Company Quick10K Filing
Intergroup
Price29.14 EPS1
Shares3 P/E44
MCap77 P/FCF6
Net Debt-25 EBIT8
TEV51 TEV/EBIT6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-06-18
10-Q 2019-12-31 Filed 2020-01-24
10-Q 2019-09-30 Filed 2019-10-25
10-K 2019-06-30 Filed 2019-08-30
10-Q 2019-03-31 Filed 2019-05-03
10-Q 2018-12-31 Filed 2019-02-01
10-Q 2018-09-30 Filed 2018-11-02
10-K 2018-06-30 Filed 2018-08-31
10-Q 2018-03-31 Filed 2018-04-27
10-Q 2017-12-31 Filed 2018-02-02
10-Q 2017-09-30 Filed 2017-11-09
10-K 2017-06-30 Filed 2017-10-13
10-Q 2017-03-31 Filed 2017-05-15
10-Q 2016-12-31 Filed 2017-02-14
10-Q 2016-09-30 Filed 2016-11-04
10-K 2016-06-30 Filed 2016-09-28
10-Q 2016-03-31 Filed 2016-05-13
10-Q 2015-12-31 Filed 2016-02-05
10-Q 2015-09-30 Filed 2015-10-29
10-K 2015-06-30 Filed 2015-09-04
10-Q 2015-03-31 Filed 2015-05-11
10-Q 2014-12-31 Filed 2015-02-11
10-Q 2014-09-30 Filed 2014-11-14
10-K 2014-06-30 Filed 2014-09-29
10-Q 2014-03-31 Filed 2014-05-16
10-Q 2013-12-31 Filed 2014-02-18
10-Q 2013-09-30 Filed 2013-11-08
10-K 2013-06-30 Filed 2013-09-18
10-Q 2013-03-31 Filed 2013-05-10
10-Q 2012-12-31 Filed 2013-02-13
10-K 2012-06-30 Filed 2012-09-20
10-Q 2012-03-31 Filed 2012-05-10
10-Q 2011-12-31 Filed 2012-02-09
10-Q 2011-09-30 Filed 2011-11-14
10-K 2011-06-30 Filed 2011-09-22
10-Q 2011-03-31 Filed 2011-05-12
10-Q 2010-12-31 Filed 2011-02-11
10-Q 2010-09-30 Filed 2010-11-12
10-K 2010-06-30 Filed 2010-09-27
10-Q 2010-03-31 Filed 2010-05-13
10-Q 2009-12-31 Filed 2010-02-12
8-K 2020-05-14
8-K 2020-02-25
8-K 2020-02-05
8-K 2019-02-27
8-K 2018-02-26

INTG 10Q Quarterly Report

Part I
Item 1 - Condensed Consolidated Financial Statements
Note 1. Basis of Presentation and Significant Accounting Policies
Note 2 - Revenue
Note 3 - Investment in Hotel, Net
Note 4 - Investment in Real Estate, Net
Note 5 - Investment in Marketable Securities
Note 6 - Other Investments, Net
Note 7 - Fair Value Measurements
Note 8 - Cash, Cash Equivalents and Restricted Cash
Note 9 - Stock Based Compensation Plans
Note 10 - Segment Information
Note 11 - Related Party and Other Financing Transactions
Note 12 - Accounts Payable and Other Liabilities - Justice
Note 13 - Accounts Payable and Other Liabilities
Note 14 - Subsequent Events
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures.
Part II.
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Intergroup Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1701268238-6-502012201420172020
Assets, Equity
25191371-52012201420172020
Rev, G Profit, Net Income
151050-5-102012201420172020
Ops, Inv, Fin

10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2020

 

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)

 

DELAWARE   13-3293645
(State or other jurisdiction   (I.R.S. Employer
of Incorporation or organization)   Identification No.)

 

12121 Wilshire Boulevard, Suite 610, Los Angeles, California 90025

(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 every Interactive Data File required to be submitted 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 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.

 

  Large accelerated filer [  ]   Accelerated filer [  ]
       
  Non-accelerated filer [  ]   Smaller reporting company [X]
       
      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):

[  ] Yes [X] 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 June 18, 2020 was 2,289,157.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
  PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements  
     
  Condensed Consolidated Balance Sheets as of March 31, 2020 and June 30, 2019 (Unaudited) 3
  Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2020 and 2019 (Unaudited) 4
  Condensed Consolidated Statements of Operations for the Nine Months ended March 31, 2020 and 2019 (Unaudited) 5
  Condensed Consolidated Statements of Shareholders’ Deficit for the Nine Months ended March 31, 2020 and 2019 (Unaudited) 6
  Condensed Consolidated Statements of Cash Flows for the Nine Months ended March 31, 2020 and 2019 (Unaudited) 8
  Notes to the Condensed Consolidated Financial Statements 9-22
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23-30
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 30
     
Item 4. Controls and Procedures 30
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings. 31
     
Item 1A. Risk Factors 31
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 32
     
Item 3. Defaults Upon Senior Securities. 32
     
Item 4. Mine Safety Disclosures. 32
     
Item 5. Other Information. 32
     
Item 6. Exhibits. 32
     
Signatures   33

 

 -2- 
   

 

PART I

FINANCIAL INFORMATION

 

Item 1 - Condensed Consolidated Financial Statements

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

As of  March 31, 2020   June 30, 2019 
ASSETS          
Investment in Hotel, net  $39,272,000   $39,836,000 
Investment in real estate, net   50,761,000    51,773,000 
Investment in marketable securities   2,853,000    9,696,000 
Other investments, net   394,000    612,000 
Cash and cash equivalents   7,994,000    11,837,000 
Restricted cash   13,493,000    13,295,000 
Other assets, net   2,129,000    2,362,000 
Deferred tax asset   2,156,000    1,468,000 
Total assets  $119,052,000   $130,879,000 
           
LIABILITIES AND SHAREHOLDERS’ DEFICIT          
Liabilities:          
Accounts payable and other liabilities - Justice  $8,116,000   $11,298,000 
Accounts payable and other liabilities   3,862,000    3,766,000 
Due to securities broker   23,000    1,629,000 
Obligations for securities sold   -    1,225,000 
Related party and other notes payable   4,798,000    5,261,000 
Finance leases   1,206,000    1,486,000 
Line of credit payable   2,985,000    2,985,000 
Mortgage notes payable - Hotel, net   111,729,000    113,087,000 
Mortgage notes payable - real estate, net   57,399,000    58,571,000 
Total liabilities   190,118,000    199,308,000 
           
Shareholders’ deficit:          
Preferred stock, $.01 par value, 100,000 shares authorized; none issued   -    - 
Common stock, $.01 par value, 4,000,000 shares authorized; 3,404,982 and 3,404,982 issued; 2,291,554 and 2,309,962 outstanding, respectively   33,000    33,000 
Additional paid-in capital   6,797,000    10,342,000 
Accumulated deficit   (41,756,000)   (39,760,000)
Treasury stock, at cost, 1,113,428 and 1,095,020 shares, respectively   (14,915,000)   (14,347,000)
Total InterGroup shareholders’ deficit   (49,841,000)   (43,732,000)
Noncontrolling interest   (21,225,000)   (24,697,000)
Total shareholders’ deficit   (71,066,000)   (68,429,000)
           
Total liabilities and shareholders’ deficit  $119,052,000   $130,879,000 

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 -3- 
   

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

For the three months ended March 31,  2020   2019 
Revenues:          
Hotel  $11,259,000   $15,469,000 
Real estate   3,757,000    3,744,000 
Total revenues   15,016,000    19,213,000 
Costs and operating expenses:          
Hotel operating expenses   (10,060,000)   (11,378,000)
Real estate operating expenses   (2,071,000)   (2,051,000)
Depreciation and amortization expenses   (1,216,000)   (1,218,000)
General and administrative expenses   (890,000)   (667,000)
           
Total costs and operating expenses   (14,237,000)   (15,314,000)
           
Income from operations   779,000    3,899,000 
           
Other income (expense):          
Interest expense - mortgages   (2,251,000)   (2,410,000)
Loss on disposal of assets   -    (398,000)
Net (loss) gain on marketable securities   (2,367,000)   681,000 
Net (loss) gain on marketable securities - Comstock   (26,000)   280,000 
Impairment loss on other investments   (103,000)   (98,000)
Dividend and interest income   105,000    194,000 
Trading and margin interest expense   (256,000)   (312,000)
Total other expense, net   (4,898,000)   (2,063,000)
           
(Loss) income before income taxes   (4,119,000)   1,836,000 
Income tax benefit (expense)   1,060,000    (501,000)
Net (loss) income   (3,059,000)   1,335,000 
Less: Net loss (income) attributable to the noncontrolling interest   479,000    (284,000)
Net (loss) income attributable to InterGroup Corporation  $(2,580,000)  $1,051,000 
           
Net (loss) income per share          
Basic  $(1.33)  $0.57 
Diluted   N/A    $0.50 
           
Net (loss) income per share attributable to InterGroup Corporation          
Basic  $(1.12)  $0.45 
Diluted   N/A    $0.40 
           
Weighted average number of basic common shares outstanding   2,298,064    2,329,207 
Weighted average number of diluted common shares outstanding   N/A     2,659,602 

 

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,  2020   2019 
Revenues:          
Hotel  $41,589,000   $45,276,000 
Real estate   11,313,000    11,175,000 
Total revenues   52,902,000    56,451,000 
Costs and operating expenses:          
Hotel operating expenses   (33,138,000)   (33,424,000)
Real estate operating expenses   (6,110,000)   (5,929,000)
Depreciation and amortization expenses   (3,661,000)   (3,710,000)
General and administrative expenses   (2,231,000)   (1,789,000)
           
Total costs and operating expenses   (45,140,000)   (44,852,000)
           
Income from operations   7,762,000    11,599,000 
           
Other income (expense):          
Interest expense - mortgages   (6,978,000)   (7,380,000)
Loss on disposal of assets   -    (398,000)
Net loss on marketable securities   (2,565,000)   (999,000)
Net loss on marketable securities - Comstock   (396,000)   (182,000)
Impairment loss on other investments   (103,000)   (98,000)
Dividend and interest income   346,000    379,000 
Trading and margin interest expense   (790,000)   (809,000)
Total other expense, net   (10,486,000)   (9,487,000)
           
(Loss) income before income taxes   (2,724,000)   2,112,000 
Income tax benefit (expense)   689,000    (771,000)
Net (loss) income   (2,035,000)   1,341,000 
Less: Net loss (income) attributable to the noncontrolling interest   39,000    (687,000)
Net (loss) income attributable to InterGroup Corporation  $(1,996,000)  $654,000 
           
Net (loss) income per share          
Basic  $(0.88)  $0.58 
Diluted   N/A    $0.50 
           
Net (loss) income per share attributable to InterGroup Corporation          
Basic  $(0.87)  $0.28 
Diluted   N/A    $0.25 
           
Weighted average number of basic common shares outstanding   2,303,421    2,329,883 
Weighted average number of diluted common shares outstanding   N/A     2,660,278 

 

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)

 

           Additional           InterGroup       Total 
   Common Stock   Paid-in   Accumulated   Treasury   Shareholders’   Noncontrolling   Shareholders’ 
   Shares   Amount   Capital   Deficit   Stock   Deficit   Interest   Deficit 
                                 
Balance at July 1, 2019   3,404,982   $33,000   $10,342,000   $(39,760,000)  $(14,347,000)  $   (43,732,000)  $(24,697,000)  $    (68,429,000)
                                         
Net Income   -    -    -    336,000    -    336,000    308,000    644,000 
                                         
Stock options expense   -    -    8,000    -    -    8,000    -    8,000 
                                         
Investment in Santa Fe   -    -    (147,000)   -    -    (147,000)   74,000    (73,000)
                                         
Purchase of treasury stock   -    -    -    -    (156,000)   (156,000)   -    (156,000)
                                         
Balance at September 30, 2019   3,404,982    33,000    10,203,000    (39,424,000)   (14,503,000)   (43,691,000)   (24,315,000)   (68,006,000)
                                         
Net income   -    -    -    248,000    -    248,000    132,000    380,000 
                                         
Stock options expense   -    -    9,000    -    -    9,000    -    9,000 
                                         
Investment in Santa Fe   -    -    (46,000)   -    -    (46,000)   22,000    (24,000)
                                         
Purchase of treasury stock   -    -    -    -    (190,000)   (190,000)   -    (190,000)
                                         
Balance at December 31, 2019   3,404,982    33,000    10,166,000    (39,176,000)   (14,693,000)   (43,670,000)   (24,161,000)   (67,831,000)
                                         
Net loss   -    -    -    (2,580,000)   -    (2,580,000)   (479,000)   (3,059,000)
                                         
Stock options expense   -    -    121,000    -    -    121,000    -    121,000 
                                         
Investment in Santa Fe   -    -    (4,279,000)   -    -    (4,279,000)   3,353,000    (926,000)
                                         
Investment in Portsmouth   -    -    (124,000)   -    -    (124,000)   62,000    (62,000)
                                         
Investment in Woodland   -    -    913,000    -    -    913,000         913,000 
                                         
Purchase of treasury stock   -    -    -    -    (222,000)   (222,000)   -    (222,000)
                                         
Balance at March 31, 2020   3,404,982   $33,000   $6,797,000   $(41,756,000)  $(14,915,000)  $(49,841,000)  $(21,225,000)  $(71,066,000)

 

 -6- 
   

 

          Additional           InterGroup       Total 
   Common Stock   Paid-in   Accumulated   Treasury   Shareholders’   Noncontrolling   Shareholders’ 
   Shares   Amount   Capital   Deficit   Stock   Deficit   Interest   Deficit 
                                 
Balance at July 1, 2018   3,395,616   $33,000   $10,522,000   $(41,217,000)  $(13,268,000)  $   (43,930,000)  $(26,037,000)  $   (69,967,000)
                                         
Net Income   -    -    -    630,000    -    630,000    498,000    1,128,000 
                                         
Stock options expense   -    -    30,000    -    -    30,000    -    30,000 
                                         
Purchase of treasury stock   -    -    -    -    (198,000)   (198,000)   -    (198,000)
                                         
Balance at September 30, 2018   3,395,616    33,000    10,552,000    (40,587,000)   (13,466,000)   (43,468,000)   (25,539,000)   (69,007,000)
                                         
Issuance of stock   9,366    -    -    -    -    -    -    - 
                                         
Net loss   -    -    -    (1,027,000)   -    (1,027,000)   (95,000)   (1,122,000)
                                         
Stock options expense   -    -    29,000    -    -    29,000    -    29,000 
                                         
Investment in Santa Fe   -    -    (31,000)   -    -    (31,000)   16,000    (15,000)
                                         
Purchase of treasury stock   -    -    -    -    (266,000)   (266,000)   -    (266,000)
                                         
Balance at December 31, 2018   3,404,982    33,000    10,550,000    (41,614,000)   (13,732,000)   (44,763,000)   (25,618,000)   (70,381,000)
                                         
Net income   -    -    -    1,051,000    -    1,051,000    284,000    1,335,000 
                                         
Stock options expense   -    -    9,000    -    -    9,000    -    9,000 
                                         
Purchase of treasury stock   -    -    -    -    (74,000)   (74,000)   -    (74,000)
                                         
Balance at March 31, 2019   3,404,982   $33,000   $10,559,000   $(40,563,000)  $(13,806,000)  $(43,777,000)  $(25,334,000)  $(69,111,000)

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 -7- 
   

 

THE INTERGROUP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

For the nine months ended March 31,  2020   2019 
Cash flows from operating activities:          
Net (loss) income  $(2,035,000)  $1,341,000 
Adjustments to reconcile net (loss) income to net cash provided by operating activities:          
Depreciation and amortization   3,594,000    3,626,000 
Loss on disposal of assets   -    398,000 
Deferred taxes   (688,000)   771,000 
Net unrealized loss on marketable securities   1,771,000    1,534,000 
Impairment loss on other investments   103,000    98,000 
Stock compensation expense   138,000    68,000 
Changes in operating assets and liabilities:          
Investment in marketable securities   5,072,000    1,473,000 
Other assets   233,000    2,555,000 
Accounts payable and other liabilities - Justice   (3,182,000)   (2,740,000)
Accounts payable and other liabilities   96,000    - 
Due to securities broker   (1,606,000)   137,000 
Obligations for securities sold   (1,225,000)   (1,231,000)
Net cash provided by operating activities   2,271,000    8,030,000 
           
Cash flows from investing activities:          
Payments for hotel investments   (1,207,000)   (982,000)
Payments for real estate investments   (848,000)   (566,000)
Payments for investment in Santa Fe   (1,023,000)   (15,000)
Payments for investment in Portsmouth   (62,000)   - 
Proceeds from other investments   115,000    103,000 
Investment in Woodland   913,000    - 
Net cash used in investing activities   (2,112,000)   (1,460,000)
           
Cash flows from financing activities:          
Net payments of mortgage and other notes payable   (3,236,000)   (5,174,000)
Proceeds from line of credit   -    2,985,000 
Purchase of treasury stock   (568,000)   (538,000)
Net cash used in financing activities   (3,804,000)   (2,727,000)
           
Net (decrease) increase in cash, cash equivalents and restricted cash   (3,645,000)   3,843,000 
Cash, cash equivalents and restricted cash at the beginning of the period   25,132,000    17,511,000 
Cash, cash equivalents and restricted cash at the end of the period  $21,487,000   $21,354,000 
           
Supplemental information:          
Interest paid  $7,083,000   $7,542,000 
Taxes paid (refund received)  $41,000   $(1,349,000)
Non-cash transaction:          
Additions to Hotel equipment through capital lease  $30,000   $71,000 

 

The accompanying notes are an integral part of these (unaudited) condensed consolidated financial statements.

 

 -8- 
   

 

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’s Annual Report on Form 10-K for the year ended June 30, 2019. The March 31, 2020 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, 2019.

 

The results of operations for the nine months ended March 31, 2020 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2020.

 

Basic and diluted income (loss) per share is computed by dividing net income (loss) available to common stockholders by 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.

 

On February 5, 2020, the Company entered into a Contribution Agreement (the “Contribution Agreement”) with Santa Fe Financial Corporation (“Santa Fe”), a public company (OTCBB: SFEF) pursuant to which the Company received 97,500 shares of common stock, par value $0.10 per share, of Santa Fe, in exchange for its contribution to Santa Fe of 4,460 shares of common stock (the “Common Stock”) of Intergroup Woodland Village, Inc., an Ohio corporation (“Transaction”). As a result of the contribution, Woodland Village has become a wholly owned subsidiary of Santa Fe. Before the issuance of the stock referenced in the preceding sentence, the Company had the power to vote 86.3% of the voting shares of Santa Fe, which includes the power to vote an approximately 4% interest in the common stock in Santa Fe owned by the Company’s Chairman and CEO, John V. Winfield, pursuant to a voting trust agreement entered into on June 30, 1998. Subsequent to this issuance, the Company has the power to vote 87.3% of the issued and outstanding common stock of Santa Fe, which includes the power to vote an approximately 3.7% interest in the common stock in Santa Fe under the aforementioned voting trust agreement. Mr. Winfield, Chairman of the Board of both the Company and Santa Fe, is a control person of both entities.

 

On February 5, 2020, after review by independent directors of the Company, and by the unanimous vote of all directors of the Company (with Mr. Winfield abstaining), the Board approved the entry into the Contribution Agreement and the consummation of the Transaction. The Company’s Board approved the Transaction after the receipt of a fairness opinion from a third-party independent firm. The Board was first made aware of the Transaction in early January 2020, received information to review on or about January 17, 2020 and was given multiple opportunities to discuss the materials with management before the February 5, 2020 Board meeting. The Contribution Agreement also contains a provision for a potential subsequent earn out to InterGroup pursuant to terms set forth therein.

 

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). Portsmouth’s primary business is conducted through its general and limited partnership interest in Justice Investors Limited Partnership; a California limited partnership (“Justice” or the “Partnership”). InterGroup also directly owns approximately 13.5% of the common stock of Portsmouth.

 

 -9- 
   

 

Justice, through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice Mezzanine Company, LLC (“Mezzanine”) owns and operates 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. Mezzanine is a wholly-owned subsidiary of the Partnership; Operating is a wholly-owned subsidiary 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) through January 31, 2030.

 

Justice entered into a Hotel management agreement (“HMA”) with Interstate Management Company, LLC (“Interstate”) to manage the Hotel, along with its five-level parking garage, with an effective takeover date of February 3, 2017. The term of the management agreement is for an initial period of ten years commencing on the takeover date and automatically renews for successive one (1) year periods, to not exceed five years in the aggregate, subject to certain conditions. Under the terms on the HMA, base management fee payable to Interstate shall be one and seven-tenths percent (1.70%) of total Hotel revenue. On October 25, 2019, Interstate merged with Aimbridge Hospitality, North America’s largest independent hotel management firm. With the completion of the merger, the newly combined company will be positioned under the Aimbridge Hospitality name in the Americas.

 

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 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 real property. As of March 31, 2020, all of the Company’s residential and commercial rental properties are managed in-house.

 

Due to Securities Broker

 

Various securities brokers have advanced funds to the Company for the purchase of marketable securities under standard margin agreements. These advanced funds are recorded as a liability.

 

Obligations for Securities Sold

 

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

 

Income Tax

 

The Company consolidates Justice (“Hotel”) for financial reporting purposes and is not taxed on its non-controlling interest in the Hotel. The income tax benefit (expense) during the nine months ended March 31, 2020 and 2019 represent the income tax effect on the Company’s pretax income which includes its share in the net income of the Hotel.

 

We have considered the income tax accounting and disclosure implications of the relief provided by the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020. The effect of tax law changes is required to be recognized either in the interim period in which the legislation is enacted or reflected in the computation of the annual effective tax rate, depending on the nature of the change. As of March 31, 2020, we evaluated the income tax provisions of the CARES Act and have determined there to be no material effect on the March 31, 2020 tax provision. We will continue to evaluate the income tax provisions of the CARES Act and monitor the tax law changes that could have income tax accounting and disclosure implications.

 

Financial Condition and Liquidity

 

Historically, our cash flows have been primarily generated from our Hotel and real estate operations. However, management expects that the ongoing length and severity of the economic downturn, resulting from the continuing and uncertain impact of the COVID-19 pandemic, will have a material adverse impact on our business, financial condition, liquidity and financial results. As a result of our Hotel’s material decrease in occupancy and average daily rate, we expect our cash flow from operations to continue to be significantly lower than historical rates for the foreseeable future, until the pandemic resolves, and hotel occupancies return to historical rates.

 

 -10- 
   

 

We have taken several steps to preserve capital and increase liquidity, including the implementation of various cost saving initiatives at our Hotel. For further discussion, see “Item 2 - Negative Effects of COVID-19 on our Business” included in this Quarterly Report. We may also receive cash generated from the investment of our cash and marketable securities as well as other investments. In order to increase our liquidity positions and take advantage of the favorable interest rate environment, we refinanced our $8,481,000 and $2,473,000 mortgage note payables on our 151-unit apartment complex in New Jersey in April 2020 and obtained a new mortgage in the amount of $18,370,000. The new mortgage has a fixed interest rate of 3.17% and matures in April 2030. We received net proceeds of approximately $6,814,000 from the refinancing. We are also refinancing two of our California properties which are scheduled to close in June and July 2020, and we could refinance additional multifamily properties should the need arise; however, management does not deem it necessary at this time. We have an uncollateralized $8,000,000 revolving line of credit from CIBC Bank USA (“CIBC”) of which $5,000,000 is available to be drawn down as of June 18, 2020, should additional liquidity be necessary.

 

As of March 31, 2020, we had cash, cash equivalents, and restricted cash of $21,487,000 which included $11,550,000 of restricted cash held by our Hotel senior lender Wells Fargo Bank, N.A. (“Lender”). Of the total restricted cash held by the Lender, $7,977,000 was for furniture, fixtures and equipment (“FF&E”) reserves and $2,432,000 was for a possible future property improvement plan (“PIP”) request by our franchisor, Hilton. However, Hilton has confirmed that it will not require a PIP for our Hotel until relicensing which shall occur at the earlier of (i) January 2030, which is six years after the maturity date of our current senior and mezzanine loans, or (ii) upon the sale of our Hotel. Therefore, Justice is currently in discussions with the Lender to release the PIP deposits to the Hotel and to allow the Hotel to utilize some or all of its FF&E reserves to fund operating expenses as well as debt service. Additionally, Justice has requested to temporarily pay interest only on the senior mortgage and the suspension of the monthly FF&E reserve installment, for a combined monthly savings in cash flow of approximately $321,000. Justice anticipates a resolution with the Lender in regard to the aforementioned requests before June 30, 2020.

 

On April 9, 2020, Justice entered into a loan agreement (“SBA Loan - Justice”) with CIBC Bank USA under the recently enacted CARES Act administered by the U.S. Small Business Administration. The Partnership received proceeds of $4,719,000 from the SBA Loan - Justice. The SBA Loan - Justice is scheduled to mature on April 9, 2022 and has a 1.00% interest rate. 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. The SBA Loan – InterGroup is scheduled to mature on April 27, 2022 and has a 1.00% interest rate. Both the SBA Loan – Justice and SBA Loan – InterGroup (collectively the “SBA Loans”), may be forgiven if the funds are used for payroll and other qualified expenses. The SBA Loans are subject to the terms and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. New guidance on the criteria for forgiveness continues to be released.  In accordance with the requirements of the CARES Act, Justice and InterGroup will use proceeds from the SBA Loans primarily for payroll costs.

 

We cannot presently estimate the full financial impact of the unprecedented COVID-19 pandemic on our business or predict the related federal, state and local civil authority actions, which are highly dependent on the severity and duration of the pandemic, but we expect that the COVID-19 closures and other imposed restrictions will continue to have a significant adverse impact on our results of operations. Due to the uncertainties associated with the COVID-19 pandemic and the indeterminate length of time it will affect the hospitality industry, we have taken proactive measures to secure our liquidity position to be able to meet our obligations for the foreseeable future, 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.

 

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

 

 -11- 
   

 

Our long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital improvements of the Hotel and our real estate properties. We will continue to finance our business activities primarily with existing cash, including from the activities described above, and cash generated from our operations. After considering our approach to liquidity and accessing our available sources of cash, we believe that our cash position, after giving effect to the 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 date 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 the availability of liquidity, while minimizing operational costs. We believe that our cash on hand, cash provided by the SBA loans and real estate refinancing, 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 next twelve months and beyond. However, there can be no guarantee that management will be successful with its plan.

 

The following table provides a summary as of March 31, 2020, the Company’s material financial obligations which also including interest payments.

 

       3 Months   Year   Year   Year   Year     
   Total   2020   2021   2022   2023   2024   Thereafter 
Mortgage and subordinated notes payable  $170,306,000   $766,000   $12,483,000   $3,095,000   $37,816,000   $107,655,000   $8,491,000 
Other notes payable   8,989,000    252,000    4,001,000    1,033,000    750,000    567,000    2,386,000 
Interest   31,722,000    2,646,000    8,596,000    8,149,000    7,013,000    3,403,000    1,915,000 
Total  $211,017,000   $3,664,000   $25,080,000   $12,277,000   $45,579,000   $111,625,000   $12,792,000 

 

Recently Issued and Adopted Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements. ASU 2018-11 provides entities another option for transition, allowing entities to not apply the new standard in the comparative periods they present in their financial statements in the year of adoption. Effective July 1, 2019, we adopted ASU 2016-02 using the modified retrospective approach provided by ASU 2018-11. We elected certain practical expedients permitted under the transition guidance, including the election to carryforward historical lease classification. We also elected the short-term lease practical expedient, which allowed us to not recognize leases with a term of less than twelve months on our consolidated balance sheets. In addition, we elected the lease and non-lease components practical expedient, which allowed us to calculate the present value of the fixed payments without performing an allocation of lease and non-lease components. We did not record any operating lease right-of-use (“ROU”) assets and operating lease liabilities upon adoption of the new standard as the aggregate value of the ROU assets and operating lease liabilities are immaterial relative to our total assets and liabilities as of June 30, 2019. The standard did not have an impact on our other finance leases, statements of operations or cash flows. See Note 3 and Note 10 for balances of finance lease ROU assets and liabilities, respectively.

 

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 timelier recognition of losses. ASU No. 2016-13 will be effective for us as of January 1, 2023. The Company is currently reviewing the effect of ASU No. 2016-13.

 

NOTE 2 – 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 earned. The following table present our Hotel revenue disaggregated by revenue streams.

 

For the three months ended March 31,  2020   2019 
Hotel revenues:          
Hotel rooms  $9,642,000   $13,521,000 
Food and beverage   874,000    1,218,000 
Garage   650,000    652,000 
Other operating departments   93,000    78,000 
Total hotel revenue  $11,259,000   $15,469,000 

 

 -12- 
   

 

For the nine months ended March 31,  2020   2019 
Hotel revenues:          
Hotel rooms  $35,453,000   $38,608,000 
Food and beverage   3,521,000    4,232,000 
Garage   2,162,000    2,160,000 
Other operating departments   453,000    276,000 
Total hotel revenue  $41,589,000   $45,276,000 

 

Performance 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 goods and services are provided. For package reservations, the transaction price is allocated to the performance obligations within the package based on the estimated standalone selling prices of each component.

 

We do not disclose the value of unsatisfied performance obligations for contracts with an expected length of one year or less. Due to the nature of our business, our revenue is not significantly impacted by refunds. Cash payments 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, 2020 and June 30, 2019 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.

 

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 decreased to $404,000 as of March 31, 2020, from $1,215,000 as of June 30, 2019. The decrease for the nine months ended March 31, 2020 was primarily driven by $811,000 revenue recognized that was included in the advanced deposits balance as of June 30, 2019.

 

 -13- 
   

 

Contract costs

 

We consider sales commissions earned to be incremental costs of obtaining a contract with our customers. As a practical expedient, we expense these costs as incurred as our contracts with customers and lease agreements do not extend beyond one year.

 

NOTE 3 – INVESTMENT IN HOTEL, NET

 

Investment in hotel consisted of the following as of:

 

       Accumulated   Net Book 
March 31, 2020  Cost   Depreciation   Value 
             
Land  $2,738,000   $-   $2,738,000 
Finance lease ROU assets   1,746,000    (213,000)   1,533,000 
Furniture and equipment   30,472,000    (27,358,000)   3,114,000 
Building and improvements   64,005,000    (32,118,000)   31,887,000 
Investment in Hotel, net  $98,961,000   $(59,689,000)  $39,272,000 

 

       Accumulated   Net Book 
June 30, 2019  Cost   Depreciation   Value 
             
Land  $2,738,000   $-   $2,738,000 
Finance lease ROU assets   521,000    (35,000)   486,000 
Furniture and equipment   30,585,000    (26,842,000)   3,743,000 
Building and improvements   63,879,000    (31,010,000)   32,869,000 
Investment in Hotel, net  $97,723,000   $(57,887,000)  $39,836,000 

 

NOTE 4 – 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 real property. Investment in real estate consisted of the following:

 

As of  March 31, 2020   June 30, 2019 
Land  $23,566,000   $23,566,000 
Buildings, improvements and equipment   69,216,000    68,369,000 
Accumulated depreciation   (43,489,000)   (41,629,000)
    49,293,000    50,306,000 
Land held for development   1,468,000    1,467,000 
Investment in real estate, net  $50,761,000   $51,773,000 

 

NOTE 5 – 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-based companies and REITs, where financial benefit could transfer to its shareholders through income and/or capital gain.

 

 -14- 
   

 

At March 31, 2020 and June 30, 2019, all of the Company’s marketable securities are classified as trading securities. The change in the unrealized gains and losses on these investments are included in earnings. Trading securities are summarized as follows:

 

       Gross   Gross   Net   Fair 
Investment  Cost   Unrealized Gain   Unrealized Loss   Unrealized Loss   Value 
                     
As of March 31, 2020                         
Corporate Equities  $8,675,000  $562,000   $(6,384,000)  $(5,822,000)  $2,853,000 
                          
As of June 30, 2019                         
Corporate Equities  $19,204,000   $1,753,000   $(11,261,000)  $(9,508,000)  $9,696,000 

 

As of March 31, 2020, and June 30, 2019, approximately 10% and 7%, respectively, of the investment in marketable securities balance above is comprised of the common stock of Comstock Mining Inc (“Comstock”). As of March 31, 2020, and June 30, 2019, the Company had $6,095,000 and $11,088,000, respectively, of unrealized losses related to securities held for over one year; of which $5,823,000 and $10,900,000 are related to its investment in Comstock, respectively. For the nine months ended March 31, 2020, the decrease in unrealized losses is a result of reclassing $5,473,000 of net unrealized gain related to Comstock that was included in the cost basis as of June 30, 2019.

 

Net gains (losses) on marketable securities on the statement of operations is comprised of realized and unrealized gains (losses). Below is the composition of net loss on marketable securities for the three and nine months ended March 31, 2020 and 2019, respectively:

 

 

For the three months ended March 31,  2020   2019 
Realized loss on marketable securities, net  $(1,113,000)  $(169,000)
Unrealized (loss) gain on marketable securities, net   (1,254,000)   850,000 
Unrealized (loss) gain on marketable securities related to Comstock   (26,000)   280,000 
Net loss on marketable securities  $(2,393,000)  $961,000 

 

For the nine months ended March 31,  2019   2018 
Realized (loss) gain on marketable securities, net  $(1,190,000)  $353,000 
Unrealized loss on marketable securities, net   (1,375,000)   (1,352,000)
Unrealized loss on marketable securities related to Comstock   (396,000)   (182,000)
Net loss on marketable securities  $(2,961,000)  $(1,181,000)

 

NOTE 6 – OTHER INVESTMENTS, NET

 

The Company may also invest, with the approval of the securities investment committee and other Company guidelines, in private investment equity funds and other unlisted securities, 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.

 

Other investments, net consist of the following:

 

Type  March 31, 2020   June 30, 2019 
Private equity hedge fund, at cost  $273,000   $376,000 
Other preferred stock, at cost   121,000    236,000 
   $394,000   $612,000 

 

 -15- 
   

 

NOTE 7 - FAIR VALUE MEASUREMENTS

 

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

 

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

 

As of  3/31/2020   6/30/2019 
Assets:  Total - Level 1   Total - Level 1 
Investment in marketable securities:          
REITs and real estate companies  $1,671,000   $3,069,000 
Basic material   427,000    829,000 
Corporate bonds   360,000    1,420,000 
Consumer cyclical   105,000    1,448,000 
Energy   101,000    950,000 
Financial services   86,000    951,000 
Technology   43,000    651,000 
Healthcare   39,000    185,000 
Industrials   21,000    193,000 
   $2,853,000   $9,696,000 

 

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. The following table shows the fair value hierarchy for these assets measured at fair value on a non-recurring basis as follows:

 

           Net loss for the nine months 
Assets  Level 3   March 31, 2020   ended March 31, 2020 
             
Other non-marketable investments  $394,000   $394,000   $(103,000)

 

              Net loss for the nine months 
Assets   Level 3    June 30, 2019    ended March 31, 2019 
                
Other non-marketable investments  $612,000   $612,000   $(98,000)

 

For the nine months ended March 31, 2020 and 2019, we received distribution from other non-marketable investments of $115,000 and $103,000, 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 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.

 

 -16- 
   

 

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.

 

As of  3/31/2020   6/30/2019 
         
Cash and cash equivalents  $7,994,000   $11,837,000 
Restricted cash   13,493,000    13,295,000 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statement of cash flows  $21,487,000   $25,132,000 

 

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

 

NOTE 9 – STOCK BASED COMPENSATION PLANS

 

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’s Form 10-K for the year ended June 30, 2019 for more detailed information on the Company’s stock-based compensation plans.

 

During the three months ended March 31, 2020 and 2019, the Company recorded stock option compensation cost of $121,000 and $9,000, respectively, related to stock options that were previously issued. During the nine months ended March 31, 2020 and 2019, the Company recorded stock option compensation cost of $138,000 and $68,000, respectively, related to stock options that were previously issued.

 

As of March 31, 2020, there was a total of $23,000 of unamortized compensation related to stock options which is expected to be recognized over the weighted-average period of 1.92 years.

 

In December 2018, the Company’s President and Chief Executive Officer, John V. Winfield exercised 26,805 vested Incentive Stock Options by surrendering 17,439 shares of the Company’s common stock at fair value as payment of the exercise price, resulting in a net issuance to him of 9,366 shares. No additional compensation expense was recorded related to the issuance.

 

On February 25, 2020, shareholders of the Company voted in favor of amendments to the Company’s 2010 Omnibus Employee Incentive Plan (the “2010 Incentive Plan”) which would amend Section 1.3 of the 2010 Incentive Plan to extend the term from ten (10) years to sixteen (16) years, and Section 6.4 of the 2010 Incentive Plan to change “tenth (10th) anniversary date” to “twentieth (20th) anniversary date”. This would increase the term of the 2010 Incentive Plan to 20 years (expiring in February 2030 instead of February 2020) and also permit the existence of options with a term longer than ten years. The purpose of the amendment to the term is to extend its existence as our only equity incentive plan. The purpose of amendment of the allowable term of options is so that the Board may extend the term of the 100,000 options granted to John Winfield on March 16, 2010 from ten years to sixteen years so that these options will terminate on March 16, 2026 instead of on March 16, 2020, in recognition of Mr. Winfield’s contributions to and leadership of our Company. Upon approval of these amendments by the shareholders, our Board of Directors extended the term of Mr. Winfield’s options as described in this paragraph. As a result of extending Mr. Winfield’s options, the Company recorded stock option compensation cost of $116,000 in March, 2020.

 

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.

 

 -17- 
   

 

The following table summarizes the stock options activity from July 1, 2018 through March 31, 2020:

 

      Number of   Weighted Average   Weighted Average   Aggregate 
      Shares   Exercise Price   Remaining Life   Intrinsic Value 
                    
Outstanding at  July 1, 2018   368,000   $17.21    4.17   $3,505,000 
Granted      -    -           
Exercised      (26,805)   20.52           
Forfeited      -    -           
Exchanged      -    -           
Outstanding at  June 30, 2019   341,195   $16.95    3.07 years   $4,680,000 
Exercisable at  June 30, 2019   330,395   $16.62    2.92 years   $4,643,000 
Vested and Expected to vest at  June 30, 2019   341,195   $16.95    3.07 years   $4,680,000 
                        
Outstanding at  July 1, 2019   341,195   $16.95    3.07 years   $4,680,000 
Granted      -    -           
Exercised      -    -           
Forfeited      -    -           
Exchanged      -    -           
Outstanding at  March 31, 2020   341,195   $16.95    4.08 years   $4,110,000 
Exercisable at  March 31, 2020   333,995   $16.73    4.02 years   $4,098,000 
Vested and Expected to vest at  March 31, 2020   341,195   $16.95    4.08 years   $4,110,000 

 

NOTE 10 – SEGMENT INFORMATION

 

The Company operates in three reportable segments, the operation of the hotel (“Hotel Operations”), the operation of its multi-family residential properties (“Real Estate Operations”) and the investment of its cash in marketable securities and other investments (“Investment Transactions”). These three operating segments, as presented in the financial statements, reflect how management internally reviews each segment’s performance. Management also makes operational and strategic decisions based on this information.

 

Information below represents reported segments for the three and nine months ended March 31, 2020 and 2019. Operating income (loss) from hotel operations consists of the operation of the hotel and the garage. Operating income from real estate operations consists of the operation of rental properties. Operating loss from investment transactions consists of net investment 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) benefit for the entire Company.

 

 -18- 
   

 

As of and for the three months  Hotel   Real Estate   Investment         
ended March 31, 2020  Operations   Operations   Transactions   Corporate   Total 
Revenues  $11,259,000   $3,757,000   $-   $-   $15,016,000 
Segment operating expenses   (10,060,000)   (2,071,000)   -    (890,000)   (13,021,000)
Segment income (loss) from operations   1,199,000    1,686,000    -    (890,000)   1,995,000 
Interest expense - mortgage and related party   (1,663,000)   (588,000)   -    -    (2,251,000)
Depreciation and amortization expense   (597,000)   (619,000)   -    -    (1,216,000)
Loss from investments   -    -    (2,647,000)   -    (2,647,000)
Income tax benefit   -    -    -    1,060,000    1,060,000 
Net income (loss)  $(1,061,000)  $479,000   $(2,647,000)  $170,000   $(3,059,000)
Total assets  $57,709,000   $50,761,000   $3,247,000   $7,335,000   $119,052,000 

 

For the three months  Hotel   Real Estate   Investment         
ended March 31, 2019  Operations   Operations   Transactions   Corporate   Total 
Revenues  $15,469,000   $3,744,000   $-   $-   $19,213,000 
Segment operating expenses   (11,378,000)   (2,051,000)   -    (667,000)   (14,096,000)
Segment income (loss) from operations   4,091,000    1,693,000    -    (667,000)   5,117,000 
Interest expense - mortgage and related party   (1,812,000)   (598,000)   -    -    (2,410,000)
Loss on disposal of assets   (398,000)   -    -    -    (398,000)
Depreciation and amortization expense   (611,000)   (607,000)   -    -    (1,218,000)
Gain from investments   -    -    745,000    -    745,000 
Income tax expense   -    -    -    (501,000)   (501,000)
Net income (loss)  $1,270,000   $488,000   $745,000   $(1,168,000)  $1,335,000 

 

As of and for the nine months  Hotel   Real Estate   Investment         
ended March 31, 2020  Operations   Operations   Transactions   Corporate   Total 
Revenues  $41,589,000   $11,313,000   $-   $-   $52,902,000 
Segment operating expenses   (33,138,000)   (6,110,000)   -    (2,231,000)   (41,479,000)
Segment income (loss) from operations   8,451,000    5,203,000    -    (2,231,000)   11,423,000 
Interest expense - mortgage and related party   (5,190,000)   (1,788,000)   -    -    (6,978,000)
Depreciation and amortization expense   (1,801,000)   (1,860,000)   -    -    (3,661,000)
Loss from investments   -    -    (3,508,000)   -    (3,508,000)
Income tax benefit   -    -    -    689,000    689,000 
Net income (loss)  $1,460,000   $1,555,000   $(3,508,000)  $(1,542,000)  $(2,035,000)
Total assets  $57,709,000   $50,761,000   $3,247,000   $7,335,000   $119,052,000 

 

For the nine months  Hotel   Real Estate   Investment         
ended March 31, 2019  Operations   Operations   Transactions   Corporate   Total 
Revenues  $45,276,000   $11,175,000   $-   $-   $56,451,000 
Segment operating expenses   (33,424,000)   (5,929,000)   -    (1,789,000)   (41,142,000)
Segment income (loss) from operations   11,852,000    5,246,000    -    (1,789,000)   15,309,000 
Interest expense - mortgage and related party   (5,423,000)   (1,957,000)   -    -    (7,380,000)
Loss on disposal of assets   (398,000)   -    -    -    (398,000)
Depreciation and amortization expense   (1,896,000)   (1,814,000)   -    -    (3,710,000)
Loss from investments   -    -    (1,709,000)   -    (1,709,000)
Income tax expense   -    -    -    (771,000)   (771,000)
Net income (loss)  $4,135,000   $1,475,000   $(1,709,000)  $(2,560,000)  $1,341,000 

 

NOTE 11 – RELATED PARTY AND OTHER FINANCING TRANSACTIONS

 

The following summarizes the balances of related party and other notes payable as of March 31, 2020 and June 30, 2019, respectively.

 

As of  3/31/2020