PROSPECTUS
DATED DECEMBER 12, 2001
1,248,157 SHARES OF CLASS A COMMON STOCK
[Logo Omitted] The Morgan Group, Inc.
ISSUABLE UPON EXERCISE OF WARRANTS
We currently have two classes of common stock issued and outstanding, Class
A common stock, $.015 par value, and Class B common stock, $.015 par value. We
have no other equity securities outstanding. We are distributing to holders of
our Class A common stock, Class A warrants to purchase additional shares of our
Class A common stock. This prospectus relates to the Class A common stock
issuable upon exercise of the Class A warrants. Our Class A common stock trades
on the American Stock Exchange under the symbol "MG."
o For each share of our Class A common stock which you own on the record
date of December 7, 2001 you will receive one Class A warrant.
o Each Class A warrant entitles you to purchase, subject to certain
adjustments, one share of our Class A common stock at the warrant
exercise price of $9.00 per share. The exercise price for the Class A
warrants will be reduced to $6.00 per share during a reduction period
of at least 30 days to be set by our Board of Directors. The Board has
not yet determined the timing of the reduction period. If the
reduction period has not been set by October 12, 2006, the reduction
period will be November 11, 2006 to December 11, 2006.
o The closing price for the shares of Class A common stock on November
26, 2001 was $3.30. Therefore, the warrant exercise price is
considerably higher than the recent trading price of the Class A
common stock as of the date of this Prospectus.
o On July 12, 2001, we issued 1,000,000 shares of our Class B common
stock to a wholly owned subsidiary of Lynch Interactive Corporation,
our controlling stockholder, for a purchase price of $2.00 per share.
See "The Morgan Group, Inc. -- Lynch Interactive Corporation" on page
for a more complete description of the transaction and a discussion of
the disparity in price.
o The Class A warrants may not be transferred. We do not intend to
apply, and are not obligated to apply, for listing of the warrants on
any securities exchange. However, we intend to apply for listing of
the Class A common stock underlying the Class A warrants on the
American Stock Exchange.
o We will not issue fractional shares, and we will not pay cash in place
of warrants or fractional shares. If the number of warrants which you
own on the record date would result, when exercised, in your receipt
of fractional shares, the number of shares which you will be able to
purchase pursuant to such warrants will be rounded down to the next
whole number.
o The warrants are exercisable for a 5-year period beginning on the date
of this prospectus, when completed, and continuing until 5:00 p.m.,
New York City Time, on December 11, 2006.
o Warrants are irrevocable once exercised.
Maximum Maximum Underwriting Maximum
Number of Warrant Discounts and Proceeds to
Shares Issuable Exercise Price Commissions (1) Company (2)
--------------- -------------- --------------- -----------
Per Share of Class A
Common Stock 1,248,157 $9.00 (3) None $9.00 (3)
Total (4) 1,248,157 $11,233,413 (3) None $11,233,413 (3)
- -------------------------
(1) We are distributing the warrants directly to our stockholders and do not
intend to pay any commissions or other remuneration to any person for
soliciting purchasers of the shares of Class A common stock underlying the
warrants.
(2) Before estimated expenses of $182,808.35. The warrant exercise price is
considerably higher than the recent trading price of the Class A common
stock as of the date of this Prospectus. There is no minimum offering.
There is no assurance that any of the warrants will be exercised.
(3) The exercise price for the Class A warrants will be reduced to $6.00 per
share during a reduction period of at least 30 days to be set by our Board
of Directors. If such period is not set prior to the date 60 days before
the expiration date, such period will comprise the final 30 days before the
expiration date.
(4) Assumes exercise of all warrants to be issued in this offering.
This investment involves risk. See "Risk Factors" beginning on page to read
about risks that you should consider carefully before buying shares of our Class
A Common Stock.
- --------------------------------------------------------------------------------
Neither the Securities and Exchange Commission nor any State Securities
Commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
- --------------------------------------------------------------------------------
The date of this Prospectus is December 12, 2001.
TABLE OF CONTENTS
Page
Prospectus Summary ........................................................ 1
The Morgan Group, Inc. .................................................... 1
The Offering .............................................................. 6
Risk Factors .............................................................. 8
Risks Related to the Offering ............................................. 8
Risks Related to Us and Our Industry ...................................... 9
Risks Related to Factors Outside Our Control .............................. 10
Capitalization ............................................................ 12
Summary Financial Data .................................................... 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations .............................................. 14
Results of Operations for the Year 2000 Compared with 1999 ................ 14
Interim Results of Operations for the Quarter Ended September 30, 2001 .... 17
Market for Common Equity and Related Stockholder Matters .................. 21
Market Information ..................................................... 21
Dividend Policy ........................................................ 21
Use of Proceeds ........................................................... 21
The Offering .............................................................. 22
Exercising Your Warrants ............................................... 22
Warrant Exercise Price ................................................. 22
Expiration Time ........................................................ 23
Warrant Agent .......................................................... 23
Determination of the Warrant Exercise Price ............................ 23
Plan of Distribution ................................................... 23
Warrant Payments ....................................................... 24
Anti-Dilution Protection ............................................... 24
Warrant Amendments ..................................................... 24
Nominee Holders ........................................................ 24
Ambiguities in Exercise of the Warrants ................................ 25
Interpretation ......................................................... 25
Risk of Loss on Delivery of Warrant Certificates and Payments .......... 25
Exercise of Less Than All Warrants ..................................... 25
Warrants Are Not Transferable .......................................... 26
Signature Guarantees ................................................... 26
Procedures for Depository Trust Company Participants ................... 26
No Revocation .......................................................... 26
No Board Recommendation ................................................ 26
Issuance of Stock Certificates ......................................... 27
Foreign Stockholders; Stockholders with APO or FPO Addresses ........... 27
State and Foreign Securities Law ....................................... 27
Regulatory Limitation .................................................. 27
Questions or Requests for Assistance ................................... 27
Dilution .................................................................. 27
Description of Capital Stock .............................................. 28
Class A and Class B Common Stock ....................................... 28
Preferred Stock ........................................................ 29
Certain Statutory, Charter and ByLaw Provisions ........................ 29
Certain Federal Income Tax Consequences ................................... 30
Indemnification of Directors and Officers -- Disclosure of
Commission's Position on Indemnification ............................... 31
Legal Matters ............................................................. 31
Experts ................................................................... 32
Forward Looking Statements ................................................ 32
Where You Can Find More Information ....................................... 32
Incorporation by Reference ................................................ 32
PROSPECTUS SUMMARY
This summary highlights material information found in greater detail
elsewhere in this prospectus. In addition to this summary, we urge you to read
the entire prospectus carefully, especially the risks involved in our Class A
common stock discussed under "Risk Factors" before deciding to invest in shares
of our Class A common stock.
THE MORGAN GROUP, INC.
The Morgan Group, Inc., a majority owned subsidiary of Lynch Interactive
Corporation, is the nation's largest publicly owned service company managing the
delivery of manufactured homes, commercial vehicles and specialized equipment in
the United States, and, through its wholly owned and principal subsidiary,
Morgan Drive Away, Inc., has been operating since 1936. We primarily provide
outsourcing transportation services through a national network of approximately
775 independent owner-operators and approximately 1,112 other drivers as of
October 31, 2001. We dispatch our drivers from 56 locations in 27 states, as of
such date. We also provide certain insurance services to the independent
owner-operators through our insurance subsidiaries.
As further described below, our strategy is to grow through expansion in
our niche businesses while pursuing appropriate acquisitions or joint ventures
in related industries. In addition, we will seek to expand insurance product
offerings to drivers and owner-operators.
Our Services
We operate in four business segments: Manufactured Housing, Driver
Outsourcing, Specialized Outsourcing Services, and Insurance and Finance.
o Manufactured Housing Segment. We derive the largest portion of our
operating revenues from transportation of manufactured housing,
primarily new manufactured homes, modular homes, and office trailers.
We also transport used manufactured homes and offices for individuals,
businesses, and the U.S. Government. We are the largest transporter of
manufactured homes in the United States. As of October 31, 2001, we
utilize approximately 426 independent owner-operators to transport
manufactured homes for our customers. The number of independent
owner-operators decreased approximately 47% from October 31, 2000,
principally due to the decrease in shipments. To serve the regional
structure of this industry, we position each of our dispatch offices
close to the production facility it serves. As of October 31, 2001,
there are 37 regional dispatch offices.
In 2001, for the third consecutive year, the manufactured housing
industry experienced a decline in shipments and production. However,
we believe that the manufactured housing industry over the long-term
should grow, but there is no assurance that manufactured housing sales
will increase.
o Driver Outsourcing Segment. Our driver outsourcing segment provides
outsourcing transportation services primarily to manufacturers of
recreational vehicles, commercial trucks, and other specialized
vehicles through a network of service centers in nine states utilizing
1,112 drivers. In 2000, we delivered approximately 36,900 units
through the use of these drivers. While the number of deliveries
decreased, operating revenue per unit delivered increased in 2000.
o Specialized Outsourcing Services Segment. Our specialized outsourcing
services segment delivers large trailers ("Towaway Services") and
travel and other small trailers. As of October 31, 2001, we had
contracts with approximately 123 independent owner-operators who drive
semi-tractors to provide Towaway Services compared to 89 independent
owner-operators at October 31, 2000. As of October 31, 2001, we
deliver travel and other small trailers through 226 independent
owner-operators.
o Insurance and Finance Segment. Our insurance and finance segment
provides insurance and financing to our drivers and independent
owner-operators. Our insurance subsidiary may accept a limited portion
or all of the underwriting risk, retaining the appropriate proportion
of the premiums. This segment administers our cargo, bodily injury and
property damage insurance programs.
Customers and Marketing
Our customers are located in various parts of the United States. Our
largest manufactured housing customer is Fleetwood Enterprises, Inc. Our largest
driver outsourcing customer is Winnebago Industries, Inc. Our largest
specialized outsourcing services customer is Fleetwood Enterprises, Inc. While
most manufacturers rely solely on carriers such as us, other manufacturers
operate their own equipment and may employ outside carriers on a limited basis.
Our operating revenues primarily include linehaul revenues derived by
multiplying the miles of a given shipment by the stated mileage rate. Operating
revenues also include charges for permits, insurance, escorts and other items. A
substantial portion of our operating revenues are generated under one, two, or
three-year contracts with producers of manufactured homes, recreational
vehicles, and the other products. In these contracts, the manufacturers agree
that we will provide a specific percentage (up to 100%) of their transportation
service requirements from a particular location on the basis of a prescribed
rate schedule, subject to certain adjustments to accommodate increases in our
transportation costs. Linehaul revenues generated under customer contracts in
2000, 1999 and 1998 were 69%, 71%, and 64% of total linehaul revenues,
respectively.
Our ten largest customers all have been served for at least three years and
accounted for approximately 67%, 68% and 69% of linehaul revenues in 2000, 1999
and 1998, respectively. Linehaul revenues under contract with Fleetwood
Enterprises, Inc. accounted for over 15% of linehaul revenues in 2000. Linehaul
revenues with Oakwood Homes Corporation accounted for over 20% of linehaul
revenues in 2000. The Fleetwood manufactured housing contract is continuous
except that it may be terminated upon thirty (30) days written notice by either
party if the other party has repeatedly failed to perform, persistently
disregarded applicable laws or regulations, or otherwise committed a substantial
violation of the contract. We have been servicing Fleetwood for over 25 years.
The Oakwood manufactured housing contract expired on September 30, 2001 and will
not be renewed; however, we will continue to be the primary backup carrier for
Oakwood. Most of our contracts provide for scheduled rate increases based upon
regional fuel prices. These increases are generally passed on to the independent
owner-operators who purchase fuel.
We market services through 56 locations in 27 states at October 31, 2001,
concentrated where manufactured housing and recreational vehicle production
facilities are located. Marketing support personnel are located both at our
Elkhart, Indiana headquarters and regionally.
Our sales personnel meet periodically with manufacturers to review
production schedules, requirements and maintain contact with customers' shipping
personnel. Our senior management maintains personal contact with corporate
officers of our largest customers. Regional and terminal personnel also develop
relationships with manufactured home park owners, retailers, finance companies
and others to promote our services for shipment of used manufactured homes. We
also participate in industry trade shows throughout the country and advertise in
trade magazines, newspapers, and telephone directories.
Growth Strategy
Our strategy is to focus on our core transportation services. We will also
look for opportunities to capitalize and/or grow our market in manufactured
housing and driver outsourcing through acquisitions, if suitable opportunities
arise.
o Manufactured Housing. We believe we can take better advantage of our
position in the manufactured housing industry by expanding the
services we offer within our specialized business. We will also pursue
other national contracts with manufacturers. While the manufactured
housing industry has been in recession, we are seeking to position
ourselves to take advantage of growth opportunities as this industry
recovers.
o Driver Outsourcing. We have focused our driver outsourcing operations
in two broad markets, recreational and commercial vehicles. Given the
softness in the recreational vehicle industry, we are seeking to
expand in the delivery of commercial vehicles, such as commercial
trucks, school buses, ambulances, dump trucks and shuttle buses.
o Specialized Outsourcing Services. We believe we can grow our Towaway
business by increasing the number of available drivers and through the
use of transportation brokers. We have not been able to take full
advantage of large trailer delivery opportunities because we have not
had a sufficient number of Towaway drivers or our drivers were not in
the required locations.
o Acquisitions/Joint Ventures. We regularly consider acquisition
opportunities. We may consider acquiring regional or national firms
that service the manufactured housing and/or the outsourcing industry
as well as logistics, transportation, or related industries.
o Insurance and Finance. We may seek to expand our insurance services to
our independent contractors and others. We currently have no plans to
grow the finance portion of our business.
Lynch Interactive Corporation
As of June 30, 2001, our controlling stockholder, Lynch Interactive
Corporation ("Interactive") owned 161,000 shares of our outstanding Class A
common stock and all 1,200,000 shares of our outstanding Class B common stock
through its wholly owned subsidiary Brighton Communications Corporation
("Brighton"). On July 12, 2001, we issued 1,000,000 shares of our Class B common
stock to Interactive through Brighton for a purchase price of $2.00 per share.
The additional issuance to Interactive increased its percentage of the voting
power of our common stock from approximately 70% to greater than 80%.
There is a significant disparity between the price per share offered to
Interactive in the sale of our Class B common stock and the warrant exercise
price of $9.00, subject to adjustment, for the warrants distributed in this
offering. This disparity is primarily due to the following considerations:
o On January 28, 2001, our credit facility expired. To support our
operations, we were obliged to establish a replacement credit
facility. We determined that, in order to obtain a new credit
facility, we must raise additional equity capital. We considered
various methods for raising additional equity capital including a
traditional public offering, and determined that the sale of equity
capital to Interactive was the most favorable alternative that could
be accomplished in a timely manner.
o In order to enhance its internal corporate structuring objectives,
Interactive deemed that, in connection with any additional equity
investment in us, it was essential to, among other things, gain at
least 80% of the voting power of our common stock.
o Unlike our Class A common stock, the shares of our Class B commons
stock are not listed on any stock exchange or traded in any market.
o Our Class B common stock is subject to significant transfer
restrictions. Any transfer in violation of the transfer restrictions
will result in the automatic conversion of such transferred shares of
Class A common stock and substantially dilute the voting control of
the Class B common stock.
o Our Certificate of Incorporation provides for dividends paid on shares
of our Class A common stock to be up to twice the amount of dividends
paid on shares of our Class B common stock.
o Although the warrants are currently out-of-the-money, they have a
five-year term and have the potential to provide holders with value
over the long-term.
On August 17, 2001, Interactive announced that it plans to spin off its
investment in us. Interactive contemplates that all of the shares of Class A
common stock and Class B common stock held by Interactive through Brighton will
be placed into a newly formed corporation wholly owned by Interactive and that
the shares of that new corporation will be distributed to Interactive's
stockholders. We do not expect that the Interactive spin-off will have a
material effect on the company.
In the event that the Class A warrants issued pursuant to this prospectus
and the Class B warrants described below under "-Concurrent Private Sale of
Class B Warrants to our Class B Holder" are distributed to Interactive through
Brighton prior to the Interactive spin-off described above, we have consented to
the assignment of the Class A and Class B warrants to the new entity.
Concurrent Private Sale of Class B Warrants to our Class B Holder
Concurrently with our distribution of the Class A warrants, we are
distributing to the holder of our Class B common stock on the record date one
Class B warrant for each share of our Class B common stock held on that date,
for a total of 2,200,000 Class B warrants. Each Class B warrant entitles the
holder to purchase one share of our Class B common stock at an exercise price of
$9.00 per share, subject to adjustment upon occurrence of certain dilutive
events. The terms of the Class B warrants are identical to the terms of the
Class A warrants, except that the Class B warrants will not carry any right to a
reduction in their exercise price and transfer of the Class B warrants will be
restricted on terms identical to the restrictions on transfer of shares of Class
B common stock.
Legal Proceedings
On September 26, 2001, we filed suit in federal court in Georgia against
one of our former senior officers, a competitor and certain of its affiliates,
alleging that the parties had secretly conspired to misappropriate our drivers,
employees, customers and trade secrets through unlawful means at a time when the
senior officer was still a senior officer of the company. The lawsuit further
alleges that, while on our payroll, the senior officer and some of her
subordinates worked with the competitor, using false information, to convince
drivers under contract with us to leave and work for the competitor instead. It
is also alleged that the senior officer and others working on behalf of the
competitor sent more than 20 faxes (including some from our own facilities)
encouraging retail dealers under false pretenses to instruct manufacturers to
have their homes shipped by the competitor rather than us in interference with
those manufacturers' written agreement with us. The lawsuit further alleges that
the senior officer and others acting for the competitor improperly removed trade
secret information and files from two of our offices, including confidential
pricing data that the competitor allegedly is using to unfairly compete with our
price structure.
At a hearing on September 28, 2001, the competitor and the senior officer
denied many of the allegations and any wrongdoing. The federal court issued a
preliminary injunction under which the court invalidated contracts between the
competitor and the drivers the competitor had recruited from us. Those drivers
were freed from their contracts with the competitor and given 10 days to choose
among us, the competitor or another carrier based on full disclosure of
information. The court also invalidated the letters from retail dealers to
manufacturers that the competitor and the senior officer allegedly instigated,
and confirmed that retail dealers should not be improperly induced to use an
alternate carrier. The competitor and the senior officer also have been
prohibited by the court from keeping or using any confidential information and
files allegedly taken from us.
Since the issuance of the preliminary injunction, we have succeeded in our
efforts to bring some of these employees, drivers and customers back to the
company. The alleged illegal actions described above obviously negatively
impacted the manufactured house business in the third quarter.
In addition to the preliminary injunction issued by the court on September
28, we are also seeking monetary damages from the competitor and the senior
officer, as well as a permanent injunction against unfair competition and
unlawful interference with our contracts. Over the competitor's objection, the
court ruled on September 28 that the parties could take immediate discovery in
the case on these remaining issues.
On October 18, 2001, our competitor filed certain counterclaims against us
which we plan to defend vigorously.
Summary Historical Financial Data
The following table sets forth certain selected consolidated financial
information reflecting our consolidated operations for each year in the three
year period ended December 31, 2000 (and as of each year end) and the nine month
period ended September 30, 2001. This data should be read in conjunction with
our consolidated financial statements and related notes thereto as well as
Management's Discussion and Analysis of Results of Operations and Financial
Condition included herein.
Nine Months Ended
September 30, 2001
(Unaudited) Year Ended December 31,
------------------- ----------------------------------
2001 2000 1999 1998
------------------- ----------------------------------
Operations
Operating Revenues .......... $ 70,954 $ 108,024 $ 145,629 $ 150,545
Operating Income (Loss) ... (247) (2,038) 550 2,007
Pre-tax Income (Loss) ..... (429) (2,348) 212 1,462
Net Income (Loss) ... (174) (4,799) 19 903
Our Address
Our principal office is located at 2746 Old U.S. 20 West, Elkhart, Indiana
46514-1168.
THE OFFERING
The Offering We are offering to sell an aggregate of up to 1,248,157
shares of our Class A common stock upon the exercise of
the Class A warrants being distributed to holders of our
Class A common stock.
Record Date December 7, 2001
The Warrants We are distributing to each record holder of our Class A
common stock on the record date one Class A warrant for
each share of our Class A common stock held on that
date, for a total of 1,248,157 Class A warrants. No
warrants to purchase fractional shares will be issued
and the number of warrants to be issued to each holder
will be rounded down to the nearest whole warrant.
Each Class A warrant entitles the holder to purchase one
share of our Class A common stock at an exercise price
of $9.00 per share, subject to adjustment upon the
occurrence of certain dilutive events. Please see "The
Offering-Anti-Dilution Protection." The exercise price
for the Class A warrants will be reduced to $6.00 per
share during a period of not less than 30 days to be set
by our Board of Directors. Please see "The Offering -
Warrant Exercise Price".
There is no minimum amount of shares you must purchase
to exercise warrants.
No Minimum Offering There is no minimum offering. We are distributing the
warrants to give our stockholders a fixed opportunity to
purchase additional shares of our common stock. As of
November 26, 2001, the closing price of our shares of
Class A common stock was $3.30. Because the warrant
exercise price is $9.00, subject to adjustment, the
warrants are "out-of-the-money" on the date hereof and
are likely to be out-of-the-money for an indefinite
period of time, there is no assurance that any of the
warrants will be exercised. Expiration Time The warrants
have a five-year term. You may exercise your warrants
commencing on the date of this prospectus, when
completed. The warrants will expire on December 11, 2006
at 5:00 p.m., New York City Time.
How Warrants will be We will distribute to each record holder of our Class A
Evidenced common stock on the record date a warrant certificate
representing such holder's Class A warrants.
Exercising Your You may exercise your warrants at any time beginning on
Warrants the date of this prospectus and continuing until the
expiration time by properly completing and signing your
warrant certificate and returning it, with full payment
for the total number of shares you are purchasing, to
our warrant agent by the expiration time. Your payment
should be made by bank certified check, cashier's check
or wire transfer. You may elect to exercise all or a
portion of your warrants. See "The Offering--Exercise of
Warrants" and "--Method of Payment" for details about
delivery and payment. Any warrants that you do not
exercise by the expiration time will become null and
void after the expiration time.
Warrants Are Not The Class A warrants may not be sold or transferred
Transferable except in limited circumstances. We do not intend to
apply, and are not obligated to apply, for listing of
the warrants on any securities exchange. However, we
intend to apply for listing of the Class A common stock
underlying the Class A warrants on the American Stock
Exchange.
Irrevocability of Your exercise of warrants is irrevocable after you
Warrants submit the warrant certificate and the warrant exercise
price.
Warrant Agent American Stock Transfer & Trust Company 59 Maiden Lane,
9 Plaza Level New York, New York 10038 Attention:
Shareholder Relations
Questions If you have any questions about the offering, including
questions about exercising your warrants and requests
for additional copies of this prospectus or other
documents, please contact the warrant agent, toll free
at (800) 777-0800.
Stock Certificates Certificates representing shares of our Class A common
stock purchased in this offering will be delivered to
purchasers as soon as practicable after we receive a
properly completed warrant certificate and payment of
the warrant exercise price.
Federal Income Tax Your receipt or exercise of warrants should not be
Consequences treated as a taxable event for United States federal
income tax purposes. Please see "Certain Federal Income
Tax Consequences."
Risk Factors An investment in shares of our common stock involves a
high degree of risk. Please see "Risk Factors."
Use of Proceeds Any net proceeds of this offering will be used by us for
general corporate purposes. Because there is no minimum
offering, and the warrant exercise price of $9.00 per
share significantly exceeds the recent trading price of
the Class A common stock at the date of this prospectus,
we do not expect to receive proceeds from this offering
for an indefinite period of time.
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below and the other information in this prospectus before
deciding to invest in shares of our common stock. Our business, operating
results and financial condition could be affected by any of the following risks.
The trading price of our common stock could decline due to any of these risks or
for unforeseen reasons, and you could lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our consolidated financial statements and the related notes included
elsewhere in this prospectus.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. These statements relate to our future plans, objectives,
expectations and intentions, and the assumptions underlying or relating to any
of these statements. These statements may be identified by the use of words such
as "expects," "anticipates," "intends," "plans," "objectives," "should" and
similar expressions. Our actual results could differ materially from those
discussed in these statements.
RISKS RELATED TO THE OFFERING
The warrants are "out-of-the-money."
The warrant exercise price is substantially higher than the recent trading
prices of our Class A common stock at the date of this Prospectus. In light of
our expectation to sell additional shares of our Class B common stock to our
controlling stockholder, our Board of Directors determined the warrant exercise
price (including the Class A warrant exercise price reduction to $6.00 per share
during a period of at least 30 days) and approved the distribution of warrants
to give our stockholders a fixed opportunity to buy additional shares without
brokerage fees and with a view that the warrants may prove to be of value to our
stockholders over the long-term. However, there is no assurance that the public
market will develop in the warrants or that the market price of our common stock
will equal or exceed the exercise price of the warrants at any time before or
after the expiration time.
The offering price was determined by our Board of Directors and bears no
direct relationship to the value of our assets, financial condition or other
established criteria for value. Our Class A common stock may trade at prices
above or below this price.
Our Board of Directors determined the warrant exercise price after
considering a number of factors including:
o past and recent trading prices of our Class A common stock;
o book value of our stock;
o past operations;
o past and potential future cash flows and earnings and losses;
o our overall financial condition; and
o our future prospects.
The Board of Directors did not assign weighting to any one factor in
setting the warrant exercise price.
Your interest in us may be diluted to the extent other warrant holders exercise
warrants and you do not.
If you do not exercise your warrants in full, your percentage ownership and
voting rights will decrease to the extent that warrants are exercised by others.
After submitting your warrant certificate and exercise price, you may not revoke
your exercise and could be committed to buy shares above the prevailing market
price.
As of November 26, 2001, the trading price of the Class A common stock was
$3.30. Because the warrant exercise price is $9.00 per share, subject to
adjustment, the warrants are "out-of-the-money" on the date hereof and are
likely to be out-of-the-money for an indefinite period of time. We can give no
assurance that the trading price of our Class A common stock will ever meet or
exceed the warrant exercise price and, consequently, whether it will ever be
profitable for the holders of warrants to exercise the warrants. If you exercise
your warrants while the trading price of our Class A common stock is less than
the warrant exercise price, then you will have committed to buy shares of our
common stock at a price above the prevailing market price. Once you have
exercised your warrants, you may not revoke your exercise. Moreover, you may be
unable to sell your shares of common stock at a price equal to or greater than
the warrant exercise price you pay.
RISKS RELATED TO US AND OUR INDUSTRY
Our credit facilities may not be adequate to support our current letter of
credit and working capital requirements.
The availability and sufficiency of such credit facilities depends on our
financial condition and operating performance, which is affected by the other
factors described herein, as well as the willingness of lenders to provide
credit support in the transportation and manufactured housing sector. Our
operations could be adversely affected by inadequate credit availability.
We are controlled by Lynch Interactive Corporation.
As of the date of this prospectus, our principal stockholder, Lynch
Interactive Corporation ("Interactive"), was the beneficial owner of 161,000
shares of our Class A common stock and 2,200,000 shares of our Class B common
stock through its wholly owned subsidiary Brighton Communications Corporation
("Brighton"). Shares of our Class A common stock carry one vote per share while
shares of our Class B common stock carry two votes per share. Interactive's
voting control currently exceeds 80% of the voting power of all classes of our
common stock. The stock ownership of Interactive enables it to elect all of our
directors other than the director elected by the holders of our Class A common
stock and effectively control the vote on all matters submitted to a vote of our
stockholders other than those subject to approval by holders of Class A common
stock voting separately as a class. Interactive can be expected to exercise its
voting control in its best interests which may result in stockholder actions
which, though favored by Interactive, are not favored by all other stockholders.
In addition, as a result of Interactive's voting control we may enter into
transactions with Interactive in the future which are less favorable to us than
might be reflected in a comparable transaction between independent parties
dealing at arms' length.
On August 17, 2001, Interactive announced that it plans to spin off its
investment in us. Interactive contemplates that all of the shares of Class A
common stock and Class B common stock held by Interactive through Brighton will
be placed into a newly formed corporation wholly owned by Interactive and that
the shares of that new corporation will be distributed to Interactive's
stockholders. Interactive has not announced a time frame for effecting the
spin-off. The Interactive spin-off will effect no substantial change in ultimate
control of the company.
We cannot assure you that we will pay dividends.
Payment of dividends is within the discretion of our Board of Directors and
will depend, among other factors, upon our earnings, financial condition, and
capital requirements. Our ability to pay dividends is limited by covenants with
our lenders. We cannot assure you that we will pay any dividends.
We are dependent on the manufactured housing industry.
Shipments of manufactured housing have historically accounted for a
majority of our operating revenues. Therefore, our prospects are substantially
dependent upon this industry, which is subject to broad production cycles.
Currently, manufactured housing is experiencing an industry-wide decline in
shipments, which is having an adverse impact on our operating revenues and
profitability.
The costs of accident claims and insurance could reduce our profitability.
Motor vehicle accidents occur in the ordinary course of our business.
Although we maintain liability and cargo insurance, the number and severity of
the accidents involving our independent owner-operators and drivers can have
significant adverse effects on the profitability of our business through premium
increases and amounts of loss retained by us below deductible limits or above
total coverage.
Our results of operations would be adversely affected if we lose any of our
major customers.
Historically, a majority of our operating revenues have been derived under
contracts with customers. Our top ten customers have historically accounted for
a majority of our operating revenues, and the loss of one or more of these
significant customers could adversely affect our results of operations. A number
of our major customers are experiencing financial difficulty as a result of the
softness in the manufactured housing and recreational vehicle markets.
The competition for qualified drivers is intense and we may not be able to
recruit enough drivers.
Recruitment and retention of qualified drivers and independent
owner-operators is highly competitive. There is no assurance that our drivers
will continue to maintain their contracts with us or that we will be able to
recruit a sufficient number of new drivers on terms similar to those presently
in force.
If our owner-operators were considered employees rather than independent
contractors, our costs would increase.
From time to time, tax authorities have sought to assert that independent
contractors in the transportation service industry are employees, rather than
independent contractors. We maintain that our owner-operators are not employees.
If our independent contractors were determined to be employees, such
determination could materially increase our tax and workers' compensation
exposure.
Our future acquisitions and expansions may not be profitable.
We will continue to seek favorable acquisition opportunities. Our strategic
plans may also include the initiation of new services or products, either
directly or through acquisition, within existing business lines or which
complement our business. There is no assurance that the we will be able to
identify favorable acquisition opportunities in the future or that our future
acquisitions will be successfully integrated into operations or that they will
prove to be profitable for us.
The seasonality of our business may cause significant variation in quarterly
results.
Our operations have historically been seasonal, with generally higher
operating revenues generated in the second and third quarters than in the first
and fourth quarters. The seasonality of our business may cause a significant
variation in our quarterly operating results.
RISKS RELATED TO FACTORS OUTSIDE OUR CONTROL
Economic slowdowns or recessions, especially in the manufactured housing
industry, adversely affect our business.
Periods of economic slowdown or recession, whether general, regional or
industry-related, may have a great impact on our business. The present downturn
in manufactured housing sales and the financial difficulty of our customers has
had a significant adverse impact on our profitability. We cannot assure you that
we can achieve or sustain profitability under these conditions. Such conditions
could result in such severe reductions in the cash flows available to us that
our ability to meet all our financial obligations and cash flow requirements
could be impaired. Additionally, there are no assurances that the manufactured
housing industry will rebound.
Changes in government regulation could increase our costs.
Motor carriers are subject to regulation by various federal and state
governmental agencies, including the United States Department of Transportation.
These regulatory agencies have broad powers, and the motor carrier industry is
subject to regulatory and legislative changes that can affect the economics of
the industry by requiring changes in the operating practices or influencing the
demand for, and the costs of providing, services to shippers. We may not be able
to pass such increased costs on to our customers, which could impair our
profitability.
Increases in interest rates and fuel prices may reduce profitability.
Our operations are affected by fluctuations in interest rates. Demand for
our services is affected by the availability of credit to purchasers of
manufactured homes and recreational vehicles. Additionally, the price of fuel is
an expense over which we have little or no control. An increase in these costs
could have an adverse impact on profitability.
Current increases in the cost of insurance premiums may reduce profitability.
Increases in the cost of insurance premiums will increase our expenses and
will have an adverse impact on our profitability to the extent we are unable to
pass such increases through to our customers.
We are in a competitive industry that could reduce the rates we can charge.
We are participating in a highly competitive industry and rates offered by
competitors affect the rates that we can charge for our services. If
competitors' rates are reduced, such reduction may have the effect of reducing
the rates we can charge, thereby impairing our profitability.
CAPITALIZATION
The following table sets forth our consolidated debt and capitalization as
of September 30, 2001. This table should be read in conjunction with our
consolidated financial statements and notes thereto included elsewhere in this
prospectus.
At September 30, 2001
---------------------
(In thousands, except share data)
Liabilities:
Current Liabilities:
Trade accounts payable................................................ $ 4,806
Notes payable, banks.................................................. 1,369
Accrued liabilities................................................... 4,489
Accrued claims payable................................................ 3,013
Refundable deposits................................................... 1,154
Current portion of long-term debt and capital lease obligations....... 147
-------
Total current liabilities................................................ 14,978
-------
Long-term debt and capital lease obligations, less current portion....... 16
Long-term accrued claims payable......................................... 4,821
-------
Total Liabilities........................................................ 19,815
-------
Shareholders' Equity:
Common stock, $.015 par value
Class A: Authorized shares - 7,500,000
Issued shares - 1,607,303............................................. 23
Class B: Authorized shares - 4,400,000
Issued and outstanding shares - 2,200,000............................. 33
Additional paid-in capital............................................... 14,318
Retained earnings (deficit).............................................. (2,292)
-------
Total capital and retained earnings...................................... 12,082
Less - treasury stock at cost (359,146 Class A shares)................... (3,183)
-------
Total shareholders' equity............................................... 8,899
-------
Total Liabilities and Shareholders' Equity ........................ $28,714
=======
SUMMARY FINANCIAL DATA
The following table sets forth certain selected consolidated financial
information reflecting our consolidated operations and financial condition for
each year in the five year period ended December 31, 2000 (and as of each year
end) and the nine month periods ended September 30, 2001 and 2000. This data
should be read in conjunction with our consolidated financial statements and
related notes thereto as well as Management's Discussion and Analysis of Results
of Operations and Financial Condition included herein. Nine Months Ended
September 30,
Nine Months Ended
September 30,
(Unaudited) Year Ended December 31,
---------------------- ---------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- -------- --------
(Dollars in thousands, except share amounts)
Operations
Operating Revenues.............. $70,954 $87,447 $108,024 $145,629 $150,545 $146,154 $132,208
Operating Income (Loss)....... (247) (607) (2,038) 550 2,007 1,015 (3,263)
Pre-tax Income (Loss)......... (429) (817) (2,348) 212 1,462 296 (3,615)
Net Income (Loss)............. (174) (524) (4,799) 19 903 196 (2,070)
Net Income (Loss) Per Share:
Basic......................... ($0.06) ($0.21) ($1.96) $0.01 $0.35 $0.07 ($0.77)
Diluted....................... ($0.06) ($0.21) ($1.96) $0.01 $0.35 $0.07 ($0.77)
Cash Dividends Declared:
Class A........................ --- $0.05 $0.05 $0.08 $0.08 $0.08 $0.08
Class B........................ --- $0.025 $0.025 $0.04 $0.04 $0.04 $0.04
Financial Position
Total Assets................... $28,714 $29,588 $23,269 $32,264 $33,387 $33,135 $33,066
Working Capital................ 3,431 2,734 1,063 3,189 3,806 1,613 1,635
Long-term Debt................. 163 357 288 965 1,480 2,513 4,206
Shareholders' Equity........... 8,899 11,476 7,201 12,092 13,221 12,724 13,104
Common shares outstanding
at period end.................. 3,448,157 2,448,157 2,448,157 2,448,157 2,554,085 2,637,910 2,685,520
Basic weighted average
shares outstanding............. 2,744,860 2,448,157 2,448,157 2,469,675 2,606,237 2,656,690 2,684,242
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEAR 2000 COMPARED WITH 1999
Consolidated Results
The year 2000 was characterized by the continued downturn in manufactured
housing production, which began in 1999. Industrial production of new
manufactured homes decreased 26% in 2000. We were also affected by the decline
in activity in other markets we serve, including delivery of recreational
vehicles and large trailers. As a result of these declines, our revenues
decreased 26% from 1999 levels.
To combat this severe decline in revenues, in March 2000 we instituted
significant cost reduction initiatives in all areas with primary focus on staff
reduction and consolidation of facilities. The effects of these initiatives were
savings of $1.8 million in 2000. We estimate that the effects of these
initiatives will continue and will approximate savings of $3.2 million in 2001.
In spite of these significant efforts, operating costs as a percentage of
revenue were 102% for the year ended December 31, 2000, compared to 99% in the
prior year, resulting in a loss from operations of $2.0 million.
Because of the existence of significant non-cash expenses, such as
depreciation of fixed assets and amortization of intangible assets, we believe
that EBITDA contributes to a better understanding of our ability to satisfy our
obligations and to utilize cash for other purposes. EBITDA should not be
considered in isolation from or as a substitute for operating income, cash flow
from operating activities, and other consolidated income or cash flow data
prepared in accordance with generally accepted accounting principles. The loss
before interest, taxes, depreciation and amortization (EBITDA loss) was $971,000
in 2000, as compared to positive EBITDA of $1.8 million in 1999.
In the fourth quarter 2000, we recorded a non-cash charge of $3.2 million
relating to the valuation of deferred tax assets. Because we have a cumulative
loss in our three most recent fiscal years and are in default on our credit
facility (see "Liquidity and Capital Resources" below and Note 3 of the Notes to
Consolidated Financial Statements), our management believes that it would be
inconsistent with the technical provisions of Statement of Financial Accounting
Standard No. 109, to rely on future taxable income to support realization of the
deferred tax assets. We therefore wrote off deferred tax assets that were not
currently realizable. For additional information concerning the provision for
income taxes as well as information regarding differences between effective tax
rates and statutory rates, see Note 5 of the Notes to Consolidated Financial
Statements.
We experienced net loss for 2000 of $4.8 million compared to net income of
$19,000 in 1999.
Segment Results
We conduct our operations in four principal segments as discussed below.
The following discussion sets forth certain information about the segment
results.
Manufactured Housing
Manufactured Housing operating revenues are generated from providing
transportation and logistical services to manufacturers of manufactured homes.
Manufactured Housing operating revenues decreased 29% from 1999 to $70.6 million
in 2000.
The manufactured housing industry as a whole continued to decline in 2000,
with industry shipments down by 26%. The decline is due in large part to the
combined impact of tightened consumer credit standards, increased industry
repossessions and excess inventory. We are highly dependent upon the
manufactured housing industry generally and on certain major customers within
that industry. Some of our customers are financially stressed by continued
weakness in the industry. Our unit deliveries in Manufactured Housing declined
by 31% in 2000, indicating a loss of market share due primarily to competitive
pricing pressures.
EBITDA decreased $4.5 million to $5.8 million due to the decrease in
business. The decrease in revenue of $6.9 million was partially offset by $2.2
million in reduced costs. We closed some terminals due to plant closures and
consolidated terminals in other areas to serve the needs of more than one
customer from a single location.
Driver Outsourcing
Our Driver Outsourcing segment provides outsourcing transportation services
primarily to manufacturers of recreational vehicles, commercial trucks and other
specialized vehicles. Driver Outsourcing operating revenues decreased 10% in
2000 to $20.9 million. The decrease was primarily the result of softness in the
recreational vehicle market. However, Driver Outsourcing EBITDA increased
$900,000 to $1.3 million from improved operating efficiencies, consolidations
and other reductions in overhead costs.
Specialized Outsourcing Services
Specialized Outsourcing Services consists of delivering large trailers,
travel and other small trailers. We discontinued a specialized transport service
("Decking") in 2000. Operating revenues decreased 28% to $15.3 million in 2000.
This decrease was primarily caused by a reduction in available drivers and
discontinuing the Decking deliveries. Specialized Outsourcing Services incurred
an EBITDA loss of $140,000 in 2000 compared to an EBITDA of $469,000 in 1999.
This loss was caused primarily by the reduction in the delivery of large
trailers ($1.1 million) and Decking ($360,000) partially offset by improved
operating efficiencies and overhead cost reductions representing an aggregate
savings of $882,000.
Insurance/Finance
Our Insurance/Finance segment provides insurance and financing services to
our drivers and independent owner-operators. This segment also acts as a cost
center because we account for all bodily injury, property damage and cargo loss
costs under this segment.
Insurance/Finance operating revenues decreased $1.0 million to $2.9 million
in 2000 reflecting a decrease in owner-operator insurance premiums relating to
the decline in the manufactured housing industry. However, Insurance/Finance
EBITDA loss decreased $2.2 million to $6.8 million due to improved bodily
injury, property damage and cargo loss claims experience. The deductible for
personal injury and property damage is $250,000 per occurrence. The cargo
deductible is $1,000,000. Accordingly, we are essentially self-insured for cargo
losses.
As a part of continuing efforts to contain claims expense, we are expanding
our safety awareness as well as formal safety training efforts among both
owner-operators and terminal personnel. Cargo claims as a percent of operating
revenue decreased from 2.3% in 1999 to 1.9% in 2000. Similarly, bodily injury
and property damage claims decreased from 3.6% to 3.3% of operating revenue.
Year 1999 Compared with 1998
Consolidated Results
During 1999, we experienced a decrease in the number of Manufactured
Housing shipments and a continued increase in insurance and claims costs. We
also experienced a reduction in operating revenues and profitability in the
Specialized Outsourcing Services segment.
Industrial shipment of new manufactured homes decreased approximately 4% in
1999. We were more severely impacted as our largest customer experienced an
approximate 21% decline in retail sales of new homes. As a result, we sustained
an 8% decrease in shipments of new homes in 1999.
Our total operating revenues in 1999 decreased $4.9 million to $145.6
million from $150.5 million in 1998. Our operating income before interest,
taxes, depreciation and amortization (EBITDA) decreased from $3.2 million in
1998 to $1.8 million in 1999.
Net interest expense decreased from $545,000 in 1998 to $338,000 in 1999 as
a result of improved cash management which reduced the amount of our borrowings
from the credit facility.
For information concerning the provision for income taxes as well as
information regarding differences between effective tax rates and statutory
rates, see Note 5 of the Notes to Consolidated Financial Statements.
Accordingly, net income for 1999 was $19,000 compared to $903,000 in 1998.
Segment Results
Manufactured Housing. Manufactured Housing operating revenues began
decreasing in the second quarter, and ended the year at $99.5 million, or a 6%
reduction from 1998. In spite of this reduction, EBITDA for 1999 ended at $10.3
million compared to $10.8 million for 1998 because of cost reduction measures
instituted by our management that largely mitigated the revenue decline.
Driver Outsourcing. The Driver Outsourcing segment of our business
demonstrated good growth in 1999. Operating revenues increased 18% to $23.4
million in 1999 while EBITDA increased by $301,000. However, high driver
recruiting and other overhead costs continued to depress the profitability of
this segment in 1999. Accrued expenses in this segment for 1999 were $1.0
million, representing an increase of $200,000 from 1998, and overhead costs of
$2.1 million, representing an increase of $128,000 from 1998.
Specialized Outsourcing Services. Specialized Outsourcing Services
operating revenues decreased 8% to $21.2 million in 1999. We received $1.0
million less revenue from pick-up shipments by one customer and $673,000 less
revenue from Decking operations as a result of a general market decline.
Specialized Outsourcing Services EBITDA decreased $542,000 primarily on the
lower volume and an increase in overhead costs of $460,000 associated with large
trailer delivery.
Insurance/Finance. Insurance/Finance operating revenues decreased less than
3% in 1999, particularly in the latter months of the year reflecting a decrease
in owner-operator insurance premiums relating to the slow-down in the
manufactured housing industry.
During 1999, we continued to be affected by increasing claims costs. Claim
costs in 1999, as a percent of operating revenue increased to 5.9% from 5.1% in
1998. Effective April 1, 1999, the deductible for personal injury and property
damage increased to $250,000 per occurrence. Additionally, the cargo stop-loss
insurance policy provision terminated and the deductible was increased to
$1,000,000. Accordingly, we are essentially self-insured for cargo losses.
Liquidity and Capital Resources at December 31, 2000
Operating activities used $0.9 million of cash in 2000 compared to a $4.9
million cash generation in 1999. The 2000 net loss and reductions in working
capital liabilities was partially offset by the deferred tax assets valuation
reserve and by reductions in trade accounts receivable and other working capital
assets. We recorded an income tax receivable of $499,000 as of December 31, 2000
as we intend to file for tax refunds based on prior year payments. Trade
accounts receivable decreased $2.4 million primarily due to the decline in
operating revenue. Day's sales outstanding ("DSO") increased to 33 days at
December 31, 2000 as compared to 28 days at December 31, 1999.
Our investment in property and equipment decreased in 2000 to $106,000 with
expenditures for an optical scanning system and other new information systems.
Our 2001 capital expenditure plan approximates $150,000.
At December 31, 2000, we had a $7.7 million revolving credit facility, with
a $6.7 million letter of credit sub-limit. At December 31, 2000, we had no
outstanding debt under our credit facility, and $6.6 million of letters of
credit were outstanding under the credit facility. Letters of credit are
required for self-insurance retention reserves and other corporate needs.
Our credit facility matured on January 28, 2001, at which time we had no
outstanding debt and $6.6 million outstanding letters of credit. As a result of
the credit facility not being renewed, we had a payment default arising from the
lender's right to demand cash to meet outstanding obligations under the letters
of credit and the bank had discretion whether to make any loans to us or issue
additional letters of credit for us. In July 2001, we established two credit
facilities to replace the matured credit facility. Please see "-Interim Results
of Operations for the Quarter Ending June 30, 2001-Liquidity and Capital
Resources" below.
During 2000, we declared quarterly dividends on our Class A common stock of
$.05 per share and dividends of $.025 per share on our Class B common stock
through the first three quarters. No dividends were declared in the fourth
quarter. Payment of dividends is within the discretion of the board of
directors. Payment of future dividends will be dependent upon, among other
things, earnings, debt covenants, future growth plans, legal restrictions, and
our financial condition.
We had minimal exposure to interest rates as of December 31, 2000, because
our outstanding long-term debt was not significant. Our new credit facilities
mentioned above bear interest at variable rates based on either The Bank of New
York Alternate Base Rate or LIBOR, or, in the case of the new mortgage facility,
the prime rate. Accordingly, borrowings under the credit facilities have
exposure to changes in interest rates.
Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. Also, we currently are
not using any fuel hedging instruments.
Inflation
Most of our expenses are affected by inflation, which generally results in
increased costs. During 2000, the effect of inflation on our results of
operation was minimal.
The transportation industry is dependent upon the availability and cost of
fuel. Although fuel costs are paid by our owner-operators, increases in fuel
prices may have significant adverse effects on our operations for various
reasons. Since fuel costs vary between regions, drivers may become more
selective as to regions in which they will transport goods resulting in
diminished driver availability. Also, we would experience adverse effects during
the time period from when fuel costs begin to increase until the time when
scheduled rate increases to customers are enacted. Increases in fuel prices may
also affect the sale of recreational vehicles by making the purchase less
attractive to consumers. A decrease in the sale of recreational vehicles would
be accompanied by a decrease in the transportation of recreational vehicles and
a decrease in the need for Driver Outsourcing services.
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.
INTERIM RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 2001
Consolidated Results
For third-quarter 2001, revenues were down 13 percent to $24.8 million
versus the $28.6 million reported in the year-ago quarter. We reported revenue
improvements of 51% in the tow away division and 26% in the pickup division.
These increases were offset by a 27% decline in revenue from the manufactured
housing division.
Revenues for September were negatively impacted for all four divisions by
the September 11 terrorist attacks. Shippers experienced work slowdowns and
demand fell as some customers canceled orders. In addition, continued weakness
in the manufactured housing sector resulted in reduced revenues in the
manufactured housing division, although the industry continues to make progress
since hitting bottom in February 2001.
To offset the lower revenue, we have implemented cost-cutting programs
designed to match company expenses with reduced revenue levels. In the our
business model, 86% of expenses are variable on a load-by-load basis, 11% of
expenses are variable within a 60-day period, and only 3% are fixed in the long
term. We have continued to eliminate or reduce costs to maximize operating
profit on overall lower revenues.
We renewed our liability and workers compensation insurance on July 1, 2001
resulting in increased expense. The liability insurance market for trucking
companies has been negatively impacted by increased loss ratios, higher credit
risk and a decrease in available capacity in the excess reinsurance market. We
will attempt to recover much of the increased insurance cost in the form of
apportioned insurance charges (AIC) to customers.
Operating costs were 91.3% of total revenues for the quarter compared to
91.0% in prior year. Selling, general and administrative expenses were 8.6% of
revenue compared to 7.5% of revenue in the third quarter of 2000.
The reduced revenue and increased insurance expense resulted in an
operating loss of $169,000 in the third quarter compared to operating income of
$178,000 in 2000.
Segment Results
The following discussion sets forth certain information about segment
results.
Manufactured Housing. Revenues for the manufactured housing division
decreased by $4.8 million or 27% in the third quarter compared to prior year.
The manufactured housing market continues to rebound slowly from a severe
two-year slump. Shipments of manufactured homes in July and August of 2001 were
down 17% compared to the prior year. This compares to year-over-year declines of
41% in the first quarter and 29% in the second quarter of 2001 compared to 2000.
Effective October 1, 2001, we are no longer the primary carrier for Oakwood
Homes Corporation (NYSE: OH). In past years, Oakwood was our largest customer,
generating revenues in excess of $25 million for our manufactured housing
division. A weakened market for manufactured homes and reductions in capacity at
Oakwood had reduced our revenue stream from Oakwood to a $12 million annualized
base. We will continue as the primary backup carrier for Oakwood. Revenues for
September manufactured housing were negatively impacted by a loss of drivers
that primarily hauled Oakwood homes.
Management is currently implementing marketing and sales programs directed
at successfully replacing the Oakwood revenue. The Company has obtained
significant new contracts with New Flyer Industries, Monaco Coach, Union
Pacific, Wabash Trailers and others that in the aggregate are expected to
generate annual revenue offsetting the Oakwood decline.
In September we filed a lawsuit alleging that one of our former senior
officers had conspired with a competitor to misappropriate our drivers,
employees, customers and trade secrets both during that officer's employment
with us and after she left our employment. The court issued a preliminary
injunction against certain of the complained of activities on September 28,
2001. In addition we are seeking monetary damages as well as a permanent
injunction against unfair competition and unlawful interference with our
contracts.
Driver Outsourcing. Operating revenues for the driver outsourcing division
in the quarter decreased by $620,000 or 12% from prior year as a result of
reduced demand for recreational vehicles.
The driver outsourcing division has acquired several new contracts that
will increase revenue beginning in October 2001.
Specialized Outsourcing Services. Operating revenues for the specialized
outsourcing division increased by $1.7 million or 42% compared to prior year
third quarter. Revenues of our towaway division that leases independent
contractors with Class 8 tractors grew by 51% compared to prior year. The tow
away division has 123 owner operators leased on and continues to grow its
brokerage function which contracts customer loads to other carriers. The pick-up
division, which utilizes independent contractors with dual-axle pick-up trucks
to move travel trailers and boats, reported 26% revenue growth compared to prior
year 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 our accounts for all bodily injury,
property damage and cargo loss costs under this segment. Insurance and Finance
operating revenues decreased $97,000 or 13% in the third quarter of 2001 as a
result of decreases in the number of drivers and independent owner-operators.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Consolidated Results
Revenues for the first nine months of 2001 decreased by $16.5 million or
19% compared to 2000. The decrease is primarily related to the previously
discussed weak market for shipments of new manufactured homes.
As a result of comprehensive cost reduction initiatives, we were able to
reduce the operating loss to $247,00 from $607,000 in the first nine months of
2000.
Segment Results
The following discussion sets forth certain information about our segment
results.
Manufactured Housing. Manufactured housing revenues declined by $17.5
million or 31% for the nine months ended September 30, 2001 compared to 2000.
According to the Manufactured Housing Institute, shipments of new manufactured
homes from January through August of 2001 decreased by 33% compared to the same
period in 2000.
Driver Outsourcing. Operating revenues for the first nine months of 2001
declined by 17% or $2.8 million compared to 2000. This decline is primarily a
result of weak demand for recreational vehicles in 2001 compared to 2000. In
addition, the general demand for commercial trucks, buses, step-out vans, trams
and other specialized equipment declined in step with the slowdown in the
national economy.
Specialized Outsourcing Services. Operating revenues in specialized
outsourcing services increased 36% or $4.2 million during the first nine months
of 2001 compared to 2000. The tow away division has expanded revenues by 43% by
adding to the number of owner operators leased on to us and by expanding its
brokerage operation. The pick up division has grown by 27% by recruiting new
employees, business and drivers throughout the year.
Liquidity and Capital Resources at September 31, 2001
On July 12, 2001, we completed a previously announced $2 million capital
infusion from our majority stockholder Lynch Interactive Corporation. We issued
one million new Class B shares of common stock in exchange for a $2 million cash
investment, thereby increasing Interactive's ownership position 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 Credit Facility.
On July 27, 2001, we obtained a new three-year $12.5 million Credit
Facility.
The Credit Facility replaces our previous credit line that had expired on
January 28, 2001 and was not renewed. The Credit Facility will be used for
working capital purposes and to post letters of credit for insurance contracts.
As of September 30, 2001, we had outstanding borrowings of $869,000 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 our option, 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 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 we had
no outstanding debt and $6.6 million outstanding letters of credit. We were in
default of the financial covenants. The bank decided not to renew the Credit
Facility. As a result of the prior Credit Facility not being renewed, we had a
payment default.
On July 31, 2001, we closed on a new real estate mortgage for $500,000 that
is secured by our 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 Credit Facility. Our application for
additional capacity under this facility is under consideration.
In addition, in August 2001 we received 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, we renewed our 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, our insurance premiums effective July 1, 2001
increased significantly. We will recover much of this increase from customers in
the form of apportioned insurance charges (AIC). The net impact on our operating
results for the next 12 months cannot be determined at this time.
We have 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 us to post all required letters of credit
for insurance contracts.
On August 17, 2001, Interactive, our majority stockholder, announced plans
to spin off its investment in us to Interactive stockholders. The proposed spin
off of the Company will allow Interactive stockholders to continue to own us
through a new entity instead of through Interactive.
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 our capital and liquidity
requirements for the next 12 months.
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
Shares of our Class A common stock are quoted on the American Stock
Exchange under the symbol "MG." The following table sets forth the high and low
sales price per share of our Class A common stock for each quarter in fiscal
2000 and 1999, and the first three quarters of fiscal 2001.
Year Ended December 31,
----------------------------------------------------------------------------------------------------------
2001 2000 1999
------------------------------ -------------------------------- ----------------------------------
High Low High Low High Low
------------- ------------- ------------- -------------- -------------- ----------------
First Quarter ......... $4.75 $3.80 $8.50 $5.38 $9.13 $6.63
Second Quarter ........ 4.20 3.65 7.88 6.13 8.75 6.75
Third Quarter ......... 3.85 3.45 7.25 5.25 9.88 7.00
Fourth Quarter ........ N/A N/A 6.06 3.75 7.88 5.44
As of September 30, 2001, there were 150 holders of record of Class A
common stock and one holder of record of our Class B common stock. We estimate
that our Class A common stock is owned beneficially by approximately 289
persons. There is no market for our Class B common stock, and our management has
no plans to list the Class B common stock on any exchange.
As of September 30, 2001, there were 1,248,157 shares of our Class A common
stock outstanding and 2,200,000 shares of our Class B common stock outstanding
for an aggregate of 3,448,157 shares of our common stock issued and outstanding.
Dividend Policy
In 1999, we declared a dividend of $0.02 each quarter, and in 2000, we
declared a dividend of $0.02 in the first and second quarter. In the third
quarter 2000, we reduced the dividend rate to $0.01, and we did not declare a
dividend in the fourth quarter of 2000. Our charter provides that dividends of
the Class A common stock may be up to 100% more than dividends on the Class B
common stock. Historically, dividends paid on the Class A common stock have been
twice the amount paid on the Class B common stock. We expect this will continue
to be true of future dividends, if any. The payment of dividends is within the
discretion of our Board of Directors and will depend, among other things, upon
earnings, capital requirements, any financing agreement covenants and our
financial condition. Our ability to pay dividends is limited by covenants with
our lenders.
USE OF PROCEEDS
The maximum net proceeds that we may receive from this offering could be up
to approximately $31.0 million if all warrants are exercised. However, it is
unlikely that all warrants will be exercised and no assurance can be given as to
when or whether any warrants will be exercised, nor as to the timing of receipt
or amount of proceeds therefrom. The warrants are intended to provide
stockholders a fixed, long-term opportunity to acquire additional shares of our
common stock. We are not dependent upon, nor do we expect, any material amount
of proceeds from the warrants at any given time, if ever. Although there is no
accurate way to determine the number of warrants that will be exercised, if any,
we will use any net proceeds of the sale of our common stock from this offering
for general corporate purposes (and, in particular, to reduce outstanding
revolving credit borrowings).
THE OFFERING
We are distributing to holders of our Class A common stock, one Class A
warrant for each share of our Class A common stock that they own on the record
date of December 7, 2001. Only those record holders who own our common stock on
the record date will receive warrants directly from us. You are a record holder
for this purpose only if your name is registered as a stockholder with our
transfer agent, American Stock Transfer & Trust Company, as of the record date.
As a warrant holder, you may purchase shares of our Class A common stock
through exercise of your Class A warrants, or allow your Class A warrants to
expire unexercised. To purchase shares of our Class A common stock, you must
deliver one Class A warrant for each share of our Class A common stock you
intend to purchase. We are issuing warrants to purchase an aggregate of
1,248,157 shares of our Class A common stock.
Exercising Your Warrants
Each Class A warrant entitles the holder to purchase one share of our Class
A common stock. Commencing on the date of this prospectus, you may exercise your
warrants by properly completing and signing your warrant certificate, including,
if required, a signature guarantee from an eligible institution. Mail or deliver
the properly executed warrant certificate to the warrant agent, together with
payment of the aggregate warrant exercise price in full. Please see "-Warrant
Exercise Price" below.
There is no minimum amount of shares that you must purchase. You may
exercise your warrants in whole or in part, but no warrants may be exercised for
fractional shares. We are required to keep available a sufficient number of
authorized shares of our common stock to permit exercise of the warrants.
A holder of warrants will not have any rights, privileges or liabilities as
a stockholder prior to exercise of the warrants.
Warrant Exercise Price
The exercise price for the Class A warrants is $9.00 per share, payable in
cash. Please see "--Anti-Dilution Protection" for a discussion of certain
adjustments to the warrant exercise price and number of shares issuable upon the
occurrence of certain dilutive events.
The exercise price for the Class A warrants will be reduced to $6.00 per
share for a reduction period of at least 30 days to be set by our Board of
Directors. If the price reduction period has not been set prior to the date 60
days before the expiration date, such period will comprise the final 30 days
prior to the date upon which the Class A warrants expire. In the event the
reduction period is set by our Board of Directors, we will cause a written
notice to all record holders of Class A warrants indicating the dates upon which
the reduction period shall commence and end.
To exercise your Class A warrants to purchase shares of our Class A common
stock, you must deliver a properly completed and signed Class A warrant
certificate together with payment of the aggregate warrant exercise price to the
warrant agent within the reduction period. We will not be obligated to honor any
purported exercise of Class A warrants at the reduced exercise price of $6.00 if
the documents and/or payment relating to such exercise are received by the
warrant agent before or after the reduction period, regardless of when such
documents and/or payment were sent.
Expiration Time
The warrants have a 5-year term. The warrants will expire at 5:00 p.m., New
York City Time, on December 11, 2006, the expiration time. After expiration of
the warrants, all unexercised warrants will be null and void and no longer
exercisable by the holder. We will not be obligated to honor any purported
exercise of warrants received by the warrant agent after the expiration time,
regardless of when the documents relating to such exercise were sent.
Warrant Agent
The warrant agent is American Stock Transfer & Trust Company. The address
to which you must make any required deliveries is:
American Stock Transfer & Trust Company
59 Maiden Lane, Plaza Level
New York, New York 10038
Determination of the Warrant Exercise Price
Our Board of Directors determined the warrant exercise price on May 9,
2001. In setting the warrant exercise price, our board of directors considered,
among other things, the factors set forth above under "Risks Related to the
Offering," as well as our business potential and prospects and current market
conditions. The warrant exercise price was determined by our Board of Directors
and bears no direct relationship to the value of our assets, financial condition
or other established criteria for value. In light of our sale of additional
shares of our Class B common stock to our principal stockholder, our Board of
Directors determined the warrant exercise price (including the Class A warrant
exercise price reduction to $6.00 per share during a 30-day period) and approved
the distribution of warrants to give our stockholders a fixed opportunity to buy
additional shares without brokerage fees and with a view that the warrants may
prove to be of value to our stockholders over the long-term.
As of November 26, 2001, the closing price of our Class A common stock was
$3.30. Because the warrant exercise price is $9.00 per share, subject to
adjustment, the warrants are out-of-the-money on the date hereof and are likely
to be out-of-the-money for an indefinite period of time. We can give no
assurance that the trading price for our Class A common stock will ever equal or
exceed the warrant exercise price.
Plan of Distribution
We are distributing the warrants at no cost to those persons who are
holders of outstanding shares of our common stock on the record date. Where
shares are held indirectly through a broker, bank or other institution, we will
reimburse the institution's reasonable out-of-pocket costs in distributing this
prospectus and other materials to beneficial owners of our common stock. No
commission or fee will be paid to any person in connection with the issuance of
the warrants or upon issuance of our common stock upon exercise of the warrants.
No warrants will be exercisable unless at the time of exercise there is a
current prospectus covering the shares of common stock issuable upon exercise of
such warrants under an effective registration statement filed with the
Securities and Exchange Commission and such shares have been qualified for sale
or are exempt from qualification under the securities laws of the state or
residence of the holder of such warrants. Although we intend to seek to have the
shares of our common stock so qualified in the states where the warrants are
being offered and to maintain a current prospectus relating thereto, until the
expiration of the warrants, there can be no assurance that we will be able to do
so.
We have appointed American Stock Transfer & Trust Company, to assist with
the offering. To exercise your warrants, you should deliver your warrant
certificate together with payment of the warrant exercise price to the warrant
agent. Please see "-The Warrant Agent" above for the address to which the
warrant certificate and payment should be delivered.
The warrant agent will be responsible for, among other things, delivering
warrant certificates to our stockholders, stock certificates to warrant holders
whose exercise is accepted, and delivering refunds to warrant holders who have
over-paid their aggregate warrant exercise price or whose exercise is rejected.
We will pay the fees and expenses of the warrant agent in connection with the
offering.
Warrant Payments
You must pay the warrant exercise price in full for all shares you intend
to purchase by:
(1) check or bank draft drawn upon a U.S. bank, or postal, telegraphic or
express money order, payable to American Stock Transfer & Trust
Company, as warrant agent; or
(2) wire transfer of immediately available funds to an account which the
warrant agent maintains for this purpose. Please contact the warrant
agent at (800) 777-0800 to obtain appropriate wiring instructions.
The warrant exercise price will be deemed to have been received by the
warrant agent only upon:
(1) clearance of any uncertified check;
(2) receipt by the warrant agent of any certified check or bank draft
drawn upon a U.S. bank or of a postal, telegraphic or express money
order; or
(3) receipt of good funds in the warrant agent's account designated in the
wiring instructions provided by the warrant agent.
Anti-Dilution Protection
The warrant exercise price and the number of shares of Class A common stock
issuable upon exercise of the each warrant will be subject to adjustment to
protect against dilution in the event of stock dividends, stock splits,
combinations, subdivisions, reclassifications, reorganizations, mergers, and
similar corporate transactions. However, the warrants are not subject to
adjustment for issuance of shares of our common stock (or securities convertible
into or exercisable for our common stock) at prices below the exercise price of
the warrants. Any adjustment required by the foregoing events will be determined
by our Board of Directors.
Warrant Amendments
We reserve the right (by action of our Board of Directors, including
approval of our director elected by holders of Class A common stock) to make any
modification to the terms of the warrants that is not materially adverse to the
holders of the warrants, including, without limitation, decreasing the warrant
exercise price. Any such modification will be determined by our Board of
Directors and we will cause written notice of any such modification to be sent
to all record holders of Class A warrants which describes the modification and
its effective date.
Nominee Holders
Holders on the record date who hold shares of our common stock for the
account of others, such as brokers, trustees or depositories for securities,
should contact the respective beneficial owners of such shares to ascertain the
intentions of the beneficial owners of such shares and to obtain instructions
with respect to their warrants. If a beneficial owner so instructs, the nominee
should properly complete the applicable warrant certificate and submit it to the
warrant agent with the proper payment. In addition, beneficial owners of our
common stock or warrants held through such nominee should contact the nominee
and request the nominee to effect transactions in accordance with the beneficial
owner's instructions.
Ambiguities in Exercise of the Warrants
If you do not specify the number of warrants being exercised on your
warrant certificate, or if your payment is not sufficient to pay the total
warrant exercise price for all of the shares that you indicate you wish to
purchase, you will be deemed to have exercised the maximum number of warrants
that could be exercised for the amount of the payment that the warrant agent
receives from you.
If your payment exceeds the number of warrants you specify are being
exercised on your warrant certificate, you will be deemed to have exercised the
maximum number of warrants that could be exercised for the amount of payment the
warrant agent receives from you, up to the aggregate number of warrants
exercisable by your warrant certificate.
Any excess payment remaining after the foregoing allocation will be
returned to you by mail as soon as practicable following processing of your
warrant certificate, without interest or deduction.
Interpretation
All questions concerning the timeliness, validity, form and eligibility of
any exercise of warrants will be determined by us and our determinations will be
final and binding. We reserve the right, in our sole discretion, to waive any
defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
warrant. Warrants will not be deemed to have been received or accepted until all
irregularities have been waived or cured within such time as we determine in our
sole discretion. We reserve the right, in our sole discretion, to reject any
exercise or related documents or payment not properly submitted or the
acceptance of which would, in the opinion of our counsel, be unlawful. Neither
we nor the warrant agent will be under any duty to give notification of any
defect or irregularity in connection with the exercise of warrant certificates
or incur any liability for failure to give such notification.
Risk of Loss on Delivery of Warrant Certificates and Payments
The instructions contained in the warrant certificate should be read
carefully and followed in detail. Do not send subscription certificates to us.
The method of delivery of warrant certificates and payment of the warrant
exercise price to the warrant agent will be at the election and risk of the
warrant holders but, if sent by mail it is recommended that warrant certificates
and payments be sent by registered mail, properly insured, with return receipt
requested, and that a sufficient number of days be allowed to ensure delivery to
the warrant agent and clearance of payment at or prior to the expiration time.
In addition, if you request reissuance of a warrant certificate, the delivery
will be at your risk.
Exercise of Less Than All Warrants
If you exercise your warrants for fewer than all of the shares represented
by your warrant certificate, you may receive from the warrant agent a new
warrant certificate representing the unexercised warrants. A new warrant
certificate for the remaining warrants will be issued to you only if the warrant
agent receives a properly endorsed warrant certificate from you no later than
5:00 p.m., New York City Time, on the fifth business day prior to the expiration
time. The warrant agent will not issue new warrant certificates for partially
exercised warrant certificates submitted after that date and time. If you do
submit a warrant certificate after that date and time, you will not be able to
exercise the unexercised warrants.
Unless you make other arrangements with the agent, a new warrant
certificate issued after 5:00 p.m., New York City Time, on the fifth business
day before the expiration time will be held for pick-up by you at the offices of
the transfer agent at 59 Maiden Lane, Plaza Level, New York, New York 10028.
Warrants Are Not Transferable
You may not sell your Class A warrants. You may not transfer your Class A
warrants except (i) if you are, or if you are the beneficial owner of Class A
warrants that are held by, an entity that merges or consolidates with another
entity, or otherwise by operation of law, pursuant to court order or pursuant to
the laws of descent and distribution; or (ii) with our express prior written
consent, which we may give or withhold in our sole discretion. You may transfer
your warrant certificate if such transfer does not represent any change of the
beneficial ownership of your Class A warrants. The warrant agent shall not give
effect to any transfer in violation of these restrictions. Upon presentation of
your warrant certificate for transfer, the warrant agent shall require you to
deliver such written representations and/or other evidence as it deems
reasonable to substantiate that the transfer does not violate the restrictions
of your warrant certificate.
In the event you desire to present your warrant certificate for
registration of transfer, the Exercise Form included therein shall be duly
endorsed, or be accompanied by a written instrument or instruments of transfer,
in form satisfactory to us and the warrant agent, duly executed by you or your
attorney-in-fact duly authorized in writing. Moreover, your signature on your
warrant certificate must be guaranteed by an Eligible Guarantor Institution.
Please see "-Signature Guarantees" below for a discussions regarding Eligible
Guarantor Institutions and guaranteed signatures. The warrant agent may impose a
reasonable service charge against you for any registration of transfer of your
warrant certificate. You may also be required you to pay a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
with any such transfer.
In addition, we do not intend to apply, and are not obligated to apply, for
listing of the warrants on any securities exchange, the Nasdaq Stock Market, or
any other market.
Signature Guarantees
Signatures on your warrant certificate do not need to be guaranteed unless
you desire to transfer any or all of your Class A warrants in a manner permitted
in this offering. Please see "-Warrants Are Not Transferable" above. If your
shares are being transferred in a manner permitted, then your signature on each
warrant certificate must be guaranteed by an Eligible Guarantor Institution, as
defined in Rule 17Ad-15 of the Securities Exchange Act of 1934, and required
under the standards and procedures adopted by the warrant agent. Eligible
Guarantor Institutions include banks, brokers, dealers, credit unions, national
securities exchanges and savings associations, each as defined.
Procedures for Depository Trust Company Participants
We expect that you will be able to exercise your Class A warrants through
the facilities of Depository Trust Company. If your Class A warrants are held of
record through the Depository Trust Company, you may exercise your warrants by
instructing the Depository Trust Company to transfer your Class A warrants from
your account to the account of the transfer agent, together with instructions as
to the aggregate number of warrants you are exercising, the number of shares of
our common stock you are purchasing, the warrant exercise price for each share
of our common stock that you intend to purchase, and the identification of the
transferee to whom your Class A warrants are to be ultimately transferred by the
transfer agent.
No Revocation
Once you exercise your warrants, you may not revoke that exercise. Warrants
not exercised prior to their expiration will be null and void as of and after
such time.
No Board Recommendation
Our Board of Directors does not make any recommendation to you about
whether you should exercise any warrants. If you exercise warrants, you risk
investment loss on money invested. We cannot assure you that anyone purchasing
shares of our Class A common stock will be able to sell those shares in the
future at a higher price. An investment in our Class A common stock must be made
in accordance with your evaluation of your own best interest.
Issuance of Stock Certificates
Stock certificates for shares purchased in the offering will be issued to
you as soon as practicable after your due exercise of your warrants. American
Stock Transfer & Trust Company will deliver payment of the warrant exercise
price to us only after the issuance of stock certificates to those exercising
warrants.
If you exercise warrants, you will have no rights as a stockholder until
certificates representing the shares you purchased are issued. Shares purchased
by the exercise of warrants will be registered in the name of the person
exercising the warrants.
Foreign Stockholders; Stockholders with APO or FPO Addresses
If you are a holder of record and your address is outside the United
States, or if you have no APO or FPO address, a warrant certificate will not be
mailed to you, but rather will be held by the warrant agent for your account. To
exercise the warrants, you must notify the warrant agent prior to 11:00 a.m.,
New York City Time, on the second trading day before the expiration time.
State and Foreign Securities Law
The warrants may not be exercised by any person, and neither this
prospectus nor the warrant certificate shall constitute an offer to sell or a
solicitation of an offer to purchase any shares of our common stock, in any
jurisdiction in which such transactions would be unlawful. We believe that no
action has been taken in any jurisdiction outside the United States to permit
offers and sales of the warrants or the offer, sale or distribution of the
shares of our common stock outside the United States. Consequently, we may
reject the exercise of warrants by any holder of warrants outside the United
States. We may also reject the exercise of warrants by holders in jurisdictions
within the United States, and we may refuse to distribute warrants to any
person, if we should determine that we may not lawfully issue securities to such
person. We may do so even if we could qualify the securities for sale or
distribution by taking other actions or modifying the terms of the offering or
the distribution in such jurisdictions, which we may decline to do in our sole
discretion. In such event, warrant holders who are residents of these
jurisdictions will not be eligible to exercise the warrants or participate in
the offering.
Regulatory Limitation
We will not be required to issue shares pursuant to this offering to anyone
who, in our opinion, would be required to obtain prior clearance or
authorization from any state or federal regulatory authorities to own or control
such shares if such clearance or authorization has not been obtained at the
expiration of this offering.
Questions or Requests for Assistance
If you have questions about this offering, including questions about the
procedure for exercising warrants or requests for additional copies of this
prospectus, please contact the warrant agent toll free at (800) 777-0800.
DILUTION
Stockholders that do not exercise their warrants in full may experience
substantial dilution of their percentage of equity ownership interest and voting
power in us to the extent that other stockholders exercise their warrants. In
addition, it is possible that in the future we may find it necessary or
appropriate for us to issue additional capital stock to raise capital or for
compensatory purposes. In that event, the relative voting power and equity
interests of persons purchasing shares of our Class A common stock in this
offering could be reduced.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (a) 7,500,000 shares of Class A
common stock, $.015 par value per share, (b) 4,400,000 shares of Class B common
stock, $.015 par value per share, and (c) 2,100,000 shares of preferred stock,
$.01 par value per share.
As of September 30, 2001, there are 1,248,157 shares of Class A common
stock outstanding held of record by 150 stockholders, and 2,200,000 shares of
Class B common stock outstanding held of record by one stockholder, Lynch
Interactive Corporation ("Interactive") through its wholly owned subsidiary
Brighton Communications Corporation. No shares of preferred stock have been
designated and there are no outstanding shares of preferred stock.
On August 17, 2001, Interactive announced that it plans to spin off its
investment in us. Interactive contemplates that all of the shares of Class A
common stock and Class B common stock held by Interactive through Brighton will
be placed into a newly formed corporation wholly owned by Interactive and that
the shares of that new corporation will be distributed to Interactive's
stockholders. Interactive has not announced a time frame for effecting the
spin-off. The Interactive spin-off will effect no substantial change in ultimate
control of the company.
If all warrants are exercised, there would be 2,496,314 shares of Class A
common stock outstanding and 4,400,000 shares of Class B common stock
outstanding. See "Risk Factors."
The relative rights, privileges and limitations of our capital stock are
summarized below.
Class A and Class B Common Stock
Class A Common Stock. The shares of Class A common stock are listed on the
American Stock Exchange. The shares of Class A common stock are entitled to one
vote per share on all matters presented to the stockholders, and the holders of
shares of Class A common stock are entitled, voting separately as a class, to
elect one member of our Board of Directors. The holders of the Class A and Class
B common stock vote together as a single class upon the election of all
remaining directors and on all other matters presented to stockholders, except
that the Class A and Class B common stock also each vote separately as a class
when required by our charter or bylaws, or the Delaware General Corporation Law,
as amended ("DGCL"). See- "Certain Statutory, Charter and By-Law Provisions"
below. The shares of Class A common stock are freely transferable by the holder.
Class B Common Stock. The shares of Class B common stock are entitled to
two votes per share on all matters presented to the stockholders. The holders of
Class A and Class B common stock vote together as a single class on all matters
presented to the stockholders, except that the holders of Class A common stock
elect one director exclusively and except where voting by class is required by
our charter or bylaws, or the DGCL. The Class B common stock is not listed on
any exchange or traded in any market. The shares of Class B common stock
automatically convert to shares of Class A common stock upon any transfer,
except for transfers to an "affiliate" of the transferor. An "affiliate" is
defined as a person that, directly or indirectly, through one or more
intermediaries, controls or is controlled by, or is under common control with,
the transferring holder of such Class B warrants. "Control" means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and specifically includes direct or
indirect ownership of at least 5% of the voting equity of such person.
Common Stock Generally. Holders of both classes of common stock are
entitled to receive ratably such dividends, if any, as are declared by our Board
of Directors from legally available funds, subject to any preferential dividend
owing to outstanding preferred stock. See "--Preferred Stock", below. No cash
dividend may be paid on either class of our common stock unless a cash dividend
is also paid on the other class; provided that any dividend paid on Class B
common stock may not be greater than 100%, nor less than 50%, of any dividend
paid on shares of Class A common stock. If holders of our Class A common stock
receive shares of our Class A common stock distributed in connection with stock
dividends or stock splits, holders of our Class B common stock will receive
shares of our Class B common stock in the same per-share proportion as holders
of our Class A common stock receive shares of our Class A common stock.
Pursuant to our charter, we may not issue any additional shares of Class B
common stock without the approval of a majority of the votes of the outstanding
shares of Class A common stock and Class B common stock, each voting separately
as a class. We may, however, issue additional shares of Class B common stock in
the event of pro rata stock splits or stock dividends. Any shares of Class B
common stock received by us upon conversion of the shares to Class A common
stock will be retired and not reissued.
Upon our liquidation, dissolution or winding up, the holders of both
classes of our common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of our common stock
have no preemptive, subscription or redemption rights. All outstanding shares of
our common stock are fully paid and nonassessable. The rights, preferences and
privileges of holders of our common stock are subject to, and may be adversely
affected by, the rights of the holders of any shares of our preferred stock
which we may designate and issue in the future.
Preferred Stock
Our Board of Directors has the authority to issue preferred stock and to
determine its rights and preferences to eliminate delays associated with a
stockholder vote on specific issuances. There are 2,100,000 authorized shares of
preferred stock which may be designated and issued pursuant to these provisions.
The issuance of preferred stock, while providing desirable flexibility in
connection with possible acquisitions and other corporate purposes, could have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, a majority of our outstanding voting
stock. We have no present plans to designate or issue any classes or series of
preferred stock.
Certain Statutory, Charter and ByLaw Provisions
The following discussion is a general summary of material provisions of our
charter and bylaws and the DGCL, certain of which may be likely to have an
effect of delaying, deferring or preventing a change in control. The following
description of the material provisions is general and not complete. You should
read our charter and bylaws and the DGCL.
We are subject to Section 203 of the DGCL, which prohibits a Delaware
corporation from engaging in a wide range of specified transactions with any
interested stockholder, defined to include, among others, any person or entity
who in the last three years obtained 15% or more of any class or series of stock
entitled to vote in the election of directors, unless, among other exceptions,
the transaction is approved by (a) our Board of Directors prior to the date the
interested stockholder obtained such status or (b) the holders of two-thirds of
the outstanding shares of each class or series of stock entitled to vote
generally in the election of directors, not including those shares of the
interested stockholder. Section 203 is intended to discourage certain
transactions with the target company.
Our charter contains certain provisions permitted under the DGCL relating
to the liability of our directors and officers. The provisions provide that we
will indemnify our directors and officers against all expense, liability and
loss suffered by our director or officer in connection with his service as a
director or officer to the fullest extent authorized by the DGCL, and includes
the right of the director or officer to require us to pay the expenses incurred
in defending any such proceeding in advance of its final disposition. Therefore,
the directors and officers are protected from monetary damages for breach of
fiduciary duty, except in certain circumstances involving wrongful acts, such as
the breach of a director's duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law.
Our bylaws provide that any action required or permitted to be taken by our
stockholders may be taken only at a duly called annual or special meeting of
stockholders, and special meetings may be called only by the Chairman of our
Board of Directors, a majority of the members of the Board of Directors or the
holders of a majority of the voting power of our outstanding common stock. Our
bylaws also impose certain notice and information requirements in connection
with the nomination by stockholders of candidates for election to our Board of
Directors or the proposal by our stockholders of business to be acted upon at
our annual meeting of our stockholders. These provisions could have the effect
of delaying until the next annual stockholders' meeting stockholder actions
which are not favored by the holders of a majority of the voting power of our
outstanding common stock.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter, and the affirmative vote of each class
entitled to vote on any matter as a separate class, is required to amend our
charter. Each class of our common stock is entitled to vote on any amendment to
the charter which would (a) increase or decrease the aggregate number of
authorized shares of such class, (b) increase or decrease the par value of the
shares of such class, or (c) alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely. Our charter
and bylaws allow our stockholders and Board of Directors the power to amend,
repeal and adopt our bylaws.
Under Delaware law, the vote of a simple majority of the outstanding shares
of the capital stock entitled to vote thereon is required to approve a merger or
consolidation, or the sale, lease, or exchange of substantially all of the
assets of a company. With respect to a merger, no vote of our stockholders is
required if we are the surviving corporation and (a) the related agreement of
merger does not amend our charter, (b) each share of our stock outstanding
immediately before the merger is an identical outstanding or treasury share
after the merger, and (c) the number of shares of our common stock to be issued
in the merger (or to be issuable upon conversion of any convertible instruments
to be issued in the merger) does not exceed 20% of the shares of our common
stock outstanding immediately before the merger.
Our Board of Directors is authorized, without shareholder approval, to
issue preferred stock in series and to fix and state the voting rights and
powers, designation, preferences and relative, participating, optional or other
special rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. Preferred stock may rank prior to the
Class A common stock and the Class B common stock as to dividend rights,
liquidation preferences, or both, and may have full or limited voting rights.
Accordingly, issuance of shares of preferred stock could adversely affect the
voting power of holders of Class A common stock and Class B common stock or
could have the effect of deterring or delaying an attempt to obtain control over
us.
Certain of the foregoing provisions of our charter, our bylaws and the DGCL
could have the effect of preventing or delaying a person from acquiring or
seeking to acquire a substantial equity interest in, or control of, our equity
securities.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
This section discusses certain federal income tax consequences of the
offering to:
o beneficial owners of common stock upon distribution of the warrants,
and
o holders upon the exercise of warrants.
This discussion is based on the Internal Revenue Code of 1986, as amended,
the Treasury regulations thereunder, judicial authority, and current
administrative rulings and practice, all of which are subject to change.
This discussion is limited to U.S. taxpayers who hold our common stock and
will hold the warrants and any shares acquired upon the exercise of rights as
capital assets. This discussion does not include any tax consequences under
state, local and foreign law. You should consult with your own tax advisor
concerning your own tax situation or special tax considerations that may apply
to you, including without limitation foreign, state and local laws that may
apply.
No Gain on Receipt of Warrants. As an owner of Class A common stock, you
will not recognize taxable income as a result of our distribution of the
warrants to you.
Basis and Holding Period of Warrants. Your tax basis in the warrants
distributed to you by us will be zero, unless (1) you exercise the warrants, and
(2) either:
o the fair market value of the warrants on the date of distribution is
15% or more of the fair market value on that date of our common stock
you already own, in which case you will be required to allocate a
portion of your basis in the shares of our common stock you already
own to the warrants we are distributing to you, based upon the
relative fair market value of the warrants and common stock on the
date of distribution, or
o you elect under Section 307 of the Internal Revenue Code of 1986, as
amended, to allocate a portion of your basis in the shares of our
common stock you already own to the warrants we are distributing to
you, based upon the relative fair market value of the warrants and
common stock on the date of distribution.
Your holding period with respect to the warrants we are distributing to you
will include your holding period for the common stock with respect to which the
warrants were distributed.
Exercise of Warrants. You will not recognize any gain or loss upon the
exercise of warrants. Your basis in the shares you acquire through your exercise
of the warrants will be equal to the sum of the subscription price you pay for
such shares and your basis in those warrants (if any). The holding period for
the shares you acquire through your exercise of the warrants will begin on the
day following the date of acquisition.
Expiration of Warrants. If the warrants we are distributing to you as a
holder of our common stock expire unexercised, you will not recognize any gain
or loss, and no adjustment will be made to the basis of the common stock you
own.
INDEMNIFICATION OF DIRECTORS AND OFFICERS --
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION
Under provisions of our charter, any person made a party to any lawsuit by
reason of being a director or officer of The Morgan Group, Inc., or any parent
or subsidiary thereof, may be indemnified by us to the full extent authorized by
the General Corporation Law of the State of Delaware.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling us pursuant to the foregoing provisions, we have been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
LEGAL MATTERS
Certain legal matters with respect to the authorization and issuance of our
common stock offered hereby will be passed upon for us by Barnes & Thornburg,
Indianapolis, Indiana.
EXPERTS
The consolidated financial statements of The Morgan Group, Inc. at December
31, 2000 and 1999, and for each of the three years in the period ended December
31, 2000, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon (which contains an explanatory paragraph describing conditions that
raise substantial doubt about the company's ability to continue as a going
concern as described in Note 4 to the consolidated financial statements)
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
FORWARD LOOKING STATEMENTS
Included in the prospectus summary and elsewhere in this prospectus are
several "forward-looking statements." Forward-looking statements are those which
use words such as "believe," "expect," "anticipate," "intend," "plan," "may,"
"will," "should," "estimate," "continue," or other comparable expressions. These
words indicate future events and trends. Forward-looking statements are our
current views with respect to future events and financial performance. These
forward-looking statements are subject to many risks and uncertainties that
could cause actual results to differ significantly from historical results or
from those anticipated by us. The most significant risks and uncertainties we
face are:
o cyclicality of the manufactured housing industry, which is currently
experiencing a substantial downturn, because our revenues have been
largely dependent on the industry;
o the continued availability and sufficiency of credit facilities and
other sources of funding for our operations; and
o accident claims which can materially adversely affect our result of
operations and the cost and availability of our insurance
arrangements.
There are other risks and uncertainties we face, including the effect of
changes in general economic conditions and the effect of new laws, regulations
and court decisions and those risks described under the caption "Risk Factors."
You are cautioned not to place undue reliance on our forward looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by law.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-2 under the
Securities Act of 1933 with respect to the Class A common stock offered hereby.
This prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and the
exhibits and schedules relating to the registration statement. You may read and
copy any document we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Our SEC filings are also
available to the public from the SEC's Web site at http://www.sec.gov.
INCORPORATION BY REFERENCE
The following documents, all of which were previously filed with the
Securities and Exchange Commission (the "SEC") pursuant to the Securities
Exchange Act of 1934, are hereby incorporated by reference in this prospectus:
o our Annual Report on Form 10-K for the year ended December 31, 2000
and amendment thereto on Form 10-K/A filed on April 27, 2001;
o our definitive Proxy Statement for our annual meeting held on July 12,
2001;
o our Quarterly Report on Form 10-Q for the quarter ended March 31,
2001; and
o our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001;
and
o our Quarterly Report on Form 10-Q for the quarter ended September 30,
2001.
All other reports and documents filed by us after the date of this
prospectus pursuant to Sections 13(a), 14 and 15(d) of the Securities Exchange
Act of 1934 prior to the termination of the offering of the common stock covered
by this prospectus are also incorporated by reference in this prospectus and are
considered to be part of this prospectus from the date those documents are
filed.
In any statement contained in a document incorporated by reference herein
conflicts with or is modified by a statement contained in this prospectus or in
any other subsequently filed document that is incorporated by reference into
this prospectus, the statement made at the latest point in time should control.
Any previous statements that have been subsequently altered should therefore not
be considered to be a part of this prospectus. We will provide a copy of any or
all of the documents referred to above that have been or may be incorporated by
reference in this prospectus to any person, including any beneficial owner, to
whom a copy of this prospectus has been delivered free of charge upon request.
Exhibits to such documents will not be provided unless the exhibits are
specifically incorporated by reference into the information that the prospectus
incorporates. Written requests for copies of any documents incorporated by
reference should be directed to Gary J. Klusman, 219-295-2200.
1,248,157 SHARES OF CLASS A COMMON STOCK
[Logo Omitted] The Morgan Group, Inc.
ISSUABLE UPON EXERCISE OF WARRANTS
-----------------------------
PROSPECTUS
-----------------------------
December 12, 2001
- --------------------------------------------------------------------------------
You may rely on the information contained in this prospectus. The Morgan Group,
Inc. has not authorized anyone to provide prospective investors with different
or additional information. This prospectus is not an offer to sell nor is it
seeking an offer to buy these securities in any jurisdiction where the offer or
sale is not permitted. The information contained in this prospectus is correct
only as of the date of this prospectus, regardless of the time of the delivery
of this prospectus or any sale of these securities.
- --------------------------------------------------------------------------------
THE MORGAN GROUP, INC.
INDEX TO AUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Consolidated Financial Statements: Page
Report of Ernst & Young LLP, Independent Auditors......................F-2
Consolidated Balance Sheets as of December 31, 2000 and 1999...........F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998...............................F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 2000, 1999 and 1998...........F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998...............................F-6
Notes to Consolidated Financial Statements.............................F-7
F-1
Report of Independent Auditors
The Board of Directors and Shareholders
The Morgan Group, Inc.
We have audited the accompanying consolidated balance sheets of The Morgan
Group, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Morgan Group,
Inc. and subsidiaries as of December 31, 2000 and 1999, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in Note 4, the
Company, incurred operating losses during the year ended December 31, 2000, and
was not in compliance with its credit facility, which expired on January 28,
2001. Under the terms of the expired credit facility, the bank has the right to
demand cash to meet outstanding obligations of the letters of credits. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters, including raising
additional equity and replacing the expired credit facility, are more fully
described in Note 4. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
/s/ Ernst & Young LLP
Greensboro, North Carolina
February 9, 2001
F-2
CONSOLIDATED FINANCIAL STATEMENTS:
The Morgan Group, Inc.
and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
December 31
2000 1999
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 2,092 $ 3,847
Trade accounts receivable, less allowances
of $248 in 2000 and $313 in 1999 7,748 10,130
Accounts receivable, other 133 313
Refundable taxes 499 --
Prepaid expenses and other current assets 1,147 1,960
Deferred income taxes 319 1,475
------- -------
Total current assets 11,938 17,725
------- -------
Property and equipment, net 3,688 4,309
Goodwill and other intangibles, net 6,727 7,361
Deferred income taxes 282 2,172
Other assets 634 697
------- -------
Total assets $23,269 $32,264
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 2,373 $ 3,907
Accrued liabilities 3,704 4,852
Income taxes payable -- 278
Accrued claims payable 3,224 3,071
Refundable deposits 1,357 1,752
Current portion of long-term debt and capital
lease obligations 217 676
------- -------
Total current liabilities 10,875 14,536
------- -------
Long-term debt and capital lease obligations, less
current portion 71 289
Long-term accrued claims payable 5,122 5,347
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 (deficit) earnings (2,116) 2,775
------- -------
Total capital and retained earnings 10,384 15,275
Less - treasury stock at cost (359,146 Class A
Shares in 2000 and 1999) (3,183) (3,183)
------- -------
Total shareholders' equity 7,201 12,092
------- -------
Total liabilities and shareholders' equity $23,269 $32,264
======= =======
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in thousands, except share amounts)
For the year ended December 31
2000 1999 1998
---- ---- ----
Operating revenues $ 108,024 $ 145,629 $ 150,454
Costs and expenses:
Operating costs 99,552 133,774 136,963
Selling, general and administration 9,443 10,090 10,254
Depreciation and amortization 1,067 1,215 1,230
--------- --------- ---------
110,062 145,079 148,447
--------- --------- ---------
Operating (loss) income (2,038) 550 2,007
Interest expense, net 310 338 545
--------- --------- ---------
(Loss) income before income taxes (2,348) 212 1,462
Income tax expense 2,451 193 559
---------- --------- ---------
Net (loss) income ($4,799) $ 19 $ 903
========== ========= =========
Net (loss) income per basic and diluted share ($1.96) $ 0.01 $ 0.35
========== ========= =========
Basic weighted average shares outstanding 2,448,157 2,469,675 2,606,237
========= ========= =========
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity
(Dollars in thousands, except per share amounts)
Class A Class B Additional Retained
Common Common Paid-in Officer Treasury (Deficit)
Stock Stock Capital Loan Stock Earnings Total
----- ----- ------- ---- ----- -------- -----
Balance at December 31, 1997 $23 $ 18 $ 12,453 $ (504) $ (1,426) $ 2,160 $ 12,724
Net income -- -- -- -- -- 903 903
Purchase of treasury stock -- -- -- 504 (813) -- (309)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (117) (117)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
Options exercised -- -- 6 -- 62 -- 68
----- ------ -------- ------ -------- ------- --------
Balance at December 31, 1998 $23 $ 18 $ 12,459 $ -- $ (2,177) $ 2,898 $ 13,221
Net income -- -- -- -- -- 19 19
Purchase of treasury stock -- -- -- -- (1,006) -- (1,006)
Common stock dividends:
Class A ($.08 per share) -- -- -- -- -- (94) (94)
Class B ($.04 per share) -- -- -- -- -- (48) (48)
----- ------ -------- ------ -------- ------- --------
Balance at December 31, 1999 $23 $ 18 $ 12,459 $ -- $ (3,183) $ 2,775 $ 12,092
Net loss -- -- -- -- -- (4,799) (4,799)
Common stock dividends:
Class A ($.05 per share) -- -- -- -- -- (62) (62)
Class B ($.025 per share) -- -- -- -- -- (30) (30)
----- ------ -------- ------ -------- ------- --------
Balance at December 31, 2000 $23 $ 18 $ 12,459 $ -- $ (3,183) $(2,116) $ 7,201
===== ====== ======== ====== ======== ======= ========
See accompanying notes.
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
For the year ended December 31
2000 1999 1998
---- ---- ----
Operating activities:
Net (loss) income $(4,799) $ 19 $ 903
Adjustments to reconcile net (loss) income to net cash (used in) provided
by operating activities:
Depreciation and amortization 1,067 1,215 1,246
Deferred income taxes 3,046 (420) (713)
Loss on disposal of property and equipment 292 101 20
Changes in operating assets and liabilities:
Trade accounts receivable 2,382 2,058 1,174
Other accounts receivable 180 901 (1,088)
Refundable taxes (499) -- --
Prepaid expenses and other current assets 813 507 139
Other assets 63 (43) 810
Trade accounts payable (1,534) (397) 207
Accrued liabilities (1,148) 1,286 (612)
Income taxes payable (278) (600) 489
Accrued claims payable (72) 310 2,785
Refundable deposits (395) (78) 164
-------- ------- -------
Net cash (used in) provided by operating activities (882) 4,859 5,524
Investing activities:
Purchases of property and equipment (106) (811) (585)
Proceeds from sale of property and equipment 2 7 88
Business acquisitions -- (35) (228)
-------- ------- -------
Net cash used in investing activities (104) (839) (725)
Financing activities:
Principle payments on long-term debt (677) (664) (3,418)
Proceeds from long-term debt -- 149 135
Purchase of treasury stock, net of officer loan of $504 -- (1,006) (309)
in 1998
Proceeds from exercise of stock options -- -- 68
Common stock dividends paid (92) (142) (165)
-------- ------- -------
Net cash used in financing activities (769) (1,663) (3,689)
-------- ------- -------
Net (decrease) increase in cash and cash equivalents (1,755) 2,357 1,110
Cash and cash equivalents at beginning of period 3,847 1,490 380
-------- ------- -------
Cash and cash equivalents at end of period $ 2,092 $3,847 $ 1,490
======== ======= ========
Cash payments for interest were $379,000 in 2000, $406,000 in 1999 and $566,000
in 1998.
See accompanying notes.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The Morgan Group, Inc. ("Company"), through its wholly owned subsidiaries,
Morgan Drive Away, Inc. ("Morgan") and TDI, Inc. ("TDI"), provides outsourced
transportation and logistical services to the manufactured housing and
recreational vehicle industries and is a leading provider of delivery services
to the commercial truck and trailer industries in the United States. Lynch
Interactive Corporation and its wholly owned subsidiaries ("Lynch Interactive")
owns all of the 1,200,000 shares of the Company's Class B common stock and
161,100 shares of the Company's Class A common stock, which in the aggregate
represents 70% of the combined voting power of the combined classes of the
Company's common stock.
The Company's other significant wholly owned subsidiaries are Interstate
Indemnity Company ("Interstate") and Morgan Finance, Inc. ("Finance"), which
provide insurance and financial services to its owner-operators.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires Management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could materially differ from those estimates.
Operating Revenues and Expense Recognition
Operating revenues, including ancillary fees for permits, escort services and
insurance premiums, and related driver pay are recognized when movement of the
product is completed. Other operating expenses are recognized when incurred.
Cash Equivalents
All highly liquid investments with maturity of three months or less when
purchased are considered to be cash equivalents.
Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of customer receivables. As discussed in Note 9,
two customers represent 33% of total customer receivables. The remaining credit
risk is generally diversified due to the large number of entities comprising the
Company's remaining customer base and their dispersion across many different
industries and geographic regions. As noted on the consolidated balance sheets,
the Company maintains an allowance for doubtful accounts to cover estimated
credit losses.
Property and Equipment
Property and equipment is stated at cost. Major additions and improvements are
capitalized, while maintenance and repairs that do not improve or extend the
lives of the respective assets are charged to expense as incurred. Depreciation
is computed using the straight-line method over the following estimated useful
lives:
Buildings 25 years
Transportation Equipment 3 to 5 years
Office and Service Equipment 3 to 8 years
Goodwill and Other Intangibles
Goodwill and other intangibles are comprised primarily of goodwill, which is
stated at the excess of purchase price over net asset acquired, net of
accumulated amortization of $4,181,000 and $3,547,000 at December 31, 2000 and
1999, respectively. Intangible assets are being amortized by the straight-line
method over their estimated useful lives, which range from three to forty years.
Impairment of Assets
The Company periodically assesses the net realizable value of its long-lived
assets, including intangibles, and evaluates such assets for impairment whenever
events or changes in circumstances indicate the carrying amount of an asset may
not be recoverable. Goodwill is evaluated for impairment whenever such events as
a loss of a significant customer, a permanent decline in the manufactured
housing industry, or other negative trends occur. For assets to be held and
used, including goodwill and other intangible assets, impairment is determined
to exist if estimated undiscounted future cash flows are less than the carrying
amount. For assets to be disposed of, impairment is determined to exist if the
estimated net realizable value is less than the carrying amount. The Company, as
a result of the recent negative trends, has performed an assessment of potential
goodwill impairment and does not believe that an impairment, or a change in
estimated useful lives exist at December 31, 2000.
Insurance and Claim Reserves
Claims and insurance accruals reflect the estimated ultimate cost of claims,
including amounts for claims incurred but not reported, for cargo loss and
damage, bodily injury and property damage, workers' compensation, long-term
disability and group health not covered by insurance. These costs are charged to
operating costs.
Stock-Based Compensation
Stock based compensation expense for the Company's employee stock option plan is
recognized under the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related
interpretations. Consistent with APB 25, the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant; therefore, no compensation expense is recognized.
Net Income (Loss) Per Common Share
Net income (loss) 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 common shares for both
classes of common stock is considered in the computation of EPS.
Fair Values of Financial Instruments
At December 31, 2000 and 1999, the carrying value of financial instruments such
as cash and cash equivalents, trade and other receivables, trade payables and
long-term debt approximate their fair values. Fair value is determined based on
expected future cash flows, discounted at market interest rates, and other
appropriate valuation methodologies.
Comprehensive Income
There were no items of comprehensive income for the years presented, as defined
under SFAS No. 130, "Reporting Comprehensive Income". Accordingly, comprehensive
income is equal to net income.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is required to be adopted in fiscal
years beginning after June 15, 2000. Under the statement, all derivatives will
be required to be recognized on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through income. If the
derivative is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair value of
the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. Under the statement, any ineffective portion of a derivative's change
in fair value must be immediately recognized in earnings. The Company has
evaluated the effect of SFAS No. 133 and determined that the adoption of SFAS
No. 133 will have no effect on the earnings and financial position of the
Company.
2. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
December 31
2000 1999
---- ----
Land $ 873 $ 873
Buildings 2,186 2,241
Transportation equipment 146 419
Office and service equipment 2,288 3,491
----- -----
5,493 7,024
Less accumulated depreciation 1,805 2,715
----- -----
Property and equipment, net $3,688 $4,309
====== ======
Depreciation expense was $433,000, $511,000 and $581,000 for 2000, 1999 and
1998, respectively.
3. GOODWILL AND OTHER INTANGIBLES, NET
The components of goodwill and other intangibles, net are as follows (in
thousands):
December 31, 2000
Useful Accumulated Net Book
Life Cost Amortization Value
---- ---- ------------ -----
Goodwill 40 Year $1,660 $518 $1,142
Goodwill 20 Year 6,734 1,567 5,167
Goodwill 3-5 Year 335 273 62
Non-Compete agreements 3-20 Year 2,179 1,823 356
----- ----- ---
$10,908 $4,181 $6,727
====== ===== =====
December 31, 1999
Useful Accumulated Net Book
Life Cost Amortization Value
---- ---- ------------ -----
Goodwill 40 Year $1,660 $477 $1,183
Goodwill 20 Year 6,734 1,229 5,505
Goodwill 3-5 Year 335 196 139
Non-Compete agreements 3-20 Year 2,179 1,645 534
----- ----- ---
$10,908 $3,547 $7,361
====== ===== =====
4. INDEBTEDNESS
At December 31, 2000, the Company had a $7.7 million revolving credit facility
("Credit Facility"), with a $6.7 million letter of credit sub-limit. The Credit
Facility bears interest at the Company's option, on either the applicable
Eurodollar Rate Margin or the applicable Base Rate Margin, all of which are
adjusted over the term of the Credit Facility. Total borrowings and outstanding
letters of credit are limited to qualified trade accounts receivable, qualified
in-transit amounts, contractor loans, and qualified investments. The Credit
Facility contains financial covenants, the most restrictive of which are a cash
flow coverage ratio, interest expense coverage ratio, and minimum net income. At
December 31, 2000, the Company had no outstanding debt under its Credit
Facility, and $6.6 million of letters of credit were outstanding under the
Credit Facility. Letters of credit are required for self-insurance retention
reserves and other corporate needs.
The 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 has a payment default and the financial institution has the right to
demand cash to meet outstanding obligations under the letters of credit. The
bank has discretion as to whether to make any loans or issue additional letters
of credit for the Company.
The financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. The Company is actively seeking alternative
financial institutions to replace the existing Credit Facility as well as
seeking additional capital resources. Currently, negotiations are being held
with several financial institutions regarding a replacement facility. In
connection with these potential replacement facilities, the Company is
anticipating raising equity capital up to $3.0 million. The Company has engaged
in discussions with its principal shareholder, Lynch Interactive, regarding
these matters. Based on preliminary discussions, Lynch Interactive has expressed
interest in providing a portion of the capital support the Company will require,
but no terms have been agreed upon. The Company expects to seek to raise the
equity capital it will require from Lynch Interactive, other stockholders, or,
if necessary, privately from other sources. The Company's ability to continue as
a going concern is dependent upon its ability to successfully maintain its
financing arrangements and to comply with the terms thereof. However, although
no assurances can be given, management remains confident that the Company will
be able to continue operating as a going concern.
Long-term debt and capital lease obligations consisted of the following (in
thousands):
December 31
2000 1999
---- ----
Promissory notes with imputed interest rates from 6.31% to 10.0%, principal
and interest payments due from monthly to annually, through June 30, 2002 $242 $837
Term note and capital leases with imputed interest rates of 8.25% to 11.04%
with principal and interest payments due monthly through April 26, 2002 46 128
---- ---
288 965
Less current portion 217 676
--- ---
Long-term debt and capital lease obligations, net $ 71 $289
==== ====
Maturities on long-term debt are $217,000 in 2001 and $71,000 in 2002.
5. LEASES
Future minimum annual operating lease payments as of December 31, 2000, are as
follows (in thousands):
Operating
Leases
------
2001 $ 641
2002 173
2003 60
2004 11
2005 1
------
Total minimum lease payments $ 886
======
Aggregate expense under operating leases approximated $1,672,000, $2,115,000,
and $2,578,000 for 2000, 1999 and 1998, respectively.
6. INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.
The income tax provisions (benefits) are summarized as follows (in thousands):
For the Year Ended December 31
2000 1999 1998
---- ---- ----
Current:
State $ - $ 98 $ 201
Federal (595) 515 1,071
------- ----- ------
(595) 613 1,272
Deferred:
State 488 (67) (203)
Federal 2,558 (353) (510)
------- ------ -------
3,046 (420) (713)
------- ------ -------
$2,451 $ 193 $ 559
======= ====== =======
Deferred tax assets (liabilities) are comprised of the following (in thousands):
December 31
2000 1999
---- ----
Deferred tax assets:
Accrued insurance claims $3,323 $3,232
Special charges and accrued expenses 367 487
Depreciation 199 163
Other 84 125
------ ------
3,973 4,007
Deferred tax liabilities:
Prepaid expenses (184) (360)
------- -------
(184) (360)
------- -------
$3,789 $3,647
Valuation allowance for deferred tax assets ($3,188) --
------ ------
$ 601 $3,647
====== ======
A reconciliation of the income tax provisions and the amounts computed by
applying the statutory federal income tax rate to income before income taxes
follows (in thousands):
For the Year Ended December 31
2000 1999 1998
---- ---- ----
Income tax provision (benefits) at
federal statutory rate $(772) $ 72 $497
State income tax (benefit), net of
federal tax benefit (44) 20 48
Changes in estimated
state tax rates on
beginning temporary differences -- -- (70)
Change in Valuation Allowance 3,188 -- --
Permanent differences 79 101 84
------- ---- --
$2,451 $193 $559
======= ==== ====
Net cash payments for income taxes were $181,000, $1,205,000 and $810,000 in
2000, 1999 and 1998, respectively.
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
$3,188,000 was recorded in 2000 to reduce the deferred tax asset 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, combined with the current
default on its Credit Facility, 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 of
$601,000 relate to federal income tax carrybacks available to the Company.
7. SHAREHOLDERS' EQUITY
The Company has two classes of common stock outstanding, Class A and Class B.
Under the bylaws of the Company: (i) each share of Class A is entitled to one
vote and each share of Class B is entitled to two votes; (ii) Class A
shareholders are entitled to a dividend ranging from one to two times the
dividend declared on Class B stock; (iii) any stock distributions will maintain
the same relative percentages outstanding of Class A and Class B; (iv) any
liquidation of the Company will be ratably made to Class A and Class B
shareholders after satisfaction of the Company's other obligations; and (v)
Class B stock is convertible into Class A stock at the discretion of the holder;
Class A stock is not convertible into Class B stock.
The Company's Board of Directors has approved the purchase of up to 250,000
shares of Class A Common Stock for its Treasury at various dates and market
prices. During the year ended December 31, 2000, the Company did not repurchase
any shares under this plan. As of December 31, 2000, 186,618 shares had been
repurchased at prices between $6.875 and $11.375 per share for a total of
$1,561,000 under this plan.
In March 1999, the Company repurchased 102,528 shares of Class A stock in a
Dutch Auction for $985,000, which includes $62,000 of fees and expenses
associated with the transaction.
In July 1998, the Company purchased 70,000 shares of Class A stock from a former
officer for $637,000 under a special stock purchase approved by the Board of
Directors.
8. STOCK OPTION PLAN AND BENEFIT PLAN
The Company has an incentive stock option plan which provides for the granting
of incentive or non-qualified stock options to purchase up to 200,000 shares of
Class A common stock to directors, officers, and other key employees. No options
may be granted under this plan for less than the fair market value of the common
stock at the date of the grant. Although the exercise period is determined when
options are actually granted, an option shall not be exercised later than ten
years and one day after it is granted. Stock options granted will terminate if
the grantee's employment terminates prior to exercise for reasons other than
retirement, death, or disability. Stock options vest over a four-year period
pursuant to the terms of the plan, except for stock options granted to a
non-employee director, which are immediately vested. Employees and non-employee
directors have been granted non-qualified stock options to purchase 96,375 and
32,000 shares, respectively, of Class A common stock, net of cancellations and
shares exercised. There are 63,250 options reserved for future issuance.
In January 2000, the President and Chief Executive Officer entered into a
special stock option plan and agreement with the Company which provides for the
granting of options to purchase 120,000 shares of Class A Common Stock in three
separate installments. The first installment is for 40,000 shares at an exercise
price of $5.625, exercisable 6 months from the date of the agreement. The second
installment is for 40,000 shares at an exercise price of $7.625, exercisable 18
months after the date of the agreement. The third installment is for 40,000
shares at an exercise price of $9.625, exercisable 30 months after the date of
the agreement. The options granted under this stock option plan and agreement
are not granted pursuant to the Incentive Stock Option Plan described above; but
they are subject to the same general terms and conditions of the Incentive Stock
Option Plan.
A summary of the Company's stock option activity and related information
follows:
Year Ended December 31
2000 1999 1998
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Options Exercise Options Exercise Options Exercise
(000) Price (000) Price (000) Price
----- ----- ----- ----- ----- -----
Outstanding at beginning of year 181 $8.23 170 $8.28 167 $8.32
Granted 120 7.63 11 7.52 23 8.11
Exercised -- -- -- -- (7) 8.25
Canceled (53) 7.79 -- -- (13) 8.59
---- ----- --- ----- ---- ----
Outstanding at end of year 128 $8.42 181 $8.23 170 $8.28
=== ===== === ----- === =====
Exercisable at end of year 124 $8.41 149 $8.31 124 $8.42
=== ===== === ===== === =====
Exercise prices for options outstanding as of December 31, 2000, ranged from
$6.80 to $10.19. The weighted-average remaining contractual life of those
options is 4.6 years. The weighted-average fair value of options granted during
each year was immaterial.
The following pro forma information regarding net income (loss) and net income
(loss) per share is required when APB 25 accounting is elected, and was
determined as if the Company had accounted for its employee stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation." The fair values for these options were estimated at the date of
grant using a Black-Scholes option pricing model with the following assumptions:
dividend yield of 0.1%; expected life of 10 years; expected volatility of .596
in 2000 and .316 in 1999 and .250 in 1998, and a risk-free interest rate of 6.5%
in 2000 and 5.0% in 1999 and 6.0% in 1998. For purposes of pro forma
disclosures, the estimated fair values of the options are amortized to expense
over the option's vesting periods (in thousands except for per share
information):
2000 1999 1998
---- ---- ----
Net (loss) income:
As reported ($4,799) $ 19 $ 903
Pro forma ($5,024) (24) 861
Diluted (loss) earnings per share:
As reported ($1.96) $0.01 $0.35
Pro forma ($2.05) (0.01) 0.33
During the initial phase-in period, as required by SFAS No. 123, the pro forma
amounts were determined based on stock options granted after the 1995 fiscal
year only. Therefore, the pro forma amounts for compensation cost may not be
indicative of the effects on pro forma net income and pro forma net income per
share for future years.
The Company has a 401(k) Savings Plan covering substantially all employees,
which matches 25% of the employee contributions up to a designated amount. The
Company's contributions to the Plan for 2000, 1999 and 1998 were $18,000,
$23,000 and $29,000, respectively.
9. TRANSACTIONS WITH LYNCH INTERACTIVE CORPORATION
The Company has paid Lynch Interactive Corporation ("Lynch Interactive") an
annual service fee of $100,000 for executive, financial and accounting,
planning, budgeting, tax, legal, and insurance services. Additionally, Lynch
Interactive charges the Company for officers' and directors' liability
insurance, which totaled $20,000 in 2000, and $16,000 in 1999 and 1998.
The Company's Class A and Class B common stock owned by Lynch Interactive is
pledged to secure a Lynch Interactive line of credit.
10. 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 a large trailer, travel and small trailer delivery and
another Specialized Service "Decking" (discontinued in 2000). 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 and 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.
The driver outsourcing segment and the specialized outsourcing services were
reported as one segment titled "SOS" in 1998. The year of 1998 has been restated
to show corresponding segment information.
Measurement of Segment (Loss) and Segment Assets
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 summary of significant accounting policies (See Note 1).
There are no significant intersegment revenues.
The following table presents the financial information for the Company's
reportable segments for the years ended December 31 (in thousands):
2000 1999 1998
---- ---- ----
Operating revenues
Manufactured Housing $ 70,631 $ 99,491 $ 106,145
Driver Outsourcing 20,939 23,351 19,710
Specialized Outsourcing Services 15,260 21,172 23,064
Insurance and Finance 2,933 3,958 4,072
All Other (3) 148 48
-------- -------- ---------
109,760 148,120 153,039
Total intersegment insurance revenues (1,736) (2,491) (2,585)
-------- -------- ---------
Total operating revenues $108,024 $145,629 $ 150,454
======== ======== =========
Segment (loss) profit - EBITDA
Manufactured Housing $ 5,784 $ 10,265 $ 10,836
Driver Outsourcing 1,324 416 115
Specialized Outsourcing Services (140) 469 1,011
Insurance and Finance (6,765) (9,058) (8,358)
All Other (1,174) (327) (367)
-------- -------- ---------
(971) 1,765 3,237
Depreciation and amortization (1,067) (1,215) (1,230)
Interest expense (310) (338) (545)
-------- -------- ---------
(Loss) income before taxes $( 2,348) $ 212 $ 1,462
======== ======== =========
Identifiable assets
Manufactured Housing $ 11,255 $ 16,956 $ 18,764
Driver Outsourcing 4,561 5,438 6,055
Specialized Outsourcing Services 2,078 2,724 3,015
Insurance and Finance 1,433 1,801 1,864
All Other (1) 3,942 5,345 3,689
-------- -------- ---------
Total $ 23,269 $ 32,264 $ 33,387
======== ======== =========
(1) All other represents corporate assets comprised of cash, fixed assets
and goodwill.
A majority of the Company's accounts receivable are due from companies in the
manufactured housing, recreational vehicle, and commercial truck and trailer
industries located throughout the United States. Services provided to Oakwood
Homes Corporation accounted for approximately $22.5 million, $28.8 million and
$31.8 million of revenues in 2000, 1999 and 1998, respectively. The Company's
gross accounts receivables from Oakwood were 23% and 16% of total receivables at
December 31, 2000 and 1999, respectively. In addition, Fleetwood Enterprises,
Inc., accounted for approximately $16.9 million, $23.9 million and $26.0
million, of revenues in 2000, 1999 and 1998, respectively. The Company's gross
accounts receivables from Fleetwood were 10% and 17% of total receivables at
December 31, 2000 and 1999, respectively.
11. OPERATING COSTS AND EXPENSES (in thousands)
2000 1999 1998
---- ---- ----
Purchased transportation costs $75,411 $ 101,046 $103,820
Operating supplies and expenses 10,826 13,559 14,092
Claims 5,658 8,633 7,698
Insurance 2,733 3,178 3,375
Operating taxes and licenses 4,924 7,358 7,978
------- --------- --------
$99,552 $ 133,774 $136,963
======= ========= ========
Significant Accruals
Material components (greater than 5% of total current liabilities) of accrued
liabilities are as follows:
12/31/99 % 12/31/00 %
Government Fees $ 717 4.9 $ 759 7.0
Workers' Comp 638 4.4 839 7.7
Customer Incentives 1,104 7.6 588 5.4
Other 12,077 83.1 8,689 79.9
------- ----- ------- -----
Total Current Liabilities $14,536 100.0% $10,875 100.0%
Accruals are reviewed and booked monthly. The corresponding expenses are
reflected in the Selling, general and administration and Operating costs
sections of the Consolidated Statements of Operations.
Government fees represent amounts due for fuel taxes, permits and use taxes
related to our linehaul transportation costs.
Workers' compensation represents estimated amounts due claimants related to
unsettled claims related to injuries incurred by Company employee-drivers. These
claim amounts due are established by our insurance carrier, Liberty Mutual, on a
monthly basis.
Customer incentive liability represents volume discounts ranging from 1% to 7%
of revenue earned by certain customers. The customer incentives earned are
computed and booked monthly based upon linehaul revenue for that specific
customer. The incentives are paid quarterly and are recorded as a charge against
Operating revenues in the Consolidated Statements of Operations.
12. COMMITMENTS AND CONTINGENCIES
The Company is involved in various legal proceedings and claims that have arisen
in the normal course of business for which the Company maintains liability
insurance covering amounts in excess of its self-insured retention. Management
believes that adequate reserves have been established on its self-insured claims
and that their ultimate resolution will not have a material adverse effect on
the consolidated financial position, liquidity, or operating results of the
Company.
The Company leases certain land, buildings, computer equipment, computer
software, and motor equipment under non-cancelable operating leases that expire
in various years through 2005. Several land and building leases contain monthly
renewal options.
13. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following is a summary of unaudited quarterly results of operations for the
years ended December 31, 2000 and 1999 (in thousands, except share data):
Three Months Ended
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
2000
- ----
Operating revenues $27,867 $29,961 $28,164 $ 22,032
Operating income (loss) (898) 113 178 (1,431)
Net income (loss) (616) 17 75 (4,275)
Net income (loss) per basic and diluted share ($ 0.25) $ 0.01 $ 0.03 ($1.75)
1999
- ----
Operating revenues $35,325 $40,270 $37,312 $ 32,722
Operating income (loss) 325 436 208 (419)
Net income (loss) 118 169 34 (302)
Net income (loss) per basic and diluted share $ 0.05 $ 0.07 $ 0.01 ($ 0.12)
THE MORGAN GROUP, INC.
INDEX TO CONSOLIDATED INTERIM
FINANCIAL STATEMENTS (Unaudited)
Consolidated Interim Financial Statements (unaudited): Page
Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000..............................................F-20
Consolidated Statements of Operations for the Nine Months Ended
September 30, 2001 and 2000....................................F-21
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2001 and 2000....................................F-22
Notes to Consolidated Interim Financial Statements (unaudited).....F-23
The Morgan Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands, except share amounts)
September 30 December 31
2001 2000
------------ -----------
ASSETS (Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 1,393 $ 2,092
Investments - restricted 2,623 --
Trade accounts receivable, less allowances
of $144 in 2001 and $254 in 2000 9,217 7,748
Accounts receivable, other 448 133
Refundable taxes 131 499
Prepaid insurance 2,896
97
Prepaid expenses and other current assets 1,382 1,050
Deferred income taxes 319 319
--------- ---------
Total current assets 18,409 11,938
--------- ---------
Property and equipment, net 3,477 3,688
Goodwill and other intangibles, net 6,376 6,727
Deferred income taxes 282 282
Other assets 170 634
---------- ---------
Total assets $ 28,714 $ 23,269
========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,806 $ 2,373
Notes payable, banks 1,369 --
Accrued liabilities 4,489 3,704
Accrued claims payable 3,013 3,224
Refundable deposits 1,154 1,357
Current portion of long-term debt and capital lease obligations 147 217
---------- ---------
Total current liabilities 14,978 10,875
---------- ---------
Long-term debt and capital lease obligations, less current portion 16 71
Long-term accrued claims payable 4,821 5,122
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 - 4,400,000
Issued and outstanding shares - 2,200,000 33 18
Additional paid-in capital 14,318 12,459
Retained earnings (2,292) (2,116)
Less - treasury stock at cost (359,146 Class A shares) (3,183) (3,183)
----------- ----------
Total shareholders' equity 8,899 7,201
----------- ----------
Total liabilities and shareholders' equity $ 28,714 $ 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 Nine Months Ended
September 30 September 30
2001 2000 2001 2000
---- ---- ---- ----
Operating revenues $ 24,834 $ 28,629 $ 70,954 $ 87,447
Costs and expenses:
Operating costs 22,666 26,055 64,306 80,445
Selling, general and administration 2,127 2,160 6,207 6,792
Depreciation and amortization 210 236 688 817
--------- --------- --------- ---------
25,003 28,451 71,201 88,054
Operating income (loss) (169) 178 (247) (607)
Interest expense, net 90 77 182 210
--------- --------- --------- ---------
Income (loss) before income taxes (259) 101 (429) (817)
Income tax expense (benefit) -- 26 (255) (293)
--------- --------- ---------- ---------
Net income (loss) $ (259) $ 75 $ (174) $ (524)
========= ========= ========== =========
Net income (loss) per common share:
Basic $ (0.08) $ 0.03 $ (0.06) $ (0.21)
========= ========= ========= =========
Diluted $ (0.08) $ 0.03 $ (0.06) $ (0.21)
========= ========= ========= =========
Weighted average shares outstanding (thousands)
Basic 3,329 2,448 2,745 2,448
========= ========= ========= =========
Diluted 3,329 2,451 2,745 2,452
========= ========= ========= =========
Cash dividends declared per common share
Class A: $ -- $ 0.01 $ -- $ 0.05
========= ========= ========= =========
Class B: $ -- $ 0.005 $ -- $ 0.025
========= ========= ========= =========
See notes to interim consolidated financial statements
The Morgan Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine Months Ended
September 30
2001 2000
----------- ----------
Operating activities:
Net income (loss) $ (174) $ (524)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 688 817
Loss on disposal of property and equipment 12 60
Changes in operating assets and liabilities:
Trade accounts receivable (1,469) (652)
Other accounts receivable (315) (13)
Refundable taxes 368 --
Prepaid insurance (2,799) --
Prepaid expenses and other current assets (332) 429
Other assets 464 229
Trade accounts payable 2,433 (285)
Accrued liabilities 785 (481)
Income taxes payable -- (565)
Accrued claims payable (512) (213)
Refundable deposits (203) (195)
------- --------
Net cash provided by (used in) operating activities (1,054) (1,393)
------- --------
Investing activities:
Purchase of restricted investments (2,623) --
Purchases of property and equipment (98) (118)
Other (7) 2
------- --------
Net cash provided by (used in) investing activities (2,728) (116)
------- --------
Financing activities:
Net proceeds from note payable to bank 1,369 --
Principal payments on long-term debt (160) (608)
Common stock dividends paid -- (92)
Proceeds from issuance of common stock 1,874 --
------- --------
Net cash provided by (used in) financing activities 3,083 (700)
------- --------
Net increase (decrease) in cash and equivalents (699) (2,209)
Cash & cash equivalents at beginning of period 2,092 3,847
------- --------
Cash and cash equivalents at end of period $1,393 $ 1,638
======= ========
See notes to interim consolidated financial statements.
The Morgan Group, Inc. and Subsidiaries
Notes to Interim Consolidated Financial Statements
(Unaudited)
September 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. Impairment of Long-Lived Assets and Recent Accounting Pronouncements
As disclosed in the accounting policy note in the audited financial
statements for the year ended December 31, 2000, periodic assessment of the
net realizable value of its long-lived assets, including intangibles, and
evaluation of such assets for impairment are made whenever events or
changes in circumstances indicate the carrying amount of the assets may not
be recoverable. Impairment is determined to exist if estimated undiscounted
future cash flows are less than the carrying amount of the intangible
asset.
Significant negative indicators currently exist for the Company, including,
but not limited to, significant revenue declines of 26% in fiscal 2000 and
13% in year-to-date 2001, operating and cash flow losses in those periods
and the loss of a significant customer as of October 1, 2001. As a result,
management deemed it appropriate to obtain an independent valuation of the
Company's intangible assets to determine if impairment existed as of
September 30, 2001. This valuation was done for the current accounting
pronouncement relating to goodwill as prescribed by Statements of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of (Statement 121) under
which the Company has adopted an accounting policy to utilize an
undiscounted cash flow approach to estimate any potential impairment.
Additionally in July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards, No. 141, Business Combination
(Statement 141), and No. 142, Goodwill and Other Intangible Assets
(Statement 142). These Statements change the accounting for business
combinations, goodwill, and intangible assets.
Under Statement 142, goodwill and indefinite lived intangible assets are no
longer amortized but are reviewed for impairment annually or more
frequently if impairment indicators arise. Separable intangible assets that
are deemed to have definite lives will continue to be amortized over their
useful lives. The amortization provisions of Statement 142 apply to both
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. New goodwill and
indefinite lived intangible assets acquired after June 30, 2001 will be
recorded in accordance with the Statement 142 requirements.
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.
Statements 141 and 142 will be adopted in the first quarter of 2002 for
those assets.
Key assumptions utilized in the independent valuation are discussed in the
following paragraphs.
In accordance with the requirements of Statement 142, the Company has
identified two reporting units, manufactured housing and drive away, that
contain material intangible assets that are subject to impairment analysis.
The Company does not maintain or have access to accurate, supportable and
reliable financial data at lower operating levels within these segments
which management relies upon in making its operating decisions. The
forecasts, valuations and impairment analyses for Statement 142 were made
at these two reporting unit levels.
Another key assumption is the time frame for which the Company has
estimated its cash flows for the projections. The valuation is based on
cash flow projected over a five-year period after which time cash flow is
normalized and projected to grow at a constant rate. Management believes
that five years is the appropriate period to forecast prior to normalized
cash flows based on the current industry cycle in manufactured housing and
the Company's long term market strategy.
The Company is projecting, and the valuation analysis assumes, net earnings
in all periods from 2002 to 2006. For the valuation, we projected average
net earnings in the periods from 2002 to 2006 of $799,000 for the
manufactured housing unit and $230,000 for the drive away unit. Management
believes the projected period and earnings are appropriate for the
valuation based on historical operating results, the current state of the
manufactured housing industry, the Company's business model and long-term
market strategy.
The valuation uses a discount rate of 15.5% which is the estimated rate of
return expected by an investor considering the perceived investment risk
The discount rate reflects a risk-free rate of return and industry adjusted
equity premium, a premium for small size and the industry's level of
leverage. The capitalization rate of 8.4 was derived from the discount rate
and the long-term growth rate.
The projections also assumed future capital expenditures of $170,000 to
$280,000 per year for each of the forecasted years 2002 through 2006 actual
capital expenditures incurred in the previous five years were significantly
higher than these projections. The Company's business model and strategy
for the future is not asset intensive and the Company has no plans to
acquire significant transportation equipment, real estate or other business
property. Capital expenditures for the first nine months of 2001 have been
approximately $100,000. Management believes that future capital
expenditures used in the projections are appropriate to carry out the
Company's strategic plan.
The independent valuation based upon the Company's estimated future cash
flow concluded that currently there is no impairment of the Company's
intangible assets under Statement 121 as of September 30, 2001. However,
there is a projected impairment under Statement 142 of approximately
$300,000 to $500,000 for intangible assets in the manufactured housing
division and approximately $25,000 to $100,000 for intangible assets in the
drive away division. These intangible asset impairments will be required to
be recorded on January 1, 2002, when Statement 142 is adopted for those
assets.
The Company will be required to perform an updated analysis under Statement
142 as of January 1, 2002. There can be no assurance at this time that the
projections or any of the key assumptions will remain the same as business
conditions may dictate significant changes in either the estimated cash
flows, or any of the other key assumptions. The Company will update the
analysis of intangible asset impairment on at least an annual basis as
required by Statement 142 as long as material goodwill exists on the
balance sheet.
Note 3.Notes Payable, Banks
Credit Facility
On July 27, 2001, the Company obtained a new three-year $12.5 million
Credit Facility.
The Credit Facility will be used for working capital purposes and to post
letters of credit for insurance contracts. As of September 30, 2001, the
Company had outstanding borrowings of $869,000 and $7.6 million outstanding
letters of credit. Borrowings 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 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 prior Credit Facility and, as a result, the
Company had a payment default.
Real Estate Loan
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 Credit Facility. The Company's application for additional capacity
under this facility is under consideration.
Note 4. Credit Risk
With the downturn in the national economy, management is continually
reviewing credit worthiness of its customers and taking appropriate steps
to ensure the quality of the receivables. As of September 30, 2001, 35% of
the open trade accounts receivable was with five customers of which over
97% was within 60 days of invoice. In total, 96% of the open trade
receivables are also within 60 days of invoice.
Effective October 1, 2001, the Company will no longer be the primary
carrier for its largest customer, Oakwood Homes Corporation. The Company
has reduced the Oakwood open accounts receivable from $1,776,000 as of
December 31, 2000, to $792,000 and $579,000 as of September 30, 2001, and
October 31, 2001, respectively. At this time, Company management believes
the receivable is fully collectible.
Note 5.Stockholders' Equity
Capital Infusion
On July 12, 2001, the Company received a $2 million capital infusion from
its majority stockholder Lynch Interactive Corporation. The Company issued
one million new Class B shares of common stock in exchange for the $2
million cash investment, thereby increasing Lynch's ownership position in
the Company from 55.6% to 68.5%. Proceeds from the transaction are invested
in U.S. Treasury backed instruments and are pledged as collateral for the
Credit Facility.
Lynch Spin Off
On August 17, 2001, Lynch Interactive Corporation, the majority stockholder
of the Company, announced plans to spin off its investment in the Company
to Lynch Interactive stockholders. The proposed spin off of the Company
will allow Lynch Interactive stockholders to continue to own the Company
through a new entity instead of through Lynch Interactive.
Note 6.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 7.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 (Loss) Income
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 financial statements.
The following table presents the financial information for the Company's
reportable segments for the three and nine-month periods ended September
30, (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
-------- -------- -------- --------
Operating revenues
Manufactured Housing $13,947 $18,730 $39,411 $56,931
Driver Outsourcing 4,532 5,152 13,759 16,584
Specialized Outsourcing Services 5,728 4,023 15,831 11,662
Insurance and Finance 627 724 1,953 2,273
All Other - - - (3)
-------- -------- -------- --------
Total operating revenues $24,834 $28,629 $70,954 $87,447
======= ======= ======= =======
Segment profit - EBITDA
Manufactured Housing $ 1,146 $ 1,716 $ 3,266 $ 5,354
Driver Outsourcing 283 194 1,003 1,100
Specialized Outsourcing Services 400 82 747 (37)
Insurance and Finance (1,879) (1,471) (4,012) (5,435)
All Other 91 (107) (563) (772)
-------- -------- -------- --------
41 414 441 210
Depreciation and amortization (210) (236) (688) (817)
Interest expense (90) (77) (182) (210)
-------- -------- -------- --------
(Loss) income before taxes $ (259) $ 101 $ (429) $ (817)
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