Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Preliminary Note
The
Company’s remaining land inventory consists of 6 single
family lots, an approximate 7 acre parcel and some other minor
parcels of real estate consisting of easements in Citrus County
Florida, which are owned through its wholly-owned subsidiary,
Sugarmill Woods, Inc. (“Sugarmill Woods”). In addition,
Punta Gorda Isles Sales, Inc. (“PGIS”), a wholly-owned
subsidiary of the Company, owns 12 parcels of real estate in
Charlotte County, Florida, which in total approximates 60 acres.
These parcels have limited value because of associated
developmental constraints such as wetlands, easements, and/or other
obstacles to development and sale.
In
early 2019, the Board of Directors of PGI concluded that it meets
all of the conditions under which a registrant may be deemed an
“Inactive Entity” as that term is defined or
contemplated in Regulation S-X 3-11 and as the term “Inactive
Registrant” is further contemplated in the Securities and
Exchange Commission’s Division of Corporation Finance’s
Financial Reporting Manual section 1320.2. Under Regulation 3-11 of
Regulation S-X, the financial statements required thereunder with
respect to an Inactive Registrant for purposes of reports pursuant
to the Securities Exchange Act of 1934, including but not limited
to annual reports on Form 10-K, may be unaudited. A representative
of PGI informally discussed its view that PGI is an Inactive
Registrant with a staff member of the Chief Accountant’s
Office in the Division of Corporation Finance in February
2019.
As an
Inactive Registrant, PGI currently intends to continue to timely
file Annual Reports on Forms 10-K with the Securities and Exchange
Commission (the “SEC”). PGI currently intends to
include in such Annual Reports all annual consolidated financial
statements required to be included therein pursuant to Regulation
S-X. However, PGI will include annual consolidated financial
statements reviewed by a PCAOB registered public accounting firm
rather than audited. PGI has engaged Milhouse & Neal to be the
PCAOB registered public accounting firm that will review its annual
consolidated financial statements to be included in the Annual
Report on Form 10-K for its fiscal year ended December 31, 2019 and
for its fiscal years thereafter.
PGI
meets all of the conditions in Regulation S-X 3-11 for an
“Inactive Registrant” which are:
(a)
Gross receipts not
in excess of $100,000;
(b)
Not purchasing or
selling any of its own stock or granted options
therefor;
(c)
Expenditures for
all purposes not in excess of $100,000 (see
discussion);
(d)
No material change
in the business has occurred during the fiscal year;
(e)
No securities
exchange or governmental authority having jurisdiction over the
entity requires the entity to furnish audited financial
statements.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management’s Discussion and Analysis of Financial Condition
and Results of Operations (continued)
As the
Company reviews its circumstances, it has met the conditions as an
Inactive Registrant since 2017.
The
Company, formerly a Florida residential developer, is dormant with
less than 70 acres of remaining landholdings, much of which has
little value due to various restrictions. The Company’s
consolidated financial statements show it has a Stockholders’
Deficiency of $90.9 million as of December 31, 2018. BKD, the
Company’s PCAOB registered public accounting firm until the
date the Company filed its Form 10-K for Fiscal 2018 which was
February 25, 2019, expressed a “going concern” opinion
with respect to the Company for its Fiscal 2018 financial
statements and had expressed such opinions for many years
previously. PGI has had no trading of its securities in many years.
Any future real estate transactions by the Company will be limited,
uncertain as to timing and as to value. Ultimately, PGI expects
that proceeds from sales of its remaining real estate, if any, will
provide some minimal recoveries for PGI’s senior debtholders.
PGI has been an SEC registrant for over 40 years.
As an
Inactive Registrant, PGI will continue to provide comprehensive
updates through its SEC filings.
The
Trustee of the 6.5% subordinated convertible debentures, which
matured in June 1991, with an original face amount of $1,034,000,
provided notice of final distribution to holders of such debentures
on September 2, 2014. In connection with such final distribution,
the Trustee maintains a debenture reserve fund with a balance of
$13,000 as of September 30, 2019 and December 31, 2018,
respectively, available for final distribution of $92 per $1,000 in
face amount to holders of such debentures who surrender their
respective debenture certificates.
During
the nine month period ended September 30, 2019, there were no 6.5%
subordinated convertible debentures that were surrendered by their
respective debenture holders and no funds were utilized from the
debenture reserve account.
As of
September 30, 2019 and December 31, 2018, the remaining outstanding
principal balance on such 6.5% subordinated convertible debentures
that have not been surrendered by the respective holders equals
$138,000 plus accrued and unpaid interest of $277,000 and $270,000,
respectively. If and when such remaining debentures are surrendered
to the Trustee, or escheated to the states of residence of the
respective debenture holders, the applicable portion of such
principal and accrued interest will be recorded as debt and accrued
interest forgiveness. As the Company has consistently stated in
prior filings, the Company believes that any potential claims by
the respective debenture holders on such 6.5% subordinated
convertible debentures would be barred under the applicable
statutes of limitations.
As of
September 30, 2019, the Company remained in default under its
subordinated convertible debentures and notes payable, as well as
the accrued interest with respect to its collateralized convertible
debentures.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
There
was no revenue for the three month periods ended September 30, 2019
and 2018 as interest earned on the Company’s money market
account is minimal due to the declining account
balance.
Expenses for the
three month period ended September 30, 2019 increased by $393,000
when compared to the same period in 2018 primarily as a result of
no forgiveness of debt and interest in the three months ended
September 30, 2019 as compared to $432,000 of forgiveness of debt
and interest during the three months ended September 30, 2018. The
forgiveness of debt and interest for the three months ended
September 30, 2018 is attributed to the 6.5% subordinated
debentures which matured in June 1991. A face amount of $152,000 of
debentures were effectively surrendered with escheatment of
respective funds to the last known state of residency of the
debenture holders. Accordingly, the Company recognized $138,000 in
forgiveness of debt during the three months ended September 30,
2018. In addition, accrued interest of $294,000 on such debentures
considered surrendered was recorded as forgiveness of interest
expense during the three months ended September 30,
2018.
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $7,000 during the three month
period ended September 30, 2019 compared to the same period in
2018, primarily as a result of interest compounding on past due
balances. In addition, there was a decrease in the prime interest
rate to 5% as of September 30, 2019 compared to 5.25% as of
September 30, 2018.
Legal
and professional expenses decreased by $25,000 during the three
months ended September 30, 2019 when compared to the same period in
2018. Legal expenses decreased by $32,000 during the three months
ended September 30, 2019 compared to the same period in 2018. Legal
expenses were incurred during the three months ended September 30,
2018 in connection with research on the effect of surrender of
debentures escheated to the states of debenture holders in 2018.
There was no comparable legal expense during the three months ended
September 30, 2019. Professional expenses increased by $7,000 when
compared to the same period in 2018 as a result of expenses
incurred on a parcel in Citrus County for which a report to the
Florida Department of Environmental Protection (“FDEP”)
has been filed to request satisfaction of environmental remediation
efforts.
General
and administrative expenses during the three month period ended
September 30, 2019 decreased by $21,000 when compared to the same
period in 2018. During the three months ended September 30, 2018,
$13,000 was incurred relating to the review of the Company’s
Form 10Q and disclosure of the effect of surrender of debentures
escheated.. In addition, there was a decrease of approximately
$4,000 in expenses as an inactive registrant during the three
months ended September 30, 2019 compared to the same period in
2018, a decrease of approximately $2,000 in fees relating to the
filing of the Company’s periodic reports and a decrease of
approximately $2,000 relating to the 6% subordinated convertible
debenture administration fees in 2018.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The
Company incurred a net loss of $392,000 during the three month
period ended September 30, 2019 compared to a net income of $1,000
for the comparable period in 2018. After deducting preferred
dividends, totaling $160,000 for the three month periods ended
September 30, 2019 and 2018, with respect to the Class A Preferred
Stock, a net loss per share (basic) of $(.10) and $(.03) was
incurred for the three month periods ended September 30, 2019 and
2018, respectively. The total cumulative preferred dividends in
arrears with respect to the Class A Preferred Stock through
September 30, 2019 is $15,635,000.
Revenues for the
nine months ended September 30, 2019 decreased by $2,000 when
compared to the same period in 2018 primarily as a result of no
related party interest income earned on the short-term note
receivable with Love Investment Company (“LIC”), the
Company’s primary preferred stock shareholder in 2019.
Related party interest income was $4,000 for the nine months ended
September 30, 2018. The Company received payment of the note
receivable balance from LIC on March 6, 2018. Interest income on
the Company’s money market account decreased by $1,000 during
the nine months ended September 30, 2019 from the comparable period
in 2018 due to the declining account balance. Other income of
$3,000, received during the nine months ended September 30, 2019
represents a recovery of a lot lien receivable recorded in 1999
which has been fully provided for cancellation. There was no other
revenue during the nine months ended September 30,
2018.
Expenses for the
nine months ended September 30, 2019 increased by $853,000 when
compared to the same period in 2018. There was no forgiveness of
debt and interest in the nine months ended September 30, 2019 as
compared to $875,000 of forgiveness of debt and interest during the
nine months ended September 30, 2018. The forgiveness of debt and
interest for the nine months ended September 30, 2018 is attributed
to the 6.5% subordinated debentures which matured in June 1991. A
face amount of $287,000 of debentures were effectively surrendered
with escheatment of respective funds to the states of debenture
holders. In addition, debentures with a face amount of $22,000 were
surrendered by debenture holders. Accordingly, the Company has
recognized $281,000 in forgiveness of debt during the nine months
ended September 30, 2018. In addition, accrued interest of $594,000
on such debentures that are now considered surrendered was recorded
as forgiveness of interest expense during the nine months ended
September 30, 2018
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $18,000 during the nine month
period ended September 30, 2019 compared to the same period in
2018, primarily as a result of interest compounding on past due
balances. In addition, there was a decrease in the prime interest
rate to 5% as of September 30, 2019 compared to 5.25% as of
September 30, 2018.
Legal
and professional expenses during the nine month period ended
September 30, 2019 decreased by $6,000 when compared to the same
period in 2018. Legal expenses were incurred in 2018 as a result of
legal expenses incurred in connection with research on the effect
of surrender of debentures escheated. and in connection with legal
research relating to the Company’s going concern alternatives
and SEC Regulation S-X for inactive registrants. Professional
expenses increased by $2,000 during the nine months ended September
30, 2019 compared to 2018 as a result of expenses incurred during
the nine months ended September 30, 2019 on a parcel in Citrus
County requiring additional environmental remediation.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Taxes
and assessments expense decreased by $1,000 during the nine month
period ended September 30, 2019 when compared to the same period in
2018. General and administrative expenses decreased by $33,000
during the nine month period ended September 30, 2019 when compared
to the same period in 2018 primarily as a result of decreased fees
related to the filing of the Company’s periodic reports in
2019 as an inactive registrant and a decrease in the 6%
subordinated convertible debenture administration fees in
2018.
The
Company incurred a net loss of $1,187,000 during the nine month
period ended September 30, 2019 compared to a net loss of $332,000
for the comparable period in 2018. After deducting preferred
dividends, totaling $480,000 for the nine month periods ended
September 30, 2019 and 2018, with respect to the Class A Preferred
Stock, net loss per share of $(.31) and $(.15) was incurred for the
nine month periods ended September 30, 2019 and 2018,
respectively.
Cash Flow Analysis
During
the nine month period ended September 30, 2019, the Company’s
net cash used in operating activities was $190,000 compared to
$112,000 for the comparable period in 2018. There was no cash
provided from investing activities during the nine month period
ended September 30, 2019 compared to $560,000 of net cash provided
from investing activities in the comparable period in 2018 which
consisted of note receivable proceeds received from
LIC.
Analysis of Financial Condition
Total
assets decreased by $190,000 at September 30, 2019 compared to
total assets at December 31, 2018, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$336
|
$526
|
$(190)
|
|
Land
inventory
|
14
|
14
|
-
|
|
Restricted
sinking fund
|
13
|
13
|
-
|
|
|
$363
|
$553
|
$(190)
|
During
the nine month period ended September 30, 2019, cash decreased by
$190,000, compared to December 31, 2018 as a result of the Company
funding its operating activities. Based on its current expenditure
level, the Company will be able to fund ongoing operating activity
for less than two years unless it is able to sell remaining land
parcels.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liabilities were
approximately $92,546,000 at September 30, 2019 compared to
approximately $91,549,000 at December 31, 2018, reflecting the
following changes which resulted in an increase of $997,000 of
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$167
|
$230
|
$(63)
|
|
Accrued
real estate taxes
|
3
|
-
|
3
|
|
Accrued
interest
|
83,015
|
81,958
|
1,057
|
|
Credit
agreements:
|
|
|
-
|
|
Notes
payable
|
1,198
|
1,198
|
-
|
|
Subordinated
convertible
|
|
|
|
|
debentures
payable
|
8,163
|
8,163
|
-
|
|
|
|
|
|
|
|
$92,546
|
$91,549
|
$997
|
During
the nine month period ended September 30, 2019, the amount of
accounts payable and accrued expenses decreased by $63,000
primarily as a result of timing differences. In addition, the
Company’s general and administrative expenses have decreased
in 2019 as an inactive registrant. Accrued real estate taxes
increased by $3,000 during the nine month period ended September
30, 2019 due to the accrual of real estate taxes for the respective
period. Accrued interest during the nine month period ended
September 30, 2019 increased by $1,057,000 due to the amount of
interest for such period. During the nine month period ended
September 30, 2019, the Company made no interest or principal
payments on its outstanding notes payable and subordinated
convertible debentures.
The
Company remains in default on the entire principal amount plus
interest (including certain sinking fund and interest payments with
respect to the subordinated convertible debentures) of its
subordinated convertible debentures and notes payable as well as
the remaining accrued interest owed with respect to the
collateralized convertible debentures.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The
principal and accrued interest amounts due as of September 30, 2019
are as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands)
|
|
|
|
|
|
Subordinated
convertible debentures:
|
|
|
|
At
6.5%, due June 1991
|
$138
|
$277
|
|
At
6%, due May 1992
|
8,025
|
26,458
|
|
|
$8,163
|
$26,735
|
|
Collateralized
convertible debentures-related party:
|
|
|
|
At
14%, due July 8, 1997
|
$-
|
$52,915
|
|
|
|
|
|
Notes
payable:
|
|
|
|
At
prime plus 2%, all past due
|
$1,176
|
$3,365
|
|
Non-interest
bearing
|
22
|
-
|
|
|
$1,198
|
$3,365
|
The
Company does not have sufficient funds available (after payment of,
or the reserving for the payment of, anticipated future operating
expenses) to satisfy the principal or interest obligations on the
above debentures and notes payable or any arrearage in preferred
dividends.
The
Company remains totally dependent upon the sale of parcels of its
various remaining properties with respect to its ability to make
any future debt service payments.
The
Company’s independent registered public accounting firm
included an explanatory paragraph regarding the Company’s
ability to continue as a going concern in their opinion on the
Company’s consolidated financial statements for the year
ended December 31, 2018.
PGI
INCORPORATED AND SUBSIDIARIES
Forward Looking Statements
The
discussion set forth in this Item 2, as well as other portions of
this Form 10-Q, may contain forward-looking statements. Such
statements are based upon the information currently available to
management of the Company and management’s perception thereof
as of the date of the Form 10-Q. When used in this Form 10-Q, words
such as “anticipates,” “estimates,”
“believes,” “expects,” and similar
expressions are intended to identify forward-looking statements.
Such statements are subject to risks and uncertainties. Actual
results of the Company’s operations could materially differ
from those forward-looking statements. The differences could be
caused by a number of factors or combination of factors including,
but not limited to: changes in the real estate market in Florida
and the counties in which the Company owns any property;
institution of legal action by the bondholders for collection of
any amounts due under the subordinated convertible debentures
(notwithstanding the Company’s belief that at least a portion
of such actions might be barred under applicable statute of
limitations); changes in management strategy; and other factors set
forth in reports and other documents filed by the Company with the
Securities and Exchange Commission from time to time.