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.
On June
17, 2016 two contracts were executed for the sale of two
undeveloped parcels of real property consisting of 369 acres
located in Hernando County, Florida (the “Property”)
between Sugarmill Woods and the State of Florida Department of
Transportation (the “Florida DOT”). The Property was
encumbered by secured creditor claims, and the sale of the Property
closed on June 21, 2016 for $9,000,000. The Florida DOT desired to
acquire the Property in connection with the northward extension of
the Suncoast Parkway as part of the Suncoast Parkway, Project
2.
The
proceeds from the sale of the Property were received on June 23,
2016 and payment of the primary lender debt totaling $500,000 and
all accrued interest totaling $470,000, was made to PGIP LLC
(“PGIP”), the holder of the first mortgage note and an
affiliate of the Company. In addition, on June 23, 2016, the
remaining principal of the collateralized convertible debentures
totaling $1,500,000 and a portion of the accrued interest related
to such debentures totaling $5,455,000 was paid to the current
holders of such debentures. Love Investment Company
(“LIC”), an affiliate of Love-PGI Partners, L.P.
(“L-PGI”), the Company’s primary preferred stock
shareholder, and Love-1989 Florida Partners, LP
(“Love-1989”), also an affiliate of L-PGI, held the
collateralized convertible debentures.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
agreements - first mortgage note
|
$
500
|
$
470
|
$
-
|
payable-related
party
|
|
|
|
|
|
|
|
Collateralized
convertible debentures
|
|
|
|
payable-related
party
|
1,500
|
5,455
|
52,915
|
|
$
2,000
|
$
5,925
|
$
52,915
|
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
September 30, 2016 and December 31, 2015, respectively, which is
available for final distribution to holders of such debentures who
surrender their respective debenture certificates.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
During
the nine month period ended September 30, 2016 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. During the year ended December 31, 2015
such subordinated convertible debentures with a face amount of
$80,000 were surrendered by their respective debenture
holders.
As of
September 30, 2016 and December 31, 2015 the remaining outstanding
principal balance on such 6.5% subordinated convertible debentures
that were not surrendered by the respective holders equals $447,000
plus accrued and unpaid interest of $809,000 and $788,000,
respectively. If and when such remaining debentures are surrendered
to the Trustee, the applicable portion of such principal and
accrued interest will similarly 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
September 30, 2016, 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 September 30, 2016 decreased by $1,000 to $1,000
from $2,000 for the comparable 2015 period as a result of decreased
interest income. Interest income for the three months ended
September 30, 2016 represents interest earned on the
Company’s money market account. Interest income for the three
months ended September 30, 2015 represents related party interest
on the short-term note receivable with LIC, an affiliate of L-PGI,
the Company’s primary preferred stock shareholder. The
Company received payment of the note receivable balance from LIC on
June 23, 2016.
Expenses for the
three months ended September 30, 2016 decreased by $1,832,000 when
compared to the same period in 2015 primarily as a result of a
decrease in interest expense during the three months ended
September 30, 2016. Interest expense for the three month period
ended September 30, 2016 decreased by $1,834,000 compared to the
same period in 2015, primarily due to the repayment of the
outstanding principal of the Company’s collateralized debt
with a portion of the proceeds from the Property sale received on
June 23, 2016, including the primary lender debt of $500,000 with
PGIP, and the collateralized convertible debenture principal in the
amount of $1,500,000 paid to LIC and Love-1989. As a result there
was no interest expense during the three months ended September 30,
2016 with respect to such collateralized debt.
Taxes
and assessments expense decreased by $1,000 during the three month
period ended September 30, 2016 when compared to the same period in
2015 as a result of lower real estate tax expense due to the sale
of Property sold to the Florida DOT on June 21, 2016. Consulting
and accounting expenses increased by $1,000 during the three months
ended September 30, 2016 when compared to the same period in 2015.
A quarterly consulting fee is paid to Love Real Estate Company
(“LREC”), an affiliate of L-PGI, of one-tenth of one
percent of the carrying value of the Company’s assets which
increased effective June 21, 2016 with the sale of Property to the
Florida DOT.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Legal
and professional expenses during the three months ended September
30, 2016 increased by approximately $2,000 when compared to the
same period in 2015, primarily as a result of additional legal
expenses incurred in connection with the filing of the
Company’s periodic reports during the three month period
ended September 30, 2016. As a result, a net loss of $364,000 was
incurred for the three months ended September 30, 2016 compared to
a net loss of $2,195,000 for the comparable period in 2015. After
deducting preferred dividends, totaling $160,000 for each of the
three months ended September 30, 2016 and 2015 , with respect to
the Class A Preferred Stock, a net loss per share of $(.10) and
$(.44) was incurred for the three month periods ended September 30,
2016 and 2015. The total cumulative preferred dividends in arrears
with respect to the Class A Preferred Stock through September 30,
2016 is $13,715,000.
Revenues for the
nine months ended September 30, 2016 increased by $8,996,000 to
$9,003,000 from $7,000 for the comparable 2015 period primarily as
a result of the sale by Sugarmill Woods of the Property to the
Florida DOT on June 21, 2016 for $9,000,000. Interest income for
the nine months ended September 30, 2016 in the amount of $1,000
represents interest earned on the Company’s money market
account. Interest income from related party decreased by $5,000 in
the first nine months of 2016 to $2,000 from $7,000 for the
comparable period in 2015 due to receipt of the repayment of the
short term note receivable balance from LIC, an affiliate of L-PGI,
the Company’s primary preferred stock shareholder, on June
23, 2016 . Net income of $3,330,000 was realized for the first nine
months of 2016, which includes a gain of $8,255,000 from the
Property sale to the Florida DOT. This compared to a net loss of
$6,195,000 for the first nine months of 2015. After deducting
preferred dividends, totaling $480,000 for each of the nine months
ended September 30, 2016 and 2015, net income (loss) per share of
$.54 and $(1.26), respectively, were reported for the nine month
periods ended September 30, 2016 and 2015.
The
proceeds from the sale of the Property were received from the
Florida DOT on June 23, 2016 and payment of the first mortgage
obligation was made to PGIP, an affiliate of the Company. In
addition, on June 23, 2016, the collateralized convertible
debentures principal was paid and a portion of the accrued interest
was paid to the current holders of such debentures. LIC, an
affiliate of L-PGI, the Company’s primary preferred stock
shareholder, and Love-1989, also an affiliate of L-PGI, held the
collateralized convertible debentures.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
The
June 23, 2016 payments of principal and interest were as
follows:
|
|
|
|
|
|
|
|
Primary
lender-1st mortgage note
|
$
500
|
$
470
|
payable
(PGIP-related party)
|
|
|
|
|
|
Collateralized
convertible debentures
|
|
|
payable
(LIC-related party)
|
703
|
2,557
|
|
|
|
Collateralized
convertible debentures
|
|
|
payable
(Love-1989-related party)
|
797
|
2,898
|
|
$
2,000
|
$
5,925
|
Real
estate sales and cost of real estate sales for the nine months
ended September 30, 2016 and September 30, 2015 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate sales
|
$
9,000
|
$
-
|
|
|
|
Cost
of real estate sales and
|
|
|
expenses
of sale
|
$
(745
)
|
$
-
|
Real
estate sales for the nine months ended September 30, 2016 increased
by $9,000,000 compared to the nine months ended September 30, 2015
solely due to the sale of the Property by Sugarmill Woods to the
Florida DOT on June 21, 2016. There were no sales of real estate
for the comparable period in 2015.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Expenses for the
nine months ended September 30, 2016 decreased by $529,000 when
compared to the same period in 2015 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COSTS,
EXPENSES AND OTHER
|
|
|
|
|
|
|
|
Cost
of real estate sales
and
expenses of sale
|
$
745
|
$
-
|
$
745
|
Interest
|
990
|
967
|
23
|
|
|
|
|
Forgiveness
of debt and
interest
|
-
|
(209
)
|
209
|
Interest-related
party
|
3,832
|
5,342
|
(1,510
)
|
Taxes
and assessments
|
5
|
7
|
(2
)
|
|
|
|
|
Consulting
and accounting-
related
party
|
28
|
28
|
-
|
Legal
and professional
|
15
|
8
|
7
|
General
and administrative
|
58
|
59
|
(1
)
|
|
$
5,673
|
$
6,202
|
$
(529
)
|
Cost of
real estate sales and expenses of sale for the nine month period
ended September 30, 2016 increased by $745,000 compared to the nine
month period ended September 30, 2015 solely as a result of the
costs and expenses incurred in connection with the Property sale.
There was no such expense for the comparable period in
2015.
Interest expense
for the first nine months of 2016 decreased by $1,487,000 compared
to the same period in 2015. Interest expense relating to the
Company’s current outstanding debt held by non-related
parties increased by $23,000 during the nine months ended September
30, 2016 compared to the same period in 2015, primarily as a result
of interest accruing on past due balances which increased at
various intervals throughout the nine month period for accrued but
unpaid interest. Interest expense-related party decreased by
$1,510,000 during the nine months ended September 30, 2016 compared
to the same period in 2015 primarily due to the repayment of the
outstanding principal of the Company’s collateralized debt
with a portion of the proceeds from the Property sale received on
June 23, 2016, including the primary lender debt of $500,000 with
PGIP and the collateralized convertible debenture principal in the
amount of $1,500,000 paid to LIC and Love-1989.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
There
was no forgiveness of debt and interest in the nine months ended
September 30, 2016 as compared to $209,000 for the same period in
2015. The forgiveness of debt and interest for the nine months
ended September 30, 2015 is attributed to the 6.5% subordinated
convertible debentures which matured in June, 1991, in the face
amount of $80,000 that were surrendered in exchange for a final
distribution of $92 per $1,000 in face value of such debentures.
Accrued interest in the amount of $136,000 on such surrendered
debentures was recorded as forgiveness of interest expense during
the nine months ended September 30, 2015, and the remaining
principal amount of such surrendered debentures in the amount of
$73,000 was recorded as forgiveness of debt during such
period.
Legal
and professional expenses increased by $7,000 in the first nine
months of 2016 compared to the same period in 2015 as a result of
legal expenses incurred in connection with the filing of the
Company’s periodic reports pursuant to the Securities
Exchange Act of 1934, as amended, during the first nine months of
2016.
Cash Flow Analysis
Cash
provided by operating activities for the nine months ended
September 30, 2016 was $2,846,000, primarily reflecting the net
effect of the $9,000,000 received in the sale of the Property to
the Florida DOT and $5,925,000 of accrued interest paid on
collateralized debt. This compared to cash used in operating
activities of $130,000 for the comparable 2015 period. In addition,
during the first nine months of 2016, the Company received $178,000
in payment of the note receivable principal from LIC, an affiliate
of the Company and the restricted cash of $5,000 from PGIP, the
first mortgage lender, which was released upon the sale of the
Property and satisfaction of the primary lender debt obligation
owed to PGIP. Net cash used in financing activities was for the
principal repayment of $2,000,000 of primary lender debt to PGIP
and collateralized convertible debentures to LIC and
Love-1989.
Analysis of Financial Condition
Total
assets increased by $220,000 at September 30, 2016 compared to
total assets at December 31, 2015, reflecting the following
changes:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
1,030
|
$
1
|
$
1,029
|
Restricted
cash
|
-
|
5
|
(5
)
|
Receivables-related
party
|
-
|
178
|
(178
)
|
Land
and improvement inventories
|
14
|
639
|
(625
)
|
Other
assets
|
43
|
44
|
(1
)
|
|
$
1,087
|
$
867
|
$
220
|
During
the nine months ended September 30, 2016, cash increased by
$1,029,000 compared to December 31, 2015, which is primarily
attributed to the remaining proceeds of the Property sale to the
Florida DOT in the second quarter of 2016. The Company anticipates
that the cash will be utilized by the Company to fund its future
operating activities.
PGI
INCORPORATED AND SUBSIDIARIES
Item 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Restricted cash
decreased by $5,000 during the first nine months of 2016 with the
release of restricted funds upon the sale of the Property and
satisfaction of the primary lender debt obligation owed to
PGIP.
Receivables-related
party decreased by $178,000 during the first nine months of 2016 as
the Company received payment of the outstanding note receivable
balance from LIC, an affiliate of the Company.
Land
and improvement inventories decreased by $625,000 during the first
nine months of 2016 as a result of the sale of the Property, with
the cost of the Property sold reflected in the cost of real estate
sales for the nine months ended September 30, 2016.
Liabilities were
approximately $89,343,000 at September 30, 2016 compared to
approximately $92,453,000 at December 31, 2015, reflecting the
following changes:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
$
199
|
$
202
|
$
(3
)
|
Accrued
real estate taxes
|
4
|
8
|
(4
)
|
Accrued
interest
|
79,470
|
80,573
|
(1,103
)
|
Credit
agreements:
|
|
|
-
|
Primary
lender-related party
|
-
|
500
|
(500
)
|
Notes
payable
|
1,198
|
1,198
|
-
|
Subordinated
convertible
debentures
payable
|
8,472
|
8,472
|
-
|
Convertible
debentures payable-
related
party
|
-
|
1,500
|
(1,500
)
|
|
$
89,343
|
$
92,453
|
$
(3,110
)
|
During
the nine month period ended September 30, 2016, the amount of
accounts payable and accrued expenses decreased by $3,000 primarily
as a result of timing differences. Accrued real estate taxes
decreased by $4,000 during the nine month period ended September
30, 2016 due to the payment of previously accrued taxes. There was
a net decrease of accrued interest in the amount of $1,103,000
during the nine month period ended September 30, 2016 with the
aggregate payment of $5,925,000 in accrued interest to PGIP, as the
holder of the Company’s first mortgage note, and the holders
of the collateralized convertible debentures being offset by an
increase of accrued interest in the amount of $4,822,000 of
interest expense for such period. During the nine month period
ended September 30, 2016, the entire outstanding principal of the
primary lender debt in the amount of $500,000 was repaid to PGIP,
and the entire outstanding principal of the convertible debentures
in the aggregate amount of $1,500,000 was repaid to LIC and
Love-1989.
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 September 30, 2016
are as indicated in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated
convertible debentures:
|
|
|
At
6 1/2 %, due June 1, 1991
|
$
447
|
$
809
|
At
6%, due May 1, 1992
|
8,025
|
22,616
|
|
$
8,472
|
$
23,425
|
Collateralized
convertible debentures-related party:
|
|
|
At
14%, due July 8, 1997
|
$
-
|
$
52,915
|
|
|
|
Notes
payable:
|
|
|
At
prime plus 2%, all past due
|
$
1,176
|
$
3,130
|
Non-interest
bearing
|
22
|
-
|
|
$
1,198
|
$
3,130
|
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, 2015.
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.