UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 20172023

or

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to_________

 

Commission File Number 1-10324

 

THE INTERGROUP CORPORATION

(Exact name of registrant as specified in its charter)

 

DELAWAREdelaware 13-3293645
(State or other jurisdictionOther Jurisdiction of (I.R.S. Employer
Incorporation or organization)Organization) Identification No.)

 

1100 Glendon Avenue,1516 S. Bundy Drive, Suite PH-1,200, Los Angeles, California 9002490025

(Address of principal executive offices)(Zip (Zip Code)

 

(310) 889-2500

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading SymbolName of each exchange on which registered
Common Stock, $0.01 par value 
Common Stock $.01 par valueINTG The NASDAQ Stock Market, LLC

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

¨

YesxNo

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

¨

YesxNo

 

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.

x

Yes¨No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x

Yes¨No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.

x

☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer¨ Accelerated Filer¨
     
Non-Accelerated Filer¨ (Do not check if a smaller reporting company)Smaller reporting companyx
     
Emerging growth company¨   

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act):

¨

YesxNo

 

TheAs of December 31, 2022, the aggregate market value of the Common Stock, no par value,registrant’s common stock held by non-affiliates computed by reference toof the registrant was approximately $31,358,000 (based upon the closing sale price of the common stock on September 30, 2017 was $20,717,000.that date on The NASDAQ Stock Market LLC).

 

The number of shares outstanding of registrant’s Common Stock, as of September 30, 2017October 13, 2023 was 2,359,724.2,205,927.

 

DOCUMENTS INCORPORATED BY REFERENCE: None

 

 

 

TABLE OF CONTENTS

 

 Page
 PART I 
   
Item 1.Business.4
   
Item 1A.Risk Factors.1011
   
Item 1B.Unresolved Staff Comments.1415
   
Item 2.Properties.15
   
Item 3.Legal Proceedings.2022
   
Item 4.Mine Safety Disclosures.2122
   
 PART II 
   
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesSecurities.2122
   
Item 6.Selected Financial Data.2223
   
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.2223
   
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.2831
   
Item 8.Financial Statements and Supplementary Data.2832
   
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.5566
   
Item 9A.Controls and Procedures.66
Item 9B.55Other Information.66
   
 PART III 
   
Item 10.Directors, Executive Officers and Corporate Governance.5767
   
Item 11.Executive Compensation.6070
   
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.6675
   
Item 13.Certain Relationships and Related Transactions, and Director Independence.6876
   
Item 14.Principal Accounting Fees and ServicesServices.6977
   
 PART IV 
   
Item 15.Exhibits, Financial Statement SchedulesSchedules.7078
   
Signatures7381

 

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FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains certain “forward-looking statements”forward-looking statements within the meaning of Section 27A of the Private Securities Litigation reform Act of 1995.1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking statements giveinclude, but are not limited to, statements related to our expectations regarding the performance of our business, our financial results, our liquidity and capital resources, including anticipated repayment of certain of the Company’s indebtedness, the impact to our business and financial condition, the effects of competition and the effects of future legislation or regulations and other non-historical statements, the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a recession and geopolitical conflicts). Forward-looking statements include all statements that are not historical facts, and in some cases, can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our results of operations, financial condition, cash flows, performance or future achievements or events.

All such forward-looking statements are based on current expectations or forecasts of future events. You can identify these statements by the factmanagement and therefore involve estimates and assumptions that they do not relate strictly to historical or current facts. They contain words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” “may,” “could,” “might” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. From time to time we also provide forward-looking statements in our Forms 10-Q and 8-K, Annual Reports to Shareholders, press releases and other materials we may release to the public. Forward looking statements reflect our current views about future events and are subject to risks, uncertainties assumptions and changes in circumstancesother factors that maycould cause actual results to differ materially from the results expressed in these forward-looking statements. You should not place undue reliance on any forward-looking statements, and we urge investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A: “Risk Factors” in this Annual Report on Form 10-K. Except as required by law, we undertake no obligation to update or outcomesrevise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

The risk factors discussed in Item 1A: “Risk Factors” could cause our results to differ materially from those expressed in any forward looking statement. Consequently, no forward looking statement canforward-looking statements. There may be guaranteedother risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our actual futurebusiness. Any such risks could cause our results mayto differ materially.materially from those expressed in forward-looking statements.

 

FactorsOther factors that may cause actual results to differ materially from current expectations include, but are not limited to:

 

·risks associated with the lodging industry, including competition, increases in wages, labor relations, energy and fuel costs, actual and threatened pandemics, actual and threatened terrorist attacks, and downturns in domestic and international economic and market conditions, particularly in the San Francisco Bay area;

·
risks associated with the real estate industry, including changes in real estate and zoning laws or regulations, increases in real property taxes, rising insurance premiums, costs of compliance with environmental laws and other governmental regulations;

·
the availability and terms of financing and capital and the general volatility of securities markets;

·
changes in the competitive environment in the hotel industry;

·
economic volatility and potential recessive trends;
risks related to natural disasters;

·
hyperinflation;
litigation; and

·
other risk factors discussed below in this Report.

 

We caution youAll such forward-looking statements are based on current expectations of management and therefore involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. You should not to placeput undue reliance on theseany forward-looking statements and we urge investors to carefully review the disclosures we make concerning risks and uncertainties in Item 1A: “Risk Factors” in this Annual Report on Form 10-K, as such factors may be updated from time to time in our periodic filings with the SEC, which speak onlyare accessible on the SEC’s website at www.sec.gov, as to the date hereof. Wewell as risks, uncertainties and other factors discussed in this Annual Report on Form 10-K. Except as required by law, we undertake no obligation to update or revise publicly update any forward lookingforward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects on our Forms 10-K, 10-Q, and 8-K reports to the Securities and Exchange Commission.

 

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PART I

 

Item 1. Business.

 

GENERAL

 

The InterGroup Corporation (“InterGroup” or the “Company” and may also be referred to as “we” “us” or “our” in this report) is a Delaware corporation formed in 1985, as the successor to Mutual Real Estate Investment Trust ("M-REIT"(“M-REIT”), a New York real estate investment trust created in 1965. The Company has been a publicly-heldpublicly held company since M-REIT'sM-REIT’s first public offering of shares in 1966.

 

The Company was organized to buy, develop, operate, rehabilitate, and dispose of real property of various types and descriptions, and to engage in such other business and investment activities as would benefit the Company and its shareholders. The Company was founded upon, and remains committed to, social responsibility. Such social responsibility was originally defined as providing decent and affordable housing to people without regard to race. In 1985, after examining the impact of federal, state, and local equal housing laws, the Company determined to broaden its definition of social responsibility. The Company changed its form from a REIT to a corporation so that it could pursue a variety of investments beyond real estate and broaden its social impact to engage in any opportunity which would offer the potential to increase shareholder value within the Company'sCompany’s underlying commitment to social responsibility.

 

As of June 30, 2017,2023, InterGroup owns approximately 75.7% of the Company owned approximately 81.9% of theoutstanding common shares of Santa Fe Financial Corporation (“Santa Fe”), a public company (OTCBB: SFEF). Santa Fe’s revenue is primarily generated through its 68.8% owned subsidiary, Portsmouth Square, Inc. (“Portsmouth”), a public company (OTCBB: PRSI).InterGroup also directlyPortsmouth. As of June 30, 2023, the Company’s President, Chairman of the Board and Chief Executive Officer, John Winfield, owns approximately 13.4%2.5% of the outstanding common shares of Portsmouth. Mr. Winfield also serves as the Chairman of the Board and Chief Executive Officer of Portsmouth. The Company’s Chief Operating Officer, David Gonzalez was elected President of Portsmouth in May 2021.

Portsmouth’s primary business iswas conducted through its general and limited partnership interest in Justice Investors Limited Partnership, a California limited partnership (“Justice” or the “Partnership”). Portsmouth hasreceived management fees as a 93%general partner of Justice for its services in overseeing and managing the Partnership’s assets. Those fees were eliminated in consolidation. Effective July 15, 2021, Portsmouth completed the purchase of 100% of the limited partnership interest inof Justice and isthrough the sole general partner.acquisition of the remaining 0.7% non-controlling interest.

4

Effective December 23, 2021, The partnership was dissolved. The financial statements of Justice arewere consolidated with those of the Company. See Note 2 to the consolidated financial statements.

 

Prior to its dissolution effective December 23, 2021, Justice through its subsidiaries Justice Holdings Company, LLC (“Holdings”),owned and operated a Delaware Limited Liability Company, Justice Operating Company, LLC (“Operating”) and Justice Mezzanine Company, LLC (“Mezzanine”), owns a 543-room544-room hotel property located at 750 Kearny Street, San Francisco California, known as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including a five-level underground parking garage. Holdingsgarage through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice Mezzanine are both wholly-owned subsidiariesCompany, LLC (“Mezzanine”). Mezzanine was a wholly owned subsidiary of the Partnership; Operating is a wholly-ownedwholly owned subsidiary of Mezzanine. Effective December 23, 2021, Portsmouth replaced Justice as the single member of Mezzanine. Mezzanine is the borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership conveyed ownership of the Hotel to Operating. The Hotel is operated by the partnership as a full-service Hilton brand hotel pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (Hilton). Justice had a management agreement with Prism Hospitality L.P. (“Prism”Hilton”) to perform certain management functions for the Hotel. The management agreement with Prism had an original term of ten years, subject to the Partnership’s right to terminate at any time with or without cause. Effectivethrough January 2014, the management agreement with Prism was amended by the Partnership to change the nature of the services provided by Prism and the compensation payable to Prism, among other things. Prism’s management agreement was terminated upon its expiration date of February 3, 2017. Effective December 1, 2013, GMP Management, Inc. (“GMP”), a company owned by a Justice limited partner and a related party, also provided management services for the Partnership pursuant to a management services agreement, with a three-year term, subject to the Partnership’s right to terminate earlier for cause. In June 2016, GMP resigned. After a lengthy review process of several national third-party hotel management companies, on February 1, 2017, Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company, LLC (“Interstate”) to manage the Hotel with an effective takeover date of February 3, 2017. The term of management agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an additional year not to exceed five years in the aggregate subject to certain conditions. The HMA also provides for Interstate to advance a key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms and conditions described in a separate key money agreement. The $2,000,000 is included in the restricted cash and related party and other notes payable balances in the consolidated balance sheets as of June 30, 2017.31, 2030.

4

 

In addition to the operations of the Hotel, the Company also generates income from the ownership, management and, when appropriate, sale of real estate. Properties include fifteensixteen apartment complexes, one commercial real estate property and three single-family houses. The properties are located throughout the United States but are concentrated in Texas and Southernthe County of Los Angeles, California. The Company also has an investment in unimproved real property. As of June 30, 2017,2023, all of the Company’s operating real estate properties are managed in-house.

 

The Company acquires its investments in real estate and other investments utilizing cash, securities, or debt, subject to approval or guidelines of the Board of Directors and its Executive Strategic Real Estate and Securities Investment Committee. The Company may also look for new real estate investment opportunities in hotels, apartments, office buildings and development properties. The acquisition of any new real estate investments will depend on the Company’s ability to find suitable investment opportunities and the availability of sufficient financing to acquire such investments. To help fund any such acquisition, the Company may borrow funds to leverage its investment capital. The amount of any such debt will depend on a number ofseveral factors including, but not limited to, the availability of financing and the sufficiency of the acquisition property’s projected cash flows to support the operations and debt service.

 

The Company also derivesmay derive income from the investment of its cash and investment securities assets. The Company has invested in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the Company’s marketable securities and other investments.

 

HILTON HOTELS FRANCHISE LICENSE AGREEMENT

 

The Partnership entered into a Franchise License Agreement (the “License Agreement”) with the HLT Existing Franchise Holding LLC (Hilton)(“Hilton”) on November 24,December 10, 2004. The term of the License Agreement was for an initial period of fifteen years commencing on the date the Hotel began operating as a Hilton hotel, with an option to extend the License Agreement for another five years, subject to certain conditions. On June 26, 2015, Operating and Hilton entered into an amended franchise agreement that, among other things, extended the License Agreement through 2030, and also provided the Partnership with certain key money cash incentives to be earned through 2030.

 

HOTEL MANAGEMENT COMPANY AGREEMENT

 

On February 2, 2007, the PartnershipOperating entered into a hotel management agreement (“HMA”) with Prism to manage and operate the Hotel as its agent. The original management agreement was effective for a term of ten years, but was amended in January 2014. Effective January 2014, the required base management fees were amended to a fixed rate of $20,000 per month. Under the amended management agreement, Prism could also earn an incentive fee of $11,000 for each month that the revenues per room of the Hotel exceeded the average revenues per room of a defined set of competing hotels. Base management fees and incentives paid to Prism during the years ended June 30, 2017 and 2016 were $120,000 and $251,000, respectively.

Effective December 1, 2013, GMP Management, Inc.Aimbridge Hospitality (“GMP”Aimbridge”), a company owned by a Justice limited partner and related party, began to provide management services for the Partnership pursuant to a management services agreement. The management agreement with GMP had a term of three years, subject to the Partnership’s right to terminate earlier, for cause. In June 2016, GMP resigned. Under the agreement, GMP was required to advise the Partnership on the management and operation of the hotel; administer the Partnership’s contracts, leases, agreements with hotel managers and franchisors and other contracts and agreements; provide administrative and asset management services, oversee financial reporting, and maintain offices at the Hotel in order to facilitate provision of services. GMP was paid an annual base management fee of $325,000 per year, increasing by 5% per year, payable in monthly installments, and was eligible for reimbursement for reasonable and necessary costs and expenses incurred by GMP in performing its obligations under the agreement.

During the year ended June 30, 2016, GMP was paid $1,637,000 for the salaries, benefits, and local payroll taxes for GMP employees and various other reimbursable expenses. Also included in the $1,637,000 is the $200,000 fee paid to GMP for the completion of the reorganization of the Partnership and the related financing transactions.

Total GMP base management fees and reimbursed GMP employee costs expensed during the year ended June 30, 2016 were $1,219,000 and are included in the consolidated statements of operations. GMP resigned in June 2016 and there were no fees paid to GMP during fiscal year ended June 30, 2017.

5

After a lengthy review process of several national third-party hotel management companies, on February 1, 2017, Justice entered into a Hotel management agreement with Interstate Management Company, LLC to manage the Hotel, along with its five-level parking garage, with an effective takeover date of February 3, 2017. The term of the management agreement is for an initial period of ten years commencing on the takeoverFebruary 3, 2017 date and automatically renews for an additionalsuccessive one (1) year periods, not to exceed five years in the aggregate, subject to certain conditions. Under the terms on the HMA, base management fee (“Basic Fee”) payable to Aimbridge shall be one and seven-tenths percent (1.70%) of total Hotel revenue. In addition to the Basic Fee, Aimbridge shall be entitled to an annual incentive fee for each fiscal year equal to ten percent (10%) of the amount by which Gross Operating Profit in the current fiscal year exceeds the previous fiscal year’s Gross Operating Profit.

 

GARAGE OPERATIONS

On October 31, 2010,For the Partnershipfiscal years ended June 30, 2023 and Ace Parking entered into an amendment2022, hotel management fees were $711,000 and $530,000, and incentive fees of their original parking agreement to extend$505,000 and $525,000, respectively, offset by key money amortization of $250,000 for both years and are included in Hotel operating expenses in the term for a periodconsolidated statements of sixty-two (62) months, commencing on November 1, 2010 and terminating on December 31, 2015, subject to either party’s right to terminate the agreement without cause on ninety (90) days’ written notice. The monthly management fee of $2,000 and the accounting fee of $250 remained the same, but the amendment modified how the “Excess Profit Fee” (as described below) to be paid to Ace Parking would be calculated. The parking agreement with Ace Parking was terminated with an effective termination date of October 4, 2016. The Company began managing the parking garage in-house after the termination of Ace Parking.operations. As part of the Hotel management agreement, Interstate,Aimbridge, through the Partnership’s wholly-ownedCompany’s wholly owned subsidiary, Kearny Street Parking LLC, began managingmanages the parking garage in-house effective February 3, 2017.in-house.

 

The amendment noted above provided that, if net operating income (“NOI”) from the garage operations exceeded $1,800,000 but was less than $2,000,000, then Ace Parking would be entitled to a fee (the “Excess Profit Fee”) of one percent (1%) of the total annual NOI. If the annual NOI was $2,000,000 or higher, Ace Parking would be entitled to an Excess Profit Fee equal to two percent (2%) of the total annual NOI. The garage’s NOI did not exceed the annual NOI of $1,800,000 for the years ended June 30, 2017 or 2016. Base management and incentive fees to Ace Parking amounted to $39,000 and $24,000 for the years ended June 30, 2017 and 2016, respectively.

5

 

CHINESE CULTURE FOUNDATION LEASE

 

On March 15, 2005, the PartnershipHotel entered into an amended lease with the Chinese Culture Foundation of San Francisco (the “Foundation”) for the third-floor space of the Hotel commonly known as the Chinese Culture Center, which the Foundation had right to occupy pursuant to a 50-year nominal rent lease that began in 1967.

 

The amended lease, among other things, requires the PartnershipHotel to pay to the Foundation a monthly event space fee in the amount of $5,000, adjusted annually based on the local Consumer Price Index. As of June 30, 2023, the monthly event space fee is $7,131. The term of the amended lease expires on October 17, 2023, with an automatic extension for another 10-year term if the property continues to be operated as a hotel. Subject to certain conditions as set forth in the amended lease, the Foundation is entitled to reserve a maximum of 75 days per calendar year for use of the event space. If the Hotel needs the event space during one of the dates previously reserved by the Foundation, the Hotel shall pay the Foundation $4,000 per day for using the event space. During the fiscal years ended June 30, 2023 and 2022, the Hotel paid the Foundation $20,000 and $12,000 for such fees, respectively.

 

SALES AND REFINANCINGSREFINANCING OF REAL ESTATE PROPERTIES

 

In July 2015,2021, the Company purchased a residential house in Los Angeles,refinanced three of its California properties’ existing mortgages totaling $1,065,000 with three new mortgages totaling $3,450,000. The Company generated net proceeds totaling $2,325,000 as a strategic assetresult of the refinancing. The interest rate on the three new mortgages is fixed at 3.50% for $1,975,000five years and the mortgages mature in cash.July 2051. In August 2016,July 2021, the Company obtained a $1,000,000 mortgage note payable on this property andone of its California properties for $830,000. The Company received net proceeds of $983,000.$836,000 which exceeded the new loan amount by $6,000 due to advanced deposits made by the Company prior to closing. The interest rate on the mortgage is fixed at 3.50% for five years and the mortgage note is 4.50% with interest only payments for twenty three months. The loanpayable matures in August of 2018.2051.

 

In June 2016,On October 14, 2021, the Company refinanced its $1,929,000$15,900,000 mortgage note payable on its 12-unit358-unit apartment complex located in Irving, Texas and obtained a new mortgage note payable for $28,800,000. The Company received net proceeds of $12,938,000 as a result of the refinance. The annual interest rate on the mortgage is fixed at 2.95% for ten years with interest-only payments for the first five years and 30-year amortization thereafter. The mortgage loan matures in November 2031.

On June 30, 2022, the Company refinanced its $5,283,000 mortgage note payable on its 30-unit apartment complex in West Los Angeles, California and obtained a new mortgage innote payable for $5,850,000. The Company received net proceeds of $584,000 as a result of the amount of $2,300,000.refinance. The annual interest rate on the new mortgage is 3.60%fixed at 4.4% for the first five years and 5.44% thereafter. The mortgage loan matures in June 2026.July 2052.

 

In April 2016,On May 31, 2023, the Company entered into an interest rate agreement onrefinanced its $923,000$4,823,000 mortgage note payable on its commercial property located264-unit apartment complex in Los Angeles, CaliforniaSt Louis, Missouri and obtained a new two year mortgage for $5,360,000. The Company deposited the existing cash in order to settle the variable rate asescrow for Capital Expenditure Reserve of March 31, 2016 of 4.22% into$616,000 and $244,000 in Additional Reserve for taxes and insurance. The mortgage has a fixedfloating monthly rate of 3.99%,30-day SOFR (capped at 5.5%) plus SOFR margin of 3.10% interest-only payments are due for the swap agreement12 months and $5,500 principal paydowns commencing in June 2024. The mortgage loan matures in January 2021. A swap is a contractual agreement to exchange interest rate payments.May 2025.

 

6

 

 

MARKETABLE SECURITIES INVESTMENT POLICIES

 

In addition to its Hotel and real estate operations, the Company also invests from time to time in income producing instruments, corporate debt and equity securities, publicly traded investment funds, mortgage backedmortgage-backed securities, securities issued by REIT’sREITs and other companies which invest primarily in real estate.

 

The Company’s securities investments are made under the supervision of aan Executive Strategic Real Estate and Securities Investment Committee of the Board of Directors (the “Committee”). The Committee currently has three members and is chaired by the Company’s Chairman of the Board and President, John V. Winfield. The Committee has delegated authority to manage the portfolio to the Company’s Chairman and President together with such assistants and management committees he may engage. The Committee generally follows certain established investment guidelines for the Company’s investments. These guidelines presently include: (i) corporate equity securities should be listed on the New York Stock Exchange (NYSE), NYSE MKT, NYSE Arca or the Nasdaq Stock Market (NASDAQ); (ii) the issuer of the listed securities should be in compliance with the listing standards of the applicable national securities exchange; and (iii) investment in a particular issuer should not exceed 10% of the market value of the total portfolio. The investment guidelines do not require the Company to divest itself of investments, which initially meet these guidelines but subsequently fail to meet one or more of the investment criteria. The Committee has in the past approved non-conforming investments and may in the future approve non-conforming investments. The Committee may modify these guidelines from time to time.

 

The Company may also invest, with the approval of the Securities Investment Committee, in unlisted securities, such as convertible notes, through private placements including private equity investment funds. Those investments in non-marketable securities are carried at cost on the Company’s consolidated balance sheetsheets as part of other investmentsOther Assets, net and reviewed for impairment on a periodic basis. As of June 30, 2017, the Company had other investments of $1,211,000.

 

As part of its investment strategies, the Company may assume short positions in marketable securities. Short sales are used by the Company to potentially offset normal market risks undertaken in the course of its investing activities or to provide additional return opportunities. As of June 30, 2017,2023 and 2022, the Company had obligations for securities sold (equities short) of $3,710,000.$1,416,000 and $449,000, respectively.

 

In addition, theThe Company may utilize margin for its marketable securities purchases through the use of standard margin agreements with national brokerage firms. The margin used by the Company may fluctuate depending on market conditions. The use of leverage could be viewed as risky, and the market values of the portfolio may be subject to large fluctuations. Margin balances due as of June 30, 2023 and 2022 were $1,601,000 and $490,000, respectively.

7

 

As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and Chief Executive Officer (CEO), 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 and Chairman of the Board of Portsmouth and Santa Fe and oversees the investment activity of those companies.Portsmouth. Effective June 2016, Mr. Winfield became the Managing Director of Justice and served in that position until the dissolution of Justice in December 2021. Depending on certain market conditions and various risk factors, the Chief Executive Officer, Portsmouth and Santa Fe may,Portsmouth, at times, invest in the same companies in which the Company invests. Such investments align the interests of the Company with the interests of related parties because it places the personal resources of the Chief Executive Officer and the resources of the Portsmouth, and Santa Fe, at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.

 

Further information with respect to investment in marketable securities and other investments of the Company is set forth in Management Discussion and Analysis of Financial Condition and Results of Operations section and Notes 5 and 6 of the Notes to Consolidated Financial Statements.

 

SeasonalitySEASONALITY

 

Historically, the Hotel’s operations historically haveoperation has been seasonal.seasonal under normal circumstances. Like most hotels in the San Francisco area, the Hotel generally maintains highermaintained high occupancy and room rates during the entire year except for the weeks starting from Thanksgiving to first and second quartersweek of its fiscal year (July 1 through December 31) than it does inJanuary due to the third and fourth quarters (January 1 through June 30).holiday season. These seasonal patterns can be expected to cause fluctuations in the quarterly revenues fromof the Hotel.

7

Competition See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information regarding the effects on our results of operations.

 

The hotel industry is highly competitive. Competition is based on a number of factors, most notably convenience of location, brand affiliation, price, range of services and guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual market in which properties are located. The San Francisco market is a very competitive market with a high supply of guest rooms and meeting space in the area. During fiscal 2017, we began the work with Hilton approved providers to overhaul all technical aspects of the Hotel whereby when completed, we expect to have an edge over our competitors by implementing advanced state of the art systems which we anticipate a complete implementation during fiscal 2018. Specifically, the complete overhaul of the infrastructure of the Internet in both the guest rooms and meeting space will position the hotel above any of our competitors in this market or any other. This investment will allow the hotel to go to market with specific measurable statistics that will help win the much coveted technology company meetings. Our short-term plans also include the relocation of the restaurant and bar to the front of the Hotel which would provide visibility from Kearny and Washington Streets and therefore, attract additional traffic as well as put us in line with our two closest competitors that have street view outlets. In fiscal 2016, the Hotel replaced the carpet flooring in the lobby and the fourth floor with oak wood, creating an open and welcoming environment that completely transformed the sense of arrival for guests. The Hotel also modernized the furniture in the lobby, the porte cochere, and the second floor; and replaced the third-floor carpets and doors. The fitness center was expanded to twice the size to eliminate one of our top guest complaints while upgrading the space with state of the art equipment.

The Hotel’s highest priority is guest satisfaction. Enhancing the guest experience differentiates the Hotel from its competition and is critical to the Hotel’s objective of building sustainable guest loyalty. In addition to the recent completion of “The Cloud” (a technology lounge), three new premium executive meeting rooms and the Karaoke lounge, the Hotel has enhanced the arrival experience of the guests by renovating and upgrading the entrance and the lobby. Meeting planner scores reflect the increased focus on taking care of guests increasing in our scores 6.2 points year over year in likelihood to return to property.COMPETITION

 

The Hotel has navigated this very competitive market nimbly and has consistently been ranked the number one hotel in its Competitive Set (“CompSet”) based on our ability to drive occupancy. During 2021 and first part of calendar 2022, we took advantage of the slow periods to make certain capital improvements including complete refinishing of all guest room furniture, resurfacing half of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed the carpet and wall covering corridor installation. In November 2022, we began our guestroom renovation and had completed approximately 200 guestrooms as of June 30, 2023. Hotel improvements are ongoing to remain competitive and we anticipate completing the guestroom renovations by the end March 2024.

As of the date of this report, the competition for business is focusingvery strong as there still hasn’t been a rebound close to 2019 for the overall San Francisco market. The fiscal year ending June 30, 2023, the Hotel’s Competitive Set (“CompSet”) was running 64% occupancy and average daily rate of $236 for a RevPAR of $152. The Hotel has fared drastically better than its CompSet by aggressively pursuing all segments and opening all channels on high-end clients with more banquetsoff peak days and meeting room requirements. Moving forward,limiting access over peak demand dates. At the end of fiscal year ending June 30, 2023, the Hotel will continue to focus on cultivating international business, especially from China, and capturing a greater percentagewas running occupancy of 83% including the vacancy of the higher rated business, leisure and group travel. We believe that our“Out Of Order” rooms of about 13% at $195 average daily rate for a RevPAR of $161, giving the Hotel a RevPAR index of 106%.

The Hotel’s location in the San Francisco Financial District lends itself tohistorically had provided greater opportunities than ourover its competitors when it comes to developing relationships with the financial districtFinancial District entities and will focus on establishing a greater client base.the customers who regularly do business in the downtown area. With limited business travel to San Francisco for the time, we are competing with hotels in more tourist attracting locations and amenities for the leisure traveler. The Hotel will also continue in our effortsability to expand guest rooms and facilities and explore new and innovative ways to differentiate the Hotel from its competition, as well as focusing on enhancing the Hotel’s technology infrastructure. The hotel will capitalize on the increased hotel occupancy, rates and overall hotel property value upon completionstrong midweek demand of the Moscone Center expansion and improvement project which is scheduled to be completed in December of 2018. However, like all hotels, the Hotel will remain subjectindividual business traveler to the uncertain domestic and global economic environment and other risk factors beyond our control, such asFinancial District has been the effectfocus during the timeframe of natural disasters and economic uncertainties. strong growth in the market. The shift to attracting leisure travel has pushed the hotel to price aggressively to lure competition from the more tourist locations in San Francisco.

8

The Hotel is also subject to certain operating risks common to all of the hotel industry, which could adversely impact performance. These risks include:include, but are not limited to:

 

·Competition for guests and meetings from other hotels including competition and pricing pressure from internet wholesalers and distributors;

·
increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and other factors, which may not be offset in the future by increased room rates;

·
labor strikes, disruptions or lock outs;

·
dependence on demand from business and leisure travelers, which may fluctuate and is seasonal;

·
increases in energy costs, cost of fuel, airline fares and other expenses related to travel, which may negatively affect traveling;

 8 

·terrorism, terrorism alerts and warnings, wars and other military actions, pandemics or other medical events or warnings which may result in decreases in business and leisure travel;

·
natural disasters; and

·
adverse effects of downturns and recessionary conditions in international, national and/or local economies and market conditions.

 

Environmental MattersENVIRONMENTAL MATTERS

 

In connection with the ownership of the Hotel, the Company is subject to various federal, state and local laws, ordinances and regulations relating to environmental protection. Under these laws, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances.

 

Environmental consultants retained by the Partnership orJustice and its lenders conducted updated Phase I environmental site assessments in fiscal year ended June 30, 2014 on the Hotel property. These Phase I assessments relied, in part, on Phase I environmental assessments prepared in connection with the Partnership’s first mortgage loan obtained in December 2013. Phase I assessments are designed to evaluate the potential for environmental contamination on properties based generally upon site inspections, facility personnel interviews, historical information, and certain publicly-availablepublicly available databases; however, Phase I assessments will not necessarily reveal the existence or extent of all environmental conditions, liabilities or compliance concerns at the properties.

 

Although the Phase I assessments and other environmental reports we have reviewed disclose certain conditions on our propertiesproperty and the use of hazardous substances in operation and maintenance activities that could pose a risk of environmental contamination or liability, we are not aware of any environmental liability that we believe would have a material adverse effect on our business, financial position, results of operations or cash flows.

 

The Company believes that the Hotel is in compliance, in all material respects, with all federal, state and local environmental ordinances and regulations regarding hazardous or toxic substances and other environmental matters, the violation of which could have a material adverse effect on the Company. The Company has not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of its present properties.

 

9

Competition – Rental Properties

 

The ownership, operation, and leasing of multifamily rental properties are highly competitive. The Company competes with domestic and foreign financial institutions, other REITs, life insurance companies, pension trusts, trust funds, partnerships and individual investors. In addition, The Company competes for tenants in markets primarily on the basis of property location, rent charged, services provided and the design and condition of improvements. The Company also competes with other quality apartmentapartments owned by public and private companies. The number of competitive multifamily properties in a particular market could adversely affect the Company’s ability to lease its multifamily properties, as well as the rents it is able to charge. In addition, other forms of residential properties, including single family housing and town homes, provide housing alternatives to potential residents of quality apartment communities or potential purchasers of for-sale condominium units. The Company competes for residents in its apartment communities based on resident service and amenity offerings and the desirability of the Company’s locations. Resident leases at the Company’s apartment communities are priced competitively based on market conditions, supply and demand characteristics, and the quality and resident service offerings of its communities.

 

9

EMPLOYEES

 

As of June 30, 2017,2023, the CompanyCompany’s corporate office and multifamily operations had a total of 11 full-time employees in its corporate office.32 employees. Effective August 2014, the Company entered into a client service agreement with ADP,Automatic Data Processing (“ADP”), a professional employer organization serving as an off-site, full servicefull-service human resource department for its corporate office.employees. ADP personnel management services are delivered by entering into a co-employment relationship with the Company’s employees. The employees and the Company are not party to any collective bargaining agreement, and the Company believes that its employee relations are satisfactory.

 

EmployeesThe hotel operations had 187 employees as of Justice and management of the Hotel are not unionized and the Company believes that their relationships with the Hotel are satisfactory and consistent with the market in San Francisco.

Effective February 3, 2017, the Partnership had no employees.June 30, 2023. On February 3, 2017, InterstateAimbridge assumed all labor union agreements and retained employees of their choice to continue providing services to the Hotel.Justice provides all funding for all payroll and related costs. As of June 30, 2017,2023, approximately 83%90% of those employees were represented by one of three labor unions, and their terms of employment were determined under various collective bargaining agreements (“CBAs”) to which the PartnershipAimbridge was a party. During the year ended June 30, 2014, the Partnership renewed the CBAsCBA for the Local 2 (Hotel and Restaurant Employees), expired on August 13, 2022 and a new MOU was signed June 26, 2023. CBA for Local 856 (International Brotherhood of Teamsters), expired on December 31, 2022 and a new agreement was signed on April 26, 2023. CBA for Local 39 (stationary engineers). The present CBAs(Stationary Engineers) will expire inon July 2018 and labor union negotiations are scheduled to commence during the 4th calendar quarter of 2017.31, 2024.

 

Negotiation of collective bargaining agreements, which includes not just terms and conditions of employment, but scope and coverage of employees, is a regular and expected course of business operations for the Partnership.Partnership and Aimbridge. The Partnership expects and anticipates that the terms of conditions of CBAs will have an impact on wage and benefit costs, operating expenses, and certain hotel operations during the life of each CBA and incorporates these principles into its operating and budgetary practices.

 

ADDITIONAL INFORMATION

 

The Company files required annual and quarterly reports on Forms 10-K and 10-Q, current reports on Form 8-K and other information with the Securities and Exchange Commission (“SEC” or the “Commission”). The public may read and copy any materials that we file with the Commission at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also maintains an Internet site athttp://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.

 

Other information about the Company can be found on its websitewww.intgla.com. Reference in this document to that website address does not constitute incorporation by reference of the information contained on the website.

10

 

Item 1A. Risk Factors.

 

Adverse changes in the U.S. and global economies could negatively impact our financial performance.

 

Due to a number of factors affecting consumers, the outlook for the lodging industry remainremains uncertain. These factors have resulted at times in the past and could continue to result in the future in fewer customers visiting, or customers spending less, in San Francisco, as compared to prior periods. The macro-economic situation of a looming US/Global recession has seen business reducing or eliminating typical travel and group meetings in efforts to be conservative in uncertain financial times. Leisure travelingtravel and other leisure activities represent discretionary expenditures, and participation in such activities tends to decline during economic downturns, during which consumers generally have less disposable income. As a result, in those times customer demand for the luxury amenities and leisure activities that we offer may decline. Furthermore, during periods of economic contraction, revenues may decrease while some of our costs remain fixed or even increase, resulting in decreased earnings.

 

Weakened global economic conditions may adversely affect our industry, business, and results of operations.

Our overall performance depends in part on worldwide economic conditions, which could adversely affect the tourism industry. According to current economic news reports, the United States and other key international economies may be subject to a recession, characterized by falling demand for a variety of goods and services, restricted credit, going concern threats to financial institutions, major multinational companies and medium and small businesses, poor liquidity, declining asset values, reduced corporate profitability, and volatility in credit, equity and foreign exchange markets. These conditions affect discretionary and leisure spending and could adversely affect our customers’ ability or willingness to travel to destinations for leisure and cutback on discretionary business travel, which could adversely affect our operating results. In addition, in a weakened economy, companies that have competing properties may reduce room rates and other prices which could also reduce our average revenues and harm our operating results.

We operate a single property located in San Francisco and rely on the San Francisco market. Changes adversely impacting this market could have a material effect on our business, financial condition, and results of operations, and fair market value of the Hotel.

 

Our business in San Francisco and the hospitality industry has a limited base of operations and substantially all of our revenues are currently generated by the Hotel.Hotel in San Francisco, California. Accordingly, we are subject to greater risks than a more diversified hotel or resort operator and the profitability of our operations is linked to local economic conditions in San Francisco. The combination of a decline in the local economy of San Francisco, reliance on a single location and the significant investment associated with it may cause our operating results to fluctuate significantly and may adversely affect us and materially affect our total profitability.

 

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We face intense local and increasingly national competition which could impact our operations and adversely affect our business and the results of operations.

 

We operate in the highly-competitivehighly competitive San Francisco hotel industry. The Hotel competes with other high-quality Northern California hotels and resorts. Many of these competitors seek to attract customers to their properties by providing food and beverage outlets, retail stores and other related amenities, in addition to recently renovated hotel accommodations. To the extent that we seek to enhance our revenue base by offering our own various amenities, we compete with the service offerings provided by these competitors.

 

Many of the competing properties have themes and attractions which draw a significant number of visitors and directly compete with our operations. Some of these properties are operated by subsidiaries or divisions of large public companies that may have greater name recognition and financial and marketing resources than we do and market to the same target demographic group as we do. Various competitors are expanding and renovating their existing facilities. We believe that competition in the San Francisco hotel and resort industry is based on certain property-specific factors, including overall atmosphere, range of amenities, price, location, technology infrastructure, entertainment attractions, theme and size. Any market perception that we do not excel with respect to such property-specific factors could adversely affect our ability to compete effectively. If we are unable to compete effectively, we could lose market share, which could adversely affect our business and results of operations.

 

11

The San Francisco hotel and resort industry is capital intensive; financing our renovations and future capital improvements could reduce our cash flow and adversely affect our financial performance.

 

The Hotel has an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. We will also need to make capital expenditures to comply with applicable laws and regulations.

 

Renovations and other capital improvements of hotels require significant capital expenditures. In addition, renovations and capital improvements of hotels usually generate little or no cash flow until the project’s completion. We may not be able to fund such projects solely from cash provided from our operating activities. Consequently, we will rely upon the availability of debt or equity capital and reserve funds to fund renovations and capital improvements and our ability to carry them out will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. No assurances can be made that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.

 

Renovations and other capital improvements may give rise to the following additional risks, among others: construction cost overruns and delays; increased prices of materials due to tariffs; temporary closures of all or a portion of the Hotel to customers; disruption in service and room availability causing reduced demand, occupancy and rates; and possible environmental issues.

 

As a result, renovations and any other future capital improvement projects may increase our expenses, and reduce our cash flows and our revenues. If capital expenditures exceed our expectations, this excess would have an adverse effect on our available cash.

 

We have substantial debt, and we may incur additional indebtedness, which may negatively affect our business and financial results.

 

We have substantial debt service obligations. Our substantial debt may negatively affect our business and operations in several ways, including: requiring us to use a substantial portion of our funds from operations to make required payments on principal and interest, which will reduce funds available for operations and capital expenditures, future business opportunities and other purposes; making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions; limiting our flexibility in planning for, or reacting to, changes in the business and the industry in which we operate; placing us at a competitive disadvantage compared to our competitors that have less debt; limiting our ability to borrow more money for operations, capital or to finance acquisitions in the future; and requiring us to dispose of assets, if needed, in order to make required payments of interest and principal.

 

11

The debt agreement that governs our outstanding indebtedness due January 2024 could result in our being required to repay these borrowings on their due date. If we are forced to refinance these borrowings on less favorable terms or are unable to refinance these borrowings, the Hotel financial condition and results of operations could be adversely affected.

 

Our business model involves high fixed costs, including property taxes and insurance costs, which we may be unable to adjust in a timely manner in response to a reduction in our revenues.

 

The costs associated with owning and operating the Hotel are significant. Some of these costs (such as property taxes and insurance costs) are fixed, meaning that such costs may not be altered in a timely manner in response to changes in demand for services. Failure to adjust our expenses may adversely affect our business and results of operations. Our real property taxes may increase as property tax rates change and as the values of properties are assessed and reassessed by tax authorities. Our real estate taxes do not depend on our revenues, and generally we could not reduce them other than by disposing of our real estate assets.

 

Insurance premiums have increased significantly in recent years, and continued escalation may result in our inability to obtain adequate insurance at acceptable premium rates. A continuation of this trend would appreciably increase the operating expenses of the Hotel. If we do not obtain adequate insurance, to the extent that any of the events not covered by an insurance policy materialize, our financial condition may be materially adversely affected.

 

In the future, our property may be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses, which could reduce our cash flow and adversely affect our financial performance. If our revenues decline and we are unable to reduce our expenses in a timely manner, our business and results of operations could be adversely affected.

 

12

Risk of declining market values onin marketable securities.

 

The Company invests from time to time in marketable securities. As a result, the Company is exposed to market volatility in connection with these investments. The Company'sCompany’s financial position and financial performance could be adversely affected by worsening market conditions or sluggish performance of such investments.

Illiquidity risk in nonmarketable securities.

Nonmarketable securities are, by definition, instruments that are not readily salable in the capital markets, and when sold are usually at a substantial discount. Thus, the holder is limited to return on investment from any income producing feature of the instrument, as any sale of such an instrument would be subject to a substantial discount. Thus, a holder may need to hold such instruments for long period of time and not be able to realize a return of their cash investment should there be a need to liquidate to obtain cash at any given time.

Litigation and legal proceedings could expose us to significant liabilities and thus negatively affect our financial results.

 

We are a party, from time to time, to various litigation claims and legal proceedings, government and regulatory inquiries and/or proceedings, including, but not limited to, intellectual property, premises liability and breach of contract claims. Material legal proceedings are described more fully in Note 17, Commitments and Contingencies, to our consolidated financial statements, included in Item 8 of this Annual Report on Form 10-K.

 

Litigation is inherently unpredictable and defending these proceedings can result in significant ongoing expenditures and the diversion of our management’s time and attention from the operation of our business, which could have a negative effect on our business operations. Our failure to successfully defend or settle any litigation or legal proceedings could result in liabilities that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenue and profitability.

 

The threat of terrorism could adversely affect the number of customer visits to the Hotel.

 

The threat of terrorism has caused, and may in the future cause, a significant decrease in customer visits to San Francisco due to disruptions in commercial and leisure travel patterns and concerns about travel safety. We cannot predict the extent to which disruptions in air or other forms of travel as a result of any further terrorist act, outbreak of hostilities or escalation of war would adversely affect our financial condition, results of operations or cash flows. The possibility of future attacks may hamper business and leisure travel patterns and, accordingly, the performance of our business and our operations.

 

12

We depend in part, on third party management companies for the future success of our business and the loss of one or more of their key personnel could have an adverse effect on our ability to manage our business and operate successfully and competitively or could be negatively perceived in the capital markets.

 

The hotelHotel is managed by Interstate.Aimbridge. Their ability to manage the Company’s businessHotel and to operate successfully and competitively is dependent, in part, upon the efforts and continued service of their managers. The departure of key personnel of current or future management companies could have an adverse effect on our business and our ability to operate successfully and competitively, and it could be difficult to find replacements for these key personnel, as competition for such personnel is intense.

 

Seasonality and other related factors such as weather can be expected to cause quarterly fluctuations in revenue at the Hotel.

 

The hotel and resort industry isare seasonal in nature. This seasonality can tend to cause quarterly fluctuations in revenues at the Hotel. Our quarterly earnings may also be adversely affected by other related factors outside our control, including weather conditions and poor economic conditions. As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these quarterly fluctuations in our revenues.

 

13

The hotel industry is heavily regulated and failure to comply with extensive regulatory requirements may result in an adverse effect on our business.

 

The hotel industry is subject to extensive regulation and the Hotel must maintain its licenses and pay taxes and fees to continue operations. Our property is subject to numerous laws, including those relating to the preparation and sale of food and beverages, including alcohol. We are also subject to laws governing our relationship with our employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and firing employees and work permits. Also, our ability to remodel, refurbish or add to our property may be dependent upon our obtaining necessary building permits from local authorities. The failure to obtain any of these permits could adversely affect our ability to increase revenues and net income through capital improvements of our property. In addition, we are subject to the numerous rules and regulations relating to state and federal taxation. Compliance with these rules and regulations requires significant management attention. Furthermore, compliance costs associated with such laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to our business or gaming license could require us to make substantial expenditures or could otherwise negatively affect our gaming operations. Any failure to comply with all such rules and regulations could subject us to fines or audits by the applicable taxation authority.

 

Violations of laws could result in, among other things, disciplinary action. If we fail to comply with regulatory requirements, this may result in an adverse effect on our business.

 

Uninsured and underinsured losses could adversely affect our financial condition and results of operations.

 

There are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods or terrorist acts, which may be uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. We will use our discretion in determining amounts, coverage limits, deductibility provisions of insurance and the appropriateness of self-insuring, with a view to maintaining appropriate insurance coverage on our investments at a reasonable cost and on suitable terms. Uninsured and underinsured losses could harm our financial condition and results of operations. We could incur liabilities resulting from loss or injury to the Hotel or to persons at the Hotel. Claims, whether or not they have merit, could harm the reputation of the Hotel or cause us to incur expenses to the extent of insurance deductibles or losses in excess of policy limitations, which could harm our results of operations.

 

In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in the Hotel, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the Hotel. In the event of a significant loss, our deductible may be high, and we may be required to pay for all such repairs and, as a consequence,therefore, it could materially adversely affect our financial condition. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate the Hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

13

 

It has generally become more difficult and expensive to obtain property and casualty insurance, including coverage for terrorism. When our current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our property at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (for example, earthquake, flood and terrorism) may not be generally available at current levels. Even if we are able tocan renew our policies or to obtain new policies at levels and with limitations consistent with our current policies, we cannot be sure that we will be able to obtain such insurance at premium rates that are commercially reasonable. If we were unable to obtain adequate insurance on the Hotel for certain risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments that require us to maintain adequate insurance on the Hotel to protect against the risk of loss. If this were to occur, or if we were unable to obtain adequate insurance and the Hotel experienced damage which would otherwise have been covered by insurance, it could materially adversely affect our financial condition and the operations of the Hotel.

 

14

In addition, insurance coverage for the Hotel and for casualty losses does not customarily cover damages that are characterized as punitive or similar damages. As a result, any claims or legal proceedings, or settlement of any such claims or legal proceedings that result in damages that are characterized as punitive or similar damages may not be covered by our insurance. If these types of damages are substantial, our financial resources may be adversely affected.

 

You may lose all or part of your investment.

 

There is no assurance that the Company’s initiatives to improve its profitability or liquidity and financial position will be successful. Accordingly, there is substantial risk that an investment in the Company will decline in value.

 

The price of the Company’s common stock may fluctuate significantly, which could negatively affect the Company and holders of its common stock.

 

The market price of the Company’s common stock may fluctuate significantly from time to time as a result of many factors, including: investors’ perceptions of the Company and its prospects; investors’ perceptions of the Company’s and/or the industry’s risk and return characteristics relative to other investment alternatives; difficulties between actual financial and operating results and those expected by investors and analysts; changes in our capital structure; trading volume fluctuations; actual or anticipated fluctuations in quarterly financial and operational results; volatility in the equity securities market; and sales, or anticipated sales, of large blocks of the Company’s common stock.

 

The concentrated beneficial ownership of our common stock and the ability it affords to control our business may limit or eliminate other shareholders'shareholders’ ability to influence corporate affairs.

 

Santa FeThe Company’s President, Chief Executive Officer, and InterGroup collectively own more than 80%Chairman of the Company’s outstanding common stock.Board of Directors, John V. Winfield is a 68.6% beneficial shareholder of the Company. Because of this concentrated stock ownership, the Company’s largest shareholdersMr. Winfield will be in a positionable to significantly influence the election of ourthe Company’s board of directors and all other decisions on all matters requiring shareholder approval. As a result, the ability of other shareholders to determine the management and policies of the Company is significantly limited. The interests of these shareholdersthe Company’s largest shareholder may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers and directors and other business decisions. This level of control may also have an adverse impact on the market value of our shares because our largest shareholdersshareholder may institute or undertake transactions, policies or programs that may result in losses, may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers ofenough shares to significantly decrease our price per share.

 

Item 1B. Unresolved Staff Comments.

 

None.

14

 

Item 2. Properties.

 

SAN FRANCISCO HOTEL PROPERTY

 

The Hotel is owned indirectly by the PartnershipPortsmouth through its indirect wholly-ownedwholly owned subsidiary, Operating. The Hotel is centrally located nearin the Financial District in San Francisco, one block from the Transamerica Pyramid. The Embarcadero Center is within walking distance and North Beach is two blocks away. Chinatown is directly across the bridge that runs from the Hotel to Portsmouth Square Park. The Hotel is a 31-story (including parking garage), steel and concrete, A-frame building, built in 1970. The Hotel has 543544 well-appointed guest rooms and luxury suites situated on 22 floors. The Hotel has a restaurant, a lounge, and a private dining room on 3,700 square feet; additionally, there are two kitchens to service the restaurant and banquets and a fully equipped gym. The third floor houses the Chinese Culture Center (the “CCC”), its administrative office, and a grand ballroom. The Hotel has approximately 22,000 square feet of meeting room space, including the grand ballroom. Other features of the Hotel include a 5-level underground parking garage and pedestrian bridge across Kearny Street connecting the Hotel and the Chinese Culture CenterCCC with Portsmouth Square Park in Chinatown.  The bridge, built and owned by the Partnership, is included in the lease to the Chinese Culture Center. 

 

The Partnership expectsAs required by its senior lender, Operating will continue to expend at leastmake minimum payments into its furniture, fixtures, and equipment (“FF&E”) escrow account held by its senior lender of the greatest of 4% of gross annual Hotel revenues each year for capital improvements.or a minimum of $1,952,000 per annum. In the opinion of management, the Hotel is adequately covered by insurance.

 

15

HOTEL FINANCINGSFINANCING

 

On December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered into a loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice Mezzanine Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement (“Mezzanine Loan Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San Francisco Mezz Lender LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The PartnershipCompany is the sole member of Mezzanine, and Mezzanine is the sole member of Operating.

 

The Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the Loan Agreements were used to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.

 

The Mortgage Loan is secured by the Partnership’sPortsmouth’s principal asset, the Hotel. The Mortgage Loan bears an interest rate of 5.275% per annum and matures in January 2024. The term of the loan is ten years with interest only due in the first three years and principal and interest payments to be made during the remaining seven years of the loan based on a thirty-year amortization schedule. The Mortgage Loan also requires payments for impounds related to property tax, insurance, and capital improvementFF&E reserves. As additional security for the Mortgage Loan, there is a limited guaranty (“Mortgage Guaranty”) executed by the CompanyPortsmouth in favor of the Mortgage Lender.

 

The Mezzanine Loan is a secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. TheOn July 31, 2019, Mezzanine refinanced the Mezzanine Loan bearsby entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of $20,000,000. The interest at 9.75% per annumrate on the new mezzanine loan is 7.25% and the loan matures on January 1, 2024. Interest only payments are due monthly. As additional security for the Mezzanine Loan,new mezzanine loan, there is a limited guaranty executed by the Company in favor of Mezzanine LenderCred Reit Holdco LLC (the “Mezzanine Guaranty” and, together with the Mortgage Guaranty, the “Guaranties”).

 

The Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional misrepresentations; (ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security deposits, insurance, or condemnation proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse guaranties under identified circumstances, including failure to maintain “single purpose” status which is a factor in a consolidation of Operating or Mezzanine in a bankruptcy of another person, transfer, or encumbrance of the Property in violation of the applicable loan documents, Operating or Mezzanine incurring debts that are not permitted, and the Property becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership iswas required to maintain a certain minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for Justice Investors limited partnership’sthe $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain a certain net worth and liquidity. As of June 30, 2017,2023 and 2022, InterGroup is in compliance with both requirements. Justice Operating Company, LLC is not meeting certain of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lockbox and cash sweep by the Lender for all cash collected by the Hotel, and under certain terms, would allow the Lender to request Operating to replace its hotel management company. The DSCR for Operating had been below 1.00 from third quarter of fiscal year 2023 to fourth quarter of fiscal year 2023 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR. Justice has not missed any of its debt service payments and does not anticipate missing any debt obligations up to their maturity.

15

 

Each of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements, affirmative covenants, and negative covenants, which impose restrictions on, among other things, organizational changes of the respective borrower, operations of the Property, agreements with affiliates and third parties. Each of the Loan Agreements also provides for mandatory prepayments under certain circumstances (including casualty or condemnation events) and voluntary prepayments, subject to satisfaction of prescribed conditions set forth in the Loan Agreements. The Company is working with various potential lenders to refinance its current senior mortgage and mezzanine debt which will mature on January 1, 2024.

 

16

On July 2, 2014, the Partnership obtained from IntergroupInterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed interest, with a term of two2 years, payable interest only each month. IntergroupInterGroup received a 3% loan fee. The loan may be prepaid at any time without penalty. The proceeds of the loan were applied to the July 2014 payments to Holdings described in Note 2. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and InterGroup entered into a loan modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2017.

In March 2017,2021, Portsmouth obtainedand InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup an unsecured loan in the principal amountas needed up to $16,000,000. As of $2,700,000 at 5% per year fixed interest, with a term of one-year, payable interest only each month. In April 2017,June 30, 2023 and 2022, the balance of the loan was repaid along with all accrued interest.

$15,700,000 and $14,200,000, net of loan amortization costs of zero, respectively. In April 2017, Portsmouth obtained from InterGroup an unsecured short-term loan in the principal amount of $1,000,000 at 5% per year fixed interest, with a term of five months and maturing September 6, 2017. Accrued interest and monthly principal installments in the amount of $200,000 are due and payable commencing on May 1, 2017 and continuing on the first day of each calendar month thereafter, until five months after the date of the loan at which time any unpaid balance of principal and interest onJuly 2023, the note is due and payable. The loanmaturity date was extended to September 15, 2017July 31, 2025 and paid off on September 13, 2017.the borrowing amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.

 

As a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, additional avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs. On February 3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs. The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ending June 30, 2022.

RENTAL PROPERTIES

 

As June 30, 2017,2023, the Company'sCompany’s investment in real estate consisted of twenty properties located throughout the United States, with a concentration in Texas and SouthernLos Angeles County, California. These properties include fifteensixteen apartment complexes, three single-family houses as strategic investments and one commercial real estate property. All properties are operating properties. In addition to the properties, the Company owns approximately 2 acres of unimproved land in Maui, Hawaii.

MANAGEMENT OF RENTAL PROPERTIES

As of June 30, 2017,2023, all of the Company’s operating real estate properties are managed in-house.

 

17

The Company may engage third party management companies as agents to manage certain

Description of Company’s residential rental properties.Properties

 

Description of Properties

Las Colinas, Texas.The Las Colinas property is a water frontwaterfront apartment community along Beaver Creek that was developed in 1993 with 358 units on approximately 15.6 acres of land. The Company acquired the complex on April 30, 2004 for approximately $27,145,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 27.5 years. Real estate property taxes for the year ended June 30, 20172023 were approximately $817,000.$1,054,000. In October 2021, the Company refinanced its 3.73% existing $15,900,000 mortgage note payable on the property and generated net proceeds of $12,938,000. The outstanding new mortgage balance was approximately $17,818,000 at$28,800,000 as of June 30, 2017 and the maturity date of2023. The annual interest rate on the mortgage is December 1, 2022.fixed at 2.95% for ten years with interest-only payments for the first five years and 30-year amortization thereafter. The mortgage loan matures in November 2031.

 

Morris County, New Jersey. The Morris County property is a two-story garden apartment complex that was completed in June 1964 with 151 units on approximately 8 acres of land. The Company acquired the complex on September 15, 1967 at an initial cost of approximately $1,600,000. Real estate property taxes for the year ended June 30, 20172023 were approximately $231,000.$285,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In April 2020, the Company refinanced its 3.51% and 4.51% existing $8,737,000 and $2,512,000 mortgages and generated net proceeds of $6,814,000. The outstanding new mortgage balance was approximately $9,387,000$17,208,000 at June 30, 20172023 with a fixed interest rate of 3.17% per annum and the maturity date of the new mortgage is July 31, 2022. In June 2014, the Company obtained a second mortgage on this property in the amount of $2,701,000. The term of the loan is approximately 8 years with the interest rate fixed at 4.51%. The outstanding mortgage balance was approximately $2,611,000 at June 30, 2017. The loan matures in August 2022.May 1, 2030.

 

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St. Louis, Missouri. The St. Louis property is a two-story project with 264 units on approximately 17.5 acres. The Company acquired the complex on November 1, 1968 at an initial cost of $2,328,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $157,000.$134,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. On May 31, 2023, the Company refinanced its $4,823,000 mortgage with a new two-year $5,360,000 mortgage. Interest-only payments are due monthly and commencing on June 10, 2024, the Company will be required to make equal monthly principal installments of $5,500 up to the loan maturity of May 31, 2025. The outstanding mortgage balance was approximately $5,611,000 at June 30, 2017floating interest rate is based on the one month term SOFR plus 310 bps floating with a SOFR cap of 5.5%. The interest rate of the greater of (a) the Prime Rate for such day and (b) the Federal Funds Rate for plus 0.50%. 5.5% per annum for two years with interest-only payments for the first year. The maturity date of the mortgage is May 31, 2023.2025.

 

Florence, Kentucky. The Florence property is a three-story apartment complex with 157 units on approximately 6.0 acres. The Company acquired the property on December 20, 1972 at an initial cost of approximately $1,995,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $46,000.$64,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In March 2015, the Company refinanced the $3,636,000 mortgage note payable for a new mortgage in the amount of $3,492,000. The Company paid down approximately $210,000 of the old mortgage as part of the refinancing. The new mortgage has a fixed interest rate of 3.87% for ten years and matures in April 2025. The outstanding mortgage balance was approximately $3,357,000 at$2,917,000 as of June 30, 2017.2023 with a fixed interest rate of 3.875% per annum and the maturity date of the mortgage is April 1, 2025.

 

Los Angeles, California. The Company owns one commercial property, twelve apartment complexes, and three single-family houses in the general area of WestCounty of Los Angeles.Angeles, California (“Los Angeles”).

 

The firstCompany’s Los Angeles commercial property is a 5,5005,503 square foot, two story building that served as the Company'sCompany’s corporate offices until it was leased out, effective October 1, 2009 and the Company leased a new space for its corporate office. The Company acquired the building on March 4, 1999 for $1,876,000. The propertyProperty taxes for the year ended June 30, 20172023 were approximately $30,000.$33,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In April 2016, the Company refinanced the $1,007,000 mortgage note payable for a new mortgage in the amountAs of $921,000. The new mortgage has a fixed interest rate swap with the floating rate loan. By combing both rates rate through maturity of the credit facility (1.49% swap + 2.50% credit spread), the all-in fixed rate is 3.99%. The outstanding mortgage balance was approximately $878,000 at June 30, 2017 and the note matures in January 2021.2023, this property was not encumbered by a mortgage.

 

The first Los Angeles apartment complex is a 10,600 square foot two-story apartment with 12 units. The Company acquired the property on July 30, 1999 at an initial cost of approximately $1,305,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $21,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In June 2016, the Company refinanced the $2,095,000 mortgage note payable for a new mortgage in the amount of $2,300,000. The interest fixed interest rate is 3.59%. The outstanding mortgage balance was approximately $2,261,000 at June 30, 2017 and the maturity date of the mortgage is January 1, 2022.

The second Los Angeles apartment complex is a 29,000 square foot three-story apartment with 27 units. This complex is held by Intergroup Woodland Village, Inc. ("Woodland Village"), which is 55.4% and 44.6% owned by Santa Fe and the Company, respectively. The property was acquired on September 29, 1999 at an initial cost of approximately $4,075,000. For the year ended June 30, 2017, real estate property taxes were approximately $63,000.$25,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $2,909,000 at$1,974,000 as of June 30, 20172023 with a fixed interest rate of 3.59% per annum and the maturity date of the mortgage is December 1, 2020.June 23, 2026.

 

The thirdsecond Los Angeles apartment complex is a 12,700 square foot apartment with 14 units. The Company acquired the property on October 20, 1999 at an initial cost of approximately $2,150,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $35,000.$38,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In January 2021, the Company refinanced its 5.89% existing $1,597,000 mortgage and generated net proceeds of $1,057,000. The outstanding new mortgage balance was approximately $1,697,000$2,645,000 at June 30, 20172023 with a fixed interest rate of 3.05% per annum and the maturity date of the new mortgage is MarchFebruary 1, 2021.2031.

 

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The fourththird Los Angeles apartment complex is a 10,500 square foot apartment with 9 units. The Company acquired the property on November 10, 1999 at an initial cost of approximately $1,675,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $27,000.$30,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In November 2020, the Company refinanced its 5.89% existing $1,088,000 mortgage and generated net proceeds of $798,000. The outstanding new mortgage balance was approximately $1,156,000 at$1,891,000 as of June 30, 20172023 with a fixed interest rate of 3.05% per annum and the maturity date of the new mortgage is MarchDecember 1, 2021.2030.

 

The fifthfourth Los Angeles apartment complex is a 26,100 square foot two-story apartment with 31 units. The Company acquired the property on May 26, 2000 at an initial cost of approximately $7,500,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $110,000.$127,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In October 2020, the Company refinanced its 4.85% existing $4,800,000 mortgage and generated net proceeds of $3,529,000. The outstanding new mortgage balance was approximately $5,165,000$8,291,000 at June 30, 20172023 with a fixed interest rate of 2.52% per annum and the maturity date of the new mortgage is DecemberNovember 1, 2020.2030. The new mortgage requires interest-only payments for the first two years and will amortize over 30 years thereafter.

 

The sixthfifth Los Angeles apartment complex is a 27,600 square foot two-story apartment with 30 units. The Company acquired the property on July 7, 2000 at an initial cost of approximately $4,411,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $70,000.$78,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. On June 30, 2022, the Company refinanced its 5.97%, $5,283,000 mortgage note payable on this property and obtained a new mortgage note payable for $5,850,000. The Company received net proceeds of $584,000 because of the refinance. The outstanding new mortgage balance was approximately $6,041,000$5,762,000 at June 30, 20172023 with a fixed annual interest rate on the new mortgage at 4.40% for the first five years and the maturity date of the5.44% thereafter. The mortgage is September 1, 2022.loan matures in July 2052.

 

The seventhsixth Los Angeles apartment complex is a 3,000 square foot apartment with 4 units. The Company acquired the property on July 19, 2000 at an initial cost of approximately $1,070,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $17,000.$18,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In July 2021, the Company refinanced its 3.75% existing $323,000 mortgage and generated net proceeds of $846,000. The outstanding new mortgage balance was approximately $360,000 at$1,112,000 as of June 30, 20172023 with a fixed interest rate of 3.50% per annum and the maturity date of the new mortgage is SeptemberJuly 1, 2042.2051.

 

The eighthseventh Los Angeles apartment complex is a 4,500 square foot two-story apartment with 4 units. The Company acquired the property on July 28, 2000 at an initial cost of approximately $1,005,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $16,000.$17,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In June 2021, the Company refinanced its 3.75% existing $563,000 mortgage and generated net proceeds of $619,000. The outstanding new mortgage balance was approximately $610,000$1,112,000 at June 30, 20172023 with a five-year fixed interest rate of 3.5% per annum and adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date of the new mortgage is SeptemberAugust 1, 2042.2051.

 

The nintheighth Los Angeles apartment complex is a 7,500 square foot apartment with 7 units. The Company acquired the property on August 9, 2000 at an initial cost of approximately $1,308,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $21,000.$23,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. The outstanding mortgage balance was approximately $890,000 at$751,000 as of June 30, 20172023 with an interest rate of 4.125% and the maturity date of the mortgage is September 1, 2042.

 

The tenthninth Los Angeles apartment complex is a 13,000 square foot two-story apartment with 8 units. The Company acquired the property on May 1, 2001 at an initial cost of approximately $1,206,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $19,000.$21,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In July 2013,2021, the Company refinanced its $466,000 adjustable ratethe property’s existing 3.75%, $416,000 mortgage note payable on this property forwith a new 30-year mortgage infor $1,595,000. The Company generated net proceeds of $1,098,000 because of the amount of $500,000. The interestrefinancing. Interest rate on the new loanmortgage is fixed at 3.75% per annum3.50% for the first five years and variable for the remaining of the term. The note maturesmortgages mature in July 2043. The outstanding2051. Outstanding mortgage balance was approximately $461,000 at$1,535,000 as of June 30, 2017.2023.

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The eleventhtenth Los Angeles apartment complex, which iswas owned 100% by the Company’s subsidiary Santa Fe, is a 4,200 square foot two-story apartment with 2 units. Santa Fe acquired the property on February 1, 2002 at an initial cost of approximately $785,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $12,000.$13,000. Depreciation is recorded on the straight-line method based upon an estimated useful Lifelife of 40 years. On November 23, 2020, Santa Fe sold this property to InterGroup for $1,530,000 in exchange for a reduction of $1,196,000 of its obligation to InterGroup. The outstanding mortgage on the property for $334,000 was simultaneously transferred to InterGroup. Santa Fe realized a gain on the sale of approximately $901,000, which was eliminated in consolidation at InterGroup. The sales price of the property represents the current value as of the sale date as appraised by a licensed independent third-party appraiser. The fairness of the sale terms of the transaction were reviewed and approved by the independent directors of Santa Fe and InterGroup, and unanimously approved by the entire Board of Directors of both companies. In July 2021, the Company refinanced the property’s existing 3.75%, $327,000 mortgage with a new mortgage for $700,000. The Company generated net proceeds of $381,000 because of the refinancing. Interest rate on the new mortgage is fixed at 3.50% for five years and the mortgage matures in July 2051. Outstanding mortgage balance was approximately $364,000 at$673,000 as of June 30, 2017 and the maturity date of the mortgage is September 1, 2042.2023.

 

The twelftheleventh apartment which is located in Marina del Rey, California, is a 6,316 square foot two-story apartment with 9 units. The Company acquired the property on April 29, 2011 at an initial cost of approximately $4,000,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $53,000.$58,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 27.5 years. In June 2020, the Company refinanced its 5.6% existing $1,303,000 mortgage and generated net proceeds of $1,144,000. The outstanding new mortgage balance was approximately $1,356,000 at$2,443,000 as of June 30, 20172023 with a fixed interest rate of 3.09% per annum and the maturity date of the new mortgage is MayJuly 1, 2021.2030.

 

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The twelfth Los Angeles apartment complex is a 4,093 square foot apartment with 4 units. In an all-cash transaction, the Company acquired the property on May 14, 2021 at an initial cost of approximately $2,600,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. For the year ended June 30, 2023, real estate property taxes were approximately $32,000. In July 2021, the Company obtained a mortgage on the property for $830,000, generating net proceeds of $836,000. Interest rate on the mortgage is fixed at 3.50% for five years and the mortgage matures in August 2051. Outstanding mortgage balance was approximately $800,000 as of June 30, 2023.

 

The first Los Angeles single-family house is a 2,771 square foot home. The Company acquired the property on November 9, 2000 at an initial cost of approximately $660,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $10,000.$11,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In June 2021, the Company refinanced its 3.75% existing $363,000 mortgage and generated net proceeds of $576,000. The outstanding new mortgage balance was approximately $392,000 at$886,000 as of June 30, 20172023 with a five-year fixed interest rate of 3.5% per annum adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date of the new mortgage is SeptemberAugust 1, 2042.2051.

 

The second Los Angeles single-family house is a 2,201 square foot home. The Company acquired the property on August 22, 2003 at an initial cost of approximately $700,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $12,000.$13,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In June 2021, the Company refinanced its 3.75% existing $388,000 mortgage and generated net proceeds of $183,000. The outstanding new mortgage balance was approximately $418,000 at$534,000 as of June 30, 20172023 with a five-year fixed interest rate of 3.5% per annum adjustable rate thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The maturity date of the new mortgage is SeptemberAugust 1, 2042.2051.

 

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In July 2015, the Company purchased a residential house in

The third Los Angeles Californiasingle-family house is a 2,387 square foot home. The company acquired the property in July of 2015 as a strategic asset for $1,975,000 in cash. In August 2016, the Company obtained a $1,000,000 mortgage note payable and received net proceeds of $983,000. The interest on note is 4.50% with interest only payments for twenty three months. The loan matures in August of 2018.$1,975,000. For the year ended June 30, 2017,2023, real estate property taxes were approximately $47,000.$26,000. Depreciation is recorded on the straight-line method, based upon an estimated useful life of 40 years. In September 2021, the Company refinanced the property’s existing 4.75% per annum mortgage and reduced the rate to five-year fixed at 3.5% per annum, adjustable thereafter at 2.5% over the 6-month LIBOR Index with semi-annual rate and payment adjustments. Semi-annual rate cap is 1.25% after the initial interest rate change with a floor equal to the start rate and ceiling of 9.95%. The outstanding mortgage balance was approximately $934,000 as of June 30, 2023 and the maturity date of the mortgage is October 1, 2048.

 

Maui, Hawaii. In August 2004, the Company purchased an approximately two acretwo-acre parcel of unimproved land in Kihei, Maui, Hawaii for $1,467,000. The Company intends to obtainUpon the entitlements and permits necessary forrecent wildfires in the joint developmentarea the land was not impacted. As of the parcel with an adjoining landowner into residential units. After the completion ofJune 30, 2023, this predevelopment phase, the Company will determine whether it more advantageous to sell the entitled property or to commence with construction. Due to current economic conditions, the project is on hold.not encumbered by a mortgage.

 

MORTGAGES

 

Further information with respect to mortgage notes payable of the Company is set forth in Note 10 of the Notes to Consolidated Financial Statements.

 

ECONOMIC AND PHYSICAL OCCUPANCY RATES

 

The Company leases units in its residential rental properties on a short-term basis, with no lease extending beyond one year. The economic occupancy (gross potential less rent below market, vacancy loss, bad debt, discounts and concessions divided by gross potential rent) and the physical occupancy (gross potential rent less vacancy loss divided by gross potential rent) for each of the Company'sCompany’s operating properties for fiscal year ended June 30, 20172023 are provided below.

 

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Property Economic
Occupancy
  Physical
Occupancy
 
1. Las Colinas, TX  100%  99%
2. Morris County, NJ  92%  97%
3. St. Louis, MO  68%  66%
4. Florence, KY  80%  92%
5. Los Angeles, CA (1)  92%  95%
6. Los Angeles, CA (2)  96%  89%
7. Los Angeles, CA (3)  96%  79%
8. Los Angeles, CA (4)  81%  93%
9. Los Angeles, CA (5)  100%  97%
10. Los Angeles, CA (6)  98%  100%
11. Los Angeles, CA (7)  100%  100%
12. Los Angeles, CA (8)  100%  94%
13. Los Angeles, CA (9)  100%  100%
14. Los Angeles, CA (10)  75%  75%
15. Los Angeles, CA (11)  97%  100%
16. Los Angeles, CA (12)  62%  62%
17. Los Angeles, CA (13)  100%  100%
18. Los Angeles, CA (14)  100%  100%
19. Los Angeles, CA (15)  69%  94%

  Economic  Physical 
Property Occupancy  Occupancy 
1.  Las Colinas,TX  96%  96%
2.  Morris County, NJ  98%  98%
3.  St. Louis, MO  100%  93%
4.  Florence, KY  100%  97%
5.  Los Angeles, CA (1)  84%  100%
6.  Los Angeles, CA (2)  82%  54%
7.  Los Angeles, CA (3)  100%  99%
8. Los Angeles, CA (4)  96%  99%
9. Los Angeles, CA (5)  81%  92%
10. Los Angeles, CA (6)  97%  97%
11. Los Angeles, CA (7)  100%  97%
12. Los Angeles, CA (8)  100%  89%
13. Los Angeles, CA (9)  98%  95%
14. Los Angeles, CA (10)  100%  99%
15. Los Angeles, CA (11)  100%  91%
16. Los Angeles, CA (12)  92%  98%
17. Los Angeles, CA (13)  *   * 

*Property is currently listed for rent and was vacant during fiscal 2017.

 

The Company’s Los Angeles, California properties are subject to various rent control laws, ordinances and regulations which impact the Company’s ability to adjust and achieve higher rental rates. In February 2022, the Los Angeles County Board of Supervisors extended the majority of the eviction moratorium to 2022 and parts of it until 2023. The County’s non-payment COVID-19 tenant eviction protection resolution expired on March 31, 2023. Landlords in California are not allowed to evict tenants for unpaid rent prior to March 2023 and are not allowed to file a civil complaint for such rent until 2025. The Company will file civil complaints as soon as it is allowed by statue in an effort to collect any unpaid rent prior to March 2023.

21

 

Item 3. Legal Proceedings.

In 2014, Evon Corporation ("Evon") filed a complaint in San Francisco Superior Court against the Partnership, Portsmouth, and a limited partner and related party asserting contract and tort claims based on Justice’s withholding of $4.7 million to pay the transfer tax described in Note 1. Evon’s complaint asserted various tort and contract claims against Justice and Portsmouth; and also, a tort against a Justice limited partner and related party. In July 2014, Justice paid to Holdings $4.7 million, the amount Evon claims was incorrectly withheld.  In June 2014, the Partnership sued Evon and related defendants, seeking a judicial declaration as to certain issues arising out of the partnership redemption documents. Evon filed a cross-complaint in December 2014, alleging torts against the Partnership in connection with the redemption transaction.  On May 5, 2016, Justice Investors and Portsmouth (parent Company) settled these actions via a global agreement. The Partnership agreed to pay Evon $5,575,000. As of January 10, 2017, the Company has satisfied all conditions of the settlement agreement.

In 2013, the City and County of San Francisco ("CCSF") Office of the Assessor Recorder claimed that Justice owed $2.1 million for Transient Occupancy Tax and Tourist Improvement District Assessment. This amount exceeded Justice’s estimate of the taxes owed, and Justice disputed the claim. The Company paid the full amount in March 2014 as part of the appeals process and reflected the amount on the balance sheet in “Other assets, net” as it was under protest as of June 30, 2015.  On December 18, 2013, a Documentary Transfer Tax of approximately $4.7 million was paid under protest to CCSF. CCSF had required payment as a condition of recording the transfer of the Hotel, which was necessary to effect the Loan Agreements.  The Partnership then filed a lawsuit challenging the transfer tax in San Francisco County Superior Court. During the year ended June 30, 2016, the Partnership settled the two CCSF lawsuits, receiving $1.45 million, apportioned half and half to each matter, resulting in approximately $390,000 in excess of net assets recorded. This amount was recorded as a reduction of Hotel restructuring costs.

In March 2017, the Company settled its lawsuit against RSUI Indemnity Company ("RSUI"), the insurer for the Company's Directors and Officers Liability Policies. Justice received $900,000 from RSUI, resolving allegations that RSUI had improperly handled a claim.

20

On April 21, 2014, the Partnership commenced arbitration against Glaser Weil Fink Howard Avchen & Shapiro, LLP, Brett J. Cohen, Gary N. Jacobs, Janet S. McCloud, Paul B. Salvaty, and Joseph K. Fletcher III (“Respondents”) in connection with the redemption transaction. The arbitration alleges legal malpractice and also seeks declaratory relief regarding provisions of the redemption option agreement. The arbitration proceedings are active; discovery is proceeding. The hearing is set for April 2018 before JAMS in Los Angeles. No prediction can be given as to the outcome of this matter. 

 

The Company ismay be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company defendswill defend itself vigorously against any such claims. Management does not believe that the impact of such matters will have a material effect on the financial conditions or result of operations when resolved.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

PART II

 

Item 5. Market for Common Equity and Related Stockholder Matters.

 

MARKET INFORMATION

 

The Company'sCompany’s Common Stock is listed and trades on the NASDAQ Capital Market tier of the NASDAQ Stock Market, LLC under the symbol: “INTG”. The following table sets forth the high and low sales prices for the Company’s common stock for each quarter of the last two fiscal years ended June 30, 2017 and 2016 as reported by NASDAQ.

Fiscal 2017 High  Low 
       
First Quarter (7/ 1 to 9/30) $25.15  $24.15 
Second Quarter (10/1 to 12/31) $27.21  $22.32 
Third Quarter (1/1 to 3/31) $29.77  $25.20 
Fourth Quarter (4/1 to 6/30) $28.50  $25.00 

Fiscal 2016 High  Low 
       
First Quarter (7/ 1 to 9/30) $36.79  $20.20 
Second Quarter (10/1 to 12/31) $29.37  $24.46 
Third Quarter (1/1 to 3/31) $27.25  $24.82 
Fourth Quarter (4/1 to 6/30) $30.22  $25.00 

As of June 30, 2017,2023, the approximate number of holders of record of the Company’s Common Stock was 253.165. Such number of owners was determined from the Company’s shareholders records and does not include beneficial owners of the Company’s Common Stock whose shares are held in names of various brokers, clearing agencies or other nominees.

 

DIVIDENDS

 

The Company has not declared any cash dividends on its common stock and does not foresee issuing cash dividends in the near future.

 

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

 

This information appears in Part III, Item 12 of this report.

 

2122

 

  

ISSUER PURCHASES OF EQUITY SECURITIES

 

The following table reflects purchases of InterGroup’s common stock made by The InterGroup Corporation, for its own account, during the fourth quarter of its fiscal year ending June 30, 2017.2023.

 

SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

 

      (c) Total Number (d) Maximum Number 
 (a) Total (b) of Shares Purchased of shares that May 
Fiscal Number of Average as Part of Publicly Yet be Purchased 
2017 Shares Price Paid Announced Plans Under the Plans 
Period Purchased  Per Share  or Programs  or Programs 
         
Fiscal 2023 Period 

(a) Total

Number of

Shares

Purchased

 

(b)

Average

Price Paid

Per Share

 

(c) Total Number of Shares Purchased

as Part of Publicly

Announced Plans

or Programs

 

(d) Maximum Number of shares that May

Yet be Purchased

Under the Plans

or Programs

 
Month #1 (April 1- April 30)  -   -   -   70,509   190  $41.94   190   91,218 
                                
Month #2 (May 1- May 31)  -   -   -   70,509   530  $36.60   530   91,028 
                                
Month #3 (June 1- June 30)  3,568  $25.87   3,568   66,941   297  $36.20   297   90,731 
                                
TOTAL:  3,568  $25.87   3,568  66,941   1,017  $37.94   1,017   90,731 

The Company has only one stock repurchase program. The program was initially announced on January 13, 1998 and was amended on February 10, 2003 and October 12, 2004. The total number of shares authorized to be repurchased pursuant to those prior authorizations was 870,000, adjusted for stock splits. On June 3, 2009, the Board of Directors authorized the Company to purchase up to an additional 125,000 shares of Company’s common stock. On November 15, 2012, the Board of Directors authorized the Company to purchase up to an additional 100,000 shares of Company’s common stock. On September 23, 2019, the Board of Directors authorized the Company to purchase up to an additional 120,000 shares of Company’s common stock. On December 20, 2021, the Board of Directors authorized the Company to purchase up to an additional 125,000 shares of Company’s common stock. The purchases will be made, in the discretion of management, from time to time, in the open market or through privately negotiated third party transactions depending on market conditions and other factors. The Company’s repurchase program has no expiration date and can be amended and increased, from time to time, in the discretion of the Board of Directors. No plan or program expired during the period covered by the table.

 

Item 6. Selected Financial Data.

Not required for smaller reporting companies.

 

Item 7. Management Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements, related notes included thereto and Item 1A., “Risk Factors,” appearing elsewhere in this Annual Report on Form 10-K. For the discussion and analysis of our 2022 financial condition and results of operations compared to 2023, refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended June 30, 2023.

NEGATIVE EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS

There are several factors at play that are having a negative impact on our business and the entire hospitality community in San Francisco. The constant “doom loop” of negative headlines picked up in main stream media, particularly outlets like Fox News that have made San Francisco their punching back and find ways to amplify any negative story line in the city. The macro economic situation of a looming US/Global recession have seen business reducing or eliminating typical travel and group meetings in efforts to be conservative in uncertain financial times. The micro economic situation specific to San Francisco and Bay Area is many of the world’s largest tech companies have taken even more drastic cost cutting measures laying off hundreds of thousands of workers in the area and have reduced business travel, group meetings and even major citywides to cancel like Meta, Red Hat and VMWare. The ongoing conditions of the streets in regards to cleanliness, safety and homelessness problems have driven many other citywide customers to rethink hosting meetings in San Francisco and have relocated to other major markets like Las Vegas, Orlando and San Diego. Even factors like the recent culture wars that are dividing much of the country are impacting San Francisco harder than other areas as the city have long been known as the LGBTQ capital of the US, and made recent headlines after Mayor London Breed’s office named the first ever Drag Laureate to an 18 month term as ambassador.

23

As a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, additional avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”), whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.

On February 3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs. The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ended June 30, 2022.

RESULTS OF OPERATIONS

 

As of June 30, 2017,2023, the Company owned approximately 81.9% of the common shares of its subsidiary, Santa Fe and Santa Fe owned approximately 68.8%75.7% of the common shares of Portsmouth Square, Inc. InterGroup also directly owns approximately 13.4% of the common shares of Portsmouth. The Company'sCompany’s principal sources of revenue continue to be derivedare revenues from the general and limited partnership interests of its subsidiary,hotel owned by Portsmouth, in the Justice Investors limited partnership (“Justice” or the “Partnership”), rental income from its investments in multi-family and commercial real estate properties, and income received from investment of its cash and securities assets. Justice owns

Portsmouth’s primary asset is a 543 room544-room hotel property located at 750 Kearny Street, San Francisco, California 94108, known as the “Hilton San Francisco Financial District” (the “Hotel” or the “Property”) and related facilities, including a five-level underground parking garage. The financial statements of JusticePortsmouth have been consolidated with those of the Company.

22

The Hotel is operated by the Partnership as a full-service Hilton brand hotel pursuant to a Franchise License Agreement (the “License Agreement”) with HLT Franchise Holding LLC (“Hilton”). The Partnership entered into the License Agreement on December 10, 2004. The term of the License Agreement was for an initial period of 15 years commencing on the opening date, with an option to extend the License Agreement for another five years, subject to certain conditions. On June 26, 2015, the Partnership and Hilton entered into an amended franchise agreement which extended the License Agreement through 2030, modified the monthly royalty rate, extended geographic protection to the Partnership and also provided the Partnership certain key money cash incentives to be earned through 2030. The key money cash incentives were received on July 1, 2015.

Justice had a management agreement with Prism Hospitality L.P. (“Prism”) to perform certain management functions for the Hotel. The management agreement with Prism had an original term of ten years and can be terminated at any time with or without cause by the Partnership. Effective January 2014, the management agreement with Prism was amended by the Partnership to change the nature of the services provided by Prism and the compensation payable to Prism, among other things. Prism’s management agreement was terminated upon its expiration date of February 3, 2017.  Effective December 1, 2013, GMP Management, Inc. (“GMP”), a company owned by a Justice limited partner and a related party, began to provide management services for the Partnership pursuant to a management services agreement with a term of three years, subject to the Partnership’s right to terminate earlier, for cause.  In June 2016, GMP resigned.  After a lengthy review process of several national third-party hotel management companies, on February 1, 2017, Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company, LLC (“Interstate”) to manage the Hotel with an effective takeover date of February 3, 2017.   The term of management agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an additional year not to exceed five years in the aggregate subject to certain conditions.  The HMA also provides for Interstate to advance a key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms and conditions described in a separate key money agreement. 

The parking garage that is part of the Hotel property was managed by Ace Parking pursuant to a contract with the Partnership. The contract was terminated with an effective termination date of October 4, 2016. The Company began managing the parking garage in-house after the termination of Ace Parking. Effective February 3, 2017, Interstate took over the management of the parking garage along with the Hotel.

 

In addition to the operations of the Hotel, the Company also generates income from the ownership and management of its real estate. Properties include fifteensixteen apartment complexes, one commercial real estate property, and three single-family houses as strategic investments. The properties are located throughout the United States but are concentrated in Texas and Southern California. The Company also has an investment in unimproved real property.property in Hawaii.

 

The Company acquires its investments in real estate and other investments utilizing cash, securities or debt, subject to approval or guidelines of the Board of Directors. The Company also invests in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential.

 

Fiscal Year Ended June 30, 20172023 Compared to Fiscal Year Ended June 30, 20162022

 

The Company had a net loss of $1,676,000$9,932,000 for the year ended June 30, 20172023 compared to a net loss of $9,267,000$10,616,000 for the year ended June 30, 2016.2022. Income from operations was $4,336,000 for the year ended June 30, 2023 and income from operations was $3,671,000 for fiscal year ended June 30, 2022. The change is primarily the resultCompany recorded gains of the significant reduction legal settlement costs at the Hotel and reduced Hotel operating expenses and the lower loss$58,000 from marketable securities transactions during fiscal year ended June 30, 2023 as compared to losses of $8,101,000 during fiscal year ended June 30, 2022. Gain on marketable securities.insurance recovery of $2,692,000 was recorded during fiscal year ended June 30, 2023. Gain on debt forgiveness was $2,000,000 during fiscal year ended June 30, 2022.

 

Hotel Operations

 

The Company had net incomeloss of $1,612,000 from Hotel operations of $3,494,000 for the year ended June 30, 20172023 compared to net loss of $4,430,000$2,776,000 for the year ended June 30, 2016.2022. The change to net income from a net loss from Hotel operations as noted above was primarily attributable to the absence$10,493,000 increase in Hotel revenue, offset by $7,006,000 increase in operating expenses and the $2,000,000 gain on forgiveness of legal settlement costs of $5,396,000 for the yeardebt during period ended June 30, 2017 and the reduction of Hotel operating expenses of $6,529,000, partially offset by the decrease in Hotel revenues of $4,232,000.2022.

 

2324

 

 

The following table setstables set forth a more detailed presentation of Hotel operations for the years ended June 30, 20172023 and 2016.2022.

 

For the year ended June 30, 2017  2016  2023  2022 
Hotel revenues:                
Hotel rooms $45,012,000  $47,208,000  $35,684,000  $26,599,000 
Food and beverage  5,934,000   7,533,000   2,625,000   1,471,000 
Garage  2,695,000   2,706,000   2,790,000   3,112,000 
Other operating departments  693,000   1,119,000   928,000   352,000 
Total hotel revenues  54,334,000   58,566,000   42,027,000   31,534,000 
Operating expenses, excluding non-recurring charges, depreciation and amortization  (40,717,000)  (47,246,000)
Operating income before non-recurring charges, interest and depreciation and amortization  13,617,000   11,320,000 
Legal settlement costs  -   (5,396,000)
Income before loss on disposal of assets , interest and depreciation and amortization  13,617,000   5,924,000 
Loss on disposal of assets  -   (30,000)
Operating expenses excluding depreciation and amortization  (34,457,000)  (27,451,000)
Operating income interest, depreciation and amortization  7,570,000   4,083,000 
And gain on forgiveness of debt  -   2,000,000 
Interest expense - mortgage  (7,066,000)  (7,271,000)  (6,467,000)  (6,549,000)
Depreciation and amortization expense  (3,057,000)  (3,053,000)  (2,815,000)  (2,310,000)
        
Net income (loss) from Hotel operations $3,494,000  $(4,430,000)
Net loss from Hotel operations $(1,712,000) $(2,776,000)

 

For the year ended June 30, 2017,2023, the Hotel generatedhad operating income of $13,617,000$7,570,000 before non-recurring charges, and interest, and depreciation, and amortization on total operating revenues of $54,334,000 compared$42,027,000. The year over year increase in all areas, except garage revenues, are result of recovery from the business interruption attributable to operating incomea variety of $11,320,000 before non-recurring chargesresponses by federal, state, and interest and depreciation and amortization on total operating revenueslocal civil authority to the COVID-19 outbreak since March 2020. The following table sets forth the monthly average occupancy percentage of $58,566,000the Hotel for the yearfiscal years ended June 30, 2016.  Room revenues decreased2023 and 2022.

Month Jul  Aug  Sep  Oct  Nov  Dec  Jan  Feb  Mar  Apr  May  Jun  Fiscal Year 
Year 2022  2022  2022  2022  2022  2022  2023  2023  2023  2023  2023  2023  2022 - 2023 
Average Occupancy %  93%  94%  95%  89%  82%  77%  76%  77%  81%  65%  80%  83%  83%

Year 2021  2021  2021  2021  2021  2021  2022  2022  2022  2022  2022  2022  2021 - 2022 
Average Occupancy %  82%  77%  76%  79%  72%  74%  68%  74%  81%  87%  90%  95%  80%

Beginning in November 2022, the occupancy of our hotel has been reduced by $2,196,000 forapproximately 13% every month to reflect the year ended June 30, 2017 compared“out-of-order” rooms that are being renovated at any given time. The guestroom renovation is scheduled to be completed by the year ended June 30, 2016 primarilyend of March 31, 2024. Additionally, 14 guest rooms will be added to inventory as a result of declinerenovating such rooms which had been repurposed for administrative offices in group revenue.  Foodpast years.

Total operating expenses increased by $7,006,000 due to increase in rooms, food and beverage, revenue decreased by $1,599,000 for the year ended June 30, 2017 compared to the year ended June 30, 2016 due to lack of revenue contribution from groups while garage revenue remained relatively consistent, year over year.

Operating expenses decreased by $6,529,000 for the year ended June 30, 2017 to $40,717,000 compared to the year ended June 30, 2016 of $47,246,000 primarily as a result of reduced legal expense, generalsalaries and administrative expensewages, utilities, credit card commissions, and managementfranchise fees.

 

The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room (“RevPAR”) of the Hotel for the year ended June 30, 20172023 and 2016.2022.

 

For the Year

Ended June 30,

 

Average

Daily Rate

  

Average

Occupancy %

  

 

RevPAR

 
          
2017 $250   91% $227 
2016 $257   92% $237 

Due to the expansion and improvement project at the Moscone Center, which is the largest convention and exhibition complex in San Francisco, the San Francisco market has seen a steep decline in group business for the year ended June 30, 2017. The expansion and improvement project is scheduled to be completed by December 2018. We expect to receive a special benefit of increased hotel occupancy, rates and overall hotel property value upon project completion. For the year ended June 30, 2017, the group business that the Hotel had captured was at a lower rate than last year due to larger hotels needing to fill rooms thus driving the group ADR down. The Hotel’s average daily rate decreased by $7, compared to the year ended June 30, 2016, while occupancy decreased by 1%. As a result, the Hotel’s RevPar was $10 lower than the prior year.

For the Year Ended June 30, 

Average

Daily Rate

  

Average

Occupancy %

  RevPAR 
          
2023 $217   83% $180 
2022 $168   80% $134 

 

2425

 

 

Our highest priorityThe Hotel’s revenues increased by 33% year over year. Average daily rate increased by $49, average occupancy increased 3%, and RevPAR increased by $46 for the twelve months ended June 30, 2023 compared to the twelve months ended June 30, 2022. As previously mentioned, our occupancy is guest satisfaction. We believelowered by approximately 13% beginning November 2022 when we began to take three levels out of service in order to complete our guestroom renovations. Had the Hotel been able to sell the additional 13% of rooms that enhancingwere out of order, the RevPar would have been approximately $192.

After taking advantage of softer demand to refresh all public spaces and meeting rooms, the Hotel is now deep into a renovation of the guest experience differentiates therooms and suites. The Hotel from our competitionstarted it’s full renovation of all guest rooms and suites mid-November 2022 and is criticalover half way complete as of fiscal year end 2023. This includes new carpet, vinyl wall covering, headboards, end tables, wall sconces, art, soft seating and refinish of existing desks and doors. The Hotel removed the existing armoire and has built a closet to the Hotel’s objective of building sustainable guest loyalty. In order to make a large impact on guest experience,replace it. After this project is completed early calendar year 2024, the Hotel will continue training team members on Hilton brand standardsadd 14 additional guest rooms bringing back the old Justice offices, spa, and guest satisfaction, hiring and retaining talents in key operations, and enhancing the arrival experience. As previously discussed, GMP Management resigned in June 2016 and the Hotel is being managed by Interstate since February 2017. We believe that enhancingaccounting offices to their original purpose. This will all be funded from the Hotel’s technology is critical and to that end, are currently working with all Hilton approved vendors to upgrade all technical aspects of the Hotel and the implementation of state-of-the-art systems that will set us apartcash from our competitors. We have made ten additional rooms available by eliminating the Justice’s offices from the Hotel and relocating the accounting department to administrative space and eliminated the unprofitable Wellness Center that was added by previous management. We anticipate that the additional ten rooms will be placed into service within the fiscal year ending June 30, 2018. We are also in the planning stages of reconfiguring our lobby, restaurant and bar space to bring the restaurant and bar to the front of the property where it will have street visibility and be more accessible. Additionally, the fitness center which is occupying the equivalent of five rooms and the executive lounge which is occupying the equivalent of four rooms, will be relocated to a different area within the hotel. The nine equivalent rooms will be placed back into service. Part of this renovation will be funded byoperations through the Hotel’s FF&Efurniture, fixture, and equipment reserve account with our lender as well as the $2,000,000 key money incentive provided by Interstate.senior lender.

 

Real Estate Operations

 

RevenueRevenues from real estate operations increased to $14,671,000were consistent year over year for the year ended June 30, 2017 from $14,332,000 for the year ended June 30, 2016 primarily as the result of increased rental rates.2023 and 2022 at $15,580,000 and $15,685,000 respectively. Real estate operating expenses increased to $7,166,000$10,017,000 from $6,790,000 as the result$8,694,000 primarily due to increased insurance expense of higher repairs and maintenance expenses.over $1,000,000 year over year. Management continues to review and analyze the Company’s real estate operations to improve occupancy and rental rates and to reduce expenses and improve efficiencies.

 

Investment Transactions

 

The Company had a net lossincome on marketable securities of $3,496,000$1,126,000 for the year ended June 30, 20172023 compared to a net loss on marketable securities of $7,189,000$7,614,000 for the year ended June 30, 2016.2022. For the year ended June 30, 2017,2022, the Company had an unrealizeda net realized loss of $4,517,000$2,581,000 related to the Company’s investment in the common stock of Comstock Mining Inc. (“Comstock” - NYSE MKT: LODE).

For the year ended June 30, 2016, the Company had an unrealized loss of $5,716,000 related to the Company’s investment in the common stock of Comstock. As of June 30, 2017, and 2016, investments in Comstock represent approximately 28% and 65%, respectively, of the Company’s investment portfolio. For the year ended June 30, 2017, the Company had a net realized gain of $356,000 and a net unrealized loss of $3,852,000. For the year ended June 30, 2016,2023, the Company had a net realized loss of $990,000$1,712,000 and a net unrealized gain of $2,838,000. For the year ended June 30, 2022, the Company had a net realized loss of $2,206,000 and a net unrealized loss of $6,199,000. $5,408,000.

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 results of operations. 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. For a more detailed description of the composition of the Company’s marketable securities see the Marketable Securities section below.

 

During the years ended June 30, 20172023 and 2016,2022, the Company performed an impairment analysis of its other investments and determined that its investments had an other than temporary impairment and recorded impairment losses of $178,000zero and $673,000, respectively$41,000, respectively.

 

The Company and its subsidiaries,subsidiary Portsmouth and Santa Fe, compute and file income tax returns and prepare discrete income tax provisions for financial reporting. TheAn income tax (expense)benefit duringwas recorded for the year ended June 30, 2017 and 2016 represents primarily the combined income tax effect of Portsmouth’s pretax income (loss) which includes its share in net income(loss) from the Hotel and2022, for the pre-tax income(loss) from Intergrouploss. However, for the year ended June 30, 2023, an expense was booked on the pre-tax loss due to the set up of a valuation allowance on all of Portsmouth (standalone). deferred tax assets.

26

 

MARKETABLE SECURITIES AND OTHER INVESTMENTS

 

As of June 30, 2017,2023 and 2016,2022, the Company had investments in marketable equity securities of $17,177,000$18,345,000 and $14,282,000,$11,049,000, respectively. The following table shows the composition of the Company’s marketable securities portfolio by selected industry groups as:groups:

 

25
As of June 30, 2023
Industry Group
 Fair Value  % of Total
Investment
Securities
 
REITs and real estate companies $6,985,000   38.1%
Technology  2,779,000   15.1%
T-Notes  2,093,000   11.4%
         
Financial services  1,865,000   10.2%
Consumer cyclical  1,689,000   9.2%
Basic materials  1,047,000   5.7%
Healthcare  739,000   4.0%
Communications Services  566,000   3.1%
Industrial  485,000   2.7%
Utilities  97,000   0.5%
  $18,345,000   100.0%

 

    % of Total 
As of June 30, 2017    Investment 
Industry Group Fair Value  Securities 
       
Basic materials $6,222,000   36.2%
Technology  4,134,000   24.1%
REITs and real estate companies  1,820,000   10.6%
Corporate bonds  1,683,000   9.8%
Energy  1,345,000   7.8%
Other  1,973,000   11.5%
  $17,177,000   100.0%

    % of Total 
As of June 30, 2016    Investment 
Industry Group Fair Value  Securities 
     

As of June 30, 2022

Industry Group

 Fair Value  

% of Total

Investment

Securities

 
REITs and real estate companies $3,289,000   29.8%
Communication Services  2,787,000   25.2%
Financial Services  1,755,000   15.9%
Technology  815,000   7.4%
Basic materials $9,273,000   64.9%  769,000   7.0%
Consumer cyclical  693,000   6.3%
Industrial  385,000   3.5%
Energy  1,907,000   13.4%  279,000   2.5%
Financial services  1,021,000   7.1%
Other  2,081,000   14.6%  277,000   2.4%
 $14,282,000   100.0% $11,049,000   100.0%

 

TheAs of June 30, 2023, the Company’s investment portfolio is diversified with 6959 different equity positionspositions. The Company holds twoone equity security that comprised more than 10% of the equity value of the portfolio. The three largest security position represent 19%, 4%, and 4% of the portfolio and consists of the common stock of American Realty Investors, Inc. (NASDAQ: ARL), Ouster Inc – Common Stock (NASDAQ: OUST), and Bank Hawaii Corp (NASDAQ: BOH), which are included in the REITs and real estate companies, Financial Services, and Financial Services industry groups, respectively.

As of June 30, 2022, the Company’s investment portfolio is diversified with 38 different equity positions. The Company holds three equity securities that comprised more than 10% of the equity value of the portfolio. The three largest security position represents 27.6%positions represent 23%, 20%, and 13% of the portfolio and consists of the common stock of Comstock which is included in the basic materials industry group. The significant increase in the Company’s investment in Comstock was due to the conversion of the $13,231,000 (13,231 preferred shares) held in Comstock Mining, Inc. (“Comstock” – OTCBB: LODE) 7 1/2% Series A-1 ConvertibleParamount Global - Preferred Stock (the “A-1 Preferred”) to common stock on August 27, 2015. The A-1 Preferred was previously(NASDAQ: PARAP), American Realty Investors, Inc. (NASDAQ: ARL), and BlackRock Muni holdings California Quality Fund Inc. (NASDAQ: MUC), which are included in other investments prior to its conversion.the Communications, REITs and real estate companies, and Financial Services industry groups, respectively.

 

The following table shows the net gain or loss(loss) on the Company’s marketable securities and the associated margin interest and trading expenses for the respective years.

 

For the years ended June 30, 2017  2016 
Net loss on marketable securities $(3,496,000) $(7,189,000)
Net unrealized loss on other investments  -   (127,000)
Impairment loss on other investments  (178,000)  (673,000)
Dividend and interest income  287,000   56,000 
Margin interest expense  (652,000)  (426,000)
Trading expenses  (508,000)  (518,000)
  $(4,547,000) $(8,877,000)

FINANCIAL CONDITION AND LIQUIDITY

The Company’s cash flows are primarily generated from its Hotel operations, and general partner management fees and limited partnership distributions from Justice Investors, its real estate operations and from the investment of its cash in marketable securities and other investments.

For the years ended June 30, 2023  2022 
Net gain (loss) on marketable securities $1,126,000  $(7,614,000 
Impairment loss on other investments  -   (41,000)
Dividend and interest income  485,000   980,000 
Margin interest expense  (848,000)  (851,000)
Trading expenses  (705,000)  (575,000)
Total $58,000  $(8,101,000)

 

2627

 

 

On December 18, 2013, the Partnership completed an Offer to Redeem any and all limited partnership interests not held by Portsmouth. As a result, Portsmouth, which prior to the Offer to Redeem owned 50% of the then outstanding limited partnership interests now controls approximately 93% of the voting interest in Justice and is now its sole General Partner.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL SOURCES

 

To fund redemptionThe Company had cash and cash equivalents of limited partnership interests$5,960,000 and $14,367,000 as of June 30, 2023 and 2022, respectively. The Company had restricted cash of $6,914,000 and $8,982,000 as of June 30, 2023 and 2022, respectively. The Company had marketable securities, net of margin due to repaysecurities brokers and obligations for securities sold of $15,328,000 and $10,110,000 as of June 30, 2023 and 2022, respectively. These marketable securities are short-term investments and liquid in nature.

On December 16, 2020, Justice and InterGroup entered into a loan modification agreement which increased Justice’s borrowing from InterGroup as needed up to $10,000,000 and extended the prior mortgage,maturity date of the loan to July 31, 2021. As of the date of this report, the maturity date was extended to July 31, 2025. Upon the dissolution of Justice in December 2021, Portsmouth assumed Justice’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. During the fiscal year ending June 30, 2023 and 2022, InterGroup advanced to the Hotel $1,500,000 and $7,550,000, respectively, bringing the total amount due to InterGroup to $15,700,000 and $14,200,000 as of June 30, 2023 and 2022, respectively. In July 2023, Portsmouth and InterGroup entered into a new loan modification agreement which increased Portsmouth’s borrowing from InterGroup up to $20,000,000. The Company could amend its by-laws and increase the number of authorized shares to issue additional shares to raise capital in the public markets if needed.

During the fiscal year ending June 30, 2023, we completed the refinancing on our St. Louis, Missouri property $4.9 million loan and obtain a $5,360,000 new two-year loan at a floating interest rate of 3.1% over the cap 5.5% SOFR. During the fiscal year ending June 30, 2022, we refinanced six of our properties’ existing mortgages and obtained a $97,000,000mortgage note payable on one of our California properties, generating net proceeds totaling $16,683,000. We are currently evaluating other refinancing opportunities and we could refinance additional multifamily properties should the need arise, or should management consider the interest rate environment favorable.

On April 9, 2020, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). On February 3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs. The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ending June 30, 2022.

28

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and principal payments on our outstanding indebtedness, and repairs and maintenance of the Hotel.

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital improvements of the Hotel. We will continue to finance our business activities primarily with existing cash, including from the activities described above, and cash generated from our operations. After considering our approach to liquidity and accessing our available sources of cash, We believe that our cash on hand, along with other potential sources of liquidity that management may be able to obtain, will be sufficient to fund our working capital needs, as well as our capital lease and debt obligations for at least the next twelve months and beyond even if current levels of occupancy and revenue per occupied room (“RevPAR”, calculated by multiplying the hotel’s average daily room rate by its occupancy percentage) were to persist. The objectives of our cash management policy are to maintain existing leverage levels and the availability of liquidity, while minimizing operational costs. However, there can be no guarantee that management will be successful with its plan.

Going Concern

The Hotel financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in Note 10 – Mortgage Notes Payable, as of June 30, 2023, the outstanding balance consists of a senior mortgage loan and mezzanine loan totaling $107,117,000. Both loans mature on January 1, 2024. In addition, the Hotel has recurring losses and has an accumulated deficit of $105,727,000.

Due to these factors and the Hotel’s ability to successfully refinance the debt on favorable terms in the current lending environment gives rise to substantial doubt about the Hotel’s ability to continue as a $20,000,000going concern for one year after the financial statement issuance date.

The Hotel is exploring the possibility of refinancing its senior mortgage and mezzanine loan. The mortgagedebt with potential lenders. Alternatively, the Hotel is also exploring the possibility of a loan is securedmodification or extension to the existing debt with the current lenders, however, the Hotel may be unable to access further financing when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. During 2021 and first part of calendar 2022, the Hotel took advantage of the slow periods to make certain capital improvements including complete refinishing of all guest room furniture, resurfacing half of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed the carpet and wall covering corridor installation. In November 2022, began guestroom renovation and had completed approximately 200 guestrooms as of June 30, 2023. Hotel improvements are ongoing to remain competitive and we anticipate completing the guestroom renovations by the Partnership’s principal asset,end March 2024. Once the Hotel. The mortgage loan initially bears an interest rate of 5.275% per annumHotel completes its full renovation, management anticipates its high occupancy to continue and matures in January 2024. As additional security for the mortgage loan, there is a limited guaranty executed by the Company in favor of mortgage lender. The mezzanine loan is a secured by the Operating membership interest held by Mezzanine and is subordinatedits average daily rates to increase as it completes renovation up to the Mortgage Loan. The mezzanine loan initially bears interest at 9.75% per annum and matures in January 2024. As additional security for the mezzanine loan, there ispoint of generating a limited guaranty executed by the Company in favor of mezzanine lender. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for Justice Investors limited partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan.positive cash flows.

 

Management believesThe financial statements do not include any adjustments to the carrying amounts of assets, liabilities, and reported expenses that its cash, securities assets, real estate and the cash flows generated from those assets and from partnership distributions and management fees, willmay be adequate to meet the Company’s current and future obligations. Additionally, management believes there is significant appreciated value innecessary if the Hotel and other real estate propertieswere unable to support additional borrowings if necessary.continue as a going concern.

 

29

MATERIAL CONTRACTUAL OBLIGATIONS

 

The following table provides a summary as of June 30, 2023, the Company’s material financial obligations which also includes interest.interest payments.

 

 Total Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter    Year Year Year Year Year   
Mortgage notes payable $181,087,000  $2,957,000  $3,099,000  $4,246,000  $3,229,000  $3,228,000  $164,328,000 
 Total 2024 2025 2026 2027 2028 Thereafter 
Mortgage and subordinated notes payable $192,870,000  $108,420,000  $9,318,000  $1,168,000  $3,299,000  $1,771,000  $68,894,000 
Other notes payable  6,112,000   369,000   474,000   607,000   567,000   567,000   3,528,000   2,956,000   567,000   567,000   567,000   463,000   317,000   475,000 
Interest  58,687,000   9,977,000   9,542,000   9,386,000   8,996,000   8,475,000   12,311,000   25,577,000   3,849,000   2,898,000   2,390,000   2,284,000   2,286,000   11,870,000 
Total $245,886,000  $13,303,000  $13,115,000  $14,239,000  $12,792,000  $12,270,000  $180,167,000  $221,403,000  $112,836,000  $12,783,000  $4,125,000  $6,046,000  $4,374,000  $81,239,000 

 

OFF-BALANCE SHEET ARRANGEMENTS

 

The Company has no material off balance sheet arrangements.

 

IMPACT OF INFLATION

 

Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. Since PrismAimbridge has the power and ability under the terms of its management agreement to adjust hotelHotel room rates on an ongoing basis,there should be minimal impact on partnership revenues due to inflation. Partnership revenues are also subject to interest rate risks, which may be influenced by inflation. For the two most recent fiscal years, the impact of inflation on the Company'sCompany’s income is not viewed by management as material.

 

The Company'sCompany’s residential rental properties provide income from short-term operating leases and no lease extends beyond one year. Rental increases are expected to offset anticipated increased property operating expenses.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to the consolidation of our subsidiaries, to our revenues, allowances for bad debts, accruals, asset impairments, other investments, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates, or our estimates may be affected by different assumptions or conditions.

 

INCOME TAXES

Judgment is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws, or interpretations thereof). In addition, we are subject to examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements. We evaluate tax positions taken or expected to be taken on a tax return to determine whether they are more likely than not of being sustained, assuming that the tax reporting positions will be examined by taxing authorities with full knowledge of all relevant information, prior to recording the related tax benefit in our consolidated financial statements. If a position does not meet the more likely than not standard, the benefit cannot be recognized. Assumptions, judgment, and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. A change in the assessment of the “more likely than not” standard with respect to a position could materially impact our consolidated financial statements.

2730

 

DEFERRED INCOME TAXES – VALUATION ALLOWANCE

We assess the realizability of our deferred tax assets quarterly and recognize a valuation allowance when it is more likely than not that some or all of our deferred tax assets are not realizable. This assessment is completed by tax jurisdiction and relies on the weight of both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative pre-tax losses for the three-year period are considered significant objective negative evidence that some or all of our deferred tax assets may not be realizable. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax assets and liabilities, and the exercise is inherently complex and subjective. However, significant judgment will be required to determine the timing and amount of any reversal of the valuation allowance in future periods.

HOTEL ASSETS AND DEFINITE-LIVED INTANGIBLE ASSETS

We evaluate property and equipment, and definite-lived intangible assets for impairment quarterly, and when events or circumstances indicate the carrying value may not be recoverable, we evaluate the net book value of the assets by comparing to the projected undiscounted cash flows of the assets. We use judgment to determine whether indications of impairment exist and consider our knowledge of the hospitality industry, historical experience, location of the property, market conditions, and property-specific information available at the time of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts and circumstances available at the time of the analysis. When an indicator of impairment exists, judgment is also required in determining the assumptions and estimates to use within the recoverability analysis and when calculating the fair value of the asset or asset group, if applicable. Changes in economic and operating conditions impacting the judgments used could result in impairments to our long-lived assets in future periods. Historically, changes in estimates used in the property and equipment and definite-lived intangible assets impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those estimates. There were no indicators of impairment on its hotel investments or intangible assets and accordingly no impairment losses recorded for the years ended June 30, 2023 and 2022.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

 

Not required for smaller reporting companies.

31

 

Item 8. Financial Statements and Supplementary Data.

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTSPAGE
  
ReportsReport of Independent Registered Public Accounting FirmsFirm29-3033
  
Consolidated Balance Sheets - June 30, 20172023 and 201620223135
  
Consolidated Statements of Operations - For years ended June 30, 20172023 and 201620223236
  
Consolidated Statements of Shareholders’ Deficit - For years ended June 30, 20172023 and 201620223337
  
Consolidated Statements of Cash Flows - For years ended June 30, 20172023 and 2016202238
34Notes to the Consolidated Financial Statements39

 

2832

 

 

REPORT OF INDEPENDENT AUDITOR’S REPORTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders, of

The IntergroupInterGroup Corporation:

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheetsheets of The IntergroupInterGroup Corporation and its subsidiaries (the Company)“Company”) as of June 30, 2017,2023 and 2022, and the related consolidated statements of operations, shareholders’ deficit, and cash flows for the yearyears then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial statements). position of the Company as of June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1, the outstanding balance as of June 30, 2023 of the mortgage notes payable consists of a senior mortgage loan and mezzanine loan totaling $107,117,000. Both loans mature on January 1, 2024 In addition, the Company has recurring losses and has an accumulated deficit. Due to these factors and the Company’s ability to successfully refinance the debt on favorable terms in the current lending environment gives rise to substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statement issuance date. Management’s plans in regard to this matter are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’sentity’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statement presentation.statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of InterGroup Corporation and its subsidiary as of June 30, 2017, and the results of their operations and their cash flows for the year then ended, in conformity with U.S. generally accepted accounting principles.

/s/ Hein & Associates LLP

Irvine, California

October 13, 2017

2933

 

 

ReportCritical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of Independent Registered Public Accounting Firmthe consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Description of the Matters: Deferred Tax Asset Valuation Allowance

As discussed in Note 13 to the consolidated financial statements, it was determined that it is more likely than not that a significant portion of the deferred tax assets at June 30, 2023 are not realizable and thus a valuation allowance of $33,784,000 has been recorded.

We identified the deferred tax asset valuation allowance as a critical audit matter due to the uncertainty, subjectivity, estimates and judgments required by management when forecasting future profitability and determining whether or not it is likely that the deferred tax assets will be realized.

How We Addressed the Matters in Our Audit

 

To test the BoardCompany’s conclusions about their deferred tax valuation allowance, we obtained an analysis about their plans and reviewed all the positive and negative conditions. In addition to considering the impact of Directorsany subsequent events, we received the Company’s five-year income projection. We examined the forecast for reasonableness in addition to reviewing management’s plans and Shareholders of
The Intergroup Corporation:considered whether it is likely that the Company’s projected future profitability will allow them to realize their current deferred tax assets.

 

/s/ WithumSmith+Brown, PC

We have audited the accompanying consolidated balance sheet of The Intergroup Corporation and its subsidiaries (the Company)served as of June 30, 2016, and the related consolidated statement of operations, shareholders’ deficit and cash flows for the year ended June 30, 2016. This consolidated financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this consolidated financial statement based on our audit.auditor since 2022.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.East Brunswick, NJ

October 13, 2023

 

In our opinion, the financial statement referred to above present fairly, in all material respects, the consolidated financial position of The Intergroup Corporation and its subsidiaries as of June 30, 2016, and the consolidated results of their operations and their cash flows for the year period ended June 30, 2016 in conformity with accounting principles generally accepted in the United States of America.PCAOB ID Number 100

/s/ BPM LLP
San Francisco, California
September 28, 2016

 

3034

 

THE INTERGROUP CORPORATION

CONSOLIDATED BALANCE SHEETS

 

     
As of June 30, 2017  2016  2023  2022 
          
ASSETS                
Investment in Hotel, net $42,092,000  $44,821,000  $40,318,000  $37,267,000 
Investment in real estate, net  54,984,000   56,356,000   48,057,000   48,025,000 
Investment in marketable securities  17,177,000   14,282,000   18,345,000   11,049,000 
Other investments, net  1,211,000   1,029,000 
Cash and cash equivalents  2,871,000   5,404,000   5,960,000   14,367,000 
Restricted cash  7,402,000   3,221,000   6,914,000   8,982,000 
Other assets, net  3,365,000   5,639,000 
Other assets  2,764,000   2,744,000 
Deferred tax asset  4,107,000   3,985,000   -   3,612,000 
        
Total assets $133,209,000  $134,737,000  $122,358,000  $126,046,000 
                
LIABILITIES AND SHAREHOLDERS' DEFICIT        
LIABILITIES AND SHAREHOLDERS’ DEFICIT        
Liabilities:                
Accounts payable and other liabilities $2,947,000  $3,717,000  $2,574,000  $2,715,000 
Accounts payable and other liabilities - Hotel  12,833,000   14,783,000 
Accounts payable and other liabilities – Hotel  11,616,000   7,508,000 
Due to securities broker  3,012,000   1,493,000   1,601,000   490,000 
Obligations for securities sold  3,710,000   163,000   1,416,000   449,000 
Related party and other notes payable  6,112,000   6,996,000 
Other notes payable  2,954,000   3,521,000 
Finance leases  -   183,000 
Deferred tax liability  4,927,000   - 
Mortgage notes payable - Hotel  115,615,000   116,160,000   107,117,000   108,747,000 
Mortgage notes payable - real estate  64,298,000   64,672,000   84,757,000   85,437,000 
Total liabilities  208,527,000   207,984,000   216,962,000   209,050,000 
                
Commitments and contingencies - Note 18        
Commitments and contingencies - Note 17        
                
Shareholders' deficit:        
Shareholders’ deficit:        
Preferred stock, $.01 par value, 100,000 shares authorized; none issued  -   -   -   - 
Common stock, $.01 par value, 4,000,000 shares authorized; 3,395,616 and 3,395,616 issued; 2,359,724 and 2,381,726 outstanding, respectively  33,000   33,000 
Common stock, $.01 par value, 4,000,000 shares authorized; 3,459,888 and 3,459,888 issued; 2,205,927 and 2,236,180 outstanding as of June 30, 2023 and 2022, respectively  33,000   33,000 
Additional paid-in capital  10,346,000   10,363,000   2,445,000   3,277,000 
Accumulated deficit  (45,298,000)  (43,645,000)  (52,835,000)  (46,116,000)
Treasury stock, at cost, 1,035,892 and 1,013,890 shares  (12,626,000)  (12,082,000)
Total InterGroup shareholders' deficit  (47,545,000)  (45,331,000)
Noncontrolling interest  (27,773,000)  (27,916,000)
Total shareholders' deficit  (75,318,000)  (73,247,000)
        
Total liabilities and shareholders' deficit $133,209,000  $134,737,000 
Treasury stock, at cost, 1,253,961 and 1,223,708 shares as of June 30, 2023 and 2022, respectively  (20,794,000)  (19,324,000)
Total InterGroup shareholders’ deficit  (71,151,000)  (62,130,000)
Non-controlling interest  (23,453,000)  (20,874,000)
Total shareholders’ deficit  (94,604,000)  (83,004,000)
Total liabilities and shareholders’ deficit $122,358,000  $126,046,000 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3135

 

THE INTERGROUP CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

 

For the years ended June 30, 2017  2016  2023  2022 
Revenues:                
Hotel $54,334,000  $58,566,000  $42,027,000  $31,534,000 
Real estate  14,671,000   14,332,000   15,580,000   15,685,000 
Total revenues  69,005,000   72,898,000   57,607,000   47,219,000 
Costs and operating expenses:                
Hotel operating expenses  (40,717,000)  (47,246,000)  (34,457,000)  (27,451,000)
Legal settlement costs  -   (5,396,000)
Real estate operating expenses  (7,166,000)  (6,790,000)  (10,017,000)  (8,694,000)
Depreciation and amortization expense  (5,305,000)  (5,146,000)  (5,464,000)  (4,754,000)
General and administrative expense  (2,821,000)  (2,722,000)  (3,333,000)  (2,649,000)
                
Total costs and operating expenses  (56,009,000)  (67,300,000)  (53,271,000)  (43,548,000)
                
Income from operations  12,996,000   5,598,000   4,336,000   3,671,000 
Other income (expense):        
Interest expense - mortgage  (9,604,000)  (9,898,000)
Loss on disposal of assets  -   (30,000)
Net loss on marketable securities  (3,496,000)  (7,189,000)
Net unrealized loss gain on other investments and derivatives  -   (127,000)
        
Other (expense) income:        
Interest expense - mortgages  (8,585,000)  (8,881,000)
Net realized (loss) gain on marketable securities  (1,712,000)  375,000 
Net realized loss on marketable securities - Comstock  -   (2,581,000)
Net unrealized gain (loss) on marketable securities  2,838,000   (5,408,000)
Gain on debt forgiveness  -   2,000,000 
Loss on debt extinguishment  -   (335,000)
Gain on insurance recovery  2,692,000   - 
Impairment loss on other investments  (178,000)  (673,000)  -   (41,000)
Dividend and interest income  287,000   56,000   485,000   980,000 
Trading and margin interest expense  (1,160,000)  (944,000)  (1,553,000)  (1,426,000)
Net other expense  (14,151,000)  (18,805,000)  (5,835,000)  (15,317,000)
Loss before income taxes  (1,155,000)  (13,207,000)  (1,499,000)  (11,646,000)
Income tax (expense) benefit  (521,000)  3,940,000   (8,433,000)  1,030,000 
Net loss  (1,676,000)  (9,267,000)  (9,932,000)  (10,616,000)
Less: Net loss attributable to the noncontrolling interest  23,000   2,131,000   3,213,000   1,893,000 
Net loss attributable to InterGroup $(1,653,000) $(7,136,000) $(6,719,000) $(8,723,000)
                
Net loss per share                
Basic and diluted $(0.71) $(3.89)
Basic $(4.77) $(4.77)
Diluted  N/A   $N/A 
Net loss per share attributable to InterGroup                
Basic and diluted $(0.70) $(2.99)
Basic $(3.92) $(3.92)
Diluted  N/A   $N/A 
                
Weighted average number of common and diluted shares outstanding  2,371,765   2,384,098 
Weighted average number of common shares outstanding  2,215,258   2,224,293 
Weighted average number of diluted shares outstanding  N/A   N/A 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3236

 

 

THE INTERGROUP CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS'SHAREHOLDERS’ DEFICIT

 

        Additional        InterGroup     Total 
   Common Stock  Paid-in     Treasury  Shareholders'  Noncontrolling  Shareholders' 
  Shares  Amount  Capital  Accumulated Deficit  Stock  Deficit  Interest  Deficit 
                         
Balance at July 1, 2015  3,391,096  $33,000  $10,494,000  $(36,459,000) $(11,878,000) $(37,810,000) $(26,162,000) $(63,972,000)
                                 
Net loss  -   -   -   (7,136,000)  -   (7,136,000)  (2,131,000)  (9,267,000)
                                 
Stock options expense  -   -   391,000   -   -   391,000   -   391,000 
                                 
Issuance of stock for compensation  4,520   -   88,000   -   -   88,000   -   88,000 
                                 
Redemption of limited partnership interests  -   -   -   (50,000)  -   (50,000)  -   (50,000)
                                 
Investment in Santa Fe  -   -   (292,000)  -   -   (292,000)  172,000   (120,000)
                                 
Investment in Portsmouth  -   -   (318,000)  -   -   (318,000)  205,000   (113,000)
                                 
Purchase of treasury stock  -   -   -   -   (204,000)  (204,000)  -   (204,000)
                                 
Balance at June 30, 2016  3,395,616   33,000   10,363,000   (43,645,000)  (12,082,000)  (45,331,000)  (27,916,000)  (73,247,000)
                                 
Net loss  -   -   -   (1,653,000)  -   (1,653,000)  (23,000)  (1,676,000)
                                 
Stock options expense  -   -   268,000   -   -   268,000   -   268,000 
                                 
Investment in Santa Fe  -   -   (188,000)  -   -   (188,000)  105,000   (83,000)
                                 
Investment in Portsmouth  -   -   (97,000)  -   -   (97,000)  61,000   (36,000)
                                 
Purchase of treasury stock  -   -   -   -   (544,000)  (544,000)  -   (544,000)
                                 
Balance at June 30, 2017  3,395,616  $33,000  $10,346,000  $(45,298,000) $(12,626,000) $(47,545,000) $(27,773,000) $(75,318,000)
  Common Stock  Additional Paid-in  Accumulated  Treasury  

InterGroup

Shareholders’

  Non-controlling  

Total

Shareholders’

 
  Shares  Amount  Capital  Deficit  Stock  Deficit  Interest  Deficit 
                         
Balance at July 1, 2021  3,404,982  $33,000  $2,172,000  $(36,394,000) $(17,370,000) $(51,559,000) $(19,677,000) $(71,236,000)
                                 
Net Loss  -   -   -   (8,723,000)  -   (8,723,000)  (1,893,000)  (10,616,000)
                                 
Issuance of stock from exercise of stock options  54,906   -   -   -   -   -   -   - 
                                 
Stock options expense  -   -   4,000   -   -   4,000   -   4,000 
                                 
Distribution from Santa Fe  -   -   1,159,000   -   -   1,159,000   -   1,159,000 
                                 
Reclassify non-controlling interest due to purchase of Justice  -   -   -   (999,999)  -   (999,999)  999,999   - 
                                 
Investment in Portsmouth  -   -   (58,000)  -   -   (58,000)  41,000   (17,000)
                                 
Purchase of Partnership interest  -   -   -   -   -   -   (344,000)  (344,000)
                                 
Purchase of treasury stock  -   -   -   -   (1,954,000)  (1,954,000)  -   (1,954,000)
                                 
Balance at June 30, 2022  3,459,888  $33,000  $3,277,000  $(46,116,000) $(19,324,000) $(62,130,000) $(20,874,000) $(83,004,000)
                                 
Net Loss  -   -   -   (6,719,000)  -   (6,719,000)  (3,213,000)  (9,932,000)
                                 
                                 
Investment in Portsmouth  -   -   (832,000)  -   -   (832,000)  634,000   (198,000)
                                 
Purchase of treasury stock  -   -   -   -   (1,470,000)  (1,470,000)  -   (1,470,000)
                                 
Balance at June 30, 2023  3,459,888  $33,000  $2,445,000  $(52,835,000) $(20,794,000) $(71,151,000) $(23,453,000) $(94,604,000)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3337

 

 

THE INTERGROUP CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

For the years ended June 30, 2017  2016 
Cash flows from operating activities:        
Net loss $(1,676,000) $(9,267,000)
Adjustments to reconcile net loss to net cash provided by operating activities:        
Net unrealized loss on marketable securities  3,852,000   6,199,000 
Deferred taxes  (122,000)  (3,988,000)
Legal settlement costs  -   5,575,000 
Unrealized loss on other investments  -   127,000 
Impairment loss on other investments  178,000   673,000 
Loss on disposal of assets  -   30,000 
Depreciation  5,305,000   5,146,000 
Amortization  84,000   84,000 
Stock compensation expense  268,000   479,000 
Changes in assets and liabilities:        
Investment in marketable securities  (6,747,000)  (1,401,000)
Other assets, net  2,273,000   4,409,000 
Accounts payable and other liabilities  (2,720,000)  (383,000)
Due to securities broker  1,519,000   1,148,000 
Obligations for securities sold  3,547,000   141,000 
Net cash provided by operating activities  6,294,000   8,972,000 
         
Cash flows from investing activities:        
Investment in hotel, net  (328,000)  (4,064,000)
Investment in real estate, net  (875,000)  (2,681,000)
Purchase of other investments  (360,000)  - 
Investment in Santa Fe  (83,000)  (120,000)
Investment in Portsmouth  (36,000)  (113,000)
Net cash used in investing activities  (1,682,000)  (6,978,000)
         
Cash flows from financing activities:        
Net payments of mortgage and other notes payable  (2,420,000)  (4,512,000)
Restricted cash for capital improvements, mortgage impounds and redemption  (4,181,000)  (353,000)
Redemption of noncontrolling interest  -   (50,000)
Purchase of treasury stock  (544,000)  (204,000)
Net cash used in financing activities  (7,145,000)  (5,119,000)
         
Net decrease in cash and cash equivalents  (2,533,000)  (3,125,000)
Cash and cash equivalents at the beginning of the year  5,404,000   8,529,000 
Cash and cash equivalents at the end of the year $2,871,000  $5,404,000 
         
Supplemental information:        
Income tax paid $1,063,000  $2,078,000 
Interest paid $10,256,000  $10,324,000 
         
Non-cash transactions:        
Conversion of other investments to marketable securities $-  $13,231,000 
For the years ended June 30, 2023  2022 
Cash flows from operating activities:        
Net loss $(9,932,000) $(10,616,000)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:        
Net unrealized (gain) loss on marketable securities  (2,838,000)  5,408,000 
Deferred taxes  8,539,000   (1,472,000)
Gain on insurance recovery  (2,692,000)  - 
Gain from debt forgiveness  -   (2,000,000)
Impairment loss on other investments  -   41,000 
Depreciation and amortization  5,464,000   4,754,000 
Amortization of loan cost  352,000   432,000 
Amortization of other notes payable  (567,000)  (567,000)
Stock compensation expense  -   4,000 
Changes in assets and liabilities:        
Investment in marketable securities  (4,458,000)  19,335,000 
Other assets  (20,000)  (1,123,000)
Accounts payable and other liabilities  (141,000)  (642,000)
Accounts payable and other liabilities – Hotel  4,108,000   764,000 
Due to securities broker  1,111,000   (7,427,000)
Obligations for securities sold  967,000   (5,970,000)
Net cash (used in) provided by operating activities  (107,000)  921,000 
         
Cash flows from investing activities:        
Capital expenditures for property and equipment - Hotel  (5,866,000)  (1,926,000)
Capital expenditures for property and equipment - real estate  (2,314,000)  (2,760,000)
Distribution from Santa Fe  -   1,159,000 
Investment in Portsmouth  (198,000)  (17,000)
Investment in Justice  -   (344,000)
Insurance proceeds for property damage claims  2,325,000   - 
Net cash used in investing activities  (6,053,000)  (3,888,000)
         
Cash flows from financing activities:        
Payments of mortgage, finance leases and other notes payable  (8,205,000)  (3,698,000)
Proceeds from mortgage and other notes payable  5,360,000   16,683,000 
Issuance cost from refinance of long-term debt  -   (107,000)
Purchase of treasury stock  (1,470,000)  (1,954,000)
Net cash provided by (used in) financing activities  (4,315,000)  10,924,000 
         
Net (decrease) increase in cash, cash equivalents and restricted cash:  (10,475,000)  7,957,000 
Cash, cash equivalents and restricted cash at the beginning of the year  23,349,000   15,392,000 
Cash, cash equivalents and restricted cash at the end of the year $12,874,000  $23,349,000 
Supplemental information:        
Income taxes paid $74,000  $1,975,000 
Interests paid $7,708,000  $7,663,000 

The Company had cash and cash equivalents of $5,960,000 and $14,367,000 as of June 30, 2023 and 2022, respectively. The Company had restricted cash of $6,914,000 and $8,982,000 as of June 30, 2023 and 2022, respectively.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3438

 

THE INTERGROUP CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES:PRACTICES

 

Description of the Business

 

The InterGroup Corporation, a Delaware corporation, (“InterGroup” or the “Company”) was formed to buy, develop, operate and dispose of real property and to engage in various investment activities to benefit the Company and its shareholders.

 

As of June 30, 2017,Effective February 19, 2021, the Company had the power to vote 85.8% of the voting shares ofCompany’s 83.7% owned subsidiary, Santa Fe Financial Corporation (“Santa Fe”), a public company (OTCBB: SFEF). This percentage includes the power to vote an approximately 4%, was liquidated and all of its assets including its 68.8% interest in the common stock in Santa Fe owned by the Company’s Chairman and President pursuant to a voting trust agreement entered into on June 30, 1998.

Santa Fe’sprimary business is conductedthrough the management of its 68.8% owned subsidiary, Portsmouth Square, Inc. (“Portsmouth”), a public company (OTCBB: PRSI). were distributed to its shareholders in exchange for their Santa Fe common stock. In June 2022, InterGroup received distribution of $1,159,000 of from Santa Fe as the entity received federal and state tax refunds from previously filed final tax returns.As of June 30, 2023, InterGroup owns approximately 75.7% of the outstanding common shares of Portsmouth has a 93%and the Company’s President, Chairman of the Board and Chief Executive Officer, John V. Winfield, owns approximately 2.5% of the outstanding common shares of Portsmouth. Mr. Winfield also serves as the Chairman of the Board and Chief Executive Officer of Portsmouth.

Portsmouth’s primary business was conducted through its general and limited partnership interest in Justice and isInvestors Limited Partnership, a California limited partnership (“Justice” or the sole general partner. InterGroup also directly owns approximately 13.4%“Partnership”). Effective July 15, 2021, Portsmouth completed the purchase of 100% of the common stocklimited partnership interest of Justice through the acquisition of the remaining 0.7% non-controlling interest. Effective December 23, 2021, the partnership was dissolved. The financial statements of Justice were consolidated with those of Portsmouth.

 

Prior to its dissolution effective December 23, 2021, Justice through its subsidiaries Justice Holdings Company, LLC (“Holdings”),owned and operated a Delaware Limited Liability Company, Justice Operating Company, LLC (“Operating”) and Justice Mezzanine Company, LLC (“Mezzanine”), owns a 543-room544-room hotel property located at 750 Kearny Street, San Francisco California, known as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including a five-level underground parking garage. Holdingsgarage through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice Mezzanine are both wholly-owned subsidiariesCompany, LLC (“Mezzanine”). Mezzanine was a wholly owned subsidiary of the Partnership; Operating is a wholly-ownedwholly owned subsidiary of Mezzanine. Effective December 23, 2021, Portsmouth replaced Justice as the single member of Mezzanine. Mezzanine is the borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership conveyed ownership of the Hotel to Operating. The Hotel is operated by the partnership as a full-service Hilton brand hotel pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (Hilton). Justice had a management agreement(“Hilton”) through January 31, 2030.

Aimbridge Hospitality (“Aimbridge”) manages the Hotel, along with Prism Hospitality L.P. (“Prism”) to performits five-level parking garage, under certain management functions for the Hotel. The management agreement with Prism had an original term of ten years, subject to the Partnership’s right to terminate at any time with or without cause. Effective January 2014, the management agreement with Prism was amended by the Partnership to change the nature of the services provided by Prism and the compensation payable to Prism, among other things. Prism’s management agreement was terminated upon its expiration date of February 3, 2017. Effective December 1, 2013, GMP Management, Inc. (“GMP”), a company owned by a Justice limited partner and a related party, also provided management services for the Partnership pursuant to a management services agreement, with a three-year term, subject to the Partnership’s right to terminate earlier for cause. In June 2016, GMP resigned. After a lengthy review process of several national third-party hotel management companies, on February 1, 2017, Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company, LLC (“Interstate”) to manage the Hotel with an effective takeover date of February 3, 2017.Operating. The term of the management agreement is for an initial period of 10ten years commencing on the takeoverFebruary 3, 2017 date and automatically renews for an additionalsuccessive one (1) year periods, to not to exceed five years in the aggregate, subject to certain conditions. TheUnder the terms on the HMA, also provides for Interstatebase management fee (“Basic Fee”) payable to advance a key moneyAimbridge shall be one and seven-tenths percent (1.70%) of total Hotel revenue. In addition to the Basic Fee, Aimbridge shall be entitled to an annual incentive fee for each fiscal year equal to ten percent (10%) of the Hotel for capital improvementsamount by which Gross Operating Profit in the amount of $2,000,000 under certain terms and conditions described in a separate key money agreement. The $2,000,000 is included incurrent fiscal year exceeds the restricted cash and related party and other notes payable balances in the consolidated balance sheets as of June 30, 2017.

previous fiscal year’s Gross Operating Profit.

In addition to the operations of the Hotel, the Company also generates income from the ownership of real estate.estate and investments in marketable securities. Properties include apartment complexes, commercial real estate, and three single-family houses as strategic investments. The properties are located throughout the United States, but are concentrated in Texas and Southern California. The Company also has investments in unimproved real property. All of the Company’s residential rental properties are managed in-house.

 

35

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and Santa Fe.Portsmouth. All significant inter-company transactions and balances have been eliminated.

 

Investment in Hotel, Net

 

Property and equipment are stated at cost. Building improvements are being depreciated on a straight-line basis over their useful lives ranging from 3 to 39 years. Furniture, fixtures, and equipment are being depreciated on a straight-line basis over their useful lives ranging from 3 to 7 years.

 

Repairs and maintenance are charged to expense as incurred. Costs of significant renewals and improvements are capitalized and depreciated over the shorter of its remaining estimated useful life or life of the asset. The cost of assets sold or retired, and the related accumulated depreciation are removed from the accounts; any resulting gain or loss is included in other income (expenses).

 

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with generally accepted accounting principles.principles (“GAAP”). If the carrying amount of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest, the PartnershipCompany will recognize an impairment loss equal to the difference between itsthe asset’s carrying amount and its estimated fair value. If impairment is recognized, the reduced carrying amount of the asset will be accounted for as its new cost. For a depreciable asset, the new cost will be depreciated over the asset’s remaining useful life. Generally, fair values are estimated using discounted cash flow, replacement cost or market comparison analyses. The process of evaluating for impairment requires estimates as to future events and conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that a change in estimate resulting from judgments as to future events could occur which would affect the recorded amounts of the property. No impairment losses were recorded for the years ended June 30, 20172023 and 2016.2022.

 

Investment in Real Estate, Net

 

Rental properties are stated at cost less accumulated depreciation. Depreciation of rental property is provided on the straight-line method based upon estimated useful lives of 5 to 40 years for buildings and improvements and 5 to 10 years for equipment. Expenditures for repairs and maintenance are charged to expense as incurred and major improvements are capitalized.

 

The Company also reviews its rental property assets for impairment. No impairment losses on the investment in real estate have been recorded for the years ended June 30, 20172023 and 2016.2022.

 

The fair value of the tangible assets of an acquired property, which includes land, building and improvements, is determined by valuing the property as if they were vacant, and incorporates costs during the lease-up periods considering current market conditions and costs to execute similar leases such lost rental revenue and tenant improvements. The value of tangible assets areis depreciated using straight-line method based upon the assets estimated useful lives.

Investment in Marketable Securities

 

Marketable securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. Marketable securities are classified as trading securities with all unrealized gains and losses on the Company'sCompany’s investment portfolio recorded through the consolidated statements of operations.

 

36

Other Investments, Net

 

Other investments include non-marketable securities (carried at cost, net of any impairments loss) and non-marketable debt instruments. The Company has no significant influence or control over the entities that issue these investments. These investments are reviewed on a periodic basis for other-than-temporary impairment. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near termnear-term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. For the years ended June 30, 20172023 and 2016,2022, the Company recorded impairment losses related to other investments of $178,000zero and $673,000, respectively. As of June 30, 2017 and 2016, the allowance for impairment losses was $6,154,000 and $5,976,000,$41,000, respectively.

 

Cash and Cash Equivalents

 

Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased and are carried at cost, which approximates fair value. As of June 30, 2023 and 2022, the Company does not have any cash equivalents.

 

Restricted Cash

 

Restricted cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves for the Hotel. It also includes key money received from Interstate that is restricted for capital improvements.

 

Other Assets Net

 

Other assets include prepaid insurance, accounts receivable, franchise fees, license feesprepaid expenses, and other miscellaneous assets. Franchise fees are stated at cost and amortized over the life of the agreement (15 years). License fees are stated at cost and amortized over 10 years.

 

Accounts receivable from the Hotel and rental property customers are carried at cost less an allowance for doubtful accounts that is based on management’s assessment of the collectability of accounts receivable. The Company had accounts receivable, net of $634,000 at July 1, 2022. As of June 30, 2023, and 2022, the allowance for doubtful accounts was $486,000 and $110,000, respectively. The Company extends unsecured credit to its customers but mitigates the associated credit risk by performing ongoing credit evaluations of its customers. The temporary eviction moratorium imposed by the federal and state governmental authorities had delayed evictions during fiscal years 2022 and 2023.

 

Due to Securities Broker

 

The Company may utilize margin for its marketable securities purchases through the use of standard margin agreements with national brokerage firms. Various securities brokers have advanced funds to the Company for the purchase of marketable securities under standard margin agreements. These advanced funds are recorded as a liability.

 

Obligation for Securities Sold

 

Obligation for securities sold represents the fair market value of shares sold with the promise to deliver that security at some future date and the fair market value of shares underlying the written call options with the obligation to deliver that security when and if the option is exercised. The obligation may be satisfied with current holdings of the same security or by subsequent purchases of that security. Unrealized gains and losses from changes in the obligation are included in the statement of operations.

Accounts Payable and Other Liabilities

 

Accounts payable and other liabilities include trade payables, advanced customer advance deposits, accrued wages, accrued real estate taxes, and other liabilities.

 

37

Treasury Stock

 

The Company records the acquisition of treasury stock under the cost method. During the years ended June 30, 20172023 and 2016,2022, the Company purchased 22,00230,253 and 8,82341,645 shares of treasury stock, respectively.

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. Accounting standards for fair value measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows:

 

Level 1–inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2–inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

Level 3–inputs to the valuation methodology are unobservable and significant to the fair value.

 

Revenue Recognition

 

RoomPerformance obligations

We identified the following performance obligations for which revenue is recognized onas the date uponrespective performance obligations are satisfied, which a guest occupiesresults in recognizing the amount we expect to be entitled to for providing the goods or services:

Cancelable room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which is generally when the room stay occurs.
Non-cancelable room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time and satisfied as each distinct good or service is provided, which is reflected by the duration of the room reservation.
Other ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.
Components of package reservations for which each component could be sold separately to other hotel guests are considered separate performance obligations and are satisfied as set forth above.

Hotel revenue primarily consists of hotel room and/or utilizes the Hotel’s services. Foodrentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage revenues are recognized upon delivery. Garage revenuesales and other ancillary goods and services (e.g., parking). Revenue is recognized when a guest usesrooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the garage space. The Company records a liabilitygoods and services are provided. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component.

We do not disclose the value of unsatisfied performance obligations for contracts with an expected length of one year or less. Due to the nature of our business, our revenue is not significantly impacted by refunds. Cash payments collectedreceived in advance of revenue recognition. This liability is included in accounts payable and other liabilities.guests staying at our hotel are refunded to hotel guests if the guest cancels within the specified time period, before any services are rendered. Refunds related to service are generally recognized as an adjustment to the transaction price at the time the hotel stay occurs or services are rendered. See Note 3 – Revenue.

 

Revenue recognition from apartment rentalsrental commences when an apartment unit is placed in service and occupied by a rent-paying tenant. Apartment units are leased on a short-term basis, with no lease extending beyond one year.

 

Advertising Costs

 

Advertising costs are expensed as incurred.incurred and are included in Hotel operating expenses in the consolidated statements of operations. Advertising costs were $294,000$130,000 and $522,000$61,000 for the years ended June 30, 20172023 and 2016,2022, respectively.

 

Income Taxes

 

Deferred income taxes are calculated under the liability method. Deferred income tax assets and liabilities are based on differences between the financial statement and tax basis of assets and liabilities at the current enacted tax rates. Changes in deferred income tax assets and liabilities are included as a component of income tax expense. Changes in deferred income tax assets and liabilities attributable to changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established for certain deferred tax assets where realization is not likely.

 

$0 and $1,665,000 of unrecognized tax benefits as of June 30, 2022 and June 30, 2023, respectively, would impact the effective tax rate if recognized. The unrecognized tax benefit is not expected to reverse in the next 12 months. Interest and penalties related to income tax matters are classified as a component of income tax expense. As of June 30, 2022 and June 30, 2023, no interest and penalties were recorded.

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions.

 

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Earnings (Loss) Per Share

 

Basic lossnet income (loss) per share is computed by dividing net lossincome (loss) available to common stockholders by the weighted average number of common shares outstanding. The computation of diluted lossnet income per share is similar to the computation of basic earningsnet income per share except that the weighted-average number of common shares is increased to include the number of additional common shares that would have been outstanding if potential dilutive common shares had been issued. The Company's only potentially dilutive common shares are stock options. The basic and diluted earnings per share wereare the same for the yearsfiscal year ended June 30, 20172023 and 20162022 because the Company had a net loss.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP)GAAP requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Actual results may differ from those estimates. Management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets and when appropriate, records tax valuation allowances based on that evidence and estimates. Such estimates primarily relate to unsettled transactions and eventsthe recording of allowance for doubtful accounts which are based on management’s assessment of the collectability of accounts receivable as of the dateend of the financial statements. Accordingly, upon settlement, actual resultsfiscal year As of June 30, 2023 based on taxable income that may differ from estimated amounts.be available under tax law the deferred taxed asset is not more likely than not to be realized.

 

Reclassifications

 

Certain prior year balancesline items on the balance sheet as of June 30, 2023, for the years ended June 30, 2023 and 2022 have been reclassified to conform withto the current yearperiod presentation.

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern that requires management to evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after The related party relationship has been disclosed separately in the financial statements are issued on both an interim and annual basis. Management is required to provide certain footnote disclosures if it concludes that substantial doubt exists or when its plans alleviate substantial doubt aboutthan the Company’s ability to continue as a going concern. ASU No. 2014-15 becomes effective for annual periods beginning after December 15, 2016 and for interim reporting periods thereafter. Theother debt obligations the Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.has.

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Debt Issuance Costs

 

On June 16, 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU No. 2016-13 will be effective for us as of January 1, 2020. The Company is currently reviewing the effect of ASU No. 2016-13.

On August 26, 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments (Topic230).” This ASU is intended to reduce the diversity in practice around how certain transactions are classified within the statement of cash flows. The Company adopted ASU No. 2016-15 in the first quarter of 2017 with no material impact to our financial statements.

In April 2015, the FASB issued ASU 2015-03,Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability beare presented in the consolidated balance sheetsheets as a direct deduction from the carrying amount of that debt liability. ASU 2015-03 is effective for annual and interim periods within these annual periods beginning after December 15, 2015 and early application is permitted. The Company adopted this standard beginning with the quarter ended December 31, 2016 and reclassified the debt issuanceliability and are amortized over the life of the debt. Loan amortization costs are included in interest expense in the consolidated statement of $840,000 from Other Assets to Mortgage notes payable – Hotel, net on the June 30, 2016 condensed consolidated balance sheet.operations.

 

Recently Issued and Adopted Accounting Pronouncements

As of June 30, 2023, there was no material impact from the recent adoption of new accounting pronouncements, nor expected material impact from recently issued accounting pronouncements yet to be adopted, on the Company’s consolidated financial statements.

Going Concern

The Hotel financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As discussed in Note 10 – Mortgage Notes Payable, as of June 30, 2023, the outstanding balance consists of a senior mortgage loan and mezzanine loan totaling $107,117,000. Both loans mature on January 1, 2024. In May 2014,addition, the FASB issued Accounting Standards Update No. 2014-09,Revenue from ContractsHotel has recurring losses and has an accumulated deficit of $105,727,000.

Due to these factors and the Hotel’s ability to successfully refinance the debt on favorable terms in the current lending environment gives rise to substantial doubt about the Hotel’s ability to continue as a going concern for one year after the financial statement issuance date.

The Hotel is exploring the possibility of refinancing its senior mortgage and mezzanine debt with Customers (Topic 606) (ASU 2014-09), which amendspotential lenders. Alternatively, the Hotel is also exploring the possibility of a loan modification or extension to the existing accounting standards for revenue recognition. In August 2015,debt with the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferralcurrent lenders, however, the Hotel may be unable to access further financing when needed. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under acceptable terms, if at all. During 2021 and first part of calendar 2022, the Hotel took advantage of the Effective Date,slow periods to make certain capital improvements including complete refinishing of all guest room furniture, resurfacing half of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed the carpet and wall covering corridor installation. In November 2022, began guestroom renovation and had completed approximately 200 guestrooms as of June 30, 2023. Hotel improvements are ongoing to remain competitive and we anticipate completing the guestroom renovations by the end March 2024. Once the Hotel completes its full renovation, management anticipates its high occupancy to continue and its average daily rates to increase as it completes renovation up to the point of generating a positive cash flows.

The financial statements do not include any adjustments to the carrying amounts of assets, liabilities, and reported expenses that may be necessary if the Hotel were unable to continue as a going concern.

NOTE 2 – LIQUIDITY

Historically, our cash flows have been primarily generated from our Hotel and real estate operations. However, the dealings by federal, state, and local civil authorities have a material detrimental impact on our liquidity. For the fiscal year ended June 30, 2023, our net cash flow used by operations was $107,000. We have taken several steps to preserve capital and increase liquidity at our Hotel, including implementing strict cost management measures to eliminate non-essential expenses, renegotiating certain reoccurring expenses, and temporarily closing certain hotel services and outlets. As the hospitality and travel environment continues to recover, the Company will continue to evaluate what services the Company brings back. During the fiscal year ended June 30, 2023, the Company continued to make capital improvements to the hotel in the amount of $5,866,000 and anticipates continuing its guest room upgrade program during the fiscal year 2024.

The Company had cash and cash equivalents of $5,960,000 and $14,367,000 as of June 30, 2023 and 2022, respectively. The Company had restricted cash of $6,914,000 and $8,982,000 as of June 30, 2023 and 2022, respectively. The Company had marketable securities, net of margin due to securities brokers, of $15,328,000 and $10,110,000 as of June 30, 2023 and 2022, respectively. These marketable securities are short-term investments and liquid in nature.

On December 16, 2020, Justice and InterGroup entered into a loan modification agreement which delaysincreased Justice’s borrowing from InterGroup as needed up to $10,000,000 and extended the effectivematurity date of ASU 2014-09 by one year.the loan to July 31, 2021. On July 7, 2021, the maturity date was extended to July 31, 2022. Upon the dissolution of Justice in December 2021, Portsmouth assumed Justice’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. As of June 30, 2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000, net of loan amortization costs of zero, respectively. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. The FASB alsoCompany agreed to allow entitiesa 0.5% loan extension and modification fee payable to chooseInterGroup. All funds advanced to adopt the standard asHotel have been eliminated in consolidated financial statements at June 30, 2023 and 2022.

On May 31, 2023, the Company refinanced its St. Louis, Missouri $4,823,000 mortgage with a two-year $5,360,000 mortgage with a floating monthly rate of the original effective date. In March 2016,30-day SOFR (capped at 5.5%) plus SOFR margin of 3.10%, interest-only payments are due for the FASB issued Accounting Standards Update No. 2016-08,Revenuefirst 12 months and $5,500 principal paydowns commencing in June 2024. During the fiscal year ending June 30, 2022, we refinanced six of our properties’ existing mortgages and obtained a mortgage note payable on one of our California properties, generating net proceeds totaling $16,683,000. We are currently evaluating other refinancing opportunities and we could refinance additional multifamily properties should the need arise, or should management consider the interest rate environment favorable.

On February 3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(ASU 2016-08) which clarifies the implementation guidanceSBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs. The SBA Loan was scheduled to mature on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controlsFebruary 3, 2026, had a specified good or service before it is transferred1.00% interest rate, and was subject to the customers. The new revenue recognition standard will be effective forterms and conditions applicable to loans administered by the CompanyU.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven in the first quarter of 2019, with the option to adopt it in the first quarter of 2018. We currently anticipate adopting the new standard effective July 1, 2019. The new standard also permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (the modified retrospective method). The Company currently anticipates adopting the standard using the modified retrospective method. While the Company is still in the process of completing the analysisfull and $2,000,000 was recorded as gain on the impact this guidance will havedebt extinguishment on the consolidated financial statementsstatement of operations for the fiscal year ending June 30, 2022.

Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including management and franchise fees, corporate expenses, payroll and related disclosures, the Company does not expect the impact to be material.

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NOTE 2 - JUSTICE INVESTORScosts, taxes, interest and principal payments on our outstanding indebtedness, and repairs and maintenance at all of our properties.

 

Justice Investors Limited Partnership, a California limited partnership (“Justice” or the “Partnership”), was formed in 1967Our long-term liquidity requirements primarily consist of funds necessary to acquire real property in San Francisco, California,pay for the developmentscheduled debt maturities and leasecapital improvements of the Hotel and related facilities.our real estate properties. We will continue to finance our business activities primarily with existing cash, including from the activities described above, and cash generated from our operations. The Partnership has one general partner, Portsmouth Square, Inc.,objectives of our cash management policy are to maintain existing leverage levels and the availability of liquidity, while minimizing operational costs. However, there can be no guarantee that management will be successful with its plan.

The following table provides a California corporation (“Portsmouth”) and approximately 24 voting limited partners, including Portsmouth.summary as of June 30, 2023, the Company’s material financial obligations which also includes interest payments.

     Year  Year  Year  Year  Year    
  Total  2024  2025  2026  2027  2028  Thereafter 
Mortgage and subordinated notes payable $192,870,000  $108,420,000  $9,318,000  $1,168,000  $3,299,000  $1,771,000  $68,894,000 
Related party notes payable  2,956,000   567,000   567,000   567,000   463,000   317,000   475,000 
Interest  25,577,000   3,849,000   2,898,000   2,390,000   2,284,000   2,286,000   11,870,000 
Total $221,403,000  $112,836,000  $12,783,000  $4,125,000  $6,046,000  $4,374,000  $81,239,000 

NOTE 3 – REVENUE

 

Management believesOur revenue from real estate is primarily rental income from residential and commercial property leases which is recorded when due from residents and is recognized monthly as earned. The revenue recognition rules under ASC 606 specifically eliminates rental revenue from the accounting standard.

The following table presents our Hotel revenue disaggregated by revenue streams.

For the year ended June 30, 2023  2022 
Hotel revenues:        
Hotel rooms $35,684,000  $26,599,000 
Food and beverage  2,625,000   1,471,000 
Garage  2,790,000   3,112,000 
Other operating departments  928,000   352,000 
Total Hotel revenue $42,027,000  $31,534,000 

Contract assets and liabilities

We do not have any material contract assets as of June 30, 2023 and 2022, other than trade and other receivables, net on our consolidated balance sheets. Our receivables are primarily the result of contracts with customers, which are reduced by an allowance for doubtful accounts that reflects our estimate of amounts that will not be collected.

We record contract liabilities when cash payments are received or due in advance of guests staying at our hotel, which are presented within accounts payable and other liabilities on our consolidated balance sheets and had a balance of $493,000 at July 1, 2022. During the revenues and cash flows expectedyear ended June 30, 2023, the entire $493,000 was recognized as revenue. Contract liabilities decreased to $290,000 as of June 30, 2023. The decrease as of June 30, 2023, was primarily driven by a decrease in advance deposits received from customers for services to be generatedperformed after June 30, 2023.Contract liabilities increased to $493,000 as of June 30, 2022 from $161,000 as of June 30, 2021. The increase for the operationstwelve months ended June 30, 2022 was primarily driven by advance deposits received from customers for services to be performed after June 30, 2022.

Contract costs

We consider sales commissions earned to be incremental costs of the Hotel, garage and leases will be sufficient to meet all of the Partnership’s current and future obligations and financial requirements. Management also believes that there is significant appreciated value in the Hotel property in excess of the net book value to support additional borrowings, if necessary.obtaining a contract with our customers. As a practical expedient, we expense these costs as incurred as our contracts with customers are less than one year.

NOTE 34 – INVESTMENT IN HOTEL, NET

 

Investment in Hotel consisted of the following as of:

 

   Accumulated Net Book    Accumulated Net Book 
June 30, 2017 Cost Depreciation Value 
June 30, 2023 Cost Depreciation Value 
              
Land $2,738,000  $-  $2,738,000  $2,738,000  $-  $2,738,000 
Finance lease ROU assets  1,805,000   (1,239,000)  566,000 
Furniture and equipment  27,681,000   (24,569,000)  3,112,000   38,727,000   (29,682,000)  9,045,000 
Building and improvements  64,308,000   (28,066,000)  36,242,000   64,665,000   (36,696,000)  27,969,000 
 $94,727,000  $(52,635,000) $42,092,000 
Investment in Hotel, net $107,935,000  $(67,617,000) $40,318,000 

 

   Accumulated Net Book    Accumulated Net Book 
June 30, 2016 Cost Depreciation Value 
June 30, 2022 Cost Depreciation Value 
              
Land $2,738,000  $-  $2,738,000  $2,738,000  $-  $2,738,000 
Finance lease ROU assets  1,805,000   (922,000)  883,000 
Furniture and equipment  28,857,000   (23,096,000)  5,761,000   32,860,000   (28,567,000)  4,293,000 
Building and improvements  62,908,000   (26,586,000)  36,322,000   64,665,000   (35,312,000)  29,353,000 
 $94,503,000  $(49,682,000) $44,821,000 
Investment in Hotel, net $102,068,000  $(64,801,000) $37,267,000 

 

NOTE 45 - INVESTMENT IN REAL ESTATE, NET

 

At June 30, 2017,2023, the Company'sCompany’s investment in real estate consisted of twenty one properties located throughout the United States. These properties include sixteen apartment complexes, three single-family houses as strategic investments, and one commercial real estate property. The Company also owns unimproved land located in Maui, Hawaii.

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Investment in real estate included the following:

 

As of June 30, 2017  2016  2023  2022 
Land $25,033,000  $25,033,000  $22,998,000  $22,998,000 
Buildings, improvements and equipment  66,804,000   65,929,000   73,151,000   70,933,000 
Accumulated depreciation  (36,853,000)  (34,606,000)  (50,022,000)  (47,374,000)
 $54,984,000  $56,356,000   46,127,000   46,557,000 
Land held for development  1,930,000   1,468,000 
Investment in real estate, net $48,057,000  $48,025,000 

 

NOTE 56 - INVESTMENT IN MARKETABLE SECURITIES

 

The Company’s investment in marketable securities consists primarily of corporate equities. The Company has also periodically invested in corporate bonds and income producing securities, which may include interests in real estate basedestate-based companies and REITs, where financial benefit could insureinure to its shareholders through income and/or capital gain.

 

At June 30, 20172023 and 2016,2022, all of the Company’s marketable securities are classified as trading securities. The change in the unrealized gains and losses on these investments are included in earnings. Trading securities are summarized as follows:

 

     Gross  Gross  Net  Fair 
Investment Cost  Unrealized Gain  Unrealized Loss  Unrealized Loss  Value 
                
As of June 30, 2017                    
Corporate Equities $29,170,000  $1,768,000  $(13,761,000) $(11,993,000) $17,177,000 
                     
As of June 30, 2016                    
Corporate Equities $22,500,000  $1,161,000  $(9,379,000) $(8,218,000) $14,282,000 

As of June 30, 2017, and 2016, approximately 28% and 65% of the investment marketable securities balance above is comprised of the common stock of Comstock Mining Inc.

As of June 30, 2017 and 2016, the Company had $13,294,000 and $3,620,000, respectively, of unrealized losses related to securities held for over one year.

     Gross  Gross  Net    
Investment Cost  

Unrealized

Gain

  

Unrealized

Loss

  

Unrealized

Gain (Loss)

  

Fair

Value

 
As of June 30, 2023                    
Corporate Equities $15,419,000  $3,713,000  $(787,000) $2,926,000  $18,345,000 
                     
As of June 30, 2022                    
Corporate Equities $11,150,000  $1,474,000  $(1,575,000) $(101,000) $11,049,000 

 

Net lossgain (loss) on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of the two components for the years ended June 30, 20172023 and 2016,2022, respectively.

 

For the year ended June 30, 2017  2016 
Realized gain (loss) on marketable securities $356,000  $(990,000)
Unrealized loss on marketable securities  (3,852,000)  (6,199,000)
         
Net loss on marketable securities $(3,496,000) $(7,189,000)

NOTE 6 – OTHER INVESTMENTS, NET

The Company may also invest, with the approval of the Securities Investment Committee and other Company guidelines, in private investment equity funds and other unlisted securities. Those investments in non-marketable securities are carried at cost on the Company’s balance sheet as part of other investments, net of other than temporary impairment losses.

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Other investments, net consist of the following:

Type June 30, 2017  June 30, 2016 
Private equity hedge fund, at cost $782,000  $916,000 
Other investments  429,000   113,000 
  $1,211,000  $1,029,000 
For the year ended June 30, 2023  2022 
Realized (loss) gain on marketable securities $(1,712,000) $375,000 
Realized loss on marketable securities related to Comstock  -   (2,581,000)
Unrealized gain (loss) on marketable securities  2,838,000   (5,408,000)
Net gain (loss) on marketable securities $1,126,000  $(7,614,000)

 

NOTE 7 - FAIR VALUE MEASUREMENTS

 

The carrying values of the Company’s financial instruments not required to be carried at fair value on a recurring basis approximate fair value due to their short maturities (i.e., accounts receivable, other assets, accounts payable and other liabilities, due to securities broker and obligations for securities sold) or the nature and terms of the obligation (i.e., other notes payable and mortgage notes payable).

 

The assets measured at fair value on a recurring basis are as follows:

 

As of June 30, 2017   
 Level 1 
As of June 30, 2023 Level 1 
Assets:        
Investment in marketable securities:        
REITs and real estate companies $6,985,000 
Technology  2,779,000 
T-Notes  2,093,000 
Financial services  1,865,000 
Consumer cyclical  1,689,000 
Basic materials $6,222,000   1,047,000 
Technology  4,134,000 
REITs and real estate companies  1,820,000 
Energy  1,345,000 
Corporate bonds  1,683,000 
Other  1,973,000 
Healthcare  739,000 
Communication services  566,000 
Industrial  485,000 
Utilities  97,000 
 $17,177,000  $18,345,000 

 

As of June 30, 2016   
 Level 1 
As of June 30, 2022 Level 1 
Assets:        
Investment in marketable securities:        
Basic materials $9,273,000 
REITs and real estate companies $3,289,000 
Communication services  2,787,000 
Financial services  1,755,000 
Technology  815,000 
Basic material  769,000 
Consumer cyclical  693,000 
Industrial  385,000 
Energy  1,907,000   279,000 
Financial services  1,021,000 
Other  2,081,000   277,000 
 $14,282,000  $11,049,000 

 

The fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance sheet date.

 

Financial assets that are measured at fair value on a non-recurring basis and are not included in the tables above includeare “Other investments in non-marketable securities,” that were initially measured at cost and have been written down to fair value as a result of impairment or adjusted to record the fair value of new instruments received (i.e., preferred shares) in exchange for old instruments (i.e., debt instruments). The following table shows the fair value hierarchy for these assets measured at fair value on a non-recurring basis as follows:

 

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        Net loss for the 
Assets Level 3  June 30, 2022  year ended
June 30, 2022
 
             
Other non-marketable investments $-  $-  $(41,000)

For fiscal years ended June 30, 2023 and 2022, we received distribution from other non-marketable investments of zero and $41,000, respectively.

        Net loss for the year 
Assets Level 3  June 30, 2017  ended June 30, 2017 
             
Other non-marketable investments $1,211,000  $1,211,000  $(178,000)

        Net loss for the year 
Assets Level 3  June 30, 2016  ended June 30, 2016 
             
Other non-marketable investments $1,029,000  $1,029,000  $(673,000)

 

Other investments in non-marketable securities are carried at cost net of any impairment loss. The Company has no significant influence or control over the entities that issue these investments. These investments are reviewed on a periodic basis for other-than-temporary impairment. When determining the fair value of these investments on a non-recurring basis, the Company uses valuation techniques such as the market approach and the unobservable inputs include factors such as conversion ratios and the stock price of the underlying convertible instruments. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near termnear-term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.

 

NOTE 8 – OTHER ASSETS NET

 

Other assets consist of the following as of June 30:

 

 2017  2016  2023  2022 
Accounts receivable, net $1,489,000  $3,250,000  $631,000  $634,000 
Prepaid expenses  602,000   1,298,000   648,000   775,000 
Miscellaneous assets, net  1,274,000   1,091,000 
        
Miscellaneous assets  681,000   652,000 
Prepaid taxes  697,000   683,000 
Total other assets $3,365,000  $5,639,000  $2,657,000  $2,744,000 

 

NOTE 9 – RELATED PARTY AND OTHER NOTES PAYABLE–OTHER FINANCING TRANSACTIONS

 

On May 5, 2016, Justice and Portsmouth entered into a settlement agreement relating to previously reported litigation with Evon Corporation and certainThe following summarizes the balances of other parties.  Under the settlement agreement, Justice, a subsidiary of Portsmouth agreed to payEvon Corporation $5,575,000. Asnotes payable as of June 30, 2017, this balance has been fully paid.This amount was accrued2023 and recorded as restructuring cost for the year end June 30, 2016.  2022, respectively.

 

As of June 30, 2023  2022 
       
Note payable – Hilton $2,058,000  $2,375,000 
Note payable – Aimbridge  896,000   1,146,000 
Total other notes payable $2,954,000  $3,521,000 

Also included in the balance of the related party note

Note payable at June 30, 2017 is the obligation to Hilton (Franchisor) in the form ofis a self-exhausting, interest free development incentive notesnote which will beis reduced by approximately $316,000$317,000 annually through 2030 by Hilton if the Partnership is still a Franchisee with Hilton. For the years ended June 30, 2017 and 2016, the note was reduced by approximately $316,000 for each respective year.

 

On February 1, 2017, JusticeOperating entered into a Hotel management agreement (“HMA”)an HMA with Interstate Management Company, LLC (“Interstate”)Ambridge to manage the Hotel with an effective takeover date of February 3, 2017. The term of the management agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an additional year not to exceed five years in the aggregate subject to certain conditions. The HMA also provides for InterstateAmbridge to advance a key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms and conditions described in a separate key money agreement. The key money contribution shall be amortized in equal monthly amounts over an eight (8) year period commencing on the second (2nd) anniversary of the takeover date. During the first quarter of fiscal year 2021, the Hotel obtained approval from Ambridge to use the key money for hotel operations and the funds were exhausted by December 31, 2020. The $2,000,000 isunamortized portion of the key money in the amount of $896,000 and $1,146,000 are included in restricted cash and related party noteother notes payable balances in the condensed consolidated balance sheets at June 30, 2023 and 2022, respectively.

On April 9, 2020, Justice entered into a loan agreement (“SBA Loan – Justice”) with CIBC Bank USA under the CARES Act administered by the U.S. Small Business Administration (the “SBA”). On February 3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the SBA Loan. Justice used all proceeds from the SBA Loan primarily for payroll costs. The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ended June 30, 2022.

Future minimum principal payments for all other financing transactions are as follows:

For the year ending June 30,   
2024 $567,000 
2025  567,000 
2026  567,000 
2027  463,000 
2028  317,000 
Thereafter  475,000 
  $2,956,000 

To fund the redemption of limited partnership interests and to repay the prior mortgage of $42,940,000, Justice obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan in December 2013. The mortgage loan is secured by the Partnership’s principal asset, the Hotel. The mortgage loan bears an interest rate of 5.275% per annum with interest only payments due through January 2017. Beginning in February 2017, the loan began to amortize over a thirty-year period through its maturity date of January 2024. Outstanding principal balance on the loan was $89,114,000 and $90,745,000 as of June 30, 2017.2023 and 2022, respectively. As additional security for the mortgage loan, there is a limited guaranty executed by Portsmouth in favor of the mortgage lender. The mezzanine loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The mezzanine interest only loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by Portsmouth in favor of the mezzanine lender. On July 31, 2019, Mezzanine refinanced the mezzanine loan by entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine Loan which had a 9.75% per annum interest rate was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan matures on January 1, 2024. Interest only payments are due monthly.

 

43

Effective May 11, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for Justice Investors limited partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain certain net worth and liquidity. As of June 30, 2016,2023, InterGroup is in compliance with both requirements. Justice Operating Company, LLC has not been meeting certain of its loan covenants such as the CompanyDebt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lockbox by the Lender for all cash collected by the Hotel. However, such lockbox has various non-mortgage notesbeen created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR.

On July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed interest, with a term of 2 years, payable interest only each month. InterGroup received a 3% loan fee. The loan may be prepaid at any time without penalty. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and financing obligations outstanding totaling $212,000. The notes bear interest at market ratesInterGroup entered into a loan modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and were fully paidInterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. As of June 30, 2017.2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000, net of loan amortization costs of zero, respectively. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.

 

Future minimum payments forAs disclosed in its Definitive Information Statement on Schedule 14C, filed with the SEC on January 25, 2021, Santa Fe received shareholder approval to distribute its assets, as described and subsequently dissolve, all related partyas set forth in the Information Statement. As InterGroup formerly owned 83.7% of the outstanding common stock of Santa Fe, the Company received cash of $5,013,000 and other notes payable are422,998 shares of Portsmouth common stock in March 2021 as follows:a result of the liquidation of Santa Fe. As a former 3.7% shareholder of Santa Fe, the Company’s President, Chairman of the Board and Chief Executive Officer, John Winfield, received cash of $221,000 and 18,641 shares of Portsmouth common stock in March 2021 as a result of the liquidation of Santa Fe. On April 12, 2021, Santa Fe received a filed stamped copy of its Articles of Dissolution from the State of Nevada, and Santa Fe is effectively fully dissolved and no longer in legal existence. In June 2022, InterGroup received distribution of $1,159,000 of from Santa Fe as the entity received federal and state tax refunds from previously filed final tax returns.

 

For the year ending June 30,   
2018 $369,000 
2019  474,000 
2020  607,000 
2021  567,000 
2022  567,000 
Thereafter  3,528,000 
  $6,112,000 

Four of the Portsmouth directors serve as directors of InterGroup. The Company’s Vice President Real Estate was elected President of Portsmouth in May 2021. The Company’s director and Chairman of the Audit Committee, William J. Nance, serves as Comstock’s director and Chairman of the Audit and Finance, Compensation and Nominating and Governance Committees of Comstock.

As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and Chief Executive Officer (CEO), 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 and Chairman of the Board of Portsmouth and oversees the investment activity of Portsmouth. Effective June 2016, Mr. Winfield became the Managing Director of Justice and served in that position until the dissolution of Justice in December 2021. Depending on certain market conditions and various risk factors, the Chief Executive Officer and Portsmouth may, at times, invest in the same companies in which the Company invests. Such investments align the interests of the Company with the interests of related parties because it places the personal resources of the Chief Executive Officer and the resources of Portsmouth, at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.

NOTE 10 - MORTGAGE NOTES PAYABLE

 

On December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered into a loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice Mezzanine Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement (“Mezzanine Loan Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San Francisco Mezz Lender LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Partnership iswas the sole member of Mezzanine anduntil its dissolution in December 2021 when Portsmouth replaced the Partnership as the sole member of Mezzanine. Mezzanine is the sole member of Operating.

 

The Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the Loan Agreements were used to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.

 

The Mortgage Loan is secured by the Partnership’sOperating’s principal asset, the Hilton San Francisco-Financial District (the “Property”). The Mortgage Loan bears an interest rate of 5.275% per annum and matures in January 2024. The term of the loan is 10 years with interest only due in the first three years and principleprincipal and interest on the remaining seven years of the loan based on a thirty-year amortization schedule. The Mortgage Loan also requires payments for impounds related to property tax, insurance and capital improvement reserves. As additional security for the Mortgage Loan, there is a limited guaranty (“Mortgage Guaranty”) executed by the CompanyPortsmouth in favor of the Mortgage Lender.

 

The Mezzanine Loan is a secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The Mezzanine Loan bearshad an interest atrate of 9.75% per annum and a maturity date of January 1, 2024. Interest only payments were due monthly. On July 31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan matures on January 1, 2024. Interest only payments are due monthly. As additional security for the Mezzanine Loan,new mezzanine loan, there is a limited guaranty executed by the CompanyPortsmouth in favor of Mezzanine LenderCred Reit Holdco LLC (the “Mezzanine Guaranty” and, together with the Mortgage Guaranty, the “Guaranties”).

 

The Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional misrepresentations; (ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security deposits, insurance, or condemnation proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse guaranties under identified circumstances, including failure to maintain “single purpose” status which is a factor in a consolidation of Operating or Mezzanine in a bankruptcy of another person, transfer, or encumbrance of the Property in violation of the applicable loan documents, Operating or Mezzanine incurring debts that are not permitted, and the Property becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership iswas required to maintain a certain minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for the $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain a certain net worth and liquidity. As of June 30, 2017,2023 and 2016, the Partnership2022, InterGroup is in compliance with both requirements.

Justice Operating Company, LLC is not meeting certain of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lockbox and cash sweep by the Lender for all cash collected by the Hotel, and under certain terms, would allow the Lender to request Operating to replace its hotel management company. The DSCR for Operating had been below 1.00 from third quarter of fiscal year 2023 to fourth quarter of fiscal year 2023 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR. Justice has not missed any of its debt service payments and does not anticipate missing any debt obligations for at least the next twelve months and beyond. Additionally, Operating’s DSCR for the fourth quarter of fiscal year 2023 was 0.23 for the Mortgage Loan and 0.19 for the Mezzanine Loan.

Each of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements, affirmative covenants and negative covenants, which impose restrictions on, among other things, organizational changes of the respective borrower, operations of the Property, agreements with affiliates and third parties. Each of the Loan Agreements also provides for mandatory prepayments under certain circumstances (including casualty or condemnation events) and voluntary prepayments, subject to satisfaction of prescribed conditions set forth in the Loan Agreements.

 

44

In July 2021, the Company refinanced three of its California properties’ existing mortgages totaling $1,065,000 with three new mortgages totaling $3,450,000. The Company generated net proceeds totaling $2,325,000 as a result of the refinancing. Interest rate on the three new mortgages is fixed at 3.50% for five years and the mortgages mature in July 2051. In July 2021, the Company obtained an $830,000 mortgage note payable on one of its unencumbered California properties and received net proceeds of $826,000. The interest rate on the mortgage is fixed at 3.50% for five years and the mortgage note payable matures in August 2051.

 

In June 2016, TheOn October 14, 2021, the Company refinanced its $1,929,000$15,900,000 mortgage note payable on its 12-unit358-unit apartment complex located in Irving, Texas and obtained a new mortgage note payable for $28,800,000. The Company received net proceeds of $12,938,000 as a result of the refinance. The annual interest rate on the mortgage is fixed at 2.95% for ten years with interest-only payments for the first five years and 30-year amortization thereafter. The mortgage loan matures in November 2031.

On June 30, 2022, the Company refinanced its $5,283,000 mortgage note payable on its 30-unit apartment complex in West Los Angeles, California and obtained a new mortgage innote payable for $5,850,000. The Company received net proceeds of $522,000 as a result of the amount of $2,300,000.refinance. The annual interest rate on the new mortgage is 3.59%fixed at 4.4% for the first five years and 5.44% thereafter. The mortgage loan matures in June 2026.July 2052.

 

In April 2016,On May 31, 2023, the Company entered into an interest rate agreement onrefinanced its $923,000St. Louis, Missouri $4,823,000 mortgage note payable on its commercial property located in Los Angeles, California in order to settle the variable rate as of March 31, 2016 of 4.22% intowith a fixedtwo-year $5,360,000 mortgage with a floating monthly rate of 3.99%the 30-day SOFR (capped at 5.5%) plus SOFR margin of 3.10%, interest-only payments are due for the swap agreement maturesfirst 12 months and $5,500 principal paydowns commencing in January 2021. A swap is a contractual agreement to exchange interest rate payments. As of June 30, 2017, the fair market value of the swap agreement is immaterial.

2024.

Each mortgage notes payable is secured by real estate or the Hotel. As of June 30, 2017,2023 and 2016,2022, the mortgage notes payablepayables are summarized as follows:

 

  As of June 30, 2017            
                 
  Number Note Note      
Property of Units Origination Date Maturity Date Mortgage Balance  Interest Rate 
                 
SF Hotel 543 rooms December 2013 January 2024 $96,343,000   5.28%
SF Hotel 543 rooms December 2013 January 2024  20,000,000   9.75%
    Mortgage notes payable - Hotel    116,343,000     
    Debt issuance costs    (728,000)    
    Total mortgage notes payable - Hotel   $115,615,000     
                   
Florence 157 March 2015 April 2025 $3,357,000   3.87%
Las Colinas 358 November 2012 December 2022  17,818,000   3.73%
Morris County 151 July 2012 August 2022  9,387,000   3.51%
Morris County 151 June 2014 August 2022  2,611,000   4.51%
St. Louis 264 May 2013 May 2023  5,611,000   4.05%
Los Angeles 4 September 2012 September 2042  360,000   3.75%
Los Angeles 2 September 2012 September 2042  364,000   3.75%
Los Angeles 1 August 2012 September 2042  392,000   3.75%
Los Angeles 31 January 2010 December 2020  5,165,000   4.85%
Los Angeles 30 August 2007 September 2022  6,041,000   5.97%
Los Angeles 27 November 2010 December 2020  2,909,000   4.85%
Los Angeles 14 April 2011 March 2021  1,697,000   5.89%
Los Angeles 12 June 2016 June 2026  2,261,000   3.59%
Los Angeles 9 April 2011 May 2021  1,356,000   5.60%
Los Angeles 9 April 2011 March 2021  1,156,000   5.89%
Los Angeles 8 July 2013 July 2043  461,000   3.75%
Los Angeles 7 August 2012 September 2042  890,000   3.75%
Los Angeles 4 August 2012 September 2042  610,000   3.75%
Los Angeles 1 September 2012 September 2042  418,000   3.75%
Los Angeles 1 August 2016 August 2018  1,000,000   5.25%
Los Angeles Office April 2016 January 2021  878,000   3.99%
    Mortgage notes payable - real estate    64,742,000     
    Debt issuance costs    (444,000)    
    Total mortgage notes payable - real estate   $64,298,000     

45

  As of June 30, 2016             
                  
  Number Note Note       
Property of Units Origination Date Maturity Date  Mortgage Balance  Interest Rate 
                  
SF Hotel 543 rooms December 2013 January  2024  $97,000,000   5.28%
SF Hotel 543 rooms December 2013 January  2024   20,000,000   9.75%
    Mortgage notes payable - Hotel      117,000,000     
    Debt issuance costs      (840,000)    
    Total mortgage notes payable - Hotel     $116,160,000     
                     
Florence 157 March 2015 April  2025  $3,421,000   3.87%
Las Colinas 358 November 2012 December  2022   18,217,000   3.73%
Morris County 151 July 2012 July  2022   9,696,000   3.51%
Morris County 151 June 2014 August  2022   2,658,000   4.51%
St. Louis 264 May 2013 May  2023   5,726,000   4.05%
Los Angeles 4 September 2012 September  2042   369,000   3.75%
Los Angeles 2 September 2012 September  2042   372,000   3.75%
Los Angeles 1 August 2012 September  2042   401,000   3.75%
Los Angeles 31 January 2010 December  2020   5,274,000   4.85%
Los Angeles 30 August 2007 September  2022   6,168,000   5.97%
Los Angeles 27 November 2010 December  2020   2,971,000 �� 4.85%
Los Angeles 14 April 2011 March  2021   1,726,000   5.89%
Los Angeles 12 June 2016 June  2026   2,300,000   3.59%
Los Angeles 9 April 2011 May  2021   1,381,000   5.60%
Los Angeles 9 April 2011 March  2021   1,176,000   5.89%
Los Angeles 8 July 2013 July  2043   472,000   3.75%
Los Angeles 7 August 2012 September  2042   911,000   3.75%
Los Angeles 4 August 2012 September  2042   624,000   3.75%
Los Angeles 1 September 2012 September  2042   428,000   3.75%
Los Angeles Office April 2016 January  2021   914,000   3.99%
    Mortgage notes payable - Hotel     65,205,000     
    Debt issuance costs      (533,000)    
    Total mortgage notes payable - Hotel     $64,672,000     
  As of June 30, 2023        
  Number  Note Note Mortgage  Interest 
Property of Units  Origination Date Maturity Date Balance  Rate 
              
SF Hotel  544 rooms  December 2013 January 2024 $87,240,000   5.28%
SF Hotel  544 rooms  July 2019 January 2024  20,000,000   7.25%
      Mortgage notes payable – Hotel  107,240,000     
      Debt issuance costs    (123,000)    
      Total mortgage notes payable – Hotel $107,117,000     
                 
Florence  157  March 2015 April 2025 $2,917,000   3.87%
Las Colinas  358  October 2021 November 2031  28,800,000   2.95%
Morris County  151  April 2020 May 2030  17,208,000   3.17%
St. Louis  264  May 2023 May 2025  5,360,000   8.60%
Los Angeles  4  July 2021 July 2051  1,112,000   3.50%
Los Angeles  2  July 2021 July 2051  674,000   3.50%
Los Angeles  1  June 2021 August 2051  886,000   3.50%
Los Angeles  31  October 2020 November 2030  8,291,000   2.52%
Los Angeles  30  June 2022 July 2052  5,762,000   4.40%
Los Angeles  14  January 2021 February 2031  2,645,000   3.05%
Los Angeles  12  June 2016 June 2026  1,974,000   3.59%
Los Angeles  9  June 2020 July 2030  2,443,000   3.09%
Los Angeles  9  November 2020 December 2030  1,891,000   3.05%
Los Angeles  8  July 2021 July 2051  1,535,000   3.50%
Los Angeles  7  August 2012 September 2042  751,000   3.75%
Los Angeles  4  June 2021 August 2051  1,112,000   3.50%
Los Angeles  1  June 2021 August 2051  534,000   3.50%
Los Angeles  4  July 2021 August 2051  800,000   3.50%
Los Angeles  1  September 2018 October 2048  934,000   3.50%
      Mortgage notes payable – real estate  85,629,000     
      Debt issuance costs    (872,000)    
      Total mortgage notes payable – real estate $84,757,000     
  As of June 30, 2022        
  Number  Note Note Mortgage  Interest 
Property of Units  Origination Date Maturity Date Balance  Rate 
              
SF Hotel  544 rooms  December 2013 January 2024 $89,114,000   5.28%
SF Hotel  544 rooms  July 2019 January 2024  20,000,000   7.25%
      Mortgage notes payable – Hotel  109,114,000     
      Debt issuance costs    (367,000)    
      Total mortgage notes payable – Hotel $108,747,000     
                 
Florence  157  March 2015 April 2025 $2,998,000   3.87%
Las Colinas  358  October 2021 November 2031  28,801,000   2.95%
Morris County  151  April 2020 May 2030  17,598,000   3.17%
St. Louis  264  May 2013 May 2023  4,958,000   4.05%
Los Angeles  4  July 2021 July 2051  1,135,000   3.50%
Los Angeles  2  July 2021 July 2051  688,000   3.50%
Los Angeles  1  June 2021 August 2051  904,000   3.50%
Los Angeles  31  October 2020 November 2030  8,400,000   2.52%
Los Angeles  30  June 2022 July 2052  5,850,000   4.40%
Los Angeles  14  January 2021 February 2031  2,704,000   3.05%
Los Angeles  12  June 2016 June 2026  2,026,000   3.59%
Los Angeles  9  June 2020 July 2030  2,498,000   3.09%
Los Angeles  9  November 2020 December 2030  1,934,000   3.05%
Los Angeles  8  July 2021 July 2051  1,567,000   3.50%
Los Angeles  7  August 2012 September 2042  774,000   3.75%
Los Angeles  4  June 2021 August 2051  1,135,000   3.50%
Los Angeles  1  June 2021 August 2051  545,000   3.50%
Los Angeles  4  July 2021 August 2051  816,000   3.50%
Los Angeles  1  September 2018 October 2048  956,000   4.75%
      Mortgage notes payable – real estate  86,287,000     
      Debt issuance costs    (850,000)    
      Total mortgage notes payable – real estate $85,437,000     

 

Future minimum payments for all mortgage notes payable are as follows:

 

For the year ending June 30,   
2018 $2,957,000 
2019  3,099,000 
2020  4,246,000 
2021  3,229,000 
2022  3,228,000 
Thereafter  164,326,000 
  $181,085,000 

NOTE 11 – GARAGE OPERATIONS

The parking garage that is part of the Hotel property was managed by Ace Parking pursuant to a contract with the Partnership. The contract was terminated with an effective termination date of October 4, 2016. The Company began managing the parking garage in-house after the termination of Ace Parking. Effective February 3, 2017, Interstate took over the management of the parking garage along with the Hotel.

46

For the year ending June 30,   
2024 $108,420,000 
2025  9,318,000 
2026  1,168,000 
2027  3,299,000 
2028  1,771,000 
Thereafter  68,894,000 
  $192,870,000 

NOTE 1211 – MANAGEMENT AGREEMENTS

 

Justice had a management agreement with Prism Hospitality L.P. (“Prism”) to perform certain management functions for the Hotel. The management agreement with Prism had an original term of ten years, subject to the Partnership’s right to terminate at any time with or without cause. Effective January 2014, the management agreement with Prism was amended by the Partnership to change the nature of the services provided by Prism and the compensation payable to Prism, among other things. Prism’s management agreement was terminated upon its expiration date of February 3, 2017. Effective December 1, 2013, GMP Management, Inc. (“GMP”), a company owned by a Justice limited partner and a related party, also provided management services for the Partnership pursuant to a management services agreement, with a three-year term, subject to the Partnership’s right to terminate earlier for cause. In June 2016, GMP resigned. After a lengthy review process of several national third-party hotel management companies, on February 1, 2017, JusticeOperating entered into a Hotelhotel management agreement (“HMA”) with Interstate Management Company, LLCAimbridge Hospitality (“Interstate”Aimbridge”) to manage the Hotel, along with its five-level parking garage, with an effective takeover date of February 3, 2017. The term of the management agreement is for an initial period of 10ten years commencing on the takeoverFebruary 3, 2017 date and automatically renews for an additionalsuccessive one (1) year periods, not to exceed five years in the aggregate, subject to certain conditions. TheUnder the terms on the HMA, also provides for Interstatebase management fee (“Basic Fee”) payable to advance a key moneyAimbridge shall be one and seven-tenths percent (1.70%) of total Hotel revenue. In addition to the Basic Fee, Aimbridge shall be entitled to an annual incentive fee for each fiscal year equal to ten percent (10%) of the Hotel for capital improvementsamount by which Gross Operating Profit in the amount of $2,000,000 under certain terms and conditions described in a separate key money agreement. The key money contribution shall be amortized in equal monthly amounts over an eight (8)current fiscal year period commencing onexceeds the second (2nd) anniversary of the takeover date. The $2,000,000 is included in restricted cash and related party note payable balances in the condensed consolidated balance sheets as of June 30, 2017.previous fiscal year’s Gross Operating Profit.

 

In February 2017, Interstate was hired to manageFor the Hotel. During the yearfiscal years ended June 30, 2017, Interstate2023 and 2022, hotel management fees were $372,000. During$711,000 and $530,000, and incentive fees of $505,000 and $525,000, respectively, offset by key money amortization of $250,000 for both years and are included in Hotel operating expenses in the year ended June 30, 2016, GMPconsolidated statements of operations. As part of the Hotel management fees were $1,219,000.agreement, Aimbridge, through the Company’s wholly owned subsidiary, Kearny Street Parking LLC, manages the parking garage in-house.

 

NOTE 1312 – CONCENTRATION OF CREDIT RISK

 

As of June 30, 2017, all accounts2023 and 2022, receivables are related to Hotel customers. Ascustomers were $419,000 and $377,000, respectively. Usually, credit extended to the Company’s tenants at its rental properties is of low risk as leases do not extend beyond one year and if tenants become delinquent, local eviction laws are used to evict tenants. However, as of June 30, 2016, approximately 45% of2023 and 2022 accounts receivable is relatedfrom the Company’s rental properties was $698,000 and $366,000, respectively and allowance for doubtful accounts was $486,000 and $110,000, respectively. This unusual large gross receivable amounts from our rental properties was due to legal settlement receivables.temporary eviction moratorium imposed by the federal and state governmental authorities since the beginning of the COVID19 pandemic. Under the eviction moratorium, the Company was not allowed to evict tenants for non-payment of rent. In the State of California, the “Los Angeles County’s COVID-19 Tenant Protection Resolution” expired on March 31, 2023, thereby lifting the eviction moratorium but allowing the tenants additional time to for their past due rent. For tenants that owe rent from March 1, 2020 through September 30, 2021, tenants must pay by August 1, 2023; for tenants that owe rent from October 1, 2021 through January 31, 2023, tenants must pay by February 1, 2024. The Hotel had one customer that accounted for 27%, or $390,000 of accounts receivable at June 30, 2017, and four customers that accounted for 26%, or $811,000 of accounts receivable at June 30, 2016.Company will continue to pursue its collections to the full extent allowed by the various governmental housing authorities around the country.

 

The PartnershipCompany maintains its cash and cash equivalents and restricted cash with various financial institutions that are monitored regularly for credit quality. At times, such cash and cash equivalents holdings may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) or other federally insured limits. Any loss incurred or a lack of access to such funds could have significant adverse impact on the Company’s financial condition, results of operations, and cash flows.

 

NOTE 1413 – INCOME TAXES

 

The provision for the Company’s income tax (expense) benefit is comprised of the following:

 

For the years ended June 30, 2017  2016 
       
Federal        
Current tax (expense) benefit $(333,000) $79,000 
Deferred tax (expense) benefit  (168,000)  3,349,000 
   (501,000)  3,428,000 
         
State        
Current tax expense  (310,000)  (128,000)
Deferred tax benefit  290,000   640,000 
   (20,000)  512,000 
         
  $(521,000) $3,940,000 

47

For the years ended June 30, 2023  2022 
       
Federal        
Current tax $(116,000) $(113,000)
Deferred tax  6,420,000   884,000 
   6,304,000   771,000 
         
State        
Current tax  9,000   (330,000)
Deferred tax  2,121,000   589,000 
   2,130,000   259,000 
         
Income Tax (expense) benefit $(8,434,000) $1,030,000 

The provision for income taxes differs from the amount of income tax computed by applying the federal statutory income tax rate to lossincome before taxes as a result of the following differences:

 

For the years ended June 30, 2017  2016  2023  2022 
          
Statutory federal tax rate $440,000  $4,471,000  $(315,000) $2,446,000 
State income taxes, net of federal tax benefit  (25,000)  465,000   (375,000)  204,000 
Dividend received deduction  56,000   13,000   (18,000)  103,000 
Noncontrolling interest  -   (117,000)
PPP Loan forgiveness  -   1,391,000 
Provision to return adjustment  (334,000)  634,000 
Deferral true up – Justice difference in basis of fixed
assets
  -   11,621,000 
Net operating loss true up  (275,000)  32,000 
Valuation allowance  (521,000)  (489,000)  10,232,000   (15,201,000)
Payable true up  (249,000)  (311,000)
State rate change impact  (352,000)  - 
Other  (471,000)  (403,000)  120,000   111,000 
 $(521,000) $3,940,000  $(8,434,000) $1,030,000 

 

The components of the deferred tax asset and liabilities are as follows:

 

 June 30, 2017  June 30, 2016  June 30, 2023  June 30, 2022 
Deferred tax assets:                
Net operating loss carryforwards $14,302,000  $11,372,000  $13,187,000  $11,075,000 
Deferred gains on real estate sale and depreciation  15,054,000   10,418,000 
Capital loss carryforwards  1,122,000   1,302,000   1,919,000   1,322,000 
Investment impairment reserve  1,778,000   1,898,000 
Accruals and reserves  1,182,000   1,096,000   843,000   831,000 
Unrealized gains on marketable securities  284,000   - 
Interest expense  3,185,000   2,231,000 
Tax credits  516,000   -   566,000   566,000 
Equity earnings  -   758,000 
State taxes  139,000   - 
Other  289,000   -   204,000   247,000 
Valuation allowance  (3,388,000)  (2,824,000)
  16,085,000   13,602,000 
Deferred tax assets (liabilities):        
Equity earnings  (2,624,000)  - 
Deferred Tax Asset before Valuation Allowance  35,097,000   26,690,000 
Valuation Allowance  (33,784,000)  (22,775,000)
Deferred Tax Asset after Valuation Allowance  1,313,000   3,915,000 
Deferred tax liabilities:        
Deferred gains on real estate sale and depreciation  (8,816,000)  (8,321,000)  (4,796,000)  - 
Unrealized gains on marketable securities  -   (335,000)
Unrealized gain on marketable securities  (746,000)  (9,000)
Gain on insurance claim  (696,000)  - 
Other  -   - 
State taxes  (538,000)  (961,000)  -   (294,000)
  (11,978,000)  (9,617,000)
Net deferred tax asset $4,107,000  $3,985,000 
Deferred Tax Liability  (6,238,000)  (303,000)
Net deferred tax (liability) asset $(4,925,000) $3,612,000 

Management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of June 30, 2023, it has been determined that it is more likely than not that the deferred tax asset will not be recognized. Thus, there is a valuation allowance of $33,784,000 as of June 30, 2023. This was an increase of $11,009,000 from June 30, 2022.

 

As of June 30, 2017,2023, the Company had estimated net operating losses (NOLs)loss carryforwards (“NOL”) available for carryforward of $35,246,000approximately $41,835,000 and $27,112,000$51,289,000 for federal and state purposes, respectively. Below isOf the break-down of the NOLs for Intergroup, Santa Fe and Portsmouth. The carryforward expires$41,835,000 federal NOL carryforwards, $14,707,000 expire in varying amounts through 2037 and $27,128,000 of post-2017 NOLs can be carried forward indefinitely. Note that the year 2037.post-2017 NOLs may only offset 80% of future taxable income. The Company had capital loss carryforwards of $6,936,000 for federal and state purposes. The capital losses begin to expire in 2024 for both federal and state purposes. There are immaterial California state tax credits of $524,000 which expire in various years.

 

  Federal  State 
InterGroup $-  $1,478,000 
Santa Fe  8,180,000   2,951,000 
Portsmouth  27,066,000   22,683,000 
  $35,246,000  $27,112,000 

Below is the breakdown of the net operating losses for Intergroup and Portsmouth.

  Federal  State 
InterGroup $-  $2,789,000 
Portsmouth  41,835,000   48,500,000 
  $41,835,000  $51,289,000 

As of June 30, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $35,483,000 and $41,238,000 for federal and state purposes, respectively. Of the $35,483,000 federal NOL’s carryforwards, $14,697,000 expire in varying amount through 2037 and $20,786,000 of post 2017 NOL’s can be carried forward indefinitely. Note that the post 2017 NOL’s may only offset 80% of future taxable income. The Company had federal and state capital loss carryforwards of $3,985,000 and $5,547,000, respectively. The capital losses begin to expire in 2024 for both federal and state purposes. There are immaterial California state tax credits of $524,000 which expire in various years.

 

Utilization of the net operating loss carryovercertain tax attributes may be subject a substantial annual limitation if it should be determined that there has been a change in the ownership of more than 50 percent of the value of the Company'sCompany’s stock, pursuant to Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating loss carryoverslosses before utilization.

 

Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the “more-likely-than-not” threshold based on the technical merits of the positions. As of June 30, 2017, it has been determined there are no uncertain tax positions likely to impact the Company.

48

The Partnershipcorporation files tax returns as prescribed by the tax laws of the jurisdictions in which it operates and is subject to examination by federal, state, and local jurisdictions, werewhere applicable.

 

As of June 30, 2017,2023, tax years beginning in fiscal 20112019 and 2018 remain open to examination by the majorfederal and state tax jurisdictions, respectively, and are subject to the statute of limitations.

Uncertain Tax Positions

The Company regularly evaluates the likelihood of realizing the benefit from income tax positions that it has taken in various federal, state, and foreign filings by considering all relevant facts, circumstances and information available. If the Company determines it is more likely than not that the position will be sustained, a benefit will be recognized at the largest amount that it believes is cumulatively greater than 50% likely to be realized. The following table summarizes changes in the amount of the Company’s unrecognized tax benefits for uncertain tax positions:

Unrecognized Tax Benefits at June 30, 2022 $- 
Increase in tax positions taken  1,665,000 
Decrease in tax positions taken  - 
Unrecognized Tax Benefits at June 30, 2023 $1,665,000 

$0 and $1,665,000 of unrecognized tax benefits as of June 30, 2022 and June 30, 2023, respectively, would impact the effective tax rate if recognized. The unrecognized tax benefit is not expected to reverse in the next 12 months. Interest and penalties related to income tax matters are classified as a component of income tax expense. As of June 30, 2022 and June 30, 2023, no interest and penalties were recorded.

 

NOTE 1514 – SEGMENT INFORMATION

 

The Company operates in three reportable segments, the operation of the Hotel (“Hotel Operations”), the operation of its multi-family residential properties (“Real Estate Operations”) and the investment of its cash in marketable securities and other investments (“Investment Transactions”). 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 information.

 

Information below represents reported segments for the years ended June 30, 20172023 and 2016.2022. Segment income (loss) from Hotel operations consists of the operation of the Hotel and operation of the garage. Segment income from real estate operations consists of the operation of the rental properties. Loss from investments consists of net investment loss,gain (loss), dividend and interest income and investment related expenses.

 

As of and for the year Hotel Real Estate Investment      
ended June 30, 2017 Operations  Operations  Transactions  Other  Total 
As of and for the year ended Hotel Real Estate Investment      
June 30, 2023 Operations  Operations  Transactions  Other  Total 
Revenues $54,334,000  $14,671,000  $-  $-  $69,005,000  $42,027,000  $15,580,000  $-  $-  $57,607,000 
Segment operating expenses  (40,717,000)  (7,166,000)  -   (2,821,000)  (50,704,000)  (34,457,000)  (10,017,000)  -   (3,333,000)  (47,807,000)
Segment income (loss) from operations  13,617,000   7,505,000   -   (2,821,000)  18,301,000   7,570,000   5,563,000   -   (3,333,000)  9,800,000 
Interest expense - mortgage  (7,066,000)  (2,538,000)  -   -   (9,604,000)
Interest expense - mortgages  (6,467,000)  (2,118,000)  -   -   (8,585,000)
Gain on insurance recovery  -   2,692,000   -   -   2,692,000 
Depreciation and amortization expense  (3,057,000)  (2,248,000)  -   -   (5,305,000)  (2,815,000)  (2,649,000)  -   -   (5,464,000)
Loss from investments  -   -   (4,547,000)  -   (4,547,000)
Gain from investments  -   -   58,000   -   58,000 
Income tax expense  -   -   -   (521,000)  (521,000)  -   -   -   (8,433,000)  (8,433,000)
Net income (loss) $3,494,000  $2,719,000  $(4,547,000) $(3,342,000) $(1,676,000) $(1,712,000) $3,488,000  $58,000  $(11,766,000) $(9,932,000)
Total assets $48,739,000  $54,984,000  $18,388,000  $11,098,000  $133,209,000  $46,393,000  $48,057,000  $18,345,000  $9,563,000  $122,358,000 

 

As of and for the year Hotel Real Estate Investment      
ended June 30, 2016 Operations  Operations  Transactions  Other  Total 
As of and for the year ended Hotel Real Estate Investment      
June 30, 2022 Operations  Operations  Transactions  Other  Total 
Revenues $58,566,000  $14,332,000  $-  $-  $72,898,000  $31,534,000  $15,685,000  $-  $-  $47,219,000 
Segment operating expenses  (47,246,000)  (6,790,000)  -   (2,722,000)  (56,758,000)  (27,451,000)  (8,694,000)  -   (2,651,000)  (38,796,000)
Segment income (loss) from operations  11,320,000   7,542,000   -   (2,722,000)  16,140,000   4,083,000   6,991,000   -   (2,651,000)  8,423,000 
Legal settlement costs  (5,396,000)  -   -   -   (5,396,000)
Interest expense - mortgage  (7,271,000)  (2,627,000)  -   -   (9,898,000)  (6,549,000)  (2,332,000)  -   -   (8,881,000)
Loss on disposal of assets  (30,000)  -   -   -   (30,000)
Gain on debt forgiveness  2,000,000   (335,000)  -   -   1,665,000 
Depreciation and amortization expense  (3,053,000)  (2,093,000)  -   -   (5,146,000)  (2,310,000)  (2,444,000)  -   -   (4,754,000)
Loss from investments  -   -   (8,877,000)  -   (8,877,000)  -   -   (8,101,000)  -   (8,101,000)
Income tax benefit  -   -   -   3,940,000   3,940,000   -   -   -   1,030,000   1,030,000 
Net income (loss) $(4,430,000) $2,822,000  $(8,877,000) $1,218,000  $(9,267,000) $(2,776,000) $1,880,000  $(8,101,000) $(1,621,000) $(10,618,000)
Total assets $50,969,000  $56,356,000  $15,311,000  $12,101,000  $134,737,000  $46,847,000  $48,025,000  $11,049,000  $21,125,000  $126,046,000 

 

NOTE 1615 – STOCK-BASED COMPENSATION PLANS

 

The Company follows the Statement of Financial Accounting Standards 123 (Revised), "Share-Based Payments" ("“Share-Based Payments” (“SFAS No. 123R"123R”), which was primarily codified into ASC Topic 718 “Compensation – Stock Compensation”, which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.

 

The Company currently has threeone equity compensation plans, each ofplan, which is the Intergroup 2010 Omnibus Employee Incentive Plan. The plan has been approved by the Company’s stockholders. The InterGroup Corporation 2008 Restricted Stock Unit Plan (the “2008 RSU Plan”), the InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors (the “2007 Stock Plan”)stockholders and the Intergroup 2010 Omnibus Employee Incentive Plan are described below. Any outstanding options issued under the Key Employee Plan or the Non-Employee Director Plan remain effective in accordance with their terms.

 

49

As of June 30, 2023 and 2022, there were no RSUs outstanding.

Intergroup Corporation 2010 Omnibus Employee Incentive Plan

 

On February 24, 2010, the shareholders of the Company approved The Intergroup Corporation 2010 Omnibus Employee Incentive Plan (the “2010 Incentive Plan”), which was formally adopted by the Board of Directors following the annual meeting of shareholders. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant; those option awards generally vest based on 5 years of continuous service. Certain option and share awards provide for accelerated vesting if there is a change in control, as defined in the 2010 Incentive Plan. The 2010 Incentive plan as modified in December 2013, authorizes a total of up to 400,000 shares of common stock to be issued as equity compensation to officers and employees of the Company in an amount and in a manner to be determined by the Compensation Committee in accordance with the terms of the 2010 Incentive Plan. The 2010 Incentive Plan authorizes the awards of several types of equity compensation including stock options, stock appreciation rights, performance awards and other stock basedstock-based compensation. The 2010 Incentive Plan will expire onhad an original expiration date of February 23, 2020, if not terminated sooner by the Board of Directors upon recommendation of the Compensation Committee. Any awards issued under the 2010 Incentive Plan will expire under the terms of the grant agreement.

The shares of common stock to be issued under the 2010 Incentive Plan have been registered under the Securities Act, pursuant to a registration statement filed on Form S-8 by the Company on June 16, 2010. Once received, shares of common stock issued under the Plan will be freely transferable subject to any requirements of Section 16 (b) of the Exchange Act.

On March 16, 2010, the Compensation Committee authorized the grant of 100,000 stock options to the Company’s Chairman, President and Chief Executive, John V. Winfield to purchase up to 100,000 shares of the Company’s common stock pursuant to the 2010 Incentive Plan. The exercise price of the options is $10.30, which is 100% of the fair market value of the Company’s Common Stock as determined by reference to the closing price of the Company’s Common Stock as reported on the NASDAQ Capital Market on March 16, 2010, the date of grant. The options had an original expiration date ten years from the date of grant, unless terminated earlier in accordance with the terms of the 2010 Incentive Plan. The options shall be subject to both time and market-based vesting requirements, each of which must be satisfied before options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000 options vesting upon each one-year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2022, all the market vesting requirements have been met.

On December 28, 2019, the Compensation Committee of the Board of Directors recommended to the Board amendments to the 2010 Incentive Plan which would amend Section 1.3 to extend the term from ten years to sixteen years, and Section 6.4 to change “tenth (10th) anniversary date” to “twentieth (20th) anniversary date”. This would increase the term of the 2010 Incentive Plan to twenty years (expiring in February 2030 instead of February 2020) and also permit the existence of options with a term longer than ten years. The purpose of the amendment to the term is to extend its existence as our only incentive plan. The purpose of amendment of the allowable term of options is so that the Board may extend the term of the 100,000 options granted to John Winfield on March 16, 2010 from ten years to sixteen years so that these options will terminate on March 16, 2026 instead of on March 16, 2020, in recognition of Mr. Winfield’s contributions to and leadership of our Company. The recommended amendments were approved by shareholders on February 25, 2020.

In February 2012, the Compensation Committee awarded 90,000 stock options to the Company’s Chairman, President and Chief Executive, John V. Winfield to purchase up to 90,000 shares of common stock. The per share exercise price of the options is $19.77 which is the fair value of the Company’s Common Stock as reported on NASDAQ on February 28, 2012. The options expire ten years from the date of grant. The options are subject to both time and market-based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 18,000 options vesting upon each one-year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 18,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($19.77) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. On January 21, 2022, Mr. Winfield exercised 90,000 of his vested stock options by surrendering 35,094 shares of the Company’s common stock at fair value as payment of the exercise price, resulting in a net issuance to him of 54,906 shares. No additional compensation expense was recorded related to the issuance. This intrinsic value of the cashless exercise of 54,906 stock options was approximately $2,784,000 at January 21, 2022 when the Company’s stock closing stock price was $50.70.

 

On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan, the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting annually commencing on the first anniversary of the grant date.

In February 2012,December 2018, Mr. Winfield exercised the Compensation Committee awarded 90,00026,805 vested incentive stock options to the Company’s Chairman, President and Chief Executive, John V. Winfield to purchase up to 90,000 shares of common stock. The exercise price of the options is $19.77 which is the fair value of the Company’s Common Stock as reported on NASDAQ on February 28, 2012. The options expire ten years from the date of grant. The options are subject to both time and market based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 18,000 options vesting upon each one year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 18,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($19.77) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2017, 90,000 of these options have met the market vesting requirements.

On March 16, 2010, the Compensation Committee authorized the grant of 100,000 stock options to the Company’s Chairman, President and Chief Executive, John V. Winfield to purchase up to 100,000by surrendering 17,439 shares of the Company’s common stock pursuant to the 2010 Incentive Plan. The exercise priceat fair value as payment of the options is $10.30, which is 100% of the fair market value of the Company’s Common Stock as determined by reference to the closing price of the Company’s Common Stock as reported on the NASDAQ Capital Market on March 16, 2010, the date of grant. The options expire ten years from the date of grant, unless earlier terminated in accordance with the terms of the 2010 Incentive Plan. The options shall be subject to both time and market based vesting requirements, each of which must be satisfied before options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000 options vesting upon each one year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price, ($10.30)resulting in a net issuance to him of 9,366 shares. No additional compensation expense was recorded related to the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2017, all the market vesting requirements have been met.issuance.

50

 

In March 2017, the Compensation Committee awarded 18,000 stock options to the Company’s Vice President of Real Estate,Chief Operating Officer, David C. Gonzalez, to purchase up to 18,000 shares of common stock. The per share exercise price of the options is $27.30 which is the fair value of the Company’s Common Stock as reported on NASDAQ Capital Market on March 2, 2017. The options expire ten years from the date of grant. Pursuant to the time vesting requirements, the options vest over a period of five years, with 3,600 options vesting upon each one-year anniversary of the date of grant. All 18,000 shares are vested as of June 30, 2022.

 

During the years ended June 30, 20172023 and 2016,2022, the Company recorded stock option compensation expense of $268,000zero and $391,000,$4,000, respectively, related to stock options previously issued. As of June 30, 2017, there was an estimated total of $304,000 of unamortized2023, all compensation related to stock options which is expected to be recognized over the weighted-average of 3.09 years.has been fully amortized.

 

Option-pricing models require the input of various subjective assumptions, including the option’s expected life, estimated forfeiture rates and the price volatility of the underlying stock. The expected stock price volatility is based on analysis of the Company’s stock price history. The Company has selected to use the simplified method for estimating the expected term. The risk-free interest rate is based on the U.S. Treasury interest rates whose term is consistent with the expected life of the stock options. No dividend yield is included as the Company has not issued any dividends and does not anticipate issuing any dividends in the future.

The following table summarizes the stock options activity from July 1, 20152021 through June 30, 2017:2023:

 

    Number of  Weighted Average  Weighted Average  Aggregate 
    Shares  Exercise Price  Remaining Life  Intrinsic Value 
               
Oustanding at July 1, 2015  350,000  $16.70   6.95 years  $939,000 
Granted    -   -         
Exercised    -   -         
Forfeited    -   -         
Exchanged    -   -         
Oustanding at June 30, 2016  350,000  $16.70   5.95 years  $3,082,000 
Exercisable at June 30, 2016  236,000  $15.54   5.33 years  $2,351,000 
Vested and Expected to vest at June 30, 2016  350,000  $16.70   5.95 years  $3,082,000 
                   
Oustanding at July 1, 2016  350,000  $16.70   5.95 years  $3,082,000 
Granted    18,000   27.30         
Exercised    -   -         
Forfeited    -   -         
Exchanged    -   -         
Oustanding at June 30, 2017  368,000  $17.21   5.17 years  $3,046,000 
Exercisable at June 30, 2017  286,000  $16.19   5.20 years  $2,635,000 
Vested and Expected to vest at June 30, 2017  368,000  $17.21   5.17 years  $3,046,000 

The InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors

The InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors (the “2007 Stock Plan”) was approved by the shareholders of the Company on February 21, 2007, and was thereafter adopted by the Board of Directors. The 2007 Stock Plan will terminate upon the earlier of the date all shares reserved for issuance have been awarded or February 21, 2017, if not sooner terminated by the Board upon recommendation by the Compensation Committee. The stock available for issuance under the 2007 Stock Plan shall be unrestricted shares of the Company's Common Stock, par value $.01 per share, which may be unissued shares or treasury shares. Subject to certain adjustments upon changes in capitalization, a maximum of 60,000 shares of the Common Stock will be available for issuance to participants under the 2007 Stock Plan. This plan was terminated on February 21, 2017.  

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All non-employee directors are eligible to participate in the 2007 Plan. Each non-employee director as of the adoption date of the 2007 Stock Plan was granted an award of 600 unrestricted shares of the Company’s Common Stock. On each July 1 following the adoption date of the 2007 Stock Plan, each non-employee director shall receive an automatic grant of a number of shares of Company’s Common Stock equal in value to $18,000 based on 100% of the fair market value (as defined) of the Common Stock on the date of grant, provided he or she holds such position on that date and the number of shares of Common Stock available for grant under the 2007 Stock Plan is sufficient to permit such automatic grant. Any fractional shares resulting from such grant will be rounded up to next highest whole share. All stock awards to non-employee directors will be fully vested on the date of grant. The dollar amount of the annual grant is subject to further adjustment by the Board of Directors upon recommendation by the Compensation Committee.

The stock awards granted under the 2007 Stock Plan are shares of unrestricted Common Stock and are fully vested on the date of grant. The right of the non-employee director to receive his or her annual grant of Common Stock is personal to the director and is not transferable. Once received, shares of Common Stock awarded to the non-employee director are freely transferable subject to any requirements of Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On June 28, 2007, Company filed a registration statement on Form S-8 to register the shares subject to the 2007 Stock Plan and the Company’s two prior stock option plans under the Securities Act of 1933, as amended (the “Securities Act”). Upon recommendation of the Compensation Committee, the Board may, at any time and from time to time and in any respect, amend or modify the 2007 Stock Plan. The Board must obtain stockholder approval of any material amendment to the 2007 Stock Plan if required by any applicable law, regulation or stock exchange rule. The Board of Directors may amend the 2007 Stock Plan or any award agreement, which amendment may be retroactive, in order to conform it to any present or future law, regulation or ruling relating to plans of this or similar nature. No amendment or modification of the 2007 Stock Plan or any award agreement may adversely affect any outstanding award without the written consent of the participant holding the award.

Upon recommendation of the Compensation Committee, the Board of Directors, on February 23, 2011, voted to increase the annual grant awarded to each of the non-employee directors to a number of shares of Company’s common stock equal in value to $22,000, effective as of the July 1, 2011 grant, while decreasing the annual cash compensation payable to non-employee directors from $16,000 to $12,000 per year. In July 2016, the Compensation Committee, the Board of Directors, voted to amend the 2007 Stock Plan and pay the $22,000 in cash in lieu of the annual grant of stock.

For the year ended June 30, 2016, the four non-employee directors of the Company received a total grant of 4,520 shares of Common Stock pursuant to the 2007 Stock Plan.

    Number of  Weighted Average  Weighted Average  Aggregate 
    Shares  Exercise Price  Remaining Life  Intrinsic Value 
               
Outstanding at July 1, 2021  341,195  $16.95   2.83 years  $8,890,000 
Granted    -   -   -   - 
Exercised    (90,000)  19.77   -   - 
Forfeited    -   -   -   - 
Exchanged    -   -   -   - 
Outstanding at June 30, 2022  251,195  $15.95   2.60 years  $6,628,000 
Exercisable at June 30, 2022  251,195  $15.95   2.60 years  $6,628,000 
Vested at June 30, 2022  251,195  $15.95   2.60 years  $6,628,000 
Outstanding at July 1, 2022  251,195  $15.95   2.60 years  $6,628,000 
Granted    -   -   -   - 
Exercised    -   -   -   - 
Forfeited    -   -   -   - 
Exchanged    -   -   -   - 
Outstanding at June 30, 2023  251,195  $15.95   1.60 years  $4,957,000 
Exercisable at June 30, 2023  251,195  $15.95   1.60 years  $4,957,000 
Vested and expected                  
to vest at June 30, 2023  251,195  $15.95   1.60 years  $4,957,000 

 

NOTE 1716 – RELATED PARTY TRANSACTIONS

 

In connection withAs discussed in Note 9 – Related Party and Other Financing Transactions, upon the redemption of limited partnership interestsdissolution of Justice described in Note 2 above, Justice Operating Company, LLC agreedDecember 2021, Portsmouth assumed Justice’s note payable to pay a total of $1,550,000 in fees to certain officers and directors of the Company for services rendered in connection with the redemption of partnership interests, refinancing of Justice’s properties and reorganization of Justice. This agreement was superseded by a letter dated December 11, 2013 from Justice, in which Justice assumed the payment obligations of Justice Operating Company, LLC. The first payment under this agreement was made concurrently with the closing of the loan agreements described in Note 2 above, with the remaining payments due upon Justice Investor’s having adequate available cash as describedInterGroup in the letter.amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. As of June 30, 2017, $400,0002023 and 2022, the balance of these fees remain payable.the loan was $15,700,000 and $14,200,000, respectively, net of loan amortization costs of zero, respectively, and are eliminated in the consolidated balance sheets of InterGroup. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.

As of June 30, 2023, InterGroup owns approximately 75.7% of the outstanding common shares of Portsmouth. As of June 30, 2023, the Company’s President, Chairman of the Board and Chief Executive Officer, John Winfield, owns approximately 2.5% of the outstanding common shares of Portsmouth. Mr. Winfield also serves as the Chairman of the Board and Chief Executive Officer of Portsmouth.

 

As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and Chief Executive Officer (CEO), 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 and Chairman of the Board of Portsmouth and Santa Fe and oversees the investment activity of those companies.Portsmouth. Effective June 2016, Mr. Winfield became the Managing Director of Justice and served in that position until the dissolution of Justice in December 2021. Depending on certain market conditions and various risk factors, the Chief Executive Officer Portsmouth and Santa FePortsmouth may, at times, invest in the same companies in which the Company invests. Such investments align the interests of the Company with the interests of related parties because it places the personal resources of the Chief Executive Officer and the resources of the Portsmouth, and Santa Fe, at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.

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NOTE 1817 – COMMITMENTS AND CONTINGENCIES

 

Cash Management Agreement

As part of the Hotel refinancing effective December 18, 2013, Operating entered into a Cash Management Agreement with Bank of America, N.A. (“Lender”) and Wells Fargo Bank, N.A. (“Cash Management Bank”) whereby all cash received by Operating is to be deposited into a business checking account controlled by the Cash Management Bank up to the loan maturity date. Additionally, other terms of the Cash Management Agreement provide that effective February 2019 or upon a Property Improvement Plan (“PIP”) requirement by Hilton (“Franchisor”) deemed the “Cash Sweep Period” during which all excess cash generated by Operating beyond the monthly budgeted expenses and debt services including principal and interest, insurance reserves, real estate taxes reserve, Furniture, fixtures, and equipment (“FF&E”) reserves, for the senior and mezzanine loans, will be held by the Cash Management Bank for future hotel improvements as required by the date or a PIP. Currently, any and all funds are being controlled by the Cash Management Bank according to the Cash Management Agreement.

Franchise Agreements

 

The Partnership entered into a Franchise License Agreement (the “License Agreement”) with the HLT Existing Franchise Holding LLC (“Hilton”) on November 24,December 10, 2004. The term of the License agreement was for an initial period of 15 years commencing on the date the Hotel began operating as a Hilton hotel, with an option to extend the License Agreement for another five years, subject to certain conditions. On June 26, 2015, Operating and Hilton entered into an amended franchise agreement which amongst other things extended the License Agreement through 2030, and also provided the Partnership certain key money cash incentives to be earned through 2030.

 

Since the opening of the Hotel as a full brand Hilton in January 2006, the PartnershipJustice has incurred monthly royalties, program fees and information technology recapture charges equal to a percentpercentage of the Hotel’s gross room revenue. Fees for such services during fiscal year 20172023 and 20162022 totaled approximately $3.3 million$3,029,000 and $3.1 million,$2,107,000, respectively.

 

Employees

 

The Company’s corporate office and multifamily operations had 32 employees and the hotel operations had 187 employees as of June 30, 2023. On February 3, 2017, Aimbridge assumed all labor union agreements and provides all funding for all payroll and related costs. As of June 30, 2017, the Partnership, through Operating, had2023, approximately 275 employees. Approximately 83%90% of those employees were represented by one of three labor unions, and their terms of employment were determined under avarious collective bargaining agreementagreements (“CBA”CBAs”) to which the PartnershipAimbridge was a party. During the year ended June 30, 2014, the Partnership renewed the CBAsCBA for the Local 2 (Hotel and Restaurant Employees), expired on August 13, 2022 and a new Memorandum of Understanding (“MOU”) was signed June 26, 2023. CBA for Local 856 (International Brotherhood of Teamsters), expired on December 31, 2022 and a new agreement was signed on April 26, 2023. CBA for Local 39 (stationary engineers). The present CBAs(Stationary Engineers) will expire inon July 2018.31, 2024.

 

Negotiation of collective bargaining agreements, which includes not just terms and conditions of employment, but scope and coverage of employees, is a regular and expected course of business operations for the Partnership.Company and Aimbridge. The PartnershipCompany expects and anticipates that the terms of conditions of CBAs will have an impact on wage and benefit costs, operating expenses, and certain hotel operations during the life of each CBA and incorporates these principles into its operating and budgetary practices.

 

Legal Matters

 

In 2014, Evon Corporation ("Evon") filedPortsmouth Square, Inc., through its operating company Justice Investors Operating Company, LLC, a complaintDelaware limited liability company (the “Company”), is the owner of the real property located at 750 Kearny Street in San Francisco, Superior Court againstcurrently improved with a 27 – story building which houses a Hilton Hotel (the “Property”). The Property was purchased and improved pursuant to the Partnership, Portsmouth, andterms of a limited partner and related party asserting contract and tort claims based on Justice’s withholdingseries of $4.7 million to pay the transfer tax described in Note 1. Evon’s complaint asserted various tort and contract claims against Justice and Portsmouth; and also, a tort against a Justice limited partner and related party. In July 2014, Justice paid to Holdings $4.7 million, the amount Evon claims was incorrectly withheld.  In June 2014, the Partnership sued Evon and related defendants, seeking a judicial declaration as to certain issues arising out of the partnership redemption documents. Evon filed a cross-complaint in December 2014, alleging torts against the Partnership in connectionagreements with the redemption transaction.  On May 5, 2016, Justice Investors and Portsmouth (parent Company) settled these actions via a global agreement. The Partnership agreed to pay Evon $5,575,000. As of January 10, 2017, the Company has satisfied all conditions of the settlement agreement.

In 2013, the City and County of San Francisco ("CCSF"(the “City”) Officein the early 1970’s. The terms of the Assessor Recorder claimed that Justice owed $2.1 million for Transient Occupancy Taxagreements and Tourist Improvement District Assessment. This amount exceeded Justice’s estimatesubsequent approvals and permits included a condition by which the Company was required to construct an ornamental overhead pedestrian bridge across Kearny Street, connecting the Property to a nearby City park and underground parking garage known as Portsmouth Square (the “Bridge”). Included in the approval process was the City’s issuance of a Major Encroachment Permit (“Permit”) allowing the Bridge to span over Kearney Street. As of May 24, 2022, the City has purported to revoke the Permit and on June 13, 2022, has directed the Company to submit a general bridge removal and restoration plan (the “Plan”) at the Company’s expense. The Company disputes the legality of the taxes owed, and Justice disputedpurported revocation of the claim.Permit. The Company paidfurther disputes the full amount in March 2014 as partexistence of any legal or contractual obligation to remove the Bridge at its expense. In particular, representatives of the appealsCompany participated in meetings with the City on and at various times after August 1, 2019, to discuss a collaborative process for the possible removal of the Bridge. Until the purported revocation of the Permit in 2022, the City representatives repeatedly and consistently promised and agreed that the City will pay for the associated costs of any Bridge removal. Nevertheless, without waiving any rights, in an effort to understand all of the available options, and to provide a response to the City’s directives, the Company has engaged a Project Manager, a structural engineering firm and an architect to advise on the development of a Plan for the Bridge removal, as well as the reconstruction of the front of the Hilton Hotel. The Company has been working cooperatively with the City on the process for removal of the Bridge and its related physical encroachments, including obtaining regulatory approvals and permits. A final Plan is currently not expected to be completed until late calendar year of 2023, and permits are unlikely to be obtained until mid-2024 at the earliest. The Company is currently in discussion with the City regarding both the process and reflectedfinancial responsibility for the amount on the balance sheet in “Other assets, net” as it was under protest as of June 30, 2015.  On December 18, 2013, a Documentary Transfer Tax of approximately $4.7 million was paid under protest to CCSF. CCSF had required payment as a condition of recording the transferimplementation of the Hotel, which was necessary to effect the Loan Agreements.  The Partnership then filed a lawsuit challenging the transfer tax in San Francisco County Superior Court. During the year ended June 30, 2016, the Partnership settled the two CCSF lawsuits, receiving $1.45 million, apportioned halfPlan and half to each matter, resulting in approximately $390,000 in excess of net assets recorded. This amount was recorded as a reduction of Hotel restructuring costs.

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In March 2017, the Company settled its lawsuit against RSUI Indemnity Company ("RSUI"), the insurer for the Company's Directors and Officers Liability Policies. Justice received $900,000 from RSUI, resolving allegations that RSUI had improperly handled a claim.

On April 21, 2014, the Partnership commenced arbitration against Glaser Weil Fink Howard Avchen & Shapiro, LLP, Brett J. Cohen, Gary N. Jacobs, Janet S. McCloud, Paul B. Salvaty, and Joseph K. Fletcher III (“Respondents”) in connection with the redemption transaction. The arbitration alleges legal malpractice and also seeks declaratory relief regarding provisionsreconstruction of the redemption option agreement. The arbitration proceedingsimpacted portions of the Hotel. Those discussions are active; discovery is proceeding. The hearing is set for April 2018 before JAMS in Los Angeles. No prediction can be given asexpected to continue through the outcomeAutumn of this matter.2023.

 

The Company ismay be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company defendswill defend itself vigorously against any such claims. Management does not believe that the impact of such matters will have a material effect on the financial conditions or result of operations when resolved.

 

NOTE 1918 – SUBSEQUENT EVENTS

 

The Company evaluated subsequent events through the date that the accompanying financial statements were issued, and has evaluated all events occurring subsequent to June 30, 2017 and concludeddetermined that no additionalmaterial subsequent events has occurred outsideexist through the normal coursedate of business operations that require disclosure.this filing.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.There were no disagreements on any matter of accounting principles or practices, financial statement disclosure, nor auditing scope or procedure.

 

Item 9A. Controls and Procedures.

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

The Company’s management,Disclosure controls are procedures that are designed with the participationobjective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

As of June 30, 2023, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our principal executive officer and principal financial and accounting officer carried out an evaluation of the Company’seffectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and PrincipalChief Financial Officer has evaluated the effectiveness of the Company’sconcluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) orand 15d-15(e) under the Exchange Act) aswere not effective because of a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the endCompany’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our control around the interpretation and accounting for the deferred tax asset valuation allowance was not effectively designed or maintained. In light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the fiscal period covered byfinancial statements included in this Annual Report on Form 10-K. Based upon such evaluation, management has concluded that the disclosure controls and procedures were not effective, because certain deficiencies involving internal control over financial reporting constituted a10-K present fairly in all material weakness, as identified below. The material weakness identified did not result in the restatement of any previously reported financial statements or any other related financial disclosures, nor does management believe that it had any effect on the accuracy ofrespects our financial statementsposition, results of operations and cash flows for the current reporting period.period presented.

 

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

 

ManagementAs required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Thereporting. Our internal control over financial reporting is a process, under the supervision of our Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

 TheU.S. GAAP. Our internal control over financial reporting includeincludes those policies and procedures that:

 

1. pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect ourthe transactions and dispositions of the assets of our assets;company,

 

2. provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States of America,U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors;directors, and

 

3. provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Management, includingBecause of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our Chief Executive Officer and Chief Financial Officer, conducted anconsolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of our internal control over financial reporting usingas of June 30, 2023. In making these assessments, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.Control—Integrated Framework (2013). Based on its evaluation,our assessments and those criteria, management concludeddetermined that there was a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness is related to the Company’s preparation of its tax provision. 

55

During the fourth quarter of fiscal 2017, we identified a material weakness in internal controls over financial reporting related to their accounting for deferred income taxes and income tax expense. Specifically, we didwere not design and maintain effective controls to identify items within the deferred tax balances that could be materially incorrect. We did not provide appropriate oversight of our third-party tax CPA firm preparer. This material weakness did not have, but could have resulted in various material adjustments to deferred tax accounts for fiscal 2017 and 2016. We are undergoing ongoing evaluation and improvements in our internal control over financial reporting. Regarding our identified material weakness, we have performed the following remediation efforts:

In order to mitigate the material weakness to the fullest extent possible, management hired new tax CPA specialist to review and do a detail analysis which was completed for the year ended June 30, 2017.  The Company has also assigned its audit committee with oversight responsibilities.  The preparation of the Company’s deferred tax assets and liabilities will be reviewed annually by tax experts as well as the Chief Financial Officer and the Chief Executive Officer. 

As a result of the material weaknesses described above, management concluded that, as of June 30, 2017, we did not maintain effective internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework, issued by COSO.  2023.

 

This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm, pursuant to provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that permit us to provide only management’s report in this Annual Report on Form 10-K.

This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, and is not incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

 

There have not been any otherOther than the material weakness identified above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the year ended June 30, 2017 to which this report relatesmost recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B. Other Information.

None.

66
 56

 

PART III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The following table sets forth certain information with respect to the Directors and Executive Officers of the Company as of June 30, 2017:2023:

 

Name Position with the Company Age Term to Expire
Class A Directors:      
       
John V. Winfield(1)(4)(6)(7) Chairman of the Board; President71Fiscal 2018 Annual Meeting
and Chief Executive Officer 
Jerold R. Babin(2)(3)(7)Director8376 Fiscal 20182023 Annual Meeting
       
Class B Directors:Steve Grunwald (3) (5)Director41Fiscal 2024
      
       
Yvonne L. Murphy(1)(2)(5)(6)(7)Director60Fiscal 2019 Annual Meeting
William J. Nance(1)(2)(3)(4)(6)(7)Director73Fiscal 2019 Annual Meeting
Class C Director:B Directors:      
       
John C. LoveYvonne L. Murphy (3)(1) (2) (4)(5) Director 7766 Fiscal 20172025 Annual Meeting
       
Executive Officers:William J. Nance (2) (3) (4)Director79Fiscal 2025 Annual Meeting
Class C Director:      
       
DavidJohn C. GonzalezLove (1) (2) (3) Vice President Real EstateDirector 5183 N/AFiscal 2023 Annual Meeting
       
David T. NguyenTreasurer and Controller44N/A
Corporate Secretary:Executive Officers:      
       
Clyde W. Tinnen David C. Gonzalez (4)Chief Operating Officer, Advisor of Executive Strategic Real Estate and Securities Investment Committee, and President of Portsmouth56N/A
Jolie Kahn Secretary 4458N/A
Ann Marie BlairTreasurer, Controller (Principal Financial Officer). Ms. Blair appointed effective July 6, 202336N/A
Danfeng XuTreasurer, Controller (Principal Financial Officer), and Secretary Resigned effective August 31, 202235 N/A

 

(1)Member of the Nominating Committee
(2)Member of the Compensation Committee
(3)Member of the Audit Committee
(4)Member of the Executive Strategic Real Estate and Securities Investment Committee

(1) Member of the Executive Committee

(2) Member of the Administrative and Compensation Committee

(3) Member of the Audit Committee

(4) Member of the Real Estate Investment Committee

(5) Member of the Nominating Committee

(6) Member of the Securities Investment Committee

(7)Member of the Special Strategic Options Committee

Business Experience:

 

The principal occupation and business experience during the last five years for each of the Directors and Executive Officers of the Company are as follows:

 

John V. Winfield — Mr. Winfield was first appointed to the Board in 1982. He currently serves as the Company'sCompany’s Chairman of the Board, President and Chief Executive Officer, having first been appointed as such in 1987. Mr. Winfield also serves as President, Chairman and Chief Executive Officer of the Company’s subsidiaries, Santa Fe Financial Corporation ("Santa Fe") andsubsidiary Portsmouth, Square, Inc. ("Portsmouth"), botha public companies.company. Effective June 2016, Mr. Winfield also servesbecame the Managing Director of Justice and served in that position until the dissolution of Justice in December 2021. On May 24, 2021, Mr. Winfield resigned effective immediately as ChairmanPresident of the Board of Comstock Mining, Inc. (NYSE MKT: LODE), a public company in which he was elected a director on June 23, 2011.Portsmouth. Mr. Winfield’s extensive experience as an entrepreneur and investor, as well as his managerial and leadership experience from serving as a chief executive officer and director of public companies, led to the Board’s conclusion that he should serve as a director of the Company.

57

Jerold R. Babin — Mr. Babin was first appointed as a Director of the Portsmouth, a subsidiary of the Company, on February 1996. Mr. Babin was elected to the Board of InterGroup in February 2014. Mr. Babin is a retail securities broker. From 1974 to 1989, he worked at Drexel Burnham and from 1989 to June 30, 2010, he worked for Prudential Securities (later Wachovia Securities and now Wells Fargo Advisors) where he held the title of First Vice-President. Mr. Babin retired from his position at Wells Fargo advisors in June 2010. For the past 20 years, until present, Mr. Babin has also served as an arbitrator for FINRA (formerly NASD). Mr. Babin’s extensive experience in the securities and financial markets as well has his experience in the securities and public company regulatory industry led to the Board’s conclusion that he should serve as a director of the Company.

 

Yvonne L. Murphy — Mrs. Murphy was elected to the Board of InterGroup in February 2014.2014 and to the Board of Portsmouth, a subsidiary of the Company, in February 2019. She resigned from the Board of Portsmouth in December 2019. Mrs. Murphy was elected to the Board of Portsmouth in October 2022 and served as a director at Portsmouth from March to December 2019. Mrs. Murphy took the place of Director Babin upon his passing in October 2022. Mrs. Murphy has had an impressive 30-year historyexperiences in corporate management, legal research, and legislative lobbying.lobbying for over 30 years. She was a member of Governor Kenny C. Guinn’s executive staff in Nevada, and was employed for years by the prestigious Jones Vargas law firm in Reno, Nevada. She served in nine legislative sessions during the most challenging years in Nevada’s history. Prior to starting her own lobbying firm, Ms. Murphy worked for RR Partners in its corporate office in Las Vegas, Nevada and in the Government Affairs Division in Reno. She has a Doctorate and a MastersMaster’s in Business Administration from the California Pacific University. Mrs. Murphy’s impressive experience in corporate management, legal research and legislative lobbying led to the Board’s conclusion that she should serve as a director of the Company.

 

William J. Nance — Mr. Nance is a Certified Public Accountant and private consultant to the real estate and banking industries. He is also President of Century Plaza Printers Inc. Mr. Nance was first elected to the Board in 1984. He served as the Company’s Chief Financial Officer from 1987 to 1990 and as Treasurer from 1987 to June 2002. Mr. Nance is also a Director of Santa Fe and Portsmouth. Mr. Nance also serves as a director of Comstock Mining, Inc. Mr. Nance’s extensive experience as a CPA and in numerous phases of the real estate industry, his business and management experience gained in running his own businesses, his service as a director and audit committee member for other public companies and his knowledge and understanding of finance and financial reporting, led to the Board’s conclusion that he should serve as a director of the Company.

 

John C. Love — Mr. Love was appointed to the Board in 1998. Mr. Love is an international hospitality and tourism consultant. He is a retired partner in the national CPA and consulting firm of Pannell Kerr Forster and, for the last 30 years, a lecturer in hospitality industry management control systems and competition & strategy at Golden Gate University and San Francisco State University. He is Chairman Emeritus of the Board of Trustees of Golden Gate University and the Executive Secretary of the Hotel and Restaurant Foundation. Mr. Love is also a Director of Portsmouth and served on the Board of Santa Fe and Portsmouth.from March 1998 to December 2019. Mr. Love’s extensive experience as a CPA and in the hospitality industry, including teaching at the university level for the last 30 years in management control systems, and his knowledge and understanding of finance and financial reporting, led to the Board’s conclusion that he should serve as a director of the Company.

 

Jerold R. Babin — Mr. Babin was first appointed as a director of the Company in February 1996. Mr. Babin is also a director of Portsmouth’s parent company, InterGroup. Mr. Babin was a retail securities broker. From 1974 to 1989, he worked at Drexel Burnham, and from 1989 to 2010, he worked for Prudential Securities (later Wachovia Securities and now Wells Fargo Advisors), where he held the title of First Vice President. Mr. Babin retired from his position at Wells Fargo advisors in June 2010. Mr. Babin had also served as an arbitrator for FINRA (formerly NASD) for over 20 years. Mr. Babin’s extensive experience in the securities and financial markets, as well as his involvement in the securities and public company regulatory industry, led to the Board’s conclusion that he should serve as a director of the Company. Mr. Babin served as a Board Member up to the time of his passing in October 2022.

David C. Gonzalez — Mr. Gonzalez was appointed Chief Operating Officer of the Company on May 31, 2023 and previously was the Vice President Real Estate of the Company onsince January 31, 2001. Over the past 26 years,Since 1989, Mr. Gonzalez has served in numerous capacities with the Company, including Controller and Director of Real Estate. Mr. Gonzalez was appointed advisor of the Executive Strategic Real Estate and Securities Investment Committee of the Company and Portsmouth in February 2020. The Board of Directors of Portsmouth Square, Inc. elected Mr. Gonzalez as President of Portsmouth Square Inc. effective May 24, 2021.

 

David T. NguyenAnn Marie Blair — Mr. Nguyen– Ms. Blair was appointed as Treasurer and Controller of the Company on February 26, 2003 and serves as the Company’s Principal Financial Officer. Mr. NguyenJuly 6, 2023. Ms. Blair also serves as Treasurer and Controller of Santa Fe and Portsmouth,InterGroup, having been appointed to those positionsthe position on February 27, 2003. Mr. Nguyen is a Certified Public Accountant and, from 1995July 6, 2023. Prior to 1999, was employed by PricewaterhouseCoopers LLP where he was a Senior Accountant specializing in real estate. Mr. Nguyenjoining the Company, she had served as Chief Financial Officer in the Company's Controlleradvertising technology industry. She obtained her Bachelor of Science degree in Accounting and her Master of Business Administration from 1999 to 2001 and from 2002 to the present.Cumberland University.

 

Clyde W. TinnenDanfeng Xu Mr. TinnenMs. Xu was appointed as SecretaryTreasurer and Controller of the Company on December 14, 2014. Mr. TinnenOctober 16, 2017. Ms. Xu also serves as SecretaryTreasurer and Controller of InterGroupPortsmouth and Santa Fe, having been appointed to those positions on December 14, 2014. Mr. Tinnen is a corporate partner atOctober 16, 2017. On June 1, 2018, she was appointed Secretary of the law firm of Withers Bergman LLP.Company, Portsmouth and Santa Fe. Prior to joining Withers Bergman LLPthe Company, she had served as Controller and worked in April 2015, Mr. Tinnen was a  corporate partnerother positions at Kelley Drye & Warren LLP, where he was employedthe Hotel from JanuaryJuly 2010 to March 2015, after previously working asFebruary 2017. She obtained her Bachelor of Science degree in Business Administration, Accounting and Finance from The Ohio State University and her Master of Professional Accounting, with a corporate associate with the law firmconcentration in Audit and Assurance from University of Cravath, Swaine & Moore LLP from September 2006 to December 2009.Washington. Ms. Xu resigned effective August 31, 2022.

 

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Family Relationships:There are no family relationships among directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.

 

Involvement in Certain Legal Proceedings:No director or executive officer, or person nominated or chosen to become a director or executive officer, was involved in any legal proceeding requiring disclosure.

 

Compliance with Section 16(a) of the Securities Exchange Act of 1934

 

Section 16(a) of the Securities Exchange Act of 1934 requires the Company’s officers and directors, and each beneficial owner of more than ten percent of the Common Stock of the Company, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

 

Based solely on its review of the copies of Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during fiscal 2017year 2023 all filing requirements applicable to its officers, directors, and greater than ten-percent beneficial owners were complied with.

 

Code of Ethics.

 

The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, including its Board of Directors. A copy of the Code of Ethics is posted on the Company’s website atwww.intgla.com. The Company will provide to any person without charge, upon request, a copy of its Code of Ethics by sending such request to: The InterGroup Corporation, Attn: Treasurer, 1100 Glendon Ave.,1516 S. Bundy Drive, Suite PH-1,200, Los Angeles, CA 90024.California 90025. The Company will promptly disclose any amendments or waivers to its Code of Ethics on Form 8-K and will post such information on its website.

 

BOARD AND COMMITTEE INFORMATION

 

InterGroup’s common stock is listed on the NASDAQ Capital Market tier of the NASDAQ Stock Market, LLC (“NASDAQ”). InterGroup is a Smaller Reporting Company under the rules and regulations of the Securities and Exchange Commission (“SEC”). With the exception of the Company’s President and CEO, John V. Winfield, all of InterGroup’s Board of Directors consists of “independent” directors as independence is defined by the applicable rules of the SEC and NASDAQ.

Nominating Committee

 

The Company'sCompany’s Nominating Committee is comprised of two “independent” directors as independence is defined by the applicable rules of the SEC and NASDAQ. Directors BabinLove and Murphy serve as the current members of the Nominating Committee. The Company has not established a charter for the Nominating Committee, and the Committee has no policy with regard to consideration of any director candidates recommended by security holders. As a smaller reporting company whose directors own in excess of sixty percent of the voting shares of the Company, InterGroup has not deemed it appropriate to institute such a policy. There have not been any material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors.

 

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Audit Committee and Audit Committee Financial Expert

 

The Company is a Smaller Reporting Company under SEC rules and regulations. The Company’s Audit Committee is currently comprised of three members: Directors Nance (Chairperson), Babin and Love, each of who meetwhom meets the independence requirements of the SEC and NASDAQ as modified or supplemented from time to time. The Company’s Board of Directors has determined that Directors Nance and Love also meet the Audit Committee Financial Expert requirement as defined by the SEC and NASDAQ based on their qualifications and business experience discussed above in this Item 10.

 

Compensation Committee

The Company’s Compensation Committee (the “Compensation Committee”) is comprised of three “independent” members of the Board of Directors as independence is defined by the applicable rules of the SEC and NASDAQ. Mr. Nance serves as Chairman of the Compensation Committee. The Company has not established a charter for the Compensation Committee. The Compensation Committee reviews and recommends to the Board of Directors the compensation for the Company’s Chief Executive Officer and other executive officers, including equity or performance-based compensation and plans. The Compensation Committee seeks to design and set compensation to attract and retain highly qualified executive officers and to align their interests with those of long-term owners of the Company. The Compensation Committee may also make recommendations to the Board of Directors as to the amount and form of director compensation. The Compensation Committee has not engaged any compensation consultants in determining the amount or form of executive of director compensation but does review and monitor published compensation surveys and studies. The Compensation Committee may delegate to the Company’s Chief Executive Officer the authority to determine the compensation of certain executive officers. The Compensation Committee also oversees the Company’s 2010 Incentive Plan.

Item 11.Executive Compensation

Item 11. Executive Compensation

 

The following table provides certain summary information concerning compensation awarded to, earned by, or paid to the Company’s principal executive officer and other named executive officers of the Company whose total compensation exceeded $100,000 for all services rendered to the Company and its subsidiaries for each of the Company’s last two completed fiscal years ended June 30, 20172023 and 2016.2022. There was no non-equity incentive plan compensation or nonqualified deferred compensation earnings. There are currently no employment contracts with the executive officers.

SUMMARY COMPENSATION TABLE

 

       Other    
Name and Position Fiscal Year Salary Bonus Compensation  Total  Fiscal
Year
  Salary  Bonus  Other
Compensation
  Total 
                       
John V. Winfield 2017  $ 784,000(1) $-  $151,000(2)(4) $935,000   2023  $838,000(1) $600,000  $59,000(2) $1,497,000(3)
Chairman, President and 2016  $ 772,000(1) $-  $539,000(2)(4) $1,311,000   2022  $838,000(1) $-  $59,000(2) $897,000(3)
Chief Executive Officer                                      
                                      
David C. Gonzalez 2017 $252,000  $-  $28,000(5) $280,000   2023  $444,000  $600,000  $-  $1,044,000(4)
Vice President - Real Esate 2016 $216,000  $-  $-  $216,000 
Chief Operating Officer  2022  $409,000  $-  $-  $409,000(4)
                                      
David T. Nguyen 2017  $ 240,000(3) $-  $-  $240,000 
Danfeng Xu  2023  $39,000  $-  $-  $39,000(3)
Treasurer and Controller 2016  $ 240,000(3) $-  $-  $240,000   2022  $171,000  $10,000  $-  $181,000(3)
(Principal Financial Officer,
resigned August 2022)
                    

 

(1) Mr. Winfield also serves as President and Chairman of the Board of the Company’s subsidiary, Santa Fe, and Santa Fe’s subsidiary, Portsmouth. Mr. Winfield received a salary from Santa Fe and Portsmouth in the aggregate amount of $447,000 from those entities for the fiscal years 2017 and 2016. The amounts include director’s fees totaling $12,000 for each year.

(2)Amounts include annual premiums for split dollar whole life insurance policies owned by, and the beneficiary of which are, a trust for the benefit of Mr. Winfield's family and compensation for a portion of the salary of an assistant. The amount of compensation related to the assistant was approximately $54,000 for each of the fiscal years 2017 and 2016, respectively. The annual insurance premiums paid were $85,000 for the same respective years. Santa Fe and Portsmouth paid $43,000 of that amount. The Company has a secured right to receive, from any proceeds of the policies, reimbursement of all premiums paid prior to any payment to the beneficiary.

(3)Mr. Nguyen’s salary is allocated approximately 50% to the Company and 50% to Santa Fe and Portsmouth.

(4)In connection with the redemption of limited partnership interests of Justice in Note 2 of the consolidated financial statements, Justice agreed to pay a total of $1,550,000 in fees to certain officers and directors of the Company for services rendered in connection with the redemption of partnership interests, refinancing of Justice’s properties and reorganization of Justice Investors. The first payment under this agreement was made concurrently with the closing of the loan agreements, with the remaining payments due upon Justice having adequate available cash. In July 2015, Mr. Winfield received the remaining payment amount of $400,000 which is included in this total.

(1)Mr. Winfield also serves as Chairman of the Board of Portsmouth. During fiscal year 2023, Mr. Winfield received salary of $433,000 from Portsmouth. The amounts include director’s fees totaling $6,000 and $6,000 for the fiscal years 2023 and 2022, respectively.
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(2)Compensation for a portion of the salary of an assistant to Mr. Winfield.
 
(3)

Compensation is allocated approximately 50% to the Company and 50% to Portsmouth.

(4)Mr. Gonzalez also serves as the President of Portsmouth. Compensation is allocated 67% to the company and 33% to Portsmouth.

 

(5)For fiscal 2017, the dollar amount reflects aggregate grant date fair value of options expected to vest, computed in accordance with FASB ASC Topic 718, of 18,000 stock options granted to Mr. Gonzalez on March 2, 2017 pursuant to the Company’s 2010 Incentive Plan.

Compensation Committee and Executive Compensation

The Company's Administrative and Compensation Committee (the “Compensation Committee”) is comprised of three “independent” members of the Board of Directors as independence is defined by the applicable rules of the SEC and NASDAQ. Mr. Nance serves as Chairman of the Compensation Committee. The Company has not established a charter for the Compensation Committee. The Compensation Committee reviews and recommends to the Board of Directors the compensation for the Company’s Chief Executive Officer and other executive officers, including equity or performance based compensation and plans. The Compensation Committee seeks to design and set compensation to attract and retain highly qualified executive officers and to align their interests with those of long-term owners of the Company. The Compensation Committee may also make recommendations to the Board of Directors as to the amount and form of director compensation. The Compensation Committee has not engaged any compensation consultants in determining the amount or form of executive of director compensation, but does review and monitor published compensation surveys and studies. The Compensation Committee may delegate to the Company’s Chief Executive Officer the authority to determine the compensation of certain executive officers. The Compensation Committee also oversees the Company’s 2007 Stock Plan, the 2008 RSU Plan and the 2010 Incentive Plan.

Outstanding Equity Awards at Fiscal Year Ended June 30, 20172023

 

The following table sets forth information concerning option awards and stock awards for each named executive officer that were outstanding as of the end of the Company’s last completed fiscal year ended June 30, 2017.2023. There were no other equity incentive plan awards that were outstanding.

 

 Option Awards Option Awards   
 Number of Number of      Number of Number of     
 securities securities      securities securities     
 underlying underlying      underlying underlying     
 unexercised unexercised Option Option unexercised unexercised Option Option 
 options (#) options (#) exercise expiration options (#) options (#) exercise expiration 
Name exercisable  unexercisable  price $  date exercisable Un-exercisable price $ date 
                 
John V. Winfield  100,000(1)  -  $10.30  3/16/20  100,000(1)  -  $10.30   3/16/26 
John V. Winfield  90,000(2)  -  $19.77  2/28/22 133,195(2) - $18.65 12/26/23 
John V. Winfield  79,917(3)  53,278(3) $18.65  12/26/23
John V. Winfield  16,083(3)  10,722(3) $20.52  12/26/23
              
David C. Gonzalez  -   18,000(4) $27.30  3/2/22 18,000(3) - $27.30 3/2/27 

 

(1) Stock options issued to Mr. Winfield pursuant to the Company’s 2010 Incentive Plan are subject to both time and performance based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000 options vesting upon each one year anniversary of the date of grant, March 16, 2010. Pursuant to the performance vesting requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2017, the performance vesting requirements of the options were satisfied.

(1)Stock options issued to Mr. Winfield pursuant to the Company’s 2010 Incentive Plan are subject to both time and performance-based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000 options vesting upon each one-year anniversary of the date of grant, March 16, 2010. Pursuant to the performance vesting requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2023, the performance vesting requirements of the options were satisfied.

 

(2)On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan, the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting annually commencing on the first anniversary of the grant date. In December 2018, Mr. Winfield exercised the 26,805 vested incentive stock options by surrendering 17,439 shares of the Company’s common stock at fair value as payment of the exercise price, resulting in a net issuance to him of 9,366 shares. No additional compensation expense was recorded related to the issuance.
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(3)Mr. Gonzalez’s stock options vest over a period of five years, with 3,600 options vesting upon each one-year anniversary of the date of grant, March 2, 2017.

(2) Stock options issued to Mr. Winfield pursuant to the Company’s 2010 Incentive Plan are subject to both time and performance based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 18,000 options vesting upon each one year anniversary of the date of grant, February 28, 2012. Pursuant to the performance vesting requirements, the options vest in increments of 18,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($19.77) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2017, 90,000 options have met the performance vesting requirements.

 

(3)On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan, the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting annually commencing on the first anniversary of the grant date.

(4)Mr. Gonzalez’s stock options vest over a period of five years, with 3,600 options vesting upon each one-year anniversary of the date of grant, March 2, 2017.

David Nguyen, Treasurer, does not have any outstanding equity rewards.

Internal Revenue Code Limitations

 

Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), provides that, in the case of a publicly held corporation, the corporation is not generally allowed to deduct remuneration paid to its chief executive officer and certain other highly compensated officers to the extent that such remuneration exceeds $1,000,000 for the taxable year. Certain remuneration, however, is not subject to disallowance, including compensation paid on a commission basis and, if certain requirements prescribed by the Code are satisfied, other performance basedperformance-based compensation. Since InterGroup Santa Fe and Portsmouth are eachboth public companies, the $1,000,000 limitation applies separately to the compensation paid by each entity. Stock option expenses are also amortized over a several years. For fiscal years 20162023 and 2016,2022, no compensation paid by the Company to its CEO or other executive officers was subject the deduction disallowance prescribed by Section 162(m) of the Code.

 

EQUITY COMPENSATION PLANS

 

The Company currently has threeone equity compensation plans, each ofplan, which has been approved by the Company’s stockholders. However, any outstanding stock options issued under the Company’s prior equity compensation plans remain effective in accordance with their terms.

 

The purpose of the Company’s equity compensation plans is to provide a means whereby officers, directors and key employees of the Company develop a sense of proprietorship and personal involvement in the development and financial success of the Company, and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its shareholders. A further purpose of these plans is to provide a means through which the Company may attract able individuals to become employees or serve as directors of the Company and to provide a means for such individuals to acquire and maintain stock ownership in the Company, thereby strengthening their concern for the welfare of the Company.

 

The InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors

The InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors (the “2007 Stock Plan”) was approved by the shareholders of the Company on February 21, 2007, and was thereafter adopted by the Board of Directors. The 2007 Plan will terminate upon the earlier of the date all shares reserved for issuance have been awarded or February 21, 2017, if not sooner terminated by the Board upon recommendation by the Compensation Committee. The stock available for issuance under the 2007 Stock Plan shall be unrestricted shares of the Company's common stock, par value $.01 per share, which may be unissued shares or treasury shares. Subject to certain adjustments upon changes in capitalization, a maximum of 60,000 shares of the common stock will be available for issuance to participants under the 2007 Stock Plan.

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All non-employee directors are eligible to participate in the 2007 Stock Plan. Each non-employee director as of the adoption date of the 2007 Stock Plan was granted an award of 600 unrestricted shares of the Company’s common stock. On each July 1 following the adoption date of the 2007 Stock Plan, each non-employee director shall receive an automatic grant of a number of shares of company’s common stock equal in value to $18,000 based on 100% of the fair market value (as defined) of the Common Stock on the date of grant, provided he or she holds such position on that date and the number of shares of Common Stock available for grant under the 2007 Stock Plan is sufficient to permit such automatic grant. Any fractional shares resulting from such grant will be rounded up to next highest whole share. All stock awards to non-employee directors will be fully vested on the date of grant. The dollar amount of the annual grant is subject to further adjustment by the Board of Directors upon recommendation by the Compensation Committee. The stock awards granted under the 2007 Stock Plan are shares of unrestricted common stock and are fully vested on the date of grant. The right of the non-employee director to receive his or her annual grant of common stock is personal to the director and is not transferable. Once received, shares of common stock awarded to the non-employee director are freely transferable subject to any requirements of Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On June 28, 2007, Company filed a registration statement on Form S-8 to register the shares subject to the 2007 Stock Plan and the Company’s two prior stock option plans under the Securities Act of 1933, as amended (the “Securities Act”).

Upon recommendation of the Compensation Committee, the Board may, at any time and from time to time and in any respect, amend or modify the 2007 Stock Plan. The Board must obtain stockholder approval of any material amendment to the 2007 Stock Plan if required by any applicable law, regulation or stock exchange rule. The Board of Directors may amend the 2007 Stock Plan or any award agreement, which amendment may be retroactive, in order to conform it to any present or future law, regulation or ruling relating to plans of this or similar nature. No amendment or modification of the 2007 Stock Plan or any award agreement may adversely affect any outstanding award without the written consent of the participant holding the award.

Upon recommendation of the Compensation Committee, the Board of Directors, on February 23, 2011, voted to increase the annual grant awarded to each of the non-employee directors to a number of shares of Company’s common stock equal in value to $22,000, effective as of the July 1, 2011 grant, while decreasing the annual cash compensation payable to non-employee directors from $16,000 to $12,000 per year. In July 2016, the Compensation Committee, the Board of Directors, voted to amend the 2007 Stock Plan and pay the $22,000 in cash in lieu of the annual grant of stock.

For the year ended June 30, 2016, the four non-employee directors of the Company received a total grant of 4,520 shares of Common Stock pursuant to the 2007 Stock Plan,respectively.

The InterGroup Corporation 2008 Restricted Stock Unit Plan

On December 3, 2008, the Board of Directors adopted, subject to shareholder approval, a new equity compensation plan for its officers, directors and key employees entitled, The InterGroup Corporation 2008 Restricted Stock Unit Plan (the “2008 RSU Plan”). The 2008 RSU Plan was approved and ratified by the shareholders on February 18, 2009.

The 2008 RSU Plan authorizes the Company to issue restricted stock units (“RSUs”) as equity compensation to officers, directors and key employees of the Company on such terms and conditions established by the Compensation Committee of the Company. RSUs are not actual shares of the Company’s common stock, but rather promises to deliver common stock in the future, subject to certain vesting requirements and other restrictions as may be determined by the Committee. Holders of RSUs have no voting rights with respect to the underlying shares of common stock and holders are not entitled to receive any dividends until the RSUs vest and the shares are delivered. No awards of RSUs shall vest until at least six months after shareholder approval of the Plan. Subject to certain adjustments upon changes in capitalization, a maximum of 200,000 shares of the common stock are available for issuance to participants under the 2008 RSU Plan. The 2008 RSU Plan will terminate ten (10) years from December 3, 2008, unless terminated sooner by the Board of Directors. After the 2008 RSU Plan is terminated, no awards may be granted but awards previously granted shall remain outstanding in accordance with the Plan and their applicable terms and conditions.

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The shares of common stock to be delivered upon the vesting of an award of RSUs have been registered under the Securities Act, pursuant to a registration statement filed on Form S-8 by the Company on June 16, 2010. The grant of RSUs is personal to the recipient and is not transferable. Once received, shares of common stock issuable upon the vesting of the RSUs are freely transferable subject to any requirements of Section 16(b) of the Exchange Act. Under the 2008 RSU Plan, the Compensation Committee also has the power and authority to establish and implement an exchange program that would permit the Company to offer holders of awards issued under prior shareholder approved compensation plans to exchange certain options for new RSUs on terms and conditions to be set by the Committee. The exchange program is designed to increase the retention and motivational value of awards granted under prior plans. In addition, by exchanging options for RSUs, the Company will reduce the number of shares of common stock subject to equity awards, thereby reducing potential dilution to stockholders in the event of significant increases in the value of its common stock.

As of June 30, 2017, there were no RSUs outstanding.

The InterGroup Corporation 2010 Omnibus Employee Incentive Plan

 

On February 24, 2010, the shareholders of the Company approved The InterGroup Corporation 2010 Omnibus Employee Incentive Plan (the “2010 Incentive Plan”), which was formally adopted by the Board of Directors following the annual meeting of shareholders. The 2010 Incentive Plan as modified in December 2013, authorizes a total of up to 400,000 shares of common stock to be issued as equity compensation to officers and employees of the Company in an amount and in a manner to be determined by the Compensation Committee in accordance with the terms of the Plan. The 2010 Incentive Plan authorizes the awards of several types of equity compensation including stock options, stock appreciation rights, performance awards and other stock basedstock-based compensation. The 2010 Incentive Plan will expire onhad an original expiration date of February 23, 2020, if not terminated sooner by the Board of Directors upon recommendation of the Compensation Committee. Any awards issued under the Plan will expire under the terms of the grant agreement.

The shares of common stock to be issued under the 2010 Incentive Plan have been registered under the Securities Act, pursuant to a registration statement filed on Form S-8 by the Company on June 16, 2010. Once received, shares of common stock issued under the Plan will be freely transferable subject to any requirements of Section 16(b) of the Exchange Act.

 

On February 28, 2012,March 16, 2010, the Compensation Committee authorized the grant of 90,000100,000 stock options to the Company’s Chairman, President and Chief Executive, John V. Winfield to purchase up to 90,000100,000 shares of the Company’s common stock pursuant to the 2010 Incentive Plan. The exercise price of the options is $19.77,$10.30, which equalsis 100% of the fair market value of the Company’s common stockCommon Stock as determined by reference to the closing price of the Company’s common stockCommon Stock as reported on the NASDAQ Capital Market on February 28, 2012March 16, 2010, the date of grant. The options expirehad an original expiration date ten years from the date of grant, unless terminated earlier terminated in accordance with the terms of the 2010 Incentive Plan. The options shall be subject to both time and market basedmarket-based vesting requirements, each of which must be satisfied before options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 20,000 options vesting upon each one-year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 20,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($10.30) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. As of June 30, 2023, all the market vesting requirements have been met.

On December 28, 2019, the Compensation Committee of the Board of Directors recommended to the Board amendments to the 2010 Incentive Plan which would amend Section 1.3 to extend the term from ten years to sixteen years, and Section 6.4 to change “tenth (10th) anniversary date” to “twentieth (20th) anniversary date”. This would increase the term of the 2010 Incentive Plan to twenty years (expiring in February 2030 instead of February 2020) and also permit the existence of options with a term longer than ten years. The purpose of the amendment to the term is to extend its existence as our only incentive plan. The purpose of amendment of the allowable term of options is so that the Board may extend the term of the 100,000 options granted to John Winfield on March 16, 2010 from ten years to sixteen years so that these options will terminate on March 16, 2026 instead of on March 16, 2020, in recognition of Mr. Winfield’s contributions to and leadership of our Company. The recommended amendments were approved by shareholders on February 25, 2020.

In February 2012, the Compensation Committee awarded 90,000 stock options to the Company’s Chairman, President and Chief Executive, John V. Winfield to purchase up to 90,000 shares of common stock. The per share exercise price of the options is $19.77 which is the fair value of the Company’s Common Stock as reported on NASDAQ on February 28, 2012. The options expire ten years from the date of grant. The options are subject to both time and market-based vesting requirements, each of which must be satisfied before the options are fully vested and eligible to be exercised. Pursuant to the time vesting requirements, the options vest over a period of five years, with 18,000 options vesting upon each one yearone-year anniversary of the date of grant. Pursuant to the market vesting requirements, the options vest in increments of 18,000 shares upon each increase of $2.00 or more in the market price of the Company’s common stock above the exercise price ($19.77) of the options. To satisfy this requirement, the common stock must trade at that increased level for a period of at least ten trading days during any one quarter. AsOn January 21, 2022, Mr. Winfield exercised 90,000 of June 30, 2017, 90,000his vested stock options have metby surrendering 35,094 shares of the market vesting requirements.Company’s common stock at fair value as payment of the exercise price, resulting in a net issuance to him of 54,906 shares. No additional compensation expense was recorded related to the issuance.

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On December 26, 2013, the Compensation Committee authorized, subject to shareholder approval, a grant of non-qualified and incentive stock options for an aggregate of 160,000 shares (the “Option Grant”) to the Company’s President and Chief Executive Officer, John V. Winfield. The stock option grant was approved by shareholders on February 19, 2014. The grant of stock options was made pursuant to, and consistent with, the 2010 Incentive Plan, as proposed to be amended. The non-qualified stock options are for 133,195 shares and have a term of ten years, expiring on December 26, 2023, with an exercise price of $18.65 per share. The incentive stock options are for 26,805 shares and have a term of five years, expiring on December 26, 2018, with an exercise price of $20.52 per share. In accordance with the terms of the 2010 Incentive Plan, the exercise prices were based on 100% and 110%, respectively, of the fair market value of the Company’s common stock as determined by reference to the closing price of the Company’s common stock as reported on the NASDAQ Capital Market on the date of grant. The stock options are subject to time vesting requirements, with 20% of the options vesting annually commencing on the first anniversary of the grant date. In December 2018, Mr. Winfield exercised the 26,805 vested incentive stock options by surrendering 17,439 shares of the Company’s common stock at fair value as payment of the exercise price, resulting in a net issuance to him of 9,366 shares. No additional compensation expense was recorded related to the issuance.

In March 2017, the Compensation Committee awarded 18,000 stock options to the Company’s Vice President of Real Estate, David C. Gonzalez, to purchase up to 18,000 shares of common stock. The per share exercise price of the options is $27.30 which is the fair value of the Company’s Common Stock as reported on NASDAQ Capital Market on March 2, 2017. The options expire ten years from the date of grant. Pursuant to the time vesting requirements, the options vest over a period of five years, with 3,600 options vesting upon each one-year anniversary of the date of grant.

 

Compensation of Directors

 

UntilEffective as of fiscal year ended June 30, 2011, each non-employee director received an annual cash retainer in the amount of $16,000, to be paid in equal quarterly payments. Upon recommendation of the Compensation Committee, the Board of Directors, on February 23, 2011, voted to decrease the annual cash compensation payable to non-employee directors from $16,000 to $12,000, effective as of fiscal year ended June 30, 2011.has been $12,000. With the exception of members of the Audit Committee, non-employee directors do not receive any additional fees for attending Board or Committee meetings but are entitled to reimbursement of their reasonable expenses to attend such meetings. Members of the Audit Committee are paid a fee of $1,000 per quarter, with the Chair of that Committee to receive $1,500 per quarter. As an executive officer, the Company’s Chairman has elected to forego his annual board fees.

 

Non-employee directors are also eligible for grants of equity compensation under the Company’s 2007 Stock Plan and 2008 RSU Plan. Pursuant to the 2007 Stock Plan, each non-employee director was entitled to an annual grant of a number of shares of common stock of the Company equal in value to $18,000 based on the fair market value of the Common Stock on the date of grant. To compensate for the $4,000 reduction in annual cash compensation payable to non-employee directors as discussed above, the Board of Directors, upon recommendation of the Compensation Committee, increased the annual grant of common stock to an amount equal in value to $22,000, effective as of the July 1, 2011 grant. In July 2016, the Compensation Committee, the Board of Directors, voted to amend the 2007 Stock Plan and pay the $22,000 in cash in lieu of the annual grant of stock.

Non-employee directors may also be eligible to participate in exchange offers as may be authorized by the Compensation Committee under the 2008 RSU Plan to exchange previously issued stock options for RSUs.

The following table sets forth the compensation paid to directors forduring the fiscal year ended June 30, 2017:2023:

 

DIRECTOR COMPENSATION

 

 Fees Earned or     All Other     Fees Earned or   All Other   
Name Paid in Cash  Stock Awards  Compensation  Total  Paid in Cash* Stock Awards Compensation Total 
                  
John C. Love $52,000(1)  -   -  $52,000  $46,000(1)   -   -  $46,000 
                         
William J. Nance $54,000(2)  -   -  $54,000  $48,000(2) - - $48,000 
                         
Steve Grunwald $18,000 - - $18,000 
         
Jerold R. Babin $42,000   -   -  $42,000  $44,000(3) - - $44,000 
                         
Yvonne L. Murphy $34,000   -   -  $34,000  $34,000 - - $34,000 
                         
John V. Winfield(3)  -   -   -     
John V. Winfield (4) - - -   

 

(1)Amounts shown include board retainer fees, committee fees and meeting fees.

*Amounts shown include board retainer fees, committee fees and meeting fees.
(1)Mr. Love also serves as director of the Company’s subsidiary, Portsmouth. Amounts shown include $8,000 in regular board and audit committee fees paid by Portsmouth.
(2)Mr. Nance also serves as a director of the Company’s subsidiary, Portsmouth. Amounts shown include $8,000 in regular board and audit committee fees paid by Portsmouth.
(3)Mr. Babin also served as a director of Portsmouth up to his passing away in October 2022. Amounts shown include $6,000 in regular board fees paid by Portsmouth.
(4)As Chief Executive Officer, the Company’s Chairman, John V. Winfield, was not paid any board, committee or meetings fees. Mr. Winfield received $6,000 in regular board fees from Portsmouth, which is reported on the Summary Compensation Table.

 

7465
 

 

(1)Mr. Love also serves as a director of the Company’s subsidiaries, Santa Fe and Portsmouth. Amounts shown include $8,000 in regular board and audit committee fees paid by Santa Fe and $8,000 in regular board and audit committee fees paid by Portsmouth.

(2)Mr. Nance also serves as a director of the Company’s subsidiaries, Santa Fe and Portsmouth. Amounts shown include $8,000 in regular board and audit committee fees paid by Santa Fe and $8,000 in regular board and audit committee fees paid by Portsmouth.

(3)As Chief Executive Officer, the Company’s Chairman, John V. Winfield, was not paid any board, committee or meetings fees. Mr. Winfield did receive a total of $12,000 in regular board fees from the Company’s subsidiaries, which is reported on the Summary Compensation Table.

Change in Control or Other Arrangements

 

Except for the foregoing, there are no other arrangements for compensation of Directors and there are no employment contracts between the Company and its Directors or any change in control arrangements.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners.

 

The following table sets forth, as of September 30, 2017,August 21, 2023, certain information with respect to the beneficial ownership of Common Stock of the Company owned by those persons or groups known by the Company to own more than five percent of the outstanding shares of Common Stock.

 

Name and Address

of Beneficial Owner

 

Amount and Nature of

Beneficial Ownership(1)

  

Percent

of Class(2)

 
       
John V. Winfield  1,674,907(3)  63.3%
10940 Wilshire Blvd. Suite 2150        
Los Angeles, CA 90024        
Name and Address of Beneficial Owner 

Amount and Nature of

Beneficial Ownership (1)

  

Percent

of Class (2)

 
       
John V. Winfield  1,686,374(3)  68.6%
1516 S. Bundy Drive, Suite 200 Los Angeles, California 90025        

(1)Unless otherwise indicated and subject to applicable community property laws, each person has sole voting and investment power with respect to the shares beneficially owned.
(2)Percentages are calculated on the basis of 2,205,527 shares of Common Stock outstanding as of August 21, 2023, plus any securities that person has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.
(3)Includes 233,195 shares that Mr. Winfield has a right to acquire pursuant to vested stock options.

 

(1) Unless otherwise indicated and subject to applicable community property laws, each person has sole voting and investment power with respect to the shares beneficially owned.

(2) Percentages are calculated on the basis of 2,359,724 shares of Common Stock outstanding at September 30, 2017, plus any securities that person has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.

(3) Includes 286,000 shares that Mr. Winfield has a right to acquire pursuant to vested stock options.

Security Ownership of Management.

 

The following table sets forth, as of September 30, 2017,August 21, 2023, certain information with respect to the beneficial ownership of Common Stock of the Company owned by (i) each Director and each of the named Executive Officers, and (ii) all Directors and Executive Officers as a group.

 

Name of Beneficial Owner Amount and Nature of Beneficial Ownership (1)  Percent
of Class (2)
 
       
John V. Winfield  1,686,374(3)  68 .0%
         
William J. Nance  47,946   2.0%
         
John C. Love  8,561   * 
         
David C. Gonzalez  44,769(4)  1.8%
         
Yvonne L. Murphy  2,282   * 
         
All Directors and Executive Officers as a Group (5 persons)  1,789,932   72.9%

*Ownership does not exceed 1%.

(1)Unless otherwise indicated and subject to applicable community property laws, each person has sole voting and investment power with respect to the shares beneficially owned.
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(2)Percentages are calculated on the basis of 2,205,527 shares of Common Stock outstanding at August 21, 2023, plus any securities that person has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.
 
(3)Includes 233,195 shares that Mr. Winfield has a right to acquire pursuant to vested stock options.
(4)Includes 18,000 shares that Mr. Gonzalez has a right to acquire pursuant to vested stock options.

 

Name of

Beneficial Owner

 

Amount and Nature of

Beneficial Ownership(1)

  

Percent

of Class(2)

 
       
John V. Winfield  1,674,907(3)  63.3%
         
William J. Nance  55,891   2.1%
         
John C. Love  19,161   0.7%
         
David C. Gonzalez  26,769   1.0%
         
David T. Nguyen  3,000   * 
         
Jerold R. Babin  2,282   * 
   .     
Yvonne L. Murphy  2,282   * 
         
All Directors and Executive Officers as a Group (7 persons)  1,784,292   67.4%

* Ownership does not exceed 1%.

(1) Unless otherwise indicated and subject to applicable community property laws, each person has sole voting and investment power with respect to the shares beneficially owned.

(2) Percentages are calculated on the basis of 2,359,724 shares of Common Stock outstanding at September 30, 2017, plus any securities that person has the right to acquire within 60 days pursuant to options, warrants, conversion privileges or other rights.

(3) Includes 286,000 shares that Mr. Winfield has a right to acquire pursuant to vested stock options.

Changes in Control.

 

There are no arrangements that may result in a change in control of the Company.

 

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

 

The following table sets forth information as of June 30, 20172023 with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance, aggregated as follows:

Plan category 

Number of securities

to be issued upon

exercise of outstanding

options, warrants and

rights

  

Weighted-average

exercise price of

outstanding options

warrants and

rights

  

Remaining available for

future issuance under

equity compensation

plans(excluding securities

reflected in column (a))

 
  (a)  (b)  (c) 
          

Equity compensation plans approved by security holders

  368,000  $17.21   83,893 
             

Equity compensation plans not approved by security holders

  

None

  

N/A

  None 
            
Total  368,000  $17.21   83,893 

Plan category Number of
securities
to be issued upon
exercise of
outstanding
options, warrants
and rights
  

Weighted average

exercise price of

outstanding options

warrants and

rights

  

Remaining available for

future issuance under 

equity compensation

plans (excluding

securities

reflected in column (a))

  (a)  (b)  (c)
Equity compensation plans approved by security holders  251,195  $15.95  None
           
Equity compensation plans not approved by security holders  None   N/A  None
           
Total  251,195  $15.95  None

 

(a) There were 368,000251,195 stock options outstanding as of June 30, 2017.2023.

 

(b) Reflects the weighted average exercise price of all outstanding options.

(c) As of June 30, 2017, the Company had 22,046 shares of Common Stock available for future issuance pursuant to its 2007 Stock Compensation Plan for Non-Employee Directors. Pursuant to the 2007 Plan, each non-employee director will receive, on July 1 of each year, an annual grant of a number of shares of Common Stock of the Company equal in value to $22,000 based on the fair market value of the Common Stock on the date of grant. The Company also had 79,847 RSUs available for future issuance under the 2008 RSU Plan. As of June 30, 2017, there were no shares available for future issuance under the 2010 Omnibus Employee Incentive Pan.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence.

 

On December 4, 1998, the Compensation Committee authorized the Company to obtain whole life and split dollar insurance policies covering the Company’s President and Chief Executive Officer, Mr. Winfield. During fiscal 2016 and 2015, the Company paid annual premiums in the amountWinfield owns 2.5% of approximately $85,000 for the split dollar insurance policy owned by, and the beneficiary of whichPortsmouth. Director William Nance is a trust for the benefit of Mr. Winfield’s family. The Company has a secured right to receive, from any proceedsdirector and Chairman of the policy, reimbursementAudit Committee of all premiums paid prior to any payments to the beneficiary.Comstock Mining, Inc., since 2005.

On June 30, 1998, the Company’s Chairman and President entered into a voting trust agreement with the Company giving the Company the power to vote his 4.0% interest in the outstanding shares of the Santa Fe common stock.

In connection with the redemption of limited partnership interests of Justice Investors, Limited Partnership described in Note 2 above, Justice Operating Company, LLC agreed to pay a total of $1,550,000 in fees to certain officers and directors of the Company for services rendered in connection with the redemption of partnership interests, refinancing of Justice’s properties and reorganization of Justice Investors. This agreement was superseded by a letter dated December 11, 2013 from Justice Investors, Limited Partnership, in which Justice Investors Limited Partnership assumed the payment obligations of Justice Operating Company, LLC. The first payment under this agreement was made concurrently with the closing of the loan agreements described in Note 2 above, with the remaining payments due upon Justice Investor’s having adequate available cash as described in the letter. As of June 30, 2017, $400,000 of these fees remain payable.

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Two general partners provided services to the Partnership through December 17, 2013. On December 18, 2013, the Partnership redeemed Evon’s partnership interest and Portsmouth Square became the sole general partner. The Partnership’s obligation to pay Evon, Justice’s former general partner, terminated as of December 18, 2013. Under the terms of the Justice Partnership Agreement, its current general partner, Portsmouth, receivesreceived annual base compensation of $285,000, plus one percent of Hotel Revenue.Revenue up to the dissolution of the Partnership in December 2021. During each of the years ended June 30, 20172023 and 2016,2022, total compensation paid toearned by Portsmouth under the new and previous agreements was $518,000were $130,000 and $593,000,$146,000, respectively. Amounts paid toearned by Portsmouth are eliminated in consolidation. Effective with the dissolution of the Partnership, the compensation to Portsmouth from the hotel was terminated.

 

As Chairman of the Executive Strategic Real Estate and Securities Investment Committee, the Company’s President and Chief Executive Officer (CEO), 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 and Chairman of the Portsmouth, and Santa Fe and oversees the investment activity of those companies.Portsmouth. Effective June 2016, Mr. Winfield became the Managing Director of Justice and served in that position until the dissolution of Justice in December 2021. Depending on certain market conditions and various risk factors, the Chief Executive Officer Portsmouth and Santa FePortsmouth may, at times, invest in the same companies in which the Company invests. Such investments align the interests of the Company with the interests of related parties because it places the personal resources of the Chief Executive Officer and the resources of the Portsmouth, and Santa Fe, at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company.

 

Director Independence

 

InterGroup’s common stock is listed on the NASDAQ Capital Market tier of the NASDAQ Stock Market LLC (“NASDAQ”).LLC. InterGroup is a Smaller Reporting Company under the rules and regulations of the SEC. The Board of Directors of InterGroup currently consists of five members. With the exception of the Company’s President and CEO, John V. Winfield, all of InterGroup’s Board of Directors consists of “independent” directors as independence is defined by the applicable rules of the SEC and NASDAQ. There are no members of the Company’s compensation, nominating or audit committees that do not meet those independence standards.

 

Item 14. Principal Accounting Fees and Services.Services

 

On January 31, 2022, the Audit Fees -Committee retained WithumSmith+Brown, PC, PCAOB ID: 100 (“Withum”) as the Company’s new independent registered public accounting firm upon the resignation of Moss Adams LLP, Irvine CA, PCAOB ID: 659 (“Moss Adams”) in December 2021. The aggregate fees billed for each of the last two fiscal years ended June 30, 20172023 and 20162022 for professional services rendered by Hein & Associates LLP (“Hein”)Withum and Burr Pilger Mayer, Inc. (“BPM”), respectively,Moss Adams are set forth in the independent registered public accounting firmstable below. These fees were billed for the audit of the Company’s annual financial statements, and review of financial statements included in the Company’s Form 10-Q reports, orand services normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings orand engagements for those fiscal years, were as follows:years.

 

  Fiscal Year 
  2017  2016 
       
Audit fees - Hein $300,000  $- 
Audit fees - BPM  41,000   273,000 
Tax fees - Hein  48,000   - 
TOTAL: $389,000  $273,000 
  Fiscal Year 
  2023  2022 
Audit fees – Withum $215,000  $52,000 
Tax fees – Withum  131,000   31,000 
Audit fees – Moss Adams  -   207,000 
Tax fees – Moss Adams  -   95,000 
TOTAL: $346,000  $385,000 

 

Audit Committee Pre-Approval Policies

 

The Audit Committee shall pre-approve all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, subject to any de minimusminimis exceptions that may be set for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Committee prior to the completion of the audit. The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting. All of the services described herein were approved by the Audit Committee pursuant to its pre-approval policies.

 

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None of the hours expended on the independent registered public accounting firms’ engagement to audit the Company’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the independent registered public accounting firm’s full-time permanent employees.

 

PART IV

 

Item 15. Exhibits, Financial Statement Schedules.

 

(a)(1) Financial Statements

 

The following financial statements of the Company are included in Part II, Item 8 of this Report at pages 2932 through 53:64:

 

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets - June 30, 2017 and 2016

Consolidated Statements of Operations for Years Ended June 30, 2017 and 2016

Consolidated Statements of Shareholders’ Deficit for Years Ended June 30, 2017 and 2016

Consolidated Statements of Cash Flows for Years Ended June 30, 2017 and 2016

Notes to the Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - June 30, 2023 and 2022
Consolidated Statements of Operations for Years Ended June 30, 2023 and 2022
Consolidated Statements of Shareholders’ Deficit for Years Ended June 30, 2023 and 2022
Consolidated Statements of Cash Flows for Years Ended June 30, 2023 and 2022
Notes to the Consolidated Financial Statements

 

(a)(2) Financial Statement Schedules

 

All other schedules for which provision is made in Regulation S-X have been omitted because they are not required or are not applicable or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements.

 

(a)(3) Exhibits

 

Set forth below is an index of applicable exhibits filed with this report according to exhibit table number.

Exhibit Number Description
   
3.(i) Articles of Incorporation:
   
3.1 Certificate of Incorporation, dated September 11, 1985, incorporated by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-4, filed on September 6, 1985 (Registration No. 33-00126) and Amendment 1 to that Registration Statement filed on October 23, 1985.
   
3.2 Restated Certificate of Incorporation, dated March 9, 1998, incorporated by reference to Exhibit 3 of the Company’s Amended Quarterly Report on Form 10-QSB/A for the period ended March 31, 1998, as filed on May 19, 1998.
   
3.3 Certificate of Amendment to Certificate of Incorporation, dated October 2, 1998, incorporated by reference to Exhibit 3 of the Company’s Quarterly report on Form 10-QSB for the period ended September 30, 1998, as filed on November 13, 1998.

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3.4 Certificate of Amendment of Certificate of Incorporation filed with the Delaware Secretary of State on August 6, 2007, incorporated by reference to Exhibit 3.4 of the Company’s Annual Report on Form 10-KSB for the year ended June 30, 2007 as filed on September 28, 2007.
   
3.(ii) Amended and Restated By-Laws of The InterGroup Corporation, effective as of December 10, 2007, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K as filed on December 12, 2007.
   
4. Instruments defining the rights of security holders including indentures*
   
9. Voting Trust Agreement: Voting Trust Agreement dated June 30, 1998 between John V. Winfield and The InterGroup Corporation is incorporated by reference to the Company’s Annual Report on Form 10-KSB filed with the Commission on September 28, 1998.
   
10. Material Contracts:
   
10.1 1998 Stock Option Plan for Non-Employee Directors approved by the Board of Directors on December 8, 1998 and ratified by the shareholders on January 27, 1999 (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Commission on December 21, 1998).
   
10.2 1998 Stock Option Plan for Selected Key Officers, Employees and Consultants approved by the Board of Directors on December 8, 1998 and ratified by the shareholders on January 27, 1999 (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Commission on December 21, 1998).
   
10.3 The InterGroup Corporation 2007 Stock Compensation Plan for Non-Employee Directors (incorporated by reference to the Company’s Proxy Statement on Schedule 14A filed with the Commission on January 26, 2007).
   
10.4 Amended and Restated Agreement of Limited Partnership of Justice Investors, effective November 30, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q Report for the quarterly period ended December 31, 2010, filed with the Commission on February 11, 2011).
   
10.5 General Partner Compensation Agreement, dated December 1, 2008 (incorporated by reference to Exhibit 10.2 to Company’s Form 10-Q Report for the quarterly period ended December 31, 2008, filed with the Commission on February 13, 2009).
   
10.6 The InterGroup Corporation 2008 Restricted Stock Unit Plan, adopted by the Board of Directors on December 3, 2008, and ratified by the shareholders on February 18, 2009 (incorporated by reference to the Company’s Proxy Statement on Schedule 14A, filed with the Commission on January 21, 2009).
   
10.7 Restricted Stock Unit Agreement, dated February 18, 2009, between The InterGroup Corporation and John V. Winfield (incorporated by reference to Exhibit 10.7 of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2009, as filed with the Commission on October 13, 2009).
   
10.8 The InterGroup Corporation 2010 Omnibus Employee Incentive Plan, approved by the shareholders and adopted by the Board of Directors on February 24, 2010 (incorporated by reference to the Company’s Proxy Statement on Schedule 14A, filed with the Commission on January 27, 2010).

71

10.9 Employee Stock Option Agreement, dated March 16, 2010, between The InterGroup Corporation and John V. Winfield (incorporated by reference to Exhibit 10.9 of the Company’s report on Form 10-K for the fiscal year ended June 30, 2010, as filed with the Commission on September 27, 2010).
   
10.10 Franchise License Agreement, dated December 10, 2004, between Justice Investors and Hilton Hotels (incorporated by reference to Exhibit 10.10 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
   
10.1110.13 Management Agreement, dated February 2, 2012, between Justice Investors and Prism Hospitality, L.P. (incorporated by reference to Exhibit 10.11 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
10.12Management Agreement, dated August 1, 2005, between Century West Properties, Inc. and The InterGroup Corporation (incorporated by reference to Exhibit 10.12 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
10.13Employee Stock Option Agreement, dated February 28, 2012, between The InterGroup Corporation and John V. Winfield (incorporated by reference to Exhibit 10.13 of the Company’s annual report on Form 10-K for the fiscal year ended June 30, 2014, as filed with the Commission on September 20, 2012).
   
10.1410.16 

Property Management Agreement, effective June 17, 2013, between R & K Interests, Inc., a California Corporation, doing business as Investors’ Property Services and The InterGroup Corporation (incorporated by reference to Exhibit 10.1 of the Company’s current report on Form 8-K as filed with the Commission on June 20, 2013).

10.15

Asset Management Agreement, effective July 1, 2013, between The InterGroup Corporation and Delta Alliance Capital Management, LLC, a California limited liability company (incorporated by reference to Exhibit 10.2 or the Company’s current report on Form 8-K as filed with the Commission on June 20, 2013).

10.16Management Agreement, dated February 1, 2017, between Justice Operating Company, LLC and InterstateAimbridge Management Company, LLC. (filed herewith)(incorporated by reference to Exhibit 10.5 of the Company’s Form 10-K Report for the fiscal year ended June 30, 2017, as filed with the Commission on October 13, 2017). *
   
14.14 Code of Ethics (filed herewith).
   
21.21 Subsidiaries (filed herewith).
   
31.123.1 CertificationConsent of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (filed herewith).Independent Registered Public Accounting Firm Withum Smith+Brown, PC
   
31.231.1 Certification of Principal FinancialExecutive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a) (filed herewith).Section 302 of the Sarbones-Oxley Act of 2002
   
32.131.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbones-Oxley Act of 2002
32.1Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith).
   
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350 (filed herewith).
101.INSInline XBRL Instance Document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DFEInline XBRL Taxonomy Extension definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

* All Exhibits marked by one asterisk are incorporated herein by reference to the Trust's
*All Exhibits marked by one asterisk are incorporated herein by reference to the Trust’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on September 6, 1985, Amendment No. 1 to Form S-4 as filed with the Securities and Exchange Commission on October 23, 1985, Exhibit 14 to Form 8 Amendment No. 1 to Form 8 filed with the Securities & Exchange Commission November 1987 and Form 8 Amendment No. 1 Item 4 filed with the Securities & Exchange Commission October 1988.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   THE INTERGROUP CORPORATION
   (Registrant)
     
Date:October 13, 20172023 by /s//s/ John V. Winfield
    John V. Winfield, President,
    Chairman of the Board and
    Chief Executive Officer
     
Date:October 13, 20172023 by /s/ David Nguyen/s/ Ann Marie Blair
    David Nguyen, Treasurer
and Controller

Ann Marie Blair,

Principal Financial Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signatures Title and Position Date
     
/s/ John V Winfield President, Chief OperatingExecutive Officer and Chairman October 13, 20172023
John V. Winfield Chairman of the Board (Principal Executive Officer)  
     
/s/ David T. NguyenC. Gonzalez Treasurer and Controller (Principal Financial Officer)Chief Operating Officer October 13, 20172023
David T. NguyenC. Gonzalez    
     
/s/ Jerold R. BabinJohn C. Love Director October 13, 20172023
Jerold R. Babin
/s/ John C. LoveDirectorOctober 13, 2017
John C. Love    
     
/s/ Yvonne L. MurphySteve Grunwald Director October 13, 20172023
Yvonne L. MurphySteve Grunwald

   
/s/ William J. NanceYvonne L. Murphy Director October 13, 20172023
Yvonne L. Murphy
/s/ William J. NanceDirectorOctober 13, 2023
William J. Nance    

 

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