I
tem 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
Board of Directors of PGI has 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 anticipates that the aforementioned annual
consolidated financial statements will be reviewed by a PCAOB
registered public accounting firm rather than audited by a PCAOB
registered public accounting firm. PGI has engaged Milhouse &
Neal to be the PCAOB registered public accounting firm that will
review its annual consolidated financial statements that will 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.
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 June 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 six month period ended June 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
June 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 $275,000 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
June 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.
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Results of Operations
Revenues for the
three months ended June 30, 2019 increased by $2,000 to $3,000 from
$1,000 for the comparable 2018 period. Other income of $3,000
received during the three months ended June 30, 2019 represents a
recovery from a lot lien receivable recorded in 1999 which has been
fully provided for cancellation. There was no other revenue during
the three months ended June 30, 2018. Interest income on the
Company’s money market account decreased by $1,000 during the
three months ended June 30, 2019 from the comparable period in 2018
due to the declining account balance.
Expenses for the
three month period ended June 30, 2019 increased by $104,000 when
compared to the same period in 2018 primarily as a result of no
forgiveness of debt and interest in the three months ended June 30,
2019 as compared to $111,000 of forgiveness of debt and interest
during the three months ended June 30, 2018. The forgiveness of
debt and interest for the three months ended June 30, 2018 is
attributed to the 6.5% subordinated debentures which matured in
June 1991. A face amount of $20,000 of debentures were effectively
surrendered with escheatment of respective funds to the states of
debenture holders. In addition, debentures with a face amount of
$19,000 were surrendered by debenture holders. Accordingly, the
Company has recognized $36,000 in forgiveness of debt during the
three months ended June 30, 2018. In addition, accrued interest of
$75,000 on such debentures that are considered surrendered was
recorded as forgiveness of interest expense during the three months
ended June 30, 2018.
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $6,000 during the three month
period ended June 30, 2019 compared to the same period in 2018,
primarily as a result of interest compounding on past due balances.
In addition, there was an increase in the prime interest rate to
5.5% as of June 30, 2019 compared to 5% as of June 30,
2018.
Legal
and professional expenses decreased by $6,000 during the three
months ended June 30, 2019 when compared to the same period in
2018. Legal expenses decreased by $1,000 during the three months
ended June 30, 2019 compared to the same period in 2018 and
professional expenses decreased by $5,000 when compared to the same
period in 2018 as a result of expenses incurred during the three
months ended June 30, 2018 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 decreased by $1,000 during the three months
ended June 30, 2019 when compared to the same period in 2018.
General and administrative expenses during the three month period
ended June 30, 2018 decreased by $6,000 when compared to the same
period in 2018 primarily as a result of a $3,000 decrease in fees
relating to the filing of the Company’s periodic reports in
2019 as an inactive registrant. In addition, there was a decrease
of approximately $2,000 during the three month period ended June
30, 2019 compared to the same period in 2018 due to 6% subordinated
convertible debenture administration fees in 2018.
The
Company incurred a net loss of $392,000 during the three month
period ended June 30, 2019 compared to a net loss of $290,000 for
the comparable period in 2018. After deducting preferred dividends,
totaling $160,000 for the three month periods ended June 30, 2019
and 2018, with respect to the Class A Preferred Stock, a net loss
per share of $(.10) and $(.08) was incurred for the three month
periods ended June 30, 2019 and 2018, respectively. The total
cumulative preferred dividends in arrears with respect to the Class
A Preferred Stock through June 30, 2019 is
$15,475,000.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Revenues for the
six months ended June 30, 2018 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 six months ended June 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 six months ended June 30,
2019 from the comparable period in 2018 due to the declining
account balance. Other income of $3,000, received during the three
months ended June 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 three months
ended June 30, 2018.
Expenses for the
six months ended June 30, 2019 increased by $460,000 when compared
to the same period in 2018 primarily as a result of no forgiveness
of debt and interest in the six months ended June 30, 2019 as
compared to $443,000 of forgiveness of debt and interest during the
six months ended June 30, 2018. The forgiveness of debt and
interest for the six months ended June 30, 2018 is attributed to
the 6.5% subordinated debentures which matured in June 1991. A face
amount of $135,000 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 $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 now considered surrendered was recorded as
forgiveness of interest expense during the six months ended June
30, 2018
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $11,000 during the six month
period ended June 30, 2019 compared to the same period in 2018,
primarily as a result of interest compounding on past due
balances.
Legal
and professional expenses during the six month period ended June
30, 2019 increased by $19,000 when compared to the same period in
2018. Legal expenses increased by $24,000 during the six months
ended June 30, 2019 compared to the same period in 2018, primarily
as a result of legal expenses incurred in connection with reviewing
and editing the Company’s Form 10K and in connection with
legal research relating to the Company’s going concern
alternatives and SEC Regulation S-X for inactive registrants.
Professional expenses decreased by $5,000 during the six months
ended June 30, 2019 compared to 2018 as a result of expenses
incurred during the six months ended June 30, 2018 on a parcel in
Citrus County requiring additional environmental
remediation.
Taxes
and assessments expense decreased by $1,000 during the six month
period ended June 30, 2019 when compared to the same period in
2018. General and administrative expenses decreased by $12,000
during the six month period ended June 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 $795,000 during the six month period
ended June 30, 2019 compared to a net loss of $333,000 for the
comparable period in 2018. After deducting preferred dividends,
totaling $320,000 for the six month periods ended June 30, 2019 and
2018, with respect to the Class A Preferred Stock, net loss per
share of $(.21) and $(.12) was incurred for the six month periods
ended June 30, 2019 and 2018, 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, 2019, the Company’s net
cash used in operating activities was $145,000 compared to $90,000
for the comparable period in 2018. There was no cash provided from
investing activities during the six month period ended June 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 $145,000 at June 30, 2019 compared to total
assets at December 31, 2018, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
381
|
$
526
|
$
(145
)
|
|
Land
inventory
|
14
|
14
|
-
|
|
Restricted
sinking fund
|
13
|
13
|
-
|
|
|
$
408
|
$
553
|
$
(145
)
|
During
the six month period ended June 30, 2019, cash decreased by
$145,000, compared to December 31, 2018 as a result of the Company
funding its operating activities.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liabilities were
approximately $92,199,000 at June 30, 2019 compared to
approximately $91,549,000 at December 31, 2018, reflecting the
following changes which resulted in an increase of $650,000 of
liabilities:
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|
|
|
|
|
|
|
|
|
($ in
thousands)
|
|
Accounts
payable and accrued expenses
|
$
175
|
$
230
|
$
(55
)
|
|
Accrued
real estate taxes
|
2
|
-
|
2
|
|
Accrued
interest
|
82,661
|
81,958
|
703
|
|
Credit
agreements:
|
|
|
-
|
|
Notes
payable
|
1,198
|
1,198
|
-
|
|
Subordinated
convertible
|
|
|
|
|
debentures
payable
|
8,163
|
8,163
|
-
|
|
|
|
|
|
|
|
$
92,199
|
$
91,549
|
$
650
|
During
the six month period ended June 30, 2019, the amount of accounts
payable and accrued expenses decreased by $55,000 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 $2,000
during the six month period ended June 30, 2019 due to the accrual
of real estate taxes for the respective period. Accrued interest
during the six month period ended June 30, 2019 increased by
$703,000 due to the amount of interest for such period. During the
six month period ended June 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 June 30, 2019 are
as indicated in the following table:
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|
|
|
|
|
|
|
|
Subordinated convertible debentures:
|
|
|
|
At
6.5%, due June 1991
|
$
138
|
$
274
|
|
At
6%, due May 1992
|
8,025
|
26,129
|
|
|
$
8,163
|
$
26,403
|
|
Collateralized convertible debentures-related
party:
|
|
|
|
At
14%, due July 8, 1997
|
$
-
|
$
52,915
|
|
|
|
|
|
Notes payable:
|
|
|
|
At
prime plus 2%, all past due
|
$
1,176
|
$
3,343
|
|
Non-interest
bearing
|
22
|
-
|
|
|
$
1,198
|
$
3,343
|
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.
