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 June 30, 1996
[ ] 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 August 13,
1996, 176,980 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 June 30, 1996 and December 31,
1995.
Statements of Operations (unaudited) for the three months and six
months ended June 30, 1996 and 1995.
Statements of Cash Flows (unaudited) for the six months ended June
30, 1996 and 1995.
Notes to Financial Statements (unaudited).
Page 2 of 13
<PAGE>
Property Secured Investments, Inc.
BALANCE SHEETS
(Unaudited)
ASSETS
June 30, December 31,
1996 1995
-------- ------------
Cash $ 71,601 $ 262,055
Sales proceeds receivable 100,400 100,400
----------- -----------
$ 172,001 $ 362,455
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other
liabilities $ 8,950 $ 25,187
Stockholders' Equity
Common stock, 20,000,000 shares
authorized, 176,980 shares
issued and outstanding 6,298,479 6,298,479
Additional paid-in capital 2,970 2,970
Distributions in excess of earnings (6,138,398) (5,964,181)
----------- -----------
Total Stockholders' Equity $ 163,051 $ 337,268
----------- -----------
$ 172,001 $ 362,455
=========== ===========
The accompanying notes are an integral part
of these financial statements
Page 3 of 13
<PAGE>
Property Secured Investments, Inc.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
------------------ ----------------
1996 1995 1996 1995
---- ---- ---- ----
Income
Interest $ 1,265 $ 3,004 $ 2,496 $ 7,241
Loan origination fees -- -- -- 4,223
--------- --------- --------- ---------
Total income 1,265 3,004 2,496 11,464
Operating Expenses 56,053 39,359 88,223 66,640
--------- --------- --------- ---------
Net loss $ (54,788) $ (36,355) $ (85,727) $ (55,176)
========= ========= ========= =========
Per common share
information:
Net loss $ (.08) $ (.06) $ (.13) $ (.08)
========= ========= ========= =========
Income dividends .00 .00 .00 .00
Return of capital
dividends .13 .00 .13 .00
--------- --------- --------- ---------
Total dividends .13 .00 .13 .00
========= ========= ========= =========
Weighted average
shares outstanding 707,918 707,918 707,918 707,918
========= ========= ========= =========
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 six months ended June 30, 1996 and 1995
(Unaudited)
1996 1995
--------- ---------
Cash flows from operating activities:
Interest received $ 2,496 $ 4,972
Operating expenses paid (104,460) (82,755)
--------- ---------
Net cash used in
operating activities (101,964) (77,783)
Cash flows provided by investing
activities-
Principal payments received on
notes receivable -- 65,532
--------- ---------
Cash flows used in financing activities-
Cash distributions to stockholders (88,490) --
--------- ---------
Net increase (decrease) in cash (190,454) (12,251)
Cash, beginning of period 262,055 170,323
--------- ---------
Cash, end of period $ 71,601 $ 158,072
========= =========
Cash flows from operating activities:
Net loss $ (85,727) $ (55,176)
Adjustments to reconcile net loss
to net cash used in operating
activities before cash
distributions:
Amortization of loan
origination fees -- (4,223)
Increase in accrued interest
receivable -- (2,269)
Decrease in accrued expenses and
other liabilities (16,237) (16,115)
--------- ---------
Net cash used in operating activities $(101,964) $ (77,783)
========= =========
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 six months ended June 30, 1996 and 1995
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 had 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.
Real Estate
- - -----------
The Company's real estate asset was sold by local tax authorities as a
result of delinquent property taxes related to the 1989-1990 tax year. The
Company is entitled to the net cash proceeds of $101,900 less certain
administrative costs of the tax authority which are expected to be approximately
$1,500. The Company expects to receive such proceeds during the second or third
quarter of 1997 and has recorded the value of the asset of $100,400.
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
shareholders, 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 June 30, 1996.
Net Loss Per Share
- - ------------------
Net loss per share is based on the weighted average number of common
shares outstanding.
Page 6 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 ("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 that Bylaw change.
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.
The Company's sole remaining piece of real property as of December 31,
1995 was declared tax defaulted by Los Angeles County due to the failure of the
original borrower to pay Los Angeles County real property taxes for the
1989-1990 tax year. The property consists of a two-story office building located
at 11011 Crenshaw Boulevard in Inglewood, California, an economically
disadvantaged, inner-city area, and was recently repaired from fire damage. The
Company obtained title to such property by foreclosure in 1993. Although
apparently notified of such tax defaults prior to and at the time of such
foreclosure, the Company's prior advisor, Property Mortgage Co., Inc. ("PMC"),
now in bankruptcy, and its loan servicing agent, did not take action to pay the
past due taxes, penalties and interest. Prior to its bankruptcy, PMC was
responsible for the Company's management. The Company's former President, Irving
Kellogg, caused the Company to pay the real property taxes for the 1993-1994 tax
year. Mr. Kellogg, who was responsible for the day-to-day operations of the
Company in 1993 and early 1994, died suddenly in early 1994. No record of the
tax status of the property could be found. Under new management, which took
Page 7 of 13
<PAGE>
office in September 1994, the Company attempted to sell the property but
received no qualified offers.
As of December 31, 1995, taxes, interest and penalties were due on such
property in an aggregate amount of approximately $57,100. The Property was sold
in a tax sale in February, 1996 for $159,000. Title was transferred to the new
owner on April 4, 1996. The Company has filed a claim with the County for the
approximately $101,900 in excess proceeds from the sale. The Company believes
that, although there can be no assurances, there are no other potential
claimants to the proceeds from such sale. Under California law, any lien holder
on the property at the time of the tax sale has priority over the Company as the
owner of the property due to the prior foreclosure. Under California law, such
proceeds will not be dispersed until at least one year after transfer of title
and will be reduced by certain administrative costs incurred by the County,
which the Company estimates will not exceed $1,500.
The Company's Board of Directors is exploring the Company's prospects for
raising new capital 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 activities on the Company's net income for 1996. If the
Board does not decide to raise new capital and resume investment activities, it
will seek to distribute by liquidation all of the Company's reserves, after the
payment of expenses, to the Company's shareholders.
There has been little change in the Company's financial condition between
the end of the last fiscal year and the end of the second quarter of 1996. The
principal changes in the financial condition and results of operation of the
Company between the second quarter of 1995 and the second quarter of this year
are primarily the result of the sale of the Company's Note portfolio and
resulting decrease in the Company's income. The Company's interest income
declined by nearly 57.9% and its total income was reduced by the same amount
from the second quarter of 1995 to the second quarter of 1996. The Company's
operating expenses increased 42.4% between the two periods from $39,359 in 1995
to $56,053 in 1996. Such increase was primarily a result of increased expenses
incurred during this period related to the due diligence investigation of
potential merger or investment opportunities and the renovation of the Company's
former real property asset located in Inglewood, California. 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 second quarter of this year.
Page 8 of 13
<PAGE>
The principal changes in the financial condition and results of operation
of the Company between the first six months of 1995 and the first six months of
this year are primarily the result of the sale of the Company's Note portfolio
and resulting decrease in the Company's income. The Company's interest income
declined by nearly 65.5% from the first six months of 1995 to the first six
months of 1996 and its total income was reduced by nearly 78.2% from the first
six months of 1995 to the first six months of 1996. The Company's operating
expenses increased 32.4% between the two periods from $66,640 in 1995 to $88,223
in 1996. Such increase was primarily a result of increased expenses incurred
during this period related to the liquidation of assets in the fourth quarter of
1995, the due diligence investigation of potential merger or investment
opportunities and the renovation of the Company's former real property asset
located in Inglewood, California. The Company continues to have net operating
losses as a result of its reduced income.
Page 9 of 13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
- - ------- ---------------------------------
(a) Exhibits
No. Description
- - ---- ------------
3.1 Articles of Incorporation of Property Secured
Investments, Inc., as amended <F*> (3.1)
3.2 Restated Bylaws of Property Secured Investments, Inc.
<F*> (3.2)
27 Financial Data Schedule
[FN]
<F*> Incorporated by reference to the Company's Annual Report on
Form 10-KSB for 1995, filed with the Commission on March 29,
1996. (References in () are to original exhibit numbers.)
(b) No periodic reports on Form 8-K were filed by the Company with the
Commission during the second quarter of 1996.
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: August 14, 1996 By: /s/ Andrew K. Proctor
---------------------
Andrew K. Proctor,
Chairman and President
Dated: August 14, 1996 By: /s/ Andrew K. Proctor
---------------------
Andrew K. Proctor,
Treasurer
Page 11 of 13
<PAGE>
EXHIBIT INDEX
No. Description Page
- - ---- ------------ ----
3.1 Articles of Incorporation of Property
Secured Investments, Inc., as amended <F*> (3-a)
3.2 Restated Bylaws of Property Secured (3-b)/
Investments, Inc. <F*> <F*>
27 Financial Data Schedule 13
[FN]
<F*> Incorporated by reference to the Company's Annual Report of Form 10-KSB
for 1995, filed with the commission on March 29, 1996.
(References in () are to original exhibit numbers.)
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 71,601
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,601
<PP&E> 100,400
<DEPRECIATION> 0
<TOTAL-ASSETS> 172,001
<CURRENT-LIABILITIES> 8,950
<BONDS> 0
0
0
<COMMON> 6,298,479
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 163,051
<SALES> 0
<TOTAL-REVENUES> 1,265
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (54,788)
<INCOME-TAX> 0
<INCOME-CONTINUING> (54,788)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (54,788)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
