U.S SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
-----------------
/ / 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
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PGI INCORPORATED
----------------
(Exact name of registrant as specified in its charter)
FLORIDA 59-0867335
---------------------------------------------- ---------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
212 SOUTH CENTRAL, SUITE 100, ST. LOUIS, MISSOURI 63105
--------------------------------------------------------
(Address of principal executive offices)
(314) 512-8650
--------------
(Issuer's telephone number)
N/A
----------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal year, if changed
since last report)
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.10 per share
Indicate by check mark if the registrant is a well-known seasonal
issuer, as defined in Rule 405 of the Securities Act: Yes[ ] No[X]
--
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes[ ] No[X]
--
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act during the
past 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 [X] No[ ]
--
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 (Section 232.405 of this chapter) during the preceeding 12
months (or for such shorter period that the registrant was required to submit
and post such files). Yes[ ] No [ ]
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K [x]
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 definition 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[ ]
-- --
Non-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[ ] No[X]
--
The aggregate market value of the voting and non-voting common equity
held by non-affiliates of the issuer as of June 30, 2009 cannot be determined.
See Item 5 of Form 10-K.
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
As of March 26, 2010, 5,317,758 shares of Common Stock, par value
-----------------------------------------------------------------
$.10 per share, were outstanding.
- --------------------------------
PGI INCORPORATED AND SUBSIDIARIES
FORM 10 - K - 2009
Contents and Cross Reference Index
Part Item Form 10-K
No. No. Description Page No.
- --- --- ----------- ---------
I 1 Business
General...................................................................3
Recent Developments.......................................................3
1A Risk Factors..................................................................3
1B Unresolved Staff Comments.....................................................4
2 Properties....................................................................4
3 Legal Proceedings.............................................................4
4 Submission of Matters to a Vote of Security Holders...........................4
II 5 Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities.....................................5
6 Selected Financial Data.......................................................5
7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................5
7A Quantitative and Qualitative Disclosure About Market Risk....................10
8 Financial Statements and Supplementary Data..................................11
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................27
9A Controls and Procedures......................................................27
9B Other Information ...........................................................28
III 10 Directors, Executive Officers, and Corporate Governance......................29
11 Executive Compensation.......................................................30
12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters...............................30
13 Certain Relationships and Related Transactions, and Director
Independence.............................................................31
14 Principal Accountant Fees and Services.......................................34
IV 15 Exhibits and Financial Statement Schedules...................................35
Signatures.....................................................................................36
Exhibit Index..................................................................................37
2
PART I
------
Item 1. Business
- ------- --------
GENERAL
As used in this Annual Report on Form 10-K, the "Company" refers,
unless the context otherwise requires, to PGI Incorporated and its
subsidiaries. The Company's executive offices are at 212 S. Central, Suite
100, St. Louis, Missouri, 63105, and its telephone number is (314) 512-8650.
The Company, a Florida corporation, 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 15 years, the Company's business focus
and emphasis changed substantially as it concentrated its sales and marketing
efforts almost exclusively on the disposition of its remaining real estate.
This change was prompted by its continuing financial difficulties due to the
principal and interest owed on its debt.
Presently, the most valuable remaining asset of the Company is a
parcel of 366 acres located in Hernando County, Florida. The Company also owns
a number of scattered sites in Charlotte County, Florida (the "Charlotte
Property"), but most of these sites are subject to easements which markedly
reduce their value and/or consist of wetlands of indeterminate value. As of
December 31, 2009, the Company also owned seven single family lots, located in
Citrus County, Florida.
As of December 31, 2009, the Company had no employees, and all
services provided to the Company are through contract services.
RECENT DEVELOPMENTS
The principal remaining real property asset of the Company is a 366
acre undeveloped parcel in Hernando County, Florida, which property is
encumbered by secured creditor claims.
The 366 acre parcel in Hernando County is difficult to value because
of uncertainty related to the possible extension of the Suncoast Expressway,
which terminates on the south side of Route 98 opposite this property.
Planning continues for the proposed northward continuation of the Suncoast
Expressway, and based on an endorsement by the Citrus County Commission in
2007 to re-adopt a project that was originally approved in 1998, the route
that is presently believed to be the most probable is through the middle of
this parcel of property. However, until and unless the uncertainty regarding
the future expansion of the Suncoast Expressway 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.
Item 1A. Risk Factors
- -------- ------------
Not Applicable
3
Item 1B. Unresolved Staff Comments
- -------- -------------------------
Not Applicable
Item 2. Properties
- ------- ----------
The primary asset of the Company is a 366 acre tract of vacant land
in Hernando County, Florida. The present zoning, and hence the presently
proposed use of this parcel, is for single family residential lot development.
Several factors suggest that this originally planned use may be inappropriate
and/or not the best use given present circumstances.
Foremost among these factors is that the Suncoast Expressway may be
extended to the north. Such an extension is almost certain to impact the
property, since the probable routes as presently proposed would require a
significant part of the tract. Additional factors include the present lack of
water and sewers on the site, as well as the lack of roads on the site. Also,
about forty acres of the property have been designated in the Hernando
County's future land use plan for commercial use rather than single family
use. Finally, market demand appears to be shifting away from lots with
greenways as originally contemplated in favor of larger estate type lots
and/or higher density condo/townhouse development.
Other vacant parcels, which could be competitive, do exist in the
immediate area, most of which do not suffer the same planning constraint
concerning the possible extension of the Suncoast Expressway.
The property is encumbered by mortgages granted by the Company in
connection with the primary lender debt of $699,000 in principal and accrued
interest and the convertible debentures held by Love-1989 Florida Partners,
L.P. ("Love-1989") which total $13,140,000 in principal and accrued interest
at December 31, 2009. The primary lender debt and convertible debentures are
past due and in default. (See Notes 7 and 9 to the Consolidated Financial
Statements under Item 8)
The Company also owns a number of scattered sites in Charlotte
County. Substantially all such holdings, however, consist of property that is
subject to development restrictions occasioned by being seriously impacted by
wetlands. The potential purchaser market for such properties is extremely
limited. The Company also owns seven single family lots in Citrus County,
Florida. The Company continues its efforts to dispose of all of its real
estate.
The Company believes the properties are adequately covered by
insurance.
Item 3. Legal Proceedings
- ------- -----------------
The Company currently is not a party in any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
- -------- ---------------------------------------------------
A shareholders meeting was not held during the fiscal year ended
December 31, 2009.
4
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
- ------- ----------------------------------------------------------------------
Issuer Purchases of Equity Securities.
--------------------------------------
There is no public trading market for the Company's common equity
securities. There have been no reported transactions in the Company's common
stock, par value $.10 (the "Common Stock"), since January 29, 1991, with the
exception of the odd lot tender offer by PGIP, LLC, an affiliate of the
Company, ("PGIP") in 2003 described previously in the Company's annual report
on Form 10-KSB for the fiscal year ended December 31, 2004. No dividends have
ever been paid on the Common Stock, and payment of dividends on the Common
Stock is restricted under the terms of the two indentures pursuant to which
the Company's outstanding subordinated convertible debentures are issued and
by the terms of the Company's preferred stock. As of December 31, 2009 to the
Company's knowledge, there were 599 holders of record of the Company's Common
Stock and approximately 445 debenture holders.
Item 6. Selected Financial Data
- ------- -----------------------
Not Applicable
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
PRELIMINARY NOTE
Because the liabilities of the Company far exceed the reported value
of its assets, the most important information and analysis concerns the nature
and probable actions of the major holders of the Company's debt. Foremost
among these are the Company's 6.5% subordinated convertible debentures, which
matured June, 1991, with an original face amount of $1,034,000, and its 6.0%
subordinated convertible debentures which matured May, 1992, with an original
face amount of $8,025,000.
The cumulative amount due for these two issues is as follows:
12/31/2009
Principal Unpaid
Amount Due Interest
---------- --------
($ in thousands)
Subordinated debentures due June 1, 1991 $ 1,034 $ 1,399
Subordinated debentures due May 1, 1992 8,025 14,920
------- -------
$ 9,059 $16,319
======= =======
Both issues have been in payment default for approximately eighteen
years, and there has been little contact with or on behalf of the bondholders
over the past several years. It is unclear whether any action on behalf of the
bondholders is presently likely, given the negative net worth of the Company
and continuing passage of time. Further, the Company believes that at least a
portion of such claims (especially those with respect to the subordinated
convertible
5
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (continued)
---------------------------------
debentures which matured on June 1, 1991) might be barred under the applicable
statutes of limitations.
If such claims are barred, it is possible that the Company would
potentially have to record net income in like amount, without the receipt of
any cash, and could potentially incur a large tax liability. Any such
potential tax liability might be averted and/or mitigated, however, by the
utilization of the Company's tax loss carryforwards, which as of December 31,
2009 totaled approximately $ 40,000,000.
Even if claims by the subordinated convertible debenture holders are
barred in full and there is no cash tax consequence to the Company as a result
of the utilization of the tax loss carry forwards, the Company would
nonetheless have a substantial Stockholders' Deficiency. As of December 31,
2009, the Stockholders' Deficiency of the Company was $53,052,000.
Similar defenses would not appear to apply to other creditors of the
Company, and the credit and debenture agreements with the Company's primary
lender, PGIP, and the initial holder of its secured convertible debentures are
secured by mortgages and security interests in certain assets of the Company.
Therefore, the Company's major effort and activities have been, and
continue to be, to liquidate assets of the Company to pay the ordinary
on-going costs of operation of the Company, with any surplus expected to be
used to reduce the balance due to its primary lender (or to the initial holder
of the secured convertible debentures), as required should the asset sale
which generates such surplus include the collateral securing such debt.
The Company attempts to realize full market value for each such
asset, which may be at substantial variance from its present carrying value.
However, the remaining major assets of the Company are both difficult to value
and difficult to sell. Certain of these assets may be of so little value and
marketability that the Company may elect not to pay the real estate taxes on
selected parcels, which may eventually result in a defacto liquidation of such
property by subjecting such property to a tax sale.
Generally, the Company intends to continue to seek the liquidation of
its assets and to use the proceeds to fund the normal cost of operations of
the Company, with any surplus used to satisfy the requirements of the
Company's secured creditors.
6
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (continued)
---------------------------------
RESULTS OF OPERATIONS
Revenues
- --------
Revenues for the year ended December 31, 2009 decreased by $7,000 to
$64,000 compared to revenues of $71,000 for the year ended December 31, 2008
primarily reflecting a decrease in interest income. This decrease is a result
of a lower short-term note receivable balance with Love Investment Company
("LIC"), an affiliate of L-PGI, the Company's primary preferred stock
shareholder, during the year ended December 31, 2009 compared to the balance
of such note receivable during the year ended December 31, 2008.
There were no real estate sales in 2009 or 2008 due to a depressed
real estate market. As of December 31, 2009 the Company owned seven
single-family lots in Citrus County, Florida. Several of these lots were
listed for sale until November, 2008. The Company anticipates re-listing these
lots with a real estate broker by the end of 2010 assuming the real estate
market improves by then.
Costs and Expenses
- ------------------
Expenses for the years 2009 and 2008 were:
2009 2008
---- ----
Taxes and Assessments 12,000 13,000
Consulting and Accounting 40,000 40,000
Legal and Professional 14,000 9,000
General and Administrative 58,000 64,000
Legal and professional expenses increased by $5,000 in 2009 primarily
due to legal expenses related to an eminent domain matter in Charlotte County,
Florida. General and administrative expenses decreased by $6,000 in 2009 as a
result of increased audit and tax service fees in 2008.
Interest expense for the two years ended December 31, 2009 and 2008 was:
2009 2008
---- ----
($ in thousands)
Interest Expense $4,360 $3,956
Interest expense in 2009 increased by $404,000 compared to 2008 as a
result of interest accruing on past due balances which increase at various
intervals throughout the year for accrued but unpaid interest.
The net loss was $4,420,000 ($.95 per share) for 2009 compared to a
net loss of $4,011,000 ($.87 per share) for 2008. Included in the 2009 and
2008 earnings per share computation is $640,000 ($.12 per share of Common
Stock) of annual cumulative preferred stock dividends in arrears.
7
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (continued)
---------------------------------
FINANCIAL CONDITION
Total assets decreased by $50,000 at December 31, 2009 compared to
total assets at December 31, 2008 reflecting the following changes:
Increase
2009 2008 (Decrease)
---- ---- ---------
($ in thousands)
Cash and Cash Equivalents $ 1 $ 6 $ (5)
Restricted Cash 5 5 -
Receivables 785 831 (46)
Land and Improvement 639 639 -
Other Assets 189 188 1
------ ------ ------
$1,619 $1,669 $ (50)
====== ====== ======
Cash decreased by $5,000 to $1,000 at December 31, 2009 compared to
$6,000 at December 31, 2008. Net cash used in operations was $48,000 for the
year ended December 31, 2009 compared to net cash used in operations of
$54,000 for the year ended December 31, 2008. Net cash used in operations
consists of cash received from operations less cash expended for operations.
Cash received from operations during 2009 was $67,000, a $4,000
increase from cash received during 2008 of $63,000. Cash received in 2009 and
2008 consisted of interest received from a note receivable with LIC.
Cash expended for operations decreased by $2,000 to $115,000 during
2009 from $117,000 in 2008, reflecting decreases in payments for taxes and
assessments ($12,000), and consulting and accounting ($1,000), while being
offset by an increase in payments for legal and professional ($9,000) and
general and administrative expenses ($2,000).
During 2009 and 2008, investing activities provided $43,000 and
$44,000, respectively, of cash, which consisted of the receipt of net
principal repayments of the Company's short-term note with LIC.
8
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Liabilities were $54,671,000 at December 31, 2009 compared to
$50,301,000 at December 31, 2008, reflecting the following changes:
Increase
2009 2008 (Decrease)
---- ---- ----------
($ in thousands)
Accounts payable and accrued expenses $ 123 $ 124 $ (1)
Accrued real estate taxes 11 - 11
Accrued interest 42,280 37,920 4,360
Credit agreements - primary
lender 500 500 -
Notes payable 1,198 1,198 -
Convertible subordinated
debentures payable 9,059 9,059 -
Convertible debentures payable 1,500 1,500 -
------- ------- ------
$54,671 $50,301 $4,370
======= ======= ======
The $4,360,000 increase in accrued interest at December 31, 2009
compared to year-end 2008 reflects changes in the following:
Increase
2009 2008 (Decrease)
---- ---- ----------
($ in thousands)
Primary Lender $ 199 $ 157 $ 42
Debentures 39,370 35,114 4,256
Other 2,711 2,649 62
------- ------- ------
$42,280 $37,920 $4,360
======= ======= ======
The accrued interest relating to debentures increased due to the
additional accrual of interest on the nonpayment of previously accrued
interest on the Company's debentures (see Notes 8 and 9 to the consolidated
financial statements under Item 8).
The Company's stockholders' deficiency increased to $53,052,000 at
December 31, 2009 from a $48,632,000 stockholders' deficiency at December 31,
2008, reflecting the 2009 operating loss of $4,420,000.
New Accounting Standards
- ------------------------
In May 2009, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Codification (ASC) Topic 855 "Subsequent Events"
effective for interim and annual financial periods ending after June 15, 2009.
The implementation of this new standard did not have a material impact on the
Company's financial statements.
9
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations (continued)
---------------------------------
Forward Looking Statements
- --------------------------
The discussion set forth in this Item 7, as well as other portions of
this Form 10-K, 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-K. When used
in this Form 10-K, words such as "anticipates," "estimates," "believes,"
"expects," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such 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; the overall national economy and financial markets; institution of
legal action by the bondholders for collection of any amounts due under the
subordinated 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 1; 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 7A. Qualitative and Quantitative Disclosure About Market Risk.
- -------- ----------------------------------------------------------
Not Applicable
10
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
Audit Committee, Board of Directors and Stockholders
PGI Incorporated
St. Louis, Missouri
We have audited the accompanying consolidated statements of financial position
of PGI Incorporated and Subsidiaries ("Company") as of December 31, 2009 and
2008, and the related consolidated statements of operations, stockholders'
deficiency and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing auditing
procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal
control over financial reporting. Accordingly, we express no such opinion. Our
audits also included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of PGI
Incorporated and Subsidiaries at December 31, 2009 and 2008, and the results
of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has a significant accumulated
deficit, and is in default on its primary debt (Note 7), certain sinking fund
and interest payments on its convertible subordinated debentures (Note 8) and
its convertible debentures (Note 9). These matters raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in this regard are described in Note 8. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ BKD, LLP
St. Louis, Missouri
March 26, 2010
11
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, 2009 and 2008
ASSETS LIABILITIES
====== ===========
2009 2008 2009 2008
---- ---- ---- ----
Cash and cash equivalents $1,000 $6,000 Accounts payable and $123,000 $124,000
accrued expenses (Note 6)
Restricted cash (Note 3) 5,000 5,000
Accrued real estate taxes 11,000 -
Receivables (Note 14) 785,000 831,000 (Note 6)
Land and improvement 639,000 639,000
inventories (Note 4) Accrued Interest:
Primary Lender 199,000 157,000
Other assets (Note 5) 189,000 188,000 Debentures (Notes 8 & 9) 39,370,000 35,114,000
Other (Note 8) 2,711,000 2,649,000
Credit Agreements (Note 7)
Primary Lender 500,000 500,000
Notes payable 1,198,000 1,198,000
Subordinated convertible
debentures payable 9,059,000 9,059,000
(Note 8)
Convertible debentures
payable (Note 9) 1,500,000 1,500,000
------------ ------------
Commitments and
Contingencies (Note 13) 54,671,000 50,301,000
------------ ------------
STOCKHOLDERS' DEFICIENCY
========================
Preferred stock, par
value $1.00 per share;
authorized 5,000,000
shares; 2,000,000 Class A
cumulative convertible
Shares issued and
outstanding;
(liquidation
preference of
$8,000,000 and
cumulative dividends)
(Note 11) 2,000,000 2,000,000
Common stock, par
value $.10 per share;
authorized 25,000,000
shares; 5,317,758
shares issued and
outstanding
(Note 11) 532,000 532,000
Paid-in capital 13,498,000 13,498,000
Accumulated deficit (69,082,000) (64,662,000)
------------ ------------
(53,052,000) (48,632,000)
---------- ---------- ------------ ------------
$1,619,000 $1,669,000 $ 1,619,000 $ 1,669,000
========== ========== ============ ============
See accompanying notes to consolidated financial statements
12
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 2009 and 2008
2009 2008
---- ----
Revenues:
Interest income 64,000 71,000
----------- -----------
Costs and expenses:
Interest 4,360,000 3,956,000
Taxes and assessments 12,000 13,000
Consulting and accounting 40,000 40,000
Legal and professional 14,000 9,000
General and administrative. 58,000 64,000
----------- -----------
4,484,000 4,082,000
----------- -----------
Net (Loss) $(4,420,000) $(4,011,000)
=========== ===========
(Loss) Per Share Available to Common
Stockholders - Basic and Diluted (Note 16) $ (.95) $ (.87)
=========== ===========
See accompanying notes to consolidated financial statements.
13
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2009 and 2008
2009 2008
---- ----
Cash flows from operating activities:
Cash received from operations:
Interest received $ 67,000 $ 63,000
-------- --------
Cash expended for operations:
Taxes and assessments 1,000 13,000
Consulting and accounting 40,000 41,000
Legal and professional 16,000 7,000
General and administrative 58,000 56,000
-------- --------
115,000 117,000
-------- --------
Net cash flow (used in) operating activities (48,000) (54,000)
-------- --------
Cash flows from investing activities:
Net repayments of notes receivable 43,000 44,000
-------- --------
Net cash flow provided by investing activities 43,000 44,000
-------- --------
Net decrease in cash and cash equivalents (5,000) (10,000)
Cash and cash equivalents at beginning of year 6,000 16,000
-------- --------
Cash and cash equivalents at end of year $ 1,000 $ 6,000
======== ========
See accompanying notes to consolidated financial statements.
14
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 2009 and 2008
2009 2008
---- ----
Reconciliation of net (loss) to net cash (used in)
operating activities:
Net (loss) $(4,420,000) $(4,011,000)
Adjustments to reconcile net (loss) to net cash (used in)
operating activities:
(Increase) decrease in assets:
Other receivables 2,000 4,000
Prepaid expenses and deposits - (3,000)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (1,000) 9,000
Accrued real estate taxes 11,000 (9,000)
Accrued interest 4,360,000 3,956,000
----------- -----------
Net cash flow (used in) operating activities $ (48,000) $ (54,000)
=========== ===========
See accompanying notes to consolidated financial statements.
15
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years ended December 31, 2009 and 2008
Preferred Stock Common Stock Accumulated
--------------- ------------ -----------
Shares Par Value Shares Par Value Paid-In Capital Deficit
------ --------- ------ --------- --------------- -------
Balances at 1/1/08 2,000,000 $2,000,000 5,317,758 $532,000 $13,498,000 $(60,651,000)
Net Loss - - - - - (4,011,000)
--------- ---------- --------- -------- ----------- ------------
Balances at 12/31/08 2,000,000 $2,000,000 5,317,758 $532,000 $13,498,000 $(64,662,000)
Net Loss - - - - - (4,420,000)
--------- ---------- --------- -------- ----------- ------------
Balances at 12/31/09 2,000,000 $2,000,000 5,317,758 $532,000 $13,498,000 $(69,082,000)
========= ========== ========= ======== =========== ============
See accompanying notes to consolidated financial statements.
16
PGI INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies:
--------------------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries after eliminating all significant
inter-company transactions.
Accounting Estimates
- --------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue and Profit Recognition
- ------------------------------
Homesites
- ---------
The Company adopted the installment method of profit recognition in
accordance with Accounting Standard Codification (ASC) Topic 360-20, "Real
Estate Sales".
Acreage
- -------
Sales of undeveloped and developed acreage tracts are recognized, net
of any deferred revenue and valuation discount, when minimum down payment and
other requirements are met.
Land and Improvement Inventories
- --------------------------------
Land held for sale to customers and land held for bulk sale are
stated at cost, which is not in excess of estimated net realizable value.
Homesite costs are allocated to projects based on area methods, which consider
footage, future improvements costs and frontage.
Cash and Cash Equivalents
- -------------------------
For purposes of the statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents.
17
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
New Accounting Standards
- ------------------------
In May 2009, the Financial Accounting Standards Board ("FASB") issued
ASC Topic 855 "Subsequent Events" effective for interim and annual financial
periods ending after June 15, 2009. The implementation of this new standard
did not have a material impact on the Company's financial statements.
2. Revenues:
---------
Revenues for the year ended December 31, 2009 and 2008 represented
interest income from a short-term note receivable with Love Investment Company
("LIC"), an affiliate of L-PGI, the Company's primary preferred stock
shareholder
There were no real estate sales in 2009 or 2008 due to a depressed
real estate market in Citrus County, Florida. As of December 31, 2009 the
Company owned seven lots in Citrus County, Florida. Several of the lots were
listed for sale until November, 2008. The Company anticipates re-listing the
lots with a real estate broker by the end of 2010 assuming the real estate
market improves by then.
3. Restricted Cash:
----------------
Restricted cash includes restricted proceeds held by PGIP,LLC
("PGIP"), the Primary Lender, as collateral for debt repayment. (See Note 14)
The restricted escrow funds balance was $5,000 at both December 31,
2009 and December 31, 2008.
18
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
4. Land and Improvements:
----------------------
Land and improvement inventories consisted of:
2009 2008
---- ----
Unimproved land $625,000 $625,000
Fully improved land 14,000 14,000
-------- --------
$639,000 $639,000
======== ========
5. Other Assets:
-------------
Other assets consisted of:
2009 2008
---- ----
Deposit with Trustee of 6 1/2%
debentures $184,000 $183,000
Prepaid Expenses 4,000 4,000
Deferred Charges 1,000 1,000
-------- --------
$189,000 $188,000
======== ========
6. Accounts Payable and Accrued Expenses:
--------------------------------------
Accounts payable and accrued expenses consisted of:
2009 2008
---- ----
Accounts payable $ 13,000 $ 14,000
Accrued audit/tax expense 37,000 37,000
Accrued consulting fees 2,000 2,000
Accrued miscellaneous 71,000 71,000
-------- --------
$123,000 $124,000
======== ========
Accrued Real Estate Taxes:
--------------------------
Accrued real estate taxes consisted of:
Current $ 11,000 $ -
======== ========
19
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
7. Credit Agreements - Primary Lender and Notes Payable:
-----------------------------------------------------
Credit agreements with the Company's primary lender and notes payable
consisted of the following:
2009 2008
---- ----
Credit agreements - primary lender
Balance is past due, bearing interest
at prime plus 5.0% $ 500,000 $ 500,000
Notes payable -
$1,176,000 bearing interest at prime
rate plus 2%, the remainder
non-interest bearing, all past due 1,198,000 1,198,000
---------- ----------
$1,698,000 $1,698,000
========== ==========
The prime rate at both December 31, 2009 and 2008, was 3.25%, respectively.
At December 31, 2009 assets collateralizing the Company's credit
agreements with its primary lender totaled $644,000, of which $5,000
represented escrow held by the primary lender, and $639,000 represented land
and improvement inventories.
The overall weighted average interest rate for the Company's credit
agreements with its primary lender and all remaining notes and mortgages was
approximately 6.1% as of December 31, 2009 and 7.9% as of December 31, 2008.
Although substantially all of the Company's real and personal
property including all of the stock of the Company's wholly-owned subsidiaries
remains pledged as collateral, the Company negotiated agreements with its
mortgage holders to allow the Company to sell part of its land holdings
without requiring full payment of the secured debt.
Accrued interest on other notes payable was $2,711,000 and $2,649,000
at December 31, 2009 and 2008, respectively.
All of the primary lender debt and notes payable are past due.
8. Subordinated Convertible Debentures Payable:
--------------------------------------------
Subordinated debentures payable consisted of:
2009 2008
---- ----
6 1/2%, due June 1991 $1,034,000 $1,034,000
6%, due May 1992 8,025,000 8,025,000
---------- ----------
$9,059,000 $9,059,000
========== ==========
Since issuance, $650,000 and $152,000 of the 6 1/2% and 6%
debentures, respectively, have been converted into common stock; however, this
conversion feature is no longer in effect.
20
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
The Company is in default of certain sinking fund and interest
payments on both subordinated debentures totaling $9,059,000 in principal plus
accrued and unpaid interest of $16,319,000 at December 31, 2009 and
$15,219,000 as of December 31, 2008.
The debentures are not collateralized and are not subordinated to
each other, but are subordinated to senior indebtedness ($3,198,000 at
December 31, 2009). Payment of dividends on the Company's common stock is
restricted under the terms of the two indentures pursuant to which the
outstanding debentures are issued.
In order to meet liquidity needs for future periods, the Company has
been and intends to continue to actively seek buyers for the remaining portion
of the underdeveloped acreage, when appropriate.
No assurances can be made that the Company can achieve this
objective.
9. Convertible Debentures Payable:
-------------------------------
In May 2008, LIC, an affiliate of L-PGI, the Company's preferred
shareholder, purchased $703,050 in principal amount of the Company's
convertible debentures from the previous debenture holder. The balance of the
outstanding convertible debentures in the amount of $796,950, are held by
Love-1989. The debentures held by Love-1989 are secured by a second mortgage
behind PGIP on the 366 acres retained by the Company and a security interest
behind that held by PGIP in the restricted proceeds escrow. The total
debentures balance of $1,500,000 carry a maturity date of July 8, 1997 and are
in default. Interest on the debentures accrues at the rate of fourteen percent
compounded quarterly. The Company's primary lender credit agreements prohibit
the payment of interest until such time as the primary lender loans are
repaid.
Accrued interest was $23,051,000 and $19,895,000 at December 31, 2009
and 2008 respectively.
21
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
10. Income Taxes:
-------------
Reconciliation of the statutory federal income tax rates, 34% for the
years ended December 31, 2009 and 2008, to the Company's effective income tax
rates follows:
2009 2008
---- ----
($ in thousands)
Percent of Percent of
Amount of tax Pre-tax Loss Amount of Tax Pre-tax loss
------------- ------------ ------------- ------------
Expected tax (credit) $(1,503) (34.0%) $(1,363) (34.0%)
State income taxes, net of (177) (4.0%) (160) (4.0%)
federal tax benefits
Expiration of net operating 459 10.4% 1,105 27.7%
loss carryovers
Increase in valuation allowance 1,221 27.6% 418 10.3%
------- ----- ------- ------
$ - - $ - $ -
======= ===== ======= ======
At December 31, 2009, the Company had an operating loss carryforward
of approximately $ 40,000,000 which will expire at various dates through 2029.
2009 2008
---- ----
($ in thousands)
Deferred tax asset:
Net operating loss carryover $ 15,200 $ 13,979
Adjustments to reduce land to net
realizable value 12 12
Expenses capitalized under IRC 263(a) 56 56
Environmental liability 27 27
Valuation allowance (15,123) (13,902)
-------- --------
$ 172 $ 172
Deferred tax liability:
Basis difference of land and
improvement inventories $ 172 $ 172
-------- --------
Net deferred tax asset $ - $ -
======== ========
The Company is no longer subject to U.S. federal or state income tax
examinations by tax authorities for years before 2006.
22
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
11. Capital Stock:
--------------
In March 1987, the Company sold, in a private placement, 1,875,000
shares of its Class A cumulative convertible preferred stock to L-PGI for a
purchase price of $7,500,000 cash ($4.00 per share). The Company also
converted $500,000 of indebtedness owed to a corporation owned by the
Company's former Chairman of the Board of Directors and members of his family
into 125,000 shares of the cumulative convertible preferred stock.
The holders of the preferred stock are entitled to one vote per share
and, except as provided by law, will vote as one class with the holders of the
common stock. Class A preferred stockholders are also entitled to receive
cumulative dividends at the annual rate of $.32 per share, an effective yield
of 8%. Dividends accrued for an initial two year period and, at the expiration
of this period, preferred stockholders had the option of receiving accumulated
dividends, when and if declared by the Board of Directors, in cash (unless
prohibited by law or contract) or common stock. At December 31, 2009
cumulative preferred dividends in arrears totaled $9,395,000 ($640,000 of
which related to the year ended December 31, 2009). On May 15, 1997 preferred
dividends accrued through April 25, 1995 totaling $4,260,433 were paid in the
form of 2,000,203 shares of common stock.
As of December 31, 2009, the preferred stock is callable or
redeemable at the option of the Company at $4.00 per share plus accrued and
unpaid dividends. In addition, the preferred stock will be entitled to
preference of $4.00 per share plus accrued and unpaid dividends in the event
of liquidation of the Company.
At December 31, 2009 the Company had reserved 6,355,356 common shares
for the conversion of preferred stock and debentures.
12. Quarterly Results:
------------------
There were no significant transactions in the fourth quarter of 2009.
13. Commitments and Contingencies:
------------------------------
The Company is currently not a party in any legal proceedings.
23
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
14. Related Party Transactions:
--------------
As of December 31, 2009 the Company was in default of its primary
credit agreements with PGIP, its Primary Lender.
PGIP is owned and managed by Love Savings Holding Company ("LSHC"),
Andrew S. Love, Jr. and Laurence A. Schiffer. Messrs. Love and Schiffer are
directors and executive officers of LSHC and own 90% of all the issued and
outstanding voting stock of LSHC. Messrs. Love and Schiffer serve as the
executive officers and directors of the Company.
The Company maintains its administration and accounting offices with
Love Real Estate Company ("LREC"). LREC, which is owned by Mr. Love and Mr.
Schiffer, is paid a monthly fee for the following:
1. Maintain books of original entry;
2. Prepare quarterly and annual SEC filings;
3. Coordinate the annual audit;
4. Assemble information for tax filing, review reports as prepared by
tax accountants and file same;
5. Track shareholder records through transfer agent;
6. Maintain policies of insurance against property and liability
exposure;
7. Handle day-to-day accounting requirements
In addition, the Company receives office space, telephone service and
computer service from LREC. A fee of $2,800 per month was accrued in 2009 and
2008. The Company made payments of $33,600 to LREC in 2009 and 2008
respectively for accounting service fees. There were no accrued accounting
service fees as of December 31, 2009 and 2008, respectively.
Effective March 25, 1987, the Company entered into a Management
Consulting Agreement with LREC. As a consultant to the Company and in addition
to the above services, LREC provides other services including, but not limited
to, strategic planning, marketing and financing as requested by the Company.
In consideration for these consulting services, the Company pays LREC a
quarterly consulting fee of one-tenth of one percent of the carrying value of
the Company's assets, plus reasonable out-of-pocket expenses. As of December
31, 2009, the carrying value of the Company's assets was approximately
$1,619,000. Consulting fees were $7,000 in both 2009 and 2008, respectively.
As of December 31, 2009 and 2008, a total of $2,000, respectively, of unpaid
fees had accrued under this agreement.
In 1985 a corporation owned by the former Chairman of the Board and
his family made an uncollateralized loan to the Company, which at December 31,
2009 had an outstanding balance, including accrued interest, of $552,000.
Interest accrued on this loan was $9,000 and $13,000 for the years 2009 and
2008, respectively.
24
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
From time to time, the Company invests in short-term debt obligations
of an affiliate of L-PGI, the Company's preferred shareholder, Love Investment
Company. The balance of this receivable at December 31, 2009 and 2008 was
$780,000 and $823,000, respectively. Interest on the loans was $64,000 and
$68,000 for 2009 and 2008, respectively.
15. Fair Value of Financial Instruments:
------------------------------------
The following methods and assumptions were used to estimate the fair
value of each class of financial instrument for which it is practicable to
estimate that value:
Cash and Restricted Cash:
The carrying amount approximates fair value because of the short
maturity of those instruments.
Receivables:
The carrying amount approximates fair value because of the short-term
maturity of those receivables
Accounts Payable:
The carrying amount approximates fair value because of the short-term
maturity of those debts.
Debt:
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.
The estimated fair values of the Company's financial instruments are as
follows:
2009 2008
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Cash and Restricted Cash $ 6,000 $ 6,000 $ 11,000 $ 11,000
Receivables 785,000 785,000 831,000 831,000
Accounts Payable 13,000 13,000 14,000 14,000
Debt 12,257,000 - 12,257,000 -
25
PGI INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
16. (Loss) Per Share:
-----------------
The following is a summary of the calculations used in computing
basic and diluted (loss) per share:
2009 2008
---- ----
Numerator:
Net (Loss) $(4,420,000) $(4,011,000)
Preferred Dividends (640,000) (640,000)
----------- -----------
(Loss) Available to
Common Shareholders $(5,060,000) $(4,651,000)
=========== ===========
Denominator:
BASIC
Weighted average amount of shares
outstanding 5,317,758 5,317,758
=========== ===========
DILUTED
Weighted average amount of shares
outstanding 5,317,758 5,317,758
Dilutive effect of assumed conversion
of Preferred Stock - -
----------- -----------
Dilutive common shares 5,317,758 5,317,758
=========== ===========
(Loss) per share
Basic $(.95) $(.87)
Diluted (.95) (.87)
26
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
Not Applicable.
Item 9A. Controls and Procedures
- -------- -----------------------
The Company has evaluated the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) under the
supervision and with the participation of the Chief Executive Officer ("CEO")
and the Chief Financial Officer ("CFO") of the Company. Based on this
evaluation, the CEO and CFO concluded that the Company's disclosure controls
and procedures were effective as of December 31, 2009. There have been no
changes in the Company's internal control over financial reporting during the
Company's fourth fiscal quarter ending December 31, 2009, that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
- ----------------------------------------------------------------
Management of PGI Incorporated (the "Company") is responsible for
establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). The
Company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the financial statements for external purposes in
accordance with generally accepted accounting principles. The Company's
internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States
of America, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company, and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. All internal control
systems, no matter how well designed, have inherent limitations, including the
possibility of human error and the circumvention of overriding controls.
Accordingly, even an effective system of internal control over financial
reporting can provide only reasonable assurance with respect to financial
statement preparation. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that degree of compliance with the
policies or procedures may deteriorate.
27
Item 9A. Controls and Procedures (continued)
- ------- -----------------------------------
Management has assessed the effectiveness of the Company's internal
control over financial reporting as of December 31, 2009, based on the
framework set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on
that assessment, management concludes that, as of December 31, 2009, the
Company's internal control over financial reporting is effective.
This annual report on Form 10-K does not include an attestation
report of the Company's registered public accounting firm regarding internal
control over financial reporting. Management's report was not subject to
attestation by the Company's registered public accounting firm pursuant to
temporary rules of the Securities and Exchange Commission that permit the
Company to provide only management's report herein.
Item 9B. Other Information
- -------- -----------------
Not Applicable
28
PART III
--------
Item 10. Directors, Executive Officers, and Corporate Governance.
- -------- --------------------------------------------------------
The following information, regarding executive officers and directors
of the Company, is as of March 25, 2010.
Position with Company and Business Experience
Name and Age During the Last Five Years
- ------------ ---------------------------------------------
Laurence A. Schiffer Director of the Company since April 1987; President,
(age 70) Chief Executive Officer and Chief Financial Officer
of the Company since February 1994; Vice Chairman
of the Board since May 1987; President and Chief
Executive Officer of Love Real Estate Company and
Love Investment Company since 1973; Chairman of
Heartland Bank and President of LSHC, the parent
company of Heartland Bank since December 1985;
Manager of PGIP since 1995; member of the Real
Estate Board of Metropolitan St. Louis and the
National Association of Real Estate Boards.
Andrew S. Love Jr. Director and Chairman of the Company's Board of
(age 66) Directors since May 1987; Secretary since February
1994; Chairman of the Board of Love Real Estate
Company and Secretary of Love Investment Company
since 1973; Partner in St. Louis based law firm of
Bryan, Cave, McPheeters & McRoberts until 1991;
Director of Heartland Bank and Chairman of LSHC,
the parent company of Heartland Bank since December
1985; Manager of PGIP since 1995.
Executive officers of the Company are appointed annually by the Board
of Directors to hold office until their successors are appointed and qualify.
The directors of the Company have determined that the Company does
not have an audit committee financial expert serving on its board of directors
(which acts as the Company's audit committee). In addition, the Company has
not adopted a code of ethics that applies to its principal executive officer
and principal financial officer (principal accounting officer). The Company's
decision not to adopt a code of ethics or to have an audit committee financial
expert are primarily attributable to the following reasons: (i) as a result of
its continuing financial difficulties due to amounts owed on its debt, the
Company is focused almost exclusively on the disposition of its remaining real
estate; (ii) as described in Item 5, there have been no reported transactions
in the Company's Common Stock since January 29, 1991, other than the odd lot
tender offer in 2003; (iii) the board of directors of the Company consists of
only two directors and these two directors are also the only executive
officers of the Company; and (iv) the same person serves as the Company's
chief executive officer and chief financial officer.
29
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
The Company was not furnished any Forms 3, 4 or 5, or any amendments
thereto, during our most recent fiscal year. Accordingly, the Company is not
aware of any officer, director or beneficial owner of more than 10 percent of
the Company's registered securities that failed to file on a timely basis
Forms 3, 4 and 5 required under Section 16(a) of the Securities Exchange Act
of 1934, as amended, during fiscal year ended 2009.
Item 11. Executive Compensation
- -------- ----------------------
The Company's Chief Executive Officer and Chief Financial Officer is
Mr. Laurence A. Schiffer. Because of the Company's impaired financial
condition, it does not compensate in any manner Mr. Schiffer or Mr. Love, the
Company's only other executive officer, for the services they perform for the
Company in that capacity or in their capacity as directors of the Company.
Management services are provided to the Company by Love Real Estate Company
("LREC"), which is an affiliate of L-PGI, pursuant to that certain Management
Consulting Agreement by and between the Company and LREC dated March 25, 1987
(the "Management Agreement"). Mr. Schiffer is an employee of, and receives an
annual salary from LREC. Mr. Love receives only a nominal salary from LREC.
Neither the Company nor LREC maintains records, which would allow either of
them to attribute any portion of the remuneration Mr. Schiffer receives from
LREC to the management services he performs for the Company. See Item 13.
"Certain Relationships and Related Party Transactions, and Directors
Independence" for additional information about the Management Agreement.
Neither Mr. Schiffer nor Mr. Love received fees from any source
directly attributable to their services as directors of the Company during
2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
- -------- ------------------------------------------------------------------
Related Stockholder Matters
---------------------------
The table below provides certain information as of March 25, 2010
regarding the beneficial ownership of the Common Stock and the Class A
cumulative convertible preferred stock (the "Preferred Stock") by each person
known by the Company to be the beneficial owner of more than five percent of
either the Common Stock or the Preferred Stock, each director of the Company
(which persons are also the Company's only executive officers), and by virtue
of the foregoing, the directors and executive officers of the Company as a
group.
Percent of Total
---------------- Percent of
Common Preferred Common Preferred Total Voting
Name(9) Stock Stock Stock(1) Stock Power(1)
------- ----- ----- -------- ----- --------
Estate of Harold Vernon 998,777(2)(3) - 18.8% - 13.7%
Alfred M. Johns 426,514(4) 125,000(4) 8.0% 6.3% 7.5%
Love-PGI Partners, L.P.("L-PGI") 2,260,706(5) 1,875,000(5) 42.5% 93.8% 56.5%
Andrew S. Love, Jr. 2,263,215(6) 1,875,000(6) 42.5% 93.8% 56.5%
Laurence A. Schiffer 2,263,215(7) 1,875,000(7) 42.5% 93.8% 56.5%
All executive officers and directors
as a group (2 persons) 2,263,215(8) 1,875,000(8) 42.5% 93.8% 56.5%
<FN>
1. The above table does not include 2,595,356 shares that may be
received upon conversion of the Company's secured convertible
debentures.
2. The shares of Common Stock owned by the Estate of Mr. Vernon are
currently in the possession of the Federal Deposit Insurance
Corporation ("FDIC") which is the receiver for First American Bank
30
and Trust, Lake Worth, Florida ("First American"). First American
previously made a loan to Mr. Vernon, which was secured by these
shares. The loan is in default and the Company understands that the
FDIC has the right, pursuant to a pledge agreement, to vote the
shares at any annual or special meeting of shareholders.
3. Information obtained from filings made with the Securities and
Exchange Commission.
4. Sole voting and investment power over 405,613 shares of Common Stock;
shared voting and investment power over 20,901 shares of Common Stock
included in the table which are owned by Mr. John's wife; sole voting
and investment power over the 125,000 shares of Preferred Stock.
5. The controlling general partner of L-PGI is Love Investment Company,
a Missouri Corporation owned by Mr. Love, Love family members and
trusts and Mr. Schiffer. Messrs. Love and Schiffer serve as the
executive officers and directors of Love Investment Company.
6. These shares are the same shares owned by L-PGI and PGIP, LLC (2,509
shares of Common Stock). Mr. Love is an indirect owner of L-PGI and
PGIP, LLC. See Footnote 5 above and Item 13. "Certain Relationships
and Related Transactions, and Director Independence" for more
information. Accordingly, Mr. Love has shared voting and investment
power over all of these shares.
7. These shares are the same shares owned by L-PGI and PGIP, LLC (2,509
shares of Common Stock). Mr. Schiffer is an indirect owner of L-PGI
and PGIP, LLC. See Footnote 5 above and Item 13. "Certain
Relationships and Related Transactions, and Director Independence"
for more information. Accordingly, Mr. Schiffer has shared voting and
investment power over all of these shares.
8. These shares are the same shares reflected in Footnotes 5, 6 and 7.
See Footnote 5 above and Item 13. "Certain Relationships and Related
Transactions, and Director Independence" for more information.
9. Addresses for beneficial owners are as follows:
</FN>
Estate of Harold Vernon Love-PGI Partners, L.P Laurence A. Schiffer
3201 W. Rolling Hills Circle 212 So. Central, Suite 100 212 So. Central, Suite 201
Davie, FL 33328 St. Louis, MO 63105 St. Louis, MO 63105
Alfred M. Johns Andrew S. Love, Jr.
One Woodland Drive 212 So. Central, Suite 201
Punta Gorda, FL 33982 St. Louis, MO 63105
As of December 31, 2009, the Company did not have a compensation plan
or individual compensation arrangement under which its equity securities may
be issued.
Item 13. Certain Relationships and Related Transactions, and Director
- -------- ------------------------------------------------------------
Independence
------------
The Company's primary lender debt of $500,000 as of December 31,
2009, and which remained at this amount during all of fiscal year 2009, is
with PGIP, LLC, an affiliate of the Company ("PGIP") and is secured by
substantially all of the Company's real estate. PGIP became the primary lender
in March 1996, with the assignment by First Union, the Company's former
primary bank lender, of all its right, title and interest in and to the loan
documents. PGIP is 100% owned by Love Savings Holding Company ("LSHC").
Messrs. Love and Schiffer own approximately 90% of all of the issued and
outstanding voting stock of LSHC and serve as the directors and officers of
LSHC. LSHC along with Messrs. Love and Schiffer are the managers of PGIP.
There were no principal or interest payments made during fiscal year 2009 to
PGIP with respect to this debt. See also Note 7 to the Notes to Consolidated
Financial Statements.
As further security to the primary lender indebtedness with PGIP, a
restricted proceeds escrow was established in connection with the closing of
the bulk acreage sale in May 1998. The escrow agreement permits funds to be
paid (i) as requested by PGI and agreed to by PGIP, or (ii) as deemed
necessary and appropriate by PGIP to protect its interest in the remaining
real estate, including its right to receive principal and interest payments on
the indebtedness, or (iii) to PGIP
31
to pay any other obligations owed to PGIP by the Company. The restricted
escrow balance was $ 5,000 at both December 31, 2009 and 2008, respectively.
The Company maintains its administration and accounting offices with
the offices of LREC in St. Louis, Missouri. LREC, a Missouri Corporation, is
owned by Mr. Love and Mr. Schiffer, and is located at 212 South Central
Avenue, Suite 100, St. Louis, Missouri 63105. A fee of $2,800 per month was
accrued in 2009 and 2008 and the Company made payments of $33,600 to LREC in
2009 and 2008 respectively, for the services described in the next paragraph.
There were no accrued accounting service fees as of December 31, 2009 and
2008, respectively.
The following is a list of services provided:
1. Maintain books of original entry;
2. Prepare quarterly and annual SEC filings;
3. Coordinate the annual audit;
4. Assemble information for tax filing, review reports as prepared by
tax accountants and file same;
5. Track Shareholder records through transfer agent;
6. Maintain policies of insurance against property and liability
exposure;
7. Handle day-to-day accounting requirements; and
8. Provide telephone and computer service.
Although an amount is paid to LREC as reimbursement for expenses and
as a fee for providing management services to the Company, neither the Company
nor LREC maintain records which would allow them to attribute any portion of
the aforementioned monthly fee to reimbursement of particular expenses or to
payment for the management services performed for the Company by individual
employees of LREC, including Messrs. Love and Schiffer.
Effective as of March 25, 1987, the Company entered into the
Management Agreement with LREC. As a consultant to the Company and in addition
to the above services, LREC provides other services including, but not limited
to, strategic planning, marketing, and financing as requested by the Company.
In consideration for these consulting services, the Company pays LREC a
quarterly consulting fee of one-tenth of one percent of the book value of the
Company's assets, plus reasonable out-of-pocket expenses. As of December 31,
2009, the book value of the Company's assets was approximately $1.6 million.
Consulting fees accrued and paid were $7,000 in both 2009 and 2008,
respectively. As of both December 31, 2009 and 2008, a total of $2,000,
respectively, of unpaid fees had accrued under the Management Agreement. The
Management Agreement will continue in effect until terminated upon 90 days
prior written notice by a majority vote of the Company's directors.
Mr. Love receives a nominal salary from LREC. Although Mr. Schiffer
receives a salary from LREC, such salary compensates him for his services to
LREC, which provides consulting services for numerous other entities
affiliated with the Company, and none of the amount earned by LREC under the
Management Agreement is intended to be allocated or attributable to any
officer or employee, including Mr. Schiffer, of LREC. No part of Mr.
Schiffer's annual salary from LREC is directly attributable to the management
services he performs for the Company as an employee of LREC pursuant to the
Management Agreement.
32
In 1989, the Company sold an aggregate $2,282,451 principal amount of
the Convertible Debentures ("Debentures") in a private placement to Love-1989
Florida Partners, L.P. ("Love-1989"). The controlling general partner of
Love-1989 is Love Investment Company ("LIC"), which is owned by Mr. Love, Love
family members and trusts and Mr. Schiffer. The above purchase by Love-1989 of
the Debentures was funded in part with a loan from L-PGI. Love-1989 repaid the
debt to L-PGI in full, in part by transferring a portion of the Debentures
held by Love-1989 to L-PGI. In July 1992, as partial consideration for the
Company's conveyance of 350 acres of property to L-PGI, the Company retired
$782,000 in principal amount of the Debentures held by L-PGI together with
$389,000 in accrued interest. The maturity date on all of the remaining
Debentures was extended to July 8, 1997. The Debentures are past due and in
default.
The Debentures were in part collateralized by a second mortgage in
favor of Love-1989 on 650 acres of the property owned by the Company, which
was sold in May 1998. The 350 acres transferred to L-PGI as described above
were also included in the property sold. Messrs. Love and Schiffer caused the
Company to grant a second mortgage on the remaining 366 acre parcel of
property located in Hernando County, Florida to Love-1989 and in their
capacities as control persons of Love-1989, they caused Love-1989 to release
its second mortgage on the 650 acres of the property sold and they caused the
Company to grant a security interest to Love-1989 behind that held by PGIP in
the restricted proceeds escrow which is under the control of Messrs. Love and
Schiffer since they and a company they control are the managers of PGIP.
As of and during December 31, 2009, Love-1989 held $796,950 in
principal amount of the Debentures with respect to which there was as of
December 31, 2009 accrued and unpaid interest in the amount of $12,343,000. In
May 2008, LIC, an affiliate of L-PGI, the Company's preferred shareholder,
purchased $703,050 in principal amount of Debentures from the previous
debenture holder for which there was as of December 31, 2009 accrued and
unpaid interest in the amount of $10,708,000. The total debentures balance of
$1,500,000 carry a maturity date of July 8, 1997 and are in default. Interest
on the Debentures accrues at the rate of fourteen percent compounded
quarterly, and no interest payments were made during December 31, 2009.
In 1985, a corporation owned by Alfred M. Johns, the former Chairman
of the Company, and his family made an uncollateralized loan to the Company,
which during and at December 31, 2009 had an outstanding balance, excluding
accrued interest, of $176,000. This loan is past due. Besides being a direct
owner of Common and Preferred Stock, Mr. Johns has no other direct or indirect
affiliations with the Company.
From time to time, the Company invests in short term debt obligations
with LIC. The balance of this receivable at December 31, 2009 and 2008 was
$780,000 and $823,000, respectively. Interest on such receivables was $64,000
and $68,000 for 2009 and 2008, respectively.
The Company believes that the affiliated transactions are on terms
comparable to those which would be obtained from unaffiliated persons.
Neither of the two directors of the Company is independent pursuant
to the definition of "independent director" set forth in the American Stock
Exchange Company Guide because both
33
of them are executive officers of the Company. The Company does not have a
separate designated audit, compensation or nominating committee or committee
performing similar functions.
Item 14. Principal Accountant Fees and Services
- -------- --------------------------------------
Audit and tax fees rendered by BKD, LLP, the principal accountant of
the Company, for the fiscal years ended December 31, 2009 and December 31,
2008 were:
2009 2008
---- ----
Audit Fees $33,100 $31,900
Audit Related Fees 0 0
Tax Fees 4,400 4,200
All Other Fees 0 0
------- -------
$37,500 $36,100
======= =======
Tax fees are comprised of fees for tax compliance, tax planning, and
tax advice. Corporate tax services encompass a variety of permissible
services, including technical tax advice related to U.S. tax matters as well
as preparation of applicable tax returns.
The Board of Directors of the Company pre-approves all audit and
other permissible services to be provided by BKD, LLP and the estimated fees
for these services.
34
PART IV
Item 15. Exhibits and Financial Statement Schedules
- -------- ------------------------------------------
1. The following financial statements and the report of independent
registered public accounting firm are filed as part of this Report:
a. Report of Independent Registered Public Accounting Firm
b. Consolidated Statements of Financial Position as of December 31,
2009 and 2008
c. Consolidated Statements of Operations for the Years Ended
December 31, 2009 and 2008
d. Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009 and 2008
e. Consolidated Statements of Stockholders' Deficiency for the Years
Ended December 31, 2009 and 2008
f. Notes to Consolidated Financial Statements
2. Financial statement schedules for which provision is made in the
applicable accounting regulations of the SEC are not required under
the related instructions or are inapplicable and therefore have been
omitted.
3. Reference is made to the Exhibit Index contained on page 37 herein
for a list of exhibits required to be filed under this Item.
35
PGI INCORPORATED AND SUBSIDIARIES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PGI INCORPORATED
(Registrant)
Date: March 26, 2010 By:/s/Laurence A. Schiffer
-------------- -----------------------
Laurence A. Schiffer, President
(Duly Authorized Officer and
Principal Executive Officer)
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
/s/Andrew S. Love Chairman of the Board March 26, 2010
- ------------------------ Secretary
Andrew S. Love
/s/Laurence A. Schiffer Vice Chairman of the Board, March 26, 2010
- ------------------------ President, Principal Executive
Laurence A. Schiffer Officer, Principal Financial
Officer, and Principal Accounting
Officer
36
EXHIBIT INDEX
2. Inapplicable.
3.1 Restated Articles of Incorporation of PGI Incorporated executed
September 4, 1998 with certificate from the State of Florida dated
October 27, 1998 (filed as Exhibit 3.1 to Registrant's September 30,
1998 Form 10-QSB and incorporated herein by reference).
3.2 Certificate of the Designation, Powers, Preferences and Relative
Rights, and the Qualifications, Limitations or Restrictions Thereof,
which have not been set forth in the Articles of Incorporation, of
the Class A Cumulative Convertible Preferred Stock, effective as of
March 24, 1987 (filed as Exhibit 3.2 to Registrant's Form 10-K Annual
Report for the year ended December 31, 1986 ("1986 Form 10-K") and
incorporated herein by reference).
3.3 Bylaws of Registrant, as amended September 1987 (filed as Exhibit 3.3
to Registrant's original Form 10-K Annual Report for the year ended
December 31, 1987 ("Original 1987 Form 10-K") dated as of March 29,
1987 and incorporated herein by reference).
3.4 Amendments to the Bylaws of the Registrant by the Board of Directors
of PGI Incorporated by the Unanimous Written Consent, dated as of
March 17, 1995 (filed as Exhibit 3.5 to the December 31, 1995 Form
10-KSB and incorporated herein by reference).
4.1 Extension and Forbearance Agreement among PGI Incorporated, Punta
Gorda Developers, Inc., Burnt Store Marina, Inc., and Gulf Coast
Credit Corporation and BancFlorida (formerly Naples Federal Savings
and Loan Association), dated as of March 25, 1987 (filed as Exhibit
4.4 to the 1986 Form 10-K and incorporated herein by reference).
4.2 Seventh Mortgage and Loan Modification Agreement among PGI
Incorporated, Punta Gorda Developers, Inc., Burnt Store Marina, Inc.,
and Gulf Coast Credit Corporation and BancFlorida, dated as of March
25, 1987 (filed as Exhibit 4.5 to the 1986 Form 10-K and incorporated
herein by reference).
37
EXHIBIT INDEX (continued)
4.3 Eighth Mortgage and Loan Modification Agreement among PGI
Incorporated, Punta Gorda Developers, Inc., Burnt Store Marina, Inc.,
and Gulf Coast Credit Corporation and BancFlorida, dated as of March
25, 1987 (filed as Exhibit 4.6 to the 1986 Form 10-K and incorporated
herein by reference).
4.4 Restated Loan and Security Agreement among PGI Incorporated, Punta
Gorda Developers, Inc., Burnt Store Marina, Inc., and Gulf Coast
Credit Corporation and BancFlorida, as well as Restated Consolidating
Substituted Renewal Note and Future Advance Mortgage Note related
thereto, dated as of March 25, 1987 (filed as Exhibit 4.7 to the 1986
Form 10-K and incorporated herein by reference).
4.5 Forbearance Agreement among PGI Incorporated, Punta Gorda Developers,
Inc., Burnt Store Marina, Inc., and Gulf Coast Credit Corporation and
BancFlorida (Restated Loan Agreement No.1), dated as of October 19,
1985 (filed as Exhibit 4.1 to the Registrant's Form 10-Q Quarterly
Report for the quarter ended September 30, 1985 and incorporated
herein by reference).
4.6 Amendment to Restated Loan Agreement No. 1 (Receivables Loan), as
well as Restated Consolidating Substituted Renewal Note relating
thereto, dated as of March 25, 1987 (filed as Exhibit 4.9 to the 1986
Form 10-K and incorporated herein by reference).
4.7 Extension, Forbearance and Modification Agreement between PGI
Incorporated, Punta Gorda Developers, Inc., Burnt Store Marina, Inc.,
and Gulf Coast Credit Corporation, and BancFlorida, dated as of May
20, 1988 (filed as Exhibit 4.1 to the Registrant's Form 10-Q
Quarterly Report for the quarter ended June 30, 1988 and incorporated
herein by reference).
4.8 Ninth Mortgage and Loan Modification Agreement between PGI
Incorporated, Punta Gorda Developers, Inc., Burnt Store Marina, Inc.,
and Gulf Coast Credit Corporation, and BancFlorida, dated as of May
20, 1988 (filed as Exhibit 4.2 to Registrant's Form 10-Q Quarterly
Report for the quarter ended June 30, 1988 and incorporated herein by
reference).
4.9 Purchase Agreement among Finova Financial Services, PGI Incorporated
and Punta Gorda Developers, Inc., as well as certain Exhibits and the
Mortgage related thereto, dated March 15, 1988 (filed as Exhibit 1 to
Registrant's Form 8-K dated as of March 28, 1988 and incorporated
herein by reference).
4.10 Tenth Mortgage and Loan Modification Agreement between PGI
Incorporated, Punta Gorda Developers, Inc., as well as certain
Exhibits and the Mortgage related thereto, dated May 30, 1989 (filed
as Exhibit 1 to Registrant's Form 8-K dated as of June 8, 1989 and
incorporated herein by reference).
38
EXHIBIT INDEX (continued)
4.11 Eleventh Mortgage and Loan Modification Agreement among PGI
Incorporated (formerly Punta Gorda Isles, Inc.), Sugarmill Woods,
Inc. (formerly Punta Gorda Developers, Inc.), Burnt Store Marina,
Inc. and Gulf Coast Credit Corporation and BancFlorida (formerly
Naples Federal Savings and Loan Association), dated as of June 1,
1990 (filed as Exhibit 4.2 to Registrant's Form 10-Q Quarterly Report
for the quarter ended June 30, 1990 and incorporated herein by
reference).
4.12 Loan Forbearance Agreement among PGI Incorporated (formerly Punta
Gorda Isles, Inc.), Sugarmill Woods, Inc, (formerly Punta Gorda
Developers, Inc.), Burnt Store Marina, Inc. and Gulf Coast Credit
Corporation and BancFlorida (formerly Naples Federal Savings and Loan
Association), dated as of October 17, 1991 (filed as Exhibit 4.12 to
Registrant's Form 10-K dated March 30, 1994 and incorporated herein
by reference).
4.13 Twelfth Mortgage and Loan Modification Agreement among PGI
Incorporated, Sugarmill Woods, Inc., Burnt Store Marina, Inc. and
Gulf Coast Credit Corporation and BancFlorida, dated as of July 8,
1992 (filed as Exhibit 4.1 to Registrant's Form 8-K dated as of July
24, 1992, and incorporated herein by reference).
4.14 Thirteenth Mortgage and Loan Modification Agreement among PGI
Incorporated, Sugarmill Woods, Inc., Burnt Store Marina, Inc., Gulf
Coast Credit Corporation and First Union, dated as of May 13, 1994
(filed as Exhibit 4.1 to Registrant's Form 8-K dated May 27, 1994 and
incorporated herein by reference).
4.15 Forbearance Agreement dated as of October 12, 1995 by First Union
National Bank of Florida, PGI Incorporated, Sugarmill Woods, Inc.,
Burnt Store Marina, Inc., Gulf Coast Credit Corporation, Southern
Woods, Incorporated, Punta Gorda Isles, Inc., Deep Creek Utilities,
Inc., Burnt Store Utilities, Inc., and Sugarmill Woods Sales, Inc.
(filed as Exhibit 4(i) to Registrant's Form 8-K on November 1, 1995
and incorporated herein by reference).
4.16 Note and Loan Document Purchase Agreement dated as of October 12,
1995 by First Union National Bank of Florida, PGIP, L.L.C., PGI
Incorporated, Sugarmill Woods, Inc., Burnt Store Marina, Inc., and
Gulf Coast Credit Corporation (filed as Exhibit 4 (ii) to
Registrant's Form 8-K on November 1, 1995 and incorporated herein by
reference).
4.17 Note Purchase and Loan Transaction dated as of March 28, 1996, by
First Union National Bank of Florida, PGIP, LLC, PGI Incorporated,
Sugarmill Woods, Inc., Burnt Store Marina, Inc. and Gulf Coast Credit
Corporation (filed as Exhibit 4.17 to Registrant's Form 10-KSB/A
dated August 27, 1997, and incorporated herein by reference).
9. Inapplicable.
39
EXHIBIT INDEX (continued)
10.3 Preferred Stock Purchase Agreement by and between PGI Incorporated
and Love Development and Investment Company, dated as of February 16,
1987 (filed as Exhibit (i) to the Registrant's Form 8-K Current
Report dated February 25, 1987 and incorporated herein by reference).
10.4 Form of Convertible Debenture Agreement due April 30, 1992 between
PGI Incorporated and Love-1989 Florida Partners, L.P. and Mortgage
and Security Agreement dated July 28, 1989 between Sugarmill Woods,
Inc. and Love-1989 Florida Partners, L.P. (filed as Exhibit 10.9 to
the Registrant's Form 10-K Annual Report for the year ended December
31, 1989 and incorporated herein by reference).
10.5 Consulting Agreement between PGI Incorporated and Love Real Estate
Company, dated as of March 25, 1987 (filed as Exhibit 10.7 to the
1986 Form 10-K and incorporated herein by reference).
11. See Note 16 to the consolidated financial statements.
13. Inapplicable.
14. Inapplicable (See discussion regarding code of ethics under Item 10.
of this Form 10-K).
16. Inapplicable.
18. Inapplicable.
21. Subsidiaries of the Registrant, filed herein.
22. Inapplicable.
23. Inapplicable.
24. Inapplicable.
31.1 Principal Executive Officer certification pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended, filed herein.
31.2 Principal Financial Officer certification pursuant to Rule 13a-14(a)
under the Securities Exchange Act of 1934, as amended, filed herein.
40
EXHIBIT INDEX (continued)
32.1 Principal Executive Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herein.
32.2 Principal Financial Officer Certification pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herein.
99. Not applicable.
100. Not applicable.
41