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

(Mark One)
☑    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 20162017
 
☐    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 (State or other jurisdiction of incorporation)
(I.R.S. (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, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act. (Check
(Check one):
 
Large accelerated filero
 ☐
Accelerated filero
 ☐
Non-accelerated filero
 ☐
Smaller reporting companyþ
 ☑
(Do not check if a smaller reporting company) Emerging growth company
 ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
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 May 12, 2016,15, 2017, 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 March 31, 20162017

Table of Contents
 
  
Form 10 - Q
Page No.
PART IFINANCIAL INFORMATION 
   
Item 1.Financial Statements 3

 
 
Condensed Consolidated Statements of Financial Position March 31, 20162017 (Unaudited) and December 31, 20152016
3
 
 
 
Condensed Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 20162017 and 20152016
4
 
 
Condensed Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, 20162017 and 201520165
6
   
Notes to Condensed Consolidated Financial Statements (Unaudited)6
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 1211
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
1716
   
Item 4.
Controls and Procedures
 1716
   
PART IIOTHER INFORMATION 
Item 1.Legal Proceedings18
   
Risk Factors
Item 1. Legal Proceedings		1817
   
Item 1A. Risk Factors 17
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
1817
   
Item 3.
Defaults Upon Senior Securities
1817
   
Item 4.
Mine Safety Disclosures
1817
   
Item 5.
Other Information
1817
   
Item 6. Exhibits
Exhibits
18
17
19
   
EXHIBIT INDEXSIGNATURE
18
 20
EXHIBIT INDEX
19
 
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)
 
 
 
March 31,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
(Unaudited)
 
 
 
 
ASSETS   
 
 
 
 
 
 
Cash  
 $894 
 $958 
Land inventories  
  14 
  14 
Other assets  
  42 
  42 
 
 $950 
 $1,014 
LIABILITIES   
    
    
Accounts payable and accrued expenses  
 $225 
 $230 
Accrued real estate taxes  
  1 
  4 
Accrued income taxes  
  57 
  - 
Accrued interest:  
    
    
Subordinated convertible debentures payable
  24,062 
  23,743 
Convertible debentures payable-related party
  52,915 
  52,915 
Notes payable
  3,163 
  3,146 
Credit agreements:  
    
    
Notes payable
  1,198 
  1,198 
Subordinated convertible debentures payable
  8,472 
  8,472 
 
  90,093 
  89,708 
STOCKHOLDERS' DEFICIENCY   
    
    
Preferred stock, par value $1.00 per share;  
    
    
authorized 5,000,000 shares; 2,000,000
    
    
Class A cumulative convertible shares issued
    
    
and outstanding; (liquidation preference of
    
    
$8,000 plus unpaid cumulative dividends of $14,035)
  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  
  (105,173)
  (104,724)
 
  (89,143)
  (88,694)
 
 $950 
 $1,014 
  March 31,  December 31, 
  2016  2015 
  (Unaudited)    
ASSETS      
Cash $1  $1 
Restricted cash  5   5 
Receivables-related party  149   178 
Land and improvement inventories  639   639 
Other assets  46   44 
  $840  $867 
LIABILITIES        
Accounts payable and accrued expenses $216  $202 
Accrued real estate taxes  2   8 
Accrued interest:        
Primary lender-related party  460   450 
Subordinated convertible debentures payable  22,796   22,484 
Convertible debentures payable-related party  56,520   54,558 
Notes payable  3,098   3,081 
Credit agreements:        
Primary lender-related party  500   500 
Notes payable  1,198   1,198 
Subordinated convertible debentures payable  8,472   8,472 
Convertible debentures payable-related party  1,500   1,500 
   94,762   92,453 
STOCKHOLDERS' DEFICIENCY        
Preferred stock, par value $1.00 per share; authorized 5,000,000 shares; 2,000,000  Class A cumulative convertible shares issued and outstanding; (liquidation preference of $8,000 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  (109,952)  (107,616)
   (93,922)  (91,586)
  $840  $867 
 
See accompanying notes to Condensed Consolidated Financial Statements.
3
Statements (unaudited).
 

Part I  Financial Information (Continued)
 
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share data)
(Unaudited)
  Three Months Ended 
  March 31,  March 31, 
  2016  2015 
REVENUES      
Interest income-related party $1  $3 
   1   3 
COSTS, EXPENSES AND OTHER        
Interest  328   320 
         
Forgiveness of debt and interest  -   (185)
Interest-related party  1,973   1,720 
Taxes and assessments  2   3 
         
Consulting and accounting- related party  9   9 
Legal and professional  5   4 
General and administrative  20   19 
   2,337   1,890 
NET LOSS $(2,336) $(1,887)
         
NET LOSS PER SHARE(*) AVAILABLE TO COMMON STOCKHOLDERS-Basic and diluted
 $(0.47) $(0.38)
 
 
 
Three Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2017
 
 
2016
 
REVENUES   
 
 
 
 
 
 
Interest income  
 $1 
 $- 
Interest income-related party  
  - 
  1 
 
  1 
  1 
COSTS, EXPENSES AND OTHER   
    
    
Interest
  336 
  328 
Interest-related party
  - 
  1,973 
Taxes and assessments  
  1 
  2 
Consulting and accounting-related party
  10 
  9 
Legal and professional  
  21 
  5 
General and administrative  
  25 
  20 
 
  393 
  2,337 
Net Loss before income taxes
  (392)
  (2,336)
Income tax expense
  (57)
  - 
NET LOSS
 $(449)
 $(2,336)
 
    
    
NET LOSS PER SHARE(*)
    
    
AVAILABLE TO COMMON
    
    
STOCKHOLDERS-Basic and diluted
 $(0.11)
 $(0.47)
*Considers the effect of cumulativedividends on preferred dividends in arrearsstock for the three months ended March 31, 20162017 and 2015.2016.
 
See accompanying notes to Condensed Consolidated Financial Statements.
Statements (unaudited).
 

4
Part I  Financial Information (Continued)
 
PGI INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
 
 Three Months Ended 
 
Three Months Ended
 
 March 31,  March 31, 
 
March 31,
 
 2016  2015 
 
2017
 
 
2016
 
      
 
 
 
Net cash used in operating activities $(29) $(27)
 $(64)
 $(29)
Cash Flows from investing activities:        
    
Proceeds from notes receivable-related party  29   27 
Payments received on notes receivable-related party
  - 
  29 
Net cash provided by investing activities  29   27 
  - 
  29 
        
    
Net change in cash  -   - 
  (64)
  - 
        
    
Cash at beginning of period  1   1 
  958 
  1 
        
    
Cash at end of period $1  $1 
 $894 
 $1 
 
See accompanying notes to Condensed Consolidated Financial Statements.
Statements (unaudited).
 
5

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

(1)(1) Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of PGI Incorporated (“PGI”) and its subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10 - Q and therefore do not include all disclosures necessary for fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The Company's independent registered public accounting firm included an explanatory paragraph regarding the Company's ability to continue as a going concern in their opinion on the Company's consolidated financial statements for the year ended December 31, 2015.2016.

The Company was founded in 1958, and up until the mid 1990’s was in the business of building and selling homes, developing and selling home sites and selling undeveloped or partially developed tracts of land. Over approximately the last 25 years, the Company’s business focus and emphasis changed substantially as it has concentrated its sales and marketing efforts almost exclusively on the disposition of its remaining real estate.
The Company’s major efforts and activities have been, and continue to be, to sell assets of the Company, to repay its indebtedness, and to pay the ordinary on-going costs of operation of the Company. While the Company will seek to realize full market value for each remaining asset, the amounts realized may be at substantial variance from its present financial statement carrying value. In management’s judgement, the remaining assets will be insufficient to satisfy much, if any, of the outstanding indebtedness and there will be no recoveries by shareholders. Consequently, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.
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 20152016 filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet of the Company as of December 31, 20152016 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.debentures. (See Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 7, 8, 9, and 910 to the Company's consolidated financial statements for the year ended December 31, 2015,2016, 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 months ended March 31, 20162017 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 20162017 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 months ended March 31, 2016 and 2015 was 5,317,758.

6
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
 
(2) Per Share Data
Basic per share amounts are computed by dividing net income (loss), after deducting current period dividends on the Company's preferred stock, by the weighted average number of common shares outstanding during the period. The weighted average number of common shares outstanding for the three months ended March 31, 2017 and 2016 was 5,317,758.
Diluted per share amounts are computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, after adjusting for the estimated effect of the assumed conversion of all cumulative convertible preferred stock and collateralizedoutstanding convertible debentures, if dilutive, into shares of common stock. For the three months ended March 31, 20162017 and 2015,2016, the assumed conversion of all cumulativeoutstanding 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 months ended March 31, 20162017 and 2015.

  Three Months Ended 
  March 31,  March 31, 
  2016  2015 
       
Net Loss $(2,336,000) $(1,887,000)
         
Preferred dividends  (160,000)  (160,000)
         
Loss Available to $(2,496,000) $(2,047,000)
Common shareholders        
         
Weighted Average Number        
Of Common Shares        
Outstanding  5,317,758   5,317,758 
         
Basic and Diluted Loss        
Per Share $(0.47) $(0.38)
2016.
 
 
 
Three Months Ended
 
 
 
March 31,
 
 
March 31,
 
 
 
2017
 
 
2016
 
 
 
($ in thousands, except
 
 
 
share and per share data)
 
 
 
 
 
 
 
 
Net Loss
 $(449)
 $(2,336)
 
    
    
Preferred dividends
  (160)
  (160)
 
    
    
Loss Available to
 $(609)
 $(2,496)
 Common shareholders
    
    
 
    
    
Weighted Average Number
    
    
 Of Common Shares
    
    
 Outstanding
  5,317,758 
  5,317,758 
 
    
    
Basic and Diluted Loss
    
    
 Per Common Share
 $(0.11)
 $(0.47)
(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 three month periods ended March 31, 20162017 and March 31, 2015.2016.

 (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

Land Inventory
Net receivables consisted of:
 
Land inventory consisted of
  March 31,  December 31, 
  2016  2015 
  ($ in thousands) 
Notes receivable - related party $149  $178 
 
 
March 31,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
($ in thousands)
 
Fully improved land
 $14 
 $14 
 

(6)
(6)  Land and Improvements
Other Assets

Land and improvement inventories consisted of:
 
  March 31,  December 31, 
  2016  2015 
  ($ in thousands) 
Unimproved land $625  $625 
Fully improved land  14   14 
  $639  $639 
(7)Other Assets

Other assets consisted of:
 
  March 31,  December 31, 
  2016  2015 
  ($ in thousands) 
Deposit with Trustee of 6-1/2% debentures $41  $41 
Prepaid expenses  1   2 
Other  4   1 
  $46  $44 
 
 
March 31,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
($ in thousands)
 
Deposit with Trustee of 6-1/2% debentures
 $41 
 $41 
Deferred charges
  1 
  1 
 
 $42 
 $42 
 
(7)
8
Accounts Payable and Accrued Expenses
 
Accounts payable and accrued expenses consisted of:
 
 
March 31,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
($ in thousands)
 
Accounts payable
 $30 
 $26 
Accrued audit & professional
  37 
  46 
Accrued consulting fees-related party
  1 
  1 
Environmental remediation obligations
  17 
  19 
Accrued debenture fees
  139 
  137 
Accrued miscellaneous
  1 
  1 
 
 $225 
 $230 
 
    
    
Accrued real estate taxes consisted of:
    
    
Current real estate taxes
 $1 
 $4 

PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
 
(8)
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of:
  March 31,  December 31, 
  2016  2015 
  ($ in thousands) 
Accounts payable $18  $7 
Accrued audit & professional  36   40 
Accrued legal  5   - 
Accrued consulting fees-related party  1   1 
Environmental remediation obligations  25   25 
Accrued debenture fees  130   128 
Accrued miscellaneous  1   1 
  $216  $202 
         
Accrued real estate taxes consisted of:        
Current real estate taxes $2  $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:
 
  March 31,  December 31, 
  2016  2015 
  ($ 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   447 
At 6% interest; due May 1, 1992  8,025   8,025 
   8,472   8,472 
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  $11,670 
 
 
March 31,
 
 
December 31,
 
 
 
2017
 
 
2016
 
 
 
($ in thousands)
 
Notes payable - $1,176,000 bearing  
 
 
 
 
 
 
interest at prime plus 2%,
 
 
 
 
 
 
the remainder non-interest bearing,
 
 
 
 
 
 
all past due
  1,198 
  1,198 
 
    
    
Subordinated convertible debentures payable:  
    
    
At 6-1/2% interest; due June 1, 1991
  447 
  447 
At 6% interest; due May 1, 1992
  8,025 
  8,025 
 
  8,472 
  8,472 
 
 $9,670 
 $9,670 
 
The Trustee of the 6.5% unsecured subordinated convertible debentures, which matured in June, 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distributions, the Trustee has maintained a debenture reserve fund with a balance of $41,000 as of March 31, 20162017 and December 31, 2015, respectively,2016, available for final distribution to holders of such debentures who surrender their respective debenture certificates.

During the three month period ended March 31, 2017 and during the year ended December 31, 2016, there were no unsecured subordinated convertible debentures that were surrendered by their respective debenture holders and no funds were utilized from the debenture reserve account.  During the year ended December 31, 2015, such subordinated convertible debentures with face amounts of $80,000 have been surrendered by their respective debenture holders.  Funds utilized from the debenture reserve account were $7,000 during the year ended December 31, 2015 in payment of a final distribution to such debenture holders.   Accordingly, the Company has recognized $73,000 in forgiveness of debt during the year ended December 31, 2015.  In addition, accrued interest in the amount of $136,000 on such debentures that have been surrendered was recorded as forgiveness of interest expense during the year ended December 31, 2015.
10
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
 
As of March 31, 20162017 and December 31, 20152016 the outstanding principal balance on such 6.5% unsecured subordinated convertible debentures that were not surrendered by the respective holders equals $447,000 plus accrued and unpaid interest of $795,000$824,000 and $788,000,$817,000, respectively. If and when such remaining debentures are surrendered to the Trustee, the applicable portion of such principal and accrued interest will similarly be recorded as debt and accrued interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% unsecured subordinated convertible debentures would be barred under the applicable statutes of limitations.

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

Income tax of $57,000 was accrued at March 31, 2017 for the estimated 2016 Alternative Minimum Tax on the 2016 gain on sales of real estate. At December 31, 2015,2016, the Company had an operating loss carryforward of approximately $69,321,000$66,420,000 available to reduce future taxable income. These operating losses expire at various dates through 2035.

The following summarizes the temporary differences of the Company at March 31, 20162017 and December 31, 20152016 at the statutory rate:
 
 March 31,  December 31, 
 
March 31,
 
 
December 31,
 
 2016  2015 
 
2017
 
 
2016
 
 ($ in thousands) 
 
($ in thousands)
 
Deferred tax asset      
 
 
 
Net operating loss carryforward $27,230  $26,342 
 $25,411 
 $25,240 
Adjustments to reduce land to net realizable value  12   12 
Expenses capitalized under IRC 263(a)  56   56 
  56 
Environmental liability  9   9 
  7 
Valuation allowance  (27,135)  (26,247)
  (25,474)
  (25,303)
  172   172 
        
Deferred tax liability:        
Basis difference of land and improvement inventories  172   172 
Net deferred tax asset $-  $- 
Total deferred tax asset
  - 
 
(11)(10) Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at March 31, 20162017 and December 31, 20152016 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 asset, which it owns through its wholly-owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”), are two undeveloped parcelsremaining land inventory consists of real property consisting  of approximately 369 acres located in Hernando County, Florida (the “Property”) which is encumbered by secured creditor claims.  The State of Florida Department of Transportation (the “Florida DOT”) has expressed an interest in acquiring the Property in connection with the northward extension of the Suncoast Parkway as part of the Suncoast Parkway, Project 2.  The Company has accepted two proposed purchase and sale contracts with the Florida DOT for the sale of the Property for a potential total sale price of approximately $9 million.  In accordance with Florida law, these purchase and sale contracts are not currently and will not be enforceable against either Sugarmill Woods or the Florida DOT unless and until the Florida DOT final agency acceptance is executed.

Besides the Property, Sugarmill Woods also owns 6 single family lots, an approximate 7 acre parcel and some other minor parcels of real estate consisting of easements in Citrus County Florida.Florida, which are owned through its wholly-owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”). In addition, Punta Gorda Isles Sales, Inc. (“PGIS”), a wholly-owned subsidiary of the Company, owns twelve12 parcels of real estate in Charlotte County, Florida, which total approximatelyapproximates 60 acres, but these parcels have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.

The PropertyOn June 17, 2016 two contracts were executed for the sale of two undeveloped parcels of real property consisting of 369 acres located in Hernando County, isFlorida (the “Property”) between Sugarmill Woods and the State of Florida Department of Transportation (the “Florida DOT”). The Property was encumbered by mortgages granted bysecured creditor claims, and the Companysale of the Property closed on June 21, 2016 for $9,000,000. The Florida DOT desired to acquire the Property in connection with the northward extension of the Suncoast Parkway as part of the Suncoast Parkway, Project 2.
The proceeds from the sale of the Property of $9,000,000 were received on June 23, 2016 and payment of the primary lender debt of $960,000obligation totaling $500,000 in principal, and all accrued interest at March 31,payable related to the debt totaling $470,000, was made to PGIP LLC “(PGIP”), the holder of the first mortgage note and an affiliate of the Company. In addition, on June 23, 2016, and the remaining principal of the collateralized convertible debentures alltotaling $1,500,000 and a portion of which arethe accrued interest related to such debentures totaling $5,455,000 was paid to the current holders of such debentures. Love Investment Company (“LIC”), and Love-1989 Florida Partners, LP (“Love-1989”), each affiliates of Love-PGI Partners, L.P. (“L-PGI”), held such collateralized convertible debentures. Prior to December 31, 2016, L-PGI was the Company’s primary preferred stock shareholder. Effective December 31, 2016, L-PGI liquidated and assigned the 2,260,760 shares of common stock of the Company and 1,875,000 shares of preferred stock of the Company that were held by related partiesL-PGI to the CompanyLIC in the amount of $1,500,000 at March 31, 2016.  The primary lender debt and convertible debentures are past due and in default (See Note 9 to the Condensed Consolidated Financial Statements.)conjunction with settling its remaining indebtedness.

PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
The Trustee of the 6.5% subordinated debentures, which matured in June, 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee has maintained a debenture reserve fund with a balance of $41,000 as of March 31, 20162017 and December 31, 2015,2016, respectively, which is available for final distribution to holders of such debentures who surrender their respective debenture certificates.

During the three month period ended March 31, 2017 and the year ended December 31, 2016, there were no 6.5% subordinated convertible debentures that were surrendered by their respective debenture holders and no funds were utilized from the debenture reserve account.  During the year ended December 31, 2015 such subordinated convertible debentures with a face amount of $80,000 were surrendered by their respective debenture holders.

12
 
PGI INCORPORATED AND SUBSIDIARIES

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

As of March 31, 20162017 and December 31, 20152016 the remaining outstanding principal balance on such 6.5% subordinated convertible debentures that werehave not been surrendered by the respective holders equals $447,000 plus accrued and unpaid interest of $795,000$824,000 and $788,000,$817,000, respectively. If and when such remaining debentures are surrendered to the Trustee, the applicable portion of such principal and accrued interest will similarly be recorded as debt and interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% subordinated convertible debentures would be barred under the applicable statutes of limitations.

As of March 31, 2017, the Company remained in default under its subordinated convertible debentures and notes payable, as well as the accrued interest with respect to its collateralized convertible debentures.
Results of Operations

Revenues for each of the three monthsmonth period ended March 31, 2017 and 2016 was $1,000. Interest income for the three month period ended March 31, 2017 represents interest earned on the Company’s money market account. Interest income for the three month period ended March 31, 2016 decreased by $2,000 to $1,000 from $3,000 for the comparable 2015 period as a result of decreasedrepresents related party interest income due to a lower balance during such three month period on the short-term note receivable with LIC. The Company received payment of the note receivable balance with Love Investment Company (“LIC”), an affiliate of L-PGI, the Company’s primary preferred stock shareholder.  from LIC on June 23, 2016.
Expenses for the three months ended March 31, 2016 increased2017 decreased by $447,000$1,944,000 when compared to the same period in 2015,2016 primarily due to no forgivenessas a result of debt and interesta decrease in the three months ended March 31, 2016 as compared to $185,000 of forgiveness of debt and interest in the three months ended March 31, 2015.  The forgiveness of debt and interest for the three months ended March 31, 2015 is attributed to the 6.5% subordinated convertible debentures which matured in June, 1991, in the face amount of $71,000 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 $121,000 on such surrendered debentures was recorded as forgiveness of interest expense during the three months ended March 31, 2015, and the principal amount of debt in the amount of $64,000 in connection with such debentures was recorded as forgiveness of debt during such period.  In addition,2017. Interest expense for the three monthsmonth period ended March 31, 2017 decreased by $1,965,000 compared to the same period in 2016. There was no interest expense-related party during the three month period ended March 31, 2017 compared to interest expense-related party of $1,973,000 during the same period in 2016. During June 2016, thereproceeds from the Property sale were used by the Company to repay the entire principal of the primary lender debt of $500,000, which was an increase inheld by PGIP, and the entire principal of the collateralized convertible debenture of $1,500,000, which was held by LIC and Love-1989. With the full repayment of such principal, no additional interest expense was accrued with respect to such debentures subsequent to June 23, 2016.
Interest expense relating to the Company’s current outstanding debt, held by non-related parties, increased by $8,000 during the three month period ended March 31, 2017 compared to the same period in 2016, primarily as a result of $261,000 due to interest accruing on past due balances underwhich increase at various intervals throughout the various credit agreements, notes payableyear for accrued but unpaid interest.

PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and debentures which increased overAnalysis of Financial Condition and Results of Operations (continued)
Taxes and assessments expense decreased by $1,000 during the three month period ended March 31, 2017 when compared to the same period in 2015 for2016 as a result of lower real estate tax expense during the three month period ended March 31, 2017 due to the sale of Property sold to the Florida DOT on June 21, 2016. Consulting and accounting-related party expenses increased by $1,000 during the three month period ended March 31, 2017 when compared to the same period in 2016. A quarterly consulting fee is paid to Love Real Estate Company (“LREC”), an affiliate of L-PGI, of one-tenth of one percent of the carrying value of the Company’s assets which increased effective June 21, 2016 with the sale of Property to the Florida DOT, which resulted in the increase in such consulting and accounting expenses during the three month period ended March 31, 2017.
Legal and professional expenses during the three month period ended March 31, 2017 increased by approximately $16,000 when compared to the same period in 2016, primarily as a result of expenses incurred on a parcel in Citrus County requiring additional environmental remediation during the three month period ended March 31, 2017. General and administrative expenses during the three month period ended March 31, 2017 increased by $5,000 when compared to the same period in 2016 primarily as a result of increased audit and tax service fees during the three month period ended March 31, 2017. The Company accrued but unpaid interest.an income tax expense of $57,000 during the three month period ended March 31, 2017. As a result, a net loss of $2,336,000$449,000 was incurred for the three monthsmonth period ended March 31, 20162017 compared to a net loss of $1,887,000$2,336,000 for the comparable period in 2015.2016. After consideration of cumulativededucting preferred dividends, in arrears, totaling $160,000 for eachthe three month periodperiods ended March 31, 2017 and 2016 and 2015,, with respect to the Class A Preferred Stock, a net loss per share of $(0.47)$(.11) and $(0.38)$(.47) was incurred for the three month periods ended March 31, 20162017 and March 31, 2015, respectively.2016. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through March 31, 20162017 is $13,395,000.$14,035,000.

As ofCash Flow Analysis
During the three month period ended March 31, 2017, the Company’s net cash used in operating activities was $64,000 compared to $29,000 for the comparable period in 2016. There was no cash provided from investing activities during the three month period ended March 31, 2017 compared to $29,000 of net cash provided from investing activities in the comparable period in 2016 which consisted of note receivable proceeds received from LIC.
Analysis of Financial Condition
Total assets decreased by $64,000 at March 31, 2017 compared to total assets at December 31, 2016, reflecting the Company remained in default of its primary lender indebtedness of $500,000 with PGIP, LLC (“PGIP”), an entity relatedfollowing changes:
 
 
March 31,
 
 
December 31,
 
 
Increase
 
 
 
2017
 
 
2016
 
 
(Decrease)
 
 
 
 
 
 
($ in thousands)
 
 
 
 
Cash
 $894 
 $958 
 $(64)
Land and improvement inventories
  14 
  14 
  - 
Other assets
  42 
  42 
  - 
 
 $950 
 $1,014 
 $(64)
During the three month period ended March 31, 2017, cash decreased by $64,000 compared to L-PGI,December 31, 2016 as well as under its subordinated and convertible debentures and notes payable.  PGIP holds restricted fundsa result 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 March 31, 2016 and December 31, 2015.  The Company did not utilize any of the restricted escrow funds during the three months ended March 31, 2016 or 2015.  The primary parcel of real estate owned by the Company, totaling 369 acres located in Hernando County, Florida, remains subject to the primary lender indebtedness.
funding its operating activities.
 

13
PGI INCORPORATED AND SUBSIDIARIES

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

Cash Flow Analysis

During the three month period ended March 31, 2016, the Company’s net cash used in operating activities was $29,000 compared to $27,000 for the comparable period in 2015.  Net cash provided from investing activities during the three months ended March 31, 2016 and 2015 consisted of $29,000 and $27,000, 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 $27,000Liabilities were approximately $90,093,000 at March 31, 20162017 compared to total assetsapproximately $89,708,000 at December 31, 2015,2016, reflecting the following changes:changes which resulted in a decrease of $385,000 of liabilities:
 
  March 31,  December 31,  Increase 
  2016  2015  (Decrease) 
  ($ in thousands) 
Cash $1  $1  $- 
Restricted cash  5   5   - 
Receivables-related party  149   178   (29)
Land and improvement inventories  639   639   - 
Other assets  46   44   2 
  $840  $867  $(27)
 
 
March 31,
 
 
December 31,
 
 
Increase
 
 
 
2017
 
 
2016
 
 
(Decrease)
 
 
 
 
 
 
($ in thousands)
 
 
 
 
Accounts payable and accrued expenses
 $225 
 $230 
 $(5)
Accrued real estate taxes
  1 
  4 
  (3)
Accrued income taxes
  57 
  - 
  57 
Accrued interest
  80,140 
  79,804 
  336 
Credit agreements:
    
    
  - 
 Notes payable
  1,198 
  1,198 
  - 
 Subordinated convertible
    
    
    
   debentures payable
  8,472 
  8,472 
  - 
 
    
    
    
 
 $90,093 
 $89,708 
 $385 
 
During the three month period ended March 31, 2016, the amount of receivables-related party decreased by $29,000 due to the Company’s receipt of principal and accrued interest payments from LIC, a related party, under the note receivable from LIC.  The amount of other assets increased by $2,000 primarily due to deferred expenses relating to the expressed interest by the State of Florida in acquiring the Company’s unimproved land in Hernando County, Florida in connection with the Suncoast Parkway Project 2.

14
PGI INCORPORATED AND SUBSIDIARIES

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

Liabilities were approximately $94.8 million at March 31, 2016 compared to approximately $92.5 million at December 31, 2015, reflecting the following changes:
  March 31,  December 31,  Increase 
  2016  2015  (Decrease) 
  ($ in thousands) 
Accounts payable and accrued expenses $216  $202  $14 
Accrued real estate taxes  2   8   (6)
Accrued interest  82,874   80,573   2,301 
Credit agreements:          - 
Primary lender-related party  500   500   - 
Notes payable  1,198   1,198   - 
             
Subordinated convertible debentures payable
  8,472   8,472   - 
             
Convertible debentures payable-related party
  1,500   1,500   - 
             
  $94,762  $92,453  $2,309 
During the three month period ended March 31, 2016,2017, the amount of accounts payable and accrued expenses increaseddecreased by $14,000$5,000 primarily as a result of timing differences and the accrual of $2,000 in annual administration fees relating to the 6% subordinated convertible debentures, which matured May 1992.differences. Accrued real estate taxes decreased by $6,000$3,000 during the three month period ended March 31, 20162017 due to the payment of previously accrued real estate taxes. Accrued income taxes during the three month period ended March 31, 2017 increased by $57,000. Income tax of $57,000 was accrued at March 31, 2017 for the estimated Alternative Minimum Tax on the gain on sale of the Property during 2016. Accrued interest during the three month period ended March 31, 20162017 increased by $2,301,000$336,000 due to the amount of interest expense for such period. During the three month periodsperiod ended March 31, 2016 and March 31, 2015,2017, the Company made no interest or principal payments on its various credit agreements,outstanding 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.  There were no debentures surrendered in the three month period ended March 31, 2016.  During the year ended December 31, 2015, such 6.5% subordinated convertible debentures with a face amount of $80,000 have been surrendered to the Trustee 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.
debentures.
 

15
PGI INCORPORATED AND SUBSIDIARIES

Item 2. Management’sManagement'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 itsthe subordinated convertible debentures) of its subordinated and convertible debentures and notes payable as well as its primary lender indebtednessthe remaining accrued interest owed with PGIP.  respect to the collateralized convertible debentures.
The principal and accrued interest amounts due as of March 31, 2017 are as indicated in the following table:

 
 
March 31, 2017
 
 
 
Principal
 
 
Accrued
 
 
 
Amount Due
 
 
Interest
 
 
 
($ in thousands)
 
 
 
 
 
 
 
 
Subordinated convertible debentures:
 
 
 
 
 
 
At 6 1/2 %, due June 1, 1991
 $447 
 $824 
At 6%, due May 1, 1992
  8,025 
  23,238 
 
 $8,472 
 $24,062 
Collateralized convertible debentures-related party:
    
    
At 14%, due July 8, 1997
 $- 
 $52,915 
 
    
    
Notes payable:
    
    
At prime plus 2%, all past due
 $1,176 
 $3,163 
Non-interest bearing
  22 
  - 
 
 $1,198 
 $3,163 
  March 31, 2016 
  Principal  Accrued 
  Amount Due  Interest 
  ($ in thousands) 
       
Subordinated convertible debentures:      
At 6 1/2 %, due June 1, 1991 $447  $795 
At 6%, due May 1, 1992  8,025   22,001 
  $8,472  $22,796 
Collateralized convertible debentures:        
At 14%, due July 8, 1997 $1,500  $56,520 
         
Notes payable:        
At prime plus 2% $1,176  $3,098 
Non-interest bearing  22   - 
  $1,198  $3,098 
         
Primary lender-related party: $500  $460 

The Company does not have sufficient funds available (after payment of, or the reserving for the payment of, anticipated future operating expenses) to satisfy eitherthe principal or interest obligations on the above indebtedness, debentures and notes payable or any arrearage in preferred dividends.

The Company remains totally dependent upon the sale of parcels of its various remaining properties with respect to its ability to make any future debt service payments.
The Company’s independent registered public accounting firm included an explanatory paragraph regarding the Company’s ability to continue as a going concern in their opinion on the Company’s consolidated financial statements for the year ended December 31, 2015.
2016.
 

16
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 March 31, 2016.2017. There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 20162017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 

17
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.
 
18

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)
 
PGI INCORPORATED
(Registrant)
    
Date: May 12, 2016
15, 2017
By:
/s/ Laurence A. Schiffer
 
  Laurence A. Schiffer 
  President 
  (Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer) 

 
19
 

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
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.
 
 
95.95
Inapplicable.
 
 
99.99
Inapplicable.
 
 
100.100
Inapplicable.
 
 
101.101
Instance Document, Schema Document, Calculation Linkbase Document, Labels Linkbase Document, Presentation Linkbase Document and Definition Linkbase Document.*
 
* Furnished with this report.
 
20
19