UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended DecemberMarch 31, 20172022
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)
| 13-3293645 | ||
(State or other jurisdiction of | ||
Incorporation or organization) | (I.R.S. Employer Identification No.) |
1100 Glendon Avenue, PH-1, 1516 S. Bundy Dr., Suite 200, Los Angeles, California 9002490025
(Address of principal executive offices) (Zip Code)
(310)889-2500
(Registrant’s telephone number, including area code)
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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company.
| Large accelerated filer | Accelerated filer | |
| Non-accelerated filer | Smaller reporting company | |
| 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):
¨☐ Yesx ☒ No
Securities registered pursuant to section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common stock | INTG | NASDAQ CAPITAL MARKET |
The number of shares outstanding of registrant’s Common Stock, as of January 30, 2018April 29, 2022 was 2,355,098..
TABLE OF CONTENTS
| -2- |
PART I
FINANCIAL INFORMATION
| Item 1 - | Condensed Consolidated Financial Statements |
Item 1 - Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| As of | March 31, 2022 | June 30, 2021 | ||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Investment in Hotel, net | $ | 37,677,000 | $ | 37,651,000 | ||||
| Investment in real estate, net | 47,625,000 | 47,709,000 | ||||||
| Investment in marketable securities | 25,541,000 | 35,792,000 | ||||||
| Cash and cash equivalents | 6,548,000 | 6,808,000 | ||||||
| Restricted cash | 7,728,000 | 8,584,000 | ||||||
| Other assets, net | 3,054,000 | 1,662,000 | ||||||
| Deferred tax asset | 4,880,000 | 2,140,000 | ||||||
| Total assets | $ | 133,053,000 | $ | 140,346,000 | ||||
| LIABILITIES AND SHAREHOLDERS’ DEFICIT | ||||||||
| Liabilities: | ||||||||
| Accounts payable and other liabilities - Hotel | $ | 7,363,000 | $ | 7,408,000 | ||||
| Accounts payable and other liabilities | 3,040,000 | 3,357,000 | ||||||
| Due to securities broker | 2,720,000 | 7,917,000 | ||||||
| Obligations for securities sold | 1,257,000 | 6,419,000 | ||||||
| Related party and other notes payable | 3,675,000 | 4,088,000 | ||||||
| Other notes payable - SBA Loans | - | 2,000,000 | ||||||
| Mortgage notes payable - Hotel, net | 109,092,000 | 110,134,000 | ||||||
| Mortgage notes payable - real estate, net | 85,146,000 | 70,259,000 | ||||||
| Total liabilities | 212,293,000 | 211,582,000 | ||||||
| Shareholders’ deficit: | ||||||||
| Preferred stock, $ par value, shares authorized; issued | - | - | ||||||
| Common stock, $ par value, shares authorized; and issued; and outstanding, respectively | 33,000 | 33,000 | ||||||
| Additional paid-in capital | 2,118,000 | 2,172,000 | ||||||
| Accumulated deficit | (42,023,000 | ) | (36,394,000 | ) | ||||
| Treasury stock, at cost, and shares, respectively | (18,995,000 | ) | (17,370,000 | ) | ||||
| Total InterGroup shareholders’ deficit | (58,867,000 | ) | (51,559,000 | ) | ||||
| Noncontrolling interest | (20,373,000 | ) | (19,677,000 | ) | ||||
| Total shareholders’ deficit | (79,240,000 | ) | (71,236,000 | ) | ||||
| Total liabilities and shareholders’ deficit | $ | 133,053,000 | $ | 140,346,000 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| -3- |
| As of | December 31, 2017 | June 30, 2017 | ||||||
| ASSETS | ||||||||
| Investment in hotel, net | $ | 40,820,000 | $ | 42,092,000 | ||||
| Investment in real estate, net | 54,402,000 | 54,984,000 | ||||||
| Investment in marketable securities | 13,209,000 | 17,177,000 | ||||||
| Other investments, net | 963,000 | 1,211,000 | ||||||
| Cash and cash equivalents | 2,309,000 | 2,871,000 | ||||||
| Restricted cash | 7,686,000 | 7,402,000 | ||||||
| Other assets, net | 3,075,000 | 3,365,000 | ||||||
| Deferred income taxes | 3,688,000 | 4,107,000 | ||||||
| Total assets | $ | 126,152,000 | $ | 133,209,000 | ||||
| LIABILITIES AND SHAREHOLDERS' DEFICIT | ||||||||
| Liabilities: | ||||||||
| Accounts payable and other liabilities | $ | 2,971,000 | $ | 2,947,000 | ||||
| Accounts payable and other liabilities - hotel | 11,870,000 | 12,833,000 | ||||||
| Due to securities broker | 2,792,000 | 3,012,000 | ||||||
| Obligations for securities sold | 2,071,000 | 3,710,000 | ||||||
| Related party and other notes payable | 5,920,000 | 6,112,000 | ||||||
| Mortgage notes payable - hotel | 115,038,000 | 115,615,000 | ||||||
| Mortgage notes payable - real estate | 63,597,000 | 64,298,000 | ||||||
| Total liabilities | 204,259,000 | 208,527,000 | ||||||
| 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; 2,355,098 and 2,359,724 outstanding, respectively | 33,000 | 33,000 | ||||||
| Additional paid-in capital | 10,468,000 | 10,346,000 | ||||||
| Accumulated deficit | (46,915,000 | ) | (45,298,000 | ) | ||||
| Treasury stock, at cost, 1,040,518 and 1,035,892 shares, respectively | (12,735,000 | ) | (12,626,000 | ) | ||||
| Total InterGroup shareholders' deficit | (49,149,000 | ) | (47,545,000 | ) | ||||
| Noncontrolling interest | (28,958,000 | ) | (27,773,000 | ) | ||||
| Total shareholders' deficit | (78,107,000 | ) | (75,318,000 | ) | ||||
| Total liabilities and shareholders' equity | $ | 126,152,000 | $ | 133,209,000 | ||||
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended March 31, | 2022 | 2021 | ||||||
| Revenues: | ||||||||
| Hotel | $ | 6,632,000 | $ | 2,902,000 | ||||
| Real estate | 3,826,000 | 3,465,000 | ||||||
| Total revenues | 10,458,000 | 6,367,000 | ||||||
| Costs and operating expenses: | ||||||||
| Hotel operating expenses | (6,544,000 | ) | (3,990,000 | ) | ||||
| Real estate operating expenses | (2,270,000 | ) | (2,043,000 | ) | ||||
| Depreciation and amortization expenses | (1,185,000 | ) | (1,127,000 | ) | ||||
| General and administrative expenses | (580,000 | ) | (605,000 | ) | ||||
| Total costs and operating expenses | (10,579,000 | ) | (7,765,000 | ) | ||||
| Loss from operations | (121,000 | ) | (1,398,000 | ) | ||||
| Other (expense) income: | ||||||||
| Interest expense - mortgages | (2,188,000 | ) | (2,180,000 | ) | ||||
| Net gain on marketable securities | 906,000 | 768,000 | ||||||
| Gain on sale of real estate | ||||||||
| Net gain on marketable securities - Comstock | - | 4,870,000 | ||||||
| Gain on extinguishment of debt | - | 453,000 | ||||||
| Impairment loss on other investments | - | (30,000 | ) | |||||
| Dividend and interest income | 158,000 | 158,000 | ||||||
| Trading and margin interest expense | (339,000 | ) | (362,000 | ) | ||||
| Total other (expense) income, net | (1,463,000 | ) | 3,677,000 | |||||
| (Loss) income before income taxes | (1,584,000 | ) | 2,279,000 | |||||
| Income tax benefit (expense) | 711,000 | (880,000 | ) | |||||
| Net (loss) income | (873,000 | ) | 1,399,000 | |||||
| Less: Net loss (gain) attributable to the noncontrolling interest | 407,000 | (289,000 | ) | |||||
| Net (loss) gain attributable to InterGroup Corporation | $ | (466,000 | ) | $ | 1,110,000 | |||
| Net (loss) income per share | ||||||||
| Basic | $ | (0.39 | ) | $ | 0.62 | |||
| Diluted | N/A | $ | 0.54 | |||||
| Net (loss) income per share attributable to InterGroup Corporation | ||||||||
| Basic | $ | (0.21 | ) | $ | 0.49 | |||
| Diluted | N/A | $ | 0.43 | |||||
| Weighted average number of basic common shares outstanding | 2,230,872 | 2,267,115 | ||||||
| Weighted average number of diluted common shares outstanding | N/A | 2,604,710 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| -4- |
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the nine months ended March 31, | 2022 | 2021 | ||||||
| Revenues: | ||||||||
| Hotel | $ | 19,785,000 | $ | 9,436,000 | ||||
| Real estate | 11,808,000 | 10,503,000 | ||||||
| Total revenues | 31,593,000 | 19,939,000 | ||||||
| Costs and operating expenses: | ||||||||
| Hotel operating expenses | (19,356,000 | ) | (14,156,000 | ) | ||||
| Real estate operating expenses | (6,620,000 | ) | (6,031,000 | ) | ||||
| Depreciation and amortization expenses | (3,468,000 | ) | (3,499,000 | ) | ||||
| General and administrative expenses | (1,966,000 | ) | (2,531,000 | ) | ||||
| Total costs and operating expenses | (31,410,000 | ) | (26,217,000 | ) | ||||
| Income (loss) from operations | 183,000 | (6,278,000 | ) | |||||
| Other (expense) income: | ||||||||
| Interest expense - mortgages | (6,712,000 | ) | (6,736,000 | ) | ||||
| Gain on sale of real estate | - | 12,043,000 | ||||||
| Net (loss) gain on marketable securities | (1,032,000 | ) | 4,016,000 | |||||
| Net (loss) gain on marketable securities - Comstock | (2,581,000 | ) | 4,921,000 | |||||
| Gain on extinguishment of debt | 1,665,000 | 453,000 | ||||||
| Impairment loss on other investments | (41,000 | ) | (119,000 | ) | ||||
| Dividend and interest income | 807,000 | 363,000 | ||||||
| Trading and margin interest expense | (1,053,000 | ) | (918,000 | ) | ||||
| Total other (expense) income, net | (8,947,000 | ) | 14,023,000 | |||||
| (Loss) income before income taxes | (8,764,000 | ) | 7,745,000 | |||||
| Income tax benefit (expense) | 2,742,000 | (2,590,000 | ) | |||||
| Net (loss) income | (6,022,000 | ) | 5,155,000 | |||||
| Less: Net loss attributable to the noncontrolling interest | 1,392,000 | 440,000 | ||||||
| Net (loss) income attributable to InterGroup Corporation | $ | (4,630,000 | ) | $ | 5,595,000 | |||
| Net (loss) income per share | ||||||||
| Basic | $ | (2.71 | ) | $ | 2.26 | |||
| Diluted | N/A | $ | 1.97 | |||||
| Net loss (income) per share attributable to InterGroup Corporation | ||||||||
| Basic | $ | (2.09 | ) | $ | 2.46 | |||
| Diluted | N/A | $ | 2.14 | |||||
| Weighted average number of basic common shares outstanding | 2,219,220 | 2,276,220 | ||||||
| Weighted average number of diluted common shares outstanding | N/A | 2,613,815 | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| -5- |
THE INTERGROUP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT
(Unaudited)
| Common Stock | Additional Paid-in | Accumulated | Treasury | InterGroup Shareholders’ | Noncontrolling | 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 | - | - | - | (2,161,000 | ) | - | (2,161,000 | ) | (745,000 | ) | (2,906,000 | ) | ||||||||||||||||||||
| Stock options expense | - | - | 2,000 | - | - | 2,000 | - | 2,000 | ||||||||||||||||||||||||
| Investment in Portsmouth | - | - | (25,000 | ) | - | - | (25,000 | ) | 17,000 | (8,000 | ) | |||||||||||||||||||||
| Purchase of remaining interest in Justice | - | - | - | (999,000 | ) | - | (999,000 | ) | 999,000 | - | ||||||||||||||||||||||
| Investment in Justice | - | - | - | - | - | - | (344,000 | ) | (344,000 | ) | ||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (74,000 | ) | (74,000 | ) | - | (74,000 | ) | |||||||||||||||||||||
| Balance at | ||||||||||||||||||||||||||||||||
| September 30, 2021 | 3,404,982 | 33,000 | 2,149,000 | (39,554,000 | ) | (17,444,000 | ) | (54,816,000 | ) | (19,750,000 | ) | (74,566,000 | ) | |||||||||||||||||||
| Net Loss | - | - | - | (2,003,000 | ) | - | (2,003,000 | ) | (240,000 | ) | (2,243,000 | ) | ||||||||||||||||||||
| Stock options expense | - | - | 2,000 | - | - | 2,000 | - | 2,000 | ||||||||||||||||||||||||
| Investment in Portsmouth | - | - | (33,000 | ) | - | - | (33,000 | ) | 24,000 | (9,000 | ) | |||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (1,513,000 | ) | (1,513,000 | ) | - | (1,513,000 | ) | |||||||||||||||||||||
| Balance at | ||||||||||||||||||||||||||||||||
| December 31, 2021 | 3,404,982 | 33,000 | 2,118,000 | (41,557,000 | ) | (18,957,000 | ) | (58,363,000 | ) | (19,966,000 | ) | (78,329,000 | ) | |||||||||||||||||||
| Issuance of stock | 54,906 | - | - | - | - | - | - | - | ||||||||||||||||||||||||
| Net Loss | - | - | - | (466,000 | ) | - | (466,000 | ) | (407,000 | ) | (873,000 | ) | ||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (38,000 | ) | (38,000 | ) | - | (38,000 | ) | |||||||||||||||||||||
| Balance at | ||||||||||||||||||||||||||||||||
| March 31, 2022 | 3,459,888 | $ | 33,000 | $ | 2,118,000 | $ | (42,023,000 | ) | $ | (18,995,000 | ) | $ | (58,867,000 | ) | $ | (20,373,000 | ) | $ | (79,240,000 | ) | ||||||||||||
| -6- |
| Common Stock | Additional Paid-in | Accumulated | Treasury | InterGroup Shareholders’ | Noncontrolling | Total Shareholders’ | ||||||||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Stock | Deficit | Interest | Deficit | |||||||||||||||||||||||||
| Balance at July 1, 2020 | 3,404,982 | $ | 33,000 | $ | 6,626,000 | $ | (43,541,000 | ) | $ | (14,995,000 | ) | $ | (51,877,000 | ) | $ | (22,370,000 | ) | $ | (74,247,000 | ) | ||||||||||||
| Net income | - | - | - | 4,550,000 | - | 4,550,000 | 269,000 | 4,819,000 | ||||||||||||||||||||||||
| Stock options expense | - | - | 5,000 | - | - | 5,000 | - | 5,000 | ||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (140,000 | ) | (140,000 | ) | - | (140,000 | ) | |||||||||||||||||||||
| Balance at | ||||||||||||||||||||||||||||||||
| September 30, 2020 | 3,404,982 | 33,000 | 6,631,000 | (38,991,000 | ) | (15,135,000 | ) | (47,462,000 | ) | (22,101,000 | ) | (69,563,000 | ) | |||||||||||||||||||
| Net income (loss) | - | - | - | (65,000 | ) | - | (65,000 | ) | (998,000 | ) | (1,063,000 | ) | ||||||||||||||||||||
| Stock options expense | - | - | 5,000 | - | - | 5,000 | - | 5,000 | ||||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (116,000 | ) | (116,000 | ) | - | (116,000 | ) | |||||||||||||||||||||
| Balance at | ||||||||||||||||||||||||||||||||
| December 31, 2020 | 3,404,982 | 33,000 | 6,636,000 | (39,056,000 | ) | (15,251,000 | ) | (47,638,000 | ) | (23,099,000 | ) | (70,737,000 | ) | |||||||||||||||||||
| Balance | 3,404,982 | 33,000 | 6,636,000 | (39,056,000 | ) | (15,251,000 | ) | (47,638,000 | ) | (23,099,000 | ) | (70,737,000 | ) | |||||||||||||||||||
| Net income | - | - | - | 1,110,000 | - | 1,110,000 | 289,000 | 1,399,000 | ||||||||||||||||||||||||
| Net income (loss) | - | - | - | 1,110,000 | - | 1,110,000 | 289,000 | 1,399,000 | ||||||||||||||||||||||||
| Stock options expense | - | - | 2,000 | - | - | 2,000 | - | 2,000 | ||||||||||||||||||||||||
| Reclassify NCI to INTG | - | - | - | 372,000 | - | 372,000 | (372,000 | ) | - | |||||||||||||||||||||||
| Investment in Justice | - | - | - | - | - | - | (206,000 | ) | (206,000 | ) | ||||||||||||||||||||||
| Distribution to NCI | - | - | - | - | - | - | (979,000 | ) | (979,000 | ) | ||||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (1,082,000 | ) | (1,082,000 | ) | - | (1,082,000 | ) | |||||||||||||||||||||
| Balance at | ||||||||||||||||||||||||||||||||
| March 31, 2021 | 3,404,982 | $ | 33,000 | $ | 6,638,000 | $ | (37,574,000 | ) | $ | (16,333,000 | ) | $ | (47,236,000 | ) | $ | (24,367,000 | ) | $ | (71,603,000 | ) | ||||||||||||
| Balance | 3,404,982 | $ | 33,000 | $ | 6,638,000 | $ | (37,574,000 | ) | $ | (16,333,000 | ) | $ | (47,236,000 | ) | $ | (24,367,000 | ) | $ | (71,603,000 | ) | ||||||||||||
The accompanying notes are an integral part of these (unaudited)unaudited condensed consolidated financial statements.
| -7- |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS
(UNAUDITED)(Unaudited)
| For the nine months ended March 31, | 2022 | 2021 | ||||||
| Cash flows from operating activities: | ||||||||
| Net (loss) income | $ | (6,022,000 | ) | $ | 5,155,000 | |||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 3,468,000 | 3,499,000 | ||||||
| Amortization of loan cost | 341,000 | 259,000 | ||||||
| Amortization of related party note | (426,000 | ) | (426,000 | ) | ||||
| Gain from debt extinguishment | (2,000,000 | ) | (453,000 | ) | ||||
| Gain on sale of real estate | - | (12,043,000 | ) | |||||
| Deferred taxes | (2,740,000 | ) | 1,658,000 | |||||
| Net unrealized loss (gain) on marketable securities | 2,739,000 | (9,604,000 | ) | |||||
| Impairment loss on other investments | 41,000 | 119,000 | ||||||
| Stock compensation expense | 4,000 | 12,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Investment in marketable securities | 7,512,000 | (21,214,000 | ) | |||||
| Other assets | (1,433,000 | ) | (1,199,000 | ) | ||||
| Accounts payable and other liabilities - Hotel | 321,000 | (1,447,000 | ) | |||||
| Accounts payable and other liabilities | (317,000 | ) | (1,042,000 | ) | ||||
| Due to securities broker | (5,197,000 | ) | 7,445,000 | |||||
| Obligations for securities sold | (5,162,000 | ) | 4,967,000 | |||||
| Net cash used in operating activities | (8,871,000 | ) | (24,314,000 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Payments for hotel investments | (1,694,000 | ) | (491,000 | ) | ||||
| Payments for real estate investments | (1,716,000 | ) | (830,000 | ) | ||||
| Payments for investment in Justice | (344,000 | ) | (206,000 | ) | ||||
| Payments for investment in Portsmouth | (17,000 | ) | - | |||||
| Proceeds from sale of real estate | - | 15,178,000 | ||||||
| Proceeds from other investments | - | 118,000 | ||||||
| Distribution to NCI | - | (979,000 | ) | |||||
| Net cash (used in) provided by investing activities | (3,771,000 | ) | 12,790,000 | |||||
| Cash flows from financing activities: | ||||||||
| Payments of mortgage and other notes payable | (2,857,000 | ) | (3,040,000 | ) | ||||
| Proceeds from refinance of mortgage notes payable | 16,099,000 | 5,384,000 | ||||||
| Issuance costs of refinancing mortgage and other notes payable | (91,000 | ) | (255,000 | ) | ||||
| Purchase of treasury stock | (1,625,000 | ) | (1,338,000 | ) | ||||
| Payments of LOC | - | (2,985,000 | ) | |||||
| Issuance cost from renewing line of credit | - | (5,000 | ) | |||||
| Proceeds from SBA loan | - | 2,000,000 | ||||||
| Net cash provided by (used in) financing activities | 11,526,000 | (239,000 | ) | |||||
| Net decrease in cash, cash equivalents and restricted cash | (1,116,000 | ) | (11,763,000 | ) | ||||
| Cash, cash equivalents and restricted cash at the beginning of the period | 15,392,000 | 28,286,000 | ||||||
| Cash, cash equivalents and restricted cash at the end of the period | $ | 14,276,000 | $ | 16,523,000 | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 5,921,000 | $ | 6,914,000 | ||||
| Taxes paid | $ | 679,000 | $ | 2,745,000 | ||||
| Non-cash transaction: | ||||||||
| Additions to Hotel equipment through finance lease | $ | - | $ | 30,000 | ||||
| For the three months ended December 31, | 2017 | 2016 | ||||||
| Revenues: | ||||||||
| Hotel | $ | 13,187,000 | $ | 12,837,000 | ||||
| Real estate | 3,625,000 | 3,605,000 | ||||||
| Total revenues | 16,812,000 | 16,442,000 | ||||||
| Costs and operating expenses: | ||||||||
| Hotel operating expenses | (10,743,000 | ) | (9,611,000 | ) | ||||
| Real estate operating expenses | (2,102,000 | ) | (1,754,000 | ) | ||||
| Depreciation and amortization expenses | (1,267,000 | ) | (1,370,000 | ) | ||||
| General and administrative expenses | (730,000 | ) | (602,000 | ) | ||||
| Total costs and operating expenses | (14,842,000 | ) | (13,337,000 | ) | ||||
| Income from operations | 1,970,000 | 3,105,000 | ||||||
| Other income (expense): | ||||||||
| Interest expense - mortgages | (2,490,000 | ) | (2,402,000 | ) | ||||
| Net loss on marketable securities | (1,178,000 | ) | (3,290,000 | ) | ||||
| Impairment loss on other investments | (200,000 | ) | (24,000 | ) | ||||
| Dividend and interest income | 48,000 | 68,000 | ||||||
| Trading and margin interest expense | (313,000 | ) | (291,000 | ) | ||||
| Total other expense, net | (4,133,000 | ) | (5,939,000 | ) | ||||
| Loss before income taxes | (2,163,000 | ) | (2,834,000 | ) | ||||
| Income tax (expense) benefit | (344,000 | ) | 825,000 | |||||
| Net loss | (2,507,000 | ) | (2,009,000 | ) | ||||
| Less: Net loss attributable to the noncontrolling interest | 1,302,000 | 293,000 | ||||||
| Net loss attributable to InterGroup | $ | (1,205,000 | ) | $ | (1,716,000 | ) | ||
| Net loss per share | ||||||||
| Basic and diluted | $ | (1.06 | ) | $ | (0.85 | ) | ||
| Net loss per share attributable to InterGroup | ||||||||
| Basic and diluted | $ | (0.51 | ) | $ | (0.72 | ) | ||
| Weighted average number of basic and diluted common shares outstanding | 2,371,125 | 2,375,654 | ||||||
The accompanying notes are an integral part of these (unaudited)unaudited condensed consolidated financial statements.
| -8- |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the six months ended December 31, | 2017 | 2016 | ||||||
| Revenues: | ||||||||
| Hotel | $ | 27,624,000 | $ | 27,442,000 | ||||
| Real estate | 7,302,000 | 7,254,000 | ||||||
| Total revenues | 34,926,000 | 34,696,000 | ||||||
| Costs and operating expenses: | ||||||||
| Hotel operating expenses | (21,332,000 | ) | (19,867,000 | ) | ||||
| Real estate operating expenses | (3,997,000 | ) | (3,561,000 | ) | ||||
| Depreciation and amortization expenses | (2,541,000 | ) | (2,638,000 | ) | ||||
| General and administrative expenses | (1,561,000 | ) | (1,330,000 | ) | ||||
| Total costs and operating expenses | (29,431,000 | ) | (27,396,000 | ) | ||||
| Income from operations | 5,495,000 | 7,300,000 | ||||||
| Other income (expense): | ||||||||
| Interest expense - mortgages | (4,983,000 | ) | (4,864,000 | ) | ||||
| Net loss on marketable securities | (2,200,000 | ) | (2,136,000 | ) | ||||
| Impairment loss on other investments | (200,000 | ) | (44,000 | ) | ||||
| Dividend and interest income | 131,000 | 110,000 | ||||||
| Trading and margin interest expense | (626,000 | ) | (553,000 | ) | ||||
| Total other expense, net | (7,878,000 | ) | (7,487,000 | ) | ||||
| Loss before income taxes | (2,383,000 | ) | (187,000 | ) | ||||
| Income tax expense | (419,000 | ) | (227,000 | ) | ||||
| Net loss | (2,802,000 | ) | (414,000 | ) | ||||
| Less: Net loss (income) attributable to the noncontrolling interest | 1,185,000 | (111,000 | ) | |||||
| Net loss attributable to InterGroup | $ | (1,617,000 | ) | $ | (525,000 | ) | ||
| Net loss per share | ||||||||
| Basic and diluted | $ | (1.18 | ) | $ | (0.17 | ) | ||
| Net loss per share attributable to InterGroup | ||||||||
| Basic and diluted | $ | (0.68 | ) | $ | (0.22 | ) | ||
| Weighted average number of basic and diluted common shares outstanding | 2,371,445 | 2,378,690 | ||||||
The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the six months ended December 31, | 2017 | 2016 | ||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (2,802,000 | ) | $ | (414,000 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 2,597,000 | 2,638,000 | ||||||
| Net unrealized loss on marketable securities | 2,081,000 | 2,448,000 | ||||||
| Impairment loss on other investments | 200,000 | 44,000 | ||||||
| Stock compensation expense | 122,000 | 140,000 | ||||||
| Deferred taxes | 419,000 | 227,000 | ||||||
| Changes in assets and liabilities: | ||||||||
| Investment in marketable securities | 1,887,000 | (5,210,000 | ) | |||||
| Other assets | 290,000 | 2,648,000 | ||||||
| Accounts payable and other liabilities | (939,000 | ) | (3,406,000 | ) | ||||
| Due to securities broker | (220,000 | ) | 2,530,000 | |||||
| Obligations for securities sold | (1,639,000 | ) | 867,000 | |||||
| Net cash provided by operating activities | 1,996,000 | 2,512,000 | ||||||
| Cash flows from investing activities: | ||||||||
| Investment in hotel, net | (109,000 | ) | (317,000 | ) | ||||
| Investment in real estate, net | (578,000 | ) | (615,000 | ) | ||||
| Investment in Santa Fe | - | (30,000 | ) | |||||
| Proceeds from other investments | 48,000 | - | ||||||
| Net cash used in investing activities | (639,000 | ) | (962,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Restricted cash - payment of mortgage impounds | (284,000 | ) | (962,000 | ) | ||||
| Net payments of mortgage and other notes payable | (1,526,000 | ) | (1,869,000 | ) | ||||
| Purchase of treasury stock | (109,000 | ) | (352,000 | ) | ||||
| Net cash used in financing activities | (1,919,000 | ) | (3,183,000 | ) | ||||
| Net decrease in cash and cash equivalents | (562,000 | ) | (1,633,000 | ) | ||||
| Cash and cash equivalents at the beginning of the period | 2,871,000 | 5,404,000 | ||||||
| Cash and cash equivalents at the end of the period | $ | 2,309,000 | $ | 3,771,000 | ||||
| Supplemental information: | ||||||||
| Interest paid | $ | 5,336,000 | $ | 5,167,000 | ||||
The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.
THE INTERGROUP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The condensed consolidated financial statements included herein have been prepared by The InterGroup Corporation (“InterGroup” or the “Company”), without audit, according to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in the condensed consolidated financial statements prepared in accordance with generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures that are made are adequate to make the information presented not misleading. Further, the condensed consolidated financial statements reflect, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary for a fair statement of the financial position, cash flows and results of operations as of and for the periods indicated. It is suggested that these financial statements be read in conjunction with the audited financial statements of InterGroup and the notes therein included in the Company'sCompany’s Annual Report on Form 10-K for the year ended June 30, 2017.2021. The June 30, 20172021 Condensed Consolidated Balance Sheet was derived from the Consolidated Balance Sheet as included in the Company’s Form 10-K for the year ended June 30, 2017.2021.
The condensed consolidated financial statements include the accounts of our wholly owned and majority-owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. The results of operations for the three and sixnine months ended DecemberMarch 31, 20172022 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2018.2022.
Basic and diluted loss per share is computed by dividing net loss available to common stockholders byEffective February 19, 2021, the weighted average number of common shares outstanding. The computation of diluted income per share is similar to the computation of basic earnings 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.
As of December 31, 2017, 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’s primary business is conducted through the management of its 68.8% owned subsidiary, Portsmouth Square Inc. (“Portsmouth”), a public company (OTCBB: PRSI). was distributed to its shareholders in exchange for their Santa Fe common stock. InterGroup received cash of $5,013,000 and shares of Portsmouth common stock in March 2021 as 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 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. The liquidation and distribution of Santa Fe did not have an impact on the consolidated statement of operations for the fiscal year ended June 30, 2021 but rather on the condensed consolidated balance sheets as of June 30, 2021 as a reclass between noncontrolling interests and accumulated deficit. As of March 31, 2022, InterGroup owns approximately 75% of the outstanding common shares of Portsmouth. As of March 31, 2022, 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.
Portsmouth’s primary business iswas conducted through its general and limited partnership interest in Justice Investors Limited Partnership;Partnership, a California limited partnership (“Justice” or the “Partnership”). InterGroup also directly owns approximately 13.4%Effective July 15, 2021, Portsmouth completed the purchase of 100% of the common stocklimited partnership interest of Justice. 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”), a Delaware Limited Liability Company, Justice Operating Company, LLC (“Operating”)owned and Justice Mezzanine Company, LLC (“Mezzanine”), ownsoperated a 544-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).(“Hilton”) through January 31, 2030.
Justice had a management agreementAimbridge 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 payable to advance a key money incentive fee to theAimbridge shall be one and seven-tenths percent (1.70%) of total 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 condensed consolidated balance sheets as of December 31, 2017 and June 30, 2017.revenue.
| -9- |
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, 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 Dallas, Texas and Southern California. The Company also has an investment in unimproved real property. As of DecemberMarch 31, 2017,2022, all of the Company’s residential and commercial rental properties are managed in-house.
Due to Securities Broker
Various securities brokersThere have advanced fundsbeen no material changes to the CompanyCompany’s significant accounting policies during the nine months ended March 31, 2022. Please refer to the Company’s Annual Report on Form 10-K for the purchaseyear ended June 30, 2021 for a summary of marketable securities under standard margin agreements. These advanced funds are recorded as a liability.
Obligationsthe significant accounting policies. Certain prior year amounts have been reclassified for Securities Sold
Obligation for securities sold represents the fair market value of shares soldconsistency 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 inperiod presentation on the condensed consolidated statementsbalance sheet. Other investment, net of operations.
Income Tax
The Company consolidates Justice (“Hotel”) for financial reporting purposes$41,000 as of June 30, 2021 was reclassed to Other asset, net. Finance leases of $664,000 as of June 30, 2021 was reclassed to Accounts payable and is not taxed on its non-controlling interest in theother liabilities - Hotel. The income tax expense during the three and six months ended December 31, 2017 and 2016 represents the income taxThese reclassifications had no effect on the Company’s pretax income which includes its share inreported results of operations and financial position.
Recently Issued and Adopted Accounting Pronouncements
As of March 31, 2022, management does not expect a material impact from recently issued accounting pronouncements yet to be adopted, on the net income of the Hotel.Company's condensed consolidated financial statements.
Financial Condition and Liquidity
The Company’s
NOTE 2 - LIQUIDITY
Historically, our cash flows arehave been primarily generated from itsour Hotel and real estate operations. However, the responses by federal, state, and local civil authorities to the COVID-19 pandemic continues to have a material detrimental impact on our liquidity. For the nine months ended March 31, 2022, our net cash flow used in operations was $8,871,000. For the nine months ended March 31, 2021, our net cash flow used in operations was $24,314,000. 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, postponing capital expenditures, renegotiating certain reoccurring expenses, and temporarily closing certain hotel services and outlets.
The Company also receiveshad cash and cash equivalents of $6,548,000 and $6,808,000 as of March 31, 2022 and June 30, 2021, respectively. The Company had marketable securities, net of margin due to securities brokers, of $21,564,000 and $21,456,000 as of March 31, 2022 and June 30, 2021, 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. 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 nine months ending March 31, 2022, InterGroup advanced $7,550,000 to the Hotel, bringing the total amount due to InterGroup to $14,200,000 at March 31, 2022.
In June 2020, we refinanced one of our California properties and generated net proceeds of $1,144,000. During the fiscal year ended June 30, 2021, we completed refinancing on six of our California properties and generated net proceeds of $6,762,000. During the nine months ending March 31, 2022, we refinanced five of our properties’ existing mortgages and obtained a mortgage note payable on one of our California properties, generating net proceeds totaling $16,099,000 as a result. 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. The Company has an uncollateralized $5,000,000 revolving line of credit from CIBC Bank USA (“CIBC”) and the entire $5,000,000 is available to be drawn down as of March 31, 2022 should additional liquidity be necessary.
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”). Justice received proceeds of $4,719,000 from the investmentSBA Loan. In accordance with the requirements of its cash and marketable securitiesthe CARES Act, Justice used the proceeds from the SBA Loan for payroll costs and other investments.
To fundqualified expenses. The SBA Loan was scheduled to mature on April 9, 2022 with a 1.00% interest rate and was subject to the redemption of limited partnership intereststerms and conditions applicable to repay the prior mortgage of $42,940,000, Justice obtained a $97,000,000 mortgage loan and a $20,000,000 mezzanine loan. The mortgage loan is securedloans administered 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 thru January 2017. Beginning in February 2017, the loan began to amortize over a thirty-year period thru its maturity date of 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 secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The mezzanine interest only loan bears interest at 9.75% per annum and matures in January 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by the Company in favor of mezzanine lender.
Effective as of May 11, 2017, InterGroup agreed to become an additional guarantorU.S. Small Business Administration under the limited guaranty and an additional indemnitor underCARES Act. On June 10, 2021, 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 a certain net worth and liquidity. As of December 31, 2017, InterGroup isSBA Loan was forgiven in compliance with both requirements.full.
| -10- |
Despite an uncertain economy,On April 27, 2020, InterGroup entered into a loan agreement (“SBA Loan - InterGroup”) with CIBC Bank USA under the Hotel has continuedCARES Act and received loan proceeds in the amount of $453,000. InterGroup used all of the $453,000 loan proceeds in qualified payroll expenses. The SBA Loan – InterGroup was scheduled to generate positive operating income. Whilemature on April 27, 2022 and had a 1.00% interest rate. On March 17, 2021, SBA Loan – InterGroup was forgiven in full.
On February 3, 2021, Justice entered into a second loan agreement (“Second SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all proceeds from the Second SBA Loan primarily for payroll costs. The Second 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 Second SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt service requirements relatedextinguishment on the loans may create some additional riskcondensed consolidated statement of operations for the Companynine months ended March 31, 2022.
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and its abilityother 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 generate cash flows in the future, management believes that cash flows from the operationspay for scheduled debt maturities and capital improvements of the Hotel and the garageour real estate properties. We will continue to be sufficient to meet all offinance our business activities primarily with existing cash, including from the Partnership’s currentactivities described above, and future obligations and financial requirements.
The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.
Management believes that its cash marketable securities, and the cash flows generated from those assetsour operations. After considering our approach to liquidity and fromaccessing our available sources of cash, we believe that our cash position, after giving effect to the partnership management fees,transactions discussed above, will be adequate to meet the Company’s currentanticipated requirements for operating and future obligations. Additionally, management believes there is significant appreciated value in the Hotel property to support additional borrowings, if necessary.
Recently Issued Accounting Pronouncementsother expenditures, including corporate expenses, payroll and U.S. Tax Reform
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,Revenuerelated benefits, taxes and compliance costs and other commitments, for at least twelve months from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. In August 2015, the FASB issued ASU No. 2015-14,Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delays the effective date of ASU 2014-09 by one year. The FASB also agreed to allow entities to choose to adopt the standard as of the original effective date. In March 2016, the FASB issued Accounting Standards Update No. 2016-08,Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)(ASU 2016-08) which clarifies the implementation guidance on principal versus agent considerations. The guidance includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. The new revenue recognition standard will be effective for the Company 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 processissuance of completing the analysis on the impact this guidance will have on the consolidatedthese financial statements, even if current levels of low occupancy were to persist. The objectives of our cash management policy are to maintain existing leverage levels and related disclosures, the Company does not expectavailability of liquidity, while minimizing operational costs. We believe that our cash on hand, along with other potential aforementioned 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 impact tonext twelve months and beyond. However, there can be material.no guarantee that management will be successful with its plan.
The following table provides a summary as of March 31, 2022, the Company’s material financial obligations which also includes interest payments.
SCHEDULE OF MATERIAL FINANCIAL OBLIGATION
| 3 Months | Year | Year | Year | Year | ||||||||||||||||||||||||
| Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | ||||||||||||||||||||||
| Mortgage and subordinated notes payable | $ | 195,528,000 | $ | 841,000 | $ | 12,960,000 | $ | 108,321,000 | $ | 3,866,000 | $ | 1,066,000 | $ | 68,474,000 | ||||||||||||||
| Related party notes payable | 3,662,000 | 142,000 | 567,000 | 567,000 | 567,000 | 567,000 | 1,252,000 | |||||||||||||||||||||
| Interest | 32,710,000 | 2,678,000 | 8,723,000 | 5,376,000 | 2,241,000 | 2,126,000 | 11,566,000 | |||||||||||||||||||||
| Total | $ | 231,900,000 | $ | 3,661,000 | $ | 22,250,000 | $ | 114,264,000 | $ | 6,674,000 | $ | 3,759,000 | $ | 81,292,000 | ||||||||||||||
In August 2014, the FASB issued ASU No. 2014-15,Disclosure of Uncertainties about an Entity’s Ability to Continue
NOTE 3 – REVENUE
Our 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 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 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 about 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.earned. The Company’s adoption of this ASU did not have a material impact on its consolidated financial statements.following table present our Hotel revenue disaggregated by revenue streams.
SCHEDULE OF DISAGGREGATION OF REVENUE
| For the three months ended March 31, | 2022 | 2021 | ||||||
| Hotel revenues: | ||||||||
| Hotel rooms | $ | 5,505,000 | $ | 2,368,000 | ||||
| Food and beverage | 372,000 | 17,000 | ||||||
| Garage | 677,000 | 479,000 | ||||||
| Other operating departments | 78,000 | 38,000 | ||||||
| Total hotel revenue | $ | 6,632,000 | $ | 2,902,000 | ||||
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 December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revises the future ongoing corporate income tax by, among other things, lowering corporate income tax rates. As the Company has a June 30 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in a statutory federal rate of approximately 28% for our fiscal year ending June 30, 2018, and 21% for subsequent fiscal years.
| -11- |
| For the nine months ended March 31, | 2022 | 2021 | ||||||
| Hotel revenues: | ||||||||
| Hotel rooms | $ | 16,285,000 | $ | 7,842,000 | ||||
| Food and beverage | 934,000 | 130,000 | ||||||
| Garage | 2,352,000 | 1,373,000 | ||||||
| Other operating departments | 214,000 | 91,000 | ||||||
| Total hotel revenue | $ | 19,785,000 | $ | 9,436,000 | ||||
The reductionPerformance obligations
We identified the following performance obligations, for which revenue is recognized as the respective performance obligations are satisfied, which results 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. | |
| ● | Noncancelable 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 rentals, revenue from accommodations sold in conjunction with other services (e.g., package reservations), food and beverage sales and other ancillary goods and services (e.g., parking). Revenue is recognized when rooms are occupied or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the corporate tax rate will cause us to reduce our deferred tax assetgoods and services are provided. For package reservations, the transaction price is allocated to the lower federal baseperformance 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 received in advance of 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.
Contract assets and liabilities
We do not have any material contract assets as of March 31, 2022 and June 30, 2021 other than trade and other receivables, net on our condensed 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. Based on historical trends, the Hotel applies a 50% rate of 21%.default to receivables between 90 and 120 days and a 100% rate of default to receivables over 120 days. InterGroup applies a 50% rate of default to receivables from tenants that are over 30 days.
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 condensed consolidated balance sheets. Contract liabilities increased to $467,000 as of March 31, 2022, from $161,000 as of June 30, 2021. The increase for the nine months ended March 31, 2022 was primarily driven by $306,000 of advance deposits received for future reservations.
| -12- |
Contract costs
We consider sales commissions earned to be incremental costs of obtaining a contract with our customers. As a result, a provisional net charge of $879,000 was included in the income taxpractical expedient, we expense for the quarter ended December 31, 2017.
The changes included in the Tax Act are broadthese costs as incurred as our contracts with customers and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up tolease agreements do not extend beyond one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending June 30, 2018.year.
NOTE 24 – INVESTMENT IN HOTEL, NET
Investment in hotel consisted of the following as of:
SCHEDULE OF INVESTMENT IN HOTEL, NET
| Accumulated | Net Book | |||||||||||
| March 31, 2022 | Cost | Depreciation | Value | |||||||||
| Land | $ | 2,738,000 | $ | - | $ | 2,738,000 | ||||||
| Finance lease ROU assets | 1,805,000 | (843,000 | ) | 962,000 | ||||||||
| Furniture and equipment | 32,630,000 | (28,351,000 | ) | 4,279,000 | ||||||||
| Building and improvements | 64,663,000 | (34,965,000 | ) | 29,698,000 | ||||||||
| Investment in Hotel, net | $ | 101,836,000 | $ | (64,159,000 | ) | $ | 37,677,000 | |||||
| Accumulated | Net Book | Accumulated | Net Book | |||||||||||||||||||||
| December 31, 2017 | Cost | Depreciation | Value | |||||||||||||||||||||
| June 30, 2021 | Cost | Depreciation | Value | |||||||||||||||||||||
| Land | $ | 2,738,000 | $ | - | $ | 2,738,000 | $ | 2,738,000 | $ | - | $ | 2,738,000 | ||||||||||||
| Finance lease ROU assets | 1,805,000 | (606,000 | ) | 1,199,000 | ||||||||||||||||||||
| Furniture and equipment | 27,896,000 | (25,297,000 | ) | 2,599,000 | 31,014,000 | (27,957,000 | ) | 3,057,000 | ||||||||||||||||
| Building and improvements | 64,324,000 | (28,841,000 | ) | 35,483,000 | 64,585,000 | (33,928,000 | ) | 30,657,000 | ||||||||||||||||
| $ | 94,958,000 | $ | (54,138,000 | ) | $ | 40,820,000 | ||||||||||||||||||
| Investment in Hotel, net | $ | 100,142,000 | $ | (62,491,000 | ) | $ | 37,651,000 | |||||||||||||||||
| Accumulated | Net Book | |||||||||||
| June 30, 2017 | Cost | Depreciation | Value | |||||||||
| Land | $ | 2,738,000 | $ | - | $ | 2,738,000 | ||||||
| Furniture and equipment | 27,681,000 | (24,569,000 | ) | 3,112,000 | ||||||||
| Building and improvements | 64,308,000 | (28,066,000 | ) | 36,242,000 | ||||||||
| $ | 94,727,000 | $ | (52,635,000 | ) | $ | 42,092,000 | ||||||
Finance lease ROU assets, furniture and equipment are stated at cost, depreciated on a straight-line basis over their useful lives ranging from 3 to 7 years. Building and improvements are stated at cost, depreciated on a straight-line basis over their useful lives ranging from 15 to 39 years. Depreciation expense related to our investment in hotel for the nine months ended March 31, 2022 and 2021 are $1,669,000 and $1,690,000, respectively.
NOTE 35 – INVESTMENT IN REAL ESTATE, NET
The Company’s investment in real estate includes sixteen apartment complexes, one commercial real estate property and three single-family houses. The properties are located throughout the United States, but are concentrated in Dallas, Texas and Southern California. The Company also has an investment in unimproved land located in Maui, Hawaii.
Investment in real estate consisted of the following:
SCHEDULE OF INVESTMENT IN REAL ESTATE
| As of | December 31, 2017 | June 30, 2017 | March 31, 2022 | June 30, 2021 | ||||||||||||
| Land | $ | 25,033,000 | $ | 25,033,000 | $ | 22,998,000 | $ | 22,998,000 | ||||||||
| Buildings, improvements and equipment | 67,382,000 | 66,804,000 | 69,888,000 | 68,173,000 | ||||||||||||
| Accumulated depreciation | (38,013,000 | ) | (36,853,000 | ) | (46,729,000 | ) | (44,930,000 | ) | ||||||||
| Investment in real estate, gross | 46,157,000 | 46,241,000 | ||||||||||||||
| Land held for development | 1,468,000 | 1,468,000 | ||||||||||||||
| Investment in real estate, net | $ | 54,402,000 | $ | 54,984,000 | $ | 47,625,000 | $ | 47,709,000 | ||||||||
In July 2015, the Company purchased residential houseBuilding, improvements, and equipment are stated at cost, depreciated on a straight-line basis over their useful lives ranging from 5 to 40 years. Depreciation expense related to our investment in Los Angeles, California as a strategic asset for $1,975,000 in cash. In August 2016, the Company obtained a mortgage note payable on the house in the amount of $1,000,000. The note has an adjustable interest rate of 5.25% as of December 31, 2017 and requires interest only paymentsreal estate for the first twenty-threenine months with a balloon payment at maturity in August 2018.ended March 31, 2022 and 2021 are $1,799,000 and $1,809,000, respectively.
| -13- |
NOTE 46 – 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 transfer to its shareholders through income and/or capital gain.
At DecemberMarch 31, 20172022 and June 30, 2017,2021, all of the Company’s marketable securities are classified as trading securities. The change in the unrealized gains and losses on these investments, along with the changes in amounts due to broker 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 December 31, 2017 | |||||||||||||||||||||
| Corporate Equities | $ | 27,296,000 | $ | 2,251,000 | $ | (16,338,000 | ) | $ | (14,087,000 | ) | $ | 13,209,000 | |||||||||
| As of June 30, 2017 | |||||||||||||||||||||
| Corporate Equities | $ | 29,170,000 | $ | 1,768,000 | $ | (13,761,000 | ) | $ | (11,993,000 | ) | $ | 17,177,000 | |||||||||
SCHEDULE OF TRADING SECURITIES
| Investment | Cost | Gross Unrealized Gain | Gross Unrealized Loss | Net Unrealized Gain | Fair Value | |||||||||||||||
| As of | ||||||||||||||||||||
| March 31, 2022 | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| Equities | $ | 22,825,000 | $ | 3,887,000 | $ | (1,171,000 | ) | $ | 2,716,000 | $ | 25,541,000 | |||||||||
| As of | ||||||||||||||||||||
| June 30, 2021 | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| Equities | $ | 29,816,000 | $ | 8,634,000 | $ | (2,658,000 | ) | $ | 5,976,000 | $ | 35,792,000 | |||||||||
As of December 31, 2017 and June 30, 2017,2021, approximately 16% and 28%, respectively,4% of the investment in marketable securities balance above is comprised of the common stock of Comstock Mining Inc.
(“Comstock” - NYSE AMERICAN: LODE). As of DecemberMarch 31, 20172022, the Company does not have any investment in the common stock of Comstock. 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 of March 31, 2022 and June 30, 2017,2021, the Company had $148,000 and $2,176,000, respectively, of unrealized losses of $16,105,000 and $13,294,000, respectively, related to securities held for over one year.year; of which $0 and $1,933,000 are related to its investment in Comstock, respectively.
Net lossgains (losses) on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of the two componentsnet (losses) gains on marketable securities for the respective periods:three and nine months ended March 31, 2022 and 2021, respectively:
| For the three months ended December 31, | 2017 | 2016 | ||||||
| Realized gain (loss) on marketable securities | $ | 181,000 | $ | (107,000 | ) | |||
| Unrealized gain (loss) on marketable securities | 726,000 | (260,000 | ) | |||||
| Unrealized loss on marketable securities related to Comstock | (2,085,000 | ) | (2,923,000 | ) | ||||
| Net loss on marketable securities | $ | (1,178,000 | ) | $ | (3,290,000 | ) | ||
| For the six months ended December 31, | 2017 | 2016 | ||||||
| Realized (loss) gain on marketable securities | $ | (119,000 | ) | $ | 312,000 | |||
| Unrealized gain (loss) on marketable securities | 673,000 | (57,000 | ) | |||||
| Unrealized loss on marketable securities related to Comstock | (2,754,000 | ) | (2,391,000 | ) | ||||
| Net loss on marketable securities | $ | (2,200,000 | ) | $ | (2,136,000 | ) | ||
NOTE 5 – OTHER INVESTMENTS,SCHEDULE OF NET LOSS ON MARKETABLE SECURITIES COMPRISING OF REALIZED AND UNREALIZED GAINS (LOSSES)
| For the three months ended March 31, | 2022 | 2021 | ||||||
| Realized gain on marketable securities, net | $ | 127,000 | $ | 1,845,000 | ||||
| Realized loss on marketable securities related to Comstock | - | (1,578,000 | ) | |||||
| Unrealized gain on marketable securities, net | 779,000 | 501,000 | ||||||
| Unrealized gain on marketable securities related to Comstock | - | 4,870,000 | ||||||
| Net gain on marketable securities | $ | 906,000 | $ | 5,638,000 | ||||
| For the nine months ended March 31, | 2022 | 2021 | ||||||
| Realized gain on marketable securities, net | $ | 1,707,000 | $ | 911,000 | ||||
| Realized loss on marketable securities related to Comstock | (2,581,000 | ) | (1,578,000 | ) | ||||
| Unrealized (loss) gain on marketable securities, net | (2,739,000 | ) | 4,683,000 | |||||
| Unrealized gain on marketable securities related to Comstock | - | 4,921,000 | ||||||
| Net (loss) gain on marketable securities | $ | (3,613,000 | ) | $ | 8,937,000 | |||
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, such as convertible notes through private placements. 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. Other investments also include non-marketable warrants carried at fair value.
| -14- |
Other investments, net consist of the following:
| Type | December 31, 2017 | June 30, 2017 | ||||||
| Private equity hedge fund, at cost | $ | 582,000 | $ | 782,000 | ||||
| Other preferred stock, at cost | 381,000 | 429,000 | ||||||
| $ | 963,000 | $ | 1,211,000 | |||||
NOTE 6 – 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 and obligations for securities sold) or the nature and terms of the obligation (i.e., other notes payable and mortgage notes payable).
The assets and liabilities measured at fair value on a recurring basis are as follows:
| As of | 12/31/2017 | 6/30/2017 | ||||||
| Total - Level 1 | Total - Level 1 | |||||||
| Assets: | ||||||||
| Investment in marketable securities: | ||||||||
| Basic materials | $ | 2,640,000 | $ | 6,222,000 | ||||
| Technology | 3,039,000 | 4,134,000 | ||||||
| REITs and real estate companies | 1,494,000 | 1,820,000 | ||||||
| Energy | 472,000 | 1,345,000 | ||||||
| Corporate Bonds | 1,774,000 | 1,683,000 | ||||||
| Other | 3,790,000 | 1,973,000 | ||||||
| $ | 13,209,000 | $ | 17,177,000 | |||||
SCHEDULE OF FAIR VALUE MEASUREMENT ON RECURRING BASIS
| As of | March 31, 2022 | June 30, 2021 | ||||||
| Total - Level 1 | Total - Level 1 | |||||||
| Assets: | ||||||||
| Investment in marketable securities: | ||||||||
| Financial services | $ | 9,874,000 | $ | 3,873,000 | ||||
| Communication services | 5,166,000 | 4,872,000 | ||||||
| REITs and real estate companies | 4,510,000 | 11,624,000 | ||||||
| Energy | 1,974,000 | 6,374,000 | ||||||
| Industrials | 1,180,000 | 3,746,000 | ||||||
| Technology | 1,155,000 | 442,000 | ||||||
| Basic material | 842,000 | 1,797,000 | ||||||
| Consumer cyclical | 438,000 | 1,702,000 | ||||||
| Healthcare | 202,000 | 981,000 | ||||||
| Other | 200,000 | 381,000 | ||||||
| Total | $ | 25,541,000 | $ | 35,792,000 | ||||
| Investment in marketable securities: | $ | 25,541,000 | $ | 35,792,000 | ||||
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 include “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).impairment. The following table shows the fair value hierarchy for these assets measured at fair value on a non-recurring basis as follows:
SCHEDULE OF FAIR VALUE MEASUREMENTS ON NON-RECURRING BASIS
| Net loss for the nine months ended | ||||||||||||
| Assets | Level 3 | March 31, 2022 | March 31, 2022 | |||||||||
| Other non-marketable investments | $ | - | $ | - | $ | (41,000 | ) | |||||
| Net loss for the six months | Net loss for the nine months ended | |||||||||||||||||||||||
| Assets | Level 3 | December 31, 2017 | ended December 31, 2017 | Level 3 | June 30, 2021 | March 31, 2021 | ||||||||||||||||||
| Other non-marketable investments | $ | 963,000 | $ | 963,000 | $ | (200,000 | ) | $ | 41,000 | $ | 41,000 | $ | (119,000 | ) | ||||||||||
| Net loss for the six months | ||||||||||||||||||||||||
| Assets | Level 3 | June 30, 2017 | ended December 31, 2016 | |||||||||||||||||||||
| Other non-marketable investments | $ | 1,211,000 | $ | 1,211,000 | $ | (44,000 | ) | |||||||||||||||||
For the nine months ended March 31, 2022 and 2021, we received distributions from other non-marketable investments of zero and $118,000, respectively.
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 and holds less than 20% ownership in each of the 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.
| -15- |
NOTE 8 – CASH, CASH EQUIVALENTS AND RESTRICTED CASH
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statement of cash flows.
SCHEDULE OF CASH, CASH EQUIVALENTS AND RESTRICTED CASH
| As of | March 31, 2022 | June 30, 2021 | ||||||
| Cash and cash equivalents | $ | 6,548,000 | $ | 6,808,000 | ||||
| Restricted cash | 7,728,000 | 8,584,000 | ||||||
| Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows | $ | 14,276,000 | $ | 15,392,000 | ||||
Restricted cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves for the Hotel and real estate properties.
The Company follows Accounting Standard Codification (ASC) Topic 718 “Compensation – Stock Compensation”, which addresses accounting for equity-based compensation arrangements, including employee stock options and restricted stock units.
Please refer to Note 16 – Stock Based Compensation Plans in the Company'sCompany’s Form 10-K for the year ended June 30, 20172021 for more detaildetailed information on the Company’s stock-based compensation plans.
During the threenine months ended DecemberMarch 31, 20172022 and 2016,2021, the Company recorded stock option compensation cost of $60,000$ and $66,000, respectively, related to stock options that were previously issued. For the six months ended December 31, 2017 and 2016, the Company recorded stock option compensation cost of $122,000 and $140,000,$, respectively, related to stock options that were previously issued. As of DecemberMarch 31, 2017, there was a total of $181,000 of unamortized2022, all compensation related to stock options which is expected to be recognized over the weighted-average period of 2.90 years.have been recognized.
Option-pricing models require the input of various subjective assumptions, including the option’s expected life 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.
SCHEDULE OF STOCK OPTION ACTIVITY
| Weighted | Weighted | Aggregate | ||||||||||||||
Number of Shares | Average Exercise Price | Average Remaining Life | Intrinsic Value | |||||||||||||
| Oustanding at | July 1, 2020 | 341,195 | $ | 16.95 | years | $ | 3,271,000 | |||||||||
| Granted | - | - | ||||||||||||||
| Exercised | - | - | 2,784,000 | |||||||||||||
| Forfeited | - | - | ||||||||||||||
| Exchanged | - | - | ||||||||||||||
| Outstanding at | June 30, 2021 | 341,195 | $ | 16.95 | years | $ | 8,890,000 | |||||||||
| Exercisable at | June 30, 2021 | 337,595 | $ | 16.84 | years | $ | 8,833,000 | |||||||||
| Vested and Expected to vest at | June 30, 2021 | 341,195 | $ | 16.95 | years | $ | 8,890,000 | |||||||||
| Oustanding at | July 1, 2021 | 341,195 | $ | 16.95 | years | $ | 8,890,000 | |||||||||
| Granted | - | - | ||||||||||||||
| Exercised | (90,000 | ) | 19.77 | 2,784,000 | ||||||||||||
| Forfeited | - | - | ||||||||||||||
| Exchanged | - | - | ||||||||||||||
| Outstanding at | March 31, 2022 | 251,195 | $ | 15.95 | years | $ | 9,057,000 | |||||||||
| Exercisable at | March 31, 2022 | 251,195 | $ | 15.95 | years | $ | 9,057,000 | |||||||||
| Vested and Expected to vest at | March 31, 2022 | 251,195 | $ | 15.95 | years | $ | 9,057,000 | |||||||||
On January 21, 2022,
| -16- |
| Shares | Exercise Price | Remaining Life | Intrinsic Value | |||||||||||||||
| 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 | |||||||||||
| Oustanding at | July 1, 2017 | 368,000 | $ | 17.21 | 5.17 years | $ | 3,046,000 | |||||||||||
| Granted | - | - | ||||||||||||||||
| Exercised | - | - | ||||||||||||||||
| Forfeited | - | - | ||||||||||||||||
| Exchanged | - | - | ||||||||||||||||
| Oustanding at | December 31, 2017 | 368,000 | $ | 17.21 | 4.67 years | $ | 2,500,575 | |||||||||||
| Exercisable at | December 31, 2017 | 318,000 | $ | 16.47 | 4.80 years | $ | 2,345,000 | |||||||||||
| Vested and Expected to vest at | December 31, 2017 | 368,000 | $ | 17.21 | 4.67 years | $ | 2,500,575 | |||||||||||
NOTE 810 – SEGMENT INFORMATION
The Company operates in three3 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 three3 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 three and sixnine months ended DecemberMarch 31, 20172022 and 2016.2021. Operating income (loss) from hotel operations consistconsists of the operation of the hotel and operation of the garage. Operating income for rental properties consistfrom real estate operations consists of the operation of rental income.properties. Operating income (loss) forgains (losses) from investment transactions consistconsists of net investment gain (loss)gains (losses), impairment loss on other investments, net unrealized gain (loss) on other investments, dividend and interest income and trading and margin interest expense. The other segment consists of corporate general and administrative expenses and the income tax expense(expense) benefit for the entire Company.
SCHEDULE OF SEGMENT REPORTING INFORMATION
| As of and for the three months | Hotel | Real Estate | Investment | |||||||||||||||||
| ended March 31, 2022 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||
| Revenues | $ | 6,632,000 | $ | 3,826,000 | $ | - | $ | - | $ | 10,458,000 | ||||||||||
| Segment operating expenses | (6,544,000 | ) | (2,270,000 | ) | - | (580,000 | ) | (9,394,000 | ) | |||||||||||
| Segment income (loss) | 88,000 | 1,556,000 | - | (580,000 | ) | 1,064,000 | ||||||||||||||
| Interest expense - mortgage | (1,624,000 | ) | (564,000 | ) | - | - | (2,188,000 | ) | ||||||||||||
| Depreciation and amortization expense | (576,000 | ) | (609,000 | ) | - | - | (1,185,000 | ) | ||||||||||||
| Gain (loss) from debt extinguishment | 2,000,000 | (335,000 | ) | - | - | 1,665,000 | ||||||||||||||
| Gain from investments | - | - | 725,000 | - | 725,000 | |||||||||||||||
| Income tax benefit | - | - | - | 711,000 | 711,000 | |||||||||||||||
| Net (loss) income | $ | (2,112,000 | ) | $ | 383,000 | $ | 725,000 | $ | 131,000 | $ | (873,000 | ) | ||||||||
| Total assets | $ | 46,385,000 | $ | 47,625,000 | $ | 25,541,000 | $ | 13,502,000 | $ | 133,053,000 | ||||||||||
| For the three months | Hotel | Real Estate | Investment | |||||||||||||||||
| ended March 31, 2021 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||
| Revenues | $ | 2,902,000 | $ | 3,465,000 | $ | - | $ | - | $ | 6,367,000 | ||||||||||
| Segment operating expenses | (3,990,000 | ) | (1,944,000 | ) | - | (704,000 | ) | (6,638,000 | ) | |||||||||||
| Segment (loss) income | (1,088,000 | ) | 1,521,000 | - | (704,000 | ) | (271,000 | ) | ||||||||||||
| Interest expense - mortgage | (1,642,000 | ) | (538,000 | ) | - | - | (2,180,000 | ) | ||||||||||||
| Depreciation and amortization expense | (529,000 | ) | (598,000 | ) | - | - | (1,127,000 | ) | ||||||||||||
| Gain from debt extinguishment | - | - | - | 453,000 | 453,000 | |||||||||||||||
| Gain from investments | - | - | 5,404,000 | - | 5,404,000 | |||||||||||||||
| Income tax expense | - | - | - | (880,000 | ) | (880,000 | ) | |||||||||||||
| Net (loss) income | $ | (3,259,000 | ) | $ | 385,000 | $ | 5,404,000 | $ | (1,131,000 | ) | $ | 1,399,000 | ||||||||
| -17- |
| As of and for the three months | Hotel | Real Estate | Investment | |||||||||||||||||||||||||||||||||||||
| ended December 31, 2017 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||||||||||||||||||||||
| As of and for the nine months | Hotel | Real Estate | Investment | |||||||||||||||||||||||||||||||||||||
| ended March 31, 2022 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||||||||||||||||||||||
| Revenues | $ | 13,187,000 | $ | 3,625,000 | $ | - | $ | - | $ | 16,812,000 | $ | 19,785,000 | $ | 11,808,000 | $ | - | $ | - | $ | 31,593,000 | ||||||||||||||||||||
| Segment operating expenses | (10,743,000 | ) | (2,102,000 | ) | - | (730,000 | ) | (13,575,000 | ) | (19,356,000 | ) | (6,620,000 | ) | - | (1,966,000 | ) | (27,942,000 | ) | ||||||||||||||||||||||
| Segment income (loss) from operations | 2,444,000 | 1,523,000 | - | (730,000 | ) | 3,237,000 | ||||||||||||||||||||||||||||||||||
| Segment income (loss) | 429,000 | 5,188,000 | - | (1,966,000 | ) | 3,651,000 | ||||||||||||||||||||||||||||||||||
| Interest expense - mortgage | (1,850,000 | ) | (640,000 | ) | - | - | (2,490,000 | ) | (4,939,000 | ) | (1,773,000 | ) | - | - | (6,712,000 | ) | ||||||||||||||||||||||||
| Depreciation and amortization expense | (682,000 | ) | (585,000 | ) | - | - | (1,267,000 | ) | (1,669,000 | ) | (1,799,000 | ) | - | - | (3,468,000 | ) | ||||||||||||||||||||||||
| Gain (loss) from debt extinguishment | 2,000,000 | (335,000 | ) | - | - | 1,665,000 | ||||||||||||||||||||||||||||||||||
| Loss from investments | - | - | (1,643,000 | ) | - | (1,643,000 | ) | - | - | (3,900,000 | ) | - | (3,900,000 | ) | ||||||||||||||||||||||||||
| Income tax expense | - | - | - | (344,000 | ) | (344,000 | ) | |||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (88,000 | ) | $ | 298,000 | $ | (1,643,000 | ) | $ | (1,074,000 | ) | $ | (2,507,000 | ) | ||||||||||||||||||||||||||
| Income tax benefit | - | - | - | 2,742,000 | 2,742,000 | |||||||||||||||||||||||||||||||||||
| Net (loss) income | $ | (4,179,000 | ) | $ | 1,281,000 | $ | (3,900,000 | ) | $ | 776,000 | $ | (6,022,000 | ) | |||||||||||||||||||||||||||
| Total assets | $ | 49,626,000 | $ | 54,402,000 | $ | 14,172,000 | $ | 7,952,000 | $ | 126,152,000 | $ | 46,385,000 | $ | 47,625,000 | $ | 25,541,000 | $ | 13,502,000 | $ | 133,053,000 | ||||||||||||||||||||
| As of and for the three months | Hotel | Real Estate | Investment | |||||||||||||||||
| ended December 31, 2016 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||
| Revenues | $ | 12,837,000 | $ | 3,605,000 | $ | - | $ | - | $ | 16,442,000 | ||||||||||
| Segment operating expenses | (9,611,000 | ) | (1,754,000 | ) | - | (602,000 | ) | (11,967,000 | ) | |||||||||||
| Segment income (loss) from operations | 3,226,000 | 1,851,000 | - | (602,000 | ) | 4,475,000 | ||||||||||||||
| Interest expense - mortgage | (1,750,000 | ) | (652,000 | ) | - | - | (2,402,000 | ) | ||||||||||||
| Depreciation and amortization expense | (810,000 | ) | (560,000 | ) | - | - | (1,370,000 | ) | ||||||||||||
| Loss from investments | - | - | (3,537,000 | ) | - | (3,537,000 | ) | |||||||||||||
| Income tax benefit | - | - | - | 825,000 | 825,000 | |||||||||||||||
| Net income (loss) | $ | 666,000 | $ | 639,000 | $ | (3,537,000 | ) | $ | 223,000 | $ | (2,009,000 | ) | ||||||||
| Total assets | $ | 50,206,000 | $ | 55,856,000 | $ | 18,029,000 | $ | 8,701,000 | $ | 132,792,000 | ||||||||||
| As of and for the nine months | Hotel | Real Estate | Investment | |||||||||||||||||
| ended March 31, 2021 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||
| Revenues | $ | 9,436,000 | $ | 10,503,000 | $ | - | $ | - | $ | 19,939,000 | ||||||||||
| Segment operating expenses | (14,156,000 | ) | (5,932,000 | ) | - | (2,630,000 | ) | (22,718,000 | ) | |||||||||||
| Segment (loss) income | (4,720,000 | ) | 4,571,000 | - | (2,630,000 | ) | (2,779,000 | ) | ||||||||||||
| Interest expense - mortgage | (5,010,000 | ) | (1,726,000 | ) | - | - | (6,736,000 | ) | ||||||||||||
| Gain from debt extinguishment | - | - | - | 453,000 | 453,000 | |||||||||||||||
| Depreciation and amortization expense | (1,690,000 | ) | (1,809,000 | ) | - | - | (3,499,000 | ) | ||||||||||||
| Gain from sale of real estate | - | 12,043,000 | - | - | 12,043,000 | |||||||||||||||
| Gain from investments | - | - | 8,263,000 | - | 8,263,000 | |||||||||||||||
| Income tax expense | - | - | - | (2,590,000 | ) | (2,590,000 | ) | |||||||||||||
| Net (loss) income | $ | (11,420,000 | ) | $ | 13,079,000 | $ | 8,263,000 | $ | (4,767,000 | ) | $ | 5,155,000 | ||||||||
| As of and for the six months | Hotel | Real Estate | Investment | |||||||||||||||||
| ended December 31, 2017 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||
| Revenues | $ | 27,624,000 | $ | 7,302,000 | $ | - | $ | - | $ | 34,926,000 | ||||||||||
| Segment operating expenses | (21,332,000 | ) | (3,997,000 | ) | - | (1,561,000 | ) | (26,890,000 | ) | |||||||||||
| Segment income (loss) from operations | 6,292,000 | 3,305,000 | - | (1,561,000 | ) | 8,036,000 | ||||||||||||||
| Interest expense - mortgage | (3,703,000 | ) | (1,280,000 | ) | - | - | (4,983,000 | ) | ||||||||||||
| Depreciation and amortization expense | (1,381,000 | ) | (1,160,000 | ) | - | - | (2,541,000 | ) | ||||||||||||
| Loss from investments | - | - | (2,895,000 | ) | - | (2,895,000 | ) | |||||||||||||
| Income tax expense | - | - | - | (419,000 | ) | (419,000 | ) | |||||||||||||
| Net income (loss) | $ | 1,208,000 | $ | 865,000 | $ | (2,895,000 | ) | $ | (1,980,000 | ) | $ | (2,802,000 | ) | |||||||
| Total assets | $ | 49,626,000 | $ | 54,402,000 | $ | 14,172,000 | $ | 7,952,000 | $ | 126,152,000 | ||||||||||
| As of and for the six months | Hotel | Real Estate | Investment | |||||||||||||||||
| ended December 31, 2016 | Operations | Operations | Transactions | Corporate | Total | |||||||||||||||
| Revenues | $ | 27,442,000 | $ | 7,254,000 | $ | - | $ | - | $ | 34,696,000 | ||||||||||
| Segment operating expenses | (19,867,000 | ) | (3,561,000 | ) | - | (1,330,000 | ) | (24,758,000 | ) | |||||||||||
| Segment income (loss) from operations | 7,575,000 | 3,693,000 | - | (1,330,000 | ) | 9,938,000 | ||||||||||||||
| Interest expense - mortgage | (3,579,000 | ) | (1,285,000 | ) | - | - | (4,864,000 | ) | ||||||||||||
| Depreciation and amortization expense | (1,523,000 | ) | (1,115,000 | ) | - | - | (2,638,000 | ) | ||||||||||||
| Loss from investments | - | - | (2,623,000 | ) | - | (2,623,000 | ) | |||||||||||||
| Income tax expense | - | - | - | (227,000 | ) | (227,000 | ) | |||||||||||||
| Net income (loss) | $ | 2,473,000 | $ | 1,293,000 | $ | (2,623,000 | ) | $ | (1,557,000 | ) | $ | (414,000 | ) | |||||||
| Total assets | $ | 50,206,000 | $ | 55,856,000 | $ | 18,029,000 | $ | 8,701,000 | $ | 132,792,000 | ||||||||||
NOTE 911 – RELATED PARTY AND OTHER FINANCING TRANSACTIONS
On July 2, 2014,The following summarizes the Partnership obtained from the Company 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 December 31, 2018.
Also included in the balancebalances of related party noteand other notes payable at Decemberas of March 31, 2017 is the obligation2022 and June 30, 2021, respectively.
SCHEDULE OF RELATED PARTY AND OTHER NOTES PAYABLE
| As of | March 31, 2022 | June 30, 2021 | ||||||
| Related party note payable - Hilton | $ | 2,455,000 | $ | 2,692,000 | ||||
| Related party note payable - Aimbridge | 1,208,000 | 1,396,000 | ||||||
| SBA Loans | - | 2,000,000 | ||||||
| Total related party and other notes payable | $ | 3,663,000 | $ | 6,088,000 | ||||
Note payable to Hilton (Franchisor) in the form ofis a self-exhausting, interest free development incentive note which is reduced by approximately $316,000$316,000 annually through 2030 by Hilton if the Partnership is still a Franchisee with Hilton. The outstanding balance of the note as of December 31, 2017 and June 30, 2017, was $3,800,000 and $3,958,000, respectively.
On February 1, 2017, JusticeOperating entered into a Hotel management agreement (“HMA”)an HMA with Interstate Management Company, LLC (“Interstate”)Aimbridge 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 InterstateAimbridge to advance a key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000$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)(8) year period commencing on the second (2nd) anniversary of the takeover date. The $2,000,000During the first quarter of fiscal year 2021, the Hotel obtained approval from Aimbridge to use the key money for hotel operations and the funds were exhausted by December 31, 2020. Unamortized portion of the key money is included in restricted cash andthe related party and other notes payable balances in the condensed consolidated balance sheetssheets.
On February 3, 2021, Justice entered into a second loan agreement (“Second SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all proceeds from the Second SBA Loan primarily for payroll costs. The Second 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 Second SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the condensed consolidated statement of operations for the nine months ended March 31, 2022.
| -18- |
Future minimum principal payments and amortizations for all related party and other financing transactions are as follows:
SCHEDULE OF FUTURE MINIMUM PRINCIPAL PAYMENTS
| For the year ending June 30, | ||||
| 2022 | $ | 142,000 | ||
| 2023 | 567,000 | |||
| 2024 | 567,000 | |||
| 2025 | 567,000 | |||
| 2026 | 567,000 | |||
| Thereafter | 1,253,000 | |||
| Long term debt | $ | 3,663,000 | ||
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 $89,818,000 and $90,745,000 as of DecemberMarch 31, 20172022 and June 30, 2017.
In April 2017,2021, respectively. As additional security for the mortgage loan, there is a limited guaranty executed by Portsmouth obtained from InterGroupin 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 unsecured short-terminterest 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 $1,000,000 at 5%$20,000,000. The prior Mezzanine Loan which had a 9.75% per year fixedannum interest with a term of five monthsrate was paid off. Interest rate on the new mezzanine loan is 7.25% and maturing September 6, 2017. Thethe loan was extended to September 15, 2017 and paid offmatures on September 13, 2017.January 1, 2024. Interest only payments are due monthly.
Effective May 12,11, 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$97,000,000 mortgage loan and the $20,000,000$20,000,000 mezzanine loan, in orderloan. Pursuant to the agreement, InterGroup is required to maintain certain minimum net worth and liquidity guarantor covenant requirements that Portsmouth was unableliquidity. As of March 31, 2022, InterGroup is in compliance with both requirements. However, due to satisfy independently.
In connection with the redemption ofHotel’s current low occupancy and its negative impact on the limited partnership interest of Justice,Hotel’s cash flow, Justice Operating Company, LLC agreedhave not been meeting certain of its loan covenants such as the Debt 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 been 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, 2022. 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. Upon the dissolution of Justice in December 2021, Portsmouth replaced Justice as the single member of Mezzanine and 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 March 31, 2022 and June 30, 2021, the balance of the loan was $14,200,000 and $6,650,000, respectively, and is eliminated in the condensed consolidated balance sheets.
| -19- |
In July 2018, InterGroup obtained a revolving $5,000,000 line of credit (“RLOC”) from CIBC Bank USA (“CIBC”). On July 31, 2018, $2,969,000 was drawn from the RLOC to pay off the mortgage note payable at Intergroup Woodland Village, Inc. (“Woodland Village”) and 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 the partnership interests, refinancing of the Justices properties and reorganization of Justice. This agreementnew mortgage note payable was superseded by a letter dated December 11, 2013 from Justice, in which Justice assumed the payment obligations of Justice Operating Company, LLC. As of December 31, 2017, $400,000 of these fees remain payable.
As of June 30, 2017, Justice had an outstanding accounts payable balanceestablished at Woodland Village due to InterGroup for $316,000 for managementthe amount drawn. Woodland Village holds a three-story apartment complex in Santa Monica, California and is a subsidiary of Santa Fe and the Company. The RLOC carries a variable interest rate of 30-day LIBOR plus 3%. Interest is paid on a monthly basis. The RLOC and all accrued and unpaid interest were due in July 2019. In July 2019, the Company obtained a modification from CIBC which extended the maturity date of the HotelRLOC from JuneJuly 24, 2019 to DecemberJuly 23, 2020. The $2,969,000 mortgage due to InterGroup carries same terms as InterGroup’s RLOC. In July 2020, InterGroup entered into a second modification agreement with CIBC which extended the maturity date of 2016. its RLOC to July 21, 2021. The $2,969,000 mortgage due to InterGroup was also extended to July 1, 2021. On August 28, 2020, Santa Fe sold its 27-unit apartment complex located in Santa Monica, California for $15,650,000 and received net proceeds of $12,163,000 after selling costs and repayment of InterGroup’s RLOC of $2,985,000. Furthermore, pursuant to the Contribution Agreement between Santa Fe and InterGroup, Santa Fe paid InterGroup $662,000 from the sale.
On November 23, 2020, Santa Fe sold its 2-unit apartment complex in West Los Angeles, California to InterGroup for $1,530,000 in exchange for a reduction of $1,196,000 of its obligation to InterGroup. Santa Fe acquired the property on February 1, 2002 for $785,000. 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 its 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.
As 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 as set forth in the Information Statement. As InterGroup formerly owned 83.7% of December 31,2017, that balance was paid off.the outstanding common stock of Santa Fe, the Company received cash of $5,013,000 and shares of Portsmouth common stock in March 2021 as 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 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.
Four of the Portsmouth directors serve as directors of InterGroup. ThreeThe Company’s Vice President Real Estate was elected President of those directors also servePortsmouth in May 2021. The Company’s director and Chairman of the Audit Committee, William J. Nance, serves as directorsComstock’s director and Chairman of Santa Fe. The three Santa Fe directors also serve as directorsthe Audit and Finance, Compensation and Nominating and Governance Committees of InterGroup.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 Santa Fe and oversees the investment activity of those companies.Portsmouth. Effective June 2016, Mr. Winfield became the Managing Director of Justice. 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.
| -20- |
Item 2NOTE 12 – LEGAL PROCEEDINGSACCOUNTS PAYABLE AND OTHER LIABILITIES - HOTEL
WeThe following summarizes the balances of accounts payable and other liabilities – Hotel as of March 31, 2022 and June 30, 2021.
SCHEDULE OF ACCOUNTS PAYABLE AND OTHER LIABILITIES - HOTEL
| As of | March 31, 2022 | June 30, 2021 | ||||||
| Payroll and related accruals | $ | 2,537,000 | $ | 2,345,000 | ||||
| Trade payable | 1,650,000 | 2,113,000 | ||||||
| Withholding and other taxes payable | 647,000 | 885,000 | ||||||
| Advance deposits | 492,000 | 161,000 | ||||||
| Mortgage interest payable | 407,000 | 582,000 | ||||||
| Finance leases | 298,000 | 664,000 | ||||||
| Security deposit | 52,000 | 52,000 | ||||||
| Other payables | 1,280,000 | 606,000 | ||||||
| Total accounts payable and other liabilities - Hotel | $ | 7,363,000 | $ | 7,408,000 | ||||
As of March 31, 2022, the Company had finance lease obligations outstanding of $298,000. These finance leases expire in various years through 2023 at rates ranging from 4.62% to 6.25% per annum. Minimum future lease payments for assets under finance leases as of March 31, 2022 are involvedas follows:
SCHEDULE OF MINIMUM FUTURE LEASE PAYMENTS FOR ASSETS
| For the year ending June 30, | ||||
| 2022 | $ | 119,000 | ||
| 2023 | 188,000 | |||
| Total minimum lease payments | 307,000 | |||
| Less interest on finance lease | (9,000 | ) | ||
| Present value of future minimum lease payments | $ | 298,000 | ||
NOTE 13 – ACCOUNTS PAYABLE AND OTHER LIABILITIES
The following summarizes the balances of accounts payable and other liabilities as of March 31, 2022 and June 30, 2021.
SCHEDULE OF ACCOUNTS PAYABLE AND OTHER LIABILITIES
| As of | March 31, 2022 | June 30, 2021 | ||||||
| Trade payable | $ | 689,000 | $ | 485,000 | ||||
| Advance deposits | 281,000 | 282,000 | ||||||
| Property tax payable | 416,000 | 559,000 | ||||||
| Payroll and related accruals | 54,000 | 42,000 | ||||||
| Interest payable | 244,000 | 142,000 | ||||||
| Withholding and other taxes payable | 262,000 | 867,000 | ||||||
| Tenant security deposit | 835,000 | 789,000 | ||||||
| Other payables | 259,000 | 191,000 | ||||||
| Total accounts payable and other liabilities | $ | 3,040,000 | $ | 3,357,000 | ||||
Basic (loss) income per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share is computed similarly to basic loss per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.
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. periods presented because including them would have been antidilutive (amount in thousands):
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE OF COMMON STOCK
| For the three and nine months ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Options outstanding | ||||||||
| Total | ||||||||
NOTE 15 – SUBSEQUENT EVENT
The arbitration proceedings are active; discovery is proceeding. The hearing is set for April 2018 before JAMS in Los Angeles, California. The parties began a series of mediation sessions prior toCompany evaluated subsequent events through the scheduled hearing. No prediction can be given as todate that the outcomeaccompanying financial statements were issued, and has determined that no material subsequent events exist through the date of this matter.filing.
| -21- |
On May 5, 2016, Justice and Portsmouth entered into a settlement agreement relating to previously reported litigation with Evon Corporation and certain other parties. Under the settlement agreement, Justice, a subsidiary of Portsmouth agreed to payEvon Corporation $5,575,000. The final installment due was made in January 2017 and all conditions of the settlement agreement have been satisfied by Justice and Portsmouth.
| Item 2 - | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Item 3 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The Company may from time to time make forward-looking statements and projections concerning future expectations. When used in this discussion, the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “may,” “could,” “will”, “would”“might” and similar expressions, are intended to identify forward-looking statements. These
Such statements are subject to certain risks and uncertainties. These risks and uncertainties such asinclude, but are not limited to, the following: national and worldwide economic conditions, including the impact of recessionary conditions on tourism, travel and the lodging industry,industry; the impact of terrorism and war on the national and international economies, including tourism, and securities markets, energy and fuel costs,costs; natural disasters,disasters; general economic conditions and competition in the hotel industry in the San Francisco area,area; seasonality, labor relations and labor disruptions,disruptions; actual and threatened pandemics such as swine flu or the outbreak of COVID-19 or similar outbreaks; partnership distributions,distributions; the ability to obtain financing at favorable interest rates and terms,terms; securities markets, regulatory factors, litigation and other factors discussed below in this Report and in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017, that2021. These risks and uncertainties could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. The Company undertakes no obligation to publicly release the results of any revisions to those forward-looking statements, which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
NEGATIVE EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS
On February 25, 2020, the City of San Francisco issued the proclamation by the Mayor declaring the existence of a local emergency. The negative effects of the civil authority actions related to the novel strain of coronavirus (“COVID-19”) on our business have been significant. In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious virus, which has continued to spread, has adversely affected workforces, customers, economies and financial markets globally. It has also disrupted the normal operations of many businesses, including ours. To mitigate the harm from the pandemic, on March 16, 2020, the City and County of San Francisco, along with a group of five other Bay Area counties and the City of Berkeley, issued parallel health officer orders imposing shelter in place limitations across the Bay Area, requiring everyone to stay safe at home except for certain essential needs. Since February 2020, several unfavorable events and civil authority actions have unfolded causing demand for our hotel rooms to suffer including cancellations of all citywide conventions, reduction of flights in and out of the Bay Area and decline in both leisure and business travel.
In December 2020, due to the surge in COVID-19 cases and hospitalizations, the Health Officer of the City and County of San Francisco suspended or restricted certain activities. Health Order C19-07q (the “Order”) incorporates suspensions, reductions in capacity limits, and other restrictions contained in the Regional Stay At Home Order issued by the California Department of Public Health on December 3, 2020. Effective December 17, 2020, the Bay Area Region, including San Francisco, was required to comply with the State’s December 3, 2020 Regional Stay-at-Home Order. The Order strongly discouraged anyone in the County from travelling for leisure, recreation, business, or other purposes that could be postponed until after the surge. With limited exceptions, this Order imposed a mandatory quarantine on anyone traveling, moving, or returning to the County from anywhere outside the Bay Area. Effective January 20, 2021, Health Order C19- 07r revised and replaced the previous Order; it continued to temporarily prohibit certain businesses and activities from resuming but allowed certain other businesses, activities, travel, and governmental functions to occur subject to specified health and safety restrictions, limitations, and conditions to limit the transmission of COVID-19.
| -22- |
On March 24, 2021, the City and County of San Francisco announced it moved into the orange tier which removed the suggested Shelter in Place for guests travelling to San Francisco. This was a very positive step for the hotel community. This tier opened activities in the city including expanded restaurant capacities, museums, and attractions. For the hotel it allowed for guests to gather in public spaces and for outlets and amenities to open at limited capacities including fitness centers. It did not change the very stringent cleaning and sanitation requirements set forth by the Health Officer of the City and County of San Francisco which proved to be a costly measure to maintain. Effective May 6, 2021, the City and County of San Francisco moved into the yellow tier guidelines. We continue to closely monitor the very fluid changes that the Center for Disease Control, San Francisco Department of Health and other authorities implement with regards to the COVID-19 pandemic.
On August 20, 2021, San Francisco announced vaccination requirements for indoor activities. This order requires restaurants, theaters, and entertainment venues where food or drink is served inside, as well as gyms, recreation facilities, yoga studios, dance studios and other fitness establishments, clubs involving elevated breathing to show proof of vaccination.
On January 11, 2022, a new Health Order has been issued. The primary change to the Order is to comply with changes the State made lowering the threshold for mega events to 500 attendees indoor and 5,000 attendees outdoor beginning January 15, 2022. On March 17, 2022, the State of California announced that beginning on April 1, 2022, it will no longer require that people attending Indoor Mega-Event (i.e., events with 1,000 or more attendees) provide proof of vaccination or negative testing to gain entry. Instead, the State strongly recommend that venues hosting Indoor Mega-Events continue to impose that requirement.
The San Francisco hospitality market has seen the two largest citywide events go virtual with DreamForce in September 2021 and JP Morgan Healthcare Conference in January 2022. RSA Conference originally scheduled for February 2022 was moved to June 2022 and Google Cloud Next was cancelled for 2022. As of the date of this report, the market is seeing slow and steady improvement month over month. Rates in the market grew roughly 20% from February 2022 to March 2022 as demand is steadily increasing, particularly midweek where it has been the softest. Demand generators are returning to the market with the largest being Game Developers Conference in March 2022. Although it was approximately half of the pre-COVID attendance, it lifted the market to the best RevPAR we have seen since March 2020. April 2022 continues the trend with midweek rates rising and another strong performance from the RIMS citywide. San Francisco has two more citywide conferences in May 2022 and the momentum continues into the summer. The cancellations and pushing back of these major events have stopped, providing cautious optimism about the market’s ability to recover in 2022 and beyond.
In response to the decrease in demand, we have since furloughed most managers at the Hotel except for members of the executive team and continue to limit hourly staff to a minimum. By the end of March 2020, we had temporarily closed all our food and beverage outlets, valet parking, concierge and bell services, fitness center, as well as the executive lounge facility. We continue to implement social distancing standards and cleaning processes designed by Aimbridge and Hilton to keep employees and guests safe. The full impact and duration of the COVID-19 outbreak continues to evolve as of the date of this Annual Report. The pandemic effectively eliminated our ability to generate any profits, due to the drastic decline in both leisure and business travel. As a result, management believes the ongoing length and severity of the economic downturn caused by the pandemic will have a material adverse impact on our future business, financial condition, liquidity and financial results. We are also assessing the potential impact on the impairment analysis of our long-lived assets and the realization of our deferred tax assets. As of the date of this report, the effects of the pandemic continue to affect our economy, business and leisure travel, and our needs to continue to curtail certain revenue generating activities at the Hotel. We expect that the effects will continue to have a material adverse effect on our business until the pandemic ends.
| -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 April 9, 2020, Justice entered into a loan agreement (“SBA Loan - Justice”) with CIBC Bank USA under the CARES Act. Justice received proceeds of $4,719,000 from the SBA Loan - Justice. In accordance with the requirements of the CARES Act, Justice has used all proceeds from the SBA Loan for payroll costs and other qualified expenses. The SBA Loan - Justice was scheduled to mature on April 9, 2022 and 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 April 27, 2020, InterGroup entered into a loan agreement (“SBA Loan - InterGroup”) with CIBC Bank USA under the CARES Act and received loan proceeds in the amount of $453,000. As of June 30, 2021, InterGroup used all the $453,000 loan proceeds in qualified payroll expenses. The SBA Loan – InterGroup was scheduled to mature on April 27, 2022 and had a 1.00% interest rate. Both the SBA Loan – Justice and SBA Loan – InterGroup (collectively the “SBA Loans”) were forgiven in full by the SBA as of June 30, 2021.
On February 3, 2021, Justice entered into a second loan agreement (“Second SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all proceeds from the Second SBA Loan primarily for payroll costs. The Second 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 Second SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the condensed consolidated statement of operations for the nine months ended March 31, 2022.
RESULTS OF OPERATIONS
As of DecemberMarch 31, 2017,2022, the Company ownedowns approximately 81.9% of the common shares of its subsidiary, Santa Fe and Santa Fe owned approximately 68.8%75% of the common shares of Portsmouth Square, Inc. InterGroup also directly owns approximately 13.4% ofHistorically, the common shares of Portsmouth. The Company'sCompany’s principal sourcessource of revenue continue to beis derived from the general and limited partnership interestsinvestment of its subsidiary, Portsmouth, in the Justice Investors limited partnershipLimited Partnership (“Justice” or the “Partnership”), rental income inclusive of hotel room revenue, food and beverage revenue, garage revenue, and revenue from its investments in multi-family real estate properties and income received from investment of its cash and securities assets.other operating departments. Justice owns a 544- room hotel property located at 750 Kearny Street, San Francisco, California 94108, known asowned the “Hilton San Francisco Financial District” (the “Hotel” or the “Property”)Hotel and related facilities, including a five-level underground parking garage.garage up to its dissolution on December 23, 2021 when Portsmouth replaced Justice as the owner of the Hotel. The financial statements of Justice havehad been consolidated with those of the Company. However, the impact of the COVID-19 pandemic is highly uncertain and management expects that the ongoing length and severity of the economic downturn will have a material adverse impact on our business, financial condition, liquidity and financial results.
The Hotel is operated by the Partnership as a full servicefull-service Hilton brand hotel pursuant to a Franchise License Agreement (the “License Agreement”) with HLT Franchise Holding LLC (“Hilton”).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 PartnershipOperating 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 PartnershipOperating 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 PrismAimbridge Hospitality L.P. (“Prism”Aimbridge”) to performmanages the Hotel under 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.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 payable to advance a key money incentive fee to theAimbridge shall be one and seven-tenths percent (1.70%) of total 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 restricted cash and related party and other notes payable in the condensed consolidated balance sheets as of December 31, 2017 and June 30, 2017.revenue.
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, management and, managementwhen appropriate, sale of real estate. Properties include sixteen 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. All of the Company’s residential and commercial rental operating 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. The Company also invests in income-producing instruments, equity, and debt securities from time to time and will consider other investments if such investments offer growth or profit potential.
| -24- |
Three Months Ended DecemberMarch 31, 20172022 Compared to the Three Months Ended DecemberMarch 31, 20162021
The Company had a net loss of $2,507,000$873,000 for the three months ended DecemberMarch 31, 20172022 compared to a net lossincome of $2,009,000$1,399,000 for the three months ended DecemberMarch 31, 2016.2021. The increase in the net losschange is primarily attributable to higher operating expenses from$906,000 gain on marketable securities in the Hotel operations andthree months ended March 31, 2022 as compared to $5,638,000 gain on marketable securities for the increase in income tax expense.three months ended March 31, 2021.
Hotel Operations
The Company had net loss from Hotel operations of $88,000$2,112,000 for the three months ended DecemberMarch 31, 20172022 compared to net incomeloss of $666,000$3,259,000 for the three months ended DecemberMarch 31, 2016.2021. The change is primarily dueattributable to increased operating expenses. Thethe increase in revenues were offset by increased franchise fees, legal fees and union wages during the quarter ended December 31, 2017 compared to December 31, 2016.Hotel revenue.
The following table sets forth a more detailed presentation of Hotel operations for the three months ended DecemberMarch 31, 20172022 and 2016.2021.
| For the three months ended December 31, | 2017 | 2016 | ||||||||||||||
| For the three months ended March 31, | 2022 | 2021 | ||||||||||||||
| Hotel revenues: | ||||||||||||||||
| Hotel rooms | $ | 10,710,000 | $ | 10,497,000 | $ | 5,505,000 | $ | 2,368,000 | ||||||||
| Food and beverage | 1,614,000 | 1,506,000 | 372,000 | 17,000 | ||||||||||||
| Garage | 735,000 | 643,000 | 677,000 | 479,000 | ||||||||||||
| Other operating departments | 128,000 | 191,000 | 78,000 | 38,000 | ||||||||||||
| Total hotel revenues | 13,187,000 | 12,837,000 | 6,632,000 | 2,902,000 | ||||||||||||
| Operating expenses excluding depreciation and amortization | (10,743,000 | ) | (9,611,000 | ) | (6,544,000 | ) | (3,990,000 | ) | ||||||||
| Operating income before interest, depreciation and amortization | 2,444,000 | 3,226,000 | ||||||||||||||
| Operating loss before interest, depreciation and amortization | 88,000 | (1,088,000 | ) | |||||||||||||
| Interest expense - mortgage | (1,850,000 | ) | (1,750,000 | ) | (1,624,000 | ) | (1,642,000 | ) | ||||||||
| Depreciation and amortization expense | (682,000 | ) | (810,000 | ) | (576,000 | ) | (529,000 | ) | ||||||||
| Net income (loss) from Hotel operations | $ | (88,000 | ) | $ | 666,000 | |||||||||||
| Net loss from Hotel operations | $ | (2,112,000 | ) | $ | (3,259,000 | ) | ||||||||||
For the three months ended DecemberMarch 31, 2017,2022, the Hotel had operating income of $2,444,000$88,000 before interest expense, depreciation, and amortization on total operating revenues of $13,187,000$6,632,000 compared to operating incomeloss of $3,226,000$1,088,000 before interest expense, depreciation, and amortization on total operating revenues of $12,837,000$2,902,000 for the three months ended DecemberMarch 31, 2016. Room revenues increased by $213,000 for2021. For the three months ended DecemberMarch 31, 20172022, room revenues increased by $3,137,000, food and beverage revenue increased by $355,000, and garage revenue increased by $198,000, compared to the three months ended DecemberMarch 31, 2016 primarily due to Salesforce citywide conference moving from third quarter2021. The year over year increase in 2016 to fourth quarter in 2017. Food and beverageall the revenue increased by $108,000 as asources are the result of increased cateringthe recovery from the business interruption attributable to a variety of responses by federal, state, and banquet services. Garage revenues increased by $92,000.
local civil authority to the COVID-19 outbreak since March 2020. Total operating expenses increased by $1,132,000 this quarter as compared to the previous comparable quarter primarily$2,554,000 due to increased operating expenses related to foodincrease in salaries and beverage, rooms, franchisewages, union health insurance, repairs and maintenance, credit card fees, management fees, and legalfranchise fees.
The following table sets forth the average daily room rate, average occupancy percentage and room revenue per availableoccupied room (“RevPAR”), calculated by multiplying the hotel’s average daily room rate by its occupancy percentage) of the Hotel for the three months ended DecemberMarch 31, 20172022 and 2016.2021.
Three Months Ended December 31, | Average Daily Rate | Average Occupancy % | RevPAR | |||||||||||
| 2017 | $ | 240 | 89 | % | $ | 212 | ||||||||
| 2016 | $ | 236 | 89 | % | $ | 210 | ||||||||
Three Months Ended March 31, | Average Daily Rate | Average Occupancy % |
RevPAR | |||||||||
| 2022 | $ | 149 | 74 | % | $ | 110 | ||||||
| 2021 | $ | 103 | 47 | % | $ | 48 | ||||||
The Hotel’s revenues increased by 2.7%128% this quarter as compared to the previous comparable quarter. Average daily rate increased by $4$46, average occupancy increased by 27%, and RevPAR increased by $2$62 for the three months ended DecemberMarch 31, 20172022 compared to the three months ended DecemberMarch 31, 2016. Average occupancy was 89% for both quarters.2021.
Real Estate Operations
RealNet income from real estate revenuesoperations for the three months ended DecemberMarch 31, 2017 and 2016 remained relatively consistent at $3,625,000 and $3,605,000, respectively. Real estate operating expenses increased2022 decreased by $2,000 to $383,000 compared to $385,000 for the three months ended DecemberMarch 31, 2017 comparing to the three months ended December 31, 2016 primarily2021 due to increase in mortgage interest expense. Revenue from real estate taxes.operations increased by $361,000 year over year due to increase in market rent and reduction in bad debt. All ofthe Company’s properties are managed in-house. 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.
| -25- |
Investment Transactions
The Company had a net lossgain on marketable securities of $1,178,000$906,000 for the three months ended DecemberMarch 31, 20172022 compared to a net lossgain on marketable securities of $3,290,000$5,638,000 for the three months ended DecemberMarch 31, 2016. As of December 31, 2017 and 2016, approximately 16% and 41%, respectively, of the investment in marketable securities balance above is comprised of the common stock of Comstock Mining, Inc. (Comstock). As the result, the change in the market price of the common stock of Comstock will have a significant impact on the gain (loss) on marketable securities.2021. For the three months ended DecemberMarch 31, 2017,2022, the Company had a net realized gain of $181,000$127,000 and a net unrealized lossgain of $1,359,000.$779,000. For the three months ended DecemberMarch 31, 2016,2021, the Company had a net realized lossgain of $107,000$267,000 and a net unrealized lossgain of $3,183,000.$5,371,000. 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.
Nine months ended March 31, 2022 compared to nine months ended March 31, 2021
The Company and its subsidiaries, Portsmouth and Santa Fe, compute and file income tax returns and prepare discrete income tax provisionshad net loss of $6,022,000 for financial reporting. The income tax expense during the threenine months ended DecemberMarch 31, 2017 and 2016 represents primarily the income tax effect of the pre-tax income at InterGroup and the pretax income of Portsmouth which includes its share in2022 compared to net income of $5,155,000 for the Hotel.
Six Months Ended Decembernine months ended March 31, 2017 Compared2021. The change is primarily attributable to the Six Months Ended December$12,043,000 gain from sale of real estate in August 2020 and $3,613,000 loss on marketable securities in the nine months ended March 31, 20162022.
Hotel Operations
The Company had a net loss from Hotel operations of $2,802,000$4,179,000 for the sixnine months ended DecemberMarch 31, 20172022 compared to net loss of $414,000$11,420,000 for the sixnine months ended DecemberMarch 31, 2016.2021. The increase in the net losschange is primarily attributable to higher operating expenses from the Hotel and real estate.
Hotel Operations
Net income from Hotel operations was $1,208,000 for the six months ended December 31, 2017 compared to net income of $2,473,000 for the six months ended December 31, 2016. The decrease in net income is primarily due to increased operating expenses. The increase in revenues were offset by increased franchise fees, legal fees and union wages during the six months ended December 31, 2017 compared to December 31, 2016.Hotel revenue.
The following table sets forth a more detailed presentation of Hotel operations for the sixnine months ended DecemberMarch 31, 20172022 and 2016.2021.
| For the six months ended December 31, | 2017 | 2016 | ||||||||||||||
| For the nine months ended March 31, | 2022 | 2021 | ||||||||||||||
| Hotel revenues: | ||||||||||||||||
| Hotel rooms | $ | 22,552,000 | $ | 22,795,000 | $ | 16,285,000 | $ | 7,842,000 | ||||||||
| Food and beverage | 3,373,000 | 2,955,000 | 934,000 | 130,000 | ||||||||||||
| Garage | 1,516,000 | 1,324,000 | 2,352,000 | 1,373,000 | ||||||||||||
| Other operating departments | 183,000 | 368,000 | 214,000 | 91,000 | ||||||||||||
| Total hotel revenues | 27,624,000 | 27,442,000 | 19,785,000 | 9,436,000 | ||||||||||||
| Operating expenses excluding depreciation and amortization | (21,332,000 | ) | (19,867,000 | ) | (19,356,000 | ) | (14,156,000 | ) | ||||||||
| Operating income before loss on disposal of assets, interest, depreciation and amortization | 6,292,000 | 7,575,000 | ||||||||||||||
| Operating income (loss) before interest, depreciation and amortization | 429,000 | (4,720,000 | ) | |||||||||||||
| Gain on extinguishment of debt | 2,000,000 | - | ||||||||||||||
| Interest expense - mortgage | (3,703,000 | ) | (3,579,000 | ) | (4,939,000 | ) | (5,010,000 | ) | ||||||||
| Depreciation and amortization expense | (1,381,000 | ) | (1,523,000 | ) | (1,669,000 | ) | (1,690,000 | ) | ||||||||
| Net income from Hotel operations | $ | 1,208,000 | $ | 2,473,000 | ||||||||||||
| Net loss from Hotel operations | $ | (4,179,000 | ) | $ | (11,420,000 | ) | ||||||||||
For the sixnine months ended DecemberMarch 31, 2017,2022, the Hotel had operating income of $6,292,000$429,000 before interest expense, depreciation, and amortization on total operating revenues of $27,624,000$19,785,000 compared to operating incomeloss of $7,575,000$4,720,000 before interest expense, depreciation, and amortization on total operating revenues of $27,442,000$9,436,000 for the sixnine months ended DecemberMarch 31, 2016. Room revenues decreased by $243,000 for2021. For the sixnine months ended DecemberMarch 31, 2017 compared to the six months ended December 31, 2016 primarily as the result of the decrease in group business and the decrease in the average daily rate. Food2022, room revenues increased by $8,443,000, food and beverage revenue increased by $418,000 as$804,000, and garage revenue increased by $979,000, compared to the nine months ended March 31, 2021. The year over year increase in all the revenue sources are the result of an increase in the catering and banquet servicesrecovery from the decrease inbusiness interruption attributable to a variety of responses by federal, state, and local civil authority to the group business. Garage revenues increased by $192,000 as a result of freeing parking spaces that were utilized as storage by previous management as well as additional valet parking income.
COVID-19 outbreak since March 2020. Total operating expenses increased by $1,465,000 for the six months ended December 31, 2017 as compared to the six months ended December 31, 2016 primarily$5,200,000 due to the increase in legal fees associated with the Glaser matter, franchise fees, food, beveragesalaries and room operating expenses; the increase was offset by reduced advertising and saleswages, frequent stay program costs, union health insurance, repairs and maintenance, expense,credit card fees, management fees, travel agent commission, and other operating department expenses.franchise fees.
| -26- |
The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room (“RevPAR”)RevPAR of the Hotel for the sixnine months ended DecemberMarch 31, 20172022 and 2016.2021.
Six months Ended December 31, | Average Daily Rate | Average Occupancy % |
RevPAR | |||||||||||
| 2017 | $ | 247 | 91 | % | $ | 225 | ||||||||
| 2016 | $ | 245 | 93 | % | $ | 228 | ||||||||
Nine Months Ended March 31, | Average Daily Rate | Average Occupancy % | RevPAR | |||||||||
| 2022 | $ | 143 | 76 | % | $ | 108 | ||||||
| 2021 | $ | 106 | 49 | % | $ | 52 | ||||||
The Hotel’s total revenues increased by 0.7%109% for the sixnine months ended DecemberMarch 31, 20172022 as compared to the sixnine months ended DecemberMarch 31, 2016.2021. Average daily rate increased by $2$37, average occupancy increased by 27%, and RevPAR decreasedincreased by $3$56 for the sixnine months ended DecemberMarch 31, 20172022 compared to the sixnine months ended DecemberMarch 31, 2016. Average occupancy2021.
Real Estate Operations
Net income from real estate operations for the nine months ended March 31, 2022 decreased by 2% during$11,798,000 compared to the sixnine months ended DecemberMarch 31, 2017 versus the comparable period.
Real Estate Operations
Real estate revenues for the six months ended December 31, 2017 and 2016 remained relatively consistent at $7,302,000 and $7,254,000, respectively. Real estate operating expenses increased for the six months ended December 31, 2017 comparing2021 due to the six months ended December 31, 2016 primarily$12,043,000 gain from sale of real estate in August 2020. Revenue from real estate operations increased by $1,305,000 year over year due to increasereduction in real estate taxes.vacancy and bad debt. All ofthe Company’s properties are managed in-house. 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 loss on marketable securities of $2,200,000$3,613,000 for the sixnine months ended DecemberMarch 31, 20172022 compared to a net lossgain on marketable securities of $2,136,000$8,937,000 for the sixnine months ended DecemberMarch 31, 2016.2021. For the sixnine months ended DecemberMarch 31, 2017 and 2016, the Company had a net loss of approximately $2,754,000 and $2,391,000 related to the Company’s investment in the common stock of Comstock. For the six months ended December 31, 2017,2022, the Company had a net realized loss of $119,000$874,000 and a net unrealized loss of $2,081,000.$2,739,000. For the sixnine months ended DecemberMarch 31, 2016,2022, Company had a net realized loss of $2,581,000 from its investment in Comstock. For the nine months ended March 31, 2021, the Company had a net realized gainloss of $312,000$667,000 and a net unrealized lossgain of $2,448,000.$9,604,000. 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.
| -27- |
During the six months ended December 31, 2017 and 2016, 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 $200,000 and $44,000 in the respective periods.
The Company and its subsidiaries, Portsmouth and Santa Fe, compute and file income tax returns and prepare discrete income tax provisions for financial reporting. The income tax (expense) benefit during the six months ended December 31, 2017 and 2016 represents primarily the income tax effect of the pre-tax loss at InterGroup and Portsmouth’s pretax income (loss) which includes its share in net income of the Hotel.
MARKETABLE SECURITIES
The following table shows the composition of the Company’s marketable securities portfolio as of DecemberMarch 31, 20172022 and June 30, 20172021 by selected industry groups.
| % of Total | ||||||||
| As of March 31, 2022 | Investment | |||||||
| Industry Group | Fair Value | Securities | ||||||
| Financial services | $ | 9,874,000 | 38.7 | % | ||||
| Communication services | 5,166,000 | 20.2 | % | |||||
| REITs and real estate companies | 4,510,000 | 17.7 | % | |||||
| Energy | 1,974,000 | 7.7 | % | |||||
| Industrials | 1,180,000 | 4.6 | % | |||||
| Technology | 1,155,000 | 4.5 | % | |||||
| Basic material | 842,000 | 3.3 | % | |||||
| Consumer cyclical | 438,000 | 1.7 | % | |||||
| Healthcare | 202,000 | 0.8 | % | |||||
| Utilities | 200,000 | 0.8 | % | |||||
| $ | 25,541,000 | 100.0 | % | |||||
| % of Total | ||||||||
| As of June 30, 2021 | Investment | |||||||
| Industry Group | Fair Value | Securities | ||||||
| REITs and real estate companies | $ | 11,624,000 | 32.5 | % | ||||
| Energy | 6,374,000 | 17.8 | % | |||||
| Communication services | 4,872,000 | 13.6 | % | |||||
| Financial services | 3,873,000 | 10.8 | % | |||||
| Industrials | 3,746,000 | 10.5 | % | |||||
| Basic material | 1,797,000 | 5.0 | % | |||||
| Consumer cyclical | 1,702,000 | 4.8 | % | |||||
| Healthcare | 981,000 | 2.7 | % | |||||
| Technology | 442,000 | 1.2 | % | |||||
| Other | 381,000 | 1.1 | % | |||||
| $ | 35,792,000 | 100.0 | % | |||||
| % of Total | ||||||||
| As of December 31, 2017 | Investment | |||||||
| Industry Group | Fair Value | Securities | ||||||
| Basic materials | $ | 2,640,000 | 20.0 | % | ||||
| Technology | 3,039,000 | 23.0 | % | |||||
| REIT's and real estate ompanies | 1,494,000 | 11.3 | % | |||||
| Corporate Bonds | 1,774,000 | 13.4 | % | |||||
| Energy | 472,000 | 3.6 | % | |||||
| Financial | 1,046,000 | 7.9 | % | |||||
| Other | 2,744,000 | 20.8 | % | |||||
| $ | 13,209,000 | 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 | % | |||||
| REIT's and real estate ompanies | 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 | % | |||||
As of DecemberMarch 31, 2017, 16% of2022, the Company’s investment in marketableportfolio is diversified with 63 different equity positions. The Company held two equity securities that are more than 10% of the equity value of the portfolio. The largest security position represents 29% of the portfolio and consists of the common stock of Comstock Mining,Berkshire Hathaway Inc. (“Comstock” - NYSE MKT: LODE)(NYSE: BRKA) which is included in the basic materialsfinancial services industry group. The second largest security position represents 20% of the portfolio and consists of the preferred stock of Paramount Global (NASDAQ: PARAP) which is included in the communication services industry group.
As of June 30, 2021, the Company’s investment portfolio is diversified with 83 different equity positions. The Company holds two equity securities that comprised more than 10% of the equity value of the portfolio. The two largest security positions represent 12% and 11% of the portfolio and consists of the common stock of DigitalBridge Group, Inc. (NASDAQ: DBRG) and Viacom CBS, Inc. (NASDAQ: VIACP), which are included in the REITs and real estate companies and communication services industry group, respectively.
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The following table shows the net (loss) gain or loss on the Company’s marketable securities and the associated margin interest and trading expenses for the respective periods:
| For the three months ended December 31, | 2017 | 2016 | ||||||||||||||
| Net loss on marketable securities | $ | (1,178,000 | ) | $ | (3,290,000 | ) | ||||||||||
| For the three months ended March 31, | 2022 | 2021 | ||||||||||||||
| Net gain on marketable securities | $ | 906,000 | $ | 768,000 | ||||||||||||
| Net gain on marketable securities - Comstock | - | 4,870,000 | ||||||||||||||
| Impairment loss on other investments | (200,000 | ) | (24,000 | ) | - | (30,000 | ) | |||||||||
| Dividend and interest income | 48,000 | 68,000 | 158,000 | 158,000 | ||||||||||||
| Margin interest expense | (162,000 | ) | (159,000 | ) | (212,000 | ) | (238,000 | ) | ||||||||
| Trading and management expenses | (151,000 | ) | (132,000 | ) | (127,000 | ) | (124,000 | ) | ||||||||
| $ | (1,643,000 | ) | $ | (3,537,000 | ) | |||||||||||
| Net gain from investment transactions | $ | 725,000 | $ | 5,404,000 | ||||||||||||
| For the nine months ended March 31, | 2022 | 2021 | ||||||
| Net (loss) gain on marketable securities | $ | (1,032,000 | ) | $ | 8,886,000 | |||
| Net (loss) gain on marketable securities - Comstock | (2,581,000 | ) | 51,000 | |||||
| Impairment loss on other investments | (41,000 | ) | (119,000 | ) | ||||
| Dividend and interest income | 807,000 | 363,000 | ||||||
| Margin interest expense | (638,000 | ) | (519,000 | ) | ||||
| Trading and management expenses | (415,000 | ) | (399,000 | ) | ||||
| Net (loss) gain from investment transactions | $ | (3,900,000 | ) | $ | 8,263,000 | |||
FINANCIAL CONDITION AND LIQUIDITY
The Company had cash and cash equivalents of $6,548,000 and $6,808,000 as of March 31, 2022 and June 30, 2021, respectively. The Company had marketable securities, net of margin due to securities brokers, of $21,564,000 and $21,456,000 as of March 31, 2022 and June 30, 2021, 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. 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 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 nine months ending March 31, 2022, InterGroup advanced $7,550,000 to the Hotel, bringing the total amount due to InterGroup to $14,200,000 at March 31, 2022.
In June 2020, we refinanced one of our California properties and generated net proceeds of $1,144,000. During the fiscal year ended June 30, 2021, we completed refinancing on six of our California properties and generated net proceeds of $6,762,000. During the nine months ending March 31, 2022, we refinanced five of our properties’ existing mortgages and obtained a mortgage note payable on one of our California properties, generating net proceeds totaling $16,099,000 as a result. 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. The Company has an uncollateralized $5,000,000 revolving line of credit from CIBC Bank USA (“CIBC”) and the entire $5,000,000 is available to be drawn down as of March 31, 2022 should additional liquidity be necessary.
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”). Justice received proceeds of $4,719,000 from the SBA Loan. In accordance with the requirements of the CARES Act, Justice used the proceeds from the SBA Loan for payroll costs and other qualified expenses. The SBA Loan was scheduled to mature on April 9, 2022 with 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 June 10, 2021, the SBA Loan was forgiven in full.
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| For the six months ended December 31, | 2017 | 2016 | ||||||
| Net loss on marketable securities | $ | (2,200,000 | ) | $ | (2,136,000 | ) | ||
| Impairment loss on other investments | (200,000 | ) | (44,000 | ) | ||||
| Dividend and interest income | 131,000 | 110,000 | ||||||
| Margin interest expense | (352,000 | ) | (303,000 | ) | ||||
| Trading and management expenses | (274,000 | ) | (250,000 | ) | ||||
| $ | (2,895,000 | ) | $ | (2,623,000 | ) | |||
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.
On December 18, 2013, the Partnership completed an Offer to Redeem any and all limited partnership interests not held by Portsmouth. AsApril 27, 2020, InterGroup entered into 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.
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. 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 and matures in January 2024. Beginning in February 2017, the loan began to amortize over a thirty-year period thru its maturity date. 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 secured by the Operating membership interest held by Mezzanine and is subordinated 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 is a limited guaranty executed by the Company in favor of mezzanine lender. The outstanding balance of the senior loan and the mezzanine loans as of September 30, 2017 were $96,028,399 and $20,000,000 respectively. Effective May 12, 2017, InterGroup agreed to become an additional guarantoragreement (“SBA Loan - InterGroup”) with CIBC Bank USA under the limited guarantyCARES Act and an additional indemnitor under the environmental indemnity for Justice Investors limited partnership’s $97,000,000 mortgagereceived loan and the $20,000,000 mezzanine loan.
On July 2, 2014, the Partnership obtained from InterGroup (a related party) 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 December 31, 2018.
In April 2017, Portsmouth obtained from InterGroup an unsecured short-term loanproceeds in the amount of $1,000,000 at 5% per year fixed$453,000. InterGroup used all of the $453,000 loan proceeds in qualified payroll expenses. The SBA Loan – InterGroup was scheduled to mature on April 27, 2022 and had a 1.00% interest rate. On March 17, 2021, SBA Loan – InterGroup was forgiven in full.
On February 3, 2021, Justice entered into a second loan agreement (“Second SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all proceeds from the Second SBA Loan primarily for payroll costs. The Second SBA Loan was scheduled to mature on February 3, 2026, had a term1.00% 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 Second SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the condensed consolidated statement of five months and maturing September 6, 2017. The short-term loan was extended to September 15, 2017 and paid off on September 13, 2017.
Despite an uncertain economy, the Hotel has continued to generate strong revenue growth. While the debt service requirements related the loans and the legal settlement may create some additional risksoperations for the Companynine months ended March 31, 2022.
Our known short-term liquidity requirements primarily consist of funds necessary to pay for operating and its abilityother 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 generate cash flows in the future, management believes that cash flows from the operationspay for scheduled debt maturities and capital improvements of the Hotel and the garageour real estate properties. We will continue to be sufficient to meet all offinance our business activities primarily with existing cash, including from the Partnership’s currentactivities described above, and future obligations and financial requirements.
The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the consolidated statements of operations.
Management believes that its cash marketable securities, and the cash flows generated from those assetsour operations. After considering our approach to liquidity and fromaccessing our available sources of cash, we believe that our cash position, after giving effect to the partnership management fees,transactions discussed above, will be adequate to meet anticipated requirements for operating and other expenditures, including corporate expenses, payroll and related benefits, taxes and compliance costs and other commitments, for at least twelve months from the Company’sdate of issuance of these financial statements, even if current levels of low occupancy were to persist. The objectives of our cash management policy are to maintain existing leverage levels and future obligations. Additionally,the availability of liquidity, while minimizing operational costs. We believe that our cash on hand, along with other potential aforementioned sources of liquidity that management believesmay 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. However, there is significant appreciated value in the Hotel property to support additional borrowings, if necessary.can be no guarantee that management will be successful with its plan.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no off balanceoff-balance sheet arrangements.
MATERIAL CONTRACTUAL OBLIGATIONS
The following table provides a summary as of DecemberMarch 31, 2017,2022, the Company’s material financial obligations which also includingincludes interest payments.
| 6 Months | Year | Year | Year | Year | 3 Months | Year | Year | Year | Year | |||||||||||||||||||||||||||||||||||||||||||||||
| Total | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | Total | 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage and subordinated notes payable | $ | 179,704,000 | $ | 1,463,000 | $ | 3,980,000 | $ | 3,103,000 | $ | 15,171,000 | $ | 3,078,000 | $ | 152,909,000 | $ | 195,528,000 | $ | 841,000 | $ | 12,960,000 | $ | 108,321,000 | $ | 3,866,000 | $ | 1,066,000 | $ | 68,474,000 | ||||||||||||||||||||||||||||
| Other notes payable | 5,919,000 | 184,000 | 474,000 | 607,000 | 567,000 | 567,000 | 3,520,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Related party notes payable | 3,662,000 | 142,000 | 567,000 | 567,000 | 567,000 | 567,000 | 1,252,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest | 54,872,000 | 5,139,000 | 9,919,000 | 9,529,000 | 9,120,000 | 8,591,000 | 12,574,000 | 32,710,000 | 2,678,000 | 8,723,000 | 5,376,000 | 2,241,000 | 2,126,000 | 11,566,000 | ||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 240,495,000 | $ | 6,786,000 | $ | 14,373,000 | $ | 13,239,000 | $ | 24,858,000 | $ | 12,236,000 | $ | 169,003,000 | $ | 231,900,000 | $ | 3,661,000 | $ | 22,250,000 | $ | 114,264,000 | $ | 6,674,000 | $ | 3,759,000 | $ | 81,292,000 | ||||||||||||||||||||||||||||
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 hotel 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.
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CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Critical accounting policies are those that are most significant to the presentation 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 condensed 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. There have been no material changes to the Company’s critical accounting policies during the sixnine months ended DecemberMarch 31, 2017.2022. Please refer to the Company’s Annual Report on Form 10-K for the year ended June 30, 20172021 for a summary of the critical accounting policies.
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
We are a smaller reporting company and therefore, we are not required to provide information required by this Item of Form 10-Q.
| Item 4. | Controls and Procedures. |
Item 4. Controls and Procedures.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of the Company’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
As statedThere have been no changes in the Company’s Form 10-K for the year ended June 30, 2017, we identified a material weakness in internal controls over financial reporting related to our deferred income taxes and income tax expense during the fourth quarter of fiscal 2017. During the quarter ended September 30, 2017, we hired new tax CPA specialist to perform detailed analysis which was completed for the year ended June 30, 2017. We also assigned our audit committee with oversight responsibilities. The Company has taken steps to remediate the material weakness and improved its internal control over financial reporting during the last quarterly period
covered by this Quarterly Report on Form 10-Q.10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
OTHER INFORMATION
| Item 1. | LEGAL PROCEEDINGS |
The Company may be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company will 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 1A. | RISK FACTORS |
As a smaller reporting company, we are not required to provide the information required by this Item.
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| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There have been no events that are required to be reported under this Item.
| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
There have been no events that are required to be reported under this Item.
| Item 4. | MINE SAFETY DISCLOSURES |
There have been no events that are required to be reported under this Item.
| Item 5. | OTHER INFORMATION |
There have been no events that are required to be reported under this Item.
| Item 6. | EXHIBITS |
| 101.INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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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:April 29, 2022 | /s/ John V. Winfield | ||||
| John V. Winfield | |||||
| President, Chairman of the Board and | |||||
| Chief Executive Officer | |||||
| (Principal Executive Officer) | |||||
| Date: April 29, 2022 | by | /s/ Danfeng Xu | |||
| Danfeng Xu | |||||
| Treasurer and Controller | |||||
| (Principal Financial Officer) | |||||
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