Attached files
FORM
10- Q
U.S
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended September 30, 2020
☐
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ___________________ to
_____________________
Commission File
Number 1-6471
PGI INCORPORATED
(Exact
name of registrant as specified in its charter)
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FLORIDA
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59-0867335
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|
(State or other
jurisdiction of incorporation)
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(I.R.S. Employer
Identification No.)
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212 SOUTH CENTRAL, SUITE 304, ST. LOUIS, MISSOURI
63105
(Address of
principal executive offices)
(314) 512-8650
(Registrant’s
telephone number, including area code)
Inapplicable
(Former
Name, Former Address and Former Fiscal year, if changed since last
report)
Indicate by check
mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check
mark whether the registrant has submitted electronically and posted
on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (Sec. 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes X No _______
Indicate by check
mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of
“large accelerated filer”, “accelerated
filer”, “smaller reporting company”, and
“emerging growth company” in Rule 12b-2 of the Exchange
Act. (Check one):
|
Large accelerated
filer___________
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Non-accelerated
filer____________
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Accelerated
filer__________
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Smaller reporting
company X
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|
(Do not check if a
smaller reporting company)
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Emerging growth
company __________
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If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange
Act.
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange
Act). Yes No X
Securities
registered pursuant to Section 12(b) of the Act:
|
Title
of each class
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Trading
Symbol(s)
|
Name of
each exchange on which registered
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|
None
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Inapplicable
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Inapplicable
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Indicate the number
of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date: As of November 13, 2020,
there were 5,317,758 shares of the registrant’s common stock,
$.10 par value per share, outstanding.
PGI
INCORPORATED AND SUBSIDIARIES
Form 10
– Q
For the
Quarter Ended September 30, 2020
Table of Contents
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Form 10 -
Q
Page
No.
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Item
1.
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4
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5
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6
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18
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19
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20
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
PGI
INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
POSITION (UNAUDITED)
($
in thousands, except share and per share data)
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September
30,
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December
31,
|
|
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2020
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2019
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ASSETS
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Cash
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$94
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$309
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Land
inventory
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14
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14
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Restricted
sinking fund
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-
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13
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$108
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$336
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LIABILITIES
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Accounts
payable and accrued expenses
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$159
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$169
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Accrued
real estate taxes
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3
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-
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Accrued
interest:
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Subordinated
convertible debentures payable
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27,797
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27,070
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Convertible
debentures payable-related party
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52,790
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52,915
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Notes
payable
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3,435
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3,385
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Credit
agreements:
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Notes
payable
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1,198
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1,198
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Subordinated
convertible debentures payable
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8,025
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8,163
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93,407
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92,900
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STOCKHOLDERS'
DEFICIENCY
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Preferred
stock, par value $1.00 per share;
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authorized
5,000,000 shares; 2,000,000
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Class
A cumulative convertible shares issued
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and
outstanding; (liquidation preference of
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$8,000
plus unpaid cumulative dividends of $16,275)
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2,000
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2,000
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Common
stock, par value $.10 per share;
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authorized
25,000,000 shares; 5,317,758
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shares
issued and outstanding
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532
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532
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Paid-in
capital
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13,498
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13,498
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Accumulated
deficit
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(109,329)
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(108,594)
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(93,299)
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(92,564)
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$108
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$336
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See
accompanying notes to Condensed Consolidated Financial
Statements.
3
Part
I Financial Information (Continued)
PGI
INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($
in thousands, except per share data)
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Three Months
Ended
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Nine Months
Ended
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September
30,
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September
30,
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September
30,
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September
30,
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2020
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2019
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2020
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2019
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REVENUES
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Interest
income
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$-
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$-
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$-
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$1
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Other
income
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2
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-
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2
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3
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2
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-
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2
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4
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COSTS
AND EXPENSES
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Interest
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354
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354
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1,062
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1,057
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Forgiveness
of debt
|
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and
interest
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(410)
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-
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(410)
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-
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Taxes
and assessments
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1
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1
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3
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3
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Consulting
and accounting-
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related
party
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8
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9
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26
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27
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Legal
and professional
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1
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16
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36
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63
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General
and administrative
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6
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12
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20
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41
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(40)
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392
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737
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1,191
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NET
INCOME (LOSS)
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$42
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$(392)
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$(735)
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$(1,187)
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NET
LOSS PER SHARE(*)
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AVAILABLE
TO COMMON
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STOCKHOLDERS-Basic
and diluted
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$(0.02)
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$(0.10)
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$(0.23)
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$(0.31)
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*Considers the effect of dividends on preferred stock for the three
and nine months ended
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September
30, 2020 and 2019.
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See
accompanying notes to Condensed Consolidated Financial
Statements.
4
Part
I Financial Information (Continued)
PGI
INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($
in thousands)
|
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Nine Months
Ended
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September
30,
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September
30,
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2020
|
2019
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Net
cash used in operating activities
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$(215)
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$(190)
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Net
change in cash
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(215)
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(190)
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Cash
at beginning of period
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309
|
526
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Cash
at end of period
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$94
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$336
|
See
accompanying notes to Condensed Consolidated Financial
Statements.
5
Part
I Financial Information (Continued)
PGI
INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIENCY (UNAUDITED)
Three
Months ended September 30, 2020
($
in thousands, except share data)
|
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Preferred
Stock
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Common Stock
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Shares
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Par
Value
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Shares
|
Par
Value
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Paid-in
Capital
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Accumulated
Deficit
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Total
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Balances
at 6/30/20
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2,000,000
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$2,000
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5,317,758
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$532
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$13,498
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$(109,371)
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$(93,341)
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Net
Income (Loss)
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-
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-
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-
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-
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-
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42
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42
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Balances
at 9/30/20
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2,000,000
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$2,000
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5,317,758
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$532
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$13,498
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$(109,329)
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$(93,299)
|
Three
Months ended September 30, 2019
($
in thousands, except share data)
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Preferred
Stock
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Common
Stock
|
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Shares
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Par
Value
|
Shares
|
Par
Value
|
Paid-in
Capital
|
Accumulated
Deficit
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Total
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Balances
at 6/30/19
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2,000,000
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$2,000
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5,317,758
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$532
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$13,498
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$(107,821)
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$(91,791)
|
|
|
|
|
|
|
|
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Net
Income (Loss)
|
-
|
-
|
-
|
-
|
-
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(392)
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(392)
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Balances
at 9/30/19
|
2,000,000
|
$2,000
|
5,317,758
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$532
|
$13,498
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$(108,213)
|
$(92,183)
|
6
Part
I Financial Information (Continued)
PGI
INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
DEFICIENCY (UNAUDITED)
Nine
Months ended September 30, 2020
($
in thousands, except share data)
|
|
Preferred
Stock
|
Common
Stock
|
|
|
|
||
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|
Shares
|
Par
Value
|
Shares
|
Par
Value
|
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
|
|
|
|
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Balances
at 1/1/20
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2,000,000
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$2,000
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5,317,758
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$532
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$13,498
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$(108,594)
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$(92,564)
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|
|
|
|
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Net
Income (Loss)
|
-
|
-
|
-
|
-
|
-
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(735)
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(735)
|
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Balances
at 9/30/20
|
2,000,000
|
$2,000
|
5,317,758
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$532
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$13,498
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$(109,329)
|
$(93,299)
|
Nine
Months ended September 30, 2019
($
in thousands, except share data)
|
|
Preferred
Stock
|
Common Stock
|
|
|
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||
|
|
Shares
|
Par
Value
|
Shares
|
Par
Value
|
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
|
|
|
|
|
|
|
|
|
|
Balances
at 1/1/19
|
2,000,000
|
$2,000
|
5,317,758
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$532
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$13,498
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$(107,026)
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$(90,996)
|
|
|
|
|
|
|
|
|
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Net
Income (Loss)
|
-
|
-
|
-
|
-
|
-
|
(1,187)
|
(1,187)
|
|
Balances
at 9/30/19
|
2,000,000
|
$2,000
|
5,317,758
|
$532
|
$13,498
|
$(108,213)
|
$(92,183)
|
7
PGI
INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) Basis of
Presentation
The
accompanying unaudited condensed consolidated financial statements
of PGI Incorporated (“PGI”) and its subsidiaries (the
“Company”) have been prepared in accordance with the
instructions to Form 10 - Q and therefore do not include all
disclosures necessary for fair presentation of financial position,
results of operations and cash flows in conformity with generally
accepted accounting principles. 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 report on the Company's consolidated financial statements for
the year ended December 31, 2019, as they have for many
years.
The
Company was founded in 1958, and up until the mid 1990’s was
in the business of building and selling homes, developing and
selling home sites and selling undeveloped or partially developed
tracts of land. Over approximately the last 30 years, the
Company’s business focus and emphasis changed substantially
as it has concentrated its sales and marketing efforts almost
exclusively on the disposition of its remaining real
estate.
The
Company’s major efforts and activities have been, and
continue to be, to sell the remaining assets of the Company, to
repay its indebtedness, and to pay the ordinary on-going
administrative costs of the Company. The potential values of the
land parcels held for sale have been difficult to assess. The
Company will seek to realize full market value for each remaining
asset, the amounts realized may be at substantial variance from its
present financial statement carrying value. Certain of these assets
may be of so little value and marketability that the Company may
elect not to pay the real estate taxes on selected parcels, which
may eventually result in a defacto liquidation of such property by
subjecting such property to a tax sale. In management’s
judgement, the remaining assets will be insufficient to satisfy
much, if any, of the outstanding indebtedness and there will be no
recoveries by the shareholders. Consequently, there is substantial
doubt about the Company’s ability to continue as a going
concern within one year after the date that the financial
statements are issued.
Certain
information and note disclosures normally included in the
Company’s annual financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Form
10-K annual report for 2019 filed with the Securities and Exchange
Commission.
The
Company remains in default under the indentures governing its
unsecured subordinated debentures. (See Management's Discussion and
Analysis of Financial Condition and Results of Operations and Notes
7, 8, and 9 to the Company's consolidated financial statements for
the year ended December 31, 2019, as contained in the Company's
Annual Report on Form 10 - K).
All
adjustments (consisting of only normal recurring accruals)
necessary for fair presentation of financial position, results of
operations and cash flows have been made. The results for the three
and nine months ended September 30, 2020 are not necessarily
indicative of operations to be expected for the fiscal year ending
December 31, 2020 or any other interim period.
(2) Per Share
Data
Basic
per share amounts are computed by dividing net income (loss), after
deducting current period dividends on the Company's preferred
stock, by the weighted average number of common shares outstanding
during the period. The weighted average number of common shares
outstanding for the three and nine months ended September 30, 2020
and 2019 was 5,317,758.
Diluted
per share amounts are computed by dividing net income (loss)
attributable to common shareholders by the weighted average number
of common shares outstanding, after adjusting for the estimated
effect of the assumed conversion of all cumulative convertible
preferred stock and outstanding convertible debentures, if
dilutive, into shares of common stock. For the three and nine
months ended September 30, 2020 and 2019, the assumed conversion of
all outstanding convertible preferred stock and collateralized
convertible debentures would have been anti-dilutive.
8
PGI
INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The
following is a summary of the calculations used in computing basic
and diluted loss per share for the three and nine months ended
September 30, 2020 and 2019.
|
|
Three Months
Ended
|
Nine Months
Ended
|
||
|
|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|
|
2020
|
2019
|
2020
|
2019
|
|
|
($ in thousands, except share and per share
data)
|
|||
|
|
|
|
|
|
|
Net
Income (Loss)
|
$42
|
$(392)
|
$(735)
|
$(1,187)
|
|
|
|
|
|
|
|
Preferred
dividends
|
(160)
|
(160)
|
(480)
|
(480)
|
|
|
|
|
|
|
|
Loss
Available to
|
$(118)
|
$(552)
|
$(1,215)
|
$(1,667)
|
|
Common
shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
|
|
|
Weighted
Average Number
|
|
|
|
|
|
Of
Common Shares
|
|
|
|
|
|
Outstanding
|
5,317,758
|
5,317,758
|
5,317,758
|
5,317,758
|
|
|
|
|
|
|
|
Basic
and Diluted Loss
|
|
|
|
|
|
Per
Common Share
|
$(0.02)
|
$(0.10)
|
$(0.23)
|
$(0.31)
|
9
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(3) Statement
of Cash Flows
The
Financial Accounting Standards Board Accounting Standards
Codification Topic No. 230, “Statement of Cash Flows”,
requires a statement of cash flows as part of a full set of
financial statements. For quarterly reporting purposes, the Company
has elected to condense the reporting of its net cash flows.
Interest was paid during the nine months ended September 30, 2020
in the amount of $125,000 in connection with the collateralized
convertible debentures. There were no payments of interest for the
nine month period ended September 30, 2019.
(4) Land
Inventory
Land
inventory consisted of
|
|
September
30,
|
December
31,
|
|
|
2020
|
2019
|
|
|
($ in
thousands)
|
|
|
Fully
improved land
|
$14
|
$14
|
(5)
Accounts Payable
and Accrued Expenses
Accounts payable
and accrued expenses consisted of:
|
|
September
30,
|
December
31,
|
|
|
2020
|
2019
|
|
|
($
in thousands)
|
|
|
Accounts
payable
|
$2
|
$-
|
|
Accrued
accounting review and
|
|
|
|
tax
preparation expense
|
3
|
13
|
|
Accrued
consulting fees-related party
|
-
|
1
|
|
Accrued
legal
|
-
|
1
|
|
Accrued
debenture fees
|
153
|
153
|
|
Accrued
miscellaneous
|
1
|
1
|
|
|
$159
|
$169
|
|
|
|
|
|
Accrued
real estate taxes consisted of:
|
|
|
|
Current
real estate taxes
|
$3
|
$-
|
10
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(6)
Credit Agreements:
Notes Payable and Subordinated and Convertible Debentures
Payable
Credit
agreements consisted of the following:
|
|
September
30,
|
December
31,
|
|
|
2020
|
2019
|
|
|
($
in thousands)
|
|
|
Notes
payable - $1,176,000 bearing
|
|
|
|
interest at prime plus 2%
|
|
|
|
the
remainder non-interest bearing,
|
|
|
|
all
past due
|
$1,198
|
$1,198
|
|
|
|
|
|
Subordinated
convertible debentures payable:
|
|
|
|
At
6.5% interest; due June 1991
|
-
|
138
|
|
At
6% interest; due May 1992
|
8,025
|
8,025
|
|
|
8,025
|
8,163
|
|
|
$9,223
|
$9,361
|
Accrued
interest consisted of the following:
|
|
September
30,
|
December
31,
|
|
|
2020
|
2019
|
|
|
($ in thousands)
|
|
|
Notes
payable
|
$3,435
|
$3,385
|
|
Subordinated
convertible debentures payable:
|
|
|
|
At
6.5% interest; due June 1991
|
-
|
279
|
|
At
6% interest; due May 1992
|
27,797
|
26,791
|
|
|
27,797
|
27,070
|
|
Convertible
debentures -related party:
|
|
|
|
Principal
balance paid 6/23/16
|
52,790
|
52,915
|
|
|
$84,022
|
$83,370
|
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 has 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.
11
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(6)
Credit Agreements: Notes Payable and Subordinated Convertible
Debentures Payable (continued)
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 effectively
surrendered with the escheatment of the 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
$285,000 on such debentures that are considered surrendered was
recorded as forgiveness of interest expense during the three month
period ended September 30, 2020. There were no debentures
surrendered or escheated in 2019.
The
6.5% subordinated convertible debenture balances for the nine
months ended September 30, 2020 and year ended December 31, 2019
are as follows:
|
|
September 30,
2020
|
December 31,
2019
|
|
|
($ in
thousands)
|
|
|
|
|
|
|
Outstanding
debenture principal balance
|
$-
|
$138
|
|
Face
value of debentures escheated
|
138
|
-
|
|
Debenture
reserve account balance
|
-
|
13
|
|
Debenture
reserve funds utilized
|
|
|
|
in
escheatment to states of debenture holders
|
13
|
-
|
|
Forgiveness
of debt
|
125
|
-
|
|
Forgiveness
of interest
|
285
|
-
|
During
the month ended September 30, 2020 the Company paid $125,000 of
collateralized convertible debenture accrued interest to Love
Investment Company (“LIC”), the Company’s primary
preferred stock shareholder, and Love-1989 Florida Partners
(“Love-1989”), also an affiliate of the Company, which
held the collateralized convertible debentures.
(7) Income
Taxes
At
December 31, 2019, the Company had an operating loss carryforward
of approximately $70,074,000 available to reduce future taxable
income. These operating losses expire at various dates through
2038.
The
following summarizes the temporary differences of the Company at
September 30, 2020 and December 31, 2019 at the statutory
rate:
|
|
September
30,
|
December
31,
|
|
|
2020
|
2019
|
|
|
($ in
thousands)
|
|
|
Deferred
tax asset
|
|
|
|
Net
operating loss carryforward
|
$17,708
|
$17,522
|
|
Expenses
capitalized under IRC 263(a)
|
37
|
37
|
|
Tax
credits (AMT)
|
57
|
57
|
|
Valuation
allowance
|
(17,802)
|
(17,616)
|
|
Total
deferred tax asset
|
-
|
-
|
(8) Fair
Value of Financial Instruments
The
carrying amount of the Company’s financial instruments, other
than debt, approximates fair value at September 30, 2020 and
December 31, 2019 because of the short maturity of those
instruments. It was not practicable to estimate the fair value of
the Company’s notes payable and its convertible debentures
because these debts are in default causing no basis for estimating
value by reference to quoted market prices or current rates offered
to the Company for debt of the same remaining
maturities.
12
PGI
INCORPORATED AND SUBSIDIARIES
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.
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
|
$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 $138,000 were effectively
surrendered with the escheatment of respective debenture reserve
funds by the Trustee to the states of such debenture
holders.
The
Company remains in default on the entire principal amount plus
interest of its subordinated convertible debentures and notes
payable as well as the remaining accrued interest owed with respect
to the collateralized convertible debentures.
The
principal and accrued interest amounts due as of September 30, 2020
are as indicated in the following table:
|
|
September 30, 2020
|
|
|
|
Principal
|
Accrued
|
|
|
Amount
Due
|
Interest
|
|
|
($ in thousands)
|
|
|
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.
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.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Not
applicable.
Item 4. Controls and Procedures
The
Company has evaluated the effectiveness of the design and operation
of its disclosure controls and procedures under the supervision and
with the participation of its Chief Executive Officer
(“CEO”) and Chief Financial Officer
(“CFO”). Based on this evaluation, the Company’s
management, including the CEO and CFO, concluded that the
Company’s disclosure controls and procedures were effective
as of September 30, 2020. There have been no changes in the
Company’s internal control over financial reporting during
the quarter ended September 30, 2020 that have materially affected,
or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
17
PGI
INCORPORATED AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The
Company, to its knowledge, currently is not a party to any material
legal proceedings.
Item 1A. Risk Factors
Not
applicable.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds
Not
applicable.
Item 3. Defaults Upon Senior
Securities
See
discussion in Item 2 of Part I with respect to defaults under the
Company's subordinated convertible debentures, collateralized
convertible debentures and other indebtedness and with respect to
cumulative preferred dividends in arrears, which discussions are
incorporated herein by this reference.
Item 4. Mine Safety Disclosures
Not
applicable.
Item 5. Other Information
Not
applicable.
Item 6. Exhibits
Reference is made
to the Exhibit Index hereof for a list of exhibits filed or
furnished under this Item.
18
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
PGI INCORPORATED
(Registrant)
|
|
|
|
|
|
|
|
|
Date: November 13,
2020
|
By:
|
/s/ Laurence A.
Schiffer
|
|
|
|
|
Laurence A.
Schiffer
|
|
|
|
|
President
(Duly
Authorized Officer, Principal Executive Officer and Principal
Financial Officer) |
|
19
PGI
INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
|
2.
|
Inapplicable.
|
|
|
|
|
3.(i)
|
Inapplicable.
|
|
|
|
|
3.(ii)
|
Inapplicable.
|
|
|
|
|
4.
|
Inapplicable.
|
|
|
|
|
10.
|
Inapplicable.
|
|
|
|
|
11.
|
Statement re:
Computation of Per Share Earnings (Set forth in Note 2 of the Notes
to Condensed
Consolidated Financial Statements (Unaudited) herein).
|
|
|
|
|
15
|
Inapplicable.
|
|
|
|
|
18.
|
Inapplicable.
|
|
|
|
|
19.
|
Inapplicable.
|
|
|
|
|
22.
|
Inapplicable.
|
|
|
|
|
23.
|
Inapplicable.
|
|
|
|
|
24.
|
Inapplicable.
|
|
|
|
|
Principal Executive
Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
Principal Financial
Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under
the Securities Exchange Act of 1934, as amended.
|
|
|
|
|
|
Chief Executive
Officer certification pursuant to 18 U.S.C. Section
1350.
|
|
|
|
|
|
Chief Financial
Officer certification pursuant to 18 U.S.C. Section
1350.
|
|
|
|
|
|
95.
|
Inapplicable.
|
|
|
|
|
99.
|
Inapplicable.
|
|
|
|
|
100.
|
Inapplicable.
|
|
|
|
|
101.
|
Instance Document,
Schema Document, Calculation Linkbase Document, Labels Linkbase
Document, Presentation Linkbase Document and Definition Linkbase
Document.*
|
*
Furnished with this report.
20