-----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, LCFPW33l8mu1p7A8i7OlQi2CGJNSiX1pyDor6tNk5sDkC55izkVUxjf36efgsWYQ oqL1/FzQvvfKSKFXYPKNjw== 0000086759-01-500020.txt : 20020410 0000086759-01-500020.hdr.sgml : 20020410 ACCESSION NUMBER: 0000086759-01-500020 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SANTA FE FINANCIAL CORP CENTRAL INDEX KEY: 0000086759 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] IRS NUMBER: 952452529 STATE OF INCORPORATION: NV FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-06877 FILM NUMBER: 1791153 BUSINESS ADDRESS: STREET 1: 820 MORAGA DRIVE CITY: LOS ANGELES STATE: CA ZIP: 90049 BUSINESS PHONE: (310) 889-2500 MAIL ADDRESS: STREET 1: 820 MORAGA DRIVE CITY: LOS ANGELES STATE: CA ZIP: 90049 10QSB 1 sf10q93001.txt SANTA FE FINANCIAL CORPORATION FORM 10-QSB 9/30/2001 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 September 30, 2001 [ ] Transition Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ________ to _________. Commission file number 0-6877 SANTA FE FINANCIAL CORPORATION ------------------------------ (Exact Name of Small Business Issuer as Specified in Its Charter) Nevada 95-2452529 ------------------------------- ------------------ (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 820 Moraga Drive Los Angeles, CA 90049 --------------------------------------- ------------------ (Address of Principal Executive Offices) (Zip Code) (310) 889-2500 --------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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: 1,178,210 shares of issuer's $.10 Par Value Common Stock were outstanding as of November 9, 2001. Transitional Small Business Disclosure Format (check one): Yes ( ) No (X) Page 1 of 13 INDEX SANTA FE FINANCIAL CORPORATION PART I FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheet - September 30, 2001 (Unaudited) 3 Consolidated Statements of Income (Unaudited) - Three Months ended September 30, 2001 and September 30, 2000 4 Consolidated Statements of Cash Flows (Unaudited) - Three Months ended September 30, 2001 and September 30, 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13 Page 2 of 13 PART I FINANCIAL INFORMATION Item 1. Financial Statements Santa Fe Financial Corporation Consolidated Balance Sheet (Unaudited) As of September 30, 2001 ----------- ASSETS Cash and cash equivalents $ 3,064,568 Investment in marketable securities 12,512,021 Investment in Justice Investors 7,602,447 Rental property 3,985,348 Other investments 300,000 Other assets 743,351 ----------- Total assets $ 28,207,735 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Obligations for securities sold 5,267,659 Mortgage payable 2,083,337 Accounts payable and accrued expenses 926,827 Deferred income tax 852,000 ----------- Total liabilities 9,129,823 ----------- Minority interest 5,335,388 ----------- 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 1,276,038 and outstanding 1,178,510 127,604 Additional paid-in capital 8,807,942 Retained earnings 5,747,725 Treasury stock, at cost, 97,528 shares (947,107) ----------- Total shareholders' equity 13,742,524 ----------- Total liabilities & shareholders' equity $ 28,207,735 =========== See accompanying notes to consolidated financial statements. Page 3 of 13 Santa Fe Financial Corporation Consolidated Statement of Income and Comprehensive Income (Unaudited) For the three months ended September 30, 2001 2000 ---------- ---------- Revenues Equity in net income of Justice Investors $ 1,088,400 $ 1,205,632 Net (losses)gains on marketable securities (5,354,762) 1,281,609 Dividend and interest income 69,148 232,250 Rental income 84,468 75,167 Other income 37,351 51,375 ---------- ---------- (4,075,395) 2,846,033 ---------- ---------- Costs and expenses Property operating expense (36,305) (37,081) Mortgage interest expense (45,069) (45,382) Depreciation expense (13,276) (13,501) Margin interest, trading and management expenses (153,346) (279,348) General and administrative (192,871) (206,729) ---------- ---------- (440,867) (582,041) ---------- ---------- Income(loss) before income taxes and minority interest (4,516,262) 2,263,992 Income tax benefit(expense) 1,325,208 (570,952) ---------- ---------- Income(loss) before minority interest (3,191,054) 1,693,040 Minority interest 202,565 (286,548) ---------- ---------- Net (loss)income $(2,988,489) 1,406,492 Preferred stock dividend (12,879) (12,844) ---------- ---------- Income(loss) available to common shareholders $(3,001,368) $ 1,393,648 ========== ========== Basic (loss)earnings per share $ (2.55) $ 1.17 ========== ========== Weighted average number of shares outstanding 1,178,810 1,192,310 ========== ========== See accompanying notes to consolidated financial statements. Page 4 of 13 Santa Fe Financial Corporation Consolidated Statement of Cash Flows (Unaudited) For the three months ended September 30, 2001 2000 ---------- ---------- Cash flows from operating activities: Net (loss)income $(2,988,489) $ 1,406,492 Adjustments to reconcile net income to net cash used in operating activities: Equity in net income of Justice Investors (1,088,400) (1,205,632) Net unrealized losses(gains) on marketable securities 5,500,404 (2,195,440) Minority interest (202,565) 286,548 Amortization of excess of market value over carrying value (22,176) (22,176) Depreciation expense 13,276 13,501 Changes in operating assets and liabilities: Restricted cash 14,732 - Investment in marketable securities 6,399,167 1,936,992 Other assets (472,794) 146,833 Accounts payable and accrued expenses (208,203) 398,688 Deferred tax payable (1,065,397) - Due to securities broker (2,334,424) (4,171,706) Obligations for securities sold (1,188,496) 3,197,722 ---------- ---------- Net cash provided by(used in) operating activities 2,356,635 (208,178) ---------- ---------- Cash flows from investing activities: Cash distributions from Justice Investors 627,480 627,480 Purchase of Portsmouth stock - (950) ---------- ---------- Net cash provided by investing activities 627,480 626,530 ---------- ---------- Cash flows from financing activities: Principal payments on mortgage payable (4,756) (4,403) Dividends paid to preferred shareholders (12,879) (12,844) Dividends paid to minority shareholders (63,118) (63,331) Purchase of treasury stock (6,488) - ---------- ---------- Net cash used in financing activities (87,241) (80,578) ---------- ---------- Net increase in cash and cash equivalents 2,896,874 337,774 Cash and cash equivalents at beginning of period 167,694 62,617 ---------- ---------- Cash and cash equivalents at end of period $ 3,064,568 $ 400,391 ========== ========== See accompanying notes to consolidated financial statements. Page 5 of 13 SANTA FE FINANCIAL CORPORATION 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 ("Santa Fe" or 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. Certain reclassifications have been made to the financial statements as of September 30, 2000 and for the three months then ended to conform to the financial statements as of and for the three months ended September 30, 2001 presentation. 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 June 30, 2001. The results of operations for the three months ended September 30, 2001 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2002. 2. Investment in Justice Investors ------------------------------- The Company's principal source of revenue is derived from the management of its 68.8%-owned subsidiary Portsmouth Square, Inc. ("Portsmouth"). Portsmouth has a 49.8% interest in Justice Investors, a California limited partnership ("Justice Investors") and also serves as one of the two general partners. The other general partner, Evon Garage Corporation ("Evon"), serves as the managing general partner. As a general and limited partner, Portsmouth has significant control over the management and operation of the assets of Justice Investors. All significant partnership decisions require the active participation and approval of both general partners. The Company and Evon jointly consult and determine the amount of partnership reserves and the amount of cash to be distributed to the limited partners. The partnership derives most of its income from a lease of its San Francisco, California hotel property to Felcor Lodging Trust, Inc. ("Felcor") and from a lease of the garage portion of the property to Evon. Santa Fe and Portsmouth jointly manage and oversee their interest in the operation of the hotel and the parking garage. Page 6 of 13 Pursuant to the terms of the partnership agreement, voting rights of the partners are determined according to the partners' entitlement to share in the net profit and loss of the partnership. The Company is not entitled to any additional voting rights by virtue of its position as a general partner. The partnership agreement also provides that no portion of the partnership real property can be sold without the written consent of the general and limited partners entitled to more than 72% of the net profit. Condensed financial statements for Justice Investors are as follows: JUSTICE INVESTORS CONDENSED BALANCE SHEET As of September 30, 2001 ---------- Assets Total current assets $ 2,526,634 Property, plant and equipment, net of accumulated depreciation of $12,012,843 4,562,841 Loan fees and deferred lease costs, net of accumulated amortization of $202,518 107,894 ---------- Total assets $ 7,197,369 ========== Liabilities and partners' capital Total current liabilities $ 17,249 Partners' capital 7,180,120 ---------- Total liabilities and partners' capital $ 7,197,369 ========== JUSTICE INVESTORS CONDENSED STATEMENTS OF OPERATIONS For the three months ended September 30, 2001 2000 ---------- ---------- Revenues $ 2,384,501 $ 2,627,850 Costs and expenses (198,959) (206,903) ---------- ---------- Net income $ 2,185,542 $ 2,420,947 ========== ========== 3. Investment in Marketable Securities ----------------------------------- Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. Marketable securities are classified as trading with net unrealized gains or losses included in earnings. Included in the net losses on marketable securities of $5,354,762 for the three months ended September, 2001, are net unrealized losses of $5,500,404 and net realized gains of $145,642. Included in the net gains on marketable securities of $1,281,609 for the three months ended September 30, 2000, are net unrealized gains of $2,195,440 and net realized losses of $913,830. Page 7 of 13 4. Rental Property --------------- The Company owns and operates a 27 unit multi-family apartment complex located in Los Angeles, California. Units are leased on a short-term basis with no lease extending beyond one year. At September 30, 2001, rental property included the following: Land $ 1,996,750 Buildings, improvements, and equipment 2,098,378 Accumulated depreciation on buildings, improvements, and equipment (109,780) ---------- $ 3,985,348 ========== 5. Segment Information ------------------- The Company operates in three reportable segments, the operations of its multi-family residential property, the operation of Justice Investors, and the investment of its cash and securities assets. These three operating segments, as presented in the financial statements, reflect how management internally reviews each segment's performance. Management also makes operational and strategic decisions based on this same information. Information below represents reporting segments for the three months ended September 30, 2001 and the three months ended September 30, 2000. Operating income for rental properties consist of rental income. Operating income from Justice Investors consists of the operations of the hotel and garage included in the equity in net income of Justice Investors. Operating income(losses) for investment transactions consist of net investment gains(losses)and dividend and interest income.
REAL ESTATE ------------------------- Three months ended Rental Justice Investment September 30, 2001 Properties Investors Transactions Other Total ----------- ----------- ----------- ----------- ------------ Operating income(loss) $ 84,468 $ 1,088,400 $(5,285,614) $ - $ (4,112,746) Operating expenses (36,305) - (153,346) - (189,651) ----------- ----------- ----------- ----------- ------------ Income(loss) before mortgage interest and depreciation 48,163 1,088,400 (5,438,960) - (4,302,397) ----------- ----------- ----------- ----------- ------------ Mortgage interest expenses (45,069) - - - (45,069) Depreciation (13,276) - - - (13,276) General and administrative expenses - - - (192,871) (192,871) Other income - - - 37,351 37,351 Income tax benefit - - - 1,325,208 1,325,208 Minority interest - - - 202,565 202,565 ----------- ----------- ----------- ----------- ------------ Net income(losses) $ (10,182) $ 1,088,400 $(5,438,960) $ 1,372,253 $ (2,988,489) =========== =========== =========== =========== ============ Total Assets $ 3,985,348 $ 7,602,447 $12,812,021 $ 3,807,919 $ 28,207,735 =========== =========== =========== =========== ============
Page 8 of 13
REAL ESTATE ------------------------- Three months ended Rental Justice Investment September 30, 2000 Properties Investors Transactions Other Total ----------- ----------- ----------- ----------- ------------ Operating income $ 75,167 $ 1,205,632 $ 1,513,859 $ - $ 2,794,658 Operating expenses (37,081) - (279,348) - (316,429) ----------- ----------- ----------- ----------- ------------ Income before mortgage interest and depreciation 38,086 1,205,632 1,234,511 - 2,478,229 ----------- ----------- ----------- ----------- ------------ Mortgage interest expenses (45,382) - - - (45,382) Depreciation (13,501) - - - (13,501) General and administrative expenses - - - (206,729) (206,729) Other income - - - 51,375 51,375 Income tax expense - - - (570,952) (570,952) Minority interest - - - (286,548) (286,548) ----------- ----------- ----------- ----------- ------------ Net income(losses) $ (20,797) $ 1,205,632 $ 1,234,511 $(1,012,854) $ 1,406,492 =========== =========== =========== =========== ============ Total Assets $ 4,025,850 $ 8,082,964 $33,096,681 $ 626,786 $ 45,832,281 =========== =========== =========== =========== ============
6. Related Party Transactions -------------------------- Certain costs and expenses, primarily salaries, rent and insurance, are allocated among the Company and its subsidiary, Portsmouth, and the Company's parent, InterGroup, based on management's estimate of the utilization of resources. For the three months ended September 30, 2001, the Company and Portsmouth made payments to InterGroup of approximately $52,119 for administrative costs and reimbursement of direct and indirect costs associated with the management of the Companies and their investments, including the partnership asset. John V. Winfield serves as Chief Executive Officer and Chairman of the Company, Portsmouth, and InterGroup. 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. On June 28, 2001, the Company, Portsmouth and InterGroup entered into an agreement with an investment advisory company for the management of its securities investments. 7. Subsequent Events ----------------- On November 7, 2001, the Securities Investment Committee of the Board of Directors elected to terminate the Company's agreement with the investment advisory company. Effective November 8, 2001, the Company resumed management of its securities portfolio. Page 9 of 13 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, such as the impact of terrorism and war on the national and international economies, including tourism and securities markets, general economic conditions of the hotel industry in the San Francisco area, partnership distributions, securities markets, litigation and other factors, including natural disasters, and those discussed below in the Company's Form 10-KSB for the year ended June 30, 2001, 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 management of the real property assets of its 68.8% owned subsidiary, Portsmouth, rental income from its multi-family real estate property and income received from investment of its cash and securities assets. Portsmouth serves as both a general and 49.8% limited partner of Justice Investors, which derives most of its income from a lease of its hotel property to Felcor and from a lease of the garage portion of the property to Evon. Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 The Company had net losses of $2,988,489 for the three months ended September 30, 2001 as compared to net income of $1,406,492 for the three months ended September 30, 2000. This was primarily due to the change in net gains(losses) on marketable securities to net losses from net gains, the decrease in net equity income of Justice Investors, and the decrease in dividend and interest income. These were partially offset by decrease in margin interest and trading expenses. On June 28, 2001, the Company, Portsmouth, and InterGroup entered into an agreement with an investment advisory company, which assumed responsibility for the performance of the investment portfolios of the Company, Portsmouth, and InterGroup as of March 5, 2001. Net gains(losses) on marketable securities changed to net losses of $5,354,762 for the three months ended September 30, 2001 from net gains of $1,281,609 for the three months ended September 30, 2000. This was due to the significant decline in the market value of the Company's investment portfolio during the current quarter. Like many others, the Company's investment portfolio was significantly affected by the impact that the terrorist attacks of September 11, 2001 have had on the national and global economies including securities markets. On November 7, 2001, the Securities Investment Committee of the Board of Directors elected Page 10 of 13 to terminate its agreement with the investment advisory company and the Company resumed management of the Company's securities investments as of November 8, 2001. For the three months ended September 30, 2001, the Company had net unrealized losses of $5,500,404 and net realized gains of $145,642. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net income. However, the amount of 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 decrease in equity in net income of Justice Investors to $1,088,400 from $1,205,632 was primarily attributable to a 32% decrease in hotel and garage revenue. This was primarily due to the decrease in occupancy of the hotel during the current quarter as a result of a slow down in the economy and the impact that the terrorist attacks of September 11, 2001 have had on tourism and the hospitality industry. The decrease in hotel revenue was partially offset by an increase in other income of approximately $600,000 to Justice Investors as a result of an arbitration settlement payment from the hotel Lessee during the current quarter. Dividend and interest income decreased to $69,148 from $232,250 as a result of the management investing in less income yielding securities. Margin interest, trading and management expenses decreased to $153,346 from $279,348, which were primarily due to the maintenance of lower average daily margin balances during the current quarter. Margin interest expense decreased to $75,353 for the three months ended September 30, 2001 from $241,240 for the three months ended September 30, 2000. Income taxes changed to a tax benefit of $1,325,208 from tax expense of $570,952 due to the net loss produced in the current quarter. Minority interest changed to minority benefit of $202,565 from minority expense of $286,548 as a result of a net loss generated by the Company's subsidiary, Portsmouth during the current quarter. FINANCIAL CONDITION AND LIQUIDITY The Company's cash flows are primarily generated by its subsidiary's ownership interest 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 the monthly limited partnership distributions it receives from Justice Investors, the Company's subsidiary also receives monthly management fees as a general partner. The Company also derives revenue from its investment in a multi-family real estate property and the investment of its cash and securities assets. As a result of increases in the amount of rental income from the hotel lease, and lower interest expenses due to the reduction in notes payable, the general partners of Justice Investors decided to increase the monthly distribution to limited partners effective with the September 1999 distribution. As a result, Portsmouth's monthly distribution increased to $209,160 from $139,440. The increase in monthly distributions can be characterized as special distributions and, at any time, unforeseen Page 11 of 13 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. For the three months ended September 30, 2001, the Company received cash distributions of $627,480 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 trading with unrealized gains and losses recorded through the statement of income. Effective March 5, 2001, the Company implemented certain procedures and investment strategies, such as reducing the amounts due to securities broker. On July 27, 2001, the Board of Directors decided to discontinue the Company's stock buy-back program preserving Company's cash assets for other corporate purposes. The events of September 11, 2001, had a dramatic impact on the domestic and global economies, including the tourism and hospitality industry, and also resulted in a significant decline in securities markets. Although the Company has suffered significant decline in revenues as a result of those events, management believes that its capital resources will be adequate to meet its current and future obligations. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None. (b) Registrant filed no reports on Form 8-K during the period covered by this report. Page 12 of 13 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: November 9, 2001 by /s/ John V. Winfield ---------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: November 9, 2001 by /s/ Michael G. Zybala ---------------------------- Michael G. Zybala Vice President and Secretary Date: November 9, 2001 by /s/ Randy Du ---------------------------- Randy Du, Controller (Principal Accounting Officer) Page 13 of 13 11 -----END PRIVACY-ENHANCED MESSAGE-----