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.
13
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.
14
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 $27,000 during the nine month
period ended September 30, 2020 when compared to the same period in 2019 as
follows:
(Decrease)
($ in thousands)
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 $228,000 at September 30, 2020 compared to total
assets at December 31, 2019, reflecting the following changes:
September 30, December 31,
2020 2019 (Decrease)
($ in thousands)
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.
15
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 $507,000 of liabilities:
September 30, December 31, Increase
2020 2019 (Decrease)
($ in thousands)
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 $507During 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 $138,000 were effectively surrendered with the escheatment
of respective debenture reserve funds by the Trustee to the states of such
debenture holders.
The Company remains in default on the entire principal amount plus interest of
its subordinated convertible debentures and notes payable as well as the
remaining accrued interest owed with respect to the collateralized convertible
debentures.
The principal and accrued interest amounts due as of September 30, 2020 are as
indicated in the following table:
September 30, 2020
Principal Accrued
Amount Due Interest
($ in thousands)
Subordinated convertible debentures:
At 6%, due May 1992 $8,025 $27,797Collateralized 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 $3,435The 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.
16
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.
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