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 March 31,June 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)
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)
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 ☑ 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 ☑ 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 | ☑ |
(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 ☑
Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: As of May 11,August 20, 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 March 31,June 30, 2018
Table of Contents
| | Form 10 - Q Page No. |
PART I | FINANCIAL INFORMATION |
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Item 1. | Financial Statements | |
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Condensed Consolidated Statements of Financial Position March 31,June 30, 2018 (Unaudited) and December 31, 2017 | 3
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Condensed Consolidated Statements of Operations (Unaudited) Three and Six Months Ended March 31,June 30, 2018 and 2017 | 4 |
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Condensed Consolidated Statements of Cash Flows (Unaudited) ThreeSix Months Ended March 31,June 30, 2018 and 2017 | 5
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Notes to Condensed Consolidated Financial Statements (Unaudited) | 6
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Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 |
| 13
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 15 19 |
Item 4. | Controls and Procedures | 19 |
PART II | OTHER INFORMATION |
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Item 1. | Legal Proceedings | |
Item 4. Controls and Procedures1A. | 15 |
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PART II OTHER INFORMATION |
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Item 1. Legal Proceedings | 16 |
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Item 1A. Risk Factors | 16 |
| 20
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| 20 |
Item 3. | Defaults Upon Senior Securities | 16 |
| 20 |
Item 4. | Mine Safety Disclosures | 16 |
| 20 |
Item 5. | Other Information | 16 |
| 20 |
Item 6. | Exhibits | 16 |
| 20 |
SIGNATURE | 17 21 |
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EXHIBIT INDEX
|
18EXHIBIT INDEX | 22 |
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)
PGI INCORPORATED AND SUBSIDIARIES | | PGI INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | | CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION |
($ in thousands, except share and per share data) | | ($ in thousands, except share and per share data) |
| | |
| | | | |
| | | | |
| | | | |
ASSETS | | |
Cash | $683 | $159 | $629 | $159 |
Receivables-related party | - | 573 | - | 573 |
Receivable | | 5 | - |
Land inventory | 14 | 14 |
Restricted sinking fund | 41 | 27 | 41 |
Other assets | 1 | 1 |
| $739 | $788 | $676 | $788 |
LIABILITIES | | |
Accounts payable and accrued expenses | $193 | $209 | $198 | $209 |
Accrued real estate taxes | 1 | 4 | 2 | 4 |
Accrued interest: | | |
Subordinated convertible debentures payable | 25,358 | 25,032 | 25,384 | 25,032 |
Convertible debentures payable-related party | 52,915 | 52,915 |
Notes payable | 3,237 | 3,218 | 3,257 | 3,218 |
Credit agreements: | | |
Notes payable | 1,198 | 1,198 |
Subordinated convertible debentures payable | 8,472 | 8,315 | 8,472 |
| 91,374 | 91,048 | 91,269 | 91,048 |
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 $14,675) | 2,000 | |
Common stock, par value $.10 per share; authorized 25,000,000 shares; 5,317,758 shares issued and outstanding | 532 | |
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 $14,835) | | 2,000 |
Common stock, par value $.10 per share; | | |
authorized 25,000,000 shares; 5,317,758 | | |
shares issued and outstanding | | 532 |
Paid-in capital | 13,498 | 13,498 |
Accumulated deficit | (106,665) | (106,290) | (106,623) | (106,290) |
| (90,635) | (90,260) | (90,593) | (90,260) |
| $739 | $788 | $676 | $788 |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
Part I Financial Information (Continued)
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
| |
| | |
| | |
REVENUES | | |
Interest income | $1 | $1 |
Interest income-related party | 4 | - |
| 5 | 1 |
COSTS AND EXPENSES | | |
Interest | 345 | 336 |
Taxes and assessments | 1 | 1 |
Consulting and accounting- | | |
related party | 9 | 10 |
Legal and professional | 4 | 21 |
General and administrative | 21 | 25 |
| 380 | 393 |
Net Loss before income taxes | (375) | (392) |
Income tax expense | - | (57) |
NET LOSS | $(375) | $(449) |
| | |
NET LOSS PER SHARE(*) | | |
AVAILABLE TO COMMON | | |
STOCKHOLDERS-Basic and diluted | $(0.10) | $(0.11) |
*Considers the effect of dividends on preferred stock for the three months ended March 31, 2018 and 2017. PGI INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS |
($ in thousands, except per share data) |
|
| | | | |
| | |
| | | | |
| | | | |
REVENUES | | | | |
Interest income | $1 | $- | $2 | $1 |
Interest income-related party | - | 1 | 4 | 1 |
| 1 | 1 | 6 | 2 |
COSTS AND EXPENSES | | | | |
Interest | 347 | 339 | 692 | 675 |
Forgiveness of debt | | | | |
and interest | (111) | - | (443) | - |
Taxes and assessments | 2 | 1 | 3 | 2 |
Consulting and accounting- | | | | |
related party | 9 | 9 | 18 | 19 |
Legal and professional | 24 | 4 | 28 | 25 |
General and administrative | 20 | 21 | 41 | 46 |
| 291 | 374 | 339 | 767 |
Net Income (Loss) | (290)
| (373) | (333) | (765) |
before income taxes | | | | |
Income tax expense | - | - | - | (57) |
NET INCOME (LOSS) | $(290)
| $(373) | $(333) | $(822) |
| | | | |
NET LOSS PER SHARE(*) | | | | |
AVAILABLE TO COMMON | | | | |
STOCKHOLDERS-Basic and diluted | $(0.08) | $(0.10) | $(0.12) | $(0.21) |
| | | | |
*Considers the effect of dividends on preferred stock for the three and six months ended June 30, 2018 and 2017. |
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
Part I Financial Information (Continued)
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
PGI INCORPORATED AND SUBSIDIARIES | | PGI INCORPORATED AND SUBSIDIARIES |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS |
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| | |
| | |
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| | | | |
| | |
Net cash used in operating activities | $(36) | $(64) | $(90) | $(213) |
Cash Flows from investing activities: | | |
Investment in notes receivable-related party | | - | (500) |
Payments received on notes receivable-related party | 560 | - | 560 | - |
Net cash provided by investing activities | 560 | - | |
Net cash provided by (used in) investing activities | | 560 | (500) |
| | |
Net change in cash | 524 | (64) | 470 | (713) |
| | |
Cash at beginning of period | 159 | 958 | 159 | 958 |
| | |
Cash at end of period | $683 | $894 | $629 | $245 |
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, 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 hashave 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.
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).
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
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 six months ended March 31,June 30, 2018 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2018 or any other interim period.
Restatement of Previously Issued Financial Statements
During the second quarter of 2018, the Company received information from the Trustee of the 6.5% subordinated convertible debentures for the six month period ending June 30, 2018 that included activity for the three month period ending March 31, 2018 which had not been previously provided. Accordingly, the financial statements for March 31, 2018 and for the three months ended as previously issued require restatement. Below is a summary of the adjustments/restatement as of March 31, 2018 and for the three months ended March 31, 2018.
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ASSETS | | | |
Restricted sinking fund | $41 | $(11) | $30 |
Total assets | 739 | (11) | 728 |
| | | |
LIABILITIES | | | |
Accrued interest | | | |
Subordinated convertible debentures payable | 25,358 | (225) | 25,133 |
| | | |
Credit agreements | | | |
Subordinated convertible debentures payable | 8,472 | (118) | 8,354 |
| | | |
Total liabilities | 91,374 | (343) | 91,031 |
| | | |
STOCKHOLDERS' DEFICIENCY | | | |
Accumulated Deficit | (106,665) | (332) | (106,997) |
| | | |
Total stockholders' deficiency | (90,635) | (332) | (90,967) |
| | | |
Total liabilities and stockholders' deficiency | 739 | (11) | 728 |
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
| Three months ended March 31, 2018 |
| | | |
| ($ in thousands, except per share data) |
COSTS AND EXPENSES | | | |
Forgiveness of debt and interest | - | 332 | 332 |
Total Costs and Expenses | 380 | (332) | 48 |
Net Loss before income taxes | (375) | 332 | (43) |
NET LOSS | (375) | 332 | (43) |
|
| |
|
Loss Available to Common Shareholders
| (535)
| 332 | (203)
|
NET LOSS PER SHARE(*) | | | |
AVAILABLE TO COMMON | | | |
STOCKHOLDERS-Basic and diluted | $(0.10) | $0.06 | $(0.04) |
| | | |
*Considers the effect of dividends on preferred stock for the three months ended | | |
March 31, 2018. | | | |
During the three month period ended March 31, 2018, $11,000 of the debenture reserve funds were utilized in escheatment to states of respective debenture holders with $115,000 in face amount of debentures were effectively surrendered with escheatment of respective funds to the states of debenture holders. In addition, debentures with a face amount of $3,000 were surrendered by debenture holders. Accordingly, the Company has recognized $107,000 in forgiveness of debt during the three months ended March 31, 2018. In addition, accrued interest of $225,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the three months ended March 31, 2018.
Basic per share amounts are computed by dividing net income (loss), after deducting current period dividends on the Company's preferred stock, by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding for the three and six months ended March 31,June 30, 2018 and 2017 was 5,317,758.
Diluted per share amounts are computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, after adjusting for the estimated effect of the assumed conversion of all cumulative convertible preferred stock and outstanding convertible debentures, if dilutive, into shares of common stock. For the three and six months ended March 31,June 30, 2018 and 2017 , the assumed conversion of all outstanding convertible preferred stock and collateralized convertible debentures would have been anti-dilutive.
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
The following is a summary of the calculations used in computing basic and diluted lossincome (loss) per share for the three and six months ended March 31,June 30, 2018 and 2017.
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| | |
| | | | | | |
| | ($ in thousands, except share and per share data) |
| except share and per share data) | |
| | |
Net Loss | $(375) | $(449) | |
Net Income (Loss) | | $(290)
| $(373) | $(333) | $(822) |
| | |
Preferred dividends | (160) | (160) | (320) |
| | |
Loss Available to | $(535) | $(609) | $(450) | $(533) | $(653) | $(1,142) |
Common shareholders | | |
| | |
Basic and Diluted | | |
Weighted Average Number | | |
Of Common Shares | | |
Outstanding | 5,317,758 | 5,317,758 |
| | |
Basic and Diluted Loss | | |
Per Common Share | $(0.10) | $(0.11) | $(0.08) | $(0.10) | $(0.12) | $(0.21) |
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 threesix month periods ended March 31,June 30, 2018 and March 31, 2017.
Receivables consisted of:
| | | | |
| | | | |
| | |
Legal receivable | | $5 | $- |
Note receivable-related party | $- | $560 | - | 560 |
Interest receivable-related party | - | 13 | - | 13 |
| $- | $573 | $5 | $573 |
Land inventory consisted of
| | |
| | |
| |
Fully improved land | $14 | $14 |
| | |
| | |
| | |
| |
Fully improved land | $14 | $14 |
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(6)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of:
| | | | |
| | | | |
| | |
Accounts payable | $3 | $15 | $11 | $15 |
Accrued audit & professional | 39 | 47 | 36 | 47 |
Accrued legal | 2 | - | |
Accrued consulting fees-related party | 1 | 1 |
Accrued debenture fees | 147 | 145 | 149 | 145 |
Accrued miscellaneous | 1 | 1 |
| $193 | $209 | $198 | $209 |
| | |
Accrued real estate taxes consisted of: | | |
Current real estate taxes | $1 | $4 | $2 | $4 |
(7)
Credit Agreements: Notes Payable and Subordinated Convertible Debentures Payable
Credit agreements consisted of the following:
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| | |
| |
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 | 447 | 447 |
At 6% interest; due May 1992 | 8,025 | 8,025 |
| 8,472 | 8,472 |
| $9,670 | $9,670 |
| | | |
| | | |
| | |
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 | 290 | 447 |
At 6% interest; due May 1992 | 8,025 | 8,025 |
| 8,315 | 8,472 |
| $9,513 | $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 has maintainedmaintains a debenture reserve fund with a balance of $27,000 and $41,000 as of March 31,June 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.
PGI INCORPORATED AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (continued)
DuringThe 6.5% Subordinated convertible debenture balances for the three month periodsix months ended March 31, 2018June 30, 3018 and during the year ended December 31, 2017 thereare as follows:
| | |
| | |
| |
| | |
Outstanding debenture principal balance | $290 | $447 |
Face value of debentures surrendered | 22 | - |
Face value of debentures escheated | 135 | - |
Accrued and unpaid interest balance | 558 | 846 |
Debenture reserve account balance | 27 | 41 |
Debenture reserve funds utilized | | |
in payment of final distribution | 2 | - |
Debenture reserve funds utilized | | |
in escheatment to states of debenture holders | 12 | - |
Forgiveness of debt | 143 | - |
Forgiveness of interest | 300 | - |
During the six month period ended June 30, 2018, $14,000 of the debenture reserve funds were no 6.5% subordinated convertibleutilized with $2,000 disbursed in final distribution to debenture holders and $12,000 disbursed in escheatment to states of respective debenture holders as debentures thatwith a face amount of $22,000 were surrendered by their respective debenture holders and $135,000 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 $143,000 in forgiveness of debt during the six months ended June 30, 2018. In addition, accrued interest of $300,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the six months ended June 30, 2018. There were no funds were utilized from the debenture reserve account.debentures surrendered or escheated in 2017.
As of March 31,June 30, 2018, and December 31, 2017 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 $290,000 plus accrued and unpaid interest of $558,000. The outstanding principal balance on such respective debentures as of December 31, 2017 was $447,000 plus accrued and unpaid interest of $853,000 and $846,000, respectively. $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.
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
Income tax expense of $57,000 was recognized during the threesix month period March 31,ended June 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 $68,129,000$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 March 31,June 30, 2018 and December 31, 2017 at the statutory rate:
| | | | |
| | | | |
| | |
Deferred tax asset | | |
Net operating loss carryforward | $17,042 | $16,948 | $17,031 | $16,948 |
Expenses capitalized under IRC 263(a) | 37 | 37 |
Tax credits (AMT) | 57 | 57 |
Valuation allowance | (17,136) | (17,042) | (17,125) | (17,042) |
Total deferred tax asset | $- | - |
(9)(10)
Fair Value of Financial Instruments
The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at March 31,June 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.
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 maintainedmaintains a debenture reserve fund with a balance of $27,000 and $41,000 as of March 31,June 30, 2018 and December 31, 2017, respectively, which is 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 threesix month period ended March 31,June 30, 2018, $14,000 of the debenture reserve funds were utilized with $2,000 disbursed in final distribution to debenture holders and the year ended December 31, 2017, there were no 6.5% subordinated convertible$12,000 disbursed in escheatment to states of respective debenture holders as debentures thatwith a face amount of $22,000 were surrendered by their respective debenture holders and $135,000 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 $143,000 in forgiveness of debt during the six months ended June 30, 2018. In addition, accrued interest of $300,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the six months ended June 30, 2018. There were no funds were utilized from the debenture reserve account.debentures surrendered or escheated in 2017.
As of March 31,June 30, 2018, and December 31, 2017 the remaining outstanding principal balance on such 6.5% subordinated convertible debentures that havewere not been surrendered by the respective holders, or escheated by the Trustee to the states of residence of the respective holders, equals $447,000$290,000 plus accrued and unpaid interest of $853,000 and $846,000, respectively.$558,000. 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 March 31,June 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.
Results of Operations
Revenues for the three months ended March 31, 2018 increased by $4,000 when compared to the same period in 2017. Interest incomeRevenue of $1,000 was realized for each of the three month periods ended March 31,June 30, 2018 and 20172017. Interest income of $1,000 for the three month period ended June 30, 2018 represents interest earned on the Company’s money market account. Interest income of $4,000$1,000 for the three month period ended March 31, 2018June 30, 2017 represents related party interest on the short-term note receivable with Love Investment Company (“LIC”), the Company’s primary preferred stock shareholder. The Company received payment of the note receivable balance from LIC on March 6, 2018.
Expenses for the three month period ended March 31, 2018 decreased by $13,000 when compared to the same period in 2017 primarily as a result of a $17,000 decrease in legal and professional expenses due to expenses incurred during the period ended March 31, 2017 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)
Expenses for the three month period ended June 30, 2018 decreased by $83,000 when compared to the same period in 2017 primarily due to recognition of $111,000 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 $19,000 and $20,000 in face amount of debentures effectively surrendered with escheatment of the final distribution to the respective states of such debenture holders. Accrued interest in the amount of $75,000 on such surrendered or escheated debentures was recorded as forgiveness of interest expense during the three months ended June 30, 2018, and the principal amount of $39,000 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 $9,000$8,000 during the three month period ended March 31,June 30, 2018 compared to the same period in 2017, primarily as a result of interest accruingcompounding on past due balances which increase at various intervals throughout the year for accrued but unpaid interest.balances.
ConsultingLegal and accountingprofessional expenses increased by $20,000 during the three months ended June 30, 2018 when compared to the same period in 2017. Legal expenses increased by $12,000 during the three months ended June 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. Professional expenses increased by $8,000 when compared to the same period in 2017 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.
Taxes and assessments expense decreasedincreased by $1,000 during the three months ended June 30, 2018 when compared to the same period in 2017. General and administrative expenses during the three month period ended March 31,June 30, 2018 decreased by $1,000 when compared to the same period in 2017 primarily as a result of decreased fees relating to the filing of the Company’s periodic reports.
The company incurred a net loss of $290,000 for the three months ended June 30, 2018 compared to net loss of $373,000 for the three months ended June 30, 2017. After deducting preferred dividends, totaling $160,000 for the three month periods ended June 30, 2018 and 2017, with respect to the Class A Preferred Stock, a net loss per share of $(.08) and $(.10) was incurred for the three month periods ended June 30, 2018 and 2017, respectively. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through June 30, 2018 is $14,835,000.
Revenues for the six months ended June 30, 2018 increased by $4,000 when compared to the same period in 2017. Interest income earned on the Company’s money market account increased by $1,000 during the six months ended June 30, 2018 compared to the same period in 2017. Related party interest income increased by $3,000 during the six months ended June 30, 2018 to $4,000 from $1,000 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.
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 six months ended June 30, 2018 decreased by $485,000 when compared to the same period in 2017 primarily due to the $443,000 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 $135,000 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 $17,000 during the six month period ended June 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 six month period ended June 30, 2018 increased by $3,000 when compared to the same period in 2017. Legal expenses increased by $10,000 during the six months ended June 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. Professional expenses decreased by $7,000 when compared to the same period in 2017 as a result expenses incurred during the period ended June 30, 2017 on a parcel in Citrus County requiring additional environmental remediation.
Taxes and assessments expense increased by $1,000 during the six month period ended June 30, 2018 when compared to the same period in 2017. Consulting and accounting-related party expenses decreased by $1,000 during the six month period ended June 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 threesix month period ended March 31,June 30, 2018 decreased by $4,000$5,000 when compared to the same period in 2017 primarily dueas a result of decreased fees related to tax service fees incurred during the three month period ended March 31, 2017.filing of the Company’s periodic reports.
Income tax expense of $57,000 was recognized during the threesix month period ended March 31,June 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 $375,000$333,000 during the threesix month period ended March 31,June 30, 2018 compared to a net loss of $449,000$822,000 for the comparable period in 2017. After deducting preferred dividends, totaling $160,000$320,000 for the threesix month periods ended March 31,June 30, 2018 and 2017, with respect to the Class A Preferred Stock, a net loss per share of $(.10)$(.12) and $(.11)$(.21) was incurred for the threesix month periods ended March 31,June 30, 2018 and 2017. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through March 31, 2018 is $14,675,000.2017, respectively.
Cash Flow Analysis
During the three month period ended March 31, 2018, the Company’s net cash used in operating activities was $36,000 compared to $64,000 for the comparable period in 2017. Cash provided by investing activities during the three month period ended March 31, 2018 consisted of note receivable proceeds received from LIC. There were no investing activities during the three months ended March 31, 2017.15
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Cash Flow Analysis
During the six month period ended June 30, 2018, the Company’s net cash used in operating activities was $90,000 compared to $213,000 for the comparable period in 2017. Cash provided by investing activities during the six month period ended June 30, 2018 consisted of note receivable proceeds received from LIC. There were no investing activities during the six months ended June 30, 2018.
Analysis of Financial Condition
Total assets decreased by $49,000$112,000 at March 31,June 30, 2018 compared to total assets at December 31, 2017, reflecting the following changes:
| | | | | | |
| | | | | | |
| | | | | | |
Cash | $683 | $159 | $524 | $629 | $159 | $470 |
Receivables-related party | - | 573 | (573) | - | 573 | (573) |
Land and improvement inventories | 14 | - | |
Receivable | | 5 | - | 5 |
Land inventory | | 14 | - |
Restricted sinking fund | 41 | - | 27 | 41 | (14) |
Other assets | 1 | - | 1 | - |
| $739 | $788 | $(49) | $676 | $788 | $(112) |
During the threesix month period ended March 31,June 30, 2018, cash increased by $524,000$470,000 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.LIC on March 7, 2018.
The Company paid a legal retainer of $5,000 during the six months ended June 30, 2018 which is expected to be refunded.
During the six month period ended June 30, 2018, $14,000 of the 6.5% subordinated convertible debenture restricted sinking funds were utilized with $2,000 disbursed in final distribution to debenture holders and $12,000 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.
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Liabilities were approximately $91,374,000$91,269,000 at March 31,June 30, 2018 compared to approximately $91,048,000 at December 31, 2017, reflecting the following changes which resulted in a decreasean increase of $326,000$221,000 of liabilities:
| | | | | | |
| | | | | | |
| | | | | | |
Accounts payable and accrued expenses | $193 | $209 | $(16) | $198 | $209 | $(11) |
Accrued real estate taxes | 1 | 4 | (3) | 2 | 4 | (2) |
Accrued interest | 81,510 | 81,165 | 345 | 81,556 | 81,165 | 391 |
Credit agreements: | | - | | - |
Notes payable | 1,198 | - | 1,198 | - |
Subordinated convertible | | |
debentures payable | 8,472 | - | 8,315 | 8,472 | (157) |
| | |
| $91,374 | $91,048 | $326 | $91,269 | $91,048 | $221 |
During the threesix month period ended March 31,June 30, 2018, the amount of accounts payable and accrued expenses decreased by $16,000$11,000 primarily as a result of timing differences. Accrued real estate taxes decreased by $3,000$2,000 during the threesix month period ended March 31,June 30, 2018 due to the payment of previously accrued taxes. Accrued interest during the threesix month period ended March 31,June 30, 2018 increased by $345,000 due to the amount$391,000 as a result of $691,000 of interest expense for such period.period which was offset by accrued interest in the amount of $300,000 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 threesix month period ended March 31,June 30, 2018, the Company made no interest or principal payments on its outstanding notes payable and subordinated convertible debentures.
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's DiscussionThe 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 six months ended June 30, 2018, 6.5% subordinated with a face amount of $22,000 were surrendered by debenture holders and Analysis$135,000 in face amount of Financial Condition and Resultsdebentures were effectively surrendered with the escheatment of Operations (continued)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.
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 March 31,June 30, 2018 are as indicated in the following table:
| | |
| | | | |
| | | | |
| | |
| | |
Subordinated convertible debentures: | | |
At 6 1/2 %, due June 1991 | $447 | $853 | |
At 6.5%, due June 1991 | | $290 | $558 |
At 6%, due May 1992 | 8,025 | 24,505 | 8,025 | 24,826 |
| $8,472 | $25,358 | $8,315 | $25,384 |
Collateralized convertible debentures-related party: | Collateralized convertible debentures-related party: | | |
At 14%, due July 8, 1997 | $- | $52,915 | $- | $52,915 |
| | |
Notes payable: | | |
At prime plus 2%, all past due | $1,176 | $3,237 | $1,176 | $3,257 |
Non-interest bearing | 22 | - | 22 | - |
| $1,198 | $3,237 | $1,198 | $3,257 |
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.
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 not effective as of March 31, 2018. There have been no changessuch that information relating to our Company required to be disclosed in the Company’sour SEC report contained a material weakness in internal control over financial reporting duringwith resources necessary to implement an appropriate level of review controls to properly evaluate the quarter ended March 31, 2018 that have materially affected, or are reasonably likelycompleteness and accuracy of information obtained from outside sources. We plan to materially affect, the Company’stake additional steps to ensure completeness and accuracy of information obtained from outside sources. We believe this will greatly decrease any internal control over financial reporting.issues we may encounter in the future.
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)
| |
| (Registrant) | |
| | | |
Date:May 11, August 20, 2018
| 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 | 11. Statement re: Computation of Per Share Earnings (Set forth in Note 2 of the Notes to Condensed Consolidated Financial Statements (Unaudited) herein). Principal Executive Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. Principal Financial Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended. Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350. Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350. 101. Instance Document, Schema Document, Calculation Linkbase Document, Labels Linkbase Document, Presentation Linkbase Document and Definition Linkbase Document.* | Inapplicable. |
| | |
3.(i) | | Inapplicable. |
| | |
| | Bylaws of PGI Incorporated and all amendments thereto. |
| | |
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. |
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18 | | Inapplicable. |
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19 | | Inapplicable. |
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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. |
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99 | | Inapplicable. |
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100 | | Inapplicable. |
| | |
101 | | Instance Document, Schema Document, Calculation Linkbase Document, Labels Linkbase Document, Presentation Linkbase Document and Definition Linkbase Document.* |
* Furnished with this report.