<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-QSB
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from _______ to ________
Commission File Number 0-4057
PORTSMOUTH SQUARE, INC.
(Exact Name of Registrant as Specified in its Charter)
California 94-1674111
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
Mailing Address: P.O. Box 80037
San Diego, CA 92138
Street Address: 2251 San Diego Avenue, Suite A-151
San Diego, CA 92110
(619) 298-7201
(Registrant's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months, and (2) has been subject to such filing requirements for the past 90
days. Yes X No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 747,600 shares of issuer's
No Par Value Common Stock were outstanding as of May 8, 1997.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE> 2
INDEX
PORTSMOUTH SQUARE, INC.
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Balance Sheet--March 31, 1997 (Unaudited) 3
Income Statements (Unaudited)--Three Months
ended March 31, 1997 and 1996 4
Statements of Cash Flow (Unaudited)--Three Months
ended March 31, 1997 and 1996 5
Notes to Financial Statements--March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
</TABLE>
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements
Portsmouth Square, Inc.
Balance Sheet
(Unaudited)
<TABLE>
<CAPTION> March 31
1997
-------------
<S> <C>
Assets
Current assets:
Cash and cash equivalents $ 76,184
Investment securities 1,073,208
Deferred income taxes 53,185
Other current assets 12,482
----------
Total current assets 1,215,059
Investment in Justice Investors 1,081,240
Deferred income taxes 3,788
----------
Total assets $ 2,300,087
==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable and accrued expenses $ 40,470
Income taxes payable 156,310
Amount owed to Santa Fe Financial Corp. 69,428
----------
Total current liabilities 266,208
----------
Commitments and contingencies
Shareholders' equity:
Common stock, no par value:
Authorized shares - 750,000
Issued and outstanding shares - 747,600 2,092,300
Additional paid - in capital 1,193,914
Unrealized gain on investment securities,
net of deferred taxes 239
Accumulated deficit (1,252,574)
----------
Total shareholders' equity 2,033,879
----------
Total liabilities and shareholders' equity $ 2,300,087
==========
See accompanying notes.
</TABLE>
<PAGE> 4
Portsmouth Square, Inc.
Statements of Income
(Unaudited)
<TABLE>
<CAPTION> Three Months ended March 31
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Equity in net income of Justice
Investors $ 499,712 $ 332,619
Net Investment and interest income 13,885 17,033
Other income 6,000 6,872
--------- ---------
519,597 356,524
--------- ---------
Cost and expenses:
General and administrative 76,094 47,329
Legal and professional fees 54,069 11,125
--------- ---------
130,163 58,454
--------- ---------
Income before income taxes 389,434 298,070
Income taxes 156,312 119,639
--------- ---------
Net income $ 233,122 $ 178,431
========= =========
Net income per share $ 0.31 $ 0.24
========= =========
Dividends per share $ 0.25 $ 0.40
========= =========
Weighted average number of
shares outstanding 749,896 750,000
========= =========
See accompanying notes.
</TABLE>
<PAGE> 5
Portsmouth Square, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION> Three Months ended March 31
1997 1996
------------ ------------
<S> <C> <C>
Operating activities
Net income $ 233,122 $ 178,431
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of Justice Investors (499,712) (332,619)
Decrease in accounts receivable - 18,000
Decrease in other assets 8,053 -
Net increase in current liabilities 133,419 33,547
---------- ----------
Net cash used in operating activities (125,118) (102,641)
---------- ----------
Investing activities
Cash distribution from Justice Investors 387,961 313,740
Purchases of investment securities (678,742) -
Proceeds from sale of investment securities 594,817 -
---------- ----------
Net cash provided by investing activities 304,036 313,740
---------- ----------
Financing activities
Dividends paid (187,500) (300,000)
Purchase of Portsmouth stock (46,377) -
---------- ----------
Net cash used in financing activities (233,877) (300,000)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 54,959 (88,901)
Cash and cash equivalents at the beginning
of the year 21,225 1,206,138
---------- ----------
Cash and cash equivalents at the end of the
period $ 76,184 $ 1,117,237
========== ==========
See accompanying notes.
</TABLE>
<PAGE> 6
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 for the year ended December 31, 1996.
The results of operations for the three months ended March 31, 1997 are not
necessarily indicative of results to be expected for the full fiscal year
ending December 31, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, (Earnings per Share) which will be required to be adopted on
December 31, 1997. The impact of Statement 128 on the calculation of earnings
per share for these quarters is not expected to be material.
2. Contingencies
-------------
On May 30, 1996, the Company was served with a personal injury action in the
San Francisco Superior Court. The suit, which was filed on March 26, 1996,
names more than 60 defendants, including the managing general partner of
Justice Investors, and alleges injuries suffered as a result of exposure to
asbestos-containing materials. The Complaint seeks an unspecified amount of
damages, including recovery for loss of income and medical expenses. The
Company is being defended through its insurance carrier under a reservation of
rights. Due to the limited discovery taken to date, the Company is not in a
position to evaluate the eventual outcome of the action or to estimate a
potential range of loss, if any.
3. Related Party Transactions
--------------------------
Certain costs and expenses, primarily salaries, rent and insurance, are
allocated between the Company and its parent company, Santa Fe Financial
Corporation ("Santa Fe") based on management's estimate of the utilization of
resources.
During the quarter ended March 31, 1997, the Company made payments to The
InterGroup Corporation ("InterGroup") in the amount of $20,423 for
administrative costs and reimbursement of direct and indirect costs associated
with the management of the Company's investments, including its partnership
asset. The Company's funds are invested under the direction of its Chairman
and President, John V. Winfield. Mr. Winfield is also President and Chairman
of Santa Fe and Intergroup. Two of the Company's other Directors also serve as
Directors of InterGroup.
<PAGE> 7
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
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 partnership distributions,
general economic conditions of the hotel industry in the San Francisco area,
securities markets, litigation and other factors, including those discussed
below and in the Company's Form 10-K for the year ended December 31, 1996,
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 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
The Company's principal sources of revenue continue to be derived from its
49.8% interest in the Justice Investors limited partnership and income
received from the investment of its cash and securities assets. The
partnership derives most of its income from its lease with Holiday Inns, Inc.
("Holiday") and from a lease with Evon Garage Corporation.
Three Months Ended March 31, 1997 Compared to Three Months
Ended March 31, 1996
Comparison of operating results for the three months ended March 31, 1997 to
the three months ended March 31, 1996, shows that total revenues increased
45.7%, costs and expenses increased 123% and net income increased 30.7%.
The 45.7% increase in total revenues from $356,524 to $519,597 was primarily
due to a 50.2% increase in partnership income. The increase in partnership
income reflects a 47.9% increase in hotel rental income and a 5.6% increase in
garage rental income. The increase in hotel rental income is attributable to
both higher occupancy rates and an increase in the average daily room rate.
The increase in costs and expenses from $58,454 to $130,163 is attributable to
several items. Legal and professional fees for the first quarter of 1997,
reflect an increase in annual audit fees and include costs associated with the
retention of a consultant to advise the Company on certain operational and
partnership matters as part of the Company's more active role as a general
partner in Justice Investors. The increase in general and administrative
expenses from $47,329 to $76,094 reflects an adjustment in the Company's
proportionate share of operating expenses with its parent, Santa Fe, and
higher administrative costs and direct and indirect costs associated with the
management of the Company's investments, including its partnership asset.
Effective April 28, 1997, Holiday merged with Bristol Hotel Company
("Bristol") of Dallas, Texas, a publicly held company listed on the New York
Stock Exchange. Bristol has agreed to assume and perform all of Holiday's
obligations under the lease with the partnership and will continue to operate
the hotel as a Holiday Inn.
<PAGE> 8
LIQUIDITY AND SOURCES OF CAPITAL
The Company's cash flows are primarily generated by its investment in the
Justice Investors limited partnership, which derives the majority of its
income from a lease with Holiday and a lease with Evon Garage Corporation.
In addition to its monthly limited partnership distributions from Justice
Investors, the Company also receives monthly management fees as a general
partner. The Company also derives revenue from the investment of its cash and
securities assets.
As a result of increases in the amount of rental income from the hotel lease,
the general partners of Justice Investors decided that there would be a
special one-third increase in the monthly distribution to limited partners
effective with the February 1997 distribution. As a result, Portsmouth's
monthly distribution will increase to $139,440 from $109,580. Although it is
planned that the distribution at the higher level will continue for a period
of 12 months, the increase was clearly identified as a special distribution
and, at any time, unforeseen circumstances could dictate a change in the
amount distributed. The general partners will conduct an annual review and
analysis to determine an appropriate monthly distribution for the ensuing
year. At that time, the monthly distribution could be decreased or increased.
The Company has diversified its investment of its cash and securities assets
in an effort to obtain an overall higher yield while seeking to minimize the
associated increased degree of risk. The Company has invested in short-term,
income-producing instruments and in equity and debt securities when deemed
appropriate. The Company's securities investments are classified as
available-for-sale and unrealized gains and losses, net of deferred taxes, are
included in shareholders' equity. As of March 31, 1997, the Company had a net
unrealized gain on investments of $239 after tax, which consists of pre-tax
unrealized gains of $55,020 and pre-tax unrealized losses of $54,621.
Realized investment gains and losses may fluctuate significantly from period
to period in the future and could have a meaningful effect on the Company's
net earnings. However, the amount of realized investment gain or loss for any
given period may have no predictive value, and variations in amount from
period to period may have no practical analytical value.
In December 1996, the Board of Directors authorized a limited buy-back program
of the Company's common stock. The Company may, from time to time, in the
discretion of management, purchase those shares depending on market conditions
and other factors consistent with Company policy and as limited by state and
federal law. In instituting the buy-back program, the Company reaffirmed its
intention of continuing with its reporting requirements under the Exchange Act
and the program is not intended to directly or indirectly cause the cessation
of those requirements. As of March 31, 1997, the Company had repurchased
2,400 of its common shares in open market transactions.
At March 31, 1997, the Company's current assets were $1,215,059. The
Company remains liquid with a current ratio of approximately 4.6 to 1 at the
end of the first quarter of 1997. Management believes that its capital
resources are currently adequate to meet its short- and long-term obligations.
<PAGE> 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held on May 6, 1997,
at the Westgate Hotel in San Diego, California. At that meeting all of
management's nominees, John V. Winfield, Jerold R. Babin, Janice
Braly-Nelsen, Josef A. Grunwald and William J. Nance were elected Directors
of Portsmouth to serve until the next Annual Meeting. The shareholders also
voted to ratify the appointment of Ernst & Young LLP as the Company's
independent auditor for the year ending December 31, 1997. A tabulation of
the vote follows:
<TABLE>
<CAPTION>
Proposal (1) - Directors: Votes For Against Abstained
--------- ------- ---------
<S> <C> <C> <C>
John V. Winfield 613,721 - 6,513
Jerold R. Babin 615,791 - 4,443
Janice Braly-Nelsen 613,921 - 6,513
Josef A. Grunwald 613,721 - 6,513
William J. Nance 613,721 - 6,513
Proposal (2) Accountants:
Ernst & Young LLP 606,747 500 12,987
</TABLE>
Item 5. Other Information.
At a meeting of the Board of Directors held on May 6, 1997, after the Annual
Meeting of Shareholders, the following persons were elected as officers of
the Company: John V. Winfield, President and Chairman of the Board;
William J. Nance, Vice President and Secretary; and L. Scott Shields,
Treasurer.
<PAGE> 10
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: May 8, 1997
by /s/ John V. Winfield
- -------------------------------------
John V. Winfield, President
and Chairman of the Board and
Chief Executive Officer
Date: May 8, 1997
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 MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-Q REPORT.
<CIK> 0000079661
<NAME> PORTSMOUTH SQUARE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 76184
<SECURITIES> 1073208
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1215059
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2300087
<CURRENT-LIABILITIES> 266208
<BONDS> 0
0
0
<COMMON> 2092300
<OTHER-SE> 207787
<TOTAL-LIABILITY-AND-EQUITY> 2300087
<SALES> 499712
<TOTAL-REVENUES> 519597
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 130163
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 389434
<INCOME-TAX> 156312
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<NET-INCOME> 233122
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
