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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 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 October 31, 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
September 30, 2003, December 31, 2002 and September 30, 2002
Statements of Operations for the
Three Months and Nine Months Ended September 30, 2003 and 2002
Statements of Cash Flows for the
Nine Months Ended September 30, 2003 and 2002
Notes to Financial
Statements as of September 30, 2003
Morgan Group Holding Co.
Balance Sheets
(Dollars in thousands)
September 30, December 31 September 30,
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2003 2002 2002
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ASSETS
Current assets:
Cash and cash equivalents ....................... $ 405 $ 433 $ 437
------- ------- -------
Total curent assets .......................... 405 433 437
Net assets of The Morgan Group, Inc. ............ -- -- --
------- ------- -------
Total assets ................................. $ 405 $ 433 $ 437
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accrued expenses ................................ $ 6 $ 2 $ 65
------- ------- -------
Total current liabilities .................... 6 2 65
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 ............................. (5,243) (5,211) (5,270)
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Total shareholders' equity ................... 399 431 372
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Total liabilities and shareholders' equity ... $ 405 $ 433 $ 437
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See notes to financial statements
Morgan Group Holding Co.
Statements of Operations
(Dollars and shares in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
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2003 2002 2003 2002
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Administrative expenses .......................................... $ 1 $ (68) $ (35) $ (123)
Investment income ................................................ 1 1 3 6
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Income (loss) from continuing operations ......................... 2 (67) (32) (117)
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Discontinued operations (Notes 1 and 2):
Gain on sale of stock by The Morgan Group, Inc. ............... -- -- -- 162
Loss from operations before cumulative effect of
accounting change of The Morgan Group, Inc. - net of
income tax benefit of $-- and $1,125, respectively, and
minority interests of $234 and $1,829, respectively ........... -- (3,747) -- (6,712)
Cumulative effect of accounting change at The Morgan Group
Inc., net of minority interests of $722 ....................... -- -- -- (1,568)
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Net income (loss) .......................................... $ 2 $(3,814) $ (32) $(8,235)
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Basic and diluted income (loss) per share:
Income (loss) from continuing operations ......................... $ 0.00 $ (0.02) $ (0.01) $ (0.04)
Gain on sale of stock by The Morgan Group, Inc. .................. -- -- -- 0.05
Loss from operations before cumulative effect of accounting
change of The Morgan Group, Inc. .............................. -- (1.23) -- (2.20)
Cumulative effect of accounting change at The Morgan Group,
Inc ........................................................... -- -- -- (0.51)
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Net income (loss) per common share ........................... $ 0.00 $ (1.25) $ (0.01) $ (2.70)
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Weighted average shares outstanding .............................. 3,055 3,055 3,055 3,055
See accompanying notes
Morgan Group Holding Co.
Statements of Cash Flows
(Dollars in thousands)
Nine Months Ended
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September 30,
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2003 2002
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Operating activities:
Net loss .............................................. $ (32) $(8,235)
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase in accrued expenses .................... 4 65
Non-cash items and changes in operating assets
and liabilities relating to the operations of The
Morgan Group, Inc. .............................. -- 6,456
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Net cash used in operating activities ............... (28) (1,714)
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Investing activities:
Investments in The Morgan Group, Inc. ................ -- (11)
Investing activities relating to the operations of The
Morgan Group, Inc. ................................. -- 453
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Net cash provided by investing activities ............. -- 442
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Financing activities:
Financing activities relating to the operations of The
Morgan Group, Inc. ................................. -- 1,209
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Net cash provided by financing activities ........... -- 1,209
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Net decrease in cash and equivalents ................ (28) (63)
Cash and cash equivalents at beginning of period ......... 433 500
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Cash and cash equivalents at end of period ........... $ 405 $ 437
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See accompanying notes
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. Holding's management currently believes that it is very unlikely
that Holding will realize any value from its equity ownership in Morgan.
Furthermore, Holding has no obligation or intention to fund any of Morgan's
liabilities, therefore, Holding's 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, Holding 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, the
deconsolidation 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.
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
and nine months ended September 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 September 30, 2003, December 31, 2002, and September 30, 2002, the
estimated value of Morgan's assets in liquidation were insufficient to
satisfy its estimated obligations.
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.
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.
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
The reversal of a franchise tax accrual ($6,000) caused expenses to be a
negative $1,000 for the three months ended September 30, 2003, as compared to
$68,000 for the three months ended September 30, 2003. Expenses in the third
quarter of 2002 included an over-accrual of professional fees of $65,000 that
was reversed in the fourth quarter of 2002. For the year ended December 31,
2002, the Company incurred administrative expenses of $64,000.
For the nine months ended September 30, 2003 the Company incurred $35,000 of
expenses as compared to $123,000 in the nine months ended September 30, 2002,
including the $65,000 over-accrual.
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 September 30, 2003, the Company's only assets consisted of $405,000 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 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.
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.
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 Report on Form 8-K filed on August 14, 2003, explaining reason for
not providing Rule 15d-14 and Section 906 certifications with Quarterly
Report on Form 10-Q for the period ending June 30, 2003.
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
November 11, 2003