10QSB 1 tenq.txt PGI INCORPORATED FORM 10-QSB PGI INCORPORATED AND SUBSIDIARIES U.S SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - QSB (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 ----------------------- / / TRANSITION REPORT PURSUANT TO 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 small business issuer as specified in its charter) FLORIDA 59-0867335 ---------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation Identification No.) 212 SOUTH CENTRAL, SUITE 100, ST. LOUIS, MISSOURI 63105 ------------------------------------------------------- (Address of principal executive offices) (314) 512-8650 -------------- (Issuer's telephone number) (Former Name, Former Address and Former Fiscal year, if changed since last report) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of November 9, 2001 there were 5,317,758 shares of the Registrant's common stock outstanding. Transitional Small Business Disclosure Format (Check one): Yes No X --------- --------- 1 PGI INCORPORATED AND SUBSIDIARIES Form 10 - QSB For the Quarter Ended September 30, 2001 Table of Contents -----------------
Form 10 - QSB Page No. -------- PART I Financial Information Item 1 Financial Statements Consolidated Statements of Financial Position September 30, 2001 and December 31, 2000 3 Consolidated Statements of Operations Three and Nine Months Ended September 30, 2001 and 2000 4 Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000 5 Notes to Consolidated Financial Statements for Form 10 - QSB 6 - 11 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 15 PART II Other Information Item 1 Legal Proceedings 16 Item 2 Changes in Securities 16 Item 3 Defaults Upon Senior Securities 16 Item 4 Submission of Matters to a Vote of Security Holders 16 Item 5 Other Information 16 Item 6 Exhibits and Reports on Form 8 - K 16 SIGNATURES 17
2 PGI INCORPORATED AND SUBSIDIARIES Part I Financial Information Item 1 Financial Statements CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ($ in thousands)
September 30, December 31, 2001 2000 ---- ---- ASSETS Cash and cash equivalents $ 325 $ 454 Restricted cash 277 333 Receivables 14 49 Land and improvement inventories 752 760 Other assets 173 164 -------- -------- $ 1,541 $ 1,760 ======== ======== LIABILITIES Accounts payable & accrued expenses $ 48 $ 112 Accrued real estate taxes 436 442 Accrued interest: Debentures 14,499 13,077 Other 1,988 1,904 Credit Agreements - Primary lender 700 700 Notes payable 1,198 1,198 Subordinated debentures payable 9,059 9,059 Convertible debentures payable 1,500 1,500 -------- -------- $ 29,428 $ 27,992 -------- -------- STOCKHOLDERS' EQUITY 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 $8,000,000 and cumulative dividends) 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 (43,917) (42,262) -------- -------- (27,887) (26,232) -------- -------- $ 1,541 $ 1,760 ======== ======== See accompanying notes to consolidated financial statements for Form 10 - QSB.
3 PGI INCORPORATED AND SUBSIDIARIES Part I Financial Information (Continued) CONSOLIDATED STATEMENTS OF OPERATIONS ($ in thousands) (Unaudited)
Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- REVENUES Real Estate Sales $ 14 $ 35 $ 52 $ 35 Interest Income 9 12 34 30 Other Income 9 9 16 13 ----- ----- ------- ------- 32 56 102 78 ----- ----- ------- ------- COSTS AND EXPENSES Cost of Real Estate Sales $ 8 $ 21 $ 19 $ 21 Interest 531 503 1,572 1,475 Taxes & Assessments 16 16 49 53 Consulting & Accounting 7 11 30 32 Legal & Professional 9 5 45 22 General & Administrative 9 9 42 41 ----- ----- ------- ------- 580 565 1,757 1,644 ----- ----- ------- ------- NET (LOSS) $(548) $(509) $(1,655) $(1,566) ===== ===== ======= ======= NET (LOSS) PER SHARE (*) $(.13) $(.13) $ (.40) $ (.38) ===== ===== ======= ======= * Considers the effect of cumulative preferred dividends in arrears for the three and nine months ended September 30, 2001 and 2000. See accompanying notes to consolidated financial statements for Form 10 - QSB
4 PGI INCORPORATED AND SUBSIDIARIES Part I Financial Information (Continued) CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in thousands) (Unaudited)
Nine Months Ended ----------------- September 30, September 30, 2001 2000 ---- ---- Net cash (used in) operating activities $(126) $(362) ----- ----- Cash flows from investing activities: Purchases of inventory and deferred expenditures (7) - Proceeds from release of restricted cash - 372 Proceeds from notes receivables 4 3 ----- ----- Net cash provided by (used in) investing activities (3) 375 ----- ----- Cash flows from financing activities: Principal payments on debt - (15) ----- ----- Net cash (used in) financing activities - (15) ----- ----- Net increase (decrease) in cash (129) (2) Cash at beginning of period 454 28 ----- ----- Cash at end of period $ 325 $ 26 ===== ===== See accompanying notes to consolidated financial statements for Form 10 - QSB
5 PGI INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10 - QSB 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 accountants 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, 2000. The Company remains in default under the indentures governing its unsecured subordinated and convertible debentures and in default of its primary debt obligations. (See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 9, 10, 11, and 16 to the Company's consolidated financial statements for the year ended December 31, 2000, as contained in the Company's Annual Report on Form 10 - KSB). All adjustments (consisting of only normal recurring accruals) necessary for fair presentation of financial position, results of operations and cash flows have been made. The results for the three and nine months ended September 30, 2001 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2001 or any other interim period. (2) Per Share Data Primary per share amounts are computed by dividing net income (loss), after considering cumulative dividends in arrears on the Company's preferred stock, by the average number of common shares and common stock equivalents outstanding. For this purpose, the Company's cumulative convertible preferred stock and collateralized convertible debentures are not deemed to be common stock equivalents, but outstanding vested stock options are considered as such. However, under the treasury stock method, no vested stock options were assumed to be exercised, and therefore no common stock equivalents existed, for the calculation of primary per share amounts for the nine months ended September 30, 2001 and 2000. The average number of common shares outstanding for the nine months ended September 30, 2001 and 2000 was 5,317,758. Fully diluted per share amounts are computed by dividing net income (loss) by the average number of common shares outstanding, after adjusting both for the estimated effects of the assumed exercise of stock options and the assumed conversion of all cumulative convertible preferred stock and collateralized convertible debentures into shares of common stock. For the nine months ended September 30, 2001 and 2000, no stock options were assumed to be exercised and the effect of the assumed exercise of stock options and the assumed conversion of all cumulative convertible preferred stock and collateralized convertible debentures would have been anti-dilutive. 6 PGI INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The following is a summary of the calculations used in computing basic and diluted (loss) per share for the three and nine months ended September 30, 2001 and 2000.
Three Months Ended Nine Months Ended ------------------ ----------------- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net (Loss) $(548,000) $(509,000) $(1,655,000) $(1,566,000) Preferred Dividends (160,000) (160,000) (480,000) (480,000) --------- --------- ----------- ----------- (Loss) Available to Common Shareholders $(708,000) $(669,000) $(2,135,000) $(2,046,000) ========= ========= =========== =========== Weighted Amount of Shares Outstanding 5,317,758 5,317,758 5,317,758 5,317,758 Basic and Diluted (Loss) Per Share $ (.13) $ (.13) $ (.40) $ (.38)
(3) Statement of Cash Flows The Financial Accounting Standards Board issued Statement No. 95, "Statement of Cash Flows", which requires a statement of cash flows as part of a full set of financial statements. For quarterly reporting purposes, the Company has elected to condense the reporting of its net cash flows. Interest paid for the nine months ended September 30, 2001 and 2000 was $66,000 and $77,000 respectively. For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. (4) Restricted Cash Restricted cash includes restricted proceeds held by the primary lender as collateral for debt repayment and escrowed receipts related to sold contracts receivable. 7 PGI INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (5) Receivables Net receivables consisted of:
September 30, December 31, 2001 2000 ---- ---- ($ in thousands) Contracts receivable on homesite sales $ 180 $ 222 Less: Allowance for cancellations (180) (222) ------- ------- Net receivables on real estate sales 0 0 Other notes receivable 11 14 Other interest receivable 3 35 ------- ------- $ 14 $ 49 ======= =======
(6) Land and Improvements Land and improvement inventories consisted of:
September 30, December 31, 2001 2000 ---- ---- ($ in thousands) Unimproved land $ 613 $ 613 Fully improved land 139 147 ------- ------- $ 752 $ 760 ======= =======
(7) Property and Equipment
September 30, December 31, 2001 2000 ---- ---- ($ in thousands) Furniture, fixtures and other equipment $ 31 $ 31 Less: Accumulated depreciation (31) (31) ------- ------- $ 0 $ 0 ======= =======
(8) Other Assets Other assets consisted of:
September 30, December 31, 2001 2000 ---- ---- ($ in thousands) Deposit with Trustee of 6-1/2% debentures $ 157 $ 152 Other 16 12 ------- ------- $ 173 $ 164 ======= =======
8 PGI INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (9) Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consisted of:
September 30, December 31, 2001 2000 ---- ---- ($ in thousands) Accounts payable $ 29 $ 56 Accrued consulting fees - 2 Accrued audit & professional 19 33 Accrued legal - 4 Estimated recourse liability for receivables sold - 17 ------- ------- $ 48 $ 112 ======= ======= Accrued Real Estate Taxes consisted of: Current real estate taxes $ 28 $ 37 Delinquent real estate taxes 408 405 ------- ------- $ 436 $ 442 ======= =======
(10) 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:
September 30, December 31, 2001 2000 ---- ---- ($ in thousands) Credit agreements - primary lender: (maturing July 8, 1997, bearing interest at prime plus 5%) $ 700 $ 700 Notes payable - $1,176,000 bearing interest at prime plus 2% 1,198 1,198 ------- ------- Subordinated debentures payable: At 6-1/2% interest; due June 1991 1,034 1,034 At 6% interest; due May 1, 1992 8,025 8,025 ------- ------- $ 9,059 $ 9,059 ------- ------- Collateralized convertible debentures payable: At 14% interest; due July 8, 1997, convertible into shares of common stock at $1.72 per share 1,500 1,500 ------- ------- $12,457 $12,457 ======= =======
9 PGI INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) (11) Real Estate Sales and Other Income Real Estate Sales and Cost of Sales for the three and nine months ended September 30, 2001 and 2000 were as follows:
Three Months Nine Months Ended Ended ----- ----- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- ($ in thousands) ($ in thousands) Homesite Sales $ 14 $ 35 $ 52 $ 35 Cost of Sales 8 21 19 21
Other income for the nine months ended September 30, 2001 and 2000 was $16,000 and $13,000 respectively. The other income mainly consists of recoveries of contracts receivable which have been fully provided for. (12) Commitments and Contingencies The aggregate outstanding balances of all receivables sold and exchanged with recourse totaled $17,000 and $34,000 at September 30, 2001 and December 31, 2000, respectively. Based on its collection experience with such receivables, the Company maintained no allowance at September 30, 2001. At December 31, 2000, the Company maintained an allowance of $17,000 classified in accounts payable and accrued expenses, for the recourse provision related to all receivables sold. (13) Income Taxes At December 31, 2000, the Company had an operating loss carryforward of approximately $36,000,000 to reduce future taxable income. These operating losses expire at various dates through 2012. 10 PGI INCORPORATED AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The following summarizes the temporary differences of the Company at December 31, 2000 at the current statutory rate: Deferred tax asset: Net operating loss carryforward $ 14,303,000 Adjustments to reduce land to net realizable value 12,000 Expenses capitalized under IRC 263(a) 56,000 ITC carryforward 215,000 Valuation allowance (14,414,000) ------------ 172,000 Deferred tax liability: Basis difference of land and improvement inventories 172,000 ------------ Net deferred tax asset $ 0 ============
11 PGI INCORPORATED AND SUBSIDIARIES Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Preliminary Note The Company's business focus and emphasis recently has been to concentrate its sales and marketing efforts on the disposition in bulk of its undeveloped, platted, residential real estate, as a result of its continuing financial difficulties due to the principal and interest owed on its debt. Presently, the Company's remaining inventory primarily consists of 370 acres located in Hernando County, Florida. In addition, the Company has been actively pursuing collection on delinquent contract receivables from homesite sales. The Company owns approximately 36 lots, mostly located in Citrus County, Florida which are listed for sale. The Company believes the 370 acres located in Hernando County, Florida may become more marketable because of the property's close proximity to the recently completed interchange of the Suncoast Expressway with Highway 98. In December 1999, the Hernando County Commission approved a change in land use of 40 acres of the parcel from residential to commercial use. The Company anticipates that a further extension of the Suncoast Expressway beyond Highway 98 will not occur for several years. Results of Operations Revenues for the first nine months of 2001 increased by $24,000 to $102,000 from $78,000 for the comparable 2000 period reflecting improved real estate sales revenue in the current year and an increase in interest income due to the release of restricted cash in October 2000 which had been non-interest bearing. A net loss of $1,655,000 was incurred for the first nine months of 2001 compared to net loss of $1,566,000 for the first nine months of 2000. Expenses for the nine months increased by $113,000. After consideration of cumulative preferred dividends in arrears, totaling $480,000 for each of the nine months ended September 30, 2001 and 2000 ($.15 per share of common stock), net (loss) per share of $(.40) and $(.38) respectively was reported for the nine month periods ended September 30, 2001 and 2000. Real Estate Sales and Cost of Sales consisted of:
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ---- ---- ---- ---- ($ in thousands) ($ in thousands) Homesite Sales $14 $35 $52 $35 Cost of Sales 8 21 19 21
Other income for the nine months ended September 30, 2001 and 2000 was $16,000 and $13,000 respectively. The other income mainly consists of recoveries of contracts receivable which have been fully provided for. 12 PGI INCORPORATED AND SUBSIDIARIES Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) As of September 30, 2001, the Company remained in default of its primary lender indebtedness with PGIP, LLC, ("PGIP"). PGIP holds restricted funds of the Company pursuant to an escrow agreement whereby funds may be disbursed (i) as requested by PGI and agreed to by PGIP, or (ii) as deemed necessary and appropriate by PGIP, in either case, to protect PGIP's interest in the Retained Acreage (as hereinafter defined), including PGIP's right to receive principal and interest under the note agreement securing the remaining indebtedness, or (iii) to PGIP to pay any other obligations owed to PGIP by the Company. The restricted escrow held by the primary lender at September 30, 2001 and December 31, 2000 was $271,000 and $327,000 respectively. The real estate owned by the Company which has not been sold, approximately 370 acres (the "Retained Acreage") remains subject to the primary lender indebtedness. Restricted cash of $372,000 was released on February 24, 2000. The restricted fund had been established with the deposit of $250,000 in escrow for twenty years pursuant to a Permit Agreement entered into June 19, 1973. The agreement provided for state certification of water quality standards in conjunction with construction of navigable waterways in Charlotte County, Florida. The escrow fund was extended for five years in 1993 and was going to be extended for another five years in 1998. The Company challenged this extension. A settlement agreement was reached whereby the Company received $212,000 of the escrowed funds and $160,000 was disbursed to the Burnt Store Isles Canal Maintenance Assessment District and the State of Florida Department of Environmental Protection. Contracts receivable on homesite sales and related receivables are fully provided for cancellation at September 30, 2001 and December 31, 2000. The Company has been actively pursuing collection on the delinquent receivables. An assessment is made for each contract receivable as to the economic benefit of reacquisition of the lot considering the cost of foreclosure, delinquent taxes and association fees due, and estimated current sale value of the lot. For those with benefit, foreclosure action is begun in the absence of payment or receipt of a quit claim deed of the property back to the Company. Three lots were reacquired through foreclosure in the nine months ended September 30, 2001. Cash used in operating activities for the nine months ended September 30, 2001 was $126,000 compared to $362,000 for the comparable 2000 period. With the release of restricted cash in February, 2000, $160,000 was paid in associated settlement fees and the Company paid $150,000 of accrued consulting fees to Love Real Estate Company. Cash used in investing activities in 2001 included $7,000 in expenditures towards lot reacquisitions. Cash used in financing activities in the amount of $15,000 was for repayment of a note payable to Love Investment Company in 2000. 13 PGI INCORPORATED AND SUBSIDIARIES Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Analysis of Financial Condition Assets decreased at September 30, 2001 compared to assets at December 31, 2000, reflecting the following changes:
September 30, December 31, Increase 2001 2000 (Decrease) ---- ---- ---------- ($ in thousands) Cash and cash equivalents $ 325 $ 454 $ (129) Restricted cash 277 333 (56) Receivables 14 49 (35) Land and improvement inventories 752 760 (8) Other assets 173 164 9 ------- ------- ------- $ 1,541 $ 1,760 $ (219) ======= ======= =======
Liabilities were approximately $29.4 million at September 30, 2001 compared to approximately $28 million at December 31, 2000 reflecting the following changes:
September 30, December 31, Increase 2001 2000 (Decrease) ---- ---- ---------- ($ in thousands) Accounts payable & accrued expenses $ 48 $ 112 $ (64) Accrued real estate taxes 436 442 (6) Accrued interest 16,487 14,981 1,506 Credit agreements - primary lender 700 700 - Notes 1,198 1,198 - Convertible subordinated debentures payable 9,059 9,059 - Convertible debentures payable 1,500 1,500 - ------- ------- ------- $29,428 $27,992 $ 1,436 ======= ======= =======
The Company has aggressively taken steps to curtail and simplify operations as well as concentrate on major bulk sales of its undeveloped acreage. The Company remains totally dependent upon the sale of property to fund its operations and debt service requirements. 14 PGI INCORPORATED AND SUBSIDIARIES Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) The Company remains in default of the entire principal plus interest on its subordinated debentures. The amounts due are as indicated in the following table:
September 30, 2001 ------------------ Principal Unpaid Amount Due Interest ---------- -------- ($ in thousands) Subordinated debentures due June 1, 1991 $ 1,034 $ 808 Subordinated debentures due May 1, 1992 8,025 7,302 ------- ------- $ 9,059 $ 8,110 ======= =======
The Company does not have funds available to make any payments of either principal or interest on the above debentures. 15 PGI INCORPORATED AND SUBSIDIARIES PART II Other Information Item 1 Legal Proceedings In 1994, the Citrus County Tax Assessor denied agricultural exemption status for the undeveloped Sugarmill Woods property and the Company was forced to sue the County to reclaim the tax benefit. In 1995, the Citrus County Tax Assessor again denied agricultural exemption status for the undeveloped Sugarmill Woods property, but was overruled by the Value Adjustment Board. As a result, the Tax Assessor sued Sugarmill Woods, and was again successful in denying the agricultural exemption for the property. The Company won on appeal, but the Tax Assessor appealed to the Supreme Court of Florida to reinstate the exemption. On April 1, 1999, the Supreme Court of Florida issued their opinion in favor of Sugarmill Woods, Inc. On November 9, 1999 the Circuit Court of Citrus County adjudged the agricultural classification applicable to tax years 1994, 1995 and 1996 for exemption. The non interest bearing restricted escrow of $557,000 was released in October 2000 with the confirmation that no further liability exists for tax years 1994, 1995, and 1996. Tax year 1997 remains in dispute on a matter of timely filing of petition for exemption. Item 2 Changes in Securities Not applicable. Item 3 Defaults Upon Senior Securities See discussion in Item 2 with respect to defaults on the Company's subordinated debentures and collateralized convertible debentures, which discussion is incorporated herein by this reference. Item 4 Submission of Matters to a Vote of Security Holders Not applicable. Item 5 Other Information Not applicable. Item 6 Exhibits and Reports on Form 8 - K (a) Exhibits - reference is made to the Exhibit Index contained on page 18 herein for a list of exhibits filed under this Item. (b) No report on Form 8 - K was filed during the quarter ended September 30, 2001. 16 PGI INCORPORATED AND SUBSIDIARIES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PGI INCORPORATED (Registrant) Date: November 14, 2001 /s/ Laurence A. Schiffer ----------------------- ------------------------- Laurence A. Schiffer President 17 PGI INCORPORATED AND SUBSIDIARIES EXHIBIT INDEX ------------- 2. Inapplicable. 3. Inapplicable. 4. Inapplicable. 10. Inapplicable. 11. Statements re: Computations of Per Share Earnings. (Incorporated by reference to Note 2 to the consolidated financial statements herein.) 15. Inapplicable. 18. Inapplicable. 19. Inapplicable. 22. Inapplicable. 23. Inapplicable. 24. Inapplicable. 99. Inapplicable. 18