SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------
FORM 8-K
---------------------
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 30, 1996
THE MORGAN GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
1-13586 22-2902315
(Commission File Number) (IRS Employer Identification No.)
2746 Old U.S. 20 West
Elkhart, Indiana 46514-1168
(Address of principal executive offices) (Zip Code)
(219) 295-2200
Registrant's telephone number, including zip code
Item 2. Acquisition of Assets
On December 30, 1996, The Morgan Group, Inc. ("Morgan") acquired the
operating assets of Transit Homes of America, Inc. ("Transit") of Boise, Idaho.
Morgan will account for the acquisition as a purchase. Transit, with recent nine
month revenue and pretax earnings in excess of $27 million and $300,000,
respectively, and more than 400 independent contractor drivers, serves, as does
Morgan, a number of leading producers in the manufactured housing industry,
including Fleetwood Enterprises, Champion Enterprises, Redman Homes, Palm
Harbor, Schult Homes, and Cavalier Homes.
The purchase price for the Transit assets of approximately $4.3 million
consists of approximately $1.6 million paid at closing, a five year seller
financed note (bearing interest at 6.31%) of approximately $1.2 million, assumed
obligations related to the assets purchased of approximately $400,000, and
approximately $1.1 million associated with acquisition related payables, costs
of closing duplicative facilities, and below market contracts. The closing
payment of $1.6 million was funded internally with borrowing under the Company's
credit line. In addition, $1.1 million of incentive payments (See Note #5) can
be earned by the seller based upon the profitability of Morgan's manufactured
housing business. For the nine months ended September 30, 1996, and calendar
year ended December 31, 1995, Transit had nine month sales of $27 million in
1996, and annual sales of $40 million, in 1995, respectively. Pretax income for
the nine months ended September 30, 1996, amounted to $307,000, and pretax loss
for the year ended December 31, 1995, amounted to $1.4 million.
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits
The following financial statements, pro forma financial information,
and exhibits are filed as part of this report.
(a) Financial statements of the business acquired prepared pursuant to Rule
3.105 of Regulation SX and provided to The Morgan Group, Inc. by
Transit Homes of America, Inc.
Audited Financial Statements of
Transit Homes of America, Inc.
business Report of KPMG Peat Marwick LLP
certified public accountants.................................... Pg. 5
Combined balance sheets - September 30, 1996
and December 31, 1995 ............................................Pg. 6
Combined statements of operations - nine months ended
September 30, 1996 and year ended December 31, 1995...............Pg. 7
Combined statement of stockholders' deficit - nine months
ended September 30, 1996 and year ended December 31, 1995.........Pg. 8
Combined statements of cash flows - nine months ended
September 30, 1996 and year ended December 31, 1995...............Pg. 9
Notes to combined financial statements .....................Pg. 10 - 15
(b) Pro Forma Financial Information
The Morgan Group, Inc. and Transit Homes of America, Inc. pro forma
condensed combined financial statements (unaudited)
Pro Forma condensed combined balance sheet -
September 30, 1996..........................................Pg. 16 - 17
Pro Forma condensed statement of operations -
nine months ended September 30, 1996 and year ended
December 31, 1995................................................Pg. 18
Notes to pro forma financial statements.....................Pg. 19 - 20
(c) Exhibits in accordance with the provisions of Item 601 of Regulation
S-K
Exhibit
(2)-1 Asset Purchase Agreement between The Morgan Group, Inc. and
Transit Homes of America, Inc. as of November 19, 1996 (as
amended as of December 30, 1996)
(2)-2 Amendment to Asset Purchase Agreement between The Morgan
Group, Inc. and Transit Homes of America, Inc. as of December
29, 1996
(2)-3 Employment Agreement between Morgan Drive Away, Inc. and Larry
Kling as of November 19, 1996
23 Consent of KPMG Peat Marwick LLP
KPMG PEAT MARWICH LLP [LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Transit Homes of America, Inc.
Cambridge Management Company, Inc.:
We have audited the combined financial statements of Transit Homes of America,
Inc. and affiliate as listed in the accompanying index. These combined financial
statements are the responsibility of the CompanyOs management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of Transit Homes of
America, Inc. and affiliate as of September 30, 1996 and December 31, 1995, and
the results of their operations and their cash flows for the nine months ended
September 30 1996 and the year ended December 31, 1995, in conformity with
generally accepted accounting principles.
The accompanying combined financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 2 to the
combined financial statements, the Company has a net capital deficiency and its
total current liabilities exceed its total current assets. As a result, there is
substantial doubt about its ability to continue as a going concern. ManagementOs
plans in regard to these matters are also described in note 2. The combined
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG Peat Marwick LLP
Seattle, Washington
December 10, 1996
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Balance Sheets
September 30, December 31,
1996 1995
----------- ---------
Assets
Current assets:
Cash and cash equivalents $ 266,585 165,208
Notes receivable 56,953 74,265
Trade accounts receivable, less allowance
for doubtful accounts of
$52,527 in 1996 and $30,000 in 1995 2,892,355 1,988,415
Prepaid insurance 790,438 655,574
Other prepaid expenses and current assets 162,780 146,063
----------- ---------
Total current assets 4,169,111 3,029,525
----------- ---------
Property and equipment 1,202,688 1,283,628
Less accumulated depreciation 399,109 368,202
----------- ---------
Net property and equipment 803,579 915,426
----------- ---------
Other noncurrent assets 10,140 55,769
----------- ---------
4,982,830 4,000,720
=========== =========
Liabilities and Stockholders' Deficit
Current liabilities:
Bank overdrafts 649,706 365,626
Line of credit 1,581,445 1,353,051
Current portion of long-term debt 207,109 95,595
Trade accounts payable 441,843 322,991
Claims payable 2,020,169 2,156,472
Deposits from line-haul operators, net 335,613 145,867
Other accrued liabilities 199,616 193,328
----------- ---------
Total current liabilities 5,435,501 4,632,930
----------- ---------
Long-term debt, net of current portion 104,059 173,716
----------- ---------
Stockholders' equity (deficit):
Common stock 145,000 145,00
Treasury stock (50,127) (50,127)
Accumulated deficit (651,603) (900,799)
----------- ---------
Total stockholders' deficit (556,730) (805,926)
Commitments, contingencies and subsequent event
$ 4,982,830 4,000,720
=========== =========
See accompanying notes to combined financial statements.
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Statements of Operations
Nine months ended September 30, 1996 and
year ended December 31, 1995
1996 1995
------------ ----------
Operating revenues $ 27,495,279 39,747,370
------------ ----------
Operating expenses:
Line-haul costs 20,381,432 29,599,511
General and administrative 6,715,740 11,416,227
------------ ----------
Total operating expenses 27,097,172 41,015,738
------------ ----------
Income (loss) from operations 398,107 (1,268,368)
------------ ----------
Other income (expense):
Interest income 25,358 38,052
Interest expense (209,952) (284,879)
Other, net 93,010 98,342
------------ ----------
Total other expense (91,584) (148,485)
------------ ----------
Net income (loss) $ 306,523 (1,416,853)
------------ ----------
Pro forma (unaudited):
Net income before income taxes 306,523
Income tax expense 147,607
- --------------------------------------------------------------------------------
Net income $ 158,916
- --------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Statements of Stockholders' Deficit
Nine months ended September 30, 1996 and
year ended December 31, 1995
Common Treasury Accumulated
stock stock deficit Total
---------- -------- ----------- -----------
Balance at December 31, 1994 $ 145,000 (50,127) 971,898 1,066,771
Net loss -- -- (1,416,853) (1,416,853)
Less distributions to stockholders -- -- (455,844) (455,844)
----------------------------------------------------------------------
Balance at December 31, 1995 145,000 (50,127) (900,799) (805,926)
Net income -- -- 306,523 306,523
Less distributions to stockholders -- -- (57,327) (57,327)
- -----------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 145,000 (50,127) (651,603) (556,730)
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
TRANSIT HOMES OF AMERICA, INC
AND AFFILIATE
Combined Statements of Cash Flows
Nine months ended September 30, 1996 and
year ended December 31, 1995
1996 1995
---------- ---------
Cash flows from operating activities:
Net income (loss) $ 306,523 (1,416,853)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 115,669 234,090
Change in certain assets and liabilities:
Decrease in notes receivable 17,312 38,588
Decrease (increase) in trade accounts receivable (903,940) 1,399,477
Increase in prepaid insurance (134,863) (142,069)
Decrease (increase) in other prepaid expenses and current assets (16,717) 16,698
Decrease in other noncurrent assets 45,629 36,950
Increase (decrease) in trade accounts payable 118,852 (35,516)
Increase (decrease) in claims payable (136,303) 1,254,262
Increase in deposits from line-haul operators 189,746 11,019
Increase (decrease) in other accrued liabilities 6,287 (152,275)
---------- ---------
Net cash provided by (used in) operating activities (391,805) 1,244,371
---------- ---------
Cash used in investing activities - purchase of equipment (3,822) (930,745)
---------- ---------
Cash flows from financing activities:
Increase in bank overdrafts 284,080 365,626
Net borrowings (repayments) under line of credit 228,394 (813,800)
Proceeds from long-term debt 386,620 586,938
Payments of long-term debt (344,763) (348,577)
Distributions to stockholders (57,327) (455,844)
---------- ---------
Net cash provided by (used in)
financing activities 497,004 (665,657)
---------- ---------
Net increase (decrease) in cash
and cash equivalents 101,377 (352,031)
Cash and cash equivalents at beginning of period 165,208 517,239
---------- ---------
Cash and cash equivalents at end of period $ 266,585 165,208
---------- ---------
Supplemental disclosures of cash flow information - cash paid during
the period for:
Interest $ 209,952 273,277
Income taxes 12,400 20,000
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to combined financial statements.
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(1) Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
Transit Homes of America, Inc. (Transit) is a provider of
transportation services principally to the domestic
manufactured housing industry and to a lesser extent to the
travel trailer industry, using personnel provided on a
contract basis by Cambridge Management Company, Inc.
(Cambridge) and independent contractors who contract directly
with Transit (the "Transit Business"). Cambridge, which is
under common ownership with Transit, in addition to providing
personnel on a contract basis to Transit, is also engaged in
other, unrelated business (the "Unrelated Cambridge
Businesses"). Company, as used in the combined financial
statements, refers to Transit and Cambridge, excluding the
Unrelated Cambridge Businesses. Credit is extended to
customers in the Company's normal course of business.
(b) Principles of Combination
The combined financial statements include the operations of
Transit and the financial position, results of operations, and
cash flows of Cambridge except for the Unrelated Cambridge
Businesses. All significant intercompany balances and
transactions have been eliminated in the combination.
(c) Cash Equivalents
The Company considers all liquid investments with original
maturities of 90 days or less to be cash equivalents.
(d) Revenue Recognition
The Company is principally involved in providing
transportation of mobile homes and utilizes independent
owner-operators as its principal source of drivers and
transportation equipment. The owner-operator costs are
contracted before the shipment is made and are based on a
fixed percentage of the total revenue to be received from the
shipment. Both the revenue from the customer and the
owner-operator transportation costs are recognized at the time
of delivery.
The Company requires security deposits from its line-haul
owner-operators. Advances are made to owner-operators to
defray certain of their initial transportation costs and are
deducted from the final contract payment due at the time of
delivery. The net of these items is recorded as deposits from
line-haul operators as the Company has the right to offset
the two items.
(Continued)
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(e) Property and Equipment
Property and equipment are recorded at cost. Major additions
and betterments are capitalized while minor replacements,
maintenance and repairs, which do not increase the useful life
of the property and equipment, are expensed as incurred.
Depreciation on equipment is calculated using the
straight-line method over the estimated useful lives of the
assets which range from five to ten years. Leasehold
improvements are amortized using the straight-line method over
the shorter of the lease term or estimated useful life of the
asset.
(f) Pro Forma Income Taxes
Effective April 1, 1988, the Company and its stockholders
elected to be taxed under the provisions of Subchapter S of
the Internal Revenue Code. As such, the taxable income or
losses of the Company are included in the individual tax
returns of the stockholders in periods subsequent to April 1,
1988.
Pro forma income taxes have been recorded as of and for the
nine months ended September 30, 1996 based on the estimated
income taxes that the Company would have provided for on a
separate-company basis in accordance with Statement of
Accounting Standards No. 109, Accounting for Income Taxes.
Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on the deferred tax assets
and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
(g) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and 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.
(h) Advertising Costs
Advertising costs are expensed when incurred. Advertising
expense was $28,596 in 1996 and $68,050 in 1995.
(Continued)
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(2) Liquidity
The Company has a combined net stockholders' deficit and its total
current liabilities exceed its total current assets at September 30,
1996 and December 31, 1995. Additionally as noted at note 4, the
Company was in violation of a covenant under its line of credit
agreement at September 30, 1996.
The Company's ability to continue as a going concern is dependent upon
its success in obtaining additional financing and, ultimately,
achieving profitable operations and positive operating cash flows. As
described in note 13, subsequent to September 30, 1996, the Company
entered into an agreement to sell substantially all of its assets and
certain liabilities. The accompanying combined financial statements
have been prepared on the basis that the Company will be able to
continue in existence as a going concern. These statements do not
include any adjustments that might result from the outcome of this
uncertainty.
(3) Property and Equipment
Property and equipment consists of the following:
September 30, December 31,
1996 1995
-----------------------------------
Equipment 557,269 639,936
Furniture and fixtures 213,078 245,786
Computer equipment 233,972 229,569
Leasehold improvements 198,369 168,337
---------- ---------
$1,202,688 1,283,628
========== =========
(4) Line of Credit
Through an agreement which expires March 25, 1997 with a finance
organization, the Company has credit available to the lesser of
$5,000,000, or 85% of qualifying trade accounts receivable, or 90% of
qualifying trade accounts receivable for a period of no longer than 30
consecutive days. Borrowings under the line of credit are
collateralized by the Company's trade accounts receivable, and
personally guaranteed by the Company's stockholders. The interest rate
on the line of credit is prime plus 5% (13.25% at September 30, 1996).
At September 30, 1996, the Company was not in compliance with certain
financial covenants under terms of the line of credit agreement. No
action has been taken by the lender, however, future borrowings under
the line of credit could be restricted or denied at the lender's
discretion.
(Continued)
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(5) Long-Term Debt
Long-term debt consists of the following:
September 30, December 31,
1996 1995
------------- ------------
Notes payable to outside parties,
collateralized by property and equipment,
average interest rate of approximately 12%,
principal due in monthly installments over
the next four years $185,330 257,114
Unsecured notes payable to outside party, interest at
approximately 7.6%, due within 12 months 125,838 12,197
-------- -------
Total long-term debt 311,168 269,311
Less current portion 207,109 95,595
-------- -------
Long-term debt, excluding current portion $104,059 173,716
======== =======
Schedule of payments of long-term debt for the years ending September 30 are
as follows:
1997 $207,109
1998 46,898
1999 27,859
2000 29,302
--------
$311,168
========
(6) Stockholders' Equity
Common stock consists of the following:
Issued and
Par value Authorized outstanding
per share shares shares
--------- ------ ------------
Transit $1 200,000 87,000
Cambridge $1 500 500
On March 31, 1992, Transit purchased 58,000 shares of treasury stock
from its minority stockholders in exchange for cash and noncash
consideration totaling $50,127. There were 87,000 shares issued and
outstanding following this transaction.
(Continued)
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
- --------------------------------------------------------------------------------
(7) Pro Forma Income Tax Expense
Pro forma income tax expense for the nine months ended September 30,
1996 is as follows:
Federal - current $125,466
State - current 22,141
--------
$147,607
========
The pro forma income tax expense in the combined financial statements differs
from the amount of income tax determined by applying the applicable U.S.
statutory Federal income tax rate to pretax income as follows:
Expected income tax expense at U.S. statutory rates $104,218
State income taxes, net of Federal income tax benefit 14,613
Other, net 28,776
--------
$147,607
========
The tax effects of significant temporary differences which comprise deferred
tax assets and liabilities at September 30, 1996 is as follows:
Deferred tax assets - claims payable $694,233
Less valuation allowance 598,049
--------
Net deferred tax assets 96,184
Deferred tax liabilities - equipment 96,184
-------
$ ---
=======
The valuation allowance at December 31, 1995 was $601,281.
(8) Related Party Transactions
The Company occupies administrative offices and terminals leased from
its stockholders under noncancelable operating leases expiring over the
next four years. During the nine months ended September 30, 1996 and
the year ended December 31, 1995, the Company paid approximately
$125,000 and $127,000, respectively, in rent to its stockholders.
Future annual minimum lease payments are approximately $170,000,
$155,000, $93,000 and $57,000 for the years ending September 30, 1997,
1998, 1999 and 2000, respectively.
(Continued)
TRANSIT HOMES OF AMERICA, INC.
AND AFFILIATE
Notes to Combined Financial Statements
(9) Claims Payable
The Company is routinely involved in a number of legal proceedings and
claims that cover a wide range of matters, including traffic accidents.
An estimate is recorded using the information available at the
respective reporting date for costs to be incurred relating to these
claims. The total amount of claims payable that the Company will
ultimately pay could differ materially in the near term from the
amounts assumed in arriving at the estimated claims payable for the
respective reporting dates. In the opinion of management, the outcome
of these matters is not expected to have any material adverse effect on
the combined financial position or results of operations of the
Company.
(10) Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents,
receivables, payables and bank debt. The Company believes that the fair
value of these financial instruments approximates their carrying
amounts based on current market indicators, such as prevailing market
rates.
(11) Significant Customers
Two customers accounted for approximately 30% and 11% of operating
revenues for the nine months ended September 30, 1996. One of these
customers also accounted for approximately 21% of operating revenues
for the year ended December 31, 1995.
(12) Defined Contribution Plan
Cambridge sponsors a defined contribution 401(k) plan covering
substantially all personnel of Cambridge after they meet certain length
of employment requirements. Employees may contribute up to 10% of their
salary. Cambridge will match 50% of the employee's contribution up to
2% of their salary. Cambridge contributed approximately $21,718 and
$30,736 to the plan for 1996 and 1995, respectively.
(13) Subsequent Event
An asset purchase agreement between Transit, Cambridge and Morgan Drive
Away, Inc. (Morgan) was signed on November 18, 1996, whereby
substantially all of the assets and certain liabilities of the Company
will be acquired by Morgan in exchange for cash and a note receivable.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The Unaudited Pro Forma condensed Combined Balance Sheet is presented
to give effect to the acquisition of Transit Homes of America, Inc. as if it had
occurred on September 30, 1996 and combines the balance sheet of The Morgan
Group, Inc. with that of Transit Homes of America, Inc. as of September 30,
1996. The Unaudited Pro Forma Condensed Combined Statements of Operations assume
the transaction occurred at the beginning of the fiscal year ended December 31,
1996 and combines the statements of operations of The Morgan Group, Inc. for the
year ended December 31, 1996 and the nine months ended September 30, 1996 with
the statements of operations of Transit Homes of America, Inc. for the year
ended December 31, 1995 and the nine months ended September 30, 1996. The pro
forma information is based upon historical financial statement of Transit Homes
of America, Inc. and The Morgan Group, Inc. after giving effect to the proposed
transaction using the purchase method of accounting and assumptions and
adjustments in the accompanying notes to the pro forma financial statements.
The pro forma statements have been prepared by The Morgan Group, Inc.
based upon the financial statements of Transit Homes of America, Inc. (filed
with this report under Item 7a) which have been provided by Transit Homes of
America, Inc.'s management. These pro forma statements may not be indicative of
the results that would have actually occurred if the combination had been in
effect on the dates indicated or which may be obtained in the future. The pro
forma financial statements should be read in conjunction with the audited
financial statements and notes of Transit Homes of America, Inc. and the audited
financial statements of The Morgan Group, Inc.
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(In Thousands)
Sept. 30,
Sept. 30 Sept. 30, Sept. 30, 1996
1996 1996 1996 Condensed
Transit Transit Transit Adj. Morgan Combined
Balance Excluded Balance Balance Proforma Balance
Sheet Assets Sheet Sheet Adjustmens Sheet
----- ------ ----- ----- ---------- -----
Assets
Current Assets:
Cash and cash equivalents $267 ($267) --- $3,126 ($1,592) 2/ $1,534
Trade accounts receivable, less allowance 2,892 (2,892) --- 13,109 --- $13,109
for doubtful accounts of $44,000 in 1996
and $102,000 in 1995
Accounts receivable, other 57 (57) --- 388 --- $388
Prepaid expenses and other current assets 953 (853) 100 2,860 --- $2,960
Deferred income taxes --- --- --- 586 --- $586
----- ----- ----- --- ----- ----
Total current assets 4,169 4,069 100 20,069 (1,592) $18,577
Property and equipment, net 804 50 754 6,575 ($504) 1/ $6,825
Intangible assets, net --- --- --- 5,001 $5,001
Intangible assets, Transit $364 ($364) $442 1/ $4,488
$4,410 2/
Other assets 10 10 --- 607 --- $607
----- ----- ----- --- ----- ----
Total assets $4,983 $4,493 $490 $32,252 $2,756 $35,498
====== ====== ==== ======= ====== =======
See notes to unaudited pro forma condensed financial statements.
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(In Thousands)
Sept. 30,
Sept. 30 Sept. 30, Sept. 30, 1996
1996 1996 1996 Condensed
Transit Transit Transit Adj. Morgan Combined
Balance Excluded Balance Balance Proforma Balance
Sheet Assets Sheet Sheet Adjustmens Sheet
----- ------ ----- ----- ---------- -----
Liabilities and Stockholders' Equity
Current Liabilities:
Note payable to bank $1,581 ($1,581) --- $2,500 $2,500
Trade accounts payable 1,092 ($1,092) --- 2,622 $160 2/ $2,782
Accrued liabilities 200 ($200) --- 1,691 $900 2/ $2,591
Accrued driver pay --- --- --- 228 $228
Accrued claims payable 2,020 ($2,020) --- 4,169 $600 2/ $4,769
Refundable deposits 336 --- 336 1,768 ($62) 1/ $2,042
Current portion of long-term debt 207 ($157) 50 784 $411 2/ $1,245
------ ------- ---- ------- ------ -------
Total current liabilities 5,436 ($5,050) 386 13,762 $2,009 $16,157
Long-term debt, less current portion 104 --- 104 1,703 $747 2/ $2,554
Deferred income taxes 622 $622
Commitments and contingencies --- ---
Shareholders' equity
Common stock, Transit 145 ($145)
Common stock, $.015 par value
Class A:
Authorized shares - 7,500,000
Issued and outstanding shares -
1,489,010 and 1,449,554 23 $23
Class B:
Authorized shares - 2,500,000
Issued and outstanding shares - 1,200,000 18 $18
Additional paid-in capital 12,441 $12,441
Retained earnings (652) 652 --- 5,160 --- $5,160
------ ------- ---- ------- ------ -------
(507) $507 (0) $17,642 $17,642
Less
- treasury stock, 116,543 shares, at cost (50) 50 --- ($973) ($973)
- loan to officer for purchase of stock --- --- --- ($504) --- ($504)
------ ------- ---- ------- ------ -------
Total shareholders' equity (557) $557 (0) $16,165 --- $16,165
------ ------- ---- ------- ------ -------
Total liabilities and shareholders' equity $4,983 ($4,493) $490 $32,252 $2,756 $35,498
====== ======== ==== ======= ====== =======
See notes to unaudited pro forma condensed financial statements.
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(in thousands)
Pro Forma
Transit Morgan Adjustments Consolidated
------- ------ ----------- ------------
Operating Revenues:
Manufactured housing outsourcing $17,601 $55,525 $73,126
Specialized transport 1,891 20,991 $22,882
Driver outsourcing --- 17,978 $17,978
Other service revenues 8,003 8,015 $5,250 4/ $10,768
------ ------- ----- -------
Total operating revenues 27,495 102,509 5,250 124,754
Costs and Expenses:
Operating costs 20,381 93,826 ($500) 3/ $113,657
($5,250) 4/
$5,200 4/
Depreciation and amoritzation 0 1,095 $105 3/ $1,321
$121 4/
Selling, general and administrative 6,623 6,170 ($219) 3/ $7,253
($121) 4/
($5,200) 4/
------ ------- ----- -------
Operating income 491 1,418 $614 $2,523
Net interest income (expense) ($185) ($280) $79 ($386)
------ ------- ----- -------
Income before income taxes 306 1,138 $693 2,137
Income taxes $0 $217 $380 $537
------ ------- ----- -------
Net Income $306 $921 $373 $1,600
====== ======= ===== =======
Net Income per share:
Primary $0.34 $0.60
Fully diluated $0.34 $0.60
Average number of common shares and
common stock equivalents 2,682,837 2,682,837
========= =========
See notes to unaudited pro forma condensed financial statements.
THE MORGAN GROUP, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(In Thousands)
Pro Forma
Transit Morgan Adjustments Consolidated
------- ------ ----------- ------------
Operating Revenues:
Manufactured housing outsourcing $25,108 $63,353 $88,461
Specialized transport 2,500 29,494 $31,994
Driver outsourcing 0 19,842 $19,842
Other service revenues 12,139 9,614 8425 4/ $13,328
------- ------ ------ ------
Total operating revenues 39,747 122,303 8,425 153,625
Costs and Expenses:
Operating costs 29,599 110,408 ($1,000) 3/ $139,766
($8,425) 4/
$9,162 4/
Depreciation and amoritzation 0 1,264 $140 3/ $1,560
$156 4/
Selling, general and administrative 11,318 7,260 ($520) 3/ $8,740
($156) 4/
($9,162) 4/
------- ------ ------ ------
Operating income (1,170) 3,371 $1,380 $3,581
Net interest income (expense) ($247) ($87) $85 ($249)
------ ----- --- ------
Income before income taxes (1,417) 3,284 $1,465 $3,332
Income taxes $0 $1,015 $ 100 $1,115
------- ------ ------ ------
Net Income ($1,417) $2,269 $1,345 $2,217
less Preferred Dividends $221 $221
------- ------ ------ ------
Net Income applicable to Common Stock ($1,417) $2,048 $1,145 $1,996
======= ====== ====== ======
Net Income per share:
Primary $0.80 $0.77
Fully diluated $0.80 $0.77
Average number of common shares and
common stock equivalents 2,557,516 2,682,837
========= =========
See notes to the unaudited pro forma condensed financial statements.
The Morgan Group, Inc. and Transit Homes of America, Inc.
Notes to Pro Forma Statement of Operations
(Unaudited)
(In Thousands)
Note 1 The following pro forma adjustments are made to reflect estimated fair
value of assets purchased and liabilities assumed as of September 30,
1996.
Decrease in the fair market value of fixed assets $ (504)
Decrease in the refundable deposits assumed 62
--------
Investment in Transit $ 442
========
Note 2 The following pro forma adjustments reflect The Morgan Group, Inc.'s
purchase of Transit Homes of America, Inc.'s business.
Cash $1,592
Current portion of long-term debt 411
Long-term debt 747
Acquisition related payables 160
Unfavorable contracts 800
Cost of closing duplicative facilities 200
------
$3,910
======
Note 3 The following adjustments are incorporated in the pro forma condensed
combined statements of operations (in thousands):
Year Nine Months
Ended Ended
Dec. 31, Sept. 30,
1995 1996
-------- ------------
Increase/(Decrease)
in Income
Operating Cost Adjustments
Reduced insurance premium costs $ 400 $ 300
Amortization unfavorable contracts 600 200
----- -----
$1,000 $ 500
===== =====
General & Administrative Adjustments
Elimination of owner's board of directors
fees, life insurance policies, personal truck
payments, and other miscellaneous expenses $ 120 $ 90
Elimination of Transit's consulting costs
associated with the sale of the company --- 54
Elimination of duplicative overhead expenses 400 300
Incentive compensation to seller based upon
profitability --- (225)
----- -----
$ 520 $ 219
===== =====
Depreciation & Amortization - Purchase Price
Adjustments
Amortization over 20 years ($200) ($150)
Decrease in depreciation expense due to
evaluating assets at fair market value 60 45
----- -----
($140) ($105)
===== =====
Interest Expense Adjustments
Elimination of interest expense related to
Transit's line of credit charged at prime plus 5 $ 285 $ 210
Additional interest expense at prime 8.25
(as of September 30, 1996) based upon
closing payment of $1.6 million (137) (100)
Interest expense on seller's note (63) (31)
----- -----
$ 85 $ 79
===== =====
Income Tax Adjustment $(100) ($320)
===== =====
Note 4 To adjust and reclassify revenues and cost so pro forma financials are
reported on a basis consistent with Morgan (in thousands):
Year Nine Months
Ended Ended
Dec. 31, Sept. 30,
1995 1996
------------ ----------
Reduce revenue and operating costs for billing which
should be netted into operating costs $8,425 $5,250
Increase operating cost and reduce general and
administrative expense for cost, Morgan classifies
as operating expenses 9,162 5,200
Reclass Transit depreciation expense from general
and administrative cost 156 121
Note 5 The Employment Agreement entered into between Morgan Drive Away, Inc.
and Larry Kling provides for incentive payments up to $400,000;
$300,000; $200,000 in year 1997, 1998, and 1999, and $100,000 in year
2000 and 2001. The incentive payments are based upon achieving certain
profit levels in the Company's Manufactured Housing Group. No incentive
compensation was recorded in 1995 due to Transit's losses. Incentive
compensation for the nine months ended September 30, 1996 was recorded
at three-fourths(3/4) of the maximum year two payout of $300,000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE MORGAN GROUP, INC.
January 14, 1997 By: /s/ Richard B. DeBoer
-------------------------
Richard B. DeBoer
Chief Financial Officer