Item 1. Financial Statements
PGI INCORPORATED AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
($ in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
Cash
|
$
1,071
|
$
1
|
|
Restricted cash
|
-
|
5
|
|
Receivables-related party
|
-
|
178
|
|
Land and improvement inventories
|
14
|
639
|
|
Other assets
|
43
|
44
|
|
|
$
1,128
|
$
867
|
|
LIABILITIES
|
|
|
|
Accounts payable and accrued expenses
|
$
209
|
$
202
|
|
Accrued real estate taxes
|
2
|
8
|
|
Accrued interest:
|
|
|
|
Primary lender-related party
|
-
|
450
|
|
Subordinated convertible debentures payable
|
23,110
|
22,484
|
|
Convertible debentures payable-related party
|
52,915
|
54,558
|
|
Notes payable
|
3,114
|
3,081
|
|
Credit agreements:
|
|
|
|
Primary lender-related party
|
-
|
500
|
|
Notes payable
|
1,198
|
1,198
|
|
Subordinated convertible debentures payable
|
8,472
|
8,472
|
|
Convertible debentures payable-related party
|
-
|
1,500
|
|
|
89,020
|
92,453
|
|
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 $13,555)
|
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
|
(103,922
)
|
(107,616
)
|
|
|
(87,892
)
|
(91,586
)
|
|
|
$
1,128
|
$
867
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
|
|
|
|
Real estate sales
|
$
9,000
|
$
-
|
$
9,000
|
$
-
|
|
Interest income-related party
|
1
|
2
|
2
|
5
|
|
|
9,001
|
2
|
9,002
|
5
|
|
COSTS, EXPENSES AND OTHER
|
|
|
|
|
|
Cost of real estate sales
|
|
|
|
|
|
and expenses of sale
|
745
|
-
|
745
|
-
|
|
Interest
|
330
|
323
|
658
|
643
|
|
Forgiveness of debt and
|
|
|
|
|
|
interest
|
-
|
(24
)
|
-
|
(209
)
|
|
Interest-related party
|
1,859
|
1,780
|
3,832
|
3,500
|
|
Taxes and assessments
|
2
|
2
|
4
|
5
|
|
Consulting and accounting-
|
|
|
|
|
|
related party
|
9
|
10
|
18
|
19
|
|
Legal and professional
|
6
|
2
|
11
|
6
|
|
General and administrative
|
20
|
22
|
40
|
41
|
|
|
2,971
|
2,115
|
5,308
|
4,005
|
|
NET INCOME (LOSS)
|
$
6,030
|
$
(2,113
)
|
$
3,694
|
$
(4,000
)
|
|
|
|
|
|
|
|
NET INCOME (LOSS) PER SHARE(*)
|
|
|
|
|
|
AVAILABLE TO COMMON
|
|
|
|
|
|
STOCKHOLDERS-BASIC
|
$
1.10
|
$
(0.43
)
|
$
0.63
|
$
(0.81
)
|
|
DILUTED INCOME (LOSS) PER SHARE (*)
|
|
|
|
|
|
AVAILABLE TO COMMON
|
|
|
|
|
|
STOCKHOLDERS
|
$
0.60
|
$
(0.43
)
|
$
0.39
|
$
(0.81
)
|
|
|
|
|
|
|
*Considers the effect of cumulative preferred dividends in arrears for the three and six months ended
June 30, 2016 and 2015.
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
Part I Financial Information (Continued)
PGI INCORPORATED AND SUBSIDIARIES
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
$
2,887
|
$
(77
)
|
|
Cash Flows from investing activities:
|
|
|
|
Payments received on notes receivable-related party
|
178
|
77
|
|
Release of restricted cash
|
5
|
-
|
|
Net cash provided by investing activities
|
183
|
77
|
|
|
|
|
|
Cash Flows from financing activities:
|
|
|
|
Principal payments on debt-related party
|
(2,000
)
|
-
|
|
Net cash used in financing activities
|
(2,000
)
|
-
|
|
|
|
|
|
Net change in cash
|
1,070
|
-
|
|
|
|
|
|
Cash at beginning of period
|
1
|
1
|
|
|
|
|
|
Cash at end of period
|
$
1,071
|
$
1
|
See accompanying notes to Condensed Consolidated Financial Statements (unaudited).
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 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, 2015.
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 2015 filed with the Securities and Exchange Commission.
The condensed consolidated balance sheet of the Company as of December 31, 2015 has been derived from the audited consolidated balance sheet as of that date.
Sugarmill Woods, Inc. (“Sugarmill Woods”), a wholly-owned subsidiary of PGI Incorporated (‘PGI”), entered into two contracts with the State of Florida Department of Transportation (the “Florida DOT”) for the sale of Sugarmill Woods’ principal real property asset consisting of approximately 369 acres located in Hernando County, Florida
(the “Property”) for $9 million. The signatures from the Florida DOT required to make the two contacts effective were obtained on June 17, 2016, and the sale was closed on June 21, 2016.
The proceeds from the sale of the Property of $9 million were received on June 23, 2016 and payment of the primary debt obligation, including all accrued interest payable to related party totaling $970,000, 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 convertible debentures payable to related parties totaling $1,500,000 was paid and a portion of the related accrued interest totaling $5,455,000 was paid to the current holders of such debentures. Love Investment Company (“LIC”), an affiliate of L-PGI, the Company’s primary preferred stock shareholder and Love-1989 Florida Partners (“Love-1989”), also an affiliate of L-PGI held the convertible debentures.
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, 2015, 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 six months ended June 30, 2016 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2016 or any other interim period.
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(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 six months ended June 30, 2016 and 2015 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 convertible debentures, if dilutive, into shares of common stock. For the three and six months
ended June 30, 2015, the assumed conversion of all cumulative convertible preferred stock and convertible debentures would have been anti-dilutive.
The following is a summary of the calculations used in computing basic and diluted income (loss) per share for the three and six months ended June 30, 2016 and 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
6,030,000
|
$
(2,113,000
)
|
$
3,694,000
|
$
(4,000,000
)
|
|
|
|
|
|
|
|
Preferred dividends
|
(160,000
)
|
(160,000
)
|
(320,000
)
|
(320,000
)
|
|
|
|
|
|
|
|
Income (Loss) Available to
|
$
5,870,000
|
$
(2,273,000
)
|
$
3,374,000
|
$
(4,320,000
)
|
|
Common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Number
|
|
|
|
|
|
Of Common Shares
|
|
|
|
|
|
Outstanding (Basic)
|
5,317,758
|
5,317,758
|
5,317,758
|
5,317,758
|
|
Weighted Average Number
|
|
|
|
|
|
of Common Shares
|
|
|
|
|
|
Outstanding
(Diluted)
|
10,386,223
|
10,386,223
|
10,386,223
|
10,386,223
|
|
|
|
|
|
|
|
Basic Income (Loss)
|
|
|
|
|
|
Per Share
|
$
1.10
|
$
(0.43
)
|
$
0.63
|
$
(0.81
)
|
|
Diluted Income (Loss)
|
|
|
|
|
|
Per Share
|
$
0.60
|
$
(0.43
)
|
$
0.39
|
$
(0.81
)
|
(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. Related party interest paid during the six months ended
June 30, 2016 was $5,925,000. There were no payments of interest during the six month period ended June 30, 2015.
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(4) Restricted Cash
Restricted cash of $5,000 previously held by PGIP, LLC, the primary lender, as collateral for debt obligation was released on June 28, 2016 following the sale of the undeveloped land in Hernando County and respective payment of the primary lender debt obligation on June 23, 2016.
Net receivables consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
Notes receivable - related party
|
$
-
|
$
178
|
(6)
Land and Improvements
Land and improvement inventories consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
Unimproved land
|
$
-
|
$
625
|
|
Fully improved land
|
14
|
14
|
|
|
$
14
|
$
639
|
Other assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
Deposit with Trustee of 6-1/2% debentures
|
$
41
|
$
41
|
|
Prepaid expenses
|
1
|
2
|
|
Other
|
1
|
1
|
|
|
$
43
|
$
44
|
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(8)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
4
|
$
7
|
|
Accrued audit & professional
|
31
|
40
|
|
Accrued legal
|
19
|
-
|
|
Accrued consulting fees-related party
|
1
|
1
|
|
Environmental remediation obligations
|
21
|
25
|
|
Accrued debenture fees
|
132
|
128
|
|
Accrued miscellaneous
|
1
|
1
|
|
|
$
209
|
$
202
|
|
|
|
|
|
Accrued real estate taxes consisted of:
|
|
|
|
Current real estate taxes
|
$
2
|
$
8
|
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(9)
Primary Lender Credit Agreements, Notes Payable, Subordinated and Convertible Debentures Payable
Credit agreements with the Company’s primary lender and notes payable consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit agreements - first mortgage-related party
|
|
|
|
|
bearing interest at prime plus 5%;
|
|
|
|
due June 1, 1997
|
$
-
|
$
500
|
|
|
|
|
|
Notes payable - $1,176,000
|
|
|
|
|
bearing interest at prime plus 2%,
|
|
|
|
the remainder non-interest bearing,
|
|
|
|
all past due
|
1,198
|
1,198
|
|
|
1,198
|
1,698
|
|
Subordinated convertible debentures payable:
|
|
|
|
|
At 6-1/2% interest; due June 1, 1991
|
447
|
447
|
|
At 6% interest; due May 1, 1992
|
8,025
|
8,025
|
|
|
8,472
|
8,472
|
|
Convertible debentures payable-related party:
|
|
|
|
|
At 14% interest; due July 8, 1997,
|
|
|
|
convertible into shares of common stock
|
|
|
|
at $1.72 per share
|
-
|
1,500
|
|
|
$
9,670
|
$
11,670
|
The proceeds from the sale of the Property of $9 million were received on June 23, 2016 and payment of the primary debt obligation, including all accrued interest totaling $970,000, was made to 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 convertible debentures payable to related
parties totaling $1,500,000 was paid and a portion of the related accrued interest was paid totaling $5,455,000 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 convertible debentures.
The Trustee of the 6.5% unsecured 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 distributions, the Trustee has maintained a debenture reserve fund with a balance of $41,000 as of June 30, 2016
and December 31, 2015, available for final distribution to holders of such debentures who surrender their respective debenture certificates.
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
During the six month period ended June 30, 2016, there were no unsecured 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 unsecured subordinated convertible debentures with face amounts of $80,000 were surrendered by
their respective debenture holders. Funds utilized from the debenture reserve account were $7,000 during the year ended December 31, 2015 in payment of a final distribution to such debenture holders. Accordingly, the Company recognized $73,000 in forgiveness of debt during the year ended December 31, 2015. In addition, accrued interest in the amount of $136,000 on such debentures that have been surrendered was recorded as forgiveness of interest expense during the year ended December 31, 2015.
As of June 30, 2016 and December 31, 2015 the outstanding principal balance on such 6.5% unsecured subordinated convertible debentures that were not surrendered by the respective holders equals $447,000 plus accrued and unpaid interest of $802,000 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 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% unsecured subordinated convertible debentures would be barred under the applicable statutes of limitations.
Real estate sales and cost of sales consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
$
9,000,000
|
$
-
|
$
9,000,000
|
$
-
|
|
|
|
|
|
|
|
Cost of real estate sales
|
|
|
|
|
|
including expenses of sale
|
$
(745,000
)
|
$
-
|
$
(745,000
)
|
$
-
|
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
(11) Income Taxes
At December 31, 2015, the Company had an operating loss carryforward of approximately $69,127,000 available to reduce future taxable income. These operating losses expire at various dates through 2035.
The following summarizes the temporary differences of the Company at June 30, 2016 and December 31, 2015 at the statutory rate:
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
|
Net operating loss carryforward
|
$
24,938
|
$
26,342
|
|
Alternative minimum tax credit carryforward
|
74
|
-
|
|
Adjustments to reduce land to net realizable value
|
12
|
12
|
|
Expenses capitalized under IRC 263(a)
|
56
|
56
|
|
Environmental liability
|
9
|
9
|
|
Valuation allowance
|
(24,917
)
|
(26,247
)
|
|
|
172
|
172
|
|
|
|
|
|
Deferred tax liability:
|
|
|
|
Basis difference of land and improvement inventories
|
172
|
172
|
|
Net deferred tax asset
|
$
-
|
$
-
|
(12) Fair Value of Financial Instruments
The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at June 30, 2016 and December 31, 2015 because of the short maturity of those instruments. It was not practicable to estimate the fair value of the Company’s debt with its primary lender, its 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 most valuable asset, which it owned through its wholly-owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”), were two undeveloped parcels of real property consisting of approximately 369 acres located in Hernando County, Florida (the “Property”) which were encumbered by secured creditor claims. The State of Florida Department
of Transportation (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.
Sugarmill Woods entered into two contracts with the Florida DOT for the sale of the Property to the Florida DOT for approximately $9 million. The signatures from the Florida DOT required to make the two contacts effective were obtained on June 17, 2016, and the sale was closed on June 21, 2016.
Besides the Property, Sugarmill Woods also owns 6 single family lots, an approximate 7 acre parcel and some minor parcels of real estate consisting of easements in Citrus County, Florida. In addition, Punta Gorda Isles Sales, Inc. (“PGIS”), a wholly-owned subsidiary of the Company owns twelve parcels of real estate in Charlotte County, Florida, which total approximately
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 proceeds from the sale of the Property were received on June 23, 2016 and payment of the primary debt obligation, including all accrued interest, 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 and a portion
of the accrued interest was paid to the current holders of such debentures. Love Investment Company (“LIC”), an affiliate of 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 has maintained a debenture reserve fund with a balance of $41,000 as of June 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 six month period ended June 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 June 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 $802,000 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.
Results of Operations
Revenues for the three months ended June 30, 2016 increased by $8.999 million to $9.001 million from $2,000 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 million. Interest income from related party decreased by $1,000 in the three months ended June 30, 2016 to $1,000 from $2,000
for the comparable period in 2015 due to a lower balance during such three month period on the short-term note receivable balance with LIC, an affiliate of L-PGI, the Company’s primary preferred stock shareholder. Expenses for the three months ended June 30, 2016 increased by $856,000 when compared to the same period in 2015. The cost of real estate sales and expenses of sale for the three month period ended June 30, 2016 increased by $745,000 compared to the three month period ended June 30, 2015, solely
as a result of costs and expenses incurred in connection with the Property sale on June 21, 2016. There was no such expense for the comparable period in 2015. Interest expense for the three month period ended June 30, 2016 increased by $86,000 compared to the same period in 2015, primarily due to interest accruing on past due balances which increased at various intervals throughout this period for accrued but unpaid interest, and also decreased at various times throughout the period as a result of principal payments
of debt (including the repayment of the outstanding collateralized convertible debentures principal as a result of the Property sale proceeds) and the surrender of certain 6.25% subordinate convertible debentures during 2015. There was no forgiveness of debt and interest in the three months ended June 30, 2016 as compared to a decrease in expenses of $24,000 attributed to forgiveness of debt and interest in the three months ended June 30, 2015, which is attributed to the 6.5% subordinated convertible debentures
which matured in June, 1991, that were surrendered in exchange for a lesser amount for a final distribution in face value of such debentures. Legal and professional expenses during the three months ended June 30, 2016 increased by approximately $4,000 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 June 30, 2016. As a result, there was net income of $6,030,000
for the three months ended 2016 compared to a net loss of $2,113,000 incurred for the three months ended June 30, 2015. After deducting preferred dividends, totaling $160,000 for each of the three months ended June 30, 2016 and 2015 , net income (loss) per share of $1.10 and $(.43), respectively, were reported for the three month periods ended June 30, 2016 and 2015. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through June 30, 2016 is $13,555,000.
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Revenues for the six months ended June 30, 2016 increased by $8.997 million to $9.002 million from $5,000 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 million. Interest income from related party decreased by $3,000 in the first six months of 2016 to $2,000 from $5,000 for the
comparable period in 2015 due to a lower balance during such six month period on the short-term note receivable balance with LIC, an affiliate of L-PGI, the Company’s primary preferred stock shareholder. Net income of $3.694 million was realized for the first six months of 2016, which includes a gain of $8.255 million from the Property sale to the Florida DOT. This compared to a net loss of $4 million for the first six months of 2015. After deducting preferred dividends , totaling $320,000 for each of the
six months ended June 30, 2016 and 2015 , net income (loss) per share of $.63 and $(.81), respectively, were reported for the six month periods ended June 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, the holder of the first mortgage note and 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.
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
|
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Real estate sales and cost of sales consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sales
|
$
9,000
|
$
-
|
|
|
|
|
|
Cost of real estate sales
|
|
|
|
including expenses of sale
|
$
(745
)
|
$
-
|
Expenses for the six months ended June 30, 2016 increased by $1.303 million 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
|
658
|
643
|
15
|
|
Forgiveness of debt and
|
|
|
|
|
interest
|
-
|
(209
)
|
209
|
|
Interest-related party
|
3,832
|
3,500
|
332
|
|
Taxes and assessments
|
4
|
5
|
(1
)
|
|
Consulting and accounting-
|
|
|
|
|
related party
|
18
|
19
|
(1
)
|
|
Legal and professional
|
11
|
6
|
5
|
|
General and administrative
|
40
|
41
|
(1
)
|
|
|
$
5,308
|
$
4,005
|
$
1,303
|
Interest expense for the first six months of 2016 increased by $347,000 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 six month period for accrued but unpaid interest and also decreased at various times throughout the period as a result of principal payments of debt
(including the repayment of the outstanding collateralized convertible debentures principal as a result of the Property sale proceeds) and the surrender of certain 6.25% subordinated convertible debentures during 2015. Cost of real estate sales and expenses of sale for the six month period ended June 30, 2016 increased by $745,000 compared to the six month period ended June 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.
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 six months ended June 30, 2016 as compared to $209,000 for the same period in 2015. The forgiveness of debt and interest for the six months ended June 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 six months ended June 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 $5,000 in the first six months of 2016 compared to the same period in 2015 as a result of additional legal expenses incurred in connection with the filing of the Company’s periodic reports during the first six months of 2016.
Cash Flow Analysis
Cash provided by operating activities for the six months ended June 30, 2016 was $2.887 million, reflecting the net effect of the $9 million received in the sale of the Property to the Florida DOT and $5.925 million of accrued interest paid on collateralized debt. This compared to cash used in operating activities of $77,000 for the comparable 2015 period. In addition, during
the first six 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 with the sale of Property and satisfaction of the primary lender debt obligation owed to PGIP. Net cash used in financing activities was for the repayment of $2 million of related party primary lender debt and related party collateralized convertible debentures.
Analysis of Financial Condition
Total assets increased by $261,000 at June 30, 2016 compared to total assets at December 31, 2015, reflecting the following changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
1,071
|
$
1
|
$
1,070
|
|
Restricted cash
|
-
|
5
|
(5
)
|
|
Receivables-related party
|
-
|
178
|
(178
)
|
|
Land and improvement inventories
|
14
|
639
|
(625
)
|
|
Other assets
|
43
|
44
|
(1
)
|
|
|
$
1,128
|
$
867
|
$
261
|
During the six months ended June 30, 2016 cash increased by $1.070 million which is attributed to the remaining proceeds of the Property sale to the Florida DOT in the second quarter of 2016. The cash will be utilized by the Company to fund its future operating activities.
Receivables-related party decreased by $178,000 during the first six months of 2016 as the Company received payment of the note receivable balance from LIC, an affiliate of the Company.
PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Land and improvement inventories decreased by $625,000 during the first six 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.
Liabilities were approximately $89 million at June 30, 2016 compared to approximately $92.5 million at December 31, 2015, reflecting the following changes:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
$
209
|
$
202
|
$
7
|
|
Accrued real estate taxes
|
2
|
8
|
(6
)
|
|
Accrued interest
|
79,139
|
80,573
|
(1,434
)
|
|
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
)
|
|
|
|
|
|
|
|
$
89,020
|
$
92,453
|
$
(3,433
)
|
During the six month period ended June 30, 2016, the amount of accounts payable and accrued expenses increased by $7,000 primarily as a result of timing differences. Accrued real estate taxes decreased by $6,000 during the six month period ended June 30, 2016 due to the payment of previously accrued taxes. There was a net decrease of accrued interest in the six month period
ended June 30, 2016 with the aggregate payment of $5.925 million in accrued interest to PGIP, as the holder of the Company’s first mortgage note, and to the current holders of the collateralized convertible debentures being offset by an increase of accrued interest in the amount of $4.490 million of interest expense for such period.
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 are as indicated in the following table:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated convertible debentures:
|
|
|
|
At 6 1/2 %, due June 1, 1991
|
$
447
|
$
802
|
|
At 6%, due May 1, 1992
|
8,025
|
22,308
|
|
|
$
8,472
|
$
23,110
|
|
Collateralized convertible debentures-related party:
|
|
|
|
At 14%, due July 8, 1997
|
$
-
|
$
52,915
|
|
|
|
|
|
Notes payable:
|
|
|
|
At prime plus 2%, all past due
|
$
1,176
|
$
3,114
|
|
Non-interest bearing
|
22
|
-
|
|
|
$
1,198
|
$
3,114
|
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 or 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.
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