SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended December 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____ to ____
Commission file number 0-4057
PORTSMOUTH SQUARE, INC.
-----------------------
(Name of Small Business Issuer in Its Charter)
California 94-1674111
---------- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
11315 Rancho Bernardo Road, Suite 129 San Diego, California 92127-1463
----------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(619) 673-4722
--------------
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
--------------------------
Title of Class
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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 [ ]
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, 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-KSB or any
amendments to this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year were $2,846,750.
<PAGE> 2
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of issuer computed by reference to the price at which the
common equity was sold on March 3, 1999 was $3,650,869.
The number of shares outstanding of issuer's No Par Value Common Stock, as
of March 23, 1999, was 734,183.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference: Proxy Statement for
Annual Meeting of Shareholders to be held May 4, 1999 which is incorporated by
reference into Part III, Items 9 through 12. The Company's definitive Proxy
Statement will be filed within one hundred twenty (120) days of the end of the
fiscal year covered by this Form 10-KSB pursuant to Regulation 14A.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I PAGE
- ------ ----
Item 1. Description of Business. 3
Item 2. Description of Property. 4
Item 3. Legal Proceedings. 5
Item 4. Submission of Matters to a Vote of Security Holders. 6
PART II
- -------
Item 5. Market For Common Equity and Related 6
Stockholder Matters.
Item 6. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations.
Item 7. Financial Statements and Supplementary Data. 9
Item 8. Changes in and Disagreements With Accountants on 19
Accounting and Financial Disclosure.
PART III
- --------
Item 9. Directors, Executive Officers, Promoters and 19
Control Persons; Compliance With Section 16(a)
of The Exchange Act.
Item 10. Executive Compensation. 19
Item 11. Security Ownership of Certain Beneficial Owners and 19
Management.
Item 12. Certain Relationships and Related Party Transactions. 19
Item 13. Exhibits, Financial Statement Schedules, and 20
Reports on Form 8-K.
SIGNATURES 28
<PAGE> 3
PART I
Item 1. Description of Business.
BUSINESS DEVELOPMENT
Portsmouth Square, Inc. ("Portsmouth" or the "Company") is a California
corporation, incorporated on July 6, 1967, to purchase a substantial interest
in a California limited partnership known as Justice Investors. Justice
Investors was formed to purchase certain real property in San Francisco,
California and to construct a hotel thereon.
Portsmouth has a 49.8% limited partnership interest in Justice Investors and
also serves as one of the two general partners. The other general partner,
Evon Garage Corporation ("Evon"), acts as the managing general partner. There
are approximately 91 limited partners in Justice Investors.
BUSINESS OF ISSUER
The Company's principal business is conducted through its general and limited
partnership interest in Justice Investors. Justice Investors owns the land
improvements and leaseholds at 750 Kearny Street, San Francisco, California
commonly known as the Holiday Inn Financial District/Chinatown. The most
significant income source is a lease between the partnership and Felcor Lodging
Trust, Inc. ("Felcor", NYSE: FCH) for the hotel portion of the property. The
partnership also derives income from its lease of the garage portion of the
property to Evon. As a general partner, Portsmouth has become more active in
monitoring the operations of the hotel and the parking garage as part of its
effort to improve revenues.
The Company also derives income from management fees as a general partner in
Justice Investors and from the investment of its cash and securities assets.
The Company has invested in income-producing instruments, equity and debt
securities and will consider other investments if such an investment will
offer growth or profit potential.
COMPETITION
The hotel enjoys a favorable year-round occupancy rate and is part of Holiday's
worldwide reservation system. It was designed to Holiday's specifications to
serve both business persons and tourists and caters to both individuals and
tour groups. It also handles conference and meeting business, having meeting
and dining facilities for groups of up to 400 people. Management believes
that the hotel and garage are in a competitive position in their respective
markets; however, some competitors may have better financial resources and
newer facilities. The Company intends, where appropriate, to continue in its
efforts as a general partner to find ways to improve the physical condition of
the hotel and garage properties to remain competitive.
EMPLOYEES
As of December 31, 1998, the Company had two full-time employees and one
part-time employee. The employees are not part of any collective bargaining
agreement, and the Company believes that its employee relations are
satisfactory.
<PAGE> 4
Item 2. Description of Property.
PROPERTIES
The San Francisco, California hotel property owned by Justice Investors is
located near the Financial District, one block from the Transamerica Pyramid.
Embarcadero Center is within walking distance. Chinatown is directly across
the bridge that runs from the hotel to Portsmouth Square Park. The hotel is a
31-storied, steel and concrete, A-frame building which contains 566 guest rooms
situated on 22 floors. One floor houses the Chinese Culture Center pursuant to
a long-term, nominal-rent lease, and three floors are devoted to a registration
desk, lobby shops, dining room, coffee shop, hotel support facilities, a
fitness center, a guest business center, meeting and banquet rooms and offices.
Other features of the Holiday Inn include a rooftop swimming pool, 5-storied
underground garage and pedestrian bridge across Kearny Street connecting the
hotel and the Chinese Culture Center with Portsmouth Square Park in Chinatown.
The bridge, built and owned by the partnership, is included in the lease to the
Chinese Culture Center.
The property is subject to a first deed of trust securing a loan from Wells
Fargo Bank. As of December 31, 1998, the principal balance on the note was
$2,604,686. The loan provides for a maximum borrowing of $6.8 million and has
the characteristics of a line of credit with certain declining maximum
borrowings available at the end of each year. The major portion of the debt is
carried at LIBOR plus 2% and there is a monthly adjustment to that rate. The
remainder of the debt is carried at the prime rate and also adjusted monthly.
On March 15, 1995, an amended and restated lease was entered into by Justice
Investors with an effective date of January 1, 1995. That lease was assumed by
Felcor, effective July 28, 1999. The initial term of the new lease is for a
10-year term expiring on December 31, 2004. The lessee also has an option to
renew the lease for one additional term of five years which would extend the
lease to December 31, 2009. The lease requires the lessee to pay an annual
rent of the greater of twenty percent (20%) of gross room revenues or
$2,500,000 plus fifty percent (50%) of total revenues from the demised premises
less operating expenses, base rent and capital requirements.
The lease also required the lessee and Justice Investors to make substantial
capital improvements and renovations to the hotel property. A rehabilitation
budget of more than $8 million was set forth in the new lease agreement, of
which the partnership was responsible for $2 million and the lessee was
responsible for the remainder. As of December 31, 1998, the partnership had
paid all of its $2 million commitment. Rehabilitation and renovation of the
guest rooms, hallways, elevators and safety systems was substantially completed
during 1998. Renovation of the lobby and other public areas commenced in
December of 1998 and further improvements are expected to be made in the future
to meet standards for Holiday Inn Select hotels. The financial responsibility
for those improvements rests with Felcor.
<PAGE> 5
Under the terms of the lease, the lessee is responsible for all maintenance and
repairs to the property, certain capital improvements, taxes and insurance. In
the opinion of management the property is adequately covered by insurance.
The garage lease between the partnership and Evon provides for a monthly rental
of sixty percent (60%) of gross parking revenues with a minimum rent of $21,750
per month. That lease expires in November 2010. The lessee is responsible for
insurance, repairs and maintenance, utilities and all taxes assessed against
the improvements to the leased premises. The garage is operated by Ampco
Parking pursuant to a sublease agreement with Evon.
INVESTMENT POLICIES
The most significant real estate investment of the Company has been through its
investment in Justice Investors. The Company will continue to explore ways to
increase the value of that investment and to improve operations of the
underlying asset.
The Company may also look for new real estate investment opportunities in
hotels, apartments, office buildings and shopping centers. The acquisition of
any new real estate investments will depend on the Company's ability to find
suitable investment opportunities and the availability of sufficient financing
to acquire such investments. To help fund any such acquisition, the Company
plans to borrow funds to leverage its investment capital. The amount of this
mortgage debt will depend on a number of factors including, but not limited to,
the availability of financing and the sufficiency of the project's projected
cash flows to support the operations and debt service.
The Company has also invested in income producing instruments, equity and debt
securities, which may include interests in real estate based companies and
REITs, where financial benefit could inure to its shareholders through income
and/or capital gain. Those investments are made under the direction of the
Company's Chairman and President. The Company primarily will invest in
securities priced above $5.00 a share of companies listed on the New York and
American Stock Exchanges and the Nasdaq National Stock Market. Although most
of the Company's marketable securities investments are in companies listed on
those stock markets, the overall investment portfolio and some of the Company's
investment strategies could be viewed as risky and the market values of the
portfolio may be subject to large fluctuations. The Company may realize gains
and losses in its overall investment portfolio from time to time to take
advantage of market conditions and/or manage the portfolio's resources and the
Company's tax liability. The Company may also assume short positions in
marketable securities. Short sales are used by the Company to potentially
offset normal market risks undertaken in the course of its investing activities
or to provide additional return opportunities. In addition, the Company may
utilize margin for its marketable securities purchases through the use of
standard margin agreements with national brokerage firms. The use of available
leverage is guided by the business judgment of management.
Item 3. LEGAL PROCEEDINGS
On May 30, 1996, Portsmouth 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, named more than 60
defendants, including Evon Garage Corporation, and alleged injuries suffered as
a result of exposure to asbestos-containing materials. The Complaint sought an
unspecified amount of damages including recovery for loss of income and medical
expenses. Portsmouth was defended through its insurance carrier under a
reservation of rights. On September 16, 1997, the trial court granted the
Company's motion for summary judgment dismissing it from the lawsuit. That
judgment became final on April 13, 1998 and was not appealed.
<PAGE> 6
Item 4. Submission of Matters to a Vote of Shareholders.
No matters were submitted to a vote of shareholders during the fourth quarter
of Registrant's fiscal year ended December 31, 1998.
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
MARKET
Portsmouth's common stock is traded over-the-counter. Quotes for its
stock are printed in the National Quotation Bureau's Non-NASDAQ Price Report.
The Company's trading symbol is PRSI.
The following table sets forth the high and low bid prices as of the end of
each full quarterly period for the last two fiscal years as reported on the
National Quotation Bureau's Non-NASDAQ Price Report.
1998 High Low
---- ---- ---
First Quarter (1/1 to 3/31) $ 17.50 $ 16.63
Second Quarter (4/1 to 6/30) $ 18.00 $ 17.50
Third Quarter (7/1 to 9/30) $ 16.13 $ 17.88
Fourth Quarter (10/1 to 12/31) $ 18.00 $ 16.75
1997
----
First Quarter (1/1 to 3/31) $ 24.00 $ 21.50
Second Quarter (4/1 to 6/30) $ 34.00 $ 23.25
Third Quarter (7/1 to 9/30) $ 32.00 $ 18.00
Fourth Quarter (10/1 to 12/31) $ 20.00 $ 17.50
Such over-the-counter market quotations reflect inter-dealer prices and do not
include retail markup, markdown or commission and may not necessarily represent
actual transactions.
DIVIDENDS
On January 13, 1982, the Board of Directors established a regular semi-annual
dividend of $.25 per share payable on March 1 and September 1 to shareholders
of record February 1 and August 1, respectively. These regular semi-annual
dividends have been declared and paid at the established intervals since
September 1, 1982.
<PAGE> 7
Item 6. 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 partnership distributions,
general economic conditions of the hotel industry in the San Francisco area,
securities markets, litigation and other factors, including natural disasters
and those discussed below, 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 a lease of its hotel property to Felcor and
from a lease with Evon Garage Corporation.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Comparison of operating results for the year ended December 31, 1998 to the
year ended December 31, 1997 shows that net income increased 11.0%, resulting
from a net increase in total revenues of 13.0%, partially offset by a 18.6%
increase in costs and expenses.
The 13.0% net increase in total revenues from $2,585,792 to $2,923,747 was
primarily due to a 18.0% increase in partnership income from Justice Investors
from $2,560,805 to $3,021,878, partially offset by a 57.4% decrease in dividend
and interest income from $115,586 to $49,165 and a $86,001 change in other
income/loss from income of $28,501 to a loss of $57,500.
The increase in partnership income is primarily attributable to a 13.3% increase
in hotel rental income as a result of an increase in the average daily room
rate without a significant reduction in occupancy rates. The decrease in
dividend and interest income and losses on marketable securities were due to
management's continuing efforts to reposition the Company's investment portfolio
by selling certain of its underperforming securities. The change in other
income/loss is primarily due to a write-down of one of the Company's
investments of $87,500.
Realized gains and losses on marketable securities 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 gain or loss on
marketable securities for any given period may have no predictive value and
variations in amount from period to period may have no analytical value.
The 18.6% increase in costs and expenses from $483,962 to $574,299 is primarily
attributable to a 33.7% increase in professional and outside service fees from
$128,678 to $172,155 and the 115.4% increase in margin interest expense from
$32,810 to $70,695. The increase in professional and outside service fees
reflects the accrual for the annual audit and an increase in professional
consulting fees related to the Company's investment activities. The increase in
the margin interest expense is due to the maintenance of a higher margin
balance in the current year.
<PAGE> 8
Beginning July 1, 1998, certain accounting and administrative functions of the
Company and its parent corporation, Santa Fe Financial Corporation ("Santa Fe")
were consolidated with the Los Angeles, California offices of The InterGroup
Corporation. Effective October 31, 1998, the Company and Santa Fe also
terminated their office lease and moved to a much smaller space in an effort to
reduce expenses.
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 its lease with Felcor and a lease with Evon. 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 increased to $139,440 from $109,580. In February 1998,
the general partners decided to continue monthly distributions at the higher
monthly rate for another year. The increases in monthly distributions were
clearly identified as special distributions and, at any time, unforeseen
circumstances could dictate a change in the amount distributed. The general
partners will continue to 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. In addition, Portsmouth
received $557,760 as its share of a special distribution paid to the limited
partners on December 10, 1997 and $697,200 as its share of a special
distribution paid on December 10, 1998. Those additional distributions were
also clearly identified as special, and the limited partners were informed
that there was no guarantee that such distributions would continue, especially
if the partnership was to participate financially in the future upgrading of
the public areas of the hotel. During 1998, the Company received distributions
totaling $2,509,920 from Justice Investors.
The Company has invested in short-term, income-producing instruments and in
equity and debt securities when deemed appropriate. The Company's marketable
securities are classified as available-for-sale and unrealized gains and
losses, net of deferred taxes, are included in accumulated other comprehensive
income. As of December 31, 1998, the Company had a net unrealized loss on
marketable securities of $50,777 after tax, which consists of pre-tax
unrealized gains of $141,387 and pre-tax unrealized losses of $229,032.
At December 31, 1998, the Company's current assets were $2,851,431. The
Company remains liquid with a current ratio of approximately 2.6 to 1 at the
end of the year. Management believes that its capital resources are currently
adequate to meet its short and long-term obligations.
<PAGE> 9
YEAR 2000 ISSUES
The Company is aware of the potential implications of the year 2000 ("Y2K")
issue could have on its business and as a result, is in the process of
determining what, if any, steps the Company must take to cure any potential
software or hardware problems associated with Y2K. The Company has hired
professional outside consultants to assist it in addressing its Y2K needs. The
Company's plans include upgrading existing software applications to make them
Y2K compliant, replacing some hardware required by software upgrades,
purchasing new computer hardware and upgrading its computer network and
communication systems. The Company has also contacted its suppliers of various
services and materials regarding their readiness and plans for Y2K.
Based on preliminary discussions with the Company's outside consultants,
service providers and software and hardware vendors, the Company has determined
that its systems, both information technology and non-information technology,
are not reasonably likely to be impacted by Y2K and that the costs to complete
the Y2K compliance will not have a material effect on the Company's financial
position or results of operations. Management expects to be Y2K compliant by
September 30, 1999.
IMPACT OF INFLATION
Since the Company's primary source of revenue is its partnership investment in
Justice Investors, the impact of inflation on Portsmouth should be viewed at
the partnership level. As discussed above, partnership income is primarily
dependent on hotel lease revenues. Hotel room rates are typically impacted by
supply and demand factors, not inflation, since rental of a hotel room is
usually for a limited number of nights. Room rates can be, and usually are,
adjusted to account for inflationary cost increases. To the extent that the
hotel lessee is able to adjust room rates, there should be minimal impact on
partnership revenues due to inflation. Partnership revenues are also subject
to interest rate risks which may be influenced by inflation. For the two most
recent fiscal years, the impact of inflation on the Company's income is not
viewed by management as material.
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS PAGE
Report of Independent Accountants 10
Balance Sheet - December 31, 1998 11
Statements of Income and Comprehensive Income - Years Ended 12
December 31, 1998 and 1997
Statements of Shareholders' Equity 13
Statements of Cash Flows - Years Ended 14
December 31, 1998 and 1997
Notes to the Financial Statements 15
<PAGE> 10
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Portsmouth Square, Inc.
In our opinion, the accompanying balance sheet and the related statements of
income and comprehensive income, of cash flows, and of changes in shareholders'
equity present fairly, in all material respects, the financial position of
Portsmouth Square, Inc. at December 31, 1998, and the results of its operations
and its cash flows for the year ended December 31, 1998, in conformity with
generally accepted accounting principles. 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 audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
March 23, 1999
<PAGE> 11
<TABLE>
<CAPTION>
PORTSMOUTH SQUARE, INC.
BALANCE SHEET
As of December 31, 1998
----
ASSETS
<S> <C>
Cash and cash equivalents $ 74,466
Investment in marketable securities 2,387,046
Investment in Justice Investors 1,846,072
Other investments 100,000
Other assets 277,253
Due from Santa Fe Financial Corp. 12,666
---------
Total assets $ 4,697,503
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Due to securities broker $ 1,018,779
Accounts payable and accrued expenses 65,825
Obligations for securities sold 12,870
---------
Total liabilities 1,097,474
---------
Commitments and contingencies
Shareholders' equity
Common stock, no par value:
Authorized shares - 750,000
Issued and outstanding shares - 734,183 2,092,300
Additional paid-in-capital 915,676
Accumulated other comprehensive income,
net of deferred taxes (50,777)
Retained earnings 642,830
---------
Total shareholders' equity 3,600,029
---------
Total liabilities and shareholders' equity $ 4,697,503
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 12
<TABLE>
<CAPTION> PORTSMOUTH SQUARE, INC.
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For years ended December 31, 1998 1997
----------- ----------
Revenues
<S> <C> <C>
Equity in net income of Justice Investors $ 3,021,878 $ 2,560,805
Dividend and interest income 49,165 115,586
Net losses on marketable securities (89,796) (119,100)
Other income (loss) (57,500) 28,501
--------- ---------
2,923,747 2,585,792
--------- ---------
Costs and expenses
General and administrative 331,449 322,474
Professional and outside services 172,155 128,678
Margin interest expense 70,695 32,810
--------- ---------
574,299 483,962
--------- ---------
Income before income taxes 2,349,448 2,101,830
Income taxes 938,294 831,193
--------- ---------
Net income $ 1,411,154 $ 1,270,637
========= =========
Basic earnings per share $ 1.92 $ 1.71
========= =========
Weighted average number of shares outstanding 734,183 744,027
========= =========
Comprehensive income
Net income $ 1,411,154 $ 1,270,637
Other comprehensive income
Unrealized holding gain (loss)
on marketable securities (331,868) 269,316
Reclassification adjustment for holding
gain (loss) included in net earnings 89,796 (119,100)
Income tax benefit (expense) related to
other comprehensive income 94,819 (76,947)
--------- ---------
Total comprehensive income $ 1,263,901 $ 1,343,906
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE> 1
<TABLE>
<CAPTION>
PORTSMOUTH SQUARE, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Accumulated Retained
---------------- Additional other earnings
Common Paid-in comprehensive (accumulated
Stock Amount Capital income deficit) Total
------ ------ --------- ------------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 750,000 $2,092,300 $1,240,291 $ 23,207 $(1,298,196) $2,057,602
Net income 1,270,637 1,270,637
Dividends paid (373,674) (373,674)
Purchase and
retirement of
common stock (15,817) (324,615) (324,615)
Unrealized holding
gain on marketable
securities, net
of tax 73,269 73,269
------- --------- --------- -------- --------- ---------
December 31, 1997 734,183 2,092,300 915,676 96,476 (401,233) 2,703,219
Net income 1,411,154 1,411,154
Dividends paid (367,091) (367,091)
Unrealized holding
loss on marketable
securities, net
of tax (147,253) (147,253)
------- --------- --------- -------- --------- --------
December 31, 1998 734,183 $2,092,300 $ 915,676 $ (50,777) $ 642,830 $3,600,029
======= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 14
<TABLE>
<CAPTION
PORTSMOUTH SQUARE, INC.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1998 1997
---- ----
<S> <C> <C>
Operating activities
Net income $ 1,411,154 $ 1,270,637
Adjustments to reconcile net income to
net cash used by operating activities:
Equity in net income of Justice Investors (3,021,878) (2,560,805)
Net losses on marketable securities 89,796 119,100
Write-down of other investments 87,500 -
Change in assets and liabilities:
Other assets (61,409) (78,176)
Due from Santa Fe Financial Corporation (30,169) (29,628)
Accounts payable and other liabilities (120,580) 36,060
--------- ---------
Net cash used in operating activities (1,645,586) (1,242,812)
--------- ---------
Investing activities
Cash distributions from Justice Investors 2,509,920 2,196,180
Purchase of marketable securities (6,199,520) (3,129,471)
Proceeds from sales of marketable securities 5,452,957 2,345,304
Purchase of other investments (100,000) (100,000)
--------- ---------
Net cash provided by investing activities 1,663,357 1,312,013
--------- ---------
Financing activities
Increase in due to securities broker 354,568 664,211
Obligations for securities sold 12,870 -
Purchase and retirement of common stock - (324,615)
Dividends paid (367,091) (373,674)
--------- ---------
Net cash provided by (used in)
financing activities 347 (34,078)
--------- ---------
Net increase in cash and
cash equivalents 18,118 35,123
Cash and cash equivalents at the
beginning of the year 56,348 21,225
--------- --------
Cash and cash equivalents at end of year $ 74,466 $ 56,348
========= ========
Supplemental information
Income taxes paid, net of refunds $1,097,000 $ 815,000
========= =========
Margin interest paid $ 70,695 $ 32,810
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 15
PORTSMOUTH SQUARE, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of Business
As of December 31, 1998, Santa Fe Financial Corporation ("Santa Fe") holds
493,687 shares or approximately 67.2% of the outstanding common shares of
Portsmouth Square, Inc. ("Portsmouth" or the "Company"). Portsmouth's primary
source of revenues is from its 49.8% interest in Justice Investors, a
California limited partnership in which Portsmouth serves as both a general
and limited partner (see Note 3). Justice Investors owns the land,
improvements and leaseholds at 750 Kearny Street, San Francisco, California,
commonly known as the Holiday Inn Financial District/Chinatown. Justice
Investor's most significant income source is a lease between the partnership
and Felcor Lodging Trust, Inc. for the hotel portion of the property.
The partnership also derives income from the lease of the garage portion of
the property to Evon Garage Corporation. The Company also derives revenue
from management fees as a general partner and from the investment of its cash
and securities assets.
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS No. 131). SFAS No. 131 established standards for disclosure about
operating segments and related disclosures about products and services,
geographic areas and major customers. The Company currently operates in one
business segment, as a general and limited partner in Justice Investors.
Cash Equivalents
The Company considers all investments purchased with an original maturity of
three months or less to be cash equivalents.
Investment in Marketable Securities
The Company has classified its portfolio of marketable securities as available-
for-sale and has reported it at fair value, as primarily determined by quoted
market prices, with unrealized gains and losses, net of deferred taxes,
reported in accumulated other comprehensive income. Any unrealized gains or
losses related to short positions are recognized in earnings in the current
period. The Company borrows funds from securities brokers to purchase
marketable securities under standard margin agreements.
Realized gains and losses are included in net losses on marketable securities.
The cost of securities sold is determined based on the specific identification
method. Interest and dividends on securities classified as available-for-sale
are included in dividend and interest income.
Obligations for Securities Sold
Obligations for securities sold represents the fair market value of shares sold
with the promise to deliver the security at some future date. The obligation
may be satisfied with current holdings of the same security or by subsequent
purchase of that security. Unrealized gains and losses from changes in the
obligation are included in earnings.
Revenue Recognition
During 1998 and 1997, the Company's major source of revenue was its 49.8%
interest in Justice Investors, a limited partnership which owns and leases a
hotel in San Francisco, California, in which the Company is both a limited and
general partner (see Note 3). The Company accounts for its investment in
Justice Investors by the equity method.
<PAGE> 16
Basic Earnings per Share
Basic earnings per share are calculated based upon the weighted average number
of common shares outstanding during each fiscal year. As of December 31, 1998
and 1997, the Company did not have any potentially dilutive securities
outstanding; and therefore, does not report diluted earnings per share.
Accounting for Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in operations
when indicators of impairment are present and the estimated undiscounted cash
flows generated by those assets are less that their carrying value. During
1998 and 1997, the Company did not record any impairment losses.
Use of 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Deferred income taxes are determined using the liability method. A deferred
tax asset or liability is determined based on the difference between the
financial statement and tax basis of assets and liabilities as measured by the
enacted tax rates. Based on the Company's earning history and projections,
management considers the Company's net deferred tax assets to be realizeable.
Accordingly, no valuation allowance has been established.
NOTE 2 - INVESTMENT IN MARKETABLE SECURITIES
The following is a summary of the Company's investment in marketable securities:
<TABLE>
Gross Gross
Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1998
Equity securities $2,411,359 $ 140,519 $ (229,032) $2,322,846
Debt securities 60,332 3,868 - 64,200
--------- --------- --------- ---------
$2,471,691 $ 144,387 $ (229,032) $2,387,046
========= ========= ========= =========
December 31, 1997
Equity securities $1,478,681 $ 278,599 $ (152,448) $1,604,832
Debt securities 237,688 35,012 - 272,700
--------- --------- --------- ---------
$1,716,369 $ 313,611 $ (152,448) $1,877,532
========= ========= ========= =========
</TABLE>
Gross realized gains and losses on sales of marketable securities totaled
$498,270 and $588,067, respectively, for the year ended December 31, 1998, and
$200,608 and $319,708, respectively, for the year ended December 31, 1997.
As of December 31, 1998, all of the Company's debt securities mature on
July 15, 2003.
<PAGE> 17
NOTE 3 - INVESTMENT IN JUSTICE INVESTORS
Condensed financial statements for Justice Investors, a limited partnership,
in which Portsmouth Square, Inc. has a 49.8% interest, are as follows:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS
December 31,
1998 1997
---- ----
<S>
Assets <C> <C>
Total current assets $1,696,404 $ 500,374
Property, plant and equipment, net of accumulated
depreciation of $10,999,473 in 1998 and
$10,607,195 in 1997 5,576,210 5,968,488
Loan fees and deferred lease costs, net of accumulated
amortization of $116,783 in 1998 and $85,741 in 1997 193,629 224,671
--------- ---------
$7,466,243 6,693,533
========= =========
Liabilities and partners' equity
Total current liabilities $ 57,292 $ 293,166
Long-term liabilities - Note B 2,604,686 2,624,127
Partners' capital - Note C 4,804,265 3,776,240
--------- ---------
$7,466,243 6,693,533
========= =========
</TABLE>
<TABLE>
CONDENSED STATEMENTS OF OPERATIONS
Years ended
December 31,
1998 1997
---- ----
<S> <C> <C>
Revenues - Note A $7,036,744 6,194,532
Costs and expenses 968,716 1,052,354
--------- ---------
Net income $6,068,028 5,142,178
========= =========
</TABLE
Note A - Revenues include $1,337,833 and $1,212,491 for the years ended
December 31, 1998 and 1997, respectively, of garage rental income from the
garage lessee who is also the managing general partner of Justice Investors.
Justice Investors and the hotel lessee entered into a new lease agreement
effective January 1, 1995. The hotel lease provides for Justice Investors to
20% of hotel room revenue, as defined, or an annual minimum guaranteed rent of
$2,500,000 plus 50% of available cash, as defined, and expires December 31,
2004, with a five-year renewal option. The parking garage lease for which
revenue is based upon a percentage of parking receipts, expires on November 30,
2010.
Note B - During 1995, Justice Investors refinanced its long-term debt
obligations. The long-term debt at December 31, 1998 and 1997 consists of
revolving, reducing line of credit agreement payable to Wells Fargo Bank which
is collateralized by a trust deed on land, hotel property and the Partnership's
interest in hotel and garage leases. The line of credit agreement provides for
maximum borrowings at December 31, 1998 of approximately $6,800,000 with an
annual reduction of the maximum borrowings to approximately $4,500,000 at the
December 31, 2004 maturity date and generally provides for interest at LIBOR
plus 2% per annum (the annual rate on $4,000,000 of principal is guaranteed not
to exceed 11.5%).
Note C - During each of the years ended December 31, 1998 and 1997, total
annual distributions to partners amounted to approximately $5,040,000 and
$4,410,000.
<PAGE> 18
NOTE 4 - DUE TO SECURITIES BROKER
A securities broker has advanced funds for the purchase of, and secured by,
marketable securities under standard margin agreements in accordance with and
subject to the limitations of 17CFR Section 240 15c3-3 under the Securities
Exchange Act of 1934 and Section #220.6 of Regulation T issued by the Board of
Governors of the Federal Reserve System. The interest rate on advances or cash
on deposit can vary daily with money market rates. The interest rate on margin
balances is based on the Federal Funds rate plus 0.875% (6.125% at December 31,
1998). The interest rate on cash or deposits is based on the Federal Funds
rate less 0.5% (4.75% at December 31, 1998). The interest rate on interest
rebates in connection with short positions is based on the Federal Funds rate
less 0.375% (4.875% at December 31, 1998).
NOTE 5 - INCOME TAXES
The provision for income taxes consists of the following:
</TABLE>
<TABLE>
December 31,
1998 1997
---- ----
<S> <C> <C>
Federal
Current $ 799,995 $ 689,632
Deferred (credit) (59,695) (53,883)
------- -------
740,300 635,749
------- -------
State
Current 212,622 206,598
Deferred (credit) (14,628) (11,154)
------- -------
197,994 195,444
------- -------
$ 938,294 $ 831,193
======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective tax
rate is as follows:
Years ended
December 31,
1998 1997
Statutory federal tax rate 34.0% 34.0%
State income taxes, net of federal tax benefit 6.1 6.1
Other (0.2) (0.5)
--- ---
39.9% 39.6%
==== ====
The components of the Company's deferred tax assets and liabilities as of
December 31, 1998 and 1997 are as follows:
Years ended
December 31,
1998 1997
---- ----
Deferred tax assets
State income taxes $ 75,913 $ 70,243
Capital loss carryforwards 149,988 50,052
Other miscellaneous differences 1,391 1,875
------- -------
Deferred tax assets $ 227,292 $ 122,170
======= =======
Deferred tax assets (liabilities)
Unrealized gains (losses)on marketable
Securities $ 3,069 $ (64,687)
======== ========
<PAGE> 19
NOTE 6 - RELATED PARTY TRANSACTIONS
Certain shared costs and expenses, primarily administrative salaries, rent and
insurance, are allocated between the Company and Santa Fe based on management's
estimate of the pro rata utilization of resources. Total shared costs and
expenses allocated to the Company approximated $213,900 and $188,000 during the
years ended December 31, 1998 and 1997, respectively. In addition, The
InterGroup Corporation, the parent of Santa Fe, allocates corporate expenses to
the Company based on InterGroup's management's estimate of the pro rata
utilization of resources. For the years ended December 31, 1998 and 1997, these
expenses were approximately $81,000 and $75,000 respectively.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
During 1996, the Company was served with a personal injury action in the San
Francisco Superior Court. The suit named more than 60 defendants, including
the managing general partner of Justice Investors and alleged injuries suffered
as a result of exposure to asbestos-containing materials. The complaint sought
an unspecified amount of damages. The Company was defended through its
insurance carrier under a reservation of rights. During 1997, the trial court
granted Company's motion for summary judgment. That judgment became final
April 13, 1998 and was not appealed. Since the Company's insurance carrier
paid the cost of the defense, the resolution of this claim did not have any
effect on the Company's financial position.
Item 8. Changes in Accountants.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a)of The Exchange Act.
Item 10. Executive Compensation.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Item 12. Certain Relationships and Related Party Transactions.
The information for Part III, Items 9 through 12, are hereby incorporated by
reference to the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held May 4, 1999, which will be filed with the Commission
within one hundred twenty (120) days of the close of the fiscal year pursuant
to Regulation 14A.
<PAGE> 20
Item 13. Exhibits and Reports on Form 8-K.
(a) Listing of Exhibits by Table Number
Set forth below is an index of applicable exhibits filed with this report
according to exhibit table number.
Exhibit Page
------- ----
3. Articles of Incorporation and Bylaws *
4. Instruments defining the rights of Security *
Holders, including indentures (see Articles
of Incorporation and Bylaws)
22. Published report regarding matters submitted to vote
of Security Holders - Proxy Statement for Annual
Meeting of Shareholders to be held May 4, 1999, which
will be filed with the Commission within one hundred
twenty (120) days of the fiscal year pursuant to
Regulation 14A
27. Financial Data Schedule 29
* All exhibits marked by an asterisk have been previously filed with other
documents, including Registrant's Form 10 filed on October 27, 1967, and
subsequent filings on Forms 8-K, 10-K and 10-Q which are incorporated herein by
reference.
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the last quarter of the period
covered by this Report.
(c) Financial Statements and Schedules Required by Regulation S-X
The following financial statements of Justice Investors are included in
Item 13:
PAGE
----
Independent Auditor's Report 21
Balance Sheets - December 31, 1998 and 1997 22
Statements of Income and Partners' Capital - Years 23
Ended December 31, 1998 and 1997
Statements of Cash Flows - Years Ended 24
December 31, 1998 and 1997
Notes to Financial Statements - December 31, 1998 and 1997 25
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
<PAGE> 21
COLLIER & MARKOWITZ
CERTIFIED PUBLIC ACCOUNTANTS
(SUCCESSORS TO AARON, BLUM & COLLIER)
235 MONTGOMERY STREET, SUITE 1049
SAN FRANCISCO, CALIFORNIA 94104
TEL (415) 982-7852
FAX (415) 982-1429
January 27, 1999
Managing General Partner
Justice Investors
(A Limited Partnership)
San Francisco, California
Independent Auditor's Report
----------------------------
We have audited the accompanying balance sheets of Justice Investors ( A
Limited Partnership) as of December 31, 1998, and 1997, and the related
statements of income and partners' capital and cash flows years then ended.
These financial statements are the responsibility of the Partnership'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 audit 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 financial position of Justice Investors (A Limited
Partnership) as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for years then ended, in conformity with
generally accepted accounting principles.
/s/ COLLIER AND MARKOWITZ
Certified Public Accounts
<PAGE> 22
<TABLE>
<CAPTION>
JUSTICE INVESTORS
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1998 and 1997
--------------------------
1998 1997
---- ----
ASSETS
------
<S> <C> <C>
Current assets
Cash $ 3,265 $ -
Rents receivable 1,688,253 465,751
Prepaid expenses 4,886 34,623
--------- --------
Total current assets 1,696,404 500,374
--------- --------
Fixed assets
Office equipment (net of accumulated
depreciation of $3,846 in 1998 and
$2,936 in 1997) 1,707 2,617
Building and improvements (net of accumulated
depreciation of $10,995,627 in 1998 and
$10,604,259 in 1997) 4,450,375 4,841,743
Land 1,124,128 1,124,128
--------- ---------
Total fixed assets 5,576,210 5,968,488
--------- ---------
Other assets
Loan fees (net of accumulated amortization
of $110,875 in 1998 and $81,310 in 1997) 177,382 206,947
Deferred lease costs (net of accumulated
amortization of $5,908 in 1998 and
$4,431 in 1997) 16,247 17,724
--------- ---------
Total other assets 193,629 224,671
--------- ---------
Total assets $7,466,243 $6,693,533
========= =========
</TABLE>
<TABLE>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C>
Current liabilities
Trade accounts payable and accrued expenses $ 50,539 $ 86,916
Rents received in advance 200 206,250
Accrued interest 6,553 -
--------- ---------
Total current liabilities 57,292 293,166
Long-term liabilities
Notes payable 2,604,686 2,624,127
--------- ---------
Total liabilities 2,661,978 2,917,293
Commitment - Lease commission
Partners' capital 4,804,265 3,776,240
--------- ---------
Total liabilities and partners' capital $7,466,243 $6,693,533
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 23
<TABLE>
<CAPTION>
JUSTICE INVESTORS
(A LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND PARTNERS' CAPITAL
Years Ended December 31, 1998 and 1997
--------------------------------------
1998 1997
---- ----
<S> <C> <C>
Revenues
Rental income
Hotel $5,677,119 $4,977,471
Garage 1,337,833 1,212,491
Other 2,400 2,400
--------- ---------
Total rental income 7,017,352 6,192,362
Interest income - 2,170
Miscellaneous income 19,392 -
--------- ---------
Total revenues 7,036,744 6,194,532
--------- ---------
Expense
Interest 175,468 241,641
Depreciation and amortization 423,320 450,181
Lease commission 56,771 49,776
Property taxes 41,928 41,428
Repairs and maintenance - 3,208
General and administrative
Administrative expenses 150,000 150,000
Accounting fees 9,999 10,263
Audit and tax preparation 25,527 21,700
Business taxes 20,554 18,829
Bank charges 6,935 6,319
Consultants 5,005 2,210
Franchise taxes 800 800
Insurance expense 45,518 39,421
Legal fees 6,178 11,918
Office expense and miscellaneous 713 4,660
--------- ---------
Total expenses 968,716 1,052,354
--------- ---------
Net income 6,068,028 5,142,178
Partners' capital at beginning of
year 3,776,240 3,044,061
Less distributions to partners (5,040,003) (4,409,999)
--------- ---------
Partners' capital at end of year $4,804,265 $3,776,240
========= =========
</TABLE>
The accompanying notes are in integral part of these financial statements.
<PAGE> 24
<TABLE>
<CAPTION>
JUSTICE INVESTORS
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998 and 1997
--------------------------------------
Increase (Decrease) in Cash and Cash Equivalents
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Cash received from tenants $5,588,801 $6,079,723
Interest received - 2,170
Interest paid (168,915) (242,973)
Cash paid for other operating
activities (357,178 (349,956)
--------- ---------
Net cash provided by operating
activities 5,062,708 5,488,964
--------- ---------
Cash flows from investing activities
Capital expenditures - (447,793)
--------- ---------
Net cash used in
investing activities - (447,793)
--------- ---------
Cash flows from financing actives
Distributions to partners (5,040,003) (4,409,999)
Proceeds from borrowing of long-
term debt 3,992,727 4,375,802
Principal payments of long-term
debt (4,012,167) (5,035,964)
Payments (advances)-garage lessee - -
---------- ----------
Net cash used in financing
activities (5,059,443) (5,070,161)
Net decrease in cash and
cash equivalents 3,265 (28,990)
Cash and cash equivalents at
beginning of year - 28,990
--------- ---------
Cash and cash equivalents at end
of year $ 3,265 $ -
========= =========
Reconciliation of net income to net
cash provided by operating
activities
Net income $6,068,028 $5,142,178
--------- ---------
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization 423,320 450,181
Rents receivable (1,222,502) (110,556)
Prepaid expenses 29,737 1,412
Accounts payable (36,378) 9,164
Rents paid in advance (206,050) (2,083)
Interest payable 6,553 (1,332)
--------- ---------
(1,005,320) 346,786
--------- ---------
Net cash provided by operating
activities $5,062,708 $5,488,964
========= =========
Supplemental disclosures of cash
flows information:
Cash paid during the year for:
Interest $ 168,915 $ 242,973
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
JUSTICE INVESTORS
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
--------------------------
SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------
Organization
- ------------
Justice Investors, a Limited Partnership (the "Partnership") was formed in
1967 to acquire real property in San Francisco, California, for the development
and lease of hotel and related facilities. The leases became effective during
1970 upon completion of the hotel and parking garage. The lease of the hotel
provided for the Partnership to receive certain percentages of hotel revenue,
as defined, to December 31, 2004, with a five year renewal option. The parking
garage lease provided for payments of certain percentages of parking receipts
to November 30, 2010.
Rents Receivable
- ----------------
Management believes that all rents receivable as of December 31, 1998 and 1997,
were fully collectible. Therefore, no allowance for doubtful accounts was
recorded.
Depreciation
- ------------
Depreciation on the hotel facilities is computed using the straight line method
over a useful life of 40 years. Building improvements are being depreciated on
a straight line basis over their useful lives ranging from 5 to 39 years.
Office equipment is being depreciated using the 150% declining balance method
with a useful life of 5 years.
Amortization
- ------------
Loan fees are amortized using the straight line method over 10 years. Deferred
lease costs are amortized using the straight line method over 15 years.
Income Tax
- ----------
No income taxes have been provided in the accompanying financial statements
since the Partnership profits and losses are reportable by the partners on
their individual income tax returns.
Statement of Cash Flows
- -----------------------
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit, and all highly liquid debt instruments with
original maturities of three months or less.
Use of Estimates
- ----------------
The process of preparing financial statements in conformity with generally
accepted accounting principles required the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues, and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
<PAGE> 26
JUSTICE INVESTORS
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
--------------------------
LONG-TERM DEBT
- --------------
At December 31, 1998 and 1997, long-term debt consisted of the following:
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Note payable to Wells Fargo Bank collateralized
by first deed of trust on land, hotel property
and the Partnership's interest in hotel and
garage leases. The note provided for interest
at LIBOR PLUS 2% per annum to a total capped
rate of 11.5% up to $4,000,000 due December
31, 2004 $2,590,000 $2,200,000
Note payable to Wells Fargo Bank collateralized
by first deed of trust on land, hotel property
and the Partnership's interest in hotel and
garage leases. The note provided for interest
at prime rate per annum due December 31, 2004 14,686 424,127
--------- ---------
$2,604,686 $2,624,127
========= =========
</TABLE>
Under the terms of the revolving reducing line of credit with Wells Fargo Bank,
the above notes are subject to a maximum credit limit as follows:
December 31, 1997 7,057,050
December 31, 1998 6,796,678
December 31, 1999 6,506,363
December 31, 2000 6,182,662
December 31, 2001 5,821,736
December 31, 2002 5,419,302
December 31, 2003 4,970,590
December 31, 2004 4,470,275
Maturities of long-term debt for each of the next five years are as follows:
1999 $ -
2000 -
2001 -
2002 -
Subsequent to 2003 2,604,686
---------
$2,604,686
=========
<PAGE> 27
JUSTICE INVESTORS
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
--------------------------
MINIMUM FUTURE RENTALS
- ----------------------
Minimum future rentals to be received on non-cancelable leases as of December
31, 1998 for each of the next five years and in the aggregate are:
1999 $ 2,761,000
2000 2,761,000
2001 2,761,000
2002 2,761,000
2003 2,761,000
Subsequent to 2003 4,305,250
----------
$18,110,250
==========
COMMITMENT - LEASE COMMISSION
- -----------------------------
The Partnership was obligated to pay a lease commission of 2% of the rentals
received under the primary lease of the hotel property for the initial 25-year
term of the lease which expired on October 31, 1995. In addition, the
Partnership is obligated to pay a lease commission of 1% of rentals received to
December 31, 2004 plus Holiday Inn lease extension, if any, to December 31,
2010.
RELATED PARTY TRANSACTIONS
- --------------------------
Expenses were incurred for services rendered by related parties as follows:
1998 1997
---- ----
General partners $150,000 $150,000
Legal services 6,178 11,918
------- -------
$156,178 $161,918
======= =======
The garage lessee, the managing general partner, paid the Partnership
$1,337,833 and $1,212,491 during 1998 and 1997, respectively, under the terms
of the rental agreement. Rents receivable from the garage lessee at December
31, 1998 and 1997 were $115,794 and $99,046, respectively. Accounts payable to
general partners at December 31, 1998 and 1997 were $30,000 and $30,000.
LITIGATION
- ----------
The Partnership is a co-defendant in a lawsuit filed by a former employee of
the general contractor who constructed the hotel and garage facilities, for
alleged personal injuries resulting from exposure to asbestos-containing
materials. The suit seeks an unspecified amount of damages. Outside counsel
for the Partnership has advised that at this stage in the proceedings, they
cannot offer an opinion as to the probable outcome. The Partnership believes
the suit is without merit and is vigorously defending its position.
<PAGE> 28
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PORTSMOUTH SQUARE, INC.
Date: March 24, 1999 By /s/ John V. Winfield
-------------- ----------------------------------------
John V. Winfield, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 24, 1999 By /s/ L. Scott Shields
-------------- ----------------------------------------
Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 24, 1999 /s/ John V. Winfield
-------------- ---------------------------------------
John V. Winfield, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: March 24, 1999 /s/ L. Scott Shields
-------------- ---------------------------------------
Treasurer
(Principal Financial Officer)
Date: March 24, 1999 /s/ John C. Love
-------------- ---------------------------------------
John C. Love,
Director
Date: March 24, 1999 /s/ William J. Nance
-------------- ---------------------------------------
William J. Nance,
Director
Date: March 24, 1999 /s/ Jerold R. Babin
-------------- ---------------------------------------
Jerold R. Babin,
Director
Date: March 24, 1999 /s/ Josef A. Grunwald
-------------- ---------------------------------------
Josef A. Grunwald
Director
<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-KSB REPORT FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-KSB REPORT.
</LEGEND>
<CIK> 0000079661
<NAME> PORTSMOUTH SQUARE, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 74466
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