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,June 30, 2016
 
☐    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 XNo 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). Yesþ XNo 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__________       Accelerated filer__________      
Large accelerated fileroAccelerated filero
Non-accelerated fileroSmaller reporting companyþ
(DoNon-accelerated filer____________     Smaller reporting company X
           (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 þX

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,August 15, 2016, 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,June 30, 2016

Table of Contents
  
Form 10 - Q
Page No.
PART IFINANCIAL INFORMATION 
Item 1.
Financial Statements
Condensed Consolidated Statements of Financial Position March 31,
June 30, 2016 (Unaudited) and December 31, 2015
3

 
Condensed Consolidated Statements of Operations (Unaudited)
Three and Six Months Ended March 31,June 30, 2016 and 2015
4

 
Condensed Consolidated Statements of Cash Flows (Unaudited) Three
    Six Months Ended March 31,June 30, 2016 and 2015
5
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
6
Item 2.
Management's Discussion and Analysis of
        Financial Condition and Results of Operations
1213
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
1720
Item 4.
Controls and Procedures
17
20
PART IIOTHER INFORMATION 
Item 1.Legal Proceedings21
Item 1A.
    Risk Factors
21
Item 1.Legal Proceedings18
Item 1A.
Risk Factors
18
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
1821
Item 3.
Defaults Upon Senior Securities
21
Item 4.Mine Safety Disclosures21
Item 5.Other Information21
Item 6.Exhibits21
SIGNATURE 18
Item 4.
Mine Safety Disclosures
18
Item 5.
Other Information
18
Item 6.
Exhibits
1822
   
SIGNATURE
EXHIBIT INDEX		 19
EXHIBIT INDEX
2023
 
2

 
PART I  FINANCIAL INFORMATION
Item 1. Financial Statements
PGI INCORPORATED AND SUBSIDIARIES
 
PGI INCORPORATED AND SUBSIDIARIES
 
 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
 
 
($ in thousands, except share and per share data)
 
 
 
 
 
 
 
 
 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
Cash
  $1,071 
  $1 
Restricted cash
    - 
    5 
Receivables-related party
    - 
    178 
Land and improvement inventories
    14 
    639 
Other assets
    43 
    44 
 
  $1,128 
  $867 
LIABILITIES
       
       
Accounts payable and accrued expenses
  $209 
  $202 
Accrued real estate taxes
    2 
    8 
Accrued interest:
       
       
Primary lender-related party
    - 
    450 
Subordinated convertible debentures payable
    23,110 
    22,484 
Convertible debentures payable-related party
    52,915 
    54,558 
Notes payable
    3,114 
    3,081 
Credit agreements:
       
       
Primary lender-related party
    - 
    500 
Notes payable
    1,198 
    1,198 
Subordinated convertible debentures payable
    8,472 
    8,472 
Convertible debentures payable-related party
    - 
    1,500 
 
    89,020 
    92,453 
STOCKHOLDERS' DEFICIENCY
       
       
Preferred stock, par value $1.00 per share;
       
       
authorized 5,000,000 shares; 2,000,000
       
       
Class A cumulative convertible shares issued
       
       
and outstanding; (liquidation preference of
       
       
$8,000 plus unpaid cumulative dividends of $13,555)
    2,000 
    2,000 
Common stock, par value $.10 per share;
       
       
authorized 25,000,000 shares; 5,317,758
       
       
shares issued and outstanding
    532 
    532 
Paid-in capital
    13,498 
    13,498 
Accumulated deficit
    (103,922)
    (107,616)
 
    (87,892)
    (91,586)
 
  $1,128 
  $867 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
($ in thousands, except share and per share data)
  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)
 
PGI INCORPORATED AND SUBSIDIARIES
 
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
($ in thousands, except per share data)
 
 
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
REVENUES
 
 
 
 
 
 
 
 
 
 
 
 
Real estate sales
  $9,000 
  $- 
  $9,000 
  $- 
Interest income-related party
    1 
    2 
    2 
    5 
 
    9,001 
    2 
    9,002 
    5 
COSTS, EXPENSES AND OTHER
       
       
       
       
Cost of real estate sales
       
       
      ��
       
and expenses of sale
    745 
    - 
    745 
    - 
Interest
    330 
    323 
    658 
    643 
Forgiveness of debt and
       
       
       
       
interest
    - 
    (24)
    - 
    (209)
Interest-related party
    1,859 
    1,780 
    3,832 
    3,500 
Taxes and assessments
    2 
    2 
    4 
    5 
Consulting and accounting-
       
       
       
       
related party
    9 
    10 
    18 
    19 
Legal and professional
    6 
    2 
    11 
    6 
General and administrative
    20 
    22 
    40 
    41 
 
    2,971 
    2,115 
    5,308 
    4,005 
NET INCOME (LOSS)
  $6,030 
  $(2,113)
  $3,694 
  $(4,000)
 
       
       
       
       
NET INCOME (LOSS) PER SHARE(*)
       
       
       
       
AVAILABLE TO COMMON
       
       
       
       
STOCKHOLDERS-BASIC
  $1.10 
  $(0.43)
  $0.63 
  $(0.81)
DILUTED INCOME (LOSS) PER SHARE (*)
       
       
       
       
AVAILABLE TO COMMON
       
       
       
       
STOCKHOLDERS
  $0.60 
  $(0.43)
  $0.39 
  $(0.81)
 
       
       
       
       
 
  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)
*Considers the effect of cumulative preferred dividends in arrears for the three and six months ended March 31,June 30, 2016 and 2015.
 
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)
 
PGI INCORPORATED AND SUBSIDIARIES
 
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
($ in thousands)
 
 
(Unaudited)
 
 
 
Six Months Ended
 
 
 
June 30,
 
 
June 30,
 
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
  $2,887 
  $(77)
Cash Flows from investing activities:
       
       
Payments received on notes receivable-related party
    178 
    77 
Release of restricted cash
    5 
    - 
Net cash provided by investing activities
    183 
    77 
 
       
       
Cash Flows from financing activities:
       
       
Principal payments on debt-related party
    (2,000)
    - 
Net cash used in financing activities
    (2,000)
    - 
 
       
       
Net change in cash
    1,070 
    - 
 
       
       
Cash at beginning of period
    1 
    1 
 
       
       
Cash at end of period
  $1,071 
  $1 
 
  Three Months Ended 
  March 31,  March 31, 
  2016  2015 
       
Net cash used in operating activities $(29) $(27)
Cash Flows from investing activities:        
Proceeds from notes receivable-related party  29   27 
Net cash provided by investing activities  29   27 
         
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.
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 and its subsidiaries (the “Company”) have been prepared in accordance with the instructions to Form 10 - Q and therefore do not include all disclosures necessary for fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. The Company's independent registered public accounting firm included an explanatory paragraph regarding the Company's ability to continue as a going concern in their opinion on the Company's consolidated financial statements for the year ended December 31, 2015.

Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K annual report for 2015 filed with the Securities and Exchange Commission.

The condensed consolidated balance sheet of the Company as of December 31, 2015 has been derived from the audited consolidated balance sheet as of that date.

Sugarmill Woods, Inc. (“Sugarmill Woods”), a wholly-owned subsidiary of PGI Incorporated (‘PGI”), entered into two contracts with the State of Florida Department of Transportation (the “Florida DOT”) for the sale of Sugarmill Woods’ principal real property asset consisting of approximately 369 acres located in Hernando County, Florida (the “Property”) for $9 million. The signatures from the Florida DOT required to make the two contacts effective were obtained on June 17, 2016, and the sale was closed on June 21, 2016.
The proceeds from the sale of the Property of $9 million were received on June 23, 2016 and payment of the primary debt obligation, including all accrued interest payable to related party totaling $970,000, was made to PGIP LLC (“PGIP”), the holder of the first mortgage note and an affiliate of the Company. In addition, on June 23, 2016, the remaining principal of the convertible debentures payable to related parties totaling $1,500,000 was paid and a portion of the related accrued interest totaling $5,455,000 was paid to the current holders of such debentures. Love Investment Company (“LIC”), an affiliate of L-PGI, the Company’s primary preferred stock shareholder and Love-1989 Florida Partners (“Love-1989”), also an affiliate of L-PGI held the convertible debentures.
The Company remains in default under the indentures governing its unsecured subordinated debentures 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, and 9 to the Company's consolidated financial statements for the year ended December 31, 2015, as contained in the Company's Annual Report on Form 10 - K).

All adjustments (consisting of only normal recurring accruals) necessary for fair presentation of financial position, results of operations and cash flows have been made. The results for the three and six months ended March 31,June 30, 2016 are not necessarily indicative of operations to be expected for the fiscal year ending December 31, 2016 or any other interim period.

(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 and six months ended June 30, 2016 and 2015 was 5,317,758.
Diluted per share amounts are computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding, after adjusting for the estimated effect of the assumed conversion of all cumulative convertible preferred stock and collateralized convertible debentures, if dilutive, into shares of common stock. For the three and six months ended March 31, 2016 andJune 30, 2015, 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 lossincome (loss) per share for the three and six months ended March 31,June 30, 2016 and 2015.

 Three Months Ended 
 
Three Months Ended
 
 
Six Months Ended
 
 March 31,  March 31, 
 
June 30,
 
 2016  2015 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
      
 
 
 
Net Loss $(2,336,000) $(1,887,000)
Net income (loss)
  $6,030,000 
  $(2,113,000)
  $3,694,000 
  $(4,000,000)
        
       
Preferred dividends  (160,000)  (160,000)
    (160,000)
    (320,000)
        
       
Loss Available to $(2,496,000) $(2,047,000)
Income (Loss) Available to
  $5,870,000 
  $(2,273,000)
  $3,374,000 
  $(4,320,000)
Common shareholders        
       
        
       
Weighted Average Number        
       
Of Common Shares        
       
Outstanding  5,317,758   5,317,758 
Outstanding (Basic)
    5,317,758 
Weighted Average Number
       
of Common Shares
       
Outstanding (Diluted)
    10,386,223 
        
       
Basic and Diluted Loss        
Basic Income (Loss)
       
Per Share $(0.47) $(0.38)
  $1.10 
  $(0.43)
  $0.63 
  $(0.81)
Diluted Income (Loss)
       
Per Share
  $0.60 
  $(0.43)
  $0.39 
  $(0.81)
 
(3)          Statement of Cash Flows

The Financial Accounting Standards Board Accounting Standards Codification Topic No. 230, “Statement of Cash Flows”, requires a statement of cash flows as part of a full set of financial statements. For quarterly reporting purposes, the Company has elected to condense the reporting of its net cash flows. Related party interest paid during the six months ended June 30, 2016 was $5,925,000. There were no payments of interest forduring the threesix month periodsperiod ended March 31, 2016 and March 31,June 30, 2015.

 (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
(4)         Restricted Cash

Restricted cash of $5,000 previously held by PGIP, LLC, the primary lender, as collateral for debt obligation was released on June 28, 2016 following the sale of the undeveloped land in Hernando County and respective payment of the primary lender debt obligation on June 23, 2016.
(5)
Receivables
Net receivables consisted of:
 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
 
($ in thousands)
 
Notes receivable - related party
  $- 
  $178 
 
(6)
Land and Improvements
  March 31,  December 31, 
  2016  2015 
  ($ in thousands) 
Notes receivable - related party $149  $178 
 

(6)  Land and Improvements

Land and improvement inventories consisted of:
 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
 
($ in thousands)
 
Unimproved land
  $- 
  $625 
Fully improved land
    14 
    14 
 
  $14 
  $639 
(7)
Other Assets
 
  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:
 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
 
($ in thousands)
 
Deposit with Trustee of 6-1/2% debentures
  $41 
  $41 
Prepaid expenses
    1 
    2 
Other
    1 
    1 
 
  $43 
  $44 
 
  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 

 
8
PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
 
(8)Accounts Payable and Accrued Expenses
(8)
Accounts Payable and Accrued Expenses
 
Accounts payable and accrued expenses consisted of:
 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
 
($ in thousands)
 
Accounts payable
  $4 
  $7 
Accrued audit & professional
    31 
    40 
Accrued legal
    19 
    - 
Accrued consulting fees-related party
    1 
    1 
Environmental remediation obligations
    21 
    25 
Accrued debenture fees
    132 
    128 
Accrued miscellaneous
    1 
    1 
 
  $209 
  $202 
 
       
       
Accrued real estate taxes consisted of:
       
       
Current real estate taxes
  $2 
  $8 
 
  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:
  
 
June 30,
 
 
December 31,
 
  
 
2016
 
 
2015
 
  
 
($ in thousands)
 
Credit agreements - first mortgage-related party 
 
 
 
 
 
 
bearing interest at prime plus 5%;
 
 
 
 
 
 
due June 1, 1997
  $- 
  $500 
 
       
       
Notes payable - $1,176,000 
       
       
bearing interest at prime plus 2%,
       
       
the remainder non-interest bearing,
       
       
all past due
    1,198 
    1,198 
 
    1,198 
    1,698 
Subordinated convertible debentures payable: 
       
       
At 6-1/2% interest; due June 1, 1991
    447 
    447 
At 6% interest; due May 1, 1992
    8,025 
    8,025 
 
    8,472 
    8,472 
Convertible debentures payable-related party: 
       
       
At 14% interest; due July 8, 1997,
       
       
convertible into shares of common stock
       
       
at $1.72 per share
    - 
    1,500 
 
  $9,670 
  $11,670 
  March 31,  December 31, 
  2016  2015 
  ($ 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 
The proceeds from the sale of the Property of $9 million were received on June 23, 2016 and payment of the primary debt obligation, including all accrued interest totaling $970,000, was made to PGIP, the holder of the first mortgage note and an affiliate of the Company. In addition, on June 23, 2016, the remaining principal of the convertible debentures payable to related parties totaling $1,500,000 was paid and a portion of the related accrued interest was paid totaling $5,455,000 to the current holders of such debentures. LIC, an affiliate of L-PGI, the Company’s primary preferred stock shareholder and Love-1989, also an affiliate of L-PGI held the convertible debentures.
 
The Trustee of the 6.5% unsecured subordinated convertible debentures, which matured in June, 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distributions, the Trustee has maintained a debenture reserve fund with a balance of $41,000 as of March 31,June 30, 2016 and December 31, 2015, respectively, available for final distribution to holders of such debentures who surrender their respective debenture certificates.

PGI INCORPORATED AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
During the threesix month period ended March 31,June 30, 2016, there were no unsecured subordinated convertible debentures that were surrendered by their respective debenture holders and no funds were utilized from the debenture reserve account. During the year ended December 31, 2015, such unsecured subordinated convertible debentures with face amounts of $80,000 have beenwere 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,June 30, 2016 and December 31, 2015 the outstanding principal balance on such 6.5% unsecured subordinated convertible debentures that were not surrendered by the respective holders equals $447,000 plus accrued and unpaid interest of $795,000$802,000 and $788,000, respectively. If and when such remaining debentures are surrendered to the Trustee, the applicable portion of such principal and accrued interest will similarly be recorded as debt and accrued interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% unsecured subordinated convertible debentures would be barred under the applicable statutes of limitations.
(10)
Real Estate Sales
Real estate sales and cost of sales consisted of:
 
 
Three Months Ended
 
 
Six Months Ended
 
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
June 30,
 
 
 
2016
 
 
2015
 
 
2016
 
 
2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Real estate sales
  $9,000,000 
  $- 
  $9,000,000 
  $- 
 
       
       
       
       
Cost of real estate sales
       
       
       
       
     including expenses of sale
  $(745,000)
  $- 
  $(745,000)
  $- 

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

At December 31, 2015, the Company had an operating loss carryforward of approximately $69,321,000$69,127,000 available to reduce future taxable income. These operating losses expire at various dates through 2035.

The following summarizes the temporary differences of the Company at March 31,June 30, 2016 and December 31, 2015 at the statutory rate:

 
 
June 30,
 
 
December 31,
 
 
 
2016
 
 
2015
 
 
 
($ in thousands)
 
Deferred tax asset
 
 
 
 
 
 
Net operating loss carryforward
  $24,938 
  $26,342 
Alternative minimum tax credit carryforward
    74 
    - 
Adjustments to reduce land to net realizable value
    12 
    12 
Expenses capitalized under IRC 263(a)
    56 
    56 
Environmental liability
    9 
    9 
Valuation allowance
    (24,917)
    (26,247)
 
    172 
    172 
 
       
       
Deferred tax liability:
       
       
Basis difference of land and improvement inventories
    172 
    172 
Net deferred tax asset
  $- 
  $- 
 
  March 31,  December 31, 
  2016  2015 
  ($ in thousands) 
Deferred tax asset      
Net operating loss carryforward $27,230  $26,342 
Adjustments to reduce land to net realizable value  12   12 
Expenses capitalized under IRC 263(a)  56   56 
Environmental liability  9   9 
Valuation allowance  (27,135)  (26,247)
   172   172 
         
Deferred tax liability:        
Basis difference of land and improvement inventories  172   172 
Net deferred tax asset $-  $- 
(11)(12)        Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, other than debt, approximates fair value at March 31,June 30, 2016 and December 31, 2015 because of the short maturity of those instruments. It was not practicable to estimate the fair value of the Company’s debt with its primary lender, its notes payable and its convertible debentures because these debts are in default causing no basis for estimating value by reference to quoted market prices or current rates offered to the Company for debt of the same remaining maturities.

 
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 ownsowned through its wholly-owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”), arewere two undeveloped parcels of real property consisting of approximately 369 acres located in Hernando County, Florida (the “Property”) which iswere encumbered by secured creditor claims. The State of Florida Department of Transportation (the “Florida DOT”) has expressed an interest in acquiringdesired to acquire the Property in connection with the northward extension of the Suncoast Parkway as part of the Suncoast Parkway, Project 2.  The Company has accepted
Sugarmill Woods entered into two proposed purchase and sale contracts with the Florida DOT for the sale of the Property to the Florida DOT 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 orThe signatures from the Florida DOT unlessrequired to make the two contacts effective were obtained on June 17, 2016, and until the Florida DOT final agency acceptance is executed.sale was closed on June 21, 2016.

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

The proceeds from the sale of the Property in Hernando County is encumbered by mortgages granted by the Company in connection withwere received on June 23, 2016 and payment of the primary lender debt of $960,000 in principal andobligation, including all accrued interest, at March 31,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 alland a portion of which are held by related partiesthe accrued interest was paid to the current holders of such debentures. Love Investment Company in(“LIC”), an affiliate of L-PGI, the amountCompany’s primary preferred stock shareholder, and Love-1989 Florida Partners, LP (“Love-1989”), also an affiliate of $1,500,000 at March 31, 2016.  The primary lender debt andL-PGI, held the collateralized convertible debentures are past due and in default (See Note 9 to the Condensed Consolidated Financial Statements.)debentures.  

 
 
June 23, 2016
 
 
June 23, 2016
 
 
Remaining
 
 
 
Principal
 
 
Interest
 
 
Accrued
 
 
 
Payment
 
 
Payment
 
 
Interest
 
 
 
($ in thousands)
 
Credit agreements - first mortgage note
  $500 
  $470 
  $- 
payable-related party
       
       
       
 
       
       
       
Collateralized convertible debentures
       
       
       
payable-related party:
    1,500 
    5,455 
    52,915 
 
  $2,000 
  $5,925 
  $52,915 
The Trustee of the 6.5% subordinated debentures, which matured in June, 1991, with an original face amount of $1,034,000, provided notice of final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee has maintained a debenture reserve fund with a balance of $41,000 as of March 31,June 30, 2016 and December 31, 2015, respectively, which is available for final distribution to holders of such debentures who surrender their respective debenture certificates.

PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
During the threesix month period ended March 31,June 30, 2016 there were no 6.5% subordinated convertible debentures that were surrendered by their respective debenture holders and no funds were utilized from the debenture reserve account. During the year ended December 31, 2015 such subordinated convertible debentures with a face amount of $80,000 were surrendered by their respective debenture holders.

12
 
PGI INCORPORATED AND SUBSIDIARIES

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

As of March 31,June 30, 2016 and December 31, 2015 the remaining outstanding principal balance on such 6.5% subordinated convertible debentures that were not surrendered by the respective holders equals $447,000 plus accrued and unpaid interest of $795,000$802,000 and $788,000, respectively. If and when such remaining debentures are surrendered to the Trustee, the applicable portion of such principal and accrued interest will similarly be recorded as debt and interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% subordinated convertible debentures would be barred under the applicable statutes of limitations.

Results of Operations

Revenues for the three months ended March 31,June 30, 2016 decreasedincreased by $2,000$8.999 million to $1,000$9.001 million from $3,000$2,000 for the comparable 2015 period primarily as a result of the sale by Sugarmill Woods of the Property to the Florida DOT on June 21, 2016 for $9 million. Interest income from related party decreased interest incomeby $1,000 in the three months ended June 30, 2016 to $1,000 from $2,000 for the comparable period in 2015 due to a lower balance during such three month period on the short-term note receivable balance with Love Investment Company (“LIC”),LIC, an affiliate of L-PGI, the Company’s primary preferred stock shareholder. Expenses for the three months ended March 31,June 30, 2016 increased by $447,000$856,000 when compared to the same period in 2015. The cost of real estate sales and expenses of sale for the three month period ended June 30, 2016 increased by $745,000 compared to the three month period ended June 30, 2015, solely as a result of costs and expenses incurred in connection with the Property sale on June 21, 2016. There was no such expense for the comparable period in 2015. Interest expense for the three month period ended June 30, 2016 increased by $86,000 compared to the same period in 2015, primarily due to interest accruing on past due balances which increased at various intervals throughout this period for accrued but unpaid interest, and also decreased at various times throughout the period as a result of principal payments of debt (including the repayment of the outstanding collateralized convertible debentures principal as a result of the Property sale proceeds) and the surrender of certain 6.25% subordinate convertible debentures during 2015. There was no forgiveness of debt and interest in the three months ended March 31,June 30, 2016 as compared to $185,000a decrease in expenses of $24,000 attributed to forgiveness of debt and interest in the three months ended March 31,June 30, 2015, which is attributed to the 6.5% subordinated convertible debentures which matured in June, 1991, that were surrendered in exchange for a lesser amount for a final distribution in face value of such debentures. Legal and professional expenses during the three months ended June 30, 2016 increased by approximately $4,000 when compared to the same period in 2015, primarily as a result of additional legal expenses incurred in connection with the filing of the Company’s periodic reports during the three month period ended June 30, 2016. As a result, there was net income of $6,030,000 for the three months ended 2016 compared to a net loss of $2,113,000 incurred for the three months ended June 30, 2015. After deducting preferred dividends, totaling $160,000 for each of the three months ended June 30, 2016 and 2015 , net income (loss) per share of $1.10 and $(.43), respectively, were reported for the three month periods ended June 30, 2016 and 2015. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through June 30, 2016 is $13,555,000.

PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Revenues for the six months ended June 30, 2016 increased by $8.997 million to $9.002 million from $5,000 for the comparable 2015 period primarily as a result of the sale by Sugarmill Woods of the Property to the Florida DOT on June 21, 2016 for $9 million. Interest income from related party decreased by $3,000 in the first six months of 2016 to $2,000 from $5,000 for the comparable period in 2015 due to a lower balance during such six month period on the short-term note receivable balance with LIC, an affiliate of L-PGI, the Company’s primary preferred stock shareholder. Net income of $3.694 million was realized for the first six months of 2016, which includes a gain of $8.255 million from the Property sale to the Florida DOT. This compared to a net loss of $4 million for the first six months of 2015. After deducting preferred dividends , totaling $320,000 for each of the six months ended June 30, 2016 and 2015 , net income (loss) per share of $.63 and $(.81), respectively, were reported for the six month periods ended June 30, 2016 and 2015.
The proceeds from the sale of the Property were received from the Florida DOT on June 23, 2016 and payment of the first mortgage obligation was made to PGIP, the holder of the first mortgage note and an affiliate of the Company. In addition, on June 23, 2016, the collateralized convertible debentures principal was paid and a portion of the accrued interest was paid to the current holders of such debentures.
 LIC, an affiliate of L-PGI, the Company’s primary preferred stock shareholder, and Love-1989, also an affiliate of L-PGI, held the collateralized convertible debentures.
The June 23, 2016 payments of principal and interest were as follows:
 
 
Principal
 
 
Interest
 
 
 
Payment
 
 
Payment
 
 
 
($ in thousands)
 
Primary lender-1st mortgage note
  $500 
  $470 
payable (PGIP-related party)
       
       
 
       
       
Collateralized convertible debentures
       
       
payable (LIC-related party)
    703 
    2,557 
 
       
       
Collateralized convertible debentures
       
       
payable (Love-1989-related party)
    797 
    2,898 
 
  $2,000 
  $5,925 

PGI INCORPORATED AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
Real estate sales and cost of sales consisted of:
 
 
Six Months Ended
 
 
 
June 30,
 
 
June 30,
 
 
 
2016
 
 
2015
 
 
 
($ in thousands)
 
 
 
 
 
 
 
 
Real estate sales
  $9,000 
  $- 
 
       
       
Cost of real estate sales
       
       
including expenses of sale
  $(745)
  $- 
Expenses for the six months ended June 30, 2016 increased by $1.303 million when compared to the same period in 2015 as follows:
  
 
Six Months Ended
 
  
 
June 30,
 
 
June 30,
 
 
Increase
 
  
 
2016
 
 
2015
 
 
(Decrease)
 
  
 
 
 
 
($ in thousands)
 
 
 
 
COSTS, EXPENSES AND OTHER 
 
 
 
 
 
 
 
 
 
Cost of real estate sales
 
 
 
 
 
 
 
 
 
and expenses of sale
  $745 
  $- 
  $745 
Interest
    658 
    643 
    15 
Forgiveness of debt and
       
       
       
interest
    - 
    (209)
    209 
Interest-related party
    3,832 
    3,500 
    332 
Taxes and assessments
    4 
    5 
    (1)
Consulting and accounting-
       
       
       
related party
    18 
    19 
    (1)
Legal and professional
    11 
    6 
    5 
General and administrative
    40 
    41 
    (1)
 
  $5,308 
  $4,005 
  $1,303 
Interest expense for the first six months of 2016 increased by $347,000 compared to the same period in 2015 primarily as a result of interest accruing on past due balances which increased at various intervals throughout the six month period for accrued but unpaid interest and also decreased at various times throughout the period as a result of principal payments of debt (including the repayment of the outstanding collateralized convertible debentures principal as a result of the Property sale proceeds) and the surrender of certain 6.25% subordinated convertible debentures during 2015. Cost of real estate sales and expenses of sale for the six month period ended June 30, 2016 increased by $745,000 compared to the six month period ended June 30, 2015 solely as a result of the costs and expenses incurred in connection with the Property sale. There was no such expense for the comparable period in 2015.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued)
There was no forgiveness of debt and interest in the six months ended June 30, 2016 as compared to $209,000 for the same period in 2015. The forgiveness of debt and interest for the threesix months ended March 31,June 30, 2015 is attributed to the 6.5% subordinated convertible debentures which matured in June, 1991, in the face amount of $71,000$80,000 that have beenwere 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$136,000 on such surrendered debentures was recorded as forgiveness of interest expense during the threesix months ended March 31,June 30, 2015, and the remaining principal amount of debtsuch surrendered debentures in the amount of $64,000 in connection with such debentures$73,000 was recorded as forgiveness of debt during such period.  In addition, for
Legal and professional expenses increased by $5,000 in the threefirst six months ended March 31,of 2016 there was an increase in interest expense of $261,000 duecompared to interest accruing on past due balances under the various credit agreements, notes payable and debentures which increased over the same period in 2015 for accrued but unpaid interest.  Asas a result a net loss of $2,336,000 wasadditional legal expenses incurred forin connection with the three months ended March 31, 2016 compared to a net loss of $1,887,000 for the comparable period in 2015.  After consideration of cumulative preferred dividends in arrears, totaling $160,000 for each three month period ended March 31, 2016 and 2015, with respect to the Class A Preferred Stock, a net loss per share of $(0.47) and $(0.38) was incurred for the three month periods ended March 31, 2016 and March 31, 2015, respectively.  The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through March 31, 2016 is $13,395,000.

As of March 31, 2016, 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 fundsfiling 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 fundsCompany’s periodic reports during the threefirst six 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.
2016.
 
13
PGI INCORPORATED AND SUBSIDIARIES

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

Cash Flow Analysis

DuringCash provided by operating activities for the three month periodsix months ended March 31,June 30, 2016 was $2.887 million, reflecting the Company’s net effect of the $9 million received in the sale of the Property to the Florida DOT and $5.925 million of accrued interest paid on collateralized debt. This compared to cash used in operating activities was $29,000 compared to $27,000of $77,000 for the comparable period2015 period. In addition, during the first six months of 2016, the Company received $178,000 in 2015.payment of the note receivable principal from LIC, an affiliate of the Company and the restricted cash of $5,000 from PGIP, the first mortgage lender, which was released with the sale of Property and satisfaction of the primary lender debt obligation owed to PGIP. Net cash provided from investingused in financing activities duringwas for the three months ended March 31, 2016repayment of $2 million of related party primary lender debt 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.related party collateralized convertible debentures.

Analysis of Financial Condition

Total assets decreasedincreased by $27,000$261,000 at March 31,June 30, 2016 compared to total assets at December 31, 2015, reflecting the following changes:
 
 March 31,  December 31,  Increase 
 
June 30,
 
 
December 31,
 
 
Increase
 
 2016  2015  (Decrease) 
 
2016
 
 
2015
 
 
(Decrease)
 
 ($ in thousands) 
 
 
 
 
($ in thousands)
 
 
 
 
Cash $1  $1  $- 
  $1,071 
  $1 
  $1,070 
Restricted cash  5   5   - 
    - 
    5 
    (5)
Receivables-related party  149   178   (29)
    - 
    178 
    (178)
Land and improvement inventories  639   639   - 
    14 
    639 
    (625)
Other assets  46   44   2 
    43 
    44 
    (1)
 $840  $867  $(27)
  $1,128 
  $867 
  $261 
 
During the three month periodsix months ended March 31,June 30, 2016 cash increased by $1.070 million which is attributed to the amountremaining proceeds of receivables-relatedthe Property sale to the Florida DOT in the second quarter of 2016. The cash will be utilized by the Company to fund its future operating activities.
Receivables-related party decreased by $29,000 due to$178,000 during the Company’s receiptfirst six months of principal and accrued interest payments from LIC, a related party, under2016 as the Company received payment of the note receivable balance from LIC.  The amountLIC, an affiliate 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.Company.

 
14
PGI INCORPORATED AND SUBSIDIARIES

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

Land and improvement inventories decreased by $625,000 during the first six months of 2016 as a result of the sale of the Property, with the cost of the Property sold reflected in the cost of real estate sales.
Liabilities were approximately $94.8$89 million at March 31,June 30, 2016 compared to approximately $92.5 million at December 31, 2015, reflecting the following changes:
 
 March 31,  December 31,  Increase 
 
June 30,
 
 
December 31,
 
 
Increase
 
 2016  2015  (Decrease) 
 
2016
 
 
2015
 
 
(Decrease)
 
 ($ in thousands) 
 
 
 
 
($ in thousands)
 
 
 
 
Accounts payable and accrued expenses $216  $202  $14 
  $209 
  $202 
  $7 
Accrued real estate taxes  2   8   (6)
    2 
    8 
    (6)
Accrued interest  82,874   80,573   2,301 
    79,139 
    80,573 
    (1,434)
Credit agreements:          - 
       
    - 
Primary lender-related party  500   500   - 
    - 
    500 
    (500)
Notes payable  1,198   1,198   - 
    1,198 
    - 
            
Subordinated convertible debentures payable
  8,472   8,472   - 
            
Convertible debentures payable-related party
  1,500   1,500   - 
Subordinated convertible
       
debentures payable
    8,472 
    - 
Convertible debentures payable-
       
related party
    - 
    1,500 
    (1,500)
            
       
 $94,762  $92,453  $2,309 
  $89,020 
  $92,453 
  $(3,433)
 
During the threesix month period ended March 31,June 30, 2016, the amount of accounts payable and accrued expenses increased by $14,000$7,000 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 during the threesix month period ended March 31,June 30, 2016 due to the payment of previously accrued real estate taxes. AccruedThere was a net decrease of accrued interest duringin the threesix month period ended March 31,June 30, 2016 increased by $2,301,000 duewith the aggregate payment of $5.925 million in accrued interest to PGIP, as the holder of the Company’s first mortgage note, and to the current holders of the collateralized convertible debentures being offset by an increase of accrued interest in the amount of $4.490 million of interest expense for such period.  During the three month periods ended March 31, 2016 and March 31, 2015, 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.  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.
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 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:

 March 31, 2016 
 
June 30, 2016
 
 Principal  Accrued 
 
Principal
 
 
Accrued
 
 Amount Due  Interest 
 
Amount Due
 
 
Interest
 
 ($ in thousands) 
 
($ in thousands)
 
      
 
 
 
Subordinated convertible debentures:      
 
 
 
At 6 1/2 %, due June 1, 1991 $447  $795 
  $447 
  $802 
At 6%, due May 1, 1992  8,025   22,001 
    8,025 
    22,308 
 $8,472  $22,796 
  $8,472 
  $23,110 
Collateralized convertible debentures:        
Collateralized convertible debentures-related party:
       
At 14%, due July 8, 1997 $1,500  $56,520 
  $- 
  $52,915 
        
       
Notes payable:        
       
At prime plus 2% $1,176  $3,098 
At prime plus 2%, all past due
  $1,176 
  $3,114 
Non-interest bearing  22   - 
    22 
    - 
 $1,198  $3,098 
  $1,198 
  $3,114 
        
Primary lender-related party: $500  $460 

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, 2015.
 
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,June 30, 2016. There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31,June 30, 2016 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.
 

 
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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, August 15, 2016

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 No.Description
   

PGI INCORPORATED AND SUBSIDIARIES
EXHIBIT INDEX
22.Inapplicable.
  
3.(i)Inapplicable.
  
3.(ii)Inapplicable.
4.Inapplicable.
  
410.Inapplicable.
  
1011.Inapplicable.
11
Statement re: Computation of Per Share Earnings (Set forth in Note 2 of the Notes to Condensed Consolidated Financial Statements (Unaudited) herein).
  
15Inapplicable.
18.Inapplicable.
  
1819.Inapplicable.
  
1922.Inapplicable.
  
2223.Inapplicable.
  
2324.Inapplicable.
  
24Inapplicable.
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.
  
32.1Chief Executive Officer certification pursuant to 18 U.S.C. Section 1350.
  
32.232.2.
Chief Financial Officer certification pursuant to 18 U.S.C. Section 1350.
  
95.Inapplicable.
99.Inapplicable.
  
99.100.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.
 
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