U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from __________ to__________
Commission file number: 33-26036
--------
PROPERTY SECURED INVESTMENTS, INC.
----------------------------------
(Exact name of small business issuer as
specified in its charter)
California 95-4075422
------------------------ ------------------------
(State of Incorporation) (I.R.S. Employer ID No.)
445 South Figueroa Street, Ste. 2600
Los Angeles, CA 90071-1630
--------------------------------------------
(Address of principal executive offices)
(213) 612-7714 (Andrew K. Proctor)
---------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 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.
Yes...X... No........
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date. At September 30, 1995, 177,031 shares of common stock, no
par value.
Transitional Small Business Disclosure Format (check one):
Yes.......No...X...
Exhibit Index at Page 12
Page 1 of 13 <PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
-------------------------------
The following financial statements are furnished:
Balance sheets (unaudited) as of September 30, 1995 and
December 31, 1994.
Statements of Operations (unaudited) for the nine
months and three months ended September 30, 1995 and
1994.
Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1995 and 1994.
Notes to Financial Statements (unaudited).
Page 2 of 13 <PAGE>
Property Secured Investments, Inc.
BALANCE SHEETS
(Unaudited)
ASSETS
September 30, December 31,
1995 1994
------------- ------------
Cash $ 218,844 $ 170,323
Notes receivable, net of
provision for losses of
$9,378 and $35,000 (note 2) 234,182 300,243
Accrued interest receivable 4,765 2,496
Real estate 222,098 317,365
---------- ----------
$ 679,889 $ 790,427
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other
liabilities $ 29,169 $ 35,039
Deferred revenues 3,940 8,163
---------- ----------
33,109 43,202
Stockholders' Equity
Common stock, 20,000,000 shares
authorized, 177,031 shares
issued and outstanding 6,298,479 6,298,479
Additional paid-in capital 2,970 2,970
Distributions in excess of earnings (5,654,669) (5,554,224)
---------- ----------
Total Stockholders' Equity 646,780 747,225
---------- ----------
$ 679,889 $ 790,427
========== ==========
The accompanying notes are an integral part
of these financial statements
Page 3 of 13 <PAGE>
Property Secured Investments, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
Nine months ended Three months ended
September 30, September 30,
----------------- -----------------
1995 1994 1995 1994
---- ---- ---- ----
Income
Interest $ 13,344 $ 139,896 $ 6,103 $ 37,042
Loan origination fees 4,223 58,266 43,724
Other 541 2,464 541 263
-------- -------- -------- --------
Total income 18,108 200,626 6,644 81,029
Expenses
Operating 97,654 320,654 31,014 116,337
Provision for losses on
notes receivable and
real estate 675,000 570,000
-------- -------- -------- --------
Total expenses 97,654 995,654 31,014 686,337
Net loss before loss on
sale of real estate (79,546) (795,028) (24,370) (605,308)
-------- -------- -------- --------
Loss on sale of
real estate (20,899) (2,696) (20,899)
-------- -------- -------- --------
Net loss $(100,445) $(797,724) $(45,269) $(605,308)
======== ======== ======= ========
Per common share information:
Net loss $ (.57) $ (4.51) $ (.26)$ (3.42)
======== ======== ======= ========
Income dividends .00 .00 .00 .00
Return of capital
dividends .00 .40 .00 .00
-------- -------- ------- --------
Total dividends $ .00 $ .40 $ .00 $ .00
======== ======== ======= ========
Weighted average
shares outstanding 177,031 177,031 177,031 177,031
======== ======== ======= ========
The accompanying notes are an integral part
of these financial statements
Page 4 of 13 <PAGE>
Property Secured Investments, Inc.
STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
1995 1994
Cash flows from operating activities: ---- ----
Interest received $ 11,075 $ 161,951
Operating expenses paid (103,524) (331,573)
Other income received 541 2,464
-------- --------
Net cash used in
operating activities (91,908) (167,158)
Cash flows from investing activities:
Principal payments received on
notes receivable 66,061 269,332
Deposit for sale of assets 25,000
Proceeds on sale of real estate 74,368 303,797
-------- --------
Net cash provided by
investing activities 140,429 598,129
Cash flows from financing activities:
Cash distributions to stockholders (495,543)
Payments on trust deed note payable (137,530)
-------- --------
Net cash used in
financing activities (633,073)
-------- --------
Net increase (decrease) in cash 48,521 (202,102)
Cash, beginning of period 170,323 488,369
-------- --------
Cash, end of period $ 218,844 $ 286,267
======== ========
Cash flows from operating activities:
Net loss $(100,445) $(797,724)
Adjustments to reconcile net loss
to net cash used in operating
activities before cash
distributions to shareholders:
Loss on sale of real estate 20,899 2,696
Provision for losses on notes
receivable and real estate 675,000
Amortization of loan
origination fees (4,223) (58,266)
(Increase) decrease in accrued
interest receivable (2,269) 22,055
Decrease in accrued expenses and
other liabilities (5,870) (10,919)
-------- --------
Net cash used in operating activities $ (91,908) $(167,158)
======== ========
The accompanying notes are an integral part
of these financial statements
Page 5 of 13 <PAGE>
Property Secured Investments, Inc.
NOTES TO FINANCIAL STATEMENTS
For the nine months ended September 30, 1995 and 1994
(Unaudited)
The results of operations for the interim periods shown in
this report are not necessarily indicative of the results to be
expected for the year. In the opinion of management, the
information contained herein reflects all adjustments necessary to
make the results of operations for the interim periods a fair
statement of such operations. All such adjustments are of a
normal recurring nature.
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Property Secured Investments, Inc. (the "Company" or "PSI")
was incorporated in 1986 and began operations in 1987. The
Company has elected to be taxed as a Real Estate Investment Trust
("REIT"). The Company has investments in promissory notes
collateralized principally by deeds of trust on Southern
California real property. In 1994, the Company obtained
stockholder approval to convert to a perpetual life REIT.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is maintained at a level that,
in the Board of Directors judgment, is adequate to absorb future
losses.
Non-performing Notes Receivable
-------------------------------
Notes receivable are placed on non-accrual status when
principal and interest are past due 90 days or more, or there is
reasonable doubt that principal or interest will be collected.
Loans are not restored to accruing status until principal and
interest are current.
Real Estate Held for Sale
-------------------------
Real Estate represents property that the Company has obtained
through foreclosure on trust deeds that were in its portfolio and
that it is holding for sale. The property is recorded at the
lower of estimated fair value less estimated selling costs or at
cost. Costs of maintaining foreclosed properties and preparing
them for sale are expensed as incurred.
Deferred Revenues
-----------------
Deferred revenues consist of loan origination fees relating
to loans originated or acquired by the Company. Loan fees have
been deferred and are being recognized as income on a method
approximating a level yield over the life of each respective loan.
Page 6 of 13 <PAGE>
Federal Income Taxes
--------------------
The Company qualifies as an REIT under the Internal Revenue
Code and, accordingly, is not subject to Federal income taxes on
amounts distributed to stockholders, providing it distributes at
least 95% of its taxable income and meets certain other
conditions. The Company believes that it has met the requirements
for continued qualification as a REIT as of September 30, 1995.
Net Loss Per Share
------------------
Net loss per share is based on the weighted average number of
common shares outstanding.
Stock Split
-----------
In July 1995, the Company affected a one-for-four reverse
stock split of its common stock. Pursuant to the terms of such
stock split, in lieu of the issuance of any fractional shares that
would otherwise result from the reverse stock split, the Company
shall issue one additional share of common stock. The common
stock outstanding and weighted average shares outstanding for all
periods presented have been adjusted to reflect this stock split.
NOTE 2 - NOTES RECEIVABLE
Notes receivable represent amounts due from borrowers
relating to loans originated or acquired by the Company with
original loan terms generally ranging from five to thirteen years.
Generally, the notes are collateralized by first or second deeds
of trust on improved property located in California and provide
for monthly payments of principal and interest with interest rates
generally ranging from 8% to 11.9% per annum.
The following is a summary of notes receivable:
September 30, December 31,
1995 1994
------------- ------------
Second trust deeds, collateralized by
residential and commercial property 243,560 335,243
------- -------
Less provision for losses on notes 9,378 35,000
------- -------
$234,182 $300,243
======= =======
Page 7 of 13 <PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
----------------------------------------------------------
Property Secured Investments, Inc. (the "Company") is a
California Corporation. The Company was organized in 1986, began
operations in 1987, and elected in its 1987 Federal Income Tax
Return to be taxed as a Real Estate Investment Trust, a REIT. The
Company was formed to invest in fixed and variable rate promissory
notes (the "Notes") secured by first and second deeds of trust on
real property located in Southern California. The Company has
also invested in notes which are secured by other promissory
notes. Such other promissory notes were in all cases secured by
deeds of trust and all-inclusive trust deeds. On September 12,
1994, the Company's shareholders approved a modification of the
Company's Bylaws which had the effect of permitting the Company to
make equity investments in real property as well as investing in
Notes secured by real property. The Company's Board of Directors
has not as yet made any new investments for the Company since its
election in September of last year.
The Company ceased acquiring Notes in 1991 and shortly
thereafter began to distribute the proceeds of the Company's Note
portfolio to its shareholders as payments were received. At the
Company's annual shareholders meeting for 1994, the shareholders
approved a proposal to sell substantially all of the Company's
real estate assets. Most of the Notes in the Company's portfolio
were either sold or paid off in the fourth quarter of 1994 or
first quarter of 1995. In the first quarter of 1995, the Company
terminated the Purchase and Sale Agreement pursuant to which the
Company had disposed of the majority of its assets, leaving it
with three assets in its portfolio, one note and two pieces of
real estate.
Pursuant to a vote of shareholders at the annual meeting held
in September, 1994, the Company affected a one-for-four reverse
stock split on July 11, 1995.
In September, 1995, the Company sold one of its two pieces of
real property for net proceeds of $74,368 which were paid in cash.
The Company realized a loss of $20,899 on the sale of such
property which was acquired by foreclosure. The property is
located in Acton, California.
As to the Company's sole remaining piece of real property,
the Company recently prevailed in its unlawful detainer action and
obtained possession of the property. The Company is currently
preparing the property, which is located in Inglewood, California,
to market it for sale.
The Company's Board of Directors continues to explore
opportunities for recapitalizing the Company through, among other
things, a new public offering of the Company's common stock, and
the opportunities currently available for investment in real
estate structured either as equity or secured debt. If the Board
determines that it is in the best interests of the Company and its
shareholders to raise new capital for further investment, it is
not currently possible to project the overall effect of such
Page 8 of 13 <PAGE>
activities on the Company's net income for 1995. If the Board
does not decide to raise new capital and resume investment
activities, it will seek to sell or otherwise liquidate the
Company's remaining assets and distribute the proceeds of such
liquidations and all of the Company's reserves, after the payment
of expenses, to the Company's shareholders as soon as practicable.
The Company is unable to predict with any confidence the resulting
impact upon the Company's net income from such a decision,
although both income and expenses should decrease significantly in
1995 from the levels in 1994 under such a course of action. The
Company anticipates that its expenses in 1995 will exceed its
income.
There has been little change in the Company's financial
condition between the end of the last fiscal year and the end of
the third quarter of 1995. The principal changes in the financial
condition and results of operation of the Company between the
third quarter of 1994 and the third quarter of this year are
primarily the result of the sale of most of the Company's Note
portfolio and the distribution of much of the proceeds of that
sale to the Company's shareholders in the last quarter of 1994.
The Company's interest income declined by nearly 84% and its total
income was reduced by nearly 92% from the third quarter of 1994 to
the third quarter of 1995. On the other hand, the Company's
operating expenses also dropped by more than 73% between the two
periods. The Company continues to have net operating losses as a
result of its reduced income. Until and unless the Company is
successful in raising new capital to fund its operations, it is
anticipated that the results of the Company's operations in future
quarters will be similar to that in the third quarter of this
year.
Item 4. Items Submitted to a Vote of Security-Holders
------------------------------------------------------
At the Company's annual meeting held on August 1, 1995, the
Company's shareholders elected the Board of Directors for the
forthcoming year consisting of: Elbert R. Lewis, Andrew K.
Proctor, Hubert Scheffy, Jr., Sidney Harris and David A. Hillard,
all of whom were re-elected to the Board. Each of the candidates
received 356,086 votes; 73,086 votes were withheld with respect to
each candidate; there were 14,353 broker non-votes. Such vote
reflects shareholdings as of the record date of June 23, 1995, and
does not reflect the impact of the reverse stock split discussed
in Item 2 above.
At the above annual meeting, shareholders also voted on a
proposal to grant 60,000 shares of the Company's common stock to
certain of the Company's Directors and Officers as compensation
for services to the Company. This proposal was not approved,
receiving 167,073 votes in favor; 103,730 votes against; 21,688
votes abstained; there were 141,969 broker non-votes.
Page 9 of 13 <PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
------------------------------------------
(a) Exhibits
No. Description
---- ------------
3a Articles of Incorporation of Property Secured
Investments, Inc. <F*> (3-a)
3b Bylaws of Property Secured Investments, Inc. <F**>
(3-b)/<F***>
4a Articles of Incorporation of Property Secured
Investments, Inc. <F*> (3-a)
4b Bylaws of Property Secured Investments, Inc. <F**>
(3-b)/<F***>
27 Financial Data Schedule
[FN]
<F*> Incorporated by reference to the Company's Registration
Statement on Form S-11, filed with the Commission on
December 12, 1988. (References in () are to original
exhibit numbers.)
<F**> Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form S-11 filed with
the Commission on August 14, 1989, modified as set forth
in the Company's definitive Proxy Statement filed with
the Commission on August 11, 1994. (References in () are
to original exhibit numbers.)
<F***> Incorporated by reference to the Company's definitive
Proxy Statement filed with the Commission on August 11,
1994, pages 33 - 37.
(b) No reports on Form 8-K were filed by the Company with
the Securities and Exchange Commission during the third
quarter of 1995.
Page 10 of 13 <PAGE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Property Secured Investments, Inc.
----------------------------------
(Registrant)
Dated: November 14, 1995 By: /s/ Andrew K. Proctor
--------------------------
Andrew K. Proctor,
Chairman and President
Dated: November 14, 1995 By: /s/ Andrew K. Proctor
--------------------------
Andrew K. Proctor, Treasurer
Page 11 of 13 <PAGE>
EXHIBIT INDEX
No. Description Page #
---- ----------------- ------
3a Articles of Incorporation of Property
Secured Investments, Inc. <F>* (3-a)
3b Bylaws of Property Secured Investments, (3-b)/
Inc. <F**> <F***>
4a Articles of Incorporation of Property
Secured Investments, Inc. <F*> (3-a)
4b Bylaws of Property Secured Investments, (3-b)/
Inc. <F**> <F***>
27 Financial Data Schedule 13
[FN]
<F*> Incorporated by reference to the Company's Registration
Statement on Form S-11, filed with the Commission on
December 12, 1988. (References in () are to original
exhibit numbers.)
<F**> Incorporated by reference to Amendment No. 1 to the
Company's Registration Statement on Form S-11 filed with
the Commission on August 14, 1989, modified as set forth
in the Company's definitive Proxy Statement filed with
the Commission on August 11, 1994. (References in () are
to original exhibit numbers.)
<F***> Incorporated by reference to the Company's definitive
Proxy Statement filed with the Commission on August 11,
1994, pages 33 - 37.
Page 12 of 13 <PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 218,844
<SECURITIES> 0
<RECEIVABLES> 243,560
<ALLOWANCES> 9,378
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 222,098
<DEPRECIATION> 0
<TOTAL-ASSETS> 679,889
<CURRENT-LIABILITIES> 33,109
<BONDS> 0
<COMMON> 6,298,479
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 679,889
<SALES> 0
<TOTAL-REVENUES> 18,108
<CGS> 0
<TOTAL-COSTS> 79,546
<OTHER-EXPENSES> 20,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (100,445)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,445)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,445)
<EPS-PRIMARY> (.57)
<EPS-DILUTED> (.57)
</TABLE>
