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.
13
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.
14
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 $13,000 during the three month
period ended June 30, 2020 when compared to the same period in 2019 as follows:
(Decrease)
($ in thousands)
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.
15
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 $12,000 during the six month period
ended June 30, 2020 when compared to the same period in 2019 as follows:
(Decrease)
($ in thousands)
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.
16
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 $75,000 at June 30, 2020 compared to total assets at
December 31, 2019, reflecting the following changes:
June 30, December 31,
2020 2019 (Decrease)
($ in thousands)
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.
17
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 $702,000 of liabilities:
June 30, December 31, Increase
2020 2019 (Decrease)
($ in thousands)
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 $702During 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 $708,000 due to the amount of interest for such period. During
the six month period ended June 30, 2020, the Company made no interest or
principal payments on its outstanding notes payable and subordinated convertible
debentures.
The Company remains in default on the entire principal amount plus interest
(including certain sinking fund and interest payments with respect to the
subordinated convertible debentures) of its subordinated convertible debentures
and notes payable as well as the remaining accrued interest owed with respect to
the collateralized convertible debentures.
18
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
The principal and accrued interest amounts due as of June 30, 2020 are as
indicated in the following table:
June 30, 2020
Principal Accrued
Amount Due Interest
($ in thousands)
Subordinated convertible debentures:
At 6.5%, due June 1991 $138 $284
At 6%, due May 1992 8,025 27,460
$8,163 $27,744Collateralized 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.
19
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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