-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DJlVf1+kh2cK46XMuystXEoy9c6do2Y7msAZYJjNt36QWHjE8ZhmdhlvETJfPfWH aYndYfQCPbFGtEdFcKFbqg== 0000069422-97-000002.txt : 19970222 0000069422-97-000002.hdr.sgml : 19970222 ACCESSION NUMBER: 0000069422-97-000002 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERGROUP CORP CENTRAL INDEX KEY: 0000069422 STANDARD INDUSTRIAL CLASSIFICATION: OPERATORS OF APARTMENT BUILDINGS [6513] IRS NUMBER: 133293645 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-10324 FILM NUMBER: 97534834 BUSINESS ADDRESS: STREET 1: 2121 AVE OF THE STARS STREET 2: STE 2020 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105561999 MAIL ADDRESS: STREET 1: 2121 AVE OF THE STARS SUITE 2020 CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: MUTUAL REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19860408 10QSB 1 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 - ------------------------------------------------------ (Name of small business issuer in its charter) DELAWARE - ------------------------------------------------------ (State or other jurisdiction of incorporation or organization) 13-3293645 ------------------------------------------- (I.R.S. Employer Identification) 2121 Avenue of the Stars, Suite 2020 Los Angeles, California 90067 - ------------------------------------------------------ (Address of principal executive offices) (Zip Code) Issuer's telephone number: (310) 556-1999 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ The number of shares outstanding of the issuer's Common Stock, $.01 par value, as of January 31, 1997 was 959,349 shares. Transitional Small Business Disclosure Format (check one): YES __ NO X 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 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. 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 ------------------------ 267,229 293,985 Gain from sale of real estate 630,438 0 ------------------------ 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. 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 ------------------------ Net cash provided by (used for) operating activities (206,721) 529,869 ------------------------ 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) ------------------------ Net cash provided by (used for) investing activities 456,064 (1,386,812) ------------------------ 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) ------------------------ 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. 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 ------------------------ 150,096 166,052 Gain from sale of real estate 630,438 0 ------------------------ Income from real estate operations 780,534 166,052 ------------------------ 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) ------------------------ 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) ------------------------ 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. 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. 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. 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. 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 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 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 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 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. 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 EX-27 2 ART 5 FDS FOR 2ND QUARTER 10-QSB
5 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. 6-MOS JUN-30-1997 DEC-31-1996 1,878,693 10,243,972 388,546 0 0 12,587,149 36,087,196 12,422,819 48,762,737 7,773,694 31,006,705 14,948 0 0 9,967,390 48,762,737 0 6,646,827 0 4,379,640 462,153 0 1,364,464 440,570 81,407 359,163 0 0 0 359,163 0.37 0.37
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