NOTE 2 – LIQUIDITY

The Company’s primary sources of liquidity are cash on hand and cash flows generated from operations at the Hilton San Francisco Financial District (the “Hotel”). Net cash provided by operating activities was $3,899,000 for the year ended June 30, 2026, compared with net cash used in operating activities of $2,148,000 for the year ended June 30, 2025. Capital expenditures at the Hotel were $2,199,000 during fiscal 2026.

As of June 30, 2026, the Company had cash and cash equivalents of $4,982,000, restricted cash of $8,440,000 and marketable securities of $200,000. Restricted cash primarily consists of amounts held in lender-controlled accounts under the Hotel’s financing arrangements and is subject to the applicable cash-management provisions.

The Company’s material liquidity requirements include Hotel operating expenses, corporate overhead, debt service, lender-required reserves, capital expenditures and scheduled debt maturities.

Senior Mortgage and Mezzanine Financing

The Company’s $67,000,000 senior mortgage loan and $36,300,000 mezzanine loan have an initial maturity date of April 9, 2027 and provide for three one-year extension options, subject to specified conditions. As of June 30, 2026, the Company was in compliance with all applicable covenants under the loan agreements.

For the first one-year extension of the senior mortgage loan through April 9, 2028, the loan agreement requires, among other conditions, a Debt Service Coverage Ratio (“DSCR”) of at least 1.10:1.00, measured as of the last day of the calendar month immediately preceding the initial maturity date. The loan agreement defines DSCR based on Underwritten Net Cash Flow (“UNCF”) and projected debt service for the succeeding twelve-month period. Based on management’s application of the methodology set forth in the loan agreement, the Company’s calculated DSCR was approximately 1.45:1.00 as of June 30, 2026, compared with the 1.10:1.00 requirement applicable to the first extension. Because UNCF and DSCR are ultimately determined by the lender under the loan agreement, the lender’s calculation may differ from management’s calculation. If the required 1.10:1.00 DSCR is not satisfied at the applicable measurement date, the loan agreement permits the Company to satisfy that condition by depositing additional funds into the lender-controlled Carry Reserve in an amount sufficient to achieve the required DSCR.

The loan agreement further provides that no Debt Yield requirement applies to the first extension. Debt Yield requirements of 13% and 14% apply to the second and third extension periods, respectively. The first extension also requires, among other conditions, the absence of specified defaults or events of default, extension or replacement of the required interest-rate protection through the extension period, and a corresponding extension of the mezzanine loan. Management currently expects to satisfy the applicable conditions and exercise the first one-year extension option.

Cash Management Arrangement

The lender-controlled cash-management arrangement is separate from the Company’s compliance with its loan covenants and from the conditions applicable to the first extension. Under the senior mortgage loan, release from the cash-management arrangement requires the lender to determine that the Hotel has achieved, for two consecutive quarter-end calculation dates, a Debt Yield of at least 11% and a DSCR of at least 1.10:1.00.

Based on management’s application of the methodology set forth in the loan agreement, the Hotel’s calculated trailing-twelve-month DSCR was approximately 1.45:1.00 and its calculated Debt Yield was approximately 13.9% as of June 30, 2026. These calculations exceed the financial thresholds applicable to release from cash management. However, satisfaction of the release conditions is determined by the lender under the loan agreement, and the lender has not confirmed that the applicable release conditions have been satisfied. Accordingly, the cash-management arrangement remained in effect as of June 30, 2026. The continued operation of the cash-management arrangement does not constitute a default or noncompliance with the Company’s loan covenants.

Related Party Financing

The Company has an unsecured revolving credit facility with its majority shareholder, The InterGroup Corporation (“InterGroup”), with borrowing capacity of up to $40,000,000. The facility bears interest at 9%. As of June 30, 2026, $38,108,000 was outstanding under the facility, leaving $1,892,000 of remaining borrowing capacity. No additional borrowings were made during fiscal 2026. Principal and accrued interest are due at maturity, and no monthly principal or interest payments are required prior to maturity. In August 2026, the Company and InterGroup amended the facility to extend its maturity date from July 31, 2027 to July 31, 2029. All other material terms of the facility remained unchanged. See Note 8 – Related Party and Other Financing Transactions.

Liquidity Outlook

Management expects to meet the Company’s liquidity requirements through cash on hand, operating cash flows and its existing financing arrangements. As of June 30, 2026, the Company was in compliance with all applicable covenants under its senior mortgage and mezzanine loan agreements, management’s calculated DSCR of approximately 1.45:1.00 exceeded the 1.10:1.00 requirement applicable to the first extension, and management expects to exercise the first one-year extension option.

Following the August 2026 extension of the InterGroup facility through July 31, 2029, management believes that the Company’s available liquidity and financing arrangements are sufficient to meet its obligations for at least twelve months following issuance of these consolidated financial statements.