**UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**

**FORM 10-Q**

 (Mark One)

 x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended May 31, 2003ORo  TRANSITION REPORT PURSUANT TO SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ________ to ___________

 

Commission filenumber: 0-1460

 **ANDERSEN GROUP, INC.**(Exact name of Registrant as specified in its charter)
 

**DELAWARE**

**06-0659863**

(State or other  jurisdiction of incorporation or organization)

(I.R.S. Employer  Identification No.)

 

 

**405  Park Avenue , New York, New York**

**10022**

(Address of  principal executive offices)

(Zip Code)

 

 

**(212)  826-8942**

(Registrant's  telephone number, including area code)

                  Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes  X  No____

 Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act)  Yes ____  No XAs of July 7, 2003, there were 2,099,908 shares of the Registrant's $.01 parvalue common stock outstanding.

Title

Outstanding

Common Stock, $0.01 par  value per share

Authorized 6,000,000  shares; Issued 2,099,908

 

 

 

 

 

**ANDERSEN GROUP, INC.FORM 10-Q**TABLE OF CONTENTS

 

Page No.

Part I.      Financial  Information

 

Item 1:     Financial  Statements:

 

                 Consolidated  Condensed Balance Sheets as of May 31, 2003 and February 28, 2003

3

                 Consolidated  Condensed Statements of Operations for the Three Months                   Ended May 31, 2003 and 2002  

  4

                 Consolidated  Condensed Statements of Cash Flows for the Three Months Ended                    May 31, 2003 and 2002  

  5

                 Notes  to Consolidated Condensed Financial Statements

6

 

 

Item 2:     Management's  Discussion and Analysis of Financial Condition and Results of Operations

11

 

 

Item 3:     Quantitative  and Qualitative Disclosures About Market Risk

16

 

 

Item 4:     Controls  and Procedures

16

 

 

Part II.   Other Information

 

 

 

Item 1:     Legal  Proceedings

17

 

 

Item 4:     Submission  of Matters to a Vote of Security Holders

17

 

 

Item 6:     Exhibits  and Reports on Form 8-K

18

 

 

Signatures

19

 

 

 
**Part I.  Financial InformationItem 1.  Financial Statements** 

**ANDERSEN GROUP,INC.Consolidated Condensed Balance Sheets**(In thousands)

 

May 31, 2003

February 28, 2003
      
(unaudited)   
**ASSETS**

 

 

*Current assets:*
      
 Cash and cash equivalents

$                               1,773 

$                               6,279 

 Marketable securities

2,265 

1,809 

 Accounts and other receivables less  allowances of $30 and   $25, respectively

  35 

  48 

 Prepaid expenses and other assets

       318 

     242 
   
   Total current assets

4,391 

   8,378 

Property, plant and equipment, net

3,345 

3,403 
         
Prepaid pension expense

4,633 

4,591 

Investment in ComCor-TV

3,500 

- 

Investment in  Moscow Broadband Communication Ltd.

1,797 

1,971 

Other assets

       744 

       702 
   
 

$                             18,410 

$                             19,045 

 

**LIABILITIES AND STOCKHOLDERS'  EQUITY**

 

 

*Current liabilities**:***

 

 

 Current maturities of long-term debt

$                                  407 

$                                  407 

 Accounts payable

286 

288 

 Other current liabilities

506 

907 

 Deferred income taxes

     305 

    132 
   
   Total current liabilities

1,504 

1,734 

 

 

 

Long-term debt, less  current maturities

1,674 

1,674 

Other liabilities

913 

867 

Deferred income taxes

   1,701 

   1,668 

 

   Total liabilities

   5,792 

   5,943 

 

Commitments and  contingencies
   
 

*Stockholders' equity:*

 

 

 Cumulative convertible preferred stock

3,497 

3,497 

 Common stock

21 

21 

 Additional paid-in capital

6,653 

6,653 

 Retained earnings

    2,447 

    2,931 

 

     Total stockholders' equity

  12,618 

  13,102 
   
 

$                            18,410 

$                            19,045 

 

The accompanying notes are an integral part of theseconsolidated condensed financial statements.
3
**ANDERSEN GROUP, INC.Consolidated Condensed Statements of Operations**(In thousands, except per share data)(unaudited)

 

*** ***

            Three Months Ended

*** ***

May 31, 2003

May 31, 2002

*** ***

Revenues

$                                 - 

$                                 - 

 
      
***Costs and expenses:***

 

 

* *General  and administrative

885 

546 

  Interest  expense

57 

69 

 

 

942 

615 

Investment income and other income

610 

196 

 

Loss from continuing operations before equity in  losses of Moscow       Broadband Communication Ltd., and  income taxes 

  (332)

  (419)

Equity in losses of Moscow Broadband Communication  Ltd.

(174)

(168)

 

 

 

Net loss from continuing operations before income  taxes 

(506)

(587)

Income tax benefit 

93 
 153 

 

Net loss from continuing operations

(413)

(434)

***Discontinued operations (Note 2):***

 

 

Income from discontinued segment, net of income  taxes of $80

- 

132 

Gain on sale of discontinued segment, net of income  taxes of $686

- 

1,472 

 

Net (loss) income

(413)

1,170 

Preferred dividends

(71)

(71)

 

(Loss) income applicable to common shares

$                            (484)

$                          1,099 

 

***Earnings per common share:***

 

 

 Basic and  diluted
      
  Net loss  from continuing operations   

$                          (0.23)

$                          (0.24)

  Income from  discontinued operations

- 

0.06 

  Gain on sale  of discontinued operations

- 

0.70 

 

                

$                          (0.23)

$                            0.52 

 

The accompanyingnotes are an integral part of these consolidated condensed financialstatements.

4
**ANDERSEN GROUP,INC.Consolidated Condensed Statements of Cash Flows**(In thousands)(unaudited)

 

         Three Months Ended

 

May 31, 2003

May 31, 2002

 
 

 
***Cash  flows from operating activities:***

 

 

 
Net (loss) income  

$                                    (413)

$                         1,170 

 
 

 

 

 
*Adjustments to reconcile net  income  to net cash*

 

 

 
*provided by (used in) operating  activities:*

 

 

 
 Equity in losses of Moscow Broadband  Communication Ltd.

174 

168 

 
 Gain on sale of JM Ney's operating assets

- 

(1,472)

 
 Gain on settlement of retiree healthcare  liability

- 

(142)

 
 Depreciation, amortization and interest  accretion

58 

114 

 
 Deferred income taxes

206 

(66)

 
 Pension (income) expense 

(42)

(30)

 
 Net gains from marketable securities

(456)

(83)

 
 Purchases of marketable securities

- 

(200)

 
 

 

 

 
*Changes in operating assets and  liabilities, net of changes from the sale of JM Ney's net assets:*

 

 

 
 Accounts and other receivables

13 

3,518 

 
 Inventories

- 

(419)

 
 Prepaid expenses and other assets

(73)

559 

 
 Accounts payable

(2)

(832)

 
 Accrued liabilities and other long-term  obligations

   (400)

 (1,008)

 
 

 
   Net cash (used in) provided by operating  activities

   (935)

   1,277 

 
 

 
***Cash  flows from investing activities:***

 

 

 
 Investment in ComCor-TV

(3,500)

- 

 
 Proceeds from sale of net assets of JM Ney,  net of escrow

- 

10,390 

 
 Transaction expenses paid

- 

(557)

 
 Purchases of property and equipment

         - 

        (9)

 
    Net cash (used in) provided by investing  activities

(3,500)

   9,824 

 
 

 
***Cash  flows from financing activities:***

 

 

 
 Principal payments on long-term debt 

- 

(58)

 
 Repayment of short-term borrowings, net

- 

(2,366)

 
 Purchase of subsidiary warrants

- 

(160)

 
 Stock options exercised

- 

34 

 
 Preferred dividends paid 

     (71)

      (71)

 
 

 
   Net cash used in financing activities

     (71)

 (2,621)

 
 

 
   Net (decrease) increase in cash and cash  equivalents

(4,506)

8,480 

 
 

 

 

 
   Cash  and cash equivalents - beginning of period

  6,279 

  1,152 

 
 

 
   Cash and cash equivalents - end of period

$                                  1,773 

$                         9,632 

     
 The accompanying notes arean integral part of these consolidated condensed financial statements.

5

**ANDERSEN GROUP, INC.Notes to Consolidated Condensed Financial Statements (unaudited) **

(1)           Accounting Policies

The accompanying unaudited interim financial statements and related notes should be read inconjunction with the audited Consolidated  Financial Statements ofAndersen Group, Inc. (the "Company") and related notes as containedin the Annual Report on Form 10-K for the fiscal year ended February 28, 2003.  The interim financial statements include alladjustments (consisting only of normal recurring adjustments) and accrualsnecessary in the judgment of management for a fair presentation of suchstatements. 

*Recently Issued Accounting Standards*

In April 2003, the Financial AccountingStandards Board ("FASB") issued Statement of Financial Accounting Standards No.149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments andHedging Activities".  SFAS 149 amends Statement of Financial AccountingStandards No. 133 to provide clarification on the financial accounting andreporting of derivative instruments and hedging activities and requires thatcontracts with similar characteristics be accounted for on a comparable basis. The provisions of SFAS 149 are effective for contracts entered into or modifiedafter June 30, 2003, and for hedging relationships designated after June 30,2003.  The Company is currently evaluating the effects this statement mayhave on its consolidated financial statements.

In May 2003, the FASB issued Statementof Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity ". SFAS 150 establishes standards on the classification and measurement of certainfinancial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered intoor modified after May 31, 2003 and to all other instruments that exist as of thebeginning of the first interim financial reporting period beginning after June15, 2003 (our third quarter of fiscal 2004).  The Company is currentlyevaluating the effects this statement may have on its consolidated financialstatements.

*Stock-based Compensation Plans*

The Company follows AccountingPrinciples Board Opinion No. 25, "Accounting for Stock Issued to Employees" andrelated Interpretations, in accounting for its stock-based compensation plansand has elected to continue to use the intrinsic value-based method to accountfor stock option grants.  The Company adopted the disclosure-onlyprovisions of Statement of Financial Accounting Standards No. 148 ("SFAS 148"),"Accounting for Stock-Based Compensation - Transition and Disclosure", anamendment of Statement of Financial Accounting Standards No. 123 ("SFAS 123"). Accordingly, no compensation expense has been recognized for the Company'sstock-based compensation plans.  Had we elected to recognize compensationexpense based upon the fair value at the grant dates for awards under theseplans, net income and loss per share would have been unchanged from amounts aspresented because the Company has not granted any stock based compensationawards since FY01.

(2)           Discontinued Operations - Sale ofAssets of JM Ney 

Effective March 22, 2002,the Company sold the operating assets of JM Ney to Deringer Mfg. Company("Deringer") for which it received approximately $10,990,000, ofwhich $600,000 was placed in an escrow account to satisfy potential claimsrelating to inventory and representations made by the Company to Deringer.  The Company has recorded a gain of $1,472,000from this sale, after estimated income taxes of $686,000. The followingsummarizes the elements of the transaction (in thousands): 

Proceeds

$                  10,990 

Book value of net  assets sold

(7,368)

Expenses of transaction

(1,540)

Curtailment gain -  pension plan

76 

Income taxes

(686)

 

Net gain on sale

$                    1,472 
   
 6
Transaction expenses related to the sale of JM Ney are as follows: 

Settlement of JM Ney stock options

$                       275 

Severance and bonuses

   750 

Legal and accounting

   365 

Other

     150 
   
Total transaction expenses

$                    1,540 
   
 For the three month period ended May 31, 2002, JM Ney's summarizedresults of operations were as follows (in thousands):

Net sales and other revenues

$                    1,298 

Cost of sales

(744)

Operating expenses

    (333)
   
Operating income

221 

Interest expense

         (9)
   
Net income before income taxes

212 

Income tax expense

      (80)
   
Net income

$                       132 
 
 In connection with the asset sale, the Company entered into aneight-year lease with Deringer for the lease of JM Ney's manufacturingfacility.  The lease calls for theCompany to receive monthly retail payments at the annual rate of $290,000 withannual increases of the annual lease rate of $5,800. 

(3)           Investment in ComCor-TV

On May 30, 2003, theCompany invested $3,500,000 into ZAO ComCor-TV ("CCTV") pursuant tothe terms of the agreements reached with Moscow Telecommunications Corporation("COMCOR") under which the Company plans to acquire 100% of theequity interests of CCTV through the issuance of common stock to COMCOR inexchange for COMCOR's equity interest in CCTV, and the exchange of its commonstock for the outstanding stock of Moscow Broadband Communication Ltd("Moscow Broadband") that it does not already own.  The Company has recorded this investment atits cost basis. 

(4)           Investment inMoscow Broadband Communication Ltd. 

The Company records its investment in Moscow Broadband using the equitymethod of accounting. The Company's fiscal year ends on February 28/29,while Moscow Broadbandhas a December 31 year end.  As a result, the Company's equity in MoscowBroadband's results is reported on a two month lag.  For the three month periods ended May 31, 2003and 2002, the Company recorded losses of $174,000 and $168,000, respectively,which represent its 25% interest in Moscow Broadband's losses of $696,000 and  $672,000 for the three months ended March 31,2003 and 2002, respectively.  Theselosses include Moscow Broadband's 50% equity interest in the losses of CCTV forthe same periods. 

At May 31, 2003, the carrying value of the Company's investment inMoscow Broadband was $1,797,000, and the Company's 25% equity interest in thenet assets of Moscow Broadband was $2,178,000. The $381,000 difference is attributed to a non-depreciable asset thatwas contributed to CCTV and will not result in the Company accreting thedifference into its consolidated results of operations. 

  7

The following presents summarized financial information for MoscowBroadband as of March 31, 2003 and December 31, 2002 and its results ofoperations for the three months ended March 31, 2003 and 2002 (in thousands): 

 
 

March 31, 2003

December 31, 2002

 
Balance Sheet Data      
  Current assets

$                                                   482 

$                                             557 

  Noncurrent assets

8,274 

8,903 

 

  Total assets

$                                                 8,756 

$                                           9,460 

 

  Accounts payable and accrued liabilities

$                                                     44 

$                                               52 

  Stockholders' equity

8,712 

9,408 

 

  Total  liabilities and shareholders' equity

$                                                 8,756 

$                                           9,460 

 
   
Three months ended March 31,
 

2003

2002

Statement of Operations Data:

  Net loss before equity in losses of CCTV

$                                                   (69)

$                                            (115)

  Equity in losses of CCTV

(627)

(557)

 

  Net loss

$                                                  (696)

$                                            (672)

  The following presents summarized financial information for CCTV as ofMarch 31, 2003 and December 31, 2002 and for the three months ended March 31,2003 and 2002 (in thousands): 

 

March 31, 2003

December 31, 2002

 
Balance Sheet Data:      
  Current  Assets

$                          5,473 

$                              6,014 

  Non-Current  Assets

28,641 

28,496 

 

  Total assets

$                         34,114 

$                             34,510 

 

  Current  liabilities

$                          4,051 

$                              3,124 

  Non-current  liabilities and minority interest

1,771 

1,844 

  Stockholder's  equity

28,292 

29,542 

 

  Total  liabilities and stockholders' equity

$                         34,114 

$                             34,510 

 8
 

                  Three Months  Ended March 31,

 

2003

2002
   
Statement of Operations Data:

 

 

  Subscription  fees

$                              522 

$                               289 
   
  Connection fees  and equipment and other sales

198 

       146 
   
  Total revenues

$                              720 

$                               435 
   
  Cost of  revenues, including amortization of intangibles

$                          (1,179)
$                             (863)
   
  Loss from  operations

$                         (1,256)

$                          (1,152)
   
  Net loss

$                         (1,255)

$                          (1,113)

 
(5)           CCTV and Moscow BroadbandTransactions 

In May 2003, the Company entered into agreements with COMCOR pursuantto which, subject to stockholder and regulatory approvals, the Company willacquire control over 100% of the equity ownership of CCTV through the purchaseof CCTV equity held and to be acquired by COMCOR, and the acquisition of the75% of Moscow Broadband which the Company does not currently own.  These agreements replace earlier agreementsentered into with Asinio Commercial Limited ("ACL") which wereterminated in May 2003.  The agreementswith COMCOR call for the Company to issue 4,220,879 shares of its common stockto COMCOR in exchange for the equity of CCTV to be held by COMCOR, includingthe equity of CCTV to be acquired by COMCOR in exchange for the extinguishmentof  approximately $1,380,500 of amountsowed or expected to be owed to COMCOR from CCTV. Consummation of thistransaction is subject to among other things, i) the approval of the Company'sstockholders, and ii) the Company's acquisition of substantially all of theshares of Moscow Broadband's common stock that it does not currently own. 

In connection with the COMCOR agreements, the Company committed tomaking i) a $3.5 million investment into CCTV within 20 days, which was made onMay 30, 2003; ii) a $1.0 million investment in CCTV within 20 days of theclosing of the acquisition of the CCTV shares; and iii) a $1.5 million investmentinto CCTV at the earlier of the closing of a rights offering or August 31,2004.  The COMCOR agreements also provide for anadditional  $5,829,000 of capitalcontributions to CCTV from the Company prior to March 31, 2005. If suchcontributions are not made, then the Company will be obligated to issue up to477,994 additional shares of its common stock to COMCOR. 

9
Pursuant to agreements signed, effective April 1, 2003,  COMCOR also agreed to eliminate the fee itcharged CCTV for transportation network services from CCTV's utilization of theMoscow Fiber Optic Network that had been charged at the rate of 10% of CCTV'stelevision service revenue. COMCOR also agreed to limit CCTV's paymentobligations for the lease of secondary node switching stations to the lesser ofi) $350 per secondary node per month and ii) 20% of CCTV's television servicerevenues, calculated on a cumulative basis beginning January 1,  2003. At May 20, 2003, CCTV was utilizing 234of COMCOR's secondary nodes.  To make this existing network more costeffective, CCTV plansto reduce the use of up to 63 of these nodes within the next six months. CCTV also plans tolease an additional approximately 68 secondary nodes from COMCOR as further buildout of its access network occurs. 

Concurrent with the closing of the proposedacquisition of CCTV equity from COMCOR, the Company intends to acquire the 75%of MBC equity that it does not currently own in exchange for 2,250,000 sharesof Company common stock. To partially satisfy its additional fundingrequirements discussed above, after the closing of the transactions, theCompany intends to contribute approximately $1,250,000 to CCTV which iscomprised of Moscow Broadband's loans and advances to CCTV, 4,402 shares of thestock of the Institute for Automated Systems and the extinguishment of a$138,144 liability of CCTV through the issuance of 33,427 shares of theCompany's common stock. Such contributions would reduce the number of shares ofthe Company's common stock that the Company would be obligated to issue to COMCOR,in the absence of any other  qualifyingcontributions made by the Company to CCTV, from 477,994 to 374,941. Theagreements further call for the Company to maintain the right to name four ofthe seven members of the Company's Board of Directors and for COMCOR to namethe remaining three.  Voting Agreementsamong COMCOR, Oliver R. Grace, Jr., the Company's President, and Francis E.Baker, the Company's Chairman, were entered into to support the continuation ofthe Company's control over the corporate governance of the Company for atwo-year period.

(6)           Income Taxes 

Income tax benefit represents an estimate of the effective income tax rate for the current fiscalyear after considering valuation allowances with respect to the Company'sability to realize a tax benefit from its equity in the losses of MoscowBroadband. 

(7)           Earnings  (Loss) Per Share 

Earnings (loss) per shareare computed based on the weighted average number of common and commonequivalent shares outstanding.  Dilutedearnings per share assumes full conversion of all convertible securities intocommon stock at the later of the beginning of the year or date of issuance,unless antidilutive.   For the threemonths periods ended May 31, 2003 and 2002 the assumed conversion of theCompany's convertible securities had antidilutive effects on the Company's pershare results from continuing operations. 

 

               Three Months Ended May 31,

 

2003

2002
   
Calculation of  basic earnings per share

 

 

 

 

 

Numerator for basic and  diluted earnings per share:

 

 

 

 

 

Net (loss) income

$                                (484)

$                            1,099 

 

Denominator for basic  earnings per share:

 

 

Weighted average number  of shares outstanding during the period

2,100 

2,097 

Effect of dilutive  securities (a)

- 

- 

 

 

 

Denominator for diluted  earnings per share

2,100 

2,097 

 

Basic (loss) earnings  per share

$                               (0.23)

$                              0.52 

 

Diluted (loss) earnings  per share

$                               (0.23)

$                              0.52 
   
10
(8)         Subsequent Event - MortgageLoan  

On June 18, 2003,Andersen Land Corp. ("Andersen Land"), a wholly-owned subsidiary ofthe Company formerly known as the J.M. Ney Company, entered into a seven-year $2.0million mortgage agreement secured by Andersen Land's real estate property andan assignment of rents from the lease agreement entered into with the buyer ofJM Ney's operating assets, as discussed in Note 2.  Andersen Land intends to provide the proceedsof this loan to the Company to assist the Company in meeting its cash flowobligations.  

**Item 2.  Management's Discussion and Analysis ofFinancial Condition and Results of Operations** 

The accompanying Management's Discussion and Analysis ofFinancial Condition and Results of Operations ("MD&A") should be read inconjunction with the MD&A in the Company's Report on Form 10-K for the yearended February 28, 2003. 

Overview

The Company is a holdingcompany which holds a 25% ownership interest in Moscow Broadband which in turnholds 50% voting control over CCTV, a Russian company that delivers cabletelevision, high speed data transmission and Internet services to its customersin Moscow, Russia.  CCTV is a start upbusiness that is currently expanding its network and attempting to increase itscustomer base.In May 2003, the Company terminated agreements with ACL and entered into newagreements with COMCOR, that, subject to stockholder approval, among otherconditions, will result in CCTV becoming a wholly-owned subsidiary of theCompany.  These agreements call for theissuance of between  6,470,879 shares and6,948,873 shares of the Company's common stock in exchange for the equityinterest of CCTV to be held by COMCOR, and for the 75% of Moscow Broadband notpresently owned by the Company.The Company also has a trading portfolio of equity investments of domestic andforeign-based companies which at May 31, 2003 was valued at $2,265,000

From 1991 until March 22, 2002, the Company owned and operated JM Ney as itsprimary operating subsidiary.  Theoperating assets of JM Ney were sold during the first quarter of FY03 and thenet current assets of JM Ney which were not sold have been substantially liquidated.  The Company retained ownership of JM Ney'sfacility which it leases to the buyer of JM Ney's operating assets under termsof an eight-year lease which was negotiated in connection with the sale of JMNey's net assets.Due to the proposed acquisition of CCTV, and the prior fiscal year sale of JMNey, the following discussion and analysis of the results of operations and thefinancial condition of the Company will not be indicative of the Company'sexpectations of its future results of operations.

Critical AccountingPolicies and Estimates

The MD&A discusses the Company's consolidated financial statements,which have been prepared in accordance with accounting principles generallyaccepted in the United States.  Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe reporting period.  On an on-goingbasis, management evaluates its estimates and judgments, including thoserelated to bad debts, investments, income taxes,financing operations, retirement benefits, and contingencies andlitigation.  Management bases itsestimates and judgments on historical experience and on various other factorsthat are believed to be reasonable under the circumstances, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions. 

Management believes the following critical accounting policies, amongothers, affect its more significant judgments and estimates used in thepreparation of its consolidated financial statements:   

11
Deferred Tax Assets

The Company records a valuation allowance to reduce its deferred taxassets to the amount that it believes is more likely than not to be realized.The Company considers future taxable income and ongoing prudent and feasibletax planning strategies in assessing the need for the valuation allowance.  When the Company determines that it may notbe able to realize all or part of its net deferred tax assets, a valuationallowance to reduce the deferred tax assets to estimated recoverable amounts ischarged to income in the period such determination is made.  Likewise, should the Company determine thatit would be able to realize its deferred tax assets in the future in excess ofits net recorded amount, a reduction in the valuation allowance would increaseincome in the period such determination is made.  

Investment in Moscow Broadband

The Company records its investment inMoscow Broadband using the equity method which also requires that the carryingvalue of the investment be evaluated for impairment.   The agreementswhich the Company entered into in May 2003 and the related $3.5 million cashinvestment into CCTV have contributed to supporting the reported values as ofMay 31, 20003.  The ability for the Company to consummate the proposedtransactions and CCTV's future operating results will be determining factors incontinuing impairment evaluations.    

RESULTS OF OPERATIONS -THREE MONTHS ENDED MAY 31, 2003 VS. THREE MONTHS ENDED MAY 31, 2002 

For the three monthsended May 31, 2003 and 2002 the Company reported net (loss) income applicableto common shareholders as follows (in thousands, except per share amounts):

 

          May  31, 2003

              May 31, 2002

 

Amount

Per Share

Amount

Per Share
   
Net loss from  continuing operations

$                     (484)

$                   (0.23)

$                       (505)

$                  (0.24)

Net income from  discontinued operations

- 

- 

132 

0.06 

Gain on sale of JM Ney

        - 

         - 

  1,472 

   0.70 

 

 

$                    (484)

$                   (0.23)

$                       1,099 

$                    0.52 
   
 Continuing Operations -General and Administrative Expenses

General andadministrative expenses from continuing operations increased 62.1% to $885,000for the three months ended May 31, 2003, from $546,000 in the comparable periodin the prior fiscal year. Higher professional fees incurred in connection withthe proposed acquisition of CCTV, and the non-recurrence of the prior year $142,000gain from the settlement of retiree health care obligations through anamendment to the Company's deferred benefit pension plan, contributed to theincreased costs. 

Continuing Operations -Interest Expense

Interest expense fromcontinuing operations for the three months ended May 31, 2003 decreased 17.4%to $57,000 from $69,000 during the comparable period in the prior fiscalyear.  The annual sinking fund payment ofthe Company's 10 1/2% convertible subordinated debenture lowered average debtlevels which contributed to the decrease in this expense. 

12
Continuing Operations-Investment Income and Other Income 

For the three monthsended May 31, 2003, investment income and other income totaled $610,000 ascompared to $196,000 in the comparable period in the prior fiscal year.  Significant components ofinvestment income and other income are asfollows (in thousands): 

 

May 31, 2003

May 31, 2002
   
Net gains from domestic  trading portfolio

$                                 456 

$                                     83 

Rental income

76 

59 

Interest and dividends

20 

17 

Ultrasonic royalties

13 

14 

Change in deferred  compensation accounts

    45 

   23 

 

 

$                                 610 

$                                   196 
   
 Equity in Losses ofMoscow Broadband

The Company's equity inthe losses of Moscow Broadband increased 3.6% to $174,000 in the three monthsended May 31, 2003 from $168,000 in the comparable period of the prior fiscalyear and was comprised as follows (in thousands).   
   
                          Three Months Ended March 31,
 

2003

2002
   
MBC's operating losses

$                                         (69)

$                                      (115)

MBC's equity in CCTV's  losses

(627)

(557)

 

      Total MBC loss

$                                        (696)

$                                       (672)
   Andersen equity portion
$                                        (174)
$                                       (168)   
 MBC's net operating lossdeclined primarily due to a decrease of $75,000 in consulting costs which hadbeen incurred during 2002 in connection with the process to try to raiseadditional equity for MBC.  The savingsin consulting costs were partially offset by a $35,000 decrease in interestincome, due to lower cash being available for short term investments as aresult of the May 2002 investment of $5 million into CCTV and the use of cashfor MBC's operating expenses. 

13
CCTV's results ofoperations, and MBC's equity in these results were comprised as follows (inthousands): 

 

Three Months Ended March 31,

 

2003

2002
   
Subscription fees

$                              522 

$                              289 

Connection fees,  equipment and other revenue

198 

146 
   
     Total revenues

720 

435 

Cost of sales

1,179 

863 
   
Gross margin

(459)

(428)

Operating expenses

(797)

(724)
   
Loss from operations

(1,256)

(1,152)

Equity in losses of  unconsolidated subsidiary

(45)

- 

Other non-operating  items, net

(23)

(25)
   
Net loss before income  taxes

(1,324)

(1,177)

Income tax benefit

69 

64 

 

Net loss

$                          (1,255)

$                          (1,113)

 

MBC equity portion

$                            (627)

$                             (557)
   
CCTV's subscription feesfor television and Internet access services increased by 80.6% as a result ofincreased subscription levels both from increased market penetration in areaswhich it had access to in the prior year, and from new subscribers in areas towhich it has expanded in the last year. 

At March 31, 2003, CCTVreported that it had 45,934 subscribers from its broadcasting and premiumtelevision services and 6,048 subscribers for its Internet accessservices.  These represent increases of47.8% and 95.1% respectively over the number of subscribers it had reported asof March 31, 2002.  As a result,subscription fees during the quarter have increased 41.8% and 107.2% for thetelevision and Internet access services, respectively, from the prior year'sfirst quarter. 

CCTV's cost of sales forthe three months ended March 31, 2003, increased 36.6% over the comparableperiod in the first quarter primarily as a result of utilization fees and leaseof secondary node fees from COMCOR which were not present in the prior yearuntil August 2002 and to increased depreciation expense relating to assetscontributed by COMCOR in July 2002.  Prior to that time, COMCOR charged CCTV access network charges for therental of the networks in Chertanovo and Khamovniki, which in total wereapproximately $261,000 lower than the utilization fees and lease of secondarynode fees charged in the current year. 

CCTV's general andadministrative expenses for the three months ended March 31, 2003 increased10.1% due to higher sales commissions associated with subscriber growth,increased advertising costs and increases in asset-based taxes. 

Income Tax Benefit

Income tax benefits have beenaccrued based upon estimated effective tax rates for the fiscal year, afterconsidering valuation allowances related to the Company's ability to realize atax benefit from its equity in the losses of Moscow Broadband. 

Income from DiscontinuedOperations

During the three monthperiod ended May 31, 2002, the Company owned JM Ney for only 22 days until itssale effective March 22, 2002.  JM Ney's results for that period producednet income of $132,000 after income taxes.   

14
Gain on Sale of JM Ney

The sale of JM Ney's netassets in March 2002 produced a gain of $1,472,000 after a provision for incometaxes of $686,000.  The components of theselling price resulted in proceeds which were higher than book value forinventory and fixed assets, which were partially offset by expenses of thetransaction. 

LIQUIDITY AND CAPITALRESOURCES 

At May 31, 2003consolidated cash and marketable securities totaled $4,038,000 as compared to $8,088,000as of February 28, 2003.  The decrease of$4,050,000 is primarily attributable to the Company's $3,500,000 investment in CCTVand from the use of $935,000 of cash in its operating activities.  Inaddition, $71,000 of cash was used in financing activities for the payment ofpreferred dividends.  Unrealized appreciation of the Company's tradingportfolio of common stock totaling $456,000 during the quarter increased themarketable securities balance. 

The agreements which theCompany entered into in May 2003 under which it proposes to acquire 100% ofCCTV, require the Company to make cash investments in CCTV totaling $2.5million by August 31, 2004, of which $1.0 million is expected to be made at theclosing of the acquisition, which the Company expects will occur during itsthird fiscal quarter. 

The present cashresources, including the proceeds from a mortgage loan which was obtained inJune 2003, may not be adequate for the Company to meet the CCTV fundingrequirements and its continuing operating expense, debt service and preferreddividend payment obligations for more than 12 months.  The Company does have a trading portfolio ofequity securities that it contemplates selling to help meet cash payment obligationsduring and beyond this period. 

The agreements enteredinto with COMCOR provide for the use of proceeds of a rights offering of theCompany's common stock and from a private placement or other offering ofCompany debt or equity securities.  Suchevents would provide the Company with additional liquidity to support its andCCTV's business objectives.  The Company has plans to undertake capital raisingactivities, but there can be no assurance that such activities, if formalized, will besuccessful.   

At March 31, 2003, CCTV hadapproximately $159,000 in cash and current liabilities in excess of$4,000,000.  The Company's $3,500,000contribution in May 2003, COMCOR's planned conversion of liabilities into CCTVequity prior to the closing of the Company's acquisition of CCTV and theCompany's planned contribution of certain advances and loans from MBC to CCTVhave improved and will continue to improve CCTV's financial position.  However, CCTV is still generating cash flowlosses and it has plans to expand itsaccess network by an additional approximately 70,000 homes, which will requirecapital expenditures in excess of an estimated $3,000,000.  Accordingly, CCTV will remain dependent uponoutside sources of cash, including the planned capital contributions to be madeby the Company.  The Company's ability tomake such contributions cannot be guaranteed. In addition, the adequacy of suchadditional cash contribution into CCTV, if made, to meet CCTV's planned cash flowobligations cannot be assured. 

*Effect of new AccountingPronouncements*

In April 2003, the Financial AccountingStandards Board "(FASB") issued Statement of Financial Accounting Standards No.149 ("SFAS 149"), "Amendment of Statement 133 on Derivative Instruments andHedging Activities".  SFAS 149 amends Statement of Financial AccountingStandards No. 133 to provide clarification on the financial accounting andreporting of derivative instruments and hedging activities and requires thatcontracts with similar characteristics be accounted for on a comparable basis. The provisions of SFAS 149 are effective for contracts entered into or modifiedafter June 30, 2003, and for hedging relationships designated after June 30,2003.  The Company is currently evaluating the effects this statement mayhave on its consolidated financial statements.

In May 2003, the FASB issued Statementof Financial Accounting Standards No. 150 ("SFAS 150"), "Accounting for CertainFinancial Instruments with Characteristics of both Liabilities and Equity". SFAS 150 establishes standards on the classification and measurement of certainfinancial instruments with characteristics of both liabilities and equity. The provisions of SFAS 150 are effective for financial instruments entered intoor modified after may 31, 2003 and to all other instruments that exist as of thebeginning of the first interim financial reporting period beginning after June15, 2003 (our third quarter of fiscal 2004).  The Company is currentlyevaluating the effects this statement may have on its consolidated financialstatements.

15
OFF BALANCE SHEETARRANGEMENTS

The Company has acontingent liability with respect to a $386,000 letter of credit issued by itsbank to secure performance bonds issued in connection with an unresolved stateincome tax matter. The Company believes that its accruals are sufficient tomeet any obligations that may arise from this matter.The Company is also party to certain operating leases which will require $92,000of payments to be made during the remainder of FY04. 

**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk** 

The Company is exposed tomarket risk from changes in equity security prices, interest rates and fromfactors that impact equity investments in Russia, as discussed in the Company'sAnnual Report on Form 10-K for the year ended February 28, 2003.  The following information is presented toupdate the status of the identified risks. 

EQUITY SECURITY RISK

At May 31, 2003, theCompany has equity risk with respect to $2,260,000 of investments in publiclytraded financial institutions held in its trading portfolio.   

FOREIGN INVESTMENT RISK

The Company hasinvestments in CCTV and Moscow Broadband with a combined carrying value of $5,297,000.  Moscow Broadband's primary asset is aninvestment in CCTV, a Moscow, Russia based broadband cable operator licensed toprovide video, Internet and telephony to up to 1.5 million homes and businessesin Moscow. Accordingly, these investments bear the specific economic, currencyand political risks of this region. 

In May 2003, the Companyentered into agreements which, subject to stockholder and regulatory approvals,will result in CCTV being wholly-owned by the Company.   The consummation of these transactions willincrease the concentration of both foreign investment risk and thecapital risk associated with a start-up company which is experiencing operatinglosses and requires the commitment of funds to meet the capital expenditureneeds of its business plan.  Suchtransactions are also expected to significantly reduce the Company's liquidityas discussed in the Liquidity and Capital Resource section of Item 2 of thisreport. 

INTEREST RATE RISK

At May 31, 2003, theCompany had no variable rate obligations and its borrowing costs were notexposed to changes in interest rates. However, On June 18, 2003, Andersen Land Corp., a wholly-ownedsubsidiary of the Company, received the proceeds of a $2 million mortgage collateralizedby a real estate property and an assignment of rental income from the lease ofthe property.  Interest under this notewill fluctuate at 2.25% above the London Interbank Offered Rate (LIBOR), which willexpose the Company at each periodic renewal of the rate, the first of whichwill be in March 2004. The initial annual rate of interest on this note is3.284%.

**Item 4.  Controls and Procedures**As required by Rule 13a-15 under the Securities Exchange Actof 1934, as amended (the "Exchange Act"), within the 90 days prior tothe filing date of this report, the Company carried out an evaluation of theeffectiveness of the design and operation of the Company's disclosure controlsand procedures. This evaluation was carried out under the supervision and withthe participation of the Company's management, including the Company's Presidentand Chief Executive Officer along with the Company's Chief Financial Officer.Based upon that evaluation, the Company's President and Chief Executive Officeralong with the Company's Chief Financial Officer concluded that the Company'sdisclosure controls and procedures are effective. There have been nosignificant changes in the Company's internal controls, or in other factors,which could significantly affect internal controls subsequent to the date theCompany carried out its evaluation. Disclosure controls and procedures are controls and other procedures that aredesigned to ensure that information required to be disclosed in Company reportsfiled or submitted under the Exchange Act is recorded, processed, summarizedand reported within the time periods specified in the Securities and ExchangeCommission's rules and forms. Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed in Company reports filed under the Exchange Act isaccumulated and communicated to management, including the Company's ChiefExecutive Officer and Chief Financial Officer, as appropriate, to allow timelydecisions regarding required disclosure.

16
**Part II.  Other Information** 

**Item 1.  Legal Proceedings** 

*Morton International, Inc. v.A.E. Staley Mfg. Co. et al. and Velsicol Chemical Corp. v. A.E. Staley Mfg. Co.et al. *

As originally reported in the Company's Form 10-K for the year endedFebruary 28, 1997, in July 1996, two companion lawsuits were filed in theUnited States District Court for the District of New Jersey, by various ownersand operators of the Ventron-Velsicol Superfund Site ("Site").  The lawsuits, which were subsequently consolidated,were filed under the Comprehensive Environmental Resource Compensation andLiability Act ("CERCLA"), the Resource Conservation and Recovery Act,the New Jersey Spill Act and New Jersey common law, alleging that thedefendants (over 100 companies, including JM Ney) were generators of certain wastesallegedly processed at the Site.  Thelawsuits seek recovery of costs incurred and a declaration of future liabilityfor costs to be incurred by the owners and operators in studying andremediating the Site. As further reported in the Company's Form 10-Q for the period ended November30, 2001, this case was dismissed without prejudice and the plaintiffs' abilityto reinstate their claims were limited for a minimum of three years untilOctober 2004.  If the plaintiffs reinstate the case, giventhe legal and factual issues that remain outstanding, the Company currently hasno basis to ascertain the range of loss, should any occur, with respect to anoutcome that may be considered unfavorable. This contingent liability was not assumed by the buyer of JM Ney's netassets.

**Item4.  Submission of Matters to a Vote ofSecurity Holders** 

During the three monthsended May 31, 2003, no matters were submitted to a vote of the security holdersof the Company. 

However, on June 20,2003, the Company held a combined 2002 and 2003 Annual Meeting at which theexisting Board of Directors was re-elected as follows: 

 

**FOR**

**%**

**WITHHELD**

**%**

 

Oliver R. Grace, Jr.

1,233,278

95.3

61,308

4.7

Francis E. Baker

1,233,151

95.3

61,435

4.7

Peter N. Bennett

1,293,578

99.9

1,008

0.1

John S. Grace

1,233,278

95.3

61,308

4.7

Louis A. Lubrano

1,293,578

99.9

1,008

0.1

Thomas McPartland

1,293,578

99.9

1,008

0.1

James J. Pinto

1,293,578

99.9

1,008

0.1

 17
**Item 6.  Exhibits and Reports on Form 8-K** 

(a)     Exhibits  required by Item 601 of Regulation S-K:

 

Exhibit                    Description

 

Exhibit 10.1             Open-End Mortgage and Security Agreement dated June 18, 2003 between Sovereign  Bank and Andersen Land Corp.

Exhibit 99.1            Certification of CEO and CFO  Pursuant to 18 U.S.C. Section 1350 

 

(b)  Reports on Form 8-K

On May 29, 2003,the Company filed a Form 8-K under Item 5 to report that it had terminated itspreviously announced agreements with Asinio Commercial Limited under whichagreements the Company would have acquired 100% equity interest in ComCor-TV("CCTV").  The Company alsoannounced that it had entered into agreements with Moscow TelecommunicationsCorporation ("COMCOR") pursuant to which it will acquire COMCOR'sequity interest in CCTV, including additional equity to be obtained from theconversion of certain liabilities.  Pursuantto the agreements the Company will (i) issue 4,220,879 shares of its commonstock to COMCOR, and will issue up to an additional 477,994 shares by March 31,2005 if certain capital contribution into CCTV are not made by the Company;(ii) commit to invest $6.0 million of cash into CCTV, of which $3.5 million wasmade on May 30, 2003, and (iii) acquire the equity of Moscow BroadbandCommunication Ltd that it does not presently own.  The Company also announced that agreementshad been reached which reduce charges to CCTV for services provided by COMCORwhich define CCTV's payment obligations for CCTV's lease of certain secondarynodes from COMCOR. 

On May 29, 2003,the Company filed a Form 8-K to report under Item 12 that it had announced it resultsof operations for the fiscal year ended February 29, 2003. 

Subsequent to thequarter end, on June 6, 2003, the Company filed a Form 8-K under Item 9 toreport that it had issued a press release in which the Company announced that arights offering by its 25%-owned affiliate, Moscow Broadband CommunicationLimited had been canceled.  The Companyalso announced that the agreements reached with COMCOR to acquire control ofCCTV include provision for the Company to have its own rights offering of itscommon stock, which the Company has indicated it will use it best efforts tohave such an offering prior to August 2004, however, terms of any such offeringhave not been determined.

Also subsequent to the quarter end, on July 3, 2003, theCompany field a Form 8-K under Item 9 to report that it had received a NasdaqStaff Determination Letter indicating that the Company fails to comply with theMarket Value of Publicly Held Shares requirement for continued listing, and thatthe Company had requested a hearing before a Nasdaq Qualification Listing Panelto review the determination.

                Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned, thereunto duly authorized.

 18
**SIGNATURES**

ANDERSEN GROUP, INC.

 

By:          /s/ Oliver R. Grace, Jr.

                Oliver R. Grace, Jr.

                President and Chief Executive Officer

Date:       July 8, 2003

 

By:          /s/ Andrew M. O'Shea

                Andrew M. O'Shea

                Chief Financial Officer

Date:       July 8, 2003

 

 19
**CERTIFICATIONS**

 

I, Oliver R. Grace, Jr., President and Chief ExecutiveOfficer of Andersen Group, Inc., certify that:

 
- I have reviewed this quarterly report on Form     10-Q of Andersen Group, Inc.;
- Based on my knowledge, this quarterly report does     not contain any untrue statement of a material fact or omit to state a     material fact necessary to make the statements made, in light of the     circumstances under which such statements were made, not misleading with     respect to the period covered by this quarterly report;
- Based on my knowledge, the financial statements,     and other financial information included in this quarterly report, fairly     present in all material respects the financial condition, results of     operations and cash flows of the registrant as of, and for, the periods     presented in this quarterly report;
- The registrant's other certifying officer and I     are responsible for establishing and maintaining disclosure controls and procedures     (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant     and we have:

a)       designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

b)       evaluatedthe effectiveness of the registrant's disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and 

c)       presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;
- The registrant's other certifying officer and I     have disclosed, based on our most recent evaluation, to the registrant's     auditors and the audit committee of the registrant's board of directors     (or persons performing the equivalent function):

a)       allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant's ability to record, process, summarizeand report financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and 

b)       anyfraud, whether or not material, that involves management or other employees whohave a significant role in the registrant's internal controls; and

    6.     Theregistrant's other certifying officer and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

Date:  July 7,  2003

/s/ Oliver R. Grace, Jr.

Oliver R. Grace, Jr.

President and Chief Executive Officer

20

I, Andrew M. O'Shea, Chief Financial Officer ofAndersen Group, Inc., certify that:

 
- I have reviewed this quarterly report on Form     10-Q of Andersen Group, Inc.;
- Based on my knowledge, this quarterly report does     not contain any untrue statement of a material fact or omit to state a     material fact necessary to make the statements made, in light of the     circumstances under which such statements were made, not misleading with     respect to the period covered by this quarterly report;
- Based on my knowledge, the financial statements,     and other financial information included in this quarterly report, fairly     present in all material respects the financial condition, results of     operations and cash flows of the registrant as of, and for, the periods     presented in this quarterly report;
- The registrant's other certifying officer and I     are responsible for establishing and maintaining disclosure controls and     procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the     registrant and we have:

    a)          designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

    b)       evaluatedthe effectiveness of the registrant's disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and 

    c)       presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;
- The registrant's other certifying officer and I     have disclosed, based on our most recent evaluation, to the registrant's     auditors and the audit committee of registrant's board of directors (or     persons performing the equivalent function):

    a)       allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant's ability to record, process, summarize and reportfinancial data and have identified for the registrant's auditors any materialweaknesses in internal controls; and 

    b)    any fraud,whether or not material, that involves management or other employees who have a  significant role in theregistrant's internal controls; and

    6.     The registrant's other certifying officer and I have indicatedin this quarterly report whether or not there were significant changes ininternal controls or in other factors that could significantly affect internalcontrols subsequent to the date of our most recent evaluation, including anycorrective actions with regard to significant deficiencies and materialweaknesses.

Date: July 8, 2003

/s/ Andrew M. O'Shea 

Andrew M. O'Shea

Chief Financial Officer

 21