UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



FORM
10-K



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



For
the fiscal year ended June 30, 2023



or



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



For
the transition period from _______ to_________



Commission
File Number 0-4057



PORTSMOUTH
SQUARE, INC.

(Exact
name of registrant as specified in its charter)



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



1516
S. Bundy Drive, Suite 200, Los Angeles, California 90025

(Address
of principal executive offices) (Zip Code)



(310)
889-2500

(Registrant’s
telephone number, including area 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)



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



☐
Yes ☒ No



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



☐
Yes ☒ 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.



☒
Yes ☐ No



Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§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).



☒
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.



☒
Yes ☐ No



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



|Large
    Accelerated Filer | ☐ | Accelerated
    Filer         | ☐
|--------------------------- | - | ----------------------------- | -
|                            |   |                               |  
|Non-Accelerated
    Filer   | ☒ | Smaller
    reporting company | ☒
|                            |   |                               |  
|Emerging
    growth company | ☐ |                               |  



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐



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

☐
Yes ☒ No



The
aggregate market value of the Common Stock, no par value, held by non-affiliates computed by reference to the closing price reported
on December 31, 2022 was $7,081,000.



The
number of shares outstanding of registrant’s Common Stock, as of October 13, 2023 was 734,187.



Securities
registered pursuant to section 12(b) of the Act:



|Title
    of each class |  | Trading
    Symbol(s) |  | Name
    of each exchange on which registered
|----------------------- |  | --------------------- |  | ---------------------------------------------
|None                    |  | None                  |  | None                                         



DOCUMENTS
INCORPORATED BY REFERENCE: None


















TABLE
OF CONTENTS



|             |                                                                                                                   | Page
|------------ | ----------------------------------------------------------------------------------------------------------------- | ----
|             | PART
    I                                                                                                        |     
|             |                                                                                                                   |     
|Item
    1.  | Business.                                                                                                         | 4   
|             |                                                                                                                   |     
|Item
    1A. | Risk
    Factors.                                                                                                 | 8   
|             |                                                                                                                   |     
|Item
    1B. | Unresolved
    Staff Comments.                                                                                    | 13  
|             |                                                                                                                   |     
|Item
    2.  | Properties.                                                                                                       | 13  
|             |                                                                                                                   |     
|Item
    3.  | Legal
    Proceedings.                                                                                            | 14  
|             |                                                                                                                   |     
|Item
    4.  | Mine
    Safety Disclosures.                                                                                      | 14  
|             |                                                                                                                   |     
|             | PART
    II                                                                                                       |     
|             |                                                                                                                   |     
|Item
    5.  | Market
    for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. | 15  
|             |                                                                                                                   |     
|Item
    6.  | Selected
    Financial Data.                                                                                      | 15  
|             |                                                                                                                   |     
|Item
    7.  | Management’s
    Discussion and Analysis of Financial Condition and Results of Operations.                        | 15  
|             |                                                                                                                   |     
|Item
    7A. | Quantitative
    and Qualitative Disclosures About Market Risk.                                                   | 21  
|             |                                                                                                                   |     
|Item
    8.  | Financial
    Statements and Supplementary Data.                                                                  | 21  
|             |                                                                                                                   |     
|Item
    9.  | Changes
    in and Disagreements with Accountants on Accounting and Financial Disclosure.                         | 43  
|             |                                                                                                                   |     
|Item
    9A. | Controls
    and Procedures.                                                                                      | 43  
|             |                                                                                                                   |     
|Item
    9B. | Other
    Information.                                                                                            | 43  
|             |                                                                                                                   |     
|             | PART
    III                                                                                                      |     
|             |                                                                                                                   |     
|Item
    10. | Directors,
    Executive Officers and Corporate Governance.                                                       | 44  
|             |                                                                                                                   |     
|Item
    11. | Executive
    Compensation.                                                                                       | 46  
|             |                                                                                                                   |     
|Item
    12. | Security
    Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.               | 48  
|             |                                                                                                                   |     
|Item
    13. | Certain
    Relationships and Related Transactions, and Director Independence.                                    | 49  
|             |                                                                                                                   |     
|Item
    14. | Principal
    Accounting Fees and Services.                                                                       | 50  
|             |                                                                                                                   |     
|             | PART
    IV                                                                                                       |     
|             |                                                                                                                   |     
|Item
    15. | Exhibits,
    Financial Statement Schedules.                                                                      | 51  
|             |                                                                                                                   |     
|Signatures   |                                                                                                                   | 52  



2







FORWARD-LOOKING
STATEMENTS



This
Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended
(“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). Forward-looking
statements include, but are not limited to, statements related to our expectations regarding the performance of our business, our financial
results, our liquidity and capital resources, including anticipated repayment of certain of the Company’s indebtedness, the impact
to our business and financial condition, the effects of competition and the effects of future legislation or regulations and other non-historical
statements, the impact from macroeconomic factors (including inflation, increases in interest rates, potential economic slowdown or a
recession and geopolitical conflicts). Forward-looking statements include all statements that are not historical facts, and in some cases,
can be identified by the use of forward-looking terminology such as the words “outlook,” “believes,” “expects,”
“potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,”
“projects,” “predicts,” “intends,” “plans,” “estimates,” “anticipates”
or the negative version of these words or other comparable words. You should not rely on forward-looking statements since they involve
known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect
our results of operations, financial condition, cash flows, performance or future achievements or events.



All
such forward-looking statements are based on current expectations of management and therefore involve estimates and assumptions that
are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed
in these forward-looking statements. You should not place undue reliance on any forward-looking statements, and we urge investors to
carefully review the disclosures we make concerning risks and uncertainties in Item 1A: “Risk Factors” in this Annual Report
on Form 10-K. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events or otherwise.



The
risk factors discussed in Item 1A: “Risk Factors” could cause our results to differ materially from those expressed in forward-looking
statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect
to have a material adverse effect on our business. Any such risks could cause our results to differ materially from those expressed in
forward-looking statements.



Other
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;                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                             
| | ● | economic
    volatility and potential recessive trends;                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                             
| | ● | risks
    related to natural disasters;                                                                                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                             
| | ● | hyperinflation;                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                             
| | ● | litigation;
    and                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                             
| | ● | other
    risk factors discussed below in this Report.                                                                                                                                                                                                                                                                                      



3







PART
I



Item
1. Business.



GENERAL



Portsmouth
Square, Inc. (referred to as “Portsmouth” or the “Company” and may also be referred to as “we” “us”
or “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 Limited Partnership (“Justice” or the “Partnership”).
As of June 30, 2023, approximately 75.7% of the outstanding common stock of Portsmouth was owned by The InterGroup Corporation (“InterGroup”),
a public company (NASDAQ: INTG). As of June 30, 2023, the Company’s Chairman of the Board and Chief Executive Officer, John V.
Winfield, owns approximately 2.5% of the outstanding common shares of the Company. Mr. Winfield also serves as the President, Chairman
of the Board and Chief Executive Officer of InterGroup and owns approximately 68.6% of the outstanding common shares of InterGroup as
of June 30, 2023.



Portsmouth’s
primary business was conducted through its general and limited partnership interest in Justice Investors Limited Partnership, a California
limited partnership (“Justice” or the “Partnership”). Effective July 15, 2021, Portsmouth completed the purchase
of 100% of the limited partnership interest of Justice through the acquisition of the remaining 0.7% non-controlling interest. Effective
December 23, 2021, the Partnership was dissolved. The financial statements of Justice were consolidated with those of the Company.



Prior
to its dissolution effective December 23, 2021, Justice owned and operated a 544-room hotel property located at 750 Kearny Street, San
Francisco California, known as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including
a five-level underground parking garage through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice
Mezzanine Company, LLC (“Mezzanine”). Mezzanine was a wholly owned subsidiary of the Partnership; Operating is a wholly owned
subsidiary of Mezzanine. Effective December 23, 2021, Portsmouth replaced Justice as the single member of Mezzanine. Mezzanine is the
borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership conveyed ownership of the Hotel to Operating.
The Hotel is a full-service Hilton brand hotel pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (“Hilton”)
through January 31, 2030.



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 may consider other investments in the future. See Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations for a discussion of the Company’s marketable securities and other investments.



4







HILTON
HOTELS FRANCHISE LICENSE AGREEMENT



The
Partnership entered into a Franchise License Agreement (the “License Agreement”) with the HLT Existing Franchise Holding
LLC (“Hilton”) on December 10, 2004. The term of the License Agreement was for an initial period of fifteen years commencing
on the date the Hotel began operating as a Hilton hotel, with an option to extend the License Agreement for another five years, subject
to certain conditions. On June 26, 2015, Operating and Hilton entered into an amended franchise agreement that, among other things, extended
the License Agreement through 2030, and provided the Justice with certain key money cash incentives to be earned through 2030.



HOTEL
MANAGEMENT COMPANY AGREEMENT



Operating
entered into a hotel management agreement (“HMA”) with Aimbridge Hospitality (“Aimbridge”) to manage the Hotel,
along with its five-level parking garage, with an effective date of February 3, 2017. The term of the management agreement is for an
initial period of ten years commencing on the February 3, 2017 date and automatically renews for successive one (1) year periods, not
to exceed five years in the aggregate, subject to certain conditions. Under the terms on the HMA, base management fee (“Basic Fee”)
payable to Aimbridge shall be one and seven-tenths percent (1.70%) of total Hotel revenue. In addition to the Basic Fee, Aimbridge shall
be entitled to an annual incentive fee for each fiscal year equal to ten percent (10%) of the amount by which Gross Operating Profit
in the current fiscal year exceeds the previous fiscal year’s Gross Operating Profit.



For
the fiscal years ended June 30, 2023 and 2022, hotel management fees were $711,000 and $530,000, and incentive fees of $505,000 and $525,000,
respectively, offset by key money amortization of $250,000 for both years and are included in Hotel operating expenses in the consolidated
statements of operations. As part of the Hotel management agreement, Aimbridge, through the Company’s wholly owned subsidiary,
Kearny Street Parking LLC, manages the parking garage in-house.



CHINESE
CULTURE FOUNDATION LEASE



On
March 15, 2005, the Hotel entered an amended lease with the Chinese Culture Foundation of San Francisco (the “Foundation”)
for the third-floor space of the Hotel commonly known as the Chinese Culture Center, which the Foundation had right to occupy pursuant
to a 50-year nominal rent lease that began in 1967.



The
amended lease, among other things, requires the Hotel 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. As of June 30, 2023, monthly event space fee is $7,131. 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.
Subject to certain conditions as set forth in the amended lease, the Foundation is entitled to reserve for a maximum of 75 days per calendar
year for use of the event space. If the Hotel needs the event space during one of the dates previously reserved by the Foundation, the
Hotel shall pay the Foundation $4,000 per day for using the event space. During the fiscal years ended June 30, 2023 and 2022, the Hotel
paid the Foundation $20,000 and $12,000 for such fees, respectively.



MARKETABLE
SECURITIES INVESTMENT POLICIES



In
addition to its Hotel operations, the Company also invests from time to time in income producing instruments, corporate debt and equity
securities, publicly traded investment funds, mortgage-backed securities, securities issued by REITs and other companies which invest
primarily in real estate.



The
Company’s securities investments are made under the supervision of an Executive Strategic Real Estate and Securities Investment
Committee of the Board of Directors (the “Committee”). The Committee currently has three members and is chaired by the Company’s
Chairman of the Board and Chief Executive Officer, John V. Winfield. The Committee has delegated authority to manage the portfolio to
the Company’s Chairman and Chief Executive Officer together with such assistants and management committees he may engage. The Committee
generally follows certain established investment guidelines for the Company’s investments. These guidelines presently include:
(i) corporate equity securities should be listed on the New York Stock Exchange (NYSE), NYSE MKT, NYSE Arca or the Nasdaq Stock Market
(NASDAQ); (ii) the issuer of the listed securities should be in compliance with the listing standards of the applicable national securities
exchange; and (iii) investment in a particular issuer should not exceed 10% of the market value of the total portfolio. The investment
guidelines do not require the Company to divest itself of investments, which initially meet these guidelines but subsequently fail to
meet one or more of the investment criteria. The Committee has in the past approved non-conforming investments and may in the future
approve non-conforming investments. The Committee may modify these guidelines from time to time.



5







The
Company may also invest, with the approval of the Committee, in unlisted securities, such as convertible notes, through private placements
including private equity investment funds. Those investments in non-marketable securities are carried at cost on the Company’s
consolidated balance sheets as part of other investments and reviewed for impairment on a periodic basis.



The
Company may utilize margin for its marketable securities purchases using standard margin agreements with national brokerage firms. The
margin used by the Company may fluctuate depending on market conditions. The use of leverage could be viewed as risky, and the market
value of the portfolio may be subject to large fluctuations. Margin balances due on June 30, 2023 and 2022 were zero and $130,000 respectively.



As
Chairman of the Committee and of the Company, 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
the Board of InterGroup and oversees the investment activity of InterGroup. Effective June 2016, Mr. Winfield became the Managing Director
of Justice up to Justice’s dissolution in December 2021. Depending on certain market conditions and various risk factors, the Chief
Executive Officer and InterGroup may, at times, invest in the same companies in which the Company invests. Such investments align the
interests of the Company with the interests of these related parties because it places the personal resources of the Chief Executive
Officer and the resources of InterGroup, at risk in substantially the same manner as the Company in connection with investment decisions
made on behalf of the Company.



Further
information with respect to investment in marketable securities and other investments of the Company is set forth in Management Discussion
and Analysis of Financial Condition and Results of Operations section and Notes 6 and 7 of the Notes to Consolidated Financial Statements.



SEASONALITY



Historically,
the Hotel’s operation has been seasonal under normal circumstances. Like most hotels in the San Francisco area, the Hotel generally
maintained high occupancy and room rates during the entire year except for the weeks starting from Thanksgiving to first week of January
due to the holiday season. These seasonal patterns can be expected to cause fluctuations in the quarterly revenues of the Hotel. See
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for more information regarding the
effects on our results of operations.



COMPETITION



The
Hotel has navigated this very competitive market nimbly and has consistently been ranked the number one hotel in its Competitive Set
(“CompSet”) based on our ability to drive occupancy. During 2021 and first part of calendar 2022, we took advantage of the
slow periods to make certain capital improvements including complete refinishing of all guest room furniture, resurfacing half of the
hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed
the carpet and wall covering corridor installation. In November 2022, we began our guestroom renovation and had completed approximately
200 guestrooms as of June 30, 2023. Hotel improvements are ongoing to remain competitive and we anticipate completing the guestroom renovations
by the end March 2024.



As
of the date of this report, the competition for business is very strong as there still hasn’t been a rebound close to 2019 for
the overall San Francisco market. The fiscal year ending June 30, 2023, the Hotel’s Competitive Set (“CompSet”) was
running 64% occupancy and average daily rate of $236 for a RevPAR of $152. The Hotel has fared drastically better than its CompSet by
aggressively pursuing all segments and opening all channels on off peak days and limiting access over peak demand dates. At the end of
fiscal year ending June 30, 2023, the Hotel was running occupancy of 83% including the vacancy of the “Out Of Order” rooms
of about 13% at $195 average daily rate for a RevPAR of $161, giving the Hotel a RevPAR index of 106%.



6







The
Hotel’s location in the San Francisco Financial District historically had provided greater opportunities over its competitors when
it comes to developing relationships with the Financial District entities and the customers who regularly do business in the downtown
area. With limited business travel to San Francisco for the time, we are competing with hotels in more tourist attracting locations and
amenities for the leisure traveler. The ability to capitalize on the strong midweek demand of the individual business traveler to the
Financial District has been the focus during the timeframe of strong growth in the market. The shift to attracting leisure travel has
pushed the hotel to price aggressively to lure competition from the more tourist locations in San Francisco.



The
Hotel is also subject to certain operating risks common to the hospitality industry, which could adversely impact performance.



These
risks include, but are not limited to:



| | ● | 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;           
| |   |                                                                                                                                                                                                          
| | ● | natural
    disasters; 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, the 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 Justice and its lenders conducted updated Phase I environmental site assessments in fiscal year ended June 30,
2014 on the Hotel property. These Phase I assessments relied, in part, on Phase I environmental assessments prepared in connection with
the Partnership’s first mortgage loan obtained in December 2013. 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.



7







Although
the Phase I assessments and other environmental reports we have reviewed disclose certain conditions on our property and the use of hazardous
substances in operation and maintenance activities that could pose a risk of 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, 2023, Portsmouth had two 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.



The
hotel operations had 187 employees as of June 30, 2023. On February 3, 2017, Aimbridge assumed all labor union agreements and Justice
provides all funding for all payroll and related costs. As of June 30, 2023, approximately 90% of those employees were represented by
one of three labor unions, and their terms of employment were determined under various collective bargaining agreements (“CBAs”)
to which Aimbridge was a party. CBA for Local 2 (Hotel and Restaurant Employees) expired on August 13, 2022 and a new MOU was signed
June 26, 2023. CBA for Local 856 (International Brotherhood of Teamsters) expired on December 31, 2022 and a new agreement was signed
on April 26, 2023. CBA for Local 39 (Stationary Engineers) will expire on July 31, 2024.



Negotiation
of collective bargaining agreements, which includes not just terms and conditions of employment, but scope and coverage of employees,
is a regular and expected course of business operations for the Company and Aimbridge. The Company expects and anticipates that the terms
of conditions of CBAs will have an impact on wage and benefit costs, operating expenses, and certain hotel operations during the life
of each CBA and incorporates these principles into its operating and budgetary practices.



ADDITIONAL
INFORMATION



The
Company files required 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” or the “Commission”). The public may read and copy any materials that
we file with the Commission at the 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 at http://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 website www.intgla.com. Reference in this document to
that website address does not constitute incorporation by reference of the information contained on the website.



Item
1A. Risk Factors.



Adverse
changes in the U.S. and global economies could negatively impact our financial performance.



Due
to a number of factors affecting consumers, the outlook for the lodging industry remains uncertain. These factors have resulted at times
in the past and could continue to result in the future in fewer customers visiting, or customers spending less, in San Francisco, as
compared to prior periods. The macro-economic situation of a looming US/Global recession has seen business reducing or eliminating typical
travel and group meetings in efforts to be conservative in uncertain financial times. Leisure travel and other leisure activities represent
discretionary expenditures, and participation in such activities tends to decline during economic downturns, during which consumers generally
have less disposable income. As a result, in those times customer demand for the luxury amenities and leisure activities that we offer
may decline. Furthermore, during periods of economic contraction, revenues may decrease while some of our costs remain fixed or even
increase, resulting in decreased earnings.



8







Weakened
global economic conditions may adversely affect our industry, business and results of operations.



Our
overall performance depends in part on worldwide economic conditions which could adversely affect the tourism industry. According to
current economic news reports, the United States and other key international economies may be subject to a recession, characterized by
falling demand for a variety of goods and services, restricted credit, going concern threats to financial institutions, major multinational
companies and medium and small businesses, poor liquidity, declining asset values, reduced corporate profitability, and volatility in
credit, equity and foreign exchange markets. These conditions affect discretionary and leisure spending and could adversely affect our
customers’ ability or willingness to travel to destinations for leisure and cutback on discretionary business travel, which could
adversely affect our operating results. In addition, in a weakened economy, companies that have competing properties may reduce room
rates and other prices which could also reduce our average revenues and harm our operating results.



We
operate a single property located in San Francisco and rely on the San Francisco market. Changes adversely impacting this market could
have a material effect on our business, financial condition, results of operation, and fair market value of the Hotel.



Our
business in San Francisco and the hospitality industry has a limited base of operations and substantially all of our revenues are currently
generated by the Hotel in San Francisco, California. Accordingly, we are subject to greater risks than a more diversified hotel or resort
operator and the profitability of our operations is linked to local economic conditions in San Francisco. The combination of a decline
in the local economy of San Francisco, reliance on a single location and the significant investment associated with it may cause our
operating results to fluctuate significantly and may adversely affect us and materially affect our total profitability.



We
face intense local and increasingly national competition which could impact our operations and adversely affect our business and results
of operations.



We
operate in the highly competitive San Francisco hotel industry. The Hotel competes with other high-quality Northern California hotels
and resorts. Many of these competitors seek to attract customers to their properties by providing, food and beverage outlets, retail
stores and other related amenities, in addition to hotel accommodations. To the extent that we seek to enhance our revenue base by offering
our own various amenities, we compete with the service offerings provided by these competitors.



Many
of the competing properties have themes and attractions which draw a significant number of visitors and directly compete with our operations.
Some of these properties are operated by subsidiaries or divisions of large public companies that may have greater name recognition and
financial and marketing resources than we do and market to the same target demographic group as we do. Various competitors are expanding
and renovating their existing facilities. We believe that competition in the San Francisco hotel and resort industry is based on certain
property-specific factors, including overall atmosphere, range of amenities, price, location, technology infrastructure, entertainment
attractions, theme and size. Any market perception that we do not excel with respect to such property-specific factors could adversely
affect our ability to compete effectively. If we are unable to compete effectively, we could lose market share, which could adversely
affect our business and results of operations.



The
San Francisco hotel and resort industry are capital intensive; financing our renovations and future capital improvements could reduce
our cash flow and adversely affect our financial performance.



The
Hotel has an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time,
of furniture, fixtures and equipment. We will also need to make capital expenditures to comply with applicable laws and regulations.



Renovations
and other capital improvements of hotels require significant capital expenditures. In addition, renovations and capital improvements
of hotels usually generate little or no cash flow until the project’s completion. We may not be able to fund such projects solely
from cash provided from our operating activities. Consequently, we will rely upon the availability of debt or equity capital and reserve
funds to fund renovations and capital improvements and our ability to carry them out will be limited if we cannot obtain satisfactory
debt or equity financing, which will depend on, among other things, market conditions. No assurances can be made that we will be able
to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.



Renovations
and other capital improvements may give rise to the following additional risks, among others: construction cost overruns and delays;
increased prices of materials due to tariffs; temporary closures of all or a portion of the Hotel to customers; disruption in service
and room availability causing reduced demand, occupancy and rates; and possible environmental issues.



As
a result, renovations and any other future capital improvement projects may increase our expenses, reduce our cash flows and our revenues.
If capital expenditures exceed our expectations, this excess would have an adverse effect on our available cash.



9







We
have substantial debt, and we may incur additional indebtedness, which may negatively affect our business and financial results.



We
have substantial debt service obligations. Our substantial debt may negatively affect our business and operations in several ways, including:
requiring us to use a substantial portion of our funds from operations to make required payments on principal and interest, which will
reduce funds available for operations and capital expenditures, future business opportunities and other purposes; making us more vulnerable
to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions; limiting
our flexibility in planning for, or reacting to, changes in the business and the industry in which we operate; placing us at a competitive
disadvantage compared to our competitors that have less debt; limiting our ability to borrow more money for operations, capital or to
finance acquisitions in the future; and requiring us to dispose of assets, if needed, in order to make required payments of interest
and principal.



The
debt agreement that governs our outstanding indebtedness due January 2024 could result in our being required to repay these borrowings
on their due date. If we are forced to refinance these borrowings on less favorable terms or are unable to refinance these borrowings,
our financial condition and results of operations could be adversely affected.



Our
business model involves high fixed costs, including property taxes and insurance costs, which we may be unable to adjust in a timely
manner in response to a reduction in our revenues.



The
costs associated with owning and operating the Hotel are significant. Some of these costs (such as property taxes and insurance costs)
are fixed, meaning that such costs may not be altered in a timely manner in response to changes in demand for services. Failure to adjust
our expenses may adversely affect our business and results of operations. Our real property taxes may increase as property tax rates
change and as the values of properties are assessed and reassessed by tax authorities. Our real estate taxes do not depend on our revenues,
and generally we could not reduce them other than by disposing of our real estate assets.



Insurance
premiums have increased significantly in recent years, and continued escalation may result in our inability to obtain adequate insurance
at acceptable premium rates. A continuation of this trend would appreciably increase the operating expenses of the Hotel. If we do not
obtain adequate insurance, to the extent that any of the events not covered by an insurance policy materialize, our financial condition
may be materially adversely affected.



In
the future, our property may be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance
costs, repairs and maintenance and administrative expenses, which could reduce our cash flow and adversely affect our financial performance.
If our revenues decline and we are unable to reduce our expenses in a timely manner, our business and results of operations could be
adversely affected.



Risk
of declining market values in marketable securities.



The
Company invests from time to time in marketable securities. As a result, the Company is exposed to market volatility in connection with
these investments. The Company’s financial position and financial performance could be adversely affected by worsening market conditions
or stagnant performance of such investments.



Illiquidity
risk in nonmarketable securities.



Nonmarketable
securities are, by definition, instruments that are not readily salable in the capital markets, and when sold are usually at a substantial
discount. Thus, the holder is limited to return on investment from any income producing feature of the instrument, as any sale of such
an instrument would be subject to a substantial discount. Thus, a holder may need to hold such instruments for long period of time and
not be able to realize a return of their cash investment should there be a need to liquidate to obtain cash at any given time.



Litigation
and legal proceedings could expose us to significant liabilities and thus negatively affect our financial results.



We
are a party, from time to time, to various litigation claims and legal proceedings, government and regulatory inquiries and/or proceedings,
including, but not limited to, intellectual property, premises liability and breach of contract claims. Material legal proceedings are
described more fully in Note 15, Commitments and Contingencies, to our consolidated financial statements, included in Item 8 of this
Annual Report on Form 10-K.



10







Litigation
is inherently unpredictable and defending these proceedings can result in significant ongoing expenditures and the diversion of our management’s
time and attention from the operation of our business, which could have a negative effect on our business operations. Our failure to
successfully defend or settle any litigation or legal proceedings could result in liabilities that, to the extent not covered by our
insurance, could have a material adverse effect on our financial condition, revenue and profitability.



The
threat of terrorism could adversely affect the number of customer visits to the Hotel.



The
threat of terrorism has caused, and may in the future cause, a significant decrease in customer visits to San Francisco due to disruptions
in commercial and leisure travel patterns and concerns about travel safety. We cannot predict the extent to which disruptions in air
or other forms of travel as a result of any further terrorist act, outbreak of hostilities or escalation of war would adversely affect
our financial condition, results of operations or cash flows. The possibility of future attacks may hamper business and leisure travel
patterns and, accordingly, the performance of our business and our operations.



We
depend in part, on third party management companies for the future success of our business and the loss of one or more of their key personnel
could have an adverse effect on our ability to manage our business and operate successfully and competitively or could be negatively
perceived in the capital markets.



The
Hotel is managed by Aimbridge. Their ability to manage the Hotel and to operate successfully and competitively is dependent, in part,
upon the efforts and continued service of their managers. The departure of key personnel of current or future management companies could
have an adverse effect on our business and our ability to operate successfully and competitively, and it could be difficult to find replacements
for these key personnel, as competition for such personnel is intense.



Seasonality
and other related factors such as weather can be expected to cause quarterly fluctuations in revenue at the Hotel.



The
hotel and resort industry are seasonal in nature. This seasonality can tend to cause quarterly fluctuations in revenues at the Hotel.
Our quarterly earnings may also be adversely affected by other related factors outside our control, including weather conditions and
poor economic conditions. As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these quarterly
fluctuations in our revenues.



The
hotel industry is heavily regulated and failure to comply with extensive regulatory requirements may result in an adverse effect on our
business.



The
hotel industry is subject to extensive regulation and the Hotel must maintain its licenses and pay taxes and fees to continue operations.
Our property is subject to numerous laws, including those relating to the preparation and sale of food and beverages, including alcohol.
We are also subject to laws governing our relationship with our employees in such areas as minimum wage and maximum working hours, overtime,
working conditions, hiring and firing employees and work permits. Also, our ability to remodel, refurbish or add to our property may
be dependent upon our obtaining necessary building permits from local authorities. The failure to obtain any of these permits could adversely
affect our ability to increase revenues and net income through capital improvements of our property. In addition, we are subject to the
numerous rules and regulations relating to state and federal taxation. Compliance with these rules and regulations requires significant
management attention. Furthermore, compliance costs associated with such laws, regulations and licenses are significant. Any change in
the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to
our business or gaming license could require us to make substantial expenditures or could otherwise negatively affect our gaming operations.
Any failure to comply with all such rules and regulations could subject us to fines or audits by the applicable taxation authority.



Violations
of laws could result in, among other things, disciplinary action. If we fail to comply with regulatory requirements, this may result
in an adverse effect on our business.



11







Uninsured
and underinsured losses could adversely affect our financial condition and results of operations.



There
are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods or terrorist acts, which may be uninsurable
or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. We will
use our discretion in determining amounts, coverage limits, deductibility provisions of insurance and the appropriateness of self-insuring,
with a view to maintaining appropriate insurance coverage on our investments at a reasonable cost and on suitable terms. Uninsured and
underinsured losses could harm our financial condition and results of operations. We could incur liabilities resulting from loss or injury
to the Hotel or to persons at the Hotel. Claims, whether or not they have merit, could harm the reputation of the Hotel or cause us to
incur expenses to the extent of insurance deductibles or losses in excess of policy limitations, which could harm our results of operations.



In
the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement
cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of
the capital we have invested in the Hotel, as well as the anticipated future revenue from the property. In that event, we might nevertheless
remain obligated for any mortgage debt or other financial obligations related to the Hotel. In the event of a significant loss, our deductible
may be high, and we may be required to pay for all such repairs and, as a consequence, it could materially adversely affect our financial
condition. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from
using insurance proceeds to replace or renovate the Hotel after it has been damaged or destroyed. Under those circumstances, the insurance
proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.



It
has generally become more difficult and expensive to obtain property and casualty insurance, including coverage for terrorism. When our
current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our property
at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (for example,
earthquake, flood and terrorism) may not be generally available at current levels. Even if we are able to renew our policies or to obtain
new policies at levels and with limitations consistent with our current policies, we cannot be sure that we will be able to obtain such
insurance at premium rates that are commercially reasonable. If we were unable to obtain adequate insurance on the Hotel for certain
risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments that
require us to maintain adequate insurance on the Hotel to protect against the risk of loss. If this were to occur, or if we were unable
to obtain adequate insurance and the Hotel experienced damage which would otherwise have been covered by insurance, it could materially
adversely affect our financial condition and the operations of the Hotel.



In
addition, insurance coverage for the Hotel and for casualty losses does not customarily cover damages that are characterized as punitive
or similar damages. As a result, any claims or legal proceedings, or settlement of any such claims or legal proceedings that result in
damages that are characterized as punitive or similar damages may not be covered by our insurance. If these types of damages are substantial,
our financial resources may be adversely affected.



You
may lose all or part of your investment.



There
is no assurance that the Company’s initiatives to improve its profitability or liquidity and financial position will be successful.



The
price of the Company’s common stock may fluctuate significantly, which could negatively affect the Company and holders of its common
stock.



The
market price of the Company’s common stock may fluctuate significantly from time to time as a result of many factors, including:
investors’ perceptions of the Company and its prospects; investors’ perceptions of the Company’s and/or the industry’s
risk and return characteristics relative to other investment alternatives; difficulties between actual financial and operating results
and those expected by investors and analysts; changes in our capital structure; trading volume fluctuations; actual or anticipated fluctuations
in quarterly financial and operational results; volatility in the equity securities market; and sales, or anticipated sales, of large
blocks of the Company’s common stock.



12







The
concentrated beneficial ownership of our common stock and the ability it affords to control our business may limit or eliminate other
shareholders’ ability to influence corporate affairs.



As
of June 30, 2023, InterGroup owns 75.7% of the Company’s outstanding common stock. Because of this concentrated stock ownership,
the Company’s largest shareholders will be able to significantly influence the election of the Company’s board of directors
and all other decisions on all matters requiring shareholder approval. As a result, the ability of other shareholders to determine the
management and policies of the Company is significantly limited. The interests of these shareholders may differ from the interests of
other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of officers
and directors and other business decisions. This level of control may also have an adverse impact on the market value of our shares because
our largest shareholders may institute or undertake transactions, policies or programs that may result in losses, may not take any steps
to increase our visibility in the financial community and/or may sell enough shares to significantly decrease our price per share.



Item
1B. Unresolved Staff Comments.



None.



Item
2. Properties.



SAN
FRANCISCO HOTEL PROPERTY



The
Hotel is owned by Portsmouth through its wholly owned subsidiary, Justice Operating Company, LLC. The Hotel is centrally located in 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 guest rooms
and luxury suites situated on 22 floors. The Hotel has a restaurant, a lounge, and a private dining room on 3,700 square feet; additionally,
there are two kitchens to service the restaurant and banquets and a fully equipped gym. The third floor houses the Chinese Culture Center
(the “CCC”), its administrative office, and a grand ballroom. The Hotel has approximately 22,000 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 CCC with Portsmouth Square Park in Chinatown.



As
required by its senior lender, the Company will continue to make minimum payments into its furniture, fixtures, and equipment (“FF&E”)
escrow account held by its senior lender of the greater of 4% of annual revenues or a minimum of $1,952,000 per annum. In the opinion
of management, the Hotel is adequately covered by insurance.



HOTEL
FINANCINGS



On
December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered into a
loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice Mezzanine
Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement (“Mezzanine Loan
Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San Francisco Mezz Lender
LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Company is the sole member of
Mezzanine, and Mezzanine is the sole member of Operating.



The
Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the Loan Agreements were used
to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.



The
Mortgage Loan is secured by the Company’s principal asset, the Hotel. The Mortgage Loan bears an interest rate of 5.275% per annum
and matures on January 1, 2024. The term of the loan is ten years with interest only due in the first three years and principal and interest
payments to be made during the remaining seven years of the loan based on a thirty-year amortization schedule. The Mortgage Loan also
requires payments for impounds related to property tax, insurance and FF&E reserves. As additional security for the Mortgage Loan,
there is a limited guaranty (“Mortgage Guaranty”) executed by the Company in favor of the Mortgage Lender.



13







The
Mezzanine Loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The Mezzanine
Loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024. Interest only payments were due monthly. On July
31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”)
with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan
is 7.25% and the loan matures on January 1, 2024. Interest only payments are due monthly. As additional security for the new mezzanine
loan, there is a limited guaranty executed by the Company in favor of Cred Reit Holdco LLC (the “Mezzanine Guaranty” and,
together with the Mortgage Guaranty, the “Guaranties”).



The
Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional misrepresentations;
(ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security deposits, insurance, or condemnation
proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse guaranties under identified circumstances, including
failure to maintain “single purpose” status which is a factor in a consolidation of Operating or Mezzanine in a bankruptcy
of another person, transfer, or encumbrance of the Property in violation of the applicable loan documents, Operating or Mezzanine incurring
debts that are not permitted, and the Property becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership
was required to maintain a certain minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional
guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for the $97,000,000 mortgage loan
and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain a certain net worth and liquidity.
As of June 30, 2023 and 2022, InterGroup is in compliance with both requirements. Justice Operating Company, LLC is not meeting certain
of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lockbox and
cash sweep by the Lender for all cash collected by the Hotel, and under certain terms, would allow the Lender to request Operating to
replace its hotel management company. The DSCR for Operating had been below 1.00 from third quarter of fiscal year 2023 to fourth quarter
of fiscal year 2023 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox
has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR. Justice has not
missed any of its debt service payments and does not anticipate missing any debt obligations up to their maturity.



Each
of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements, affirmative covenants
and negative covenants, which impose restrictions on, among other things, organizational changes of the respective borrower, operations
of the Property, agreements with affiliates and third parties. Each of the Loan Agreements also provides for mandatory prepayments under
certain circumstances (including casualty or condemnation events) and voluntary prepayments, subject to satisfaction of prescribed conditions
set forth in the Loan Agreements. The Company is working with various potential lenders to refinance its current senior mortgage and
mezzanine debt which will mature on January 1, 2024.



On
July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed
interest, with a term of 2 years, payable interest only each month. InterGroup received a 3% loan fee. The loan may be prepaid at any
time without penalty. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and InterGroup entered into a loan
modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution
of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000.
On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing
from InterGroup as needed up to $16,000,000. As of June 30, 2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000, net
of loan amortization costs of zero, respectively. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing
amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.



As
a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, additional
avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses
through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions
relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections
to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”),
whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.On February 3, 2021, Justice
entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received proceeds of $2,000,000
from the SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs. The SBA Loan was scheduled
to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable to loans administered
by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven in full and $2,000,000
was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ending June 30, 2022.



Item
3. Legal Proceedings.



The
Company may be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company will defend
itself vigorously against any such claims. 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.



Item
4. Mine Safety Disclosures.



Not
applicable.



14







PART
II



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



MARKET
INFORMATION



Portsmouth’s
common stock is traded on the OTC Market Inc.’s Pink tier under the symbol PRSI. As of June 30, 2023, the number of holders of
record of the Company’s Common Stock was approximately 126. 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.



DIVIDENDS



It
is expected that the Company will not consider a return to a regular dividend policy until such time that the Hotel 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.



PURCHASES
OF EQUITY SECURITIES



Portsmouth
did not repurchase any of its own securities during the fourth quarter of its fiscal year ending June 30, 2023 and does not have any
publicly announced repurchase program.



Item
6. Selected Financial Data.



Not
required for smaller reporting companies.



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



The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying
consolidated financial statements, related notes included thereto and Item 1A., “Risk Factors,” appearing elsewhere in this
Annual Report on Form 10-K. For the discussion and analysis of our 2022 financial condition and results of operations compared to 2023,
refer to Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual
Report on Form 10-K for the year ended June 30, 2023.



NEGATIVE
EFFECTS OF CIVIL AUTHORITY ACTIONS ON OUR BUSINESS



There
are several factors at play that are having a negative impact on our business and the entire hospitality community in San Francisco.
The constant “doom loop” of negative headlines picked up in main stream media, particularly outlets like Fox News that have
made San Francisco their punching back and find ways to amplify any negative story line in the city. The macro economic situation of
a looming US/Global recession have seen business reducing or eliminating typical travel and group meetings in efforts to be conservative
in uncertain financial times. The micro economic situation specific to San Francisco and Bay Area is many of the world’s largest
tech companies have taken even more drastic cost cutting measures laying off hundreds of thousands of workers in the area and have reduced
business travel, group meetings and even major citywides to cancel like Meta, Red Hat and VMWare. The ongoing conditions of the streets
in regards to cleanliness, safety and homelessness problems have driven many other citywide customers to rethink hosting meetings in
San Francisco and have relocated to other major markets like Las Vegas, Orlando and San Diego. Even factors like the recent culture wars
that are dividing much of the country are impacting San Francisco harder than other areas as the city have long been known as the LGBTQ
capital of the US, and made recent headlines after Mayor London Breed’s office named the first ever Drag Laureate to an 18 month
term as ambassador.



As
a result of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020, additional
avenues of relief may be available to workers and families through enhanced unemployment insurance provisions and to small businesses
through programs administered by the Small Business Administration (“SBA”). The CARES Act includes, among other things, provisions
relating to payroll tax credits and deferrals, net operating loss carryback periods, alternative minimum tax credits and technical corrections
to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program (“PPP”),
whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.



On
February 3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice
received proceeds of $2,000,000 from the Second SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily
for payroll costs. The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms
and conditions applicable to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021,
the SBA Loan was forgiven in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations
for the fiscal year ended June 30, 2022.



15







RESULTS
OF OPERATIONS



The
Company’s principal source of revenue continues to be derived from its ownership in Justice Operating Company, LLC (“Operating”)
inclusive of hotel room revenue, food and beverage revenue, garage revenue, and revenue from other operating departments. Operating owns
the Hotel and related facilities, including a five-level underground parking garage. The financial statements of Operating have been
consolidated with those of the Company.



Fiscal
Year Ended June 30, 2023 Compared to Fiscal Year Ended June 30, 2022



The
Company had net loss of $13,203,000 for the year ended June 30, 2023 compared to net loss of $6,565,000 for the year ended June 30, 2022.
Increase in Hotel revenue is offset by increased operating expenses, reduced gain from debt extinguishment, and loss on marketable securities.



The
Company had net loss from Hotel operations of $3,337,000 for the year ended June 30, 2023 compared to net loss of $4,050,000 for the
year ended June 30, 2022. The change was primarily attributable to the $10,493,000 increase in Hotel revenue, offset by $7,006,000 increase
in operating expenses and the $2,000,000 gain on forgiveness of debt during period ended June 30, 2022.



The
following table sets forth a more detailed presentation of Hotel operations for the years ended June 30, 2023 and 2022.



|For the
    year ended June 30,                                                                      |  | 2023 |             |   | 2022 |  
|---------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Hotel revenues:                                                                                      |  |      |             |   |      |  
|Hotel rooms                                                                                          |  | $    | 35,684,000  |   |      | $
|Food and beverage                                                                                    |  |      | 2,625,000   |   |      |  
|Garage                                                                                               |  |      | 2,790,000   |   |      |  
|Other
    operating departments                                                                      |  |      | 928,000     |   |      |  
|Total hotel revenues                                                                                 |  |      | 42,027,000  |   |      |  
|Operating
    expenses excluding depreciation and amortization                                       |  |      | (34,457,000 | ) |      |  
|Operating income before interest, depreciation,
    and amortization and gain on forgiveness of debt |  |      | 7,570,000   |   |      |  
|Gain on forgiveness of debt                                                                          |  |      | -           |   |      |  
|Interest expense - mortgages                                                                         |  |      | (6,467,000  | ) |      |  
|Interest expense – related party                                                                     |  |      | (1,725,000  | ) |      |  
|Depreciation and amortization
    expense                                                            |  |      | (2,715,000  | ) |      |  
|Net loss from Hotel
    operations                                                                   |  | $    | (3,337,000  | ) |      | $



For
the year ended June 30, 2023, the Hotel had operating income of $7,570,000 before non-recurring charges, interest, depreciation, and
amortization on total operating revenues of $42,027,000. The year over year increase in all areas, except garage revenues, are result
of recovery from the business interruption attributable to a variety of responses by federal, state, and local civil authority to the
COVID-19 outbreak since March 2020. The following table sets forth the monthly average occupancy percentage of the Hotel for the fiscal
years ended June 30, 2023 and 2022.



|Month                   |  |  | Jul  |    |   | Aug  |  |    | Sep  |  |  | Oct  |   |  | Nov  |    |   | Dec  |  |    | Jan  |  |  | Feb  |   |  | Mar  |    |   | Apr  |  |    | May  |  |  | Jun  |   |  | Fiscal
    Year |   
|----------------------- |  |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | - |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | - |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | - |  | --------------- | --
|Year                    |  |  | 2022 |    |   | 2022 |  |    | 2022 |  |  | 2022 |   |  | 2022 |    |   | 2022 |  |    | 2023 |  |  | 2023 |   |  | 2023 |    |   | 2023 |  |    | 2023 |  |  | 2023 |   |  | 2022
    - 2023 |   
|Average Occupancy
    % |  |  |      | 93 | % |      |  | 94 | %    |  |  | 95   | % |  |      | 89 | % |      |  | 82 | %    |  |  | 77   | % |  |      | 76 | % |      |  | 77 | %    |  |  | 81   | % |  |                 | 65



|Year                    |  |  | 2021 |    |   | 2021 |  |    | 2021 |  |  | 2021 |   |  | 2021 |    |   | 2021 |  |    | 2022 |  |  | 2022 |   |  | 2022 |    |   | 2022 |  |    | 2022 |  |  | 2022 |   |  | 2021
    - 2022 |   
|----------------------- |  |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | - |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | - |  | ---- | -- | - | ---- |  | -- | ---- |  |  | ---- | - |  | --------------- | --
|Average
    Occupancy % |  |  |      | 82 | % |      |  | 77 | %    |  |  | 76   | % |  |      | 79 | % |      |  | 72 | %    |  |  | 74   | % |  |      | 68 | % |      |  | 74 | %    |  |  | 81   | % |  |                 | 87





16







Beginning
in November 2022, the occupancy of our hotel has been reduced by approximately 13% every month to reflect the “out-of-order”
rooms that are being renovated at any given time. The guestroom renovation is scheduled to be completed by the end of March 31, 2024.
Additionally, 14 guest rooms will be added to inventory as a result of renovating such rooms which had been repurposed for administrative
offices in past years.



Total
operating expenses increased by $7,006,000 due to increase in rooms, food and beverage, salaries and wages, utilities, credit card commissions,
and franchise fees.



The
following table sets forth the average daily room rate, average occupancy percentage and room revenue per available room (“RevPAR”)
of the Hotel for the years ended June 30, 2023 and 2022.



|For
                                            the Year Ended
                                            June 30, |  |  | Average Daily
                                            Rate |     |  | Average Occupancy
                                            % |  |    | RevPAR | 
|------------------------------------------------------------------------------------------------------------------- |  |  | -------------------------------------------------------------- | --- |  | --------------------------------------------------------------- |  | -- | ------ | 
|                                                                                                                    |  |  |                                                                |     |  |                                                                 |  |    |        | 
|2023                                                                                                                |  |  | $                                                              | 217 |  |                                                                 |  | 83 | %      | 
|2022                                                                                                                |  |  | $                                                              | 168 |  |                                                                 |  | 80 | %      | 



The
Hotel’s revenues increased by 33% year over year. Average daily rate increased by $49, average occupancy increased 3%, and RevPAR
increased by $46 for the twelve months ended June 30, 2023 compared to the twelve months ended June 30, 2022. As previously mentioned,
our occupancy is lowered by approximately 13% beginning November 2022 when we began to take three levels out of service in order to complete
our guestroom renovations. Had the Hotel been able to sell the additional 13% of rooms that were out of order, the RevPar would have
been approximately $192.



After
taking advantage of softer demand to refresh all public spaces and meeting rooms, the Hotel is now deep into a renovation of the guest
rooms and suites.  The Hotel started it’s full renovation of all guest rooms and suites mid-November 2022 and is over half
way complete as of fiscal year end 2023.  This includes new carpet, vinyl wall covering, headboards, end tables, wall sconces, art,
soft seating and refinish of existing desks and doors.  The Hotel removed the existing armoire and has built a closet to replace
it.  After this project is completed early calendar year 2024, the Hotel will add 14 additional guest rooms bringing back the old
Justice offices, spa, and accounting offices to their original purpose.  This will all be funded from the Hotel’s cash from
operations through the Hotel’s furniture, fixture, and equipment reserve account with our senior lender.



The
Company had a net gain on marketable securities of $51,000 for the year ended June 30, 2023 compared to a net loss on marketable securities
of $1,141,000 for the year ended June 30, 2022. For the year ended June 30, 2022, the Company had $2,056,000 net loss related to the
Company’s investment in the common stock of Comstock Mining Inc. (“Comstock” - NYSE MKT: LODE). For the year ended
June 30, 2023, the Company had a net realized loss of $137,000 and a net unrealized gain of $188,000. For the year ended June 30, 2022,
the Company had a net realized loss of $2,489,000 and a net unrealized gain of $1,348,000. Gains and losses on marketable securities
may fluctuate significantly from period to period in the future and could have a significant impact on the Company’s results of
operations. However, the amount of gain or loss on marketable securities for any given period may have no predictive value and variations
in amount from period to period may have no analytical value. For a more detailed description of the composition of the Company’s
marketable securities see the Marketable Securities section below.



The
Company had no other investments at June 30, 2023. During the year ended June 30, 2022 the Company performed an impairment analysis of
its other investments and determined its investments had other than temporary impairments and recorded impairment losses of $20,000.



The
Company consolidates Justice (Hotel) for financial reporting purposes and is taxed on its Hotel operations. The income tax benefit was
recorded for the year ended June 30, 2022 for the pre-tax loss. However for the year ended June 30, 2023 an expense was booked on the
pre-tax loss due to the set up of a valuation allowance on all the Companies deferred tax assets.





17







MARKETABLE
SECURITIES AND OTHER INVESTMENTS



As
of June 30, 2023 and 2022, the Company had investments in marketable equity securities of $359,000 and $541,000, respectively. The following
table shows the composition of the Company’s marketable securities portfolio by selected industry groups:



|                                |  |                |         |  | % of Total | 
|------------------------------- |  | -------------- | ------- |  | ---------- | 
|As of June 30, 2023             |  |                |         |  | Investment | 
|Industry
    Group              |  | Fair
    Value |         |  | Securities | 
|                                |  |                |         |  |            | 
|REITs and real estate companies |  |                | 350,000 |  |            | 
|Basic materials                 |  |                | 9,000   |  |            | 
|                                |  | $              | 359,000 |  |            | 



|                                |  |                |         |  | % of Total | 
|------------------------------- |  | -------------- | ------- |  | ---------- | 
|As of June 30, 2022             |  |                |         |  | Investment | 
|Industry
    Group              |  | Fair
    Value |         |  | Securities | 
|                                |  |                |         |  |            | 
|Communication services          |  | $              | 355,000 |  |            | 
|REITs and real estate companies |  |                | 162,000 |  |            | 
|Basic materials                 |  |                | 18,000  |  |            | 
|                                |  |                |         |  |            | 
|Utilities                       |  |                | 5,000   |  |            | 
|Technology                      |  |                | 1,000   |  |            | 
|                                |  | $              | 541,000 |  |            | 



The
following table shows the net gain or loss on the Company’s marketable securities and the associated margin interest and trading
expenses for the respective years.



|For the
    years ended June 30,         |  | 2023 |          |   | 2022 |  
|---------------------------------------- |  | ---- | -------- | - | ---- | -
|Net gain (loss) on marketable securities |  | $    | 51,000   |   |      | $
|Impairment loss on other investments     |  |      | -        |   |      |  
|Dividend and interest income             |  |      | 36,000   |   |      |  
|Margin interest expense                  |  |      | (1,000   | ) |      |  
|Trading expenses                         |  |      | (247,000 | ) |      |  
|Net loss from marketable
    securities  |  | $    | (161,000 | ) |      | $



FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL SOURCES



The
Company had cash, cash equivalents and restricted cash of $5,206,000 and $8,888,000 as of June 30, 2023 and 2022, respectively. The Company
had marketable securities, net of margin due to securities brokers, of $359,000 and $411,000 as of June 30, 2023 and 2022, respectively.
These marketable securities are short-term investments and liquid in nature.



On
December 16, 2020, Justice and InterGroup entered into a loan modification agreement which increased Justice’s borrowing from InterGroup
as needed up to $10,000,000 and extended the maturity date of the loan to July 31, 2021. As of the date of this report, the maturity
date was extended to July 31, 2025. Upon the dissolution of Justice in December 2021, Portsmouth assumed Justice’s note payable
to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement
which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. During the fiscal year ending June 30, 2023
and 2022, InterGroup advanced to the Hotel $1,500,000 and $7,550,000, respectively, bringing the total amount due to InterGroup to $15,700,000
and $14,200,000 as of June 30, 2023 and 2022, respectively. In July 2023, Portsmouth and InterGroup entered into a new loan modification
agreement which increased Portsmouth’s borrowing from InterGroup up to $20,000,000. The Company could amend its by-laws and increase
the number of authorized shares to issue additional shares to raise capital in the public markets if needed.



18







On
April 9, 2020, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA under the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). On February
3, 2021, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received
proceeds of $2,000,000 from the SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs.
The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable
to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven
in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ending
June 30, 2022.



Our
known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures, including management
and franchise fees, corporate expenses, payroll and related costs, taxes, interest and principal payments on our outstanding indebtedness,
and repairs and maintenance of the Hotel.





Our long-term liquidity requirements primarily consist
of funds necessary to pay for scheduled debt maturities and capital improvements of the Hotel. We will continue to finance our business
activities primarily with existing cash, including from the activities described above, and cash generated from our operations. The objectives
of our cash management policy are to maintain existing leverage levels and the availability of liquidity, while minimizing operational
costs. We believe that our cash on hand, along with other potential sources of liquidity that management may be able to obtain, will be
sufficient to fund our working capital needs. As well as our capital lease and debt obligations, even if current levels of occupancy and
revenue per occupied room (“RevPAR”, calculated by multiplying the hotel’s average daily room rate by its occupancy
percentage) were to persist for at least the next twelve months and beyond. However, there can be no guarantee that management will be
successful with its plan.



Going
Concern



The
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. As discussed in Note 9 – Mortgage Notes Payable, as of June 30, 2023, the outstanding balance
consists of a senior mortgage loan and mezzanine loan totaling $107,117,000. Both loans mature on January 1, 2024, in addition, the Company
has recurring losses and has an accumulated deficit of 105,727,000.



Due
to these factors and the Company’s ability to successfully refinance the debt on favorable terms in the current lending environment
gives rise to substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statement
issuance date.



The
Company is exploring the possibility of refinancing its senior mortgage and mezzanine debt with potential lenders. Alternatively, the
Company is also exploring the possibility of a loan modification or extension to the existing debt with the current lenders, however,
the Company may be unable to access further financing when needed. As such, there can be no assurance that the Company will be able to
obtain additional liquidity when needed or under acceptable terms, if at all. During 2021 and first part of calendar 2022, we took advantage
of the slow periods to make certain capital improvements including complete refinishing of all guest room furniture, resurfacing half
of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed
the carpet and wall covering corridor installation. In November 2022, we began our guestroom renovation and had completed approximately
200 guestrooms as of June 30, 2023. Hotel improvements are ongoing to remain competitive and we anticipate completing the guestroom renovations
by the end March 2024. Once the Company completes its full renovation, management anticipates its high occupancy to continue and its
average daily rates to increase as it completes renovation up to the point of generating a positive cash flows.



The
financial statements do not include any adjustments to the carrying amounts of assets, liabilities, and reported expenses that may be
necessary if the Company were unable to continue as a going concern.



MATERIAL
CONTRACTUAL OBLIGATIONS



The
following table provides a summary of the Company’s material financial obligations which also includes interest.



|                            |  | Total |             |  | Year
     2024 |   |             | Year
     2025 |  |   | Year
    2026 |  |  | Year
    2027 |         |  | Year
    2028 |   |         | Thereafter | 
|--------------------------- |  | ----- | ----------- |  | -------------- | - | ----------- | -------------- |  | - | ------------- |  |  | ------------- | ------- |  | ------------- | - | ------- | ---------- | 
|Mortgage notes payable      |  | $     | 107,240,000 |  |                | $ | 107,240,000 |                |  | $ | -             |  |  | $             | -       |  |               | $ | -       |            | 
|Related party notes payable |  |       | 15,700,000  |  |                |   | -           |                |  |   | 15,700,000    |  |  |               |         |  |               |   |         |            | 
|Other notes payable         |  |       | 2,954,000   |  |                |   | 567,000     |                |  |   | 567,000       |  |  |               | 567,000 |  |               |   | 463,000 |            | 
|Interest                    |  |       | 3,243,000   |  |                |   | 3,243,000   |                |  |   | -             |  |  |               | -       |  |               |   | -       |            | 
|Total                       |  | $     | 129,137,000 |  |                | $ | 111,050,000 |                |  | $ | 16,267,000    |  |  | $             | 567,000 |  |               | $ | 463,000 |            | 



OFF-BALANCE
SHEET ARRANGEMENTS



The
Company has no material off balance sheet arrangements.



19







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 inflationary cost increases. Since Aimbridge 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. 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 AND ESTIMATES



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 ongoing 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.



INCOME
TAXES



Judgment
is required in addressing the future tax consequences of events that have been recognized in our consolidated financial statements or
tax returns (e.g., realization of deferred tax assets, changes in tax laws, or interpretations thereof). In addition, we are subject
to examination of our income tax returns by the IRS and other tax authorities. A change in the assessment of the outcomes of such matters
could materially impact our consolidated financial statements. We evaluate tax positions taken or expected to be taken on a tax return
to determine whether they are more likely than not of being sustained, assuming that the tax reporting positions will be examined by
taxing authorities with full knowledge of all relevant information, prior to recording the related tax benefit in our consolidated financial
statements. If a position does not meet the more likely than not standard, the benefit cannot be recognized. Assumptions, judgment, and
the use of estimates are required in determining if the “more likely than not” standard has been met when developing the
provision for income taxes. A change in the assessment of the “more likely than not” standard with respect to a position
could materially impact our consolidated financial statements.



DEFERRED
INCOME TAXES – VALUATION ALLOWANCE



We
assess the realizability of our deferred tax assets quarterly and recognize a valuation allowance when it is more likely than not that
some or all of our deferred tax assets are not realizable. This assessment is completed by tax jurisdiction and relies on the weight
of both positive and negative evidence available, with significant weight placed on recent financial results. Cumulative pre-tax losses
for the three-year period are considered significant objective negative evidence that some or all of our deferred tax assets may not
be realizable. Cumulative reported pre-tax income is considered objectively verifiable positive evidence of our ability to generate positive
pre-tax income in the future. In accordance with GAAP, when there is a recent history of pre-tax losses, there is little or no weight
placed on forecasts for purposes of assessing the recoverability of our deferred tax assets. When necessary, we use systematic and logical
methods to estimate when deferred tax liabilities will reverse and generate taxable income and when deferred tax assets will reverse
and generate tax deductions. Assumptions, judgment, and the use of estimates are required when scheduling the reversal of deferred tax
assets and liabilities, and the exercise is inherently complex and subjective. However, significant judgment will be required to determine
the timing and amount of any reversal of the valuation allowance in future periods.





20









HOTEL
                                            ASSETS AND DEFINITE-LIVED INTANGIBLE ASSETS



We
evaluate property and equipment, and definite-lived intangible assets for impairment quarterly, and when events or circumstances indicate
the carrying value may not be recoverable, we evaluate the net book value of the assets by comparing to the projected undiscounted cash
flows of the assets. We use judgment to determine whether indications of impairment exist and consider our knowledge of the hospitality
industry, historical experience, location of the property, market conditions, and property-specific information available at the time
of the assessment. The results of our analysis could vary from period to period depending on how our judgment is applied and the facts
and circumstances available at the time of the analysis. When an indicator of impairment exists, judgment is also required in determining
the assumptions and estimates to use within the recoverability analysis and when calculating the fair value of the asset or asset group,
if applicable. Changes in economic and operating conditions impacting the judgments used could result in impairments to our long-lived
assets in future periods. Historically, changes in estimates used in the property and equipment and definite-lived intangible assets
impairment assessment process have not resulted in material impairment charges in subsequent periods as a result of changes made to those
estimates. There were no indicators of impairment on its hotel investments or intangible assets and accordingly no impairment losses
recorded for the years ended June 30, 2023 and 2022.



Item
7A. Quantitative and Qualitative Disclosures about Market Risk.



Not
required for smaller reporting companies.



Item
8. Financial Statements and Supplementary Data.



|INDEX
    TO CONSOLIDATED FINANCIAL STATEMENTS                                                |  | PAGE
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  |     
|Report
    of Independent Registered Public Accounting Firm                                   |  | 22  
|                                                                                              |  |     
|Consolidated
    Balance Sheets – As of June 30, 2023 and 2022                                |  | 23  
|                                                                                              |  |     
|Consolidated
    Statements of Operations – For years ended June 30, 2023 and 2022            |  | 24  
|                                                                                              |  |     
|Consolidated
    Statements of Shareholders’ Deficit – For years ended June 30, 2023 and 2022 |  | 25  
|                                                                                              |  |     
|Consolidated
    Statements of Cash Flows – For years ended June 30, 2023 and 2022            |  | 26  
|                                                                                              |  |     
|Notes
    to the Consolidated Financial Statements                                            |  | 27  



21







REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Shareholders,

Portsmouth
Square, Inc.:



Opinion
on the Financial Statements



We
have audited the accompanying consolidated balance sheets of Portsmouth Square, Inc. and its subsidiaries (the “Company”)
as of June 30, 2023 and 2022, and the related consolidated statements of operations, shareholders’ deficit, and cash flows for
the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2023,
in conformity with accounting principles generally accepted in the United States of America.



Going
Concern



The
accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed
in Note 1, the outstanding balance as of June 30, 2023 of the mortgage notes payable consists of a senior mortgage loan and mezzanine
loan totaling $107,117,000. Both loans mature on January 1, 2024 In addition, the Company has recurring losses and has an accumulated
deficit of $105,727,000. Due to these factors and the Company’s ability to successfully refinance the debt on favorable terms in
the current lending environment gives rise to substantial doubt about the Company’s ability to continue as a going concern for
one year after the financial statement issuance date. Management’s plans in regard to this matter are also described in Note 1.
The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion
is not modified with respect to this matter.



Basis
for Opinion



These
consolidated financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part
of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing
an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that our audits provide a reasonable basis for our opinion.



Critical
Audit Matters



The
critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material
to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication
of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we
are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts
or disclosures to which they relate.



Description
of the Matters: Deferred Tax Asset Valuation Allowance



As
discussed in Note 12 to the consolidated financial statements, it was determined that it is more likely than not that the deferred tax
assets at June 30, 2023 will not be realized and thus a full valuation allowance of $33,784,000 has been recorded.



We
identified the deferred tax asset valuation allowance as a critical audit matter due to the uncertainty, subjectivity, estimates and
judgments required by management when forecasting future profitability and determining whether or not it is likely that the deferred
tax assets will be realized.



How
We Addressed the Matters in Our Audit



To
test the Company’s conclusions about their deferred tax valuation allowance, we obtained an analysis about their plans and reviewed
all the positive and negative conditions. In addition to considering the impact of any subsequent events, we received the Company’s
five-year income projection. We examined the forecast for reasonableness in addition to reviewing management’s plans and considered
whether it is likely that the Company’s projected future profitability will allow them to realize their current deferred tax assets.



/s/ WithumSmith+Brown, PC



We
have served as the Company’s auditor since 2022.



East
Brunswick, NJ

October
13, 2023



PCAOB
ID Number 100



22







PORTSMOUTH
SQUARE, INC.

CONSOLIDATED
BALANCE SHEETS



|As of                                                                                                                                         |  | June
    30, 2023 |              |   | June
    30, 2022 |  
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------------ | - | ----------------- | -
|ASSETS                                                                                                                                        |  |                   |              |   |                   |  
|Investment
    in hotel, net                                                                                                                  |  | $                 | 34,381,000   |   |                   | $
|Investment in marketable
    securities                                                                                                       |  |                   | 359,000      |   |                   |  
|Cash and cash equivalents                                                                                                                     |  |                   | 2,295,000    |   |                   |  
|Restricted cash                                                                                                                               |  |                   | 2,911,000    |   |                   |  
|Accounts receivable - hotel,
    net                                                                                                          |  |                   | 419,000      |   |                   |  
|Other assets                                                                                                                                  |  |                   | 735,000      |   |                   |  
|Deferred tax assets, net                                                                                                                      |  |                   | -            |   |                   |  
|                                                                                                                                              |  |                   |              |   |                   |  
|Total assets                                                                                                                                  |  | $                 | 41,100,000   |   |                   | $
|                                                                                                                                              |  |                   |              |   |                   |  
|LIABILITIES AND SHAREHOLDERS’
    DEFICIT                                                                                                     |  |                   |              |   |                   |  
|Liabilities:                                                                                                                                  |  |                   |              |   |                   |  
|Accounts payable and other
    liabilities - Hotel                                                                                            |  | $                 | 11,615,000   |   |                   | $
|Accounts payable and other
    liabilities                                                                                                    |  |                   | 66,000       |   |                   |  
|Accounts payable to related
    party                                                                                                         |  |                   | 7,283,000    |   |                   |  
|Due to securities broker                                                                                                                      |  |                   | -            |   |                   |  
|Related party notes payable                                                                                                                   |  |                   | 15,700,000   |   |                   |  
|Other notes payable                                                                                                                           |  |                   | 2,954,000    |   |                   |  
|Finance leases                                                                                                                                |  |                   | -            |   |                   |  
|Mortgage notes payable
    - Hotel, net                                                                                                       |  |                   | 107,117,000  |   |                   |  
|                                                                                                                                              |  |                   |              |   |                   |  
|Total liabilities                                                                                                                             |  |                   | 144,735,000  |   |                   |  
|                                                                                                                                              |  |                   |              |   |                   |  
|Commitments and Contingencies - Note 15                                                                                                       |  |                   |              |   |                   |  
|                                                                                                                                              |  |                   |              |   |                   |  
|Shareholders’ deficit:                                                                                                                        |  |                   |              |   |                   |  
|Common stock, no par value:
    Authorized shares - 750,000; 734,187 shares issued and outstanding as of June 30, 2023 and 2022, respectively |  |                   | 2,092,000    |   |                   |  
|Accumulated deficit                                                                                                                           |  |                   | (105,727,000 | ) |                   |  
|Total shareholders’
    deficit                                                                                                               |  |                   | (103,635,000 | ) |                   |  
|                                                                                                                                              |  |                   |              |   |                   |  
|Total liabilities and shareholders’
    deficit                                                                                               |  | $                 | 41,100,000   |   |                   | $



The
accompanying notes are an integral part of these consolidated financial statements.



23







PORTSMOUTH
SQUARE, INC.

CONSOLIDATED
STATEMENTS OF OPERATIONS



|For the
    years ended June 30,                                             |  | 2023 |             |   | 2022 |  
|---------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|                                                                             |  |      |             |   |      |  
|Revenue - Hotel                                                              |  | $    | 42,027,000  |   |      | $
|                                                                             |  |      |             |   |      |  
|Costs and operating expenses                                                 |  |      |             |   |      |  
|Hotel operating expenses                                                     |  |      | (34,457,000 | ) |      |  
|Hotel depreciation and
    amortization expense                              |  |      | (2,715,000  | ) |      |  
|General and administrative
    expense                                       |  |      | (1,793,000  | ) |      |  
|                                                                             |  |      |             |   |      |  
|Total costs and operating expenses                                           |  |      | (38,965,000 | ) |      |  
|                                                                             |  |      |             |   |      |  
|Income from operations                                                       |  |      | 3,062,000   |   |      |  
|                                                                             |  |      |             |   |      |  
|Other income (expense)                                                       |  |      |             |   |      |  
|Interest expense - mortgage                                                  |  |      | (6,467,000  | ) |      |  
|Interest expense - related
    party                                         |  |      | (1,725,000  | ) |      |  
|Gain on forgiveness of
    debt                                              |  |      | -           |   |      |  
|Net realized loss on marketable
    securities                               |  |      | (137,000    | ) |      |  
|Net realized loss on marketable
    securities - Comstock                    |  |      | -           |   |      |  
|Net unrealized gain on
    marketable securities                             |  |      | 188,000     |   |      |  
|Impairment loss on other
    investments                                     |  |      | -           |   |      |  
|Dividend and interest income                                                 |  |      | 36,000      |   |      |  
|Trading and margin interest
    expense                                      |  |      | (248,000    | ) |      |  
|                                                                             |  |      |             |   |      |  
|Total other expense, net                                                     |  |      | (8,353,000  | ) |      |  
|                                                                             |  |      |             |   |      |  
|Loss before income taxes                                                     |  |      | (5,291,000  | ) |      |  
|Income tax expense (benefit)                                                 |  |      | 7,912,000   |   |      |  
|                                                                             |  |      |             |   |      |  
|Net loss                                                                     |  | $    | (13,203,000 | ) |      | $
|                                                                             |  |      |             |   |      |  
|Basic and diluted net loss per share                                         |  | $    | (17.98      | ) |      | $
|                                                                             |  |      |             |   |      |  
|Weighted average number of common shares outstanding
    - basic and diluted |  |      | 734,187     |   |      |  



The
accompanying notes are an integral part of these consolidated financial statements.



24







PORTSMOUTH
SQUARE, INC.

CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT



|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|------------------------------------------------------------------------------ |  | ---------------- | ------- |  | ----------- | - | --------- | ------------- |  | - | -------------- | - |  | ------------- | ------------ | - | ------- | -
|                                                                               |  |                  |         |  |             |   |           |               |  |   | Total          |   |  |               |              |   |         |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   | Portsmouth     |   |  |               |              |   | Total   |  
|                                                                               |  | Common
    Stock |         |  | Accumulated |   |           | Shareholders’ |  |   | Noncontrolling |   |  | Shareholders’ |             
|                                                                               |  | Shares           |         |  | Amount      |   |           | Deficit       |  |   | Deficit        |   |  | Interest      |              |   | Deficit |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Balance at July 1, 2021                                                        |  |                  | 734,187 |  |             | $ | 2,092,000 |               |  | $ | (84,960,000    | ) |  | $             | (82,868,000  | ) |         | $
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Net loss                                                                       |  |                  | -       |  |             |   | -         |               |  |   | (6,565,000     | ) |  |               | (6,565,000   | ) |         |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Reclassify noncontrolling interest due to purchase
    of Partnership interest |  |                  | -       |  |             |   | -         |               |  |   | (999,000       | ) |  |               | (999,000     | ) |         |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Purchase of Partnership interest                                               |  |                  | -       |  |             |   | -         |               |  |   | -              |   |  |               | -            |   |         |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Balance at June 30, 2022                                                       |  |                  | 734,187 |  |             |   | 2,092,000 |               |  |   | (92,524,000    | ) |  |               | (90,432,000  | ) |         |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Net loss                                                                       |  |                  | -       |  |             |   | -         |               |  |   | (13,203,000    | ) |  |               | (13,203,000  | ) |         |  
|                                                                               |  |                  |         |  |             |   |           |               |  |   |                |   |  |               |              |   |         |  
|Balance at June 30, 2023                                                       |  |                  | 734,187 |  |             | $ | 2,092,000 |               |  | $ | (105,727,000   | ) |  | $             | (103,635,000 | ) |         | $



The
accompanying notes are an integral part of these consolidated financial statements.



25







PORTSMOUTH
SQUARE, INC.

CONSOLIDATED
STATEMENTS OF CASH FLOWS



|For the
    year ended June 30,                                                               |  | 2023 |             |   | 2022 |  
|--------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Cash flows from operating
    activities:                                                     |  |      |             |   |      |  
|Net loss                                                                                      |  | $    | (13,203,000 | ) |      | $
|Adjustments to reconcile
    net loss to net cash provided by (used in) operating activities: |  |      |             |   |      |  
|Net unrealized gain on
    marketable securities                                              |  |      | (188,000    | ) |      |  
|Amortization of other notes
    payable                                                       |  |      | (567,000    | ) |      |  
|Gain on forgiveness of
    debt                                                               |  |      | -           |   |      |  
|Deferred income taxes                                                                         |  |      | 7,911,000   |   |      |  
|Impairment loss on other
    investments                                                      |  |      | -           |   |      |  
|Depreciation and amortization                                                                 |  |      | 2,715,000   |   |      |  
|Amortization of loan cost                                                                     |  |      | 244,000     |   |      |  
|Changes in operating assets
    and liabilities:                                              |  |      |             |   |      |  
|Investment in marketable
    securities                                                       |  |      | 370,000     |   |      |  
|Accounts receivable - Hotel,
    net                                                          |  |      | (42,000     | ) |      |  
|Other assets                                                                                  |  |      | 117,000     |   |      |  
|Accounts payable and other
    liabilities - Hotel                                            |  |      | 3,308,000   |   |      |  
|Accounts payable and other
    liabilities                                                    |  |      | (169,000    | ) |      |  
|Accounts payable related
    party                                                            |  |      | 2,375,000   |   |      |  
|Due to securities broker                                                                      |  |      | (130,000    | ) |      |  
|Net cash provided by (used in) operating activities                                           |  |      | 2,741,000   |   |      |  
|                                                                                              |  |      |             |   |      |  
|Cash flows from investing
    activities:                                                     |  |      |             |   |      |  
|Payments for hotel furniture,
    equipment and building improvements                         |  |      | (5,866,000  | ) |      |  
|Investment in Justice                                                                         |  |      | -           |   |      |  
|Net cash used in investing activities                                                         |  |      | (5,866,000  | ) |      |  
|                                                                                              |  |      |             |   |      |  
|Cash flows from financing
    activities:                                                     |  |      |             |   |      |  
|Proceeds from related party
    note payable                                                  |  |      | 1,500,000   |   |      |  
|Payments of mortgage and
    finance leases                                                   |  |      | (2,057,000  | ) |      |  
|Issuance cost from refinance
    of related party loan                                        |  |      | -           |   |      |  
|Net cash (used in) provided by financing activities                                           |  |      | (557,000    | ) |      |  
|                                                                                              |  |      |             |   |      |  
|Net (decrease) increase
    in cash, cash equivalents, and restricted cash                    |  |      | (3,682,000  | ) |      |  
|Cash, cash equivalents, and restricted cash
    at the beginning of the period                |  |      | 8,888,000   |   |      |  
|Cash, cash equivalents, and restricted cash
    at the end of the period                      |  | $    | 5,206,000   |   |      | $
|                                                                                              |  |      |             |   |      |  
|Supplemental information:                                                                     |  |      |             |   |      |  
|Interest paid                                                                                 |  | $    | 6,468,000   |   |      | $
|Taxes paid                                                                                    |  | $    | 23,000      |   |      | $



The
Company had cash and cash equivalents of $2,295,000 and $2,662,000 as of June 30, 2023 and 2022, respectively. The Company had restricted
cash of $2,911,000 and $6,226,000 as of June 30, 2023 and 2022, respectively.



The
accompanying notes are an integral part of these consolidated financial statements.



26







PORTSMOUTH
SQUARE, INC.

NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE
1 - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES



Description
of Business



Portsmouth’s
primary business was conducted through its general and limited partnership interest in Justice Investors Limited Partnership, a California
limited partnership (“Justice” or the “Partnership”). Effective July 15, 2021, Portsmouth completed the purchase
of 100% of the limited partnership interest of Justice through the acquisition of the remaining 0.7% non-controlling interest. Effective
December 23, 2021, the partnership was dissolved. The financial statements of Justice were consolidated with those of the Company.



Prior
to its dissolution effective December 23, 2021, Justice owned and operated a 544-room hotel property located at 750 Kearny Street, San
Francisco California, known as the Hilton San Francisco Financial District (the “Hotel”) and related facilities including
a five-level underground parking garage through its subsidiaries Justice Operating Company, LLC (“Operating”) and Justice
Mezzanine Company, LLC (“Mezzanine”). Mezzanine was a wholly owned subsidiary of the Partnership; Operating is a wholly owned
subsidiary of Mezzanine. Effective December 23, 2021, Portsmouth replaced Justice as the single member of Mezzanine. Mezzanine is the
borrower under certain mezzanine indebtedness of Justice, and in December 2013, the Partnership conveyed ownership of the Hotel to Operating.
The Hotel is a full-service Hilton brand hotel pursuant to a Franchise License Agreement with HLT Franchise Holding LLC (“Hilton”)
through January 31, 2030.



Operating
entered into a hotel management agreement (“HMA”) with Aimbridge Hospitality (“Aimbridge”) to manage the Hotel,
along with its five-level parking garage, with an effective date of February 3, 2017. The term of the management agreement is for an
initial period of ten years commencing on the February 3, 2017 date and automatically renews for successive one (1) year periods, not
to exceed five years in the aggregate, subject to certain conditions. Under the terms on the HMA, base management fee (“Basic Fee”)
payable to Aimbridge shall be one and seven-tenths percent (1.70%) of total Hotel revenue. In addition to the Basic Fee, Aimbridge shall
be entitled to an annual incentive fee for each fiscal year equal to ten percent (10%) of the amount by which Gross Operating Profit
in the current fiscal year exceeds the previous fiscal year’s Gross Operating Profit.



As
of June 30, 2023, The InterGroup Corporation (“InterGroup”), a public company, owns approximately 75.7% of the outstanding
common shares of Portsmouth. As of June 30, 2023, the Company’s Chairman of the Board and Chief Executive Officer, John V. Winfield,
owns approximately 2.5% of the outstanding common shares of the Company. Mr. Winfield also serves as the President, Chairman of the Board
and Chief Executive Officer of InterGroup and owns approximately 68.6% of the outstanding common shares of InterGroup as of June 30,
2023.



Principles
of Consolidation



The
consolidated financial statements include the accounts of the Company and Justice up to its dissolution in December 2021 at which time
all subsidiaries of Justice became subsidiaries of Portsmouth as the Company replaced Justice as the single member of Justice’s
subsidiaries where appropriate. All significant inter-company transactions and balances have been eliminated.



Investment
in Hotel, Net



Property
and equipment are stated at cost. Building improvements are depreciated on a straight-line basis over their useful lives ranging from
3 to 39 years. Furniture, fixtures, and equipment are depreciated on a straight-line basis over their useful lives ranging from 3 to
7 years.



Repairs
and maintenance are charged to expense as incurred. Costs of significant renewals and improvements are capitalized and depreciated over
the shorter of its remaining estimated useful life or life of the asset. The cost of assets sold or retired and the related accumulated
depreciation are removed from the accounts; any resulting gain or loss is included in other income (expenses).



The
Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable in accordance with generally accepted accounting principles (“GAAP”). If the carrying amount
of the asset, including any intangible assets associated with that asset, exceeds its estimated undiscounted net cash flow, before interest,
the Company will recognize an impairment loss equal to the difference between the assets’ carrying amount and its estimated fair
value. If impairment is recognized, the reduced carrying amount of the asset will be accounted for as its new cost. For a depreciable
asset, the new cost will be depreciated over the asset’s remaining useful life. Generally, fair values are estimated using discounted
cash flow, replacement cost or market comparison analyses. The process of evaluating for impairment requires estimates as to future events
and conditions, which are subject to varying market and economic factors. Therefore, it is reasonably possible that a change in estimate
resulting from judgments as to future events could occur which would affect the recorded amounts of the property. No impairment losses
were recorded for the years ended June 30, 2023 and 2022.



27







Investment
in Marketable Securities



Marketable
securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date. Marketable
securities are classified as trading securities with all unrealized gains and losses on the Company’s investment portfolio recorded
through the consolidated statements of operations.



Cash
and Cash Equivalents



Cash
equivalents consist of highly liquid investments with an original maturity of three months or less when purchased and are carried at
cost, which approximates fair value. As of June 30, 2023 and 2022, the Company does not have any cash equivalents.



Restricted
Cash



Restricted
cash is comprised of amounts held by lenders for payment of real estate taxes, insurance, replacement and capital addition reserves for
the Hotel.



Accounts
Receivable - Hotel, Net



Accounts
receivable from Hotel customers are carried at cost less an allowance for doubtful accounts that is based on management’s assessment
of the collectability of accounts receivable. The net accounts receivable balance on July 1, 2021 was $211,000. As of June 30, 2023 and
2022, the Company has gross accounts receivable of $420,000 and $392,000 respectively, and allowance for doubtful accounts of $1,000
and $15,000, respectively. The Company extends unsecured credit to its customers but mitigates the associated credit risk by performing
ongoing credit evaluations of its customers.



Other
Assets



Other
assets include prepaid insurance, estimated life insurance proceeds, prepaid expenses, other investments, net, and other miscellaneous
assets. Other investments include non-marketable securities (carried at cost, net of any impairments 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. For the years ended June 30, 2023 and 2022, the Company recorded
impairment losses related to other investments of zero and $20,000, respectively.



Income
Taxes



The
Company consolidated Justice (“Hotel”) for financial reporting purposes up to its dissolution in December 2021 and was not
taxed on its non-controlling interest in the Hotel. Effective July 15, 2021, the Company become the owner of 100% of Justice and began
to include all the Hotel’s income and expense accounts into its income taxes calculations going forward. An income tax benefit
was recorded during year ended June 30, 2022 for the pre-tax loss. However June 30, 2023 is an expense on the pre-tax loss due to the
recording of a full valuation allowance on the Companies deferred tax assets.



28







Deferred
income taxes are calculated under the liability method. Deferred income tax assets and liabilities are based on differences between the
financial statement and tax basis of assets and liabilities at the current enacted tax rates. Changes in deferred income tax assets and
liabilities are included as a component of income tax expense. Changes in deferred income tax assets and liabilities attributable to
changes in enacted tax rates are charged or credited to income tax expense in the period of enactment. Valuation allowances are established
for certain deferred tax assets where realization is not likely.



The
Company accounts for its uncertain tax positions pursuant to ASC 740, Income Taxes. This guidance prescribes a recognition threshold
and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities,
a benefit will be recognized at the largest amount that it believes is cumulatively greater than 50% likely to be realized. A table summarizing
the Company’s uncertain positions is presented in the income tax footnote section. Further, any interest or penalties associated
with uncertain tax positions shall be recorded in the income tax provision. As of June 30, 2023 and 2022, no interest and penalties were
recorded.



Due
to Securities Broker



Various
securities brokers have advanced funds to the Company for the purchase of marketable securities under standard margin agreements. These
advanced funds are recorded as a liability.



Accounts
Payable and Other Liabilities



Accounts
payable and other liabilities include trade payables, advance customer deposits, accrued wages, accrued real estate taxes, and other
liabilities.



Fair
Value of Financial Instruments



Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”)
in an orderly transaction between market participants at the measurement date. Accounting standards for fair value measurement establishes
a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable
inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would
use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs
are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability
developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability
of inputs as follows:



Level
1–inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.



Level
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 to the valuation methodology are unobservable and significant to the fair value.



29







Revenue
Recognition



Performance
obligations



We
identified the following performance obligations for which revenue is recognized as the respective performance obligations are satisfied,
which results in recognizing the amount we expect to be entitled to for providing the goods or services:



| | ● | Cancelable
    room reservations or ancillary services are typically satisfied as the good or service is transferred to the hotel guest, which
    is generally when the room stay occurs.                                                                                
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                           
| | ● | Noncancelable
    room reservations and banquet or conference reservations represent a series of distinct goods or services provided over time
    and satisfied as each distinct good or service is provided, which is reflected by the duration of the room reservation.
| |   |                                                                                                                                                                                                                                                                           
| | ● | Other
    ancillary goods and services are purchased independently of the room reservation at standalone selling prices and are considered
    separate performance obligations, which are satisfied when the related good or service is provided to the hotel guest.     
| |   |                                                                                                                                                                                                                                                                           
| | ● | Components
    of package reservations for which each component could be sold separately to other hotel guests are considered separate performance
    obligations and are satisfied as set forth above.                                                                  



Hotel
revenue primarily consists of hotel room rentals, revenue from accommodations sold in conjunction with other services (e.g., package
reservations), food and beverage sales and other ancillary goods and services (e.g., parking). Revenue is recognized when rooms are occupied
or goods and services have been delivered or rendered, respectively. Payment terms typically align with when the goods and services are
provided. For package reservations, the transaction price is allocated to the performance obligations within the package based on the
estimated standalone selling prices of each component.



We
do not disclose the value of unsatisfied performance obligations for contracts with an expected length of one year or less. Due to the
nature of our business, our revenue is not significantly impacted by refunds. Cash payments received in advance of guests staying at
our hotel are refunded to hotel guests if the guest cancels within the specified time period, before any services are rendered. Refunds
related to service are generally recognized as an adjustment to the transaction price at the time the hotel stay occurs or services are
rendered. See Note 3 – Revenue.



Advertising
Costs



Advertising
costs are expensed as incurred and are included in Hotel operating expenses in the consolidated statements of operations. Advertising
costs were $130,000 and $61,000 for the years ended June 30, 2023 and 2022, respectively.



Basic
and Diluted Loss per Share



Basic
loss per share is calculated based upon the weighted average number of common shares outstanding during each fiscal year. As of June
30, 2023 and 2022, the Company did not have any potentially dilutive securities outstanding.



Use
of Estimates



The
preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions regarding certain types of
assets, liabilities, revenues, and expenses. Actual results may differ from those estimates. Management considers new evidence, both
positive and negative, that could affect its view of the future realization of deferred tax assets and when appropriate, records tax
valuation allowances based on that evidence and estimates. Such estimates primarily relate to the recording of allowance for doubtful
accounts which are based on management’s assessment of the collectability of accounts receivable, as of the end of the fiscal year.
As of June 30, 2023 based on taxable income that may be available under tax law the deferred taxed asset is not set more likely than
not to be realized.



Reclassifications



Certain
line items on the balance sheet as of June 30, 2023, for the years ended June 30, 2023 and 2022 have been reclassified to conform to
the current period presentation. The related party relationship has been disclosed separately in the financial statements than the other
debt obligations the Company has.



Debt
Issuance Costs



Debt
issuance costs related to a recognized debt liability are presented in the consolidated balance sheets as a direct deduction from the
carrying amount of the debt liability and are amortized over the life of the debt. Loan amortization costs are included in interest expense
in the consolidated statement of operations.





30







Recently
Issued and Adopted Accounting Pronouncements



As
of June 30, 2023, there was no material impact from the recent adoption of new accounting pronouncements, nor expected material impact
from recently issued accounting pronouncements yet to be adopted, on the Company’s consolidated financial statements.



Going
Concern



The
financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities
in the normal course of business. As discussed in Note 9 – Mortgage Notes Payable, as of June 30, 2023, the outstanding balance
consists of a senior mortgage loan and mezzanine loan totaling $107,117,000. Both loans mature on January 1, 2024, in addition, the Company
has recurring losses and has an accumulated deficit of 105,727,000.



Due
to these factors and the Company’s ability to successfully refinance the debt on favorable terms in the current lending environment
gives rise to substantial doubt about the Company’s ability to continue as a going concern for one year after the financial statement
issuance date.



The
Company is exploring the possibility of refinancing its senior mortgage and mezzanine debt with potential lenders. Alternatively, the
Company is also exploring the possibility of a loan modification or extension to the existing debt with the current lenders, however,
the Company may be unable to access further financing when needed. As such, there can be no assurance that the Company will be able to
obtain additional liquidity when needed or under acceptable terms, if at all. During 2021 and first part of calendar 2022, we took advantage
of the slow periods to make certain capital improvements including complete refinishing of all guest room furniture, resurfacing half
of the hotel bathtubs that needed repair, refreshed meeting space and lobby paint and vinyl, replaced all bed frames and socks, and completed
the carpet and wall covering corridor installation. In November 2022, we began our guestroom renovation and had completed approximately
200 guestrooms as of June 30, 2023. Hotel improvements are ongoing to remain competitive and we anticipate completing the guestroom renovations
by the end March 2024. Once the Company completes its full renovation, management anticipates its high occupancy to continue and its
average daily rates to increase as it completes renovation up to the point of generating a positive cash flows.



The
financial statements do not include any adjustments to the carrying amounts of assets, liabilities, and reported expenses that may be
necessary if the Company were unable to continue as a going concern.



NOTE
2 - LIQUIDITY



Historically,
our cash flows have been primarily generated from our Hotel operations. However, the responses by federal, state, and local civil authorities
to the COVID-19 pandemic continues to have a material detrimental impact on our liquidity. For the fiscal years ended June 30, 2023 our
net cash provided in operating activities was $2,741,000. We have taken several steps to preserve capital and increase liquidity at our
Hotel, including implementing strict cost management measures to eliminate non-essential expenses, renegotiating certain reoccurring
expenses, and temporarily closing certain hotel services and outlets. As the hospitality and travel environment continues to recover,
the Company will continue to evaluate what services the Company brings back. During the fiscal year ended June 30, 2023, the Company
continued to make capital improvements to the hotel in the amount of $5,866,000 and anticipates continuing its guest room upgrade program
during the fiscal year 2024.



The
Company had cash and cash equivalents of $2,295,000 and $2,662,000 as of June 30, 2023 and 2022, respectively. The Company had restricted
cash of $2,911,000 and $6,226,000 as of June 30, 2023 and 2022, respectively. The Company had marketable securities, net of margin due
to securities brokers, of $359,000 and $411,000 as of June 30, 2023 and 2022, respectively. These marketable securities are short-term
investments and liquid in nature.



On
July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed
interest, with a term of 2 years, payable interest only each month. InterGroup received a 3% loan fee. The loan may be prepaid at any
time without penalty. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and InterGroup entered into a loan
modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution
of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000.
On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing
from InterGroup as needed up to $16,000,000. As of June 30, 2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000, net
of loan amortization costs of zero, respectively. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing
amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.



31







The
Company’s known short-term liquidity requirements primarily consist of funds necessary to pay for operating and other expenditures,
including management and franchise fees, corporate expenses, payroll and related costs, taxes, interest and principal payments on our
outstanding indebtedness, and repairs and maintenance of the Hotel.





Our
long-term liquidity requirements primarily consist of funds necessary to pay for scheduled debt maturities and capital improvements of
the Hotel. We will continue to finance our business activities primarily with existing cash, including from the activities described
above, and cash generated from our operations. The objectives of our cash management policy are to maintain existing leverage levels
and the availability of liquidity, while minimizing operational costs. However, there can be no guarantee that management will be successful
with its plan.



The
following table provides a summary as of June 30, 2023, the Company’s material financial obligations which also including interest
payments:



|                            |  |       |             |  | Year |   |             | Year |  |   | Year       |  |  | Year |         |  | Year |   |         |            | 
|--------------------------- |  | ----- | ----------- |  | ---- | - | ----------- | ---- |  | - | ---------- |  |  | ---- | ------- |  | ---- | - | ------- | ---------- | 
|                            |  | Total |             |  | 2024 |   |             | 2025 |  |   | 2026       |  |  | 2027 |         |  | 2028 |   |         | Thereafter | 
|Mortgage notes payable      |  | $     | 107,240,000 |  |      | $ | 107,240,000 |      |  | $ | -          |  |  | $    | -       |  |      | $ | -       |            | 
|Related party notes payable |  |       | 15,700,000  |  |      |   | -           |      |  |   | 15,700,000 |  |  |      | -       |  |      |   | -       |            | 
|Oher notes payable          |  |       | 2,954,000   |  |      |   | 567,000     |      |  |   | 567,000    |  |  |      | 567,000 |  |      |   | 463,000 |            | 
|Interest                    |  |       | 3,209,000   |  |      |   | 3,209,000   |      |  |   | -          |  |  |      | -       |  |      |   | -       |            | 
|Total                       |  | $     | 127,603,000 |  |      | $ | 111,016,000 |      |  | $ | 16,267,000 |  |  | $    | 567,000 |  |      | $ | 463,000 |            | 



NOTE
3 - REVENUE



The
following table present our revenue disaggregated by revenue streams.



|For the
    year ended June 30, |  | 2023 |            |  | 2022 |  
|------------------------------- |  | ---- | ---------- |  | ---- | -
|Hotel revenues:                 |  |      |            |  |      |  
|Hotel rooms                     |  | $    | 35,684,000 |  |      | $
|Food and beverage               |  |      | 2,625,000  |  |      |  
|Garage                          |  |      | 2,790,000  |  |      |  
|Other operating departments     |  |      | 928,000    |  |      |  
|Total Hotel revenue             |  | $    | 42,027,000 |  |      | $



Contract
assets and liabilities



The
Company does not have any material contract assets as of June 30, 2023 and 2022, other than trade and other receivables, net on our consolidated
balance sheets. Our receivables are primarily the result of contracts with customers, which are reduced by an allowance for doubtful
accounts that reflects our estimate of amounts that will not be collected.



The
Company records contract liabilities when cash payments are received or due in advance of guests staying at our hotel, which are presented
within accounts payable and other liabilities on our consolidated balance sheets and had a balance of $493,000 at July 1, 2022. During
the year ended June 30, 2023, the entire $493,000 was recognized as revenue. Contract liabilities decreased to $290,000 as of June 30,
2023. The decrease as of June 30, 2023, was primarily driven by a decrease in advance deposits received from customers for services to
be performed after June 30, 2023.Contract liabilities increased to $493,000 as of June 30, 2022 from $161,000 as of June 30, 2021. The
increase for the twelve months ended June 30, 2022 was primarily driven by advance deposits received from customers for services to be
performed after June 30, 2022.



Contract
costs



We
consider sales commissions earned to be incremental costs of obtaining a contract with our customers. As a practical expedient, we expense
these costs as incurred as our contracts with customers are less than one year.



32







NOTE
4 – INVESTMENT IN HOTEL, NET



Investment
in Hotel consisted of the following as of:



|                          |  |      |            |  | Accumulated  |   |             | Net Book | 
|------------------------- |  | ---- | ---------- |  | ------------ | - | ----------- | -------- | 
|June 30,
    2023         |  | Cost |            |  | Depreciation |   |             | Value    | 
|                          |  |      |            |  |              |   |             |          | 
|Land                      |  | $    | 1,124,000  |  |              | $ | -           |          | 
|Finance lease ROU assets  |  |      | 1,805,000  |  |              |   | (1,239,000  | )        | 
|Furniture and equipment   |  |      | 38,727,000 |  |              |   | (29,682,000 | )        | 
|Building and improvements |  |      | 56,273,000 |  |              |   | (32,627,000 | )        | 
|Investment in Hotel, net  |  | $    | 97,929,000 |  |              | $ | (63,548,000 | )        | 



|                          |  |      |            |  | Accumulated  |   |             | Net Book | 
|------------------------- |  | ---- | ---------- |  | ------------ | - | ----------- | -------- | 
|June 30,
    2022         |  | Cost |            |  | Depreciation |   |             | Value    | 
|                          |  |      |            |  |              |   |             |          | 
|Land                      |  | $    | 1,124,000  |  |              | $ | -           |          | 
|Finance lease ROU assets  |  |      | 1,805,000  |  |              |   | (922,000    | )        | 
|Furniture and equipment   |  |      | 32,860,000 |  |              |   | (28,567,000 | )        | 
|Building and improvements |  |      | 56,274,000 |  |              |   | (31,344,000 | )        | 
|Investment in Hotel, net  |  | $    | 92,063,000 |  |              | $ | (60,833,000 | )        | 



Finance
lease ROU assets, furniture and equipment are stated at cost, depreciated on a straight-line basis over their useful lives ranging from
3 to 7 years and amortized over the life of the lease. Building and improvements are stated at cost, depreciated on a straight-line basis
over their useful lives ranging from 15 to 39 years. Depreciation and amortization for the year ended June 30, 2023, and 2022 was $2,715,000
and $2,209,000, respectively.



NOTE
5 - INVESTMENT IN MARKETABLE SECURITIES



The
Company’s investment in marketable securities consists primarily of corporate equities. The Company has also invested in income
producing securities, which may include interests in real estate-based companies and REITs, where financial benefit to its shareholders
through income and/or capital gain.



33







As
of June 30, 2023 and 2022, all of the 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                       |   |  |                |         
|------------------- |  | ---- | ------- |  | ------------------- | - | ------- | ------------------- |  | - | ------------------------- | - |  | -------------- | --------
|Investment          |  | Cost |         |  | Unrealized
    Gain |   |         | Unrealized
    Loss |  |   | Unrealized
    (Loss)Gain |   |  | Fair
    Value |         
|                    |  |      |         |  |                     |   |         |                     |  |   |                           |   |  |                |         
|As of June 30, 2023 |  |      |         |  |                     |   |         |                     |  |   |                           |   |  |                |         
|Corporate           |  |      |         |  |                     |   |         |                     |  |   |                           |   |  |                |         
|Equities            |  | $    | 274,000 |  |                     | $ | 133,000 |                     |  | $ | (48,000                   | ) |  | $              | 85,000  
|                    |  |      |         |  |                     |   |         |                     |  |   |                           |   |  |                |         
|As of June 30, 2022 |  |      |         |  |                     |   |         |                     |  |   |                           |   |  |                |         
|Corporate           |  |      |         |  |                     |   |         |                     |  |   |                           |   |  |                |         
|Equities            |  | $    | 643,000 |  |                     | $ | 42,000  |                     |  | $ | (144,000                  | ) |  | $              | (102,000



As
of June 30, 2023 and 2022, the Company had $73,000 of unrealized losses related to securities held for over one year.



Net
(loss) gain on marketable securities on the statement of operations is comprised of realized and unrealized losses. Below is the breakdown
of the two components for the years ended June 30, 2023 and 2022, respectively.



|For the
    year ended June 30,                                |  | 2023 |          |   | 2022 |  
|-------------------------------------------------------------- |  | ---- | -------- | - | ---- | -
|Realized loss on marketable securities                         |  | $    | (137,000 | ) |      | $
|Realized loss on marketable securities related
    to Comstock |  |      | -        |   |      |  
|Unrealized gain on marketable securities                       |  |      | 188,000  |   |      |  
|Net gain (loss) on marketable securities                       |  | $    | 51,000   |   |      | $



NOTE
6 - FAIR VALUE MEASUREMENTS



The
carrying values of the Company’s financial instruments not required to be carried at fair value on a recurring basis approximate
fair value due to their short maturities (i.e., accounts receivable, other assets, accounts payable and other liabilities, due to securities
broker and obligations for securities sold) or the nature and terms of the obligation (i.e., other notes payable and mortgage notes payable).



The
assets measured at fair value on a recurring basis are as follows:



|                                |  |                |         |  | % of Total | 
|------------------------------- |  | -------------- | ------- |  | ---------- | 
|As of June 30, 2023             |  |                |         |  | Investment | 
|Industry
    Group              |  | Fair
    Value |         |  | Securities | 
|                                |  |                |         |  |            | 
|REITs and real estate companies |  |                | 350,000 |  |            | 
|Basic materials                 |  |                | 9,000   |  |            | 
|                                |  | $              | 359,000 |  |            | 



34







|As
    of June 30, 2022              |  | Level
    1 |        
|------------------------------------ |  | ----------- | -------
|Assets:                              |  |             |        
|Investment in marketable securities: |  |             |        
|Communication
    services           |  | $           | 355,000
|REITs and real estate companies      |  |             | 162,000
|Basic materials                      |  |             | 18,000 
|Utilities                            |  |             | 5,000  
|Technology                           |  |             | 1,000  
|                                     |  | $           | 541,000



The
fair values of investments in marketable securities are determined by the most recently traded price of each security at the balance
sheet date.



Financial
assets that are measured at fair value on a non-recurring basis and are not included in the tables above include “Other investments
in non-marketable securities,” that were initially measured at cost and have been written down to fair value as a result of 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). We had no other Investments in non-marketable securities at June 30, 2023. The following table shows the fair value hierarchy
for these assets measured at fair value on a non-recurring basis as follows:



|Assets                           |  | Level
    3 |   |  | June
    30, 2022 |   |   | Net
    loss for the year ended
    June 30, 2022 | 
|-------------------------------- |  | ----------- | - |  | ----------------- | - | - | ------------------------------------------------- | 
|                                 |  |             |   |  |                   |   |   |                                                   | 
|Other non-marketable investments |  | $           | - |  |                   | $ | - |                                                   | 



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.
When determining the fair value of these investments on a non-recurring basis, the Company uses valuation techniques such as the market
approach and the unobservable inputs include factors such as conversion ratios and the stock price of the underlying convertible instruments.
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
                                            7 – OTHER ASSETS



Other
assets consist of the following as of June 30:



|                     |  | 2023 |         |  | 2022 |  
|-------------------- |  | ---- | ------- |  | ---- | -
|Inventory - Hotel    |  | $    | 27,000  |  |      | $
|Prepaid expenses     |  |      | 425,000 |  |      |  
|Miscellaneous assets |  |      | 284,000 |  |      |  
|Total other assets   |  | $    | 736,000 |  |      | $



NOTE
8 – RELATED PARTY AND OTHER FINANCING TRANSACTIONS



The
following summarizes the balances of related party and other notes payable as of June 30, 2023 and 2022, respectively.



|As of June
    30,                              |  | 2023 |            |  | 2022 |  
|----------------------------------------------- |  | ---- | ---------- |  | ---- | -
|Related party note payable - InterGroup         |  | $    | 15,700,000 |  |      | $
|Other note payable - Hilton                     |  |      | 2,058,000  |  |      |  
|Other note payable -
    Aimbridge              |  |      | 896,000    |  |      |  
|Total related party
    and other notes payable |  | $    | 18,654,000 |  |      | $



35







On
July 2, 2014, the Partnership obtained from InterGroup an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed
interest, with a term of 2 years, payable interest only each month. InterGroup received a 3% loan fee. The loan may be prepaid at any
time without penalty. The loan was extended to July 31, 2023. On December 16, 2020, the Partnership and InterGroup entered into a loan
modification agreement which increased the Partnership’s borrowing from InterGroup as needed up to $10,000,000. Upon the dissolution
of the Partnership in December 2021, Portsmouth assumed the Partnership’s note payable to InterGroup in the amount of $11,350,000.
On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing
from InterGroup as needed up to $16,000,000. As of June 30, 2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000, net
of loan amortization costs of zero, respectively. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing
amount available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.



Note
payable to Hilton (Franchisor) is a self-exhausting, interest free development incentive note which is reduced by approximately $317,000
annually through 2030 by Hilton if the Partnership is still a Franchisee with Hilton.



On
February 1, 2017, Operating entered an HMA with Ambridge to manage the Hotel with an effective takeover date of February 3, 2017. The
term of the management agreement is for an initial period of 10 years commencing on the takeover date and automatically renews for an
additional year not to exceed five years in aggregate subject to certain conditions. The HMA also provides for Ambridge to advance a
key money incentive fee to the Hotel for capital improvements in the amount of $2,000,000 under certain terms and conditions described
in a separate key money agreement. The key money contribution shall be amortized in equal monthly amounts over an eight (8) year period
commencing on the second anniversary of the takeover date. During the first quarter of fiscal year 2021, the Hotel obtained approval
from Ambridge to use the key money for hotel operations and the funds were exhausted by December 31, 2020. The unamortized portion of
the key money in the amount of $896,000 and $1,146,000 are included in other notes payable in the consolidated balance sheets at June
30, 2023 and 2022, respectively.



On
April 9, 2020, Justice entered into a loan agreement (“SBA Loan”) with CIBC Bank USA under the Coronavirus Aid, Relief, and
Economic Security Act (“CARES Act”) administered by the U.S. Small Business Administration (the “SBA”). On February
3, 2021, Justice entered into a loan agreement (“Second SBA Loan”) with CIBC Bank USA administered by the SBA. Justice received
proceeds of $2,000,000 from the SBA Loan. As of June 30, 2021, Justice used all proceeds from the SBA Loan primarily for payroll costs.
The SBA Loan was scheduled to mature on February 3, 2026, had a 1.00% interest rate, and was subject to the terms and conditions applicable
to loans administered by the U.S. Small Business Administration under the CARES Act. On November 19, 2021, the SBA Loan was forgiven
in full and $2,000,000 was recorded as gain on debt extinguishment on the consolidated statement of operations for the fiscal year ended
June 30, 2022.



Future
minimum principal payments for all related party and other financing transactions are as follows:



|For the year ending June 30, |  |   |            
|---------------------------- |  | - | -----------
|                             |  |   |            
|2024                         |  | $ | 111,050,000
|2025                         |  |   | 16,267,000 
|2026                         |  |   | 567,000    
|2027                         |  |   | 463,000    
|2028                         |  |   | 317,000    
|Thereafter                   |  |   | 475,000    
|                             |  | $ | 129,137,000



As
of June 30, 2023 and 2022, the Company had accounts payable to related party of $7,283,000 and $4,908,000, respectively. These are amounts
due to InterGroup and represent accrued interests and certain shared costs and expenses, primarily general and administrative expenses,
rent, insurance, and other expenses.



To
fund the redemption of limited partnership interests and to repay the prior mortgage of $42,940,000, Justice obtained a $97,000,000 mortgage
loan and a $20,000,000 mezzanine loan in December 2013. The mortgage loan is secured by the Company’s principal asset, the Hotel.
The mortgage loan bears an interest rate of 5.275% per annum with interest only payments due through January 2017. Beginning in February
2017, the loan began to amortize over a thirty-year period through its maturity date of January 1, 2024. Outstanding principal balance
on the loan was $87,240,000 and $89,114,000 as of June 30, 2023 and 2022, respectively. As additional security for the mortgage loan,
there is a limited guaranty executed by Portsmouth in favor of the mortgage lender. The mezzanine loan is secured by the Operating membership
interest held by Mezzanine and is subordinated to the Mortgage Loan. The mezzanine interest only loan had an interest rate of 9.75% per
annum and a maturity date of January 1, 2024. As additional security for the mezzanine loan, there is a limited guaranty executed by
Portsmouth in favor of the mezzanine lender. On July 31, 2019, Mezzanine refinanced the mezzanine loan by entering into a new mezzanine
loan agreement (“New Mezzanine Loan Agreement”) with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine
Loan which had a 9.75% per annum interest rate was paid off. Interest rate on the new mezzanine loan is 7.25% and the loan matures on
January 1, 2024. Interest only payments are due monthly.



Effective
May 11, 2017, InterGroup agreed to become an additional guarantor under the limited guaranty and an additional indemnitor under the environmental
indemnity for Justice Investors limited partnership’s $97,000,000 mortgage loan and the $20,000,000 mezzanine loan. Pursuant to
the agreement, InterGroup is required to maintain certain net worth and liquidity. As of June 30, 2023, InterGroup is in compliance with
both requirements. Justice Operating Company, LLC has not been meeting certain of its loan covenants such as the Debt Service Coverage
Ratio (“DSCR”) which would trigger the creation of a lockbox by the Lender for all cash collected by the Hotel. However,
such lockbox has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR.



The
Company’s Board of Directors is currently comprised of directors John V. Winfield, William J. Nance, John C. Love, Yvonne Murphy,
and Steve Grunwald. All the Company’s directors also serve as directors of InterGroup. The Company’s director and Chairman
of the Audit Committee, William J. Nance, serves as Comstock’s director and Chairman of the Audit and Finance, Compensation and
Nominating and Governance Committees of Comstock.





36







John
V. Winfield serves as Chief Executive Officer and Chairman of the Company and InterGroup. Effective June 2016, Mr. Winfield became the
Managing Director of Justice till its dissolution in December 2021. Depending on certain market conditions and various risk factors,
the Chief Executive Officer 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 the resources of InterGroup, at risk in connection
with investment decisions made on behalf of the Company.



On
May 24, 2021, John V. Winfield resigned effective immediately as the Company’s President and the Company’s Board of Directors
elected David C. Gonzalez as the Company’s new President, effective as of May 24, 2021. Mr. Gonzalez serves as Chief Operating
Officer of InterGroup and is an advisor of the Executive Strategic Real Estate and Securities Investment Committee of InterGroup and
Portsmouth.



NOTE
9 – MORTGAGE NOTES PAYABLE



On
December 18, 2013: (i) Justice Operating Company, LLC, a Delaware limited liability company (“Operating”), entered into a
loan agreement (“Mortgage Loan Agreement”) with Bank of America (“Mortgage Lender”); and (ii) Justice Mezzanine
Company, a Delaware limited liability company (“Mezzanine”), entered into a mezzanine loan agreement (“Mezzanine Loan
Agreement” and, together with the Mortgage Loan Agreement, the “Loan Agreements”) with ISBI San Francisco Mezz Lender
LLC (“Mezzanine Lender” and, together with Mortgage Lender, the “Lenders”). The Partnership was the sole member
of Mezzanine until its dissolution in December 2021 when Portsmouth replaced the Partnership as the sole member of Mezzanine. Mezzanine
is the sole member of Operating.



The
Loan Agreements provide for a $97,000,000 Mortgage Loan and a $20,000,000 Mezzanine Loan. The proceeds of the Loan Agreements were used
to fund the redemption of limited partnership interests and the pay-off of the prior mortgage.



The
Mortgage Loan is secured by Operating’s principal asset, the Hilton San Francisco-Financial District (the “Property”).
The Mortgage Loan bears an interest rate of 5.275% per annum and matures on January 1, 2024. The term of the loan is ten years with interest
only due in the first three years and principal and interest payments to be made during the remaining seven years of the loan based on
a thirty-year amortization schedule. The Mortgage Loan also requires payments for impounds related to property tax, insurance and capital
improvement reserves. As additional security for the Mortgage Loan, there is a limited guaranty (“Mortgage Guaranty”) executed
by the Company in favor of the Mortgage Lender.



The
Mezzanine Loan is secured by the Operating membership interest held by Mezzanine and is subordinated to the Mortgage Loan. The Mezzanine
Loan had an interest rate of 9.75% per annum and a maturity date of January 1, 2024. Interest only payments were due monthly. On July
31, 2019, Mezzanine refinanced the Mezzanine Loan by entering into a new mezzanine loan agreement (“New Mezzanine Loan Agreement”)
with Cred Reit Holdco LLC in the amount of $20,000,000. The prior Mezzanine Loan was paid off. Interest rate on the new mezzanine loan
is 7.25% and the loan matures on January 1, 2024. Interest only payments are due monthly. As additional security for the new mezzanine
loan, there is a limited guaranty executed by the Company in favor of Cred Reit Holdco LLC (the “Mezzanine Guaranty” and,
together with the Mortgage Guaranty, the “Guaranties”).



The
Guaranties are limited to what are commonly referred to as “bad boy” acts, including: (i) fraud or intentional misrepresentations;
(ii) gross negligence or willful misconduct; (iii) misapplication or misappropriation of rents, security deposits, insurance or condemnation
proceeds; and (iv) failure to pay taxes or insurance. The Guaranties are full recourse guaranties under identified circumstances, including
failure to maintain “single purpose” status which is a factor in a consolidation of Operating or Mezzanine in a bankruptcy
of another person, transfer or encumbrance of the Property in violation of the applicable loan documents, Operating or Mezzanine incurring
debts that are not permitted, and the Property becoming subject to a bankruptcy proceeding. Pursuant to the Guaranties, the Partnership
was required to maintain a certain minimum net worth and liquidity. Effective as of May 12, 2017, InterGroup agreed to become an additional
guarantor under the limited guaranty and an additional indemnitor under the environmental indemnity for the $97,000,000 mortgage loan
and the $20,000,000 mezzanine loan. Pursuant to the agreement, InterGroup is required to maintain a certain net worth and liquidity.
As of June 30, 2023 and 2022, InterGroup is in compliance with both requirements. Justice Operating Company, LLC is not meeting certain
of its loan covenants such as the Debt Service Coverage Ratio (“DSCR”) which would trigger the creation of a lockbox and
cash sweep by the Lender for all cash collected by the Hotel, and under certain terms, would allow the Lender to request Operating to
replace its hotel management company. The DSCR for Operating had been below 1.00 from third quarter of fiscal year 2020 to third quarter
of fiscal year 2022 while it is required to maintain a DSCR of at least 1.10 to 1.00 for two consecutive quarters. However, such lockbox
has been created and utilized from the loan inception and will be in place up to loan maturity regardless of the DSCR. Justice has not
missed any of its debt service payments and does not anticipate missing any debt obligations for at least the next twelve months and
beyond. Additionally, Operating’s DSCR for the fourth quarter of fiscal year 2023 was 0.23 for the Mortgage Loan and 0.19 for the
Mezzanine Loan.



37







Each
of the Loan Agreements contains customary representations and warranties, events of default, reporting requirements, affirmative covenants
and negative covenants, which impose restrictions on, among other things, organizational changes of the respective borrower, operations
of the Property, agreements with affiliates and third parties. Each of the Loan Agreements also provides for mandatory prepayments under
certain circumstances (including casualty or condemnation events) and voluntary prepayments, subject to satisfaction of prescribed conditions
set forth in the Loan Agreements.



As
of June 30, 2023 and 2022, the Company had the following mortgages:



|June
    30, 2023 |             |   | June
    30, 2022 |   |             | Interest
    Rate |  | Origination
    Date                     |  | Maturity
    Date
|----------------- | ----------- | - | ----------------- | - | ----------- | ----------------- |  | ---------------------------------------- |  | -----------------
|$                 | 87,240,000  |   |                   | $ | 89,114,000  |                   |  | Fixed 5.28%                              |  | December 18, 2013
|                  | 20,000,000  |   |                   |   | 20,000,000  |                   |  | Fixed 7.25%                              |  | July 31, 2019    
|                  | 107,240,000 |   |                   |   | 109,114,000 |                   |  | Mortgage notes payable - hotel           |  |                  
|                  | (123,000    | ) |                   |   | (367,000    | )                 |  | Net debt issuance costs                  |  |                  
|$                 | 107,117,000 |   |                   | $ | 108,747,000 |                   |  | Total mortgage notes
    payable - hotel |  |                  



The
Company is working with several prospective lenders to refinance its senior mortgage as well as the mezzanine debt prior to its maturity
date of January 1, 2024.



NOTE
10 – MANAGEMENT AGREEMENTS



Operating
entered into a HMA with Aimbridge Hospitality to manage the Hotel, along with its five-level parking garage, with an effective date of
February 3, 2017. The term of the management agreement is for an initial period of ten years commencing on the February 3, 2017 date
and automatically renews for successive one (1) year periods, not to exceed five years in the aggregate, subject to certain conditions.
Under the terms on the HMA, base management fee (“Basic Fee”) payable to Aimbridge shall be one and seven-tenths percent
(1.70%) of total Hotel revenue. In addition to the Basic Fee, Aimbridge shall be entitled to an annual incentive fee for each fiscal
year equal to ten percent (10%) of the amount by which Gross Operating Profit in the current fiscal year exceeds the previous fiscal
year’s Gross Operating Profit.



For
the fiscal years ended June 30, 2023 and 2022, hotel management fees were $711,000 and $530,000, and incentive fees of $505,000 and $525,000,
respectively, offset by key money amortization of $250,000 for both years and are included in Hotel operating expenses in the consolidated
statements of operations. As part of the Hotel management agreement, Aimbridge, through the Company’s wholly owned subsidiary,
Kearny Street Parking LLC, manages the parking garage in-house.



38







NOTE
11 – CONCENTRATION OF CREDIT RISK



As
of June 30, 2023 and 2022, all accounts receivables are related to Hotel customers. The Hotel had two customers that accounted for 103%,
or $131,000 of accounts receivable at June 30, 2023, and two customers that accounted for 88%, or $183,000 of accounts receivable at
June 30, 2022.



The
Company maintains its cash and cash equivalents and restricted cash with various financial institutions that are monitored regularly
for credit quality. At times, such cash and cash equivalents holdings may be in excess of the Federal Deposit Insurance Corporation (“FDIC”)
or other federally insured limits. Any loss incurred or a lack of access to such funds could have significant adverse impact on the Company’s
financial condition, results of operations, and cash flows.



NOTE
12 - INCOME TAXES



The
provision for income tax (expense) benefit consists of the following:



|For the
    years ended June 30,   |  | 2023 |            |   | 2022 |  
|---------------------------------- |  | ---- | ---------- | - | ---- | -
|Federal                            |  |      |            |   |      |  
|Current tax expense                |  | $    | -          |   |      | $
|Deferred tax
    expense           |  |      | (5,513,000 | ) |      |  
|                                   |  |      | (5,513,000 | ) |      |  
|State                              |  |      |            |   |      |  
|Current tax expense                |  |      | (1,000     | ) |      |  
|Deferred tax (expense)
    benefit |  |      | (2,398,000 | ) |      |  
|                                   |  |      | (2,399,000 | ) |      |  
|Total income tax (expense) benefit |  | $    | (7,912,000 | ) |      | $



A
reconciliation of the statutory federal income tax rate to the effective tax rate is as follows:



|For the
    years ended June 30,                |  | 2023 |        |   | 2022 | 
|----------------------------------------------- |  | ---- | ------ | - | ---- | 
|                                                |  |      |        |   |      | 
|Statutory federal tax rate                      |  |      | 21.0   | % |      | 
|State income taxes, net of federal tax benefit  |  |      | -8.9   | % |      | 
|Non-taxable PPP loan                            |  |      | -      |   |      | 
|Provision to return adjustment                  |  |      | 11.8   | % |      | 
|Valuation allowance                             |  |      | -193.4 | % |      | 
|Deferral True-Up – Justice Basis Diff
    in FA |  |      | -      |   |      | 
|Other                                           |  |      | 2.1    | % |      | 
|                                                |  |      | -167.4 | % |      | 



The
components of the Company’s deferred tax assets and (liabilities) as of June 30, 2023 and 2022 are as follows:



|                                               |  | 2023 |             |   | 2022 |  
|---------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Deferred tax assets                            |  |      |             |   |      |  
|Net operating
    loss carryforward            |  | $    | 13,073,000  |   |      | $
|Interest expense                               |  |      | 3,185,000   |   |      |  
|Accruals and reserves                          |  |      | 565,000     |   |      |  
|Depreciation                                   |  |      | 15,054,000  |   |      |  
|State tax credits                              |  |      | 524,000     |   |      |  
|Capital loss carryforward                      |  |      | 1,322,000   |   |      |  
|Other                                          |  |      | 61,000      |   |      |  
|Deferred tax assets before valuation allowance |  |      | 33,784,000  |   |      |  
|Less Valuation allowance                       |  |      | (33,784,000 | ) |      |  
|Deferred tax assets after valuation allowance  |  |      | -           |   |      |  
|                                               |  |      |             |   |      |  
|Deferred tax liabilities                       |  |      |             |   |      |  
|State taxes                                    |  |      | -           |   |      |  
|                                               |  |      | -           |   |      |  
|Net deferred tax assets                        |  | $    | -           |   |      | $



Management
considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets to determine
if it is more likely than not that the deferred tax asset will be realized. As of June 30, 2023, it has been determined that it is more
likely than not that the deferred tax asset will not be recognized. Thus, there is a full valuation allowance of $33,784,000 as of June
30, 2023. This was an increase of $11,009,000 from June 30, 2022.



As
of June 30, 2023, the Company had net operating loss (“NOL”) carryforwards of approximately $41,835,000 and $48,500,000 for
federal and state purposes, respectively. Of the $41,835,000 federal NOL carryforwards, $14,707,000 expire in varying amounts through
2037 and $27,128,000 of post-2017 NOLs can be carried forward indefinitely. Note that the post-2017 NOLs may only offset 80% of future
taxable income. The Company had capital loss carryforwards of $4,429,000 for federal and state purposes. The capital losses begin to
expire in 2024 for both federal and state purposes. There are immaterial California state tax credits of $524,000 which expire in various
years.



As
of June 30, 2022, the Company had net operating loss (“NOL”) carryforwards of approximately $35,011,000 and $40,416,000 for
federal and state purposes, respectively. Of the $35,011,000 federal NOL’s carryforwards , $14,697,000 expire in varying amount
through 2037 and $20,314,000 of post 2017 NOL’s can be carried forward indefinitely. Note that the post 2017 NOL’s may only
offset 80% of future taxable income.



39







Utilization
of the certain tax attributes may be subject to 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 losses before utilization.



The
Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates and is subject to examination by federal,
state, and local jurisdictions, where applicable. Note that partnership dissolved on July 15, 2021 when Portsmouth acquired 100% of Justice
LLP.



As
of June 30, 2023, tax years beginning in fiscal years 2019 and 2018 remain open to examination by the major tax jurisdictions and are
subject to the statute of limitations.



Uncertain
Tax Positions



The
Company regularly evaluates the likelihood of realizing the benefit from income tax positions that it has taken in various federal, state
and foreign filings by considering all relevant facts, circumstances and information available. If the Company determines it is more
likely than not that the position will be sustained, a benefit will be recognized at the largest amount that it believes is cumulatively
greater than 50% likely to be realized. The following table summarizes changes in the amount of the Company’s unrecognized tax
benefits for uncertain tax positions:



|Unrecognized Tax Benefits
    at June 30, 2022 |  | $ | -         | 
|---------------------------------------------- |  | - | --------- | 
|Increase
    in tax positions taken            |  |   | 1,665,000 | 
|Decrease in tax positions
    taken            |  |   | -         | 
|Unrecognized Tax Benefits
    at June 30, 2023 |  | $ | 1,665,000 | 



$0
and $1,665,000 of unrecognized tax benefits as of June 30, 2022 and June 30, 2023, respectively, would impact the effective tax rate
if recognized. The unrecognized tax benefit is not expected to reverse in the next 12 months. Interest and penalties related to income
tax matters are classified as a component of income tax expense. As of June 30, 2022 and June 30, 2023, no interest and penalties were
recorded.



NOTE
13 - SEGMENT INFORMATION



The
Company operates in two reportable segments, the operation of the Hotel (“Hotel Operations”) and the investment of its cash
in marketable securities and other investments (“Investment Transactions”). These two operating segments, as presented in
the consolidated financial statements, reflect how management internally reviews each segment’s performance. Management also makes
operational and strategic decisions based on this same information.



Information
below represents reporting segments for the years ended June 30, 2023 and 2022, respectively. Segment loss from Hotel operations consists
of the operation of the Hotel and operation of the garage. Loss from investments consists of net investment gain (loss), dividend and
interest income and investment related expenses.



|As of and for the year                |  | Hotel      |             |   | Investment   |   |          |       |  |   |            |  
|------------------------------------- |  | ---------- | ----------- | - | ------------ | - | -------- | ----- |  | - | ---------- | -
|ended June
    30, 2023               |  | Operations |             |   | Transactions |   |          | Other |  |   | Total      |  
|Revenues                              |  | $          | 42,027,000  |   |              | $ | -        |       |  | $ | -          |  
|Segment operating expenses            |  |            | (34,457,000 | ) |              |   | -        |       |  |   | (1,793,000 | )
|Segment income (loss)                 |  |            | 7,570,000   |   |              |   | -        |       |  |   | (1,793,000 | )
|Interest expense - mortgage           |  |            | (6,467,000  | ) |              |   | -        |       |  |   | -          |  
|Interest expense – related party      |  |            | (1,725,000  | ) |              |   | -        |       |  |   | -          |  
|Depreciation and amortization expense |  |            | (2,715,000  | ) |              |   | -        |       |  |   | -          |  
|Loss from investments                 |  |            | -           |   |              |   | (161,000 | )     |  |   | -          |  
|Income tax expense                    |  |            | -           |   |              |   | -        |       |  |   | (7,912,000 | )
|Net loss                              |  | $          | (3,337,000  | ) |              | $ | (161,000 | )     |  | $ | (9,705,000 | )
|Total assets                          |  | $          | 40,457,000  |   |              | $ | 359,000  |       |  | $ | 284,000    |  



|As of and for the year                |  | Hotel      |             |   | Investment   |   |            |       |  |   |            |  
|------------------------------------- |  | ---------- | ----------- | - | ------------ | - | ---------- | ----- |  | - | ---------- | -
|ended June
    30, 2022               |  | Operations |             |   | Transactions |   |            | Other |  |   | Total      |  
|Revenues                              |  | $          | 31,534,000  |   |              | $ | -          |       |  | $ | -          |  
|Segment operating expenses            |  |            | (27,451,000 | ) |              |   | -          |       |  |   | (1,130,000 | )
|Segment income (loss)                 |  |            | 4,083,000   |   |              |   | -          |       |  |   | (1,130,000 | )
|Interest expense – mortgage           |  |            | (6,549,000  | ) |              |   | -          |       |  |   | -          |  
|Interest expense – related party      |  |            | (1,375,000  | ) |              |   | -          |       |  |   | -          |  
|Gain on debt forgiveness              |  |            | 2,000,000   |   |              |   | -          |       |  |   | -          |  
|Depreciation and amortization expense |  |            | (2,209,000  | ) |              |   | -          |       |  |   | -          |  
|Loss from investments                 |  |            | -           |   |              |   | (1,243,000 | )     |  |   | -          |  
|Income tax expense                    |  |            | -           |   |              |   | -          |       |  |   | (142,000   | )
|Net loss                              |  | $          | (4,050,000  | ) |              | $ | (1,243,000 | )     |  | $ | (1,272,000 | )
|Total assets                          |  | $          | 40,810,000  |   |              | $ | 541,000    |       |  | $ | 8,448,000  |  



40







NOTE
14 – RELATED PARTY TRANSACTIONS



As
discussed in Note 8 – Related Party and Other Financing Transactions, upon the dissolution of Justice in December 2021, Portsmouth
assumed Justice’s note payable to InterGroup in the amount of $11,350,000. On December 31, 2021, Portsmouth and InterGroup entered
into a loan modification agreement which increased Portsmouth’s borrowing from InterGroup as needed up to $16,000,000. As of June
30, 2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000, respectively, and are included in the related party notes
payable in the consolidated balance sheets. In July 2023, the note maturity date was extended to July 31, 2025 and the borrowing amount
available was increased to $20,000,000. The Company agreed to a 0.5% loan extension and modification fee payable to InterGroup.



Certain
shared costs and expenses, primarily administrative expenses, rent and insurance are allocated between the Company and InterGroup based
on management’s estimate of the pro rata utilization of resources. For the years ended June 30, 2023 and 2022, these expenses were
approximately $144,000 for each year.



All
of the Company’s Directors serve as directors of InterGroup.



As
Chairman of the Executive Strategic Real Estate and Securities Investment Committee and Chief Executive 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 President, Chief Executive Officer, and Chairman of InterGroup and oversees the investment activity of InterGroup.
Effective June 2016, Mr. Winfield became the Managing Director of Justice. Depending on certain market conditions and various risk factors,
the Chief Executive Officer and InterGroup may, at times, invest in the same companies in which the Company invests. Such investments
align the interests of the Company with the interests of these related parties because it places the personal resources of the Chief
Executive Officer and the resources of InterGroup at risk in substantially the same manner as the Company in connection with investment
decisions made on behalf of the Company.



NOTE
15 – COMMITMENTS AND CONTINGENCIES



Cash
Management Agreement



As
part of the Hotel refinancing effective December 18, 2013, Operating entered into a Cash Management Agreement with Bank of America, N.A.
(“Lender”) and Wells Fargo Bank, N.A. (“Cash Management Bank”) whereby all cash received by Operating is to be
deposited into a business checking account controlled by the Cash Management Bank up to the loan maturity date. Additionally, other terms
of the Cash Management Agreement provide that effective February 2019 or upon a Property Improvement Plan (“PIP”) requirement
by Hilton (“Franchisor”) deemed the “Cash Sweep Period” during which all excess cash generated by Operating beyond
the monthly budgeted expenses and debt services including principal and interest, insurance reserves, real estate taxes reserve, furniture
fixtures and equipment (“FF&E”) reserves, for the senior and mezzanine loans, will be held by the Cash Management Bank
for future hotel improvements as required by the date or a PIP. Currently, any and all funds are being controlled by the Cash Management
Bank according to the Cash Management Agreement.



Franchise
Agreements



The
Partnership entered into a Franchise License Agreement (the “License Agreement”) with the HLT Existing Franchise Holding
LLC (“Hilton”) on December 10, 2004. The term of the License agreement was for an initial period of 15 years commencing on
the date the Hotel began operating as a Hilton hotel, with an option to extend the License Agreement for another five years, subject
to certain conditions. On June 26, 2015, Operating and Hilton entered into an amended franchise agreement which amongst other things
extended the License Agreement through 2030, and also provided the Partnership certain key money cash incentives to be earned through
2030.



Since
the opening of the Hotel as a full brand Hilton in January 2006, it has incurred monthly royalties, program fees and information technology
recapture charges equal to a percentage of the Hotel’s gross room revenue. Fees for such services during fiscal year 2023 and 2022
totaled approximately $3,029,000 and $2,107,000, respectively.



41







Hotel
Employees



The
hotel operations had 187 employees as of June 30, 2023. On February 3, 2017, Aimbridge assumed all labor union agreements and Justice
provides all funding for all payroll and related costs. As of June 30, 2023, approximately 90% of those employees were represented by
one of three labor unions, and their terms of employment were determined under various collective bargaining agreements (“CBAs”)
to which Aimbridge was a party. CBA for Local 2 (Hotel and Restaurant Employees) expired on August 13, 2022 and a new Memorandum of Understanding
(“MOU”) was signed June 26, 2023. CBA for Local 856 (International Brotherhood of Teamsters) expired on December 31, 2022
and a new agreement was signed on April 26, 2023. CBA for Local 39 (Stationary Engineers) will expire on July 31, 2024.



Negotiation
of collective bargaining agreements, which includes not just terms and conditions of employment, but scope and coverage of employees,
is a regular and expected course of business operations for the Company and Aimbridge. The Company expects and anticipates that the terms
of conditions of CBAs will have an impact on wage and benefit costs, operating expenses, and certain hotel operations during the life
of each CBA and incorporates these principles into its operating and budgetary practices.



Legal
Matters



Portsmouth
Square, Inc., through its operating company Justice Investors Operating Company, LLC, a Delaware limited liability company (the “Company”),
is the owner of the real property located at 750 Kearny Street in San Francisco, currently improved with a 27 – story building
which houses a Hilton Hotel (the “Property”). The Property was purchased and improved pursuant to the terms of a series of
agreements with the City and County of San Francisco (the “City”) in the early 1970’s. The terms of the agreements
and subsequent approvals and permits included a condition by which the Company was required to construct an ornamental overhead pedestrian
bridge across Kearny Street, connecting the Property to a nearby City park and underground parking garage known as Portsmouth Square
(the “Bridge”). Included in the approval process was the City’s issuance of a Major Encroachment Permit (“Permit”)
allowing the Bridge to span over Kearney Street. As of May 24, 2022, the City has purported to revoke the Permit and on June 13, 2022,
has directed the Company to submit a general bridge removal and restoration plan (the “Plan”) at the Company’s expense.
The Company disputes the legality of the purported revocation of the Permit. The Company further disputes the existence of any legal
or contractual obligation to remove the Bridge at its expense. In particular, representatives of the Company participated in meetings
with the City on and at various times after August 1, 2019, to discuss a collaborative process for the possible removal of the Bridge.
Until the purported revocation of the Permit in 2022, the City representatives repeatedly and consistently promised and agreed that the
City will pay for the associated costs of any Bridge removal. Nevertheless, without waiving any rights, in an effort to understand all
of the available options, and to provide a response to the City’s directives, the Company has engaged a Project Manager, a structural
engineering firm and an architect to advise on the development of a Plan for the Bridge removal, as well as the reconstruction of the
front of the Hilton Hotel. The Company has been working cooperatively with the City on the process for removal of the Bridge and its
related physical encroachments, including obtaining regulatory approvals and permits. A final Plan is currently not expected to be completed
until late calendar year of 2023, and permits are unlikely to be obtained until mid-2024 at the earliest. The Company is currently in
discussion with the City regarding both the process and financial responsibility for the implementation of the Plan and reconstruction
of the impacted portions of the Hotel. Those discussions are expected to continue through the Autumn of 2023.



The
Company may be subject to legal proceedings, claims, and litigation arising in the ordinary course of business. The Company will defend
itself vigorously against any such claims. 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.



NOTE
16 – SUBSEQUENT EVENTS



The
Company evaluated subsequent events through the date that the accompanying financial statements were issued and has determined that no
material subsequent events exist through the date of this filing.



42







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



There
were no disagreements on any matter of accounting principles or practices, financial statement disclosure, nor auditing scope or procedure.



Item
9A. Controls and Procedures.



EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES



Disclosure
controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed
under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and
forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to
our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding
required disclosure.



As
of June 30, 2023, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our principal executive officer and principal financial
and accounting officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.
Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective because of a material weakness in our internal
control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial
statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our control
around the interpretation and accounting for the deferred tax asset valuation allowance was not effectively designed or maintained. In
light of this material weakness, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared
in accordance with GAAP. Accordingly, management believes that the financial statements included in this Annual Report on Form 10-K present
fairly in all material respects our financial position, results of operations and cash flows for the period presented.



MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



As
required by SEC rules and regulations implementing Section 404 of the Sarbanes-Oxley Act, our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for
external reporting purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures
that:



1.
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of
the assets of our company,



2.
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors,
and



3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect errors or misstatements in our consolidated
financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2023. In making these assessments,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework (2013). Based on our assessments and those criteria, management determined that our internal controls over financial reporting
were not effective as of June 30, 2023.



CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING



Other
than the material weakness identified above, there were no changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.



Item
9B. Other Information.



None.





43







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, 2023:



|Name                          |  | Position
    with the Company                                                                                     |  | Age |  | Term
    to Expire            
|----------------------------- |  | ----------------------------------------------------------------------------------------------------------------- |  | --- |  | ------------------------------
|                              |  |                                                                                                                   |  |     |  |                               
|John
    V. Winfield          |  | Chairman
    of the Board and Chief Executive Officer (1)                                                         |  | 76  |  | Fiscal
    2023 Annual Meeting
|                              |  |                                                                                                                   |  |     |  |                               
|Yvonne
    Murphy             |  | Director                                                                                                          |  | 66  |  | Fiscal
    2023 Annual Meeting
|                              |  |                                                                                                                   |  |     |  |                               
|John
    C. Love              |  | Director
    (2)(3)(4)                                                                                            |  | 83  |  | Fiscal
    2023 Annual Meeting
|                              |  |                                                                                                                   |  |     |  |                               
|William
    J. Nance          |  | Director
    (2)(3)                                                                                               |  | 79  |  | Fiscal
    2023 Annual Meeting
|                              |  |                                                                                                                   |  |     |  |                               
|Steve
    Grunwald            |  | Director
    (1)(3)(4)                                                                                            |  | 41  |  | Fiscal
    2023 Annual Meeting
|                              |  |                                                                                                                   |  |     |  |                               
|Other
    Executive Officers: |  |                                                                                                                   |  |    
|                              |  |                                                                                                                   |  |     |  |                               
|David
    C . Gonzalez        |  | President
    (1)                                                                                                 |  | 56  |  | N/A                           
|Jolie
    Kahn                |  | Secretary                                                                                                         |  | 58  |  | N/A                           
|Ann
    Marie Blair           |  | Treasurer,
    Controller (Principal Financial Officer). Ms. Blair appointed effective July 6, 2023               |  | 36  |  | N/A                           
|                              |  |                                                                                                                   |  |     |  |                               
|Danfeng
    Xu                |  | Treasurer,
    Controller (Principal Financial Officer), and Secretary. Ms. Xu resigned effective August 31, 2022 |  | 35  |  | N/A                           



(1)Member of Executive Strategic Real Estate and Securities Investment Committee

(2)Member of Audit Committee

(3)Member of Compensation Committee

(4)Member of Nominating Committee



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 and Chief Executive Officer. On May 24, 2021, Mr. Winfield resigned effective immediately from the position of the Company’s
President. Mr. Winfield is also Chairman of the Board, President and Chief Executive Officer of InterGroup, Portsmouth’s parent
company, and has held those positions since 1987. Effective June 2016, Mr. Winfield became the Managing Director of Justice. 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 conclusion that he should serve as a director of the Company.



44







David
C. Gonzalez — Mr. Gonzalez was elected as the Company’s President in May 2021 upon the resignation of Mr. Winfield. Mr.
Gonzalez was appointed Chief Operating Officer on May 31, 2023 and Vice President Real Estate of InterGroup, Portsmouth’s parent
company, on January 31, 2001 through May 31, 2023. Since 1989, Mr. Gonzalez has served in numerous capacities with InterGroup, including
Controller and Director of Real Estate. Mr. Gonzalez was appointed advisor of the Executive Strategic Real Estate and Securities Investment
Committee of InterGroup and Portsmouth in February 2020.



Yvonne
L. Murphy —Mrs. Murphy was elected to the Board of Portsmouth in October 2022 and served as a director at Portsmouth
from March to December 2019. Mrs. Murphy took the place of Director Babin upon his passing in October 2022. Mrs. Murphy has impressive
experiences in corporate management, legal research, and legislative lobbying for over 30 years. She was a member of Governor Kenny C.
Guinn’s executive staff in Nevada and was employed for years by the prestigious Jones Vargas law firm in Reno, Nevada. She served
in nine legislative sessions during the most challenging years in Nevada’s history. Before starting her lobbying firm, Ms. Murphy
worked for RR Partners in its corporate office in Las Vegas, Nevada, and in the Government Affairs Division in Reno. She has a Doctorate
and a Master’s in Business Administration from the California Pacific University. Within her community, she also serves as a volunteer
board member for the Reno Philharmonic and Renown Health. Mrs. Murphy’s extensive government affairs and business experience led
to the Board’s conclusion that she should serve as a director of the Company. Mrs. Murphy has been a Director of InterGroup since
2014.



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 InterGroup, having been appointed in January 1998. Mr. 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 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. 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 of Comstock Mining, Inc. Mr. Nance’s extensive experience as a CPA and in numerous phases of the real estate
industry, his business and 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 conclusion
that he should serve as a director of the Company.



Steve
Grunwald — Mr. Grunwald joined the Board in December 2019. Mr. Grunwald is a successful hospitality operator with over 15 years
of experience. He worked at various positions at the five-star hotel Le Châtelain Brussels and later on became the General Manager
of the property. In 2006, Mr. Grunwald actively participated in the construction and opening of a boutique hotel, The Progress Hotel.
He became the General Manager of two more properties in 2009. In 2013, he oversaw the renovations and reopening of The Hotel Siru and
took over the management of the property. Mr. Grunwald is currently managing four hotels of different styles and categories. Mr. Grunwald
obtained his bachelor’s degree from Brussels Business Institute’s College of Hospitality and Tourism Management in 2004.
Mr. Grunwald’s vast experience in the hospitality industry led to the 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 in February 1996. Mr. Babin is also a director of Portsmouth’s
parent company, InterGroup. Mr. Babin was a retail securities broker. From 1974 to 1989, he worked at Drexel Burnham, and from 1989 to
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. Mr. Babin had also served as an arbitrator
for FINRA (formerly NASD) for over 20 years. Mr. Babin’s extensive experience in the securities and financial markets, as well
as his involvement in the securities and public company regulatory industry, led to the Board’s conclusion that he should serve
as a director of the Company. Mr. Babin served as a Board Member up to the time of his passing in October 2022.



Ann
Marie Blair– Ms. Blair was appointed as Treasurer and Controller of the Company on July 6, 2023. Ms. Blair also serves as
Treasurer and Controller of InterGroup, having been appointed to the position on July 6, 2023. Prior to joining the Company, she had
served as Chief Financial Officer in the advertising technology industry. She obtained her Bachelor of Science degree in Accounting and
her Master of Business Administration from Cumberland University.



Danfeng
Xu– Ms. Xu was appointed as Treasurer and Controller of the Company on October 16, 2017. Ms. Xu also serves as Treasurer and
Controller of InterGroup, having been appointed to the position on October 16, 2017. On June 1, 2018, she was appointed Secretary of
the Company and InterGroup. Prior to joining the Company, she had served as Controller and worked in other positions at the Hotel from
July 2010 to February 2017. She obtained her Bachelor of Science degree in Business Administration, Accounting and Finance from The Ohio
State University and her Master of Professional Accounting, with a concentration in Audit and Assurance from University of Washington.
Ms. Xu resigned effective August 31, 2022.



45







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.



Compliance
with Section 16(a) of the Securities Exchange Act of 1934



Section
16(a) of the Securities Exchange Act of 1934 requires the 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
solely on its review of the copies of 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 2023 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 executive officers, including its principal executive officer, principal financial
officer, or persons performing similar functions as well as its Board of Directors. 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 at www.intgla.com. The Company
will provide any person without charge, upon request, a copy of its Code of Ethics by sending such request to: Portsmouth Square, Inc.,
Attn: Treasurer, 1516 S Bundy Drive, Suite 200, Los Angeles, California 90025. 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 Chairman of the Board 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. William J. Nance and John C. Love also meets the
audit committee financial expert requirement based on their qualifications and business experience discussed above in Item 10.



Item
11. Executive Compensation.



The
following table provides certain summary information concerning compensation awarded to, earned by, or paid to the 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 last two completed fiscal years ended June 30, 2023 and 2022. 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.



46







SUMMARY
COMPENSATION TABLE



|Annual
    Compensation             
|------------------------------------
|Name and                            
|Principal
    Position              
|                                    
|John V. Winfield                    
|Chairman and Chief Executive Officer
|                                    
|David C. Gonzalez                   
|President                           



(1)Amounts shown include $6,000 per year in regular Directors fees.



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.



Internal
Revenue Code Limitations



Section
162(m) of the Internal Revenue Code of 1986, as amended (the “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,
other performance-based compensation. Since InterGroup and Portsmouth are each a public company, the $1,000,000 limitation applies separately
to the compensation paid by each entity. Stock option expenses are also amortized over several years. For fiscal years 2023 and 2022,
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.



DIRECTOR
COMPENSATION



The
following table provides information concerning compensation awarded to, earned by, or paid to the Company’s directors for the
fiscal year ended June 30, 2022.



DIRECTOR
COMPENSATION TABLE



|Name                 |  | Fees
                                            Earned or
                                            Paid in Cash |       |     | All
                                            Other Compensation |  |   | Total | 
|-------------------- |  | ------------------------------------------------------------------------------------------------------------------- | ----- | --- | ------------------------------------------------------------------ |  | - | ----- | 
|                     |  |                                                                                                                     |       |     |                                                                    |  |   |       | 
|Yvonne Murphy        |  | $                                                                                                                   | 6,000 |     |                                                                    |  | - |       | 
|                     |  |                                                                                                                     |       |     |                                                                    |  |   |       | 
|John C. Love         |  | $                                                                                                                   | 8,000 | (1) |                                                                    |  | - |       | 
|                     |  |                                                                                                                     |       |     |                                                                    |  |   |       | 
|William J. Nance     |  | $                                                                                                                   | 8,000 | (1) |                                                                    |  | - |       | 
|                     |  |                                                                                                                     |       |     |                                                                    |  |   |       | 
|Steve Grunwald       |  | $                                                                                                                   | 6,000 |     |                                                                    |  | - |       | 
|                     |  |                                                                                                                     |       |     |                                                                    |  |   |       | 
|John V. Winfield (2) |  |                                                                                                                     | -     |     |                                                                    |  | - |       | 



(1)Amounts shown include regular Board fees and Audit Committee fees.



(2)As an executive officer, Mr. Winfield’s director 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 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.



47







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.



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, 2023 and has no equity compensation plans
in effect.



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



The
following table sets forth, as of October 13, 2023, 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 Beneficial Owner |  | Amount
                                            and Nature of Beneficial
                                            Ownership (1) |         |     | Percent
    of Class (2) | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- | ------- | --- | ------------------------ | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|John V. Winfield                         |  |                                                                                                                                       | 18,641  |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|Yvonne Murphy                            |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|John C. Love                             |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|William J. Nance                         |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|Steve Grunwald                           |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|David C. Gonzalez                        |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|Ann Marie Blair (6)                      |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|Danfeng Xu (5)                           |  |                                                                                                                                       | -       |     |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|The InterGroup Corporation               |  |                                                                                                                                       | 555,518 | (4) |                          | 
|1516 S. Bundy Drive, Suite 200           |  |                                                                                                                                       |         |     |                          | 
|Los Angeles, CA 90025                    |  |                                                                                                                                       |         |     |                          | 
|                                         |  |                                                                                                                                       |         |     |                          | 
|All of the above as a group              |  |                                                                                                                                       | 574,159 |     |                          | 



(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 734,187 shares of Common Stock issued and outstanding as of October 13, 2023.



(4)As directors of InterGroup, Messrs. Winfield, Murphy, Love and Nance have the power to direct the vote of the shares of Portsmouth
owned by InterGroup.



(5)Ms.
Xu resigned effective August 31, 2022.



(6)Ms.
Blair appointed effective July 6, 2023.



48







Security
Ownership of Management in Parent Corporation.



As
Chairman of the Board and a 68.6% beneficial shareholder of InterGroup, Mr. Winfield has voting and dispositive power over the shares
owned of record and beneficially by InterGroup.



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.



As
of October 13, 2023, InterGroup and John V. Winfield owned 75.7% and 2.5% of the common stock of Portsmouth, respectively.



As
discussed in Note 8 – Related Party and Other Financing Transactions, on July 2, 2014, the Partnership obtained from InterGroup
an unsecured loan in the principal amount of $4,250,000 at 12% per year fixed interest, with a term of 2 years, payable interest only
each month. InterGroup received a 3% loan fee. The loan may be prepaid at any time without penalty. On December 16, 2020, Justice and
InterGroup entered into a loan modification agreement which increased Justice’s borrowing from InterGroup as needed up to $10,000,000.
Upon the dissolution of Justice in December 2021, Portsmouth assumed Justice’s note payable to InterGroup in the amount of $11,350,000.
On December 31, 2021, Portsmouth and InterGroup entered into a loan modification agreement which increased Portsmouth’s borrowing
from InterGroup as needed up to $16,000,000. As of June 30, 2023 and 2022, the balance of the loan was $15,700,000 and $14,200,000.



Under
the terms of the Justice Partnership Agreement, its general partner, Portsmouth, received compensation of one percent of hotel revenue
up until the dissolution of Justice in December 2021. During each of the fiscal years ended June 30, 2023 and 2022, total compensation
earned by Portsmouth under the agreement was zero and $130,000, respectively, and are eliminated in consolidation. Effective with the
dissolution of the Partnership, the compensation to Portsmouth from the hotel was terminated.



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, 2023 and 2022, these expenses were
approximately $144,000 and $144,000, respectively.



49







All
of the Company’s Directors serve as directors of InterGroup. The Company’s President serves as Chief Operating Officer of
InterGroup. Director William Nance is a director and Chairman of the Audit Committee of Comstock Mining, Inc., since 2005.



As
Chairman of the Executive Strategic Real Estate and Securities Investment Committee and the Company’s Chief Executive 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 InterGroup and oversees the investment activity of
InterGroup. Effective June 2016, Mr. Winfield became the Managing Director of Justice. Depending on certain market conditions and various
risk factors, the Chief Executive Officer and InterGroup may, at times, invest in the same companies in which the Company invests. Such
investments align the interests of the Company with the interests of these related parties because it places the personal resources of
the Chief Executive Officer and the resources of InterGroup at risk in substantially the same manner as the Company in connection with
investment decisions made on behalf of the Company.



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.



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
CEO, John V. Winfield, all of Portsmouth’s Board of Directors consists of “independent” directors as independence is
defined by the applicable rules and regulations of the SEC and NASDAQ.



Item
14. Principal Accounting Fees and Services.



On
January 31, 2022, the Audit Committee retained WithumSmith+Brown, PC, PCAOB ID: 100 (“Withum”) as the Company’s new
independent registered public accounting firm. upon the resignation of Moss Adams LLP , Irvine CA, PCAOB ID: 659 (“Moss Adams”)
in December 2021. The aggregate fees billed for each of the last two fiscal years ended June 30, 2023 and 2022 for professional services
rendered by Withum. These fees were billed for audit of the Company’s annual financial statements, review of financial statements
included in the Company’s Form 10-Q reports, and services provided in connection with statutory and regulatory filings and engagements
for those fiscal years.



|                            |  | Fiscal Year |        
|--------------------------- |  | ----------- | -------
|                            |  | 2023        |        
|Audit fees – Withum         |  | $           | 101,000
|Tax fees – Withum           |  |             | 48,000 
|Audit Fees – Moss
    Adams |  |             | -      
|Tax
    fees – Moss Adams   |  |             | -      
|Total                       |  | $           | 149,000



Audit
Committee Pre-Approval Policies



The
Audit Committee shall pre-approve all auditing services and permitted 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 minimis 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’ engagement to audit the 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 full-time permanent employees.



50







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 at pages 23 through 43:



| | Report
    of Independent Registered Public Accounting Firm                                
| | -------------------------------------------------------------------------------------------
| |                                                                                            
| | Consolidated
    Balance Sheets - June 30, 2023 and 2022                                   
| |                                                                                            
| | Consolidated
    Statements of Operations for years ended June 30, 2023 and 2022           
| |                                                                                            
| | Consolidated
    Statements of Shareholders’ Deficit for years ended June 30, 2023 and 2022
| |                                                                                            
| | Consolidated
    Statements of Cash Flows for years ended June 30, 2023 and 2022           
| |                                                                                            
| | 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
    Number |  | Description                                                                                                                                                                                                                                                                                                             
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                   |  |                                                                                                                                                                                                                                                                                                                         
|3.(i)              |  | Bylaws
    (amended February 16, 2000) *                                                                                                                                                                                                                                                                                
|                   |  |                                                                                                                                                                                                                                                                                                                         
|3.(ii)             |  | Articles
    of Incorporation*                                                                                                                                                                                                                                                                                          
|                   |  |                                                                                                                                                                                                                                                                                                                         
|4.                 |  | Instruments
    defining the rights of security holders including indentures (See Articles of Incorporation and Bylaws) *                                                                                                                                                                                               
|                   |  |                                                                                                                                                                                                                                                                                                                         
|10.                |  | Material
    Contracts:                                                                                                                                                                                                                                                                                                 
|                   |  |                                                                                                                                                                                                                                                                                                                         
|10.3               |  | Franchise
    License Agreement, dated December 10, 2004, between Justice Investors Limited Partnership and Hilton Hotels (incorporated by reference
    to Exhibit 10.3 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). *
|                   |  |                                                                                                                                                                                                                                                                                                                         
|10.5               |  | Management
    Agreement, dated February 1, 2017, between Justice Operating Company, LLC and Aimbridge Management Company, LLC. (incorporated by
    reference to Exhibit 10.5 of the Company’s Form 10-K Report for the fiscal year ended June 30, 2017, as filed with the Commission
    on October 13, 2017). *      
|                   |  |                                                                                                                                                                                                                                                                                                                         
|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.                                                                                                                                                                                                                                    
|                   |  |                                                                                                                                                                                                                                                                                                                         
|101.INS            |  | Inline
    XBRL Instance Document                                                                                                                                                                                                                                                                                       
|                   |  |                                                                                                                                                                                                                                                                                                                         
|101.SCH            |  | Inline
    XBRL Taxonomy Extension Schema Document                                                                                                                                                                                                                                                                      
|                   |  |                                                                                                                                                                                                                                                                                                                         
|101.CAL            |  | Inline
    XBRL Taxonomy Extension Calculation Linkbase Document                                                                                                                                                                                                                                                        
|                   |  |                                                                                                                                                                                                                                                                                                                         
|101.DEF            |  | Inline
    XBRL Taxonomy Extension Definition Linkbase Document                                                                                                                                                                                                                                                         
|                   |  |                                                                                                                                                                                                                                                                                                                         
|101.LAB            |  | Inline
    XBRL Taxonomy Extension Label Linkbase Document                                                                                                                                                                                                                                                              
|                   |  |                                                                                                                                                                                                                                                                                                                         
|101.PRE            |  | Inline
    XBRL Taxonomy Extension Presentation Linkbase Document                                                                                                                                                                                                                                                       
|                   |  |                                                                                                                                                                                                                                                                                                                         
|104                |  | Cover
    Page Interactive Data File (embedded within the Inline XBRL document)                                                                                                                                                                                                                                         



*
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



51







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: | October
    13, 2023 |  | by                         
|      |                      |  |                            
|      |                      |  |                            
|      |                      |  |                            
|      |                      |  |                            
|Date: | October
    13, 2023 |  | by                         
|      |                      |  |                            



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.



|Signatures                |  | Title
    and Position                              |  | Date                
|------------------------- |  | --------------------------------------------------- |  | --------------------
|                          |  |                                                     |  |                     
|/s/
    John V Winfield   |  | Chief
    Executive Officer and Chairman            |  | October
    13, 2023
|John
    V. Winfield      |  | of
    the Board (Principal Executive Officer)      |  |                     
|                          |  |                                                     |  |                     
|/s/
    David C. Gonzalez |  | President,
    Advisor of Executive Strategic       |  | October
    13, 2023
|David
    C. Gonzalez     |  | Real
    Estate and Securities Investment Committee |  |                     
|                          |  |                                                     |  |                     
|/s/
    Yvonne Murphy     |  | Director                                            |  | October
    13, 2023
|Jerold
    R. Babin       |  |                                                     |  |                     
|                          |  |                                                     |  |                     
|/s/
    John C. Love      |  | Director                                            |  | October
    13, 2023
|John
    C. Love          |  |                                                     |  |                     
|                          |  |                                                     |  |                     
|/s/
    William J. Nance  |  | Director                                            |  | October
    13, 2023
|William
    J. Nance      |  |                                                     |  |                     
|                          |  |                                                     |  |                     
|/s/
    Steve Grunwald    |  | Director                                            |  | October
    13, 2023
|Steve
    Grunwald        |  |                                                     |  |                     



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