pgai_10q.htm


FORM 10- Q
U.S SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

(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, 2015
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 304, 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 13, 2015, 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, 2015

Table of Contents
 
     
Form 10 - Q
Page No.
PART I. FINANCIAL INFORMATION    
       
  Item 1. Financial Statements    
       
 
 
3
       
   
4
       
   
5
       
   
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
       
 
20
       
 
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,
 
   
2015
   
2014
 
   
(Unaudited)
       
ASSETS
           
Cash
  $ 1     $ 1  
Restricted cash
    5       5  
Receivables-related party
    202       332  
Land and improvement inventories
    639       639  
Other assets
    44       51  
    $ 891     $ 1,028  
LIABILITIES
               
Accounts payable and accrued expenses
  $ 197     $ 229  
Accrued real estate taxes
    6       8  
Accrued interest:
               
Primary lender-related party
    439       408  
Subordinated convertible debentures payable
    22,173       21,389  
Convertible debentures payable-related party
    52,662       47,351  
Notes payable
    3,066       3,020  
Credit agreements:
               
Primary lender-related party
    500       500  
Notes payable
    1,198       1,198  
Subordinated convertible debentures payable
    8,472       8,552  
Convertible debentures payable-related party
    1,500       1,500  
      90,213       84,155  
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
    (105,352 )     (99,157 )
      (89,322 )     (83,127 )
    $ 891     $ 1,028  
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
3

 
 
Part I    Financial Information (Continued)
 
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,
 
   
2015
   
2014
   
2015
   
2014
 
REVENUES
                       
Interest income-related party
  $ 2     $ 3     $ 7     $ 10  
      2       3       7       10  
COSTS, EXPENSES AND OTHER
                               
Interest
    324       327       967       976  
Forgiveness of debt and interest     -       (1,217 )     (209 )     (1,217 )
Interest-related party
    1,842       1,607       5,342       4,660  
Taxes and assessments
    2       3       7       7  
Consulting and accounting- related party     9       9       28       28  
Legal and professional
    2       1       8       8  
General and administrative
    18       106       59       144  
      2,197       836       6,202       4,606  
NET LOSS
  $ (2,195 )   $ (833 )   $ (6,195 )   $ (4,596 )
                                 
NET LOSS PER SHARE(*)
                               
AVAILABLE TO COMMON
                               
STOCKHOLDERS-Basic and diluted
  $ (0.44 )   $ (0.19 )   $ (1.26 )   $ (0.95 )
 
*Considers the effect of cumulative preferred dividends in arrears for the three and nine months ended September 30, 2015 and 2014.
 
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,
 
   
2015
   
2014
 
             
Net cash used in operating activities
  $ (130 )   $ (92 )
Cash Flows from investing activities:
               
Proceeds from notes receivable-related party
    130       92  
Net cash provided by investing activities
    130       92  
                 
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, 2014.

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 2014 filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet as of December 31, 2014 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, 2014, 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, 2015 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2015 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, 2015 and 2014 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, 2015 and 2014, 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, 2015 and 2014.

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2015
   
2014
   
2015
   
2014
 
                         
Net Loss
  $ (2,195,000 )   $ (833,000 )   $ (6,195,000 )   $ (4,596,000 )
                                 
Preferred dividends
    (160,000 )     (160,000 )     (480,000 )     (480,000 )
                                 
Loss Available to
  $ (2,355,000 )   $ (993,000 )   $ (6,675,000 )   $ (5,076,000 )
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
  $ (0.44 )   $ (0.19 )   $ (1.26 )   $ (0.95 )
 
(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, 2015 and September 30, 2014.

 (4) Restricted Cash

Restricted cash includes restricted proceeds held by PGIP, LLC, 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,
 
   
2015
   
2014
 
   
($ in thousands)
       
Notes receivable - related party
  $ 202     $ 332  
 
(6) Land and Improvements

Land and improvement inventories consisted of:
 
   
September 30,
   
December 31,
 
   
2015
   
2014
 
   
($ in thousands)
       
Unimproved land
  $ 625     $ 625  
Fully improved land
    14       14  
    $ 639     $ 639  
 
(7) Other Assets

Other assets consisted of:
 
   
September 30,
   
December 31,
 
   
2015
   
2014
 
   
($ in thousands)
       
Deposit with Trustee of 6-1/2% debentures
  $ 41     $ 48  
Prepaid expenses
    2       2  
Other
    1       1  
    $ 44     $ 51  
 
 
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,
 
   
2015
   
2014
 
   
($ in thousands)
       
Accounts payable
  $ 1     $ 6  
Accrued audit & professional
    38       38  
Accrued consulting fees-related party
    1       1  
Environmental remediation obligations
    30       64  
Accrued debenture fees
    126       119  
Accrued miscellaneous
    1       1  
    $ 197     $ 229  
                 
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,
 
   
2015
   
2014
 
   
($ in thousands)
       
Credit agreements - primary lender-related party
           
balance is past due, bearing interest
           
at prime plus 5%; due June 1, 1997
  $ 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
    447       527  
At 6% interest; due May 1, 1992
    8,025       8,025  
      8,472       8,552  
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  
    $ 11,670     $ 11,750  
 
The Trustee of the 6.5% 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 distribution, the Trustee 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 such reserve fund in the amount of $95,000 was designated by the Trustee for final distribution to holders of such debentures.

During the nine month period of 2015 and year ended December 31, 2014, such 6.5% subordinated convertible debentures with face amounts of $80,000 and $507,000 have been surrendered by their respective debenture holders, respectively.  Funds utilized from the debenture reserve account were $7,000 and $47,000 during the first nine months of 2015 and during the twelve month period of 2014, respectively, in payment of a final distribution to such debenture holders.   Accordingly, the Company has recognized $73,000 and $460,000 in forgiveness of debt during the first nine months of 2015 and during the twelve month period of 2014, respectively.
 
 
10

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

In addition, accrued interest in the amounts of $136,000 and $853,000 on such debentures that have been surrendered was recorded as forgiveness of interest expense during the first nine months of 2015 and during the twelve month period of 2014, respectively.

As of September 30, 2015 the 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 $780,000.  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% subordinated convertible debentures would be barred under the applicable statutes of limitations.

(10) Income Taxes

At December 31, 2014, the Company had an operating loss carryforward of approximately $60,861,000 available to reduce future taxable income.  These operating losses expire at various dates through 2034.

The following summarizes the temporary differences of the Company at September 30, 2015 and December 31, 2014 at the statutory rate:
 
   
September 30,
   
December 31,
 
   
2015
   
2014
 
   
($ in thousands)
       
Deferred tax asset
           
Net operating loss carryforward
  $ 25,481     $ 23,127  
Adjustments to reduce land to net realizable value
    12       12  
Expenses capitalized under IRC 263(a)
    56       56  
Environmental liability
    24       24  
Valuation allowance
    (25,401 )     (23,047 )
      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, 2015 and December 31, 2014 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, 2015, 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 proposed extension of the Suncoast Parkway, which terminates on the south side of Route 98 opposite this property.  The State of Florida has indicated that it has made preliminary plans to proceed with the northward continuation of the Suncoast Parkway.  The Florida Department of Transportation – Florida’s Turnpike Enterprise Website for the Suncoast Parkway, Project 2, has been updated with proposed schedules and right-of-way maps with an indication that the anticipated timeframe for the completion of the right-of-way acquisitions for this project is December, 2016. 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, provided notice of final distribution to holders of such debentures on September 2, 2014.  In connection with such final distribution, the Trustee 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 such reserve fund in the amount of $95,000 was designated by the Trustee for final distribution to holders of such debentures.

Such 6.5 % subordinated convertible debentures with an aggregate face amount of $80,000 and $507,000 have been surrendered by their respective debenture holders during the first nine months of 2015 and during the twelve month period of 2014, respectively.  Funds utilized from the debenture reserve account were $7,000 and $47,000 during the first nine months of 2015 and during the twelve month period of 2014, respectively, in payment of a final distribution to such debenture holders.  Accordingly, the Company has recognized $73,000 and $460,000 in forgiveness of debt during the first nine months of 2015 and during the twelve month period of 2014, respectively.  In addition, accrued interest in the amounts of $136,000 and $853,000 on such debentures that have been surrendered was recorded as forgiveness of interest expense during the first nine months of 2015 and during the twelve month period of 2014, respectively.  As of September 30, 2015 the remaining outstanding principal balance on such 6.5% subordinated convertible debentures totals $447,000 plus accrued and unpaid interest of $780,000.  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.
 
 
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, 2015 decreased by $1,000 to $2,000 from $3,000 for the comparable 2014 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, 2015 increased by $1,361,000 when compared to the same period in 2014, primarily due to no forgiveness of debt and interest in the respective 2015 period as compared to $1,217,000 of forgiveness of debt and interest in the three months ended September 30, 2014.  The forgiveness of debt and interest for the three months ended September 30, 2014 is attributed to the 6.5% subordinated convertible debentures which matured in June, 1991, 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 such surrendered debentures was recorded as forgiveness of interest expense during the three months ended September 30, 2014, and the principal amount of debt in the amount of $427,000 in connection with such debentures was recorded as forgiveness of debt during such period.  In addition, there was an increase in interest expense of $232,000 due to interest accruing on past due balances under the various credit agreements, notes payable and debentures (other than with respect to the 6.5% subordinated convertible debentures) which increased over the same period in 2014 for accrued but unpaid interest. These increases are offset by a decrease in general and administrative expenses for the three months ended September 30, 2015 of $88,000 when compared to the same period in 2014 primarily due to an assessment of $89,000 for debenture administrative fees charged to the Company from the funds on deposit with the Trustee of the 6.5% subordinated debentures during the nine months ended September 30, 2014.  As a result, a net loss of $2,195,000 was incurred for the three months ended September 30, 2015 compared to a net loss of $833,000 for the comparable period in 2014.  After consideration of cumulative preferred dividends in arrears, totaling $160,000 for each three month period ended September 30, 2015 and 2014, with respect to the Class A Preferred Stock, a net loss per share of $(0.44) and $(0.19) was incurred for the three month periods ended September 30, 2015 and September 30, 2014, respectively.  The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through September 30, 2015 is $13,075,000.

Revenues for the nine months ended September 30, 2015 decreased by $3,000 to $7,000 from $10,000 for the comparable 2014 period as a result of decreased interest income due to a lower balance on the short-term note receivable balance with LIC.  Expenses for the nine months ended September 30, 2015 increased by $1,596,000 when compared to the same period in 2014, primarily resulting from a decrease of $1,008,000 in forgiveness of debt and interest during the nine months ended September 30, 2015 when compared to the same period in 2014.  Forgiveness of debt and interest was $209,000 for the nine months ended September 30, 2015 and $1,217,000 for the nine months ended September 30, 2014.  In addition, there was an increase in interest expense of $673,000 due to interest accruing on past due balances under the various credit agreements, notes payable and debentures (other than with respect to the 6.5% subordinated convertible debentures) which increased over the same period in 2014 for accrued but unpaid interest.
 
 
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, 2015 decreased by approximately $85,000 when compared to the same period in 2014 primarily due to an assessment of $89,000 for debenture administrative fees charged to the Company from the funds on deposit with the Trustee of the 6.5% subordinated debentures during the nine months ended September 30, 2014.  In addition, there were expenses incurred in 2015 in the amount of $2,000 for a parcel of property located in Citrus County requiring landscaping and fence improvements.  As a result, a net loss of $6,195,000 was incurred for the nine months ended September 30, 2015 compared to a net loss of $4,596,000 for the comparable period in 2014.  After consideration of cumulative preferred dividends in arrears, totaling $480,000 for each nine month period ended September 30, 2015 and 2014, with respect to the Class A Preferred Stock, a net loss per share of $(1.26) and $(0.95) was incurred for the nine month periods ended September 30, 2015 and September 30, 2014, respectively.

On May 1, 2013 the Company executed a cell tower lease on a parcel of property located in Citrus County, Florida.  Effective October 26, 2015 the lessee provided notice of termination of the lease agreement which was in a due diligence period.

As of September 30, 2015, 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, 2015 and December 31, 2014.  The Company did not utilize any of the restricted escrow funds during the nine months ended September 30, 2015 or 2014.

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.

Cash Flow Analysis

During the nine month period ended September 30, 2015, the Company’s net cash used in operating activities was $130,000 compared to $92,000 for the comparable period in 2014.  Net cash provided from investing activities during the nine months ended September 30, 2015 and 2014 consisted of $130,000 and $92,000, 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.

 
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PGI INCORPORATED AND SUBSIDIARIES

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

Analysis of Financial Condition

Total assets decreased by $137,000 at September 30, 2015 compared to total assets at December 31, 2014, reflecting the following changes:
 
   
September 30,
   
December 31,
   
Increase
 
   
2015
   
2014
   
(Decrease)
 
         
($ in thousands)
       
Cash
  $ 1     $ 1     $ -  
Restricted cash
    5       5       -  
Receivables-related party
    202       332       (130 )
Land and improvement inventories
    639       639       -  
Other assets
    44       51       (7 )
    $ 891     $ 1,028     $ (137 )
 
During the nine month period ended September 30, 2015, the amount of receivables-related party decreased by $130,000 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, 2015, the amount of other assets decreased by $7,000, primarily as a result of the decrease in the debenture reserve fund maintained by the Trustee of the 6.5% subordinated convertible debentures during this period.  The Trustee of these debentures utilized $7,000 of the debenture reserve fund maintained by the Trustee with respect to such debentures for a final distribution to the holders of such debentures that surrendered their debenture certificates during the first nine months of 2015.  During this period, such debentures with a face amount of $80,000 have been surrendered by their respective debenture holders.

 
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PGI INCORPORATED AND SUBSIDIARIES

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

Liabilities were approximately $90.2 million at September 30, 2015 compared to approximately $84.2 million at December 31, 2014, reflecting the following changes:
 
   
September 30,
   
December 31,
   
Increase
 
   
2015
   
2014
   
(Decrease)
 
         
($ in thousands)
       
Accounts payable and accrued expenses
  $ 197     $ 229     $ (32 )
Accrued real estate taxes
    6       8       (2 )
Accrued interest
    78,340       72,168       6,172  
Credit agreements:
                    -  
Primary lender-related party
    500       500       -  
Notes payable
    1,198       1,198       -  
Subordinated convertible
                       
   debentures payable
    8,472       8,552       (80 )
Convertible debentures payable-
                       
   related party
    1,500       1,500       -  
                         
    $ 90,213     $ 84,155     $ 6,058  
 
During the nine month period ended September 30, 2015, the amount of accounts payable and accrued expenses decreased by $32,000 primarily due to the payment of accrued environmental remediation obligations in the amount of $34,000.  Accrued real estate taxes decreased by $2,000 during the nine month period ended September 30, 2015 due to the payment of previously accrued real estate taxes.  Accrued interest during the nine month period ended September 30, 2015 increased by $6,172,000 as a result of $6,309,000 of interest expense for such period which was offset by accrued interest in the amount of $137,000 on the 6.5% subordinated convertible debentures that have been surrendered, recorded as forgiveness of interest expense.  During the nine month periods ended September 30, 2015 and September 30, 2014, the Company made no interest payments on its various credit agreements, notes payable and debentures.

The Trustee of the 6.5% subordinated convertible debentures, which matured in June, 1991, with an original face amount of $1,034,000, provided notice of a final distribution to holders of such debentures on September 2, 2014.  During the nine month period ended September 30, 2015, 6.5% subordinated convertible debentures with a face amount of $80,000 have been surrendered to the Trustee by their respective debenture holders.  There were no debentures surrendered in the three month period ended September 30, 2015.

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.
 
 
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PGI INCORPORATED AND SUBSIDIARIES

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

The Company remains in default on the entire principal amount plus interest (including certain sinking fund and interest payments with respect to 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:

   
September 30, 2015
 
   
Principal
   
Accrued
 
   
Amount Due
   
Interest
 
   
($ in thousands)
 
Subordinated convertible debentures:
           
At 6 1/2 %, due June 1, 1991
  $ 447     $ 780  
At 6%, due May 1, 1992
    8,025       21,393  
    $ 8,472     $ 22,173  
Collateralized convertible debentures:
               
At 14%, due July 8, 1997
  $ 1,500     $ 52,662  
                 
Notes payable:
               
At prime plus 2%
  $ 1,176     $ 3,066  
Non-interest bearing
    22       -  
    $ 1,198     $ 3,066  
                 
Primary lender-related party:
  $ 500     $ 439  

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, 2014.
 
 
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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, 2015.  There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 
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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  
  (Registrant)  
       
Date: November 13, 2015
By:
/s/ Laurence A. Schiffer  
    Laurence A. Schiffer  
    President  
    (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)  

 
 
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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.
     
 
Principal Executive Officer certification pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as amended.
     
 
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