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 March 31, 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
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(Name of small business issuer in its charter)
DELAWARE
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(State or other jurisdiction of incorporation or organization)
13-3293645
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(I.R.S. Employer Identification)
2121 Avenue of the Stars, Suite 2020
Los Angeles, California 90067
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(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 April 30, 1995 was 801,700 shares.
Transitional Small Business Disclosure Format (check one): YES __ NO X
<PAGE>
THE INTERGROUP CORPORATION
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheet
March 31, 1995
Consolidated Statement of Operations
Nine Months Ended March 31, 1995 and 1994
Consolidated Statement of Cash Flows
Nine Months Ended March 31, 1995 and 1994
Consolidated Statement of Operations
Three Months Ended March 31, 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
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 1995
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ASSETS
Investment in real estate, at cost:
Land $4,585,808
Buildings, improvements and equipment 29,743,658
Property held for sale or development 606,136
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34,935,602
Less: accumulated depreciation (10,193,228)
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24,742,374
Marketable equity securities, at market value 11,868,796
Other investments 3,289,084
Cash and cash equivalents 111,972
Restricted cash 1,328,243
Rent and other receivables 165,934
Prepaid expenses 1,142,993
Other assets 948,816
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Total Assets $43,598,212
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LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $29,765,896
Due to securities broker 5,239,805
Accounts payable and other liabilities 1,606,820
Deferred income taxes 1,547,646
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Total Liabilities 38,160,167
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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;
1,453,324 shares issued; 801,700 shares outstanding 14,533
Paid-in capital 10,847,369
Accumulated deficit (136,453)
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10,725,449
Add (Less):
Unrealized gain on marketable securities, net of deferred taxes 2,882,487
Treasury stock, at cost, 651,624 shares (7,400,160)
Note receivable and unearned compensation (769,731)
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Total Shareholders' Equity 5,438,045
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Total Liabilities and Shareholders' Equity $43,598,212
=============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Nine Months Ended March 31, 1995 1994
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Real estate operations:
Rental income $8,211,777 $7,387,875
Rental expenses:
Mortgage interest expense 2,138,630 1,870,838
Property operating expenses 4,053,169 3,622,565
Real estate taxes 614,566 587,530
Depreciation 1,291,586 1,313,649
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Income (Loss) from real estate operations 113,826 (6,707)
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Securities transactions:
Dividend and interest income 119,597 115,012
Net investment income 1,151,077 1,984,138
Margin interest and trading expenses (550,639) (372,675)
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Income from securities transactions 720,035 1,726,475
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Other income (expense):
General and administrative expenses (1,121,699) (891,753)
Miscellaneous expense (97,824) (132,037)
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Other expense (1,219,523) (1,023,790)
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Income (Loss) before provision for income taxes and
cumulative effect of change in accounting principle
and extraordinary item (385,662) 695,978
Provision for income taxes (benefit) (179,371) 267,058
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Income (Loss) before cumulative effect of change in
accounting principle and extraordinary item (206,291) 428,920
Cumulative effect of change in accounting principle 0 760,000
Extraordinary item - Extinguishment of debt 1,030,436 0
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Net Income $824,145 $1,188,920
============ =============
Net Income (Loss) per share:
Income (Loss) before cumulative effect of change in
accounting principle and extraordinary item ($0.23) $0.50
Cumulative effect of change in accounting principle 0.00 0.89
Extraordinary item - Extinguishment of debt 1.17 0.00
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Net Income per share $0.94 $1.39
============ =============
Weighted average number of shares outstanding 878,256 855,877
============ =============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Nine Months Ended March 31, 1995 1994
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Cash flows from operating activities:
Net Income $824,145 $1,188,920
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Extraordinary item - Extinguishment of debt (1,030,436) 0
Depreciation of real estate 1,291,586 1,313,649
Amortization of other assets 1,058,898 59,308
Decrease in receivables, net 323,416 376,821
Increase in prepaid expenses (374,394) (440,175)
Decrease in accounts payable
and other liabilities (3,019,895) (289,116)
Decrease in income taxes (299,871) (779,966)
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Net cash provided by (used for) operating activities (1,226,551) 1,429,441
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Cash flows from investing activities:
Additions to buildings, improvements and equipment (931,865) (663,320)
Investment in real estate (4,212,485) 0
Reduction in marketable securities 373,210 202,173
Addition to other investments (2,939,084) 0
Reduction (investment) in other assets, net 996,249 (1,786,705)
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Net cash used for investing activities (6,713,975) (2,247,852)
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Cash flows from financing activities:
Principal payments on mortgage notes payable (242,828) (538,559)
Proceeds from real estate financing 1,622,045 1,844,334
Increase in mortgage notes payable due
to real estate acquisition 3,000,000 0
(Increase) decrease in restricted cash 537,423 (5,296)
Increase in due to securities broker 2,579,187 175,159
Purchase of treasury stock (60,643) (5,398)
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Net cash provided by financing activities 7,435,184 1,470,240
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Net increase (decrease) in cash and cash equivalents (505,342) 651,829
Cash and cash equivalents at beginning of period 617,314 647,636
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Cash and cash equivalents at end of period $111,972 $1,299,465
============ =============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the Three Months Ended March 31, 1995 1994
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Real estate operations:
Rental income $2,807,668 $2,490,038
Rental expenses:
Mortgage interest expense 778,247 588,740
Property operating expenses 1,357,052 1,230,067
Real estate taxes 187,429 189,648
Depreciation 386,977 446,725
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Income from real estate operations 97,963 34,858
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Securities transactions:
Dividend and interest income 87,723 38,306
Net investment income 30,652 623,592
Margin interest and trading expenses (238,895) (150,979)
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Income (Loss) from securities transactions (120,520) 510,919
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Other income (expense):
General and administrative expenses (288,804) (317,551)
Miscellaneous income (expense) (96,278) 46,079
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Other expense (385,082) (271,472)
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Income (Loss) before provision for income taxes
and extraordinary item (407,639) 274,305
Provision for income taxes (benefit) (245,059) 105,508
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Income (Loss) before extraordinary item (162,580) 168,797
Extraordinary item - Extinguishment of Debt 1,030,436 0
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Net Income $867,856 $168,797
============ =============
Net Income (Loss) per share:
Income (Loss) before extraordinary item ($0.19) $0.20
Extraordinary item - Extinguishment of Debt 1.18 0.00
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Net Income per share $0.99 $0.20
============ =============
Weighted average number of shares outstanding 878,256 855,587
============ =============
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
THE INTERGROUP CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the Nine Months Ended March 31, 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, 1994 audited consolidated financial
statements and notes thereto.
2. Marketable Equity Securities:
Effective July 1, 1993, the Company adopted 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 March 31, 1995, the aggregate market value of marketable equity
securities exceeded the aggregate cost by $4,731,236. The net unrealized
gain is comprised of gross unrealized gains of $6,360,083 reduced by gross
unrealized losses of $1,628,847. The net unrealized gain, net of deferred
taxes of $1,848,749, is included as a separate item in shareholders' equity.
During the nine months ended March 31, 1995, proceeds from sales of securities
were $17,145,713 and gross realized gains and losses, determined using FIFO
costs, were $4,371,243 and $1,792,231, respectively. Any unrealized gains or
losses relating to short positions are recognized in earnings in the current
period. The related liability of $937, representing the market value of the
Company's obligation to deliver the securities, is reflected in accounts
payable and other liabilities at March 31, 1995. The Company
recognized an unrealized loss of approximately $625,288 related to
short positions for the nine months ended March 31, 1995.
3. Extraordinary Item - Extinguishment of Debt:
During the quarter ended September 30, 1994, the Company offered the lender
deeds in lieu of foreclosure on its Indio, California properties due to the
properties' continued negative cash flow and management's assessment of the
area's market conditions. The lender filed suit alleging that a portion of
one of the mortgages was a recourse obligation. The matter has been settled
and the debt extinguished. As a result, the Company recorded an extraordinary
gain of $1,030,436 on the extinguishment of $10,356,404 of debt, net of taxes
of $678,794 and the properties depreciated cost of $8,647,174.
<PAGE>
4. Commitments and Contingencies:
The Company subscribed to purchase shares of a Fund and 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, 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.
5. Change in Accounting Principle - Income Taxes:
Effective July 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). Previously, the Company accounted for
income taxes in accordance with SFAS 96, "Accounting for Income
Taxes." SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The primary difference between
SFAS 109 and SFAS 96, as applied to the Company, is that SFAS 109
requires that the Company establish an asset for existing tax benefits it
expects to realize in future years. The cumulative effect of this change in
accounting for income taxes of $760,000 was reported in the consolidated
statement of operations for the three months ended September 30, 1993.
The components of the deferred tax liability as of March 31, 1995
are as follows:
Marketable securities basis differences $1,671,665
Depreciation and fixed asset basis differences 548,654
State income taxes (154,522)
Minority interests 88,434
Miscellaneous 132,973
NOL and AMT credit carryovers (885,535)
Valuation allowance 145,977
------------
Net deferred taxes $1,547,646
============
<PAGE>
There was no change in the valuation allowance during the period. The
provision for income taxes is comprised of the following:
Current tax expense $444,964
Change in deferred taxes (624,335)
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Total income tax benefit ($179,371)
============
Income tax expense differs from the amount computed by multiplying the
statutory federal income tax rate times income (loss) before taxes,
cumulative effect of accounting change and extraordinary item as follows:
Federal statutory tax ($131,125)
State income taxes, net of federal benefit (19,574)
Other (28,672)
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Total income tax benefit ($179,371)
============
6. 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 March 31, 1995, the balance of the note receivable, net of
unamortized discount and accrued interest receivable, was $769,731. The note
receivable is reflected as a reduction of shareholders' equity. At March 31,
1995, a $18,841 receivable from the president of the Company is included in
rent and other receivables. The receivable is non-interest bearing and is
due on demand. The Company's president is the trustee of the Employee Stock
Ownership Plan. In his role as trustee, the president has the power to
direct and control the voting of the Company's Common Stock held by the Plan.
<PAGE>
THE INTERGROUP CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the Nine Months Ended March 31, 1995 vs. 1994
Income (Loss) from real estate operations for the nine months ended March 31,
1995 as compared to the nine months ended March 31, 1994, was impacted
principally by the purchase of a 160-unit property in San Antonio, Texas in
June, 1994, 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 (see Note 3 to Consolidated Financial Statements).
Rental income from real estate operations increased by 11% to $8,211,777 from
$7,387,875. The increase was primarily due to the acquisition of the Texas
properties, improved tenant occupancy, an increase in average market rental
rates and lease renewals, offset by cessation of rentals on the Indio
properties.
Mortgage interest expense increased 14% to $2,138,630 from $1,870,838
primarily due to the mortgage interest expense associated with the two Texas
properties and refinancing of eight of the Company's other properties during
Fiscal 1994, offset by cessation of mortgage payments on the Indio properties.
Property operating expenses increased 12% to $4,053,169 from $3,622,565
primarily due to expenditures associated with the Texas properties, and higher
salaries, repairs, administrative and utility expenses on the Company's other
properties, offset by cessation of expenses on the Indio properties.
Real estate taxes increased 5% to $614,566 from $587,530 primarily due to
real estate taxes on the Texas properties, offset by the disposition of the
Indio properties and reductions resulting from management's continuing efforts
to reduce assessed property values.
Depreciation decreased 2% to $1,291,586 from $1,313,649 due to the cessation
of depreciation on the Indio properties, offset by depreciation of the Texas
properties and improvements to the other properties.
Net investment income decreased 42% to $1,151,077 from $1,984,138 as a result
of the write-off of a portion of its investment with Aura Systems, Inc. and
the recognition of an unrealized loss of $625,288 related to short positions
during the nine months ended March 31, 1995, offset by the sale of certain
securities which generated higher net investment gains. Margin interest
and trading expenses increased 48% to $550,639 from $372,675 primarily due
to higher margin loan balances. During the nine months ended March 31,
1995, the market value of the marketable equity securities portfolio
decreased approximately 26% to $11,868,796 from $15,991,891 and net unrealized
gains decreased 44% to $4,731,236 from $8,481,121. As of March 31, 1995, the
Company had assumed short positions in several securities and included the
related liability of $937 in accounts payable and other liabilities.
In connection with the write-off, the Company has commenced arbitration
proceedings against Aura Systems Inc. in which it seeks an accounting for
monies the Company believes are due it and damages, including punitive damages
for, among other things, breach of contract and fraudulent misrepresentation.
<PAGE>
General and administrative expenses increased 26% to $1,121,699 from $891,753
due to the addition of personnel offset by lower legal expenses.
Miscellaneous expense decreased 26% to $97,824 from $132,037 due to an
increase in income from notes receivable offset by an increase in the
entertainment division expenses and higher losses of investees.
During the nine months ended March 31, 1995, the Company spent $931,865
to improve 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.
For the Three Months Ended March 31, 1995 vs. 1994
Income from real estate operations for the three months ended March 31, 1995,
as compared to the three months ended March 31, 1994, was impacted principally
by the purchase of a 160-unit property in San Antonio, Texas in June, 1994,
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 (see Note 3 to Consolidated Financial Statements).
Rental income from real estate operations increased by 13% to $2,807,668 from
$2,490,038. The increase was primarily due to the acquisition of the Texas
properties, improved tenant occupancy, an increase in average market rental
rates and lease renewals, offset by cessation of rentals on the Indio
properties.
Mortgage interest expense increased 32% to $778,247 from $588,740 primarily
due to the mortgage interest expense associated with the two Texas properties
and refinancing of eight of the Company's other properties during Fiscal 1994,
offset by cessation of mortgage payments on the Indio properties.
Property operating expenses increased 10% to $1,357,052 from $1,230,067 due to
expenditures associated with the Texas properties, and higher salaries,
repairs, administrative and utility expenses on the Company's other
properties, offset by cessation of expenses on the Indio properties.
Real estate taxes decreased 1% to $187,429 from $189,648 primarily due to
the disposition of the Indio properties, offset by the real estate taxes on
the Texas properties.
Depreciation decreased 13% to $386,977 from $446,725 due to the cessation of
depreciation on the Indio properties and fully depreciated property, offset
by depreciation of the Texas properties and improvements to the properties.
<PAGE>
Net investment income decreased 95% to $30,652 from $623,592 as a result
of the write-off of a portion of its investment with Aura Systems, Inc. and
the recognition of an unrealized loss of $439,457 related to short positions
during the nine months ended March 31, 1995, offset by the sale of certain
securities which generated higher net investment gains. Margin interest and
trading expenses increased 58% to $238,895 from $150,979 primarily due to
higher margin loan balances. In connection with the write-off, the Company
has commenced arbitration proceedings against Aura Systems Inc. in which it
seeks an accounting for monies the Company believes are due it and damages,
including punitive damages for, among other things, breach of contract and
fraudulent misrepresentation.
General and administrative expenses decreased 9% to $288,804 from $317,551
due to lower legal expenses offset by the addition of personnel.
Miscellaneous income (expense) changed to $(96,278) from $46,079 due to
increased entertainment division expenses, higher losses of
investees offset by an increase in income from notes receivable.
During the three months ended March 31, 1995, the Company spent $154,521
to improve 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 and from sales of investment securities. The Company used net cash
flow of $1,226,551 for operating activities, used net cash flow of $6,713,975
for investing activities and generated net cash flow of $7,435,184 from
financing activities during the nine months ended March 31, 1995.
The Company's outstanding indebtedness is comprised of mortgages on real
estate which amounted to $29,765,896 as of March 31,1995. During the nine
months ended March 31,1995, the Company refinanced its Harrisburg,
Pennsylvania property for a total of $1,850,000 and assumed $3,000,000 in
mortgage debt on the acquisition of the Irving, Texas property. Management
will pursue additional refinancing activities as considered necessary or when
deemed favorable to the Company.
The Company intends to sell or develop 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 provide
the opportunity to take advantage of other investment opportunities.
<PAGE>
The Company subscribed to purchase shares of a Fund and made investments
of $665,279 during fiscal 1995. 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.
For fiscal 1995, 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 March 31, 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, thereunto duly authorized.
THE INTERGROUP CORPORATION
(Registrant)
Date: May 10, 1995
By /s/ John V. Winfield
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John V. Winfield, Chairman;
President and Chief Executive Officer
Date: May 10, 1995
By /s/ Howard A. Jaffe
- ------------------------------------------------------
Howard A. Jaffe
Chief Operating Officer and Secretary
Date: May 10, 1995
By /s/ Gregory C. McPherson
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Gregory C. McPherson
Executive Vice President, Assistant Treasurer
and Assistant Secretary
Date: May 10, 1995
By /s/ Keith R. Schrupp
- ------------------------------------------------------
Keith R. Schrupp
Vice President of Finance
Date: May 10, 1995
By /s/ David C. Gonzalez
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David C. Gonzalez
Controller
