UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K 

(Mark One)

For the fiscal year ended: December 31, 2021 

For the transition period from ________________ to _______________

Commission File Number: 1-6471 

212 SOUTH CENTRAL, ST. LOUIS, Missouri  63105

(Address of principal executive offices)

(314) 512-8650

(Issuer's telephone number)

Securities registered pursuant to section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.10 per share 

6.0% Convertible Subordinated Debentures due 1992

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 cannot be determined.  See Item 5 of Form 10-K. 

The number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date: 

As of March 31, 2022, 5,317,758 shares of Common Stock, par value $.10 per share, were outstanding.

PGI INCORPORATED AND SUBSIDIARIES

FORM 10 – K  -  2021

Contents and Cross Reference Index

PART I

Item 1. Business

GENERAL

As used in this Annual Report on Form 10-K, the “Company” or “PGI” refers, unless the context otherwise requires, to PGI Incorporated and its subsidiaries.  The Company’s executive offices are at 212 S. Central, St. Louis, Missouri, 63105, and its telephone number is (314) 512-8650.

The Company, a Florida corporation, was founded in 1958, and up until the mid 1990’s was in the business of building and selling homes, developing and selling home sites and selling undeveloped or partially developed tracts of land.  Over approximately the last 30 years, the Company’s business focus and emphasis changed substantially as it has concentrated its sales and marketing efforts almost exclusively on the disposition of its remaining real estate. This change was prompted by its continuing financial difficulties due to the principal and interest owed on its debt.

The Company’s remaining land inventory consists of two single family lots, an approximate 7 acre parcel and some other minor parcels of real estate consisting of easements in Citrus County, Florida, which are owned through its wholly owned subsidiary, Sugarmill Woods, Inc. (“Sugarmill Woods”). The single family lots and the 7 acre parcel in Citrus County have been listed for sale with a real estate agent and they are all under contract for sale for approximately $225,000.  In 2021, four single family lots were sold and Sugarmill Woods realized approximately $80,000.  In addition, sale proceeds were received by PGI for an environmentally sensitive parcel of land for which there was no cost basis.  Punta Gorda Isles Sales, Inc. (“PGIS”), a wholly owned subsidiary of the Company, owns 12 parcels of real estate in Charlotte County, Florida, which total approximately 58 acres, but these parcels have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.  

QUALIFICATION AS INACTIVE REGISTRANT FOR SEC PURPOSES

In early 2019, the Board of Directors of PGI concluded that PGI met and continues to meet all of the conditions under which a registrant may be deemed an “Inactive Entity” as that term is defined or contemplated in Rule 3-11 of Regulation S-X and as the term “Inactive Registrant” is further contemplated in the Securities and Exchange Commission’s Division of Corporation Finance’s Financial Reporting Manual section 1320.2. Under Rule 3-11 of Regulation S-X, the financial statements required thereunder with respect to an Inactive Registrant for purposes of reports pursuant to the Securities Exchange Act of 1934, including but not limited to annual reports on Form 10-K, may be unaudited.  A representative of PGI informally discussed its view that PGI is an Inactive Registrant with a staff member of the Chief Accountant’s Office in the Division of Corporation Finance in February 2019.

Item 1. Business (continued)

As an Inactive Registrant, PGI currently intends to continue to timely file Annual Reports on Forms 10-K with the Securities and Exchange Commission (the “SEC”), including this Form 10-K, as well as Quarterly Reports on Forms 10-Q and any other required reports. PGI currently intends to include in such Annual Reports all annual consolidated financial statements required to be included therein pursuant to Regulation S-X. The consolidated financial statements were audited prior to 2019 by BKD, LLP and a review was performed with respect to 2019 by Milhouse & Neal. However, due to its inactive status and diminishing financial resources, the aforementioned consolidated financial statements have not been reviewed or audited by a Public Company Accounting Oversight Board (“PCAOB”) registered public accounting firm for the year 2021 and 2020. 

PGI meets all of the conditions in Rule 3-11 of Regulation S-X for an “Inactive Registrant” which are:

PGI has been a SEC registrant for over 40 years.  As the Company reviews its circumstances, it has met the conditions as an Inactive Registrant since 2017. 

The Company, formerly a Florida residential developer, is dormant with less than 70 acres of remaining landholdings, much of which has little value due to various restrictions. The Company’s consolidated financial statements show it has a Stockholders’ Deficiency of $95.1 million as of December 31, 2021.  BKD, LLP (“BKD”), the Company’s PCAOB registered public accounting firm until the date the Company filed its Form 10-K for Fiscal 2018 which was February 25, 2019, expressed a “going concern” opinion with respect to the Company for its Fiscal 2018 financial statements and had expressed such opinions for many years previously.  PGI has had no trading of its securities in many years.  Contracts for sale of the 7 acre parcel and two other single family lots are signed for sale proceeds of approximately $225,000.  Any future real estate transactions by the Company will be limited, uncertain as to timing and as to value.  Ultimately, PGI expects that proceeds from sales of its remaining real estate, if any, will provide some minimal recoveries for PGI’s senior debtholders. 

AVAILABLE INFORMATION

                We file annual and quarterly reports and file or furnish current reports (including any exhibits or amendments to those reports) and other information with the SEC. These materials may also be accessed through the SEC’s website (www.sec.gov).

Item 1. Business (continued)

OTHER

As of December 31, 2021, the Company had no employees, and all services provided to the Company are through contract services.

The Company’s website address is www.pgiincorporated.com. Information included on our website does not constitute part of this document.

Item 1A. Risk Factors

            Not Applicable

Item 1B. Unresolved Staff Comments

            Not Applicable

Item 2. Properties

            The Company’s remaining land inventory consists of two single family lots, an approximate 7 acre parcel (which are all under contract for sale for approximately $225,000) and some other minor parcels of real estate consisting of easements in Citrus County, Florida, which are owned through its wholly owned subsidiary, Sugarmill Woods.  In addition, PGIS, a wholly owned subsidiary of the Company, owns 12 parcels of real estate in Charlotte County, Florida, which total approximately 58 acres, but these parcels have limited value because of associated developmental constraints such as wetlands, easements, and/or other obstacles to development and sale.  The Company continues its efforts to dispose of all of its real estate.

            The Company believes the properties are adequately covered by insurance.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not Applicable

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

There is no public trading market for the Company’s common equity securities.  There have been no reported transactions in the Company’s common stock, par value $.10 (the “Common Stock”), since January 29, 1991, with the exception of the odd lot tender offer by PGIP LLC (“PGIP”), an affiliate of the Company, in 2003 which was described previously in the Company’s annual report on Form 10-KSB for the fiscal year ended December 31, 2004 and the 2,260,706 shares of Common Stock assigned by Love-PGI Partners, L.P. (“L-PGI”) to Love Investment Company (“LIC”), an affiliate of L-PGI, effective December 31, 2016.

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

No dividends have ever been paid on the Common Stock, and payment of dividends on the Common Stock is restricted under the terms of the two indentures (one of which matured on June 1, 1991 and the other on May 1, 1992) pursuant to which the Company’s outstanding subordinated convertible debentures were issued and by the terms of the Company’s preferred stock.  As of December 31, 2021, to the Company’s knowledge, there were 542 holders of record of the Company’s Common Stock and 317 debenture holders.

Item 6. Selected Financial Data

Not Applicable

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

LIQUIDITY AND CAPITAL RESOURCES

The liabilities of the Company exceed the reported value of its assets. Management’s efforts and activities have been, and continue to be, to sell assets of the Company to repay its indebtedness and to pay administrative expenditures in keeping an inactive company in existence.  The aggregate remaining land inventory is less than 68 acres, consisting of multiple parcels located in two Florida counties. These parcels have limited value because of associated development constraints such as wetlands, easements and other obstacles to development and sale. At December 31, 2021 the carrying value of the land inventory was $10,000. The Company is seeking to realize full market value for such land.  However, certain land parcels may be of so little value and marketability that the Company may elect not to pay the real estate taxes on selected parcels, which may eventually result in a de facto liquidation of such property by subjecting such property to a tax sale.

In management’s judgment, the assets will be insufficient to satisfy much, if any, of the outstanding indebtedness of the Company. Consequently, there is substantial doubt about the Company’s ability to continue as a “going concern,” as that term is used for generally accepted accounting purposes. The asset carrying values shown in the financial statements, are judged to be reasonable estimates of the value, when viewed in the context of the entirety of the financial statements.

In early 2019, the Board of Directors of PGI concluded that PGI met and continues to meet all conditions under which a registrant may be deemed an “Inactive Entity” as that term is defined or contemplated in Rule 3-11 of Regulation S-X and as the term “Inactive Registrant” is further contemplated in the Securities and Exchange Commission’s Division of Corporation Finance’s Financial Reporting Manual section 1320.2. Under Rule 3-11 of Regulation S-X, the financial statements required thereunder with respect to an Inactive Registrant for purposes of reports pursuant to the Securities Exchange Act of 1934, including but not limited to annual reports on Form 10-K, may be unaudited.  A representative of PGI informally discussed its view that PGI is an Inactive Registrant with a staff member of the Chief Accountant’s Office in the Division of Corporation Finance in February 2019.

As an Inactive Registrant, PGI currently intends to continue to timely file Annual Reports on Forms 10-K with the SEC, including this Form 10-K, as well as Quarterly Reports on Forms 10-Q and any other required reports. PGI currently intends to include in such Annual Reports all annual consolidated financial statements required to be included therein pursuant to Regulation S-X. The consolidated financial statements were audited prior to 2019 by BKD, LLP and a review was performed with respect to 2019 by Milhouse & Neal.  However, due to its inactive status and diminishing financial resources, the aforementioned consolidated financial statements have not been reviewed or audited by a PCAOB registered public accounting firm for the year 2021 and 2020.  

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

PGI meets all of the conditions in Rule 3-11 of Regulation S-X for an “Inactive Registrant” which are:

PGI Has been a SEC registrant for over 40 years.  As the Company reviews its circumstances, it has met the conditions as an Inactive Registrant since 2017.  

The Company, formerly a Florida residential developer, is dormant with less than 68 acres of remaining landholdings, much of which has little value due to various restrictions. The Company’s consolidated financial statements show it has a Stockholders’ Deficiency of $95.1 million as of December 31, 2021.  BKD, the Company’s PCAOB registered public accounting firm until the date the Company filed its Form 10-K for Fiscal 2018 which was February 25, 2019, expressed a “going concern” opinion with respect to the Company for its Fiscal 2018 financial statements and had expressed such opinions for many years previously.  PGI has had no trading of its securities in many years.  Any future real estate transactions by the Company will be limited, uncertain as to timing and as to value.  Ultimately, PGI expects that proceeds from sales of its remaining real estate, if any, will provide some minimal recoveries for PGI’s senior debtholders.    

The Company’s financial statement indebtedness includes its 6.0% subordinated convertible debentures which matured in May, 1992, with a remaining face amount of $8,025,000; and various notes payable, with a remaining face amount of $1,198,000.

The cumulative amount due for the 6% subordinated convertible debentures which matured in May 1992, includes the face amount of $8,025,000 plus accrued interest of $29,512,000 as of December 31, 2021.  The subordinated convertible debentures have been in payment default for over twenty-five years.  It is unclear whether any action on behalf of the bondholders is presently likely, given the negative net worth of the Company and continuing passage of time.  

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

RESULTS OF OPERATIONS

Revenues

Revenues for the year ended December 31, 2021 increased by $92,000 to $94,000 compared to revenues of $2,000 for the year ended December 31, 2020 primarily as a result of real estate sales of $90,000 in 2021. There were no sales of real estate in 2020.  Other income increased by $2,000 to $4,000 compared to other income of $2,000 for the year ended December 31, 2020.  Other income in 2021 represents income from a settlement claim from over 30 years ago when the Company was operating as a home builder.  Other income in 2020 represents recoveries of lot lien receivables which had been fully provided for cancellation.

Costs and Expenses

Costs and expenses for the year ended December 31, 2021 decreased by $399,000 when compared to the same period in 2020 as follows:

The cost of real estate sales for the year ended December 31, 2021 increased by $15,000 compared to the year ended December 31, 2020, solely as a result of costs and expenses incurred in connection with sales of real estate in 2021.  There was no such expense for the comparable period in 2020 because there were no sales of real estate during such period.

Interest expense relating to the Company’s current outstanding debt held by non-related parties, increased by $20,000 during the year ended December 31, 2021 compared to the year ended December 31, 2020.  Interest expense relating to the Company’s outstanding debt for subordinated convertible debentures, increased by $23,000 during the year ended December 31, 2021 primarily as a result of interest accruing on past due balances which increased at various intervals throughout the year for accrued but unpaid interest.  This increase was offset by a $3,000 decrease in interest expense for notes payable due to a decrease in the average prime interest rate of 3.25% for 2021 compared to 3.54% for 2020.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

The Company recognized $410,000 in forgiveness of debt and accrued interest during the year ended December 31, 2020.  The Trustee of the 6.5% subordinated convertible debentures, which matured in June, 1991, provided notice of final distribution to the holders of such debentures on September 2, 2014.  In connection with such final distribution, the Trustee designated the remaining balance of the debenture reserve fund held by the Trustee for final distribution of $92 per $1,000 in face amount to holders of such debentures who surrender their respective debenture certificates.  

During the year ended December 31, 2020, the remaining balance of the reserve fund of $13,000 was disbursed in escheatment to the states of the respective debenture holders.  The remaining debentures with a face amount of $138,000 were surrendered with the escheatment of respective funds to the states of the debenture holders.  Accordingly, the Company has recognized $125,000 in forgiveness of debt during the year ended December 31, 2020.  In addition, accrued interest of $285,000 on such debentures that are considered surrendered was recorded as forgiveness of interest expense during the year ended December 31, 2020.  There were no debentures surrendered or escheated in 2021.

Taxes and assessments were $5,000 during the years ended December 31, 2021 and 2020.

Consulting and accounting expense was $24,000 and $34,000 for the years ended December 31, 2021 and 2020, respectively.  Accounting service fees paid to Love Real Estate Company (“LREC”), an affiliate of LIC, decreased by $10,000 in 2021 compared to 2020 due to a decrease in accounting services with the Company not being reviewed by a PCAOB registered public accounting firm effective with the March 31, 2020 periodic filing with the SEC.  In addition, a quarterly consulting fee is paid to LREC of one-tenth of one percent of the carrying value of the Company’s assets.

Legal and professional expenses decreased by $35,000 during the year ended December 31, 2021 when compared to the same period in 2020 as follows:

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

General and administrative expenses decreased by $1,000 during the year ended December 31, 2021 compared to 2020 primarily due to a decrease in the quarterly consulting fees paid to LREC.  The Company pays LREC a quarterly consulting fee of one-tenth of one percent of the carrying value of the Company’s assets which have been consistently decreasing.  

The net loss was $1,412,000 ($.39 per share loss) for the year ended December 31, 2021 compared to a net loss of $1,105,000 ($.33 per share loss) for the year ended December 31, 2020.  Included in the 2021 and 2020 loss per share computation is $640,000 ($.12 per share of Common Stock) of annual cumulative preferred stock dividends in arrears.

FINANCIAL CONDITION

Total assets decreased by $241,000 at December 31, 2021 compared to total assets at December 31, 2020 reflecting the following changes:

Net cash used in operating activities was $23,000 for the year ended December 31, 2021 compared to cash used in operations of $228,000 for the year ended December 31, 2020.  Net cash used in operations consists of cash received from operations less cash expended for operations.

Cash received from operations during the year ended December 31, 2021 was $94,000, which represents $90,000 from real estate sales and $4,000 in miscellaneous income from a settlement claim from when the Company was operating as a home builder.  Cash received from operations in the year ended December 31, 2020 was $2,000, which represents miscellaneous income from a recovery of a lot lien receivable which had been fully provided for cancellation.  

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Cash expended for operations during the year ended December 31, 2021 was $117,000 which represents a decrease of $113,000 compared to cash expended for operations of $230,000 in the year ended December 31, 2020.  

The decrease of $75,000 in payments of interest for accrued related party interest is a result of interest paid on collateralized debt of $50,000 in the year ended December 31, 2021 compared to $125,000 in 2020.

Liabilities were $95,149,000 at December 31, 2021 compared to $93,764,000 at December 31, 2020, reflecting the following changes:

Accounts payable and accrued expenses decreased by $3,000 at December 31, 2021, compared to December 31, 2020, primarily as a result of timing differences.

Accrued real estate taxes increased by $1,000 at December 31, 2021 compared to December 31, 2020 due to the accrual of penalties and interest on delinquent real estate taxes.   

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)

Accrued interest increased by $1,387,000 at December 31, 2021 compared to December 31, 2020 reflecting changes in the following accrued interest categories:

The increase in accrued interest of $1,375,000 relating to the convertible subordinated debentures represents interest expense for the year ended December 31, 2021.  The accrued interest relating to convertible subordinated debentures increased due to the additional accrual of interest and no payment of previously accrued interest on the Company’s debentures (see Note 8 to the consolidated financial statements under Item 8).  The notes payable and convertible subordinated debentures, including accrued interest, are past due.

The decrease in accrued interest of $50,000 for the related party convertible debentures is due to the payment of accrued interest on the collateralized convertible debentures during the year ended December 31, 2021.  The remaining balance of accrued interest on the collateralized convertible debentures is $52,740,000.

The increase of $62,000 of accrued interest relating to the Company’s other outstanding debt represents interest expense for the year ended December 31, 2021.  The notes payable and convertible subordinated debentures, including accrued interest, are past due.

The Company’s stockholders’ deficiency increased to $95,081,000 at December 31, 2021 from a $93,669,000 stockholders’ deficiency at December 31, 2020, reflecting the 2021 net loss of $1,412,000.

Off-Balance Sheet Arrangements

The Company has no Off-Balance Sheet Arrangements.

Recent Accounting Standards

Accounting Standards Update (ASU) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”, is effective for interim and annual periods ending after December 15, 2016 and, accordingly, this is discussed in Footnote 1 to the financial statements.

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

Forward Looking Statements

The discussion set forth in this Item 7, as well as other portions of this Form 10-K, may contain forward-looking statements.  Such statements are based upon the information currently available to management of the Company and management’s perception thereof as of the date of the Form 10-K.  When used in this Form 10-K, words such as “anticipates,” “estimates,” “believes,” “appears”, “expects,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.  Such state-ments are subject to risks and uncertainties.  Actual results of the Company’s operations could materially differ from those forward-looking statements.  The differences could be caused by a number of factors or combination of factors including, but not limited to:  changes in the real estate market in Florida and the counties in which the Company owns any property; the overall national economy and financial markets; institution of legal action by the bondholders for collection of any amounts due under the subordinated convertible debentures (notwithstanding the Company’s belief that at least a portion of such actions might be barred under applicable statute of limitations); changes in management strategy; and other factors set forth in reports and other documents filed by the Company with the Securities and Exchange Commission from time to time.

Item 7A. Qualitative and Quantitative Disclosures About Market Risk.

            Not Applicable

Item 8. Financial Statements and Supplementary Data

Auditor Firm ID – 123

Auditor Name – None

Auditor Location - None

PGI INCORPORATED AND SUBSIDIARIES 

CONSOLIDATED STATEMEMENTS OF FINANCIAL POSITION (UNAUDITED) 

December 31, 2021 and 2020 

($ in thousands, except share data) 

See accompanying notes to consolidated financial statements.

PGI INCORPORATED AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 

Years ended December 31, 2021 and 2020 

($ in thousands, except per share data)

See accompanying notes to consolidated financial statements.

PGI INCORPORATED AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 

Years ended December 31, 2021 and 2020 

($ in thousands) 

See accompanying notes to consolidated financial statements.

PGI INCORPORATED AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued) 

Years ended December 31, 2021 and 2020 

($ in thousands) 

See accompanying notes to consolidated financial statements.

PGI INCORPORATED AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (UNAUDITED) 

Year ended December 31, 2021 

($ in thousands, except share data)

Year ended December 31, 2020 

($ in thousands, except share data)

See accompanying notes to consolidated financial statements.

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

2. Significant Accounting Policies (continued):

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

3. Real Estate Sales and Other Income (continued):

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

7. Subordianted Convertible Debentures Payable (continued):

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

13. Related Party Transactions (continued):

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

PGI INCORPORATED AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited) (continued)

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

The Company’s independent registered public accounting firm, BKD, declined to stand for re-engagement subsequent to the audit for fiscal year ended December 31, 2018 (“Fiscal 2018”).  The Form 10-K for Fiscal 2018 was filed on February 25, 2019. There were no disagreements with BKD on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.  

In April 2019, the Company engaged the accounting firm of Milhouse & Neal, LLP as independent accountants for the fiscal year ended December 31, 2019.  Due to the inactive status of the Company and its diminishing financial resources, the Company elected not to engage the accounting firm of Milhouse & Neal, LLP to perform a review for the fiscal year ended December 31, 2021 and 2020.

Item 9A. Controls and Procedures

The Company has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended) under the supervision and with the participation of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company.  Based on this evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2021.  There have been no changes in the Company’s internal control over financial reporting during the Company’s fourth fiscal quarter ending December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management of PGI Incorporated (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with generally accepted accounting principles.  The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Item 9A. Controls and Procedures (continued)

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls.  Accordingly, even an effective system of internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.  

Management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on that assessment, management concludes that, as of December 31, 2021, the Company’s internal control over financial reporting is effective.

Item 9B. Other Information

Not Applicable

PART III

Item 10. Directors, Executive Officers, and Corporate Governance.

The following information, regarding executive officers and directors of the Company, is as of March 31, 2022.

Executive officers of the Company are appointed annually by the Board of Directors to hold office until their successors are appointed and qualify.

The directors of the Company have determined that the Company does not have an audit committee financial expert serving on its board of directors (which acts as the Company’s audit committee).  In addition, the Company has not adopted a code of ethics that applies to its principal executive officer and principal financial officer (principal accounting officer).  The Company’s decision not to adopt a code of ethics or to have an audit committee financial expert are primarily attributable to the following reasons:  (i) as a result of its continuing financial difficulties due to amounts owed on its debt, the Company is focused almost exclusively on the disposition of its remaining real estate; (ii) as described in Item 5, there have been no reported transactions in the Company’s Common Stock since January 29, 1991, other than the odd lot tender offer in 2003, the assignment of the 2,260,706 shares of Company Common Stock by L-PGI to LIC in 2016, and the 2017 quotations; (iii) the board of directors of the Company consists of only two directors and these two directors are also the only executive officers of the Company; and (iv) the same person serves as the Company’s chief executive officer and chief financial officer.

Item 11. Executive Compensation

The Company’s Chief Executive Officer and Chief Financial Officer is Mr. Laurence A. Schiffer.  Because of the Company’s impaired financial condition, it does not compensate in any manner Mr. Schiffer or Mr. Love, the Company’s only other executive officer, for the services they perform for the Company in that capacity or in their capacity as directors of the Company.  Management services are provided to the Company by Love Real Estate Company (“LREC”), which is an affiliate of Love Investment Company, pursuant to that certain Management Consulting Agreement by and between the Company and LREC dated March 25, 1987 (the “Management Agreement”).  Mr. Schiffer and Mr. Love are employees of, and receive an annual salary from LREC.  Neither the Company nor LREC maintains records, which would allow either of them to attribute any portion of the remuneration Mr. Schiffer receives from LREC to the management services he performs for the Company.  See Item 13. “Certain Relationships and Related Party Transactions, and Director Independence” for additional information about the Management Agreement.

Neither Mr. Schiffer nor Mr. Love has any outstanding equity awards at December 31, 2021.  The Company does not have a compensation plan or individual compensation arrangement under which its equity securities may be issued.

Neither Mr. Schiffer nor Mr. Love received fees from any source directly attributable to their services as directors of the Company during 2021.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The table below provides certain information as of March 31, 2022 regarding the beneficial ownership of the Common Stock and the Class A cumulative convertible preferred stock (the “Preferred Stock”) by each person known by the Company to be the beneficial owner of more than five percent of either the Common Stock or the Preferred Stock, each director of the Company (which persons are also the Company’s only executive officers), and by virtue of the foregoing, the directors and executive officers of the Company as a group.