1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended _March 31, 1996___________________________ Commission file number _0-11404______________________________________ PACIFIC INTERNATIONAL SERVICES CORP. (Exact name of registrant as specified in its charter) California 95-2877371 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 2841 N. Nimitz Highway, Honolulu, HI 96819 (Address of principal executive office) Registrant's telephone number, including area code (808)836-0515 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__ Indicate the number of shares outstanding for each of the issuer's classes of common stock, as of the latest practicable date. Class Shares outstanding at May 10, 1996 Common Stock 13,234,599 Page 1 of 12 2 PACIFIC INTERNATIONAL SERVICES CORP. INDEX PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets..................................3 Condensed Consolidated Statements of Operations........................4 Condensed Consolidated Statements of Cash Flows........................5 Note to Condensed Consolidated Financial Statements....................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................8 PART II. OTHER INFORMATION Item 1. Legal Proceedings......................................................9 Item 6. Exhibits and Reports on Form 8-K ......................................10 Computation of Earnings Per Common Share...............................11 Signatures.............................................................12 Page 2 3 PACIFIC INTERNATIONAL SERVICES CORP CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 1996 December 31, 1995 ----------------- ------------------- (Unaudited) ASSETS Cash and cash equivalents $ 294,952 $ 521,932 Receivables, net 3,923,842 2,980,560 Automobile dealership vehicle inventories 6,963,019 9,011,840 Inventories and prepaid expenses 84,101 58,213 ---------------- ------------------ Current assets 11,265,914 12,572,545 ---------------- ------------------ Furniture, equipment and leasehold improvements Furniture and equipment 1,332,418 1,272,676 Leasehold Improvements 3,261,053 3,252,653 Vehicles 443,882 394,744 ---------------- ------------------ 5,037,353 4,920,073 Accumulated depreciation and amortization (1,722,135) (1,629,863) ---------------- ------------------ 3,315,218 3,290,210 ---------------- ------------------ Other assets 858,806 885,330 ---------------- ------------------ Total Assets $ 15,439,938 $ 16,748,085 ================ ================== LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $ 1,530,961 $ 1,018,941 Accrued expenses and other liabilities 1,668,301 1,495,151 Vehicle flooring and current portion of long-term debt 7,890,836 9,585,696 ---------------- ------------------ Current liabilities 11,090,098 12,099,788 ---------------- ------------------ Long-term debt 1,640,584 1,788,389 Convertible subordinated debentures 271,000 271,000 ---------------- ------------------ Total liabilities 13,001,682 14,159,177 ---------------- ------------------ Shareholder's equity Preferred stock, no par value, authorized 15,000,000 shares; none issued Common stock, stated value $0.10 per share, authorized 50,000,000 shares, issued and outstanding 13,234,599 shares 1,323,460 1,323,460 Additional paid-in capital 8,689,797 8,689,797 Accumulated deficit (7,575,001) (7,424,349) ---------------- ------------------ Total shareholders' equity 2,438,256 2,588,908 ---------------- ------------------ Total Liabilities and shareholders' equity $ 15,439,938 $ 16,748,085 ================ ================== See accompanying note to consolidated financial statements Page 3 4 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Ended March 31 ----------------------------------- 1996 1995 ------------- ------------ Revenues Vehicle sales $ 10,943,480 $ 9,628,972 Parts and services 1,261,969 1,045,174 Financial and insurance income 244,219 203,643 ------------ ------------ Total revenues 12,449,668 10,877,789 ------------ ------------ Cost of sales Vehicle sales 8,574,988 7,438,365 Parts and services 799,748 631,388 ------------ ------------ Total cost of sales 9,374,736 8,069,753 ------------ ------------ Gross profit on sales 3,074,932 2,808,036 Selling, general and administrative expenses 2,994,211 2,682,982 ------------ ------------ Operating income (loss) 80,721 125,054 Other income (expense) Interest expense 231,373 70,865 Interest income 0 0 ------------ ------------ Income (loss) before income taxes (150,652) 54,189 Provisions for income taxes 0 0 ------------ ------------ Income (loss) from continuing operations before extraordinary items and discontinued operations (150,652) 54,189 Discontinued operations Loss from operations of discontinued vehicle rental division (432,330) ------------ ------------ Net income (loss) $ (150,652) $ (378,141) ------------ ------------ Earnings (loss) per common and common equivalent share Continuing operations $ (0.01) $ 0.01 Discontinued operations (0.06) ------------ ------------ Net income (loss) $ (0.01) $ (0.05) ------------ ------------ Weighted average number of common shares outstanding 13,234,599 8,079,800 ------------ ------------ See accompanying note to consolidated financial statements Page 4 5 PACIFIC INTERNATIONAL SERVICES CORP. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED MARCH 31 ---------------------------------- 1996 1995 ------------ -------------- Cash flows from operating activities Net income (loss) (150,652) (378,141) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Gain on sale of rental vehicles - (692,591) Depeciation of rental vehicles and amortization of related costs 2,673,152 Depreciation and amortization, other 92,272 298,059 Provision for loss on rental vehicles 112,801 Provision for loss on receivables - 299,105 Provision for self insurance - 319,876 Change in assets and liabilities Receivables (943,282) (3,380,473) Automobile dealership vehicle inventories 2,048,821 (4,668,589) Inventories, prepaid expenses and other assets 636 (486,794) Notes payable for automobile dealership vehicle inventories (1,785,678) 9,086,823 Accounts payable 512,020 1,677,784 Accrued expenses and other liabilities 173,150 (609,051) ------------ ------------- Net cash provided (used in) by operating activities (52,713) 4,251,961 ------------ ------------- Cash flow from investing activities Proceeds from the sale of rental vehicles - 7,336,554 Purchases of rental vehicles - (166,373) Proceeds from the sale of furniture, equipment & leasehold improvements - 160,475 Additions to fixed assets, furniture, fixtures and leasehold improvements (117,280) (124,391) ------------ ------------- Net cash provided (used in) by investing activities (117,280) 7,206,265 ------------ ------------- Cash flow from financing activities Principal payments of notes payable and long term debt (56,987) (10,762,052) ------------ ------------- Net cash used in financing activities (56,987) (10,762,052) ------------ ------------- Net increase (decrease) in cash (226,980) 696,174 Cash and cash equivalents at beginning of period 521,932 831,952 ------------ ------------- Cash and Cash equivalents at end of period 294,952 1,528,126 ============ ============= See accompanying note to consolidated financial statements Page 5 6 PACIFIC INTERNATIONAL SERVICES CORP Condensed Consolidated Statements of Cash Flows, continued Supplemental schedule of noncash investing and financing activities: Three Months Ended March 31, -------------- 1996 1995 -------------- -------------- Senior debt incurred for additions to rental vehicles $ - $ 85,664 Rental vehicle purchases not yet financed $ - $ 7,974 Reduction of senior debt resulting from turnback rental vehicles - $ (12,374,279) Page 6 7 PACIFIC INTERNATIONAL SERVICES CORP. NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation In the opinion of management, the unaudited financial information included in this report contains all adjustments, consisting of normal recurring adjustments only, necessary for a fair presentation of the results of operations for the interim periods covered and the financial condition of the Company at the dates of the balance sheets. The operating results for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The accounting policies followed by the Company are set forth in Note 1 to the financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. Page 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Pacific International Services Corp. (the "Company") sold its rental car division during December 1995. The results of operations reported for the three months period ended March 31, 1996 reflect only the operations of the Company's continuing business. The results of operations of the vehicle rental division for the three months ended March 31, 1995 are shown separately in the consolidated statements of operation as a loss from discontinued operations. The financial results reported for the first quarter of 1996 include approximately $126,000 in administrative expenses directly attributable to the sale of the Company's vehicle rental operations. These expenses included: Board of Directors' liability insurance of $28,000, amortization of assets of $8,000 and professional expenses of $90,000. The Company reported a consolidated net loss of $150,652 ($0.01 per share) for the first quarter of 1996, as compared to a net loss of $378,000 ($0.05 per share) for the same quarter during 1995. The Company's consolidated revenues increased by $1,571,879 (or 14%) for the first quarter of 1996 to $12,449,668, as compared with $10,877,789 for the same quarter in 1995. The improved first quarter results are primarily attributable to increased sales in the new and used car operations. Unit sales of new vehicles increased by 23 units (or 9%) from 258 units in the first quarter of 1995 to 281 units in the first quarter of 1996. Unit sales of used vehicles increased by 38 units (or 9%) from 430 units in the first quarter of 1995 to 468 units in the first quarter of 1996. The increased sales in the first quarter of 1996 are attributable to a reorganization of the Company's management aimed at shifting the Company's focus to its vehicle sales operations. Aggregate gross profit increased by $266,896 (or 10%) from $2,808,036 in the first quarter of 1995 to $3,074,932 during the first quarter of 1996. This is due primarily to increase in sales volume. Interest expense increased by $160,508 to $231,373 during the first quarter of 1996 from $70,865 during the same quarter in 1995. This increase was due primarily to interest on notes that resulted from the sale of the rental car division. There was also an increase in flooring interest due to less flooring assistance from the manufacturers. Selling, general and administrative expense increase of $311,229 is due primarily to increase in commission expenses and increase in customers satisfaction program. Page 8 9 FINANCIAL CONDITION The Company finances its new vehicles pursuant to lines of credit issued by the Chrysler Corporation having a principal amount of up to $13.5 million. These loans bear interest at a floating rate equal to the prime rate plus 1%. Interest on loans pursuant to these lines of credit is payable monthly, and final maturity of such loans occurs upon sales of the related vehicles but no later than August of the year following the model year to which such loans apply. The Company had approximatedly$7,608,000 and $9,400,000 outstanding under these lines of credit at March 31, 1996 and 1995, respectively. In April 1996, Chrysler Financial Corporation extended an additional line of credit to the Company, secured by the Company's used car inventory. This line of credit permits borrowing up to the lesser of $1,000,000 or sixty five percent (65%) of the Company's used car inventory. As of May 10, 1996, approximately $950,000 was outstanding under this line of credit. The credit agreement provides that the line of credit will be reduced to $750,000 in September 1996. Management does not believe that the reduction in this line of credit will have a material detrimental effect on its operations, as management believes that the Company has sufficient liquidity from its non-floored vehicles and its contracts in transit. There can be no assurance, however, that the Company will not experience a reduction in its sales or that the reduction in the Company' lines of credit will not have a negative impact on the Company's operations. In May of 1996, the Company entered into a lease for a third vehicle sales facility. The Company currently plans to utilize this facility primarily for sales of its trade-in vehicles and vehicles of vintage earlier than 1991 model year. This new facility, which is scheduled to open May 17, 1996, is located directly across the street from, and will share the same management and service departments as, the Company's South Seas Jeep Eagle/Hyundai dealership. PART II ITEM 1. LEGAL PROCEEDINGS In 1994, a former employee of South Seas filed a claim against the Company seeking damages allegedly sustained as a result of discrimination based upon her age and gender. (This litigation was described in detail in the company's annual report on Form 10-K for the fiscal year ended December 31, 1995). On May 7, 1996, the Company's insurance carrier settled this litigation pursuant to the terms of a confidential settlement agreement. The Company's insurer assumed all costs of the defense and settlement of this case. The Company currently is a party to various other claims and legal actions which are incidental to the conduct of its business. In the opinion of management, after consultation with legal counsel, the ultimate disposition of these matters will not have a material effect on the Company's operations and financial condition. Page 9 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on For 8-K (a) The Exhibits noted herein as previously filed are hereby incorporated as an exhibit to this document by this reference as though set forth herein: Exhibit 11 - Statement re: Computation of Earnings Per Share (b) None Page 10 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned thereunto duly authorized. PACIFIC INTERNATIONAL SERVICES CORP. By /s/ Alan M. Robin_________________________ Alan M. Robin President and Chief Executive Officer By /s/ Steve Robin____________________________ Steve Robin Vice President By /s/ Dung Ngoc Le__________________________ Dung Ngoc Le Acting Chief Financial Officer May 10, 1996 Page 11