UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 2001
THE MORGAN GROUP, INC.
2746 Old U. S. 20 West
Elkhart, Indiana 46515-1168
(219) 295-2200
Delaware 1-13586 22-2902315
(State of (Commission File Number) (IRS Employer
Incorporation) Identification Number)
The Company (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.
The number of shares outstanding of each of the Company's classes of common
stock at July 31, 2001 was:
Class A - 1,248,157 shares
Class B - 2,200,000 shares
The Morgan Group, Inc.
INDEX
PAGE
NUMBER
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets as of
June 30, 2001 and December 31, 2000 3
Consolidated Statements of
Operations for the Three and Six Month Periods
Ended June 30, 2001 and 2000 4
Consolidated Statements of
Cash Flows for the Three and Six Month Periods
Ended June 30, 2001 and 2000 5
Notes to Consolidated Interim Financial
Statements as of June 30, 2001 6-9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
PART II OTHER INFORMATION
SIGNATURES 14
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
June 30 December 31
2001 2000
---- ----
ASSETS (Note 1)
(Unaudited)
Current assets:
Cash and cash equivalents $ 932 $ 2,092
Trade accounts receivable, less allowances
of $176 in 2001 and $254 in 2000 9,555 7,748
Accounts receivable, other 352 133
Refundable taxes 721 499
Prepaid expenses and other current assets 1,566 1,147
Deferred income taxes 319 319
------- -------
Total current assets 13,445 11,938
------- -------
Property and equipment, net 3,574 3,688
Goodwill and other intangibles, net 6,495 6,727
Deferred income taxes 282 282
Other assets 215 634
------- -------
Total assets $24,011 $23,269
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 3,776 $ 2,373
Accrued liabilities 3,186 3,704
Accrued claims payable 4,158 3,224
Refundable deposits 1,183 1,357
Current portion of long-term debt and capital lease obligations 173 217
------- -------
Total current liabilities 12,476 10,875
------- -------
Long-term debt and capital lease obligations, less current portion 31 71
Long-term accrued claims payable 4,199 5,122
Commitments and contingencies -- --
Shareholders' equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,607,303 23 23
Class B: Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 18
Additional paid-in capital 12,459 12,459
Retained earnings (2,012) (2,116)
Less - treasury stock at cost (359,146 Class A shares) (3,183) (3,183)
-------- --------
Total shareholders' equity 7,305 7,201
------- -------
Total liabilities and shareholders' equity $24,011 $23,269
======= =======
See notes to interim consolidated financial statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
---- ---- ---- ----
Operating revenues $25,432 $30,432 $46,120 $58,818
Costs and expenses:
Operating costs 22,761 27,758 41,640 54,390
Selling, general and administration 2,023 2,273 4,080 4,632
Depreciation and amortization 250 288 477 581
------- ------- ------- -------
25,034 30,319 46,197 59,603
Operating income (loss) 398 113 (77) (785)
Interest expense, net 27 76 93 133
------- ------- ------- -------
Income (loss) before income taxes 371 37 (170) (918)
Income tax expense (benefit) (255) 20 (255) (319)
------- ------- ------- -------
Net income (loss) $626 $ 17 $ 85 $(599)
======= ======= ======= =======
Net income (loss) per common share:
Basic $0.26 $0.01 $0.03 $(0.24)
======= ======= ======= =======
Diluted $0.26 $0.01 $0.03 $(0.24)
======= ======= ======= =======
Weighted average shares outstanding (thousands)
Basic 2,448 2,448 2,448 2,448
======= ======= ======= =======
Diluted 2,448 2,453 2,448 2,453
======= ======= ======= =======
Cash dividends declared per common share
Class A: $ 0.00 $ 0.02 $ 0.00 $ 0.04
======= ======= ======= =======
Class B: $ 0.00 $ 0.01 $ 0.00 $ 0.02
======= ======= ======= =======
See notes to interim consolidated financial statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
2001 2000 2001 2000
------------ ------------ ---------- ----------
Operating activities:
Net income (loss) $ 626 $ 17 $ 85 $( 599)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 250 288 477 581
Loss on disposal of property and equipment - 19 3 41
Changes in operating assets and liabilities:
Trade accounts receivable (1,729) (1,251) (1,807) (1,733)
Other accounts receivable (225) (252) (219) (47)
Refundable taxes (199) --- (203) -
Prepaid expenses and other current assets (367) 220 (419) 126
Other assets 167 (52) 419 66
Trade accounts payable 236 (154) 1,403 34
Accrued liabilities 263 390 (518) 93
Income taxes payable -- (3) - (584)
Accrued claims payable 537 (45) 11 57
Refundable deposits 91 186 (174) (155)
------- ------- ------- -------
Net cash used in operating activities (350) (637) (942) (2,120)
Investing activities:
Purchases of property and equipment (12) (26) (89) (103)
Other - 2 (10) 2
------- ------- ------- -------
Net cash used in investing activities (12) (24) (99) (101)
Financing activities:
Principal payments on long-term debt (77) (116) (119) (203)
Common stock dividends paid - (37) - (74)
------- ------- ------- -------
Net cash used in financing activities (77) (153) (119) (277)
------- ------- ------- -------
Net decrease in cash and equivalents (439) (814) (1,160) (2,498)
Cash & cash equivalents at beginning of period 1,371 2,163 2,092 3,847
------- ------- ------- -------
Cash and cash equivalents at end of period $932 $1,349 $932 $1,349
======= ======= ======= =======
See notes to interim consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
(Unaudited)
June 30, 2001
Note 1. Basis of Presentation
The accompanying consolidated interim financial statements have been
prepared by The Morgan Group, Inc. and Subsidiaries (the "Company"), in
accordance with generally accepted accounting principles for interim
financial information and with instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included for complete financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. The balance
sheet at December 31, 2000 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The consolidated interim financial
statements should be read in conjunction with the financial statements,
notes thereto and other information included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2000.
Net income per common share ("EPS") is computed using the weighted
average number of common shares outstanding during the period. Since
each share of Class B common stock is freely convertible into one share
of Class A common stock, the total of the weighted average number of
shares for both classes of common stock is considered in the
computation of EPS.
The accompanying unaudited consolidated interim 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 results of operations for the interim periods are not
necessarily indicative of the results for the entire year.
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Morgan Drive Away, Inc., TDI, Inc.,
Interstate Indemnity Company, and Morgan Finance, Inc., all of which
are wholly owned. Significant intercompany accounts and transactions
have been eliminated in consolidation.
Certain 2000 amounts have been reclassified to conform to the 2001
presentation.
Note 2. Subsequent Events
Long Term Debt
On July 27, 2001, the Company obtained a new three-year $12.5 million
credit facility with GMAC Commercial Credit LLC. The GMAC Credit
Facility replaces the Company's previous credit line that had expired
on January 28, 2001 and was not renewed.
The GMAC Credit Facility will be used for working capital purposes and
to post letters of credit for insurance contracts. At this time, the
company has no outstanding debt and $7.6 million outstanding letters of
credit. Borrowings will bear interest at a rate per annum equal to
either Bank of New York Alternate Base Rate ("ABR") plus one-half
percent or, at the option of Company, absent an event of default, the
one month London Interbank Offered Rate ("LIBOR") as published in The
Wall Street Journal, averaged monthly, plus three percent. Borrowings
and posted letters of credit on the GMAC Credit Facility are limited to
a borrowing base calculation that includes 85% of eligible receivables
and 95% of eligible investments, and are subject to certain financial
covenants including minimum tangible net worth, maximum funded debt,
minimum fixed interest coverage and maximum capital expenditures. The
facility is secured by accounts receivable, investments, inventory,
equipment and general intangibles. The facility may be prepaid anytime
with prepayment being subject to a 3%, .75% and .25% prepayment penalty
during year 1, 2 and 3, respectively.
The prior Credit Facility matured on January 28, 2001, at which time
the Company had no outstanding debt and $6.6 million outstanding
letters of credit. The Company was in default of the financial
covenants, resulting in the bank failing to renew the Credit Facility.
As a result of the Credit Facility not being renewed, the Company had a
payment default.
Short Term Debt
On July 31, 2001, the Company closed on a new real estate mortgage for
$500,000 that is secured by the Company's land and buildings in
Elkhart, Indiana. The loan will be used for short-term working capital
purposes. The mortgage bears interest at prime rate plus 0.75%, and is
for a six-month term with outstanding principal due on February 1,
2002. The loan may be prepaid at any time with no penalties, and is
subject to the same covenants as the GMAC Credit Facility. The
Company's application for additional capacity under this facility is
under consideration.
Equity
On July 12, 2001, the Company completed a previously announced $2
million capital infusion from its majority stockholder Lynch
Interactive Corporation. Morgan issued one million new Class B shares
of common stock in exchange for a $2 million cash investment, thereby
increasing Lynch's ownership position in the Company from 55.6% to
68.5%. The proceeds from the transaction are invested in U.S. Treasury
backed instruments and are pledged as collateral for the GMAC Credit
Facility.
Note 3.Income Taxes
In assessing the realization of deferred tax assets, Management
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of
future taxable income during the period in which the temporary
differences become deductible. A valuation allowance of $3.2 million
was recorded in 2000 to reduce the deferred tax assets, as the Company
has experienced cumulative losses for financial reporting for the last
three years. Management considered, in reaching the conclusion on the
required valuation allowance, given the cumulative losses, that it
would be inconsistent with applicable accounting rules to rely on
future taxable income to support full realization of the deferred tax
assets. Accordingly, the remaining deferred tax assets relate to
federal income tax carry backs available to the Company.
Note 4. Segment Reporting
Description of Services by Segment
The Company operates in four business segments: Manufactured Housing,
Driver Outsourcing, Specialized Outsourcing Services, and Insurance and
Finance. The Manufactured Housing segment primarily provides
specialized transportation to companies, which produce new manufactured
homes and modular homes through a network of terminals located in
twenty-eight states. The Driver Outsourcing segment provides
outsourcing transportation primarily to manufacturers of recreational
vehicles, commercial trucks, and other specialized vehicles through a
network of service centers in six states. The Specialized Outsourcing
Services segment consists of large trailer, travel and small trailer
delivery. The last segment, Insurance and Finance, provides insurance
and financing to the Company's drivers and independent owner-operators.
This segment also acts as a cost center whereby all property damage,
bodily injury and cargo costs are captured. The Company's segments are
strategic business units that offer different services and are managed
separately based on the differences in these services.
Measurement of Segment Income (Loss)
The Company evaluates performance and allocates resources based on
several factors, of which the primary financial measure is business
segment operating income, defined as earnings before interest, taxes,
depreciation and amortization (EBITDA). The accounting policies of the
segments are the same as those described in the Company's Annual Report
on Form 10-K.
The following table presents the financial information for the
Company's reportable segments for the three and six-month periods ended
June 30, (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Operating revenues
Manufactured Housing $14,103 $19,995 $ 25,464 $38,201
Driver Outsourcing 4,695 5,820 9,227 11,431
Specialized Outsourcing Services 5,968 3,883 10,103 7,640
Insurance and Finance 666 734 1,326 1,549
All Other - - - (3)
------- ------- ------- --------
Total operating revenues $25,432 $30,432 $46,120 $58,818
======= ======= ======= =======
Segment profit (loss) - EBITDA
Manufactured Housing $ 1,626 $ 1,896 $ 2,120 $ 3,638
Driver Outsourcing 406 436 720 906
Specialized Outsourcing Services 304 24 347 (119)
Insurance and Finance (1,400) (1,703) (2,133) (3,964)
All Other (288) (252) (654) (665)
-------- -------- -------- --------
648 401 400 (204)
Depreciation and amortization (250) (288) (477) (581)
Interest expense (27) (76) (93) (133)
-------- -------- -------- --------
Income (loss) before taxes $ 371 $ 37 $ (170) $ (918)
======= ======= ======== ========
Note 5. Pending Accounting Pronouncements
In July, 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business
Combinations (Statement 141), and No. 142, Goodwill and Other
Intangible Assets (Statement 142). These Statements change the
accounting for business combinations, goodwill, and intangible assets.
Statement 141 eliminates the pooling-of-interests method of accounting
for business combinations except for qualifying business combinations
that were initiated prior to July 1, 2001. Statement 141 further
clarifies the criteria to recognize intangible assets separately from
goodwill. The requirements of Statement 141 are effective for any
business combination accounted for by the purchase method that is
completed after June 30, 2001.
Under Statement 142, goodwill and indefinite lived intangible assets
are no longer amortized but are reviewed annually, or more frequently
if impairment indicators arise, for impairment. Separable intangible
assets that are not deemed to have an indefinite life will continue to
be amortized over their useful lives, but with no maximum life. The
amortization provisions of Statement 142 apply to goodwill and
intangible assets acquired after June 30, 2001. With respect to
goodwill and intangible assets acquired prior to July 1, 2001,
companies are required to adopt Statement 142 in their fiscal year
beginning after December 15, 2001. Because of the different transition
dates for goodwill and intangible assets acquired on or before June 30,
2001 and those acquired after that date, pre-existing goodwill and
intangibles will be amortized during this transition period until
adoption whereas new goodwill and indefinite lived intangible assets
acquired after June 30, 2001 will not.
The Company is required to and will adopt Statements 141 and 142 in the
third quarter of 2001 except with respect to the provisions of
Statement 142 relating to goodwill and intangibles acquired prior to
July 1, 2001 that will be adopted in the first quarter of 2002.
Management is evaluating Statements 141 and 142 and believes that the
adoptions will not have a significant effect on its consolidated
results of operations or financial position.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
RESULTS OF OPERATIONS
For the Quarter Ended June 30, 2001
Consolidated Results
Revenues for the second quarter of 2001 decreased by 16% to $25.4 million from
$30.4 million in the second quarter of 2000. This $5.0 million decline in the
second quarter included a decrease of $5.9 million (29%) in revenue from the
manufactured housing division.
The manufactured housing industry has been in a significant slump since 1999.
Based on a report from the Manufactured Housing Institute, shipments of
manufactured homes declined by 30% in April and May of 2001 compared to 2000.
(June shipments were not available). The second quarter was an improvement from
the first quarter of 2001 when year over year shipments were down 41%.
The Company has implemented cost-cutting programs in 2001 designed to match
company expenses with reduced revenue levels. In March 2001, a driver pay
decrease in manufactured housing was implemented. In April 2001, an additional
20 support positions were eliminated. In May 2001, new fuel surcharge
initiatives were installed to more closely match customer fuel surcharges with
driver pay for this charge.
These initiatives benefited the Company at the operating income level. Operating
income in the second quarter improved to $398,000 or 1.6% of revenue compared to
$113,000 or .4% of revenue in 2000.
Pre-tax income improved to $371,000 in the second quarter from $37,000 in the
prior year. The Company reported an income tax benefit of $255,000 in the second
quarter primarily relating to income tax refunds due from net operating loss
carry-backs filed with the 2000 income tax returns.
Segment Results
The following discussion sets forth certain information about segment results.
Manufactured Housing
The Company continues to maintain market share in the manufactured housing
division with the revenue decrease in the second quarter resulting from fewer
shipments of manufactured homes in the industry. Shipments of manufactured homes
were down 30% in the second quarter compared to 2000 while Morgan revenues for
this division were down 29% for the quarter.
Home manufacturers have reported weaker financial results during the past eight
quarters as a result of weakened demand, tightened consumer credit standards,
and increased industry repossessions. Certain of the manufacturers have reported
large operating losses that have stressed their financial position. These
manufacturers, including some of the Company's customers, have closed a number
of plants and retail centers and may contemplate additional closings.
The impact that this industry cycle will have on Company revenues cannot be
predicted, but the Company may experience decreases in revenue from some of its
largest customers. One customer in particular, which has represented less than
17% of Company revenues for the year to date, has recently announced continuing
losses and plans to close numerous retail locations. The Company believes it is
in its best interest to reduce its dependence on this customer. Based on
correspondence and discussion with this customer, it expects the customer will
reduce its use of the Company's services in the coming year. Management of the
Company believes there are new business opportunities that will offset attrition
of existing customer business.
Driver Outsourcing
Operating revenues for the driver outsourcing division in the quarter decreased
by $1.1 million or 19% from prior year as a result of lower sales in the
recreational vehicle markets.
The Company has been successful in reducing costs in this division to match the
reduced revenue levels. Segment EBITDA was 8.6% of revenue in the quarter
compared to EBITDA of 7.5% of revenue in 2000.
Specialized Outsourcing Services
Operating revenues for the specialized outsourcing division increased by $2.1
million or 54% in the second quarter. Revenues of the Company's towaway division
that leases independent contractors with Class 8 tractors grew by 67% compared
to prior year. The pick-up division, which utilizes independent contractors with
dual-axle pick-up trucks to move travel trailers and boats, reported 33% revenue
growth despite the down market in recreational vehicles.
Insurance and Finance
Our Insurance and Finance segment provides insurance and financing services to
our drivers and independent owner-operators. This segment also acts as a cost
center because the Company accounts for all bodily injury, property damage and
cargo loss costs under this segment. Insurance and Finance operating revenues
decreased $68,000 or 9% in the second quarter of 2001 as a result of decreases
in the number of drivers and independent owner-operators.
For the Six Months Ended June 30, 2001
Consolidated Results
Revenues for the first six months of 2001 decreased by $12.7 million or 22%
compared to 2000. The decrease is primarily related to the previously discussed
weak market for shipments of new manufactured homes.
According to the Manufactured Housing Institute, shipments of new manufactured
homes from January through May of 2001 were 75,052, a decrease of 36% compared
to the same period in 2000. For the six months ended June 30, 2001, revenues for
the manufactured housing division decreased by 33%.
The Company's cost-cutting initiatives have resulted in a significant
improvement in operating income compared to prior year. The Company reported an
operating loss of $77,000 in the first six months of 2001 compared to a loss of
$785,000 in 2000.
Segment Results
The following discussion sets forth certain information about our segment
results.
Driver Outsourcing
Operating revenues for the first six months of 2001 declined by 19% compared to
2000. This decline is primarily a result of weak demand for recreational
vehicles in 2001 compared to 2000.
Specialized Outsourcing Services
Operating revenues in specialized outsourcing services increased during the
first six months of 2001 to $10.1 million from $7.6 million. This was a result
of an increase in the number of independent owner-operators used by the Company
in 2001.
Liquidity and Capital Resources
On July 12, 2001, the Company completed a previously announced $2 million
capital infusion from its majority stockholder Lynch Interactive Corporation.
Morgan issued one million new Class B shares of common stock in exchange for a
$2 million cash investment, thereby increasing Lynch's ownership position in the
Company from 55.6% to 68.5%. The proceeds from the transaction are invested in
U.S. Treasury backed instruments and are pledged as collateral for the GMAC
Credit Facility.
On July 27, 2001, the Company obtained a new three-year $12.5 million credit
facility with GMAC Commercial Credit LLC (GMAC Credit Facility). The GMAC Credit
Facility replaces the Company's previous credit line that had expired on January
28, 2001 and was not renewed.
The GMAC Credit Facility will be used for working capital purposes and to post
letters of credit for insurance contracts. At this time, the company has no
outstanding debt and $7.6 million outstanding letters of credit. Borrowings will
bear interest at a rate per annum equal to either Bank of New York Alternate
Base Rate ("ABR") plus one-half percent or, at the option of Company, absent an
event of default, the one month London Interbank Offered Rate ("LIBOR") as
published in The Wall Street Journal, averaged monthly, plus three percent.
Borrowings and posted letters of credit on the GMAC Credit Facility are limited
to a borrowing base calculation that includes 85% of eligible receivables and
95% of eligible investments, and are subject to certain financial covenants
including minimum tangible net worth, maximum funded debt, minimum fixed
interest coverage and maximum capital expenditures. The facility is secured by
accounts receivable, investments, inventory, equipment and general intangibles.
The facility may be prepaid anytime with prepayment being subject to a 3%, .75%
and .25% prepayment penalty during year 1, 2 and 3, respectively.
The prior Credit Facility matured on January 28, 2001, at which time the Company
had no outstanding debt and $6.6 million outstanding letters of credit. The
Company was in default of the financial covenants, resulting in the bank failing
to renew the Credit Facility. As a result of the Credit Facility not being
renewed, the Company had a payment default.
On July 31, 2001, the Company closed on a new real estate mortgage for $500,000
that is secured by the Company's land and buildings in Elkhart, Indiana. The
loan will be used for short-term working capital purposes. The mortgage bears
interest at prime rate plus 0.75%, and is for a six-month term with outstanding
principal due on February 1, 2002. The loan may be prepaid at any time with no
penalties, and is subject to the same covenants as the GMAC Credit Facility. The
Company's application for additional capacity under this facility is under
consideration.
In addition, the Company anticipates receiving an income tax refund of $664,000
from filing a federal net operating loss carry-back return for the 2000 tax
year.
Effective July 1, 2001, the Company renewed its primary liability insurance,
workers compensation, cargo, and property insurance. Acquisition of liability
insurance in the trucking industry has become increasingly more difficult and
expensive over the past year. As a result, the Company's insurance premiums
effective July 1, 2001 will increase significantly. The Company will recover
much of this increase from customers in the form of apportioned insurance
charges (AIC). The net impact on the Company's operating results for the next 12
months cannot be determined at this time.
The Company has posted increased letters of credit to the insurance carriers
through the new credit facility as collateral for the payment of claim
reimbursements. Management believes the combination of the above financial
transactions will be adequate to allow the Company to post all required letters
of credit for insurance contracts.
Our financial statements were prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. Our ability to continue as a going concern is
dependent upon our ability to successfully maintain our financing arrangements
and to comply with the terms thereof.
Management believes that internally generated funds together with the recent
equity infusion and resources available under the replacement credit and
mortgage facilities will be sufficient to provide the Company's capital and
liquidity requirements for the next 12 months.
Impact of Seasonality
Shipments of manufactured homes tend to decline in the winter months in areas
where poor weather conditions inhibit transport. This usually reduces operating
revenues in the first and fourth quarters of the year. Our operating revenues,
therefore, tend to be stronger in the second and third quarters.
FORWARD LOOKING DISCUSSION
This report contains a number of forward-looking statements. 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, without limitation, the risk of declining production in the
manufactured housing industry; the risk of losses or insurance premium increases
from traffic accidents; the risk of loss of major customers; risks that the
Company will not be able to attract and maintain adequate capital resources;
risks of competition in the recruitment and retention of qualified drivers in
the transportation industry generally; risks of acquisitions or expansion into
new business lines that may not be profitable; risks of changes in regulation
and seasonality of the Company's business. Such factors are discussed in greater
detail in the Company's Annual Report on Form 10-K for the year ended December
31, 2000.
PART II - OTHER INFORMATION
Item 3 - Defaults Upon Senior Securities
The Company was in default on financial covenants of its credit facility, which
matured on January 28, 2001 and was not renewed. On July 27, 2001, the Company
acquired a new credit facility to replace the expired facility. As a result, the
Company is no longer in default on financial covenants as of July 27, 2001.
Item 5 - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
4.1 Revolving Credit and Security Agreement, dated July
27, 2001, among GMAC Commercial Credit LLC, Morgan
Drive Away, Inc. and TDI, Inc.
4.2 Guaranty, dated July 27, 2001, between Registrant and
GMAC Commercial Credit LLC.
4.3 Mortgage, dated July 31, 2001, between Morgan Drive
Away, Inc. and Old Kent Bank.
4.4 Guaranty, dated July 31, 2001, between Registrant and
Old Kent Bank.
(b) Report on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
SIGNATURES
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.
THE MORGAN GROUP, INC.
BY: /s/ Gary J. Klusman
--------------------
Chief Financial Officer
DATE: August 14, 2001