| BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES | NOTE
1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES Description
of Business Portsmouth’s
primary business was conducted through its general and limited partnership interest in Justice Investors Limited Partnership, a California
limited partnership (“Justice” or the “Partnership”). Effective July 15, 2021, Portsmouth completed the purchase
of 100 0.7 Prior
to its dissolution effective December 23, 2021, Justice owned and operated a 544-room hotel property located at 750 Kearny Street, San
Francisco California, known as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including
a five-level underground parking garage through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice
Mezzanine Company, LLC (“Mezzanine”). Mezzanine was a wholly owned subsidiary of the Partnership; Operating is a wholly owned
subsidiary of Mezzanine. Effective December 23, 2021, Portsmouth replaced Justice as the single member of Mezzanine. Mezzanine is the
borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership conveyed ownership of the Hotel to Operating.
The Hotel is a full-service Hilton brand hotel pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (“Hilton”)
through January 31, 2030. Operating
entered into a hotel management agreement (“HMA”) with Aimbridge Hospitality (“Aimbridge”) to manage the Hotel,
along with its five-level parking garage, with an effective date of February 3, 2017. The term of the management agreement is for an
initial period of ten years automatically renews for successive one (1) year periods, not
to exceed five years in the aggregate, subject to certain conditions. 1.70 10 As
of June 30, 2024, The InterGroup Corporation (“InterGroup”), a public company, owns approximately 75.7 2.5 69.4 Principles
of Consolidation The
consolidated financial statements include the accounts of the Company and Justice up to its dissolution in December 2021 at which time
all subsidiaries of Justice became subsidiaries of Portsmouth as the Company replaced Justice as the single member of Justice’s
subsidiaries where appropriate. All significant inter-company transactions and balances have been eliminated. Investment
in Hotel, Net Property
and equipment are stated at cost. Building improvements are depreciated on a straight-line basis over their useful lives ranging from
3 39 3 7 Repairs
and maintenance are charged to expense as incurred. Costs of significant renewals and improvements are capitalized and depreciated over
the shorter of its remaining estimated useful life or life of the asset. The cost of assets sold or retired and the related accumulated
depreciation are removed from the accounts; any resulting gain or loss is included in other income (expenses). The
Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable in accordance with generally accepted accounting principles (“GAAP”). If the carrying amount
of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest,
the Company will recognize an impairment loss equal to the difference between the assets’ carrying amount and its estimated fair
value. If impairment is recognized, the reduced carrying amount of the asset will be accounted for as its new cost. For a depreciable
asset, the new cost will be depreciated over the asset’s remaining useful life. Generally, fair values are estimated using discounted
cash flow, replacement cost or market comparison analyses. The process of evaluating for impairment requires estimates as to future events
and conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that a change in estimate
resulting from judgments as to future events could occur which would affect the recorded amounts of the property. No Investment
in Marketable Securities Marketable
securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. Marketable
securities are classified as trading securities with all unrealized gains and losses on the Company’s investment portfolio recorded
through the consolidated statements of operations. Cash
and Cash Equivalents Cash
equivalents consist of highly liquid investments with an original maturity of three months or less when purchased and are carried at
cost, which approximates fair value. As of June 30, 2024 and 2023, the Company does no Restricted
Cash Restricted
cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves for
the Hotel. Accounts
Receivable - Hotel, Net Accounts
receivable from Hotel customers are carried at cost less an allowance for doubtful accounts that is based on management’s assessment
of the collectability of accounts receivable. The net accounts receivable balance on July 1, 2022 was $ 377,000 519,000 419,000 0 1,000 Other
Assets Other
assets include prepaid insurance, estimated life insurance proceeds, prepaid expenses, other investments, net, and other miscellaneous
assets. Income
Taxes The
Company consolidated Justice (“Hotel”) for financial reporting purposes up to its dissolution in December 2021 and was
not taxed on its non-controlling interest in the Hotel. Effective July 15, 2021, the Company became the owner of 100% of Justice and
began to include all the Hotel’s income and expense accounts into its income taxes calculations going forward. The income tax
expense was $ 1,000 Deferred
income taxes are calculated under the liability method. Deferred income tax assets and liabilities are based on differences between the
financial statement and tax basis of assets and liabilities at the current enacted tax rates. Changes in deferred income tax assets and
liabilities are included as a component of income tax expense. Changes in deferred income tax assets and liabilities attributable to
changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established
for certain deferred tax assets where realization is not likely. The
Company accounts for its uncertain tax positions pursuant to ASC 740, Income Taxes. Due
to Securities Broker Various
securities brokers have advanced funds to the Company for the purchase of marketable securities under standard margin agreements. These
advanced funds are recorded as a liability. Accounts
Payable and Other Liabilities Accounts
payable and other liabilities include trade payables, advance customer deposits, accrued wages, accrued real estate taxes, and other
liabilities. Fair
Value of Financial Instruments Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. Accounting standards for fair value measurement establishes
a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would
use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability
of inputs as follows: Level
1 Level
2 Level
3 Revenue
Recognition Performance
Obligations We
identified the following performance obligations for which revenue is recognized as the respective performance obligations are satisfied,
which results in recognizing the amount we expect to be entitled to for providing the goods or services:
● Cancelable
room reservations or ancillary services
● Noncancelable
room reservations and banquet or conference reservations
● Other
ancillary goods and services
● Components
of package reservations Hotel
revenue primarily consists of hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package
reservations), food and beverage sales and other ancillary goods and services (e.g., parking). Revenue is recognized when rooms are occupied
or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are
provided. For package reservations, the transaction price is allocated to the performance obligations within the package based on the
estimated standalone selling prices of each component. We
do not disclose the value of unsatisfied performance obligations for contracts with an expected length of one year or less. Due to the
nature of our business, our revenue is not significantly impacted by refunds. Cash payments received in advance of guests staying at
our hotel are refunded to hotel guests if the guest cancels within the specified time period, before any services are rendered. Refunds
related to service are generally recognized as an adjustment to the transaction price at the time the hotel stay occurs or services are
rendered. See Note 3 – Revenue. Advertising
Costs Advertising
costs are expensed as incurred and are included in Hotel operating expenses in the consolidated statements of operations. Advertising
costs were $ 150,000 130,000 Basic
and Diluted Loss per Share Basic
loss per share is calculated based upon the weighted average number of common shares outstanding during each fiscal year. As of June
30, 2024 and 2023, the Company did not have any potentially dilutive securities outstanding. Use
of Estimates The
preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of
assets, liabilities, revenues, and expenses. Actual results may differ from those estimates. Management considers new evidence, both
positive and negative, that could affect its view of the future realization of deferred tax assets and when appropriate, records tax
valuation allowances based on that evidence and estimates. As of June 30, 2024 based on taxable income that may be available under tax
law the deferred taxed asset is not set more likely than not to be realized. Debt
Issuance Costs Debt
issuance costs related to a recognized debt liability are presented in the consolidated balance sheets as a direct deduction from the
carrying amount of the debt liability and are amortized over the life of the debt. Loan amortization costs are included in interest expense
in the consolidated statement of operations. Recently
Issued and Adopted Accounting Pronouncements In
November 2023, the FASB issued ASU No 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures”
(“ASU 202307”). ASU 2023-07 expands disclosures about a public entity’s reportable segments and requires more enhanced
information about a reportable segment’s expenses, interim segment profit or loss, and how a public entity’s chief operating
decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07
is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption
is permitted. ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. The Company does
not expect ASU 2023-07 to have a material effect on the Company’s current financial position, results of operations or financial
statement disclosures. In
December 2023, the FASB issued ASU No 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU
2023-09”). ASU 202309 expands disclosures in the rate reconciliation and requires disclosure of income taxes paid by jurisdiction.
ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-09 should be applied
prospectively; however, retrospective application is permitted. The Company does not expect ASU 2023-09 to have a material effect on
the Company’s current financial position, results of operations or financial statement disclosures. Going
Concern The
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. As discussed in Note 9 – Mortgage Notes Payable, as of June 30, 2024, the outstanding balance
consists of a senior mortgage loan and mezzanine loan totaling $ 100,783,000 679,000 117,102,000 64,100,000 Due
to these factors and the Company’s ability to successfully refinance the debt on favorable terms in the current lending environment
gives rise to substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statement
issuance date. On
January 4, 2024, the Company was made aware of a notice of default (the “Notice”) issued by its senior loan special servicer
LNR Partners, LLC to Justice Operating Company, LLC which is the wholly owned subsidiary of Portsmouth. The Notice states that the lender
has rights as a result of such defaults, including, but not limited to, acceleration of the loans, foreclosure on collateral and other
rights and remedies under the loan documents and otherwise available under the law. On January 10, 2024, the Company filed the required
Form 8-K with the Securities and Exchange Commission. During the entire life of the outstanding debt, the Company has made all mortgage
payments timely as of the date of maturity and as of June 30, 2024, there were no delinquent amounts due to the senior or mezzanine lenders.
On April 29, 2024, the Company entered into forbearance agreements with its senior and mezzanine lenders which establishes, among other
customary terms, the new maturity date of January 1, 2025. While the Company successfully entered into the aforementioned forbearance
agreements, we continue our efforts to place a longer-term refinancing solution to its current senior mortgage and mezzanine debt with
potential lenders. As such, there can be no assurance that the Company will be able to obtain additional liquidity when needed or under
acceptable terms, if at all. The
Hotel has successfully completed its full guest-rooms renovation over the last 2 years along with public space, fitness center, corridors,
and meeting space. With newly renovated rooms in its Competitive Set of hotels (“CompSet”) will allow the Hotel to continue
to drive rate and grow RevPAR over the market and its CompSet. The hotel recently received its annual Quality Assurance inspection from
Hilton and received the highest score at least in the hotel’s last decade at 94.45% which is an “Outstanding” ranking
by Hilton. Even
during the renovation that took out between 2-4 floors or 50-100 guest rooms of inventory at a time, the Hotel maintained an index of
over 100%. At the end of the renovation in June 2024, the Hotel’s trailing 12-month index was 109.6%. During the fiscal year ending
June 30, 2024, the Hotel’s CompSet achieved a RevPAR of $ 161.47 176.99 The
financial statements do not include any adjustments to the carrying amounts of assets, liabilities, and reported expenses that may be
necessary if the Company were unable to continue as a going concern. |
