pgai_10q.htm


 U.S SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10 – Q
 
(Mark One)
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES  EXCHANGE ACT OF 1934
 
For the quarterly period ended  September 30, 2014
 
o
TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ___________________ to _____________________

Commission File Number 1-6471
 
PGI INCORPORATED
(Exact name of registrant as specified in its charter)
 
FLORIDA    59-0867335
 (State or other jurisdiction of incorporation)     (I.R.S. Employer Identification No.)
 
212 SOUTH CENTRAL, SUITE 100, ST. LOUIS, MISSOURI  63105
(Address of principal executive offices)
 
(314) 512-8650
(Registrant’s telephone number, including area code)
 
N/A
(Former Name, Former Address and Former Fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company þ
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No þ

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date:  As of November 14, 2014, there were 5,317,758 shares of the registrant’s common stock, $.10 par value per share, outstanding.
 


 
 
 

PGI INCORPORATED AND SUBSIDIARIES
 
Form 10 – Q
For the Quarter Ended September 30, 2014

Table of Contents
 
     
Form 10 - Q
Page No.
       
PART I.  FINANCIAL INFORMATION    
       
Item 1. Financial Statements   3
       
  Condensed Consolidated Statements of Financial Position September 30, 2014 (Unaudited) and December 31, 2013   3
       
  Condensed Consolidated Statements of Operations (Unaudited) Three and Nine Months Ended September 30, 2014 and 2013   4
       
  Condensed Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 2014 and 2013   5
       
  Notes to Condensed Consolidated Financial Statements (Unaudited)   6
       
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations   12
       
Item 3. Quantitative and Qualitative Disclosures About Market Risk   18
       
Item 4. Controls and Procedures   18
       
PART II.  OTHER INFORMATION    
       
Item 1. Legal Proceedings   19
       
Item 1A. Risk Factors   19
       
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   19
       
Item 3. Defaults Upon Senior Securities   19
       
Item 4. Mine Safety Disclosures   19
       
Item 5. Other Information   19
       
Item 6. Exhibits   19
       
SIGNATURE   20
       
EXHIBIT INDEX   21
 
 
2

 

PART I                                FINANCIAL INFORMATION
 
Item 1.                                  Financial Statements
 
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands, except share and per share data)
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
(Unaudited)
       
ASSETS
           
Cash
  $ 1     $ 1  
Restricted cash
    5       5  
Receivables-related party
    348       440  
Land and improvement inventories
    639       639  
Other assets
    55       186  
    $ 1,048     $ 1,271  
LIABILITIES
               
Accounts payable and accrued expenses
  $ 218     $ 219  
Accrued real estate taxes
    6       8  
Accrued interest:
               
Primary lender-related party
    397       366  
Subordinated convertible debentures payable
    21,147       21,007  
Convertible debentures payable-related party
    45,700       41,071  
Notes payable
    3,004       2,958  
Credit agreements:
               
Primary lender-related party
    500       500  
Notes payable
    1,198       1,198  
Subordinated convertible debentures payable
    8,589       9,059  
Convertible debentures payable-related party
    1,500       1,500  
      82,259       77,886  
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
               
$8,000,000 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
    (97,241 )     (92,645 )
      (81,211 )     (76,615 )
    $ 1,048     $ 1,271  
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
3

 
 
Part I                       Financial Information (Continued)
 
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
 
   
Three Months Ended
   
Nine Months Ended
 
    September 30,    
September 30,
    September 30,     September 30,  
   
2014
   
2013
   
2014
   
2013
 
REVENUES
                       
Interest income-related party
  $ 3     $ 4     $ 10     $ 12  
      3       4       10       12  
COSTS EXPENSES AND OTHER
                               
Interest
    327       320       976       954  
Forgiveness of debt and interest     (1,217     -       (1,217     -  
Interest-related party
    1,607       1,402       4,660       4,065  
Taxes and assessments
    3       2       7       6  
Consulting and accounting-
                               
related party
    9       9       28       29  
Legal and professional
    1       1       8       8  
General and administrative
    106       16       144       54  
      836       1,750       4,606       5,116  
NET LOSS
  $ (833 )   $ (1,746 )   $ (4,596 )   $ (5,104 )
                                 
NET LOSS PER SHARE(*)
                               
AVAILABLE TO COMMON
                               
STOCKHOLDERS-Basic and diluted
  $ (0.19 )   $ (0.36 )   $ (0.95 )   $ (1.05 )
                                 
*Considers the effect of cumulative preferred dividends in arrears for the three and nine months ended
 
September 30, 2014 and 2013.
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
4

 

Part I                       Financial Information (Continued)
 
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
 
   
Nine Months Ended
 
    September 30,    
September 30,
 
   
2014
   
2013
 
             
Net cash used in operating activities
  $ (92 )   $ (86 )
Cash Flows from investing activities:
               
    Proceeds from notes receivable-related party
    92       86  
Net cash provided by investing activities
    92       86  
                 
Net change in cash
    -       -  
   
Cash at beginning of period
    1       1  
   
Cash at end of period
  $ 1     $ 1  

See accompanying notes to Condensed Consolidated Financial Statements.
 
 
5

 
 
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, 2013.

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 2013 filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of December 31, 2013 has been derived from the audited consolidated balance sheet as of that date.

The Company remains in default under the indentures governing its unsecured subordinated debentures and collateralized convertible debentures and is in default of its primary debt obligations.  (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, 2013, 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 nine months ended September 30, 2014 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2014 or any other interim period.

 (2)
Per Share Data

Basic per share amounts are computed by dividing net income (loss), after considering current period dividends on the Company's preferred stock, by the average number of common shares.  The average number of common shares outstanding for the three and nine months ended September 30, 2014 and 2013 was 5,317,758.
 
 
6

 

PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
 
Diluted per share amounts are computed by dividing net income (loss) by the average number of common shares outstanding, after adjusting for the estimated effect of the assumed conversion of all cumulative convertible preferred stock and collateralized convertible debentures into shares of common stock.  For the three and nine months ended September 30, 2014 and 2013, the assumed conversion of all cumulative convertible preferred stock and collateralized convertible debentures would have been anti-dilutive.

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, 2014 and 2013.
 
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
Net Loss
  $ (833,000 )   $ (1,746,000 )   $ (4,596,000 )   $ (5,104,000 )
                                 
Preferred dividends
    (160,000 )     (160,000 )     (480,000 )     (480,000 )
                                 
Loss Available to
  $ (993,000 )   $ (1,906,000 )   $ (5,076,000 )   $ (5,584,000 )
Common shareholders
                               
                                 
Weighted Average Number
                               
Of Common Shares
                               
Outstanding
    5,317,758       5,317,758       5,317,758       5,317,758  
                                 
Basic and Diluted Loss
                               
Per Share
  $ (0.19 )   $ (0.36 )   $ (0.95 )   $ (1.05 )
 
 (3)          Statement of Cash Flows

The Financial Accounting Standards Board Accounting Standards Codification Topic No. 230, “Statement of Cash Flows”, requires a statement of cash flows as part of a full set of financial statements.  For quarterly reporting purposes, the Company has elected to condense the reporting of its net cash flows.  There were no payments of interest for the nine month periods ended September 30, 2014 and September 30, 2013.

 (4)          Restricted Cash

Restricted cash includes restricted proceeds held by the primary lender as collateral for debt repayment.

 
7

 
 
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)

(5)  
Receivables

Net receivables consisted of:
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
($ in thousands)
 
Notes receivable - related party
  $ 348      $ 440  
 
(6)  
Land and Improvements

Land and improvement inventories consisted of:
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
($ in thousands)
 
Unimproved land
  $ 625     $ 625  
Fully improved land
    14       14  
    $ 639     $ 639  
 
(7)  
Other Assets

Other assets consisted of:
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
($ in thousands)
 
Deposit with Trustee of 6-1/2% debentures
  $ 52     $ 184  
Prepaid expenses
    2       1  
Other
    1       1  
    $ 55     $ 186  

 
8

 
 
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)

(8)  
Accounts Payable and Accrued Expenses

 
Accounts payable and accrued expenses consisted of:
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
($ in thousands)
 
Accounts payable
  $ 5     $ -  
Accrued audit & professional
    30       36  
Accrued consulting fees-related party
    1       1  
Environmental remediation obligations
    64       70  
Accrued debenture fees
    118       111  
Accrued miscellaneous
    -       1  
    $ 218     $ 219  
                 
Accrued real estate taxes consisted of:
               
Current real estate taxes
  $ 6     $ 8  
 
 
9

 
 
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:
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
($ in thousands)
       
Credit agreements - primary lender-related party
           
balance is past due, bearing interest
           
at prime plus 5%
  $ 500     $ 500  
                 
Notes payable - $1,176,000
               
bearing interest at prime plus 2%,
               
the remainder non-interest bearing,
               
all past due
    1,198       1,198  
      1,698       1,698  
Subordinated debentures payable:
               
At 6-1/2% interest; due June 1, 1991
    564       1,034  
At 6% interest; due May 1, 1992
    8,025       8,025  
      8,589       9,059  
Collateralized 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       1,500  
    $ 11,787     $ 12,257  
 
The Trustee of the 6.5% subordinated debentures, which matured in June, 1991, with an original face amount of $1,034,000, has given notice of a final distribution to holders of such debentures on September 2, 2014.  In connection with such final distribution, the Trustee has applied $89,000 of the $184,000 debenture reserve fund that the Trustee had maintained with respect to such debentures, toward debenture administration fees charged by the Trustee, and the remaining balance of $95,000 has been designated for final distribution to holders of such debentures.  As of September 30, 2014, such debentures with a face amount of $470,000 have been surrendered by their respective debenture holders, utilizing $43,000 of the debenture reserve fund in payment of a final distribution to such debenture holders.  Accordingly, the Company has recognized $427,000 in forgiveness of debt.  Accrued interest in the amount of $790,000 on such debentures that have been surrendered was recorded as forgiveness of interest expense as of September 30, 2014.  As of September 30, 2014 the outstanding principal balance on such 6.5% subordinated debentures totals $564,000 plus accrued and unpaid interest of $948,000 which will be recorded as debt and interest forgiveness when these debentures are surrendered.  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 debentures would be barred under the applicable statutes of limitations.
 
 
10

 
 
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
 
(10)          Income Taxes

At December 31, 2013, the Company had an operating loss carryforward of approximately $54,349,000 available to reduce future taxable income.  These operating losses expire at various dates through 2033.

The following summarizes the temporary differences of the Company at September 30, 2014 and December 31, 2013 at the statutory rate:
 
    September 30,    
December 31,
 
   
2014
   
2013
 
   
($ in thousands)
 
Deferred tax asset
           
Net operating loss carryforward
  $ 22,860     $ 20,653  
Adjustments to reduce land to net realizable value
    12       12  
Expenses capitalized under IRC 263(a)
    56       56  
Environmental liability
    27       27  
Valuation allowance
    (22,783 )     (20,576 )
      172       172  
                 
Deferred tax liability:
               
Basis difference of land and improvement inventories
    172       172  
Net deferred tax asset
  $ -     $ -  
 
(11)          Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at September 30, 2014 and December 31, 2013 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.
 
 
11

 
 
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 remaining asset is a parcel of 366 acres located in Hernando County, Florida.  As of September 30, 2014, the Company also owned 6 single family lots, located in Citrus County, Florida.  In addition, the Company owns some minor parcels of real estate in Charlotte County, and Citrus County, Florida, which totals approximately 60 acres, but these have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.

The 366 acre parcel in Hernando County is difficult to value because of uncertainty related to the possible extension of the Suncoast Parkway, which terminates on the south side of Route 98 opposite this property.  Based on an endorsement in 2007 by the Citrus County Commission to re-adopt a project that was originally approved in 1998, the route that is presently believed to be the most probable for the proposed northward continuation of the Suncoast Parkway is through the middle of this parcel of property.  The Company has received notification from the Florida Department of Transportation that engineering firms have been retained to conduct field work for this project.  However, the Florida Department of Transportation – Florida’s Turnpike Enterprise Website for the Suncoast Parkway, Project 2, indicates the project for this possible expansion has been suspended (paused) and no proposed specific timeframe for continuing this project has been provided.  Until and unless the uncertainty regarding the future expansion of the Suncoast Parkway and the related prospect of an eminent domain taking of a significant portion of the parcel is resolved, planning with respect to this property is difficult.

The Trustee of the 6.5% subordinated debentures, which matured in June, 1991, with an original face amount of $1,034,000, has given notice of a final distribution to holders of the debentures on September 2, 2014.  In connection with such final distribution, the Trustee has applied $89,000 of the $184,000 debenture reserve fund that the Trustee had maintained with respect to such debentures, toward debenture administration fees charged by the Trustee, and the remaining balance of $95,000 has been designated for final distribution to holders of such debentures.  As of September 30, 2014, such debentures with a face amount of $470,000 have been surrendered by their respective debenture holders, utilizing $43,000 of the debenture reserve fund in payment of a final distribution to such debenture holders.  Accordingly, the Company has recognized $427,000 in forgiveness of debt.  Accrued interest in the amount of $790,000 on such debentures that have been surrendered was recorded as forgiveness of interest expense as of September 30, 2014.  As of September 30, 2014 the outstanding principal balance on such 6.5% subordinated debentures totals $564,000 plus accrued and unpaid interest of $948,000 which will be recorded as debt and interest forgiveness when these debentures are surrendered.  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 debentures would be barred under the applicable statutes of limitations.
 
 
12

 
 
PGI INCORPORATED AND SUBSIDIARIES
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Results of Operations

Revenues for the three months ended September 30, 2014 decreased by $1,000 to $3,000 from $4,000 for the comparable 2013 period as a result of decreased interest income due to a lower balance on the short-term note receivable balance with Love Investment Company (“LIC”), an affiliate of L-PGI, the Company’s primary preferred stock shareholder.  Expenses for the three months ended September 30, 2014 decreased by $914,000 when compared to the same period in 2013, primarily resulting from a forgiveness of debt and interest in the amount of $1,217,000 which is attributed to 6.5% subordinated debentures in the face amount of $470,000 that have been surrendered in exchange for a final distribution of $92 per $1,000 in face value of such debentures. Accrued interest in the amount of $790,000 on the 6.5% subordinated debentures that have been surrendered has been recorded as forgiveness of interest expense. Interest expense for the three months ended September 30, 2014 increased by $212,000 due to interest accruing on past due balances under the various credit agreements, notes payable and debentures which increased over the same period in 2013 for accrued but unpaid interest.  Taxes and assessments for the three months ended September 30, 2014 increased by approximately $1,000 when compared to the same period in 2013 due to increasing real estate tax assessments.  General and administrative expenses for the three months ended September 30, 2014 increased by approximately $90,000 when compared to the same period in 2013 primarily due to an $89,000 assessment for debenture administration fees charged to the Company from the funds on deposit with the Trustee of the 6.5% subordinated debentures.  As a result, a net loss of $833,000 was incurred for the three months ended September 30, 2014 compared to a net loss of $1,746,000 for the comparable period in 2013.  After consideration of cumulative preferred dividends in arrears, totaling $160,000 for each three month period ended September 30, 2014 and 2013, with respect to the Class A Preferred Stock, a net loss per share of $(0.19) and $(0.36) was incurred for the three month periods ended September 30, 2014 and 2013, respectively.

Revenues for the nine month period ended September 30, 2014 decreased by $2,000 to $10,000 from $12,000 for the comparable 2013 period as a result of lower balance on the short-term note receivable balance with Love Investment Company (“LIC”), an affiliate of L-PGI, the Company’s primary preferred stock shareholder.  Expenses for the nine months ended September 30, 2014 decreased by $510,000 when compared to the same period in 2013, primarily resulting from a forgiveness of debt and interest in the amount of $1,217,000 which is attributed to 6.5% subordinated debentures in the face amount of $470,000 that have been surrendered in exchange for a final distribution of $92 per $1,000 in face value of such debentures. Accrued interest in the amount of $790,000 on the 6.5% subordinated debentures that have been surrendered has been recorded as forgiveness of interest expense. Interest expense for the nine months ended September 30, 2014 increased by $617,000 due to interest accruing on past due balances under the various credit agreements, notes payable and debentures which increased over the same period in 2013 for accrued but unpaid interest.  Taxes and assessments for the nine months ended September 30, 2014 increased by approximately $1,000 when compared to the same period in 2013 due to increased real estate tax assessments.  Consulting and accounting expenses for the nine months ended September 30, 2014 decreased by $1,000 when compared to the same period in 2013.  A quarterly consulting fee is paid to Love Real Estate Company (“LREC”) of one-tenth of one percent of the carrying value of the Company’s assets which have decreased in 2014 as compared to 2013.
 
 
13

 
 
PGI INCORPORATED AND SUBSIDIARIES
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

General and administrative expenses for the nine months ended September 30, 2014 increased by approximately $90,000 when compared to the same period in 2013 primarily due to an $89,000 assessment for debenture administration fees charged to the Company from the funds on deposit with the Trustee of the 6.5% subordinated debentures. As a result, a net loss of $4,596,000 was incurred for the first nine months of 2014 compared to a net loss of $5,104,000 for the first nine months of 2013.  After consideration of cumulative preferred dividends in arrears, totaling $480,000 for each of the nine months ended September 30, 2014 and 2013 (based on $160,000 for each three month period therein), with respect to the Class A Preferred Stock, a net loss per share of $(0.95) and $(1.05) was incurred for the nine month periods ended September 30, 2014 and 2013, respectively.  The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through September 30, 2014 is $12,435,000.

On May 1, 2013 the Company executed a cell tower lease on a parcel of property located in Citrus County, Florida.  Pursuant to the terms of this lease, the lessee has the right to terminate the agreement during a due diligence period through November 1, 2014.  Effective October 28, 2014, an amendment to the lease has been executed to extend the due diligence period for an additional 12 months with the right to terminate the lease agreement extended to October 28, 2015 in exchange for an option fee of $3,600.  If the lessee exercises the option to proceed with the terms of the lease at the end of the due diligence period, the lease provides for rent of $1,800 per month with a term of 10 years and six successive five year renewal periods.

Interest expense during the three and nine month periods ended September 30, 2014 increased by $212,000 and $617,000, respectively, when compared to the same periods in 2013. This increase is a result of interest accruing on past due balances under the various credit agreements, notes payable and debentures, which increased at various intervals during the respective years for accrued but unpaid interest.

As of September 30, 2014, the Company remained in default of its primary lender indebtedness of $500,000 with PGIP, LLC (“PGIP”), an entity related to L-PGI, as well as under its subordinated and convertible debentures and notes payable.  PGIP holds restricted funds of the Company pursuant to an escrow agreement whereby funds may be disbursed (i) as requested by the Company and agreed to by PGIP, (ii) as deemed necessary and appropriate by PGIP, 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 funds held by PGIP were $5,000 at September 30, 2014 and December 31, 2013.  The Company did not utilize any of the restricted escrow funds during the nine months ended September 30, 2014 or 2013.  The primary parcel of real estate owned by the Company, totaling 366 acres and located in Hernando County, Florida, remains subject to the primary lender indebtedness.
 
 
14

 
 
PGI INCORPORATED AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash Flow Analysis

During the nine month period ended September 30, 2014, the Company’s net cash used in operating activities was $92,000 compared to $86,000 for the comparable period in 2013.  Net cash provided from investing activities during the nine months ended September 30, 2014 and 2013 consisted of $92,000 and $86,000, respectively, in note receivable proceeds received from LIC.  The Company receives proceeds from its notes receivable from LIC as needed to fund its operating activities.

Analysis of Financial Condition

Total assets decreased by $223,000 at September 30, 2014 compared to total assets at December 31, 2013, reflecting the following changes:
 
    September 30,    
December 31,
   
Increase
 
   
2014
   
2013
   
(Decrease)
 
         
($ in thousands)
       
Cash
  $ 1     $ 1     $ -  
Restricted cash
    5       5       -  
Receivables-related party
    348       440       (92 )
Land and improvement inventories
    639       639       -  
Other assets
    55       186       (131 )
    $ 1,048     $ 1,271     $ (223 )
 
     During the nine month period ended September 30, 2014, the amount of receivables-related party decreased by $92,000 due to the Company’s receipt of principal and accrued interest payments from LIC, a related party, under the note receivable from LIC.

  During the nine month period ended September 30, 2014, the amount of other assets decreased by $131,000.  The Trustee of the 6.5% subordinated debentures has applied $89,000 of the debenture reserve fund maintained by the Trustee with respect to such debentures, toward debenture administration fees charged by the Trustee, and the remaining balance of $95,000 has been designated for final distribution to the holders of such debentures.  As of September 30, 2014, such debentures with a face amount of $470,000 have been surrendered by their respective debenture holders, utilizing $43,000 of the debenture reserve fund in payment of a final distribution to such debenture holders.
 
 
 
15

 
 
PGI INCORPORATED AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Liabilities were approximately $82.3 million at September 30, 2014 compared to approximately $77.9 million at December 31, 2013, reflecting the following changes:

    September 30,     December 31,    
Increase
 
   
2014
   
2013
   
(Decrease)
 
      ($ in thousands)  
Accounts payable and accrued expenses
  $ 218     $ 219     $ (1 )
Accrued real estate taxes
    6       8       (2 )
Accrued interest
    70,248       65,402       4,846  
Credit agreements:
                    -  
Primary lender-related party
    500       500       -  
Notes payable
    1,198       1,198       -  
Subordinated convertible
                       
   debentures payable
    8,589       9,059       (470 )
Convertible debentures payable-
                       
   related party
    1,500       1,500       -  
                         
    $ 82,259     $ 77,886     $ 4,373  

        During the nine month period ended September 30, 2014, the amount of accounts payable and accrued expenses decreased by $1,000 primarily as a result of timing differences and the payment of certain accrued expenses.  Accrued real estate taxes decreased by $2,000 during the nine month period ended September 30, 2014 due to the payment of previously accrued real estate taxes.  Accrued interest during the nine month period ended September 30, 2014 increased by $4,846,000 as a result of $5,636,000 of interest expense for such period which was offset by accrued interest in the amount of $790,000 on the 6.5% subordinated debentures that have been surrendered and recorded as forgiveness of interest expense.  During the nine month periods ended September 30, 2014 and September 30, 2013, the Company made no interest payments on its various credit agreements, notes payable and debentures.

As of September 30, 2014, 6.5% subordinated debentures with a face amount of $470,000 have been surrendered by their respective debenture holders.

The Company remains totally dependent upon the sale of parcels of its various properties to fund its operations and with respect to its ability to make any future debt service payments or any future preferred dividend payments.  The Company also receives principal repayment and interest proceeds from its note receivable due from LIC, a related party, on an as needed basis to fund its operating activities.

The Company remains in default on the entire principal amount plus interest (including certain sinking fund and interest payments with respect to its subordinated debentures) of its subordinated and convertible debentures and notes payable, as well as its primary lender indebtedness with PGIP.  The principal and accrued interest amounts due are as indicated in the following table:
 
 
16

 
 
PGI INCORPORATED AND SUBSIDIARIES
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

   
September 30, 2014
 
   
Principal
   
Accrued
 
   
Amount Due
   
Interest
 
   
($ in thousands)
       
             
Subordinated convertible debentures:
           
At 6 1/2 %, due June 1, 1991
  $ 564     $ 948  
At 6%, due May 1, 1992
    8,025       20,198  
    $ 8,589     $ 21,146  
Collateralized convertible debentures:
               
At 14%, due July 8, 1997
  $ 1,500     $ 45,700  
                 
Notes payable:
               
At prime plus 2%
  $ 1,176     $ 3,004  
Non-interest bearing
    22       -  
    $ 1,198     $ 3,004  
                 
Primary lender-related party:
  $ 500     $ 397  
 
The Trustee of the 6.5% subordinated debentures, which matured in June, 1991, with an original face amount of $1,034,000, has given notice of a final distribution to holders of the debentures on September 2, 2014.  As of September 30, 2014, such debentures with a face amount of $470,000 have been surrendered by their respective debenture holders, utilizing $43,000 of the debenture reserve fund in payment of a final distribution to such debenture holders.  Accordingly, the Company has recognized $427,000 in forgiveness of debt and $790,000 in forgiveness of interest on the 6.5% subordinated debentures that have been surrendered.  As of September 30, 2014 the outstanding principal balance on such 6.5% subordinated debentures totals $564,000 plus accrued and unpaid interest of $948,000.  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 debentures would be barred under the applicable statutes of limitations.

The Company does not have sufficient funds available to satisfy either principal or interest obligations on the above indebtedness, debentures and notes payable or any arrearage in preferred dividends.

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, 2013.
 
 
17

 
 
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); continued failure by governmental authorities to make a decision with respect to the Suncoast Expressway as described under Item 2; changes in management strategy; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures under the supervision and with the participation of its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).  Based on this evaluation, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2014.  There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
18

 
 
PGI INCORPORATED AND SUBSIDIARIES
 
PART II  OTHER INFORMATION

Item 1. Legal Proceedings

The Company, to its knowledge, currently is not a party to any material legal proceedings.

Item 1A. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

See discussion in Item 2 of Part I with respect to defaults under the Company's subordinated convertible debentures, collateralized convertible debentures and other indebtedness and with respect to cumulative preferred dividends in arrears, which discussions are incorporated herein by this reference.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

Item 6.  Exhibits
 
Reference is made to the Exhibit Index hereof for a list of exhibits filed or furnished under this Item.
 
 
19

 
 
PGI INCORPORATED AND SUBSIDIARIES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
 
  PGI Incorporated  
       
November 14, 2014
By:
/s/ Laurence A. Schiffer  
    Laurence A. Schiffer  
    President  
     (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)  
 

 
 
20

 
 
PGI INCORPORATED AND SUBSIDIARIES

EXHIBIT INDEX
 
Exhibit No.   Description
2.   Inapplicable.
3.(i)   Inapplicable.
3.(ii)   Inapplicable.
4.   Inapplicable.
10.   Inapplicable.
11   Statement re: Computation of Per Share Earnings (Set forth in Note 2 of the Notes to Condensed Consolidated Financial Statements (Unaudited) herein).
15   Inapplicable.
18.   Inapplicable.
19   Inapplicable.
22.   Inapplicable.
23.   Inapplicable.
24.   Inapplicable.
31(i).1   Principal Executive Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
31(i).2
  Principal Financial Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
32.1   Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350.
32.2   Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350.
95.   Inapplicable.
99.   Inapplicable.
100.   Inapplicable.
101.   Instance Document, Schema Document, Calculation Linkbase Document, Labels Linkbase Document, Presentation Linkbase Document and Definition Linkbase Document.*
 
 *Furnished with this report
 
21