivalents (66,338) 12,787
---------- ----------
Net cash provided by investing
activities 2,609,932 1,272,265
---------- ----------
Cash flows from financing activities:
Net repayments under line-of-credit
agreement (1,617,303) (1,538,027)
Net proceeds from installment contracts,
mortgage notes and notes payable -- 612,858
Payments on installment contracts,
mortgage notes and notes payable (1,033,792) (620,009)
Proceeds from sales of debenture bonds 206,627 595,562
Redemption of debenture bonds (425,780) (555,625)
Purchase and retirement of
common stock (39,756) (59,512)
---------- ----------
Net cash used in financing activities (2,910,004) (1,564,753)
---------- ----------
Net decrease in cash and cash
equivalents (445,129) (539,816)
Cash and cash equivalents, beginning
of period 462,471 575,351
---------- ----------
Cash and cash equivalents, end of
period $ 17,342 $ 35,535
========== ==========
<PAGE>
PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited), Continued
For Six Months
Ended January 31,
----------------------
1997 1996
---------- ----------
Reconciliation of net income to net
cash used in operating activities:
Net income $ 276,629 $ 97,365
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 384,099 387,926
Deferred financing income realized (16,016) (97,959)
Interest accrued on debenture
bonds 274,342 262,978
Gain on sales of real estate (858,222) (399,753)
Uncollectible accounts 2,788 --
Change in assets and liabilities:
Accrued interest receivable 1,002 11,573
Prepaid expenses 55,381 46,113
Inventories 33,866 23,443
Accrued expenses (43,764) (533,746)
Income taxes payable (297,325) 315,775
Deferred taxes payable -- (355,000)
Other, net 42,163 17,400
---------- ----------
Net cash used in operating
activities $ (145,057) $ (247,328)
========== ==========
Supplemental schedule of noncash investing
and financing activities:
Mortgages and contracts payable
financing related to investments
in properties $ -- $ 612,858
Company financed sale of property 1,348,495 615,648
Accretion of discount on preferred stock 26,000 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, 1996, filed with the Securities and Exchange
Commission.
The results of operations for the six months ended January 31, 1997
are not necessarily indicative of the results to be expected for the
full year.
Note 2. Business Segment Reporting
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.
Information about the Company's separate business segments and in
total as of and for the six months ended January 31, 1997 is as
follows:
Birdies Rental and
Golf Receivable
Center Operations Total
----------- ----------- ----------
Revenue $ 109,879 $ 2,696,942 $ 2,806,821
Earnings (loss) from
operations (113,989) 548,293 434,304
Identifiable assets, net 2,164,058 28,202,655 30,366,713
Depreciation and amorti-
zation 43,898 340,201 384,099
Capital expenditures 24,431 577,079 601,510
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
---------------------------------
At January 31, 1997, the Company had total stockholders' equity of
approximately $10,059,000 and a total liabilities to equity ratio of
1.95 to 1, which improved from 2.45 to 1 at July 31, 1996. During the
first six months of the fiscal year, the Company's primary sources of
funds were approximately $2,032,000 from sales of real estate and
$1,526,000 in real estate contract collections. The primary uses of
funds were approximately $602,000 for property improvements and
approximately $2,870,000 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
$2,830,708 was outstanding at January 31, 1997, 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 loss for the quarter ended January 31, 1997 was
approximately $147,000 compared with net income of approximately
$15,000 for the quarter ended January 31, 1996. The loss was
primarily attributable to a decrease in gain on sales of real estate,
lower rental income and less interest income and amortization of
discounts on real estate contracts.
Rental income decreased by $95,781 (13.7%) to approximately $602,000
in the quarter ended January 31, 1997 from approximately $697,000 in
1996. Rental income declined due to the sale of rental properties
during the current year.
Rental property expenses were $113,189 (17.8%) lower in fiscal 1997
than for the comparable three months in 1996. This primarily resulted
from reduced interest expense of $9,789 (9.6%) depreciation of $22,198
(12.1%) and other operating expenses of $81,202 (23.1%)
Interest income and amortized discount was $128,844 (33.3%) less for
the three months ended January 31, 1997 compared with the similar
period in 1996, primarily due to the payoff of one large contract
which resulted in a significant increase in amortized discount in the
prior year.
Interest expense, exclusive of interest on debt associated with rental
properties, decreased by $38,794 (11.4%) in fiscal 1997 compared with
fiscal 1996. This was primarily caused by a reduction in the amount
of interest-bearing debt.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED
Results of Operations (Six Months)
----------------------------------
The Company's net income for the six months ended January 31, 1997 was
approximately $277,000 compared with net income of approximately
$97,000 for the six months ended January 31, 1996. The increase was
primarily attributable to an increase of approximately $458,000 in
gain on sale of real estate in 1997 from 1996.
Rental income decreased by $75,677 (5.5%) to approximately $1,309,000
in the six months ended January 31, 1997 from approximately $1,384,000
in 1996. This primarily resulted from reduced rents due to the sale
of rental properties which more than offset rental rate increases and
improved occupancy in commercial buildings.
Rental property expenses were $127,338 (10.3%) lower in 1997 than for
the comparable six months in 1996. This resulted from decreased
interest expense of $17,075 (8.1%) and operating expense of $87,439
(13.0%) and a reduction in depreciation of $22,824 (6.4%).
Interest income and amortized discount was $224,948 (30.6%) less for
the six months ended January 31, 1997 compared with the similar period
in 1996 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, was $91,665 (13.9%) less in
1997 than in 1996 primarily due to a decrease in the amount of
interest-bearing debt.
<PAGE>
Part II. Other Information
Items 1, 2, 3, 4 and 5 -- Not applicable.
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/ David L. Guthrie
---------------------------------
David L. Guthrie
Vice President
/s/ Donald J. Migliuri
---------------------------------
Donald J. Migliuri, Secretary/
Treasurer
<PAGE>
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 182
<SECURITIES> 83
<RECEIVABLES> 10755
<ALLOWANCES> 0
<INVENTORY> 49
<CURRENT-ASSETS> 0
<PP&E> 217
<DEPRECIATION> 187
<TOTAL-ASSETS> 30367
<CURRENT-LIABILITIES> 0
<BONDS> 9773
650
0
<COMMON> 5678
<OTHER-SE> 4382
<TOTAL-LIABILITY-AND-EQUITY> 3036
<SALES> 2807
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<CGS> 1158
<TOTAL-COSTS> 1158
<OTHER-EXPENSES> 646
<LOSS-PROVISION> 3
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<INCOME-TAX> 157
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