<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(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, 1998
-----------------------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- -----------------
Commission file number 1-6471
-------------
PGI, INCORPORATED
- -----------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Florida 59-0867335
- -----------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Ident. No.)
incorporation or organization)
212 S. Central, Suite 100; St. Louis, Missouri 63105
- -----------------------------------------------------------------------
(Address of principal offices) (Zip Code)
Registrant's Telephone Number, including area code: (314) 512-8650
--------------------
Securities registered pursuant to Section 12 (b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
- ------------------------------- --------------------------------
None None
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, Par Value $.10 per share
6% Convertible Subordinated Debentures due 1992
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
X Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-B is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any adjustments to this Form 10-KSB. (x)
The aggregate market value of voting stock held by non-affiliates
of the registrant can not be determined. See page 7 of Form 10-KSB.
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of March 25, 1999.
Common Stock $.10 par value, 5,317,758 shares outstanding.
The Index to Exhibits is located on pages 44 to 48 of this report.
<PAGE>
<PAGE>
<TABLE>
PGI INCORPORATED AND SUBSIDIARIES
FORM 10 - KSB - 1998
Contents and Cross Reference Index
<CAPTION>
Part Item Form 10-KSB
No. No. Description Page No.
- --- --- ----------- --------
<S> <C> <C> <C>
I 1 Business
General 3
Recent Developments 3 - 6
2 Properties 7
3 Legal Proceedings 7
4 Submission of matters to a Vote of Security Holders 7
II 5 Market for Registrant's Common Equity and Related
Stockholder Matters 7
6 Management's Discussion and Analysis or Plan of
Operation 8 - 14
7 Report of Independent Certified Public Accountants 15
Financial Statements and Supplementary Data 16 - 34
8 Disagreements on Accounting and Financial Disclosure 34
III 9 Directors and Executive Officers of The Registrant 35
10 Executive Compensation 35 - 36
11 Security Ownership of Certain Beneficial Owners and
Management 36
12 Certain Relationships and Related Transactions 37 - 40
IV 13 Exhibits, Financial Statement Schedules and Reports on
Form 8-K 41
Signatures 43
Exhibit Index 44 - 48
</TABLE>
<PAGE>
<PAGE>
PART I
------
Item 1. Business
- ------ --------
GENERAL
As used in this Annual Report on Form 10-KSB, 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 was founded in 1958 to engage in the business of
building and selling homes, developing and selling homesites and selling
undeveloped or partially developed tracts of land. Substantially all of
the real estate available for sale by the Company is situated within
Sugarmill Woods in west central Florida.
In 1994 the Company's homesite sales effort came to a close with
an exchange of most of the remaining developed homesites inventory in
exchange for a reduction of debt with its primary lender.
During the fiscal year ended December 31, 1996, the Company's
business focus and emphasis changed substantially as it concentrated its
sales and marketing efforts almost exclusively on the disposition in
bulk of its undeveloped, platted, residential real estate. This change
was prompted by its continuing financial difficulties due to the
principal and interest owed on its debt and management's conclusion that
a bulk sale was the best way to reduce the Company's debt service
obligations. The sale of this undeveloped land occurred on May 13,
1998. Its remaining inventory now consists of undeveloped commercial
property. The Company intends to make a decision as to whether it will
pursue the development and sale of the commercial property in accordance
with its traditional core business plans or whether it will attempt to
sell such property in bulk. That decision will depend, in part, on
whether the Company believes it can generate more revenue by developing
and selling individual commercial properties or by selling in bulk.
As of January 1, 1999 the Company employed a total of 2 persons of
which one is on a part-time basis.
RECENT DEVELOPMENTS
On January 31, 1997, Sugarmill Woods, Inc. ("Sugarmill Woods"), a
Florida corporation and a wholly-owned subsidiary of the Company, and
Love-PGI Partners, L.P. ("L-PGI") (collectively as "Seller"), entered
into an Option Agreement For Sale and
-3-
<PAGE>
<PAGE>
Purchase ("Sale Agreement") with the Nature Conservancy, Inc., an
unrelated nonprofit District of Columbia corporation ("Purchaser"), for
the sale and purchase of approximately 5,240 acres of certain
undeveloped real estate located in Citrus County and Hernando County,
Florida ("Property"). Approximately 4,890 acres of the Property was
owned by the Company, and 350 acres was owned by L-PGI. Shareholder
approval of the sale of the property was obtained at the Annual Meeting
of the Company on December 22, 1997.
On May 13, 1998, the bulk acreage sale was consummated. The
Property was sold to the Board of Trustees of the Internal Improvement
Trust Fund of the State of Florida (the "Purchaser"), for $14,759,335
(the "Total Purchase Price"). The amount received by Sugarmill Woods
for the PGI Property was $13,446,835 before closing adjustments (the
"PGI Purchase Price"). L-PGI, which holds 1,875,000 (93.7%) of the
Company's outstanding Class A Cumulative Preferred Stock constituting
56.5% of the Company's outstanding voting capital stock, received the
remaining $1,312,500 for its portion of the land sold.
The Total Purchase Price was based on two appraisals and was the
result of intense and prolonged negotiations. The Company is confident
that its wholly-owned subsidiary received the highest price for the PGI
Property that the Purchaser was willing to pay.
There is no material relationship among the Company, Sugarmill
Woods or any of the affiliates and the Purchaser or the Conservancy,
although certain affiliates of the Company and Sugarmill Woods may be
deemed to have benefited from the sale of the Property to the Purchaser
as described below.
PGIP, LLC (PGIP) was formed by Andrew S. Love, Jr. and Laurence A.
Schiffer, the Company's only directors and executive officers, to
purchase from the mortgage holder the unpaid principal and interest on
the Company's primary lender indebtedness, and accept assignment of the
first mortgage and credit agreements related thereto as security for
repayment.
The largest investor in PGIP is Love Savings Holding Company
("LSHC") which holds an approximate 75% interest in, and is a manager of
PGIP. Messrs. Love and Schiffer own approximately 52% of all the issued
and outstanding voting stock of LSHC and serve as the directors and
officers of LSHC. Messrs. Love and Schiffer and LSHC are the managers
of PGIP. The holders of the remaining limited liability company
interests do not have any affiliation with PGI, LSHC, L-PGI or Love-1989
Florida Partners, L.P.
-4-
<PAGE>
<PAGE>
The disposition of the cash from the sale, which also includes the
payments to PGIP, is set forth below:
<TABLE>
<CAPTION>
Description Amount
----------- ------
<S> <C> <C>
Gross Sale Proceeds of 5,240 Acres $ 14,759,335
Amount Allocable to L-PGI's 350 Acres (1,312,500)
------------
Gross Proceeds from sale of PGI Property 13,446,835
Expenses of Sale (435,876)
Real Estate Tax Escrow (557,069)
Accrued Tax Adjustment for 1998 (72,345)
Legal Fees Relating to Property Sold (229,139)
First Mortgage Principal ($7,529,756 6,529,756
Less: $1,000,000 remaining)
First Mortgage Interest 3,832,437
---------
Payoff of First Mortgage and accrued interest to PGIP (10,362,193)
Escrow Agreement with PGIP (1,000,000)
Judgment (110,108)
------------
Funds to Sugarmill Woods, Inc. $ 680,105
============
</TABLE>
The use of proceeds as set forth above resulted in a payment of
first mortgage principal and interest to PGIP of $10,362,193. After
payment of its debts and liabilities, PGIP made cash distributions to
its members in accordance with its Operating Agreement. LSHC, which
holds approximately 75% of the PGIP limited liability company interests,
received approximately $2,505,097 in excess of its investment in PGIP.
Because Messrs. Love and Schiffer, the Company's only directors and
executive officers, together own 52% of LSHC, they could be deemed to
have "profited" by an aggregate of approximately $1,302,650. The amount
of profit to LSHC and Messrs. Love and Schiffer is based on the use of
proceeds set forth above. It could increase upon payment of the
remaining $1 million mortgage amount and interest and by an additional
amount up to ten percent of PGIP's profit over a specified minimum rate
of return based upon the incentive arrangements that PGIP has with its
members.
A portion of the PGI Property sold by the Company to the Purchaser
was also encumbered by a second mortgage in favor of Love-1989 Florida
Partners, L.P., ("Love-1989"), securing the indebtedness owed to Love-
1989 represented by subordinated debentures issued by the Company (the
"Debentures"). The general partner of Love-1989 is Love Investment
Company, which is owned by Mr. Love, Love family members and trust, the
Estate of Martha Love Symington and Mr. Schiffer. Messrs. Love and
Schiffer, caused Love-1989 to release its second mortgage on the PGI
Property and Messrs. Love and Schiffer, in their capacities as directors
of the Company, caused the Company to grant to Love-1989 a substitute
second mortgage on the Retained Acreage, behind the First Mortgage held
by PGIP.
-5-
<PAGE>
<PAGE>
At closing, the Company and PGIP executed an escrow agreement (the
"Escrow Agreement"). The Escrow Agreement provides that $1,000,000 of
the PGI Purchase Price would not be used to repay the First Mortgage
Indebtedness, so that $1,000,000 (the "Remaining Indebtedness") of the
First Mortgage Indebtedness would remain in place. The $1,000,000 was
placed in escrow with PGIP as the escrow agent. Pursuant to the Escrow
Agreement, the escrowed funds are to be paid out (i) as requested by PGI
and agreed to by PGIP, or (ii) as deemed necessary and appropriate by
PGIP, in either case, to protect PGIP's interest in the Retained Acreage
(as hereinafter defined), including PGIP's right to receive principal
and interest under the First Mortgage securing the Remaining
Indebtedness, or (iii) to PGIP to pay any other obligations owed to PGIP
by the Company. The real estate owned by the Company which was not sold
to the Purchaser (approximately 370 acres) (the "Retained Acreage")
remains subject to the First Mortgage.
Prospects for the Remaining Acreage
The remaining acreage of the Company mainly consist of 370 acres
located in Hernando County, Florida.
The Company believes that the Retained Acreage may in the future
prove to be of greater value than the property sold because the Retained
Acreage's ratio of acreage to frontage on the proposed Suncoast
Expressway is greater than the sold property's ratio and because of the
proximity of the Retained Acreage to the proposed Suncoast Expressway
and the planned interchange between the Suncoast Expressway and Highway
98. The Company acknowledges that completion of the highway
improvements could reasonably be expected to increase materially the
value of the Property. The Company fully recognizes, however, that
completion of the Suncoast Expressway, if it ever occurs, is still more
than five years away, and that any information or projections of
enhanced values are purely speculative.
Sale of Sugarmill Woods Sales, Inc.
The stock of Sugarmill Woods Sales, Inc., a subsidiary of
Sugarmill Woods, Inc. was sold September 15, 1998 to the president of
Sugarmill Woods Sales, Inc. for a price of $25,000. Assets at the time
of sale included the personal property, escrows and rental contracts of
the entity. A promissory note for $24,000 was taken back by Sugarmill
Woods, Inc. secured by a lien on the stock being purchased and
evidenced by a security agreement. The company realized a gain of
$18,000 on this transaction.
Payoff of Debt Collateralized by Contracts Receivable
On June 1, 1998 the Company paid $103,000 to Finova Capital
Corporation in settlement of note obligations and accomplished the
repurchase of contracts receivable on homesite sales, and release of
$265,000 in restricted cash. The Company realized an extraordinary gain
of $870,000 with this settlement. The Company is pursuing repossession
of lots with delinquent status.
-6-
<PAGE>
<PAGE>
Item 2. Properties
- ------- ----------
The Company's primary investments in properties relates to its
Sugarmill Woods project. The Company generally has fee simple title to
these properties, but substantially all of the Company's properties are
encumbered by mortgages under either its primary lender agreement or
other financing agreements (see Item 6 and Note 9 to the consolidated
financial statements under Item 7).
Item 3. Legal Proceedings
- ------- -----------------
The Company is a party to a number of lawsuits incidental to the normal
operation of its business. Based upon information presently available,
the Company does not believe that the resolution of any of the suits
individually, or collectively, will have a material adverse effect on
its financial position (see Note 15 of Item 7).
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
A shareholders meeting was not held during the year 1998.
PART II
- -------
Item 5. Market for Registrant's Common Equity and Related
- ------- -------------------------------------------------
Stockholder Matters
-------------------
The Company's Common Stock was traded on the American Stock
Exchange, Inc. ("AMEX") (trading symbol - - PGA) until January 4, 1991
at which time the Company consented to the removal of its Common Stock
and 6% Convertible Subordinated Debentures from the AMEX. The Company's
Common Stock and Debentures were delisted because the Company's
financial condition no longer satisfied the AMEX's listing requirements.
Subsequent to the AMEX de-listing the Company attempted to establish
relations with a brokerage firm who would serve as a market maker for
the Common Stock. Based on information received from The National
Quotations Bureau, Inc., there have been no reported transactions in the
Company's Common Stock since January 29, 1991. During the period
January 1, 1991 through January 29, 1991 the high and low bid price for
the Common Stock was $.03 and the high and low offer price was $.10. No
dividends have ever been paid on the Common Stock, and payment of
dividends is restricted under the terms of the two indentures pursuant
to which the Company's outstanding debentures are issued. As of
December 31, 1998 there were 647 holders of record of the Company's
Common Stock and approximately 447 debenture holders.
-7-
<PAGE>
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
- ------- ---------------------------------------------------------
PRELIMINARY NOTE
With the sale of over 90% of the Company's undeveloped land
inventory in 1998, the Company is evaluating whether it will pursue the
development and sale of the remaining property in accordance with its
traditional core business plans or whether it will attempt to sell such
property in bulk. That decision will depend, in part, on whether the
Company believes it can generate more revenue by developing and selling
individual commercial properties or by selling in bulk.
RESULTS OF OPERATIONS
Revenues for the year ended December 31, 1998 increased by
$14,200,000 to $14,796,000 compared to revenues of $510,000 for the year
ended December 31, 1997 as a result of the bulk acreage sale in 1998.
Net income before the extraordinary item was $2,862,000($.42 per share)
for 1998 compared to a net loss of $3,300,000($.87 per share) for 1997.
Included in the 1998 and 1997 earnings per share computation is $640,000
($.19 per share of Common Stock) of annual cumulative preferred stock
dividends in arrears.
Real Estate Activities
- ----------------------
Sales revenues for real estate operations for the years of 1998
and 1997 were:
1998 1997
---- ----
Sales: ($ in thousands)
- Homesite Sales 37 15
- Acreage Sales 13,447 -
------ --
13,484 15
====== ==
Cost of sales for real estate operations for the years of 1998 and 1997
were:
1998 1997
---- ----
Cost of Sales: ($ in thousands)
- Homesite Sales 8 12
- Acreage Sales 8,427 -
----- --
8,435 12
===== ==
-8-
<PAGE>
<PAGE>
Gross profit margins for real estate operations for the years of 1998
and 1997 were:
<TABLE>
<CAPTION>
1998 % 1997 %
---- ----- ---- -----
Gross Profit Margin: ($ in thousands)
<S> <C> <C> <C> <C>
- Homesite Sales 29 78.4% 3 20.0%
- Acreage Sales 5,020 37.3% - -
----- --
5,049 3
===== ==
</TABLE>
Other Activities
The Company's cash accounts are substantially larger due to funds
released with the bulk acreage sale in 1998. Interest income in 1998
increased by $53,000 compared to a 1997 decrease of $58,000 from 1996.
Other income for the years of 1998 and 1997 was:
1998 1997
---- ----
($ in thousands)
Commission income 247 365
Other income 113 101
--- ---
360 466
=== ===
Commission income decreased by $118,000 in 1998 to $247,000 from
$365,000 in 1997 due to the sale of Sugarmill Woods Sales, Inc. on
September 15, 1998. Other income increased by $12,000 in 1998 to
$113,000 from $101,000 in 1997.
Costs and Expenses
- ------------------
Selling expenses increased by $12,000 during 1998 compared to 1997.
The current year increase is a result of more contract sales being paid
off and cost associated with recording deeds over to customers.
General and administrative expenses decreased by $405,000 in 1998
compared to 1997 due to a reduction in legal fees and real estate taxes
with the bulk acreage sale in May 1998. In 1997 they increased by
$15,000 compared to 1996.
In an effort to conserve cash and reduce overhead, the Company
consolidated its administrative office functions in St. Louis, Missouri
in June 1994. The Company has contracted out the services to Love Real
Estate Company ("LREC"), an affiliate of Love-PGI Partners, the
Company's Preferred Shareholder (see Note 16), to handle the day-to-day
accounting for a fee.
-9-
<PAGE>
Interest expense for the two years ended December 31, 1998 and 1997 was:
1998 1997
---- ----
($ in thousands)
Interest Expense $2,149 $2,698
Interest expense in 1998 decreased by $549,000 compared to 1997 and
increased by $186,000 (7.4%) in 1997 compared to 1996. The current year
decrease is a result of reduced debt concurrent with the bulk acreage
sale.
Other expenses decreased by $280,000 (98%) in 1998 compared to
1997. In 1997 other expenses increased by $275,000 (229.2%) compared to
1996 due to changes in valuation allowances.
FINANCIAL CONDITION
Assets totaled $3,300,000 at December 31, 1998 compared to
$11,100,000 at December 31, 1997 reflecting the following changes:
1998 1997 Inc. (Dec.)
---- ---- -----------
($ in thousands)
Cash and Cash Equivalents $ 161 $ 2 159
Restricted Cash 1,903 1,173 730
Receivables 149 184 (35)
Land and Improvement 889 8,992 (8,103)
Net property and Equipment 1 18 (17)
Other Assets 156 759 (603)
------ ------- ------
$3,259 $11,128 (7,869)
====== ======= ======
Cash increased by $159,000 to $161,000 at December 31, 1998
compared to $2,000 at December 31, 1997. Net cash flow provided by
operations was $8,373,000 for the year ended December 31, 1998 compared
to net cash flow used in operations of $128,000 for the year ended
December 31, 1997.
Cash received from operations during 1998 was $13,837,000, a
$13,100,000 increase from cash received during 1997. The majority of
the increase is attributable to the bulk acreage sale in 1998.
Cash expended for operations increased by $4,599,000 to $5,464,000
during 1998 from $865,000 in 1997, reflecting increased payments in the
following classifications; real estate operations ($427,000), general
and administrative ($421,000), interest payments ($3,863,000) and
decreases in other payments of ($112,000).
Cash expended for operations decreased by $30,000 to $865,000
during 1997 from $895,000 in 1996, reflecting decreases in the following
classifications; general and administrative ($32,000), interest expense
($33,000) and increases in payments for real estate operations of
($2,000) and other of ($33,000).
-10-
<PAGE>
<PAGE>
The $893,000 utilized during 1998 by investing activities was
comprised of restricted cash funds established and released concurrent
with the bulk acreage sale in May 1998 and with funds released upon
settlement of obligations with Finova Capital Corporation in June 1998.
The $7,321,000 utilized during 1998 in financing activities
represents payments of primary lender debt, and debt obligations with
Love Investment Company and the Finova Capital Corporation. The
$137,000 utilized during 1997 by financing activities represents
payments to Finova from collections on the receivables on real estate
sold to Finova in 1988.
In order to satisfy its debt obligations, the Company has been and
intends to continue to:
-- actively seek buyers for the remaining portion of the
undeveloped acreage, when appropriate;
-- diligently pursue collection of its receivables; and
-- determine if potential merger or joint venture candidates
exist.
No assurances can be made that the Company can achieve any of the
three above alternatives.
A comparison of the contract receivable delinquency status at
December 31, 1998 and 1997 follows:
<TABLE>
<CAPTION>
1998 % 1997 %
---- ----- ---- -----
($ in thousands)
<S> <C> <C> <C> <C>
Current $ 13 2.0 $ 68 8.3
31 to 60 days delinquent 11 1.7 3 .4
61 days to 90 days delinquent 0 0 8 1.0
Over 90 days $620 96.3 $737 90.3
---- ----- ---- -----
Total delinquents $631 98.0 $748 91.7
---- ----- ---- -----
Total contracts $644 100.0 $816 100.0
==== ===== ==== =====
</TABLE>
The Company has experienced deterioration in the quality of the
contracts receivable portfolio over the past several years. The Company
believes the deterioration is the result of the adverse publicity
regarding community developers as a result of the GDC bankruptcy, as
well as the difficulty of implementing foreign contract collection
activities.
-11-
<PAGE>
<PAGE>
Liabilities were $25,400,000 at December 31, 1998 compared to
$37,000,000 at December 31, 1997, reflecting the following changes:
<TABLE>
<CAPTION>
1998 1997 Inc. (Dec.)
---- ---- -----------
($ in thousands)
<S> <C> <C> <C>
Accounts payable 26 285 (259)
Other liabilities 1,218 1,727 (509)
Accrued interest 11,391 13,328 (1,937)
Credit agreements - primary
lender 1,000 7,344 (6,344)
Notes and mortgages payable 1,198 3,750 (2,552)
Convertible subordinated
Debentures payable 9,059 9,059 -
Convertible debentures payable 1,500 1,500 -
------ ------ -------
25,392 36,993 (11,601)
====== ====== =======
</TABLE>
The $1,937,000 decrease in accrued interest at December 31, 1998
compared to year-end 1997 reflects changes in the following:
<TABLE>
<CAPTION>
1998 1997 Inc. (Dec.)
---- ---- -----------
($ in thousands)
<S> <C> <C> <C>
Primary lender 22 3,461 (3,439)
Debentures 9,715 8,238 1,477
Other 1,654 1,629 25
------ ------ ------
11,391 13,328 (1,937)
====== ====== ======
</TABLE>
The decrease in primary lender accrued interest is due to payoff of
accrued interest and debt with the bulk acreage sale in May 1998. The
accrued interest relating to debentures increased due to the nonpayment
of interest on the company's debentures (see Notes 10 and 11 to the
consolidated financial statements under Item 7).
The $2,552,000 decrease in notes and mortgages payable primarily
represents payoff and settlement of debt with Finova Capital Corporation
which related to the 1988 financing transaction for the sale of contract
receivables. The Company also made payments to Love Investment Company,
and accomplished the release of $700,000 in debt (See Note 16 to the
consolidated financial statements under Item 7).
The Company's capital deficiency decreased to $22,133,000 at
December 31, 1998 from a $25,865,000 capital deficiency at December 31,
1997, reflecting the 1998 operating gain.
-12-
<PAGE>
<PAGE>
As of the date of this filing, the Company is in default of the
entire principal plus interest on its subordinated debentures payable in
amounts indicated in the following table:
12/31/98
--------
Principal Unpaid
Amount Due Interest
---------- --------
($ in thousands)
Subordinated debentures due June 1, 1991 1,034 611
Subordinated debentures due May 1, 1992 8,025 5,200
----- -----
9,059 5,811
===== =====
The Company does not have funds available to make any payments of
either principal or interest on the above debentures. If a debenture
holder or Trustee institutes action to collect on the debentures, such
action could prohibit the Company from continuing to operate in the
normal course of business (see Notes 9 and 10 to the consolidated
financial statements under Item 7).
The Company has investigated the consequences of a bankruptcy
filing and believes that such an event is not in the best interest of
either the debenture or equity holders because a bankruptcy filing would
negatively impact the Company's business, as well as cause an
acceleration of the First Mortgage Indebtedness, and secured debenture
debt. Management believes that a bankruptcy filing would prompt all
secured lenders to initiate foreclosure proceedings. Since Company
assets are encumbered by mortgages, the secured lenders have a perfected
security interest and priority over the unsecured debenture holders.
Year 2000 Issues
- ----------------
The year 2000 issue is determined to have an immaterial effect on
the Company. As of January 1, 1999, the Company has begun maintaining
the financial records on different software, which is also used by a
related party. The related party is responsible for testing and
modifying the software for the year 2000 processing and expects this
exercise to be complete by August 31, 1999. The related party is not
expected to charge PGI, Incorporated for the cost of the conversion or
modifications. As a result, any changes required, as part of any year
2000 conversions made to the financial records will have a minimal
effect on the business, results of operations and financial condition.
The Company has no material third party relationships with vendors
which would require year 2000 modifications, does not own or operate any
building, and has no other major information technology system with
imbedded technology.
-13-
<PAGE>
<PAGE>
New Accounting Standards
- ------------------------
Financial Accounting Standard ("FAS") 130, "Reporting Comprehensive
Income," was issued in June 1997. Comprehensive income is defined as
net income plus certain items that are recorded directly to the
shareholders' equity, such as unrealized gains and losses on available-
for-sale securities. This pronouncement had no effect on the Company's
financial statements for the year ended December 31, 1998.
FAS 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods
beginning after December 15, 1997. An operating segment is defined
under FAS 131 as a component of an enterprise that engages in business
activities that generate revenue and expense for which operating results
are reviewed by the chief operating decision maker in the determination
of resource allocation and performance. This pronouncement had no
effect on the Company's financial statements for the year ended December
31, 1998.
FAS 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," addresses disclosure of such benefit plans and
is effective for fiscal years beginning after December 15, 1997. This
pronouncement had no effect on the Company's financial statements for
the year ended December 31, 1998.
FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," which was issued in June 1998, establishes accounting and
reporting standards for derivative instruments and hedging activities.
Under FAS 133, derivatives are recognized on the balance sheet at fair
value as an asset or liability. Changes in fair value of derivatives
are reported as a component of other comprehensive income or recognized
as earnings through the income statement depending on the nature of the
instrument. FAS 133 is effective for all quarters of fiscal years
beginning after June 15, 1999 with earlier adoption permitted. The
Corporation has not adopted FAS 133 yet and is currently evaluating FAS
133's effect on its financial position and results of operations, but it
is not expected to have a material impact.
-14-
<PAGE>
<PAGE>
Item 7. Financial Statements and Supplementary Data
- ------- -------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Stockholders and Board of Directors
PGI, Incorporated
St. Louis, Missouri
We have audited the accompanying consolidated statements of financial
position of PGI Incorporated and subsidiaries as of December 31, 1998
and 1997, 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 and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit also includes assessing the
accounting principles used and significant estimates made by management,
as well as 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, 1998 and 1997, and the
results of their operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 10 to
the financial statements, the Company is currently in default of certain
sinking fund and interest payments on its convertible subordinated
debentures. The Company has a significant accumulated deficit, is in
default of its primary debt (Note 9), certain sinking fund and interest
payments on its convertible subordinated debentures (Note 10) and its
convertible debentures (Note 11). 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 10. The
financial statements do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ BDO Seidman LLP
St. Louis, Missouri
March 12, 1999
-15-
<PAGE>
<PAGE>
<TABLE>
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31, 1998 and 1997
<CAPTION>
ASSETS LIABILITIES
====== ===========
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents 161,000 2,000 Accounts Payable 26,000 285,000
Restricted Cash (Note 3) 1,903,000 1,173,000
Receivables on real estate Other liabilities (Note 8) 1,218,000 1,727,000
sales-net (Note 4) 97,000 156,000
Other receivables 52,000 28,000 Accrued interest:
Primary lender 22,000 3,461,000
Land and improvement Debentures 9,715,000 8,238,000
Inventories (Note 5) 889,000 8,992,000 Other 1,654,000 1,629,000
Property and Equipment - net
(Note 6) 1,000 18,000
Other assets (Note 7) 156,000 759,000
Credit Agreements - (Note 9)
Primary lender 1,000,000 7,344,000
Notes and mortgages
Payable 1,198,000 3,750,000
Subordinated Convertible
Debentures payable (Note 10) 9,059,000 9,059,000
Convertible debentures
Payable (Note 11) 1,500,000 1,500,000
---------- ----------
25,392,000 36,993,000
---------- ----------
Commitments and contingencies
(Note 15)
<CAPTION>
STOCKHOLDERS' DEFICIENCY
========================
<S> <C> <C> <C> <C> <C>
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 $4.00
per share of $8,000,000)
(Note 13) 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 13) 532,000 532,000
Paid-in capital 13,498,000 13,498,000
Accumulated deficit (38,163,000) (41,895,000)
----------- -----------
(22,133,000) (25,865,000)
----------- -----------
3,259,000 11,128,000 3,259,000 11,128,000
========= ========== =========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-16-
<PAGE>
<PAGE>
<TABLE>
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues:
Real estate sales (Note 2) 13,484,000 15,000
Interest income 82,000 29,000
Other income (Note 2) 360,000 466,000
---------- ----------
13,926,000 510,000
---------- ----------
Costs and expenses:
Cost of real estate sales (Note 2) 8,435,000 12,000
Selling expenses 20,000 8,000
General and administrative
expenses (Note 16) 453,000 858,000
Interest 2,149,000 2,698,000
Other expenses (Note 2) 7,000 287,000
---------- ----------
11,064,000 3,863,000
---------- ----------
Income (loss) before extraordinary item 2,862,000 (3,353,000)
Extraordinary item-gain on debt
extinguishment (Note 4) 870,000 -
---------- ----------
Net Income(loss) 3,732,000 (3,353,000)
========== ==========
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share before
extraordinary item 0.42 (0.87)
Extraordinary item 0.16 -
---------- ----------
Earnings (loss) per share 0.58 (0.87)
========== ==========
Diluted earnings (loss) per share before
extraordinary item 0.26 (0.87)
Extraordinary item 0.10 -
---------- ----------
Diluted earnings (loss) per share 0.36 (0.87)
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
-17-
<PAGE>
<PAGE>
<TABLE>
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Cash received from operations:
Collections from real estate sales and
receivables on such sales $14,932,000 $ 275,000
Interest on homesite and acreage contracts 6,000 22,000
Collections from amenity and other operations 259,000 416,000
Other interest received 15,000 12,000
Other receipts 6,000 12,000
----------- ---------
15,218,000 737,000
----------- ---------
Cash expended for operations:
Payments to subcontractors and vendors for 438,000 11,000
Real estate operations and sale and marketing
activities
Payments for amenity and other operations 235,000 339,000
General and administrative costs 741,000 320,000
Interest paid 4,023,000 160,000
Other disbursements 27,000 35,000
----------- ---------
5,464,000 865,000
----------- ---------
Net cash flow provided by (used in)
operating activities 9,754,000 (128,000)
----------- ---------
Cash flows from investing activities:
Purchases of property and equipment (2,000)
Proceeds from sale of property and equipment 25,000
Proceeds from release of restricted cash 807,000
Payments to establish restricted cash (1,532,000) -
----------- ---------
Net cash flow (used in) investing activities (700,000) (2,000)
----------- ---------
Cash flows from financing activities:
Proceeds from notes receivable 1,000
Proceeds from borrowings 257,000
Principal payments on debt (8,896,000) (137,000)
----------- ---------
Net cash flow provided by (used in)
financing activities (8,895,000) 120,000
----------- ---------
Net increase (decrease) in cash and cash equivalents 159,000 (10,000)
Cash and cash equivalents at beginning of year 2,000 12,000
----------- ---------
Cash and cash equivalents at end of year 161,000 2,000
=========== =========
Non-cash investing and financing activities:
Earnings capitalized into restricted cash 42,000 24,000
----------- ---------
Interest paid from restricted cash 64,000 -
----------- ---------
Preferred stock dividends paid in common stock - 200,000
----------- ---------
See accompanying notes to consolidated financial statements.
</TABLE>
-18-
<PAGE>
<PAGE>
<TABLE>
PGI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31, 1998 and 1997
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
operating activities:
Net Income (loss) $ 3,732,000 $(3,353,000)
Adjustments to reconcile net income (loss) to net cash
Provided by (used in) operating activities:
Depreciation and amortization 8,000 14,000
Net allowance and valuations related
to real estate sales 118,000 (108,000)
(Gain)Loss on sale or disposition of property,
plant & equipment (16,000) 16,000
Earnings capitalized into restricted cash (76,000) (24,000)
Interest released from restricted cash 64,000 -
(Increase) decrease in:
Contracts and mortgages receivable (59,000) 270,000
Other receivables (24,000) (2,000)
Land and improvement inventories-net 8,103,000 24,000
Prepaid expenses & deposits 609,000 -
Increase (decrease) in:
Accounts payable (259,000) 207,000
Accrued interest (1,937,000) 2,538,000
Other accrued expenses (509,000) 308,000
Restricted escrow deposits and advances - (18,000)
----------- -----------
Net cash flow provided by (used in) operating
activities $ 9,754,000 $ (128,000)
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
-19-
<PAGE>
<PAGE>
<TABLE>
PGI INCOPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
Years ended December 31, 1998 and 1997
<CAPTION>
Preferred Stock Common Stock Retained
--------------------- --------------------- Paid-In Earnings
Shares Par Value Shares Par Value Capital (Deficit)
------ --------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at 1/1/97 2,000,000 $2,000,000 3,317,555 $332,000 $13,698,000 $(38,542,000)
Dividend Paid 2,000,203 200,000 (200,000)
Net Loss (3,353,000)
--------- ---------- --------- -------- ----------- ------------
Balances at 12/31/97 2,000,000 $2,000,000 5,317,758 $532,000 $13,498,000 $(41,895,000)
Net Income - - - - - 3,732,000
--------- ---------- --------- -------- ----------- ------------
Balances at 12/31/98 2,000,000 $2,000,000 5,317,758 $532,000 $13,498,000 $(38,163,000)
========= ========== ========= ======== =========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
-20-
<PAGE>
<PAGE>
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
- ---------
Prior to July 1992, homesites were generally sold under contracts
for deed or deed, note and mortgage which provide for a down payment and
monthly installments, including interest, for periods up to ten years.
Prior to 1990 income from sales of homesites was recorded when minimum
down payment (including interest) and other requirements were met.
However, because of collectibility problems with certain off-site
broker/foreign sales programs, effective January 1, 1990, the Company
adopted the installment method of profit recognition in accordance with
Statement of Financial Accounting Standard No. 66 "Accounting for Sales
of Real Estate".
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.
Provisions for Cancellations
- ----------------------------
For sales prior to January 1, 1990, the Company provided for
estimated future cancellations of receivables on real estate sales by
charges to operations based on historical collection experience and
analysis of delinquencies. Balances related to canceled receivables are
charged to the allowance for cancellations.
-21-
<PAGE>
<PAGE>
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.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is
provided principally by the straight-line method over the estimated
useful lives of the related assets. Gains or losses resulting from the
disposition of property and equipment are respectively included in other
income and other expense.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
New Accounting Standards
- ------------------------
Financial Accounting Standard ("FAS) 130, "Reporting Comprehensive
Income," was issued in June 1997. Comprehensive income is defined as
net income plus certain items that are recorded directly to
shareholders' equity, such as unrealized gains and losses on available-
for-sale securities. This pronouncement had no effect on the Company's
financial statements for the year ended December 31, 1998.
FAS 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods
beginning after December 15, 1997. An operating segment is defined
under FAS 131 as a component of an enterprise that engages in business
activities that generate revenue and expense for which operating results
are reviewed by the chief operating decision maker in the determination
of resource allocation and performance. This pronouncement had no
effect on the Company's financial statements for the year ended December
31, 1998.
FAS 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," addresses disclosure of such benefits plans
and is effective for fiscal years beginning after December 15, 1997.
This pronouncement had no effect on the Company's financial statements
for the year ended December 31, 1998.
FAS 133, "Accounting for Derivative Instruments and Hedging
Activities," which was issued in June 1998, establishes accounting and
reporting standards for derivative instruments and hedging activities.
Under FAS 133, derivatives are recognized on the balance sheet at fair
value as an asset or liability. Changes in the fair value of
derivatives
-22-
<PAGE>
<PAGE>
are reported as a component of other comprehensive income or recognized
as earnings through the income statement depending on the nature of the
instrument. FAS 133 is effective for all quarters of fiscal years
beginning after June 15, 1999 with earlier adoption permitted. The
Corporation has not adopted FAS 133 yet and is currently evaluating FAS
133's effect on its financial position and results of operations, but it
is not expected to have a material impact.
Year 2000 Issues
- ----------------
The year 2000 issue is determined to have an immaterial effect on
the Company.
As of January 1, 1999, the Company has begun maintaining the
financial records on different software, which is also used by a related
party. The related party is responsible for testing and modifying the
software for year 2000 processing and expects this exercise to be complete
by August 31, 1999. The related party is not expected to charge PGI,
Incorporated for the cost of the conversion or modifications. As a result,
any changes required, as part of any year 2000 conversions made to the
financial records will have a minimal effect on the business, results of
operations and financial condition.
Rounding
- --------
The dollar amounts in the accompanying financial statements and
notes to the financial statements have been rounded to the nearest
thousand.
2. Real Estate Sales, Other Income and Other Expense:
--------------------------------------------------
Real estate sales and cost of sales consisted of:
1998 1997
---- ----
Sales:
Homesites sales $ 37,000 $15,000
Bulk acreage sale 13,447,000 -
----------- -------
$13,484,000 $15,000
=========== =======
1998 1997
---- ----
Cost of Sales:
Homesite sales $ 8,000 $12,000
Bulk acreage sale 8,427,000 -
----------- -------
$ 8,435,000 $12,000
=========== =======
On May 13, 1998, a bulk acreage sale comprising approximately
4,890 acres of undeveloped real property was consummated. After this
sale, the Company has approximately 370 acres of undeveloped real
property remaining.
-23-
<PAGE>
<PAGE>
Other income consisted of:
Commission income $ 247,000 $ 365,000
Other income 113,000 101,000
--------- ---------
$ 360,000 $ 466,000
========= =========
Other expenses consisted of:
Reduction in allowance for
cancellation of contracts receivable - (100,000)
Reduction of previously accrued
property taxes (248,000) -
Reduction in estimated recourse
liability for receivables sold - (8,000)
Other expenses 255,000 395,000
--------- --------
$ 7,000 $287,000
========= ========
3. Restricted Cash:
----------------
Restricted cash includes cash and certificates of deposit pledged
to agencies in various states and local Florida governmental units
related to land development and environmental matters, escrowed receipts
related to pledged receivables on real estate sales and the servicing of
sold receivables, customer payments and deposits related to home site
and housing contracts, and reserves held by the primary lender as
collateral for debt repayment and payment of disputed real estate taxes.
4. Receivables on Real Estate Sales:
---------------------------------
Net receivables on real estate consisted of:
1998 1997
---- ----
Contracts receivable on homesite sales $ 644,000 $ 816,000
Other 84,000 89,000
--------- ---------
728,000 905,000
Less: Allowance for cancellations (631,000) (706,000)
Unamortized valuation discount - (43,000)
--------- ---------
$ 97,000 $ 156,000
========= =========
Stated interest rates for contracts receivable on homesite sales,
as well as contracts and mortgages receivable on acreage sales, ranged
up to 10% with payment terms varying from seven to ten years. The
weighted average interest rate for such receivables outstanding at
December 31, 1998 and 1997 was 9.37% and 9.35% respectively.
The Company generally considers receivables on real estate sales
delinquent if the scheduled installment payment is over 30 days past
due. At December 31, 1998 and 1997 delinquent receivables approximated
$631,000 and $748,000 respectively.
-24-
<PAGE>
<PAGE>
Contracts receivable on homesite sales and contracts and mortgages
receivable on acreage sales have been discounted to yield an effective
interest rate of 14%. Contracts receivable on homesite sales recorded
under the installment method have not been discounted.
The estimated scheduled principal collections for receivables on
real estate sales at December 31, 1998 are:
1999 (Including past-due balances) $639,000
2000 28,000
2001 27,000
2002 33,000
2003 1,000
--------
$728,000
========
Effective June 1, 1998 the Company purchased the contracts
receivable back from Finova Capital Corporation and settled on related
debt obligations with Finova. The Company had originally sold the
contracts receivable on homesite sales totaling approximately
$9,246,000 before consideration of a related unamortized valuation
discount of approximately $1,197,000 at the time of the sale. For
financial reporting purposes this transaction has been treated as a
financing transaction (see Note 9), since the Company had a potential
obligation to repurchase the contracts receivable on homesite sales
under conditions other than the recourse provision of the sales
agreement. The repurchase resulted in an extraordinary gain of $870,000
in settlement of debt and elimination of an unamortized valuation
discount of $39,000.
At December 31, 1998, 44% of the Company's gross receivables from
real estate sales were generated by a broker in two geographic regions,
certain districts in New York City and Taiwan. These sales were under
contract for deed with terms similar to sales to other customers. This
concentration of credit risk has been considered by management in
determining the allowance for cancellations.
5. Land and Improvements:
----------------------
Land and improvement inventories consisted of:
1998 1997
---- ----
Unimproved land $613,000 $8,724,000
Fully improved land 276,000 268,000
-------- ----------
$889,000 $8,992,000
======== ==========
-25-
<PAGE>
<PAGE>
6. Property and Equipment:
-----------------------
Property and equipment consisted of:
1998 1997
---- ----
Furniture, fixtures and other $ 93,000 $ 212,000
equipment
Less accumulated depreciation (92,000) (194,000)
-------- ---------
$ 1,000 $ 18,000
======== =========
Depreciation: $ 8,000 $ 14,000
======== =========
7. Other Assets:
-------------
Other assets consisted of:
1998 1997
---- ----
Guaranteed future connections $ - $621,000
Deposit with Trustee of 6 1/2%
debentures 138,000 131,000
Other 18,000 7,000
-------- --------
$156,000 $759,000
======== ========
8. Other Liabilities:
------------------
Other liabilities consisted of:
1998 1997
---- ----
Accrued property taxes
- current $ 32,000 $ 230,000
- delinquent 675,000 745,000
Other accrued expenses 328,000 342,000
Deposits, advances and 174,000 336,000
escrows
Estimated recourse liability 9,000 58,000
for receivables sold
Other - 16,000
---------- ----------
$1,218,000 $1,727,000
========== ==========
9. Credit Agreements - Primary Lender and Notes and Mortgages Payable:
-------------------------------------------------------------------
Credit agreements with the Company's primary lender and notes and
mortgages payable consisted of the following:
1998 1997
---- ----
Credit agreements - primary
lender (Balance is past due,
bearing interest at prime plus
5.0%): $1,000,000 $7,344,000
-26-
<PAGE>
<PAGE>
Notes and mortgages payable -
$1,176,000 bearing interest at
prime rate plus 2%, the
remainder bearing interest at
varying rates to 23%; maturing
through 1999 1,198,000 3,750,000
---------- -----------
$2,198,000 $11,094,000
========== ===========
The prime rate at December 31, 1998 was 7.75%.
At December 31, 1998 assets collateralizing the Company's credit
agreements with its primary lender and notes and mortgages payable
totaled $2,582,000, of which $961,000 represented escrow held by the
primary lender, $728,000 represented gross receivables on real estate
sales, $52,000 represented other receivables, $840,000 represented land
and improvement inventories, and $1,000 represented property and
equipment.
The overall weighted average interest rate for the Company's
credit agreements with its primary lender and all remaining notes and
mortgages was approximately 13.1% as of December 31, 1998 and 13.0% as
of December 31, 1997.
As discussed in Note 4, the Company settled with Finova on note
obligations relating to the 1988 sale of receivables on real estate
sales on June 1, 1998. Prior to June 1, 1998 the principal and interest
payments were recorded by the Company based on the collections from
receivables applicable to the sale and the application of the 12-1/4%
interest rate used to calculate the sale's discounted present value. At
December 31, 1998 and 1997 the outstanding principal balance for this
financing transaction was approximately $- and $1,263,000 respectively.
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.
Scheduled payments applicable to the reduction of principal
amounts of all primary lender debt based on the terms of the Company's
primary lender credit agreements, and all other notes and mortgages
payable (without giving effect to various cross-default provisions which
could, upon formal notice, accelerate payment of substantially all of
the Company's debt) will be required approximately as follows:
1999 $2,198,000
==========
-27-
<PAGE>
<PAGE>
10. Subordinated Convertible Debentures Payable:
--------------------------------------------
Subordinated debentures payable consisted of:
1998 1997
---- ----
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.
The Company is currently in default of certain sinking fund and
interest payments on both subordinated debentures, $9,059,000 in
principal plus accrued and unpaid interest totaling $5,811,000 at
December 31, 1998 and $5,119,000 as of December 31, 1997.
The debentures are not collateralized and are not subordinated to
each other, but are subordinated to senior indebtedness ($3,698,000 at
December 31, 1998). 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 satisfy the obligation to debenture holders, the
Company has been and intends to continue to:
- -- actively seek buyers for the remaining portion of the undeveloped
acreage, when appropriate;
- -- diligently pursue collection of its receivables; and
- -- determine if potential merger or joint venture candidates exist.
No assurances can be made that the Company can achieve any of the
three above alternatives.
11. Convertible Debentures Payable:
-------------------------------
In July and September 1989, the Company sold $1,282,000 and
$1,000,000 respectively, of convertible debentures to a partnership
affiliated with the Company's preferred shareholder. In connection with
the July 1992 Secured Lender Transaction in partial consideration for
the conveyance of 350 acres of property, the principal amount due to
convertible debenture holders was reduced by $782,000 and accrued
interest thereon was reduced by $389,000 leaving a balance of
$1,500,000. The maturity date on all the remaining debentures was
extended to July 8, 1997 so that the debentures are in default. The
past due debentures accrue interest at 14% compounded quarterly. The
Company's primary lender credit agreements, however, prohibit the
payment of interest until such time as the primary lender loans are
repaid. At maturity the Convertible
-28-
<PAGE>
<PAGE>
Debentures purchased on July 24, 1989, were convertible into 868,788
common shares and those purchased on September 29, 1989, were
convertible into 1,726,568 common shares, or a total of 2,595,356 shares
of common stock at an initial conversion price of $1.72 per share. The
conversion price may be adjusted upon the occurrence of certain events.
Accrued interest was $3,904,000 and $3,209,000 at December 31,
1998 and 1997 respectively.
12. Income Taxes:
-------------
Reconciliation of the statutory federal income tax rates, 34% for the
years ended December 31, 1998 and 1997, to the Company's effective
income tax rates follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
($ in thousands)
Amount of tax Amount of tax
------------- Percent of ------------- Percent of
Pre-tax Loss Pre-tax Loss
------------ ------------
<S> <C> <C> <C> <C>
Expected tax (credit) 1,269 34.0% (1,140) (34.0%)
State income taxes, net of 149 4.0% (134) (4.0%)
federal tax benefits
Current year unused book (1,418) (38.0%) 1,274 38.0%
------ ----- ------ -----
operating loss - - - -
======= ===== ====== =====
</TABLE>
At December 31, 1998, the Company had an operating loss
carry forward of approximately $34,000,000 which will expire at various
dates through 2012. In addition, the Company had unused investment tax
credits of approximately $215,000 which will expire at varying dates
through 2004.
1998 1997
---- ----
Deferred tax asset:
Net operating loss carryover $ 12,580,000 $ 13,690,000
Adjustments to reduce land to net
realizable value 12,000 12,000
Expenses capitalized under IRC 263(a) 56,000 56,000
ITC carry forward 215,000 215,000
Other -
Valuation allowance (12,691,000) (11,510,000)
------------ ------------
172,000 2,463,000
Deferred tax liability:
Basis difference of land and
improvement inventories 172,000 2,453,000
Excess tax over book depreciation - 10,000
------------ ------------
Net deferred tax asset $ 0 $ 0
============ ============
-29-
<PAGE>
<PAGE>
13. 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 a
limited partnership ("Partnership") 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, 1998 cumulative preferred
dividends in arrears totaled $2,356,000 ($640,000 of which related to
the year ended December 31, 1998). 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, 1998, 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, 1998 the Company had reserved 4,684,138 common
shares for the conversion of debentures.
14. Quarterly Results:
------------------
In the fourth quarter of 1998 the contracts receivable and
allowance for contracts receivable were adjusted to consider delinquent
accounts for which quit claim deeds had been filed and property was
effectively reacquired.
15. Commitments and Contingencies:
------------------------------
The Company is a party to various legal proceedings incidental to
the normal operation of its business.
One instance of litigation involves Sugarmill Woods, Inc. and
Citrus County Tax Collector. In 1994, the Citrus County Tax Appraiser
denied agricultural exemption status for the undeveloped Sugarmill Woods
property and the Company was forced to sue the County to reclaim the tax
benefit. In 1995, the Citrus County Tax Appraiser again denied
-30-
<PAGE>
<PAGE>
agricultural exemption status for the undeveloped Sugarmill Woods
property, but was overruled by the Value Adjustment Board. As a result,
the Tax Appraiser sued Sugarmill Woods, and was again successful in
denying the agricultural exemption for the property. The Company has
filed an appeal to reinstate the exemption. At this time the outcome of
the appeal cannot be determined.
At the closing of the bulk acreage sale in May 1998 an escrow was
established in the amount of $557,000 to satisfy this potential
obligation.
The aggregate outstanding balances of receivables sold or
exchanged with recourse by the Company, not including those receivables
associated with the March 1988 financing transaction previously
discussed in Notes 4 and 8, totaled approximately $48,000 and $145,000
at December 31, 1998 and 1997 respectively. Based on its
collateral experience with such receivables, the Company maintained an
allowance at December 31, 1998 and 1997 classified in other
liabilities, of approximately $9,000 and $60,000 respectively for the
recourse provisions related to all receivables sold.
Under the terms of the receivables sale agreements the Company
must repurchase contracts greater than 90 days past due or exchange
current contracts owned by the Company. The repurchase price is equal
to the outstanding principal balance of the delinquent contract plus
accrued interest. At December 31, 1998, sold contracts receivable
greater than 90 days past due totaled $9,000. The related accrued
interest is considered immaterial.
16. Related Party Transactions:
---------------------------
As of December 31, 1998 the Company was in default of its primary
credit agreements with PGIP, LLC. In May 1998, concurrent with the bulk
acreage sale the Company paid a portion of the principal and all of the
past due accrued interest due PGIP, LLC (See Note 2).
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
slightly more than half of all the issued and outstanding voting stock
of LSHC. Messrs. Love and Schiffer serve as the executive officers and
directors of the Company and the other Borrowers and the Guarantors.
In 1994, the Company moved its administration and accounting
offices to Love Real Estate Company ("LREC"). LREC, which is an
affiliate of Love-PGI, the Company's preferred shareholder, 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;
-31-
<PAGE>
<PAGE>
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 payroll and benefits for Sugarmill location; and
8. Handle day-to-day accounting requirements.
In addition, the Company receives office space, telephone service and
computer service from LREC. The fee was reduced to $3,000 per month
from $7,000 per month effective October 1, 1998. The fee reduction
coincided with the sale of Sugarmill Woods Sales, Inc.
Effective 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 per
cent of the book value of the Company's assets, plus reasonable out-of-
pocket expenses. As of December 31, 1998, the book value of the
Company's assets was approximately $3,300,000. Consulting fees totaling
$29,000 and $45,000 were accrued during 1998 and 1997 respectively. The
Company made payments of $22,000 in consulting fees in 1998.
As of December 31, 1998, a total of $296,000 of unpaid fees had accrued
under the Management Agreement.
In 1998 and 1997, an affiliate of Love-PGI, the Company's
preferred shareholder, Love Investment Company made uncollateralized
loans to the Company, which were paid off June 19, 1998 in the amount of
$585,000 plus accrued interest. Interest charged on these loans was
$32,000 and $49,000 for 1998 and 1997, respectively.
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, 1998 had an outstanding balance, including accrued interest
of $393,000. Interest accrued on this loan was $18,000 for 1998 and
1997.
17. 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 Short-Term Investments:
The carrying amount approximates fair value because of the short
maturity of those instruments.
-32-
<PAGE>
<PAGE>
Real Estate Receivables:
The fair value of real estate receivables is estimated by
discounting the future cash flows using current rates at which similar
receivables would be made to borrowers with similar credit ratings and
for the same remaining maturities.
Debt:
It was not practicable to estimate the fair value of the Company's
debt with its primary lender, its notes and mortgages 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.
Accounts Payable:
The carrying amount approximates fair value because of the short-
term maturity of those debts. The estimated fair values of the
Company's financial instruments are as follows:
Carrying Fair
1998 Amount Value
---- ------ -----
Cash and short-term investments $2,064,000 $2,064,000
Principal plus accrued interest
receivable on real estate 97,000 97,000
Accounts payable 26,000 26,000
Debt 12,757,000 -
18. Income (Loss) Per Share:
------------------------
The following is a summary of the calculations used in computing
basic and diluted income (loss) per share:
1998 1997
---- ----
Numerator:
Net Income (Loss) $3,732,000 $(3,353,000)
Preferred Dividends (640,000) (640,000)
---------- -----------
Income (Loss) Available to
Common Shareholders $3,092,000 $(3,993,000)
========== ===========
Denominator:
BASIC
Weighted average amount of shares
outstanding 5,317,758 4,583,437
-33-
<PAGE>
<PAGE>
DILUTED
Weighted average amount of shares
outstanding 5,317,758 5,317,758
Dilutive effect of assumed conversion
of Preferred Stock 3,320,000 -
--------- ---------
Dilutive common shares 8,637,758 5,317,758
========= =========
Earnings (loss) per share
Basic 0.58 (0.87)
Dilutive 0.36 (0.87)
Item 8. Disagreements on Accounting and Financial Disclosure
- ------- ----------------------------------------------------
Not Applicable.
-34-
<PAGE>
<PAGE>
PART III
--------
Item 9. Directors and Executive Officers of the Registrant;
- ------- ---------------------------------------------------
Compliance with Section 16(a) of the Exchange Act
-------------------------------------------------
The following information, regarding executive officers and
directors of the Company, is as of March 25, 1999.
Position with Company and Business Experience
Name and Age During the Last Five Years
------------ ---------------------------------------------
Laurence A. Schiffer Director of the Company since April 1987;
(age 59) President and Chief Executive 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. Chairman of the Company's Board of Directors
(age 55) 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.
Item 10. Executive Compensation
- -------- ----------------------
The Company's Chief Executive Officer is Mr. Laurence A. Schiffer.
Because of the Company's impaired financial condition, it does not
compensate Mr. Schiffer or Mr. Love, the Company's only other executive
officer, for the services they perform for the Company in that capacity.
Management services are provided to the Company by Love Real Estate
Company ("LREC") 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
-35-
<PAGE>
<PAGE>
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
12. "Certain Relationships and Related Party Transactions" 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 1998.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The table below provides certain information as of March 25, 1999
regarding the beneficial ownership of the Common Stock and 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.
<TABLE>
<CAPTION>
Percent of Total
----------------------- Percent of
Common Preferred Common Preferred Total Voting
Name Stock Stock Stock<F1> Stock Power<F1>
---- ------ --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C>
Estate of Harold Vernon 998,777<F2><F3> - 18.8% - 13.7%
Alfred M. Johns 437,414<F4> 125,000<F4> 8.2% 6.3% 7.7%
Love-PGI Partners, L.P. 2,260,706<F5> 1,875,000<F5> 42.5% 93.8% 56.5%
Andrew S. Love, Jr. 385,516<F6> 1,875,000<F6> 42.5% 93.8% 56.5%
Laurence A. Schiffer 385,516<F7> 1,875,000<F7> 42.5% 93.8% 56.5%
All executive officers and
directors as a group (2 persons) 385,516<F8> 1,875,000<F8> 42.5% 93.8% 56.5%
<FN>
<F1>The above table does not include 2,595,356 shares that may be
received upon conversion of the Company's Convertible Secured
Debentures.
<F2>The shares of Common Stock owned by Mr. Vernon are currently in
the possession of the Federal Deposit Insurance Corporation
("FDIC") which is the receiver for First American Bank 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.
<F3>Information obtained from filings made with the Securities and
Exchange Commission.
<F4>Sole voting and investment power over 302,401 shares of Common
Stock; shared voting and investment power over 10,100 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.
<F5>The controlling general partner of L-PGI is Love Investment
Company, a Missouri Corporation owned by Mr. Love, Love family
members and trusts, the Estate of Martha Love Symington and Mr.
Schiffer. Messrs. Love and Schiffer serve as the executive
officers and directors of Love Investment Company.
<F6>These shares are the same shares owned by L-PGI. Mr. Love is an
indirect owner of L-PGI. See Footnote 5 above and Item 12.
"Certain Relationships and Related Transactions" for more
information.
<F7>These shares are the same shares owned by L-PGI. Mr. Schiffer is
an indirect owner of L-PGI. See Footnote 5 above and Item 12.
"Certain Relationships and Related Transactions" for more
information.
<F8>These shares are the same shares reflected in Footnotes 5, 6 and
7. See Footnote 5 above and Item 12. "Certain Relationships and
Related Transactions" for more information.
</TABLE>
-36-
<PAGE>
<PAGE>
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
In order to conserve cash and permit management to concentrate on
achieving a sale of all or a portion of its real estate, in 1994 the
Company moved its administration and accounting offices to the offices
of Love Real Estate Company ("LREC") in St. Louis, Missouri. LREC, a
Missouri Corporation, is an affiliate of L-PGI, and is located at 212
South Central Avenue, Suite 100, St. Louis, Missouri 63105. A fee of
$7,000 per month was paid to LREC for the first nine months of 1998, and
reduced to $3,000 per month October 1, 1998. The fee reduction
coincided with the sale of Sugarmill Woods Sales, Inc. 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 payroll and benefits for Sugarmill location;
8. Handle day-to-day accounting requirements; and
9. 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 to 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 per cent of the book value of the Company's assets, plus
reasonable out-of-pocket expenses. As of December 31, 1998, the book
value of the Company's assets was approximately $3.3 million.
Consulting fees totaling $29,000 were accrued during 1998 and the
Company made payments of $22,000 in consulting fees in 1998. As of
December 31, 1998, a total of $296,000 of unpaid fees had accrued under
the Management Agreement. In July 1992 accrued management fees were
reduced by $1,042,000 as partial consideration for the conveyance by the
Company of 350 acres of real estate to L-PGI, which conveyance is
described in more detail in the paragraph below describing the
Debentures. These 350 acres comprise a portion of the Property sold in
May 1998.
-37-
<PAGE>
<PAGE>
The Management Agreement will continue in effect until terminated
upon 90 days prior written notice by a majority vote of the Company's
directors who have no financial interest in LREC or in any LREC
affiliated entity. Currently all directors have a financial interested
in LREC or one of its affiliates.
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 of 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.
In 1998 and 1997, an affiliate of L-PGI, Love Investment Company,
made uncollateralized loans to the Company, which were paid off June 19,
1998 in the amount of $585,000 plus accrued interest. Interest charged
on these loans was $32,000 and $49,000 for 1998 and 1997 respectively.
In 1989, the Company sold an aggregate $2,282,451 principal amount of
the Convertible Debentures in a private placement to Love-1989 Florida
Partners, L.P.("Love-1989") The general partner of Love-1989 is Love
Investment Company, which is owned by Mr. Love, Love family members and
trusts, the Estate of Martha Love Symington and Mr. Schiffer. The above
purchase by Love-1989 of the Debentures was funded in part with a loan
from L-PGI. Love-1989 has since 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 so that the Debentures
are 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 have caused the Company to grant a second mortgage on the
Retained Acreage 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 escrow
of the Restricted Proceeds which is under the control of Messrs. Love
and Schiffer since they and a company they control are the managers of
PGIP.
As of December 31, 1998, Love-1989 held $796,950 in principal
amount of the Debentures with respect to which there was at that date
accrued and unpaid interest in the
-38-
<PAGE>
<PAGE>
amount of $2,095,000. In 1990, $703,050 principal amount of the
Debentures was transferred by Love-1989 to one of its (now former)
limited partners. That former limited partner continues to hold such
Debentures and as of December 31, 1998 there was accrued and unpaid
interest with respect thereto in the amount of $1,808,000.
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 at December 31, 1998 had an outstanding balance,
excluding accrued interest, of $176,000. Besides being a direct owner
of Common and Preferred Stock, Mr. Johns has no other direct or indirect
affiliations with the Company.
For the past several years, First Union, the Company's former
primary bank lender, had been threatening to foreclose on substantially
all of the Company's real estate. This would have forced a liquidation
of the Company. To prevent foreclosure, Messrs. Love and Schiffer, who
control a large portion of the Voting Capital Stock through their
affiliation with L-PGI and who are the Company's only directors and
executive offices, formed PGIP in August 1995 to purchase the Company's
First Mortgage Indebtedness and to accept the assignment from First
Union of the first mortgage securing repayment of the First Mortgage
Indebtedness.
On March 28, 1996, First Union assigned to PGIP all of its right,
title and interest in and to the loan documents (i) evidencing First
Union' s credit agreements with the Company and Company's subsidiaries,
Sugarmill Woods, Burnt Store Marina, Inc., and Gulf Coast Credit
Corporation, and (ii) securing such indebtedness with substantially all
of the Company's real estate (the "Loan Documents"). At the time of the
assignment, the First Mortgage Indebtedness was approximately $9,007,000
in principal and accrued interest.
The largest investor in PGIP is Love Savings Holding Company
("LSHC") which holds an approximate 75% interest in, and is a manager of
PGIP. Messrs. Love and Schiffer own approximately 52% of all the issued
and outstanding voting stock of LSHC and serve as the directors and
officers of LSHC. Messrs. Love and Schiffer are the managers of PGIP.
The holders of the remaining limited liability company interests do not
have any affiliation with PGI, LSHC, L-PGI or Love-1989 Florida
Partners, L.P.
As the purchaser of the loan documents from First Union, PGIP
obtained a first mortgage (the "First Mortgage") on the PGI Property.
PGIP accepted assignment of the credit agreements, which were in default
and with respect to which maturity of the First Mortgage Indebtedness
secured by the first mortgage had been accelerated, and advised the
Company that so long as the Company were to market and sell its
remaining undeveloped land with satisfactory efforts and results,
including payments to PGIP out of the proceeds received from the sale of
such undeveloped land, PGIP would not proceed with enforced collection
of the principal and interest comprising the First Mortgage
Indebtedness.
-39-
<PAGE>
<PAGE>
During 1998 and 1997, PGIP further advanced $186,240 and $36,908
to the company to pay fees incurred to continue professional work on the
bulk sale of property under the aforementioned Option Agreement, as
Amended. On May 13, 1998 upon closing of the bulk acreage sale, the
Company paid PGIP $10,362,193 in principal and accrued interest which
left $1,000,000 in principal outstanding.
The closing of the bulk acreage sale on May 13, 1998 resulted in a
payment of first mortgage principal and interest to PGIP of $10,362,193.
After payment of its debts and liabilities, PGIP made cash distributions
to its members in accordance with its Operating Agreement. LSHC, which
holds approximately 75% of the PGIP limited liability company interests,
received approximately $2,505,097 in excess of its investment in PGIP.
Because Messrs. Love and Schiffer, the Company's only directors and
executive officers, together own 52% of LSHC, they could be deemed to
have "profited" by an aggregate of approximately $1,302,650. The amount
of profit to LSHC and Messrs. Love and Schiffer is based on the use of
proceeds set forth above. It could increase upon payment of the
remaining $1,000,000 mortgage amount and interest and by an additional
amount of up to ten percent of PGIP's profit over a specified minimum
rate of return based upon the incentive arrangements that PGIP has with
its members.
At closing, the Company and PGIP executed an escrow agreement (the
"Escrow Agreement"). The Escrow Agreement provides that $1,000,000 of
the PGI Purchase Price would not be used to repay the First Mortgage
Indebtedness, so that $1,000,000 (the "Remaining Indebtedness") of the
First Mortgage Indebtedness would remain in place. The $1,000,000 was
placed in escrow with PGIP as the escrow agent. Pursuant to the Escrow
Agreement, the escrowed funds are to be paid out (i) as requested by PGI
and agreed to by PGIP, or (ii) as deemed necessary and appropriate by
PGIP, in either case, to protect PGIP's interest in the Retained Acreage
(as hereinafter defined), including PGIP's right to receive principal
and interest under the First Mortgage securing the Remaining
Indebtedness, or (iii) to PGIP to pay any other obligations owed to PGIP
by the Company. The real estate owned by the Company, which was not
sold to the Purchaser (approximately 370 acres) (the "Retained Acreage")
remains subject to the First Mortgage.
The Company believes that the foregoing transactions were on terms
comparable to those, which would have been obtained from unaffiliated
persons.
-40-
<PAGE>
<PAGE>
Item 13. Exhibits, Financial Statement Schedules & Reports on Form 8-K
- -------- -------------------------------------------------------------
10-KSB Form
(a) 1. Financial Statements Page Number
Report of Independent Accountants 15
--
Consolidated Statements of Financial Position
December 31, 1998 and 1997 16
--
Consolidated Statements of Operations Years Ended
December 31, 1998 and 1997 17
--
Consolidated Statements of Cash Flows Years Ended
December 31, 1998 and 1997 18-19
-----
Consolidated Statements of Stockholders' Deficiency
Years Ended December 31, 1998 and 1997 20
--
Notes to Consolidated Financial Statements 21-34
-----
(a) 2. Exhibits
Reference is made to the Exhibit Index contained on pages 44-
48 herein for a list of exhibits filed under this Item.
(b) Reports on Form 8-K.
None were filed in the fourth quarter of 1998.
(c) See the Exhibit Index contained on pages 44 to 48 herein for a
list of each management contract, compensatory plan or
arrangement required to be filed pursuant to Item 14(c) of
this report: Exhibits 10.1, 10.2 and 10.5.
(d) None
-41-
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of PGI Incorporated and subsidiaries on Form S-8 (File 2-
77149) of our report dated March 12,1999, relating to the consolidated
financial statements and financial statements schedule of PGI
Incorporated and subsidiaries which report is included in this Annual
Report on Form 10-KSB. Our report contains an explanatory paragraph
regarding uncertainty as to the ability of the Company to continue as a
going concern.
St. Louis, Missouri /s/ BDO Siedman LLP
April 15, 1999
-42-
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of 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, in
the City of St.Louis, State of Missouri, on this 15th day of April,
1999.
PGI INCORPORATED
(Registrant)
By: /s/ Laurence A. Schiffer
----------------------------
Laurence A. Schiffer, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Andrew S. Love, Jr. Chairman of the Board April 15, 1999
- -------------------------- Secretary
Andrew S. Love, Jr.
/s/ Laurence A. Schiffer Vice Chairman of the April 15, 1999
- -------------------------- Board, President, Principal
Laurence A. Schiffer Executive Officer, Principal
Financial Officer and
Principal Accounting Officer
</TABLE>
-43-
<PAGE>
<PAGE>
EXHIBIT INDEX
3.1 Articles of Incorporation (filed as Exhibit 3.1 to
Registrant's Form 10-K Annual Report for the year ended
December 31, 1980 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, 1997 ("Original 1987 Form
10-K") dated as of March 29, 1987 and incorporated herein by
reference).
3.4 Amendments to the Articles of Incorporation effective March
13, 1990 and July 27, 1990, dated as of November 13, 1990
(filed as Exhibit 19 to the September 30, 1990 Form 10-Q and
incorporated herein by reference).
3.5 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 10KSB and incorporated herein by
reference).
3.6 Articles of Incorporation of PGI Incorporated as amended
through December 22, 1997 (filed as Exhibit 3.1 to
Registrant's June 30, 1998 Form 10-QSB and incorporated herein
by reference).
3.7 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).
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
-44-
<PAGE>
<PAGE>
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).
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
-45-
<PAGE>
<PAGE>
dated as of June 8, 1989 and incorporated herein by
reference).
4.11 Eleventh Mortgage and Loan Modification 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 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).
-46-
<PAGE>
<PAGE>
9. Inapplicable.
10.1 PGI Incorporated Restated 1981 Incentive Stock Option Plan, as
amended (filed as Exhibit 10.1 to the Original 1987 Form 10-K
and incorporated herein by reference).
10.2 PGI Incorporated 1987 Non-Qualified Stock Option and Stock
Appreciation Rights Plan (filed as Exhibit 10.2 to the
Original 1987 Form 10-K and incorporated herein by reference).
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).
10.6 Option Agreement For Sale and Purchase dated January 31, 1997,
between Sugarmill Woods, Inc., Love-PGI Partners, L.P., and
The Nature Conservancy (filed as Exhibit 10.6 to Registrant's
Form 10-KSB/A dated August 27, 1997 and incorporated herein by
reference).
10.7 First Amendment to Option Agreement for Sale and Purchase
dated August 25, 1997 between Sugarmill Woods, Inc., Love-PGI
Partners, L.P., and The Nature Conservancy (filed as part of
Appendix B to Registrant's Proxy Statement dated December 8,
1997 and incorporated herein by reference).
10.8 Second Amendment to Option Agreement for Sale and Purchase
dated September 29, 1997 between Sugarmill Woods, Inc., Love-
PGI Partners, L.P., and The Nature Conservancy (filed as part
of Appendix B to Registrant's Proxy Statement dated December
8, 1997 and incorporated herein by reference).
11. See Note 19 to the consolidated financial statements.
12. Inapplicable.
-47-
<PAGE>
<PAGE>
13. Inapplicable.
16. Coopers and Lybrand's letter to the SEC dated February 9, 1995
(filed as Exhibit 16 to the Registrant's Form 8-K dated
February 9, 1995 and incorporated herein by reference).
18. Inapplicable.
19. Inapplicable.
21. Subsidiaries of the Registrant, filed herein.
22. Inapplicable.
23. Inapplicable.
27. Financial Data Schedule, filed herein.
-48-
<PAGE>
Exhibit 21 PGI INCORPORATED Page 1 of 1
- ---------- ----------------
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
State of Relationship
-------- ------------
Incorporation
-------------
<S> <C> <C>
Sugarmill Woods, Inc. Florida Wholly owned<F1>
Sugarmill Woods Management, Inc. Florida Wholly owned<F1>
Deep Creek Utilities, Inc. Florida Wholly owned<F1>
Southern Woods, Incorporated Florida Wholly owned by
Sugarmill Woods, Inc.
Burnt Store Marina, Inc. Florida Wholly owned<F1>
Punta Gorda Isles Sales, Inc. Florida Wholly owned<F1>
Burnt Store Utilities, Inc. Florida Wholly owned<F1>
Gulf Coast Credit Corporation Florida Wholly owned<F1>
Sugarmill Woods Sales, Inc. Florida Wholly owned by
Sugarmill Woods, Inc.
Sugarmill Construction, Inc. Florida Wholly owned by
Sugarmill Woods, Inc.
<FN>
- ------------
<F1> Included in the Company's consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,064,000
<SECURITIES> 0
<RECEIVABLES> 780,000
<ALLOWANCES> (631,000)
<INVENTORY> 889,000
<CURRENT-ASSETS> 0<F1>
<PP&E> 93,000
<DEPRECIATION> (92,000)
<TOTAL-ASSETS> 3,259,000
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 12,757,000
<COMMON> 532,000
0
2,000,000
<OTHER-SE> (24,665,000)
<TOTAL-LIABILITY-AND-EQUITY> 3,259,000
<SALES> 13,484,000
<TOTAL-REVENUES> 13,926,000
<CGS> 8,435,000
<TOTAL-COSTS> 8,455,000
<OTHER-EXPENSES> 460,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,149,000
<INCOME-PRETAX> 3,862,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 870,000
<CHANGES> 0
<NET-INCOME> 3,732,000
<EPS-PRIMARY> .58
<EPS-DILUTED> .36
<FN>
<F1>Current Assets and Current Liabilities values are zero because of an
unclassified balance sheet.
</TABLE>
