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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2003
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Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No.
MORGAN GROUP HOLDING CO.
(Exact name of Registrant as specified in its charter)
Delaware 333-73996 13-4196940
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(State of jurisdiction of (Commission File Number) (IRS Employer
Incorporation) Identification Number)
401 Theodore Fremd Avenue, Rye, New York 10580
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(Address of principal executive offices) (Zip Code)
(914) 921-1877
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Registrant's telephone number, including area code
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 X No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2of the Act). Yes No X
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.
Class Outstanding at July 30, 2003
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Common Stock, $.01 par value 3,055,345
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements and Supplementary Data.
Financial Statements
Balance Sheets as of June 30, 2003, December 31, 2002 and June 30,
2002
Statements of Operations for the Three Months and Six Months Ended
June 30, 2003 and 2002
Statements of Cash Flows for the Six Months Ended June 30, 2003 and
2002
Notes to Financial Statements as of June 30, 2003
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Morgan Group Holding Co.
Balance Sheets
(Dollars and shares in thousands, except per share amounts)
June 30, December 31, June 30,
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2003 2002 2002
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ASSETS
Current assets:
Cash and cash equivalents ..................... $ 400 $ 433 $ 439
------- ------- -------
Total current assets ....................... 400 433 439
Net assets of The Morgan Group, Inc. ......... -- -- 373
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Total assets ............................... $ 400 $ 433 $ 812
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accrued expenses .............................. $ 3 $ 2 $--
------- ------- -------
Total current liabilities .................. $ 3 $ 2 $--
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value,
1,000,000 shares authorized,
none outstanding ............................ -- -- --
Common stock, $0.01 par value,
10,000,000 shares authorized,
3,055,345 outstanding ....................... 30 30 30
Additional paid-in-capital .................... 5,612 5,612 5,612
Accumulated deficit ........................... (5,245) (5,211) (4,830)
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Total shareholders' equity ................. 397 431 812
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Total liabilities and shareholders' equity . $ 400 $ 433 $ 812
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See notes to financial statements
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Morgan Group Holding Co.
Statements of Operations
(Dollars and shares in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
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2003 2002 2003 2002
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Administrative expenses ................................... $ -- $ (18) $ (36) $ (55)
Investment income ......................................... 1 4 2 5
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Loss from continuing operations ........................... 1 (14) (34) (50)
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Discontinued operations (Notes 1 and 2):
Gain on sale of stock by The Morgan Group, Inc. ........... -- 162 -- 162
Loss from operations before cumulative effect of
accounting change of The Morgan Group, Inc. - net of
income tax benefit of $1,125 and $1,125 respectively and
minority interests of $1,476 and $1,595 ................. -- (2,706) -- (2,965)
Cumulative effect of accounting change at The Morgan Group
Inc., net of minority interests of $722 ................. -- -- -- (1,568)
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Net profit (loss) ..................................... $ 1 $(2,558) $ (34) $(4,421)
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Basic and diluted loss per share:
Loss from continuing operations ........................... $ 0.00 $ (0.00) $ (0.01) $ (0.02)
Gain on sale of stock by The Morgan Group, Inc. ........... -- 0.05 -- 0.05
Loss from operations before cumulative effect of accounting
change of The Morgan Group, Inc. ....................... -- (0.89) -- (0.97)
Cumulative effect of accounting change at The Morgan Group,
Inc .................................................... -- -- -- (0.51)
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Net profit (loss) per common share .................... $ 0.00 $ (0.84) $ (0.01) $ (1.45)
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Weighted average shares outstanding ....................... 3,055 3,055 3,055 3,055
See accompanying notes
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Morgan Group Holding Co.
Statements of Cash Flows
(Dollars in thousands)
Six Months Ended
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June 30,
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2003 2002
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Operating activities:
Net loss .......................................... $ (34) $(4,421)
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase in accrued expenses ................ 1 --
Non-cash items and changes in operating assets
and liabilities relating to the operations of The
Morgan Group, Inc. .............................. -- 2,451
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Net cash used in operating activities ........... (33) (1,970)
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Investing activities:
Investments in The Morgan Group, Inc. ............ -- (11)
Investing activities relating to operations of The
Morgan Group, Inc. ................................ -- 50
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Net cash provided by investing activities ......... -- 39
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Financing activities:
Financing activities relating to operations of The
Morgan Group, Inc. ............................... -- 1,870
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Net cash provided by financing activities ............ -- 1,870
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Net decrease in cash and equivalents ................. (33) (61)
Cash and cash equivalents at beginning of period . 433 500
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Cash and cash equivalents at end of period ........... $ 400 $ 439
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See accompanying notes
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Morgan Group Holding Co.
Notes to Financial Statements
Note 1. Basis of Presentation
Morgan Group Holding Co. ("Holding" or "the Company") was incorporated
in November 2001 as a wholly-owned subsidiary of Lynch Interactive
Corporation ("Interactive") to serve, among other business purposes,
as a holding company for Interactive's controlling interest in The
Morgan Group, Inc. ("Morgan"). On December 18, 2001, Interactive's
controlling interest in Morgan was transferred to Holding. At the
time, Holding owned 68.5% of Morgan's equity interest and 80.8% of
Morgan's voting interest. On January 24, 2002, Interactive spun off
2,820,051 shares of our common stock through a pro rata distribution
("Spin-Off") to its stockholders. Interactive retained 235,294 shares
of our common stock to be distributed in connection with the potential
conversion of a convertible note that had been issued by Interactive.
Such note was repurchased by Interactive in 2002 and Interactive
retains the shares.
On October 3, 2002, Morgan ceased its operations when its liability
insurance expired and it was unable to secure replacement insurance.
On October 18, 2002, Morgan and two of its operating subsidiaries
filed voluntary petitions under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Northern
District of Indiana, South Bend Division for the purpose of conducting
an orderly liquidation of Morgan's assets.
As Morgan has ceased operations and is in the process liquidating
itself, in the accompanying financial statements, the assets and
liabilities and results of operations of Morgan have been reflected as
a discontinued operation. In addition, Holding's management currently
believes, it is very unlikely that it will realize any value from its
equity ownership in Morgan, and given the fact that Holding has no
obligation or intention to fund any of Morgan's liabilities, its
investment in Morgan was believed to have no value after the
liquidation. As the liquidation of Morgan is under the control of the
bankruptcy court, the Company believes it has relinquished control of
Morgan and accordingly, has ceased consolidating the financial
statements of Morgan. As Holding's investment in Morgan was a negative
$2,182,000, at the date of adoption of the plan of liquidation, this
resulted in a gain to Holding of that amount.
On October 18, 2002, Morgan adopted the liquidation basis of
accounting and accordingly, Morgan's assets and liabilities have been
adjusted to estimate net realizable value. As the carry value of
Morgan's liabilities exceeded the fair value of its assets, the
liabilities were reduced to equal the estimated net realizable value
of the assets.
The financial statements have been prepared using the historical basis
of assets and liabilities and historical results of Interactive's
interest in Morgan, which were contributed to the Company on December
18, 2001. However, the historical financial information presented
herein reflects periods during which the Company did not operate as an
independent public company and accordingly, certain assumptions were
made in preparing such financial information. Such information,
therefore, may not necessarily reflect the results of operations,
financial condition or cash flows of the Company in the future or what
they would have been had the Company been an independent public
company during the reporting periods.
The financial statements represent combined financial statements
through December 18, 2001 and include the accounts of Holding, Morgan
and its subsidiaries. Subsequent to December 18, 2001, the financial
statements represent the consolidated results of those entities. As
noted above as of October 18, 2002, the Company deconsolidated the
operations of Morgan. Significant intercompany accounts and
transactions have been eliminated in combination/consolidation.
Net loss per common share ("EPS") is computed using the number of
common shares issued in connection with the Spin-Off as if such shares
had been outstanding for all periods presented.
All highly liquid investments with maturity of three months or less
when purchased are considered to be cash equivalents. The carrying
value of cash equivalents approximates its fair value based on its
nature.
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The accompanying unaudited consolidated financial statements reflect,
in the opinion of management, all adjustments (consisting of normal
recurring items) necessary for a fair presentation, in all material
respects, of the financial position and results of operations for the
periods presented. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions. Such estimates and
assumptions affect the reported amounts of assets and liabilities, the
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.
The financial statements include the accounts of the Company and
through October, 18, 2002, its majority owned subsidiary, Morgan.
Morgan has the following subsidiaries: Morgan Drive Away, Inc., TDI,
Inc., Interstate Indemnity Company, and Morgan Finance, Inc., all of
which are wholly owned. Morgan Drive Away, Inc. has two subsidiaries,
Transport Services Unlimited, Inc. and MDA Corp. Significant
intercompany accounts and transactions have been eliminated in
consolidation. During 2002, Morgan was treated as a discontinued
operations and previously issued financial statements have been
restated to reflect that presentation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and
with the instructions to Form 10-QSB and Articles 10 and 11 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended June 30,
2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. The preparation of
consolidated financial statements in conformity with accounting
principles generally accepted in the United States requires management
to make estimates and assumptions that effect the amounts reported in
the financial statements and accompanying notes. Actual results could
differ from these estimates.
Certain 2002 amounts have been reclassified to conform to the 2003
presentation.
Note 2. Net assets of Discontinued Operation
At June 30, 2003 and December 31, 2002, the estimated value of
Morgan's assets in liquidation were insufficient to satisfy its
estimated obligations. At June 30, 2002, the net asset of Morgan are
at their historical value.
Note 3. Issuance of Non-transferable Warrants
On December 12, 2001, Morgan issued non-transferable warrants to
purchase shares of common stock to the holders of Class A and Class B
common stock. Each warrant entitled the holder to purchase one share
of their same class of common stock at an exercise price of $9.00 per
share through the expiration date of December 12, 2006. The Class A
warrants provided that the exercise price would be reduced to $6.00
per share during a Reduction Period of at least 30 days during the
five-year exercise period.
On February 19, 2002, Morgan's Board of Directors agreed to set the
exercise price reduction period on the Class A warrants to begin on
February 26, 2002 and to extend for 63 days, expiring on April 30,
2002 (the "Reduction Period"). Morgan's Board of Directors agreed to
reduce the exercise price of the warrants to $2.25 per share, instead
of $6.00 per share, during the Reduction Period. Morgan's Board of
Directors reduced the exercise price to $2.25 to give warrant holders
the opportunity to purchase shares at a price in the range of recent
trading prices of the Class A common stock. All other terms regarding
the warrants, including the expiration date of the warrants, remain
the same. As of the close of the temporary Reduction Period on April
30, 2002, Morgan received $535,331 with the exercise of 237,925
warrants at $2.25 each. The Company exercised 5,000 of its warrants
for a total of $11,250. Subsequent to the exercise, the Company owned
64.2% of Morgan's equity interest and 77.6% of Morgan's voting
ownership. Unexercised warrants remain outstanding and exercisable at
$9.00 each.
As a result of the exercise of the Warrants by Morgan's shareholders,
the Company recognized a gain on the sale of stock by a subsidiary of
$162,000 during the three months ended June 30, 2002.
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Note 4. Income Taxes
No income tax benefit has recorded in the accompanying financial
statements, as the realization of such losses, for income tax
purposes, is dependent upon the generation of future taxable income
during the period when such losses would be deductible. Therefore, the
recording of the deferred tax asset of $1.5 million would be
inconsistent with applicable accounting rules.
Note 5. Segment Reporting
As the results of operations of the Morgan Group are currently being
accounted for as discontinued operation and the Holding currently have
limited operations there is no Segment Reporting.
Note 6. Commitments and Contingencies
Holding has not guaranteed any of the obligations of Morgan and it has
no further commitment or obligation to fund any creditors.
Note 7. Financial Statements not reviewed by Independent Public Accountants
On May 2, 2003, the client-auditor relationship between Holding and
Ernst & Young LLP ceased. As a result, these interim financial
statements have not been reviewed by independent public accountants.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Management's Discussion and Analysis of Financial Condition and Plan of
Operation.
Overview
On October 18, 2002, Morgan adopted the liquidation basis of accounting and
accordingly, Morgan's assets and liabilities have been adjusted to estimate net
realizable value. As the carry value of Morgan's liabilities exceeded the fair
value of its assets, the liabilities were reduced to equal the estimated net
realizable value of the assets.
The Company currently has no operating businesses and will seek acquisitions as
part of its strategic alternatives. Its only costs are the administrative
expenses required to make the regulatory filings needed to maintain its public
status. These costs are estimated at $50,000 to $100,000 per year.
Results of Operations
For the three months ended June 30, 2003, the Company incurred no expenses
compared to $18,000 was incurred in the three months ended June 30, 2003. For
the year ended December 31, 2002, the Company incurred administrative expenses
of $64,000. The Company was formed in November 2001.
For the six months ended June 30, 2003 the Company incurred $36,000 of expenses
as compared to $55,000 in the six months ended June 30, 2002.
As a result of the exercise of the Warrants by Morgan's shareholders, the
Company recognized a gain on the sale of stock by a subsidiary of $162 during
the three months ended June 30, 2002.
Liquidity and Capital Resources
As of June 30, 2003, the Company's only assets consisted of $400,000 in cash and
an unrecognized asset relating to loss carryforward, primarily capital, of about
$4 million.
Item 4. Controls and Procedures
As a result of the Bankruptcy, Morgan's corporate, financial and accounting
staff has been substantially reduced, thereby likely impairing the ability of
Morgan to maintain internal controls and adequate disclosure controls and
procedures. On November 12, 2002, Morgan filed a Form 15 with the Securities and
Exchange Commission to terminate its registration under Section 12(g) of the
Exchange Act. Given the current status of Morgan, neither the chief executive
officer nor the chief financial officer of Holding has been able to evaluate the
effectiveness of the disclosure controls and procedures of Morgan.
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Forward Looking Discussion
This report contains a number of forward-looking statements, including
statements regarding the prospective adequacy of the Company's liquidity and
capital resources in the near term. From time to time, the Company may make
other oral or written forward-looking statements regarding its anticipated
operating revenues, costs and expenses, earnings and other matters affecting its
operations and condition. Such forward-looking statements are subject to a
number of material factors, which could cause the statements or projections
contained therein, to be materially inaccurate. Such factors include the
estimated administrative expenses of the Company on a go forward basis.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 29, 2003, the Company, on behalf of itself and all other persons who
purchased or acquired securities of Morgan during the period of November 13,
2001 through August 19, 2002 (the "Class Period"), commenced a class action
lawsuit against Anthony T. Castor, III, Morgan's Chief Executive Officer during
the Class Period, Gary J. Klusman, Morgan's Chief Financial Officer during the
Class Period, Michael Archual, the President of Drive Away, Inc., a subsidiary
of Morgan, during the Class Period and Ernst & Young LLP, Morgan's independent
auditor during the Class Period, in the United States District Court, Southern
District of New York. The lawsuit seeks recovery of monetary damages as a result
of Morgan's failure to truthfully disclose the status of its compliance with
loan covenants and other provisions contained within a financing agreement
between Morgan and GMAC Commercial Credit LLC ("GMAC") (the "Credit Facility")
and to properly report receivables due to GMAC pursuant to the Revolving Credit
and Security Agreement governing the Credit Facility (the "Credit Agreement").
The lawsuit alleges that as a result of the failure to comply with the loan
covenants contained in the Credit Agreement during the relevant period and the
subsequent discovery of such violations, Morgan was effectively deprived of
credit sources. The lawsuit further alleges that this loss of financing
ultimately forced Morgan and its subsidiaries to file for bankruptcy protection,
thereby causing damages to the Company and all other investors in Morgan
securities during the Class Period. The Company exercised Class A Warrants to
purchase 5,000 Class A Shares of Morgan at $2.25 per share on April 30, 2002.
Item 6. Exhibits and Reports on Form 8-K
(a) None.
(b) Current Reports on Form 8-K filed on May 12, 2003, May 16, 2003 and June 4,
2003 reporting the cessation of the client-auditor relationship with Ernst
& Young LLP.
Current Report on Form 8-K filed on May 16, 2003, explaining reason for not
providing Rule 15d-14 and Section 906 certifications with Quarterly Report
on Form 10-Q for the period ending March 31, 2003.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MORGAN GROUP HOLDING CO.
By: /s/ Robert E. Dolan
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ROBERT E. DOLAN
Chief Financial Officer
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