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PGI INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

May 14, 2014

Preliminary Note

The Company's most valuable remaining asset is a parcel of 366 acres located in Hernando County, Florida. As of March 31, 2014, the Company also owned 6 single family lots, located in Citrus County, Florida. In addition, the Company owns some minor parcels of real estate in Charlotte County, and Citrus County, Florida, which totals approximately 60 acres, but these have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.

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

Results of Operations

Revenues for the three months ended March 31, 2014 and March 31,2013 of $4,000, respectively, represented interest income on the short-term note receivable balance with Love Investment Company ("LIC"), an affiliate of L-PGI, the Company's primary preferred stock shareholder. Expenses for the three months ended March 31, 2014 increased by $199,000 when compared to the same period in 2013, resulting from an increase in interest expense due to interest accruing on past due balances under the various credit agreements, notes payable and debentures which increased over the same period in 2013 for accrued but unpaid interest. As a result, a net loss of $1,854,000 was incurred for the three months ended March 31, 2014 compared to a net loss of $1,655,000 for the comparable period in 2013. After consideration of cumulative preferred dividends in arrears, totaling $160,000 for each three month period ended March 31, 2014 and 2013, with respect to the Class A Preferred Stock, a net loss per share of $(.38) and $(.34) was incurred for the three month periods ended March 31, 2014 and 2013, respectively. The total cumulative preferred dividends in arrears with respect to the Class A Preferred Stock through March 31, 2014 is $12,115,000.

On May 1, 2013 the Company executed a cell tower lease on a parcel of property located in Citrus County, Florida. Pursuant to the term of this lease, rent of $1,800 per month will begin to be paid by the lessee to the Company upon the earlier of issuance of a building permit for such tower or 18 months after May 1, 2013. Accordingly, this lease may not generate income until November, 2014. The lease term is 10 years with six successive five year renewal periods.

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

Interest expense during the three month period ended March 31, 2014 increased by $199,000 when compared to the same period during 2013. This increase is a result of interest accruing on past due balances under the various credit agreements, notes payable and debentures, which increased at various intervals during fiscal year 2013 for accrued but unpaid interest.

As of March 31, 2014, the Company remained in default of its primary lender indebtedness of $500,000 with PGIP, LLC ("PGIP"), an entity related to L-PGI, as well as under its subordinated and convertible debentures and notes payable. PGIP holds restricted funds of the Company pursuant to an escrow agreement whereby funds may be disbursed (i) as requested by the Company and agreed to by PGIP, (ii) as deemed necessary and appropriate by PGIP, to protect PGIP's interest in the Retained Acreage (as hereinafter defined), including PGIP's right to receive principal and interest under the note agreement securing the remaining indebtedness, or (iii) to PGIP to pay any other obligations owed to PGIP by the Company. The restricted escrow funds held by PGIP were $5,000 at March 31, 2014 and December 31, 2013. The Company did not utilize any of the restricted escrow funds during the first quarter of 2014 or 2013. The primary parcel of real estate owned by the Company, totaling 366 acres and located in Hernando County, Florida, remains subject to the primary lender indebtedness.

Cash Flow Analysis

During the three month period ended March 31, 2014, the Company's net cash used in operating activities was $32,000 compared to $30,000 for the comparable period in 2013. Net cash provided from investing activities during the three months ended March 31, 2014 and 2013 consisted of $32,000 and $30,000, 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 $32,000 at March 31, 2014 compared to total assets at December 31, 2013, reflecting the following changes:

March 31, December 31, Increase 2014 2013 (Decrease) ($ in thousands) Cash $ 1 $ 1 $ - Restricted cash 5 5 - Receivables-related party 408 440 (32 ) Land and improvement inventories 639 639 - Other assets 186 186 - $ 1,239$ 1,271$ (32 )



During the three month period ended March 31, 2014, the amount of receivables-related party decreased by $32,000 due to the Company's receipt of principal and accrued interest payments from LIC, a related party, under the note receivable from LIC.

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

Liabilities were approximately $79.7 million at March 31, 2014 compared to approximately $77.9 million at December 31, 2013, reflecting the following changes: March 31, December 31, Increase 2014 2013 (Decrease) ($ in thousands)



Accounts payable & accrued expenses $ 224 $ 219 $ 5 Accrued real estate taxes

2 8 (6 ) Accrued interest 67,225 65,402 1,823 Credit agreements - primary lender 500 500 - related party Notes payable 1,198 1,198 - Subordinated convertible debentures payable 9,059 9,059 - Convertible debentures payable-related party 1,500 1,500 - $ 79,708$ 77,886$ 1,822



During the three month period ended March 31, 2014, the amount of accounts payable and accrued expenses increased by $5,000 primarily as a result of timing differences and the payment of certain accrued expenses. In addition, a portion of this increase was attributable to an increase in accrued debenture fees of approximately $2,000, which resulted from the accrual of the current year's annual administration fees related to the 6% subordinated convertible debentures. Accrued real estate taxes decreased by $6,000 during the three month period ended March 31, 2014 due to the payment of previously accrued real estate taxes. Accrued interest during the three month period ended March 31, 2014 increased by $1.823 million due to the amount of interest expense for such period. During the three month periods ended March 31, 2014 and March 31, 2013, the Company made no interest payments on its various credit agreements, notes payable and debentures.

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

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

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

March 31, 2014 Principal Accrued Amount Due Interest ($ in thousands) Subordinated convertible debentures: At 6 1/2 %, due June 1, 1991 $ 1,034 $ 1,703 At 6%, due May 1, 1992 8,025 19,612 $ 9,059 $ 21,315 Collateralized convertible debentures: At 14%, due July 8, 1997 $ 1,500 $ 42,561 Notes Payable: At prime plus 2% $ 1,176 $ 2,973 Non-interest bearing 22 0 $ 1,198 $ 2,973 Primary Lender: $ 500 $ 376



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

The Company's independent registered public accounting firm included an explanatory paragraph regarding the Company's ability to continue as a going concern in their opinion on the Company's consolidated financial statements for the year ended December 31, 2013.

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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.


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Source: Edgar Glimpses


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