PGI INC - Quarter Report: 2018 September (Form 10-Q)
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, 2018
☐
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)
N/A
(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___________ Accelerated
filer__________ Non-accelerated
filer____________ Smaller reporting company X
(Do not
check if a smaller reporting company) Emerging growth
company
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
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 9, 2018,
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, 2018
Table of Contents
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Page
No.
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PART
I
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FINANCIAL
INFORMATION
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Item
1.
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Financial
Statements
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Condensed
Consolidated Statements of Financial Position September 30, 2018
(Unaudited) and December 31, 2017
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3
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Condensed
Consolidated Statements of Operations (Unaudited)
Three
and Nine Months Ended September 30, 2018 and 2017
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4
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Condensed
Consolidated Statements of Cash Flows (Unaudited)
Nine
Months Ended September 30, 2018 and 2017
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5
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Notes
to Condensed Consolidated Financial Statements
(Unaudited)
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6
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Item 2.
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Management's
Discussion and Analysis of Financial Condition
and Results of Operations
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13
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Item 3.
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Quantitative and
Qualitative Disclosures About Market Risk
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19
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Item 4.
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Controls and
Procedures
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19
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PART
II
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OTHER
INFORMATION
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Item 1.
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Legal
Proceedings
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20
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Item
1A.
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Risk
Factors
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20
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Item 2.
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Unregistered Sales
of Equity Securities and Use of Proceeds
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20
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Item 3.
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Defaults Upon
Senior Securities
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20
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Item 4.
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Mine
Safety Disclosures
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20
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Item 5.
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Other
Information
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20
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Item 6.
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Exhibits
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20
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SIGNATURE
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21
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EXHIBIT
INDEX
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22
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PART
I FINANCIAL INFORMATION
Item
1. Financial Statements
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PGI
INCORPORATED AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
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($ in
thousands, except share and per share data)
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September
30,
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December
31,
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2018
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2017
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(Unaudited)
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ASSETS
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Cash
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$607
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$159
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Receivables-related
party
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-
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573
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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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13
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41
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Other
assets
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1
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1
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$635
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$788
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LIABILITIES
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Accounts
payable and accrued expenses
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$253
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$209
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Accrued
real estate taxes
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3
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4
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Accrued
interest:
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Subordinated
convertible debentures payable
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25,417
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25,032
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Convertible
debentures payable-related party
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52,915
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52,915
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Notes
payable
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3,278
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3,218
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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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8,163
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8,472
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91,227
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91,048
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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 $14,995)
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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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(106,622)
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(106,290)
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(90,592)
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(90,260)
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$635
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$788
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See
accompanying notes to Condensed Consolidated Financial Statements
(unaudited).
3
Part
I Financial Information (Continued)
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PGI
INCORPORATED AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
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($ in
thousands, except per share data)
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(Unaudited)
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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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2018
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2017
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2018
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2017
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REVENUES
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Interest
income
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$-
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$1
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$2
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$2
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Interest
income-related party
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-
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6
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4
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7
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-
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7
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6
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9
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COSTS
AND EXPENSES
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Interest
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347
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341
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1,039
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1,016
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Forgiveness
of debt
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and
interest
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(432)
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-
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(875)
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-
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Taxes
and assessments
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1
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2
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4
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4
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Consulting
and accounting-
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related
party
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9
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9
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27
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28
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Legal
and professional
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41
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2
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69
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27
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General
and administrative
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33
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19
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74
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65
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(1)
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373
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338
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1,140
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Net
Income (Loss)
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1
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(366)
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(332)
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(1,131)
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before
income taxes
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Income
tax expense
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-
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-
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-
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(57)
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NET
INCOME (LOSS)
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$1
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$(366)
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$(332)
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$(1,188)
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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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$(0.03)
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$(0.10)
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$(0.15)
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$(0.31)
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*Considers
the effect of dividends on preferred stock for the three and nine
months ended September
30, 2018 and 2017.
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See
accompanying notes to Condensed Consolidated Financial Statements
(unaudited).
4
Part
I Financial Information (Continued)
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PGI
INCORPORATED AND SUBSIDIARIES
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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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($ in
thousands)
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(Unaudited)
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Nine
Months Ended
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September
30,
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September
30,
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2018
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2017
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Net
cash used in operating activities
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$(112)
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$(232)
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Cash
Flows from investing activities:
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Investment
in notes receivable-related party
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-
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(560)
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Payments
received on notes receivable-related party
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560
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-
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Net
cash provided by (used in) investing activities
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560
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(560)
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Net
change in cash
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448
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(792)
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Cash
at beginning of period
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159
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958
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Cash
at end of period
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$607
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$166
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See
accompanying notes to Condensed Consolidated Financial Statements
(unaudited).
5
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 opinion on the Company's consolidated financial statements
for the year ended December 31, 2017.
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 25 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 assets of the Company, to repay its
indebtedness, and to pay the ordinary on-going costs of operation
of the Company. The potential values of the land parcels held for
sale have been difficult to assess. While 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 2017 filed with the Securities and Exchange
Commission.
The
condensed consolidated statement of financial position of the
Company as of December 31, 2017 has been derived from the audited
consolidated statement of financial position as of that
date.
6
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
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, 2017, 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, 2018 are not necessarily
indicative of operations to be expected for the fiscal year ending
December 31, 2018 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, 2018
and 2017 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, 2018 and 2017, the assumed conversion of
all outstanding convertible preferred stock and collateralized
convertible debentures would have been anti-dilutive.
7
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
The
following is a summary of the calculations used in computing basic
and diluted income (loss) per share for the three and nine months
ended September 30, 2018 and 2017.
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Three
Months Ended
|
Nine
Months Ended
|
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|
September
30,
|
September
30,
|
September
30,
|
September
30,
|
|
|
2018
|
2017
|
2018
|
2017
|
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($ in thousands, except share and
per share data)
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|||
|
|
|
|
|
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Net
Income (Loss)
|
$1
|
$(366)
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$(332)
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$(1,188)
|
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|
|
|
|
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Preferred
dividends
|
(160)
|
(160)
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(480)
|
(480)
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|
|
|
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Loss
Available to
|
$(159)
|
$(526)
|
$(812)
|
$(1,668)
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|
Common
shareholders
|
|
|
|
|
|
|
|
|
|
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Basic
and Diluted
|
|
|
|
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Weighted
Average Number
|
|
|
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Of
Common Shares
|
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|
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Outstanding
|
5,317,758
|
5,317,758
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5,317,758
|
5,317,758
|
|
|
|
|
|
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Basic
and Diluted Loss
|
|
|
|
|
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Per
Common Share
|
$(0.03)
|
$(0.10)
|
$(0.15)
|
$(0.31)
|
8
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(3) Statement
of Cash Flows
The
Financial Accounting Standards Board Accounting Standards
Codification Topic No. 230, “Statement of Cash Flows”,
requires a statement of cash flows as part of a full set of
financial statements. For quarterly reporting purposes, the Company
has elected to condense the reporting of its net cash flows. There
were no payments of interest for the nine month periods ended
September 30, 2018 and 2017.
(4) Receivables
Receivables
consisted of:
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September
30,
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December
31,
|
|
|
2018
|
2017
|
|
|
($ in
thousands)
|
|
|
Note
receivable-related party
|
$-
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$560
|
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Interest
receivable-related party
|
-
|
13
|
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$-
|
$573
|
(5) Land
Inventory
Land
inventory consisted of
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September 30,
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December 31,
|
|
|
2018
|
2017
|
|
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($
in thousands)
|
|
|
Fully
improved land
|
$14
|
$14
|
9
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(6) Accounts
Payable and Accrued Expenses
Accounts payable
and accrued expenses consisted of:
|
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September
30,
|
December
31,
|
|
|
2018
|
2017
|
|
|
($ in
thousands)
|
|
|
Accounts
payable
|
$57
|
$15
|
|
Accrued
audit & professional
|
43
|
47
|
|
Accrued
consulting fees-related party
|
1
|
1
|
|
Accrued
debenture fees
|
151
|
145
|
|
Accrued
miscellaneous
|
1
|
1
|
|
|
$253
|
$209
|
|
|
|
|
|
Accrued
real estate taxes consisted of:
|
|
|
|
Current
real estate taxes
|
$3
|
$4
|
(7) Credit
Agreements: Notes Payable and Subordinated Convertible Debentures
Payable
Credit
agreements consisted of the following:
|
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September
30,
|
December
31,
|
|
|
2018
|
2017
|
|
|
($ 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
|
447
|
|
At 6% interest; due May 1992
|
8,025
|
8,025
|
|
|
8,163
|
8,472
|
|
|
$9,361
|
$9,670
|
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 and $41,000 as of September 30, 2018 and December 31, 2017,
respectively, available for final distribution of $92 per $1,000 in
face amount to holders of such debentures who surrender their
respective debenture certificates.
10
Notes
to Condensed Consolidated Financial Statements
(continued)
The
6.5% Subordinated convertible debenture balances for the nine
months ended September 30, 2018 and year ended December 31, 2017
are as follows:
|
|
September
30,
|
December
31,
|
|
|
2018
|
2017
|
|
|
($ in
thousands)
|
|
|
|
|
|
|
Outstanding
debenture principal balance
|
$138
|
$447
|
|
Face
value of debentures surrendered
|
22
|
-
|
|
Face
value of debentures escheated
|
287
|
-
|
|
Accrued
and unpaid interest balance
|
268
|
846
|
|
Debenture
reserve account balance
|
13
|
41
|
|
Debenture
reserve funds utilized
|
|
|
|
in payment of final distribution
|
2
|
-
|
|
Debenture
reserve funds utilized
|
|
|
|
in escheatment to states of debenture holders
|
26
|
-
|
|
Forgiveness
of debt
|
281
|
-
|
|
Forgiveness
of interest
|
594
|
-
|
During
the nine month period ended September 30, 2018, $28,000 of the
debenture reserve funds were utilized with $2,000 disbursed in
final distribution to debenture holders and $26,000 disbursed in
escheatment to states of respective debenture holders as debentures
with a face amount of $22,000 were surrendered by debenture holders
and $287,000 in face amount of debentures were effectively
surrendered with the escheatment of respective funds to the states
of debenture holders. Accordingly, the Company has recognized
$281,000 in forgiveness of debt during the nine months ended
September 30, 2018. In addition, accrued interest of $594,000 on
such debentures that are considered surrendered was recorded as
forgiveness of interest expense during the nine months ended
September 30, 2018. There were no debentures surrendered or
escheated in 2017.
As of
September 30, 2018, the outstanding principal balance on such 6.5%
subordinated convertible debentures that were not surrendered by
the respective holders, or escheated by the Trustee to the states
of residence of the respective holders, equals $138,000 plus
accrued and unpaid interest of $268,000. The outstanding principal
balance on such respective debentures as of December 31, 2017 was
$447,000 plus accrued and unpaid interest of $846,000.
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.
11
PGI
INCORPORATED AND SUBSIDIARIES
Notes
to Condensed Consolidated Financial Statements
(continued)
(9) Income
Taxes
Income
tax expense of $57,000 was recognized during the nine month period
ended September 30, 2017 for the estimated 2016 Alternative Minimum
Tax on the 2016 gain on sales of real estate. At December 31, 2017,
the Company had an operating loss carryforward of approximately
$67,793,000 available to reduce future taxable income. These
operating losses expire at various dates through 2036.
The
following summarizes the temporary differences of the Company at
September 30, 2018 and December 31, 2017 at the statutory
rate:
|
|
September
30,
|
December
31,
|
|
|
2018
|
2017
|
|
|
($ in
thousands)
|
|
|
Deferred
tax asset
|
|
|
|
Net
operating loss carryforward
|
$17,031
|
$16,948
|
|
Expenses
capitalized under IRC 263(a)
|
37
|
37
|
|
Tax
credits (AMT)
|
57
|
57
|
|
Valuation
allowance
|
(17,125)
|
(17,042)
|
|
Total
deferred tax asset
|
$-
|
$-
|
(10) Fair
Value of Financial Instruments
The
carrying amount of the Company’s financial instruments, other
than debt, approximates fair value at September 30, 2018 and
December 31, 2017 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 total approximates 60 acres, but
these parcels have limited value because of associated
developmental constraints such as wetlands, easements, and/or other
obstacles to development and sale.
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 and $41,000 as of September 30, 2018 and December 31, 2017,
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 nine month period ended September 30, 2018, $28,000 of the
debenture reserve funds were utilized with $2,000 disbursed in
final distribution to debenture holders and $26,000 disbursed in
escheatment to states of respective debenture holders as debentures
with a face amount of $22,000 were surrendered by debenture holders
and $287,000 in face amount of debentures were effectively
surrendered with the escheatment of respective funds to the states
of debenture holders. Accordingly, the Company has recognized
$281,000 in forgiveness of debt during the nine months ended
September 30, 2018. In addition, accrued interest of $594,000 on
such debentures that are considered surrendered was recorded as
forgiveness of interest expense during the nine months ended
September 30, 2018. There were no debentures surrendered or
escheated in 2017.
As of
September 30, 2018, the outstanding principal balance on such 6.5%
subordinated convertible debentures that were not surrendered by
the respective holders, or escheated by the Trustee to the states
of residence of the respective holders, equals $138,000 plus
accrued and unpaid interest of $268,000. 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
September 30, 2018, 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.
13
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 September 30, 2018.
Revenue of $7,000 was realized for the three month period ended
September 30, 2017. Interest income of $1,000 for the three month
period ended September 30, 2017 represents interest earned on the
Company’s money market account. Interest income of $6,000 for
the three month period ended September 30, 2017 represents related
party interest on the short-term note receivable with Love
Investment Company (“LIC”), the Company’s primary
preferred stock shareholder.
Expenses for the
three month period ended September 30, 2018 decreased by $374,000
when compared to the same period in 2017 primarily due to
recognition of $432,000 in forgiveness of debt and interest
attributed to the 6.5% subordinated debentures which matured in
June 1991, for which the final distribution of $92 per $1,000 in
face amount was paid relating to debentures effectively surrendered
in face amount of $152,000 with escheatment of the final
distribution to the respective states of such debenture holders.
Accrued interest in the amount of $294,000 on such escheated
debentures was recorded as forgiveness of interest expense during
the three months ended September 30, 2018, and the principal amount
of $138,000 was recognized as forgiveness of debt in such period.
Interest expense relating to the Company’s current
outstanding debt, held by non-related parties, increased by $6,000
during the three month period ended September 30, 2018 compared to
the same period in 2017, primarily as a result of interest
compounding on past due balances.
Legal
and professional expenses increased by $39,000 during the three
months ended September 30, 2018 when compared to the same period in
2017. Legal expenses increased by $37,000 during the three months
ended September 30, 2018 compared to the same period in 2017
primarily as a result of legal expenses incurred in connection with
research on the effect of surrender of debentures escheated to the
states of debenture holders. In addition, legal expenses increased
by $2,000 when compared to the same period in 2017 as a result of
legal expenses relating to a common ground transfer of title matter
in Citrus County, Florida.
Taxes
and assessments expense decreased by $1,000 during the three months
ended September 30, 2018 when compared to the same period in 2017.
General and administrative expenses during the three month period
ended September 30, 2018 increased by $14,000 when compared to the
same period in 2017 primarily as a result of increased fees
relating to review of the Company’s Form 10Q and disclosure
of the effect of surrender of debentures escheated to the states of
debenture holders.
The
Company realized net income of $1,000 for the three months ended
September 30, 2018 compared to net loss of $366,000 for the three
months ended September 30, 2017. After deducting preferred
dividends, totaling $160,000 for the three month periods ended
September 30, 2018 and 2017, with respect to the Class A Preferred
Stock, a net loss per share (basic) of $(.03) and $(.10) was
incurred for the three month periods ended September 30, 2018 and
2017, respectively. The total cumulative preferred dividends in
arrears with respect to the Class A Preferred Stock through
September 30, 2018 is $14,995,000.
Revenues for the
nine months ended September 30, 2018 decreased by $3,000 when
compared to the same period in 2017. Related party interest income
decreased by $3,000 during the nine months ended September 30, 2018
for the comparable period in 2017. The related party interest
income is the result of the Company’s investment in a
$560,000 short term note with LIC, the Company’s primary
preferred stock shareholder.
14
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Expenses, including
income tax expenses, for the nine months ended September 30, 2018
decreased by $859,000 when compared to the same period in 2017
primarily due to the $875,000 in forgiveness of debt and interest
attributed to the 6.5% subordinated debentures which matured in
June 1991, for which the final distribution of $92 per $1,000 in
face amount was paid relating to debentures surrendered in face
amount of $22,000 and $287,000 in face amount of debentures
effectively surrendered with escheatment of final distribution to
the respective states of such debenture holders. Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $23,000 during the nine month
period ended September 30, 2018 compared to the same period in
2017, primarily as a result of interest compounding on past due
balances.
Legal
and professional expenses during the nine month period ended
September 30, 2018 increased by $42,000 when compared to the same
period in 2017. Legal expenses increased by $49,000 during the nine
months ended September 30, 2018 compared to the same period in 2017
primarily as a result of legal expenses incurred in connection with
reviewing and editing the Company’s Form 10K and in
connection with research on the effect of surrender of debentures
escheated to the states of debenture holders. Professional expenses
decreased by $7,000 when compared to the same period in 2017 as a
result expenses incurred during the period ended September 30, 2017
on a parcel in Citrus County requiring additional environmental
remediation.
Consulting and
accounting-related party expenses decreased by $1,000 during the
nine month period ended September 30, 2018 when compared to the
same period in 2017. A quarterly consulting fee is paid to Love
Real Estate Company (“LREC”), an affiliate of LIC, of
one-tenth of one percent of the carrying value of the
Company’s assets which have decreased since the same period
in 2017.
General
and administrative expenses during the nine month period ended
September 30, 2018 increased by $9,000 when compared to the same
period in 2017 primarily as a result of increased fees relating to
review of the Company’s Form 10Q and disclosure of the effect
of surrender of debentures escheated to the states of debenture
holders.
Income
tax expense of $57,000 was recognized during the nine month period
ended September 30, 2017 for the estimated 2016 Alternative Minimum
Tax on the 2016 gain on sales of real estate.
The
Company incurred a net loss of $332,000 during the nine month
period ended September 30, 2018 compared to a net loss of
$1,188,000 for the comparable period in 2017. After deducting
preferred dividends, totaling $480,000 for the nine month periods
ended September 30, 2018 and 2017, with respect to the Class A
Preferred Stock, net loss per share of $(.15) and $(.31) was
incurred for the nine month periods ended September 30, 2018 and
2017, respectively.
15
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Cash Flow Analysis
During
the nine month period ended September 30, 2018, the Company’s
net cash used in operating activities was $112,000 compared to
$232,000 for the comparable period in 2017. Cash provided by
investing activities during the nine month period ended September
30, 2018 consisted of note receivable proceeds received from LIC,
the Company’s primary preferred shareholder. Cash used in
investing activities during the nine month period ended September
30, 2017 consisted of a $560,000 short-term loan to
LIC.
Analysis of Financial Condition
Total
assets decreased by $153,000 at September 30, 2018 compared to
total assets at December 31, 2017, reflecting the following
changes:
|
|
September
30,
|
December
31,
|
Increase
|
|
|
2018
|
2017
|
(Decrease)
|
|
|
|
($ in
thousands)
|
|
|
Cash
|
$607
|
$159
|
$448
|
|
Receivables-related
party
|
-
|
573
|
(573)
|
|
Land
inventory
|
14
|
14
|
-
|
|
Restricted
sinking fund
|
13
|
41
|
(28)
|
|
Other
assets
|
1
|
1
|
-
|
|
|
$635
|
$788
|
$(153)
|
During
the nine month period ended September 30, 2018, cash increased by
$448,000 and receivables-related party decreased by $573,000
compared to December 31, 2017, primarily as a result of the note
receivable proceeds received from LIC on March 7,
2018.
During
the nine month period ended September 30, 2018, $28,000 of the 6.5%
subordinated convertible debenture restricted sinking funds were
utilized with $2,000 disbursed in final distribution to debenture
holders and $26,000 disbursed in escheatment to states of
respective debenture holders. There were no surrendered or
escheated 6.5% subordinated convertible debentures for the year
ended December 31, 2017.
16
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Liabilities were
approximately $91,227,000 at September 30, 2018 compared to
approximately $91,048,000 at December 31, 2017, reflecting the
following changes which resulted in an increase of $179,000 of
liabilities:
|
|
September
30,
|
December
31,
|
Increase
|
|
|
2018
|
2017
|
(Decrease)
|
|
|
|
($ in
thousands)
|
|
|
Accounts
payable and accrued expenses
|
$253
|
$209
|
$44
|
|
Accrued
real estate taxes
|
3
|
4
|
(1)
|
|
Accrued
interest
|
81,610
|
81,165
|
445
|
|
Credit
agreements:
|
|
|
|
|
Notes
payable
|
1,198
|
1,198
|
-
|
|
Subordinated
convertible
|
|
|
|
|
debentures payable
|
8,163
|
8,472
|
(309)
|
|
|
|
|
|
|
|
$91,227
|
$91,048
|
$179
|
During
the nine month period ended September 30, 2018, the amount of
accounts payable and accrued expenses increased by $44,000
primarily as a result of timing differences. Accrued real estate
taxes decreased by $1,000 during the nine month period ended
September 30, 2018 due to the payment of previously accrued taxes.
Accrued interest during the nine month period ended September 30,
2018 increased by $445,000 as a result of $1,039,000 of interest
expense for such period which was offset by accrued interest in the
amount of $594,000 on the 6.5% subordinated convertible debentures
that have been surrendered by debenture holders or effectively
surrendered by escheatment of the respective debenture reserve
funds and recorded as forgiveness of interest expense. During the
nine month period ended September 30, 2018, the Company made no
interest or principal payments on its outstanding notes payable and
subordinated convertible debentures.
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 a final distribution to holders of such
debentures on September 2, 2014. During the nine months ended
September 30, 2018, 6.5% subordinated with a face amount of $22,000
were surrendered by debenture holders and $287,000 in face amount
of debentures were effectively surrendered with the escheatment of
respective debenture reserve funds by the Trustee to the states of
such debenture holders.
The
Company remains in default on the entire principal amount plus
interest (including certain sinking fund and interest payments with
respect to the subordinated convertible debentures) of its
subordinated convertible debentures and notes payable as well as
the remaining accrued interest owed with respect to the
collateralized convertible debentures.
17
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The
principal and accrued interest amounts due as of September 30, 2018
are as indicated in the following table:
|
|
September
30,
2018
|
|
|
|
Principal
|
Accrued
|
|
|
Amount
Due
|
Interest
|
|
|
($ in
thousands)
|
|
|
|
|
|
|
Subordinated convertible debentures:
|
|
|
|
At
6.5%, due June 1991
|
$138
|
$268
|
|
At
6%, due May 1992
|
8,025
|
25,149
|
|
|
$8,163
|
$25,417
|
|
Collateralized convertible debentures-related
party:
|
|
|
|
At
14%, due July 8, 1997
|
$-
|
$52,915
|
|
|
|
|
|
Notes payable:
|
|
|
|
At
prime plus 2%, all past due
|
$1,176
|
$3,278
|
|
Non-interest
bearing
|
22
|
-
|
|
|
$1,198
|
$3,278
|
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 firm
included an explanatory paragraph regarding the Company’s
ability to continue as a going concern in their opinion on the
Company’s consolidated financial statements for the year
ended December 31, 2017.
18
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, 2018. There have been no changes in the
Company’s internal control over financial reporting during
the quarter ended September 30, 2018 that have materially affected,
or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
19
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.
20
PGI
INCORPORATED AND SUBSIDIARIES
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 9,
2018
|
By:
|
/s/ Laurence A.
Schiffer
|
|
|
|
|
Laurence A.
Schiffer
|
|
|
|
|
President
(Duly Authorized
Officer, Principal Executive Officer and Principal Financial
Officer) |
|
21
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.
|
|
|
|
|
|
32.2
|
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
22