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<SEC-DOCUMENT>0001214305-09-000009.txt : 20100308
<SEC-HEADER>0001214305-09-000009.hdr.sgml : 20100308
<ACCEPTANCE-DATETIME>20090522133423
<PRIVATE-TO-PUBLIC>
ACCESSION NUMBER:		0001214305-09-000009
CONFORMED SUBMISSION TYPE:	CORRESP
PUBLIC DOCUMENT COUNT:		1
FILED AS OF DATE:		20090522

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:		CORRESP

	BUSINESS ADDRESS:	
		STREET 1:		10940 WILSHIRE BLVD.
		STREET 2:		SUITE 2150
		CITY:			LOS ANGELES
		STATE:			CA
		ZIP:			90024
		BUSINESS PHONE:		(310) 889-2500

	MAIL ADDRESS:	
		STREET 1:		10940 WILSHIRE BLVD.
		STREET 2:		SUITE 2150
		CITY:			LOS ANGELES
		STATE:			CA
		ZIP:			90024

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	MUTUAL REAL ESTATE INVESTMENT TRUST
		DATE OF NAME CHANGE:	19860408
</SEC-HEADER>
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
                           THE INTERGROUP CORPORATION
                                820 Moraga Drive
                              Los Angeles, CA 90049
                            Telephone: (310) 889-2500
                            Facsimile: (310) 889-2525


Via EDGAR


May 22, 2009

Robert Telewicz
Senior Staff Accountant
Securities and Exchange Commission
Division of Corporation Finance, Mail Stop 3010
Washington, D.C. 20549

Re:  The InterGroup Corporation
     Form 10-KSB for the fiscal year ended June 30, 2008
     File No. 001-10324

Dear Mr. Telewicz:

This letter is in response to your further comment letter dated April 16, 2009
regarding the Form 10-KSB for the fiscal year ended June 30, 2008 of The
InterGroup Corporation ("InterGroup" or the "Company").  Our responses below
correspond to each of the comments set forth in your letter.  For convenience,
we have set forth the comment or question asked prior to each of our
responses.


Form 10-KSB for the fiscal year ended June 30, 2008
- ---------------------------------------------------

Financial Statements
- --------------------

Consolidated Statements of Operations, page 34
- ----------------------------------------------

1.  We have considered your response to our prior comment. Please revise your
    income statement presentation to comply with Rule 5-03 of Regulation S-X.


RESPONSE:

The Company will revise its income statement presentation in future filings,
beginning with its Form 10-Q for the quarterly period ended March 31, 2009, to
comply with Rule 5-03 of Regulation S-X.

<PAGE>

Notes to Consolidated Financial Statements
- ------------------------------------------

Note 1 - Business and Significant Accounting Policies and Practices
- -------------------------------------------------------------------

Minority Interest, page 40
- --------------------------

2.  We have considered your response to our prior comment 2. It is not clear
    from your response whether all of the minority interest holders in Justice
    have a binding obligation to fund the accumulated deficits of the limited
    partnership. Please explain to us how your current accounting treatment
    complies with GAAP or revise your financial statements accordingly.

RESPONSE:

As of June 30, 2008, the Company had recorded an asset related to the minority
interest in Justice Investors. The Company's accounting treatment complies
with GAAP since Evon Corporation (as a general and limited partner) and its
related limited partners have a present, binding legal obligation to make good
on the losses of Partnership and to fund its accumulated deficits. The
presence of such an obligation on the part of the minority interest holders is
an exception to the general rule set forth under FASB ARB No. 51, para. 15 -
Consolidated Financial Statements-Minority Interests.

While the legal obligations of the other general partner and minority
interests discussed above are sufficient to support the recording of the
minority interest asset under GAAP, the Company also considered other factors
in support of its recoverability.  Since fiscal 2007, the operations of the
Hotel have continued to generate positive cash flows and the Partnership is
expected to generate significant net taxable income in the future, especially
when the substantial accelerated depreciation and amortization expenses
attributable to the renovation of the Hotel start to decrease in fiscal 2010.
In addition, the Hotel is estimated to have approximately $50,000,000 in
equity available to the Partnership to meet it current and future obligations.


Note 14 - Income Taxes, page 42
- -------------------------------

3.  We have considered your response to our prior comment 5. Given the recent
    history of losses of Portsmouth square, and the poor economic outlook for
    the hotel, we remain unclear how you have been able to conclude that no
    valuation allowance is necessary for the deferred tax assets of
    Portsmouth. Please explain to us how you have applied the guidance in
    Paragraphs 23 and 24 of SFAS 109 in concluding that there is adequate
    positive evidence that your deferred tax assets will be realized to
    warrant not recording a valuation allowance. In addition, please provide
    us with an analysis of the timing of the reversal of your deferred tax
    liabilities compared to the reversal of your deferred tax assets.

RESPONSE:

InterGroup is the parent company of Santa Fe Financial Corporation ("Santa
Fe") and Portsmouth Square, Inc. ("Portsmouth") is a 68.8% owned subsidiary of

                                    -2-
<PAGE>

Santa Fe. Although consolidated for financial reporting, InterGroup, Santa Fe
and Portsmouth are each separate tax paying entities and are viewed as such
for tax purposes.

InterGroup as of June 30, 2008, on a standalone tax basis, had a total of
approximately $19.9 million in deferred tax liabilities related to 1031 tax
deferred tax exchanges of its real estate properties and approximately $5.7
million in net operating loss carryforwards that can be applied against the
deferred tax liabilities when management sells its real estate properties.
Management's current strategy is to sell most of its properties located
outside of California which have been owned for over 20 years and have a low
depreciated historical cost basis.  The sales of these properties would
generate estimated taxable gains of over $30 million.  Over the last several
years, management has sold four properties located outside of California and
had recognized gains of approximately $10.2 million.  As of June 30, 2008, the
Company has listed two properties for sale that it expects to sell within the
next 12-24 months. The sale of these two properties would generate estimated
taxable gains of approximately $8 - $10 million which would more than fully
utilize the Company's NOL carryforward of $5.7 million.

Santa Fe, on a standalone tax basis, generates taxable income from two small
apartment buildings and from its investment portfolio. However, due to the
limited amount of income generated from its two apartment buildings and
investment portfolio, as of June 30, 2008, all of its deferred tax assets
totaling $1.2 million was considered impaired and an impairment loss was
recorded for the entire amount.

The Staff specifically requested that the Company explain how it applied the
guidance in Paragraphs 23 and 24 of SFAS 109, particularly as it relates to
Justice Investors and the Hotel operations. We supplement our prior response
as follows:

Paragraph 23 of SFAS 109 provides the following guidance:

   "23. Forming a conclusion that a valuation allowance is not needed is
    difficult when there is negative evidence such as cumulative losses in
    recent years. Other examples of negative evidence include (but are not
    limited to) the following:

      a. A history of operating loss or tax credit carryforwards expiring
         unused

      b. Losses expected in early future years (by a presently profitable
         entity)

      c. Unsettled circumstances that, if unfavorably resolved, would affect
         future operations and profit levels on a continuing basis in future
         years

      d. A carryback, carryforward period that is so brief that it would limit
         realization of tax benefits if (1) a significant deductible temporary
         difference is expected to reverse in a single year or (2) the
         enterprise operates in a traditionally cyclical business."

                                    -3-
<PAGE>

Application of SFAS 109, Paragraph 23, Guidance:
- -----------------------------------------------

Negative Evidence
- -----------------

1. Cumulative Losses

We recognize that Portsmouth has had a recent history of losses, primarily due
to losses of Justice Investors ("Justice" or the "Partnership") resulting from
the temporary shutting down of the operations of the Hotel in May 2005 to
undertake a complete renovation and repositioning of the Hotel from a Holiday
Inn to a full service Hilton. As part of that renovation, the Partnership
spent approximately $37,000,000 in direct construction and renovation costs.
In addition, the Partnership incurred a loss of approximately $1,991,000 on
disposition of assets in fiscal 2005 related to the closing of the Hotel.

The following table sets forth the income (loss) of Justice Investors for the
fiscal years ended June 30, 2003 to June 30, 2008 attributable to Portsmouth
(deducting minority interest) and the total income (loss) before income taxes
of Portsmouth.

      Fiscal Year           Justice             Portsmouth
     Ended June 30,       Income (Loss)        Income (Loss)
     --------------       -------------        ------------
        2003(1)           $ 1,568,000           $ 2,370,000
        2004(1)           $ 3,428,000           $ 5,551,000
        2005(2)           $(2,091,000)          $(4,302,000)
        2006(3)           $(4,288,000)          $(3,307,000)
        2007(4)           $(2,167,000)          $(2,524,000)
        2008(4)           $(  611,000)          $(3,219,000)

(1) During fiscal years 2003 through 2004, the Hotel was leased to Felcor
Lodging trust and operated as a Holiday Inn.

(2) For fiscal year 2005, the Felcor lease was terminated and the Hotel was
operated by a third party management company while the Partnership searched to
move the Hotel up-market with a new franchise agreement. After reaching an
agreement with Hilton Hotels, the Hotel was shut down for major renovations in
May 2005 to be repositioned as a full service Hilton. At that time, Justice
incurred a loss of approximately $1,991,000 on disposition of assets in
conjunction with the closing of the Hotel.

(3) During fiscal 2006 the Hotel was temporarily closed for seven months until
it reopened in January 2006 as a Hilton with a limited number of rooms
available. The Hotel did not transition into full operations until the end of
February 2006. The Hotel incurred significant start up costs in reopening the
Hotel. As typical in the industry for hotels that shut down operations for
major renovations, it took several months for the Hotel to ramp up operations
and to start generating operating income. Together with the significant
depreciation and amortization expenses resulting from the improvements made to
the Hotel, the Partnership sustained significant losses in fiscal 2006.

(4) Beginning fiscal year ending June 30, 2007, the results of operations for
Justice were consolidated with those of the Company.  Prior to that, the
Company's investment in Justice was accounted for under the equity method.

                                    -4-
<PAGE>

ANALYSIS:
- --------

Prior to the Partnership's decision to terminate the Felcor lease and to
reposition the Hotel from a Holiday Inn to a Hilton, Justice had a long
history of generating significant taxable income to Portsmouth.  However, by
Fiscal 2004, the Hotel was approximately 35 years old and in need of
significant capital improvements. Felcor had indicated that it was not
prepared to fund such improvements and would opt to terminate its lease
effective December 31, 2004 and not exercise its option for another 5-year
term.

Rather than wait for the expiration of the lease term, Justice negotiated a
termination of the Felcor lease effective June 30, 2004. That decision was
part of a long-term business plan to totally renovate the Hotel and to take
the Hotel up-market by repositioning it as a full service Hilton.
That business plan required the closing of the Hotel for a period of more than
seven months and the expenditure of approximately $37,000,000 in renovation
costs. As part of that plan, the Partnership anticipated and budgeted for
significant losses while the Hotel was temporarily closed for renovations and
for the period of time when the Hotel ramped up operations after reopening.
Those losses were considered by management to be temporary in nature and a
natural consequence of its business plan to renovate and reposition the Hotel.
In addition, Justice commissioned a cost-segregation study which allowed the
Partnership to accelerate depreciation on certain aspects of the renovation
project resulting in greater depreciation and amortization costs for tax
purposes in the first five years after the reopening of the Hotel.

While the losses attributable to Justice Investors and the operations of the
Hotel since fiscal 2005 can be considered negative evidence under Paragraph 23
of SFAS 109, those losses were anticipated as part of the business plan
instituted by management to upgrade and reposition the Hotel to make it more
competitive and profitable in the future. As discussed below under positive
evidence, those losses have been in line with that plan and the Hotel has been
generating positive cash flows since June 2006.

2. Other Negative Evidence

The other examples of negative evidence set forth in Paragraph 23 of SFAS are
not applicable.

      * Portsmouth does not have a history of operating loss or tax credit
carryforwards expiring. In fact, Portsmouth has never experienced such
expirations. As discussed below, Portsmouth's net operating losses do not
start to expire until 2023 for federal tax purposes and 2013 for state tax
purposes.

      * As of the date of its assessment for its Form 10-KSB for the fiscal
year ended June 30, 2008, management did not expect losses in early future
years. As discussed below, based on the continuing improvement in the
operating results of the Hotel, the decrease in future depreciation and
amortization expenses and other positive indicators, the Company expects that
the Hotel will generate sufficient taxable income to fully realize its
deferred tax asset.

      * There were no "unsettled circumstances" that, if unfavorably resolved,
would adversely affect future operations or profit levels on a continuing
basis in future years. While the downturn in the economy began to impact the

                                    -5-
<PAGE>

San Francisco hotel industry in the later part of September 2008, that was
after management's assessment of its deferred tax assets as of June 30, 2008.
Furthermore, the Company generated income from Hotel operations of $241,000
for the three months ended September 30, 2008.

      * The Company's carryforward periods are very long and will not limit
realization of its deferred tax asset.


Application of SFAS 109, Paragraph 24, Guidance:
- -----------------------------------------------

Positive Evidence
- -----------------

Paragraph 24 of SFAS 109 provides examples (not prerequisites) of positive
evidence that might support a conclusion that a valuation allowance is not
needed when there is negative evidence including (but not limited to) the
following:

      a. Existing contracts or firm sales backlog that will produce more than
enough taxable income to realize the deferred tax asset based on existing
sales prices and cost structures.

      * While this example appears relate to manufacturing and retail sales,
management did consider current and future occupancy, room rates, costs
structures and economic conditions as part of its projections and assessment
which are discussed below.

      b. An excess of appreciated value over the tax basis of the entity's net
assets in an amount sufficient to realize the deferred tax asset.

      * The most recent appraisal of the Hotel as of the filing of the
Company's Form 10-KSB for the fiscal year ended June 30, 2008, estimated the
fair market value to be approximately $111,600,000. As reflected on
Portsmouth's Consolidated Balance Sheet as of June 30, 2008, the investment in
hotel, net, was $39,495,000 and the investment in real estate was $973,000.
Based on those numbers, there is more than sufficient appreciated value in the
Hotel over its tax basis to realize the Company's deferred tax asset.

      c. A strong earnings history exclusive of the loss that created the
future deductible amount (tax loss carryforward or deductible temporary
difference) coupled with evidence indicating that the loss (for example, an
unusual, infrequent, or extraordinary item) is an aberration rather than a
continuing condition.

      * Prior to the temporary closing of the Hotel for major renovations and
repositioning, the Company had a strong earnings history and Justice provided
significant taxable income from the Hotel. For the fiscal years ended June 30,
2003 and 2004, Portsmouth reported pre-tax income of $2,370,000 and
$5,551,000, respectively. Effective May 2005, the Partnership decided to
temporarily close down the operations of the Hotel as part of a comprehensive
business plan to completely renovate and reposition the Hotel as a full
service Hilton. As discussed in more detail below, the losses associated with
the closing, renovation, repositioning and reopening of the Hotel were
expected and budgeted for as part of a long range plan to make the Hotel more
competitive and be able generate greater income in the future. As such,

                                    -6-
<PAGE>

management considered the losses associated with the implementation of that
plan to be infrequent and extraordinary items that will reverse in the future
and are not a continuing condition.

Other Positive Evidence:
- -----------------------

1. Long Expiration Period for Net Operation Loss Carryforwards

Set forth below are schedules of the amounts and the expiration years of
Portsmouth's net operation loss ("NOL") carryforwards  with their expiration
years for both Federal and State of California as of June 30, 2008. For
Federal tax purposes the NOL carryforwards do not begin to expire until 2023
and for State tax purposes the NOL carryforwards do not begin to expire until
2013.

                              Federal NOL
                              -----------

               NOL Carryforward          Expiration Year
               ----------------          ---------------
                 $   397,229                 2023
                 $   109,580                 2024
                 $ 3,149,187                 2025
                 $ 3,276,442                 2026
                 $ 2,873,568                 2027
                 $   494,994                 2028
                 -----------
         TOTAL:  $10,301,000


                              California NOL
                              --------------

               NOL Carryforward          Expiration Year
               ----------------          ---------------
                 $   137,932                 2013
                 $         -                 2014
                 $ 2,894,977                 2015
                 $ 3,328,285                 2016
                 $ 2,873,568                 2017
                 $   791,238                 2018
                 -----------
         TOTAL:  $10,026,000

The fact that the Company has approximately 15 years before its NOL
carryforwards start to expire for Federal tax purposes and approximately 5
years for State tax purposes is strong positive evidence that the Company
should be able to realize its deferred tax asset. To the extent that the
Company is not generating sufficient taxable income in the future as these NOL
carryforwards approach expiration, it will reduce its deferred tax assets by
an appropriate valuation allowance.

                                    -7-
<PAGE>

2. Improving Operating Trends of the Hotel Year over Year

Average daily room rates, occupancy, revenue per available room ("RevPar") and
total hotel revenues have continued to improve since the reopening of the
Hotel in January 2006 through fiscal year ended June 30, 2008. The following
table sets forth the total revenues, average daily room rate, occupancy
percentage and RevPar for the Hotel for the years ended June 30, 2008 and 2007
and for the five an one-half months of operations for the year ended June 30,
2006.

  Year Ended      Total Hotel      Average        Average
   June 30,        Revenues       Daily Rate     Occupancy%       RevPar
  ----------      -----------     ----------     ----------       ------
     2008         $37,778,000        $175          84.1%           $148
     2007         $31,715,000        $160          75.8%           $122
     2006         $ 9,999,000        $147          50.2%           $ 74

These improving trends provided positive evidence to support to management's
conclusions that the Hotel operations will be profitable in the future and
that the Company will be able to fully realize its deferred tax asset as
reported in its Form 10-KSB for the period ended June 30, 2008. It is
significant to note that the downturn in the economy did not begin to have any
significant impact on the hotel industry in San Francisco until the end of
September 2008. Management's assessment of the future profitability of the
Hotel was based on all the information available at that time, including the
above actual operating results. At that time, management was still expecting
continuing improvement as reflected by this forward looking statement at Page
17 of its 10-KSB, "While we expect operating revenues of the Hotel to continue
to grow, that growth will probably be at a slower pace due to the uncertain
economy and the impact of rising fuel costs on travel."


3. Improving Quarterly and Annual Hotel Operating Results and Cash Flows

In making its assessment, management also considered the improving trends in
the operating results of the Hotel year over year and for comparable quarters.
Management also looked at the impact that depreciation and amortization
expenses had on those results. The following table sets forth the income
(loss) from hotel operations for the two most recent fiscal years and
respective quarterly periods.

                   Income (Loss)                       Income (Loss) before
                    From Hotel       Depreciation &      Depreciation and
  Fiscal 2008       Operations        Amortization     Amortization Expense
- ----------------   -------------     --------------    --------------------
Quarter  9/30/07   $   (511,000)      $ (1,083,000)      $   572,000
Quarter 12/30/07   $   (555,000)      $ (1,118,000)      $   563,000
Quarter  3/31/08   $   (530,000)      $ (1,105,000)      $   575,000
Year end 6/30/08   $ (1,413,000)      $ (4,463,000)      $ 3,050,000

  Fiscal 2007
- ----------------
Quarter  9/30/06   $   (731,000)      $ (1,034,000)      $   303,000
Quarter 12/30/06   $   (912,000)      $ (1,040,000)      $   128,000
Quarter  3/31/07   $ (1,603,000)      $ (1,042,000)      $  (561,000)
Year end 6/30/07   $ (4,590,000)      $ (4,172,000)      $  (418,000)

                                    -8-
<PAGE>

The table shows that income from hotel operations improved dramatically from
fiscal year ended June 30, 2007 to fiscal year ended June 30, 2008 as well as
in each comparable quarter. The table also highlights the significant impact
that depreciation and amortization expenses have on the reported income (loss)
from hotel operations and the fact that the hotel operations began to generate
healthy cash flows throughout fiscal 2008.

4. Favorable Net Operating Income Projections as of June 30, 2008

In support of its assessment for fiscal year ended June 30, 2008, management
also considered five-year net operating income projections for Justice
Investors based on actual Hotel operating results, Hotel operating forecasts
provided by Prism and the Hotel executive management, as well as hotel
industry reports. These projections incorporated all information available to
management at the time of its assessment which was made before the downturn in
the San Francisco hotel market at the end of September 2008.

Since Justice is a limited partnership and files income tax returns on a
calendar year, the projections were also made on a calendar basis. The
following table sets forth the projected net operating income for Justice
Investors for the calendar years 2008 through 2012 which was considered by
management in making its assessment as of June 30, 2008. Since depreciation
and amortization expense is a very important component of those projections,
we have also set forth the projected tax depreciation and amortization
expenses for those years.

<TABLE>
                       2008         2009         2010         2011         2012
                    ----------   ----------   ----------   ----------   ----------
<S>                 <C>          <C>          <C>          <C>          <C>
Justice NOI         $  476,000   $3,486,106   $4,397,084   $6,550,853   $8,048,738

Depreciation and    $4,050,226   $2,957,773   $3,152,184   $2,527,030   $1,773,957
 Amortization

</TABLE>

Significant to note, is that annual depreciation and amortization expenses are
projected to decrease significantly from 2008 to 2012 and will continue to
decrease thereafter, unless new major improvements are made to the Hotel.
Since the Hotel was just recently fully renovated, no major improvements to
the hotel are anticipated in the foreseeable future. The decreases in
depreciation and amortization expenses will flow through to the bottom line
and will boost the Company's taxable income in the upcoming years.

Assuming a very conservative scenario where the economy does not improve and
Hotel operating income, before depreciation and amortization, remains the same
as it was for fiscal 2008 at $3,050,000 with only a 5% annual inflation
factor, the taxable income generated by Hotel operations would look as follows
for the next five years:

                                    -9-
<PAGE>
<TABLE>
                                        Hotel Operations
                                        ----------------

                                 2009          2010          2011          2012         2013
                              -----------   -----------   ----------    ----------   -----------
<S>                           <C>           <C>           <C>           <C>          <C>
Income before Depreciation    $ 3,202,000   $ 3,364,000   $ 3,532,000   $ 3,709,000   $ 3,894,000
 and Amortization

Depreciation and              ($2,957,773)  ($3,152,184)  ($2,527,030)  ($1,773,957)  $(1,639,827)
 Amortization                 -----------   -----------   -----------   -----------   -----------

Net Taxable Income            $   244,227   $   211,816   $ 1,004,970   $ 1,935,043   $ 2,254,173
                              ===========   ===========   ===========   ===========   ===========
</TABLE>

CONCLUSION
- ----------

In performing its assessment of the Company's deferred tax assets as of June
30, 2008, management considered all evidence (both positive and negative)
available at that time to determine whether, based on the weight of that
evidence, a valuation allowance was needed.  Among the guidance applied was
Paragraphs 23 and 24 of SFAS 109.

While losses incurred in recent years were a negative indicator under
Paragraph 23, those losses were expected and budgeted for as part of a long-
range plan to make the Hotel more competitive and to generate greater income
in the future. As such, management considered the losses associated with the
implementation of that plan to be infrequent and extraordinary items that will
reverse in the future and are not a continuing condition. As discussed above,
the other examples of negative evidence set forth in Paragraph 23 were either
not applicable or not a factor at the time of the assessment.

There was significant positive evidence under the guidance set forth in
Paragraph 24 that management considered to outweigh any negative evidence.
That evidence included the following:

      * There is an excess of appreciated value in the Hotel over the tax
basis of the Company's net assets in an amount sufficient to realize the
deferred tax asset.

      * Prior to the temporary closing of the Hotel for major renovations and
repositioning, Portsmouth had a strong earnings history and Justice provided
significant taxable income from the Hotel.

      * There is a long expiration period for the Company's net operating loss
carryforwards for both Federal and State tax purposes and the Company does not
have a history of having any such loss carryforwards expire.

      * The operating trends for the Hotel, including revenues, average room
rates, occupancy and RevPar, have continued to improve year over year.

      * Hotel operating income and cash flows have continued to improve on a
quarterly and annual basis and.

      * Depreciation and amortization expenses related to the renovation of
the Hotel will steadily decrease in the next five years. The decrease in those
expenses will flow directly to the bottom line and increase taxable income.

                                    -10-
<PAGE>

Unless new improvements are made to the Hotel, those expenses will continue to
decrease in later years.

      * Forecasts and projections from Prism and Hotel management showed
significant increases in net operating income from Hotel operations in the
next five years.

      * Even if Hotel operating income (before depreciation and amortization)
stays at relatively the same levels as fiscal year ended June 30, 2008, due to
economic conditions, taxable income from hotel operations would still increase
significantly in the next five years as depreciation and amortization expenses
decrease, allowing the Company to utilize any operating loss carryforwards
that may be nearing expiration.

Based on the weight of the competing evidence available at the time of its
assessment, management concluded that no valuation allowance for the Company's
deferred tax asset recorded as of June 30, 2008 was required.

SUBSEQUENT EVENTS
- -----------------

The staff also inquired how the Company was able to conclude that no valuation
allowance is necessary for the deferred tax assets of Portsmouth given the
"poor economic outlook for the hotel".  As of date of management's assessment
of Portsmouth's deferred tax assets for its Form 10-KSB for the period ended
June 30, 2008, there were few, if any, negative indicators for the future
economic outlook for the Hotel. The economic downturn in the San Francisco
hotel market did not occur until the later part of September 2009, at the end
of the Company's first quarter of fiscal 2009.

The Company's Form 10-Q for the period ended September 30, 2008 did have
cautionary language that the Company expected that Hotel revenues would be
lower in fiscal 2009. By the time that the Company filed its Form 10-Q in
November 2008, it already had the benefit of having actual operating results
for the month of October 2008 and a revised forecast for the remainder of the
calendar year on which to base its forward looking statements.

With respect to the actual operating results for the three months ended
September 30, 2008, the Company generated income from hotel operations of
$241,000 (after depreciation and amortization expense of $1,097,000) compared
to a loss of $508,000 for the three months ended September 30, 2007. That was
a dramatic improvement over the comparable period in the prior year and the
first period since the reopening of the Hotel that the Company posted net
income from hotel operations after depreciation and amortization expense.
While those results were obtained after management's assessment and the filing
of its Form 10-KSB for the year ended June 30, 2008, they do support
management's earlier conclusion that the hotel would generate taxable income
in the future.

Since the Company's March 16, 2009 response to the staff's initial comment
letter dated February 12, 2009, it has filed its Form 10-Q for the period
ended March 30, 2009. Despite a significant decline in revenues due to very
difficult economic conditions, the Company was able to keep the loss from
hotel operations at $1,998,000 (after depreciation and amortization expense of
$3,335,000) for the nine months ended March 31, 2009, compared to a loss of
$1,593,000 (after depreciation and amortization expense of 3,306,000) for the
nine months ended March 31, 2008. However, the results for the nine months
ended March 31, 2009 included a one-time loss related to the termination of

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<PAGE>

the hotel garage lease in the amount of $684,000. Without that special non-
recurring charge, the results from hotel operations would have improved by
approximately $279,000 over the prior period. The Company was able to achieve
those results by dramatically cutting hotel operating expenses by
approximately $3.5 million for the nine months ended March 31, 2009 over the
prior period. Management believes that the reduction of those operating costs
will put the Hotel in a position to generate much greater taxable income when
the economy recovers.

Although the results of the hotel operations for first nine months of fiscal
2009 are below the projections made in conjunction with management's
assessment at the end of the Company's fiscal year ended June 30, 2008, they
are still on par or a little ahead of the prior year despite very difficult
economic conditions. At this time, management views those results as a
positive indicator that the operations of the Hotel will generate significant
taxable income in the future, especially as depreciation and amortization
expenses decrease in the next couple of years.  Furthermore, the termination
of the garage lease, effective October 1, 2008, is expected to generate
approximately $300,000 in additional annual operating income through November
30, 2010 (the term of the installment sale agreement) and approximately
$600,000 per year thereafter.

Management will continue to assess its deferred tax assets on an ongoing
basis, based on the weight of available evidence, to determine whether it is
more likely than not that those assets will be realized and to take any
valuation allowance that may be needed.


In connection with responding to your comments, the Company acknowledges that:

   * the Company is responsible for the adequacy and accuracy of the
     disclosure in the filings;

   * staff comments or changes to disclosure in response to staff comments do
     not foreclose the Commission from taking any action with respect to the
     filings; and

   * the Company may not assert staff comments as a defense in any proceeding
     initiated by the Commission or any person under the federal securities
     laws of the United States.

If you require further information or have further comments, please feel free
to call me at my direct number at (310) 889-2511 or you can reach me at my
direct facsimile number (310) 496-1606.

Sincerely,

/s/ David T. Nguyen

David T. Nguyen
Treasurer and Controller
Principal Financial Officer

cc:   John V. Winfield
      Michael G. Zybala
      Burr, Pilger & Mayer LLP
      Audit Committee

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