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.
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 maintained a debenture reserve fund that was closed as
of September 30, 2020. The balance as of December 31, 2019 was
$13,000, available for final distribution of $92 per $1,000 in face
amount to holders of such debentures who surrender their respective
debenture certificates.
The
remaining balance of the debenture reserve fund of $13,000 was
disbursed in escheatment to the states of the respective debenture
holders during the three month period ended September 30, 2020. The
debentures with a face amount of $138,000 were surrendered with the
escheatment of respective funds to the states of the debenture
holders. Accordingly, the Company has recognized $125,000 in
forgiveness of debt during the three month period ended September
30, 2020. In addition, accrued interest of $285,000 on such
debentures that are considered surrendered was recorded as
forgiveness of interest expense during the three month period ended
September 30, 2020. There were no debentures surrendered or
escheated in 2019.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
During
the three month period ended September 30, 2020 the Company paid
$125,000 of collateralized convertible debenture accrued interest
to LIC, the Company’s primary preferred stock shareholder,
and Love-1989, also an affiliate of the Company, which held the
collateralized convertible debentures.
As of
September 30, 2020, the Company remained in default under its
subordinated convertible debentures and notes payable, as well as
the remaining balance of accrued interest with respect to its
collateralized convertible debentures.
Results of Operations
Expenses for the
three month period ended September 30, 2020 decreased by $432,000
when compared to the same period in 2019. This decrease reflects
forgiveness of debt and interest of $410,000 which is attributed to
the 6.5% subordinated debentures which matured in June, 1991. The
debentures were escheated to the states of the respective debenture
holders. In addition, the change reflects a $1,000 decrease in
consulting and accounting related party expenses, a $15,000
decrease in legal and professional fees and a $6,000 decrease in
general and administrative expenses.
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties was $354,000 for the three month periods ended
September 30, 2020 and 2019. Interest expense relating to the
Company’s current outstanding debt for subordinated
convertible debentures, increased by $6,000 during the three month
period ended September 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 $6,000 decrease in interest
expense for notes payable due to a decrease in the prime interest
rate from 3.25% as of September 30, 2020 compared to 5% as of
September 30, 2019.
Consulting and
accounting related party expenses decreased by $1,000 during the
three month period ended September 30, 2020 compared to the same
period in 2019. A quarterly consulting fee is paid to Love Real
Estate Company, an affiliate of LIC, of one-tenth percent of the
carrying value of the Company’s assets, which decreased in
2020 compared to 2019.
Legal
and professional expenses decreased by $15,000 during the three
month period ended September 30, 2020 when compared to the same
period in 2019, primarily due to legal and professional fees
relating to environmental remediation incurred in the three month
period ended September 30, 2019.
General
and administrative expenses during the three month period ended
September 30, 2020 decreased by $6,000 when compared to the same
period in 2019 primarily as a result of the discontinuation of the
independent accounting firm review services in the current
year.
The
Company realized net income of $42,000 during the three month
period ended September 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
September 30, 2020 and 2019, with respect to the Class A Preferred
Stock, a net loss per share of $(.02) and $(.10) was incurred for
the three month periods ended September 30, 2020 and 2019,
respectively. The total cumulative preferred dividends in arrears
with respect to the Class A Preferred Stock through September 30,
2020 is $16,275,000.
Revenues for the
nine month period ended September 30, 2020 decreased by $2,000 to
$2,000 from $4,000 for the comparable period in 2019. Other income
decreased by $1,000 to $2,000 from $3,000 for the comparable period
in 2019. Other income of $2,000 and $3,000 received during the nine
month periods ended September 30, 2020 and 2019 represent
recoveries from lot lien receivables recorded in previous years
which have been fully provided for cancellation. Interest income on
the Company’s money market account decreased by $1,000 during
the nine month period ended September 30, 2020 compared to the same
period in 2019 due to the declining account balance. Interest
income of $1,000 was received during the nine months ended
September 30, 2019. There was no interest income during the nine
months ended September 30, 2020
Expenses for the
nine months ended September 30, 2020 decreased by $452,000 when
compared to the same period in 2019. This decrease reflects
forgiveness of debt and interest of $410,000 which is attributed to
the 6.5% subordinated debentures which matured in June, 1991. The
debentures were escheated to the states of the respective debenture
holders. In addition, the change reflects a $5,000 increase in
interest expense, a $1,000 decrease in consulting and accounting
related party expenses, a $27,000 decrease in legal and
professional fees and a $21,000 decrease in general and
administrative expenses.
Interest expense
relating to the Company’s outstanding debt, held by
non-related parties, increased by $5,000 during the nine month
period ended September 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 $21,000 compared to the same nine month period in 2019,
primarily as a result of interest compounding on past due balances.
This increase was offset by a $16,000 decrease in interest expense
for notes payable due to a decrease in the prime interest rate from
3.25% as of September 30, 2020 compared to 5% as of September 30,
2019.
Consulting and
accounting related party expenses decreased by $1,000 during the
nine month period ended September 30, 2020 compared to the same
period in 2019. A quarterly consulting fee is paid to Love Real
Estate Company, an affiliate of LIC, of one-tenth percent of the
carrying value of the Company’s assets, which decreased in
2020 compared to 2019.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Legal
and professional expenses decreased by $27,000 during the nine
month period ended September 30, 2020 when compared to the same
period in 2019 as follows:
|
|
|
|
|
|
|
Legal
and professional fees environmental remediation
|
$(15)
|
|
Legal
common title matters
|
(7)
|
|
Legal
Form 8K review
|
(4)
|
|
Legal
review filing of periodic reports
|
(1)
|
|
|
$(27)
|
General
and administrative expenses decreased by $21,000 during the nine
month period ended September 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 $735,000 during the nine month
period ended September 30, 2020 compared to a net loss of
$1,187,000 for the comparable period in 2019. After deducting
preferred dividends, totaling $480,000 for the nine month periods
ended September 30, 2020 and 2019, with respect to the Class A
Preferred Stock, net loss per share of $(.21) and $(.31) was
incurred for the nine month periods ended September 30, 2020 and
2019, respectively.
Cash Flow Analysis
During
the nine month period ended September 30, 2020, the Company’s
net cash used in operating activities was $215,000 which includes
$125,000 of interest paid to related parties which held the
collateralized convertible debentures. This compared to cash used
in operating activities of $190,000 for the comparable 2019 period.
There was no cash provided by or used in financing or investing
activities during the nine month periods ended September 30, 2020
and 2019.
Analysis of Financial Condition
Total
assets decreased by $228,000 at September 30, 2020 compared to
total assets at December 31, 2019, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$94
|
$309
|
$(215)
|
|
Land
inventory
|
14
|
14
|
-
|
|
Restricted
sinking fund
|
-
|
13
|
(13)
|
|
|
$108
|
$336
|
$(228)
|
During
the nine month period ended September 30, 2020, cash decreased by
$215,000, compared to December 31, 2019 as a result of the Company
funding its administrative costs of $90,000 and payment to related
parties of $125,000 of accrued interest payable in connection with
the collateralized convertible debentures.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liabilities were
approximately $93,407,000 at September 30, 2020 compared to
approximately $92,900,000 at December 31, 2019, reflecting the
following changes which resulted in an increase of $507,000 of
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$159
|
$169
|
$(10)
|
|
Accrued
real estate taxes
|
3
|
-
|
3
|
|
Accrued
interest
|
84,022
|
83,370
|
652
|
|
Credit
agreements:
|
|
|
-
|
|
Notes
payable
|
1,198
|
1,198
|
-
|
|
Subordinated
convertible
|
|
|
|
|
debentures
payable
|
8,025
|
8,163
|
(138)
|
|
|
|
|
|
|
|
$93,407
|
$92,900
|
$507
|
During
the nine month period ended September 30, 2020, the amount of
accounts payable and accrued expenses decreased by $10,000
primarily as a result of timing differences. Accrued real estate
taxes increased by $3,000 during the nine month period ended
September 30, 2020 due to the accrual of real estate taxes for the
respective period. Accrued interest during the nine month period
ended September 30, 2020 increased by $652,000 as a result of
$1,062,000 of interest expense for such period which was offset by
$285,000 in forgiveness of accrued interest on the 6.5%
subordinated debentures escheated to the states of debenture
holders and also offset by the payment of $125,000 of accrued
interest for the collateralized convertible debentures which are
held by related parties.
During
the nine months ended September 30, 2020, 6.5% subordinated
debentures with face amount of $138,000 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 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, 2020
are as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
convertible debentures:
|
|
|
|
At
6%, due May 1992
|
$8,025
|
$27,797
|
|
|
|
|
|
Collateralized
convertible debentures-related party:
|
|
|
|
At
14%, due July 8, 1997
|
$-
|
$52,790
|
|
|
|
|
|
Notes
payable:
|
|
|
|
At
prime plus 2%, all past due
|
$1,176
|
$3,435
|
|
Non-interest
bearing
|
22
|
-
|
|
|
$1,198
|
$3,435
|
The
Company does not have sufficient funds available (after payment of,
or the reserving for the payment of, anticipated future
administrative 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.
