Item
1. Financial Statements
PGI
INCORPORATED AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
($ in
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
Cash
|
$
629
|
$
159
|
Receivables-related
party
|
-
|
573
|
Receivable
|
5
|
-
|
Land
inventory
|
14
|
14
|
Restricted
sinking fund
|
27
|
41
|
Other
assets
|
1
|
1
|
|
$
676
|
$
788
|
LIABILITIES
|
|
|
Accounts
payable and accrued expenses
|
$
198
|
$
209
|
Accrued
real estate taxes
|
2
|
4
|
Accrued
interest:
|
|
|
Subordinated
convertible debentures payable
|
25,384
|
25,032
|
Convertible
debentures payable-related party
|
52,915
|
52,915
|
Notes
payable
|
3,257
|
3,218
|
Credit
agreements:
|
|
|
Notes
payable
|
1,198
|
1,198
|
Subordinated
convertible debentures payable
|
8,315
|
8,472
|
|
91,269
|
91,048
|
STOCKHOLDERS'
DEFICIENCY
|
|
|
Preferred
stock, par value $1.00 per share;
|
|
|
authorized
5,000,000 shares; 2,000,000
|
|
|
Class
A cumulative convertible shares issued
|
|
|
and
outstanding; (liquidation preference of
|
|
|
$8,000
plus unpaid cumulative dividends of $14,835)
|
2,000
|
2,000
|
Common
stock, par value $.10 per share;
|
|
|
authorized
25,000,000 shares; 5,317,758
|
|
|
shares
issued and outstanding
|
532
|
532
|
Paid-in
capital
|
13,498
|
13,498
|
Accumulated
deficit
|
(106,623
)
|
(106,290
)
|
|
(90,593
)
|
(90,260
)
|
|
$
676
|
$
788
|
See
accompanying notes to Condensed Consolidated Financial Statements
(unaudited).
Part
I Financial Information (Continued)
PGI
INCORPORATED AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
($ in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
Interest
income
|
$
1
|
$
-
|
$
2
|
$
1
|
Interest
income-related party
|
-
|
1
|
4
|
1
|
|
1
|
1
|
6
|
2
|
COSTS
AND EXPENSES
|
|
|
|
|
Interest
|
347
|
339
|
692
|
675
|
Forgiveness
of debt
|
|
|
|
|
and
interest
|
(111
)
|
-
|
(443
)
|
-
|
Taxes
and assessments
|
2
|
1
|
3
|
2
|
Consulting
and accounting-
|
|
|
|
|
related
party
|
9
|
9
|
18
|
19
|
Legal
and professional
|
24
|
4
|
28
|
25
|
General
and administrative
|
20
|
21
|
41
|
46
|
|
291
|
374
|
339
|
767
|
Net
Income (Loss)
|
(290
)
|
(373
)
|
(333
)
|
(765
)
|
before
income taxes
|
|
|
|
|
Income
tax expense
|
-
|
-
|
-
|
(57
)
|
NET
INCOME (LOSS)
|
$
(290
)
|
$
(373
)
|
$
(333
)
|
$
(822
)
|
|
|
|
|
|
NET
LOSS PER SHARE(*)
|
|
|
|
|
AVAILABLE
TO COMMON
|
|
|
|
|
STOCKHOLDERS-Basic
and diluted
|
$
(0.08
)
|
$
(0.10
)
|
$
(0.12
)
|
$
(0.21
)
|
|
|
|
|
|
*Considers
the effect of dividends on preferred stock for the three and six
months ended
June
30, 2018 and 2017.
|
See
accompanying notes to Condensed Consolidated Financial Statements
(unaudited).
Part
I Financial Information (Continued)
PGI
INCORPORATED AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities
|
$
(90
)
|
$
(213
)
|
Cash
Flows from investing activities:
|
|
|
Investment
in notes receivable-related party
|
-
|
(500
)
|
Payments
received on notes receivable-related party
|
560
|
-
|
Net
cash provided by (used in) investing activities
|
560
|
(500
)
|
|
|
|
Net
change in cash
|
470
|
(713
)
|
|
|
|
Cash
at beginning of period
|
159
|
958
|
|
|
|
Cash
at end of period
|
$
629
|
$
245
|
See
accompanying notes to Condensed Consolidated Financial Statements
(unaudited).
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
(1)
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements
of PGI Incorporated (“PGI”) and its subsidiaries (the
“Company”) have been prepared in accordance with the
instructions to Form 10 - Q and therefore do not include all
disclosures necessary for fair presentation of financial position,
results of operations and cash flows in conformity with generally
accepted accounting principles. 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, 2017.
The
Company was founded in 1958, and up until the mid 1990’s was
in the business of building and selling homes, developing and
selling home sites and selling undeveloped or partially developed
tracts of land. Over approximately the last 25 years, the
Company’s business focus and emphasis changed substantially
as it has concentrated its sales and marketing efforts almost
exclusively on the disposition of its remaining real
estate.
The
Company’s major efforts and activities have been, and
continue to be, to sell assets of the Company, to repay its
indebtedness, and to pay the ordinary on-going costs of operation
of the Company. The potential values of the land parcels held for
sale have been difficult to assess. While the Company will seek to
realize full market value for each remaining asset, the amounts
realized may be at substantial variance from its present financial
statement carrying value. Certain of these assets may be of so
little value and marketability that the Company may elect not to
pay the real estate taxes on selected parcels, which may eventually
result in a defacto liquidation of such property by subjecting such
property to a tax sale. In management’s judgement, the
remaining assets will be insufficient to satisfy much, if any, of
the outstanding indebtedness and there will be no recoveries by the
shareholders. Consequently, there is substantial doubt about the
Company’s ability to continue as a going concern within one
year after the date that the financial statements are
issued.
Certain
information and note disclosures normally included in the
Company’s annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Form
10-K annual report for 2017 filed with the Securities and Exchange
Commission.
The
condensed consolidated statement of financial position of the
Company as of December 31, 2017 has been derived from the audited
consolidated statement of financial position as of that
date.
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
The
Company remains in default under the indentures governing its
unsecured subordinated debentures. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations and Notes
7, 8, and 9 to the Company's consolidated financial statements for
the year ended December 31, 2017, as contained in the Company's
Annual Report on Form 10 - K).
All
adjustments (consisting of only normal recurring accruals)
necessary for fair presentation of financial position, results of
operations and cash flows have been made. The results for the three
and six months ended June 30, 2018 are not necessarily indicative
of operations to be expected for the fiscal year ending December
31, 2018 or any other interim period.
Restatement of Previously Issued Financial Statements
During
the second quarter of 2018, the Company received information from
the Trustee of the 6.5% subordinated convertible debentures for the
six month period ending June 30, 2018 that included activity for
the three month period ending March 31, 2018 which had not been
previously provided. Accordingly, the financial statements for
March 31, 2018 and for the three months ended as previously issued
require restatement. Below is a summary of the
adjustments/restatement as of March 31, 2018 and for the three
months ended March 31, 2018.
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Restricted
sinking fund
|
$
41
|
$
(11
)
|
$
30
|
Total
assets
|
739
|
(11
)
|
728
|
|
|
|
|
LIABILITIES
|
|
|
|
Accrued
interest
|
|
|
|
Subordinated
convertible debentures payable
|
25,358
|
(225
)
|
25,133
|
|
|
|
|
Credit
agreements
|
|
|
|
Subordinated
convertible debentures payable
|
8,472
|
(118
)
|
8,354
|
|
|
|
|
Total
liabilities
|
91,374
|
(343
)
|
91,031
|
|
|
|
|
STOCKHOLDERS'
DEFICIENCY
|
|
|
|
Accumulated
Deficit
|
(106,665
)
|
(332
)
|
(106,997
)
|
|
|
|
|
Total
stockholders' deficiency
|
(90,635
)
|
(332
)
|
(90,967
)
|
|
|
|
|
Total
liabilities and stockholders' deficiency
|
739
|
(11
)
|
728
|
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
|
Three
months ended March 31, 2018
|
|
|
|
|
|
($ in
thousands, except per share data)
|
COSTS
AND EXPENSES
|
|
|
|
Forgiveness
of debt and interest
|
-
|
332
|
332
|
Total
Costs and Expenses
|
380
|
(332
)
|
48
|
Net
Loss before income taxes
|
(375
)
|
332
|
(43
)
|
NET
LOSS
|
(375
)
|
332
|
(43
)
|
|
|
|
|
Loss Available to
Common Shareholders
|
(535
)
|
332
|
(203
)
|
NET
LOSS PER SHARE(*)
|
|
|
|
AVAILABLE
TO COMMON
|
|
|
|
STOCKHOLDERS-Basic
and diluted
|
$
(0.10
)
|
$
0.06
|
$
(0.04
)
|
|
|
|
|
*Considers the effect of dividends on preferred stock for the three
months ended
|
|
|
March
31, 2018.
|
|
|
|
During the three
month period ended March 31, 2018, $11,000 of the debenture reserve
funds were utilized in escheatment to states of respective
debenture holders with $115,000 in face amount of debentures were
effectively surrendered with escheatment of respective funds to the
states of debenture holders. In addition, debentures with a face
amount of $3,000 were surrendered by debenture holders.
Accordingly, the Company has recognized $107,000 in forgiveness of
debt during the three months ended March 31, 2018. In addition,
accrued interest of $225,000 on such debentures that are considered
surrendered was recorded as forgiveness of interest expense during
the three months ended March 31, 2018.
Basic
per share amounts are computed by dividing net income (loss), after
deducting current period dividends on the Company's preferred
stock, by the weighted average number of common shares outstanding
during the period. The weighted average number of common shares
outstanding for the three and six months ended June 30, 2018 and
2017 was 5,317,758.
Diluted
per share amounts are computed by dividing net income (loss)
attributable to common shareholders by the weighted average number
of common shares outstanding, after adjusting for the estimated
effect of the assumed conversion of all cumulative convertible
preferred stock and outstanding convertible debentures, if
dilutive, into shares of common stock. For the three and six months
ended June 30, 2018 and 2017 , the assumed conversion of all
outstanding convertible preferred stock and collateralized
convertible debentures would have been anti-dilutive.
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
The
following is a summary of the calculations used in computing basic
and diluted income (loss) per share for the three and six months
ended June 30, 2018 and 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($ in thousands, except share and per share data)
|
|
|
|
|
|
Net
Income (Loss)
|
$
(290
)
|
$
(373
)
|
$
(333
)
|
$
(822
)
|
|
|
|
|
|
Preferred
dividends
|
(160
)
|
(160
)
|
(320
)
|
(320
)
|
|
|
|
|
|
Loss
Available to
|
$
(450
)
|
$
(533
)
|
$
(653
)
|
$
(1,142
)
|
Common
shareholders
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
Weighted
Average Number
|
|
|
|
|
Of
Common Shares
|
|
|
|
|
Outstanding
|
5,317,758
|
5,317,758
|
5,317,758
|
5,317,758
|
|
|
|
|
|
Basic
and Diluted Loss
|
|
|
|
|
Per
Common Share
|
$
(0.08
)
|
$
(0.10
)
|
$
(0.12
)
|
$
(0.21
)
|
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(3)
Statement of Cash
Flows
The
Financial Accounting Standards Board Accounting Standards
Codification Topic No. 230, “Statement of Cash Flows”,
requires a statement of cash flows as part of a full set of
financial statements. For quarterly reporting purposes, the Company
has elected to condense the reporting of its net cash flows. There
were no payments of interest for the six month periods ended June
30, 2018 and 2017.
Receivables
consisted of:
|
|
|
|
|
|
|
|
Legal
receivable
|
$
5
|
$
-
|
Note
receivable-related party
|
-
|
560
|
Interest
receivable-related party
|
-
|
13
|
|
$
5
|
$
573
|
Land
inventory consisted of
|
|
|
|
|
|
|
|
Fully
improved land
|
$
14
|
$
14
|
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(6)
Accounts Payable
and Accrued Expenses
Accounts payable
and accrued expenses consisted of:
|
|
|
|
|
|
|
|
Accounts
payable
|
$
11
|
$
15
|
Accrued
audit & professional
|
36
|
47
|
Accrued
consulting fees-related party
|
1
|
1
|
Accrued
debenture fees
|
149
|
145
|
Accrued
miscellaneous
|
1
|
1
|
|
$
198
|
$
209
|
|
|
|
Accrued
real estate taxes consisted of:
|
|
|
Current
real estate taxes
|
$
2
|
$
4
|
(7)
Credit Agreements:
Notes Payable and Subordinated Convertible Debentures
Payable
Credit
agreements consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
Notes
payable - $1,176,000 bearing
interest at prime plus
2%,
the
remainder non-interest bearing,
all past due
|
$
1,198
|
$
1,198
|
|
|
|
Subordinated
convertible debentures payable:
|
|
|
|
At
6.5% interest; due June 1991
|
290
|
447
|
At
6% interest; due May 1992
|
8,025
|
8,025
|
|
8,315
|
8,472
|
|
$
9,513
|
$
9,670
|
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
$27,000 and $41,000 as of June 30, 2018 and December 31, 2017,
respectively, available for final distribution of $92 per $1,000 in
face amount to holders of such debentures who surrender their
respective debenture certificates.
PGI INCORPORATED AND
SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
The
6.5% Subordinated convertible debenture balances for the six months
ended June 30, 3018 and year ended December 31, 2017 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Outstanding
debenture principal balance
|
$
290
|
$
447
|
Face
value of debentures surrendered
|
22
|
-
|
Face
value of debentures escheated
|
135
|
-
|
Accrued
and unpaid interest balance
|
558
|
846
|
Debenture
reserve account balance
|
27
|
41
|
Debenture
reserve funds utilized
|
|
|
in payment of final distribution
|
2
|
-
|
Debenture
reserve funds utilized
|
|
|
in escheatment to states of debenture holders
|
12
|
-
|
Forgiveness
of debt
|
143
|
-
|
Forgiveness
of interest
|
300
|
-
|
During
the six month period ended June 30, 2018, $14,000 of the debenture
reserve funds were utilized with $2,000 disbursed in final
distribution to debenture holders and $12,000 disbursed in
escheatment to states of respective debenture holders as debentures
with a face amount of $22,000 were surrendered by debenture holders
and $135,000 in face amount of debentures were effectively
surrendered with the escheatment of respective funds to the states
of debenture holders. Accordingly, the Company has recognized
$143,000 in forgiveness of debt during the six months ended June
30, 2018. In addition, accrued interest of $300,000 on such
debentures that are considered surrendered was recorded as
forgiveness of interest expense during the six months ended June
30, 2018. There were no debentures surrendered or escheated in
2017.
As of
June 30, 2018, the outstanding principal balance on such 6.5%
subordinated convertible debentures that were not surrendered by
the respective holders, or escheated by the Trustee to the states
of residence of the respective holders, equals $290,000 plus
accrued and unpaid interest of $558,000. The outstanding principal
balance on such respective debentures as of December 31, 2017 was
$447,000 plus accrued and unpaid interest of $846,000.
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.
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
Income
tax expense of $57,000 was recognized during the six month period
ended June 30, 2017 for the estimated 2016 Alternative Minimum Tax
on the 2016 gain on sales of real estate. At December 31, 2017, the
Company had an operating loss carryforward of approximately
$67,793,000 available to reduce future taxable income. These
operating losses expire at various dates through 2036.
The
following summarizes the temporary differences of the Company at
June 30, 2018 and December 31, 2017 at the statutory
rate:
|
|
|
|
|
|
|
|
Deferred
tax asset
|
|
|
Net
operating loss carryforward
|
$
17,031
|
$
16,948
|
Expenses
capitalized under IRC 263(a)
|
37
|
37
|
Tax
credits (AMT)
|
57
|
57
|
Valuation
allowance
|
(17,125
)
|
(17,042
)
|
Total
deferred tax asset
|
-
|
-
|
(10)
Fair
Value of Financial Instruments
The
carrying amount of the Company’s financial instruments, other
than debt, approximates fair value at June 30, 2018 and December
31, 2017 because of the short maturity of those instruments. It was
not practicable to estimate the fair value of the Company’s
notes payable and its convertible debentures because these debts
are in default causing no basis for estimating value by reference
to quoted market prices or current rates offered to the Company for
debt of the same remaining maturities.
PGI
INCORPORATED AND SUBSIDIARIES
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.
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
$27,000 and $41,000 as of June 30, 2018 and December 31, 2017,
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 six month period ended June 30, 2018, $14,000 of the debenture
reserve funds were utilized with $2,000 disbursed in final
distribution to debenture holders and $12,000 disbursed in
escheatment to states of respective debenture holders as debentures
with a face amount of $22,000 were surrendered by debenture holders
and $135,000 in face amount of debentures were effectively
surrendered with the escheatment of respective funds to the states
of debenture holders. Accordingly, the Company has recognized
$143,000 in forgiveness of debt during the six months ended June
30, 2018. In addition, accrued interest of $300,000 on such
debentures that are considered surrendered was recorded as
forgiveness of interest expense during the six months ended June
30, 2018. There were no debentures surrendered or escheated in
2017.
As of
June 30, 2018, the outstanding principal balance on such 6.5%
subordinated convertible debentures that were not surrendered by
the respective holders, or escheated by the Trustee to the states
of residence of the respective holders, equals $290,000 plus
accrued and unpaid interest of $558,000. 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
June 30, 2018, 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
Revenue
of $1,000 was realized for each of the three month periods ended
June 30, 2018 and 2017. Interest income of $1,000 for the three
month period ended June 30, 2018 represents interest earned on the
Company’s money market account. Interest income of $1,000 for
the three month period ended June 30, 2017 represents related party
interest on the short-term note receivable with Love Investment
Company (“LIC”), the Company’s primary preferred
stock shareholder.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Expenses for the
three month period ended June 30, 2018 decreased by $83,000 when
compared to the same period in 2017 primarily due to recognition of
$111,000 in forgiveness of debt and interest attributed to the 6.5%
subordinated debentures which matured in June 1991, for which the
final distribution of $92 per $1,000 in face amount was paid
relating to debentures surrendered in face amount of $19,000 and
$20,000 in face amount of debentures effectively surrendered with
escheatment of the final distribution to the respective states of
such debenture holders. Accrued interest in the amount of $75,000
on such surrendered or escheated debentures was recorded as
forgiveness of interest expense during the three months ended June
30, 2018, and the principal amount of $39,000 was recognized as
forgiveness of debt in such period. Interest expense relating to
the Company’s current outstanding debt, held by non-related
parties, increased by $8,000 during the three month period ended
June 30, 2018 compared to the same period in 2017, primarily as a
result of interest compounding on past due balances.
Legal
and professional expenses increased by $20,000 during the three
months ended June 30, 2018 when compared to the same period in
2017. Legal expenses increased by $12,000 during the three months
ended June 30, 2018 compared to the same period in 2017 primarily
as a result of legal expenses incurred in connection with reviewing
and editing the Company’s Form 10K. Professional expenses
increased by $8,000 when compared to the same period in 2017 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.
Taxes
and assessments expense increased by $1,000 during the three months
ended June 30, 2018 when compared to the same period in 2017.
General and administrative expenses during the three month period
ended June 30, 2018 decreased by $1,000 when compared to the same
period in 2017 primarily as a result of decreased fees relating to
the filing of the Company’s periodic reports.
The
company incurred a net loss of $290,000 for the three months ended
June 30, 2018 compared to net loss of $373,000 for the three months
ended June 30, 2017. After deducting preferred dividends, totaling
$160,000 for the three month periods ended June 30, 2018 and 2017,
with respect to the Class A Preferred Stock, a net loss per share
of $(.08) and $(.10) was incurred for the three month periods ended
June 30, 2018 and 2017, respectively. The total cumulative
preferred dividends in arrears with respect to the Class A
Preferred Stock through June 30, 2018 is $14,835,000.
Revenues for the
six months ended June 30, 2018 increased by $4,000 when compared to
the same period in 2017. Interest income earned on the
Company’s money market account increased by $1,000 during the
six months ended June 30, 2018 compared to the same period in 2017.
Related party interest income increased by $3,000 during the six
months ended June 30, 2018 to $4,000 from $1,000 for the comparable
period in 2017. The related party interest income is the result of
the Company’s investment in a $560,000 short term note with
LIC, the Company’s primary preferred stock
shareholder.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Expenses, including
income tax expenses, for the six months ended June 30, 2018
decreased by $485,000 when compared to the same period in 2017
primarily due to the $443,000 in forgiveness of debt and interest
attributed to the 6.5% subordinated debentures which matured in
June 1991, for which the final distribution of $92 per $1,000 in
face amount was paid relating to debentures surrendered in face
amount of $22,000 and $135,000 in face amount of debentures
effectively surrendered with escheatment of final distribution to
the respective states of such debenture holders. Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $17,000 during the six month
period ended June 30, 2018 compared to the same period in 2017,
primarily as a result of interest compounding on past due
balances.
Legal
and professional expenses during the six month period ended June
30, 2018 increased by $3,000 when compared to the same period in
2017. Legal expenses increased by $10,000 during the six months
ended June 30, 2018 compared to the same period in 2017 primarily
as a result of legal expenses incurred in connection with reviewing
and editing the Company’s Form 10K. Professional expenses
decreased by $7,000 when compared to the same period in 2017 as a
result expenses incurred during the period ended June 30, 2017 on a
parcel in Citrus County requiring additional environmental
remediation.
Taxes
and assessments expense increased by $1,000 during the six month
period ended June 30, 2018 when compared to the same period in
2017. Consulting and accounting-related party expenses decreased by
$1,000 during the six month period ended June 30, 2018 when
compared to the same period in 2017. 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 2017.
General
and administrative expenses during the six month period ended June
30, 2018 decreased by $5,000 when compared to the same period in
2017 primarily as a result of decreased fees related to the filing
of the Company’s periodic reports.
Income
tax expense of $57,000 was recognized during the six month period
ended June 30, 2017 for the estimated 2016 Alternative Minimum Tax
on the 2016 gain on sales of real estate.
The
Company incurred a net loss of $333,000 during the six month period
ended June 30, 2018 compared to a net loss of $822,000 for the
comparable period in 2017. After deducting preferred dividends,
totaling $320,000 for the six month periods ended June 30, 2018 and
2017, with respect to the Class A Preferred Stock, net loss per
share of $(.12) and $(.21) was incurred for the six month periods
ended June 30, 2018 and 2017, respectively.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow Analysis
During
the six month period ended June 30, 2018, the Company’s net
cash used in operating activities was $90,000 compared to $213,000
for the comparable period in 2017. Cash provided by investing
activities during the six month period ended June 30, 2018
consisted of note receivable proceeds received from LIC. There were
no investing activities during the six months ended June 30,
2018.
Analysis of Financial Condition
Total
assets decreased by $112,000 at June 30, 2018 compared to total
assets at December 31, 2017, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
629
|
$
159
|
$
470
|
Receivables-related
party
|
-
|
573
|
(573
)
|
Receivable
|
5
|
-
|
5
|
Land
inventory
|
14
|
14
|
-
|
Restricted
sinking fund
|
27
|
41
|
(14
)
|
Other
assets
|
1
|
1
|
-
|
|
$
676
|
$
788
|
$
(112
)
|
During
the six month period ended June 30, 2018, cash increased by
$470,000 and receivables-related party decreased by $573,000
compared to December 31, 2017, primarily as a result of the note
receivable proceeds received from LIC on March 7,
2018.
The
Company paid a legal retainer of $5,000 during the six months ended
June 30, 2018 which is expected to be refunded.
During
the six month period ended June 30, 2018, $14,000 of the 6.5%
subordinated convertible debenture restricted sinking funds were
utilized with $2,000 disbursed in final distribution to debenture
holders and $12,000 disbursed in escheatment to states of
respective debenture holders. There were no surrendered or
escheated 6.5% subordinated convertible debentures for the year
ended December 31, 2017.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liabilities were
approximately $91,269,000 at June 30, 2018 compared to
approximately $91,048,000 at December 31, 2017, reflecting the
following changes which resulted in an increase of $221,000 of
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$
198
|
$
209
|
$
(11
)
|
Accrued
real estate taxes
|
2
|
4
|
(2
)
|
Accrued
interest
|
81,556
|
81,165
|
391
|
Credit
agreements:
|
|
|
-
|
Notes
payable
|
1,198
|
1,198
|
-
|
Subordinated
convertible
|
|
|
|
debentures payable
|
8,315
|
8,472
|
(157
)
|
|
|
|
|
|
$
91,269
|
$
91,048
|
$
221
|
During
the six month period ended June 30, 2018, the amount of accounts
payable and accrued expenses decreased by $11,000 primarily as a
result of timing differences. Accrued real estate taxes decreased
by $2,000 during the six month period ended June 30, 2018 due to
the payment of previously accrued taxes. Accrued interest during
the six month period ended June 30, 2018 increased by $391,000 as a
result of $691,000 of interest expense for such period which was
offset by accrued interest in the amount of $300,000 on the 6.5%
subordinated convertible debentures that have been surrendered by
debenture holders or effectively surrendered by escheatment of the
respective debenture reserve funds and recorded as forgiveness of
interest expense. During the six month period ended June 30, 2018,
the Company made no interest or principal payments on its
outstanding notes payable and subordinated convertible
debentures.
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 a final distribution to holders of such
debentures on September 2, 2014. During the six months ended June
30, 2018, 6.5% subordinated with a face amount of $22,000 were
surrendered by debenture holders and $135,000 in face amount of
debentures were effectively surrendered with the escheatment of
respective debenture reserve funds by the Trustee to the states of
such debenture holders.
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 June 30, 2018 are
as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
convertible debentures:
|
|
|
At
6.5%, due June 1991
|
$
290
|
$
558
|
At
6%, due May 1992
|
8,025
|
24,826
|
|
$
8,315
|
$
25,384
|
Collateralized
convertible debentures-related party:
|
|
|
At
14%, due July 8, 1997
|
$
-
|
$
52,915
|
|
|
|
Notes
payable:
|
|
|
At
prime plus 2%, all past due
|
$
1,176
|
$
3,257
|
Non-interest
bearing
|
22
|
-
|
|
$
1,198
|
$
3,257
|
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, 2017.
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.