<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-4057
PORTSMOUTH SQUARE, INC.
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(Exact Name of Registrant as Specified in its Charter)
California 94-1674111
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
Mailing Address: P.O. Box 80037
San Diego, CA 92138-0037
Street Address: 2251 San Diego Avenue, Suite A-151
San Diego, CA 92110-2926
(619) 298-7201
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(Registrant's Telephone Number, Including Area Code)
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, and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No (2) Yes X No
--- --- --- ---
The number of shares outstanding of the issuer's common stock as of
October 13, 1996: Common Stock, no par value - 750,000 shares
Page 1 of 9
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INDEX
PORTSMOUTH SQUARE, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Balance Sheets--September 30, 1996 (Unaudited)
and December 31, 1995 3
Income Statements (Unaudited)--Quarters ended
September 30, 1996 and 1995 and for the Nine Months
ended September 30, 1996 and 1995 4
Statements of Cash Flow (Unaudited)--Nine Months
ended September 30, 1996 and 1995 5
Notes to Financial Statements--September 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 9
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Portsmouth Square, Inc.
Balance Sheets
<TABLE>
<CAPTION> September 30, December 31,
1996 1995
(Unaudited)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 206,145 $ 1,206,138
Marketable securities 928,574 ---
Deferred income taxes 45,480 45,480
Receivable from Justice Investors -- 18,000
---------- ----------
Total current assets 1,180,199 1,269,618
Investment in Justice Investors 727,140 364,259
Deferred income taxes 1,207 1,207
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Total assets $ 1,908,546 $ 1,635,084
========== ==========
Liabilities and shareholders' equity
Current liabilities:
Amount owed to Santa Fe $ 28,504 $ 35,951
Acccounts payable and accrued expenses 10,082 148
Income taxes payable 130,505 81,203
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Total current liabilities 169,091 117,302
Shareholders' equity:
Common stock, no par value:
Authorized shares - 750,000
Issued and outstanding shares - 750,000 2,092,300 2,092,300
Additional paid-in capital 1,240,291 1,240,291
Accumulated deficit (1,593,136) (1,814,809)
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Total shareholders' equity 1,739,455 1,517,782
---------- ----------
Total liabilities and shareholders' equity $ 1,908,546 $ 1,635,084
========== ==========
See accompanying notes.
</TABLE>
<PAGE> 4
Portsmouth Square, Inc.
Income Statements
(Unaudited)
<TABLE>
<CAPTION> Quarter Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Revenues:
Partnership income $ 630,553 $ 424,913 $1,304,101 $1,034,500
Interest income 24,516 17,450 57,272 51,017
Miscellaneous income 6,000 1,500 18,872 4,500
-------- -------- --------- ---------
661,069 443,863 1,380,245 1,090,017
-------- -------- --------- ---------
Costs and expenses:
General and administrative 41,238 38,838 153,590 117,842
Professional services 16,398 6,850 41,978 37,253
-------- -------- -------- ---------
57,636 45,688 195,568 155,095
-------- -------- --------- ---------
Income before income taxes 603,433 398,175 1,184,677 934,922
Income taxes 242,205 159,820 475,505 375,260
-------- -------- -------- ---------
Net income $ 361,228 $ 238,355 $ 709,172 $ 559,662
======== ======== ========= =========
Net income per share $ 0.48 $ 0.32 $ 0.95 $ 0.75
======== ======== ========= =========
Dividends per share $ 0.25 $ 0.35 $ 0.65 $ 0.70
======== ======== ========= =========
See accompanying notes.
</TABLE>
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Portsmouth Square, Inc.
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION> Nine Months Ended September 30,
1996 1995
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<S> <C> <C>
Operating activities
Net income $ 709,172 $ 559,662
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of Justice Investors (1,304,101) (1,034,500)
Decrease in accounts receivable 18,000 --
Change in accounts payable, accrued
expenses and income taxes 51,790 39,726
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Net cash used in operating activities (525,139) (435,112)
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Investing activities
Cash distribution from Justice Investors 941,220 941,220
Purchase of securities (928,574) --
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Net cash provided by investing activities 12,646 941,220
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Financing activities
Dividends paid (487,500) (525,000)
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Net cash used in financing activities (487,500) (525,000)
---------- ----------
Net increase (decrease) in cash and cash
equivalents (999,993) (18,892)
Cash and cash equivalents at the beginning
of the period 1,206,138 1,103,421
---------- ----------
Cash and cash equivalents at the end of the
period $ 206,145 $ 1,084,529
========== ==========
See accompanying notes.
</TABLE>
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PORTSMOUTH SQUARE, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
---------------------------------------------------------
The financial statements included herein have been prepared by Portsmouth
Square, Inc. (the "Company"), without audit, according to the rules and
regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes the disclosures that are made are adequate to make the
information presented not misleading. Further, the financial statements
reflect, in the opinion of management, all adjustments (which included only
normal recurring adjustments) necessary to state fairly the financial
position and results of operations as of and for the periods indicated.
It is suggested that these financial statements be read in conjunction with
the audited financial statements and the notes therein included in the
Company's Form 10-K.
The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of results to be expected for the full
fiscal year ending December 31, 1996.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standard No. 121, (Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of). The adoption of the
new standard had no effect on the financial statements.
2. Litigation
----------
On March 26, 1996, a suit was filed in the San Francisco Superior Court
against the Company and more than 60 other defendants alleging injuries
suffered by the plaintiff as a result of exposure to asbestos containing
materials. The Company is named among the "premises defendants" as opposed
to the "manufacturing/distributing defendants". The Complaint seeks an
unspecified amount of damages. The Company is being defended through its
insurance carrier under a reservation of rights. Based on currently
available facts, it is impossible to estimate the amount of the Company's
liability, if any, at this time.
3. Additional Rent
---------------
Partnership income for the third quarter ended September 30, 1996 includes an
estimated $262,000 relating to additional rents due, as determined on an annual
basis, in accordance with the Holiday Inn lease.
<PAGE> 7
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements and Projections
The Company may from time to time make forward-looking statements and
projections concerning future expectations. When used in this discussion,
the words "estimate," "project," "anticipate" and similar expressions, are
intended to identify forward-looking statements. Such statements are subject
to certain risks and uncertainties, including estimated additional rents due
as discussed below, uncertainties such as general economic conditions,
securities markets, litigation and other factors discussed in the Company's
Form 10-K for the year ended December 31, 1995, that could cause actual results
to differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as to
the date hereof. The portions of the Form 10-K referred to in this paragraph
are expressly incorporated herein by reference. The Company undertakes no
obligation to publicly release the results of any revisions to those forward-
looking statements which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Registrant's major source of revenue continues to be its 49.8% investment in
Justice Investors, a limited partnership, which derives the majority of its
income from a lease with Holiday Inn and a lease with Evon Garage Corporation.
The Company also derives revenue from the investment of its cash and securities
assets.
Quarter Ended September 30, 1996 Compared to the Quarter
Ended September 30, 1995
Comparison of the third quarter results of 1996 to the third quarter of 1995
shows that total revenues increased 48.9%, income before taxes increased 51.5%
and net income increased 51.6%. The increase in total revenues, income before
taxes and net income reflects the inclusion of an estimated $262,000 in
partnership income for the third quarter of 1996 relating to additional rents
due in accordance with the partnership's lease with Holiday Inn which became
effective on January 1, 1995. Additional rent is determined on an annual basis
and, if applicable, paid once a year. In the prior year, additional rents due
of approximately $159,000 were recorded in partnership income for the fourth
quarter at which time they became estimatable.
The increase in total revenues also reflects an increase in fees received
from the partnership and higher yields obtained by the Company from the
investment of its cash assets.
The moderate increase in expenses is primarily attributable to the retention
of a consultant to advise the Company on certain operational and partnership
matters.
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--CONTINUED
Nine Months Ended September 30, 1996 Compared to the Nine Months
Ended September 30, 1995
Comparison of the results of operations for the first nine months of 1996
to the first nine months of 1995, reveals that total revenues increased 26.6%,
expenses increased approximately 26.1%, income before taxes increased 26.7%
and net income increased 26.7%. The increase in total revenues is primarily
attributable to the inclusion of an estimated $262,000 in partnership income
during the third quarter of 1996 relating to additional rents due in accordance
with the Holiday Inn lease which became effective on January 1, 1995.
Additional rent is determined on an annual basis and, if applicable, payed
once a year. In the prior year, additional rents due in the approximate amount
of $159,000 were recorded in partnership income for the fourth quarter at which
time they became estimatable.
The increase in total revenues also reflects a decline in expenses at the
partnership level, primarily due to the refinancing of the hotel asset in
1995, and a modest increase in garage revenues.
The increase in expenses is primarily due to higher costs associated with the
Company's annual meeting of shareholders and the payment of director' fees to
both incoming and outgoing directors during the second quarter of this year.
FINANCIAL CONDITION AND LIQUIDITY
At September 30, 1996, the Company had cash, cash equivalents and marketable
securities of $1,134,719, after the payment of cash dividends equal to $.65
per common share during the first nine months.
The Company remains liquid with a current ratio of approximately 7 to 1.
Management believes that its capital resources are currently adequate to
meet its short and long term obligations. The Company is diversifying its
investment of its cash assets in an effort to obtain an overall higher yield
while seeking to minimize the associated increased degree of risk. The
Company may also make limited investments in equities when deemed appropriate.
At its July 25, 1996 meeting of its Board of Directors, the Company declared
a regular dividend of $.25 per common share which was paid on September 3, 1996
to shareholders of record as of August 12, 1996.
<PAGE> 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On May 30, 1996, the Company was served with a personal injury action
entitled, Taylor v. Raybestos-Manhattan, et al., San Francisco Superior
Court Case No. 977148. The suit, which was filed on March 26, 1996, names
more than 60 defendants, including Evon Garage Corporation, and alleges
injuries suffered as a result of exposure to asbestos containing materials.
The Company and Evon Garage Corporation are named among the premises
defendants. The Complaint seeks an unspecified amount of damages. The
Company is being defended through its insurance carrier under a reservation
of rights. Discovery is continuing in that action. Based on currently
available facts, it is impossible estimate the amount of the Company's
liability, if any, at this time.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matters were submitted to a vote of security holders during the period
covered by this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - the Financial Data Schedule is filed
as an exhibit to this report.
(b) Registrant did not file any Reports on Form 8-K
during the period covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
PORTSMOUTH SQUARE, INC.
(Registrant)
Date: October 14, 1996
by /s/ John V. Winfield
- -------------------------------------
John V. Winfield, President
and Chairman of the Board
Date: October 14, 1996
by /s/ L. Scott Shields
- -------------------------------------
L. Scott Shields, Treasurer
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND INCOME STATEMENT OF PORTSMOUTH
SQUARE, INC. SET FORTH IN ITS FORM 10-Q REPORT FOR THE QUARTERLY
PERIOD ENDED September 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-Q REPORT.
<CIK> 0000079661
<NAME> PORTSMOUTH SQUARE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> SEP-30-1996
<CASH> 206145
<SECURITIES> 928574
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1180199
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1908546
<CURRENT-LIABILITIES> 169091
<BONDS> 0
0
0
<COMMON> 2092300
<OTHER-SE> (183754)
<TOTAL-LIABILITY-AND-EQUITY> 1908546
<SALES> 1304101
<TOTAL-REVENUES> 1380245
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 195568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1184677
<INCOME-TAX> 475505
<INCOME-CONTINUING> 709172
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 709172
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
