-----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, Csatg2O3SL3xatrak5fTAzpo4MZQjTh1MD2nbwU9xtoUUASESXMZ+HSbBU8s19bE 1JOgg7B3lg3/Fp77pQDWMA== 0000086759-03-000032.txt : 20031114 0000086759-03-000032.hdr.sgml : 20031114 20031114162413 ACCESSION NUMBER: 0000086759-03-000032 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 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: 031005012 BUSINESS ADDRESS: STREET 1: 820 MORAGA DRIVE STREET 2: - CITY: LOS ANGELES, STATE: CA ZIP: 90049-1632 BUSINESS PHONE: (310) 889-2500 MAIL ADDRESS: STREET 1: 820 MORAGA DRIVE CITY: LOS ANGELES STATE: CA ZIP: 90049-1632 FORMER COMPANY: FORMER CONFORMED NAME: MUTUAL REAL ESTATE INVESTMENT TRUST DATE OF NAME CHANGE: 19860408 10QSB 1 ig10q93003.txt THE INTERGROUP CORPORATION FORM 10-QSB 9-30-03 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-QSB [X] Quarterly Report Under Section 13 Or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2003 [ ] Transition Report Under Section 13 Or 15 (d) of the Securities Exchange Act of 1934 For the transition period from ______ to _____ Commission file number 1-10324 THE INTERGROUP CORPORATION -------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) DELAWARE 13-3293645 ------------------------------ ------------------ (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 820 Moraga Drive Los Angeles, CA 90049 -------------------------------------- (Address of Principal Executive Offices) (310) 889-2500 ------------------------- (Issuer's Telephone Number) 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 November 12, 2003 were 2,530,384 shares. Transitional Small Business Disclosure Format: YES [ ] NO [X] THE INTERGROUP CORPORATION INDEX TO FORM 10-QSB PART I. FINANCIAL INFORMATION PAGE Item 1. Consolidated Financial Statements: Consolidated Balance Sheet (unaudited) As Of September 30, 2003 3 Consolidated Statements of Operations (unaudited) For the Three Months Ended September 30, 2003 and 2002 4 Consolidated Statements of Cash Flows (unaudited) For the Three months Ended September 30, 2003 and 2002 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Controls and Procedures 14 Part II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 -2- THE INTERGROUP CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) As of September 30, 2003 ----------- ASSETS Investment in real estate, at cost: Land $ 26,124,000 Buildings, improvements and equipment 55,692,000 Property held for sale or development 918,000 ----------- 82,734,000 Less: accumulated depreciation (19,368,000) ----------- 63,366,000 Investment in Justice Investors 8,736,000 Cash and cash equivalents 1,127,000 Restricted cash 3,357,000 Investment in marketable securities 62,435,000 Prepaid expenses and other assets 3,443,000 ----------- Total assets $142,464,000 =========== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Mortgage notes payable $ 67,931,000 Due to securities broker 17,190,000 Obligation for securities sold 25,484,000 Accounts payable and other liabilities 3,068,000 Deferred income taxes 5,317,000 ----------- Total liabilities 118,990,000 ----------- Minority interest 8,894,000 ----------- Commitments and contingencies Shareholders' equity: Preferred stock, $.01 par value, 2,500,000 shares authorized; none issued - Common stock, $.01 par value, 4,000,000 shares authorized; 3,193,745 issued, 2,530,384 outstanding 21,000 Common stock, class A $.01 par value, 2,500,000 shares authorized; none issued - Additional paid-in capital 8,686,000 Retained earnings 12,263,000 Treasury stock, at cost, 663,361 shares (6,390,000) ----------- Total shareholders' equity 14,580,000 ----------- Total liabilities and shareholders' equity $142,464,000 =========== The accompanying notes are an integral part of the consolidated financial statements. -3- THE INTERGROUP CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the Three Months ended September 30, 2003 2002 ----------- ----------- Real estate operations: Rental income $ 3,462,000 $ 3,338,000 Rental expenses: Property operating expenses (1,747,000) (1,537,000) Mortgage interest expense (828,000) (837,000) Real estate taxes (376,000) (341,000) Depreciation (675,000) (656,000) ----------- ----------- Loss from real estate operations (164,000) (33,000) ----------- ----------- Equity in net income of Justice Investors 208,000 499,000 ----------- ----------- Investment transactions: Net investment gains(losses) 2,028,000 (1,289,000) Dividend and interest income 151,000 100,000 Margin interest and trading expenses (522,000) (220,000) ----------- ----------- Income(loss) from investment transactions 1,657,000 (1,409,000) ----------- ----------- Other income(expense): General and administrative expenses (358,000) (367,000) Other income 13,000 4,000 ----------- ----------- Other expense (345,000) (363,000) ----------- ----------- Income(loss) before provision for income taxes and minority interest 1,356,000 (1,306,000) Provision for income tax (expense)benefit (542,000) 490,000 ----------- ----------- Income(loss) before minority interest 814,000 (816,000) Minority interest (213,000) 281,000 ----------- ----------- Net income(loss) $ 601,000 $ (535,000) =========== =========== Basic income(loss) per share $ 0.24 $ (0.19) =========== =========== Weighted average number of shares outstanding 2,530,384 2,785,821 =========== =========== Diluted income(loss) per share $ 0.21 $ (0.19) =========== =========== Diluted weighted average number of shares outstanding 2,863,384 2,785,821 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. -4- THE INTEGROUP CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For the three months ended September 30, 2003 2002 ----------- ----------- Cash flows from operating activities: Net income(loss) $ 601,000 $ (535,000) Adjustments to reconcile net income(loss) to cash (used in)provided by operating activities: Depreciation of real estate 675,000 656,000 Net unrealized gains on investments (2,408,000) (517,000) Equity in net income from Justice Investors (208,000) (499,000) Minority interest 213,000 (281,000) Changes in assets and liabilities: Restricted cash 154,000 95,000 Investment in marketable securities (5,089,000) 3,403,000 Prepaid expenses and other assets (51,000) (79,000) Accounts payable and other liabilities (1,355,000) 313,000 Due to broker (3,131,000) (579,000) Obligations for securities sold 8,995,000 543,000 Deferred income taxes (154,000) (887,000) ----------- ----------- Net cash (used in)provided by operating activities (1,758,000) 1,633,000 ----------- ----------- Cash flows from investing activities: Investment in real estate (700,000) (41,000) Additions to buildings, improvements and equipment (371,000) (474,000) Distributions from Justice Investors 397,000 501,000 ----------- ----------- Net cash used in investing activities (674,000) (14,000) ----------- ----------- Cash flows from financing activities: Borrowings from mortgage notes payable 4,215,000 - Principal payments on mortgage notes payable (2,400,000) (223,000) Purchase of treasury stock - (210,000) Dividends paid to minority shareholders (115,000) (63,000) ----------- ----------- Net cash provided by(used in) financing activities 1,700,000 (496,000) ----------- ----------- Net (decrease)increase in cash and cash equivalents (732,000) 1,123,000 Cash and cash equivalents at beginning of period 1,859,000 1,883,000 ----------- ----------- Cash and cash equivalents at end of period $ 1,127,000 $ 3,006,000 =========== =========== The accompanying notes are an integral part of the consolidated financial statements. -5- THE INTERGROUP CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. General The consolidated financial statements included herein are unaudited; however, in the opinion of The InterGroup Corporation ("InterGroup" or 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 include the accounts of the Company and its subsidiaries and should be read in conjunction with the Company's June 30, 2003 audited consolidated financial statements and notes thereto. As of September 30, 2003, the Company had the power to vote 68.8% of the voting shares of Santa Fe Financial Corporation ("Santa Fe"), a public company (Nasdaq SmallCap: SFEF). Santa Fe's revenue is primarily generated through the management of its 68.8% owned subsidiary, Portsmouth Square, Inc. ("Portsmouth"), which derives its revenue primarily as a general partner and a 49.8% limited partner in Justice Investors ("Justice"), a California limited partnership. Justice owns the land, improvements and leaseholds known as the Holiday Inn Financial District/Chinatown, a 566-room hotel in San Francisco, California. Certain reclassifications have been made to the financial statements as of September 30, 2002 and for the three months then ended to conform to the financial statements as of and for the three months ended September 30, 2003 presentation. The results of operations for the three months ended September 30, 2003 are not necessarily indicative of results to be expected for the full fiscal year ending June 30, 2004. Earnings Per Share Basic earnings per share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding. The computation of diluted earnings per share is similar to the computation of basic earnings per share except that the weighted-average number of common shares is increased to include the number of additional common shares that would have been outstanding if potential dilutive common shares had been issued. The Company's only potentially dilutive common shares are stock options. Stock options are included in diluted earnings per share by application of the treasury stock method. As of September 30, 2003, the Company had 333,000 stock options that were considered potentially dilutive common shares. These amounts were included in the calculation for diluted earnings per share. 2. Investment in Real Estate In August 2003, the Company purchased a property in Los Angeles, California for $700,000 cash. 3. Marketable Securities: Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. Marketable securities are classified as trading with net change in unrealized gains or losses included in earnings. -6- For the three months ended September 30, 2003, net gains on marketable securities of $2,028,000 included net unrealized gains of $2,408,000 and net realized losses of $380,000. For the three months ended September 30, 2002, net losses on marketable securities of $1,289,000 included net unrealized gains of $517,000 and net realized losses of $1,806,000. The Company may utilize margin for its marketable securities purchases through the use of standard margin agreements with national brokerage firms. The use of available leverage is guided by the business judgment of management. As part of the investment strategies, the Company may assume short positions in marketable securities. Short sales are used by the Company to potentially offset normal market risks undertaken in the course of its investing activities or to provide additional return opportunities. The Company has no naked short positions. As of September 30, 2003, the Company had obligations for securities sold(equities short) of $25,484,000. 4. Investment in Justice Investors: The consolidated accounts include a 49.8% interest in Justice Investors, a California limited partnership ("Justice Investors"), in which Portsmouth serves as one of the two general partners. The other general partner, Evon Garage Corporation ("Evon"), serves as the managing general partner. As a general and limited partner, Portsmouth has significant control over the management and operation of the assets of Justice Investors. All significant partnership decisions require the active participation and approval of both general partners. The Company and Evon jointly consult and determine the amount of partnership reserves and the amount of cash to be distributed to the limited partners. The partnership derives most of its income from a lease of its San Francisco, California hotel property to Felcor Lodging Trust, Inc. ("Felcor") and from a lease of the garage portion of the property to Evon. As a general partner, the Company and its subsidiaries are active in monitoring and overseeing the operations of the hotel and parking garage. Pursuant to the terms of the partnership agreement, voting rights of the partners are determined according to the partners' entitlement to share in the net profit and loss of the partnership. The Company is not entitled to any additional voting rights by virtue of its position as a general partner. The partnership agreement also provides that no portion of the partnership real property can be sold without the written consent of the general and limited partners entitled to more than 72% of the net profit. The Company amortizes the difference between the cost basis of its investment in Justice Investors and its share of the net assets allocable to depreciable assets of Justice Investors over 40 yrs. For the Company's investment in Justice, to the extent that projected future undiscounted cash flows from the operation of the Company's hotel property are less than the carrying value of the asset, the investment would be considered permanently impaired and the carrying value of the asset would be reduced to its fair value. -7- Condensed financial statements for Justice Investors are as follows: JUSTICE INVESTORS CONDENSED BALANCE SHEET As of September 30, 2003 ---------- Assets Total current assets $ 146,757 Loan fees and deferred lease costs, net of accumulated amortization of $13,293 45,810 Property, plant and equipment, net of accumulated depreciation of $12,751,272 5,929,551 Construction in progress 166,137 Land 1,124,128 ---------- Total assets $ 7,412,383 ========== Liabilities and partners' capital Total current liabilities $ 152,013 Long term debt 4,331,985 Partners' capital 2,928,385 ---------- Total liabilities and partners' capital $ 7,412,383 ========== JUSTICE INVESTORS CONDENSED STATEMENTS OF OPERATIONS For the three months ended September 30, 2003 2002 ---------- ---------- Revenues $ 1,011,881 $ 1,191,473 Costs and expenses (474,208) (188,888) ---------- ---------- Net income $ 537,673 $ 1,002,585 ========== ========== 5. Related Parties John V. Winfield serves as Chief Executive Officer and Chairman of the Company, Portsmouth, and Santa Fe. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Portsmouth and Santa Fe may, at times, invest in the same companies in which the Company invests. The Company encourages such investments because it places personal resources of the Chief Executive Officer and his family members, and the resources of Portsmouth and Santa Fe, at risk in connection with investment decisions made on behalf of the Company. 6. Segment Information The Company operates in three reportable segments, the operations of its multi-family residential properties, the operation of Justice Investors, and the investment of its cash and securities assets. These three operating segments, as presented in the financial statements, reflect how management internally reviews each segment's performance. Management also makes operational and strategic decisions based on this information. -8- Information below represents reported segments for the three months ended September 30, 2003 and the three ended September 30, 2002. Operating income for rental properties consists of rental income. Operating income from Justice Investors consists of the operations of the hotel and garage included in the equity in net income of Justice Investors. Operating income (losses) for investment transactions consist of net investment gains(losses)and dividend and interest income.
Real Estate ------------------------- Three months ended Rental Justice Investment September 30, 2003 Properties Investors Transactions Other Total ----------- ----------- ------------ ----------- ------------ Operating income $ 3,462,000 $ 208,000 $ 2,179,000 $ - $ 5,849,000 Operating expenses (1,747,000) - (522,000) - (2,269,000) Real estate taxes (376,000) - - (376,000) ----------- ----------- ----------- ----------- ------------ Net operating income 1,339,000 208,000 1,657,000 - 3,204,000 Mortgage interest expenses (828,000) - - - (828,000) Depreciation (675,000) - - - (675,000) General and administrative expenses - - - (358,000) (358,000) Other income - - - 13,000 13,000 Income tax expense - - - (542,000) (542,000) Minority interest - - - (213,000) (213,000) ----------- ----------- ----------- ----------- ------------ Net income(loss) $ (164,000) $ 208,000 $ 1,657,000 $(1,100,000) $ 601,000 =========== =========== =========== =========== ============ Total Assets $63,366,000 $ 8,736,000 $62,435,000 $ 7,927,000 $142,464,000 =========== =========== =========== =========== ============
Real Estate ------------------------- Three months ended Rental Justice Investment September 30, 2002 Properties Investors Transactions Other Total ----------- ----------- ----------- ----------- ------------ Operating income(loss) $ 3,338,000 $ 499,000 $(1,189,000) $ - $2,648,000 Operating expenses (1,537,000) - (220,000) - (1,757,000) Real estate taxes (341,000) - - (341,000) ----------- ----------- ----------- ----------- ------------ Net operating income(loss) 1,460,000 499,000 (1,409,000) - 550,000 Mortgage interest expenses (837,000) - - - (837,000) Depreciation (656,000) - - - (656,000) General and administrative expenses - - - (367,000) (367,000) Other income - - - 4,000 4,000 Income tax benefit - - - 490,000 490,000 Minority interest - - - 281,000 281,000 ----------- ----------- ----------- ----------- ------------ Net income(loss) (33,000) 499,000 (1,409,000) 408,000 (535,000) =========== =========== =========== =========== ============ Total Assets $63,806,000 $ 9,855,000 $ 3,550,000 $ 5,176,000 $82,387,000 =========== =========== =========== =========== ============
8. Subsequent Event In November 2003, the Company obtained $525,000 mortgage loan against the $700,000 real estate property purchased in August 2003. -9- Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS AND PROJECTIONS The discussion below and elsewhere in the Report includes forward-looking statements about the future business results and activities of the Company, which, by their very nature, involve a number of risks and uncertainties. When used in this discussion, the words "estimate", "project", "anticipate" and similar expressions, are subject to certain risks and uncertainties, such as the impact of terrorism and war on the national and international economies, including tourism and the securities markets, 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 and in the Company's Form 10-KSB for the fiscal year ended June 30, 2003 that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements. 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 Three Months Ended September 30, 2003 Compared to the Three Months Ended September 30, 2002 The Company had a net income of $601,000 for the three months ended September 30, 2003 compared to net loss of $535,000 for the three months ended September 30, 2002. The change was primarily due to the increase in gains on marketable securities compared to losses and an increase in dividend and interest income partially offset by the decrease in equity in net income from Justice Investors, a higher loss from real estate operations and the increase in margin and trading expenses. Rental income increased to $3,462,000 from $3,338,000 due to increased rental income from the St. Louis, Missouri property offset by reduced rental income at its Houston, Texas property and to a lesser extent, the California properties. Property operating expenses increased to $1,747,000 from $1,537,000 primarily due to the increase in insurance premiums for all properties and an increase in service expenses at its California properties. The equity in net income of Justice Investors decreased significantly to $208,000 from $499,000. That decrease was primarily attributable to increased partnership costs in the current quarter for consultants, experts and legal services relating the physical inspection of the hotel and the partnership's enforcement of the lessee's obligations under the lease and additional depreciation and interest costs related to the build-out of the new spa and meeting rooms in the hotel. Partnership revenues also declined approximately 15% due to a decrease in hotel occupancy rates to approximately 79% from 81% and a decrease in average room rates to approximately $90 from $95. A combination of factors continues to impact the hotel operations. First, the -10- San Francisco Bay Area has been very slow to recover from the devastating impact that the terrorist attacks of September 11, 2001 had on tourism and the hospitality industry. Second, the weak economy in the Bay Area, as result of the failure of numerous internet and technology companies, coupled with corporate relocations, has decreased business travel. Third, the hotel has faced increased competition from new properties and from higher end properties that have cut room rates in an effort to capture a share of a declining market. Based on industry reports, management is expecting a slow recovery in the San Francisco hotel marketplace. Net gains(losses) on marketable securities changed to gains of $2,028,000 for the three months ended September 30, 2003 from losses of $1,289,000 for the three months ended September 30, 2002. For the three months ended September 30, 2003, the Company had net unrealized gains of $2,408,000 and net realized losses of $380,000. For the three months ended September 30, 2002, the Company had net unrealized gains of $517,000 and net realized losses of $1,806,000. Gains and losses on marketable securities may fluctuate significantly from period to period in the future and could have a significant impact on the Company's net income. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company's marketable securities please see the Marketable Securities section below. Dividend and interest income increased to $151,000 from $100,000 as a result of the increased investment in dividend yielding securities. Margin interest and trading expenses increased to $522,000 from $220,000 primarily due to the increase in margin interest expense to $318,000 from $43,000 as the result of maintaining higher daily average margin balances. Income tax (expense)benefit changed to a tax expense of $542,000 from a tax benefit of $490,000 as the result of income generated in the current quarter ended September 30, 2003 versus a loss in the quarter ended September 30, 2002. Minority interest (expense)benefit changed to an expense of $213,000 from a benefit of $281,000 due to income generated by the Company's subsidiary in the current quarter ended September 30, 2003 versus a loss incurred in the quarter ended September 30, 2002. MARKETABLE SECURITIES The Company's investment portfolio is diversified with 184 different equity positions. Only one equity securities was more than 5% of the equity value of the portfolio, with the largest being 6.2%. The amount of the Company's investment in any particular issuer may increase or decrease, and additions or deletions to its securities portfolio may occur, at any time. While it is the internal policy of the Company to limit its initial investment in any single equity to less than 5% of its total portfolio value, that investment could eventually exceed 5% as a result of equity appreciation or reduction of other positions. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. -11- The following table shows the composition of the Company's marketable securities by selected industry groups as of September 30, 2003. % of Total Investment Industry Group Market Value Securities -------------- ------------ ---------- Electric, pipelines, oil and gas $17,353,000 27.8% Semiconductor, software, internet, and computer 9,422,000 15.2% Telecommunications and media 7,810,000 12.5% REITs, Lodging, home builders, and Hotels 7,797,000 12.5% Insurance and banks 4,810,000 7.7% Chemicals, materials, metals, and mining 4,364,000 7.0% Airlines and defense 4,276,000 6.8% Apparel, food and consumer goods 3,763,000 6.0% Other 2,840,000 4.5% ---------- ------ $62,435,000 100.0% ========== ====== The following table shows the net gain or loss on the Company's marketable securities and the associated margin interest and trading expenses for the three months ended September 30, 2003 and September 30, 2002, respectively. Three months ended Three month ended September 30, 2003 September 30, 2002 ------------ ------------ Net gain(losses) on marketable securities $ 2,028,000 $ (1,289,000) Dividend & interest income 151,000 100,000 Margin interest expense (318,000) (43,000) Trading and management expenses (204,000) (177,000) ------------ ------------ Investment income (loss) $ 1,657,000 $ (1,409,000) ============ ============ 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. During the three months ended September 30, 2003, the Company used net cash flow of $1,758,000 from operating activities, used net cash flow of $674,000 from investing activities, and generated net cash flow of $1,700,000 from financing activities. During the three months ended September 30, 2003, the Company made property improvements in the aggregate amount of $371,000. Management believes the improvements to its properties will enhance market values, maintain the competitiveness of the Company's properties and potentially enable the Company to obtain a higher yield through higher rents. -12- In July 2003, the Company refinanced a $2,141,000 real estate loan and obtained a new $4,215,000 loan on one of its Los Angeles, California properties. The Company's Board of Directors has given the Company the authority to repurchase, from time to time, shares of its Common Stock. Such repurchases may be made at the discretion of management and depending on market conditions. No repurchases were made during the three months ended September 30, 2003. The Company has invested in short-term, income-producing instruments and in equity and debt securities when deemed appropriate. The Company's marketable securities are classified as trading with unrealized gains and losses recorded through the statement of operations. Management believes that the net cash flow generated from future operating activities and its capital resources will be adequate to meet its current and future obligations. The Company has no off balance sheet arrangements. The Company also does not have any material contractual obligations or commercial commitments. IMPACT OF INFLATION The Company's residential and commercial rental properties provide income from short-term operating leases and no lease extends beyond one year. Rental increases are expected to offset anticipated increased property operating expenses. Hotel room rates are typically impacted by supply and demand factors, not inflation, since rental of a hotel room is usually for a limited number of nights. Room rates can be, and usually are, adjusted to account for inflationary cost increases. To the extent that the hotel lessee is able to adjust room rates, there should be minimal impact on partnership revenues due to inflation. Partnership revenues are also subject to interest rate risks, which may be influenced by inflation. For the two most recent fiscal years, the impact of inflation on the Company's income is not viewed by management as material. CRITICAL ACCOUNTING POLICIES The Company reviews its long-lived assets and other investments for impairment when circumstances indicate that a potential loss in carrying value may have occurred. To the extent that projected future undiscounted cash flows from the operation of the Company's hotel property, owned through the Company's investment in Justice Investors, and rental properties are less than the carrying value of the asset, the carrying value of the asset is reduced to its fair value. For other investments, the Company reviews the investment's operating results, financial position and other relevant factors to determine whether the estimated fair value of the asset is less than the carrying value of the asset. Marketable securities are stated at market value as determined by the most recently traded price of each security at the balance sheet date. Marketable securities are classified as trading with net unrealized gains or losses included in earnings. -13- Item 3. Controls and Procedures (a) Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Quarterly Report on Form 10-QSB. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission rules and regulations. (b) Internal Control Over Financial Reporting. There have been no changes in the Company's internal control over financial reporting during the last quarterly period covered by this Quarterly Report on Form 10-QSB that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 31.1 Certification of Chief Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a). 31.2 Certification of Chief Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a). 32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350. 32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350. (b) The Company filed the following Reports on Form 8-K - During the quarter ended September 30, 2003: Date of Report Item Reported Description ---------------- ------------------- ------------------ July 23 2003 Item 5. Other Events Compliance with and Regulation FD Nasdaq Listing Disclosure Requirements -14- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE INTERGROUP CORPORATION (Registrant) Date: November 14, 2003 by /s/ John V. Winfield ---------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: November 14, 2003 by /s/ David T. Nguyen ------------------------------ David T. Nguyen, Treasurer and Controller (Principal Accounting Officer) -15- EX-31 3 ex311.txt EXHIBIT 31.1 CEO CERTIFICATION EXHIBIT 31.1 CERTIFICATION I, John V. Winfield, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of The InterGroup Corporation 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing equivalent functions): a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal control over financial reporting. Date: November 14, 2003 /s/ John V. Winfield --------------------------- John V. Winfield, President and Chief Executive Officer EX-31 4 ex312.txt EXHIBIT 31.2 CFO CERTIFICATION EXHIBIT 31.2 CERTIFICATION I, David T. Nguyen, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of The InterGroup Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing equivalent functions): a) all significant deficiencies and material weakness in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in registrant's internal control over financial reporting. Date: November 14, 2003 /s/ David T. Nguyen --------------------------- David T. Nguyen, Treasurer and Controller (serving as Chief Financial Officer) EX-32 5 ex321.txt EXHIBIT 32.1 CEO CERTIFICATION EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The InterGroup Corporation (the "Company") on Form 10-QSB for the quarterly period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John V. Winfield, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 14, 2003 /s/ John V. Winfield ---------------------------- John V. Winfield, President and Chief Executive Officer [A signed original of this written statement required by Section 906 has been provided to The InterGroup Corporation, Inc. and will be retained by The InterGroup Corporation and furnished to the Securities and Exchange Commission or its staff upon request.] EX-32 6 ex322.txt EXHIBIT 32.2 CFO CERTIFICATION EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of The InterGroup Corporation (the "Company") on Form 10-QSB for the quarterly period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I David T. Nguyen, Treasurer and Controller of the Company, serving as Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: November 14, 2003 /s/ David T. Nguyen ---------------------------- David T. Nguyen, Treasurer and Controller (serving as Chief Financial Officer) [A signed original of this written statement required by Section 906 has been provided to The InterGroup Corporation and will be retained by The InterGroup Corporation and furnished to the Securities and Exchange Commission or its staff upon request.] -----END PRIVACY-ENHANCED MESSAGE-----