UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 ~~----------------------~~

FORM 10-K ~~[x] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934~~

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, ~~2010 [ ] Transition report under Section 13~~ 2012

or ~~15(d) of~~

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~Securities Exchange Act of 1934~~ transition period from _______ to_________

Commission File Number 0-4057

PORTSMOUTH SQUARE, ~~INC. ----------------------- (Exact~~INC.

(Exact name of registrant as specified in its charter) California 94-1674111 ---------- ---------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.)

CALIFORNIA	94-1674111
(State or other jurisdiction of	(I.R.S. Employer
Incorporation or organization)	Identification No.)

10940 Wilshire Blvd., Suite 2150, Los Angeles, California 90024 ~~- --------------------------------------------------------- -------- (Address~~

(Address of principal executive offices) ~~(Zip~~(Zip Code) ~~Registrant's~~

(310) 889-2500

(Registrant’s telephone number, including area ~~code: (310) 889-2500~~ code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value ~~--------------------------~~

(Title of ~~Class~~ class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ~~[ ]~~

¨ Yes ~~[X]~~x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the ~~Exchange~~ Act. ~~[ ]~~

¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

x Yes ~~[X]~~¨ No ~~[ ]~~

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ~~[ ]~~

x Yes ~~[ ]~~¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ~~[X]~~

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. ~~Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]~~

Large accelerated filer¨	Accelerated filer¨

Non-accelerated filer¨	Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) ~~[ ]~~:

¨ Yes ~~[X]~~x No

The aggregate market value of the Common Stock, no par value, held by ~~non- affiliates~~non-affiliates computed by reference to the average bid and asked price on December ~~31, 2009~~30, 2011 (the last business day of ~~registrant's~~registrant’s most recently completed second fiscal ~~quarter)~~quarter ended December 31, 2011) was ~~$1,628,417.~~ $2,156,503.

The number of shares outstanding of ~~registrant's~~registrant’s Common Stock, as of September ~~10, 2010,~~5, 2012, was 734,183.

DOCUMENTS INCORPORATED BY REFERENCE: None ~~-2-~~

TABLE OF CONTENTS PART I PAGE ------ ---- Item 1. Business. 5 Item 1A. Risk Factors. 12 Item 1B. Unresolved Staff Comments. 12 Item 2. Properties. 12 Item 3. Legal Proceedings. 13 PART II ------- Item 5. Market for Registrant's Common Equity, Related Stockholder 14 Matters and Issuer Purchases of Equity Securities. Item 6. Selected Financial Data. 15 Item 7. Management's Discussion and Analysis of Financial 15 Condition and Results of operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. 22 Item 8. Financial Statements and Supplementary Data. 22 Item 9. Changes in and Disagreements With Accountants on 47 Accounting and Financial Disclosure. Item 9A. Controls and Procedures. 47 Item 9B. Other Information. 48 PART III -------- Item 10. Directors, Executive Officers and Corporate Governance. 48 Item 11. Executive Compensation. 51 Item 12. Security Ownership of Certain Beneficial Owners and 54 Management and Related Stockholder Matters. Item 13. Certain Relationships and Related Transactions, and 55 Director Independence. Item 14. Principal Accounting Fees and Services. 57 PART IV ------- Item 15. Exhibits, Financial Statement Schedules. 58 SIGNATURES 60 -3-

		Page
	PART I

Item 1.	Business.	4

Item 1A.	Risk Factors.	10

Item 1B.	Unresolved Staff Comments.	10

Item 2.	Properties.	10

Item 3.	Legal Proceedings.	11

Item 4.	Mine Safety Disclosures	11

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	12

Item 6.	Selected Financial Data.	12

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	13

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk.	18

Item 8.	Financial Statements and Supplementary Data.	18

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	39

Item 9A.	Controls and Procedures.	39

Item 9B.	Other Information.	39

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance.	40

Item 11.	Executive Compensation.	43

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	45

Item 13.	Certain Relationships and Related Transactions, and Director Independence.	46

Item 14.	Principal Accounting Fees and Services	47

	PART IV

Item 15.	Exhibits, Financial Statement Schedules	48

Signatures		50

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain ~~"forward-looking statements"~~“forward-looking statements” within the meaning of the Private Securities Litigation reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They contain words such as ~~"anticipate," "estimate," "expect," "project," "intend," "plan," "believe" "may," "could," "might"~~“anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe” “may,” “could,” “might” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. From time to time we also provide forward-looking statements in our Forms 10-Q and 8-K, Annual Reports to Shareholders, press releases and other materials we may release to the public. Forward looking statements reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause actual results or outcomes to differ materially from those expressed in any forward looking statement. Consequently, no forward looking statement can be guaranteed and our actual future results may differ materially.

Factors that may cause actual results to differ materially from current expectations include, but are not limited to: * risks associated with the lodging industry, including competition, increases in wages, labor relations, energy and fuel costs, actual and threatened pandemics, actual and threatened terrorist attacks, and downturns in domestic and international economic and market conditions, particularly in the San Francisco Bay area; * risks associated with the real estate industry, including changes in real estate and zoning laws or regulations, increases in real property taxes, rising insurance premiums, costs of compliance with environmental laws and other governmental regulations; * the availability and terms of financing and capital and the general volatility of securities markets; * changes in the competitive environment in the hotel industry; * risks related to natural disasters; * litigation; and * other risk factors discussed below in this Report.

risks associated with the lodging industry, including competition, increases in wages, labor relations, energy and fuel costs, actual and threatened pandemics, actual and threatened terrorist attacks, and downturns in domestic and international economic and market conditions, particularly in the San Francisco Bay area;

risks associated with the real estate industry, including changes in real estate and zoning laws or regulations, increases in real property taxes, rising insurance premiums, costs of compliance with environmental laws and other governmental regulations;

the availability and terms of financing and capital and the general volatility of securities markets;

changes in the competitive environment in the hotel industry;

risks related to natural disasters;

litigation; and

other risk factors discussed below in this Report.

We caution you not to place undue reliance on these forward-looking statements, which speak only as to the date hereof. We undertake no obligation to publicly update any forward looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects on our Forms 10-K, 10-Q, and 8-K reports to the Securities and Exchange Commission. ~~-4-~~

PART I

Item 1. Business.

GENERAL

Portsmouth Square, Inc. (referred to as ~~"Portsmouth"~~“Portsmouth” or the ~~"Company"~~“Company” and may also be referred to as ~~"we" "us"~~“we” “us” or ~~"our"~~“our”) is a California corporation, incorporated on July 6, 1967, for the purpose of acquiring a hotel property in San Francisco, California through a California limited partnership, Justice Investors ~~("Justice"~~(“Justice” or the ~~"Partnership"~~“Partnership”). As of June 30, ~~2010,~~2012, approximately 68.8% of the outstanding common stock of Portsmouth was owned by Santa Fe Financial Corporation ("(“Santa ~~Fe"~~Fe”), a public company (OTCBB: SFEF). Santa Fe is a ~~76%~~79.9%-owned subsidiary of The InterGroup Corporation ~~("InterGroup"~~(“InterGroup”), a public company (NASDAQ: INTG). InterGroup also directly owns approximately ~~11.7%~~12.5% of the common stock of Portsmouth.

The Company's principal business is conducted through its general and limited partnership interest in the Justice Investors limited partnership ~~("Justice"~~(“Justice” or the ~~"Partnership"~~“Partnership”). The Company has a 50.0% limited partnership interest in Justice and serves as ~~one of~~ the Managing General Partner. The other general ~~partners.~~partner is Evon Corporation (“Evon”). Justice owns a ~~544~~543 room hotel property located at 750 Kearny Street, San Francisco, California 94108, known as the ~~"Hilton~~“Hilton San Francisco Financial ~~District"~~District” (the ~~"Hotel"~~“Hotel”) and related facilities, including a five level underground parking garage. The financial statements of Justice are consolidated with those of the Company. See Note 2 to the consolidated financial statements. The other general partner, Evon Corporation ("Evon"), served as the managing general partner of Justice until December 1, 2008. As discussed below, the Limited Partnership Agreement was amended, effective December 1, 2008, to provide for a change in the respective roles of the general partners. Pursuant to that amendment, Portsmouth became the Managing General Partner of Justice while Evon assumed the role of Co-General Partner of Justice.

Most significant partnership decisions require the active participation and approval of both general partners. Pursuant to the terms of the partnership agreement, voting rights of the partners are determined according to the ~~partners'~~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 partners and the limited partners entitled to more than 72% of the net profit. The partnership agreement also provides that amendments to the agreement may be made only upon the consent of the general partners and at least seventy 75% of the interests of the limited partners and the consent of at least 75% of the interests of the limited partners will also be required to remove a general partner. As of June 30, ~~2010,~~2012, there were 113 limited partners in Justice, including Portsmouth and Evon.

Historically, the ~~Partnership's~~Partnership’s most significant source of income was a lease between Justice and Holiday Inn for the Hotel portion of the property. That lease was amended in 1995, and ultimately assumed by Felcor Lodging Trust, Inc. ~~("Felcor"~~(“Felcor”) in 1998. The lease of the Hotel to Felcor was terminated effective June 30, 2004. With the termination of the Hotel lease, Justice assumed the role of an owner/operator with the assistance of a third party management company. Effective July 1, 2004, the Hotel was operated as a Holiday Inn Select brand hotel pursuant to a ~~short term~~short-term franchise agreement until it was temporarily closed for major renovations on May 31, 2005. The Hotel was reopened on January 12, 2006 to operate as a full service Hilton hotel, pursuant to a Franchise License Agreement with Hilton Hotels Corporation. Justice also has a Management Agreement with Prism Hospitality L.P. ~~("Prism"~~(“Prism”) to perform the day-to-day management functions of the Hotel. ~~-5-~~

Until September 30, 2008, the Partnership also derived income from the lease of the parking garage to Evon. As discussed below, effective October 1, 2008, Justice entered into an installment sale agreement with Evon to purchase the remaining term of the garage lease and related garage ~~assets.~~assets at which time the garage became a part of the Partnership’s operations. Justice also leases a portion of the lobby level of the Hotel to a day spa operator. Portsmouth also receives management fees as ~~a general partner~~the Managing General Partner of Justice for its services in overseeing and managing the ~~Partnership's assets.~~ Partnership’s assets and limited partnership distributions as may be declared by Justice.

The Company also derives income from the investment of its cash and investment securities assets. The Company has invested in income-producing instruments, equity and debt securities and will consider other investments if such investments offer growth or profit potential. See Item 7. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of the ~~Company's~~Company’s marketable securities and other investments.

RECENT BUSINESS DEVELOPMENTS ~~DURING THE LAST THREE FISCAL YEARS~~

Garage Installment Sale Agreement and Parking Facilities Management Agreement

Effective October 1, 2008, Justice and Evon entered into an Installment Sale Agreement whereby the Partnership purchased all of ~~Evon's~~Evon’s right title and interest in the remaining term of its lease of the parking garage, which was to expire on November 30, 2010, and other related assets. The partnership also agreed to assume ~~Evon's~~Evon’s contract with Ace Parking Management, Inc. ("(“Ace ~~Parking"~~Parking”) for the management of the garage and any other liabilities related to the operation of the garage commencing October 1, 2008. The purchase price for the garage lease and related assets was approximately $755,000, payable in one down payment of approximately $28,000 and 26 equal monthly installments of approximately $29,000, which ~~includes~~included interest at the rate of 2.4% per annum. ~~See~~The Note 11was fully paid as of November 2010.

On October 31, 2010, Justice Investors and Ace Parking entered into an amendment of the Parking Agreement to extend the ~~Consolidated Financial Statements. Amendment~~term for a period of sixty two (62) months, commencing on November 1, 2010 and terminating December 31, 2015, subject to either party’s right to terminate the agreement without cause on ninety (90) days written notice. The monthly management fee of $2,000 and the accounting fee of $250 remain the same, but the amendment modified how the Excess Profit Fee to be paid to Ace would be calculated. The amendment provides that, if net operating income (“NOI”) from the garage operations exceeds $1,800,000 but is less than $2,000,000, Ace will be entitled to an Excess Profit Fee of one percent (1%) of the total annual NOI. If the annual NOI is $2,000,000 or higher, Ace will be entitled to an Excess Profit Fee equal to two percent (2%) of the total annual NOI. The prior Excess Profit Fee entitled Ace to receive three percent of NOI in excess of $150,000.

Amendments to Justice Investors Limited Partnership Agreement

On December 1, 2008, Portsmouth and Evon, as the two general partners of Justice, entered into a 2008 Amendment to the Limited Partnership Agreement (the ~~"Amendment"~~“Amendment”) that provides for a change in the respective roles of the general partners. Pursuant to the Amendment, Portsmouth assumed the role of Managing General Partner and Evon continued on as the Co-General Partner of Justice. The Amendment was ratified by approximately 98% of the limited partnership interests. The Amendment also provides that future amendments to the Limited Partnership Agreement may be made only upon the consent of the general partners and at least seventy five percent (75%) of the interests of the limited partners. Consent of at least 75% of the interests of the limited partners will also be required to remove a general partner pursuant to the Amendment.

Effective November 30, 2010, the general and limited partners of Justice Investors entered into an Amended and Restated Agreement of Limited Partnership, which was approved and ratified by more than 98% of the limited partnership interests of Justice. The Partnership Agreement was amended and restated in its entirety to comply with the new provisions of the California Corporations Code known as the “Uniform Limited Partnership Act of 2008”. The amendment did not result in any material modifications of the rights or obligations of the general and limited partners.

New General Partner Compensation Agreement

Concurrent with the December 2008 Amendment to the Limited Partnership Agreement, a new General Partner Compensation Agreement (the ~~"Compensation Agreement"~~“Compensation Agreement”) was entered into on December 1, 2008, among Justice, Portsmouth and Evon to terminate and supersede all prior compensation agreement for the general partners. Pursuant to the Compensation Agreement, the general partners of Justice ~~will be~~are entitled to receive an amount equal to 1.5% of the gross annual revenues of the Partnership (as defined), less $75,000 to be used as a contribution toward the cost of Justice engaging an asset manager. In no event ~~-6-~~ shall the annual compensation be less than a minimum base of approximately $285,000, with eighty percent (80%) of that amount being allocated to Portsmouth for its services as managing general partner and twenty percent (20%) allocated to Evon as the co-general partner. Compensation earned by the general partners in each calendar year in excess of the minimum base, will be payable in equal fifty percent (50%) shares to Portsmouth and Evon. During the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, the general partners were paid approximately ~~$417,000~~$562,000 and ~~$435,000~~$468,000 respectively, under the applicable compensation agreements. Of those amounts, approximately ~~$264,000~~$366,000 and ~~$222,000~~$323,000 was paid to Portsmouth for fiscal 2012 and 2011.

Comstock Mining, Inc. Debt Restructuring

On October 20, 2010, as part of a debt restructuring of one of its investments, the Company exchanged approximately $4,410,000 in notes, convertible notes and ~~2009.~~ debt instruments that it held in Comstock Mining, Inc. (“Comstock” – now NYSE MKT: LODE) for 4,410 shares ($1,000 stated value) of newly created 7 1/2% Series A-1 Convertible Preferred Stock (the “A-1 Preferred”) of Comstock. Prior to the exchange, those notes and convertible debt instruments had a carrying value of $724,000, net of impairment adjustments. The Company accounted for the transaction as an exchange of its debt securities and recorded the new instruments (A-1 Preferred) received based on their fair value. The Company estimated the fair value of the A-1 Preferred at $1,000 per share, which was the stated value of the instrument, for a total of $4,410,000. The fair value of the A-1 Preferred had a similar value to the Series B preferred stock financing (stated value of $1,000 per share) by which Comstock concurrently raised $35.7 million in new capital from other investors in October 2010. The Company recorded an unrealized gain of $3,686,000 related to the preferred stock received in an exchange for debt as part of the debt restructuring. See Note 6 to the Consolidated Financial Statements.

HILTON HOTELS FRANCHISE LICENSE AGREEMENT

On December 10, 2004, the Partnership entered into a Franchise License Agreement with Hilton Hotels Corporation (the ~~"Franchise Agreement"~~“Franchise Agreement”) for the right to operate the Hotel as a Hilton brand hotel. The term of the Franchise Agreement is for 15 years commencing on the opening date of the Hotel, January 12, 2006, with an option to extend that Agreement for another five years, subject to certain conditions.

Pursuant to the Franchise Agreement, the Partnership paid monthly royalty fees for the first two years of three percent (3%) of the ~~Hotel's~~Hotel’s gross room revenue, as defined, for the preceding calendar month; the third year was at four percent (4%) of the ~~Hotel's~~Hotel’s gross room revenue; and the fourth year until the end of the term will be five percent (5%) of the ~~Hotel's~~Hotel’s gross room revenue. Justice also pays a monthly program fee of four percent (4%) of the ~~Hotel's~~Hotel’s gross room revenue. The amount of the monthly program fee is subject to change; however, the increase cannot exceed one percent (1%) of the Hotel gross room revenue in any calendar year, and the cumulative increases in the monthly fees will not exceed five percent (5%) of gross room revenue. The Partnership also pays a monthly information technology recapture charge of 0.75% of the ~~Hotel's~~Hotel’s gross revenue. ~~In this~~Due to the difficult economic environment, Hilton agreed to reduce its information technology fees to 0.65% for the 2010 calendar year.

Prior to operating the Hotel as a Hilton hotel, the Partnership was required to make substantial renovations to the Hotel to meet Hilton standards in accordance with a product improvement plan ~~("PIP"~~(“PIP”) agreed upon by Hilton and the Partnership, as well as comply with other brand standards. That project included a complete renovation and upgrade of all of the ~~Hotel's~~Hotel’s guestrooms, meeting rooms, common areas and restaurant and bar. As of January 12, 2006, the Hotel renovation work was substantially completed, at which time Justice obtained approval from Hilton to open the Hotel as the ~~"Hilton~~“Hilton San Francisco Financial ~~District"~~District”. The Hotel opened with a limited number of rooms available to rent, which increased as the Hotel transitioned into full operations by the end of February 2006.

The total cost of the construction-renovation project of the Hotel was approximately $37,030,000, which includes approximately $630,000 in interest costs incurred during the construction phase that were capitalized. To meet those substantial financial commitments, and the costs of operations during the renovation period and for the first five months when the Hotel ramped up its operations, the Partnership has relied on additional borrowings to meet its obligations. As discussed in Item 2. Properties, the Partnership was able to secure adequate financing, collateralized by the Hotel, to meet those commitments. ~~-7-~~

HOTEL MANAGEMENT COMPANY AGREEMENT

In February 2007, the Partnership terminated its prior hotel management agreement with Dow Hotel Company and entered into a management agreement with Prism Hospitality ~~("Prism"~~(“Prism”) to manage and operate the Hotel as its agent, effective February 10, 2007. Prism is an experienced Hilton approved operator of upscale and luxury hotels throughout the Americas. The agreement is effective for a term of ten years, unless the agreement is extended as provided in the agreement, and the Partnership has the right to terminate the agreement upon ninety days written notice without further obligation. Under the management agreement, the Partnership is to pay base management fees of 2.5% of gross operating revenues for the fiscal year. However, 0.75% of the stated management fee is due only if the partially adjusted net operating income for the subject fiscal year exceeds the amount of a minimum ~~Partnership's~~Partnership return ($7 million) for that fiscal year. Prism is also entitled to an incentive management fee if certain milestones are accomplished. No incentive fees were earned during the fiscal years ended June 30, ~~2010~~2012 and ~~2009.~~2011. In support of the ~~Partnership's~~Partnership’s efforts to reduce costs in this difficult economic environment, Prism agreed to reduce its management fees by fifty percent from January 1, 2009 through December 31, 2010, after which the original fee ~~arrangement will remain in~~provision went back into effect. Management fees paid to Prism during the years ended June 30, ~~2010~~2012 and ~~2009~~2011 were ~~$246,000~~$626,000 and ~~$398,000,~~$469,000, respectively.

GARAGE ~~LEASE AND~~ OPERATIONS ~~Until~~

As discussed above, until September 30, 2008, the garage portion of the Hotel property was leased by the Partnership to Evon. That lease provided for a monthly rental of sixty percent (60%) of gross parking revenues with a minimum rent of $20,000 per month. That lease was to expire in November 2010. The garage lessee, Evon, was responsible for insurance, repairs and maintenance, utilities and all taxes assessed against the improvements to the leased premises. The garage is operated by Ace Parking pursuant to a parking facility management agreement. As discussed above, effectiveEffective October 1, 2008, Justice and Evon entered into an Installment Sale Agreement whereby the Partnership purchased all of ~~Evon's~~Evon’s right title and interest in the remaining term of its lease of the parking garage, which was to expire on November 30, 2010, and other related ~~assets and assumed Evon's~~assets. The Partnership also agreed to assume Evon’s contract with Ace Parking ~~as well as~~Management, Inc. (“Ace Parking”) for the management of the garage and any other liabilities ~~associated with~~related to the operation of the ~~garage.~~ garage commencing October 1, 2008.

The garage is currently operated by Ace Parking ~~agreement runs until~~for the Partnership pursuant to a Parking Facilities Management Agreement (the “Parking Agreement”). The initial term of the Parking Agreement was to expire on October 31, 2010, with an option to renew for another five-year term. Pursuant to that agreement, the Partnership ~~will pay to~~paid Ace Parking a management fee of $2,000 per month, an accounting fee equal to $250 per month, plus “Excess Profit Fee” equal to three percent (3%) of annual net profits in excess of $150,000.

On October 31, 2010, Justice Investors and Ace Parking entered into an amendment of the Parking Agreement to extend the term for a period of sixty two (62) months, commencing on November 1, 2010 and terminating December 31, 2015, subject to either party’s right to terminate the agreement without cause on ninety (90) days written notice. The monthly management fee of $2,000 and the accounting fee of $250 remain the same, but the amendment modified how the Excess Profit Fee to be paid to Ace would be calculated. The amendment provides that, if net operating income (“NOI”) from the garage operations exceeds $1,800,000 but is less than $2,000,000, Ace will be entitled to an Excess Profit Fee of one percent (1%) of the total annual NOI. If the annual NOI is $2,000,000 or higher, Ace will be entitled to an Excess Profit Fee equal to two percent (2%) of the total annual NOI.

TRU SPA LEASE

Approximately 5,400 square feet of space on the lobby level of the Hotel is leased to Tru Spa for the operation of a health and beauty spa. The lease expires in May 2013, with a five year option to extend the term. The spa lease provides for minimum monthly rent of $14,000. Minimum rental amounts are subject to adjustment every three years based on increases in the Consumer Price Index.

CHINESE CULTURE FOUNDATION LEASE

On March 15, 2005, the Partnership entered into an amended lease with the Chinese Culture Foundation of San Francisco (the ~~"Foundation"~~“Foundation”) for the third floor space of the Hotel commonly known as the Chinese Cultural Center, which the Foundation had right to occupy pursuant to a 50-year nominal rent lease. ~~-8-~~

The amended lease requires the Partnership to pay to the Foundation a monthly event space fee in the amount of $5,000, adjusted annually based on the local Consumer Price Index. The term of the amended lease expires on October 17, 2023, with an automatic extension for another 10 year term if the property continues to be operated as a hotel. This amendment allowed Justice to incorporate the third floor into the renovation of the Hotel resulting in a new ballroom for the joint use of the Hotel and new offices and a gallery for the Chinese Culture Center.

Seasonality ~~Hotel's~~

Hotel’s operations historically have been seasonal. Like most hotels in the San Francisco area, the Hotel generally maintains higher occupancy and room rates during the first and second quarters of its fiscal year (July 1 through December 31) than it does in the third and fourth quarters (January 1 through June 30). These seasonal patterns can be expected to cause fluctuations in the quarterly revenues from the Hotel.

Competition

The hotel industry is highly competitive. Competition is based on a number of factors, most notably convenience of location, brand affiliation, price, range of services and guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual market in which properties are located.

The Hotel is located in an area of intense competition from other hotels in the Financial District and San Francisco in general. After being closed for more than seven months for a substantial renovation project in fiscal year 2006, it has taken some time for the Hotel, now operating as a Hilton, to gain recognition as a totally upgraded and higher level property after being under the Holiday Inn brand for almost 35 years. The Hotel is ~~also~~ somewhat limited by having only 15,000 square feet of meeting room space. Other hotels, with greater meeting room space, may have a competitive advantage by being able to attract larger groups and small conventions. Increased competition from new hotels, or hotels that have been recently undergone substantial renovation, could have an adverse effect on occupancy, average daily rate ~~("ADR"~~(“ADR”) and room revenue per available room ~~("RevPar"~~(“RevPar”) and put pressure on the Partnership to make additional capital improvements to the Hotel to keep pace with the competition.

The ~~Hotel's~~Hotel’s target market is business travelers, leisure customers and tourists, and small to medium size groups. Since the Hotel operates in an upper scale segment of the market, we also face increased competition from providers of less expensive accommodations, such as limited service hotels, during periods of economic downturn when leisure and business travelers become more sensitive to room rates. Like other hotels, we have experienced ~~a significant~~some decrease in some higher rated corporate and business travel ~~during the last two fiscal years~~ as many companies have ~~severely~~ cut their travel and entertainment budgets in response to economic conditions. As a result, there iscould be added pressure on all hotels in the San Francisco market to lower room rates in an effort to maintain occupancy levels during such periods. Although we have seen some signs of recovery in the San Francisco market during the 2012 fiscal year, like all hotels, we will remain subject to the uncertain domestic and global economic environment.

In this highly competitive market, ~~Management has continued to focus on ways to enhance the guest experience as well as improve operating efficiencies. The Hotel has recently upgraded its guest room~~we continue with ~~newer flat panel televisions systems that provide guests with greater entertainment options. The Hotel has -9-~~ ~~also installed many energy saving controls and devices as part of its~~our efforts to ~~become greener~~upgrade our guest rooms and ~~reduce operating costs. Management will continue to~~facilities and explore new and innovative ways to ~~improve operations~~differentiate the Hotel from its competition. During fiscal 2012, we completed several projects to enhance the guest experience, including our new executive lounge on the 26^thfloor of the Hotel and the upgrading of the lobby and common areas of the Hotel. We have also made improvements to our restaurant facilities and food and beverage services and have upgraded internet connectivity throughout the Hotel and are providing more technological amenities for our guests. We continue to make the Hotel more energy efficient and have enhanced our recycling program to support the concept of a greener world while reducing our operating costs. The Hotel also became a groundbreaker in implementing Hilton’s Huanying (“Welcome”) program which features a tailored experience for Chinese travelers. We have also taken important steps to further develop our ties to the local Chinese community and the City as part of being a good corporate citizen and to ~~attract~~promote new ~~guests~~business.

Moving forward, we will continue to focus on cultivating more international business, especially from China, and capturing a greater percentage of the higher rated business, leisure and group travel. During the last twelve months, we have seen improvement in business and leisure travel. If that trend in the San Francisco market and the hotel industry continues, it should translate into an increase in room revenues and profitability. However, like all hotels, it will remain subject to the ~~Hotel at higher room rates.~~ uncertain domestic and global economic environment.

The Hotel is also subject to certain operating risks common to all of the hotel industry, which could adversely impact performance. These risks include: * Competition for guests and meetings from other hotels including competition and pricing pressure from internet wholesalers and distributors; * increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and other factors, which may not be offset in the future by increased room rates; * labor strikes, disruptions or lock outs; * dependence on demand from business and leisure travelers, which may fluctuate and is seasonal; * increases in energy costs, cost of fuel, airline fares and other expenses related to travel, which may negatively affect traveling; * terrorism, terrorism alerts and warnings, wars and other military actions, SARS, swine flu, pandemic or other medical events or warnings which may result in decreases in business and leisure travel; and * adverse effects of down turns and recessionary conditions in international, national and/or local economies and market conditions.

Competition for guests and meetings from other hotels including competition and pricing pressure from internet wholesalers and distributors;

increases in operating costs, including wages, benefits, insurance, property taxes and energy, due to inflation and other factors, which may not be offset in the future by increased room rates;

labor strikes, disruptions or lock outs;

dependence on demand from business and leisure travelers, which may fluctuate and is seasonal;

increases in energy costs, cost of fuel, airline fares and other expenses related to travel, which may negatively affect traveling;

terrorism, terrorism alerts and warnings, wars and other military actions, pandemics or other medical events or warnings which may result in decreases in business and leisure travel; and

adverse effects of downturns and recessionary conditions in international, national and/or local economies and market conditions.

Environmental Matters

In connection with the ownership of the Hotel, the Company is subject to various federal, state and local laws, ordinances and regulations relating to environmental protection. Under these laws, a current or previous owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on, under or in such property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances.

Environmental consultants retained by the Partnership or its lenders conducted updated Phase I environmental site assessments in fiscal year ended June 30, 2008 on the Hotel property. These Phase I assessments relied, in part, on Phase I environmental assessments prepared in connection with the ~~Partnership's~~Partnership’s first mortgage loan obtained in July 2005. Phase I assessments are designed to evaluate the potential for environmental contamination on properties based generally upon site inspections, facility personnel interviews, historical information and certain publicly-available databases; however, Phase I assessments will not necessarily reveal the existence or extent of all environmental conditions, liabilities or compliance concerns at the properties.

Although the Phase I assessments and other environmental reports we have reviewed disclose certain conditions on our properties and the use of hazardous substances in operation and maintenance activities that could pose a risk of ~~-10-~~

environmental contamination or liability, we are not aware of any environmental liability that we believe would have a material adverse effect on our business, financial position, results of operations or cash flows.

The Company believes that the Hotel is in compliance, in all material respects, with all federal, state and local environmental ordinances and regulations regarding hazardous or toxic substances and other environmental matters, the violation of which could have a material adverse effect on the Company. The Company has not received written notice from any governmental authority of any material noncompliance, liability or claim relating to hazardous or toxic substances or other environmental matters in connection with any of its present properties.

EMPLOYEES

As of June 30, ~~2010,~~2012, Portsmouth had three full-time employees. The employees of the Company are not part of any collective bargaining agreement, and the Company believes that its employee relations are satisfactory.

Employees of Justice and management of the Hotel are not unionized and the Company believes that their ~~employee~~ relationships with the Hotel are ~~satisfactory.~~satisfactory and consistent with the market in San Francisco. Most of the non-management employees of the Hotel are part of three different unions: (1) Local 2 of the Hotel Employees and Restaurant Employees Union ("(“UNITE ~~HERE"~~HERE”). ; (2) Stationary Engineers, Local 39; and (3) the Teamsters Local 856.

The ~~Hotel's~~Hotel’s contract with Local 2 expired on August 14, 2009. ~~While Local 2 has sent~~The Parties met on February 28, 2012 and negotiated the terms of a ~~statutory letter to the Hotel to open negotiations, no talks between the Hotel~~successor collective bargaining agreement. The parties reached a tentative agreement on that date and ~~union representatives have commenced to date. At this time, no disruptions to the operations~~are awaiting receipt of the ~~Hotel are expected resulting~~final, ratified agreement from ~~this expired and unresolved union contract.~~ Local 2. The new agreement is scheduled to expire on August 14, 2013.

The Hotel has two other labor agreements. ~~A new contract~~An extension agreement with the Stationary Engineers, Local 39 was ~~reached on July 31, 2009~~agreed to in May 2011 with ~~an effective date retroactive to January 12, 2009 and~~ an expiration date of ~~January 11, 2011.~~July 31, 2013. A new contract with Teamsters Local 856 ~~expiring~~was reached on March 10, 2011 with an expiration date of December 31, ~~2008 was extended~~2012. Local 856 is required to ~~December 31, 2010.~~ send notice of intent to negotiate an agreement 60 days before its expiration.

ADDITIONAL INFORMATION

The Company files annual and quarterly reports on Forms 10-K and 10-Q, current reports on Form 8-K and other information with the Securities and Exchange Commission ~~("SEC"~~(“SEC” or the ~~"Commission"~~“Commission”). The public may read and copy any materials that we file with the Commission at the ~~SEC's~~SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also maintains an Internet site athttp://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission.

Other information about the Company can be found on our parent ~~company's~~company’s website ~~www.intergroupcorporation.com.~~www.intgla.com. Reference in this document to that website address does not constitute incorporation by reference of the information contained on the website. ~~-11-~~

Item 1A. Risk Factors.

Not required for smaller reporting companies.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

SAN FRANCISCO HOTEL PROPERTY

The Hotel is owned directly by the Partnership. The Hotel is centrally located near the Financial District in San Francisco, one block from the Transamerica Pyramid. The Embarcadero Center is within walking distance and North Beach is two blocks away. Chinatown is directly across the bridge that runs from the Hotel to Portsmouth Square Park. The Hotel is a 31-story (including parking garage), steel and concrete, A-frame building, built in 1970. The Hotel has ~~544 well appointed~~543 well-appointed guest rooms and luxury suites situated on 22 floors as well as a 5,400 square foot Tru Spa health and beauty spa on the lobby level. The third floor houses the Chinese Culture Center and grand ballroom. The Hotel has approximately 15,000 square feet of meeting room space, including the grand ballroom. Other features of the Hotel include a 5-level underground parking garage and pedestrian bridge across Kearny Street connecting the Hotel and the Chinese Culture Center with Portsmouth Square Park in Chinatown. The bridge, built and owned by the Partnership, is included in the lease to the Chinese Culture Center.

Since the Hotel just completed renovations, there is no present program for any further major renovations; however, the Partnership expects to ~~reserve approximately~~expend at least 4% of gross annual Hotel revenues each year for ~~future~~ capital improvements and requirements. In the opinion of management, the Hotel is adequately covered by insurance.

HOTEL FINANCINGS

On July 27, 2005, Justice entered into a first mortgage loan with The Prudential Insurance Company of America in a principal amount of $30,000,000 (the ~~"Prudential Loan"~~“Prudential Loan”). The term of the Prudential Loan is for 120 months at a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly installments of principal and interest in the amount of approximately $165,000, calculated on a 30-year amortization schedule. The Loan is collateralized by a first deed of trust on the ~~Partnership's~~Partnership’s Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Prudential Loan is without recourse to the limited and general partners of Justice. The principal balance of the Prudential Loan was ~~$27,723,000~~$26,599,000 as of June 30, ~~2010.~~ 2012.

On March 27, 2007, Justice entered into a second mortgage loan with Prudential (the ~~"Second~~“Second Prudential ~~Loan"~~Loan”) in a principal amount of $19,000,000. The term of the Second Prudential Loan is for approximately 100 months and matures on August 5, 2015, the same date as the first Prudential Loan. The Second Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for monthly installments of principal and interest in the amount of approximately $119,000, calculated on a 30-year amortization schedule. The Second Prudential ~~-12-~~ Loan is collateralized by a second deed of trust on the ~~Partnership's~~Partnership’s Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Second Prudential Loan is also without recourse to the limited and general partners of Justice. The principal balance of the Second Prudential Loan was ~~$18,267,000~~$17,722,000 as of June 30, ~~2010.~~ 2012.

The Partnership had a $2,500,000 unsecured revolving line of credit facility with a bank that was to mature on April 30, 2010. Borrowings under that line of credit bore interest at Prime plus 3.0% per annum or based on the Wall Street Journal Prime Rate (3.25%) plus 3.0% per annum, floating, (but subject to a minimum floor rate at 5.0% per annum). Borrowings under the line of credit were subject to certain financial covenants, which are measured annually at June 30th and December 31st based on the credit arrangement. Effective April 29, 2010, the Partnership obtained a modification from the bank which converted its revolving line of credit facility to a term loan. The Partnership also obtained a waiver of any prior noncompliance with financial covenants. The modification provides that Justice will pay the $2,500,000 balance on its line of credit facility over a period of four years, to mature on April 30, 2014. This term loan calls for monthly principal and interest payments of $41,000, calculated on a six-year amortization schedule, with interest only from May 1, 2010 to August 31, 2010. Pursuant to the modification, the annual floating interest rate was reduced by 0.5% to the WSJ Prime Rate plus 2.5% (with a minimum floor rate of 5.0% per annum). The modification ~~includes~~provides for new financial covenants ~~written to reflect financial conditions~~ that ~~all hotels are facing. The covenants~~ include specific financial ratios and a return to minimum profitability byafter June 30, 2011. Management believes that the Partnership has the ability to meet the specific covenants and the Partnership was in compliance with the covenants as of June 30, ~~2010.~~2012. The Partnership paid a loan modification fee of $10,000. The loan continues as unsecured. As of June 30, ~~2010,~~2012 and 2011, the interest rate was 5.75% and the outstanding ~~balance was $2,500,000. As of June 30, 2009, the interest rate was 6.25%~~balances were $1,702,000 and ~~the outstanding balance on the line of credit was $1,811,000.~~ $2,202,000, respectively.

LAND HELD FOR DEVELOPMENT

On August 29, 2007, the Board of Directors authorized an investment of $973,000 for Portsmouth to acquire a 50% equity interest in Intergroup Uluniu, Inc., a Hawaii corporation ~~("Uluniu"~~(“Uluniu”) in a related party transaction. Uluniu was a 100% owned subsidiary of The InterGroup Corporation ~~("InterGroup"~~(“InterGroup”). Uluniu owns an approximately two-acre parcel of unimproved land located in Kihei, Maui, Hawaii which is held for development. The ~~Company's~~Company’s investment in Uluniu represents an amount equal to the costs paid by InterGroup for the acquisition and carrying costs of the property through August 2007. The fairness of the financial terms of the transaction were reviewed and approved by the independent director of the Company.

Uluniu intends to obtain the entitlements and permits necessary for the joint development of the parcel with an adjoining landowner into residential units. After the completion of this predevelopment phase, the Uluniu will determine whether it more advantageous to sell the entitled property or to commence with construction. Due to current economic conditions, the project is on hold.

Item 3. ~~LEGAL PROCEEDINGS~~ Legal Proceedings.

The Company is not subject to any legal proceedings requiring disclosure. ~~-13-~~

Item 4. Mine Safety Disclosures.

Not applicable.

PART II ~~Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.~~

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

MARKET INFORMATION ~~Portsmouth's~~

Portsmouth’s common stock is traded on the OTC Bulletin Board ~~("OTCBB"~~(“OTCBB”) under the symbol: PRSI.OB. The following table sets forth the range of the high and low bid quotations as reported by the OTCBB for ~~Portsmouth's~~Portsmouth’s common stock for each full quarterly period for the years ended June 30, ~~2010~~2012 and ~~2009.~~2011. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions. Fiscal 2010 High Low ----------- ---- --- First Quarter (7/1 to 9/30) $ 35.00 $ 17.00 Second Quarter (10/1 to 12/31) $ 17.25 $ 17.10 Third Quarter (1/1 to 3/31) $ 25.00 $ 17.25 Fourth Quarter (4/1 to 6/30) $ 24.99 $ 17.55 Fiscal 2009 High Low ----------- ---- --- First Quarter (7/1 to 9/30) $ 34.25 $ 34.00 Second Quarter (10/1 to 12/31) $ 34.00 $ 20.20 Third Quarter (1/1 to 3/31) $ 23.00 $ 17.00 Fourth Quarter (4/1 to 6/30) $ 25.00 $ 17.00

Fiscal 2012	High		Low

First Quarter (7/ 1 to 9/30)	$	25.00	$	23.00
Second Quarter (10/1 to 12/31)	$	23.00	$	21.00
Third Quarter (1/1 to 3/31)	$	28.00	$	21.00
Fourth Quarter (4/1 to 6/30)	$	28.00	$	25.00

Fiscal 2011

First Quarter (7/ 1 to 9/30)	$	23.99	$	17.50
Second Quarter (10/1 to 12/31)	$	27.00	$	22.00
Third Quarter (1/1 to 3/31)	$	24.00	$	22.00
Fourth Quarter (4/1 to 6/30)	$	25.00	$	23.00

HOLDERS

As of ~~September 10, 2010,~~June 30, 2012, the number of holders of record of the ~~Company's~~Company’s Common Stock was approximately ~~170.~~195. Such number of owners was determined from the Company's shareholders records and does not include beneficial owners of the Company's Common Stock whose shares are held in the names of various brokers, clearing agencies or other nominees. Including beneficial holders there are approximately ~~350~~370 shareholders of the Company's Common Stock.

DIVIDENDS

On April 20, 2004, the Board of Directors of Portsmouth, decided to discontinue the payment of dividends since Justice was to cease payments of partnership distributions to help fund the renovation of the Hotel. It is expected that the Company will not consider a return to a regular dividend policy until such time that Partnership cash flows, distributions and other economic factors warrant such consideration. The Company will continue to review and modify its dividend policy as needed to meet such strategic and investment objectives as may be determined by the Board of Directors.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Portsmouth has no securities authorized for issuance under equity compensation plans. ~~-14-~~

PURCHASES OF EQUITY SECURITIES

Portsmouth did not repurchase any of its own securities during the last quarter of its fiscal year ending June 30, ~~2010~~2012 and does not have any publicly announced repurchase program.

Item 6. Selected financial Data.

Not required for smaller reporting companies.

Item 7. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~ Operations.

RESULTS OF OPERATIONS

The Company's principal business is conducted through its general and limited partnership interest in the Justice Investors limited partnership ~~("Justice"~~(“Justice” or the ~~"Partnership"~~“Partnership”). The Company has a 50.0% limited partnership interest in Justice and serves as the ~~managing general~~Managing General partner of Justice. Evon Corporation ~~("Evon"~~(“Evon”) serves as the other general partner. Justice owns ~~the land, improvements and leaseholds~~a 543 room hotel property located at 750 Kearny Street, San Francisco, California 94108, known as the ~~Hilton~~“Hilton San Francisco Financial ~~District~~District” (the ~~"Hotel"~~“Hotel”). and related facilities, including a five-level underground parking garage. The financial statements of Justice have been consolidated with those of the Company. See Note 2 to the Consolidated Financial Statements.

The Hotel is operated by the Partnership as a full service Hilton brand hotel pursuant to a Franchise License Agreement with Hilton Hotels Corporation. The term of the Agreement is for a period of 15 years commencing on January 12, 2006, with an option to extend the license term for another five years, subject to certain conditions. Justice also has a Management Agreement with Prism Hospitality L.P. ~~("Prism"~~(“Prism”) to perform the day-to-day management functions of the Hotel. ~~Until September 30, 2008, the Partnership also derived income from the lease~~

The parking garage that is part of the ~~parking garage~~Hotel property is managed by Ace Parking pursuant to ~~Evon. Effective October 1, 2008, Justice entered into an installment sale agreement with Evon to purchase the remaining term of the garage lease and related garage assets, and assumed the~~a contract with ~~Ace Parking for~~ the ~~operations of the garage.~~Partnership. Justice also leases a portion of the lobby level of the Hotel to a day spa operator. Portsmouth also receives management fees as a general partner of Justice for its services in overseeing and managing the ~~Partnership's~~Partnership’s assets. Those fees are eliminated in consolidation.

Fiscal Year Ended June 30, ~~2010~~2012 Compared to Fiscal Year Ended June 30, ~~2009~~ 2011

The Company had a net ~~loss~~income of ~~$2,954,000~~$2,102,000 for the year ended June 30, ~~2010~~2012 compared to a net ~~loss~~income of ~~$1,621,000~~$3,077,000 for the year ended June 30, ~~2009.~~2011. The ~~increase~~decrease in ~~the~~ net ~~loss~~income is primarily attributable to the ~~current year net loss on marketable securities~~recording of ~~$621,000 compared~~an unrealized gain of $3,686,000 in fiscal 2011 related to ~~a net gain on marketable securities~~the preferred stock of ~~2,009,000~~Comstock received by the Company in exchange for debt as part of the debt restructuring, losses from investing activities in the ~~prior~~current year, ~~and an increase in depreciation and amortization expense. This change was~~ partially offset by a ~~higher income tax benefit and improved~~significant improvement in hotel operations. ~~-15-~~

The Company had ~~a loss on~~net income from hotel operations of ~~$2,192,000~~$4,110,000 for the fiscal year ended June 30, ~~2010,~~2012, compared to ~~a loss~~net income of ~~$2,524,000~~$710,000 for the fiscal year ended ~~March 31, 2009.~~June 30, 2011. The ~~reduction~~significant increase in ~~the loss was~~net income from hotel operations is primarily attributable to a ~~one-time loss related to the termination of the hotel garage lease~~$5,054,000 increase in ~~the amount of $684,000 which was incurred during fiscal 2009, partially offset by an increase~~room revenues and a $1,304,000 decrease in depreciation and amortization expense ~~due to~~as many of the furniture and fixture improvements tofrom the renovation of the Hotel reached full deprecation during ~~the current year, including upgrades to the guest rooms and installation of energy saving controls and devices.~~ fiscal 2011.

The following table sets forth a more detailed presentation of Hotel operations for the years ended June 30, ~~2010~~2012 and ~~2009.~~ ~~For the years ended June 30, 2010 2009 - --------------------------- ----------- ----------~~ Hotel revenues: Hotel rooms $ 24,848,000 $ 25,237,000 Food and beverage 4,703,000 4,911,000 Garage 2,507,000 2,104,000 Other operating departments 622,000 569,000 ---------- ---------- Total hotel revenues 32,680,000 32,821,000 Operating expenses excluding interest, depreciation and amortization (27,223,000) (28,015,000) ---------- ---------- Operating income before interest, depreciation and amortization 5,457,000 4,806,000 Interest expense (2,902,000) (2,873,000) Depreciation and amortization expense (4,747,000) (4,457,000) ---------- ---------- Loss from hotel operations $(2,192,000) $(2,524,000) ========== ==========
~~2011.~~

For the years ended June 30, 2012 2011
Hotel revenues:
Hotel rooms $ 32,893,000 $ 27,839,000
Food and beverage 5,779,000 5,028,000
Garage 2,765,000 2,599,000
Other operating departments 1,025,000 816,000
Total hotel revenues 42,462,000 36,282,000
Operating expenses excluding interest, depreciation and amortization (33,465,000 ) (29,299,000 )
Operating income before interest, depreciation and amortization 8,997,000 6,983,000
Interest (2,724,000 ) (2,806,000 )
Depreciation and amortization (2,163,000 ) (3,467,000 )

Net income from hotel operations $ 4,110,000 $ 710,000
For the fiscal year ended June 30, ~~2010,~~2012, the Hotel generated operating income of ~~approximately $5,457,000~~$8,997,000 before interest, depreciation and amortization, on total operating revenues of $42,462,000 compared to operating income of $6,983,000 before interest, depreciation and amortization, on operating revenues of ~~approximately $32,680,000 compared to operating income of approximately $4,806,000 before interest, depreciation and amortization, on operating revenues of approximately $32,821,000~~$36,282,000 for the fiscal year ended June 30, ~~2009.~~2011. The increase in ~~Hotel operating~~ income from ~~fiscal 2009 to 2010~~Hotel operations is primarily attributable to ~~a one-time loss on the termination of the garage lease~~increases in room, food and beverage, and other revenues in the ~~amount of $684,000 which was included~~current year, partially offset by an increase in operating expenses ~~in fiscal 2009, partially offset by~~due to higher labor costs and increased staffing to improve guest satisfaction as well as greater franchise and management fees which are based on a ~~$141,000 decline in total hotel revenues in fiscal 2010.~~ percentage of revenues.
Room revenues ~~decreased~~increased by ~~approximately $389,000~~$5,054,000 for the fiscal year ended June 30, ~~2010 when~~2012 compared to the fiscal year ended June 30, ~~2009~~2011 and food and beverage revenues ~~decreased~~increased by ~~approximately $208,000~~$751,000 for the same period. The ~~decrease~~increase in room revenues was primarily attributable to a significant ~~decline~~increase in average daily room rates during fiscal ~~2010~~2012 as ~~hotels in~~ the ~~San Francisco market~~Hotel continued to ~~reduce room rates in~~see an ~~effort to maintain occupancy levels in a very competitive market. Many hotels have been forced to adopt this strategy due to a severe reduction~~increase in higher rated leisure, corporate and group business travel, which ~~has been replaced by discounted business from Internet channels. The decrease~~also resulted in higher in food and beverage revenues is primarily attributable to decline in banquet and catering business as companies continue with cuts in business travel, corporate meetings and events. The declines in room and food and beverage revenue were partially offset by a $403,000 increase in garage revenues due to the termination of the garage lease effective October 1, 2008 and the integration of those operations into those of the Hotel. -16- revenues.
The following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room ~~("RevPar"~~(“RevPar”) of the Hotel for the fiscal years ended June 30, ~~2010~~2012 and 2009. Fiscal Year Ended Average Average June 30, Daily Rate Occupancy% RevPar - ----------------- ---------- --------- -------- 2010 $143 87% $125 2009 $157 81% $127 2011.
Fiscal Year
ended June 30,

Average
Daily Rate

Average
Occupancy %
RevPar

2012 $ 191 87 % $ 166
2011 $ 163 86 % $ 140
The operations of the Hotel experienced an increase in the higher rated business, leisure and group travel segments in the fiscal 2012 as the hospitality industry in the San Francisco market continued to ~~be impacted by~~show signs of recovery. As a result, the ~~significant downturn in the domestic and international economies and markets. Room rates continue to be the toughest challenge as the Hotel's~~Hotel’s average daily ~~room~~ rate ~~was approximately $14 lower~~increased significantly by $28 for the fiscal year ended June 30, ~~2010~~2012 compared to the fiscal year ended June 30, ~~2009. However,~~2011. The increase in occupancy of 1% was due to continued increased ~~sales~~demand for hotel rooms in San Francisco and ~~marketing efforts in~~ the ~~face~~Hotel’s ability to capture a greater share of ~~difficult economic conditions and greater competition,~~those rooms within its market set. Due to that increased demand, the Hotel was able to ~~boost~~reduce the amount of discounted Internet business that it was forced to take in prior years to maintain occupancy ~~rates by approximately 6% over the comparable period.~~in a very competitive market and recessionary economic conditions. As a result, the Hotel was able to achieve a RevPar number that ~~compared very favorably~~was $26 higher than fiscal 2011.
14
During the past couple of years, we have seen our management team guide our Hotel through a difficult economic period by taking bold steps to reduce expenses and implement innovative strategies in order to improve operations and enhance our competitiveness in the market. As a result, we were well positioned to take advantage of the gradual recovery that took place in the San Francisco market. We saw a significant improvement in room rates as the Hotel was able to expand its ~~competitive set. In this highly competitive market, management has also continued~~share of the higher rated business and leisure travel which increased our operating revenues and profitability. Those results made it possible for Justice Investors to ~~focus~~declare its first limited partnership distribution since September 2008 as the Partnership made a total distribution in the amount of $1,000,000 in December 2011, of which Portsmouth received $500,000. The general partners of Justice will continue to monitor and review the operations and financial results of the Hotel and to set the amount of any future distributions that may be appropriate based on ~~ways to enhance the guest experience as well as improve~~ operating efficiencies. The Hotel has recently upgraded its guest room with newer flat panel television systems that provide guests with greater entertainment options. The Hotel has also installed many energy saving controlsresults, cash flows and ~~devices as part~~other factors, including establishment of ~~its~~reasonable reserves for debt payments and operating contingencies.
We will continue in our efforts to ~~become greener~~upgrade our guest rooms and ~~reduce operating costs. Management will continue to~~facilities and explore new and innovative ways to ~~improve operations~~differentiate the Hotel from its competition. During fiscal 2012, we completed several projects to enhance the guest experience, including our new executive lounge on the 26^th floor of the Hotel and ~~attract new guests~~the upgrading of the lobby and common areas of the Hotel. We have also made improvements to our restaurant facilities and food and beverage services and have upgraded internet connectivity throughout the Hotel and are providing more technological amenities for our guests. We continue to make the Hotel more energy efficient and have enhanced our recycling program to support the concept of a greener world while reducing our operating costs. The Hotel also became a groundbreaker in implementing Hilton’s Huanying (“Welcome”) program which features a tailored experience for Chinese travelers. We have also taken important steps to further develop our ties to the ~~Hotel at~~local Chinese community and the City as part of being a good corporate citizen and to promote new business.
Moving forward, we will continue to focus on cultivating more international business, especially from China, and capturing a greater percentage of the higher rated business, leisure and group travel. During the last twelve months, we have seen improvement in business and leisure travel. If that trend in the San Francisco market and the hotel industry continues, it should translate into an increase in room ~~rates.~~ revenues and profitability. However, like all hotels, it will remain subject to the uncertain domestic and global economic environment.
The Company had a net loss on marketable securities of ~~$621,000~~$1,045,000 for the year ended June 30, ~~2010 as~~2012 compared to a net gain on marketable securities of ~~$2,009,000~~$1,030,000 for the year ended June 30, ~~2009.~~2011. For the year ended June 30, ~~2010, the Company had a net realized gain of $2,158,000 and a net unrealized loss of $2,779,000. For the year ended June 30, 2009,~~2012, the Company had a net realized loss of ~~$403,000~~$247,000 and a net unrealized loss of $798,000. For the year ended June 30, 2011, the Company had a net realized loss of $35,000 and a net unrealized gain of ~~$2,412,000.~~$1,065,000. Gains and losses on marketable securities and other investments may fluctuate significantly from period to period in the future and could have a significant impact on the ~~Company's~~Company’s net income. However, the amount of gain or loss on marketable securities and other investments 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~~Company’s marketable securities please see the Marketable Securities section below. ~~Dividend and interest income increased to $162,000 from~~
During the year ended June 30, ~~2010 from $105,000~~2012, the Company had an unrealized loss of $187,000 related to other investments compared to an unrealized gain of $3,777,000 for the year ended June 30, ~~2009~~2011. The significant difference is due to the increased investment in income yielding securities. Margin interest and trading expenses increased to $292,000 for the year ended June 30, 2010 from $206,000 for the year ended June 30, 2009. The increase is primarily due to the increase in margin interest expense to $117,000 for the year ended June 30, 2010 from $24,000 for the year ended June 30, 2009. The increase is the result of the maintenance of higher margin balances. The Company may also invest, with the approval of the Securities Investment Committee and other company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non-marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than -17- temporary impairment losses. As of June 30, 2010, the Company had net other investments of $2,513,000. Included in other investments are investments in corporate debt and equity instruments which had attached warrants that were considered derivative instruments. The Company recorded an unrealized gain of ~~$71,000~~$3,686,000 related to ~~these warrants during~~ the ~~year ended June 30, 2010.~~ Company’s Comstock investment in the prior comparable year. Comstock had undergone a restructuring which resulted in the unrealized gain for the Company.
During the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, the Company performed an impairment analysis of its other investments and determined that one of its investments had other than temporary ~~impairments~~impairment and recorded impairment losses of ~~$657,000~~$335,000 and ~~$615,000, respectively. During the year ended June 30, 2010, the provision~~$356,000, for each respective period.
Dividend and interest income ~~tax benefit increased~~decreased to ~~$1,181,000 from $191,000~~$385,000 for the year ended June 30, ~~2009. The effective tax rate is significantly higher~~2012 from $486,000 for the year ended June 30, ~~2010~~2011 primarily as ~~compared to~~the result of the decreased investment in income yielding instruments.
The Company consolidates Justice (Hotel) for financial reporting purposes and is not taxed on its 50% non-controlling interest in the Hotel. The income tax benefit during the year ended June 30, ~~2009 primarily due~~2012 compared to ~~a lower~~the significant tax expense for the same period ended June 30, 2011 represents the income tax effect on the Company’s pretax income which include its share in net ~~loss from Justice which resulted in a lower amount of noncontrolling interest that was reconciled against the net loss~~income of the ~~Company for income tax calculation purposes.~~ Hotel (i.e., 50%).
MARKETABLE SECURITIES ~~AND OTHER INVESTMENTS~~
As of June 30, ~~2010~~2012 and ~~2009,~~2011, the Company had investments in marketable equity securities of ~~$2,323,000~~$2,683,000 and ~~$5,987,000,~~$4,866,000, respectively. The following table shows the composition of the ~~Company's~~Company’s marketable securities portfolio by selected industry groups as: June 30, 2010 % of Total Investment Industry Group Market Value Securities -------------- ------------ ---------- Investment funds 751,000 32.3% REITs 493,000 21.2% Healthcare 276,000 11.9% Services 261,000 11.2% Financial services 214,000 9.2 Other 328,000 14.2% ---------- ------ $ 2,323,000 100.0% ========== ====== June 30, 2009 % of Total Investment Industry Group Market Value Securities -------------- ------------ ---------- Dairy products $ 2,935,000 49.0% REITs and financial 1,294,000 21.6% Basic materials and energy 563,000 9.4% Electronic traded funds(ETFs) 498,000 8.3% Services 241,000 4.0% Other 456,000 7.7% ---------- ------ $ 5,987,000 100.0% ========== ======
15
As of June 30, 2012 % of Total
Investment
Industry Group Fair Value Securities

Basic materials $ 1,660,000 61.9 %
Technology 266,000 9.9 %
Financial services 228,000 8.5 %
REITs and real estate companies 177,000 6.6 %
Other 352,000 13.1 %
$ 2,683,000 100.0 %
As of June 30, 2011 % of Total
Investment
Industry Group Fair Value Securities

Basic materials $ 1,687,000 34.7 %
Investment funds 924,000 19.0 %
Services 815,000 16.7 %
REITs and real estate companies 587,000 12.1 %
Financial services 443,000 9.1 %
Other 410,000 8.4 %
$ 4,866,000 100.0 %
The ~~Company's~~Company’s investment portfolio is diversified with 2328 different equity positions. The Company holds ~~five individual~~one equity ~~securities~~security that ~~comprise individually~~comprises more than 5%10% of the equity value of the portfolio. The security represents 61.9% of the portfolio ~~with~~and consists of the ~~-18-~~ ~~largest being 27.3%.~~common stock of Comstock Mining, Inc. (“Comstock” - NYSE MKT: LODE) which is included in the basic materials industry group. The amount of the ~~Company's~~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%10% of its total portfolio value, that investment could eventually exceed 5%10% as a result of equity appreciation or reduction of other positions. A significant percentage of the portfolio consists of common stock in Comstock that was obtained through dividend payments by Comstock on its 7.5% Series A-1 Convertible Preferred Stock. Marketable securities are stated at ~~market~~fair value as determined by the most recently traded price of each security at the balance sheet date. The Company may also invest, with the approval of the Securities Investment Committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in non-marketable securities are carried at cost on the Company's balance sheet as part of other investments, net of other than temporary impairment losses. As of June 30, 2010 and 2009, the Company had net other investments of $2,513,000 and $2,409,000, respectively. Included in the net other investments are notes and convertible notes in Comstock Mining, Inc., a public company, that had a carrying value of $750,000 (net of impairment adjustments) as of June 30, 2010. The face value of these notes and convertible notes as of June 30, 2010 totaled approximately $4,328,000, which includes $2,998,000 of principal and $1,330,000 of accrued interest. Comstock Mining is currently working with its debt holders, including the Company, to restructure its debt and capital structure.
LIQUIDITY AND SOURCES OF CAPITAL
The ~~Company's~~Company’s cash flows are primarily generated from its Hotel operations, and general partner management fees and limited partnership distributions from ~~Justice.~~Justice Investors. The Company also receives ~~revenues~~cash generated from the investment of its cash and marketable securities and other investments. ~~Since~~
Following the temporary suspension of operations ofin May 2005 for major renovations, the Hotel ~~were temporarily suspended on May 31, 2005,~~started, and ~~significant amounts of money were expended~~continues, to ~~renovate and reposition the Hotel as~~generate positive cash flows from its operations. As a ~~Hilton,~~result, Justice ~~did not~~was able to pay ~~any~~some limited partnership distributions ~~until~~in fiscal years 2008 and 2009. However, due to the ~~end of March 2007. As a result,~~significant downturn in the San Francisco hotel market beginning in September 2008 and the continued weakness in domestic and international economies, no Partnership distributions were paid in fiscal 2011 and 2010. During such periods, the Company had to depend more on the revenues generated from the investment of its cash and marketable securities ~~during that transition period. The Hotel started to generate cash flows~~and from its general partner management fees. Since we have seen significant improvement in the operations ~~in June 2006. For~~of the fiscal year ended June 30, 2009, Justice paid a total of $850,000 in limited partnership distributions, of which the Company received $425,000. The fiscal 2009 distributions were paid in September 2008, after whichHotel, and the San Francisco ~~hotel~~ market ~~began~~in general, Justice was in a position to ~~feel the full impact of the significant downturn in domestic and international economies that continued throughout fiscal 2009 and 2010. As~~pay a ~~result, no Partnership distributions were paid in fiscal 2010. Since no significant improvement in economic conditions is expected in the lodging industry until sometime during 2011, no~~ limited partnership ~~distributions are anticipated~~distribution in ~~the foreseeable future.~~December 2011 in an aggregate amount of $1,000,000, of which Portsmouth received $500,000. The general partners of Justice will continue to monitor and review the operations and financial results of the Hotel and to set the amount of any future distributions that may be appropriate based on operating results, cash flows and other factors, including establishment of reasonable reserves for debt payments and operating contingencies. ~~-19-~~
16
The new Justice Compensation Agreement that became effective on December 1, 2008, when Portsmouth assumed the role of managing general partner of Justice, has provided additional cash flows to the Company. Under the new Compensation Agreement, Portsmouth is now entitled to 80% of the minimum base fee to be paid to the general partners of $285,000, while under the prior agreement, Portsmouth was entitled to receive only 20% of the minimum base fee. As a result of increases in Hotel gross revenues in fiscal 2012, total general partner fees paid to Portsmouth for the year ended June 30, ~~2010~~2012 increased to ~~$264,000,~~$366,000, compared to ~~$222,000~~$323,000 for the year ended June 30, ~~2009.~~ 2011.
To meet its substantial financial commitments for the renovation and transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet its obligations. On July 27, 2005, Justice entered into a first mortgage loan with The Prudential Insurance Company of America in a principal amount of $30,000,000 (the ~~"Prudential Loan"~~“Prudential Loan”). The term of the Prudential Loan is for 120 months at a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly installments of principal and interest in the amount of approximately $165,000, calculated on a 30-year amortization schedule. The Loan is collateralized by a first deed of trust on the ~~Partnership's~~Partnership’s Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Prudential Loan is without recourse to the limited and general partners of Justice. The principal balance of the Prudential Loan was ~~$27,723,000~~$26,599,000 as of June 30, ~~2010.~~ 2012.
On March 27, 2007, Justice entered into a second mortgage loan with Prudential (the ~~"Second~~“Second Prudential ~~Loan"~~Loan”) in a principal amount of $19,000,000. The term of the Second Prudential Loan is for ~~approximately~~ 100 months and matures on August 5, 2015, the same date as the first Prudential Loan. The Second Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for monthly installments of principal and interest in the amount of ~~approximately~~ $119,000, calculated on a 30-year amortization schedule. The Second Prudential Loan is collateralized by a second deed of trust on the ~~Partnership's~~Partnership’s Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Second Prudential Loan is also without recourse to the limited and general partners of Justice. The principal balance of the Second Prudential Loan was ~~$18,267,000~~$17,722,000 as of June 30, ~~2010. Justice had~~2012.
Effective April 29, 2010, the Partnership obtained a modification of its $2,500,000 unsecured revolving line of credit facility with East West Bank ~~(formerly United Commercial Bank)~~ that was to mature on April 30, ~~2010. Borrowings under~~2010, and converted that line of credit bore interest at Prime plus 3.0% per annum or based on the Wall Street Journal Prime Rate (3.25%) plus 3.0% per annum, floating, (but subject to a minimum floor rate at 5.0% per annum). Borrowings under the line of credit were subject to certain financial covenants, which are measured annually at June 30th and December 31st based on the credit arrangement. Effective April 29, 2010, the Partnership obtained a modification from the bank which converted its revolving line of credit facility to aan unsecured term loan. ~~The Partnership also obtained a waiver of any prior noncompliance with financial covenants.~~ The modification provides that Justice will pay the $2,500,000 balance on its line of credit facility over a period of four years, to mature on April 30, 2014. This term loan calls for monthly principal and interest payments of $41,000, calculated on a ~~six-year~~nine-year amortization schedule, with interest only from May 1, 2010 to August 31, 2010. Pursuant to the modification, the annual ~~-20-~~ floating interest rate was reduced by 0.5% to the ~~WSJ~~Wall Street Journal Prime Rate plus 2.5% (with a minimum floor rate of 5.0% per annum). The modification ~~includes~~provides for new financial covenants ~~written to reflect financial conditions~~ that ~~all hotels are facing. The covenants~~ include specific financial ratios and a return to minimum profitability byafter June 30, 2011. Management believes that the Partnership has the ability to meet the specific covenants and the Partnership was in compliance with the covenants as of June 30, ~~2010. The Partnership paid a loan modification fee of $10,000. The loan continues as unsecured.~~2012. As of June 30, ~~2010,~~2012, the interest rate was 5.75% and the outstanding balance was ~~$2,500,000. As of June 30, 2009, the interest rate was 6.25% and the outstanding balance on the line of credit was $1,811,000.~~ $1,702,000.
Despite ~~the downturns in the~~an uncertain economy, the Hotel has continued to generate positive cash flows. While the debt service requirements related to the two Prudential loans, as well as the ~~new~~ term loan to pay off the line of credit, may create some additional risk for the Company and its ability to generate cash flows in the future, ~~since the Partnership's assets had been virtually debt free for a number of years,~~ management believes that cash flows from the operations of the Hotel and the garage will continue to be sufficient to meet all of the ~~Partnership's~~Partnership’s current and future obligations and financial requirements. Management also believes that there is sufficient equity in the Hotel assets to support future borrowings, if necessary, to fund any new capital improvements and other requirements.
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 consolidated statements of operations.
Management believes that its cash, marketable securities, and the cash flows generated from those assets and from partnership distributions and management fees, will be adequate to meet the ~~Company's~~Company’s current and future obligations.
17
MATERIAL CONTRACTUAL OBLIGATIONS
The following table provides a summary of the ~~Company's~~Company’s material financial obligations which also includes interest. Total Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter ----------- ---------- ---------- ---------- ---------- ---------- ----------- Mortgage notes payable $58,882,000 $3,410,000 $3,410,000 $3,410,000 $3,410,000 $3,410,000 $41,832,000 Other notes payable 4,274,000 1,234,000 708,000 694,000 1,629,000 9,000 - ---------- --------- --------- --------- --------- --------- ---------- Total $63,156,000 $4,644,000 $4,118,000 $4,104,000 $5,039,000 $3,419,000 $41,832,000 ---------- --------- --------- --------- --------- --------- ----------
Total Year 1 Year 2 Year 3 Year 4 Year 5 Thereafter
Mortgage notes payable $ 44,321,000 $ 907,000 $ 960,000 $ 1,015,000 $ 41,439,000 $ - $ -
Other notes payable 2,072,000 372,000 1,695,000 5,000 - - -
Interest 8,188,000 2,877,000 2,522,000 2,396,000 393,000 - -
Total $ 54,581,000 $ 4,156,000 $ 5,177,000 $ 3,416,000 $ 41,832,000 $ - $ -
OFF-BALANCE SHEET ARRANGEMENTS
The Company has no material off balance sheet arrangements.
IMPACT OF INFLATION
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 ~~-21-~~ inflationary cost increases. Since Prism has the power and ability under the terms of its management agreement to adjust hotel room rates on an ongoing basis,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
Critical accounting policies are those that are most significant to the portrayal of our financial position and results of operations and require judgments by management in order to make estimates about the effect of matters that are inherently uncertain. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts in our consolidated financial statements. We evaluate our estimates on an on-going basis, including those related to the consolidation of our subsidiaries, to our revenues, allowances for bad debts, accruals, asset impairments, other investments, income taxes and commitments and contingencies. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates or our estimates may be affected by different assumptions or conditions.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not required for smaller reporting companies.
Item 8. Financial Statements ~~INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE~~ and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE
Report of Independent Registered Public Accounting Firm 19
Consolidated Balance Sheets - June 30, 2012 and 2011 20
Consolidated Statements of Operations - For years ended June 30, 2012 and 2011 21
Consolidated Statements of Shareholders’ Deficit – For years ended June 30, 2012 and 2011 22
Consolidated Statements of Cash Flows - For years ended June 30, 2012 and 2011 23
Notes to the Consolidated Financial Statements 24 – 38
18
Report of Independent Registered Public Accounting Firm 23 Consolidated Balance Sheets - June 30, 2010 and 2009 24 Consolidated Statements of Operations - For Years Ended June 30, 2010 and 2009 25 Consolidated Statements of Shareholders' Deficit - For Years Ended June 30, 2010 and 2009 26 Consolidated Statements of Cash Flows - For Years Ended June 30, 2010 and 2009 27 Notes to the Consolidated Financial Statements 28 - 47 -22- ~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~
To the Board of Directors and Shareholders of
Portsmouth Square, Inc.:
We have audited the accompanying consolidated balance sheets of Portsmouth Square, Inc. and its subsidiary (the Company) as of June 30, ~~2010~~2012 and ~~2009,~~2011, and the related consolidated statements of operations, ~~shareholders'~~shareholders’ deficit and cash flows for each of the years ~~then ended.~~in the two-year period ended June 30, 2012. The ~~Company's~~Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the ~~Company's~~Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the ~~consolidated~~ financial statements referred to above present fairly, in all material respects, the consolidated financial position of Portsmouth Square, Inc. and its subsidiary as of June 30, ~~2010~~2012 and ~~2009,~~2011, and the consolidated results of their operations and their cash flows for each of the years ~~then~~in the two-year period ended June 30, 2012 in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for noncontrolling interests effective July 1, 2009. /s/ Burr Pilger Mayer, Inc. San Francisco, California September 24, 2010 -23-
PORTSMOUTH SQUARE, INC. CONSOLIDATED BALANCE SHEETS June 30, 2010 June 30, 2009 ------------ ------------ Assets Investment in hotel, net $ 33,708,000 $ 36,342,000 Investment in real estate 973,000 973,000 Investment in marketable securities 2,323,000 5,987,000 Other investments, net 2,513,000 2,409,000 Cash and cash equivalents 522,000 209,000 Accounts receivable, net 1,573,000 1,271,000 Other assets, net 1,561,000 1,684,000 Deferred tax asset 4,891,000 3,709,000 ------------ ------------ Total assets $ 48,064,000 $ 52,584,000 ============ ============ Liabilities and Shareholders' Deficit Liabilities Accounts payable and other liabilities $ 7,763,000 $ 7,251,000 Due to securities broker 226,000 1,514,000 Obligations for securities sold 79,000 699,000 Line of Credit - 1,811,000 Other notes payable 3,688,000 1,280,000 Mortgage notes payable 45,990,000 46,757,000 ------------ ------------ Total liabilities 57,746,000 59,312,000 ------------ ------------ Commitments and contingencies Shareholders' deficit: Common stock, no par value; 750,000 authorized shares; 734,183 shares issued and outstanding 2,092,000 2,092,000 Additional paid-in capital 916,000 916,000 Accumulated deficit (2,860,000) (1,140,000) ------------ ------------ Total Portsmouth shareholders' equity 148,000 1,868,000 Noncontrolling interest (9,830,000) (8,596,000) ------------ ------------ Total Shareholders' deficit (9,682,000) (6,728,000) ------------ ------------ Total liabilities and shareholders' deficit $ 48,064,000 $ 52,584,000 ============ ============
/s/ Burr Pilger Mayer, Inc.
San Francisco, California
September 20, 2012
19
~~PORTSMOUTH SQUARE, INC.~~
~~CONSOLIDATED BALANCE SHEETS~~
As of June 30, 2012 2011

ASSETS
Investment in hotel, net $ 32,822,000 $ 32,089,000
Investment in real estate 973,000 973,000
Investment in marketable securities 2,683,000 4,866,000
Other investments, net 5,311,000 5,913,000
Cash and cash equivalents 1,032,000 610,000
Accounts receivable, net 1,641,000 1,683,000
Other assets, net 2,371,000 1,976,000
Deferred tax asset 3,236,000 3,199,000

Total assets $ 50,069,000 $ 51,309,000

LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities:
Accounts payable and other liabilities $ 8,438,000 $ 7,961,000
Due to securities broker 53,000 1,835,000
Obligations for securities sold 188,000 153,000
Other notes payable 2,072,000 2,786,000
Mortgage notes payable - hotel 44,321,000 45,179,000

Total liabilities 55,072,000 57,914,000

Commitments and contingencies
Shareholders' deficit:
Common stock, no par value: Authorized shares - 750,000; 734,183 shares issued and outstanding shares 2,092,000 2,092,000
Additional paid-in-capital 916,000 916,000
Retained earnings 263,000 29,000
Total Portsmouth shareholders' equity 3,271,000 3,037,000
Noncontrolling interest (8,274,000 ) (9,642,000 )
Total shareholders' deficit (5,003,000 ) (6,605,000 )

Total liabilities and shareholders' deficit $ 50,069,000 $ 51,309,000
The accompanying notes are an integral part of these consolidated financial statements. ~~-24-~~
20
PORTSMOUTH SQUARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended June 30, 2010 2009 ---------- ----------- Revenue - hotel $32,680,000 $32,821,000 ---------- ---------- Costs and operating expenses Hotel operating expenses (27,223,000) (27,331,000) Loss on termination of garage lease - (684,000) Depreciation and amortization expense (4,747,000) (4,457,000) General and administrative expense (606,000) (581,000) ---------- ---------- Total costs and operating expenses (32,576,000) (33,053,000) ---------- ---------- Income(loss) from operations 104,000 (232,000) ---------- ---------- Other income(expense) Interest expense (2,902,000) (2,873,000) Net (loss)gain on marketable securities (621,000) 2,009,000 Net unrealized gain on other investments 71,000 - Impairment loss on other investments (657,000) (615,000) Dividend and interest income 162,000 105,000 Trading and margin interest expense (292,000) (206,000) ---------- ---------- Net other expense (4,239,000) (1,580,000) ---------- ---------- Loss before income taxes (4,135,000) (1,812,000) Income tax benefit 1,181,000 191,000 ---------- ---------- Net loss (2,954,000) (1,621,000) Less: Net loss attributable to the Noncontrolling interest 1,234,000 - ---------- ---------- Net loss attributable to Portsmouth (1,720,000) (1,621,000) ========== ========== Basic and diluted loss per share $ (2.34) $ (2.21) ========== ========== Weighted average number of common shares outstanding 734,183 734,183 ========== ==========
For the years ended June 30, 2012 2011

Revenue - Hotel $ 42,462,000 $ 36,282,000

Costs and operating expenses
Hotel operating expenses (33,465,000 ) (29,299,000 )
Depreciation and amortization expense (2,163,000 ) (3,467,000 )
General and administrative expense (595,000 ) (572,000 )

Total costs and operating expenses (36,223,000 ) (33,338,000 )

Income from operations 6,239,000 2,944,000

Other income (expense)
Interest expense (2,724,000 ) (2,806,000 )
Net (loss) gain on marketable securities (1,045,000 ) 1,030,000
Net unrealized (loss) gain on other investments (187,000 ) 3,777,000
Impairment loss on other investments (335,000 ) (356,000 )
Dividend and interest income 385,000 486,000
Trading and margin interest expense (232,000 ) (271,000 )

Net other (expense) income (4,138,000 ) 1,860,000

Income before income taxes 2,101,000 4,804,000
Income tax benefit (expense) 1,000 (1,727,000 )

Net income 2,102,000 3,077,000
Less: Net income attributable to the noncontrolling interest (1,868,000 ) (188,000 )

Net income attributable to Portsmouth $ 234,000 $ 2,889,000

Basic and diluted income per share attributable to Portsmouth $ 0.32 $ 3.93

Weighted average number of common shares outstanding 734,183 734,183
The accompanying notes are an integral part of these consolidated financial statements. ~~-25-~~
PORTSMOUTH SQUARE, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT Retained Total Common Stock Additional Earnings Portsmouth Total -------------------- Paid-In (Accumulated Shareholders' Noncontrolling Shareholders' Shares Amount Capital Deficit) Equity Interest Deficit ------- ---------- ---------- ---------- ------------ -------------- ------------- Balance at June 30, 2008 734,183 $2,092,000 $ 916,000 $ 906,000 $ 3,914,000 $ (8,596,000) $ (4,682,000) Net loss (1,621,000) (1,621,000) (1,621,000) Distributions to noncontrolling interest (425,000) (425,000) (425,000) ------- ---------- ---------- ---------- ------------ -------------- ------------- Balance at June 30, 2009 734,183 2,092,000 916,000 (1,140,000) 1,868,000 (8,596,000) (6,728,000) Net loss (1,720,000) (1,720,000) (1,234,000) (2,954,000) ------- ---------- ---------- ---------- ------------ -------------- ------------- Balance at June 30, 2010 734,183 $2,092,000 $ 916,000 $(2,860,000) $ 148,000 $ (9,830,000) $ (9,682,000) ======= ========== ========== ========== ============ ============== =============
21
~~PORTSMOUTH SQUARE, INC~~
~~CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT~~
Retained Total
Common Stock Additional Earnings Portsmouth Total
Paid-in (Accumulated Shareholders' Noncontrolling Shareholders'
Shares Amount Capital Deficit) Equity Interest Deficit

Balance at June 30, 2010 734,183 $ 2,092,000 $ 916,000 $ (2,860,000 ) $ 148,000 $ (9,830,000 ) $ (9,682,000 )

Net income 2,889,000 2,889,000 2,889,000

Noncontrolling interest 188,000 188,000

Balance at June 30, 2011 734,183 2,092,000 916,000 29,000 3,037,000 (9,642,000 ) (6,605,000 )

Net income 234,000 234,000 234,000

Noncontrolling interest 1,868,000 1,868,000

Distributions to noncontrolling interest (500,000 ) (500,000 )

Balance at June 30, 2012 734,183 $ 2,092,000 $ 916,000 $ 263,000 $ 3,271,000 $ (8,274,000 ) $ (5,003,000 )
The accompanying notes are an integral part of these consolidated financial statements. ~~-26-~~
PORTSMOUTH SQUARE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended June 30, 2010 2009 ---------- ------------ Cash flows from operating activities: Net loss $(2,954,000) $(1,621,000) Adjustments to reconcile net loss to net cash provided by operating activities: Net unrealized loss(gain) on marketable securities 2,779,000 (2,412,000) Impairment loss on other investments 657,000 615,000 Unrealized gain on other investments (71,000) - Depreciation and amortization 4,747,000 4,457,000 Loss on termination of lease - 684,000 Changes in assets and liabilities: Investment in marketable securities 885,000 (617,000) Account receivable (302,000) (131,000) Other assets 170,000 70,000 Accounts payable and other liabilities 515,000 916,000 Due to securities broker (1,288,000) 482,000 Obligations for securities sold (620,000) 699,000 Deferred tax asset (1,182,000) (192,000) ---------- ---------- Net cash provided by operating activities 3,336,000 2,950,000 ---------- ---------- Cash flows from investing activities: Capital expenditures for furniture, equipment and building improvements (1,409,000) (1,304,000) Other investments (690,000) (535,000) ---------- ---------- Net cash used in investing activities (2,099,000) (1,839,000) ---------- ---------- Cash flows from financing activities: Borrowings from line of credit 689,000 298,000 Principal payments on mortgage note payable (767,000) (725,000) Payments of other notes payable (846,000) (535,000) Cash distributions to minority partners - (425,000) ---------- ---------- Net cash used in financing activities (924,000) (1,387,000) ---------- ---------- Net increase(decrease) in cash and cash equivalents 313,000 (276,000) Cash and cash equivalents at the beginning of the year 209,000 485,000 ---------- ---------- Cash and cash equivalents at the end of the year $ 522,000 $ 209,000 ========== ========== Supplemental information: Income tax paid $ 1,000 $ 1,000 ========== ========== Interest paid $ 3,019,000 $ 2,897,000 ========== ========== Conversion of line of credit into other notes Payable $ 2,500,000 $ - ========== ========== Fixed assets acquired through capital lease $ 754,800 $ - ========== ========== Note payable issued under the installment sale agreement $ - 727,000 ========== ========== Fixed assets acquired and note payable assumed under the installment sale agreement $ - (43,000) ========== ==========
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~~PORTSMOUTH SQUARE, INC.~~
~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~
For the years ended June 30, 2012 2011
Cash flows from operating activities:
Net income $ 2,102,000 $ 3,077,000
Adjustments to reconcile net income to net cash provided by operating activities:
Net unrealized loss (gain) on marketable securities 798,000 (1,065,000 )
Unrealized loss (gain) on other investments 187,000 (3,777,000 )
Impairment loss on other investments 335,000 356,000
Depreciation and amortization 2,163,000 3,467,000
Changes in assets and liabilities:
Investment in marketable securities 1,385,000 (1,478,000 )
Accounts receivable 42,000 (110,000 )
Other assets (472,000 ) (490,000 )
Accounts payable and other liabilities 477,000 198,000
Due to securities broker (1,782,000 ) 1,609,000
Obligations for securities sold 35,000 74,000
Deferred income taxes (37,000 ) 1,692,000
Net cash provided by operating activities 5,233,000 3,553,000

Cash flows from investing activities:
Payments for hotel furniture, equipment and building improvements (2,819,000 ) (1,773,000 )
Other investments 80,000 21,000
Net cash used in investing activities (2,739,000 ) (1,752,000 )

Cash flows from financing activities:
Distributions to noncontrolling interest (500,000 ) -
Payments on mortgage notes payable (858,000 ) (811,000 )
Payments on other notes payable (714,000 ) (902,000 )
Net cash used in financing activities (2,072,000 ) (1,713,000 )

Net increase in cash and cash equivalents 422,000 88,000
Cash and cash equivalents at beginning of year 610,000 522,000
Cash and cash equivalents at end of year $ 1,032,000 $ 610,000

Supplemental information:
Income tax refund (paid) $ 1,000 $ 7,000
Interest paid $ 2,771,000 $ 2,897,000
The accompanying notes are an integral part of these consolidated financial statements. ~~-27-~~
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PORTSMOUTH SQUARE, INC. ~~NOTES TO THE~~
Notes to the CONSOLIDATED ~~FINANCIAL STATEMENTS~~ Financial Statements
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of Business
As of June 30, ~~2010,~~2012, Santa Fe Financial Corporation ("(“Santa ~~Fe"~~Fe”), a public company, owns approximately 68.8% of the outstanding common shares of Portsmouth Square, Inc. ~~("Portsmouth"~~(“Portsmouth” or the ~~"Company"~~“Company”). Santa Fe is a ~~76%- owned~~79.9%-owned subsidiary of The InterGroup Corporation ~~("InterGroup"~~(“InterGroup”), a public company. InterGroup also directly owns approximately ~~11.7%~~12.5% of the common stock of Portsmouth. ~~Portsmouth's~~
Portsmouth’s primary business is conducted through its general and limited partnership interest in Justice Investors, a California limited partnership ~~("Justice"~~(“Justice” or the ~~"Partnership"~~“Partnership”).Portsmouth has a 50.0% limited partnership interest in Justice and serves as one of the two general partners. The other general partner, Evon Corporation ~~("Evon"~~(“Evon”), served as the managing general partner until December 1, 2008 at which time Portsmouth assumed the role of managing general partner. As discussed in Note 2, the financial statements of Justice are consolidated with those of the Company.
Justice owns a ~~544-room~~543-room hotel property located at 750 Kearny Street, San Francisco California, known as theHilton San Francisco Financial District ~~(the~~(the Hotel) and related facilities including a five level underground parking garage. The Hotel is operated by the partnership as a full service Hilton brand hotel pursuant to a Franchise License Agreement with Hilton Hotels Corporation. Justice also has a Management Agreement with Prism Hospitality L.P. (Prism) to perform the day-to-day management functions of the Hotel.
Justice leased the parking garage to Evon through September 30, 2008. Effective October 1, 2008, Justice and Evon entered into an Installment Sale Agreement whereby Justice purchased all of ~~Evon's~~Evon’s right, title, and interest in the remaining term of its lease of the parking garage, which was to expire on November 30, 2010, and other related assets. Justice also agreed to assume ~~Evon's~~Evon’s contract with Ace Parking Management, Inc. ("(“Ace ~~Parking"~~Parking”) for the management of the garage and any other liabilities related to the operation of the garage commencing October 1, 2008. The management agreement with Ace Parking was extended for another 62 months, effective November 1, 2010. The Partnership also leases a day spa on the lobby level to Tru Spa. Portsmouth also receives management fees as a general partner of Justice for its services in overseeing and managing the Partnership’s assets. Those fees are eliminated in consolidation.
Due to the temporary closing of the Hotel to undergo major renovations from May 2005 until January 2006 to transition and reposition the Hotel from a Holiday Inn to a Hilton, and the substantial depreciation and amortization expenses resulting from the renovations and operating losses incurred as the Hotel ramped up operations after reopening, Justice has recorded net losses. These losses were anticipated and planned for as part of the ~~Partnership's~~Partnership’s renovation and repositioning plan for Hotel and management considers those net losses to be temporary. The Hotel has been generating positive cash flows from operations since June ~~2006~~2006. For the fiscal years ended June 30, 2012 and 2011, the Partnership reversed that trend as net income ~~is expected to improve in~~was $4,110,000 and $710,000, respectively. Hotel operations improved significantly during the ~~future, especially since~~last two fiscal years and depreciation and amortization expenses ~~attributable to~~decreased as many of the furniture and fixture improvements from the renovation ~~will decrease substantially. Despite~~of the ~~significant downturn in~~Hotel reached full deprecation during the ~~economy, management~~fiscal 2011.
Management believes that the revenues expected to be generated from the ~~Hotel,~~operations of the hotel, garage and ~~the Partnership's~~ leases will be sufficient to meet all of the ~~-28-~~ ~~Partnership's~~Partnership’s current and future obligations and financial requirements. Management also believes that there is significant ~~equity~~value in the Hotel to support additional borrowings, if necessary.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all controlled subsidiaries. All significant inter-company transactions and balances have been eliminated.
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Investment in Hotel, Net
The Hotel property and equipment are stated at cost less accumulated depreciation. Building ~~and~~ improvements are being depreciated on a ~~straight- line~~straight-line basis over their ~~estimated~~ useful lives ranging from 53 to 39 years. Furniture, fixtures, and equipment are being depreciated on a straight-line basis over their ~~estimated~~ useful lives ranging from 53 to 7 years.
Repairs and maintenance are charged to expense as ~~incurred, and costs of significant renewals and improvements are capitalized.~~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).~~recoverable. 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~~Partnership will recognize an impairment loss equal to the difference between its 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~~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 impairment losses were recorded for the years ended June 30, ~~2010~~2012 and ~~2009.~~ 2011.
Investment in Marketable Securities
Marketable securities are stated at ~~market~~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.
Other Investments, Net
Other investments include non-marketable securities ~~that are carried~~(carried at cost, net of any ~~impairment loss~~impairments loss), non –marketable warrants (carried at fair value) and ~~non-marketable warrants~~certain preferred securities, received in exchange for debt instruments, carried at a book basis, initially determined using the estimated fair ~~value.~~value on the exchange date. The Company has no significant influence or control over the entities that issue these investments. These investments are reviewed on a periodic basis for other-than-temporary impairment. The Company reviews several factors to ~~-29-~~ determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. For the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, the Company recorded impairment losses related to other investments of ~~$657,000~~$335,000 and ~~$ 615,000,~~$356,000, respectively.
Derivative Financial Instruments
The Company has investments in stock warrants that are considered derivative instruments.
Derivative financial instruments, as defined in ASC 815-10-15-83, ~~"Derivatives~~“Derivatives and ~~Hedging"~~Hedging”(pre-Codification SFAS No. 133 Accounting for Derivative Financial Instruments and Hedging Activities ), consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value on the ~~Company's~~Company’s consolidated balance sheet with the related unrealized gain or loss recorded in the ~~Company's~~Company’s consolidated statement of operations. The Company used the Black-Scholes option valuation model to estimate the fair value these instruments which requires management to make significant assumptions including trading volatility, estimated terms, and risk free rates. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based models are highly volatile and sensitive to changes in the trading market price of the underlying common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the ~~Company's~~Company’s consolidated statement of operations will reflect the volatility in these estimate and assumption changes.
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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.
Accounts Receivable, Net
Accounts receivable from Hotel customers are carried at cost less an allowance for doubtful accounts that is based on ~~management's~~management’s assessment of the collectability of accounts receivable. The Company extends unsecured credit to its customers but mitigates the associated credit risk by performing ongoing credit evaluations of its customers.
Other Assets, Net
Other assets ~~includes~~include prepaid insurance, loan fees, franchise fees, license fees and ~~license fees.~~other miscellaneous assets. Loan fees are stated at cost and amortized over the term of the loan using the effective interest method. Franchise fees are stated at cost and amortized over the life of the agreement (15 years). License fees are stated at cost and amortized over 10 years. ~~-30-~~
Income Taxes
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.
Assets and liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the ~~"more-likely-than-not"~~“more-likely-than-not” threshold based on the technical merits of the positions.
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.
Obligations for Securities Sold
Obligation for securities sold represents the fair market value of shares sold with the promise to deliver that security at some future date and the fair market value of shares underlying the written call options with the obligation to deliver that security when and if the option is exercised. The obligation may be satisfied with current holdings of the same security or by subsequent purchases of that security. Unrealized gains and losses from changes in the obligation are included in the statement of operations.
Accounts Payable and Other Liabilities
Accounts payable and other liabilities include trade payables, advance deposits and other liabilities.
26
Fair Value of Financial Instruments ~~The Company accounts for its assets and liabilities under accounting standards of fair value measurement. Under these standards, fair~~
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"~~“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~~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: ~~-31-~~
Level ~~1-inputs~~1–inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level ~~2-inputs~~2–inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.
Level ~~3-inputs~~3–inputs to the valuation methodology are unobservable and significant to the fair value.
Environmental Remediation Costs
Liabilities for environmental remediation costs are recorded and charged to expense when it is probable that obligations have been incurred and the amounts can be reasonably estimated. Recoveries of such costs are recognized when received. As of June 30, ~~2010~~2012 and ~~2009,~~2011, there were no liabilities for environmental remediation.
Revenue Recognition
Room revenue is recognized on the date upon which a guest occupies a room and/or utilizes the ~~Hotel's~~Hotel’s services. Food and beverage revenues are recognized upon delivery. Garage revenue is recognized when a guest uses the garage space.
Rental revenue is recognized on the straight-line method of accounting whereby contractual rent payment increases are recognized evenly over the lease term, regardless of when the rent payments are received by Justice. The leases contain provisions for base rent plus a percentage of the ~~lessees'~~lessees’ revenues, which are recognized when earned.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were ~~$278,000~~$445,000 and ~~$273,000~~$337,000 for the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, respectively.
Basic and Diluted ~~Loss~~Income per Share
Basic ~~loss~~income per share is calculated based upon the weighted average number of common shares outstanding during each fiscal year. As of June 30, ~~2010~~2012 and ~~2009,~~2011, the Company did not have any potentially dilutive securities outstanding.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of ~~America(GAAP)~~America (U.S. GAAP) requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts. ~~Reclassifications Certain prior year balances have been reclassified to conform with the current year presentation. -32-~~
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Recent Accounting Pronouncements
In ~~June 2009,~~May 2011, the Financial Accounting Standards Board (FASB) issued ~~Statement of Financial~~ Accounting Standards ~~(SFAS) No. 168, The FASB Accounting Standards Codification~~Update 2011-04 (ASU 2011-04), “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (International Financial Reporting Standard).” ASU 2011-04 attempts to improve the ~~Hierarchy~~comparability of ~~Generally Accepted Accounting Principles, which was primarily codified into Accounting Standards Codification (ASC) Topic 105. This standard became~~fair value measurements disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. Amendments in ASU 2011-04 clarify the ~~single source~~intent of ~~authoritative nongovernmental U.S. generally accepted accounting principles (GAAP). The Codification was~~the application of existing fair value measurement and disclosure requirements, as well as change certain measurement requirements and disclosures. ASU 2011-04 is effective for ~~interim or annual financial periods ended after September 15, 2009. The~~the Company ~~adopted ASC 105~~ beginning ~~the quarter ended September 30, 2009. The adoption of ASC 105 did not have~~January 1, 2012 and has been applied on a ~~material impact on our consolidated financial position, results of operations and cash flows. Additionally, the FASB now uses Accounting Standards Updates (ASU) to amend ASC.~~ prospective basis.
In June ~~2009,~~2011, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (SFAS 167), which has been codified into ASC Topic 810-10, "Consolidation". It clarifies that related parties should be considered when evaluatingASU 2011-05, “Presentation of Comprehensive Income.” ASU 2011-05 changes the ~~criteria for determining whether a decision maker's or service provider's fee represents a variable interest. In addition,~~way other comprehensive income (“OCI”) appears within the amendments clarify that a quantitative calculation should not be the sole basis for evaluating whether a decision maker's or service provider's fee represents a variable interest. This guidance will be effective at the start of a reporting entity's first fiscal year beginning after November 15, 2009. Early application is not permitted. Management does not anticipate that the adoption of this guidance will have a material effect on the Company's consolidated financial statements. In May 2009, the FASB issued SFAS No. 165, Subsequent Events, which was primarily codified into ASC Topic 855 and updated by ASU 2010-09. The Company adopted ASC Topic 855 which requires an entity to recognize in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet. For non-recognized subsequent events that must be disclosed to keep the financial statements from being misleading, an entityCompanies will be required to ~~disclose~~show net income, OCI and total comprehensive income in one continuous statement or in two separate but consecutive statements. Components of OCI may no longer be presented solely in the ~~nature~~statement of changes in shareholders’ deficit. ASU 2011-05 will be effective for the Company beginning July 1, 2012. For the years ended June 30, 2012 and 2011, the Company had no components of Comprehensive Income other than Net Income (loss) itself.
In September 2011, the FASB issued ASU No. 2011-09, Compensation - Retirement Benefits - Multiemployer Plans (Subtopic 715-80) — Disclosures about an Employer's Participation in a Multiemployer Plan, which requires employers that participate in multiemployer pension plans to provide additional quantitative and qualitative disclosures in order to provide more information about an employer's involvement in multiemployer pension plans. Although the majority of the ~~event as well as an estimate of its financial effect, or a statement~~amendments in this ASU apply only to multiemployer pension plans, there are also amendments that ~~such an estimate cannot be made. ASC Topic 855 is consistent with current practice~~require changes in disclosures for multiemployer plans that provide postretirement benefits other than pensions. The Company adopted this ASU on June 30, 2012. This ASU impacted the Company's disclosures only and did not have any impact on the Company's ~~consolidated~~ financial ~~statements. Subsequent events were evaluated through the date~~position, results of operations, or cash flows. The disclosures required by this ASU are presented in Note 17 to the consolidated financial statements were issued. In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in Consolidated Financial Statements-an amendment of ARB No. 51" which was primarily codified into ASC Topic 810, "Consolidation." ASC Topic 810 states that accounting and reporting for minority interests will be recharacterized as noncontrolling interests and classified as a component of equity. This standard also establishes reporting requirements that provide disclosures that identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. ASC Topic 810 required retrospective adoption of the presentation and disclosure requirements for previously existing minority interests. All other requirements are to be applied prospectively. This standard is effective for fiscal years beginning after December 15, 2008. The Company adopted the provisions beginning July 1, 2009. Prior to adopting this standard, the Company absorbed 100% of the net loss and accumulated deficit of Justice Investors as of June 30, 2009. Effective July 1, 2009 under ASC Topic 810, losses attributable to the parent and the noncontrolling interest in a -33- subsidiary shall be attributed to those respective interests. That is, the noncontrolling interest shall continue to be attributed its share of losses even if that attribution results in a deficit noncontrolling interest balance. As a result, upon adoption, the Company recalculated the accumulated deficit pertaining to noncontrolling interest totaling $8,596,000 as of June 30, 2009 and 2008, respectively and reclassified such amount as a separate component of the shareholders' equity (deficit). However, the losses attributed to the noncontrolling interest were not adjusted in the consolidated statement of operations for the year ended June 30, 2009. In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" which was primarily codified into ASC Topic 825, "Financial Instruments." ASC Topic 825 provides entities with an irrevocable option to report selected financial assets and financial liabilities at fair value. It also establishes presentation and disclosure requirements that are designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The Company adopted ASC Topic 825 on July 1, 2008 and chose not to elect the fair value option for its financial assets and liabilities that had not been previously carried at fair value. Therefore, material financial assets and liabilities not carried at fair value, such as other assets, accounts payable, line of credit, other notes payable and mortgage payables are reported at their carrying values. In January 2010, the FASB issued ASU 2010-06, "Improving Disclosures About Fair Value Measurements." Effective January 1, 2010, ASU 2010-06 requires the separate disclosure of significant transfers into and out of the Level 1 and Level 2 categories and the reasons for such transfers, and also requires fair value measurement disclosures for each class of assets and liabilities as well as disclosures about valuation techniques and inputs used for recurring and nonrecurring Level 2 and Level 3 fair value measurements. Effective in fiscal years beginning after December 31, 2010, ASU 2010-06 also requires Level 3 disclosure of purchases, sales, issuances and settlements activity on a gross rather than a net basis. These amendments resulted in additional disclosures in the Company's consolidated financial statements. In December 2007, the FASB issued SFAS No. 141(R), "Business Combinations", which was primarily codified into ASC Topic 805, "Business Combinations". It establishes principles and requirements for how an acquirer in a business combination recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any controlling interest; recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. This standard is to be applied prospectively to business combinations for which the acquisition date is on or after an entity's fiscal year that begins after December 15, 2008. The Company adopted this standard beginning July 1, 2009 and adoption of this standard had no material impact on the Company's consolidated financial statements. -34-
NOTE 2 - JUSTICE INVESTORS
On July 14, 2005, the FASB issued Staff Position (FSP) SOP 78-9-1, ~~"Interaction~~“Interaction of AICPA Statement of Position 78-9 and EITF Issue No. ~~04-5"~~04-5” which was codified into ASC Topic 910-810, ~~"Real~~“Real Estate -– General ~~- Consolidation"~~– Consolidation”, to amend the guidance in AICPA Statement of Position 78-9, ~~"Accounting~~“Accounting for Investments in Real Estate ~~Ventures"~~Ventures” (SOP 78-9) to be consistent with the consensus in Emerging Issues Task Force Issue No. 04-5 ~~"Determining~~“Determining Whether a General Partner, or General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain ~~Rights"~~Rights” which was codified into ASC 810-20, ~~"Consolidation"~~“Consolidation”, eliminated the concept of ~~"important rights"~~“important rights”(ASC Topic 970-810) and replaces it with the concepts of ~~"kick~~“kick out ~~rights"~~rights” and ~~"substantive~~“substantive participating ~~rights"~~rights”. In accordance with guidance set forth in ASC Topic 970-20, Portsmouth has applied the principles of accounting applicable for investments in subsidiaries due to its substantial limited partnership interest and general partnership rights and has consolidated the financial statements of Justice with those of the Company effective as of July 1, 2006. For the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, the results of operations for Justice were consolidated with those of the Company.
On December 1, 2008, Portsmouth and Evon, as the two general partners of Justice, entered into a 2008 Amendment to the Limited Partnership Agreement (the ~~"Amendment"~~“Amendment”) that provides for a change in the respective roles of the general partners. Pursuant to the Amendment, Portsmouth assumed the role of Managing General Partner and Evon continued on as the Co-General Partner of Justice. The Amendment was ratified by approximately 98% of the limited partnership interests. The Amendment also provides that future amendments to the Limited Partnership Agreement may be made only upon the consent of the general partners and at least seventy five percent (75%) of the interests of the limited partners. Consent of at least 75% of the interests of the limited partners will also be required to remove a general partner pursuant to the Amendment.
Effective November 30, 2010, the general and limited partners of Justice Investors entered into an Amended and Restated Agreement of Limited Partnership, which was approved and ratified by more than 98% of the limited partnership interests of Justice. The Partnership Agreement was amended and restated in its entirety to comply with the new provisions of the California Corporations Code known as the “Uniform Limited Partnership Act of 2008”. The amendment did not result in any material modifications of the rights or obligations of the general and limited partners.
28
Concurrent with the Amendment to the Limited Partnership Agreement, a new General Partner Compensation Agreement (the ~~"Compensation Agreement"~~“Compensation Agreement”) was entered into on December 1, 2008, among Justice, Portsmouth and Evon to terminate and supersede all prior compensation agreement for the general partners. Pursuant to the Compensation Agreement, the general partners of Justice will be entitled to receive an amount equal to 1.5% of the gross annual revenues of the Partnership (as defined), less $75,000 to be used as a contribution toward the cost of Justice engaging an asset manager. In no event shall the annual compensation be less than a minimum base of approximately $285,000, with eighty percent (80%) of that amount being allocated to Portsmouth for its services as managing general partner and twenty percent (20%) allocated to Evon as the co-general partner. Compensation earned by the general partners in each calendar year in excess of the minimum base, will be payable in equal fifty percent (50%) shares to Portsmouth and Evon. ~~-35-~~
NOTE 3 -– INVESTMENT IN HOTEL, NET
Investment in hotel consisted of the following as of: ~~June 30, 2010 Accumulated Net Book Cost~~
Accumulated Net Book
June 30, 2012 Cost Depreciation Value

Land $ 1,124,000 $ - $ 1,124,000
Furniture and equipment 20,855,000 (18,187,000 ) 2,668,000
Building and improvements 48,529,000 (19,499,000 ) 29,030,000
$ 70,508,000 $ (37,686,000 ) $ 32,822,000
Accumulated Net Book
June 30, 2011 Cost Depreciation Value

Land $ 1,124,000 $ - $ 1,124,000
Furniture and equipment 19,583,000 (17,076,000 ) 2,507,000
Building and improvements 46,982,000 (18,524,000 ) 28,458,000
$ 67,689,000 $ (35,600,000 ) $ 32,089,000
Depreciation ~~Value ------------ ------------ ------------ Land $ 1,124,000 $ - $ 1,124,000 Furniture~~ and equipment 18,392,000 (14,711,000) 3,681,000 Building and improvements 46,400,000 (17,497,000) 28,903,000 ------------ ------------ ------------ $ 65,916,000 $(32,208,000) $ 33,708,000 ============ ============ ============ June 30, 2009 Accumulated Net Book Cost Depreciation Value ------------ ------------ ------------ Land $ 1,124,000 $ - $ 1,124,000 Furniture and equipment 16,939,000 (11,262,000) 5,677,000 Building and improvements 45,693,000 (16,152,000) 29,541,000 ------------ ------------ ------------ $ 63,756,000 $(27,414,000) $ 36,342,000 ============ ============ ============ Depreciationamortization expense for the years ended June 30, ~~2010~~2012 and ~~2009~~2011 were ~~$4,692,000~~$2,102,000 and ~~$4,402,000~~$3,407,000 respectively.
The Partnership leases certain equipment under agreements that are classified as capital leases. The cost of equipment under capital leases was ~~$2,108,000~~$2,131,000 at June 30, 2012 and ~~$959,000~~2011, respectively. The accumulated depreciation on capital leases was $1,668,000 and $1,405,000 as of June 30, ~~2010~~2012 and ~~2009,~~2011, respectively. ~~The accumulated amortization on capital leases was $1,046,000 and $670,000 as of June 30, 2010 and 2009, respectively.~~
NOTE 4 -– INVESTMENT IN REAL ESTATE
In August 2007, the Company agreed to acquire 50% interest in Intergroup Uluniu, Inc., a Hawaiian corporation and a 100% owned subsidiary of InterGroup, for $973,000, which represents an amount equal to the costs paid by InterGroup for the acquisition and carrying costs of approximately 2two acres of unimproved land held for development located in Maui, Hawaii. As a related party transaction, the fairness of the financial terms of the transaction were reviewed and approved by the independent director of the Company. ~~-36-~~
NOTE 5 - INVESTMENT IN MARKETABLE SECURITIES
The Company’s investment in marketable securities consists primarily of corporate equities. The Company has also invested in corporate bonds and income producing securities, which may include interests in real estate based companies and REITs, where financial benefit could insure to its shareholders through income and/or capital gain.
29
At June 30, ~~2010~~2012 and ~~June 30, 2009,~~2011, all of the ~~Company's~~Company’s marketable securities are classified as trading securities. The change in the unrealized gains and losses on these investments are included in earnings. Trading securities are summarized as follows: Gross Gross Net Market Investment Cost Unrealized Gain Unrealized Loss Unrealized Gain Value - ---------- ----------- --------------- --------------- --------------- ------------ As of June 30, 2010 Corporate Equities $ 2,015,000 $ 544,000 ($ 236,000) $ 308,000 $2,323,000 As of June 30, 2009 Corporate Equities $ 2,896,000 $ 3,442,000 ($ 351,000) $ 3,091,000 $5,987,000
Gross Gross Net Fair
Investment Cost Unrealized Gain Unrealized Loss Unrealized Gain Value

As of June 30, 2012

Corporate
Equities $ 2,118,000 $ 1,292,000 $ (727,000 ) $ 565,000 $ 2,683,000

As of June 30, 2011
Corporate $ 3,336,000 $ 2,084,000 $ (554,000 ) $ 1,530,000 $ 4,866,000
Equities
As of June 30, ~~2010~~2012 and ~~2009,~~2011, the Company had ~~$165,000~~$579,000 and ~~$137,000,~~$412,000, respectively, of unrealized losses related to securities held for over one year. ~~The net gain(loss)~~
Net gain (loss) on marketable securities on the statement of operations is comprised of realized and unrealized ~~gains(losses)~~gains (losses). Below is the composition of the two components for the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, respectively. For the years ended June 30, 2010 2009 ----------- ----------- Realized gain(loss) on marketable securities $ 2,158,000 $ (403,000) Unrealized gain(loss) on marketable securities (2,779,000) 2,412,000 ----------- ----------- Net gain(loss) on marketable securities $ (621,000) $ 2,009,000 =========== ===========
For the year ended June 30, 2012 2011
Realized loss on marketable securities $ (247,000 ) $ (35,000 )
Unrealized (loss) gain on marketable securities (798,000 ) 1,065,000

Net (loss) gain on marketable securities $ (1,045,000 ) $ 1,030,000
NOTE 6 -– OTHER INVESTMENTS, NET
The Company may also invest, with the approval of the Securities Investment Committee and other Company guidelines, in private investment equity funds and other unlisted securities, such as convertible notes through private placements. Those investments in ~~non- marketable~~non-marketable securities are carried at cost on the ~~Company's~~Company’s balance sheet as part of other investments, net of other than temporary impairment losses.
Other investments, net consist of the following: ~~Type June 30,~~
Type June 30, 2012 June 30, 2011
Preferred stock - Comstock, at cost $ 4,410,000 $ 4,410,000
Private equity hedge fund, at cost 681,000 996,000
Corporate debt and equity instruments, at cost 101,000 201,000
Warrants - at fair value 119,000 306,000
$ 5,311,000 $ 5,913,000
On October 20, 2010, ~~June 30, 2009 --------------------------- ----------------- ---------------- Private equity hedge fund $ 1,352,000 $ 2,009,000 Corporate~~as part of a debt restructuring of one of its investments, the Company exchanged approximately $4,410,000 in notes, convertible notes and debt instruments ~~925,000 400,000 Warrants - at~~that it held in Comstock Mining, Inc. (“Comstock” – now NYSE MKT: LODE) for 4,410 shares ($1,000 stated value) of newly created 7 1/2% Series A-1 Convertible Preferred Stock (the “A-1 Preferred”) of Comstock. Prior to the exchange, those notes and convertible debt instruments had a carrying value of $724,000, net of impairment adjustments. The Company accounted for the transaction as an exchange of its debt securities and recorded the new instruments (A-1 Preferred) received based on their fair value. The Company estimated the fair value 236,000 - ----------------- ---------------- $ 2,513,000 $ 2,409,000 ================= ================ Duringof the ~~years~~A-1 Preferred at $1,000 per share, which was the stated value of the instrument, for a total of $4,410,000. The fair value of the A-1 Preferred had a similar value to the Series B preferred stock financing (stated value of $1,000 per share) by which Comstock concurrently raised $35.7 million in new capital from other investors in October 2010. The Company recorded an unrealized gain of $3,686,000 related to the preferred stock received in exchange for debt as part of the debt restructuring. This unrealized gain is included in the net unrealized gain on other investments in the Company’s consolidated statements of operations for the year ended June 30, ~~2010~~2011.
30
As part of that transaction, the Company’s parent companies, Santa Fe and ~~2009,~~InterGroup Corporation, also exchanged approximately $2,249,000 and $6,572,000 in notes, convertible notes and debt instruments for 2,249 and 6,572 shares of A-1 Preferred, respectively. The Company’s Chairman and President also exchanged approximately $7,681,000 in notes and convertible notes held personally by him for 7,681 shares of A-1 Preferred. Together, the Company, ~~recorded impairment losses~~Santa Fe, InterGroup and Mr. Winfield constitute all of ~~$657,000~~the holders of the A-1 Preferred.
Each share of A-1 Preferred has a stated value of $1,000 per share and ~~$615,000, respectively. -37-~~ a liquidation and change of control preference equal to the stated value plus accrued and unpaid dividends. Commencing January 1, 2011, the holders are entitled to semi-annual dividends at a rate of 7.5% per annum, payable in cash, common stock, preferred stock or any combination of the foregoing, at the election of Comstock. At the holder’s election, each share of A-1 Preferred is convertible at a fixed conversion rate (subject to anti-dilution) into 1,536 shares of common stock of Comstock, therefore converting into common stock at a conversion price of $0.6510. Each share of A-1 Preferred will entitle the holder to vote with the holders of common stock as a single class on all matters submitted to the vote of the common stock (on an as converted basis) and, for purposes of voting only, each share of A-1 Preferred shall be entitled to five times the number of votes per common share to which it would otherwise be entitled. Each share of A-1 Preferred shall entitle its holder to one (1) vote in any matter submitted to vote of holders of Preferred Stock, voting as a separate class. The A-1 Preferred, in conjunction with the other series of newly created Preferred Stock of Comstock, also has certain rights requiring consent of the Preferred Stock holders for Comstock to take certain corporate and business actions. The holders will have registration rights with respect to the shares of common stock underlying the A-1 Preferred and also preemptive rights. The foregoing description of the A-1 Preferred and the specific terms of the A-1 Preferred is qualified in its entirety by reference to the provisions of the Series A Securities Purchase Agreement, the Certificate of Designation of Preferences and Rights and Limitations of 7 1/2% Series A-1 Convertible Preferred Stock and the Registration Rights Agreement for the Series A Preferred Stock, which were filed as exhibits to the Company’s Current Report on Form 8-K, dated October 20, 2010.
As of June 30, ~~2010,~~2012 and 2011, the Company had investments in corporate debt and equity instruments which had attached warrants that were considered derivative instruments. These warrants have an allocated cost basis of $165,000 as of June 30, 2012 and 2011 and a fair market value of ~~$236,000~~$119,000 and $306,000 as of June 30, ~~2010.~~2012 and 2011, respectively. During the ~~year~~years ended June 30, ~~2010,~~2012 and 2011, the Company had an unrealized gain (loss) of ~~$71,000~~$(187,000) and $91,000, respectively, related to these warrants.
NOTE 7 - FAIR VALUE MEASUREMENTS
The carrying values of the ~~Company's~~Company’s non-financial instruments approximate fair value due to their short ~~maturities(i.e.~~maturities (i.e., accounts receivable, other assets, accounts payable and other liabilities, due to securities broker and obligations for securities ~~sold, line of credit)~~sold) or the nature and terms of the ~~obligation(i.e.~~obligation (i.e., other notes payable and mortgage ~~note~~notes payable).
31
The assets measured at fair value on a Assets: Level 1 - ----------- --------- Cash $ 522,000 $ --------- Other investments - warrants Investment in marketable securities Investment funds 751,000 REITs 493,000 Healthcare 276,000 Services 261,000 Financial services 214,000 Other 328,000 --------- 2,323,000 --------- $2,845,000 ========= ~~The assets measured at fair value on a as follows:~~ ~~Assets: Level 1 - ----------- ---------~~ Cash $ 209,000 $ --------- Investment in marketable securities Dairy product 2,935,000 REITS and financial 1,294,000 Basic materials and energy 563,000 Electronic traded funds 498,000 Services 241,000 Other 456,000 ---------- 5,987,000 --------- $6,196,000 $ =========
recurring basis ~~as of June 30, 2010~~ are as follows: Level 2 Level 3 June 30, 2010 --------- --------- -------------- - $ - $ 522,000 --------- - 236,000 - 236,000 ------- --------- 751,000 493,000 276,000 261,000 214,000 328,000 --------- 2,323,000 -------- -------- --------- $ 236,000 $ - $3,081,000 ======== ======== ========= recurring basis as of June 30, 2009 are Level 2 Level 3 June 30, 2009 --------- --------- ------------- - $ - $ 209,000 --------- 2,935,000 1,294,000 563,000 498,000 241,000 456,000 --------- 5,987,000 -------- -------- --------- - $ - $6,196,000 ======== ======== =========
As of June 30, 2012
Assets: Level 1 Level 2 Level 3 Total
Cash equivalents - money market $ 3,000 $ - $ - $ 3,000
Other investments - warrants - - 119,000 119,000
Investment in marketable securities:
Basic materials 1,660,000 - - 1,660,000
Technology 266,000 - - 266,000
Financial services 228,000 - - 228,000
REITs and real estate companies 177,000 - - 177,000
Other 352,000 - - 352,000
2,683,000 - - 2,683,000
$ 2,686,000 $ - $ 119,000 $ 2,805,000
As of June 30, 2011
Assets: Level 1 Level 2 Level 3 Total
Cash equivalents - money market $ 3,000 $ - $ - $ 3,000
Other investments - warrants - - 306,000 306,000
Investment in marketable securities:
Basic materials 1,687,000 - - 1,687,000
Investment funds 924,000 - - 924,000
Services 815,000 - - 815,000
REITs and real estate companies 587,000 - - 587,000
Financial services 443,000 - - 443,000
Other 410,000 - - 410,000
4,866,000 - - 4,866,000
$ 4,869,000 $ - $ 306,000 $ 5,175,000
Warrants - Transfer into Level 3 Reconciliation Level 3
Beginning balance as of June 30, 2011 - Level 3 $ -
Transfer in from Level 2 Other investments - warrants 306,000
Unrealized loss for the year ended June 30, 2012 (187,000 )
Ending balance as of June 30, 2012 - Level 3 $ 119,000
The fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance sheet date. The fair value of the warrants was determined based upon aBlack-Scholes option valuation model. ~~-38-~~
Financial assets that are measured at fair value on a non-recurring basis and are not included in the tables above include ~~"Other~~“Other investments in ~~non- marketable~~non-marketable securities,"” that were initially measured at cost and have been written down to fair value as a result of ~~impairment.~~impairment or adjusted to record the fair value of new instruments received (i.e., preferred shares) in exchange for old instruments (i.e., debt instruments). The following table shows the fair value hierarchy for these assets measured at fair value on a ~~non- recurring~~non-recurring basis ~~are~~ as follows:
Gain(loss) for the For the year ended Assets: Level 1 Level 2 Level 3 June 30, 2010 June 30, 2010 - ----------- --------- --------- --------- ------------------ ------------------ ~~Other non-marketable investments - - $2,277,000 $2,277,000 $(657,000)~~
32
Gain(loss) for the For the year ended Assets: Level 1 Level 2 Level 3 June 30, 2009 June 30, 2009 - ----------- --------- --------- --------- ------------------ ------------------ ~~Other non-marketable investments - - $2,409,000 $2,409,000 $(615,000)~~
Net loss for the year
Assets Level 1 Level 2 Level 3 June 30, 2012 ended June 30, 2012

Other non-marketable investments $ - $ - $ 5,192,000 $ 5,192,000 $ (335,000 )
Net gain for the year
Assets Level 1 Level 2 Level 3 June 30, 2011 ended June 30, 2011

Other non-marketable investments $ - $ - $ 5,607,000 $ 5,607,000 $ 3,330,000
Other investments in non-marketable securities are carried at cost net of any impairment loss. The Company has no significant influence or control over the entities that issue these investments. These investments are reviewed on a periodic basis for other-than-temporary impairment. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include but are not limited to: (i) the length of time an investment is in an unrealized loss position, (ii) the extent to which fair value is less than cost, (iii) the financial condition and near term prospects of the issuer and (iv) our ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value.
NOTE 8 -– OTHER ASSETS, NET
Other assets consist of the following as of June 30: 2010 2009 ---------- ---------- Inventory $ 534,000 $ 483,000 Prepaid expenses 557,000 679,000 Miscellaneous assets, net 470,000 522,000 ---------- ---------- Total other assets $1,561,000 $1,684,000 ========== ==========
2012 2011
Inventory 907,000 543,000
Prepaid expenses 945,000 939,000
Miscellaneous assets, net 519,000 494,000

Total other assets $ 2,371,000 $ 1,976,000
Amortization expense of loan fees and franchise costs for the years ended June 30, ~~2010~~2012 and ~~2009~~2011 was ~~$55,000 for each year.~~ $61,000 and $60,000, respectively.
NOTE 9 -– OTHER NOTES PAYABLE ~~AND LINE OF CREDIT~~
The Partnership had a $2,500,000 unsecured revolving line of credit facility with a bank that was to mature on April 30, 2010. Borrowings under that line of credit bore interest at Prime plus 3.0% per annum or based on the Wall Street Journal Prime Rate (3.25%) plus 3.0% per annum, floating, (but subject to a minimum floor rate at 5.0% per annum). Borrowings under the line of credit were subject to certain financial covenants, which are measured annually at June -39- ~~30th and December 31st based on the credit arrangement.~~ Effective April 29, 2010, the Partnership obtained a modification from the bank which converted its revolving line of credit facility to a term loan. The Partnership also obtained a waiver of any prior noncompliance with financial covenants.
The modification provides that Justice will pay the $2,500,000 balance on its line of credit facility over a period of four years, to mature on April 30, 2014. This term loan calls for monthly principal and interest payments, ~~of $41,000,~~ calculated on a six-year amortization schedule, with interest only from May 1, 2010 to August 31, 2010. Pursuant to the modification, the annual floating interest rate was reduced by 0.5% to the WSJ Prime Rate plus 2.5% (with a minimum floor rate of 5.0% per annum). The modification ~~includes~~provides for new financial covenants ~~written to reflect financial conditions~~ that ~~all hotels are facing. The covenants~~ include specific financial ratios and a return to minimum profitability byafter June 30, 2011. Management believes that the ~~Partnership~~partnership has the ability to meet the specific ~~covenants and the~~covenants. The Partnership was in compliance with the covenants as of June 30, ~~2010. The Partnership paid a loan modification fee of $10,000.~~2012 and 2011. The loan continues as unsecured. AsThe Partnership made additional principal payments totaling $124,000 in fiscal year 2012. The outstanding balance was $1,702,000 and $2,202,000 as of June 30, ~~2010,~~2012 and 2011 respectively; the interest rate was 5.75% ~~and the outstanding balance was $2,500,000. As~~as of June 30, ~~2009, the interest rate was 6.25% and the outstanding balance on the line of credit was $1,811,000.~~ 2012.
33
The Partnership has short-term financing agreements with a financial institution for the payment of its general, property, and ~~workers'~~workers’ compensation insurance. The notes payable under these financing agreements bear interest at 3.8% per annum and payable in equal monthly installments (principal and interest) through ~~December 2010.~~July 2012. The notes payable at June 30, ~~2010~~2012 and ~~2009,~~2011, were ~~$176,000~~$61,000 and ~~$246,000,~~$112,000, respectively.
As of June 30, ~~2010~~2012 and ~~2009,~~2011, the ~~Partnership also has a~~Company had capital lease obligations outstanding of $309,000 and $472,000, respectively, which were included in Other Notes Payable.
NOTE 10 – MORTGAGE NOTES PAYABLE
Each mortgage note payable ~~due to Evon Corporation in the amount of $143,000~~is secured by its respective land and ~~$480,000, respectively. This note has an annual fixed interest rate of 2.5% and matures on November 15, 2010.~~building. As of June 30, ~~2010~~2012 and ~~2009,~~2011, the Partnership also has a note payable to Ace Parking Management, Inc., in the amount of $36,000 and $104,000, respectively. This note has an annual fixed interest rate of 8.5% and matures on October 31, 2010. Justice leases certain equipment under capital leases expiring in various years through 2012. The capital lease obligations at June 30, 2010 and 2009, were $833,000 and $450,000, respectively. These notes were included as part of accounts payable and other liabilities on the consolidated balance sheets Minimum future lease payments for assets under capital leases as of June 30, 2010 for each of the next five years and in aggregate are: Year ending June 30 2011 $ 441,000 2012 213,000 2013 199,000 2014 140,000 2015 9,000 -------- Total minimum lease payments: 1,002,000 Less interest on capital leases (169,000) -------- Present value of minimum lease payments 833,000 ======== -40- ~~NOTE 10 - MORTGAGE NOTES PAYABLE The~~ Company had the following mortgages: ~~June 30, 2010 June 30, 2009 Interest Rate Origination Date Maturity Date ------------- ------------- ------------- ---------------- --------------~~ $ 27,723,000 $ 28,242,000 Fixed 5.22% July 27, 2005 August 5, 2015 18,267,000 18,515,000 Fixed 6.42% March 27, 2007 August 5, 2015 ------------- ------------- $ 45,990,000 $ 46,757,000 ============= =============
June 30, 2012 June 30, 2011 Interest Rate Origination Date Maturity Date

$ 26,599,000 $ 27,176,000 Fixed 5.22% July 27, 2005 August 5, 2015
17,722,000 18,003,000 Fixed 6.42% March 27, 2007 August 5, 2015
$ 44,321,000 $ 45,179,000
On July 27, 2005, Justice entered into a first mortgage loan with The Prudential Insurance Company of America in a principal amount of $30,000,000 (the ~~"Prudential Loan"~~“Prudential Loan”). The term of the Prudential Loan is for 120 months at a fixed interest rate of 5.22% per annum. The Prudential Loan calls for monthly installments of principal and interest in the amount of approximately $165,000, calculated on a 30-year amortization schedule. The Loan is collateralized by a first deed of trust on the ~~Partnership's~~Partnership’s Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Prudential Loan is without recourse to the limited and general partners of Justice.
In March 2007, Justice entered into a second mortgage loan with The Prudential Insurance Company of America (the ~~"Second~~“Second Prudential ~~Loan"~~Loan”) in a principal amount of $19,000,000. The term of the Second Prudential Loan is for approximately 100 months and matures on August 5, 2015, the same date as the ~~Partnership's~~Partnership’s first mortgage loan with Prudential. The Second Prudential Loan is at a fixed interest rate of 6.42% per annum and calls for monthly installments of principal and interest in the amount of approximately $119,000, calculated on a 30-year amortization schedule. The Loan is collateralized by a second deed of trust on the ~~Partnership's~~Partnership’s Hotel property, including all improvements and personal property thereon and an assignment of all present and future leases and rents. The Loan is without recourse to the limited and general partners of Justice. From the proceeds of the Second Prudential Loan, Justice retired its existing line of credit facility with United Commercial Bank ("UCB") paying off the outstanding balance of principal and interest of approximately $16,403,000 on March 27, 2007.
Future minimum payments for all notes payable ~~(including the $3,688,000 other notes payable less the $833,000 capital lease obligations)~~ are as follows: For the year ending June 30, 2011 $ 1,376,000 2012 1,322,000 2013 1,306,000 2014 2,387,000 2015 1,015,000 Thereafter 41,439,000 ----------- $ 48,845,000 =========== -41-
For the year ending June 30,
2013 $ 1,279,000
2014 2,655,000
2015 1,020,000
2016 41,439,000
$ 46,393,000
NOTE 11 -– HOTEL RENTAL INCOME AND TERMINATION OF GARAGE LEASE The Partnership had a lease agreement with Evon for the use of the parking garage, which was to expire in November 2010. Effective October 1, 2008, Justice and Evon entered into an installment sale agreement whereby Justice purchased all of Evon's right, title, and interest in the remaining term of the garage lease and other related assets. Justice also agreed to assume Evon's contract with Ace Parking Management, Inc. (Ace) for the management of the garage and note payable to Ace related to the operation of the garage commencing October 1, 2008. The purchase price for the garage lease and related assets was $755,000, payable in one down payment of $28,000 and 26 equal monthly installments of $29,000, which includes interest at the rate of 2.4% per annum. For the year ended June 30, 2009, the Partnership recorded a loss on termination of the garage lease of $684,000. Prior to the installment sale agreement, the garage lease had provided for a monthly rental equal to the greater of the sum of $20,000, or an amount equal to 60% of gross parking revenues as defined by the lease. For the three months ended September 30, 2008, the Partnership recorded rental income from Evon of $402,000.
The Partnership has a lease agreement with Tru Spa, LLC (Tru Spa) for the use of the spa facilities expiring in May 2013. The lease provides the Partnership with minimum monthly payments of $14,000, subject to increases based on the Consumer Price Index. Minimum future rentals to be received under the terms of this ~~non- cancellable~~ lease as of June 30, ~~2010~~2012 are as follows: For the year ending June 30, 2011 $ 165,000 2012 165,000 2013 151,000 -------------- $ 481,000 ============== $151,000.
34
NOTE 12 -– MANAGEMENT AGREEMENT
On February 2, 2007, the Partnership entered into an agreement with Prism to manage and operate the Hotel as its agent. The agreement is effective for a term of ten years, unless the agreement is extended or earlier terminated as provided in the agreement. Under the management agreement, the Partnership is required to pay the base management fees of 2.5% of gross operating revenues of the Hotel (i.e., room, food and beverage, and other operating departments) for the fiscal year. However, 0.75% of the stated management fee is due only if the partially adjusted net operating income of the hotel for the fiscal year exceeds the amount of the Hotel return for the fiscal year. Prism is also entitled to an incentive management fee if certain milestones are accomplished. No incentive fees were paid during the years ended June 30, ~~2010~~2012 and ~~2009.~~2011. In support of the ~~Partnership's~~Partnership’s efforts to reduce costs in this difficult economic environment, Prism agreed to reduce its management fees by fifty percent from January 1, 2009, through December 31, 2010, after which the original fee arrangement ~~will remain in~~went back into effect. Management fees paid to Prism during the years ended June 30, ~~2010~~2012 and ~~2009~~2011 were ~~$246,000~~$626,000 and ~~$398,000,~~$469,000, respectively. ~~-42-~~
NOTE 13 – CONCENTRATION OF CREDIT RISK
Travel agents and airlines made up 20% ($332,000) and 32% ($542,000) of accounts receivable at June 30, 2012 and 2011, respectively. The Hotel had two customers who accounted for 7% ($122,000) of accounts receivable at June 30, 2012. The Hotel had two customers who accounted for 14% ($235,000) of accounts receivable at June 30, 2011. The Partnership maintains its cash and cash equivalents with various financial institutions that are monitored regularly for credit quality. At times, such cash and cash equivalents holdings may be in excess of FDIC or other federally insured limits.
NOTE 14 - INCOME TAXES
The provision for income taxes (expense) benefit ~~(expense)~~ consists of the following: For the years ended June 30, 2010 2009 ---------- ---------- Federal Current $ - $ - Deferred 926,000 153,000 ---------- ---------- 926,000 153,000 ---------- ---------- State Current (1,000) (1,000) Deferred 256,000 39,000 ---------- ---------- 255,000 38,000 ---------- ---------- $ 1,181,000 $ 191,000 ========== ==========
For the years ended June 30, 2012 2011
Federal
Current $ (24,000 ) $ -
Deferred 45,000 (1,319,000 )
21,000 (1,319,000 )
State
Current (12,000 ) (35,000 )
Deferred (8,000 ) (373,000 )
(20,000 ) (408,000 )

$ 1,000 $ (1,727,000 )
A reconciliation of the statutory federal income tax rate to the effective tax rate is as follows: For the years ended June 30, 2010 2009 ------ ------ Statutory federal tax rate 34.0% 34.0% State income taxes, net of federal tax benefit 4.1 1.4 Noncontrolling interest (10.1) (25.9) Other 0.6 1.1 ------ ------ 28.6% 10.6% ====== ======
For the years ended June 30, 2012 2011

Statutory federal tax rate 34.0 % 34.0 %
State income taxes, net of federal tax benefit 0.6 % 5.6 %
Noncontrolling interest -30.4 % -1.3 %
Other -4.2 % -2.3 %
0.0 % 36.0 %
35
The components of the ~~Company's~~Company’s deferred tax assets and (liabilities) as of June 30, ~~2010~~2012 and ~~2009~~2011, are as follows: Deferred tax assets Net operating loss carryforward $ 5,198,000 $ 5,233,000 Investment reserve 1,019,000 740,000 Other 23,000 12,000 --------- --------- 6,240,000 5,985,000 --------- --------- Deferred tax liabilities Unrealized gains on marketable securities (146,000) (1,306,000) State taxes (359,000) (272,000) Basis difference in Justice (844,000) (698,000) --------- --------- (1,349,000) (2,276,000) --------- --------- Net deferred tax asset $ 4,891,000 $ 3,709,000 ========= =========
2012 2011
Deferred tax assets
Net operating loss carryforward $ 4,560,000 $ 5,137,000
Investment reserve 1,315,000 1,171,000
Other 54,000 28,000
5,929,000 6,336,000
Deferred tax liabilities
Unrealized gains on marketable securities (1,798,000 ) (2,220,000 )
State taxes (239,000 ) (221,000 )
Basis difference in Justice (656,000 ) (696,000 )
(2,693,000 ) (3,137,000 )
Net deferred tax assets $ 3,236,000 $ 3,199,000
As of June 30, ~~2010,~~2012, the Company had federal and state operating loss carryforwards of ~~$12,215,000~~$10,811,000 and ~~$11,824,000,~~$10,004,000, respectively. These carryforwards expire in varying amounts through ~~2030. -43-~~ 2028.
The Company is subject to U.S. federal income tax as well as to income tax in multiple state jurisdictions. Federal income tax returns of the Company are subject to IRS examination for the 2008 through 2011 tax years. State income tax returns are subject to examination for the 2007 through 2011 tax years.
Utilization of the net operating loss carryover may be subject a substantial annual limitation if it should be determined that there has been a change in the ownership of more than 50 percent of the value of the Company's stock, pursuant to Section 382 of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating loss carryovers before utilization.
For the year ended June 30, 2012, there is no unrecognized tax provision or benefit. Management does not anticipate any future adjustments in the next twelve months which would result in a material change to its tax position. As of June 30, 2012 and 2011, the Company did not have any interest and penalties.
NOTE 1415 - SEGMENT INFORMATION
The Company operates in two reportable segments, the operation of the hotel ("(“Hotel ~~Operations"~~Operations”) and the investment of its cash in marketable securities and other investments ("(“Investment ~~Transactions"~~Transactions”). These two operating segments, as presented in the consolidated financial statements, reflect how management internally reviews each ~~segment's~~segment’s performance. Management also makes operational and strategic decisions based on this same information.
Information below represents reporting segments for the ~~years~~year ended June 30, ~~2010~~2012 and ~~2009,~~2011, respectively. Operating income (loss) from ~~hotel~~Hotel operations consists of the operation of the hotel and operation of the garage. Operating income ~~from~~(loss) for investment transactions consist of net investment gain (loss) and dividend and interest income.
As of and for the Year ended Hotel Investment June 30, 2010 Operations Transactions Other Total ----------- ------------ ----------- ------------ Revenues $32,680,000 $ - $ - $ 32,680,000 Expenses (31,970,000) - (606,000) (32,576,000) ----------- ----------- ----------- ------------ Income(loss)from operations 710,000 - (606,000) 104,000 Interest expense (2,902,000) - - (2,902,000) Net loss from investments - (1,337,000) - (1,337,000) Income tax benefit - - 1,181,000 1,181,000 ----------- ----------- ----------- ------------ Net income(loss) $(2,192,000) $(1,337,000) $ 575,000 $ (2,954,000) =========== =========== =========== ============ Total Assets $33,708,000 $ 4,836,000 $ 9,520,000 $ 48,064,000 =========== =========== =========== ============ As of and for the Year ended Hotel Investment June 30, 2009 Operations Transactions Other Total ----------- ------------ ----------- ------------ Revenues $32,821,000 $ - $ - $ 32,821,000 Expenses (32,472,000) - (581,000) (33,053,000) ----------- ----------- ----------- ------------ Income(loss)from operations 349,000 - (581,000) (232,000) Interest expense (2,873,000) - - (2,873,000) Net income from investments - 1,293,000 - 1,293,000 Income tax benefit - - 191,000 191,000 ----------- ----------- ----------- ------------ Net income(loss) $(2,524,000) $ 1,293,000 $ (390,000) $ (1,621,000) =========== =========== =========== ============ Total Assets $36,342,000 $ 8,396,000 $ 7,846,000 $ 52,584,000 =========== =========== =========== ============
36
As of and for the year Hotel Investment
ended June 30, 2012 Operations Transactions Other Total

Revenues $ 42,462,000 $ - $ - $ 42,462,000
Operating expenses (35,628,000 ) - (595,000 ) (36,223,000 )
Income (loss) from operations 6,834,000 - (595,000 ) 6,239,000
Interest expense (2,724,000 ) - - (2,724,000 )
Income from investments - (1,414,000 ) - (1,414,000 )
Income tax benefit - - 1,000 1,000
Net income (loss) $ 4,110,000 $ (1,414,000 ) $ (594,000 ) $ 2,102,000
Total assets $ 32,822,000 $ 7,994,000 $ 9,253,000 $ 50,069,000
As of and for the year Hotel Investment
ended June 30, 2011 Operations Transactions Other Total

Revenues $ 36,282,000 $ - $ - $ 36,282,000
Operating expenses (32,766,000 ) - (572,000 ) (33,338,000 )
Income (loss) from operations 3,516,000 - (572,000 ) 2,944,000
Interest expense (2,806,000 ) - - (2,806,000 )
Income from investments - 4,666,000 - 4,666,000
Income tax expense - - (1,727,000 ) (1,727,000 )
Net income (loss) $ 710,000 $ 4,666,000 $ (2,299,000 ) $ 3,077,000
Total assets $ 32,089,000 $ 10,779,000 $ 8,441,000 $ 51,309,000
NOTE 1516 - RELATED PARTY TRANSACTIONS The contractor that was selected to oversee the garage and the first four floors' renovation (excluding room upgrades) of the Hotel is the contractor who originally constructed the Hotel. He is also a limited partner in the Partnership and is a director of Evon Corporation, the co-general partner of the Partnership. There were no payables to the contractor at June 30, 2010 and 2009. Services performed by the contractor were capitalized as fixed assets which totaled $0 and $103,000 for the years ended June 30, 2010 and 2009, respectively. Management believes these renovations were competitively priced. -44- Through September 30, 2008, Evon, was the lessee of the parking garage. Evon paid the Partnership $402,000 for the three months ended September 30, 2008, under the terms of the lease agreement. The lease agreement with Evon was terminated effective October 1, 2008. Concurrently, an installment sale agreement was entered between Justice and Evon. Justice had a note payable to Evon totaling $143,000 and $480,000 as of June 30, 2010 and 2009, respectively.
Certain shared costs and expenses, primarily administrative expenses, rent and insurance are allocated among the Company and InterGroup based on management's estimate of the pro rata utilization of resources. For the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, these expenses were approximately $72,000 for each respective year.
Four of the ~~Company's~~Company’s Directors serve as directors of InterGroup and three of the ~~Company's~~Company’s Directors serve on the Board of Santa Fe.
As Chairman of the Securities Investment Committee, the ~~Company's~~Company’s President and Chief Executive ~~Officer(CEO)~~Officer (CEO), John V. Winfield, directs the investment activity of the Company in public and private markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer and Chairman of Santa Fe and InterGroup and oversees the investment activity of those companies. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Santa Fe and InterGroup 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 Santa Fe and InterGroup, at risk in connection with investment decisions made on behalf of the Company. ~~On July 18, 2003,~~
In fiscal year ended June 30, 2004, the disinterested members of the Board of Directors established a performance based compensation program for the ~~Company's~~Company’s CEO to keep and retain his services as a direct and active manager of the ~~Company's~~Company’s securities portfolio. Pursuant to the current criteria established by the Board, Mr. Winfield is entitled to performance based compensation for his management of the ~~Company's~~Company’s securities portfolio equal to 20% of all net investment gains generated in excess of an annual return equal to the ~~performance~~Prime Rate of Interest (as published in the ~~S&P 500 Index.~~Wall Street Journal) plus 2%. Compensation amounts are calculated and paid quarterly based on the results of the ~~Company's~~Company’s investment portfolio for that quarter. Should the Company have a net investment loss during any quarter, Mr. Winfield would not be entitled to any further performance-based compensation until any such investment losses are recouped by the Company. On February 26, 2004, the Board of Directors amended the performance threshold to require an annualized return equal to the Prime Rate of Interest (as published in the Wall Street Journal) plus 2% instead of the S&P 500 Index, effective with the quarterly period commencing January 1, 2004. This performance based compensation program may be further modified or terminated at the discretion of the ~~Board.~~Board of Directors. The ~~Company's~~Company’s CEO ~~based on the results of the Company's investment portfolio,~~ did not earn any performance based compensation for the years ended June 30, ~~2010~~2012 and ~~2009. -45-~~ 2011.
37
NOTE 16 -– COMMITMENTS AND CONTINGENCIES
Operating ~~leases~~ Leases
The Partnership leases equipment under operating leases with expiration dates through 2012. The future minimum payments under these operating leases as of June 30, 2010 are as follows: For the year ending June 30, 2011 $ 180,000 2012 10,000 -------------- $ 190,000 ===============
Administrative ~~fees -~~ Fees–General Partners
During ~~the~~ each of the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, the general partners ~~of Justice~~ were paid a total of ~~$417,000~~$562,000 and ~~$425,000,~~$468,000, respectively. The total ~~amounts~~amount paid represents the minimum base compensation of $285,000 each year plus ~~$131,000~~$277,000 and ~~$140,000,~~$183,000 respectively, based upon the agreement. ~~The amounts paid to the Company were eliminated in the consolidation.~~
Franchise Agreements
The Partnership entered into a Franchise License agreement (the License agreement) with the Hilton Hotels Corporation (Hilton) on December 10, 2004. The term of the License agreement is for a period of 15 years commencing on the opening date, with an option to extend the license agreement for another five years, subject to certain conditions.
Beginning on the opening date in January 2006, the Partnership paid monthly royalty fees for the first two years of three percent (3%) of the ~~Hotel's~~Hotel’s gross room revenue for the preceding calendar month; the third year was at four percent (4%) of the ~~Hotel's~~Hotel’s gross room revenue; and the fourth year until the end of the term will be five percent (5%) of the ~~Hotel's~~Hotel’s gross room revenue. The Partnership also pays a monthly program fee of four percent (4%) of the ~~Hotel's~~Hotel’s gross revenue. The amount of the monthly program fee is subject to change; however, the increase cannot exceed one percent (1%) of the Hotel gross room revenue in any calendar year, and the cumulative increases in the monthly fees will not exceed five percent (5%) of gross room revenue. Franchise fees for the years ended June 30, ~~2010~~2012 and ~~2009~~2011 were ~~$2,239,000~~$3,008,000 and ~~$2,128,000,~~$2,574,000, respectively.
The Partnership also pays Hilton a monthly information technology recapture charge of 0.75% of the ~~Hotel's~~Hotel’s gross revenues. ~~In this~~Due to the difficult economic environment, Hilton agreed to reduce its information technology fees to 0.65% ~~for the 2010 calendar year.~~. For the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, those charges were ~~$139,000~~$214,000 and ~~$166,000, respectively.~~ $181,000, respectively, and are included as part of “General and administrative” expenses in the Statements of Operations.
Legal Matters
The ~~Company~~Partnership is involved from time to time in various claims in the ordinary course of business. Management does not believe that the impact of such matters will have a material effect on the financial conditions or result of operations when resolved. ~~-46-~~
NOTE 17 -– EMPLOYEE BENEFIT PLAN
Justice has a 401(k) Profit Sharing Plan (the Plan) for employees who have completed six months of service. Justice provides a matching contribution up to 4% of the contribution to the Plan based upon a certain percentage on the ~~employees'~~employees’ elective deferrals. Justice may also make discretionary contributions to the Plan each year. Contributions made to the Plan amounted to ~~$64,000~~$63,000 and ~~$73,000~~$60,000 during the years ended June 30, ~~2010~~2012 and ~~2009,~~2011, respectively.
Certain employees of Justice who are members of various unions are covered by union-sponsored, collectively bargained, multi-employer health and welfare and benefit pension plans. Justice does not contribute separately to those multi-employer plans.
38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial ~~Disclosure.~~ Disclosure.
None.
Item 9A. Controls and Procedures.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The ~~Company's~~Company’s management, with the participation of the ~~Company's~~Company’s Chief Executive Officer and Principal Financial Officer, has evaluated the effectiveness of the ~~Company's~~Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the fiscal period covered by this Annual Report on Form 10-K. Based upon such evaluation, the Chief Executive Officer and Principal Financial Officer have concluded that, as of the end of such period, the ~~Company's~~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 within the time periods specified in the Securities and Exchange Commission rules and forms. ~~MANAGEMENT'S~~
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, for the Company. In establishing adequate internal control over financial reporting, management has developed and maintained a system of internal control, policies and procedures designed to provide reasonable assurance that information contained in the accompanying consolidated financial statements and other information presented in this annual report is reliable, does not contain any untrue statement of a material fact or omit to state a material fact, and fairly presents in all material respects the financial condition, results of operations and cash flows of the Company as of and for the periods presented in this annual report.
Management conducted an evaluation of the effectiveness of ~~Company's~~Company’s internal control over financial reporting using the framework in Internal ~~Control-~~ Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under that framework, management ~~believes~~concluded that the ~~Company's~~Company’s internal control over financial reporting was effective as of June 30, ~~2010. -47-~~ 2012.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in the ~~Company's~~Company’s internal control over financial reporting during the last quarterly period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, the ~~Company's~~Company’s internal control over financial reporting.
Item 9B. Other Information.
None to report.
39
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth certain information with respect to the Directors and Executive Officers of the Company as of June 30, ~~2010.~~ 2012:
~~Present~~
Name Position ~~Director Name Age~~ with the Company ~~Since~~ Age Term to Expire ~~- ------------------------------------------------------------------------------------~~
John V. Winfield 63 Chairman of the Board; President ~~1996 2010~~ 65 Fiscal 2012 Annual Meeting
and Chief Executive Officer⁽¹⁾
Jerold R. Babin 76 Director ~~1996 2010~~ 78 Fiscal 2012 Annual Meeting
Josef A. Grunwald 62 Director ~~1996 2010~~ 64 Fiscal 2012 Annual Meeting
John C. Love 70 Director^{(1)(2)(3) 1998 2010} 72 Fiscal 2012 Annual Meeting
William J. Nance 66 Director^{(1)(2)(3) 1996 2010} 68 Fiscal 2012 Annual Meeting
Other Executive Officers:
Michael G. Zybala 58 Vice President, ~~N/A N/A~~ Secretary and General ~~Counsel(3)~~ Counsel 60 N/A
David T. Nguyen 36 Treasurer and Controller (Principal Financial Officer) 38 N/A ~~N/A Controller - -----------------------------------------------~~
⁽¹⁾ Member of Securities Investment Committee
⁽²⁾ Member of Audit Committee
⁽³⁾ Member of Special Hotel Committee ~~BUSINESS EXPERIENCE:~~
Business Experience:
The principal occupation and business experience during the last five years for each of the Directors and Executive Officers of the Company are as follows:
John V. Winfield -— Mr. Winfield was first elected to the Board in May of 1996 and currently serves as the Company's Chairman of the Board, President and Chief Executive Officer. Mr. Winfield is also Chairman of the Board, President and Chief Executive Officer of Portsmouth's parent company Santa Fe Financial Corporation ("(“Santa ~~Fe"~~Fe”), a public company, having held those ~~-48-~~ positions since April 1996. Mr. Winfield is also Chairman of the Board, President and Chief Executive Officer of Santa ~~Fe's~~Fe’s parent company, The InterGroup Corporation ~~("InterGroup"~~(“InterGroup”), a public company, and has held those positions since 1987. Mr. ~~Winfield's~~Winfield also serves as Chairman of the Board of Comstock Mining, Inc. (NYSE MKT: LODE), a public company in which he was elected a Director on June 23, 2011. Mr. Winfield’s extensive experience as an entrepreneur and investor, as well as his managerial and leadership experience from serving as a chief executive officer and director of public companies, led to the ~~Board's~~Board’s conclusion that he should serve as a director of the Company.
Jerold R. Babin -— Mr. Babin was first appointed as a Director of the Company on February 1996. Mr. Babin is a retail securities broker. From 1989 to June 30, 2010, he worked for Prudential Securities (later Wachovia Securities and now Wells Fargo Advisors) where he held the title of First Vice-President. Mr. Babin retired from his position at Wells Fargo advisors in June 2010. For the past 20 years, until present, Mr. Babin has also served as an arbitrator for FINRA (formerly NASD). Mr. ~~Babin's~~Babin’s extensive experience in the securities and financial markets as well has his experience in the securities and public company regulatory industry led to the ~~Board's~~Board’s conclusion that he should serve as a director of the Company.
40
Josef A. Grunwald - — Mr. Grunwald was elected as a Director of the Company in May 1996. Mr. Grunwald is an industrial, commercial and residential real estate developer. He serves as Chairman of PDG N.V. (Belgium), a hotel management company, and President of I.B.E. Services S.A. (Belgium), an international trading company. Mr. Grunwald is also a Director of InterGroup, having held that position since 1987. Mr. ~~Grunwald's~~Grunwald’s extensive experience in business and finance in the real estate industry, his experience in hotel management, as well as his experience as an entrepreneur and manager of his own companies, led to the ~~Board's~~Board’s conclusion that he should serve as a director of the Company.
John C. Love - — Mr. Love was appointed a Director of the Company on March 5, 1998. Mr. Love is an international hospitality and tourism consultant. He is a retired partner in the national CPA and consulting firm of Pannell Kerr Forster and, for the last 30 years, a lecturer in hospitality industry management control systems and competition & strategy at Golden Gate University and San Francisco State University. He is Chairman Emeritus of the Board of Trustees of Golden Gate University and the Executive Secretary of the Hotel and Restaurant Foundation. Mr. Love is also a Director of Santa Fe, having been appointed in March 2, 1999 and a Director of InterGroup, having been appointed in January 1998. Mr. ~~Love's~~Love’s extensive experience as a CPA and in the hospitality industry, including teaching at the university level for the last 30 years in management control systems, and his knowledge and understanding of finance and financial reporting, led to the ~~Board's~~Board’s conclusion that he should serve as a director of the Company.
William J. Nance - — Mr. Nance was first elected to the Board in May 1996. Mr. Nance is also a Director of Santa Fe having held that position since May 1996. He is the President and CEO of Century Plaza Printers, Inc., a company he founded in 1979. He has also served as a consultant in the acquisition and disposition of multi-family and commercial real estate. Mr. Nance is a Certified Public Accountant and, from 1970 to 1976, was employed by Kenneth Leventhal & Company where he was a Senior Accountant specializing in the area of REITS and restructuring of real estate companies, mergers and acquisitions, and all phases of real estate development and financing. Mr. Nance is a Director of InterGroup and has held such position since 1984. Mr. Nance also serves as a director ~~and Chairman of the Board~~ of Comstock Mining, Inc. ~~(formerly Goldspring, Inc.), a public company.~~ Mr. ~~Nance's~~Nance’s extensive experience as a CPA and in numerous phases of the real estate industry, his business and ~~-49-~~ management experience gained in running his own businesses, his service as a director and audit committee member for other public companies and his knowledge and understanding of finance and financial reporting, led to the ~~Board's~~Board’s conclusion that he should serve as a director of the Company.
Michael G. Zybala - Mr. Zybala was appointed as Vice President and Secretary of the Company on February 20, 1998. He is also Vice President, Secretary and General Counsel of Santa Fe. Mr. Zybala is an attorney at law and has served as the ~~Company's~~Company’s General Counsel since 1995 and has represented the Company as its corporate counsel since 1978. Mr. Zybala also serves as Assistant Secretary and ~~counsel~~Counsel to InterGroup having held those positions since January 1999.
David T. Nguyen -– Mr. Nguyen was appointed as Treasurer of the Company on February 27, 2003. Mr. Nguyen also serves as Treasurer of InterGroup and Santa Fe, having been appointed to those positions on February 26, 2003 and February 27, 2003, respectively. Mr. Nguyen is a Certified Public Accountant and, from 1995 to 1999, was employed by PricewaterhouseCoopers LLP where he was a Senior Accountant specializing in real estate. Mr. Nguyen has also served as the Company's Controller from 1999 to December 2001 and from December 2002 to present.
Family Relationships: There are no family relationships among directors, executive officers, or persons nominated or chosen by the Company to become directors or executive officers.
Involvement in Certain Legal Proceedings: No director or executive officer, or person nominated or chosen to become a director or executive officer, was involved in any legal proceeding requiring disclosure. ~~BOARD AND COMMITTEE INFORMATION Portsmouth is an unlisted company and a Smaller Reporting Company under the rules and regulations~~
41
Compliance with Section 16(a) of the Securities ~~and~~ Exchange ~~Commission ("SEC"). With the exception~~Act of the Company's President and CEO, John V. Winfield, all of Portsmouth's Board of Directors consists of "independent" directors as independence is defined by the applicable rules of the SEC and NASDAQ. Audit Committee and Audit Committee Financial Expert Portsmouth is an unlisted company and a Smaller Reporting Company under SEC rules and regulations. The Company's Audit Committee is currently comprised of Directors William J. Nance (Chairperson) and John C. Love, each of whom are independent directors as independence is defined by the applicable rules of the SEC and NASDAQ, and as may be modified or supplemented. Each of these directors also meets the audit committee financial expert test. Procedures for Recommendations of Nominees to Board of Directors There have been no changes to the procedures previously disclosed by which security holders may recommend nominees to the Company's Board of Directors. -50- ~~SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE~~ 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the ~~Company's~~Company’s officers and directors, and each beneficial owner of more than ten percent of the Common Stock of the Company, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. ~~based~~
Based solely on its review of the copies of ~~such forms received by~~Forms 3 and 4 and amendments thereto furnished to the Company during its most recent fiscal year, or written representations from certain reporting persons that no Forms 5 were required for those persons, the Company believes that during fiscal ~~2010~~2012 all filing requirements applicable to its officers, directors, and greater than ten-percent beneficial owners were complied with.
Code of Ethics.
The Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethics is filed as Exhibit 14 to this Report. A copy is also posted on the Portsmouth page of its parent company’s website atwww.intgla.com. The Company will provide to any person without charge, upon request, a copy of its Code of Ethics by sending such request to: Portsmouth Square, Inc., Attn: Treasurer, ~~820~~ 10940 Wilshire Blvd., Suite 2150, Los Angeles, CA 90024. ~~A copy of the Company's Code of Ethics can also be found on its parent company's website www.intergroupcorporation.com.~~ The Company will promptly disclose any amendments or waivers to its Code of Ethics on Form 8-K.
BOARD AND COMMITTEE INFORMATION
Portsmouth is an unlisted company and a Smaller Reporting Company under the rules and regulations of the Securities and Exchange Commission (“SEC”). With the exception of the Company’s President and CEO, John V. Winfield, all of Portsmouth’s Board of Directors consists of “independent” directors as independence is defined by the applicable rules of the SEC and NASDAQ.
Procedures for Recommendations of Nominees to Board of Directors
There have been no changes to the procedures previously disclosed by which security holders may recommend nominees to the Company’s Board of Directors.
Audit Committee and Audit Committee Financial Expert
Portsmouth is an unlisted company and a Smaller Reporting Company under SEC rules and regulations. The Company’s Audit Committee is currently comprised of Directors William J. Nance (Chairperson) and John C. Love, each of whom are independent directors as independence is defined by the applicable rules of the SEC and NASDAQ, and as may be modified or supplemented. Each of these directors also meets the audit committee financial expert requirement based on their qualifications and business experience discussed above in this Item 10.
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Item 11. Executive Compensation.
The following table provides certain summary information concerning compensation awarded to, earned by, or paid to the ~~Company's~~Company’s principal executive officer and other named executive officers of the Company whose total compensation exceeded $100,000 for all services rendered to the Company for each of the ~~Company's~~Company’s last two completed fiscal years ended June 30, ~~2010~~2012 and ~~2009.~~2011. No stock awards, long-term compensation, options or stock appreciation rights were granted to any of the named executive officers during the last two fiscal years.
SUMMARY COMPENSATION TABLE Fiscal All Other Name and Principal Position Year Salary Bonus Compensation Total - --------------------------- ---- ---------- ---------- ------------ ------------ John V. Winfield 2010 $133,500(1) $ - $17,000(2) $ 150,500 Chairman, President and 2009 $133,500(1) $ - $17,000(2) $ 150,500 Chief Executive Officer Michael G. Zybala 2010 $105,000 $ - $ - $ 105,000 Vice President, Secretary 2009 $ 94,800 $ - $ - $ 94,800 and General Counsel - ---------------------------
Annual Compensation

Name and Fiscal All Other
Principal Position Year Salary Bonus Compensation Total

John V. Winfield 2012 $ 134,000 ⁽¹⁾ - $ 17,000 ⁽²⁾ $ 151,000
Chairman; President 2011 $ 134,000 ⁽¹⁾ - $ 17,000 ⁽²⁾ $ 151,000
and Chief Executive Officer

Michael G. Zybala 2012 $ 101,000 $ 12,000 - $ 113,000
Vice President, Secretary 2011 $ 98,000 - - $ 98,000
and General Counsel
⁽¹⁾ Amounts shown include $6,000 per year in regular Directors fees.
⁽²⁾During fiscal years ~~2010~~2012 and ~~2009,~~2011, the Company also paid annual premiums of $17,000 for a split dollar whole life insurance policy, owned by, and the beneficiary of which is, a trust for the benefit of Mr. ~~Winfield's~~Winfield’s family. ~~-51-~~ This policy was obtained in December 1998 and provides for a death benefit of $1,000,000. The Company has a secured right to receive, from any proceeds of the policy, reimbursement of all premiums paid prior to any payments to the beneficiary.
As a Smaller Reporting Company, Portsmouth has no compensation committee. Executive Officer compensation is set by disinterested members of the Board of Directors. Portsmouth has no stock option plan or stock appreciation rights for its executive officers. The Company has no pension or long-term incentive plans. There are no employment contracts between Portsmouth and any executive officer, and there are no termination-of-employment or change-in-control arrangements. ~~On July 18, 2003,~~
In fiscal year ended June 30, 2004, the disinterested members of the Board of Directors established a performance based compensation program for the ~~Company's~~Company’s CEO to keep and retain his services as a direct and active manager of the ~~Company's~~Company’s securities portfolio. Pursuant to the current criteria established by the Board, Mr. Winfield is entitled to performance based compensation for his management of the ~~Company's~~Company’s securities portfolio equal to 20% of all net investment gains generated in excess of an annual return equal to the ~~performance~~Prime Rate of Interest (as published in the ~~S&P 500 Index.~~Wall Street Journal) plus 2%. Compensation amounts are calculated and paid quarterly based on the results of the ~~Company's~~Company’s investment portfolio for that quarter. Should the Company have a net investment loss during any quarter, Mr. Winfield would not be entitled to any further performance-based compensation until any such investment losses are recouped by the Company. On February 26, 2004, the Board of Directors amended the performance threshold to require an annualized return equal to the Prime Rate of Interest (as published in the Wall Street Journal) plus 2% instead of the S&P 500 Index, effective with the quarterly period commencing January 1, 2004. No performance bonuses were paid for the fiscal years ended June 30, 2010 and 2009. This performance based compensation program may be further modified or terminated at the discretion of the ~~Board.~~ Board of Directors. The Company’s CEO did not earn any performance based compensation for the years ended June 30, 2012 and 2011.
43
Internal Revenue Code Limitations
Section 162(m) of the Internal Revenue Code of 1986, as amended (the ~~"Code"~~“Code”), provides that, in the case of a publicly held corporation, the corporation is not generally allowed to deduct remuneration paid to its chief executive officer and certain other highly compensated officers to the extent that such remuneration exceeds $1,000,000 for the taxable year. Certain remuneration, however, is not subject to disallowance, including compensation paid on a commission basis and, if certain requirements prescribed by the Code are satisfied, ~~for~~other performance based compensation. NoSince InterGroup, Santa Fe and Portsmouth are each public companies, the $1,000,000 limitation applies separately to the compensation paid by each entity. Stock option expenses are also amortized over a several years. For fiscal years 2012 and 2011, no compensation paid by the Company to its CEO or other executive officers was subject the deduction disallowance prescribed by Section 162(m) of the Code. Outstanding Equity Awards at Fiscal Year End. The Company did not have any outstanding equity awards at the end of its fiscal year ended June 30, 2010 and has no equity compensation plans in effect. -52-
DIRECTOR COMPENSATION
The following table provides information concerning compensation awarded to, earned by, or paid to the ~~Company's~~Company’s directors for the fiscal year ended June 30, ~~2010.~~ 2012.
DIRECTOR COMPENSATION TABLE Fees Earned or Paid All Other Name in Cash Compensation Total - ----------------- ----------- ------------ ------- Jerold R. Babin $ 6,000 - $ 6,000 Josef A. Grunwald $ 6,000 - $ 6,000 John C. Love $38,000(1) - $38,000 William J. Nance $38,000(1) - $38,000 John V. Winfield(2) - --------------

Name
Fees Earned
or Paid in Cash All Other
Compensation

Total

Jerold R. Babin $ 6,000 - $ 6,000

Josef A. Grunwald $ 6,000 - $ 6,000

John C. Love $ 38,000 ⁽¹⁾ - $ 38,000

William J. Nance $ 38,000 ⁽¹⁾ - $ 38,000

John V. Winfield⁽²⁾ - - -
⁽¹⁾Amounts shown include regular Board fees, Audit Committee ~~Fees~~fees and ~~Special~~ Hotel Committee fees.
⁽²⁾As an executive officer, Mr. ~~Winfield's director's~~Winfield’s directors fees are reported in the Summary Compensation Table.
Each director of the Company is paid a Board retainer fee of $1,500 per quarter for a total annual compensation of $6,000. This policy has been in effect since July 1, 1985. Members of the ~~Company's~~Company’s Audit Committee also receive a fee of $500 per quarter. Directors and Committee members are also reimbursed for their out-of-pocket travel costs to attend meetings.
On February 26, 2004, the Board of Directors established a Special Hotel Committee to actively oversee the ~~Company's~~Company’s interests in Justice Investors and the repositioning and operations of the Hotel asset. The members of the Special Committee are Directors John C. Love (Chair), William J. Nance and the ~~Company's~~Company’s Vice President, Secretary and General Counsel, Michael G. Zybala. For fiscal years ended June 30, ~~2010~~2012 each of the Committee members, who are directors, received monthly fees of $2,500.
Change in Control or Other Arrangements
Except for the foregoing, there are no other arrangements for compensation of directors and there are no employment contracts between the Company and its directors or any change in control arrangements. ~~-53-~~
Outstanding Equity Awards at Fiscal Year End.
The Company did not have any outstanding equity awards at the end of its fiscal year ended June 30, 2012 and has no equity compensation plans in effect.
44
Item 12. Security Ownership of Certain Beneficial Owners and Management ~~And~~and Related Stockholder ~~Matters~~ Matters.
The following table sets forth, as of ~~September 10, 2010,~~August 31, 2012, certain information with respect to the beneficial ownership of Common Stock owned by (i) those persons or groups known by the Company to own more than five percent of the outstanding shares of Common Stock, (ii) each Director and Executive Officer, and (iii) all Directors and Executive Officers as a group. Name and Address of Amount and Nature Percent of Beneficial Owner of Beneficial Owner(1) Class (2) - ------------------- ------------------- ---------- John V. Winfield 0 * 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 Jerold R. Babin 48,345(3) 6.6% 243 28th Street San Francisco, CA 94121 Josef A. Grunwald 0 * 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 John C. Love 0 * 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 William J. Nance 0 * 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 Michael G. Zybala 0 * 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 David T. Nguyen 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 0 * Santa Fe Financial Corporation 591,437(4) 80.5% and The InterGroup Corporation 10940 Wilshire Blvd., Suite 2150 Los Angeles, CA 90024 All of the above as a group 639,782 87.1% - --------------------------- * Ownership does not exceed 1%
Name and Address
of Beneficial Owner
Amount and Nature of
Beneficial Ownership⁽¹⁾

Percent of Class⁽²⁾

John V. Winfield 0 -
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

Jerold R. Babin 48,345 ⁽³⁾ 6.6 %
243 28^th Street
San Francisco, CA 94121

Josef A. Grunwald 0 -
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

John C. Love 0 -
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

William J. Nance 0 -
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

Michael G. Zybala 0 -
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

David T. Nguyen 0 -
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

Santa Fe Financial Corporation and 597,299 ⁽⁴⁾ 81.3 %
The InterGroup Corporation
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

All of the above as a group 645,644 87.9 %
⁽¹⁾Unless otherwise indicated, and subject to applicable community property laws, each person has sole voting and investment power with respect to the shares beneficially owned.
⁽²⁾Percentages are calculated based of 734,183 shares of Common Stock issued and outstanding as of ~~September 10, 2010. -54-~~ August 31, 2012.
⁽³⁾Jerold R. Babin claims sole voting power over the 48,345 shares identified herein, of which he has sole dispositive power over 9,667 held in his retirement account. He claims shared dispositive power with his wife over the 38,478 shares which they hold as trustees of a family trust.
45
⁽⁴⁾Santa Fe Financial Corporation is the record and beneficial owner of 505,437 shares of the Common Shares of Portsmouth and ~~86,000~~91,852 shares are owned by Santa ~~Fe's~~Fe’s parent company, The InterGroup Corporation. As directors of Santa Fe and InterGroup, Messrs. Winfield, Nance and Love have the power to direct the vote of the shares of Portsmouth owned by Santa Fe and InterGroup.
Security Ownership of Management in Parent Corporation.
As of ~~September 10, 2010,~~August 31, 2012, John V. Winfield is the beneficial owner of 49,400 shares of the common stock of ~~Portsmouth's~~Portsmouth’s parent corporation, Santa Fe. The InterGroup Corporation is the beneficial owner of ~~944,379~~992,248 shares of common stock of Santa Fe. Pursuant to a Voting Trust Agreement dated June 30, 1998, InterGroup also has the power to vote the 49,400 shares of common stock owned by Mr. Winfield giving it a total of ~~993,779~~1,041,648 voting shares, which represents ~~80.0%~~approximately 83.9% of the voting power of Santa Fe. As President, Chairman of the Board and a ~~60.2%~~62.6% beneficial shareholder of InterGroup, Mr. Winfield has voting and dispositive power over the shares owned of record and beneficially by InterGroup. No other director or executive officer of Portsmouth has a beneficial interest in Santa ~~Fe's~~Fe’s shares.
Changes in Control Arrangements.
There are no arrangements that may result in a change in control of Portsmouth.
Securities Authorized for Issuance Under Equity Compensation Plans.
Portsmouth has no securities authorized for issuance under any equity compensation plans.
Item 13. Certain Relationships and Related Transactions, and Director ~~Independence~~ Independence.
As of ~~September 10, 2010,~~August 31, 2012, Santa Fe and InterGroup owned ~~80.5%~~81.3% of the common stock of Portsmouth, and InterGroup and John V. Winfield, in the aggregate, owned approximately ~~80.0%~~83.9% of the voting stock of Santa Fe. Certain costs and expenses, primarily rent, insurance and general administrative expenses, are allocated between the Company, Santa Fe, and InterGroup based on ~~management's~~management’s estimate of the utilization of resources. Effective June 30, 1998, certain accounting and administrative functions of the Company and its subsidiaries, were transferred to the Los Angeles, California offices of InterGroup. During the fiscal years ended June 30, ~~2010~~2012 and ~~2009,~~2011, the Company made payments to InterGroup in the total amount of approximately $72,000 for each of those years, for administrative costs and reimbursement of direct and indirect costs associated with the management of the Company and its investments, including the Partnership asset. ~~-55-~~
As Chairman of the Securities Investment Committee, the ~~Company's~~Company’s President and Chief Executive officer, John V. Winfield, oversees the investment activity of the Company in public and private markets pursuant to authority granted by the Board of Directors. Mr. Winfield also serves as Chief Executive Officer of Santa Fe and InterGroup and oversees the investment activity of those companies. Depending on certain market conditions and various risk factors, the Chief Executive Officer, his family, Santa Fe and InterGroup 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 Santa Fe and InterGroup, at risk in connection with investment decisions made on behalf of the Company.
In December 1998, the Board of Directors authorized the Company to obtain whole life insurance and split dollar insurance policies covering the ~~Company's~~Company’s President and Chief Executive Officer, Mr. Winfield. During fiscal ~~2010~~2012 and ~~2009,~~2011, the Company paid annual premiums of $17,000 for the split dollar whole life insurance policy, owned by, and the beneficiary of which is, a trust for the benefit of Mr. ~~Winfield's~~Winfield’s family. The Company has a secured right to receive, from any proceeds of the policy, reimbursement of all premiums paid prior to any payments to the beneficiary.
There are no other relationships or related transactions between the Company and any of its officers, directors, five-percent security holders or their families that require disclosure.
46
Director Independence
Portsmouth is an unlisted company and a Smaller Reporting Company under the rules and regulations of the SEC. With the exception of the ~~Company's~~Company’s President and CEO, John V. Winfield, all of ~~Portsmouth's~~Portsmouth’s Board of Directors consists of ~~"independent"~~“independent” directors as independence is defined by the applicable rules and regulations of the SEC and NASDAQ. ~~-56-~~
Item 14. Principal Accounting Fees and Services.
Audit Fees -The aggregate fees billed for each of the last two fiscal years ended June 30, ~~2010~~2012 and ~~2009~~2011 for professional services rendered by Burr Pilger Mayer, Inc., the independent registered public accounting firm for the audit of the ~~Company's~~Company’s annual financial statements and review of financial statements included in the ~~Company's~~Company’s Form 10-Q reports or services normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those fiscal years, were as follows: Fiscal Year ------------------------- 2010 2009 -------- -------- Audit Fees $104,000 $104,000 Audit Related Fees - - Tax Fees - - All Other Fees - - -------- -------- TOTAL: $104,000 $104,000 ======== ========
Fiscal Year
2012 2011

Audit fees $ 104,000 $ 133,000
Audit related fees - -
Tax fees - -
All other fees - -
TOTAL: $ 104,000 $ 133,000
Audit Committee Pre-Approval Policies
The Audit Committee shall pre-approve all auditing services and permitted ~~non- audit~~non-audit services (including the fees and terms thereof) to be performed for the Company by its independent registered public accounting firm, subject to any de minimus exceptions that may be set for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act which are approved by the Committee prior to the completion of the audit. The Committee may form and delegate authority to subcommittees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting. All of the services described herein were approved by the Audit Committee pursuant to its pre-approval policies.
None of the hours expended on the independent registered public accounting ~~firms'~~firms’ engagement to audit the ~~Company's~~Company’s financial statements for the most recent fiscal year were attributed to work performed by persons other than the independent registered public accounting ~~firm's~~firm’s full-time permanent employees. ~~-57-~~
47
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a)(1) Financial Statements
The following financial statements of the Company are included in Part II, Item 8 of this ~~report~~Report at pages 2218 through ~~47:~~ 38:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - June 30, ~~2010~~2012 and ~~2009~~ 2011
Consolidated Statements of Operations for ~~Years Ended~~years ended June 30, ~~2010~~2012 and ~~2009~~ 2011
Consolidated Statements of ~~Shareholders' Equity (Deficit)~~Shareholders’ Deficit for ~~Years Ended~~years ended June 30, ~~2010~~2012 and ~~2009~~ 2011
Consolidated Statements of Cash Flows for ~~Years Ended~~years ended June 30, ~~2010~~2012 and ~~2009~~ 2011
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules
All other schedules for which provision is made in Regulation S-X have been omitted because they are not required or are not applicable or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements.
(a)(3) Exhibits
Set forth below is an index of applicable exhibits filed with this report according to exhibit table number. Exhibit No. Description ----------- ----------------------------------------------------------- 3.(i) Articles of Incorporation* (ii) Bylaws (amended February 16, 2000) incorporated by reference to the Company's Form 10-KSB filed with the Commission on March 29, 2000.* 4. Instruments defining the rights of Security Holders, including indentures (see Articles of Incorporation and Bylaws)* 10. Material Contracts: -58- 10.1 2008 Amendment to the Limited Partnership Agreement, dated December 1, 2008 (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q Report for the quarterly period ended December 31, 2008 filed with the Commission on February 12, 2009). 10.2 General Partner Compensation Agreement, dated December 1, 2008 (incorporated by reference to Exhibit 10.2 to Company's Form 10-Q Report for the quarterly period ended December 31, 2008, filed with the Commission on February 12, 2009). 14. Code of Ethics (filed herewith) 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 Principal 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 Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
Exhibit
Number Description
3.(i) Articles of Incorporation*
3.(ii) Bylaws (amended February 16, 2000) incorporated by reference to the Company’s Form 10-KSB filed with the Commission on March 19, 2000.
4. Instruments defining the rights of security holders including indentures (See Articles of Incorporation and Bylaws)*
10. Material Contracts:
10.1 Amended and Restated Agreement of Limited Partnership of Justice Investors, effective November 30, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q Report for the quarterly period ended December 31, 2010, filed with the Commission on February 11, 2011).
10.2 General Partner Compensation Agreement, dated December 1, 2008 (incorporated by reference to Exhibit 10.2 to Company’s Form 10-Q Report for the quarterly period ended December 31, 2008, filed with the Commission on February 12, 2009).
48
10.3 Franchise License Agreement, dated December 10, 2004, between Justice Investors and Hilton Hotels (incorporated by reference to Exhibit 10.10 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
10.4 Management Agreement, dated February 2, 2012, between Justice Investors and Prism Hospitality, L.P. (incorporated by reference to Exhibit 10.11 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).
14. Code of Ethics (filed herewith).
31.1 Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
31.2 Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).
32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.
32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.
* All exhibits marked by an asterisk have been previously filed with other documents, including Registrant's Form 10 filed on October 27, 1967, and subsequent filings on Forms 8-K, 10-K, 10-KSB, 10-Q and 10-QSB, which are incorporated herein by reference. ~~-59-~~
49
SIGNATURES ~~----------~~
Pursuant to the requirements of Section 13 or 15(d) 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. PORTSMOUTH SQUARE, INC. (Registrant) Date: September 24, 2010 by /s/ John V. Winfield ------------------ --------------------------- John V. Winfield, President, Chairman of the Board and Chief Executive Officer Date: September 24, 2010 by /s/ Michael G. Zybala ------------------ --------------------------- Michael G. Zybala, Vice President and Secretary Date: September 24, 2010 by /s/ David T. Nguyen ------------------ --------------------------- David T. Nguyen, Treasurer and Controller (Principal Financial Officer)
PORTSMOUTH SQUARE, INC.
(Registrant)
Date:September 20, 2012 by /s/ John V. Winfield
John V. Winfield, President,
Chairman of the Board and
Chief Executive Officer
Date:September 20, 2012 by /s/ David T. Nguyen
David T. Nguyen, Treasurer
and Controller
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: September 24, 2010 /s/ John V. Winfield ------------------ --------------------------------------- John V. Winfield, Chairman of the Board Date: September 24, 2010 /s/ Jerold R. Babin ------------------ --------------------------------------- Jerold R. Babin, Director Date: September 24, 2010 /s/ Josef A. Grunwald ------------------ --------------------------------------- Josef A. Grunwald, Director Date: September 24, 2010 /s/ John C. Love ------------------ --------------------------------------- John C. Love Director Date: September 24, 2010 /s/ William J. Nance ------------------ --------------------------------------- William J. Nance, Director -60-

For the years ended June 30,	2012			2011
Hotel revenues:
Hotel rooms	$	32,893,000		$	27,839,000
Food and beverage		5,779,000			5,028,000
Garage		2,765,000			2,599,000
Other operating departments		1,025,000			816,000
Total hotel revenues		42,462,000			36,282,000
Operating expenses excluding interest, depreciation and amortization		(33,465,000	)		(29,299,000	)
Operating income before interest, depreciation and amortization		8,997,000			6,983,000
Interest		(2,724,000	)		(2,806,000	)
Depreciation and amortization		(2,163,000	)		(3,467,000	)

Net income from hotel operations	$	4,110,000		$	710,000

Fiscal Year ended June 30,		Average Daily Rate		Average Occupancy %			RevPar

	2012	$	191		87	%	$	166
	2011	$	163		86	%	$	140

As of June 30, 2012			% of Total
			Investment
Industry Group	Fair Value		Securities

Basic materials	$	1,660,000		61.9	%
Technology		266,000		9.9	%
Financial services		228,000		8.5	%
REITs and real estate companies		177,000		6.6	%
Other		352,000		13.1	%
	$	2,683,000		100.0	%

As of June 30, 2011			% of Total
			Investment
Industry Group	Fair Value		Securities

Basic materials	$	1,687,000		34.7	%
Investment funds		924,000		19.0	%
Services		815,000		16.7	%
REITs and real estate companies		587,000		12.1	%
Financial services		443,000		9.1	%
Other		410,000		8.4	%
	$	4,866,000		100.0	%

	Total		Year 1		Year 2		Year 3		Year 4		Year 5		Thereafter
Mortgage notes payable	$	44,321,000	$	907,000	$	960,000	$	1,015,000	$	41,439,000	$	-	$	-
Other notes payable		2,072,000		372,000		1,695,000		5,000		-		-		-
Interest		8,188,000		2,877,000		2,522,000		2,396,000		393,000		-		-
Total	$	54,581,000	$	4,156,000	$	5,177,000	$	3,416,000	$	41,832,000	$	-	$	-

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS	PAGE

Report of Independent Registered Public Accounting Firm	19

Consolidated Balance Sheets - June 30, 2012 and 2011	20

Consolidated Statements of Operations - For years ended June 30, 2012 and 2011	21

Consolidated Statements of Shareholders’ Deficit – For years ended June 30, 2012 and 2011	22

Consolidated Statements of Cash Flows - For years ended June 30, 2012 and 2011	23

Notes to the Consolidated Financial Statements	24 – 38

As of June 30,	2012			2011

ASSETS
Investment in hotel, net	$	32,822,000		$	32,089,000
Investment in real estate		973,000			973,000
Investment in marketable securities		2,683,000			4,866,000
Other investments, net		5,311,000			5,913,000
Cash and cash equivalents		1,032,000			610,000
Accounts receivable, net		1,641,000			1,683,000
Other assets, net		2,371,000			1,976,000
Deferred tax asset		3,236,000			3,199,000

Total assets	$	50,069,000		$	51,309,000

LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities:
Accounts payable and other liabilities	$	8,438,000		$	7,961,000
Due to securities broker		53,000			1,835,000
Obligations for securities sold		188,000			153,000
Other notes payable		2,072,000			2,786,000
Mortgage notes payable - hotel		44,321,000			45,179,000

Total liabilities		55,072,000			57,914,000

Commitments and contingencies
Shareholders' deficit:
Common stock, no par value: Authorized shares - 750,000; 734,183 shares issued and outstanding shares		2,092,000			2,092,000
Additional paid-in-capital		916,000			916,000
Retained earnings		263,000			29,000
Total Portsmouth shareholders' equity		3,271,000			3,037,000
Noncontrolling interest		(8,274,000	)		(9,642,000	)
Total shareholders' deficit		(5,003,000	)		(6,605,000	)

Total liabilities and shareholders' deficit	$	50,069,000		$	51,309,000

							Retained			Total
	Common Stock				Additional		Earnings			Portsmouth					Total
					Paid-in		(Accumulated			Shareholders'		Noncontrolling			Shareholders'
	Shares		Amount		Capital		Deficit)			Equity		Interest			Deficit


Balance at June 30, 2010		734,183	$	2,092,000	$	916,000	$	(2,860,000	)	$	148,000	$	(9,830,000	)	$	(9,682,000	)

Net income								2,889,000			2,889,000					2,889,000

Noncontrolling interest													188,000			188,000

Balance at June 30, 2011		734,183		2,092,000		916,000		29,000			3,037,000		(9,642,000	)		(6,605,000	)

Net income								234,000			234,000					234,000

Noncontrolling interest													1,868,000			1,868,000

Distributions to noncontrolling interest													(500,000	)		(500,000	)

Balance at June 30, 2012		734,183	$	2,092,000	$	916,000	$	263,000		$	3,271,000	$	(8,274,000	)	$	(5,003,000	)

			Accumulated			Net Book
June 30, 2012	Cost		Depreciation			Value

Land	$	1,124,000	$	-		$	1,124,000
Furniture and equipment		20,855,000		(18,187,000	)		2,668,000
Building and improvements		48,529,000		(19,499,000	)		29,030,000
	$	70,508,000	$	(37,686,000	)	$	32,822,000

			Accumulated			Net Book
June 30, 2011	Cost		Depreciation			Value

Land	$	1,124,000	$	-		$	1,124,000
Furniture and equipment		19,583,000		(17,076,000	)		2,507,000
Building and improvements		46,982,000		(18,524,000	)		28,458,000
	$	67,689,000	$	(35,600,000	)	$	32,089,000

			Gross		Gross			Net		Fair
Investment	Cost		Unrealized Gain		Unrealized Loss			Unrealized Gain		Value

As of June 30, 2012

Corporate
Equities	$	2,118,000	$	1,292,000	$	(727,000	)	$	565,000	$	2,683,000

As of June 30, 2011
Corporate	$	3,336,000	$	2,084,000	$	(554,000	)	$	1,530,000	$	4,866,000
Equities

For the year ended June 30,	2012			2011
Realized loss on marketable securities	$	(247,000	)	$	(35,000	)
Unrealized (loss) gain on marketable securities		(798,000	)		1,065,000

Net (loss) gain on marketable securities	$	(1,045,000	)	$	1,030,000

Type	June 30, 2012		June 30, 2011
Preferred stock - Comstock, at cost	$	4,410,000	$	4,410,000
Private equity hedge fund, at cost		681,000		996,000
Corporate debt and equity instruments, at cost		101,000		201,000
Warrants - at fair value		119,000		306,000
	$	5,311,000	$	5,913,000

As of June 30, 2012
Assets:	Level 1		Level 2		Level 3		Total
Cash equivalents - money market	$	3,000	$	-	$	-	$	3,000
Other investments - warrants		-		-		119,000		119,000
Investment in marketable securities:
Basic materials		1,660,000		-		-		1,660,000
Technology		266,000		-		-		266,000
Financial services		228,000		-		-		228,000
REITs and real estate companies		177,000		-		-		177,000
Other		352,000		-		-		352,000
		2,683,000		-		-		2,683,000
	$	2,686,000	$	-	$	119,000	$	2,805,000

Warrants - Transfer into Level 3 Reconciliation	Level 3
Beginning balance as of June 30, 2011 - Level 3	$	-
Transfer in from Level 2 Other investments - warrants		306,000
Unrealized loss for the year ended June 30, 2012		(187,000	)
Ending balance as of June 30, 2012 - Level 3	$	119,000

									Net loss for the year
Assets	Level 1		Level 2		Level 3		June 30, 2012		ended June 30, 2012

Other non-marketable investments	$	-	$	-	$	5,192,000	$	5,192,000	$	(335,000	)

									Net gain for the year
Assets	Level 1		Level 2		Level 3		June 30, 2011		ended June 30, 2011

Other non-marketable investments	$	-	$	-	$	5,607,000	$	5,607,000	$	3,330,000

	2012		2011
Inventory		907,000		543,000
Prepaid expenses		945,000		939,000
Miscellaneous assets, net		519,000		494,000

Total other assets	$	2,371,000	$	1,976,000

June 30, 2012		June 30, 2011		Interest Rate		Origination Date		Maturity Date

$	26,599,000	$	27,176,000		Fixed 5.22%		July 27, 2005		August 5, 2015
	17,722,000		18,003,000		Fixed 6.42%		March 27, 2007		August 5, 2015
$	44,321,000	$	45,179,000

	2012			2011
Deferred tax assets
Net operating loss carryforward	$	4,560,000		$	5,137,000
Investment reserve		1,315,000			1,171,000
Other		54,000			28,000
		5,929,000			6,336,000
Deferred tax liabilities
Unrealized gains on marketable securities		(1,798,000	)		(2,220,000	)
State taxes		(239,000	)		(221,000	)
Basis difference in Justice		(656,000	)		(696,000	)
		(2,693,000	)		(3,137,000	)
Net deferred tax assets	$	3,236,000		$	3,199,000

As of and for the year	Hotel			Investment
ended June 30, 2012	Operations			Transactions			Other			Total

Revenues	$	42,462,000		$	-		$	-		$	42,462,000
Operating expenses		(35,628,000	)		-			(595,000	)		(36,223,000	)
Income (loss) from operations		6,834,000			-			(595,000	)		6,239,000
Interest expense		(2,724,000	)		-			-			(2,724,000	)
Income from investments		-			(1,414,000	)		-			(1,414,000	)
Income tax benefit		-			-			1,000			1,000
Net income (loss)	$	4,110,000		$	(1,414,000	)	$	(594,000	)	$	2,102,000
Total assets	$	32,822,000		$	7,994,000		$	9,253,000		$	50,069,000

Name	Position ~~Director Name Age~~ with the Company ~~Since~~	Age	Term to Expire ~~- ------------------------------------------------------------------------------------~~

John V. Winfield 63	Chairman of the Board; President ~~1996 2010~~	65	Fiscal 2012 Annual Meeting
	and Chief Executive Officer⁽¹⁾

Jerold R. Babin 76	Director ~~1996 2010~~	78	Fiscal 2012 Annual Meeting

Josef A. Grunwald 62	Director ~~1996 2010~~	64	Fiscal 2012 Annual Meeting

John C. Love 70	Director^{(1)(2)(3) 1998 2010}	72	Fiscal 2012 Annual Meeting

William J. Nance 66	Director^{(1)(2)(3) 1996 2010}	68	Fiscal 2012 Annual Meeting

Other Executive Officers:

Michael G. Zybala 58	Vice President, ~~N/A N/A~~ Secretary and General ~~Counsel(3)~~ Counsel	60	N/A

David T. Nguyen 36	Treasurer and Controller (Principal Financial Officer)	38	N/A ~~N/A Controller - -----------------------------------------------~~

Annual Compensation

Name and	Fiscal							All Other
Principal Position	Year		Salary			Bonus		Compensation			Total

John V. Winfield		2012	$	134,000	⁽¹⁾		-	$	17,000	⁽²⁾	$	151,000
Chairman; President		2011	$	134,000	⁽¹⁾		-	$	17,000	⁽²⁾	$	151,000
and Chief Executive Officer

Michael G. Zybala		2012	$	101,000		$	12,000		-		$	113,000
Vice President, Secretary		2011	$	98,000			-		-		$	98,000
and General Counsel

Name	Fees Earned or Paid in Cash			All Other Compensation		Total

Jerold R. Babin	$	6,000			-	$	6,000

Josef A. Grunwald	$	6,000			-	$	6,000

John C. Love	$	38,000	⁽¹⁾		-	$	38,000

William J. Nance	$	38,000	⁽¹⁾		-	$	38,000

John V. Winfield⁽²⁾		-			-		-

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership⁽¹⁾			Percent of Class⁽²⁾

John V. Winfield		0			-
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

Jerold R. Babin		48,345	⁽³⁾		6.6	%
243 28^th Street
San Francisco, CA 94121

Josef A. Grunwald		0			-
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

John C. Love		0			-
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

William J. Nance		0			-
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

Michael G. Zybala		0			-
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

David T. Nguyen		0			-
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

Santa Fe Financial Corporation and		597,299	⁽⁴⁾		81.3	%
The InterGroup Corporation
10940 Wilshire Blvd., Suite 2150
Los Angeles, CA 90024

All of the above as a group		645,644			87.9	%

	Fiscal Year
	2012		2011

Audit fees	$	104,000	$	133,000
Audit related fees		-		-
Tax fees		-		-
All other fees		-		-
TOTAL:	$	104,000	$	133,000

Exhibit Number		Description

3.(i)		Articles of Incorporation*

3.(ii)		Bylaws (amended February 16, 2000) incorporated by reference to the Company’s Form 10-KSB filed with the Commission on March 19, 2000.

4.		Instruments defining the rights of security holders including indentures (See Articles of Incorporation and Bylaws)*

10.		Material Contracts:

10.1		Amended and Restated Agreement of Limited Partnership of Justice Investors, effective November 30, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q Report for the quarterly period ended December 31, 2010, filed with the Commission on February 11, 2011).

10.2		General Partner Compensation Agreement, dated December 1, 2008 (incorporated by reference to Exhibit 10.2 to Company’s Form 10-Q Report for the quarterly period ended December 31, 2008, filed with the Commission on February 12, 2009).

10.3		Franchise License Agreement, dated December 10, 2004, between Justice Investors and Hilton Hotels (incorporated by reference to Exhibit 10.10 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).

10.4		Management Agreement, dated February 2, 2012, between Justice Investors and Prism Hospitality, L.P. (incorporated by reference to Exhibit 10.11 of the Company’s amended report on Form 10-K/A for the fiscal year ended June 30, 2011, as filed with the Commission on August 24, 2012).

14.		Code of Ethics (filed herewith).

31.1		Certification of Principal Executive Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

31.2		Certification of Principal Financial Officer of Periodic Report Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

32.1		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350.

		PORTSMOUTH SQUARE, INC.
		(Registrant)

Date:September 20, 2012	by	/s/ John V. Winfield
		John V. Winfield, President,
		Chairman of the Board and
		Chief Executive Officer

Date:September 20, 2012	by	/s/ David T. Nguyen
		David T. Nguyen, Treasurer
		and Controller

For the year ending June 30,