UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C.  20549
                                                          

                                    FORM 10-K
     (Mark One)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 [FEE REQUIRED]

                    For the fiscal year ended July 31, 1996 

                                       OR

     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
          SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

          For the transition period from        to       
                                         ------    ------
                         Commission file number 0-6673 

                           PACIFIC SECURITY COMPANIES
                           --------------------------
             (Exact name of registrant as specified in its charter)

                  Washington                                91-0669906     
        ------------------------------                  -------------------
        State or other jurisdiction of                   (I.R.S. Employer  
        incorporation of organization)                  Identification No.)

               N. 10 Post Street
              525 Peyton Building
              Spokane, Washington                              99201       
        ------------------------------                  -------------------
             (Address of principal                           (Zip code)    
              executive offices)

     Registrant's telephone number, including area code:  (509) 624-0183

     Securities registered pursuant to Section 12(b) of the Act:

                                                             Name of each  
                                                          exchange on which
              Title of each class                             registered   
        -------------------------------                  ------------------
                     None                                        None      

     Securities registered pursuant to Section 12(g) of the Act:

                       Common stock, no par value shares 

                                (Title of class)
     <PAGE>
     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 by check mark if disclosure of delinquent filers pursuant to
     Item 405 of Regulation S-K is not contained herein, and will not be
     contained, to the best of registrant's knowledge, in definitive proxy
     or information statements incorporated by reference in Part III of this
     Form 10-K or any amendment to this Form 10-K.  X  
                                                   ---
     State the aggregate market value of the voting stock held by
     nonaffiliates of the registrant:  There is no regular, established
     market for trading in the Company's common stock.  Therefore, the
     aggregate market value of the voting stock held by nonaffiliates of the
     registrant is not determinable.

     On July 31, 1996, the registrant had outstanding 1,918,085 shares of
     common stock, no par value ($3 stated value) and 10,400 shares of Class
     A preferred stock, $100 par value.

     Documents incorporated by reference:  none.

     Number of pages in this document is 47.
     <PAGE>
                            PACIFIC SECURITY COMPANIES
                             FORM 10-K ANNUAL REPORT

                                Table of Contents
                                                          


     PART I

     Item 1.   Business
     Item 2.   Properties
     Item 3.   Legal Proceedings
     Item 4.   Submission of Matters to a Vote of Security Holders


     PART II

     Item 5.   Market for the Registrant's Common Equity and
                   Related Stockholder Matters
     Item 6.   Selected Financial Data
     Item 7.   Management's Discussion and Analysis of Financial
                   Condition and Results of Operations
     Item 8.   Financial Statements and Supplementary Data
     Item 9.   Changes in and Disagreements with Accountants on
                   Accounting and Financial Disclosure


     PART III

     Item 10.  Directors and Executive Officers of the Registrant
     Item 11.  Executive Compensation
     Item 12.  Security Ownership of Certain Beneficial Owners
                   and Management
     Item 13.  Certain Relationships and Related Transactions


     PART IV

     Item 14.  Exhibits, Financial Statement Schedules, and 
                   Reports on Form 8-K
     <PAGE>
     PART I
     ----------------------------------------------------------------------

     Item 1.   Business

     (a)  Pacific Security Companies was merged into Security Savesco, Inc.
          as of May 31, 1985. The name of Security Savesco, Inc. the
          surviving corporation, was changed to Pacific Security Companies
          as of the date of the merger.

          Prior to the merger, both corporations were engaged principally
          in real estate contract financing and owning, leasing and selling
          real properties. The merged corporation has continued these
          activities. Total assets of the registrant at July 31, 1996 and
          1995 were $33,060,107 and $35,351,486, respectively, and real
          estate contracts represent approximately 32% and 38% of the
          respective asset totals. The Company began curtailing its
          contract acquisitions and presently primarily originates
          contracts to facilitate the sale of real estate held for sale or
          development. Many of the contracts have fixed contractual
          interest rates from 5.25% to 14.25% and there is no provision for
          changing these rates to current market rates. However, for real
          estate contracts purchased by the Company, most contracts have
          been purchased at a discount from the contract balance which
          increases the effective yield. Newer contracts bear interest
          rates based on current market conditions. At July 31, 1996,
          approximately $2,626,000 of real estate contracts provide for
          variable interest rates. The total amount invested in real estate
          contracts and mortgages of $10,492,944 as of July 31, 1996 is
          $2,964,952 less than at the end of the prior year. The percentage
          of contracts which were delinquent over 90 days was 1.0% as of
          July 31, 1996 and 0.8% as of July 31, 1995. Management continues
          to emphasize enforcement of the Company's credit and collection
          policies.

          In fiscal 1996, the Company continued to emphasize the
          development of its rental properties and commenced new projects
          primarily to improve the occupancy of its commercial buildings.
          Correspondingly, the acquisition of additional real estate
          contracts was minimal, other than for Company financed sales of
          its real estate.

          In fiscal 1996, the Company completed construction of Birdies
          Golf Center (Birdies). The golf center features a 56-tee driving
          range, a fully-lighted, contoured fairway with 5 target greens, a
          pro shop, teaching studios and an 8,000-square-foot putting
          green. Birdies serves as a practice and teaching center for all
          levels of golfers and additionally sells golf clubs and related
          golfing supplies. Birdies has been constructed on land held for
          development by the Company since 1990. Costs incurred to
          construct the facility, including land costs, were approximately
          $2,197,000. See further information on this business segment in
          Note 6 to the consolidated financial statements.
     <PAGE>
          Additionally, in fiscal 1996, the Company continued developing
          certain land for residential development. The Company has made
          street improvements and began underground and power line utility
          construction. The project, known as Tanglewood Ranch Park Estates
          (Tanglewood)  offers 21 ten-acre parcels suitable for home
          construction. The Company anticipates marketing these parcels
          extensively in the spring of 1997.

          Investments in rental properties totaled $15,150,040 and
          $15,647,591 as of July 31, 1996 and 1995, respectively. The
          decrease is primarily the net result of increased additional
          costs offset by depreciation and sales. Other real property held
          for sale totaled $3,797,395 and $3,205,951 as of July 31, 1996
          and 1995, respectively. These properties will be liquidated
          and/or developed at such time as market conditions warrant, and
          in the judgment of management, when the Company can maximize its
          return. The Company will continue to invest in and hold real
          property on a long-term basis. These properties may ultimately be
          sold on an installment basis for tax purposes in order to
          minimize and defer related income taxes and to conserve funds for
          additional investment purposes. These plans may be modified as
          the result of future changes to the Internal Revenue Code.

          With the Company's continued emphasis on the development and
          leasing of commercial real estate and multi-family housing,
          rental income has increased from $2,653,958 in fiscal 1994 to
          $2,714,563 in fiscal 1996. During the same period, interest
          income, including the amortization of discounts on real estate
          contracts, has declined from 35% of total income in fiscal 1994
          to 26% of total income in fiscal 1996. The Company expects to
          continue its emphasis on the development and leasing of
          commercial real estate in fiscal 1997 along with the continued
          operation of Birdies and marketing of the Tanglewood parcels.
          There are no contractual commitments other than the remaining
          remodeling costs associated with improvements for commercial
          buildings. The Company's fiscal 1996 capital expenditures may
          increase if demand for the rental of Company properties continues
          or if the Company decides to further develop any of its
          properties held for sale. A description of the Company's
          significant properties is included in Item 2  Properties.

          The Company's business is concentrated in financing real estate
          contracts, developing real estate for sale or lease and the
          operation of Birdies. The Company is in competition with
          financial institutions who invest in real estate collateralized
          contracts and commercial property owners located primarily in or
          near Spokane, Washington. As of July 31, 1996, the Company
          employed approximately 36 people on a full-time equivalent basis,
          11 of whom are in its office at N. 10 Post Street in Spokane,
          Washington.
     <PAGE>
     Item 2.  Properties

     As of July 31, 1996, the Company owns the following properties. Some
     of the properties are subject to real estate contracts or mortgages
     that are collateralized by the property.

     Properties Located in Spokane County, Washington:

     <TABLE>
     <CAPTION>
                                                               July 31, 1996
                                                 ----------------------------------------
                                                    Rental          Net        Mortgage
       Date                                       Development     Carrying    or Contract
      Aquired      Description of Propety           Status         Value      Obligation
      -------   ------------------------------   -------------   ----------   -----------
      <S>       <C>                              <C>             <C>          <C>
      Commercial:

        1979    The Peyton Building at N. 10     Substantially   $3,628,632   $  932,928
                Post Street contains approxi-    Leased
                mately 85,000 square feet of 
                rentable space. Substantial 
                improvements have been made to 
                the building since its acqui-
                sition. Remodeling of this 
                office building continues as 
                new occupancy warrants. The 
                Company's offices are located 
                in this building.

        1979    The Hutton Building at S. 10     Substantially   $3,512,927
                Washington contains approxi-     Leased
                mately 56,000 square feet of 
                rentable space. Substantial 
                improvements have been made to 
                the building since its acqui-
                sition. Remodeling of this 
                building continues as new 
                occupancy warrants. The Company 
                also acquired two other build-
                ings and 25,000 square feet for
                parking near this building.

        1987    Retail office building located   Leased          $  221,592   $  143,357
                at E. 11128 Sprague Avenue.
                The property is occupied by 
                four tenants.

        1984    Bank Branch Building at W. 102   Leased          $  449,606   $  651,453
                Indiana Avenue is under a long-
                term lease.

      Various   The Valley Mini-Storage complex  Substantially   $1,081,891   $  344,288
                which includes 560 storage       Rented
                units.

      </TABLE>
      <PAGE>
      Properties Located in Spokane County, Washington, Continued:

     <TABLE>
     <CAPTION>
                                                                July 31, 1996
                                                 ----------------------------------------
                                                    Rental          Net        Mortgage
       Date                                       Development     Carrying    or Contract
      Acquired     Description of Property          Status         Value      Obligation
      --------  ------------------------------   -------------   ----------   -----------
      <S>       <C>                              <C>             <C>          <C>

      Commercial, Continued:

        1992    The Pier One Building is a       Leased          $3,532,329   $1,595,136
                commercial building. During 
                fiscal 1994, substantial 
                remodeling was completed. The 
                The building has two major 
                tenants, who occupy over 60% 
                of the space, and several other 
                smaller tenants for the remain-
                ing space.

        1992    The Cellular One Building is     Leased          $  807,488
                a commercial building con-
                structed by the Company on the 
                north river bank in Spokane.

        1990    The Nevada-Holland property      Under           $  998,072
                consists of approximately 20     development
                remaining acres of raw land 
                in a location where there has 
                been substantial commercial 
                and development residential 
                development.

        1995    Birdies Golf Center, con-        Constructed     $2,124,230
                structed on 14 acres of the      and operating
                Nevada-Holland property, 
                features  a 56-tee driving
                range, a fully contoured fair-
                way with 5 target greens, a 
                pro shop, teaching studios and 
                an 8,000-square-foot putting 
                green.

        1991    Tanglewood Ranch Park Estates    Under           $1,600,550
                in south Spokane County was      development
                acquired through a judicial 
                foreclosure. The area consisted 
                of approximately 330 acres of 
                undeveloped land. In fiscal 
                1996, the Company commenced the 
                development of this property 
                which, when completed, will 
                result in 21 fully developed 
                residential lots.

        1990    The north river bank in          Undeveloped     $  990,266   $  122,643
                Spokane consists of parcels 
                of undeveloped commercial real 
                estate.
      </TABLE>
     <PAGE>
     Properties Located in Spokane County, Washington, Continued:

     <TABLE>
     <CAPTION>
                                                                July 31, 1996
                                                 ----------------------------------------
                                                    Rental          Net        Mortgage
       Date                                       Development     Carrying    or Contract
      Acquired     Description of Property          Status         Value      Obligation
      --------  ------------------------------   -------------   ----------   -----------
      <S>       <C>                              <C>             <C>          <C>
      Commercial, Continued:

      Multi-Family Housing:

        1979    The East Valley Terrace Apart-   Fully           $  462,562   $  433,520
                ments is a 48-unit apartment     Occupied
                complex. The apartment complex 
                is a Department of Housing 
                and Urban Development (HUD) 
                project.

        1969    The Aqua View Apartments is      Fully           $  639,342   $  393,708
                a 129-unit apartment complex.    Occupied
                The complex is an FHA 221(d)3 
                project, receives rent subsi-
                dies from Spokane Housing 
                Authority and is subject to a 
                HUD-insured mortgage.

      Projects Located Outside Spokane County, Washington:

        1991    The City View Apartments is      Fully           $  441,903   $  556,413
                a 21-unit apartment complex.     Occupied

        1976    Retail store in Coeur d'Alene,   Leased          $   98,947   $   25,891
                Idaho containing 17,000 square 
                feet. The building is currently 
                leased through 1996.

        1993    Approximately six acres in       Being           $  172,106
                Auburn, Washington zoned for     Marketed
                multi-family housing were 
                acquired through a foreclosure.

      Additionally, the Company has other less significant investments in
      real estate located primarily in the state of Washington.


     Item 3.  Legal Proceedings

     As of July 31, 1996, it is the opinion of management that there is no
     pending litigation that would have a materially adverse effect on the
     financial condition or operations of the registrant.


     Item 4.  Submission of Matters to a Vote of Security Holders

     No matters were submitted to a vote of the stockholders during the
     fourth quarter of fiscal 1996.
     <PAGE>
     PART II
     ----------------------------------------------------------------------

     Item 5.  Market for the Registrant's Common Equity and Related
              Stockholder Matters

     (a)  Principal Market.

          There is no established market for trading in the Company's
          common stock.  Periodically, the Company will purchase and retire
          its common stock, but does not solicit such transactions.

     (b)  Stock Price and Dividend Information.

          There is no market information relative to the common stock price
          of the Company's stock as it is not actively traded. A dividend
          of $0.075 per common share totaling $150,786, declared as 
          payable to stockholders of record as of July 31, 1989, was paid
          August 15, 1989. A dividend of $0.10 per common share or
          $200,211, declared as payable to stockholders of record as of
          July 31, 1990, was paid August 15, 1990. No dividends were
          declared in any of the years since 1990.

     (c)  Approximate Number of Holders of Common Stock.

          Common no par value -- 1,179 record holders.

     (d)  There is only one class of common stock outstanding. Any dividend
          which may be declared would be payable at the same rate on each
          share of common stock. At July 31, 1996, the Company also has
          issued 10,400 shares of Class A preferred stock owned by five
          holders. These shares receive cumulative dividends of 6% when
          declared by the Board of Directors. During the fiscal years ended
          July 31, 1996 and 1995, dividends totaling $62,400 were declared
          and accrued on these shares. The dividends were paid on August 2,
          1996 and August 2, 1995, respectively. These preferred shares
          require redemption by the Company at par value ($1,040,000) in
          2004.
     <PAGE>
     Item 6.  Selected Financial Data

     The following selected financial data have been derived from the
     Company's audited consolidated financial statements, and should be
     read in conjunction with the consolidated financial statements and
     notes thereto.

     
</TABLE>
<TABLE>
     <CAPTION>
                                                               Years Ended July 31,
                                         ---------------------------------------------------------------
                                            1996         1995         1994         1993         1992
                                         -----------  -----------  -----------  -----------  -----------
     <S>                                 <C>          <C>          <C>          <C>          <C>
     Statement of Operations Data:
     -----------------------------
     Rental income                       $ 2,714,563  $ 2,832,139  $ 2,653,958  $ 2,635,215  $ 2,477,709
     Interest income                       1,138,935    1,375,420    1,476,881    1,714,348    2,091,652
     Gains on sales of real estate           486,469      584,657      186,109      233,766      271,313
     Interest expense, net                 1,650,559    1,681,213    1,682,355    1,894,691    2,142,103
     Cumulative effect of change in 
       accounting principle                       --           --      (61,894)          --           --
     Net income (loss)                        39,266      159,310       71,558      140,412     (255,072)
     Income (loss) applicable to 
       common shareholders                   (75,134)      44,910       71,558      140,412     (255,072)
     Income (loss) per common share:
       Income (loss) before cumulative 
         effect of change in account- 
         ing principle                          (.04)         .02          .07          .07         (.13)
       Cumulative effect of change in 
         accounting principle                     --           --         (.03)          --           --
                                         -----------  -----------  -----------  -----------  -----------
     Income (loss) per common share             (.04)         .02          .04          .07         (.13)
                                         -----------  -----------  -----------  -----------  -----------
     Cash dividends per common share              --           --           --           --           --
     Average number of common shares
       outstanding                         1,938,076    1,960,746    1,977,889    1,986,911    1,996,143
     </TABLE>
     <PAGE>
     <TABLE>
     <CAPTION>
                                                               Years Ended July 31,
                                         ---------------------------------------------------------------
                                            1996         1995         1994         1993         1992
                                         -----------  -----------  -----------  -----------  -----------
     <S>                                 <C>          <C>          <C>          <C>          <C>
     Balance Sheet Data (at year end):

     Contracts, mortgages and finance 
       notes receivable, net             $10,492,944  $13,457,896  $14,457,958  $14,930,791  $19,815,303
     Total assets                         33,060,107   35,351,486   34,842,679   35,898,448   37,601,731
     Notes and contracts payable          11,055,919   13,107,725   13,679,068   14,951,242   16,100,784
     Debentures                            9,718,260    9,179,484    8,567,231    8,763,867    9,906,777
     Stockholders' equity                  9,397,005    9,544,017    9,563,355    9,521,032    9,389,970
     </TABLE>
     <PAGE>
     Item 7.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations

     General
     -------
     This discussion contains some forward-looking statements. A forward-
     looking statement may contain words such as "will continue to be,"
     "will be," "continue to," "expect to," "anticipates that," "to be," or
     "can impact." Management cautions that forward-looking statements are
     subject to risks and uncertainties that could cause the Company's
     actual results to differ materially from those projected in forward-
     looking statements.

     The Company engages in financing real estate collateralized contracts,
     acquiring real estate that is either held for sale or developed and
     leased or sold and operating Birdies Golf Center as its primary
     activities. During the past two years, the Company has been
     emphasizing the development and lease of its commercial office
     building projects as demand for the available space in these projects
     has increased. Virtually all of the Company's development of these
     commercial office building projects has involved extensive remodeling
     efforts in connection with preparation of previously unoccupied space
     for a new tenant and structural changes as required by current
     building codes. As a result of the Company's emphasis, operating lease
     income has become an increasingly larger portion of total Company
     income.

     The Company invests in real estate collateralized contracts and real
     property primarily within the state of Washington, with a
     concentration in Spokane County. The Company has concentrated its
     efforts primarily on the development and sale of existing real estate
     projects to maximize the return from those investments. The Company
     has curtailed its contract acquisitions and now primarily originates
     real estate contracts to facilitate the sale of its property held for
     sale or development.

     Birdies Golf Center opened to the pubic in fiscal 1996. The Company
     has focused on a marketing campaign to increase public awareness and
     attraction to the facility. In addition to its many unique amenities,
     Birdies has on staff a golf pro and a general manager. In its second
     year of operations, Birdies is expected to contribute an increasing
     portion of the Company's income.

     The Company finances its investments in real estate and contracts and
     operates Birdies Golf Center primarily through the sale of fixed rate
     debentures with terms ranging from one to ten years, real estate notes
     or mortgages, and a collateralized line-of-credit arrangement with a
     local bank. The Company intends to continue using these funding
     sources in the future.
     <PAGE>
     Results of Operations
     ---------------------
     For the years ended July 31, 1996, 1995 and 1994, the Company's net
     income was approximately $39,000, $159,000 and $72,000, respectively.
     Due to dividends and the accretion of the discount on the issuance of
     preferred stock, the loss applicable to common shareholders was
     approximately $75,000 in fiscal 1996.

     Rental real estate activities have increased as more available space
     in existing projects has been let and rental rates have been
     increased. Total rental income has increased from approximately
     $2,654,000 in fiscal 1994 to  $2,715,000 in fiscal 1996. The Company
     anticipates this trend will continue as additional space is leased and
     rental rates increase. However, reduced rental income could result
     from sales of some rental properties.

     The total interest income and amortization of discounts on acquired
     real estate contracts has continued to decline from approximately
     $1,610,000 and $1,458,000 in fiscal 1994 and 1995, respectively, to
     approximately $1,265,000 in fiscal 1996. This decline corresponds
     directly with the decline in the Company's investment in real estate
     contracts. The Company has curtailed its real estate contract
     acquisition activities to concentrate its efforts in renovating and
     leasing commercial office buildings and developing real estate.
     Collections on real estate contracts have significantly exceeded new
     acquisitions in each of the last three fiscal years. These funds were
     used to remodel and develop existing real estate projects and repay
     outstanding obligations.

     Gains on the sale of real estate were approximately $486,000, $585,000
     and $186,000 in fiscal 1996, 1995 and 1994, respectively. The Company
     anticipates that it will continue to recognize gains both on the sale
     of real estate acquired through foreclosure and real estate acquired
     for resale.

     Sales of services and tangible products at Birdies were approximately
     $294,000 in fiscal 1996, which is in line  with the Company's
     expectations for its first year of operations. Overall, the golf
     center recorded a loss from operations of approximately $143,000,
     primarily reflecting the initial start-up and staffing costs. The
     Company anticipates that the margins from its golf center will improve
     through increased sales in its second year of operations and the non-
     recurrence of start-up costs.

     The expenses associated with rental operations have increased to
     approximately $2.5 million in fiscal 1996 from approximately $2.4
     million in fiscal 1995 and $2.2 million in fiscal 1994. As new tenants
     are added to the major office building projects, the Company
     anticipates increased depreciation and interest expense and othercosts 
     associated with the major remodeling projects. However, the
     resultant increase in rental income is anticipated to more than offset
     the expected increases in related costs. The rental activities of the
     Company are expected to continue to contribute significantly to its
     profitability.
     <PAGE>
     Interest expense, exclusive of interest on rental properties, net of
     amounts capitalized, was approximately $1,216,000, $1,263,000 and
     $1,363,000  in fiscal 1996, 1995 and 1994, respectively. The decline
     in interest costs over the three-year period has been primarily as a
     result of a decrease in outstanding borrowings.

     Salaries and commissions and general and administrative costs have
     increased modestly in absolute dollar amounts for each of the last
     three fiscal years. The commencement of the Birdies operation in early
     fiscal 1996 contributed to an increase in the number of employees and
     related salaries and other administrative costs.

     The Company's effective income tax rate as a percentage of income
     before federal income tax was 31% in fiscal 1996; however, its current
     income tax provision increased significantly due to the reversal of
     deferred installments gains for tax purposes. Effective August 1,
     1993, the Company adopted the provisions of Statement of Financial
     Accounting Standards No. 109, "Accounting for Income Taxes." The
     cumulative effect of adopting this standard was a charge to operations
     of $61,894 in fiscal 1994.

     Liquidity and Capital Resources
     -------------------------------
     At July 31, 1996, the Company had total stockholders' equity of
     approximately $9,397,000 and a total liabilities to equity ratio of
     2.45 to 1, which decreased slightly from 2.64 to 1 a year before. In
     fiscal 1996, the Company's primary sources of funds were approximately
     $259,000 from the sale of real estate, $4.2 million in real estate
     contract collections, $863,000 from the sale of debentures and $1.3
     million from the issuance of mortgage and notes payable. The primary
     uses of funds were approximately $2.5 million used for the acquisition
     and improvements of real estate projects, $2.2 million in net
     repayments on the line of credit borrowings and approximately $1.1
     million in repayment of outstanding long-term debt. As a holder of
     monetary assets and liabilities, the Company's performance may be
     significantly affected by changes in interest rates. These changes are
     somewhat mitigated or delayed to the extent that much of the Company's
     investment in real estate contracts, and established real estate
     leases have fixed returns, as do the Company's debentures.
     Additionally, the Company will be affected by changes in the real
     estate market in Washington.

     The Company anticipates that sales of debentures and the availability
     of funds under its $8,000,000 line-of-credit arrangement, of which
     only approximately $4,448,000 was outstanding at July 31, 1996, will
     be sufficient to fund its short- and intermediate-term needs to retire
     maturing debentures and mortgage obligations and continue development
     of its real estate projects as demand warrants.
     <PAGE>
     Impact of Recently Issued Accounting Standards
     ----------------------------------------------
     The Company is required to adopt the provisions of Statement of
     Financial Accounting Standards No. 121 ("SFAS") No. 121, "Accounting
     for the Impairment of Long-Lived Assets and for Long-Lived Assets to
     be Disposed Of" on August 1, 1996.  SFAS No. 121 requires that an
     impairment loss be recognized when the estimated future cash flows
     (undiscounted and without interest) expected to result from the use of
     an asset are less than the carrying amount of the asset. Measurement
     of an impairment loss is based on the fair value of the asset if the
     asset is expected to be held and used. The Company does not anticipate
     that the adoption of this standard will have a material effect on the
     consolidated financial statements.

     Item 8.  Financial Statements and Supplementary Data


     Index to Consolidated Financial Statements

     Report of independent accountants

     Financial statements:

       Consolidated balance sheets

       Consolidated statements of operations

       Consolidated statements of stockholders' equity

       Consolidated statements of cash flows
       Notes to consolidated financial statements


     Item 9.  Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure

     There  were  no  disagreements  on   accounting  issues  or  financial
     statement disclosure during the fiscal year ended July 31, 1996 or any
     interim period after July 31, 1996.
     <PAGE>
     Report of Independent Accountants



     Board of Directors and Stockholders
     Pacific Security Companies
     Spokane, Washington

     We have audited the accompanying consolidated balance sheets of
     Pacific Security Companies and subsidiaries as of July 31, 1996 and
     1995, and the related consolidated statements of operations,
     stockholders' equity and cash flows for each of the three years in the
     period ended July 31, 1996. These financial statements are the
     responsibility of the Company's management. Our responsibility is to
     express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
     standards. Those standards require that we plan and perform the audits
     to obtain reasonable assurance about whether the financial statements
     are free of material misstatement. An audit includes examining on a
     test basis, evidence supporting the amounts and disclosures in the
     financial statements. An audit also includes assessing the accounting
     principles used and significant estimates made by management, as well
     as evaluating the overall financial statement presentation. We believe
     that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present
     fairly, in all material respects, the consolidated financial position
     of Pacific Security Companies and subsidiaries as of July 31, 1996 and
     1995, and the consolidated results of their operations and their cash
     flows for each of the three years in the period ended July 31, 1996,
     in conformity with generally accepted accounting principles.

     As discussed in  Note 1 to the consolidated financial statements, the
     Company changed its method of accounting for impaired loans in fiscal
     1996 and for income taxes in fiscal 1994.



                                    /s/Coopers & Lybrand L.L.P.            


     Spokane, Washington
     September 27, 1996
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Balance Sheets
     July 31, 1996 and 1995

                  ASSETS                            1996          1995
                                                 -----------   -----------
     Cash and cash equivalents:
       Unrestricted                              $   464,471   $   575,351
       Restricted                                    152,346       188,510
                                                 -----------   -----------
                                                     616,817       763,861
                                                 -----------   -----------
     Receivables:
       Contracts, mortgages and finance notes
         receivable, net:
           Related parties                           845,672     1,092,875
           Unrelated                               9,647,272    12,365,021
                                                 -----------   -----------
                                                  10,492,944    13,457,896
       Accrued interest                               90,111       108,796
       Other                                          72,542        48,232
                                                 -----------   -----------
                                                  10,655,597    13,614,924
                                                 -----------   -----------
     Investment in rental properties, net         15,150,040    15,647,591
                                                 -----------   -----------
     Investment in golf center, net                2,124,230
                                                 -----------
     Other investments:
       Property held for sale and development      3,797,395     3,205,951
       Golf center under development                             1,341,798
       Marketable securities                          75,880        96,379
       Restricted investments                        221,840       270,650
       Other                                          20,931        49,768
                                                 -----------   -----------
                                                   4,116,046     4,964,546
                                                 -----------   -----------
     Other assets:
       Vehicles and equipment, net                    30,983        25,497
       Prepaid expenses                              283,042       335,067
       Golf center inventories                        83,352
                                                 -----------   -----------
                                                     397,377       360,564
                                                 -----------   -----------
             Total assets                        $33,060,107   $35,351,486
                                                 ===========   ===========

     The accompanying notes are an integral part of the consolidated
       financial statements.
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Balance Sheets, Continued
     July 31, 1996 and 1995




        LIABILITIES AND STOCKHOLDERS' EQUITY        1996          1995
                                                 -----------   -----------
     Liabilities:
       Note payable to bank                      $ 4,448,010   $ 6,679,398
                                                 -----------   -----------
       Installment contracts, mortgage notes 
         and notespayable:
           Related parties                           204,136       215,795
           Unrelated                               6,403,773     6,212,532
                                                 -----------   -----------
                                                   6,607,909     6,428,327
                                                 -----------   -----------
       Debenture bonds                             9,718,260     9,179,484
                                                 -----------   -----------
       Accrued expenses and other liabilities:
         Related parties                             165,438       264,864
         Unrelated                                   786,166     1,269,985
                                                 -----------   -----------
                                                     951,604     1,534,849
                                                 -----------   -----------
       Federal income taxes:
         Currently payable                           244,944        16,849
         Deferred                                  1,068,375     1,396,562
                                                 -----------   -----------
                                                   1,313,319     1,413,411
                                                 -----------   -----------
             Total liabilities                    23,039,102    25,235,469
                                                 -----------   -----------
     Commitments and contingencies (Note 10)

     Redeemable Class A preferred stock,
       $100 par value; $100 redemption value; 
       authorized 20,000 shares; issued and 
       outstanding, 10,400 shares                  1,040,000     1,040,000
     Less: Net discount on issuance of pre-
       ferred stock                                 (416,000)     (468,000)
                                                 -----------   -----------
                                                     624,000       572,000
                                                 -----------   -----------
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Balance Sheets, Continued
     July 31, 1996 and 1995


        LIABILITIES AND STOCKHOLDERS'
             EQUITY, CONTINUED                      1996          1995
                                                 -----------   -----------
     Stockholders' equity:
       Common stock:
         Original class, authorized 2,500,000 
           no par value shares, $3 stated value; 
           issued and outstanding, 1,918,085 
           and 1,958,067 shares                  $ 5,754,256   $ 5,874,202
         Class B, authorized 30,000 no par 
           value shares; no shares issued and 
           outstanding
         Additional paid-in capital                1,805,000     1,747,027
       Retained earnings                           1,853,275     1,928,409
       Unrealized loss on marketable securities      (15,526)       (5,621)
                                                 -----------   -----------
           Total stockholders' equity              9,397,005     9,544,017
                                                 -----------   -----------
           Total liabilities and stockholders' 
             equity                              $33,060,107   $35,351,486
                                                 ===========   ===========

     The accompanying notes are an integral part of the consolidated 
       financial statements.
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Statements of Operations
     for the years ended July 31, 1996, 1995 and 1994


                                           1996        1995        1994
                                        ----------  ----------  ----------
     Income:
       Rental                           $2,714,563  $2,832,139  $2,653,958
       Interest                          1,138,935   1,375,420   1,476,881
       Gain on sale of securities           30,959       4,445      25,119
       Service fees and options                          3,600         980
       Amortization of discounts on 
         real estate contracts             126,044      82,783     132,662
       Gain on sales of real estate        486,469     584,657     186,109
       Golf center sales (including 
         lessons of $31,936)               294,276
       Other, net                          153,376     (30,010)     93,378
                                        ----------  ----------  ----------
                                         4,944,622   4,853,034   4,569,087
                                        ----------  ----------  ----------
     Expenses:
       Rental operations:
         Depreciation and amortization     714,474     699,264     677,687
         Interest                          434,397     418,688     319,011
         Other                           1,311,200   1,332,205   1,197,641
                                        ----------  ----------  ----------
                                         2,460,071   2,450,157   2,194,339
       Interest, net of amount 
         capitalized                     1,216,162   1,262,525   1,363,344
       Salaries and commissions            651,416     565,245     504,627
       General and administrative          422,455     311,557     294,242
       Depreciation                         82,797      18,190      19,843
       Cost of golf merchandise sales       53,503
       Uncollectible accounts                1,412         117         821
                                        ----------  ----------  ----------
                                         4,887,816   4,607,791   4,377,216
     Income before federal income tax 
       provision and accumulative 
       effect of change in accounting 
       principle                            56,806     245,243     191,871
     Federal income tax provision           17,540      85,933      58,419
                                        ----------  ----------  ----------
     Income before cumulative effect 
       of change in accounting 
       principle                            39,266     159,310     133,452

     Cumulative effect of change in 
       accounting principle                                        (61,894)
                                        ----------  ----------  ----------
     Net income                             39,266     159,310      71,558
                                        ----------  ----------  ----------
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Statements of Operations, Continued
     for the years ended July 31, 1996, 1995 and 1994


                                           1996        1995        1994
                                        ----------  ----------  ----------

     Net income                             39,266     159,310      71,558
       Less: Preferred stock dividends     (62,400)    (62,400)
             Accretion of discount on 
               preferred stock             (52,000)    (52,000)
                                        ----------  ----------  ----------
     Income (loss) applicable to 
       common stockholders              $  (75,134) $   44,910  $   71,558
                                        ==========  ==========  ==========

     Income (loss) per common share:
       Income (loss) before cumulative 
         effect of change in account-
         ing principle                  $     (.04) $      .02  $      .07
       Cumulative effect of change in 
         accounting principle                                         (.03)
                                        ----------  ----------  ----------
     Income (loss) per common share     $     (.04) $      .02  $      .04
                                        ==========  ==========  ==========

     Weighted average common shares 
       outstanding                       1,938,076   1,960,746   1,977,889
                                        ==========  ==========  ==========

     The accompanying notes are an integral part of the consolidated
       financial statements.
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Statements of Stockholders' Equity
     for the years ended July 31, 1996, 1995 and 1994

     <TABLE>
     <CAPTION>
                                                                      Unrealized
                                             Additional               Gain (Loss)
                                   Common     Paid-In     Retained   on Marketable
                                   Stock      Capital     Earnings    Securities      Total
                                 ----------  ----------  ----------  -------------  ----------
      <S>                        <C>         <C>         <C>         <C>            <C>
      Balances, July 31, 1993    $5,943,303  $1,760,529  $1,811,941   $     5,259   $9,521,032
        Net income                                           71,558                     71,558
        Unrealized gain on 
           marketable securi-
           ties                                                            17,550       17,550
        Purchase and retire-
           ment of common stock 
           (15,506 shares)          (46,517)       (268)                               (46,785)
                                 ----------  ----------  ----------   -----------   ----------
      Balances, July 31, 1994     5,896,786   1,760,261   1,883,499        22,809    9,563,355
        Net income                                          159,310                    159,310
        Unrealized loss on 
           marketable securi-
           ties                                                           (28,430)     (28,430)
        Purchase and retire-
           ment of common stock
           (7,528 shares)           (22,584)    (13,234)                               (35,818)
        Cash dividend declared
           on preferred stock                               (62,400)                   (62,400)
        Accretion of discount 
           on preferred stock                               (52,000)                   (52,000)
                                 ----------  ----------  ----------   -----------   ----------
      Balances, July 31, 1995     5,874,202   1,747,027   1,928,409        (5,621)   9,544,017
        Net income                                           39,266                     39,266
        Unrealized loss on 
           marketable securi-
           ties                                                            (9,905)      (9,905)
        Purchase and retire-
           ment of common stock
           (39,982 shares)         (119,946)     57,973                                (61,973)
        Cash dividend declared 
           on preferred stock                               (62,400)                   (62,400)
        Accretion of discount on 
           preferred stock                                  (52,000)                   (52,000)
                                 ----------  ----------  ----------   -----------   ----------
      Balances, July 31, 1996    $5,754,256  $1,805,000  $1,853,275   $   (15,526)  $9,397,005
                                 ==========  ==========  ==========   ===========   ==========

      </TABLE>
      The accompanying notes are an integral part of the consolidated 
       financial statements.
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Statements of Cash Flows
     for the years ended July 31, 1996, 1995 and 1994

     <TABLE>
     <CAPTION>  
                                                            1996         1995         1994
                                                         -----------  -----------  -----------
      <S>                                                <C>          <C>          <C>
      Cash flows from operating activities:
        Cash received from rentals and golf
           center sales                                  $ 3,119,937  $ 2,861,797  $ 2,741,139
        Interest received                                  1,168,493    1,390,814    1,480,230
        Cash paid to suppliers and employees              (3,029,296)  (1,832,994)  (2,295,699)
        Interest paid, net of amounts capitalized         (1,141,198)  (1,184,699)  (1,263,433)
        Income taxes paid                                   (112,500)     (97,500)     (30,000)
                                                         -----------  -----------  -----------
             Net cash provided by operating activities         5,436    1,137,418      632,237
                                                         -----------  -----------  -----------
      Cash flows from investing activities:
        Proceeds from sales of real estate                   259,435      293,138      707,730
        Proceeds from sales of marketable securities
           and other investments                              41,553        2,300       51,236
        Collections on contracts, mortgages and
           finance notes receivable                        4,166,338    2,543,914    3,572,465
        Investment in contracts, mortgages and
           finance notes receivable                          (51,106)    (242,399)     (90,550)
        Additions to rental properties, property
           held for sale, property under develop-
           ment, golf center, vehicles and equipment      (2,477,696)  (3,146,582)  (3,348,611)
        Change in restricted investments and
           cash equivalents                                   84,974      (46,473)     (19,634)
        Other                                                 28,837       (2,121)
                                                         -----------  -----------  -----------
             Net cash provided by (used in) investing   
               activities                                  2,052,335     (598,223)     872,636
                                                         -----------  -----------  -----------
      Cash flows from financing activities:
        Net (repayments) borrowings under 
           line-of-credit agreement                       (2,231,388)    (344,143)     929,681
        Proceeds from installment contracts,
           mortgage notes and notes payable                1,270,858    1,911,000
        Payments on installment contracts,
           mortgage notes and notes payable               (1,091,276)  (2,138,200)  (2,067,091)
        Proceeds from sales of debenture bonds               863,142    1,107,171    1,140,201
        Redemption of debenture bonds                       (855,614)    (975,715)  (1,823,291)
        Proceeds from sale of preferred stock                                          520,000
        Payment of dividends on preferred stock              (62,400)
        Purchase and retirement of common stock              (61,973)     (35,818)     (46,785)
                                                         -----------  -----------  -----------
             Net cash used in financing activities        (2,168,651)    (475,705)  (1,347,285)
                                                         -----------  -----------  -----------
      Net increase (decrease) in cash and cash 
        equivalents                                         (110,880)      63,490      157,588
      Cash and cash equivalents, beginning of year           575,351      511,861      354,273
                                                         -----------  -----------  -----------
      Cash and cash equivalents, end of year             $   464,471  $   575,351  $   511,861
                                                         ===========  ===========  ===========
      </TABLE>

      The accompanying notes are an integral part of the consolidated 
        financial statements.
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Consolidated Statements of Cash Flows, Continued
     for the years ended July 31, 1996, 1995 and 1994


     <TABLE>
     <CAPTION>  
                                                            1996         1995         1994
                                                         -----------  -----------  -----------
      <S>                                                <C>          <C>          <C>
      Reconciliation of net income to net cash 
        provided by operating activities:
           Net income                                    $    39,266  $   159,310  $    71,558
           Adjustments to reconcile net income
             to net cash provided by operating 
               activities:
                 Depreciation and amortization               797,271      717,454      697,530
                 Deferred income tax benefit                (328,187)     (28,424)     (63,340)
                 Cumulative effect of change in 
                   accounting for income taxes                                          61,894
                 Deferred financing income realized         (126,044)     (82,783)    (132,662)
                 Interest accrued on debenture bonds         531,248      480,797      486,454
                 Gain on sales of marketable 
                   securities                                (30,959)                   (4,445)
                 Gain on sales of real estate               (486,469)    (584,657)    (186,109)
                 Loss on other investment                                  24,865
                 Uncollectible accounts                        1,412          117          821
                 Change in assets and liabilities:
                   Accrued interest receivable                18,685       16,251        1,364
                   Prepaid expenses                           52,025       15,604     (216,548)
                   Inventories                               (83,352)
                   Accrued expenses                         (583,245)     412,613     (176,039)
                   Income taxes payable                      228,095      (11,354)      91,759
                   Other, net                                (24,310)      17,625
                                                         -----------  -----------  -----------
                      Net cash provided by operating 
                         activities                      $     5,436  $ 1,137,418  $   632,237
                                                         ===========  ===========  ===========
      Supplemental schedule of noncash investing
        and financing activities:
           Additions to investment in rental
             properties and properties held for
             sale through contract foreclosures                       $     6,060  $    23,225
           Mortgages and contracts payable financing
             related to investments in properties                                      134,764
           Company financed sale of property             $ 1,025,648    1,160,400    2,899,647
           Accretion of discount on preferred stock           52,000       52,000
           Stock dividend declared and unpaid                 62,400       62,400

      </TABLE>
      The accompanying notes are an integral part of the consolidated 
       financial statements.
     <PAGE>
     PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


      1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

          Pacific Security Companies and subsidiaries (the Company) is
          incorporated under the laws of the state of Washington. The
          Company is engaged in the business of owning, selling and leasing
          real properties and in contract and loan financing, collater-
          alized by real estate. Most of the Company's real estate
          activities are concentrated within the state of Washington. The
          Company completed construction and commenced operations of a golf
          center during the year ended July 31, 1996. The golf center,
          located in Spokane, Washington, serves as a practice and teaching
          center and sells golf clubs and related golf supplies.

          A summary of significant accounting policies followed by the
          Company is presented below:

            Consolidation
            -------------
            The consolidated financial statements include the accounts of
            the Company and its wholly owned subsidiary, Aqua View
            Apartments, Inc. All significant intercompany accounts and
            transactions have been eliminated.

            The Company's wholly owned subsidiary, Henry George & Sons Co.,
            Inc. (and its wholly owned subsidiary, Cooper George Company)
            (Cooper George) was dissolved during the year ended July 31,
            1996. Upon dissolution, all assets of Cooper George were
            transferred to the Company for the redemption of the
            outstanding common stock. Cooper George was included in the
            accounts of the Company during the years ended July 31, 1995
            and 1994.

            The Company sold the assets of a wholly owned subsidiary, Park
            Manor, Inc., in August 1993. The operating results of Park
            Manor, Inc., were included in the accounts of the Company
            during the year ended July 31, 1994.

            Cash and Cash Equivalents
            -------------------------
            The Company deposits all cash and cash equivalents with high
            quality financial institutions. The Company considers highly
            liquid debt instruments, if any, purchased with a remaining
            maturity of three months or less to be cash equivalents.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Contracts, Mortgages and Finance Notes Receivable
            -------------------------------------------------
            Contracts, mortgages and finance notes receivable are stated at
            unpaid principal balance, plus accrued interest, less
            acquisition discounts and an allowance for estimated
            uncollectible amounts, as necessary. Management evaluates
            receivables which may not be fully collectible to determine if
            a provision for loss is necessary based on the present value of
            expected future cash flows from the receivables in the ordinary
            course of business or from amounts recoverable through
            foreclosures and the subsequent resale of the collateral.

            Interest continues to be accrued on non-performing receivables
            until such amount is not expected to be recovered.

            In May 1993, Statement of Financial Accounting Standards (SFAS)
            No. 114, "Accounting by Creditors for Impairment of a Loan" was
            issued. SFAS No. 114 requires that certain impaired loans be
            measured based on the present value of expected future cash
            flows discounted at the loan's effective interest rate or the
            fair value of the collateral less selling costs. The Company
            adopted this new standard August 1, 1995, which did not have a
            material effect on the consolidated financial statements.

            Discounts on Contracts
            ----------------------
            The Company amortizes discounts on purchased contracts using
            the level-yield method over the expected term of the contracts.

            Investment in Rental Properties
            -------------------------------
            Rental properties, including land, buildings and improvements
            and furniture and equipment are recorded at cost. Expenditures
            for maintenance and repairs are charged to operations as
            incurred. Renewals and betterments are capitalized. 

            Depreciation is provided on the straight-line method over
            estimated useful lives as summarized below:
                                                              Years
                                                              -----
              Buildings and improvements                      15-40
              Furniture and equipment                          5-10

            Upon sale or retirement of depreciable properties, the related
            cost and accumulated depreciation are removed from the accounts
            and any resultant gain or loss is reflected inoperations.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Investment in Golf Center
            -------------------------
            The golf center, including land, building and improvements and
            furniture and equipment are recorded at cost. Depreciation is
            provided on the straight-line method over the estimated useful
            lives as summarized below:

                                                              Years
                                                              -----
                  Buildings and improvements                  15-40
                  Furniture and equipment                      3-10

            Interest Capitalization
            -----------------------
            All costs associated with self-constructed assets
            (including interest and real estate taxes) incurred during
            the construction period are capitalized. Interest costs of
            approximately $205,000, $204,000, and $152,000 were
            capitalized in fiscal 1996, 1995 and 1994, respectively.

            Property Held for Sale or Development
            -------------------------------------
            The Company acquires real estate through direct acquisition
            and foreclosures and records these assets at the lower of
            fair value less estimated costs to sell or cost. Losses on
            properties held for sale or development are recognized if
            the anticipated cash flows from disposition, less estimated
            selling costs, are estimated to be less than the carrying
            value of the related asset.

            In March 1995, Statement of Financial Accounting Standards
            (SFAS) No. 121, "Accounting for the Impairment of Long-
            Lived Assets and for Long-Lived Assets to be Disposed Of,"
            was issued. SFAS No. 121 requires certain long-lived
            assets, such as the Company's real estate assets, to be
            reviewed for impairment in value whenever events or
            circumstances indicate that the carrying value of an asset
            may not be recoverable. In performing the review, if
            expected future undiscounted cash flows from the use of the
            asset or the fair value, less selling costs, from the
            disposition of the asset is less than its carrying value,
            an impairment loss is to be recognized. The Company is
            required to adopt this new standard by August 1, 1996. The
            Company does not anticipate that the adoption of SFAS No.
            121 will have a material effect on the consolidated
            financial statements.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Marketable Securities
            ---------------------
            The Company's investments, consisting of debt and equity
            securities, are considered to be "available for sale" and,
            therefore, are carried at market value. Realized gains and
            losses on the sale of these securities are recognized on a
            specific identification basis in the consolidated statement of
            operations in the period the securities are sold. Unrealized
            gains and losses are excluded from operations and reported as a
            separate component of stockholders' equity, net of related
            income taxes, until realized.

            Restricted Investments
            ----------------------
            Restricted investments in U.S. Treasury bonds are carried at
            amortized cost. Premiums or discounts at acquisition are
            amortized using the interest method over the term of the
            investment.

            Vehicles and Equipment
            ----------------------
            Vehicles and equipment are stated at cost and are depreciated
            using the straight-line method over their estimated useful
            lives of 4 to 5 and 5 to 10 years, respectively. Accumulated
            depreciation associated with vehicles and equipment was
            $207,505 and $197,217 at July 31, 1996 and 1995, respectively.
            Upon sale or retirement, the cost and related accumulated
            depreciation are removed from the accounts and any resultant
            gain or loss is reflected in operations.

            Golf Center Inventories
            -----------------------
            Golf center inventories are stated at the lower of cost or
            estimated net realizable value using the first-in, first-out
            method.

            Sales of Real Estate
            --------------------
            Receipts on sales of real estate investments are accounted for
            as customer deposits until the principal payments received on
            the sales contracts exceed the minimum guidelines for gain
            recognition as established by Statement of Financial Accounting
            Standards No. 66, "Accounting for Sales of Real Estate" (see
            Note 4). Losses arising from sales of real estate are
            recognized immediately upon sale.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Income Taxes
            ------------
            The Company adopted the provisions of Statement of Financial
            Accounting Standards No. 109, "Accounting for Income Taxes"
            (SFAS No. 109), effective August 1, 1993. The cumulative effect
            of adopting SFAS No. 109 in fiscal 1994 was a charge to
            operations of $61,894. SFAS No. 109 requires a company to
            recognize deferred tax assets and liabilities for the expected
            future income tax consequences of events that have been
            recognized in a company's financial statements. Under this
            method, deferred tax liabilities and assets are determined
            based on the temporary differences between the financial
            statement carrying amounts and tax bases of assets and
            liabilities using enacted tax rates in effect in the years in
            which the temporary differences are expected to reverse.

            Income or Loss Per Share
            ------------------------
            Income or loss per common share is based on net income or loss
            after deducting preferred stock dividends and the accretion of
            the discount on preferred stock divided by the weighted average
            number of shares of common stock outstanding during each year.

            Credit Risk
            -----------
            Financial instruments which expose the Company to
            concentrations of credit risk consist primarily of cash and
            cash equivalents, contracts, mortgages and finance notes
            receivable.

            As of July 31, 1996 and 1995, the Company has various cash and
            investment accounts totaling approximately $446,000 and
            $564,000, respectively, with one financial institution. These
            accounts are insured by the Federal Deposit Insurance
            Corporation up to $100,000.

            The Company's contracts, mortgages and finance notes receivable
            are primarily from borrowers in the state of Washington and are
            collateralized principally by real estate located in
            Washington. Additionally, the outstanding balance of five
            individual loans totaled approximately $6,740,000 and
            $8,130,000 at July 31, 1996 and 1995, respectively.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      1.  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
          CONTINUED:

            Estimates
            ---------
            The preparation of financial statements in conformity with
            generally accepted accounting principles requires management to
            make estimates and assumptions that affect the reported amounts
            of assets and liabilities and disclosures of contingent assets
            and liabilities at the dates of the financial statements and
            the reported amounts of revenues and expenses during the
            reporting periods. Actual results could differ from those
            estimates.

            Reclassifications
            -----------------
            Certain amounts in the 1995 and 1994 consolidated financial
            statements have been reclassified to conform with the current
            year's presentation. These reclassifications had no effect on
            retained earnings or net income as previously reported.


      2.  RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS:

          At July 31, 1996 and 1995, the Company holds cash and cash
          equivalents and investments which are restricted for the
          following purposes:

      <TABLE>
      <CAPTION>
                                                  1996                     1995
                                         ----------------------   ----------------------
                                          Cash and       U.S.      Cash and       U.S.
                                            Cash       Treasury      Cash       Treasury
                                         Equivalents    Notes     Equivalents    Notes
                                         -----------   --------   -----------   --------
      <S>                                <C>           <C>        <C>           <C>
              Tenant security deposits    $ 25,948                 $ 31,126
              Mortgage reserves             33,728                   31,337
              Apartment complex re-
                placement reserve 
                required by the Depart-
                ment of Housing and
                Urban Development 
                (HUD)                       88,702     $128,588     117,377     $127,847
              Apartment complex residual 
                receipts as required by 
                HUD                          4,161       93,252       8,670      142,803
                                          --------     --------    --------     --------
                                          $154,346     $221,840    $188,510     $270,650
                                          ========     ========    ========     ========
      </TABLE>
      <PAGE>
      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      2.  RESTRICTED CASH AND CASH EQUIVALENTS AND INVESTMENTS, CONTINUED:
          The U.S. Treasury notes held in the replacement and residual
          receipt reserves at July 31, 1996 bear interest at 6% and mature
          October 15, 1999.


      3.  CONTRACTS, MORTGAGES AND FINANCE NOTES RECEIVABLE:
          At July 31, 1996 and 1995, the aging of amounts due on contracts,
          mortgages and finance notes receivable was as follows:

                                                     1996         1995
                                                  -----------  -----------
            Current                               $10,474,252  $13,578,288
            31 to 60 days                              46,448      133,575
            60 to 90 days                              85,767       21,345
            Over 90 days                              102,771      108,998
                                                  -----------  -----------
                                                   10,709,238   13,842,206
            Less unearned acquisition discounts      (216,294)    (384,310)
                                                  -----------  -----------
                                                  $10,492,944  $13,457,896
                                                  ===========  ===========

          Substantially all of these receivables are collateralized by
          land, commercial buildings and single and multi-family
          residences. Interest rates on most loans are fixed and range from
          5.25% to 14.25% at July 31, 1996 and 1995. Approximately
          $2,626,000 and $2,484,000 of loans outstanding at July 31, 1996
          and 1995, respectively, have variable interest rates.

          Management of the Company provides an allowance for losses based
          upon estimates of the cash flows to be collected on the
          receivable or the fair value of the underlying collateral, net of
          selling costs. At July 31, 1996 and 1995, the fair value of the
          underlying collateral, net of selling costs, is estimated to be
          greater than the carrying value of the related contracts and
          notes, and thus, no allowance for loss has been provided. These
          estimates can be affected by changes in the economic environment
          in the state of Washington and the resultant effect on real
          estate values. As a result of changing economic conditions, it is
          reasonably possible that the amount of the allowance for loan
          losses could change in the near term.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      4.  INVESTMENTS IN RENTAL PROPERTIES:

          Following is a summary of investments in rental properties at
          July 31, 1996 and 1995:

                                                     1996         1995
                                                  -----------  -----------
            Land                                  $ 2,929,981  $ 3,063,976
            Buildings and improvements             17,652,278   17,984,196
            Furniture and equipment                 1,082,374      902,665
                                                  -----------  -----------
                                                   21,664,633   21,950,837
            Less accumulated depreciation          (6,514,593)  (6,303,246)
                                                  -----------  -----------
                                                  $15,150,040  $15,647,591
                                                  ===========  ===========

          The Company leases office space in certain of the above buildings
          under operating leases. Most of the lease agreements contain
          renewal options and escalation provisions associated with
          inflation over the term of the lease. The following is a schedule
          by years of minimum future rentals on noncancellable operating
          leases as of July 31, 1996:

                       Year Ending
                         July 31,    
                       -----------
                          1997                    $1,347,865
                          1998                     1,127,188
                          1999                       911,404
                          2000                       530,203
                          2001                       407,115
                       Thereafter                    412,212
                                                  ----------
                       Total minimum future 
                         rentals                  $4,735,987
                                                  ==========

          These properties are primarily located in the greater Spokane,
          Washington geographical area. Losses on investments in rental
          properties are recognized if the anticipated cash flows from
          operations or the sale of the rental property, net of selling
          costs, are estimated to be less than the carrying value of the
          related asset. These estimates can be affected by changes in the
          economic environment of the Spokane, Washington area and the
          resultant effect on the real estate rental and property values.
          As a result of changing economic conditions, it is reasonably
          possible that these estimates could change in the near term.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      4.  INVESTMENTS IN RENTAL PROPERTIES, CONTINUED:

          At July 31, 1996 and 1995, the sales of certain rental property
          and land were subject to sales contracts, but had not met the
          criterion to be recorded as a sale. Therefore, the deposit method
          of accounting for these sales was applied, resulting in
          approximately $185,000 and $303,000 being classified as
          investments in rental properties at July 31, 1996 and 1995,
          respectively. At July 31, 1996 and 1995, the Company had deferred
          gains of approximately $42,000 and $74,000, respectively,
          associated with these sales which will be recognized when the
          criterion for a sale is ultimately met.


      5.  INVESTMENT IN GOLF CENTER:

          The Company completed construction of Birdies Golf Center
          (Birdies), which features a 56-tee driving range, a fully
          lighted, contoured fairway with 5 target greens, a pro shop,
          teaching studios and an 8,000-square-foot putting green.

          The following is a summary of the investment in the golf center
          at July 31, 1996:

            Land                                               $  350,000
            Building and improvements                           1,622,751
            Furniture and equipment                               223,985
                                                               ----------
                                                                2,196,736
            Less accumulated depreciation                         (72,506)
                                                               ----------
                                                               $2,124,230
                                                               ==========

          This property was under development during the year ended 
          July 31, 1995. Upon completion, the costs previously recorded as
          golf center under development were transferred to the investment
          in the golf center and depreciation commenced.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      6.  BUSINESS SEGMENT REPORTING:

          Information about the Company's separate business segments and
          in total as of and for the year ended July 31, 1996 is as
          follows:
                                       Birdies    Rental and
                                        Golf      Receivable
                                       Center     Operations      Total
                                     -----------  -----------  -----------
            Revenue                  $   294,276  $ 4,650,346  $ 4,944,622
            Earnings (loss) from 
              operations                (142,848)     199,654       56,806
            Identifiable assets, 
              net                      2,207,582   30,852,525   33,060,107
            Depreciation and 
              amortization                72,506      724,765      797,271
            Capital expenditures         854,937    1,622,759    2,477,696


     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

      7.  MARKETABLE SECURITIES:

          A summary of investments in marketable securities at July 31,
          1996 and 1995 is as follows:

     <TABLE>
     <CAPTION>
                                                 1996                               1995
                                  ----------------------------------  ----------------------------------
                                             Unrealized     Market/              Unrealized     Market/
                                            Appreciation    Carrying            Appreciation    Carrying
                                    Cost    (Depreciation)   Value      Cost    (Depreciation)   Value
                                  --------  --------------  --------  --------  --------------  --------
     <S>                          <C>       <C>             <C>       <C>       <C>             <C>
            Marketable equity 
              securities          $ 40,004     $(23,524)    $ 16,480  $ 45,495     $ (8,516)    $ 36,979
            Debt securities         59,400                    59,400    59,400                    59,400
                                  --------     --------     --------  --------     --------     --------
                                  $ 99,404     $(23,524)    $ 75,880  $104,895     $ (8,516)    $ 96,379
                                  ========     ========     ========  ========     ========     ========
     </TABLE>

          The debt securities are contractually due in 1997; however,
          actual maturities may differ from the stated contractual
          maturities because borrowers may have the right to call or prepay
          obligations with or without call or prepayment penalties.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      8.  NOTE PAYABLE TO BANK:

          Note payable to bank represents borrowings outstanding under the
          Company's $8,000,000 short-term, line-of-credit agreement with
          U.S. Bank of Washington. Amounts drawn under the line bear
          interest at the bank's prime rate plus seven-eighths of one
          percent. The interest rate was 9.125% (based on a prime rate of
          8.25%) at July 31, 1996. The agreement is subject to renewal on
          December 5, 1996. The Company's majority stockholder provides a
          guarantee of up to $1.2 million on outstanding borrowings under
          the line-of-credit agreement. The following assets were pledgedas 
          collateral for the note at July 31, 1996 and 1995:

                                                       1996        1995
                                                    ----------  ----------
            Finance notes and real estate 
              contracts receivable                  $3,267,367  $5,425,401
            Assignment of future rents               2,029,184   2,447,550
            Equity in contracts with underlying 
              obligations                              104,191     172,343
                                                    ----------  ----------
                                                    $5,400,742  $8,045,294
                                                    ==========  ==========


      9.  INSTALLMENT CONTRACTS, MORTGAGE NOTES AND NOTES PAYABLE:

          Installment contracts, mortgage notes and notes payable bear
          interest at rates ranging from 6.0% to 10.5% per annum. Monthly
          debt service payments, including interest, were approximately
          $126,422 at July 31, 1996.

          Scheduled future maturities of contracts, mortgage notes and
          notes payable are as follows:

                       Year Ending
                         July 31,
                       -----------

                          1997                    $1,031,576
                          1998                       552,305
                          1999                       499,231
                          2000                       537,707
                          2001                       580,081
                       Thereafter                  3,407,009
                                                  ----------
                                                  $6,607,909
                                                  ==========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


      9.  INSTALLMENT CONTRACTS, MORTGAGE NOTES AND NOTES PAYABLE,
          CONTINUED:
          The following assets were pledged as collateral for contracts,
          mortgage notes and notes payable at July 31, 1996 and 1995:

                                                     1996         1995
                                                  -----------  -----------
            Contracts receivable                  $ 3,828,054  $ 4,265,720
            Rental properties                       8,428,533    7,185,140
                                                  -----------  -----------
                                                  $12,256,587  $11,450,860
                                                  ===========  ===========


     10.  DEBENTURE BONDS:

          The Company has issued unsecured investment bonds to residents of
          the state of Washington under the Securities Act of Washington.
          The proceeds have been used in making funds available for loans
          and the development, improvement and acquisition of commercial
          real property.

          The outstanding bonds have original maturities ranging from one
          to ten years and the interest rates vary depending upon the
          maturity.

          Estimated future contractual maturities of outstanding debenture
          bonds are as follows:

                       Year Ending
                         July 31,
                       -----------

                          1997                  $2,012,826
                          1998                   1,621,359
                          1999                     691,305
                          2000                     920,110
                          2001                     433,333
                       Thereafter                4,039,327
                                                ----------
                                                $9,718,260
                                                ==========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     10.  DEBENTURE BONDS, CONTINUED:

          Outstanding bonds by interest rate categories were as follows at
          July 31, 1996 and 1995:

                   Bond Interest Rate              1996        1995
                   ------------------           ----------  ----------
                         5.50%                              $    5,780
                         5.75                   $   42,086
                         6.00                      447,664     687,390
                         6.25                      114,129       5,500
                         6.50                      484,690     630,495
                         6.75                       20,231      86,699
                         7.00                      927,631     913,242
                         7.25                      274,235     207,041
                         7.50                    1,748,361   1,445,477 
                         7.75                      246,690     127,750
                         8.00                      742,900     665,625
                         8.25                      258,745     216,767
                         8.50                    1,300,283   1,229,508
                         8.75                      544,285     397,467
                         9.00                    1,566,314   1,019,189
                         9.25                      312,638     226,478
                         9.50                      661,206   1,291,456
                        10.00                       11,926      10,802
                        10.50                        9,268       8,353
                        11.00                        4,978       4,465
                                                ----------  ----------
                                                $9,718,260  $9,179,484
                                                ==========  ==========

          The weighted average interest rate for outstanding debentures at
          July 31, 1996 and 1995 was 8.01% and 7.99%, respectively.
          The Securities Act of Washington contains specific statutory and
          regulatory requirements concerning companies selling debentures
          in the state of Washington. These regulations require maintenance
          of minimum net worth and liquidity levels, define debenture terms
          and maturity limitations, describe financial reporting
          requirements and prohibit certain activities by controlling
          persons of the issuer of debentures. Failure to comply with these
          requirements may jeopardize a company's ability to issue
          debentures.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     10.  DEBENTURE BONDS, CONTINUED:

          In November 1995, the Company renewed its permit to offer
          debentures for sale under the Securities Act of Washington. The
          permit is subject to the following conditions:

          (a)  Outstanding debentures, including accrued interest, may not
               exceed $10,488,910 at any time during the period.

          (b)  Normal quarterly reports will be supplemented with the
               following information:

               -  Copies of the Company's Form 10-Q.

               -  Calculations of the ratio of earnings to fixed charges.

               -  Schedules showing the real estate sold, proceeds received
                  and use of the proceeds during the quarter.

               -  Schedules showing the amounts of debentures sold to new
                  investors, old debentures retired and renewals.

               -  A discussion of the efforts which have been made during
                  the quarter to transfer a receivable from Washington
                  Capital, Inc. (WCI), a related party (see Note 14), to an
                  unaffiliated entity.

          The permit expires in November 1996. However, the Company's
          continued ability to sell additional debentures is dependent upon
          its compliance with the preceding conditions.


     11.  INCOME TAXES:

          The components of the income tax provision (benefit) are as
          follows:
      
                                        1996         1995         1994
                                     -----------  -----------  -----------
            Current                  $   345,727  $   114,357  $   121,759
            Deferred                    (328,187)     (28,424)     (63,340)
                                     -----------  -----------  -----------
                                     $    17,540  $    85,933  $    58,419
                                     ===========  ===========  ===========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     11.  INCOME TAXES, CONTINUED:

          The components of the net deferred tax liability at July 31, 1996
          and 1995 were as follows:
      
                                       Assets     Liabilities     Total
                                     -----------  -----------  -----------
            1996:
              Depreciation                        $  (182,538) $  (182,538)
              Installment gains                      (937,642)    (937,642)
              Unrealized gains or 
                losses on market-
                able securities      $    17,575                    17,575
              Accrued liabilities         46,982                    46,982
              Other                                   (12,752)     (12,752)
                                     -----------  -----------  -----------
                                     $    64,557  $(1,132,932) $(1,068,375)
                                     ===========  ===========  ===========
            1995:
              Depreciation                        $  (260,218) $  (260,218)
              Installment gains                    (1,225,788)  (1,225,788)
              Unrealized gains or 
                losses on market-
                able securities      $    71,474                    71,474
              Accrued liabilities         39,735                    39,735
              Other                                   (21,765)     (21,765)
                                     -----------  -----------  -----------
                                     $   111,209  $(1,507,771) $(1,396,562)
                                     ===========  ===========  ===========

          The annual tax provision is different from the amount which would
          be provided by applying the statutory federal income tax rate to
          the Company's pretax income. The reasons for the differences are:
     <TABLE>
     <CAPTION>
                                             1996      %     1995      %     1994      %
                                            -------  -----  -------  -----  -------  -----
      <S>                                   <C>      <C>    <C>      <C>    <C>      <C>
              Computed statutory 
                provision                   $19,314  34.0%  $83,383  34.0%  $65,236  34.0%
              Meals and entertainment         1,280   1.3       950   0.4       618   0.3
              Other                          (3,054) (5.4)    1,600   0.6    (5,024) (2.6)
              Utilization of carry-
                forward of charitable 
                contribution deduction                                       (2,411) (1.3)
                                            -------  ----   -------  ----   -------  ----
                                            $17,540  30.9%  $85,933  35.0%  $58,419  30.4%
                                            =======  ====   =======  ====   =======  ====
     </TABLE>
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     12.  REDEEMABLE PREFERRED STOCK:

          The 6% annual dividends on the Class A preferred stock are
          cumulative. Dividends of $62,400 were declared on the preferred
          stock during the years ended July 31, 1996 and 1995 and were paid
          subsequent to each respective year end.

          The Company has the right to redeem any shares after three years
          from the date of issuance. However, all shares are required to be
          redeemed by the Company ten years after issuance at the par value
          plus accrued dividends to date of redemption. Due to the mandatory
          ten-year redemption, the discount on the issuance of the preferred
          stock is being accreted using the interest method over the
          redemption period. This accretion is recorded as an increase in
          the carrying value of the preferred stock and as a charge against
          retained earnings. The accretion of this discount was $52,000 in
          each of the years ended July 31, 1996 and 1995.

          Each share of Class A Preferred Stock is entitled to one vote on
          each matter voted on at a stockholders' meeting. The preferred
          stockholders have liquidation rights equal to the par value plus
          accumulated and unpaid dividends. The liquidation preference of
          the preferred stock was $1,102,400 at July 31, 1996 and 1995.
          At July 31, 1996, $800,000 face value of preferred stock has been
          pledged as collateral for a contract receivable from WCI (see 
          Note 14).


     13.  FAIR VALUE OF FINANCIAL INSTRUMENTS:
          The following disclosure of the estimated fair value of financial
          instruments is made in accordance with the requirements of
          Statement of Financial Accounting Standards No. 107, "Disclosures
          About Fair Value of Financial Instruments." The estimated fair
          value amounts have been determined using available market
          information and appropriate valuation methodologies. Considerable
          judgment is necessary to interpret market data and to develop the
          estimates of fair value.

          The following methods and assumptions were used to estimate the
          value of each class of financial instrument for which it is
          practicable to estimate that value. Potential income tax
          ramifications related to the realization of unrealized gains and
          losses that would be incurred in an actual sale and/or settlement
          have not been taken into consideration.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

     13.  FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED:

            CASH AND CASH EQUIVALENTS - Due to the nature of these financial
            instruments, carrying value approximates fair value.

            DEBENTURE BONDS, CONTRACTS RECEIVABLE AND INSTALLMENT CONTRACTS
            PAYABLE - Fair values are determined using future cash flows
            discounted at a rate of interest currently offered for debt or
            receivables with similar remaining maturities and credit risks.
            At July 31, 1996, the carrying values of these financial
            instruments approximated their fair values.

            NOTE PAYABLE TO BANK - Fair value approximates the carrying
            value because the loan bears a variable interest rate.

            MARKETABLE SECURITIES AND RESTRICTED INVESTMENTS - Fair value
            approximates the carrying value based on quoted market prices.

            LIMITATIONS - The fair value estimates are made at a discrete
            point in time based on relevant market information and
            information about the financial instruments. Because no market
            exists for many of these financial instruments, fair value
            estimates are based on judgments regarding current economic
            conditions and other factors. These estimates are subjective in
            nature and involve uncertainties and matters of significant
            judgment and, therefore, cannot be determined with precision.
            Changes in assumptions could significantly affect the estimates.
            Accordingly, the estimates presented herein are not necessarily
            indicative of what the Company could realize in a current market
            exchange.


     14.  RELATED-PARTY TRANSACTIONS:

            Contracts and Notes Receivable
            ------------------------------
            Certain stockholders are indebted to the Company on contracts or
            notes with the following terms:

                                                          1996      1995
                                                        --------  --------
              Note secured by common stock, bearing 
                interest at 12.25% (prime plus 4%); 
                due in full by October 2001             $278,206  $278,206
              Notes secured by real estate and common 
                stock; interest at 8.5% to 13.75%         27,985   160,585
                                                        --------  --------
                                                        $306,191  $438,791
                                                        ========  ========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     14.  RELATED-PARTY TRANSACTIONS, CONTINUED:

            Heritage Village Apartment Complex
            ----------------------------------
            On February 1, 1974, Wayne E. Guthrie and his wife, Constance
            Guthrie, purchased the Heritage Village apartment complex
            located in King County, Washington for $2,100,000 from Pacific
            National Capital Company (which subsequently merged into Pacific
            Security Companies). The purchase was partially seller-financed
            by a real estate contract bearing interest at 8% in an original
            amount of $2,060,000. This contract was assigned to WCI in 1990
            (see below). The balance owed on this contract was $539,481 and
            $654,084 on July 31, 1996 and 1995, respectively. The taxable
            gain on this sale was $932,348.

            On August 1, 1976, Wayne E. Guthrie and Constance Guthrie sold
            the Heritage Village apartment complex for $2,650,000 to
            Security Savesco, Inc., which subsequently merged with Pacific
            Security Companies in 1985 and had its name changed to Pacific
            Security Companies.

            On November 29, 1979, Security Savesco, Inc. sold the Heritage
            Village apartment complex for $6,000,000 to a non-related party.
            The sale was partially seller-financed by a real estate contract
            bearing interest at 9% in an original amount of $5,200,000. The
            balance owed on this contract was $3,388,641 and $3,669,771 on
            July 31, 1996 and 1995, respectively. The taxable gain on this
            sale was $2,732,811.

            Washington Capital, Inc. (WCI)
            ------------------------------
            In July 1990, certain contracts receivable from Company
            officers, directors and stockholders were assigned by the
            Company to WCI, a corporation whose sole stockholder was Wayne
            E. Guthrie. In December 1991, Mr. Guthrie transferred his
            ownership interest in WCI to his brother, who is now the sole
            stockholder in WCI. Generally accepted accounting principles
            include members of the immediate families of principal owners or
            management as related parties.

            The assignment of the contracts receivable from officers/
            directors/stockholders of the Company was made at no gain or
            loss as WCI executed installment notes payable to the Company
            for the same principal amounts and interest rates as the
            contracts assigned to WCI. In 1993, one of the contracts was
            paid in full. At July 31, 1996 and 1995, the only significant
            assets and liabilities of WCI were the contract receivable from
            the officer/stockholder of the Company and the installment
            contract payable to the Company.

     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     14.  RELATED-PARTY TRANSACTIONS, CONTINUED:

            Washington Capital, Inc. (WCI), Continued
            -----------------------------------------
            In July 1994, Wayne E. Guthrie and/or WCI pledged $800,000 face
            value of the Company's Class A Preferred Stock (see Note 12) to
            guarantee performance and full payment of any account that he or
            WCI may owe to the Company.

            In the event the Company elects to redeem this preferred stock
            at any time prior to 2002, the proceeds shall be applied to the
            debt. Also, any dividends included therewith shall be applied to
            accrued interest paid on the debt.

            If the debt is not paid in full prior to July 5, 2002, the
            Company shall become the owner of the preferred stock, and the
            liquidation shall be at the Company's sole discretion with the
            proceeds being applied to the debt along with accrued dividends
            that may be declared.

            The contract receivable by the Company from WCI had balances
            outstanding of $539,481 and $654,084 at July 31, 1996 and 1995,
            respectively. This contract is repayable in $15,000 monthly
            installments and bears interest at 8% per annum.

            The Securities Act of Washington prohibits a debenture company's
            officers, directors or controlling persons from directly or
            indirectly borrowing funds from a debenture company or from
            indirectly or directly owning real property upon which the
            debenture company holds a mortgage, deed of trust or property
            contract. The Securities Division takes the position that the
            holding of these receivables, whether by the Company or WCI,
            violates this provision of the Securities Act. The Company has
            agreed to work with WCI to move these receivables to a party
            which may legally hold them subject to such restrictions (see
            Notes 10 and 12).

            Installment Contacts, Mortgage Notes and Notes Payable
            ------------------------------------------------------
            At July 31, 1996 and 1995, the following related-party notes
            payable were outstanding:

                                                        Interest  Monthly
                                      1996      1995      Rate    Payment
                                    --------  --------  --------  --------
              Wayne E. Guthrie      $199,190  $209,369     6.75%  $  2,000
              John Guthrie             4,946     6,426     9.00%       219
                                    --------  --------
                                    $204,136  $215,795
                                    ========  ========
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     14.  RELATED-PARTY TRANSACTIONS, CONTINUED:

            Debenture Bonds
            ---------------
            Included in debenture bonds at July 31, 1996 and 1995 is
            approximately $101,000 and $83,000, respectively, that is
            payable to related parties. These bonds bear interest at the
            prevailing market rate on the date of purchase.

            Accrued Expenses and Other Liabilities
            --------------------------------------
            Included in accrued expenses and other liabilities at July 31,
            1996 and 1995 are $57,283 and $175,919, respectively, payable to
            Wayne E. Guthrie. Additionally, $98,885 and $69,735 was payable
            to Constance Guthrie at July 31, 1996 and 1995, respectively.
            Interest at 9.0% accrues on these advances. Advances to other
            stockholders, who are children of Wayne E. Guthrie, included in
            other liabilities amounted to $9,269 and $19,210 at July 31,
            1996 and 1995, respectively. These advances bear interest at
            9.0%.

            Interest Income and Expense
            ---------------------------
            The approximate amount of related-party interest income and
            expense included in the accompanying consolidated statements of
            operations for each of the three years ended July 31, 1996, 1995
            and 1994 is as follows:

                                                1996      1995      1994
                                              --------  --------  --------
              Interest income                 $ 90,000  $100,000  $111,000
              Interest expense                  35,000    34,000    70,000

            Deferred Compensation Agreement
            -------------------------------
            During October 1991, the Company entered into a deferred
            compensation agreement with its former president, Robert W.
            Guthrie. In accordance with the terms of the agreement, Mr.
            Guthrie was paid monthly compensation of $7,124 through
            March 31, 1993.

            The agreement also called for Robert W. Guthrie to be paid a
            commission of $150,000 upon the sale or lease of certain real
            estate for personal services he rendered on behalf of the
            Company related to the acquisition and development of the
            property. As of July 31, 1996, a commission of $147,876 had
            been paid pursuant to the agreement.
     <PAGE>
     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


     14.  RELATED-PARTY TRANSACTIONS, CONTINUED:

            Deferred Compensation Agreement, Continued
            ------------------------------------------
            Additionally, the agreement provides that the Company will
            provide Robert W. Guthrie with a line-of-credit loan of up to
            $278,206 collateralized by Mr. Guthrie's pledge of his 158,975
            shares of the Company's common stock. The line of credit
            requires monthly interest payments only for the first five-year
            period at a rate of prime plus 4.0% (or 12.25% at July 31,
            1996), then monthly interest and principal payments of an
            amount necessary to amortize the loan over the next five-year
            period. As of July 31, 1996, $278,206 had been loaned to Robert
            W. Guthrie pursuant to the agreement.


     15.  COMMON STOCK:

          On October 31, 1995, the Board of Directors of the Company
          proposed the creation of a second class of common stock, Class B
          common stock. This proposed action was ratified by the
          stockholders of the Company on December 12, 1995, at which time
          amendment to the Articles of Incorporation was approved. This
          class has authorized 30,000, no par value shares and entitles the
          holder to 50 votes on each matter in all proceedings in which
          actions are taken by the stockholders, including the election of
          directors. Otherwise, the common stock is identical to the
          original class in all respects and for all purposes.
     <PAGE>
     PART III
     ---------------------------------------------------------------------

     Item 10.  Directors and Executive Officers of the Registrant


     Identification of Directors and Executive Officers

     The following information as of July 31, 1996 is provided with respect
     to each director and executive officer of the Company:

     <TABLE>
     <CAPTION>
                                     Year Fist    Term as
                                     Elected as   Director         
                Name           Age    Director    Expires     in Position (date elected to position)
      -----------------------  ---   ----------  ----------  ---------------------------------------
      <S>                      <C>   <C>         <C>         <C>
      Wayne E. Guthrie         76    1970        1996        Chairman of the Board and Chief
                                                             Executive Officer (January 17,
                                                             1970); Director

      Kevin M. Guthrie         41    1980        1997        Vice President (May 2, 1985);
                                                             Director

      David L. Guthrie         32    1987        1997        Vice President (September 1, 1989);
                                                             Director

      Donald J. Migliuri       49    1992        1995        Secretary/Treasurer (May 29, 1990);
                                                             Director

      Raymond J. Fisher        73    1970        1996        Director

      Constance M. Guthrie     62    1981        1996        Director

      Robert N. Codd           66    1994        1997        Director
     </TABLE>

     Family Relationships
     --------------------
     Kevin M. Guthrie and David L. Guthrie are the sons of Wayne E.
     Guthrie. Constance M. Guthrie is the wife of Wayne E. Guthrie.

     Business Experience
     -------------------
     Wayne E. Guthrie, Chairman of the Board of Pacific Security Companies.
     Mr. Guthrie is also Chairman of the Board of Aqua View Apartments,
     Inc. a Washington corporation and subsidiary of the registrant. Mr.
     Guthrie has over 40 years of experience in areas of construction,
     financing of real estate and personal property, and real estate
     investments.

     Kevin M. Guthrie, Vice President of Pacific Security Companies since
     1985. Mr. Guthrie has served as property manager for the Company since
     1976. Mr. Guthrie is also an officer and director of Aqua View
     Apartments, Inc.
     <PAGE>
     Business Experience, Continued
     ------------------------------
     David L. Guthrie, Vice President of Pacific Security Companies since
     1989. Mr. Guthrie was formerly a stockbroker with Merrill Lynch in
     Spokane, Washington. Mr. Guthrie is also an officer and director of
     Aqua View Apartments, Inc.

     Donald J. Migliuri, Treasurer of Pacific Security Companies since
     1990.  Mr. Migliuri was a Certified Public Accountant and has served
     as an accounting officer with various diversified financial services
     companies for over 10 years.

     Constance M. Guthrie.  Mrs. Guthrie is a housewife and has not been
     employed outside the home during the past nine years.

     Raymond J. Fisher.  Mr. Fisher, now retired, was Secretary of Pacific
     Security Companies.  He was a Certified Public Accountant and was
     employed by the Company and its predecessor companies for 41 years.
     Robert N. Codd.  Mr. Codd is employed by Pacific Security Companies in
     its leasing and real estate activities.  He was employed by the
     Company from 1970 to 1979 and was rehired in November 1992.  Prior to
     being rehired, he was a commercial realtor and property manager.


     Item 11.  Executive Compensation

     Remuneration of Directors and Officers
     --------------------------------------
     The following table lists, on an accrual basis, for each of the three
     years ended July 31, 1996, the remuneration paid by the Company to any
     officers or directors in excess of $100,000 and to all officers and
     directors as a group who were officers or directors of the Company at
     any time during the year ended July 31, 1996:

     <TABLE>
     <CAPTION>
                                                                            Annual
      Name of Individual                                                 Compensation
         or Number of                                      Fiscal     -------------------
       Persons in Group      Capacities in Which Served     Year       Salary     Bonus
      ------------------     --------------------------    ------     ---------  --------
      <S>                    <C>                           <C>        <C>        <C>
      Wayne E. Guthrie       Chairman of the Board and     1996       $   *      
                             Chief Executive Officer       1995        113,000
                                                           1994        100,000
      Officers and
      Directors 
      as a group (five)                                    1996        316,470

      </TABLE>

     The Company has no qualified or nonqualified stock option plans as of
     July 31, 1996.

     *Annual compensation did not exceed $100,000.
     <PAGE>
     Item 12.  Security Ownership of Certain Beneficial Owners and
               Management

     (a)  Security Ownership of Certain Beneficial Owners

          Set forth below is certain information concerning parties,
          excluding management, who are known by the Company to directly
          own more than 5% of any class of the Company's voting shares on
          July 31, 1996:

                                                    Amount and
                                                    Nature of
                            Name and Address        Beneficial    Percent
          Title of Class    of Beneficial Owner     Ownership     of Class
          --------------    ---------------------   ----------    --------
          Common stock      Linda Guthrie Welden
                            Bothell, WA              158,975        8.29%

          Common stock      Julie Guthrie Hable
                            San Francisco, CA        190,387        9.92
          Common stock      Robert Guthrie
                            Spokane, WA              158,975        8.29

          Common stock      John W. Guthrie
                            Olympia, WA              137,348        7.16
                                                     -------       -----
          Totals                                     645,685       33.66%
                                                     =======       =====

     (b)  Security Ownership of Management

          The following table sets forth as of July 31, 1996 information
          concerning the direct ownership of each class of equity
          securities by all directors and all directors and officers of the
          Company as a group:

                                                    Amount and
                                                     Nature of
                              Name and Address      Beneficial    Percent
          Title of Class    of Beneficial Owner     Ownership     of Class
          ---------------   ---------------------   ----------    --------
          Common stock      Wayne E. Guthrie          495,027      25.81%
          Common stock      Constance Guthrie         105,043       5.47
          Common stock      Kevin Guthrie             216,267      11.28*
          Common stock      David Guthrie             216,267      11.28*
                                                    ---------      -----
          Common stock      All directors and 
                            officers as a group     1,032,604      53.84%
                                                    =========      =====
     <PAGE>
                                                    Amount and
                                                    Nature of
                            Name and Address        Beneficial    Percent
          Title of Class    of Beneficial Owner     Ownership     of Class
          ---------------   ---------------------   ----------    --------
          Preferred stock   Wayne E. Guthrie            8,000       76.9%
          Preferred stock   Wayne E. or Constance 
                              Guthrie                   2,000       19.1
          Preferred stock   Kevin Guthrie                 100        1.0
          Preferred stock   David Guthrie                 100        1.0
          Preferred stock   Don Migliuri                  200        2.0
                                                    ---------       ----
          Preferred stock   All directors and 
                            officers as a group        10,400      100.0%
                                                    =========      =====

     *  Additionally, these parties exercise voting rights over an
        additional 1.35% of this class through the holdings of their minor
        children.


     Item 13.  Certain Relationships and Related Transactions

     Transactions with Company officers, directors and stockholders and
     other related parties are summarized in Notes 12 and 14 to the
     consolidated financial statements included herein.
     <PAGE>
     PART IV
     ---------------------------------------------------------------------
     Item 14.  Exhibits, Financial Statement Schedules and Reports on 
               Form 8-K

     (a)  1.  Financial Statements - See index under Item 8

     (a)  2.  Financial Statement Schedules:

              Report of independent accountants

              Schedule III - Real estate and accumulated depreciation

              Schedule IV - Mortgage loans on real estate

              All other schedules are omitted because they are not
              applicable, or not required, or because the required
              information is included in the financial statements or notes
              thereto.
     (a)  3.  Exhibits:

              There are no exhibits included in this filing.

     (b)      Reports on Form 8-K during the last quarter:
                None
     <PAGE>
     Report of Independent Accountants on 
     Financial Statement Schedules




     Board of Directors and Stockholders
     Pacific Security Companies
     Spokane, Washington



     Our report on the consolidated financial statements of Pacific
     Security Companies and subsidiaries is included on page 10 of this
     Form 10-K. In connection with our audits of such consolidated
     financial statements, we have also audited the related financial
     statement schedules listed under Item 14 of this Form 10-K.
     In our opinion, the financial statement schedules referred to above,
     when considered in relation to the basic financial statements taken as
     a whole, present fairly, in all material respects, the information
     required to be included therein.


                                 /s/Coopers & Lybrand L.L.P.               



     Spokane, Washington
     September 27, 1996
     <PAGE>
     Pacific Security Companies and Subsidiaries
     Schedule III

     Real Estate and Accumulated DepreciationJuly 31, 1996
     <TABLE>
     <CAPTION>
                                                                                                                      Life on
                                                                                                                       Which
                                                     Cost                    Amount at                              Depreciation
                                                  Capitalized                 Which                                  in Latest
                                                   Subseqent                Carried at                                 Income
                                       Initial        to       Revaluation   Close of    Accumulated     Date       Statement is
        Description     Encumbrance     Cost      Acquisition    Reserve      Period     Depreciation   Acquired      Computed
    ------------------- -----------  -----------  -----------  -----------  -----------  ------------  -----------  ------------
    <S>                 <C>          <C>          <C>          <C>          <C>          <C>           <C>          <C>
    Residential and 
     commercial 
     properties:
      Rental buildings 
       and improvements:
        Spokane, WA     
         N. 10 Post 
          Street (Peyton 
          Bldg.)        $   932,928  $ 2,209,343  $ 2,609,029               $ 4,818,372  $ 1,309,480      1979      25-40 years     
         S. 10 Washing-      
          ton (Hutton 
          Bldg.)                 --    1,498,769    3,282,034                 4,780,803    1,413,231      1979      25-40 years     
        E. 11128 Sprague 
          Avenue            143,357      216,000       41,718                   257,718       37,569      1987         25 years
         East Valley 
          Terrace Apart-
          ments             433,520      896,953       88,193                   985,146      599,450      1979         25 years
         Mini-warehouse 
          complex           344,288    1,640,004      514,974  $  (507,703)   1,647,275      565,384     Various      Various
         Aqua View Apart-
          ments             393,708    1,385,074      350,581                 1,735,655    1,097,137      1969         40 years
         W. 102 Indiana     651,453      663,031           --                   663,031      213,425      1984         30 years
         City View Apart-
          ments             556,413      440,028       58,742                   498,770       85,007      1991         25 years
         Pier One Build-
          ing             1,595,136    1,194,017    2,744,755                 3,938,772      416,016      1992      25-40 years
         Cellular One 
          Building               --      950,373       (2,811)                  947,562      140,074      1992         25 years
         Birdies Golf 
          Center                 --           --    1,972,752                 1,972,752       45,139      1995      15-40 years
         805 E. 33rd                          --       87,967                    87,967        1,682      1995         25 years
    </TABLE>
    <PAGE>
    <TABLE>
    <CAPTION>
                                                                                                                      Life on
                                                                                                                       Which
                                                     Cost                    Amount at                              Depreciation
                                                  Capitalized                 Which                                  in Latest
                                                   Subseqent                Carried at                                 Income
                                       Initial        to       Revaluation   Close of    Accumulated     Date       Statement is
        Description     Encumbrance     Cost      Acquisition    Reserve      Period     Depreciation   Acquired      Computed
    ------------------- -----------  -----------  -----------  -----------  -----------  ------------  -----------  ------------
    <S>                 <C>          <C>          <C>          <C>          <C>          <C>           <C>          <C>
        Coeur d'Alene, 
         ID
          Yellowfront 
            Building    $    25,891  $   281,723  $        --               $   281,723  $   182,776      1976         25 years
        Furniture 
         related to 
         above                           540,237      494,771                 1,035,029      480,729     Various      Various  
        Held for 
         resale:*
          Alberta 
           Apartments                    167,193                                167,193           --      1988      
          E. 44th Street        
           Condominium                    43,622                                 43,622                   1981
                        -----------  -----------  -----------  -----------  -----------  -----------
                         $5,076,694  $12,126,367  $12,242,705  $  (507,703) $23,861,390  $ 6,587,099
                        ===========  ===========  ===========  ===========  ===========  ===========
    </TABLE>

    *Buildings sold, but not meeting criteria for recognition of gain for
     financial statement reporting purposes.

   <PAGE>
     SCHEDULE III, Continued

     Real Estate and Accumulated Depreciation
     July 31, 1996



     Real estate:
       Balance at beginning of period                         $21,950,837 
       Additions during period:Purchases and 
         capitalized costs                                      3,006,930
       Deductions during period:
         Cost of real estate sold                              (1,096,377)
                                                              -----------
       Balance at close of period                             $23,861,390
                                                              ===========

     Accumulated depreciation:
       Balance at beginning of period                         $ 6,303,246
       Depreciation for the year                                  767,207
       Charges to accumulated depreciation related to
         real estate investments sold, net of other
         adjustments                                             (483,354)
                                                              -----------
     Balance at close of period                               $ 6,587,099
                                                              ===========
     <PAGE>
     PACIFIC SECURITY COMPANIES AND SUBSIDIARIES
     SCHEDULE IV

     Mortgage Loans on Real Estate
     July 31, 1996


      <TABLE>
      <CAPTION>                                                                                                   Principal
                                                                                                                  Amount of
                                                                                                                    Loans
                                                                                                                 Subject to    
                                                                                         Face        Carrying    Delinquent
                                Interest  Maturity       Periodic                       Amount        Amount      Principal
           Description            Rate      Date      Payment Terms     Prior Liens  of Mortgages  of Mortgages  or Interest
      ------------------------  --------  --------  ------------------  -----------  ------------  ------------  -----------
      <S>                       <C>       <C>       <C>                 <C>          <C>           <C>           <C>

      Real estate contract on      9%       2004    $50,000 per month,               $ 3,388,641   $ 3,388,641
      apartment building                            including interest
      (HeritageVillage)           

      Real estate contract on      9%       2023    $16,973 per month,                 1,777,573     1,777,573
      apartment complex                             including interest
      (Evergreen Town House)

      Real estate contract on     9.25%   Repaid    $6,412 per month 
      Hastings Building                    8/96     including interest                   587,351       587,351

      Real estate contract on    Prime      1998    Interest only                        447,448       447,448
      Regency Care Center         +1%

      Real estate contract on     8.50%     2016    3,600 per month, 
      Walker-McGough Building                       including interest                   407,898       407,898

      Other mortgage contracts   Various   Various  Various                            4,100,328     3,884,033
      and notes receivable, 
      none of which individu-
      ally exceed 3% of the 
      total carrying value of 
      mortgages                                                                      -----------   -----------
                                                                                     $10,709,239   $10,492,944
                                                                                     ===========   ===========
      </TABLE>
      <PAGE>
      <TABLE>
      <CAPTION>                                                                                                   Principal 
                                                                                                                  Amount of
                                                                                                                    Loans
                                                                                                                 Subject to
                                                                                         Face        Carrying    Delinquent
                                Interest  Maturity       Periodic                       Amount        Amount      Principal
           Description            Rate      Date      Payment Terms     Prior Liens  of Mortgages  of Mortgages  or Interest
      ------------------------  --------  --------  ------------------  -----------  ------------  ------------  ------------
      <S>                       <C>       <C>       <C>                 <C>          <C>           <C>           <C>
      Balance at beginning of 
        period                                                                                                    $13,457,896
      Additions during period:
        Mortgage loans origi-
        nated and purchased                                                          $ 1,076,754
      Contract discounts 
        realized                                                                         126,044
                                                                                     -----------
                                                                                                     1,202,798
      Deductions during period:
        Collections of principal 
         and contract payoffs                                                          (4,166,338)
       Amounts written off                                                                (1,412)
                                                                                     -----------
                                                                                                    (4,167,750)
                                                                                                   -----------
      Balance at end of period                                                                     $10,492,944
                                                                                                   ===========
     </TABLE>
     <PAGE>
     SIGNATURES

     Pursuant to the requirements of Sections 13 or 15(d) of the Securities
     Exchange Act of 1934, Pacific Security Companies has duly caused this
     report to be signed on its behalf by the undersigned, thereunto duly
     authorized.

                                        PACIFIC SECURITY COMPANIES
                                        (Registrant)

     Dated:  October 25, 1996           By: /s/ Wayne E. Guthrie
             ------------------------       -------------------------------
                                            Wayne E. Guthrie
                                            Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934,
     this report has been signed below by the following persons, which
     include the Chief Executive Officer, the Chief Financial Officer, and
     the Board of Directors, on behalf of the Registrant and in the
     capacities and on the dates indicated:

          Signature                   Capacity                Date
     ------------------------  -----------------------   ----------------

     /s/ Wayne E. Guthrie      Chief Executive Officer   October 23, 1996
     ------------------------  and Director              ----------------
     Wayne E. Guthrie

     /s/ Donald J. Migliuri    Secretary-Treasurer       October 24, 1996
     ------------------------  Chief Financial Officer   ----------------
     Donald J. Migliuri

     /s/ Kevin M. Guthrie      Vice-President and        October 24, 1996
     ------------------------  Director                  ----------------
     Kevin M. Guthrie

     /s/ David L. Guthrie      Vice-President and        October 24, 1996
     ------------------------  Director                  ----------------
     David L. Guthrie

     /s/ Constance M. Guthrie  Director                  October 23, 1996
     ------------------------                            ----------------
     Constance M. Guthrie
     /s/ Raymond J. Fisher     Director                  October 24, 1996
     ------------------------                            ----------------
     Raymond J. Fisher

     /s/ Robert N. Codd        Director                  October 24, 1994
     ------------------------                            ----------------
     Robert N. Codd
<PAGE>