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, 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>
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets
October 31, July 31,
ASSETS 1997 1997
----------- -----------
Cash and cash equivalents:
Unrestricted $ 2,825 $ 325,058
Restricted 147,432 84,684
----------- -----------
150,257 409,742
----------- -----------
Receivables:
Contracts, mortgages and finance notes
receivable, net:
Related parties 672,649 728,436
Unrelated 7,024,468 10,243,264
----------- -----------
7,697,117 10,971,700
Accrued interest 65,263 91,919
Federal income taxes 454,621
Other 51,309 30,541
----------- -----------
7,813,689 11,548,781
----------- -----------
Investment in rental properties, net 13,614,949 13,487,085
----------- -----------
Investment in golf center, net 2,130,114 2,142,247
----------- -----------
Other investments:
Property held for sale and development 3,767,675 4,039,208
Marketable securities 87,004 87,004
Restricted investments 223,440 278,154
----------- -----------
4,078,119 4,404,366
----------- -----------
Other assets:
Vehicles and equipment, net 29,650 25,760
Prepaid expenses 203,893 221,425
Golf center inventories 53,045 55,501
----------- -----------
286,588 302,686
----------- -----------
Total assets $28,073,716 $32,294,907
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets, Continued
October 31, July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1997
----------- -----------
Liabilities:
Note payable to bank $ 2,313,565 $ 5,404,999
----------- -----------
Installment contracts, mortgage notes
and notes payable:
Related parties 188,691 191,462
Unrelated 4,246,477 4,432,070
----------- -----------
4,435,168 4,623,532
----------- -----------
Debenture bonds 9,842,704 9,898,351
----------- -----------
Accrued expenses and other liabilities:
Related parties 226,540 246,994
Unrelated 657,307 733,657
----------- -----------
883,847 980,651
----------- -----------
Federal income taxes:
Currently payable 51,817
Deferred 589,478 1,121,478
----------- -----------
641,295 1,121,478
----------- -----------
Total liabilities 18,116,579 22,029,011
----------- -----------
Commitments and contingencies (Note 10)
Redeemable Class A preferred stock,
$100 par value; $100 redemption value;
authorized 20,000 shares; issued and
outstanding, 9,000 and 9,400 shares 900,000 940,000
Less: Net discount on issuance of pre-
ferred stock (352,750) (364,000)
----------- -----------
547,250 576,000
----------- -----------
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Balance Sheets, Continued
LIABILITIES AND STOCKHOLDERS' October 31, July 31,
EQUITY, CONTINUED 1997 1997
----------- -----------
Stockholders' equity:
Common stock:
Original class, authorized 2,500,000
no par value shares, $3 stated value;
issued and outstanding, 1,872,040
and 1,872,125 shares $ 5,616,119 $ 5,616,375
Class B, authorized 30,000 no par
value shares; no shares issued and
outstanding
Additional paid-in capital 1,920,766 1,906,642
Retained earnings 1,881,998 2,175,875
Unrealized loss on marketable securities,
net of deferred income taxes (8,996) (8,996)
----------- -----------
Total stockholders' equity 9,409,887 9,689,896
----------- -----------
Total liabilities and stockholders'
equity $28,073,716 $32,294,907
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Statements of Operations
Three Months Ended
October 31,
----------------------
1997 1996
---------- ----------
Income:
Rental $ 566,069 $ 707,241
Interest 221,733 241,397
Amortization of discounts on
real estate contracts 4,225 10,145
Gain on sales of real estate (27,015) 808,584
Golf center sales (including
lessons of $574 and $8,665) 78,705 81,042
Other, net 8,504 56
---------- ----------
852,221 1,848,465
---------- ----------
Expenses:
Rental operations:
Depreciation and amortization 153,833 175,101
Interest 83,550 102,080
Other 251,248 314,359
---------- ----------
488,631 591,540
Interest, net of amount capitalized 290,643 265,720
Salaries and commissions 181,136 168,807
General and administrative 163,699 113,620
Depreciation 26,345 24,149
Cost of golf merchandise sales 22,743 29,366
Uncollectible accounts 2,199 2,788
---------- ----------
1,175,396 1,195,990
---------- ----------
Income (loss) before federal income tax
provision (benefit) (323,175) 652,475
Federal income tax provision (benefit) (106,292) 229,268
---------- ----------
Net income (loss) (216,883) 423,207
Less accretion of discount on
preferred stock (11,250) (13,000)
---------- ----------
Income (loss) applicable to common
stockholders $ (228,133) $ 410,207
========== ==========
Income (loss) per common share $ (0.12) $ 0.22
========== ==========
Weighted average common shares
outstanding 1,872,082 1,906,841
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from rentals and golf center sales $ 635,871 $ 597,207
Interest received 271,743 246,243
Cash paid to suppliers and employees (665,401) (809,641)
Interest paid, net of amounts capitalized (258,990) (134,217)
Income taxes paid -- (267,000)
----------- -----------
Net cash used in operating activities (16,777) (367,408)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of real estate 101,024 452,517
Collections on contracts, mortgages and finance
notes receivable 3,550,536 799,513
Investment in contracts, mortgages and finance notes
receivable (200,923) (9,777)
Additions to rental properties, property held for sale,
property under development, golf center, vehicles and
equipment (348,462) (270,346)
Change in restricted investments and cash equivalents (8,381) (53,374)
----------- -----------
Net cash provided by investing activities 3,093,794 918,533
----------- -----------
Cash flows from financing activities:
Net repayments under line-of-credit agreement (3,091,434) (115,565)
Payments on installment contracts, mortgage notes and
notes payable (71,069) (639,526)
Proceeds from sales of debenture bonds 129,587 21,155
Redemption of debenture bonds (326,202) (233,694)
Purchase and retirement of treasury stock (132) (34,857)
Purchase and retirement of preferred stock (40,000) --
----------- -----------
Net cash used in financing activities (3,399,250) (1,002,487)
----------- -----------
Net decrease in cash and cash equivalents (322,233) (451,362)
Cash and cash equivalents, beginning of period 325,058 462,471
----------- -----------
Cash and cash equivalents, end of period $ 2,825 $ 11,109
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Companies and Subsidiaries
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ (216,883) $ 423,207
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 180,178 199,250
Deferred financing income realized (4,225) (10,145)
Interest accrued on debenture bonds 140,968 137,092
(Gain) loss on sales of real estate 27,014 (808,584)
Uncollectible accounts 2,199 2,788
Change in assets and liabilities:
Accrued interest receivable 26,656 4,846
Prepaid expenses 17,532 27,838
Inventories 2,456 23,443
Accrued expenses (95,638) (116,090)
Income taxes payable (106,292) (37,732)
Other, net 9,258 (213,321)
----------- -----------
Net cash used in operating activities $ (16,777) $ (367,408)
=========== ===========
Supplemental schedule of noncash investing
and financing activities:
Company financed sale of property $ -- $ 1,078,495
Accretion of discount on preferred stock 11,250 13,000
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<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 (the "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, 1997, filed with the Securities and Exchange
Commission.
The results of operations for the three months ended October 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 studies. 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 quarter ended October 31, 1997 is as follows:
<TABLE>
<CAPTION>
Birdies Rental and
Golf Receivable
Center Operations Total
----------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 78,704 $ 773,517 $ 852,221
Earnings (loss) from
operations (55,962) (267,213) (323,175)
Identifiable assets, net 2,189,608 25,884,108 28,073,716
Depreciation and amortization 23,824 156,354 180,178
Capital expenditures 4,133 101,674 105,807
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At October 31, 1997, the Company had total stockholder's equity of
approximately $9,410,000 and a total liabilities to equity ratio of
1.93 to 1, which improved from 2.27 to 1 at July 31, 1997. During the
quarter, the Company's primary sources of funds were approximately
$101,000 from sales of real estate and $3,551,000 in real estate
contract collections. The primary uses of funds were approximately
$348,000 for property improvements and approximately $3,362,000 for
net debt reduction. 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 $2,313,565 was outstanding at October 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 improve
property held for sale and development, including Birdies Golf Center.
Results of Operations
The Company's net loss for the quarter ended October 31, 1997 was
approximately $217,000 compared with net income of approximately
$423,000 for the quarter ended October 31, 1996. The decrease was
primarily attributable to a decrease of $836,000 in gain on sale of
real estate in 1997 from 1996.
Rental income decreased by $141,172 (20.0%) to approximately $566,000
in the quarter ended October 31, 1997 from approximately $707,000 in
1996. This primarily resulted from the sales of rental properties in
1996.
Rental property expenses were $102,909 (17.4%) lower in 1997 than for
the comparable three months in 1996. This resulted from decreased
interest expense of $18,530 (18.2%), operating expense of $63,111
(20.1%) and a reduction in depreciation of $21,268 (12.1%).
Interest income and amortized discount was $25,584 (10.2%) less for
the three months ended October 31, 1997 compared with the similar
period in 1996 as the average outstanding balance in contracts and
notes receivable declined during the period primarily due to the
payoff of a $3.1 million contract receivable.
Interest expense, exclusive of interest on debt associated with rental
properties, net of amounts capitalized, was $24,923 (9.4%) more in
1997 than in 1996 primarily due to a decrease of $54,563 in the amount
of capitalized interest.
The federal income taxes which were deferred due to the installment
sale of real estate became currently payable when the $3.1 million
contract balance was paid off. The income tax due was primarily offset
by the income tax receivable of $454,621 at July 31, 1997.
The Company's effective income tax rate as a percentage of income
(loss) before federal income tax was approximately 33% in 1997.
<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/ Wayne E. Guthrie
---------------------------------
Wayne E. Guthrie
President/Chief Executive Officer
/s/ Donald J. Migliuri
---------------------------------
Donald J. Migliuri, Secretary/
Treasurer
<PAGE>
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 150
<SECURITIES> 87
<RECEIVABLES> 7814
<ALLOWANCES> 0
<INVENTORY> 60
<CURRENT-ASSETS> 0
<PP&E> 219
<DEPRECIATION> 189
<TOTAL-ASSETS> 28074
<CURRENT-LIABILITIES> 0
<BONDS> 9843
547
0
<COMMON> 5616
<OTHER-SE> 3794
<TOTAL-LIABILITY-AND-EQUITY> 28074
<SALES> 852
<TOTAL-REVENUES> 852
<CGS> 511
<TOTAL-COSTS> 511
<OTHER-EXPENSES> 373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> (323)
<INCOME-TAX> (196)
<INCOME-CONTINUING> (217)
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<EPS-PRIMARY> (.12)
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</TABLE>
