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 intends to continue timely to file
Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K with
the Securities and Exchange Commission (the “SEC”). PGI
intends to include in such Quarterly and Annual Reports all
consolidated financial statements required to be included therein
pursuant to Regulation S-X. However, due to its inactive status and
diminishing financial resources, the aforementioned consolidated
financial statements will not be reviewed or audited by a PCAOB
registered public accounting firm for the year 2020. Such
disclosure was made on Form 8-K filed with the SEC on July 2, 2020.
PGI engaged Milhouse & Neal, a PCAOB registered public
accounting firm, to review its annual consolidated financial
statements for its fiscal year ended December 31,
2019.
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 $92.6 million as of December 31, 2019. 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 anticipates it 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, 2020 and December 31, 2019, 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, 2020, 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, 2020 and December 31, 2019, 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 $284,000 and $279,000,
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, 2020, 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 period ended June 30, 2020
compared to $3,000 in other revenue for the three month period
ended June 30, 2019 which represents a recovery from a lot lien
receivable recorded in 1999 which has been fully provided for
cancellation.
Expenses for the
three month period ended June 30, 2020 decreased by $17,000 when
compared to the same period in 2019. This change reflects a $13,000
decrease in legal and professional fees and a $4,000 decrease in
general and administrative expenses.
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties was $353,000 for the three month periods ended
June 30, 2020 and 2019. Interest expense relating to the
Company’s current outstanding debt for subordinated
convertible debentures, increased by $7,000 during the three month
period ended June 30, 2020 compared to the same period in 2019,
primarily as a result of interest compounding on past due balances.
This increase was offset by a $7,000 decrease in interest expense
for notes payable due to a decrease in the prime interest rate from
3.25% as of June 30, 2020 compared to 5.5% as of June 30,
2019.
Legal
and professional expenses decreased by $13,000 during the three
month period ended June 30, 2020 when compared to the same period
in 2019 as follows:
|
|
|
|
|
|
|
Legal
common title matters
|
$(7)
|
|
Legal
Form 8K review
|
(4)
|
|
Legal
review filing of periodic reports
|
(1)
|
|
Legal
research "going concern" alternatives
|
(1)
|
|
|
$(13)
|
General
and administrative expenses during the three month period ended
June 30, 2020 decreased by $4,000 when compared to the same period
in 2019. primarily as a result of a reduction in accounting review
services in the current year.
The
Company incurred a net loss of $378,000 during the three month
period ended June 30, 2020 compared to a net loss of $392,000 for
the comparable period in 2019. After deducting preferred dividends,
totaling $160,000 for the three month periods ended June 30, 2020
and 2019, with respect to the Class A Preferred Stock, a net loss
per share of $(.10) was incurred for the three month periods ended
June 30, 2020 and 2019, respectively. The total cumulative
preferred dividends in arrears with respect to the Class A
Preferred Stock through June 30, 2020 is $16,115,000.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
There
was no revenue for the six month period ended June 30, 2020
compared to $4,000 in revenue for the six month period ended June
30, 2019. Revenues for the six months ended June 30, 2019
represented $1,000 in interest income earned on the Company’s
money market account and $3,000 in other revenue which represents a
recovery from a lot lien receivable recorded in 1999 which has been
fully provided for cancellation. There is no interest income in the
current year due to the declining account balance and no other
revenue during the six month period ended June 30,
2020.
Expenses for the
six months ended June 30, 2020 decreased by $22,000 when compared
to the same period in 2019. This change reflects a $5,000 increase
in interest expense which is offset by a $12,000 decrease in legal
and professional expenses and a $15,000 decrease in general and
administrative expenses.
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $5,000 during the six month
period ended June 30, 2020 compared to the same period in 2019.
Interest expense relating to the Company’s current
outstanding debt for subordinated convertible debentures, increased
by $14,000 compared to the same six month period in 2019, primarily
as a result of interest compounding on past due balances. This
increase was offset by a $9,000 decrease in interest expense for
notes payable due to a decrease in the prime interest rate from
3.25% as of June 30, 2020 compared to 5.5% as of June 30,
2019.
Legal
and professional expenses decreased by $12,000 during the six month
period ended June 30, 2020 when compared to the same period in 2019
as follows:
|
|
|
|
|
|
|
Legal
common title matters
|
$(7)
|
|
Legal
Form 8K review
|
(4)
|
|
Legal
review filing of periodic reports
|
(1)
|
|
|
$(12)
|
General
and administrative expenses decreased by $15,000 during the six
month period ended June 30, 2020 when compared to the same period
in 2019 primarily as a result of a reduction in accounting review
services in the current year.
The
Company incurred a net loss of $777,000 during the six month period
ended June 30, 2020 compared to a net loss of $795,000 for the
comparable period in 2019. After deducting preferred dividends,
totaling $320,000 for the six month periods ended June 30, 2020 and
2019, with respect to the Class A Preferred Stock, net loss per
share of $(.21) was incurred for the six month periods ended June
30, 2020 and 2019, 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, 2020, the Company’s net
cash used in operating activities was $75,000 compared to $145,000
for the comparable period in 2019. There was no cash provided from
financing or investing activities during the six month periods
ended June 30, 2020 and 2019.
Analysis of Financial Condition
Total
assets decreased by $75,000 at June 30, 2020 compared to total
assets at December 31, 2019, reflecting the following
changes:
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|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$234
|
$309
|
$(75)
|
|
Land
inventory
|
14
|
14
|
-
|
|
Restricted
sinking fund
|
13
|
13
|
-
|
|
|
$261
|
$336
|
$(75)
|
During
the six month period ended June 30, 2020, cash decreased by
$75,000, compared to December 31, 2019 as a result of the Company
funding its administrative costs.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liabilities were
approximately $93,602,000 at June 30, 2020 compared to
approximately $92,900,000 at December 31, 2019, reflecting the
following changes which resulted in an increase of $702,000 of
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$161
|
$169
|
$(8)
|
|
Accrued
real estate taxes
|
2
|
-
|
2
|
|
Accrued
interest
|
84,078
|
83,370
|
708
|
|
Credit
agreements:
|
|
|
-
|
|
Notes
payable
|
1,198
|
1,198
|
-
|
|
Subordinated
convertible
|
|
|
|
|
debentures
payable
|
8,163
|
8,163
|
-
|
|
|
|
|
|
|
|
$93,602
|
$92,900
|
$702
|
During
the six month period ended June 30, 2020, the amount of accounts
payable and accrued expenses decreased by $8,000 primarily as a
result of timing differences. Accrued real estate taxes increased
by $2,000 during the six month period ended June 30, 2020 due to
the accrual of real estate taxes for the respective period. Accrued
interest during the six month period ended June 30, 2020 increased
by $708,000 due to the amount of interest for such period. During
the six month period ended June 30, 2020, 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, 2020 are
as indicated in the following table:
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|
|
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|
|
|
Subordinated
convertible debentures:
|
|
|
|
At
6.5%, due June 1991
|
$138
|
$284
|
|
At
6%, due May 1992
|
8,025
|
27,460
|
|
|
$8,163
|
$27,744
|
Collateralized convertible debentures-related party:
|
|
|
At
14%, due July 8, 1997
|
$-
|
$52,915
|
|
|
|
|
|
Notes
payable:
|
|
|
|
At
prime plus 2%, all past due
|
$1,176
|
$3,419
|
|
Non-interest
bearing
|
22
|
-
|
|
|
$1,198
|
$3,419
|
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 firms have
included an explanatory paragraph expressing concerns as to the
Company’s ability to continue as a going concern in their
reports on on the Company’s consolidated financial statements
for many years including the year ended December 31,
2019.
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.
