PGI INC - Quarter Report: 2020 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, 2020

 

☐    TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________________ to _____________________

 

Commission File Number 1-6471 

 

PGI INCORPORATED

(Exact name of registrant as specified in its charter)

 

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

 

 

212 SOUTH CENTRAL, SUITE 304, ST. LOUIS, MISSOURI 63105

(Address of principal executive offices)

 

(314) 512-8650

(Registrant’s telephone number, including area code)

 

Inapplicable       

(Former Name, Former Address and Former Fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X  No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X  No _______

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer___________	Non-accelerated filer____________
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

 

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 13, 2020, there were 5,317,758 shares of the registrant’s common stock, $.10 par value per share, outstanding.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

Form 10 – Q

For the Quarter Ended September 30, 2020

 

Table of Contents

 

		Form 10 - Q      Page No.
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited) Condensed Consolidated Statements of Financial Position September 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations Three and Nine Months Ended September 30, 2020 and 2019	4
	Condensed Consolidated Statements of Cash Flows        Nine Months Ended September 30, 2020 and 2019	5
	Condensed Consolidated Statements of Stockholders’ Deficiency        Three Months Ended September 30, 2020 and 2019	6
	Nine Months Ended September 30, 2020 and 2019	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	17
Item 4.	Controls and Procedures	17
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
Item 3.	Defaults Upon Senior Securities	18
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	18
SIGNATURE		19
EXHIBIT INDEX		20

 

 

PART I  FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

	September 30,	December 31,
	2020	2019
ASSETS
Cash	$94	$309
Land inventory	14	14
Restricted sinking fund	-	13
	$108	$336
LIABILITIES
Accounts payable and accrued expenses	$159	$169
Accrued real estate taxes	3	-
Accrued interest:
Subordinated convertible debentures payable	27,797	27,070
Convertible debentures payable-related party	52,790	52,915
Notes payable	3,435	3,385
Credit agreements:
Notes payable	1,198	1,198
Subordinated convertible debentures payable	8,025	8,163
	93,407	92,900
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 $16,275)	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	(109,329)	(108,594)
	(93,299)	(92,564)
	$108	$336

See accompanying notes to Condensed Consolidated Financial Statements.

 

Part I  Financial Information (Continued)

 

	Three Months Ended		Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2020	2019	2020	2019
REVENUES
Interest income	$-	$-	$-	$1
Other income	2	-	2	3
	2	-	2	4
COSTS AND EXPENSES
Interest	354	354	1,062	1,057
Forgiveness of debt
and interest	(410)	-	(410)	-
Taxes and assessments	1	1	3	3
Consulting and accounting-
related party	8	9	26	27
Legal and professional	1	16	36	63
General and administrative	6	12	20	41
	(40)	392	737	1,191
NET INCOME (LOSS)	$42	$(392)	$(735)	$(1,187)
NET LOSS PER SHARE(*)
AVAILABLE TO COMMON
STOCKHOLDERS-Basic and diluted	$(0.02)	$(0.10)	$(0.23)	$(0.31)
*Considers the effect of dividends on preferred stock for the three and nine months ended
September 30, 2020 and 2019.

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

Part I  Financial Information (Continued)

 

	Nine Months Ended
	September 30,	September 30,
	2020	2019
Net cash used in operating activities	$(215)	$(190)
Net change in cash	(215)	(190)
Cash at beginning of period	309	526
Cash at end of period	$94	$336

 

See accompanying notes to Condensed Consolidated Financial Statements.

 

 

Part I  Financial Information (Continued)

 

	Preferred Stock		Common Stock
	Shares	Par Value	Shares	Par Value	Paid-in Capital	Accumulated Deficit	Total
Balances at 6/30/20	2,000,000	$2,000	5,317,758	$532	$13,498	$(109,371)	$(93,341)
Net Income (Loss)	-	-	-	-	-	42	42
Balances at 9/30/20	2,000,000	$2,000	5,317,758	$532	$13,498	$(109,329)	$(93,299)

 

	Preferred Stock		Common Stock
	Shares	Par Value	Shares	Par Value	Paid-in Capital	Accumulated 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)

 

 

 Part I  Financial Information (Continued)

 

	Preferred Stock		Common Stock
	Shares	Par Value	Shares	Par Value	Paid-in Capital	Accumulated Deficit	Total
Balances at 1/1/20	2,000,000	$2,000	5,317,758	$532	$13,498	$(108,594)	$(92,564)
Net Income (Loss)	-	-	-	-	-	(735)	(735)
Balances at 9/30/20	2,000,000	$2,000	5,317,758	$532	$13,498	$(109,329)	$(93,299)

 

	Preferred Stock		Common Stock
	Shares	Par Value	Shares	Par Value	Paid-in Capital	Accumulated Deficit	Total
Balances at 1/1/19	2,000,000	$2,000	5,317,758	$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)

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

(1) Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of PGI Incorporated (“PGI”) and its subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10 - Q and therefore do not include all disclosures necessary for fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The Company's independent registered public accounting firm included an explanatory paragraph regarding the Company's ability to continue as a going concern in their report on the Company's consolidated financial statements for the year ended December 31, 2019, as they have for many years.

 

The Company was founded in 1958, and up until the mid 1990’s was in the business of building and selling homes, developing and selling home sites and selling undeveloped or partially developed tracts of land. Over approximately the last 30 years, the Company’s business focus and emphasis changed substantially as it has concentrated its sales and marketing efforts almost exclusively on the disposition of its remaining real estate.

 

The Company’s major efforts and activities have been, and continue to be, to sell the remaining assets of the Company, to repay its indebtedness, and to pay the ordinary on-going administrative costs of the Company. The potential values of the land parcels held for sale have been difficult to assess. The Company will seek to realize full market value for each remaining asset, the amounts realized may be at substantial variance from its present financial statement carrying value. Certain of these assets may be of so little value and marketability that the Company may elect not to pay the real estate taxes on selected parcels, which may eventually result in a defacto liquidation of such property by subjecting such property to a tax sale. In management’s judgement, the remaining assets will be insufficient to satisfy much, if any, of the outstanding indebtedness and there will be no recoveries by the shareholders. Consequently, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

 

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2019 filed with the Securities and Exchange Commission.

 

The Company remains in default under the indentures governing its unsecured subordinated debentures. (See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 7, 8, and 9 to the Company's consolidated financial statements for the year ended December 31, 2019, as contained in the Company's Annual Report on Form 10 - K).

 

All adjustments (consisting of only normal recurring accruals) necessary for fair presentation of financial position, results of operations and cash flows have been made. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2020 or any other interim period.

 

(2) Per Share Data

 

Basic per share amounts are computed by dividing net income (loss), after deducting current period dividends on the Company's preferred stock, by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding for the three and nine months ended September 30, 2020 and 2019 was 5,317,758.

 

Diluted per share amounts are computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, after adjusting for the estimated effect of the assumed conversion of all cumulative convertible preferred stock and outstanding convertible debentures, if dilutive, into shares of common stock. For the three and nine months ended September 30, 2020 and 2019, the assumed conversion of all outstanding convertible preferred stock and collateralized convertible debentures would have been anti-dilutive.

 

 

 

The following is a summary of the calculations used in computing basic and diluted loss per share for the three and nine months ended September 30, 2020 and 2019.

 

	Three Months Ended		Nine Months Ended
	September 30,	September 30,	September 30,	September 30,
	2020	2019	2020	2019
	($ in thousands, except share and per share data)
Net Income (Loss)	$42	$(392)	$(735)	$(1,187)
Preferred dividends	(160)	(160)	(480)	(480)
Loss Available to	$(118)	$(552)	$(1,215)	$(1,667)
Common shareholders
Basic and Diluted
Weighted Average Number
Of Common Shares
Outstanding	5,317,758	5,317,758	5,317,758	5,317,758
Basic and Diluted Loss
Per Common Share	$(0.02)	$(0.10)	$(0.23)	$(0.31)

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

(3) Statement of Cash Flows

 

The Financial Accounting Standards Board Accounting Standards Codification Topic No. 230, “Statement of Cash Flows”, requires a statement of cash flows as part of a full set of financial statements. For quarterly reporting purposes, the Company has elected to condense the reporting of its net cash flows. Interest was paid during the nine months ended September 30, 2020 in the amount of $125,000 in connection with the collateralized convertible debentures. There were no payments of interest for the nine month period ended September 30, 2019.

 

(4) Land Inventory

 

Land inventory consisted of

 

	September 30,	December 31,
	2020	2019
	($ in thousands)
Fully improved land	$14	$14

 

 

Accounts payable and accrued expenses consisted of:

 

	September 30,	December 31,
	2020	2019
	($ in thousands)
Accounts payable	$2	$-
Accrued accounting review and
tax preparation expense	3	13
Accrued consulting fees-related party	-	1
Accrued legal	-	1
Accrued debenture fees	153	153
Accrued miscellaneous	1	1
	$159	$169
Accrued real estate taxes consisted of:
Current real estate taxes	$3	$-

 

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

 

Credit agreements consisted of the following:

 

	September 30,	December 31,
	2020	2019
	($ in thousands)
Notes payable - $1,176,000 bearing
interest at prime plus 2%
the remainder non-interest bearing,
all past due	$1,198	$1,198
Subordinated convertible debentures payable:
At 6.5% interest; due June 1991	-	138
At 6% interest; due May 1992	8,025	8,025
	8,025	8,163
	$9,223	$9,361

 

Accrued interest consisted of the following:

 

	September 30,	December 31,
	2020	2019
	($ in thousands)
Notes payable	$3,435	$3,385
Subordinated convertible debentures payable:
At 6.5% interest; due June 1991	-	279
At 6% interest; due May 1992	27,797	26,791
	27,797	27,070
Convertible debentures -related party:
Principal balance paid 6/23/16	52,790	52,915
	$84,022	$83,370

 

The Trustee of the 6.5% subordinated convertible debentures, which matured in June 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee has maintained a debenture reserve fund that was closed as of September 30, 2020. The balance as of December 31, 2019 was $13,000, available for final distribution of $92 per $1,000 in face amount to holders of such debentures who surrender their respective debenture certificates.

 

 

PGI INCORPORATED AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (continued)

 

(6) Credit Agreements: Notes Payable and Subordinated Convertible Debentures Payable (continued)

 

The remaining balance of the debenture reserve fund of $13,000 was disbursed in escheatment to the states of the respective debenture holders during the three month period ended September 30, 2020. The debentures with a face amount of $138,000 were effectively surrendered with the escheatment of the respective funds to the states of the debenture holders. Accordingly, the Company has recognized $125,000 in forgiveness of debt during the three month period ended September 30, 2020. In addition, accrued interest of $285,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the three month period ended September 30, 2020. There were no debentures surrendered or escheated in 2019.

 

The 6.5% subordinated convertible debenture balances for the nine months ended September 30, 2020 and year ended December 31, 2019 are as follows:

 

	September 30, 2020	December 31, 2019
	($ in thousands)
Outstanding debenture principal balance	$-	$138
Face value of debentures escheated	138	-
Debenture reserve account balance	-	13
Debenture reserve funds utilized
in escheatment to states of debenture holders	13	-
Forgiveness of debt	125	-
Forgiveness of interest	285	-

 

During the month ended September 30, 2020 the Company paid $125,000 of collateralized convertible debenture accrued interest to Love Investment Company (“LIC”), the Company’s primary preferred stock shareholder, and Love-1989 Florida Partners (“Love-1989”), also an affiliate of the Company, which held the collateralized convertible debentures.

 

(7) Income Taxes

 

At December 31, 2019, the Company had an operating loss carryforward of approximately $70,074,000 available to reduce future taxable income. These operating losses expire at various dates through 2038.

 

The following summarizes the temporary differences of the Company at September 30, 2020 and December 31, 2019 at the statutory rate:        

 

	September 30,	December 31,
	2020	2019
	($ in thousands)
Deferred tax asset
Net operating loss carryforward	$17,708	$17,522
Expenses capitalized under IRC 263(a)	37	37
Tax credits (AMT)	57	57
Valuation allowance	(17,802)	(17,616)
Total deferred tax asset	-	-

 

(8) Fair Value of Financial Instruments

 

The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at September 30, 2020 and December 31, 2019 because of the short maturity of those instruments. It was not practicable to estimate the fair value of the Company’s notes payable and its convertible debentures because these debts are in default causing no basis for estimating value by reference to quoted market prices or current rates offered to the Company for debt of the same remaining maturities.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

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

 

Preliminary Note

 

The Company’s remaining land inventory consists of 6 single family lots, an approximate 7 acre parcel and some other minor parcels of real estate consisting of easements in Citrus County Florida, which are owned through its wholly-owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”). In addition, Punta Gorda Isles Sales, Inc. (“PGIS”), a wholly-owned subsidiary of the Company, owns 12 parcels of real estate in Charlotte County, Florida, which in total approximates 60 acres. These parcels have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.

 

In early 2019, the Board of Directors of PGI concluded that it meets all of the conditions under which a registrant may be deemed an “Inactive Entity” as that term is defined or contemplated in Regulation S-X 3-11 and as the term “Inactive Registrant” is further contemplated in the Securities and Exchange Commission’s Division of Corporation Finance’s Financial Reporting Manual section 1320.2. Under Regulation 3-11 of Regulation S-X, the financial statements required thereunder with respect to an Inactive Registrant for purposes of reports pursuant to the Securities Exchange Act of 1934, including but not limited to annual reports on Form 10-K, may be unaudited. A representative of PGI informally discussed its view that PGI is an Inactive Registrant with a staff member of the Chief Accountant’s Office in the Division of Corporation Finance in February 2019.

 

As an Inactive Registrant, PGI intends to continue timely to file Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K with the Securities and Exchange Commission (the “SEC”). PGI intends to include in such Quarterly and Annual Reports all consolidated financial statements required to be included therein pursuant to Regulation S-X. However, due to its inactive status and diminishing financial resources, the aforementioned consolidated financial statements will not be reviewed or audited by a PCAOB registered public accounting firm for the year 2020. Such disclosure was made on Form 8-K filed with the SEC on July 2, 2020. PGI engaged Milhouse & Neal, a PCAOB registered public accounting firm, to review its annual consolidated financial statements for its fiscal year ended December 31, 2019.

 

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

 

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

 

The Company, formerly a Florida residential developer, is dormant with less than 70 acres of remaining landholdings, much of which has little value due to various restrictions. The Company’s consolidated financial statements show it has a Stockholders’ Deficiency of $92.6 million as of December 31, 2019. BKD, the Company’s PCAOB registered public accounting firm until the date the Company filed its Form 10-K for Fiscal 2018 which was February 25, 2019, expressed a “going concern” opinion with respect to the Company for its Fiscal 2018 financial statements and had expressed such opinions for many years previously. PGI has had no trading of its securities in many years. Any future real estate transactions by the Company will be limited, uncertain as to timing and as to value. Ultimately, PGI expects that proceeds from sales of its remaining real estate, if any, will provide some minimal recoveries for PGI’s senior debtholders. PGI has been an SEC registrant for over 40 years.

 

As an Inactive Registrant, PGI anticipates it will continue to provide comprehensive updates through its SEC filings.

 

The Trustee of the 6.5% subordinated convertible debentures, which matured in June 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee maintained a debenture reserve fund that was closed as of September 30, 2020. The balance as of December 31, 2019 was $13,000, available for final distribution of $92 per $1,000 in face amount to holders of such debentures who surrender their respective debenture certificates.

 

The remaining balance of the debenture reserve fund of $13,000 was disbursed in escheatment to the states of the respective debenture holders during the three month period ended September 30, 2020. The debentures with a face amount of $138,000 were surrendered with the escheatment of respective funds to the states of the debenture holders. Accordingly, the Company has recognized $125,000 in forgiveness of debt during the three month period ended September 30, 2020. In addition, accrued interest of $285,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the three month period ended September 30, 2020. There were no debentures surrendered or escheated in 2019.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

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

 

During the three month period ended September 30, 2020 the Company paid $125,000 of collateralized convertible debenture accrued interest to LIC, the Company’s primary preferred stock shareholder, and Love-1989, also an affiliate of the Company, which held the collateralized convertible debentures.

 

As of September 30, 2020, the Company remained in default under its subordinated convertible debentures and notes payable, as well as the remaining balance of accrued interest with respect to its collateralized convertible debentures.

 

Results of Operations

 

Expenses for the three month period ended September 30, 2020 decreased by $432,000 when compared to the same period in 2019. This decrease reflects forgiveness of debt and interest of $410,000 which is attributed to the 6.5% subordinated debentures which matured in June, 1991. The debentures were escheated to the states of the respective debenture holders. In addition, the change reflects a $1,000 decrease in consulting and accounting related party expenses, a $15,000 decrease in legal and professional fees and a $6,000 decrease in general and administrative expenses.

 

Interest expense relating to the Company’s current outstanding debt, held by non-related parties was $354,000 for the three month periods ended September 30, 2020 and 2019. Interest expense relating to the Company’s current outstanding debt for subordinated convertible debentures, increased by $6,000 during the three month period ended September 30, 2020 compared to the same period in 2019, primarily as a result of interest compounding on past due balances. This increase was offset by a $6,000 decrease in interest expense for notes payable due to a decrease in the prime interest rate from 3.25% as of September 30, 2020 compared to 5% as of September 30, 2019.

 

Consulting and accounting related party expenses decreased by $1,000 during the three month period ended September 30, 2020 compared to the same period in 2019. A quarterly consulting fee is paid to Love Real Estate Company, an affiliate of LIC, of one-tenth percent of the carrying value of the Company’s assets, which decreased in 2020 compared to 2019.

 

Legal and professional expenses decreased by $15,000 during the three month period ended September 30, 2020 when compared to the same period in 2019, primarily due to legal and professional fees relating to environmental remediation incurred in the three month period ended September 30, 2019.

 

General and administrative expenses during the three month period ended September 30, 2020 decreased by $6,000 when compared to the same period in 2019 primarily as a result of the discontinuation of the independent accounting firm review services in the current year.

 

The Company realized net income of $42,000 during the three month period ended September 30, 2020 compared to a net loss of $392,000 for the comparable period in 2019. After deducting preferred dividends, totaling $160,000 for the three month periods ended September 30, 2020 and 2019, with respect to the Class A Preferred Stock, a net loss per share of $(.02) and $(.10) was incurred for the three month periods ended September 30, 2020 and 2019, respectively. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through September 30, 2020 is $16,275,000.

 

Revenues for the nine month period ended September 30, 2020 decreased by $2,000 to $2,000 from $4,000 for the comparable period in 2019. Other income decreased by $1,000 to $2,000 from $3,000 for the comparable period in 2019. Other income of $2,000 and $3,000 received during the nine month periods ended September 30, 2020 and 2019 represent recoveries from lot lien receivables recorded in previous years which have been fully provided for cancellation. Interest income on the Company’s money market account decreased by $1,000 during the nine month period ended September 30, 2020 compared to the same period in 2019 due to the declining account balance. Interest income of $1,000 was received during the nine months ended September 30, 2019. There was no interest income during the nine months ended September 30, 2020

 

Expenses for the nine months ended September 30, 2020 decreased by $452,000 when compared to the same period in 2019. This decrease reflects forgiveness of debt and interest of $410,000 which is attributed to the 6.5% subordinated debentures which matured in June, 1991. The debentures were escheated to the states of the respective debenture holders. In addition, the change reflects a $5,000 increase in interest expense, a $1,000 decrease in consulting and accounting related party expenses, a $27,000 decrease in legal and professional fees and a $21,000 decrease in general and administrative expenses.

 

Interest expense relating to the Company’s outstanding debt, held by non-related parties, increased by $5,000 during the nine month period ended September 30, 2020 compared to the same period in 2019. Interest expense relating to the Company’s current outstanding debt for subordinated convertible debentures, increased by $21,000 compared to the same nine month period in 2019, primarily as a result of interest compounding on past due balances. This increase was offset by a $16,000 decrease in interest expense for notes payable due to a decrease in the prime interest rate from 3.25% as of September 30, 2020 compared to 5% as of September 30, 2019.

 

Consulting and accounting related party expenses decreased by $1,000 during the nine month period ended September 30, 2020 compared to the same period in 2019. A quarterly consulting fee is paid to Love Real Estate Company, an affiliate of LIC, of one-tenth percent of the carrying value of the Company’s assets, which decreased in 2020 compared to 2019.

 

 

PGI INCORPORATED AND SUBSIDIARIES

 

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

 

Legal and professional expenses decreased by $27,000 during the nine month period ended September 30, 2020 when compared to the same period in 2019 as follows:

 

	(Decrease)
	($ in thousands)
Legal and professional fees environmental remediation	$(15)
Legal common title matters	(7)
Legal Form 8K review	(4)
Legal review filing of periodic reports	(1)
	$(27)

 

General and administrative expenses decreased by $21,000 during the nine month period ended September 30, 2020 when compared to the same period in 2019 primarily as a result of a reduction in accounting review services in the current year.

 

The Company incurred a net loss of $735,000 during the nine month period ended September 30, 2020 compared to a net loss of $1,187,000 for the comparable period in 2019. After deducting preferred dividends, totaling $480,000 for the nine month periods ended September 30, 2020 and 2019, with respect to the Class A Preferred Stock, net loss per share of $(.21) and $(.31) was incurred for the nine month periods ended September 30, 2020 and 2019, respectively.

 

Cash Flow Analysis

 

During the nine month period ended September 30, 2020, the Company’s net cash used in operating activities was $215,000 which includes $125,000 of interest paid to related parties which held the collateralized convertible debentures. This compared to cash used in operating activities of $190,000 for the comparable 2019 period. There was no cash provided by or used in financing or investing activities during the nine month periods ended September 30, 2020 and 2019.

 

Analysis of Financial Condition

 

Total assets decreased by $228,000 at September 30, 2020 compared to total assets at December 31, 2019, reflecting the following changes:

 

	September 30,	December 31,
	2020	2019	(Decrease)
		($ in thousands)
Cash	$94	$309	$(215)
Land inventory	14	14	-
Restricted sinking fund	-	13	(13)
	$108	$336	$(228)

 

During the nine month period ended September 30, 2020, cash decreased by $215,000, compared to December 31, 2019 as a result of the Company funding its administrative costs of $90,000 and payment to related parties of $125,000 of accrued interest payable in connection with the collateralized convertible debentures.

 

 

 

Liabilities were approximately $93,407,000 at September 30, 2020 compared to approximately $92,900,000 at December 31, 2019, reflecting the following changes which resulted in an increase of $507,000 of liabilities:

 

	September 30,	December 31,	Increase
	2020	2019	(Decrease)
	($ in thousands)
Accounts payable and accrued expenses	$159	$169	$(10)
Accrued real estate taxes	3	-	3
Accrued interest	84,022	83,370	652
Credit agreements:			-
Notes payable	1,198	1,198	-
Subordinated convertible
debentures payable	8,025	8,163	(138)
	$93,407	$92,900	$507

 

During the nine month period ended September 30, 2020, the amount of accounts payable and accrued expenses decreased by $10,000 primarily as a result of timing differences. Accrued real estate taxes increased by $3,000 during the nine month period ended September 30, 2020 due to the accrual of real estate taxes for the respective period. Accrued interest during the nine month period ended September 30, 2020 increased by $652,000 as a result of $1,062,000 of interest expense for such period which was offset by $285,000 in forgiveness of accrued interest on the 6.5% subordinated debentures escheated to the states of debenture holders and also offset by the payment of $125,000 of accrued interest for the collateralized convertible debentures which are held by related parties.

 

During the nine months ended September 30, 2020, 6.5% subordinated debentures with face amount of $138,000 were effectively surrendered with the escheatment of respective debenture reserve funds by the Trustee to the states of such debenture holders.

 

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

 

The principal and accrued interest amounts due as of September 30, 2020 are as indicated in the following table:

 

	September 30, 2020
	Principal	Accrued
	Amount Due	Interest
	($ in thousands)
Subordinated convertible debentures:
At 6%, due May 1992	$8,025	$27,797
Collateralized convertible debentures-related party:
At 14%, due July 8, 1997	$-	$52,790
Notes payable:
At prime plus 2%, all past due	$1,176	$3,435
Non-interest bearing	22	-
	$1,198	$3,435

 

The Company does not have sufficient funds available (after payment of, or the reserving for the payment of, anticipated future administrative expenses) to satisfy the principal or interest obligations on the above debentures and notes payable or any arrearage in preferred dividends.

 

The Company remains totally dependent upon the sale of parcels of its various remaining properties with respect to its ability to make any future debt service payments.

 

The Company’s independent registered public accounting firms have included an explanatory paragraph expressing concerns as to the Company’s ability to continue as a going concern in their reports on on the Company’s consolidated financial statements for many years including the year ended December 31, 2019.

 

 

 PGI INCORPORATED AND SUBSIDIARIES

 

Forward Looking Statements

 

The discussion set forth in this Item 2, as well as other portions of this Form 10-Q, may contain forward-looking statements. Such statements are based upon the information currently available to management of the Company and management’s perception thereof as of the date of the Form 10-Q. When used in this Form 10-Q, words such as “anticipates,” “estimates,” “believes,” “expects,” and similar expressions are intended to identify forward-looking statements. Such statements are subject to risks and uncertainties. Actual results of the Company’s operations could materially differ from those forward-looking statements. The differences could be caused by a number of factors or combination of factors including, but not limited to: changes in the real estate market in Florida and the counties in which the Company owns any property; institution of legal action by the bondholders for collection of any amounts due under the subordinated convertible debentures (notwithstanding the Company’s belief that at least a portion of such actions might be barred under applicable statute of limitations); changes in management strategy; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision and with the participation of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based on this evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2020. There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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.

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	PGI INCORPORATED  (Registrant)
Date: November 13, 2020	By:	/s/ Laurence A. Schiffer
		Laurence A. Schiffer
		President (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)

 

 

 

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.
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.
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.