<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 December 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
For the transition period from ______ to ______
Commission file number 1-10324
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 January 31, 1997 was 959,349 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 (unaudited)
December 31, 1996 3
Consolidated Statements of Operations (unaudited)
Six Months Ended December 31, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended December 31, 1996 and 1995 5
Consolidated Statements of Operations (unaudited)
Three Months Ended December 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION 13
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, 1996
ASSETS ------------
Investment in real estate, at cost:
Land $4,410,808
Buildings, improvements and equipment 29,993,274
Property held for sale or development 1,683,114
------------
36,087,196
Less: accumulated depreciation (12,422,819)
------------
23,664,377
Marketable securities, at market value 10,243,972
Investment in Santa Fe Financial Corporation 6,070,504
Other investments 3,752,006
Cash and cash equivalents 1,878,693
Restricted cash 1,558,914
Rent and other receivables 388,546
Prepaid expenses 1,042,388
Other assets 163,337
------------
Total Assets $48,762,737
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $31,006,705
Due to securities broker 3,590,964
Accounts payable and other liabilities 2,708,209
Deferred income taxes 1,474,521
------------
Total Liabilities 38,780,399
Commitments and Contingencies ------------
Shareholders' Equity:
Preferred stock, $.10 par - 100,000 shares authorized;
none issued
Common stock, $.01 par - 1,500,000 shares authorized;
1,494,824 shares issued; 959,349 shares outstanding 14,948
Paid-in capital 13,658,449
Retained earnings 436,219
Unrealized gain on marketable securities, net of deferred taxes 3,713,095
Note receivable - stock options (1,437,500)
Treasury stock, at cost, 535,475 shares (6,402,873)
------------
Total Shareholders' Equity 9,982,338
------------
Total Liabilities and Shareholders' Equity $48,762,737
============
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 Six Months Ended December 31, 1996 1995
------------------------
Real estate operations:
Rental income $5,559,926 $5,545,184
Rental expenses:
Mortgage interest expense 1,364,464 1,413,053
Property operating expenses 2,627,883 2,629,657
Real estate taxes 461,826 424,415
Depreciation 838,524 784,074
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267,229 293,985
Gain from sale of real estate 630,438 0
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Income from real estate operations 897,667 293,985
------------------------
Investment transactions:
Dividend and interest income 52,847 83,355
Investment gains 709,601 1,844,855
Investment losses (378,301) (580,687)
Margin interest, trading and management expenses (451,407) (890,785)
------------------------
Income (loss) from investment transactions (67,260) 456,738
------------------------
Other expenses:
General and administrative expenses (462,153) (591,031)
Miscellaneous income (expense) 72,316 (1,177,086)
------------------------
Other expenses (389,837) (1,768,117)
------------------------
Income (Loss) before provision (benefit)
for income taxes 440,570 (1,017,394)
Provision for income taxes (benefit) 81,407 (407,037)
------------------------
Net Income (Loss) $359,163 ($610,357)
========================
Net Income (Loss) per share $0.37 ($0.66)
========================
Weighted average number of shares outstanding 959,349 920,378
========================
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 Six Months Ended December 31, 1996 1995
------------------------
Cash flows from operating activities:
Net Income (Loss) $359,163 ($610,357)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities:
Depreciation of real estate 838,524 784,074
Amortization of other assets 73,938 80,419
Equity in net income from Santa Fe Financial Corp. (117,765) (58,717)
Gain from sale of real estate (630,438) 0
Increase in receivables, net (104,866) (991,719)
Increase in prepaid expenses (86,296) (166,064)
Decrease in other assets 32,174 2,255
Increase (decrease) in accounts payable and
other liabilities (604,945) 942,044
Increase (decrease) in income taxes 33,790 547,934
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Net cash provided by (used for) operating activities (206,721) 529,869
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Cash flows from investing activities:
Additions to buildings, improvements and equipment (473,032) (624,028)
Investment in real estate 0 (596,841)
Proceeds from sale of real estate 1,603,825 0
Investment in Santa Fe Financial Corporation (421,033) (162,334)
Reduction (investment) in marketable securities (783,480) 961,490
Reduction (investment) in other investments 529,784 (965,099)
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Net cash provided by (used for) investing activities 456,064 (1,386,812)
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Cash flows from financing activities:
Principal payments on mortgage notes payable (180,687) (186,498)
Proceeds from real estate financing 0 462,405
Increase in mortgage notes payable due
to real estate acquisition 0 595,000
Decrease (increase) in restricted cash 608,416 (49,925)
(Decrease) increase in due to securities broker 117,685 (932,461)
Increase in accounts payable related to short
positions and other investments 150,000 465,814
Sale of 16,500 shares of common stock 0 907,500
Purchase of treasury stock 0 (440,213)
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Net cash provided by financing activities 695,414 821,622
------------------------
Net increase (decrease) in cash and cash equivalents 944,757 (35,321)
Cash and cash equivalents at beginning of period 933,936 63,291
------------------------
Cash and cash equivalents at end of period $1,878,693 $27,970
========================
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 December 31, 1996 1995
------------------------
Real estate operations:
Rental income $2,784,688 $2,767,389
Rental expenses:
Mortgage interest expense 681,482 707,240
Property operating expenses 1,298,281 1,277,527
Real estate taxes 234,952 218,851
Depreciation 419,877 397,719
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150,096 166,052
Gain from sale of real estate 630,438 0
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Income from real estate operations 780,534 166,052
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Investment transactions:
Dividend and interest income 23,500 31,985
Investment gains 78,723 956,926
Investment losses (102,551) (375,771)
Margin interest, trading and management expenses (205,449) (484,529)
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Income (loss) from investment transactions (205,777) 128,611
------------------------
Other expenses:
General and administrative expenses (239,730) (290,162)
Miscellaneous income (expense) 28,491 (904,116)
------------------------
Other expenses (211,239) (1,194,278)
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Income (Loss) before provision (benefit)
for income taxes 363,518 (899,615)
Provision for income taxes (benefit) 43,607 (360,398)
------------------------
Net Income (Loss) $319,911 ($539,217)
========================
Net Income (Loss) per share $0.33 ($0.58)
========================
Weighted average number of shares outstanding 959,349 924,764
========================
The accompanying notes are an integral part of the consolidated
financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended December 31, 1996
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, 1996 audited consolidated financial statements and
notes thereto.
2. Marketable Securities:
All securities are classified as available-for-sale except short positions,
which represent obligations of the Company and are classified as trading
activity. At December 31, 1996, marketable securities included $722,256 of
debt securities. At December 31, 1996, the aggregate market value of
marketable securities exceeded the aggregate cost by $6,293,381. The net
unrealized gain is comprised of gross unrealized gains of $6,577,431 reduced
by gross unrealized losses of $284,050. The net unrealized gain, net of
deferred taxes of $2,580,286, is included as a separate item in
shareholders' equity. During the six months ended December 31, 1996,
proceeds from sales of securities were $5,957,348. Gross realized gains and
losses are determined using FIFO costs. At December 31, 1996, the Company
had no naked short positions. Any unrealized gains or losses relating to
naked short positions are recognized in earnings in the current period. The
dividends on short positions are recorded on the ex-dividend date.
3. Investment in Santa Fe Financial Corporation:
As of December 31, 1996, the Company owned 36.0% and the Company's chairman
and president owned an additional 3.9% of the outstanding common stock of
Santa Fe Financial Corporation ("Santa Fe"). Revenues and net income for
Santa Fe for the quarter ended December 31, 1996, were $730,590 and
$149,383, respectively, and $660,935 and $142,038 for the prior year,
respectively. Revenues and net income for Santa Fe for the six months ended
December 31, 1996, were $1,561,723 and $338,171, respectively, and
$1,217,337 and $284,331 for the prior year, respectively. The Company
records its investment in Santa Fe on the equity basis.
Santa Fe's revenue is primarily generated through its 64.1% interest in
Portsmouth Square, Inc. ("PSI"), which derives its revenue primarily through
its 49.8% interest in Justice Investors ("Justice"), a limited partnership.
Justice owns the land, improvements and leasehold known as the Financial
District Holiday Inn, a 556-room hotel in San Francisco, California. PSI is
both a limited and general partner in Justice and records its investment in
Justice on the equity basis.
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4. Commitments and Contingencies:
In February 1995, a complaint was filed by Guinness Peat Group plc and its
subsidiary ("GPG") against the Company arising out of the Company's
investment in Santa Fe, which seeks recision of the purchase and unspecified
money damages. The initial complaint charged the Company with aiding and
abetting Santa Fe's Directors to breach their fiduciary duty by selling
control of Santa Fe for a sum below its value in order to maintain their
management positions. The Company was granted summary judgment on this
complaint in April 1996 but the Court permitted Plaintiff to replead.
Plaintiff subsequently filed an amended complaint charging the Company with
fraud in allegedly promising Santa Fe's management that they would maintain
their positions in return for approving the investment. A tentative ruling
granting the Company summary judgment on this amended complaint was issued
in October 1996 and made final in December 1996. Plaintiff has since sought
expedited review and a reversal of this determination through a Writ filed
with the Court of Appeals. The action will continue to be vigorously
defended.
In March 1996, a complaint was filed by 7709 Lankershim Ltd., a California
Limited Partnership, against the Company in which it claimed damages in
excess of $2,000,000 arising out of alleged latent construction defects
discovered in the two Indio, California properties, formerly owned by the
Company which it had purchased from the financial institution to whom the
properties were returned. The case is in its very early stages and discovery
has not as yet taken place. Accordingly, it is not possible to assess what
the exposure, if any, is at this time. It is management's preliminary
belief, however, that any action with regard to Carreon Villas I, one of
the Indio, California properties is legally barred. Insurance coverage,
subject to reservations, has been approved insofar as Carreon Villas I is
concerned but denied as to Carreon Villas II. The action will be vigorously
defended.
The Company is a defendant or co-defendant in various legal actions
involving various 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. Related Party Transactions:
In May 1996, the Company's president exercised an option to purchase 125,000
shares of common stock at a price of $11.50 per share through a full
recourse note due the Company on demand, but in no event later than May
2001. The note bears interest floating at the lower of 10% or the prime
rate (8.25% at December 31, 1996) with interest payable quarterly. The
balance of the note receivable was $1,437,500 and is reflected as a
reduction of shareholders' equity.
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THE INTERGROUP CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND PROJECTIONS
The Company may from time to time make forward-looking statements and
projections concerning future expectations. When used in this discussion,
the words "estimate", "project", "anticipate" and similar expressions, are
subject to certain risks and uncertainties, such as changes in general
economic conditions, local real estate markets, and competition, as well as
uncertainties relating to uninsured losses, securities markets, and
litigation, including those discussed below that could cause actual results
to differ materially from those projected. Readers are cautioned not to
place undue reliance on these forward-looking statements, which speak only
as to the date hereof. The Company undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements
which may be made to reflect events or circumstances after the date hereof
or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
For the six months ended December 31, 1996 vs. 1995
Rental income from real estate operations increased less than 1% to
$5,559,926 from $5,545,184. The increase was primarily due to increased
revenues at one of the San Antonio, Texas, the Irving, Texas and the
Bridgeton, Missouri properties. The increase was primarily offset by a
decrease in revenues at the Atlanta, Georgia, and to a lesser extent, a
decrease in revenues at the Ohio properties.
Mortgage interest expense decreased 4% to $1,364,464 from $1,413,053
primarily due to lower mortgage interest expense associated with the
refinancing of the Parsippany, New Jersey property in December 1995,
partially offset by increased mortgage interest expense associated with the
refinancing of the Florence, Kentucky property in April 1996 at a lower
interest rate but with a higher loan balance.
Property operating expenses decreased less than 1% to $2,627,883 from
$2,629,657 primarily due to reduced utility costs associated with the
Atlanta, Georgia property, lower management costs and lower leasing
expenses, partially offset by increased repairs and maintenance, salaries,
and cleaning and decorating expenditures.
Real estate taxes increased 8% to $461,826 from $424,415 due to increased
real estate taxes in the Texas properties as a result of reassessed property
values by the tax authorities.
Depreciation increased 6% to $838,524 from $784,074 due to capitalized
property improvements throughout the real estate portfolio, but primarily at
the Irving, Texas and Parsippany, New Jersey properties.
<PAGE>
On December 31, 1996, the Company sold its Atlanta, Georgia property for
$1,800,000. The sales price, less closing costs and other expenses, resulted
in net proceeds of $1,603,825 and a gain from the sale of real estate of
$630,438.
Investment gains decreased 62% to $709,601 from $1,844,855 and investment
losses decreased 35% to $378,301 from $580,687 as a result of the sale of
certain securities which generated lower net investment gains during the six
months ended December 31, 1996. 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. Margin interest, trading, and management expenses
decreased 49% to $451,407 from $890,785 due to a decrease in margin interest
expense of $250,819 and a decrease in trading related and management
expenses of $188,559 relating primarily to fewer personnel and related
expenses, travel expenses and administrative costs, partially offset by
increased litigation costs associated with investments. The Company has
initiated a cost savings program in this area to reduce the management
expenses through reduction in personnel and overhead expenses. Management
believes that the Company will continue to realize savings in future
periods. The overall investment portfolio, which includes marketable
securities, investment in Santa Fe and other investments, had a positive
return of 17.3% for the six months ended December 31, 1996 and a positive
return of 0.2% for the six months ended December 31, 1995, based on the net
realized and unrealized gains and losses and after expenses over the monthly
average investment balance of the overall investment portfolio. For the
five years ended December 31, 1996, the overall investment portfolio
achieved a positive average annual compounded return of 10.2%. It should be
noted that other investments are investments that are not traded on any
exchange and, accordingly, the return calculations do not reflect any
increases or decreases in value of other investments until such gains or
losses are realized or there is an other than temporary decline in value
below the cost of the investment. The overall portfolio return includes the
entire increase in the market value of the Company's holdings in Orckit
Communications Ltd. of $2,668,464. However, the stock is subject to both a
180 day lock-up agreement in conjunction with the public offering and the
limitations imposed by Rule 144.
General and administrative expenses decreased 22% to $462,153 from $591,031
due to fewer personnel and related expenses and reduction in other
administrative expenses.
Miscellaneous income (expense) changed to income of $72,316 from expense of
$1,177,086 due to the resolution of the Golden West Entertainment litigation
and increased interest income in connection with the note receivable from
the Company's president.
Income tax expense of $81,407 and income tax benefit of $407,037 were
provided for the six months ended December 31, 1996 and 1995, respectively.
The change results from income realized during the six months ended December
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31, 1996, as compared to loss for the prior year, partially offset by a
lower book cost basis than tax cost basis in connection with the sale of the
Atlanta, Georgia property.
For the three months ended December 31, 1996 vs. 1995
Rental income from real estate operations increased 1% to $2,784,688 from
$2,767,389. The increase was due to increased revenues at the San Antonio,
Texas and the Irving, Texas properties. Offset primarily by reduced
revenues at the Atlanta, Georgia and Ohio properties. The decrease in
revenues at the Atlanta, Georgia property were a result of a program to
upgrade the tenant profile which commenced in January 1996 and was completed
in October 1996.
Mortgage interest expense decreased 4% to $681,482 from $707,240 primarily
due to lower mortgage interest expense associated with the refinancing of
the Parsippany, New Jersey property in December 1995, partially offset by
increased mortgage interest expense associated with the refinancing of the
Florence, Kentucky property in April 1996 at a lower interest rate but with
a higher loan balance.
Property operating expenses increased 2% to $1,298,281 from $1,277,527
primarily due to increased repairs and maintenance, salaries, and cleaning
and decorating expenditures, partially offset by reduced utility costs
associated with the Atlanta, Georgia property, lower management costs and
lower leasing expenses.
Real estate taxes increased 7% to $234,952 from $218,851 due to increased
real estate taxes in the Texas properties as a result of reassessed property
values by the tax authorities.
Depreciation increased 6% to $419,877 from $397,719 due to capitalized
property improvements throughout the real estate portfolio, but primarily at
the Irving, Texas and Parsippany, New Jersey properties.
On December 31, 1996, the Company sold its Atlanta, Georgia property for
$1,800,000. The sales price, less closing costs and other expenses, resulted
in net proceeds of $1,603,825 and a gain from the sale of real estate of
$630,438.
Investment gains decreased 92% to $78,723 from $956,926 and investment
losses decreased 73% to $102,551 from $375,771 as a result of the sale of
certain securities which generated lower net investment gains during the
three months ended December 31, 1996. 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. Margin interest, trading, and management expenses
decreased 58% to $205,449 from $484,529 due to a decrease in margin interest
expense of $130,458 and a decrease in trading related and management
expenses of $148,622 relating primarily to fewer personnel and related
<PAGE>
expenses, travel expenses and administrative costs, partially offset by
increased litigation costs associated with investments. The Company has
initiated a cost savings program in this area to reduce the management
expenses through reduction in personnel and overhead expenses. Management
believes that the Company will continue to realize savings in future
periods. The overall investment portfolio, which includes marketable
securities, investment in Santa Fe and other investments, had a negative
return of 15.6% for the three months ended December 31, 1996 and a negative
return of 16.9% for the three months ended December 31, 1995, based on the
net realized and unrealized gains and losses and after expenses over the
monthly average investment balance of the overall investment portfolio. It
should be noted that other investments are investments that are not traded
on any exchange and, accordingly, the return calculations do not reflect any
increases or decreases in value of other investments until such gains or
losses are realized or there is an other than temporary decline in value
below the cost of the investment. The overall portfolio return includes the
entire increase in the market value of the Company's holdings in Orckit
Communications Ltd. of $2,668,464. However, the stock is subject to both a
180 day lock-up agreement in conjunction with the public offering and the
limitations imposed by Rule 144.
General and administrative expenses decreased 18% to $239,730 from $290,162
due to fewer personnel and related expenses and other administrative
expenses.
Miscellaneous income (expense) changed to income of $28,491 from expense of
$904,116 due to the resolution of the Golden West Entertainment litigation
and increased interest income in connection with the note receivable from
the Company's president.
Income tax expense of $43,607 and income tax benefit of $360,398 were
provided for the three months ended December 31, 1996 and 1995,
respectively. The change results from income realized during the three
months ended December 31, 1996, as compared to loss for the prior year,
partially offset by a lower book cost basis than tax cost basis in
connection with the sale of the Atlanta, Georgia property.
FINANCIAL CONDITION AND LIQUIDITY
The Company's cash flows are generated primarily from its real estate
activities, sales of investment securities and borrowings related to both.
The Company used net cash flow of $206,721 from operating activities,
generated net cash flow of $456,064 from investing activities and generated
net cash flow of $695,414 from financing activities.
The Company intends to 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.
During the six months ended December 31, 1996, the Company improved
properties in the aggregate amount of $473,032. The Company has budgeted
approximately $800,000 for improvements during fiscal 1997. Management
<PAGE>
believes the improvements to the properties should enhance market values,
maintain the competitiveness of the Company's properties and potentially
enable the Company to obtain a higher yield through higher rents.
At December 31, 1996, the overall investment portfolio increased
approximately 9% to $20,014,001 from $18,281,914 at June 30, 1996, primarily
due to increased market value of securities. Net unrealized gains increased
19% to $6,293,381 from $5,301,307 at June 30, 1996. Net unrealized gains at
December 31, 1996, include $725,000 relating to Orckit Communications
Ltd. in accordance with FAS 115 "Accounting for Certain Investments in Debt
and Equity Securities".
The Company's outstanding indebtedness includes mortgages on real estate
which amounted to $31,006,705 as of December 31, 1996. Management will
pursue additional refinancing activities as considered necessary or when
deemed economically favorable to the Company.
For fiscal 1997, management anticipates that its net cash flow from real
estate operations, securities transactions and real estate financing
activities will be sufficient to fund any property 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
Item 1. Legal Proceedings.
On February 22, 1995, a complaint was filed in the Superior Court of
California, County of San Diego, by Guinness Peat Group plc and its
subsidiary ("GPG") against the Company arising out of the Company's
investment in Santa Fe, which seeks recision of the purchase and unspecified
money damages. The initial complaint charged the Company with aiding and
abetting Santa Fe's Directors to breach their fiduciary duty by selling
control of Santa Fe for less than its value in order to maintain their
management positions. The Company was granted summary judgment on this
complaint in April 1996 but Plaintiff was permitted to replead. Plaintiff
ultimately filed an amended complaint charging the Company with fraud in
allegedly promising that Santa Fe's management would maintain their
positions in return for approving the investment and then allegedly
reneging. A tentative ruling granting the Company summary judgment on this
amended complaint was issued in October 1996 and made final on December 31,
1996. Plaintiff has sought a Writ seeking expedited review from the Court of
Appeals to reverse this decision. Should such Writ be denied, an appeal by
Plaintiff is likely. Should the Company ultimately prevail, it will seek to
recover from GPG its costs and expenses in defending against this action.
Such costs, to date, are approximately $275,000 and GPG was required earlier
in the proceedings, by the Court, to post a $250,000 bond. Such bond does
not constitute a limitation on damages, but rather security for payment.
Discovery in this action, in the interim, has come to a halt.
On March 27, 1996, a complaint was filed in the Superior Court of the State
<PAGE>
of California, Riverside County, by 7709 Lankershim Ltd., a California
Limited Partnership, against the Company in which it claimed damages in
excess of $2,000,000 arising out of alleged latent construction defects
discovered in the two Indio, California properties, Carreon Villas I and
Carreon Villas II formerly owned by the Company. The case is in its very
early stages, discovery has not as yet taken place, and it is not possible
to assess what the exposure, if any, is at this time. It is management's
preliminary belief, however, that any action with regard to Carreon Villas I
is legally barred. Insurance coverage with regard to Carreon Villas I has
been granted, subject to reservations, by the Company's carrier. Insurance
coverage, covering liability, if any, on the second property has been
denied. The action will be vigorously defended.
In May 1996, the Company initiated an action in the District Court of
Johnson County, Kansas, against the General Partner, a number of the Limited
Partners, the manager and prospective purchaser of the Casa Maria Limited
Partnership, an entity in which the Company held a fifteen percent (15%)
interest. Such partnership owns a 442-unit apartment complex in Pasadena,
Texas. In such complaint the Company sought to remove the General Partner
and the management company, enforce its right of first refusal to acquire
the selling Limited Partners' interests, and to preclude the General
Partner from disposing of its 30% interest in the Limited Partnership to a
third party (who was a partner with the present property management company in
this effort) without the Company's consent. While litigation continues with
the previously intended third party purchaser of the selling General and
Limited Partners' interests, the Company has acquired the interest of the
General Partner, has given notice of discharge to the present management
company and is in the process of resolving its disputes with the selling
Limited Partners by acquiring their interests.
Item 4. Submission of Matters to a Vote of Security Holders.
The 1996 Annual Meeting of the Stockholders of the Company was held on
December 10, 1996, at the Park Hyatt Los Angeles Hotel, 2151 Avenue of the
Stars, Century City, California, with the following results: (1) Mrs.
Roxborough was elected Director of the Company with a majority of votes to
serve until the 1999 Annual Meeting (John V. Winfield, Josef A. Grunwald,
Howard A. Jaffe and William J. Nance continue to serve as Directors of the
Company); and (2) The ratification of Price Waterhouse LLP as independent
accountants of the Company was passed with a majority of votes. A
tabulation of the votes follows:
Proposal (1) - Director: Votes For Against Abstained
Mildred Bond Roxborough 895,246 3,842 0
Proposal (2) - Accountants:
Price Waterhouse LLP 894,068 818 4,202
Items 2, 3 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 December 31,
1996.
<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: February 10, 1997
By /s/ John V. Winfield
- ------------------------------------------------------
John V. Winfield
Chairman, President and Chief Executive Officer
Date: February 10, 1997
By /s/ Howard A. Jaffe
- ------------------------------------------------------
Howard A. Jaffe
Chief Operating Officer and Secretary
Date: February 10, 1997
By /s/ Gregory C. McPherson
- ------------------------------------------------------
Gregory C. McPherson
Executive Vice President, Assistant Treasurer
and Assistant Secretary
Date: February 10, 1997
By /s/ David C. Gonzalez
- ------------------------------------------------------
David C. Gonzalez
Controller
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-QSB FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 1,878,693
<SECURITIES> 10,243,972
<RECEIVABLES> 388,546
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,587,149
<PP&E> 36,087,196
<DEPRECIATION> 12,422,819
<TOTAL-ASSETS> 48,762,737
<CURRENT-LIABILITIES> 7,773,694
<BONDS> 31,006,705
<COMMON> 14,948
0
0
<OTHER-SE> 9,967,390
<TOTAL-LIABILITY-AND-EQUITY> 48,762,737
<SALES> 0
<TOTAL-REVENUES> 6,646,827
<CGS> 0
<TOTAL-COSTS> 4,379,640
<OTHER-EXPENSES> 462,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,364,464
<INCOME-PRETAX> 440,570
<INCOME-TAX> 81,407
<INCOME-CONTINUING> 359,163
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359,163
<EPS-PRIMARY> 0.37
<EPS-DILUTED> 0.37
</TABLE>
