-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RkhrtEvp0I4xsXlZmdmmSa4LTPgBXsUl/2vF2pcNERwngkwQr+ODxVosUB7wCcWt 5Xdj0pAPKJDLrN1gmKmD8w== 0000912057-96-014612.txt : 19960716 0000912057-96-014612.hdr.sgml : 19960716 ACCESSION NUMBER: 0000912057-96-014612 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960715 SROS: AMEX SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MISSION WEST PROPERTIES/NEW/ CENTRAL INDEX KEY: 0000704874 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF NONRESIDENTIAL BUILDINGS [6512] IRS NUMBER: 952635431 STATE OF INCORPORATION: CA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08383 FILM NUMBER: 96594796 BUSINESS ADDRESS: STREET 1: 6815 FLANDERS DR STE 250 CITY: SAN DIEGO STATE: CA ZIP: 92121 BUSINESS PHONE: 6194503135 MAIL ADDRESS: STREET 1: 6815 FLANDERS DR STREET 2: SUITE 250 CITY: SAN DIEGO STATE: CA ZIP: 92121-3914 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------------- FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31, 1996 Commission File Number 1-8383 MISSION WEST PROPERTIES Incorporated in California IRS Employer Identification Number: 95-2635431 Principal Executive Offices: Telephone: (619) 450-3135 6815 Flanders Drive, Suite 250 San Diego, California 92121-3914 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 [ ] The number of shares of the Registrant's common stock outstanding as of May 31, 1996 was 1,371,121. PART I FINANCIAL INFORMATION ITEM 1. QUARTERLY FINANCIAL STATEMENTS Following are three-month second quarter and six-month year-to-date (as applicable) fiscal year 1996 consolidated financial statements (unaudited) and accompanying notes (unaudited). MISSION WEST PROPERTIES Consolidated Balance Sheets (Unaudited) May 31 November 30 ASSETS 1996 1995 ------------ ------------ Cash and cash equivalents $ 1,139,000 $ 566,000 Short-term investments, held-to-maturity 2,168,000 2,528,000 Real estate investments: Rental Properties, less accumulated depreciation of $9,737,000 in 1996 and $9,054,000 in 1995 ($45,093,000 pledged in 1996 and $45,729,000 in 1995) 46,489,000 47,136,000 Unimproved land ($461,000 pledged in 1996 and 1995) 461,000 461,000 ------------ ------------ 46,950,000 47,597,000 Less allowance for estimated losses (4,413,000) (4,413,000) ------------ ------------ Net real estate investments 42,537,000 43,184,000 Other assets, less allowances of $417,000 in 1996 and $541,000 in 1995 and accumulated depreciation of $317,000 in 1996 and $312,000 in 1995 1,088,000 1,292,000 ------------ ------------ $46,932,000 $47,570,000 ------------ ------------ ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY Notes payable $31,451,000 $31,967,000 Accounts payable and accrued expenses 1,182,000 1,466,000 ------------ ------------ Total liabilities 32,633,000 33,433,000 ------------ ------------ Shareholders' equity: Common stock, no par value, 10,000,000 shares authorized; 1,371,121 shares issued and outstanding (1,368,721 in 1995) 19,456,000 19,446,000 Accumulated deficit (5,157,000) (5,309,000) ------------ ------------ Total shareholders' equity 14,299,000 14,137,000 ------------ ------------ $46,932,000 $47,570,000 ------------ ------------ ------------ ------------ See accompanying notes to consolidated financial statements. MISSION WEST PROPERTIES Consolidated Statements of Operations (Unaudited)
Three Months Ended Six Months Ended ---------------------- ---------------------- May 31 May 31 May 31 May 31 1996 1995 1996 1995 ---------- ---------- ---------- ---------- REVENUES: Rental revenues from real estate $1,805,000 $1,758,000 $3,593,000 $3,519,000 Sales of real estate 24,000 37,000 59,000 97,000 Other, including interest 81,000 101,000 145,000 186,000 ---------- ---------- ---------- ---------- 1,910,000 1,896,000 3,797,000 3,802,000 ---------- ---------- ---------- ---------- EXPENSES: Operating expenses of real estate 419,000 378,000 791,000 785,000 Depreciation of real estate 342,000 347,000 683,000 677,000 General and administrative 240,000 228,000 505,000 471,000 Interest 794,000 903,000 1,564,000 1,787,000 ---------- ---------- ---------- ---------- 1,795,000 1,856,000 3,543,000 3,720,000 ---------- ---------- ---------- ---------- Income before income taxes 115,000 40,000 254,000 82,000 Provision for income taxes 46,000 20,000 102,000 30,000 ---------- ---------- ---------- ---------- NET INCOME $ 69,000 $ 20,000 $ 152,000 $ 52,000 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME PER SHARE $ 0.05 $ 0.01 $ 0.11 $ 0.04 ------- ------- ------- ------- ------- ------- ------- -------
See accompanying notes to consolidated financial statements. MISSION WEST PROPERTIES Consolidated Statements of Cash Flows (Unaudited) Six Months Ended ------------------------ May 31 May 31 1996 1995 ----------- ----------- Cash flows from operating activities: Net income $ 152,000 $ 52,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 688,000 681,000 Changes in assets and liabilities: Increase in net real estate investments (36,000) (15,000) Decrease (increase) in other assets 199,000 (77,000) Decrease in accounts payable and accrued expenses (284,000) (275,000) ----------- ----------- Net cash provided by operating activities 719,000 366,000 ----------- ----------- Cash flows from investing activities: Net redemptions (purchases) of short-term investments 360,000 (679,000) ----------- ----------- Cash flows from financing activities: Repayments on notes payable (516,000) (1,132,000) Proceeds from stock options exercised 10,000 - ----------- ----------- Net cash used for financing activities (506,000) (1,132,000) ----------- ----------- Net increase (decrease) in cash and cash equivalents 573,000 (1,445,000) Cash and cash equivalents at beginning of period 566,000 2,192,000 ----------- ----------- Cash and cash equivalents at end of period $ 1,139,000 $ 747,000 ----------- ----------- ----------- ----------- See accompanying notes to consolidated financial statements. MISSION WEST PROPERTIES Notes to Consolidated Financial Statements (Unaudited) May 31, 1996 NOTE 1 -- BASIS OF PRESENTATION The accompanying consolidated financial statements (unaudited) have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and, therefore, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. 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, the disclosure of contingent assets and liabilities at financial statement date, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The operating results for the interim period are not necessarily indicative of the results to be expected for a full fiscal year or for any future periods. In the opinion of management, the information furnished herein reflects all adjustments, consisting only of normal recurring accruals, that are necessary for a fair presentation of results for the unaudited interim period. NOTE 2 -- CASH FLOW INFORMATION For purposes of reporting cash flows, cash and cash equivalents include cash on hand, money market funds, certificates of deposit, and obligations of the U.S. Treasury with an original maturity of 90 days or less. Short-term investments consist of certificates of deposit and obligations of the U.S. Treasury with an original maturity exceeding 90 days. Cash paid during the six months ended May 31 for interest was $1,638,000 in 1996 and $1,786,000 in 1995. Cash paid for income taxes during the six-month periods was $38,000 in 1996 and $67,000 in 1995. NOTE 3 -- NOTES PAYABLE Notes payable comprise the following: May 31 November 30 1996 1995 ----------- ----------- Secured notes payable to banks, due July $29,756,000 $30,218,000 1996 through 2001, interest rates ranging from 9% (fixed) to 9.75% (prime plus 1.5%), principal and interest due in monthly installments of $285,000, balance of principal due at maturity Unsecured note payable to bank, due July 1996, 250,000 250,000 interest rate of 9.75% prime plus 1.5%), interest only due monthly, principal due at maturity Secured note payable to insurance company, due 1997, interest rate of 10%, principal and interest due in monthly installments of $21,0000 1,445,000 1,499,00 ----------- ----------- $31,451,000 $31,967,000 ----------- ----------- ----------- ----------- NOTE 4 -- NET INCOME PER SHARE Net income per share is based on 1,371,121 and 1,368,721 shares for the quarter ended May 31, and 1,369,941 and 1,417,622 for the six months ended May 31, the weighted average number of shares outstanding during the periods presented for fiscal years 1996 and 1995, respectively. The effect of stock options is not significant and such effect is not reflected in the per share computations. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED NOTE 5 -- SUBSEQUENT EVENT Subsequent to its second quarter end, on July 1, 1996, the Company entered into a definitive agreement to sell all its real estate assets to DMB/SVP California Investments, LLC for $42,000,000 cash, subject to a 24-day due diligence period. The results of the due diligence review could cause the parties to eliminate one property from the transaction, which would reduce the proceeds realized. The Company will satisfy the secured and unsecured indebtedness related to the assets from the proceeds of the sale. Terms of the Agreement call for a closing of the transaction in late August 1996, which closing is subject to extension. The transaction will be accounted for as a sale of assets upon completion. An estimated loss on sale of the assets, if any, and the related selling costs will be determined and recorded at the conclusion of the due diligence period. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS: SECOND QUARTER FISCAL 1996 COMPARED TO SECOND QUARTER FISCAL 1995 Compared to the second quarter of fiscal 1995, the Company's rental revenues from real estate increased $47,000, or three percent, in 1996; the related operating expenses of real estate increased $41,000, or 11 percent. The increase in rental revenue primarily resulted from increased rental rates. The increase in operating expenses primarily resulted from a $30,000 decrease in property tax refunds (higher level of Prop. 8A refunds received in 1995 than in 1996) and an increase in certain repair and maintenance expenses, offset by a $28,000 decrease in bad debt expense. Interest expense decreased $109,000 between the second quarter of fiscal 1995 and the second quarter of fiscal 1996 as a result of a reduction in outstanding notes payable ($31,451,000 outstanding at May 31, 1996 compared to $33,250,000 at May 31, 1995) and decreases in the Company's aggregate borrowing rate (9.02 percent during the second quarter of fiscal 1996 compared to 10.44 percent during the second quarter of fiscal 1995). FIRST SIX MONTHS FISCAL 1996 COMPARED TO FIRST SIX MONTHS FISCAL 1995 During the six months ended May 31, 1996, compared to 1995, rental revenues from real estate increased $74,000, or two percent, and the related operating expenses of real estate increased $6,000, or one percent. The increase in rental revenues is primarily a result of increases in rental rates; the increase in operating expenses resulted from a $51,000 decrease in bad debt expenses offset by numerous individually insignificant increases. Interest expense was $223,000 lower in 1996 than 1995, the result of factors previously detailed in the second quarter results of operations discussion above. CHANGES IN FINANCIAL POSITION: MAY 31, 1996 COMPARED TO NOVEMBER 30, 1995 During the first six months of fiscal 1996, cash and investments increased $213,000. This increase in funds resulted from a $118,000 bankruptcy settlement receipt (former tenant) and from normal cash inflow from operations. Normal debt service (principal and interest payments) continued during the first six months of fiscal 1996. Other assets decreased a net $204,000 during the first six months of fiscal 1996 due to the bankruptcy settlement receipt and various other collections on accounts receivable, and due to normal activity of prepaid expenses (amortization offset by annual payments). Accounts payable and accrued expenses decreased $284,000, or 19 percent, during the six months primarily as a result of the timing of payments for property taxes, legal and audit fees, and payroll. LIQUIDITY AND CAPITAL RESOURCES: During the first six months of fiscal 1996, the Company's financial condition and operations remained stable. Cash and investment balances increased while notes payable continued to be amortized monthly; 30 percent of the debt portfolio was renewed in May 1996 for a five-year period on terms comparable to those previously in place. The rental properties continued to generate sufficient rental revenue to cover real estate operating expenses and interest and they generated cash, after normal debt service (interest and principal amortization). The rental properties currently are, in aggregate, 85 percent leased. As a result of these and other factors, Management believes that the Company continues to be in a stable and competitive position. While the Company continued to operate the real estate portfolio during the first half of fiscal 1996, it also continued to consider and pursue all viable growth or other opportunities available. Subsequent to its second quarter end, on July 1, 1996, the Company entered into a definitive agreement to sell all its real estate assets to DMB/SVP California Investments, LLC for $42,000,000 cash, subject to a 24-day due diligence period. The MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTINUED LIQUIDITY AND CAPITAL RESOURCES, CONTINUED: results of the due diligence review could cause the parties to eliminate one property from the transaction, which would reduce the proceeds realized. The Company will repay the secured and unsecured indebtedness related to the assets from the proceeds of the sale. Terms of the Agreement call for a closing of the transaction in late August 1996, which closing is subject to extension. The transaction will be accounted for as a sale of assets upon completion. An estimated loss on sale of the assets, if any, and the related selling costs will be determined and recorded at the conclusion of the due diligence period. Several conditions to completion of the transaction remain to be accomplished, including approval of the transaction by the Company's shareholders. If this proposed transaction is completed, the Company is expected to have net realizable assets of approximately $11,900,000 consisting almost exclusively of cash and cash equivalents and will have no operating business. After completion of the transaction, if it is completed, the Company intends to consider making a substantial dividend distribution to shareholders; the Company will then review available strategic alternatives, which may include business or asset acquisitions or a sale of the resulting corporate shell. Concurrent with these activities, a review of general and administrative expenses would be made; it is likely that these expenses would be significantly reduced through staffing reductions and other appropriate measures. In the event the transaction is not completed, the Company anticipates continuing normal operation of the real estate portfolio, while also considering and pursuing other strategic alternatives. While operating the portfolio, capital expenditures for interior improvements to existing buildings may be required as new tenants are obtained or existing leases extended. The Company would continue to finance its capital expenditures and general and administrative operations with internally generated funds, including rental receipts from the rental properties, and existing cash and investments. Eleven percent of the debt portfolio matures in July 1996 and would require renewal or refinancing as soon as possible if the transaction were not completed (based on current relationships with financial institutions and the competitive nature of the related real estate, Management anticipates the ability to renew/refinance such debt). Any need for additional financing in the future would depend on the strategic course of the Company. Entering the Agreement to sell the real estate assets constitutes an event of default under several of the Company's debt agreements; however, through the date of this filing, none of the related financial institutions have called a formal default of any loans. PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company was not involved in any material legal proceedings during the quarter ended May 31, 1996. ITEM 2. CHANGES IN SECURITIES No changes in the rights of the Company's securities occurred during the quarter ended May 31, 1996. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Shareholders was held March 22, 1996, at which time the shareholders reelected all six incumbent directors to serve for the subsequent year. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS (27) Financial Data Schedule (b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended May 31, 1996. SIGNATURE Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned, thereunto duly authorized. MISSION WEST PROPERTIES Registrant By: /s/ Katrina L. Thompson -------------------------------------------- Katrina L. Thompson Chief Financial Officer & Secretary (Principal Financial and Accounting Officer) July 15, 1996 EX-27 2 EXHIBIT 27
5 This schedule contains summary financial information extracted from the consolidated balance sheets as of May 31, 1996 and the related consolidated statements of operations for the six months then ended and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS NOV-30-1996 MAY-31-1996 3,307 0 360 332 0 0 334 317 46,932 0 31,451 0 0 19,456 (5,157) 46,932 0 3,797 0 1,474 505 20 1,564 254 102 152 0 0 0 152 .11 .11
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