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, 1999
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 FINANCIAL INC.
-----------------------------------------------------------------------
(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) 444-7700
-------------------------------- ---------------------------------
(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 Financial Inc.
Consolidated Balance Sheets
October 31, July 31,
ASSETS 1999 1999
----------- -----------
Cash and cash equivalents:
Unrestricted $ 654,434 $ 512,472
Restricted 17,581 16,321
----------- -----------
672,015 528,793
----------- -----------
Receivables:
Contracts, mortgages, finance notes
and loans receivable, net:
Related parties 212,080 214,795
Unrelated 17,540,114 17,710,543
----------- -----------
17,752,194 17,925,338
Accrued interest 83,247 98,319
Other 20,261 31,475
----------- -----------
17,855,702 18,055,132
----------- -----------
Investment in rental properties, net 14,404,286 14,807,679
----------- -----------
Other investments:
Property held for sale and development 1,842,929 2,031,448
Marketable securities 41,724 242,168
----------- -----------
1,884,653 2,273,616
----------- -----------
Other assets:
Vehicles and equipment, net 32,424 33,590
Prepaid and other, net 217,202 247,412
----------- -----------
249,626 281,002
----------- -----------
Total assets $35,066,282 $35,946,222
=========== ===========
<PAGE>
Pacific Security Financial Inc.
Consolidated Balance Sheets, Continued
October 31, July 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1999
----------- -----------
Liabilities:
Notes payable to banks $12,539,917 $13,925,405
----------- -----------
Installment contracts, mortgage notes
and notes payable:
Related parties 312,885 337,695
Unrelated 3,189,898 3,158,285
----------- -----------
3,502,783 3,495,980
----------- -----------
Debenture bonds 9,649,005 9,643,548
----------- -----------
Accrued expenses and other liabilities:
Related parties 217,976 254,590
Unrelated 867,040 874,602
----------- -----------
1,085,016 1,129,192
----------- -----------
Income taxes 198,090 59,131
Deferred income taxes 712,470 712,273
----------- -----------
Total liabilities 27,687,281 28,965,529
----------- -----------
Commitments and contingencies
<PAGE>
Pacific Security Financial Inc.
Consolidated Balance Sheets, Continued
LIABILITIES AND STOCKHOLDERS' October 31, July 31,
EQUITY, CONTINUED 1999 1999
----------- -----------
Stockholders' equity:
Preferred stock:
Class A preferred stock, $100 par
value; authorized 20,000 shares;
issued and outstanding, 3,000
shares $ 300,000 $ 300,000
Preferred stock, authorized
10,000,000 no par value shares;
no shares issued and outstanding -- --
Common stock:
Original class, authorized 2,500,000
no par value shares, $3 stated value;
issued and outstanding, 1,151,985
and 1,152,532 shares 3,455,953 3,457,597
Class B, authorized 30,000 no par
value shares; no shares issued and
outstanding 1,804,803 1,804,009
Additional paid-in capital 1,818,245 1,418,705
Retained earnings
Accumulated comprehensive income (loss),
net -- 382
----------- -----------
Total stockholders' equity 7,379,001 6,980,693
----------- -----------
Total liabilities and stockholders'
equity $35,066,282 $35,946,222
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Financial Inc.
Consolidated Statements of Operations
Three Months Ended
October 31,
----------------------
1999 1998
---------- ----------
Income:
Rental $ 552,788 $ 544,250
Interest, including loan fees of $168,803
and $96,794 687,714 471,014
Amortization of discounts on real estate
contracts 4,596 11,263
Gain on sales of real estate 755,072 --
Gain on sales of securities 1,834 29,962
Other, net 6,003 8,284
---------- ----------
2,008,007 1,064,773
---------- ----------
Expenses:Rental operations:
Depreciation and amortization 169,970 161,213
Interest 71,038 92,242
Other 252,113 263,054
---------- ----------
493,121 516,509
Interest, net of amount capitalized 511,751 428,139
Salaries and commissions 213,856 167,046
General and administrative 134,401 94,564
Depreciation and amortization 3,534 3,472
Provision for loan losses 50,025 --
---------- ----------
1,406,688 1,209,730
---------- ----------
Income (loss) from continuing operations
before federal income tax provision
(benefit) 601,319 (144,957)
Federal income tax provision (benefit) 201,779 (44,593)
---------- ----------
Income (loss) from continuing operations 399,540 (100,364)
Discontinued operations (Note 2):
Loss from discontinued operations of
golf center (less federal income
tax benefit of $-0- and $15,407) -- (34,780)
---------- ----------
<PAGE>
Pacific Security Financial Inc.
Consolidated Statements of Operations, Continued
Three Months Ended
October 31,
----------------------
1999 1998
---------- ----------
Net income (loss) $ 399,540 $ (135,144)
Less accretion of discount on
preferred stock -- (66,250)
---------- ----------
Income (loss) applicable to common
stockholders $ 399,540 $ (201,394)
========== ==========
Loss per common share -- basic and diluted $ 0.35 $ (0.17)
========== ==========
Weighted average common shares
outstanding -- basic and diluted 1,152,343 1,170,925
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Financial Inc.
Consolidated Statements of Comprehensive Income (Loss)
Three Months Ended
October 31,
----------------------
1999 1998
---------- ----------
Net income (loss) $ 399,540 $ (135,144)
Other comprehensive income (loss) before
income tax provision (benefit):
Changes in unrealized income (losses)
on marketable securities (579) 12,573
---------- ----------
Other comprehensive income (loss) before
income tax provision (benefit) 398,961 (122,571)
Less deferred income tax provision (benefit) (197) 4,274
---------- ----------
Comprehensive income (loss) $ 399,158 $ (126,845)
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Financial Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from rentals $ 680,527 $ 708,505
Interest received 523,914 547,342
Cash paid to suppliers and employees (835,930) (241,136)
Interest paid, net of amounts capitalized (409,893) (359,551)
Income taxes paid (62,820) --
----------- -----------
Net cash provided by (used in) operating activities (104,202) 655,160
----------- -----------
Cash flows from investing activities:
Proceeds from sales of real estate 662,468 --
Proceeds from sales of marketable securities 252,476 66,923
Purchase marketable securities (50,000) --
Collections on contracts, mortgages, finance notes
and loans receivable 6,098,974 108,984
Origination of loans receivable and investment in
contracts, mortgages and finance notes receivable (5,594,005) (3,493,757)
Additions to rental properties, property held for sale,
property under development, vehicles and equipment (187,429) (107,692)
Change in restricted investments and cash equivalents -- 668
----------- -----------
Net cash provided by (used in) investing activities 1,182,484 (3,424,874)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under line-of-credit
agreements (206,582) 1,222,943
Proceeds from issuance of installment contracts,
mortgage notes and notes payable 956,422 1,680,328
Payments on installment contracts, mortgage notes and
notes payable (1,558,665) (62,942)
Proceeds from sales of debenture bonds 87,077 39,113
Redemption of debenture bonds (213,722) (193,883)
Purchase and retirement of treasury stock (849) (6,931)
Purchase and retirement of preferred stock -- (200,000)
----------- -----------
Net cash provided by (used in) financing activities (936,319) 2,478,628
----------- -----------
Net decrease in cash and cash equivalents 141,963 (291,086)
Cash and cash equivalents, beginning of period 512,472 318,026
----------- -----------
Cash and cash equivalents, end of period $ 654,435 $ 26,940
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
Pacific Security Financial Inc.
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Three Months Ended
October 31,
------------------------
1999 1998
----------- -----------
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided
by (used in) operating activities:
Net incoem (loss) $ 399,540 $ (135,144)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 173,504 188,188
Deferred income taxes -- (55,726)
Deferred financing income realized (4,596) (11,263)
Interest accrued on debenture bonds 132,102 136,925
Gain on sales of real estate (755,071) --
Gain on sales of marketable securities (1,834) (29,962)
Provision for loan losses 50,025 --
Change in assets and liabilities:
Accrued interest receivable 5,004 170,069
Prepaid expenses 30,208 10,751
Inventories -- 1,481
Accrued expenses (233,232) 380,943
Income taxes payable 138,959 --
Other, net (38,811) (1,102)
----------- -----------
Net cash provided by (used in) operating
activities $ (104,202) $ 655,160
=========== ===========
Supplemental schedule of noncash investing
and financing activities:Accretion of discount on
preferred stock $ -- $ 6,250
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
PACIFIC SECURITY FINANCIAL INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of Pacific
Security Financial Inc. 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, 1999, filed with the Securities and Exchange
Commission.
The results of operations for the three months ended October 31, 1999
are not necessarily indicative of the results to be expected for the
full year.
Note 2. Discontinued Operations
Information about the discontinued operations of the Birdies Golf
Center ("Birdies") business segment is as follows:
Three Months Ended
October 31,
--------------------
1999 1998
--------- ---------
Operating revenues $ -- $ 65,897
Loss before federal income taxes -- (50,187)
Loss from discontinued operations,
net of federal income taxes -- (34,780)
Total assets associated with the discontinued operations were
$2,211,911 at July 31, 1998. Proceeds from the sale of these assets
during the year ended July 31, 1999 were $188,592. At October 31,
1999 and July 31, 1999, the Birdies building has been included in
investment in rental properties, and the excess land associated with
Birdies has been included in property held for sale and development.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition and Liquidity
At October 31, 1999, the Company had total stockholders' equity of
approximately $7,379,000 and a total liabilities to equity ratio of
3.75 to 1, which decreased from 4.15 to 1 at July 31, 1999. During
the quarter, the Company's primary sources of funds were approximately
$956,000 from the issuance of notes payable to banks and others,
approximately $252,000 from sales of marketable securities, $662,000
from sales of real estate and $6,099,000 in real estate contract and
loan collections. The primary uses of funds were approximately
$187,000 for property improvements, approximately $5,594,000 for
investments in contracts and loans receivable, and approximately
$1,892,000 for net debt reduction.
The Company anticipates that cash flows from operations, and the
availability of funds under its lines-of-credit and other banking
agreements totalling $23,432,500 of which $12,539,917 was outstanding
at October 31, 1999, 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 rental
properties, to improve property held for sale and development and to
originate interim and construction loans.
Results of Operations
The Company's net income for the quarter ended October 31, 1999 was
approximately $400,000 compared with a net loss of approximately
$135,000 for the quarter ended October 31, 1998. Income from
continuing operations before tax was approximately $601,000 in 1999
compared with a loss of $145,000 in 1998, an improvement of
approximately $746,000. The improvement was primarily attributable to
a $755,000 gain on sale of real estate and an increase of
approximately $134,000 in net interest income. General and
administrative expense increased by $40,000 and the provision for loan
losses increased by $50,000, partially offsetting the improvement.
Rental income increased by approximately $9,000 (1.5%) to
approximately $553,000 in the quarter ended October 31, 1999 from
approximately $544,000 in 1998. This increase primarily resulted from
higher occupancy levels in a renovated multifamily apartment building.
Rental property expenses were approximately $23,000 (4.5%) lower in
1999 than for the comparable three months in 1998. This decrease was
due to decreased interest expense of $21,204 (22.9%) and operating
expense of $10,941 (4.1%), which more than offset increased
depreciation of $8,757 (5.4%).
Salaries and commissions were $46,810 (28.0%) higher in the quarter
ended October 31, 1999 than for the comparable three months in 1998,
primarily because of bonuses paid to Company officers and increased
personnel expense for Cornerstone Realty Advisors, the Company's
subsidiary, which originates commercial real estate loans.
<PAGE>
Interest income and amortized discount increased approximately
$210,000 (43.5%) for the three months ended October 31, 1999 compared
with the similar period in 1998 as the average outstanding balance in
contracts and loans receivable increased during the period primarily
due to the new loans originated by Cornerstone Realty Advisors.
Interest expense, exclusive of interest on debt associated with rental
properties, net of amounts capitalized, increased approximately
$84,000 (19.5%) in the first quarter of 1999 compared with the
comparable 1998 period primarily due to an increase in borrowings to
fund the loans originated by Cornerstone Realty Advisors.
The Company's effective income tax rate as a percentage of income
(loss) before federal income tax was approximately 34% in 1999
compared to 31% in 1998.
Part II. Other Information
Items 1, 2, 3 and 4 -- Not applicable.
Item 5. Other Information
On September 27, 1999,the Secretary of State of the State of
Washington issued a certificate of amendment to the Company's Articles
of Incorporation, changing the Company's name from Pacific Security
Companies to Pacific Security Financial Inc.
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 FINANCIAL INC.
/s/ David L. Guthrie
---------------------------------
David L. Guthrie
President/Chief Executive Officer
/s/ Donald J. Migliuri
---------------------------------
Donald J. Migliuri, Secretary/Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 672
<SECURITIES> 42
<RECEIVABLES> 17752
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 32
<DEPRECIATION> 0
<TOTAL-ASSETS> 35066
<CURRENT-LIABILITIES> 0
<BONDS> 9649
0
300
<COMMON> 3456
<OTHER-SE> 3623
<TOTAL-LIABILITY-AND-EQUITY> 35066
<SALES> 0
<TOTAL-REVENUES> 2008
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 583
<INCOME-PRETAX> 601
<INCOME-TAX> 202
<INCOME-CONTINUING> 399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 399
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
