<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from ______ to ______
Commission file number 0-2266
THE INTERGROUP CORPORATION
- -------------------------------------------------------
(Name of small business issuer as specified in its charter)
DELAWARE
- -------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
13-3293645
- -------------------------------------------
(I.R.S. Employer Identification No.)
2121 Avenue of the Stars, Suite 2020
Los Angeles, California 90067
- -------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (310) 556-1999
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO __
The number of shares outstanding of the issuer's Common Stock, $.01 par value,
as of October 31, 1995 was 817,849 shares.
Transitional Small Business Disclosure Format (check one): YES __ NO X
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THE INTERGROUP CORPORATION
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet
September 30, 1995
Consolidated Statements of Operations
Three Months Ended September 30, 1995 and 1994
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
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THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, 1995
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ASSETS
Investment in real estate, at cost:
Land $4,585,808
Buildings, improvements and equipment 30,038,269
Property held for sale or development 1,517,145
-------------
36,141,222
Less: accumulated depreciation (10,957,531)
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25,183,691
Marketable equity securities, at market value 17,048,705
Other investments 4,627,260
Cash and cash equivalents 201,823
Restricted cash 1,589,442
Rent and other receivables 377,510
Prepaid expenses 1,152,832
Other assets 176,236
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Total Assets $50,357,499
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $30,422,669
Due to securities broker 8,528,989
Accounts payable and other liabilities 2,123,221
Deferred income taxes 2,331,435
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Total Liabilities 43,406,314
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Commitments and Contingencies
Shareholders' Equity:
Preferred stock, $.10 par - 100,000 shares authorized;
none issued
Common stock, $.01 par - 1,500,000 shares authorized;
1,478,324 shares issued; 817,849 shares outstanding 14,783
Paid-in capital 11,847,119
Accumulated deficit (540,489)
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11,321,413
Add (Less):
Unrealized gain on marketable securities, net of deferred taxes 4,287,964
Treasury stock, at cost, 660,475 shares (7,840,373)
Note receivable - stock options (817,819)
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Total Shareholders' Equity 6,951,185
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Total Liabilities and Shareholders' Equity $50,357,499
=============
The accompanying notes are an integral part of the consolidated
financial statements.
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THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended September 30, 1995 1994
--------------------------
Real estate operations:
Rental income $2,777,795 $2,660,114
Rental expenses:
Mortgage interest expense 705,813 635,469
Property operating expenses 1,352,130 1,404,246
Real estate taxes 205,564 187,058
Depreciation 386,355 434,516
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Income (Loss) from real estate operations 127,933 (1,175)
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Investment transactions:
Dividend and interest income 51,370 6,285
Net investment income (loss) 683,013 (80,651)
Margin interest and trading expenses (406,256) (128,943)
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Income (Loss) from investment transactions 328,127 (203,309)
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Other income (expense):
General and administrative expenses (300,869) (363,309)
Miscellaneous income (expense) (272,970) 12,318
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Other expense (573,839) (350,991)
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Loss before provision for income taxes (117,779) (555,475)
Provision for income tax benefit (46,639) (205,878)
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Net Loss ($71,140) ($349,597)
==========================
Net Loss per share ($0.08) ($0.40)
==========================
Weighted average number of shares outstanding 919,550 863,453
==========================
The accompanying notes are an integral part of the consolidated
financial statements.
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THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended September 30, 1995 1994
--------------------------
Cash flows from operating activities:
Net Loss ($71,140) ($349,597)
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation of real estate 386,355 434,516
Amortization of other assets 34,864 159,666
Increase in receivables, net (141,458) (68,078)
Increase in prepaid expenses (155,797) (19,425)
Increase in other assets (595) (132,574)
Increase (decrease) in accounts payable
and other liabilities 245,429 (782,926)
Increase (decrease) in income taxes 55,825 (434,745)
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Net cash provided by (used for) operating activities 353,483 (1,193,163)
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Cash flows from investing activities:
Additions to buildings, improvements and equipment (183,497) (154,722)
Investment in real estate (596,842) (4,151,560)
Reduction (investment) in marketable securities (738,690) 1,248,553
Investment in other investments (416,026) (154,969)
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Net cash used for investing activities (1,935,055) (3,212,698)
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Cash flows from financing activities:
Principal payments on mortgage notes payable (94,766) (69,304)
Proceeds from real estate financing 0 1,622,045
Increase in mortgage notes payable due
to real estate acquisition 595,000 3,000,000
Increase in restricted cash (29,634) (438,777)
Increase in due to securities broker 1,723,903 832,693
Decrease in accounts payable related to
short positions and other investments (34,186) (551,416)
Purchase of treasury stock (440,213) (60,643)
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Net cash provided by financing activities 1,720,104 4,334,598
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Net increase (decrease) in cash and cash equivalents 138,532 (71,263)
Cash and cash equivalents at beginning of period 63,291 617,314
--------------------------
Cash and cash equivalents at end of period $201,823 $546,051
==========================
The accompanying notes are an integral part of the consolidated
financial statements.
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THE INTERGROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Three Months Ended September 30, 1995
1. General:
The interim financial information is unaudited; however, in the opinion of The
Intergroup Corporation (the "Company"), the interim financial information
contains all adjustments, including normal recurring adjustments, necessary
to present fairly the results for the interim period. These consolidated
financial statements should be read in conjunction with the Company's June 30,
1995 audited consolidated financial statements and notes thereto.
2. Marketable Equity Securities:
Marketable securities are recorded in accordance with Statement of Financial
Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments
in Debt and Equity Securities." All securities are equity securities
classified as available-for-sale except short positions, which represent
obligations of the Company and are classified as trading activity. At
September 30, 1995, the aggregate market value of marketable equity securities
exceeded the aggregate cost by $7,038,149. The net unrealized gain is
comprised of gross unrealized gains of $8,337,690 reduced by gross unrealized
losses of $1,299,541. The net unrealized gain, net of deferred taxes of
$2,750,185, is included as a separate item in shareholders' equity. During
the three months ended September 30, 1995, proceeds from sales of securities
were $10,688,532 and gross realized gains and losses, determined using FIFO
costs, were $854,854 and $171,841, respectively. Any unrealized gains or
losses relating to short positions are recognized in earnings in the current
period. There were no naked short positions at September 30, 1995.
3. Commitments and Contingencies:
The Company subscribed to purchase shares of The Renaissance Fund and has made
investments of $665,279. The balance of the subscription price of $334,721
may be called from time to time by the Fund Manager at any time through April
14, 2001.
The Company subscribed to purchase shares of Orckit Communications Ltd. and has
made investments of $250,000. The Company has agreed to purchase additional
shares for $750,000 payable on or before June 30, 1996.
The Company, together with, in some instances, certain of its officers, is a
defendant or co-defendant in various legal actions involving breach of
contract and various other claims incident to the conduct of its businesses.
Management does not expect the Company to suffer any material liability by
reason of such actions.
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4. Income Taxes:
The components of the deferred tax liability as of September 30, 1995
are as follows:
Marketable securities basis differences $2,548,471
Depreciation and fixed asset basis differences 630,077
Minority interests 193,608
Valuation allowance 145,977
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Total deferred tax credits 3,518,133
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NOL and AMT credit carryovers (931,311)
State income taxes (216,634)
Miscellaneous (38,753)
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Total deferred tax debits (1,186,698)
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Net deferred taxes $2,331,435
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There was no change in the valuation allowance during the period. The
provision for income taxes is comprised of the following:
Current tax benefit ($3,566,592)
Change in deferred taxes 3,519,953
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Total income tax benefit ($46,639)
=============
Income tax expense differs from the amount computed by multiplying the
statutory federal income tax rate times income (loss) before taxes as follows:
Federal statutory tax benefit ($40,045)
State income taxes, net of federal benefit (5,978)
Other (616)
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Total income tax benefit ($46,639)
=============
5. Related Party Transactions:
In March 1986, the Company's president exercised an option to purchase
125,000 shares of common stock in exchange for cash and a note due in March
1996. At September 30, 1995, the balance of the note receivable, net of
unamortized discount and accrued interest receivable, was $817,819. The note
receivable is reflected as a reduction of shareholders' equity. The Company's
president is the trustee of the Employee Stock Ownership Plan. In his role as
trustee, the president has the power to vote the shares of stock allocated to
participants' accounts when directions are not provided to the trustee on a
timely basis.
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THE INTERGROUP CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the Three Months Ended September 30, 1995 vs. 1994
Income (Loss) from real estate operations for the three months ended September
30, 1995 as compared to the three months ended September 30, 1994, was
impacted principally by the purchase of a 224-unit property in Irving, Texas
in September 1994, and the transfer by the Company of its Indio, California
properties to the mortgage lender which eliminated the continuing negative
cash flow of the Indio properties. Effective April 1, 1995, the Company
entered into a property management agreement with an unaffiliated management
company. Due to the geographic diversity of the Company's real estate
portfolio, management believes that the Company will realize substantial
benefits from economies of scale and added on-site management attention
brought by a large national property management company. Evidence of such
improvement has already occurred.
Rental income from real estate operations increased by 4% to $2,777,795 from
$2,660,114. The increase was primarily due to (i) the acquisition of the new
Texas property and (ii) an increase in average market rental rates which more
than offset the loss of rental income from the Indio properties and a decrease
in tenant occupancy at two of the San Antonio properties and one of the St.
Louis properties.
Mortgage interest expense increased 11% to $705,813 from $635,469
primarily due to the mortgage interest expense associated with the new Texas
property and an increased loan balance resulting from refinancing the
Harrisburg property in August 1994.
Property operating expenses decreased 4% to $1,352,130 from $1,404,246
primarily due to cessation of expenses related to the Indio properties,
lower repairs and the closing of the Company's property management division,
offset by expenditures associated with the new Texas property, additional
on-site personnel and higher utilities.
Real estate taxes increased 10% to $205,564 from $187,058 primarily due to
real estate taxes on the new Texas property and a refund of taxes on the
Harrisburg property received in the quarter ended September 30, 1994.
Depreciation decreased 11% to $386,355 from $434,516 due to the cessation
of depreciation on the Indio properties, offset by depreciation of the new
Texas property and improvements to the other properties.
Net investment income (loss) increased to $683,013 from ($80,651) due to
sales of securities which generated higher net investment gains. Realized
investment gains and losses may fluctuate significantly from period to period,
with a meaningful effect upon the Company's net earnings. However, the amount
of realized investment gain or loss for any given period has no predictive
value, and variations in amount from period to period have no practical
analytical value, particularly in view of the net unrealized gain in the
Company's overall investment portfolio.
<PAGE>
Margin interest and trading expenses increased 215% to $406,256 from $128,943
primarily due to higher margin loan balances and additional personnel and
related expenses. During the three months ended September 30, 1995, the
market value of the marketable equity securities portfolio increased
approximately 16% to $17,048,705 from $14,751,444 and net unrealized gains
increased 28% to $7,038,149 from $5,479,578. As of September 30, 1995, the
Company had no naked short positions. The overall investment portfolio, which
includes marketable securities and other investments, had a positive return of
20.3% for the quarter ended September 30, 1995, based on the net realized and
unrealized gains and losses over the monthly average investment balance of the
investment portfolio. For the five years ended September 30, 1995, the
overall investment portfolio achieved a positive average annual compounded
return of 24.9%.
General and administrative expenses decreased 17% to $300,869 from $363,309
primarily due to lower aggregate salary expense and office expenses.
Miscellaneous income (expense) changed to ($272,970) from $12,318 due to
an increase in legal expenses which increased the loss of certain equity
method investments.
Income tax benefits of $46,639 and $205,878 were provided for the quarters
ended September 30, 1995 and 1994, respectively. The decrease in benefit
results from the decreased loss before provision for income taxes. The tax
rate for fiscal 1994 was lower due to a high dividends received deduction in
relation to net pre-tax loss.
In July 1995, the Company purchased a small parcel of land for $596,842. The
parcel is adjacent to the Company's undeveloped land in St. Louis, Missouri and
provides additional access to the larger parcel.
During the three months ended September 30, 1995, the Company capitalized
$183,497 of improvements to certain of its rental properties. Management
believes those improvements should maintain the competitiveness of these
properties and potentially enable the Company to obtain higher rents, thus
enhancing the market values of these properties.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash flows are generated principally from its real estate
operations, sales of investment securities and borrowings related to both. The
Company generated net cash flow of $353,483 from operating activities, used
net cash flow of $1,935,055 for investing activities and generated net cash
flow of $1,720,104 from financing activities during the three months ended
September 30, 1995.
The Company's mortgages on real estate amounted to $30,422,669 as of September
30, 1995. During the three months ended September 30, 1995, the Company
borrowed $595,000 to purchase additional land in St. Louis. Management will
pursue its refinancing activities as considered necessary or when deemed
favorable to the Company.
The Company intends to rezone and sell all or a portion of its unimproved
land. Should the Company consummate a sale, all or a portion of the proceeds
may be utilized to provide additional funds to take advantage of other
investment opportunities.
<PAGE>
The Company subscribed to purchase shares of The Renaissance Fund and has made
investments of $665,279. The balance of the subscription price of $334,721
may be called from time to time by the Fund Manager at any time through April
14, 2001.
The Company subscribed to purchase shares of Orckit Communications Ltd. and has
made investments of $250,000. The Company has agreed to purchase additional
shares for $750,000 payable on or before June 30, 1996.
For fiscal 1996, management anticipates that its net cash flow from real
estate operations, securities transactions and real estate financing
activities will be sufficient to fund the Company's anticipated acquisitions,
property improvements, debt service requirements and operating expenses.
Management also anticipates that the net cash flow generated from future
operating activities will be sufficient to meet its long-term debt service
requirements.
PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1995.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
THE INTERGROUP CORPORATION
(Registrant)
Date: November 10, 1995
By /s/ John V. Winfield
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John V. Winfield, Chairman;
President and Chief Executive Officer
Date: November 10, 1995
By /s/ Howard A. Jaffe
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Howard A. Jaffe
Chief Operating Officer and Secretary
Date: November 10, 1995
By /s/ Gregory C. McPherson
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Gregory C. McPherson
Executive Vice President, Assistant Treasurer
and Assistant Secretary
Date: November 10, 1995
By /s/ Keith R. Schrupp
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Keith R. Schrupp
Vice President of Finance
Date: November 10, 1995
By /s/ David C. Gonzalez
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David C. Gonzalez
Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 201,823
<SECURITIES> 17,048,705
<RECEIVABLES> 377,510
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,173,808
<PP&E> 36,141,222
<DEPRECIATION> 10,957,531
<TOTAL-ASSETS> 50,357,499
<CURRENT-LIABILITIES> 12,983,645
<BONDS> 30,422,669
<COMMON> 14,783
0
0
<OTHER-SE> 6,936,402
<TOTAL-LIABILITY-AND-EQUITY> 50,357,499
<SALES> 0
<TOTAL-REVENUES> 3,512,178
<CGS> 0
<TOTAL-COSTS> 2,350,305
<OTHER-EXPENSES> 573,839
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 705,813
<INCOME-PRETAX> (117,779)
<INCOME-TAX> (46,639)
<INCOME-CONTINUING> (71,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,140)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
