As used in this Annual Report on Form 10-K, the “Company” or “PGI” refers, unless the context otherwise requires, to PGI Incorporated and its subsidiaries. The Company’s executive offices are at 212 S. Central, 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 2530 years, the Company’s business focus and emphasis changed substantially as it has concentrated its sales and marketing efforts almost exclusively on the disposition of its remaining real estate. This change was prompted by its continuing financial difficulties due to the principal and interest owed on its debt.

The Company’s remaining land inventory consists of 6 single family lots, an approximate 7 acre parcel and some other minor parcels of real estate consisting of easements in Citrus County, Florida, which are owned through its wholly-owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”). In addition, Punta Gorda Isles Sales, Inc. (“PGIS”), a wholly-owned subsidiary of the Company, owns 12 parcels of real estate in Charlotte County, Florida, which total approximately 60 acres, but these parcels have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.

As of December 31, 2018,2019, the Company had no employees, and all services provided to the Company are through contract services.

Not Applicable

Not Applicable

The Company’s remaining land inventory consists of 6 single family lots, an approximate 7 acre parcel and some other minor parcels of real estate consisting of easements in Citrus County, Florida, which are owned through its wholly-owned subsidiary, Sugarmill Woods. In addition, PGIS, a wholly-owned subsidiary of the Company, owns 12 parcels of real estate in Charlotte County, Florida, which total approximately 60 acres, but these parcels have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale. The Company continues its efforts to dispose of all of its real estate.

The Company believes the properties are adequately covered by insurance.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

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 (“PGIP”), an affiliate of the Company, in 2003 which was described previously in the Company’s annual report on Form 10-KSB for the fiscal year ended December 31, 2004 and the 2,260,706 shares of Common Stock assigned by Love-PGI Partners, L.P. (“L-PGI”) to Love Investment Company (“LIC”), an affiliate of L-PGI, effective December 31, 2016.

There were also a small number of over-the-counter market quotations, obtained from www.otcmarkets.com, in 2017 and 2016 which were described previously in the Company’s annual reports on Form 10-K for the fiscal years ended December 31, 2017 and December 31, 2016. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions:

Not Applicable

The increase in accruedAccrued interest of $793,000 represents interest expense for the year ended December 31, 2018 of $1,388,000 less $594,000 in forgiveness of interest relatingincreased due to the 6.5% convertible subordinated debentures that were surrendered or escheated in 2018. There was no payment of interest expense during the year ended December 31, 2018.2019. The accrued interest relating to convertible subordinated debentures increased due to the additional accrual of interest on the nonpaymentand no payment of previously accrued interest on the Company’s debentures (see Note 8 to the consolidated financial statements under Item 8). The notes payable and convertible subordinated debentures, including accrued interest, are past due.

Accounting Standards Update (ASU) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, is effective for interim and annual periods ending after December 15, 2016 and, accordingly, this is discussed in Footnote 21 to the financial statements.

ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, is effective for fiscal years beginningafterbeginning after December 15, 2017, and interim periods within those fiscal years, and accordingly, this is discussed in Footnote 2 to the financial 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,” “appears”, “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); 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.

PGI Incorporated and Subsidiaries (the Company), a Florida corporation, was founded in 1958, and up until the mid 1990’s was in business of building and selling homes, developing and selling home sites and selling undeveloped or partially developed tracts of land. Over approximately the last 25 years, the Company’s business focus and emphasis changed substantially as it has concentrated its sales and marketing efforts almost exclusively on the disposition of its remaining real estate.

The Company has a significant accumulated deficit and is in default of certain sinking fund and interest payments on its convertible subordinated debentures (Note 8).

The Company’s major efforts and activities have been, and continue to be, to sell assets of the Company to repay its indebtedness and to pay the ordinary administrative expenditures in keeping an inactive company in existence. The aggregate remaining land inventory is less than 70 acres, consisting of multiple parcels located in Florida counties. These parcels have limited value because of associated development.constraints such as wetlands, easements and other obstacles to development and sale. The potential values of the land parcels held for sale has been difficult to assess as the remaining land inventory is difficult to sell and difficult to value. While the Company will seek to realize full market value for each remaining asset, the amounts realized may be at substantial variance from its present financial statement carrying value. 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.

In management’s judgment, the assets will be insufficient to satisfy much, if any, of the outstanding indebtedness and there will be no recoveries by the shareholders. Consequently, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The asset carrying values shown in the financial statements, are judged to be reasonable estimates of the value, when viewed in the context of the entirety of the financial statements.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after eliminating all significant inter-company transactions.

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.

In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” which requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted this standard using the modified retrospective approach. The adoption of ASU 2014-09 did not have an impact on the Company’s consolidated financial statements.

Sales of undeveloped and developed acreage tracts are recognized, net of any deferred revenue and valuation discount.

Land inventory is stated at cost.

The Company’s cash accounts exceed federally insured limits by approximately $276,000.$59,000.

Interest incomeRevenues totaled $4,000 for the year ended December 31, 2019 compared to revenues of $7,000 for the year ended December 31, 2018. Interest income on the Company’s money market account decreased by $1,000 during the year ended December 31, 2019 from the comparable period in 2018 due to the declining account balance. There was no related party interest income during the year ended December 31, 2019 compared to interest income of $15,000$5,000 for the year ended December 31, 2017. Related party interest income decreased by $8,000 during the year ended December 31, 2018 due to $5,000 from $13,000 for the comparable period in 2017. The related party interest income is the result of the Company’s investment in a $560,000 short term note with LIC, which investment was made during the year ended December 31, 2017. The Company received payment of the outstanding note receivable from LIC in March, 2018. InterestOther income of $2,000, represents interest earned on the Company’s money market account$3,000, received during the yearsyear ended December 31, 2018 and 2017.2019 represents a recovery of a lot lien receivable recorded in 1999 which has been fully provided for cancellation. There was no other revenue during the year ended December 31, 2018.

Accrued interest on notes payable consisted of the following:

The Trustee of the 6.5% subordinated convertible debentures, which matured in June 1991, with an original face amount of $1,034,000, provided notice of a final distribution to holders of such debentures on September 2, 2014. In connection with such final distribution, the Trustee has maintained a debenture reserve fund with a balance of $13,000 and $41,000 as of December 31, 20182019 and 2017,2018, respectively, available for distribution to holders of such debentures who surrender their respective debenture certificates.

During the year ended December 31, 2019, there were no 6.5% subordinated convertible debentures that were surrendered or escheated by their respective debenture holders and no funds were utilized from the debenture reserve account. During the year ended December 31, 2018, $28,000 of the debenture reserve funds were utilized with $2,000 disbursed in final distribution to debenture holders and $26,000 disbursed in escheatment to states of respective debenture holders as debentures with a face amount of $22,000 were surrendered by debenture holders and $287,000 in face amount of debentures were effectively surrendered with the escheatment of respective funds to the states of debenture holders, respectively. Accordingly, the Company has recognized $281,000 in forgiveness of debt during the year ended December 31, 2018. In addition, accrued interest of $594,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the year ended December 31, 2018. There were no debentures surrendered or escheated in 2017 and no funds were utilized from the debenture reserve account.

As of December 31, 2018,2019, the outstanding principal balance on such 6.5% subordinated convertible debentures that were not surrendered by the respective holders, or escheated by the Trustee to the states of residence of the respective holders, equals $138,000 plus accrued and unpaid interest of $270,000.$279,000. The outstanding principal on such respective debentures as of December 31, 20172018 was $447,000$138,000 plus accrued and unpaid interest of $846,000.$270,000.

The 6.5% Subordinated convertible debenture balances for the years ended December 31, 20182019 and 20172018 are as follows:

 

 

If and when such remaining debentures are surrendered to the Trustee, the applicable portion of such principal and accrued interest will similarly be recorded as debt and interest forgiveness. As the Company has consistently stated in prior filings, the Company believes that any potential claims by the respective debenture holders on such 6.5% subordinated convertible debentures would be barred under the applicable statutes of limitations.

Since issuance, $650,000 and $152,000 of the 6.5% and 6% debentures, respectively, have been converted into common stock. This conversion feature is no longer in effect.

The Company is in default of certain sinking fund and interest payments on both subordinated convertible debentures totaling $8,163,000 and $8,472,000 in principal plus accrued and unpaid interest of $25,744,000$27,070,000 and $25,032,000$25,744,000 as of December 31, 20182019 and 2017,2018, respectively.

In order to maximize the amounts realized for the debt holders, the Company has been and intends to continue to seek buyers for the remaining landholdings. No assurances are offered regarding the timing of or the values to be realized from future land sales.

In May 2008, LIC purchased $703,000 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 $797,000, were held by Love-1989. The debentures held by Love-1989 and LIC were 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 carried a maturity date of July 8, 1997 and were in default as of December 31, 20152015. In 2016 the 366 acres were sold and the primary lender obligation to PGIP was respectively paid, off in 2016.addition to the convertible debentures principal of $1,500,000 and a portion of the accrued interest. Interest on the debentures accrued at the rate of fourteen percent compounded quarterly. The Company’s primary lender credit agreements prohibitquarterly until the payment of interest until such time as the primary lender loans are repaid. The convertible debentures and a portion of the accrued interest wereprincipal was paid in 2016.2016..

The remaining accrued interest is $52,915,000 as of December 31, 20182019 and 2017.2018.

Reconciliation of the statutory federal income tax rates, 21% and 34% for the years ended December 31, 20182019 and 2017,2018, to the Company’s effective income tax rates follows:

 

At December 31, 2018,2019, the Company had an operating loss carryforward of approximately $68,476,000,$68,966,000, the majority of which will expire at various dates through 2037.2038.

Effective December 31, 2016, L-PGI liquidated and assigned the 2,260,706 shares of common stock of the Company and 1,875,000 shares of preferred stock of the Company, that were held by L-PGI to LIC, in conjunction with settling its remaining indebtedness. LIC was the general partner of L-PGI and is owned, directly or indirectly, by Andrew S. Love and Laurence A. Schiffer, which are the directors and executive officers of the Company.

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, 20182019 cumulative preferred dividends in arrears totaled $15,155,000$15,795,000 ($640,000 of which related to the year ended December 31, 2018)2019). On May 15, 1997 preferred dividends accrued through April 25, 1995 totaling $4,260,000 were paid in the form of 2,000,203 shares of common stock.

As of December 31, 20182019 and 2017,2018, 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, 20182019 and 2017,2018, the Company had reserved 3,756,000 common shares for the conversion of preferred stock.

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the consolidated financial position, results of operations and cash flows of the Company.

The Company’s primary preferred shareholder is LIC which is primarily owned and managed by Andrew S. Love and Laurence A. Schiffer. Messrs. Love and Schiffer serve as the executive officers and directors of the Company.

In May 2008, LIC purchased $703,000 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 $797,000, were held by Love-1989. The debentures held by Love-1989 and LIC were 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 carried a maturity date of July 8, 1997 and were in default as of December 31, 20152015. In 2016 the 366 acres were sold and the primary lender obligation to PGIP was respectively paid, off in 2016.addition to the convertible debentures principal of $1,500,000 and a portion of the accrued interest. Interest on the debentures accrued at the rate of fourteen percent compounded quarterly. The Company’s primary lender credit agreements prohibitquarterly until the payment of interest until such time as the primary lender loans are repaid. The convertible debentures and a portion of the accrued interest wereprincipal was paid in 2016.

The remaining accrued interest is $52,915,000 as of December 31, 20182019 and 2017.2018.

PGIP is owned and managed by Hallmark Investment Corporation (“HIC”). Messrs. Love and Schiffer are directors and executive officers of HIC and own 90% of all the issued and outstanding voting stock of HIC.

The Company maintains its administration and accounting offices with Love Real Estate Company (“LREC”). LREC, which is owned by LIC, is paid a monthly fee for the following:

In addition, the Company receives office space, telephone service and computer service from LREC. A fee of $2,800 per month was accrued in 20182019 and 2017.2018. The Company made payments of $33,600 to LREC in 20182019 and 20172018 for accounting service fees. There were no accrued accounting service fees as of December 31, 20182019 and 2017.2018.

The Company has 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, 20182019 and 2017,2018, the carrying value of the Company’s assets was approximately $553,000$336,000 and $788,000$553,000 respectively. Consulting fees were $2,000 and $3,000 in 2019 and $4,000 in 2018, and 2017, respectively. As of both December 31, 2018 and 2017, a total of $1,000 of unpaid fees had accrued under this agreement.

During 2017, the Company invested in a short-term note receivable of $560,000 with LIC, bearing interest of 4.5% per annum with an original maturity of December 31, 2017, which was extended one year through December 31, 2018. The interest receivable on the related party note receivable was $13,000 at December 31, 2017. The Company received payment of the outstanding note receivable from LIC in March 2018 of $578,000, including the note receivable balance of $560,000 and accrued interest receivable of $18,000.

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, 20182019 and 20172018 had an outstanding principal balance of $176,000 plus accrued interest of $464,000$477,000 and $452,000,$464,000, totaling an outstanding balance of $640,000$653,000 and $628,000,$640,000, respectively. Interest accrued on this loan was $13,000 and $12,000 in 2019 and $11,000 in 2018, and 2017, respectively.

Cash:

Receivables:

Debt:

The estimated fair values of the Company’s financial instruments are as follows: