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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, 1997
( ) 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 April 30, 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)
March 31, 1997 3
Consolidated Statements of Operations (unaudited)
Nine Months Ended March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended March 31, 1997 and 1996 5
Consolidated Statements of Operations (unaudited)
Three Months Ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION 15
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
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THE INTERGROUP CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 1997
ASSETS ----------
Investment in real estate, at cost:
Land $6,442,545
Buildings, improvements and equipment 33,180,953
Property held for sale or development 1,731,398
-----------
41,354,896
Less: accumulated depreciation (12,822,234)
-----------
28,532,662
Marketable securities, at market value 12,018,883
Investment in Santa Fe Financial Corporation 6,161,922
Other investments 3,221,906
Cash and cash equivalents 164,505
Restricted cash 1,486,050
Rent and other receivables 378,447
Prepaid expenses 1,047,447
Other assets 153,149
-----------
Total Assets $53,164,971
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $34,487,295
Due to securities broker 3,503,091
Accounts payable and other liabilities 2,614,529
Deferred income taxes 1,786,281
-----------
Total Liabilities 42,391,196
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 1,204,409
Unrealized gain on marketable securities, net of deferred taxes 3,765,643
Note receivable - stock options (1,466,801)
Treasury stock, at cost, 535,475 shares (6,402,873)
-----------
Total Shareholders' Equity 10,773,775
-----------
Total Liabilities and Shareholders' Equity $53,164,971
===========
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 Nine Months Ended March 31, 1997 1996
Real estate operations: --------- ----------
Rental income $8,455,641 $8,309,988
Rental expenses:
Mortgage interest expense 2,072,600 2,107,741
Property operating expenses 3,949,029 3,925,771
Real estate taxes 659,511 676,349
Depreciation 1,235,849 1,183,981
---------- ----------
538,652 416,146
Gain from sale of real estate 630,438 0
---------- ----------
Income from real estate operations 1,169,090 416,146
---------- ----------
Investment transactions:
Dividend and interest income 199,376 132,341
Investment gains 2,215,514 4,738,384
Investment losses (662,512) (1,883,359)
Margin interest, trading and management expenses (646,069) (1,273,101)
---------- ----------
Income from investment transactions 1,106,309 1,714,265
---------- ----------
Other expenses:
General and administrative expenses (674,187) (814,345)
Miscellaneous income (expense) 105,034 (1,260,579)
---------- ----------
Other expenses (569,153) (2,074,924)
---------- ----------
Income before provision for income taxes 1,706,246 55,487
Provision for income taxes 578,893 11,954
---------- ---------
Net Income $1,127,353 $43,533
========== ==========
Net Income per share $1.18 $0.05
========== ==========
Weighted average number of shares outstanding 959,349 909,455
========== ==========
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 Nine Months Ended March 31, 1997 1996
Cash flows from operating activities: ----------- ----------
Net Income $1,127,353 $43,533
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation of real estate 1,235,849 1,183,981
Amortization of other assets 116,225 120,641
Equity in net income from Santa Fe Financial Corp. (159,053) (88,123)
Gain from sale of real estate (630,438) 0
(Increase) decrease in receivables, net (124,068) 870,117
Increase in prepaid expenses (118,528) (185,043)
(Increase) decrease in other assets 29,629 (32,038)
Increase (decrease) in accounts payable and
other liabilities (548,915) 940,471
Increase (decrease) in income taxes 516,982 (158,450)
---------- ----------
Net cash provided by operating activities 1,445,036 2,695,089
---------- ----------
Cash flows from investing activities:
Additions to buildings, improvements and equipment (770,585) (883,037)
Investment in real estate (4,970,147) (596,841)
Proceeds from sale of real estate 1,603,825 0
Investment in Santa Fe Financial Corporation (471,163) (2,581,276)
Reduction (investment) in marketable securities (2,677,276) 5,040,977
Reduction (investment) in other investments 1,059,884 (1,417,065)
---------- ----------
Net cash used for investing activities (6,225,462) (437,242)
---------- ----------
Cash flows from financing activities:
Principal payments on mortgage notes payable (295,810) (270,227)
Proceeds from real estate financing 0 462,405
Increase in mortgage notes payable due
to real estate acquisition 3,595,714 595,000
Decrease (increase) in restricted cash 681,279 (239,995)
(Decrease) increase in due to securities broker 29,812 (3,471,889)
Increase in accounts payable related to short
positions and other investments 0 650,794
Sale of 16,500 shares of common stock 0 907,500
Purchase of treasury stock 0 (440,213)
---------- ----------
Net cash provided by (used for) financing activities 4,010,995 (1,806,625)
---------- ----------
Net increase (decrease) in cash and cash equivalents (769,431) 451,222
Cash and cash equivalents at beginning of period 933,936 63,291
---------- ----------
Cash and cash equivalents at end of period $164,505 $514,513
=========== =========
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 March 31, 1997 1996
Real estate operations: ----------- ----------
Rental income $2,895,715 $2,764,804
Rental expenses:
Mortgage interest expense 708,136 694,688
Property operating expenses 1,321,146 1,296,114
Real estate taxes 197,685 251,934
Depreciation 397,325 399,907
---------- ----------
Income from real estate operations 271,423 122,161
---------- ----------
Investment transactions:
Dividend and interest income 146,529 48,986
Investment gains 1,505,913 2,893,529
Investment losses (284,211) (1,302,672)
Margin interest, trading and management expenses (194,662) (382,316)
---------- ----------
Income from investment transactions 1,173,569 1,257,527
---------- ----------
Other expenses:
General and administrative expenses (212,034) (223,314)
Miscellaneous income (expense) 32,718 (83,493)
---------- ----------
Other expenses (179,316) (306,807)
---------- ----------
Income before provision for income taxes 1,265,676 1,072,881
Provision for income taxes 497,486 418,991
---------- ----------
Net Income $768,190 $653,890
========== ==========
Net Income per share $0.80 $0.71
========== ==========
Weighted average number of shares outstanding 959,349 916,349
========== ==========
The accompanying notes are an integral part of the consolidated
financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the nine months ended March 31, 1997
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 March 31, 1997, marketable securities included $1,517,832 of
debt securities. At March 31, 1997, the aggregate market value of
marketable securities exceeded the aggregate cost by $6,174,497. The net
unrealized gain is comprised of gross unrealized gains of $7,312,363 reduced
by gross unrealized losses of $1,137,866. The net unrealized gain, net of
deferred taxes of $3,765,643, is included as a separate item in
shareholders' equity. During the nine months ended March 31, 1997,
proceeds from sales of securities were $9,217,448. Gross realized gains and
losses are determined using FIFO costs. At March 31, 1997, 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 March 31, 1997, the Company owned 36.1% 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 March 31, 1997, were $723,130 and
$116,862, respectively, and $460,961 and $96,154 for the prior year,
respectively. Revenues and net income for Santa Fe for the nine months ended
March 31, 1997, were $2,319,697 and $490,994, respectively, and
$1,678,298 and $380,493 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 64.3% 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. Investment in Casa Maria Limited Partnership:
In December 1996, the Company became the General Partner of a Kansas,
Limited Partnership, which owns a 442-unit apartment complex in Houston,
Texas, by obtaining the 30% interest in the Partnership held by the former
General Partner. Prior to December 1996, the Company was a Limited Partner,
and owned a 15% interest in the Partnership. During the quarter ended March
31, 1997, the Company acquired all of the remaining Limited Partners'
interests. The cost basis of the complex, including closing costs, was
$4,970,147, and the outstanding mortgage indebtedness was $3,595,714.
5. 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. The initial complaint was dismissed on the Company's
motion for summary judgment 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 then sought expedited review and a reversal of this determination
through a Writ filed with the Court of Appeals. Such Writ was denied but
Plaintiff filed an appeal with the Court of Appeals which will be heard in
the regular course by such Court. The Company was subsequently
provisionally awarded $296,000 in attorneys fees and costs by the lower
Court, but such award, should it become final, will also undoubtedly be
appealed to the Court of Appeals which will hear both appeals on a
consolidated basis. The action will continue to be vigorously defended and
every effort will be made by the Company to recover as much of the fees and
costs it incurred as is possible.
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.
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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.
6. 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 (8.50% at March 31, 1997) with interest payable quarterly. The balance
of the note receivable and accrued interest receivable was $1,466,801 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 nine months ended March 31, 1997 vs. 1996
Income from real estate operations for the nine months ended March 31, 1997,
as compared to the nine months ended March 31, 1996, was impacted primarily
by increased revenues and expenses associated with the acquisition of the
Houston, Texas property during the quarter ended March 31, 1997, offset by
reduced revenues and expenses in connection with the disposition of the
Atlanta, Georgia property in December 1996.
Rental income from real estate operations increased 2% to $8,455,641 from
$8,309,988. The increase was primarily due to increased revenues at the new
Houston, Texas property, one of the San Antonio, Texas properties, the New
Jersey and the Missouri properties. The increase was primarily offset by a
decrease in revenues associated with the Atlanta, Georgia property disposed
in December 1996, and to a lesser extent, a decrease in revenues at the Ohio
properties.
Mortgage interest expense decreased 2% to $2,072,600 from $2,107,741
primarily due to lower mortgage interest expense associated with the
refinancing of the Parsippany, New Jersey property in December 1995, 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 and mortgage interest expense at the new Houston,
Texas property.
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Property operating expenses increased less than 1% to $3,949,029 from
$3,925,771 primarily due to increased expenses in connection with the new
Houston, Texas property, offset primarily by reduced operating expenses
associated with the disposition of the Atlanta, Georgia property, lower
management costs and lower service expenses.
Real estate taxes decreased 3% to $659,511 from $676,349 due to lower real
estate taxes at the Irving, Texas property and reduced real estate taxes at
the Atlanta, Georgia property disposed in December 1996.
Depreciation increased 4% to $1,235,849 from $1,183,981 due to capitalized
property improvements throughout the real estate portfolio, but primarily at
the Irving, Texas and Parsippany, New Jersey properties. The increase was
offset by the disposition of the Atlanta, Georgia property in December 1996.
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 53% to $2,215,514 from $4,738,384 and investment
losses decreased 64% to $662,512 from $1,883,359 as a result of the sale of
certain securities which generated lower net investment gains during the
nine months ended March 31, 1997. 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 $646,069 from $1,273,101 due to a decrease in margin
interest expense of $334,829 and a decrease in trading related and
management expenses of $292,203 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 22.2% for the nine months ended March 31, 1997 and a positive
return of 2.3% for the nine months ended March 31, 1996, 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
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five years ended March 31, 1997, the overall investment portfolio achieved a
positive average annual compounded return of 6.3%. 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 $2,944,512. However, this stock is subject to
limitations imposed by Rule 144.
General and administrative expenses decreased 21% to $674,187 from $814,345
due to fewer personnel and related expenses and reduction in other
administrative expenses.
Miscellaneous income (expense) changed to income of $105,034 from expense of
$1,260,579 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 $578,893 and $11,954 were provided for the nine
months ended March 31, 1997 and 1996, respectively. The increase was due to
higher income during the current period, 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 March 31, 1997 vs. 1996
Income from real estate operations for the three months ended March 31, 1997,
as compared to the three months ended March 31, 1996, was impacted primarily
by increased revenues and expenses associated with the acquisition of the
Houston, Texas property during the quarter ended March 31, 1997, offset by
reduced revenues and expenses in connection with the disposition of the
Atlanta, Georgia property in December 1996.
Rental income from real estate operations increased 5% to $2,895,715 from
$2,764,804. The increase was due to increased revenues at the new Houston,
Texas property and at all properties, except at the Ohio properties. The
increase was offset by reduced revenues at the Atlanta, Georgia property
disposed in December 1996.
Mortgage interest expense increased 2% to $708,136 from $694,688 primarily
due to the acquisition of the Houston, Texas property and 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 $1,321,146 from $1,296,114
primarily due to the new Houston, Texas property and increased cleaning and
decorating expenditures, salary expenses, repairs and maintenance, and
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leasing expenses, offset by reduced expenses associated with the Atlanta,
Georgia property, lower management costs and lower service expenses.
Real estate taxes decreased 21% to $197,685 from $251,934 due to the
disposition of the Atlanta, Georgia property, reduced real estate taxes at
the Irving, Texas property, offset by increased real estate taxes
associated with the new Houston, Texas property.
Depreciation decreased less than 1% to $397,325 from $399,907 due to the
disposition of the Atlanta, Georgia property in December 1996, offset by
depreciation associated with property improvements throughout the real
estate portfolio, but primarily at the Irving, Texas and Parsippany, New
Jersey properties and the new Houston, Texas property.
In December 1996, the Company became the General Partner of a Kansas,
Limited Partnership, which owns a 442-unit apartment complex in Houston,
Texas, by obtaining the 30% interest in the Partnership held by the former
General Partner. Prior to December 1996, the Company was a Limited Partner,
and owned a 15% interest in the Partnership. During the quarter ended March
31, 1997, the Company acquired all of the remaining Limited Partners'
interests. The cost basis of the complex, including closing costs, was
$4,970,147, and the outstanding mortgage indebtedness was $3,595,714.
Investment gains decreased 48% to $1,505,913 from $2,893,529 and investment
losses decreased 78% to $284,211 from $1,302,672 as a result of the sale of
certain securities which generated lower net investment gains during the
three months ended March 31, 1997. 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 $194,662 from $382,316 due to a decrease in margin interest
expense of $84,010 and a decrease in trading related and management
expenses of $103,644 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
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securities, investment in Santa Fe and other investments, had a positive
return of 5.8% for the three months ended March 31, 1997 and a positive
return of 1.9% for the three months ended March 31, 1996, 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 $2,944,512. However, this stock is subject to the
limitations imposed by Rule 144.
General and administrative expenses decreased 5% to $212,034 from $223,314
due to fewer personnel and related expenses and other administrative
expenses.
Miscellaneous income (expense) changed to income of $32,718 from expense of
$83,493 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 $497,486 and $418,991 were provided for the three
months ended March 31, 1997 and 1996, respectively. The increase results
from higher income realized during the current quarter ended March 31, 1997.
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 provided net cash flow of $1,445,036 from operating activities,
used net cash flow of $6,225,462 for investing activities and generated
net cash flow of $4,010,995 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 nine months ended March 31, 1997, the Company improved properties
in the aggregate amount of $770,585, which includes $104,250 capitalized
costs associated with the property held for sale or development. Management
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.
<PAGE>
At March 31, 1997, the overall investment portfolio increased
approximately 17% to $21,402,711 from $18,281,914 at June 30, 1996, primarily
due to increased market value of securities. Net unrealized gains increased
16% to $6,174,497 from $5,301,307 at June 30, 1996. Net unrealized gains at
March 31, 1997, include $1,600,000 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 $34,487,295 as of March 31, 1997. 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 sought recision of the purchase and
unspecified money damages. The initial complaint was dismissed upon the
Company's motion for summary judgment 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 on such promise. Summary judgment on
this amended complaint was granted in favor of the Company and made final on
December 31, 1996. Plaintiff then sought a Writ seeking expedited review
from the Court of Appeals to reverse this decision. Such Writ was denied by
the Court of Appeals, but an appeal by Plaintiff was filed with such Court
which will be heard in due course. The Company moved in the Superior Court
for payment of its legal fees and costs by GPG and on April 25, 1997
received a tentative award of $280,000 in attorney's fees and $16,000 in
costs for a total award of $296,000. Oral argument to confirm such award has
been set for May 16, 1997. GPG is likely to appeal any such award. GPG, as
previously reported, was required earlier in the proceedings, by the Court,
to post a $250,000 bond to secure payment. Such bond does not limit
liability, it insures collection of the portion bonded.
<PAGE>
On March 27, 1996, a complaint was filed in the Superior Court of the State
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 then 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 interests of
the General and Limited Partners, has discharged the manager and installed
Pinnacle Realty Management Company in its stead. The prospective third
party purchaser countersued the Company for interference with contractual
relations and several other causes of action. The Company has succeeded in
having all but the aforementioned claim of the prospective purchaser
dismissed through motion practice. Management believes the remaining claim
is not meritorious and will vigorously defend.
Items 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,
1997.
<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 12, 1997
By /s/ John V. Winfield
- ------------------------------------------------------
John V. Winfield
Chairman, President and Chief Executive Officer
Date: May 12, 1997
By /s/ Howard A. Jaffe
- ------------------------------------------------------
Howard A. Jaffe
Chief Operating Officer and Secretary
Date: May 12, 1997
By /s/ Gregory C. McPherson
- ------------------------------------------------------
Gregory C. McPherson
Executive Vice President, Assistant Treasurer
and Assistant Secretary
Date: May 12, 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 NINE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 164,505
<SECURITIES> 12,018,883
<RECEIVABLES> 378,447
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,070,474
<PP&E> 41,354,896
<DEPRECIATION> 12,822,234
<TOTAL-ASSETS> 53,164,971
<CURRENT-LIABILITIES> 7,903,901
<BONDS> 34,487,295
<COMMON> 14,948
0
0
<OTHER-SE> 10,758,827
<TOTAL-LIABILITY-AND-EQUITY> 53,164,971
<SALES> 0
<TOTAL-REVENUES> 10,943,491
<CGS> 0
<TOTAL-COSTS> 6,490,458
<OTHER-EXPENSES> 674,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,072,600
<INCOME-PRETAX> 1,706,246
<INCOME-TAX> 578,893
<INCOME-CONTINUING> 1,127,353
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,127,353
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
