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 total approximates 60 acres, but
these parcels have limited value because of associated
developmental constraints such as wetlands, easements, and/or other
obstacles to development and sale.
On June
17, 2016 two contracts were executed for the sale of two
undeveloped parcels of real property consisting of 369 acres
located in Hernando County, Florida (the “Property”)
between Sugarmill Woods and the State of Florida Department of
Transportation (the “Florida DOT”). The Property was
encumbered by secured creditor claims, and the sale of the Property
closed on June 21, 2016 for $9,000,000. The Florida DOT desired to
acquire the Property in connection with the northward extension of
the Suncoast Parkway as part of the Suncoast Parkway, Project
2.
The
proceeds from the sale of the Property of $9,000,000 were received
on June 23, 2016 and payment of the primary lender debt obligation
totaling $500,000 in outstanding principal, and all accrued
interest payable related to such debt totaling $470,000, was made
to PGIP LLC “(PGIP”), the holder of the first mortgage
note and an affiliate of the Company. In addition, on June 23,
2016, the remaining outstanding principal of the collateralized
convertible debentures totaling $1,500,000 and a portion of the
accrued interest related to such debentures totaling $5,455,000 was
paid to the current holders of such debentures. Love Investment
Company (“LIC”), and Love-1989 Florida Partners, LP
(“Love-1989”), each affiliates of Love-PGI Partners,
L.P. (“L-PGI”), held such collateralized convertible
debentures. Prior to December 31, 2016, L-PGI was the
Company’s primary preferred stock shareholder. Effective
December 31, 2016, L-PGI liquidated and assigned the 2,260,760
shares of common stock of the Company and 1,875,000 shares of
preferred stock of the Company that were held by L-PGI to LIC in
conjunction with settling its remaining indebtedness.
The
Trustee of the 6.5% subordinated 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
maintained a debenture reserve fund with a balance of $41,000 as of
September 30, 2017 and December 31, 2016, respectively, which is
available for final distribution to holders of such debentures who
surrender their respective debenture certificates.
During
the nine month period ended September 30, 2017 and the year ended
December 31, 2016, 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, 2017 and December 31, 2016 the remaining outstanding
principal balance on such 6.5% subordinated convertible debentures
that have not been surrendered by the respective holders equals
$447,000 plus accrued and unpaid interest of $838,000 and $817,000,
respectively. If and when such remaining debentures are surrendered
to the Trustee, the applicable portion of such principal and
accrued interest will be recorded as debt and 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.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
As of
September 30, 2017, 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.
Results
of Operations
Revenues for the
three months ended September 30, 2017 increased by $6,000 to $7,000
from $1,000 for the comparable 2016 period primarily as a result of
$6,000 interest earned on the Company’s short-term note
receivable balance with LIC, the Company’s primary preferred
shareholder.
Expenses for the
three months ended September 30, 2017 increased by $8,000 when
compared to the same period in 2016. Interest expense for the three
month period ended September 30, 2017 increased by $9,000 compared
to the same period in 2016 primarily as a result of (i) interest
accruing on past due balances which increase at various intervals
throughout the year for accrued but unpaid interest, and (ii) an
increase in interest rates in 2017.
Taxes
and assessments expense increased by $1,000 during the three months
ended September 30, 2017 when compared to the same period in 2016
as a result of an increase in real estate tax assessments in 2017.
Consulting and accounting expense decreased by $1,000 during the
three months ended September 30, 2017 when compared to the same
period in 2016. A quarterly consulting fee is paid to Love Real
Estate Company (“LREC”), an affiliate of LIC, of
one-tenth of one percent of the carrying value of the
Company’s assets which have decreased since the same period
in 2016. Legal and professional expenses decreased by $2,000 during
the three months ended September 30, 2017 when compared to the same
period in 2016 due to additional legal expenses incurred in 2016 in
connection with the filing of the Company’s periodic reports
during the three months ended September 30, 2016. General and
administrative expenses during the three month period ended
September 30, 2017 increased by $1,000 when compared to the same
period in 2016 primarily as a result of increased audit and tax
service fees during the three month period ended September 30,
2017. As a result, a net loss of $366,000 was incurred for the
three months ended September 30, 2017 compared to net loss of
$364,000 incurred for the three months ended September 30, 2016.
After deducting preferred dividends, totaling $160,000 for the
three month periods ended September 30, 2017 and 2016, with respect
to the Class A Preferred Stock, a net loss per share of $(.10) was
incurred for both of the three month periods ended September 30,
2017 and 2016. The total cumulative preferred dividends in arrears
with respect to the Class A Preferred Stock through September 30,
2017 is $14,355,000.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Revenues for the
nine month period ended September 30, 2017 decreased by $8,994,000
to $9,000 from $9,003,000 for the comparable 2016 period primarily
as a result of the sale by Sugarmill Woods in 2016 of the Property
to the Florida DOT for $9 million. Related party interest income
increased by $5,000 during the nine months ended September 30, 2017
to $7,000 from $2,000 for the comparable period in 2016. The
related party interest income for the nine month period ended
September 30, 2017 is a result of the Company’s investment in
a $560,000 short term note with LIC, which investment was made
during the nine month period ended September 30, 2017. The Company
received payment of the previous note receivable from LIC on June
23, 2016. Interest income on the Company’s money market
account increased by $1,000 during the nine months ended September
30, 2017 compared to the same period in 2016.
Expenses for the
nine months ended September 30, 2017 decreased by $4,533,000 when
compared to the same period in 2016. The cost of real estate sales
and expenses of sale for the nine month period ended September 30,
2017 decreased by $745,000 compared to the nine month period ended
September 30, 2016, solely as a result of costs and expenses
incurred in connection with the Property sale on June 21, 2016.
There was no such expense for the comparable period in 2017.
Overall interest expense for the nine month period ended September
30, 2017 increased by $26,000 compared to the same period in 2016.
There was no interest expense-related party during the nine month
period ended September 30, 2017 compared to interest
expense-related party of $3,832,000 during the same period in 2016.
Proceeds from the Property sale were used by the Company on June
23, 2016 to repay the entire outstanding principal of the primary
lender debt of $500,000, which was held by PGIP, and the entire
outstanding principal of the collateralized convertible debenture
of $1,500,000, which was held by LIC and Love-1989. With the full
repayment of such principal, no additional interest expense was
accrued with respect to such debentures subsequent to June 23,
2016. Interest expense relating to the Company’s current
outstanding debt, held by non-related parties, increased by $26,000
during the nine month period ended September 30, 2017 compared to
the same period in 2016, primarily as a result of (i) interest
accruing on past due balances which increase at various intervals
throughout the year for accrued but unpaid interest, and (ii) an
increase in interest rates in 2017.
Taxes
and assessments expense decreased by $1,000 during the nine month
period ended September 30, 2017 when compared to the same period in
2016 as a result of lower real estate tax expense during the nine
month period ended September 30, 2017 due to the sale of Property
sold to the Florida DOT on June 21, 2016.
Legal
and professional expenses during the nine month period ended
September 30, 2017 increased by $12,000 when compared to the same
period in 2016, primarily as a result of expenses incurred on a
parcel in Citrus County requiring additional environmental
remediation during the nine month period ended September 30, 2017.
General and administrative expenses during the nine month period
ended September 30, 2017 increased by $7,000 when compared to the
same period in 2016 primarily as a result of increased audit and
tax service fees during the nine month period ended September 30,
2017.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The
Company paid a Federal income tax deposit of $75,000 on April 18,
2017 for the estimated 2016 Alternative Minimum Tax on the 2016
gain on sales of real estate. Estimated recoverable income taxes as
of September 30, 2017 is $18,000 and the Company recognized an
income tax expense of $57,000 during the nine month period ended
September 30, 2017. As a result, a net loss of $1,188,000 was
incurred for the nine month period ended September 30, 2017
compared to net income of $3,330,000 for the comparable period in
2016. After deducting preferred dividends, totaling $480,000 for
the nine month periods ended September 30, 2017 and 2016, with
respect to the Class A Preferred Stock, net income (loss) per share
of $(.31) and $.54 was incurred for the nine month periods ended
September 30, 2017 and 2016, respectively.
Cash
Flow Analysis
During
the nine month period ended September 30, 2017, the Company’s
net cash used in operating activities was $232,000 compared to cash
provided by operating activities of $2,846,000 for the comparable
period in 2016, reflecting the net effect of the $9 million
received in the sale of Property to the Florida DOT and $5,925,000
of accrued interest paid on collateralized debt. Net cash used in
investing activities during the nine months ended September 30,
2017, consisted of a $560,000 short-term loan to LIC, the
Company’s primary preferred shareholder, bearing interest at
4.5% per annum and to be repaid by December 31, 2017. During the
nine months ended September 30, 2016, the Company received $178,000
in payment of the note receivable principal from LIC and the
restricted cash of $5,000 from PGIP, the first mortgage lender,
which was released with the sale of Property and satisfaction of
the primary lender debt obligation owed to PGIP. Net cash used in
financing activities for the nine month period ended September 30,
2016 was for the repayment of $2 million of related party primary
lender debt and related party collateralized convertible
debentures. There was no financing activities during the nine
months ended September 30, 2017.
Analysis
of Financial Condition
Total
assets decreased by $207,000 at September 30, 2017 compared to
total assets at December 31, 2016, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
166
|
$
958
|
$
(792
)
|
Receivables-related
party
|
567
|
-
|
567
|
Recoverable
income taxes
|
18
|
-
|
18
|
Land
and improvement inventories
|
14
|
14
|
-
|
Restricted
sinking fund
|
41
|
41
|
-
|
Other
assets
|
1
|
1
|
-
|
|
$
807
|
$
1,014
|
$
(207
)
|
During
the nine month period ended September 30, 2017, cash decreased by
$792,000 compared to December 31, 2016, primarily as a result of
the $560,000 short-term loan to LIC which bears interest of 4.5%
per annum and matures on December 31, 2017 and funding of the
Company’s operating activities.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The
Company paid a Federal income tax deposit of $75,000 on April 18,
2017 for the estimated 2016 Alternative Minimum Tax on the 2016
gain on sales of real estate. Estimated recoverable income taxes as
of September 30, 2017 is $18,000 and estimated income tax expense
of $57,000 was recognized for the nine months ended September 30,
2017.
Liabilities were
approximately $90,688,000 at September 30, 2017 compared to
approximately $89,708,000 at December 31, 2016, reflecting the
following changes which resulted in an increase of $980,000 of
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$
194
|
$
230
|
$
(36
)
|
Accrued
real estate taxes
|
3
|
4
|
(1
)
|
Accrued
interest
|
80,821
|
79,804
|
1,017
|
Credit
agreements:
|
|
|
-
|
Notes
payable
|
1,198
|
1,198
|
-
|
Subordinated
convertible
|
|
|
|
debentures payable
|
8,472
|
8,472
|
-
|
|
|
|
|
|
$
90,688
|
$
89,708
|
$
980
|
During
the nine month period ended September 30, 2017, the amount of
accounts payable and accrued expenses decreased by $36,000
primarily as a result of timing differences. Accrued real estate
taxes decreased by $1,000 during the nine month period ended
September 30, 2017 due to the payment of previously accrued taxes.
Accrued interest during the nine month period ended September 30,
2017 increased by $1,017,000 due to the amount of interest expense
for such period. During the nine month period ended September 30,
2017, the Company made no interest or principal payments on its
outstanding notes payable and subordinated convertible
debentures.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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.
The
principal and accrued interest amounts due as of September 30, 2017
are as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
convertible debentures:
|
|
|
At
6 1/2 %, due June 1, 1991
|
$
447
|
$
838
|
At
6%, due May 1, 1992
|
8,025
|
23,868
|
|
$
8,472
|
$
24,706
|
Collateralized
convertible debentures-related party:
|
|
|
At
14%, due July 8, 1997
|
$
-
|
$
52,915
|
|
|
|
Notes
payable:
|
|
|
At
prime plus 2%, all past due
|
$
1,176
|
$
3,200
|
Non-interest
bearing
|
22
|
-
|
|
$
1,198
|
$
3,200
|
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, 2016.
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.