PGI INC - Quarter Report: 2019 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, 2019

 

 

☐  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 

 

FLORIDA		59-0867335
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

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	☐	Accelerated filer	☐
Non-accelerated filer	☐	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

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	Inapplicable	Inapplicable

 

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 12, 2019, 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, 2019

 

Table of Contents

 

		Form 10 - Q Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Financial Position September 30, 2019 (Unaudited) and December 31, 2018	3
	Condensed Consolidated Statements of Operations (Unaudited) Three and Nine Months Ended September 30, 2019 and 2018	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2019 and 2018	5
	Condensed Consolidated Statements of Stockholders’ Deficiency (Unaudited) Three Months Ended September 30, 2019 and 2018 Nine Months Ended September 30, 2019 and 2018	6 7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21
SIGNATURE		22
EXHIBIT INDEX		23

 

 

 PART I  FINANCIAL INFORMATION

Item 1. Financial Statements

 

PGI INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ in thousands, except share and per share data)

 

	September 30,	December 31,
	2019	2018
	(Unaudited)
ASSETS
Cash	$336	$526
Land inventory	14	14
Restricted sinking fund	13	13
	$363	$553
LIABILITIES
Accounts payable and accrued expenses	$167	$230
Accrued real estate taxes	3	-
Accrued interest:
Subordinated convertible debentures payable	26,735	25,744
Convertible debentures payable-related party	52,915	52,915
Notes payable	3,365	3,299
Credit agreements:
Notes payable	1,198	1,198
Subordinated convertible debentures payable	8,163	8,163
	92,546	91,549
STOCKHOLDERS' DEFICIENCY
Preferred stock, par value $1.00 per share;
authorized 5,000,000 shares; 2,000,000
Class A cumulative convertible shares issued
and outstanding; (liquidation preference of
$8,000 plus unpaid cumulative dividends of $15,635)	2,000	2,000
Common stock, par value $.10 per share;
authorized 25,000,000 shares; 5,317,758
shares issued and outstanding	532	532
Paid-in capital	13,498	13,498
Accumulated deficit	(108,213)	(107,026)
	(92,183)	(90,996)
	$363	$553

 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

 

 

Part I  Financial Information (Continued)

 

PGI INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

($ in thousands, except per share data)

(Unaudited)

 

	Three Months Ended		Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2019	2018	2019	2018
REVENUES
Interest income	$-	$-	$1	$2
Interest income-related party	-	-	-	4
Other income	-	-	3	-
	-	-	4	6
COSTS AND EXPENSES
Interest	354	347	1,057	1,039
Forgiveness of debt
and interest	-	(432)	-	(875)
Taxes and assessments	1	1	3	4
Consulting and accounting-
related party	9	9	27	27
Legal and professional	16	41	63	69
General and administrative	12	33	41	74
	392	(1)	1,191	338
NET INCOME (LOSS)	$(392)	$1	$(1,187)	$(332)
NET LOSS PER SHARE(*)
AVAILABLE TO COMMON
STOCKHOLDERS-Basic and diluted	$(0.10)	$(0.03)	$(0.31)	$(0.15)

 

*Considers the effect of dividends on preferred stock for the three and nine months ended September 30, 2019 and 2018.

 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

 

 

Part I  Financial Information (Continued)

 

PGI INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)

(Unaudited)

 

	Nine Months Ended
	September 30,	September 30,
	2019	2018
Net cash used in operating activities	$(190)	$(112)
Cash Flows from investing activities:
Payments received on notes receivable-related party	-	560
Net cash provided by (used in) investing activities	-	560
Net change in cash	(190)	448
Cash at beginning of period	526	159
Cash at end of period	$336	$607

 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

 

 

Part I  Financial Information (Continued)

 

PGI INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

 

Three Months ended September 30, 2019

($ in thousands, except share data)

 

	Preferred Stock		Common Stock		Paid-in	Accumulated
	Shares	Par Value	Shares	Par Value	Capital	Deficit	Total
Balances at 6/30/19	2,000,000	$2,000	5,317,758	$532	$13,498	$(107,821)	$(91,791)
Net Income (Loss)	-	-	-	-	-	(392)	(392)
Balances at 9/30/19	2,000,000	$2,000	5,317,758	$532	$13,498	$(108,213)	$(92,183)

 

Three Months ended September 30, 2018

($ in thousands, except share data)

 

	Preferred Stock		Common Stock		Paid-in	Accumulated
	Shares	Par Value	Shares	Par Value	Capital	Deficit	Total
Balances at 6/30/18	2,000,000	$2,000	5,317,758	$532	$13,498	$(106,623)	$(90,593)
Net Income (Loss)	-	-	-	-	-	1	1
Balances at 9/30/18	2,000,000	$2,000	5,317,758	$532	$13,498	$(106,622)	$(90,592)

 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited).

 

 

Part I  Financial Information (Continued)

 

PGI INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

 

Nine Months ended September 30, 2019

($ in thousands, except share data)

 

	Preferred Stock		Common Stock		Paid-in	Accumulated
	Shares	Par Value	Shares	Par Value	Capital	Deficit	Total
Balances at 12/31/18	2,000,000	$2,000	5,317,758	$532	$13,498	$(107,026)	$(90,996)
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)

 

Nine Months ended September 30, 2018

($ in thousands, except share data)

 

	Preferred Stock		Common Stock		Paid-in	Accumulated
	Shares	Par Value	Shares	Par Value	Capital	Deficit	Total
Balances at 12/31/17	2,000,000	$2,000	5,317,758	$532	$13,498	$(106,290)	$(90,260)
Net Income (Loss)	-	-	-	-	-	(332)	(332)
Balances at 9/30/18	2,000,000	$2,000	5,317,758	$532	$13,498	$(106,622)	$(90,592)

 

See accompanying notes to Condensed Consolidated Financial Statements (unaudited). 

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 

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, 2018.

 

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 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 2018 filed with the Securities and Exchange Commission.

 

The condensed consolidated statement of financial position of the Company as of December 31, 2018 has been derived from the audited consolidated statement of financial position as of that date.

 

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, 2018, 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, 2019 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2019 or any other interim period.

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

 

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, 2019 and 2018 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, 2019 and 2018, the assumed conversion of all outstanding convertible preferred stock and collateralized convertible debentures would have been anti-dilutive.

 

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, 2019 and 2018.

 

	Three Months Ended		Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2019	2018	2019	2018
	($ in thousands, except share and per share data)
Net Income (Loss)	$(392)	$1	$(1,187)	$(332)
Preferred dividends	(160)	(160)	(480)	(480)
Loss Available to	$(552)	$(159)	$(1,667)	$(812)
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	$(0.10)	$(0.03)	$(0.31)	$(0.15)

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

 

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, 2019 and 2018.

 

 

Land inventory consisted of

 

	September 30,	December 31,
	2019	2018
	($ in thousands)
Fully improved land	$14	$14

 

 

 

Accounts payable and accrued expenses consisted of:

 

	September 30,	December 31,
	2019	2018
	($ in thousands)
Accounts payable	$-	$18
Accrued professional fees	12	43
Accrued legal fees	-	14
Accrued consulting fees-related party	1	1
Accrued debenture fees	153	153
Accrued miscellaneous	1	1
	$167	$230
Accrued real estate taxes consisted of:
Current real estate taxes	$3	$-

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

 

Credit agreements consisted of the following:

 

	September 30,	December 31,
	2019	2018
	($ 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	138
At 6% interest; due May 1992	8,025	8,025
	8,163	8,163
	$9,361	$9,361

 

The Trustee of the 6.5% subordinated convertible debentures, which matured in June 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee maintains a debenture reserve fund with a balance of $13,000 as of September 30, 2019 and December 31, 2018, 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, 2019, there were no 6.5% subordinated convertible debentures that were surrendered or escheated by their respective debenture holders and no funds were utilized from the debenture reserve account. 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 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, respectively. Accordingly, the Company 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.

 

As of September 30, 2019 and December 31, 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 $277,000 and $270,000, respectively. If and when such remaining debentures are surrendered to the Trustee, or escheated to the states of residence of the respective debenture holders, the applicable portion of such principal and accrued interest will be recorded as debt and accrued interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% subordinated convertible debentures would be barred under the applicable statutes of limitations.

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

 

Other income for the nine months ended September 30, 2019 was $3,000. Other income represents a recovery from a lot lien receivable recorded in 1999 which has been fully provided for cancellation. There was no other income recorded for the nine months ended September 30, 2018.

 

 

At December 31, 2018, the Company had an operating loss carryforward of approximately $68,476,000 available to reduce future taxable income. These operating losses expire at various dates through 2037.

 

The following summarizes the temporary differences of the Company at September 30, 2019 and December 31, 2018 at the statutory rate: 

 

	September 30,	December 31,
	2019	2018
	($ in thousands)
Deferred tax asset
Net operating loss carryforward	$17,424	$17,119
Expenses capitalized under IRC 263(a)	37	37
Tax credits (AMT)	57	57
Valuation allowance	(17,518)	(17,213)
Total deferred tax asset	-	-

 

 

The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at September 30, 2019 and December 31, 2018 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.

 

 

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 currently intends to continue to timely file Annual Reports on Forms 10-K with the Securities and Exchange Commission (the “SEC”). PGI currently intends to include in such Annual Reports all annual consolidated financial statements required to be included therein pursuant to Regulation S-X. However, PGI will include annual consolidated financial statements reviewed by a PCAOB registered public accounting firm rather than audited. PGI has engaged Milhouse & Neal to be the PCAOB registered public accounting firm that will review its annual consolidated financial statements to be included in the Annual Report on Form 10-K for its fiscal year ended December 31, 2019 and for its fiscal years thereafter.

 

PGI meets all of the conditions in Regulation S-X 3-11 for an “Inactive Registrant” which are:

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

As the Company reviews its circumstances, it has met the conditions as an Inactive Registrant since 2017.

 

The Company, formerly a Florida residential developer, is dormant with less than 70 acres of remaining landholdings, much of which has little value due to various restrictions. The Company’s consolidated financial statements show it has a Stockholders’ Deficiency of $90.9 million as of December 31, 2018. 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 will continue to provide comprehensive updates through its SEC filings.

 

The Trustee of the 6.5% subordinated convertible debentures, which matured in June 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee maintains a debenture reserve fund with a balance of $13,000 as of September 30, 2019 and December 31, 2018, 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, 2019, there were no 6.5% subordinated convertible debentures that were surrendered by their respective debenture holders and no funds were utilized from the debenture reserve account.

 

As of September 30, 2019 and December 31, 2018, the remaining outstanding principal balance on such 6.5% subordinated convertible debentures that have not been surrendered by the respective holders equals $138,000 plus accrued and unpaid interest of $277,000 and $270,000, respectively. If and when such remaining debentures are surrendered to the Trustee, or escheated to the states of residence of the respective debenture holders, the applicable portion of such principal and accrued interest will be recorded as debt and accrued interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% subordinated convertible debentures would be barred under the applicable statutes of limitations.

 

As of September 30, 2019, 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.

 

 

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 periods ended September 30, 2019 and 2018 as interest earned on the Company’s money market account is minimal due to the declining account balance.

 

Expenses for the three month period ended September 30, 2019 increased by $393,000 when compared to the same period in 2018 primarily as a result of no forgiveness of debt and interest in the three months ended September 30, 2019 as compared to $432,000 of forgiveness of debt and interest during the three months ended September 30, 2018. The forgiveness of debt and interest for the three months ended September 30, 2018 is attributed to the 6.5% subordinated debentures which matured in June 1991. A face amount of $152,000 of debentures were effectively surrendered with escheatment of respective funds to the last known state of residency of the debenture holders. Accordingly, the Company recognized $138,000 in forgiveness of debt during the three months ended September 30, 2018. In addition, accrued interest of $294,000 on such debentures considered surrendered was recorded as forgiveness of interest expense during the three months ended September 30, 2018.

 

Interest expense relating to the Company’s current outstanding debt, held by non-related parties, increased by $7,000 during the three month period ended September 30, 2019 compared to the same period in 2018, primarily as a result of interest compounding on past due balances. In addition, there was a decrease in the prime interest rate to 5% as of September 30, 2019 compared to 5.25% as of September 30, 2018.

 

Legal and professional expenses decreased by $25,000 during the three months ended September 30, 2019 when compared to the same period in 2018. Legal expenses decreased by $32,000 during the three months ended September 30, 2019 compared to the same period in 2018. Legal expenses were incurred during the three months ended September 30, 2018 in connection with research on the effect of surrender of debentures escheated to the states of debenture holders in 2018. There was no comparable legal expense during the three months ended September 30, 2019. Professional expenses increased by $7,000 when compared to the same period in 2018 as a result of expenses incurred on a parcel in Citrus County for which a report to the Florida Department of Environmental Protection (“FDEP”) has been filed to request satisfaction of environmental remediation efforts.

 

General and administrative expenses during the three month period ended September 30, 2019 decreased by $21,000 when compared to the same period in 2018. During the three months ended September 30, 2018, $13,000 was incurred relating to the review of the Company’s Form 10Q and disclosure of the effect of surrender of debentures escheated.. In addition, there was a decrease of approximately $4,000 in expenses as an inactive registrant during the three months ended September 30, 2019 compared to the same period in 2018, a decrease of approximately $2,000 in fees relating to the filing of the Company’s periodic reports and a decrease of approximately $2,000 relating to the 6% subordinated convertible debenture administration fees in 2018.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

The Company incurred a net loss of $392,000 during the three month period ended September 30, 2019 compared to a net income of $1,000 for the comparable period in 2018. After deducting preferred dividends, totaling $160,000 for the three month periods ended September 30, 2019 and 2018, with respect to the Class A Preferred Stock, a net loss per share (basic) of $(.10) and $(.03) was incurred for the three month periods ended September 30, 2019 and 2018, respectively. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through September 30, 2019 is $15,635,000.

 

Revenues for the nine months ended September 30, 2019 decreased by $2,000 when compared to the same period in 2018 primarily as a result of no related party interest income earned on the short-term note receivable with Love Investment Company (“LIC”), the Company’s primary preferred stock shareholder in 2019. Related party interest income was $4,000 for the nine months ended September 30, 2018. The Company received payment of the note receivable balance from LIC on March 6, 2018. Interest income on the Company’s money market account decreased by $1,000 during the nine months ended September 30, 2019 from the comparable period in 2018 due to the declining account balance. Other income of $3,000, received during the nine months ended September 30, 2019 represents a recovery of a lot lien receivable recorded in 1999 which has been fully provided for cancellation. There was no other revenue during the nine months ended September 30, 2018.

 

Expenses for the nine months ended September 30, 2019 increased by $853,000 when compared to the same period in 2018. There was no forgiveness of debt and interest in the nine months ended September 30, 2019 as compared to $875,000 of forgiveness of debt and interest during the nine months ended September 30, 2018. The forgiveness of debt and interest for the nine months ended September 30, 2018 is attributed to the 6.5% subordinated debentures which matured in June 1991. A face amount of $287,000 of debentures were effectively surrendered with escheatment of respective funds to the states of debenture holders. In addition, debentures with a face amount of $22,000 were surrendered by 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 now considered surrendered was recorded as forgiveness of interest expense during the nine months ended September 30, 2018

 

Interest expense relating to the Company’s current outstanding debt, held by non-related parties, increased by $18,000 during the nine month period ended September 30, 2019 compared to the same period in 2018, primarily as a result of interest compounding on past due balances. In addition, there was a decrease in the prime interest rate to 5% as of September 30, 2019 compared to 5.25% as of September 30, 2018.

 

Legal and professional expenses during the nine month period ended September 30, 2019 decreased by $6,000 when compared to the same period in 2018. Legal expenses were incurred in 2018 as a result of legal expenses incurred in connection with research on the effect of surrender of debentures escheated. and in connection with legal research relating to the Company’s going concern alternatives and SEC Regulation S-X for inactive registrants. Professional expenses increased by $2,000 during the nine months ended September 30, 2019 compared to 2018 as a result of expenses incurred during the nine months ended September 30, 2019 on a parcel in Citrus County requiring additional environmental remediation.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Taxes and assessments expense decreased by $1,000 during the nine month period ended September 30, 2019 when compared to the same period in 2018. General and administrative expenses decreased by $33,000 during the nine month period ended September 30, 2019 when compared to the same period in 2018 primarily as a result of decreased fees related to the filing of the Company’s periodic reports in 2019 as an inactive registrant and a decrease in the 6% subordinated convertible debenture administration fees in 2018.

 

The Company incurred a net loss of $1,187,000 during the nine month period ended September 30, 2019 compared to a net loss of $332,000 for the comparable period in 2018. After deducting preferred dividends, totaling $480,000 for the nine month periods ended September 30, 2019 and 2018, with respect to the Class A Preferred Stock, net loss per share of $(.31) and $(.15) was incurred for the nine month periods ended September 30, 2019 and 2018, respectively.

 

Cash Flow Analysis

 

During the nine month period ended September 30, 2019, the Company’s net cash used in operating activities was $190,000 compared to $112,000 for the comparable period in 2018. There was no cash provided from investing activities during the nine month period ended September 30, 2019 compared to $560,000 of net cash provided from investing activities in the comparable period in 2018 which consisted of note receivable proceeds received from LIC.

 

Analysis of Financial Condition

 

Total assets decreased by $190,000 at September 30, 2019 compared to total assets at December 31, 2018, reflecting the following changes:

 

	September 30,	December 31,	Increase
	2019	2018	(Decrease)
		($ in thousands)
Cash	$336	$526	$(190)
Land inventory	14	14	-
Restricted sinking fund	13	13	-
	$363	$553	$(190)

 

During the nine month period ended September 30, 2019, cash decreased by $190,000, compared to December 31, 2018 as a result of the Company funding its operating activities. Based on its current expenditure level, the Company will be able to fund ongoing operating activity for less than two years unless it is able to sell remaining land parcels.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)

 

Liabilities were approximately $92,546,000 at September 30, 2019 compared to approximately $91,549,000 at December 31, 2018, reflecting the following changes which resulted in an increase of $997,000 of liabilities:

 

	September 30,	December 31,	Increase
	2019	2018	(Decrease)
		($ in thousands)
Accounts payable and accrued expenses	$167	$230	$(63)
Accrued real estate taxes	3	-	3
Accrued interest	83,015	81,958	1,057
Credit agreements:			-
Notes payable	1,198	1,198	-
Subordinated convertible
debentures payable	8,163	8,163	-
	$92,546	$91,549	$997

 

During the nine month period ended September 30, 2019, the amount of accounts payable and accrued expenses decreased by $63,000 primarily as a result of timing differences. In addition, the Company’s general and administrative expenses have decreased in 2019 as an inactive registrant. Accrued real estate taxes increased by $3,000 during the nine month period ended September 30, 2019 due to the accrual of real estate taxes for the respective period. Accrued interest during the nine month period ended September 30, 2019 increased by $1,057,000 due to the amount of interest for such period. During the nine month period ended September 30, 2019, the Company made no interest or principal payments on its outstanding notes payable and subordinated convertible debentures.

 

The Company remains in default on the entire principal amount plus interest (including certain sinking fund and interest payments with respect to the subordinated convertible debentures) of its subordinated convertible debentures and notes payable as well as the remaining accrued interest owed with respect to the collateralized convertible debentures.

 

 

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, 2019 are as indicated in the following table:

 

	September 30, 2019
	Principal	Accrued
	Amount Due	Interest
	($ in thousands)
Subordinated convertible debentures:
At 6.5%, due June 1991	$138	$277
At 6%, due May 1992	8,025	26,458
	$8,163	$26,735
Collateralized convertible debentures-related party:
At 14%, due July 8, 1997	$-	$52,915
Notes payable:
At prime plus 2%, all past due	$1,176	$3,365
Non-interest bearing	22	-
	$1,198	$3,365

 

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, 2018.

 

 

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, 2019. There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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.

 

 

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 12, 2019	By:	/s/ Laurence A. Schiffer
		Laurence A. Schiffer
		President (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)

 

 

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.

 

 

31(i).1 Principal Executive Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

 

31(i).2 Principal Financial Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.

 

32.1 Chief Executive 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.