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 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 with a balance of $41,000 as of
March 31, 2018 and December 31, 2017, respectively, which is
available for final distribution to holders of such debentures who
surrender their respective debenture certificates.
During
the three month period ended March 31, 2018 and the year ended
December 31, 2017, 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
March 31, 2018 and December 31, 2017 the remaining outstanding
principal balance on such 6.5% subordinated convertible debentures
that have not been surrendered by the respective holders equals
$447,000 plus accrued and unpaid interest of $853,000 and $846,000,
respectively. If and when such remaining debentures are surrendered
to the Trustee, the applicable portion of such principal and
accrued interest will be recorded as debt and 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, 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 income of $1,000 for each of
the three month periods ended March 31, 2018 and 2017 represents
interest earned on the Company’s money market account.
Interest income of $4,000 for the three month period ended March
31, 2018 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)
Interest expense
relating to the Company’s current outstanding debt, held by
non-related parties, increased by $9,000 during the three month
period ended March 31, 2018 compared to the same period in 2017,
primarily as a result of interest accruing on past due balances
which increase at various intervals throughout the year for accrued
but unpaid interest.
Consulting and
accounting expense decreased by $1,000 during the three month
period ended March 31, 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 three month period ended
March 31, 2018 decreased by $4,000 when compared to the same period
in 2017 primarily due to tax service fees incurred during the three
month period ended March 31, 2017.
Income
tax expense of $57,000 was recognized during the three month period
ended March 31, 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 during the three month
period ended March 31, 2018 compared to a net loss of $449,000 for
the comparable period in 2017. After deducting preferred dividends,
totaling $160,000 for the three month periods ended March 31, 2018
and 2017, with respect to the Class A Preferred Stock, a net loss
per share of $(.10) and $(.11) was incurred for the three month
periods ended March 31, 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.
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.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Analysis of Financial Condition
Total
assets decreased by $49,000 at March 31, 2018 compared to total
assets at December 31, 2017, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
683
|
$
159
|
$
524
|
Receivables-related
party
|
-
|
573
|
(573
)
|
Land
and improvement inventories
|
14
|
14
|
-
|
Restricted
sinking fund
|
41
|
41
|
-
|
Other
assets
|
1
|
1
|
-
|
|
$
739
|
$
788
|
$
(49
)
|
During
the three month period ended March 31, 2018, cash increased by
$524,000 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.
Liabilities were
approximately $91,374,000 at March 31, 2018 compared to
approximately $91,048,000 at December 31, 2017, reflecting the
following changes which resulted in a decrease of $326,000 of
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$
193
|
$
209
|
$
(16
)
|
Accrued
real estate taxes
|
1
|
4
|
(3
)
|
Accrued
interest
|
81,510
|
81,165
|
345
|
Credit
agreements:
|
|
|
-
|
Notes
payable
|
1,198
|
1,198
|
-
|
Subordinated
convertible
|
|
|
|
debentures
payable
|
8,472
|
8,472
|
-
|
|
|
|
|
|
$
91,374
|
$
91,048
|
$
326
|
During
the three month period ended March 31, 2018, the amount of accounts
payable and accrued expenses decreased by $16,000 primarily as a
result of timing differences. Accrued real estate taxes decreased
by $3,000 during the three month period ended March 31, 2018 due to
the payment of previously accrued taxes. Accrued interest during
the three month period ended March 31, 2018 increased by $345,000
due to the amount of interest expense for such period. During the
three month period ended March 31, 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 Discussion and Analysis of Financial Condition and
Results of Operations (continued)
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.
The
principal and accrued interest amounts due as of March 31, 2018 are
as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated convertible debentures:
|
|
|
At
6 1/2 %, due June 1991
|
$
447
|
$
853
|
At
6%, due May 1992
|
8,025
|
24,505
|
|
$
8,472
|
$
25,358
|
Collateralized
convertible debentures-related party:
|
|
At
14%, due July 8, 1997
|
$
-
|
$
52,915
|
|
|
|
Notes payable:
|
|
|
At
prime plus 2%, all past due
|
$
1,176
|
$
3,237
|
Non-interest
bearing
|
22
|
-
|
|
$
1,198
|
$
3,237
|
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.