<PAGE>
FORM-10Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[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
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________________ to _____________________
Commission file number 33-15932
------------------------
SOUTHMARK SAN JUAN, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 71-2132723
- ------------------------------------------ ----------------------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ISLA VERDE AVENUE, CAROLINA, PUERTO RICO 00979
- ------------------------------------------ ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (787) 791-6100
----------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate the number of shares of each of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding at May 12, 1997
- ------------------------------------------ ----------------------------
COMMON STOCK, $0.001 PAR VALUE 270,837 SHARES
1
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PART I: FINANCIAL INFORMATION
Introductory Note to Financial Statements
- -----------------------------------------
The financial statements as of March 31, 1997, and for the three and nine
months ended March 31, 1997 and 1996 have been prepared by Southmark San Juan,
Inc. (the "Company") without audit, pursuant to the rules and regulations of the
Securities and Exchanges Commission. In the opinion of management, these
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of the
Company as of March 31, 1997, results of its operations for the three and nine
months ended March 31, 1997 and 1996 and its cash flows for the nine months
ended March 31, 1997 and 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's 1996 Annual Report on Form 10-K.
2
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SOUTHMARK SAN JUAN, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 6, JUNE 30,
1997 1996
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,000 $ 536,000
Certificates of deposit - 2,150,000
Accounts receivable, net of allowance for doubtful
accounts of $304,000 in 1996 - 1,585,000
Inventories - 509,000
Prepaid expenses and other assets - 274,000
----------- -----------
Total current assets - 5,054,000
----------- -----------
Property and equipment:
Land - 4,543,000
Buildings - 33,682,000
Furniture and equipment - 9,901,000
----------- -----------
- 48,126,000
Less - accumulated depreciation and amortization - 18,290,000
----------- -----------
Net property and equipment - 29,836,000
----------- -----------
Total assets $ 13,000 $34,890,000
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these balance sheets.
3
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SOUTHMARK SAN JUAN, INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
FEBRUARY 6, JUNE 30,
1997 1996
------------- -------------
(unaudited)
<S> <C> <C>
Current liabilities:
Accounts payable $ 11,000 $ 1,251,000
Accrued interest - 2,120,000
Other accrued liabilities - 2,020,000
Obligation under capital lease - 48,000
------------ ------------
Total current liabilities 11,000 5,439,000
------------ ------------
Long term liabilities:
Accrued interest - 1,063,000
Obligation under capital lease - 107,000
Senior secured industrial revenue bonds, 1992 series A:
Class A, maturing December 1, 1997 - 11,727,000
Class B, maturing December 1, 1997 through 2001 - 19,257,000
Senior secured PIK bonds - 1,628,000
Term note - 3,000,000
Deferred incentive fees - 1,505,000
------------ ------------
Total long term liabilities - 38,287,000
------------ ------------
Shareholders' deficit:
Common stock, $0.001 par value per share;
992,000 shares authorized; 270,290
shares issued and outstanding 27,763,000 -
Additional paid-in capital - 27,763,000
Accumulated deficit (27,761,000) (36,599,000)
------------ ------------
Total shareholders' equity (deficit) 2,000 (8,836,000)
------------ ------------
$ 13,000 $ 34,890,000
============ ============
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these balance sheets.
4
<PAGE>
SOUTHMARK SAN JUAN, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
------------ -----------
(unaudited)
<S> <C> <C>
Revenues:
Rooms $ 2,024,000 $4,899,000
Casino 528,000 1,485,000
Food and beverage 497,000 1,601,000
Other 197,000 516,000
----------- ----------
3,246,000 8,501,000
Less - promotional allowances (132,000) (237,000)
----------- ----------
Net revenues 3,114,000 8,264,000
----------- ----------
Expenses:
Rooms 501,000 1,172,000
Casino 374,000 897,000
Food and beverage 446,000 1,262,000
Other 86,000 242,000
Depreciation 177,000 436,000
General and administrative 1,049,000 2,876,000
----------- ----------
Total expenses 2,633,000 6,885,000
----------- ----------
Income from operations 481,000 1,379,000
Non-operating income (expense):
Interest expense (296,000) (723,000)
Gain on sale of corporate net assets 10,356,000 -
----------- ----------
Net income $10,541,000 $ 656,000
=========== ==========
Net income per common and common equivalent share $ 10.63 $ 0.66
=========== ==========
Weighted average number of common and common
equivalent shares outstanding 992,000 992,000
=========== ==========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these statements.
5
<PAGE>
SOUTHMARK SAN JUAN, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
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(unaudited)
<S> <C> <C>
Revenues:
Rooms $ 8,545,000 $11,236,000
Casino 2,366,000 3,614,000
Food and beverage 2,995,000 4,422,000
Other 868,000 1,213,000
----------- -----------
14,774,000 20,485,000
Less - promotional allowances (412,000) (596,000)
----------- -----------
Net revenues 14,632,000 19,889,000
----------- -----------
Expenses:
Rooms 2,443,000 3,033,000
Casino 1,942,000 2,571,000
Food and beverage 2,479,000 3,501,000
Other 445,000 599,000
Depreciation 1,045,000 1,228,000
General and administrative 6,001,000 7,859,000
----------- -----------
Total expenses 14,355,000 18,791,000
----------- -----------
Income from operations 277,000 1,098,000
Non-operating income (expense):
Interest expense (1,798,000) (2,170,000)
Gain on sale of corporate net assets 10,356,000 -
----------- -----------
Net income (loss) 8,835,000 (1,072,000)
Net income (loss) per common and common equivalent share $ 8.91 $ (4.08)
=========== ===========
Weighed average number of common and
common equivalent shares outstanding 992,000 262,680
=========== ===========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these statements.
6
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SOUTHMARK SAN JUAN, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
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(unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ 8,835,000 $(1,072,000)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 1,045,000 1,228,000
Provision for doubtful accounts 38,000 51,000
Gain on sale of corporate net assets (10,356,000) -
(Increase) in accounts receivable (763,000) (860,000)
Increase in inventories, prepaid expenses and
other current assets (491,000) (403,000)
Increase in accounts payable, accruals
and other liabilities 502,000 (1,027,000)
------------ -----------
Net cash used by operating activities (1,190,000) (29,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (204,000) (889,000)
Assets sold, net of cash received (1,279,000) -
------------ -----------
Decrease in cash and cash equivalents (2,673,000) (928,000)
Cash and cash equivalents, beginning of period 2,686,000 3,382,000
------------ -----------
Cash and cash equivalents, end of period $ 13,000 $ 2,454,000
============ ===========
</TABLE>
The accompanying introductory notes and notes to financial statements
are an integral part of these statements.
7
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Southmark San Juan, Inc. (the"Company"), a Delaware corporation, was
incorporated during April 1986 for the purpose of acquiring and renovating the
Sands Hotel and Casino in San Juan, Puerto Rico, (the "Sands San Juan"). The
Company's outstanding Common Shares are owned by Southmark Corporation
("Southmark"), (46.8%); SJPR Management, Inc. ("SJPR"), (45.0%); and bondholders
who have exercised warrants, (8.2%). SJPR is a wholly owned subsidiary of Pratt
Hotel Corporation ("Pratt"). The operations of the Sands San Juan are managed by
SJPR, Inc., also a wholly owned subsidiary of Pratt.
NOTE 2 - SENIOR SECURED INDUSTRIAL REVENUE BONDS, 1992 SERIES A
On December 1, 1992, the Company entered into a loan agreement with AFICA for
the issuance of $31,000,000 principal amount of Senior Secured Industrial
Revenue Bonds, 1992 Series A (the"Senior Secured Bonds") which, together with
warrants to acquire from 496,000 shares to 744,000 shares of the Company's
Common Stock, replaced previously issued Industrial Revenue Bonds, 1987 Series A
(the"Old Bonds") in the principal amount of $38,000,000 and related accrued
interest of $7,836,000. The Senior Secured Bonds were secured by a first
mortgage on the Sands San Juan and consisted of $11,727,000 principal amount of
Class A Bonds which matured on December 1, 1997 and $19,257,000 principal amount
of Class B bonds which required principal payments of 10% of the outstanding
balance annually, beginning December 1, 1997 with the balance due December 1,
2001.
The Senior Secured Bonds bear interest at 8.5% of which 6.5% must be paid
annually in cash. The remaining 2.0% must be paid in cash to the extent there
exists Available Cash, as defined in the Trust Agreement. In the event that
Available Cash is insufficient to pay all or a portion of the 2.0% interest
annually, the insufficiency will be paid by the issuance of Senior Secured PIK
Bonds which bear interest at the same rate and terms and are secured by the same
collateral as the Senior Secured Bonds.
Warrants to acquire 496,000 shares of Common Stock were issued to holders of
the Senior Secured Bonds and warrants to acquire 248,000 shares of Common Stock
(the"Escrowed Warrants") were escrowed with the trustee for the Senior Secured
Bonds.
On June 1, 1996, holders of the Senior Secured Bonds received Escrowed
Warrants to acquire, in the aggregate, an additional 99,200 shares of Common
Stock, as no Redemption, as defined, had occurred with respect to all Senior
Secured Bonds, Senior Secured PIK Bonds and the Warrants.
Due to the sale of the Sands San Juan as described in Note 6, funds were
deposited with the trustee of the Senior Secured Bonds to discharge all
remaining Senior Secured Bonds and Senior Secured PIK bonds at par plus accrued
interest through the redemption date of February 24, 1997. As the sale
constitutes a Redemption, as defined, the Exchange Agent and Escrow Agreement
provides that the remaining 148,800 Escrowed Warrants will be distributed to
Southmark and SJPR on June 1, 1997.
8
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SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - TERM NOTE
On December 1, 1992, the Company executed a $3,000,000 Term Note with a
Puerto Rico bank, secured by a second mortgage on the Sands San Juan and
maturing on November 1, 1999, in exchange for a note payable in the principal
amount of $4,980,000 and related accrued interest of $692,000. The Term Note
bore interest initially at 3%, increasing to 6% effective November 1, 1997. The
Term Note was tendered to the Company as part of the consideration for the sale
of the Sands San Juan described in Note 6.
NOTE 4 - INCOME TAXES
The Company has qualified for exemption from taxation by the Commonwealth of
Puerto Rico under the Tourism Incentive Act of 1983 (as amended). As a result,
for the first five years of operations, the Company was 90% exempt from Puerto
Rico income and property taxes attributable to its hotel operations (reducing to
a 75% exemption for the second five year period) and 100% of municipal and
excise taxes on its exempt functions. Income from casino operations is not
exempt from taxation.
The ten year tax exemption grant was effective beginning January 1, 1987,
except with respect to income tax, for which the Company has not elected an
effective date.
The Company has accumulated net operating loss carryforwards for federal and
commonwealth income tax purposes, accordingly, no income taxes have been
provided for the three and six month periods ended March 31, 1997 and 1996.
NOTE 5 - NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common and common equivalent share is calculated using
the weighted average number of common shares outstanding including stock
issuable upon exercise of warrants; however, shares which would be issuable upon
the exercise of warrants have not been considered in the calculation of net loss
per share for the three months ended March 31, 1996 since the effect would be
anti-dilutive.
NOTE 6 - SALE OF SANDS SAN JUAN
On February 6, 1997, the Company consummated the sale of the Sands San Juan
and all related assets. As part of the transaction, the purchaser assumed or
discharged substantially all liabilities of the Company. Proceeds of the sale
consisted of (1) $20,599,356 principal amount of Senior Secured Bonds and Senior
Secured PIK Bonds and related accrued interest of $1,133,251 tendered by the
purchaser together with the $3,000,000 Term Note and related accrued interest of
$482,145; (2) $13,361,118 deposited with the Trustee of the Senior Secured Bonds
to discharge all remaining Senior Secured Bonds ($11,796,323) and Senior Secured
PIK Bonds ($868,077) at par plus interest accrued through the redemption date of
February 24, 1997 ($696,718); (3) $14,940 cash to the Company. Concurrently
with the foregoing transaction, SJPR, Inc. entered into an agreement with the
purchaser concerning modification and termination of its management agreement.
SJPR, Inc. received $1,475,000 as a termination fee and forgave outstanding
incentive fees amounting to $1,727,000 at February 6, 1997.
9
<PAGE>
SOUTHMARK SAN JUAN, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - SALE OF SANDS SAN JUAN (CONTINUED)
It is the Company's intention to liquidate within 180 days of consummation of
the sale of the Sands San Juan in accordance with the terms of its warrant
agreement. As the Company only received approximately $15,000 in cash proceeds,
the two major shareholders, SJPR and Southmark, will be obliged to make
additional capital contributions to wind up the affairs of the Company.
Accordingly, there will be no funds available for a liquidating distribution to
shareholders and warrant holders.
10
<PAGE>
SOUTHMARK SAN JUAN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On November 1, 1996, the Company entered into a contract for the sale of all
of its assets together with the assumption or discharge of substantially all of
its liabilities, including payment of all Senior Secured Bonds and Senior
Secured PIK Bonds not owned by the Purchaser at par plus accrued interest.
Concurrently, SJPR, Inc., the manager of the Sands San Juan, entered into an
agreement with the purchaser concerning modification and termination of the
management agreement.
On February 6, 1997, the foregoing transactions were consummated as described
in Note 6 to the accompanying financial statements and consequently, it is the
Company's intention to liquidate within 180 days of consummation in accordance
with the terms of its warrant agreement. As the Company only received
approximately $15,000 in cash proceeds, the two major shareholders, SJPR and
Southmark, will be obliged to make additional capital contributions to wind up
the affairs of the Company. Accordingly, there will be no funds available for a
liquidating distribution to shareholders and warrant holders.
11
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SOUTHMARK SAN JUAN, INC.
PART II: OTHER INFORMATION
ITEM 6 REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter.
12
<PAGE>
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.
SOUTHMARK SAN JUAN, INC.
--------------------------------------
Registrant
Date: May 13, 1997 By: /a/ John C. Hull
-------------------- -----------------------------------
John C. Hull
Vice President and
Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOUTHMARK SAN JUAN, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1997
<PERIOD-START> JAN-01-1997 JUL-01-1996
<PERIOD-END> MAR-31-1997 MAR-31-1997
<CASH> 13 13
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 13 13
<CURRENT-LIABILITIES> 11 11
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2 2
<TOTAL-LIABILITY-AND-EQUITY> 13 13
<SALES> 0 0
<TOTAL-REVENUES> 3,114 14,632
<CGS> 0 0
<TOTAL-COSTS> 1,407 7,309
<OTHER-EXPENSES> (9,168) (3,348)
<LOSS-PROVISION> 38 38
<INTEREST-EXPENSE> 296 1,798
<INCOME-PRETAX> 10,541 8,835
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 10,541 8,835
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 10,541 8,835
<EPS-PRIMARY> 10.63 8.91
<EPS-DILUTED> 0 0
</TABLE>
