<PAGE>
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 June 30, 1998
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act
For the transition period from _______ to ________
Commission File Number 0-6877
SANTA FE FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Nevada 95-2452529
(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: 1,276,038 shares of issuer's
$.10 Par Value Common Stock were outstanding as of August 10, 1998.
Transitional Small Business Disclosure Format (check one): Yes No X
Page 1 of 14
<PAGE>
INDEX
SANTA FE FINANCIAL CORPORATION
AND SUBSIDIARIES
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheet--June 30, 1998 (Unaudited) 3
Consolidated Statements of Income (Unaudited)--Three Months
ended June 30, 1998 and 1997 and for the Six Months ended
June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows (Unaudited)--
Six Months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements---June 30, 1998 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 13
Page 2 of 14
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SANTA FE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30,
1998
-------------
<S> <C>
ASSETS
Cash and cash equivalents $ 2,242,481
Restricted cash 71,731
Investment in marketable securities 6,278,128
Investment in Justice Investors 6,309,043
Investment in rental property 1,919,714
Other investments 652,431
Note receivable 105,968
Other assets 285,697
----------
Total assets $ 17,865,193
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Due securities broker $ -
Mortgage payable 1,237,294
Accounts payable and accrued expenses 226,387
Other liabilities 37,387
----------
Total liabilities 1,501,068
----------
Minority interest 3,464,516
----------
Commitments and contingencies
Shareholders' equity:
6% Cumulative, convertible, voting preferred stock
par value $.10 per share
Authorized shares - 1,000,000
Issued and outstanding - 63,600
Liquidation preference of $858,600 6,360
Common stock - par value $.10 per share
Authorized - 2,000,000
Issued and outstanding - 1,276,038 127,604
Additional paid-in capital 8,807,941
Retained earnings 3,252,183
Unrealized gain on investment securities,
net of deferred taxes 705,521
-----------
Total shareholders' equity 12,899,609
-----------
Total liabilities & shareholders' equity $ 17,865,193
===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 14
<PAGE>
SANTA FE FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Equity in net income of Justice
Investors $ 847,709 $ 611,273 $ 1,454,109 $ 1,110,985
Dividend and interest income 182,191 229,372 343,221 456,016
Net investment gain (loss) (1,435,732) (199,431) (1,042,055) (230,833)
Rental income 189,544 - 315,688 -
Other income 34,176 28,176 62,352 56,352
--------- --------- --------- ---------
(182,112) 669,390 $ 1,133,315 $ 1,392,520
--------- --------- --------- ---------
Costs and expenses:
Litigation - GPG 9,993 56,264 41,780 206,209
General and administrative 211,316 154,265 369,856 313,427
Professional and outside services 51,399 30,370 119,389 113,869
Property operating expenses 166,264 - 271,168 -
Margin interest and trading expenses 103,852 - 231,227 -
Mortgage interest expense 29,375 - 62,251 -
Depreciation 66,063 971 93,030 1,942
--------- --------- --------- ---------
638,262 241,870 1,188,701 635,447
--------- --------- --------- ---------
Income before income taxes
and minority interest (820,374) 427,520 (55,386) 757,073
Income taxes (212,000) 159,000 63,800 288,000
--------- --------- --------- ---------
Income before minority interest (608,374) 268,520 (119,186) 469,073
Minority interest 74,249 100,209 182,747 183,900
--------- --------- --------- ---------
Net (loss) income $ (682,623) $ 168,311 $ (301,933) $ 285,173
========= ========= ========= =========
Basic earnings per share $ (0.53) $ 0.13 $ (0.24) $ 0.22
========= ========= ========= =========
Weighted average shares
outstanding 1,276,038 1,276,038 1.276,038 1,276,038
========= ========= ========= =========
Diluted earnings per share $ (0.51) 0.13 $ (0.23) $ 0.22
========= ========= ========= =========
Diluted weighted shares outstanding 1,339,638 1,276,038 1,339,638 1,276,038
========= ========= ========= =========
Dividends per Share $ - $ - $ - $ -
========= ========= ========= =========
Comprehensive income:
Net income $ (682,623) $ 168,311 $ (301,933) $ 285,173
Unrealized (losses) gains on
securities arising during
period, net of taxes (250,673) 302,301 518,252 99,552
-------- -------- -------- --------
$ (933,296) $ 470,612 $ 216,319 $ 384,725
======== ======== ======== ========
</TABLE>
See accompanying notes.
Page 4 of 14
<PAGE>
SANTA FE FINANCIAL CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1998 1997
----------- -----------
<S> <C> <C>
Operating activities
Net (loss) income $ (301,933) $ 285,173
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Equity in net income of Justice Investors (1,454,109) (1,110,985)
Minority interest 182,747 183,900
Amortization of excess of market value
over carrying value of investment (44,352) (44,352)
Depreciation 88,798 1,943
Changes in operating assets and liabilities:
Other assets 69,901 (18,911)
Accounts payable and accrued expenses (435,785) 15,553
Income taxes payable - (102,942)
---------- ----------
Net cash provided by (used in) operating
activities (1,894,733) (790,621)
---------- ----------
Investing activities
Cash distributions from Justice Investors 836,640 806,281
Changes in restricted cash 57,533 -
Purchase of Portsmouth Square stock (100,927) -
Purchase of investment securities (20,064,676) (10,001,714)
Proceeds from sale of investment securities 28,986,312 9,205,271
Purchase of other investments (300,000) (400,000)
Purchase of property, furniture and fixtures (90,426) -
---------- ----------
Net cash (used in) provided by investing
activities 9,324,456 (390,162)
---------- ----------
Financing activities
Increase (decrease)in due securities broker (5,666,507) 3,592,857
Purchase and retirement of common stock - (102,645)
Decrease in notes receivable 169,920 7,956
Decrease in mortgage payable (9,319) -
Dividends paid to minority shareholders
of Portsmouth Square (63,357) (67,311)
---------- ----------
Net cash provided by (used in)
financing activities (5,569,263) 3,430,857
---------- ----------
Net increase in cash and
cash equivalents 1,860,460 2,250,074
Cash and cash equivalents at beginning of year 382,021 127,351
---------- ----------
Cash and cash equivalents at end of period $ 2,242,481 $ 2,377,426
========== ==========
</TABLE>
See accompanying notes.
Page 5 of 14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------
The consolidated financial statements included herein have been prepared by
Santa Fe Financial Corporation (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 consolidated 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-KSB for the year ended December 31, 1997.
The results of operations for the six months ended June 30, 1998 are not
necessarily indicative of results to be expected for the full fiscal year ending
December 31, 1998.
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure" ("SFAS No. 129") issued by the FASB is effective for
financial statements with fiscal years ending after December 15, 1997. The new
standard reinstates various securities disclosure requirements previously in
effect under Accounting Principals Board Opinion No. 15, which has been
superseded by SFAS No. 128. The Company does not expect the adoption of SFAS
No. 129 to have a material effect on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130") issued by the FASB is effective for financial
statements with fiscal years beginning after December 15, 1997. Earlier
application is permitted. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in a full set of general-
purpose financial statements. The Company has adopted SFAS 130.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS No. 131") issued by the FASB is
effective for financial statements beginning after December 15, 1997. The new
standard requires that public business enterprises report certain information
about operating segments in complete sets of financial statements of the
enterprise and in condensed financial statements of interim periods issued to
shareholders. The Company does not expect the adoption of SFAS No. 131 to have
a material effect on its financial position or results of operations.
On June 15, 1998, the Company issued to its shareholders a two-for-one forward
stock split in the form of a 100% stock dividend. The result of that stock
dividend was to increase the number of outstanding shares of the Company's $.10
par value common stock from 638,019 to 1,276,038 and the outstanding number of
convertible voting preferred shares from 31,800 to 63,600. These financial
statements are presented to reflect that stock dividend.
Page 6 of 14
<PAGE>
2. INVESTMENT IN JUSTICE INVESTORS
-------------------------------
The Company's principal sources of revenue continue to be derived from the
investment of its 65.7%-owned subsidiary, Portsmouth Square, Inc. ("Portsmouth")
in the Justice Investors limited partnership. Portsmouth has a 49.8% interest
in the limited partnership which owns and leases a Holiday Inn in San Francisco,
California. Portsmouth also serves as one of the two general partners of
Justice Investors. Portsmouth records its investment on the equity basis.
Condensed financial statements for Justice Investors are as follows:
JUSTICE INVESTORS
CONDENSED BALANCE SHEET
JUNE 30, 1998
-------------
<TABLE>
<CAPTION>
<S> <C>
Assets
Total current assets $1,125,645
Property, plant and equipment, net of
accumulated depreciation of $10,803,334 5,772,348
Loan fees and deferred lease costs,
net of accumulated amortization of $101,262 209,151
---------
$7,107,144
=========
Liabilities and partners' capital
Total current liabilities $ 79,372
Long-term debt 2,011,634
Partners' capital 5,016,138
Total liabilities and ---------
partners' capital $7,107,144
=========
</TABLE>
JUSTICE INVESTORS
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months ended
June 30,
1998 1997
--------- ----------
<S> <C> <C>
Revenues $3,429,431 $2,762,573
Costs and expenses 509,533 540,717
--------- ---------
Net income $2,919,898 $2,221,856
========= =========
</TABLE>
3. RENTAL PROPERTY
On December 31, 1997, the Company acquired a 55.4% controlling interest in
InterGroup Woodland Village, Inc. ("Woodland"). Woodland's major asset is a
100-unit apartment complex named Woodland Village Apartments located in
Cincinnati, Ohio. The rental property is accounted for at cost and includes the
following:
Page 7 of 14
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1998
--------------
<S> <C>
Investment in real estate:
Land $ 286,104
Buildings, improvements and equipment 3,008,452
Accumulated depreciation on buildings,
improvements and equipment (1,374,842)
---------
$ 1,919,714
=========
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
During 1997, the Company and the director defendants prevailed in their defense
of a shareholders' derivative suit related to the private placement of 90,000
shares of common stock and warrants for the purchase of an additional 90,000
shares to The InterGroup Corporation ("InterGroup"). As prevailing parties, the
Company and the director defendants made application to the Superior Court for
recovery of the attorney's fees and costs expended in the successful defense of
this litigation. On March 23, 1998, the trial court entered a judgment in favor
of the Company and the director defendants and granted their applications for
attorneys' fees and costs in the total amount of approximately $936,000. On
April 17, 1998, the plaintiffs filed an appeal from that award. Briefing has
not yet commenced, and it may be one to two years before that appeal is
ultimately resolved.
During 1996, the Company's subsidiary, Portsmouth, 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
alleges injuries suffered as a result of exposure to asbestos-containing
materials. The complaint sought an unspecified amount of damages. Portsmouth
was defended by an insurance carrier under a reservation of rights. During
1997, the trial court granted Portsmouth's motion for summary judgment, which
became final on April 13, 1998. No appeal from that judgment was taken.
5. RELATED PARTY TRANSACTIONS
--------------------------
As of June 30, 1998, InterGroup owned approximately 44% of the Company's
outstanding common stock and 100% of the Company's preferred stock for a total
of 46.6% of all outstanding voting stock. In addition, the Chairman and Chief
Executive Officer of InterGroup, who is also the Company's Chairman and Chief
Executive Officer, owned 3.9% of the Company's outstanding common stock as of
June 30, 1998. Effective June 30, 1998, the Company's Chairman and Chief
Executive Officer entered into a voting trust agreement with InterGroup, giving
InterGroup the power to vote the shares that he owns in the Company.
As a result of that agreement, InterGroup now has the power to vote in excess of
50% of the voting shares of the Company. Also Effective June 30, 1998, certain
accounting and administrative functions of the Company and its subsidiaries,
were transferred to the Los Angeles, California offices of InterGroup.
During 1997, the Company purchased a controlling 55.4% interest in Woodland from
InterGroup (See Note 3). In exchange for that interest in Woodland, the Company
issued to InterGroup 31,800 shares (63,600 shares post stock split)of 6%
cumulative, convertible, voting preferred stock. InterGroup has notified the
Company that it has elected to forego any dividend payments on the preferred
stock for the first six months of 1998.
Page 8 of 14
<PAGE>
Certain costs and expenses, primarily salaries, rent and insurance, are
allocated between the Company and its subsidiary, Portsmouth, based on
management's estimate of the pro rata utilization of resources. During the six
months ended June 30, 1998, the Company and its subsidiary also made payments to
InterGroup totaling $62,536 for administrative costs and reimbursement of direct
and indirect costs associated with the management of the Company's investments,
including its subsidiary's partnership asset.
The Company's President and Chief Executive Officer, John V. Winfield, directs
the investment activity of the Company in public and private markets pursuant to
authority granted by the Board of Directors. Mr. Winfield also serves as Chief
Executive Officer of Portsmouth and InterGroup and directs the investment
activity of those companies. Effective April 1, 1998, an employee of InterGroup
was assigned to manage the portfolios of the Company and Portsmouth in
consultation with Mr. Winfield. The Company and Portsmouth reimburse InterGroup
for an allocated portion of the compensation and benefits of such employee.
Depending on certain market conditions and various risk factors, the Chief
Executive Officer, his family, Portsmouth and InterGroup may, at times, invest
in the same companies in which the Company invests. The Company encourages such
investments because it places personal resources of the Chief Executive Officer
and his family members, and the resources of Portsmouth and InterGroup, at risk
in connection with investment decisions made on behalf of the Company. All of
the Company's Directors serve as directors of InterGroup and all three of the
Company's Directors serve on the Board of Portsmouth.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The Company may from time to time make forward-looking statements and
projections concerning future expectations. When used in this discussion, the
words "estimate," "project," "anticipate" and similar expressions, are intended
to identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, including 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 and in the Company's Form 10-KSB for the year ended December 31, 1997,
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 are derived from the investment of
its 65.7%-owned subsidiary, Portsmouth, in the Justice Investors limited
partnership, income received from investment of its cash and securities assets
and from rental income derived from its multifamily real property investment.
The partnership derives most of its income from a lease with Holiday Inns, Inc.,
which was assumed by Bristol Hotel Company ("Bristol"). Effective July 31,
1998, Bristol merged into Felcor Suite Hotels, Inc. ("Felcor") with Bristol
Hotel Management Company continuing as the manager of the hotel.
Page 9 of 14
<PAGE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS
ENDED JUNE 30, 1997
Comparison of operating results for the three months ended June 30, 1998 to
the three months ended June 30, 1997, shows a net loss of $682,623 as compared
to net income of $168,311. That result is primarily attributable to net
investment losses of $1,435,732 which were incurred during the second quarter of
1998. That loss reflects management's decision to prune the Company's
investment portfolio of certain of its underperforming securities in an effort
to eliminate its margin positions by the end of the quarter, which it was
successful in achieving. Management believes that this more conservative
approach should reduce the Company's overall investment risk in what has become
a very challenging and difficult global economic environment and should result
in future savings in margin interest expenses. As of June 30, 1998, the Company
still showed a net unrealized gain on investments of $705,521 after tax which is
included in shareholders' equity.
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.
The Company did show a 38.7% increase in partnership income from $611,273 to
$847,709. The increase in partnership income is primarily attributable to a 27%
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 increase in costs and expenses from $241,870 to $638,262 is primarily
attributable to margin interest and trading expenses in the amount of $103,852
and operating expenses, mortgage interest and depreciation associated with
Company's multifamily real property in the amount of $261,702, which were not
incurred by the Company during the first quarter of 1997. The increase in
professional, and outside service fees from $30,370 to $51,399 reflects the
accrual of annual audit and other professional fees for the current fiscal year.
The increase in general and administrative expenses from $154,265 to $211,316
reflects severance pay to certain staff employees and higher costs associated
with the management of the Company's investments, including the partnership
asset. Effective June 30, 1998, certain accounting and administrative functions
of the Company and its subsidiaries, were transferred to the Los Angeles,
California offices of InterGroup. It is expected that the Company will continue
to maintain a corporate presence in San Diego, California, but on a reduced
basis.
The decrease in litigation costs reflects reduced activity in the GPG litigation
during the second quarter of 1998 as that case is waiting to br briefed on
appeal.
On August 14, 1998 the Company authorized a limited buy-back program of its
Common Stock. The Company may from time to time, in the discretion of
management, buy back up to a total of 50,000 shares of its Common Stock,
depending on market conditions and other factors consistent with corporate
policy and as limited by state and federal law.
Page 10 of 14
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1997
Comparison of operating results for the six months ended June 30, 1998 to
the six months ended June 30, 1997, shows a net loss of $301,933 as compared to
net income of $285,173. That result is primarily attributable to net investment
losses of $1,042,055. That loss reflects management's decision to prune the
Company's investment portfolio of certain of its underperforming securities in
an effort to eliminate its margin positions by the end of the second quarter,
which it was successful in achieving. Management believes that this more
conservative approach should reduce the Company's overall investment risk in
what has become a very challenging and difficult global economic environment and
should result in future savings in margin interest expenses. As of June 30,
1998, the Company still showed a net unrealized gain on investments of $705,521
after tax which is included in shareholders' equity.
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.
The Company did show a 30.9% increase in partnership income from $1,110,985 to
$1,454,109. The increase in partnership income is primarily attributable to a
28% 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 increase in costs and expenses from $635,447 to $1,188,701 is primarily
attributable to margin interest and trading expenses in the amount of $231,227
and operating expenses, mortgage interest and depreciation associated with
Company's multifamily real property in the amount of $426,449 which were not
incurred by the Company during the first six months of 1997. The increase in
professional, and outside service fees from $113,869 to $119,389 reflects the
accrual of annual audit and other professional fees for the current fiscal year.
The increase in general and administrative expenses from $313,427 to $369,856
reflects severance pay to certain staff employees and higher costs associated
with the management of the Company's investments, including the partnership
asset. Effective June 30, 1998, certain accounting and administrative functions
of the Company and its subsidiaries, were transferred to the Los Angeles,
California offices of InterGroup. It is expected that the Company will continue
to maintain a corporate presence in San Diego, California, but on a reduced
basis.
The decrease in litigation costs reflects reduced activity in the GPG litigation
during the second quarter of 1998 as that case is waiting to be briefed on
appeal.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash flows are primarily generated by its subsidiary's investment
in the Justice Investors limited partnership, which derives the majority of its
income from its lease with Bristol and a lease with Evon Garage Corporation.
The Company also derives revenue from the investment of its cash and securities
assets and from its investment in multifamily real property.
Page 11 of 14
<PAGE>
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 increased or decreased, especially if the partnership was
to participate financially in the future upgrading of the public areas of the
hotel.
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 June 30, 1998, the Company was
successful in eliminating its margin positions and, as a result, has reduced its
current liabilities to $263,774 while increasing its cash position to
$2,242,481. As of June 30, 1998, the Company also had a net unrealized gain on
investments of $705,521 after tax, which consists of pre-tax unrealized gains of
$1,809,844 and pre-tax unrealized losses of $987,932.
As of June 30, 1998, the Company's current assets were approximately $8,892,000.
The Company remains liquid with a current ratio of approximately 33.7 to 1 at
the end of the quarter. Management believes that its capital resources are
currently adequate to meet its short- and long-term obligations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, Guinness Peat Group plc and its subsidiary, Allied
Mutual Insurance Services Limited ("plaintiffs") had filed a shareholders
derivative suit against certain directors of the Company, InterGroup and the
Company as a nominal defendant in the Superior Court of the State of California,
County of San Diego, Case No. 685760. On March 23, 1998, the trial court
entered a judgment in favor of the Company and the director defendants and
granted their applications for attorneys' fees and costs in the total amount of
$936,026. On April 17, 1998, the plaintiffs filed an appeal of that award. The
appeal has yet to be briefed and a final determination may not be obtained until
one to two years.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May 5, 1998,
at the Park Hyatt Hotel in Los Angeles, California. At that meeting all of
management's nominees, John V. Winfield, John C. Love and William J.
Nance, were elected Directors of Santa Fe to serve until the next Annual
Meeting. The shareholders also voted to ratify the appointment of Price
Waterhouse LLP as the Company's independent accountants for the year ending
December 31, 1998. A tabulation of the vote at that meeting was previously
reported on Registrant's Form 10-QSB for the quarterly period ended March 31,
1998.
Page 12 of 14
<PAGE>
ITEM 5. OTHER INFORMATION
On May 5, 1998, the Board of Directors of the Company approved a two-for-one
stock split of the Company's $.10 par value Common Stock in the form of a stock
dividend. The Stock dividend was paid on June 15, 1998 to shareholders of
record as of May 22, 1998. The payment of the stock dividend increased the
number of the Company's issued and outstanding shares of Common Stock from
638,019 to 1,276,038.
On August 14, 1998 the Company authorized a limited buy-back program of its
Common Stock. The Company may from time to time, in the discretion of
management, buy back up to a total of 50,000 shares of its Common Stock,
depending on market conditions and other factors consistent with corporate
policy and as limited by state and federal law.
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.
SANTA FE FINANCIAL CORPORATION
(Registrant)
Date: August 14, 1998
by /s/ John V. Winfield
- -------------------------------------
John V. Winfield, President,
Chairman of the Board and
Chief Executive Officer
Date: August 14, 1998
by /s/ L. Scott Shields
- -------------------------------------
L. Scott Shields, Treasurer
and Chief Financial Officer
Page 13 of 14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF SANTA FE FINANCIAL CORPORATION AND SUBSIDIARIES
SET FORTH IN ITS FORM 10-QSB REPORT FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-QSB REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2242481
<SECURITIES> 6278128
<RECEIVABLES> 105968
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8892033
<PP&E> 3294556
<DEPRECIATION> 1374842
<TOTAL-ASSETS> 17865193
<CURRENT-LIABILITIES> 263774
<BONDS> 0
0
6360
<COMMON> 127604
<OTHER-SE> 12765645
<TOTAL-LIABILITY-AND-EQUITY> 17865193
<SALES> 1454109
<TOTAL-REVENUES> 1133315
<CGS> 0
<TOTAL-COSTS> 271168
<OTHER-EXPENSES> 855282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62251
<INCOME-PRETAX> (55386)
<INCOME-TAX> 63800
<INCOME-CONTINUING> (301933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (301933)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.23)
</TABLE>
