SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the third quarterly period ended September 30, 2001
GIANT GROUP, LTD.
9440 Santa Monica Blvd. Suite 407, Beverly Hills, California 90210
Registrant's telephone number: (310) 273-5678
Commission File Number: 1-4323
I.R.S. Employer Identification Number: 23-0622690
State of Incorporation: Delaware
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.
On November 13, 2001, the latest practicable date, there were 2,690,854 shares
of Common Stock outstanding.
GIANT GROUP, LTD.
INDEX
Page No.
-------
PART I. FINANCIAL INFORMATION
- -------------------------------
Item 1. Financial Statements
Consolidated Statements of Operations -
Three and Nine-Month Periods Ended September 30, 2001 and 2000 3
Consolidated Balance Sheets -
September 30, 2001 and December 31, 2000 4
Consolidated Statements of Cash Flows -
Nine-Month Periods Ended September 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-11
PART II. OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Item 12
Item 6. Exhibits and Reports on Form 8-K 12
(a) Exhibits
(b) Reports on Form 8-K
Signature 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine-month periods ended September 30, 2001 and 2000
(Unaudited)
(Dollars in thousands, except per share amounts)
Three-months ended Nine-months ended
September 30, September 30,
------------------------- -------------------------
2001 2000 2001 2000
------------- ---------- ----------- ----------
Costs and expenses:
General and administrative (Note 1) $ 279 $ 412 $ 1,069 $ 1,542
Tender Offer (Note 4) - - 88 -
Depreciation 8 9 25 24
---------- ---------- ---------- ----------
287 421 1,182 1,566
---------- ---------- ---------- ----------
Income (loss):
Investment income (loss) 51 41 (16) 140
Gain on sale of marketable securities 96 89 94 112
Other (Note 1) 27 538 167 538
---------- ---------- ---------- ----------
174 668 245 790
---------- ---------- ---------- ----------
Income (loss) from continuing operations (113) 247 (937) (776)
Discontinued operations (Note 6):
Loss from operations less benefit for income taxes of $240 - (317) - (6,072)
Loss on disposition less benefit for income taxes of $294 - (687) - (687)
---------- ---------- ---------- ----------
Net loss $ (113) $ (757) $ (937) $ (7,535)
========== ========= ========== ==========
Basic & diluted loss per common share from:
Continuing operations $ (0.04) $ 0.07 $ (0.32) $ (0.21)
Discontinued operations:
Loss from operations - (0.09) - (1.64)
Loss on disposition - (0.20) - (0.19)
---------- ---------- ---------- ----------
Net loss $ (0.04) $ (0.22) $ (0.32) $ (2.04)
========== ========= ========== ==========
Weighted average shares - basic and diluted 2,691,000 3,422,000 2,945,000 3,693,000
========== ========= ========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
3
GIANT GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
September 30, December 31,
2001 2000
----------------------- -------------------
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 945 $ 1,428
Marketable securities 4,633 3,840
Income tax receivable - 171
Prepaid expenses and other assets 237 289
----------------------- -------------------
Total current assets 5,815 5,728
Property and equipment, net 89 124
Other assets 10 10
----------------------- -------------------
Total assets $ 5,914 $ 5,862
======================= ===================
LIABILITIES
Current liabilities:
Accounts payable $ 146 $ 162
Accrued expenses 312 448
Income taxes payable 11 15
----------------------- -------------------
Total current liabilities 469 625
Deferred income taxes 7 7
----------------------- -------------------
Total liabilities 476 632
----------------------- -------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 2,000,000 shares,
none issued - -
Class A common stock, $.01 par value; authorized 5,000,000 shares, - -
none issued
Common stock, $.01 par value; authorized 12,500,000 shares, 6,782,000
and 7,266,000 shares issued at September 30, 2001 and
December 31, 2000 (Note 4) 68 73
Capital in excess of par value (Note 4) 35,254 35,490
Accumulated other comprehensive income - unrealized gains
(losses) on marketable securities, net (Note 3) 1,222 (160)
Retained deficit (2,256) (1,319)
----------------------- -------------------
34,288 34,084
Less 4,091,000 shares (2001) and 4,111,000 shares (2000) in treasury,
at cost (28,850) (28,854)
----------------------- -------------------
Total stockholders' equity 5,438 5,230
Total liabilities and stockholders' equity $ 5,914 $ 5,862
======================= ===================
The accompanying notes are an integral part of these consolidated financial
statements.
4
GIANT GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine-month periods ended September 30, 2001 and 2000
(Unaudited )
(Dollars in thousands)
Nine months ended
September 30,
------------------------
2001 2000
---------- ---------
Operating Activities:
Net loss $ (937) $(7,535)
Less: Loss from discontinued operations (Note 6) - 6,072
Less: Loss on disposition of discontinued operations (Note 6) - 687
--------- -------
Net loss from continuing operations (937) (776)
Adjustments to reconcile net loss to net cash used by operating activities
Shares returned from former officer of discontinued operations (Note 1) - (538)
Depreciation 25 24
Gain on sale of marketable securities (94) (112)
Changes in assets and liabilities:
Decrease in receivables and prepaid expenses and other 272 (427)
Decrease in accounts payable and accrued expenses (152) (613)
Decrease in income tax payable (4) -
--------- -------
Net cash used by continuing operations (890) (2,442)
Net cash provided by discontinued operations - 1,687
--------- -------
Net cash used by operations (890) (755)
--------- -------
Investing Activities:
Sales of marketable securities 1,480 6,754
Purchases of marketable securities (842) (1,915)
Net proceeds from sale of property and equipment 10 -
Purchases of property and equipment, net - (117)
--------- -------
Net cash used by continuing investing activities 648 4,722
Purchases of property and equipment, net - discontinued operations - (286)
--------- -------
Net cash provided by investing activities 648 4,436
--------- -------
Financing Activities:
Proceeds from short-term margin loan 246 -
Payment of short-term margin loan (246) -
Payment for shares purchased from stockholders (Note 4) (241) -
--------- -------
Net cash used by continuing financing activities (241) -
--------- -------
Collateral deposited with factor - (3,000)
Payment of note receivable - related party - (168)
Payment of capital lease obligations - (27)
--------- -------
Net cash used by discontinued financing activities - (3,195)
--------- -------
Net cash used by financing activities (241) (3,195)
--------- -------
Increase (decrease) in cash and cash equivalents (483) 486
Cash and cash equivalents:
Beginning of period 1,428 955
--------- -------
End of period $ 945 $ 1,441
========= =======
Supplemental disclosure of cash paid by discontinued operations for:
Income taxes $ (4) $ (1)
Interest - (2,358)
Supplemental disclosure of cash paid by continuing operations for:
Income taxes $ - $ -
Interest - -
The accompanying notes are an integral part of these consolidated financial
statements.
5
GIANT GROUP, LTC.
NOTES TO CONSOLIDATED FINANCIAL STAEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
- --------------------------------------------------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
document (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include those
relating to the availability of adequate working capital, the development and
implementation of the Company's business plan and changes in federal or state
tax laws and of the administration of such laws.
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of September 30,
2001 and the results of operations and cash flows for the nine-month periods
ended September 30, 2001 and 2000. These results have been determined on the
basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's 2000 Annual
Report on Form 10-K. Certain 2000 amounts have been reclassified to conform to
the 2001 presentation. Operating results for the nine-month period ended
September 30, 2001 are not necessarily indicative of the results that may be
expected for the full year. It is suggested that the accompanying unaudited
consolidated financial statements be read in conjunction with the financial
statements and notes in the Company's 2000 Annual Report on Form 10-K.
The Company's consolidated statement of operations for the three-months
ended September 30, 2000 is restated, with other income increasing by $538. This
adjustment and the corresponding decrease to capital in excess of par value was
made during the fourth quarter of 2000 and is included in the Company's
consolidated statements of operations for the year ended December 31, 2000 and
consolidated balance sheet as of December 31, 2000. The Company had originally
increased treasury stock and capital in excess of par value by $538, in order to
record the return of shares of the Company's common stock by Glenn Sands, the
former Periscope president, in the third quarter of 2000. The shares were
returned as part of a July 2000 settlement between Mr. Sands and the Company.
The shares had been originally issued to Mr. Sands in connection with the
Company's acquisition of Periscope.
The Company's consolidated statement of operations for the nine-months
ended September 30, 2000 is restated, with general and administrative expenses
increasing by $482. This adjustment and the corresponding increase to capital in
excess of par value was made during the fourth quarter of 2000 and is included
in the Company's consolidated statements of operations for the year ended
December 31, 2000 and consolidated balance sheet as of December 31, 2000. In the
first quarter of 2000, the Company's CEO voluntarily authorized the Company to
retroactively cancel severance pay due to him. The Company had originally
decreased general and administrative expenses by $482 and the related liability,
as this expense had been previously accrued by the Company.
2. Litigation Settlement
---------------------
In February 2001, the Company agreed to receive $140 in cash and accept a
promissory note for $238, including interest at 9%, to settle its remaining
claim against Mr. Sands. The promissory note was signed by Mr. Sands and GIANT
in May 2001. The Company received the $140 in June 2001. The promissory note is
payable in 10 equal quarterly installments, beginning September 1, 2001. The
first installment of approximately $27, including accrued interest has been
received.
The Company evaluated the recoverability of this note in relation to the
Company's history with Mr. Sands. As a result, the Company will record income
from this note only as cash is received.
6
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
3. Comprehensive Income (Expense)
------------------------------
The changes in components of comprehensive income (expense) for the nine
months ended September 30, 2001 and 2000 are as follows:
2001 2000
------------------------------- -------------------------------
Pre-Tax Tax Net Pre-Tax Tax Net
Amount Provision Amount Amount Provision Amount
------- --------- ------ ------- --------- ------
Other comprehensive income (expense):
Unrealized gains on marketable
securities, net $ 1,382 $ - $ 1,382 $ 335 $ - $ 335
Net loss (937) (7,535)
------- -------
Comprehensive income (expense) $ 445 $(7,200)
======= =======
The Company has not provided a tax provision for the unrealized gains on
marketable securities for the nine months ended September 30, 2001 and 2000
because of the Company's current net operating loss carryover for Federal and
State income tax purposes.
4. Tender Offer
------------
On April 20, 2001, the Company announced its intention to purchase any and
all outstanding shares of its Common Stock and associated Preferred Stock
Purchase Rights for $.50 net per share. The Company intended to deregister its
shares under the Securities Exchange Act of 1934 and become a private company if
the number of stockholders numbered less than 300 after the offer to purchase
was completed.
The expiration date of the tender offer, extended twice by the Company, was
May 29, 2001. The Company purchased four hundred eighty-three thousand nine
hundred eighteen (483,918) shares and remains a public company. The Company
incurred one-time costs related to the tender offer of $88.
5. Recent Accounting Pronouncements
--------------------------------
In July 2001, the FASB issued Statement of Financial Accounting Standards
("SFAS') No. 141 "Business Combinations." SFAS No. 141 supersedes Accounting
Principles Board ("APB") No. 16 and requires that any business combinations
initiated after June 30, 2001 be accounted for as a purchase; therefore,
eliminating the pooling-of-interest method defined in APB 16. The statement is
effective for any business combinations accounted for by the purchase method for
which the date of acquisition is July 1, 2001 or later. The Company does not
expect that the adoption of SFAS No. 141 will have a material impact on the
Company's financial position or results of operations.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangibles." SFAS No. 142 addresses the initial recognition, measurement and
amortization of intangible assets acquired individually or with a group of other
assets (but not those acquired in a business combination) and addresses the
amortization provisions for excess cost over fair value of net assets acquired
or intangibles acquired in a business combination. The statement is effective
for fiscal years beginning after December 15, 2001, and is effective July 1,
2001 for any intangibles acquired in a business combination initiated after June
30, 2001. The Company does not expect that the adoption of SFAS No. 142 will
have a material impact on the Company's financial position or results of
operations.
7
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which requires companies to record the fair value of a
liability for asset retirement obligations in the period in which they are
incurred. The statement applies to a company's legal obligations associated
with the retirement of a tangible long-lived asset that results from the
acquisition, construction, and development or through the normal operation of a
long-lived asset. When a liability is initially recorded, the company would
capitalize the cost, thereby increasing the carrying amount of the related
asset. The capitalized asset retirement cost is depreciated over the life of
the respective asset while the liability is accreted to its present value. Upon
settlement of the liability, the obligation is settled at its recorded amount or
the company incurs a gain or loss. The statement is effective for fiscal years
beginning after June 30, 2002. The Company does not expect that the adoption of
FASB 143 will have a material impact on the Company's financial position or
results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." Statement 144 addresses the
accounting and reporting for the impairment or disposal of long-lived assets.
The statement provides a single accounting model for long-lived assets to be
disposed of. New criteria must be met to classify the asset as an asset held-
for-sale. This statement also focuses on reporting the effects of a disposal of
a segment of a business. This statement is effective for fiscal years beginning
after December 15, 2001. The Company does not expect that the adoption of FASB
144 will have a material impact on the Company's financial position or results
of operations.
6. Discontinued Women and Children's Apparel Operations
----------------------------------------------------
On September 25, 2000, the Company's Board of Directors approved a plan for
the disposition of Periscope's apparel operations. On October 31, 2000,
Periscope executed and delivered a letter delivering peaceful possession of its
assets, including accounting books and records, to Century Business Credit
Corporation ("Century"). Pursuant to the letter, all receivables, inventory,
fixed assets and other assets of Periscope were transferred to Century. At the
time of the transfer, Periscope was in default under its Factoring Agreement. On
November 30, 2000, Periscope filed a Voluntary Petition under Chapter 7 of the
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of New York.
The Company has reclassified its apparel operations for the nine months
ended September 30, 2000 as discontinued operations on the Consolidated
Statement of Operations.
7. Commitments and Contingencies
-----------------------------
The Company is involved in various claims and legal proceedings which have
been described in the Company's 2000 Annual Report on Form 10-K. There have
been no material changes to these claims and legal proceedings during the nine-
months ended September 30, 2001, except as described below.
GIANT GROUP, LTD., Plaintiff against Glenn Sands; Arthur Andersen LLP;
----------------------------------------------------------------------
Richard Salute; L.H. Friend, Weinress, Frankson & Presson, LLC. a/k/a L.H.
- ---------------------------------------------------------------------------
Friend, Weinress, Frankson & Presson, Inc.; Greg Presson; Friedman, Alpren &
- ----------------------------------------------------------------------------
Green LLP; and Harriett Greenberg.
- ----------------------------------
On June 27, 2001, the Company announced that it had filed a lawsuit in the
Supreme Court of the State of New York against Glenn Sands; Arthur Andersen LLP;
Richard Salute; L.H. Friend, Weinress, Frankson & Presson, LLC. a/k/a L.H.
Friend, Weinress, Frankson & Presson, Inc.; Greg Presson; Friedman, Alpren &
Green LLP; and Harriett Greenberg for damages suffered as a result of wrongs
complained of in connection with the acquisition of Periscope (see next
paragraph). The relief sought by GIANT is in excess of 40 million dollars. The
defendants have filed a motion to dismiss. The court has not ruled on this
motion.
8
GIANT GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except per share amounts)
GIANT GROUP, LTD., Plaintiff against Glenn Sands; Arthur Andersen LLP; L.H.
---------------------------------------------------------------------------
Friend, Weinress, Frankson & Presson, Inc.; and Friedman, Alpren & Green LLP.
- -----------------------------------------------------------------------------
On or about October 6, 2000, the Company filed a civil action in the United
States District Court for the Southern District of New York, Case No. 00 Civ.
7578, alleging claims under the United States securities laws against Glenn
Sands, Arthur Andersen LLP ("AA"), L.H. Friend, Weinress, Frankson & Presson,
Inc. ("LHF") and Friedman, Alpren & Green LLP ("Friedman"). The Company alleges
that Mr. Sands, while acting as principal officer and shareholder of Periscope,
made false and misleading representations about Periscope to the Company prior
to the Company's acquisition of Periscope in December 1998. The Company also
alleges that AA, LHF and Friedman failed to make necessary disclosures of
material information related to Periscope and failed to fulfill their
contractual and fiduciary obligations to the Company in connection with the
Company's acquisition of Periscope. The Company requested a jury trial. Certain
defendants moved to dismiss the complaint. On May 21, 2001, the United States
District Court for the Southern District of New York rendered an opinion, which
granted certain motions made by defendants Glenn Sands, AA, and Friedman to
dismiss claims of securities fraud which were asserted against them. The Court
granted the motion to dismiss the federal securities claims against these
defendants as well as co-defendant LHF, on the grounds that these claims were
time barred under the statute of limitations applicable to Federal securities
fraud claims. The Court did not rule on the viability of the related state law
claims which were dismissed without prejudice to refiling in the appropriate
state court.
Management is unable to predict the outcome of these matters at the present
time.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (Dollars in thousands except per share amounts)
Results of Operations for the Three-Months Ended September 30, 2001 Versus
- --------------------------------------------------------------------------
September 30, 2000
- ------------------
General and administrative expenses for the three-months ended September
30, 2001 decreased $133 to $279 from $412 for the comparable period in 2000.
This reduction in general and administrative expenses resulted primarily from
the decrease in professional fees of $87 and corporate office salaries and
related payroll taxes and employee health insurance of $46.
Other income (loss) for the three-months ended September 30, 2001 decreased
$494 to $174 from $668 for the comparable period in 2000. The current three-
month period included the first installment of approximately $27, including
accrued interest, on the Company's note receivable from Glenn Sands (Note 2 of
Notes to Consolidated Financial Statements). The Company's consolidated
statement of operations for the three-months ended September 30, 2000 is
restated, with other income increasing by $538. This adjustment and the
corresponding decrease to capital in excess of par value was made in the fourth
quarter of 2000 and is included in the Company's consolidated statements of
operations for the year ended December 31, 2000 and consolidated balance sheet
as of December 31, 2000 (Note 1, paragraph 2 of Notes to the Consolidated
Financial Statements).
Results of Operations for the Nine-Months Ended September 30, 2001 Versus
- -------------------------------------------------------------------------
September 30, 2000
- ------------------
General and administrative expenses for the nine-months ended September 30,
2001 decreased $473 to $1,069 from $1,542 for the comparable period in 2000.
This reduction in general and administrative expenses resulted primarily from
the decrease in corporate office expenses of $191, decrease in corporate office
salaries and related taxes and employee health insurance of $158 and a decrease
in professional fees of $130.
The Company's consolidated statement of operations for the nine-months
ended September 30, 2000 was restated, with general and administrative expenses
increasing by $482. This adjustment and the corresponding increase to capital in
excess of par value was made in the fourth quarter of 2000 and is included in
the Company's consolidated statements of operations for the year ended December
31, 2000 and consolidated balance sheet as of December 31, 2000 (Note 1,
paragraph 3 of Notes to Consolidated Financial Statements).
Effective June 30, 2001, the Company's President and Chief Executive
Officer ("CEO") voluntarily authorized the Company to reduce his annual salary
from $450 to $290.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents and marketable securities at September 30, 2001
increased $310 to $5,578 compared with $5,268 at December 31, 2000. The
Company's working capital increased $243 to $5,346 at September 30, 2001 from
$5,103 at December 31, 2000 with current ratios of 12.4 and 9.2 to 1,
respectively. Working capital increased due to higher appreciation on the
Company's marketable securities partially offset by funding of the Company's
expenses for the period.
The Company had made an investment in Checkers debt and 2,849,003 warrants
in 1996. Each warrant represents the right to purchase one share of Checkers
common stock at an exercise price of $.75. The Company wrote-off its investment
of $1,168 in these warrants in 1998 after a two-year trend of Checkers common
stock to trade below $.75. As a result of a 12-1 reverse stock split in 1999,
the Company now owns 237,416 warrants at an exercise price of $3.00, after the
exercise price was reduced by Checkers. The closing market price of Checkers
common stock was $4.98 at September 30, 2001.
The Company used cash of $890 for operating activities for the nine-months
ended September 30, 2001. Cash used to fund the Company's net loss was $937.
During the nine-months ended September 30, 2001, sales of marketable
securities and property and equipment, net of purchases of marketable
securities, provided cash of $648. The Company used $241 in cash to purchase
shares of its Common Stock directly from its stockholders (Note 4 of Notes to
Consolidated Financial Statements).
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (Dollars in thousands except per share amounts)
Cash and cash equivalents, marketable securities and investment income
provide the Company's current liquidity. Management believes that this
liquidity is sufficient for the Company to fund its current and near-term
operating expenses.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary financial instruments consist of money market funds
paying interest at varying interest rates, equity securities and bond
investments with fixed interest rates. The Company's market risk is the
potential decrease in the value of the Company's financial instruments resulting
from lower market prices. The Company does not enter into derivatives for
trading or interest rate exposure. The Company attempts to make prudent and
informed business decisions before investing in equity securities.
For the nine months ended September 30, 2001, the Company believes there was
no material change in the Company's primary financial instruments and related
market risk.
Personal Holding Company
- ------------------------
Under the Internal Revenue Code, in addition to the regular corporate income
tax, an additional tax may be levied upon an entity that is classified as a
"personal holding company". In general, this tax is imposed on corporations
which are more than 50% owned, directly or indirectly, by 5 or fewer individuals
(the "Ownership Test") and which derive 60% or more of their income from
"personal holding company" sources, generally defined to be passive income (the
"Income Test"). If a corporation falls within the Ownership Test and the Income
Test, it is classified as a personal holding company, and will be taxed on its
"undistributed personal holding company income" at a rate of 39.6%. The Company
currently meets the stock ownership test. The Company has not met the income
requirement in recent years, and therefore is not subject to this additional
tax; however, no assurance can be given that the income test will not be
satisfied in the future.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
For information regarding legal matters, see Note 7 of Notes to
Consolidated Financial Statements on page 8 of this Form 10-Q and Item 3
"Legal Proceedings" reported in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 2000.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's Annual Meeting of Stockholders was held on August 2,
2001. The stockholders elected a Board of five directors and ratified the
appointment of BDO Seidman, LLP as the Company's independent auditors.
Results of the voting in connection with each of the matters submitted
to the stockholders were as follows:
Board of Directors For Against Abstain
- ------------------ --------- ------- -------
Terry Christensen 2,533,651 - 12,974
David Gotterer 2,533,824 - 12,801
David Malcolm 2,533,856 - 12,769
Jeffrey Rosenthal 2,533,651 - 12,974
Burt Sugarman 2,531,676 - 14,949
Ratify appointment of BDO Seidman, LLP
as Company's Independent auditors 2,534,403 10,090 2,132
Item 5. Other Item
----------
On October 18, 2001, the Company dismissed BDO Seidman, LLP as its
auditors. There were no disagreements with BDO on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which if not resolved to the Company's auditors' satisfaction would
have caused it to make reference to the subject matter of the disagreement in
connection with their audit report for the fiscal year ended December 31, 2000
and for the quarters ended March 31, 2001 and June 30, 2001.
The Company retained Stonefield Josephson, Inc. on October 19, 2001 to act
as its independent accountant for the third quarter ended September 30, 2001 and
the year ended December 31, 2001.
The Company filed Form 8-K reporting these events on October 24, 2001.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Reports on Form 8-K
There were no reports filed on Form 8-K during the third quarter of
2001.
Items 2, 3, and 5 are not applicable.
12
SIGNATURE
Pursuant to the requirements 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.
GIANT GROUP, LTD. - Registrant
By: /s/ Pasquale A. Ambrogio
--------------------------
Pasquale A. Ambrogio
Vice President, Chief Financial Officer,
Secretary and Treasurer
Date: November 13, 2001
13