FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter ended September 30, 1996
Commission file number 33-26036
PROPERTY SECURED INVESTMENTS, INC.
(Exact name of small business issuer as
specified in its charter)
State of California 95-4075422
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification Number)
5850 San Felipe, Suite 500
Houston, Texas 77057
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (713) 706-6271
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. Yes [X] No[ ].
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. At October 18, 1996, 356,998 shares
of common stock, no par value.
Transitional Small Business Disclosure Format (check one): Yes[ ] No [X]
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following financial statements are submitted in the next pages:
PAGE
NUMBER
------
Balance Sheets - September 30, 1996 and December 31, 1995 4
Statements of Operations - For the Nine Months Ended September 30, 1996
and 1995 and the Three Months Ended September 30, 1996 and 1995 5
Statements of Cash Flows - For the Nine Months Ended September 30, 1996
and 1995 6
Notes to Financial Statements 7
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.
2
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 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.
On September 24, 1996, S-P Properties, Inc. acquired voting control of the
Company with the purchase of 144,000 shares of the Company's common stock. S-P
Properties, Inc. is evaluating the use of the Company as a vehicle for future
real estate related transactions.
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 1996. The
principal changes in the financial condition and results of operation of the
Company between the third quarter of 1995 and the third 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 96%
and its total income was reduced by 97% from the third quarter of 1995 to the
third quarter of 1996. The Company's operating expenses increased 3% between the
two periods from $31,014 in 1995 to $32,211 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. 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, until such time as the Company again becomes active, if a decision to
do so is made.
The principal changes in the financial condition and results of operations of
the Company between the first nine months of 1995 and the first nine 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 80% from the first nine months of 1995 to the first nine
months of 1996 and its total income was reduced by 85% from the first nine
months of 1995 to the first nine months of 1996. The Company's operating
expenses increased 23% between the two periods from $97,654 in 1995 to $120,434
in 1996. Such increase was primarily 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.
3
PROPERTY SECURED INVESTMENTS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
September 30, December 31,
1996 1995
----------- -----------
ASSETS
Cash ........................................... $ 193,517 $ 262,055
Sales proceeds receivable ...................... 100,400 100,400
----------- -----------
Total Assets ................................... $ 293,917 $ 362,455
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued and other liabilities .................. $ 426 $ 25,187
----------- -----------
Total Liabilities .............................. 426 25,187
----------- -----------
Stockholders' equity :
Common stock,
20,000,000 units authorized,
356,980 issued and
outstanding ................................ 6,460,479 6,298,479
Additional paid-in capital ................... 2,970 2,970
Distributions in excess of earnings .......... (6,169,958) (5,964,181)
----------- -----------
Total Stockholders' equity ..................... 293,491 337,268
----------- -----------
Total Liabilities and Stockholders' equity .... $ 293,917 $ 362,455
=========== ===========
4
PROPERTY SECURED INVESTMENTS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996 AND 1995 AND FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
REVENUES:
Interest ......................................... $ 3,147 $ 13,344 $ 651 $ 6,103
Loan origination fees ............................ -- 4,223 --
Other ............................................ -- 541 -- 541
--------- --------- --------- ---------
Total Revenues ........................ 3,147 18,108 651 6,644
--------- --------- --------- ---------
EXPENSES:
Operating expenses ............................. 120,434 97,654 32,211 31,014
--------- --------- --------- ---------
Total costs and expenses ........................... 120,434 97,654 32,211 31,014
--------- --------- --------- ---------
NET LOSS BEFORE SALE OF
REAL ESTATE ..................................... (117,287) (79,546) (31,560) (24,370)
Loss on sale of Real Estate ........................ -- (20,899) -- (20,899)
--------- --------- --------- ---------
NET LOSS ........................................... $(117,287) $(100,445) $ (31,560) $ (45,269)
========= ========= ========= =========
Per common share information:
Net loss ....................................... $ (0.65) $ (0.57) $ (0.17) $ (0.26)
========= ========= ========= =========
Income dividends ............................... 0.00 0.00 0.00 0.00
Return of capital dividends .................... 0.13 0.00 0.00 0.00
--------- --------- --------- ---------
Total dividends .............................. 0.13 0.00 0.00 0.00
========= ========= ========= =========
Weighted average shares outstanding ................ 181,592 177,031 190,692 177,031
========= ========= ========= =========
5
PROPERTY SECURED INVESTMENTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received .................................. $ 3,147 $ 11,075
Operating expenses paid ............................ (145,195) (103,524)
Other income received .............................. 541
--------- ---------
Net cash used in operating activities ............ (142,048) (91,908)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash distributions to stockholders ................. (88,490)
Principal payments received on notes receivable .... 66,061
Proceeds on sale of real estate .................... 74,368
--------- ---------
Net cash (used in) provided by
investing activities ........................... (88,490) 140,429
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds on sale of common stock ................... 162,000
--------- ---------
Net cash provided by financing activities ........ 162,000 --
--------- ---------
NET (DECREASE) INCREASE IN CASH ...................... (68,538) 48,521
Cash beginning of period .......................... 262,055 170,323
--------- ---------
Cash end of period ................................ $ 193,517 $ 218,844
========= =========
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ........................................... $(117,287) $(100,445)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on sale of real estate .................... 20,899
Amortization of loan origination fees .......... (4,223)
Increase in accrued interest receivable ........ (2,269)
Decrease in accrued expenses and
other liabilities ............................ (24,761) (5,870)
--------- ---------
Net cash used in operating activities ............ $(142,048) $ (91,908)
========= =========
6
PROPERTY SECURED INVESTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
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 a 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 September 30, 1996.
NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common shares
outstanding.
2. BASIS OF FINANCIAL STATEMENTS
In the opinion of the Partnership's management, these unaudited financial
statements reflect all adjustments which are necessary for a fair presentation
of its financial position at September 30, 1996 and results of operations and
cash flows for the periods presented. All adjustments included in these
statements are of a normal and recurring nature. These financial statements
should be read in conjunction with the financial statements and notes thereto
for the year ended December 31, 1995.
UNAUDITED
7
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation S-K.
Exhibit
Number Description of Exhibit
- ------------ ----------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 24, 1996, a Form 8-K was filed reporting a change in
control of the registrant.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report be signed on its behalf by the
undersigned thereunto duly authorized.
PROPERTY SECURED INVESTMENTS, INC.
Date: NOVEMBER 8, 1996 /s/ THOMAS N. THURBER
Thomas N. Thurber
President and Director
Date: NOVEMBER 8, 1996 /s/ MICHELE E. JOHNSON
Michele E. Johnson
Chief Accounting Officer
8