** **

**UNITEDSTATESSECURITIES 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 August 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

 

**ANDERSENGROUP, 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 X

As of October 14,2003, there were 2,099,908 shares of the Registrant's $.01 par value CommonStock 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 August 31, 2003 and February 28, 2003

3

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

  4

                Consolidated  Condensed Statements of Cash Flows for the Three and Six Months Ended                   August 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

10

 

Item 3:    Quantitative  and Qualitative Disclosures About Market Risk

15

 

Item 4:    Controls  and Procedures

16

 

Part II.   Other Information

 

 

Item 1:    Legal  Proceedings

16

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

16

 

Item 6:    Exhibits  and Reports on Form 8-K

17

 

Signatures

18

 

  2
 
**Part I.  FinancialInformationItem 1.  Financial Statements**

 

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

 

 

August 31, 2003

February 28, 2003
   
(unaudited)

 

**ASSETS**

 

 

*Current assets:*

 
   
 Cash and cash equivalents

$                         2,996 

$                         6,279 

 Marketable securities

2,493 

1,809 

 Accounts and other receivables less  allowances of $40 and   $25, respectively

  152 

  48 

 Prepaid expenses and other assets

277 

242 

   Total current assets

5,918 

   8,378 

Property, plant and equipment, net

3,326 

3,403 

Prepaid pension expense

4,675 

4,591 

Investment in  ComCor-TV

3,500 

- 

Investment in  Moscow Broadband Communication Ltd.

1,650 

1,971 

Other assets

776 

702 

$                       19,845 

$                       19,045 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

*Current liabilities**:***

 

 

 Current maturities of long-term debt

$                            598 

$                            407 

 Accounts payable

157 

288 

 Other current liabilities

666 

907 

 Deferred income taxes

262 

    132 

  Total current liabilities

1,683 

1,734 

 

 

Long-term debt, less  current maturities

3,455 

1,674 

Other liabilities

923 

867 

Deferred income taxes

1,893 

1,668 

 

 

  Total liabilities

7,666 

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

1,720 

2,931 

 

 

   Total stockholders' equity

11,891 

13,102 
   
$                       19,845 

$                       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  August 31,

 

Six months ended August  31,
      
2003

2002

 

2003

2002
   
Revenues

$                    - 

$                    - 

 

$                  - 

$                    - 

 

 

 

 

 

***Costs and  expenses:***

 

 

 

 

 

General and administrative

585 

750 

 

1,471 

1,296 

Interest expense

63 

67 

 

119 

136 
   
648 

817 

 

1,590 

1,432 

 

 

 

 

 

Investment income and other income

335 

font>90

 

945 

286 
   
 

 

 

 

 

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

  (313)

  (727)

 

  (645)

  (1,146)

Equity in losses of Moscow Broadband Communication  Ltd.

  (147)

  (172)

 

  (321)

  (340)
   
 

 

 

 

 

Net loss from continuing operations before income  taxes 

  (460)

  (899)

 

  (966)

  (1,486)

Income tax expense (benefit)

197

(263)

 

104 

(416)
   
 

 

 

 

 

Net loss from continuing operations

(657)

(636)

 

(1,070)

(1,070)

***Discontinued operations:***

 

 

 

 

 

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

(657)

(636)

 

(1,070)

534 

Preferred dividends

(70)

(70)

 

(141)

(141)
   
 

 

 

 

 

(Loss) income applicable to common shares

$               (727)

$               (706)

 

$          (1,211)

$                393 
   
 

 

 

 

 

***(Loss) Earnings  per common share:***

 

 

 

 

 

Basic and diluted

 

 

 

 

 

 Net loss  from continuing operations

$             (0.35)

$             (0.34)

 

$           (0.58)

$            (0.58)

 Income from  discontinued operations

- 

- 

 

- 

0.06 

 Gain on sale  of discontinued operations

- 

- 

 

- 

0.70 
   
                

$              (0.35)

$              (0.34)

 

$            (0.58)

$               0.18 
   
The accompanyingnotes are an integral part of these consolidated condensed financialstatements.

4

ANDERSENGROUP, INC.Consolidated Condensed Statements of Cash Flows(In thousands)(unaudited)

Six months ended
   
August 31, 2003

August 31, 2002

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

Net (loss) income

$             (1,070)

$                     534 

*Adjustments  to reconcile net (loss) income to net cash*

 

 

*provided  by (used in) operating activities:*

 

 

  Equity in  losses of Moscow Broadband Communication Ltd.

321 

340 

  Gain on  sale of JM Ney's operating assets

- 

(1,472)

  Gain on  settlement of retiree healthcare liability

- 

(142)

   Depreciation, amortization and accretion

120 

176 

  Deferred  income taxes

355 

(142)

  Pension  income 

(84)

(108)

  Net gains  from marketable securities

(684)

(105)

  Purchases  of marketable securities

- 

(200)

  Proceeds  from sales of marketable securities

- 

141 

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

 

 

  Accounts  and other receivables

(104)

3,737 

  Inventories

- 

(419)

  Prepaid  expenses and other assets

(34)

583 

  Accounts payable

(131)

(893)

  Accrued  liabilities and other long-term obligations

(227)

(1,065)
   
                Net cash (used in)  provided by operating activities

(1,538)

   965 
   
 

 

***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

- 

(941)

  Purchases  of property and equipment, net

(42)

(9)
   
                 Net cash  (used in) provided by investing activities

(3,542)

 9,440 
   
 

 

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

 

 

  Principal  payments on long-term debt

(28)

(65)

  Proceeds  from mortgage loan

1,966 

- 

  Repayment  of short term borrowings, net

- 

(2,366)

  Purchase of  subsidiary warrants

- 

(160)

  Stock  options exercised

- 

34 

  Preferred  dividends paid 

(141)

(141)
   
 

 

                Net  cash provided by (used in) financing activities

1,797 

 (2,698)
   
 

 

  Net  (decrease) increase in cash and cash equivalents

(3,283)

7,707 

 

 

 

  Cash and  cash equivalents - beginning of period

6,279 

1,152 
   
 

 

  Cash and  cash equivalents - end of period

$                   2,996 

$                   8,859 
   
The accompanying notesare an integral part of these consolidated condensed financial statements. 
5
ANDERSEN GROUP, INC.Notes to Consolidated Condensed Financial Statements (unaudited) 

(1)                Accounting Policies 

The accompanyingunaudited interim financial statements and related notes should be read inconjunction with the audited Consolidated Financial Statements of AndersenGroup, Inc. (the "Company") and related notes as contained in the Annual Reporton Form 10-K for the fiscal year ended February 28, 2003.  The interimfinancial statements include all adjustments (consisting only of normalrecurring adjustments) and accruals necessary in the judgment of management fora fair presentation of such statements.  The Company has incurred and expects inthe near future to continue to incur operating losses.  Management believesthat unless the Company is able to secure additional financing, its cash andcash equivalents and short-term investments will not be sufficient to enable itto meet its operating expense and debt service requirements for the next twelvemonths and also the funding requirements into ZAO ComCor-TV ("CCTV") as setforth in the Subscription Agreement with Moscow Telecommunications Corporation("COMCOR") (see note 5).  Accordingly, if this contingency has not beenresolved prior to August 2004, the Company expects that it may not make all orsome of the capital contributions to CCTV which the Company has committed tomaking.

*Recently Issued Accounting Standards*

In April 2003, theFinancial Accounting Standards Board ("FASB") issued Statement ofFinancial Accounting Standards No. 149 ("SFAS 149"), "Amendmentof Statement 133 on Derivative Instruments and Hedging Activities."  SFAS 149 amends Statement of FinancialAccounting Standards No. 133 to provide clarification on the financialaccounting and reporting of derivative instruments and hedging activities andrequires that contracts with similar characteristics be accounted for on acomparable basis.  The provisions ofSFAS 149 are effective for contracts entered into or modified after June 30,2003, and for hedging relationships designated after June 30, 2003.  The Company is currently evaluating theeffects this statement may have on its consolidated financial statements.  SFAS 149 has no material effect on theCompany's consolidated financial statements as of or for the period ended August31, 2003. 

In May 2003, the FASB issuedStatement of Financial Accounting Standards No. 150 ("SFAS 150"),"Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity."  SFAS 150establishes standards on the classification and measurement of certain financialinstruments with characteristics of both liabilities and equity.  The provisions of SFAS 150 are effective forfinancial instruments entered into or modified after May 31, 2003 and to allother instruments that exist as of the beginning of the first interim financialreporting period beginning after June 15, 2003 (our third quarter of fiscal2004).  The Company is currentlyevaluating the effects this statement may have on its consolidated financialstatements. 

*Stock-based Compensation Plans*

The Company followsAccounting Principles Board Opinion No. 25, "Accounting for Stock Issuedto Employees" and related Interpretations, in accounting for itsstock-based compensation plans and has elected to continue to use the intrinsicvalue-based method to account for stock option grants.  The Company adopted the disclosure-onlyprovisions of Statement of Financial Accounting Standards No. 148 ("SFAS148"), "Accounting for Stock-Based Compensation - Transition andDisclosure", an amendment of Statement of Financial Accounting StandardsNo. 123 ("SFAS 123"). Accordingly, no compensation expense has been recognized for theCompany's stock-based compensation plans. Had we elected to recognize compensation expense based upon the fairvalue at the grant dates for awards under these plans, net income and loss pershare would have been unchanged from amounts as presented because the Companyhas not granted any stock based compensation awards since FY01. 

(2)                Investmentin ComCor-TV

                On May 30, 2003, theCompany invested $3,500,000 into  CCTV pursuant tothe terms of the agreements reached with  COMCORwhich 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.  See Note 4 foradditional discussion of the proposed transactions. 

 6

(3)                Investmentin Moscow Broadband Communication Ltd. 

The Company records its investment inMoscow Broadband using the equity method of accounting.  The Company'sfiscal year ends on February 28/29, while Moscow Broadband has a December 31year end.  As a result, the Company's equity in Moscow Broadband's resultsis reported on a two-month lag.  For the six-month periods ended August 31, 2003 and 2002, the Company recorded losses of $321,000 and$340,000, respectively, which represent its 25% interest in Moscow Broadband'slosses of $1,282,000 and $1,361,000 for the six months ended June 30, 2003 and2002, respectively.  These losses include Moscow Broadband's 50% equityinterest in the losses of CCTV for the same periods. 

At August 31, 2003, the carrying value of the Company's investment inMoscow Broadband was $1,650,000, and the Company's 25% equity interest in thestockholders' equity of Moscow Broadband was $2,031,000. 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. 

The following presents summarized financial information for MoscowBroadband as of July 30, 2003 and December 31, 2002 and its results ofoperations for the three and six months ended July 30, 2003 and 2002 (inthousands): 

 
 
June 30, 2003

December 31,  2002
    
Balance Sheet Data:

  Current  assets

$                      391 

$                      557 

  Noncurrent  assets

7,755 

8,903 

  Total  assets

$                    8,146 

$                    9,460 

  Accounts  payable and accrued liabilities

$                        20 

$                        52 

   Stockholders' equity

8,126 

9,408 

  Total  liabilities and stockholders' equity

$                    8,146 

$                    9,460 

 
Three months ended June 30,

 

Six months ended  June 30,
      
2003

2002

 

2003

2002
      
Statement of Operations Data:  

 

 

 

 

 

  Net loss  before equity in    losses of CCTV

  $             (67)

  $           (166)

 

  $          (136)

     $               (281)

  Equity in  losses of CCTV

(519)

(523)

 

(1,146)

(1,080)

 

  Net loss

$            (586)

$            (689)

 

$       (1,282)

$              (1,361)
      
The following presents summarized financial information for CCTV as ofJune 30, 2003 and December 31, 2002 and for the three and six months ended June30, 2003 and 2002 (in thousands): 

  June 30, 2003

  December 31, 2002
   
Balance Sheet Data:

 

 

  Current  Assets

$                   7,049 

$                   6,014 

  Non-Current  Assets

28,968 

28,496 

  Total  assets

$                  36,017 

$                  34,510 

  Current  liabilities

$                   3,563 

$                   3,124 

  Non-current  liabilities and minority interest

1,701 

1,844 

   Stockholders' equity

30,753 

29,542 

  Total  liabilities and stockholders' equity

$                  36,017 

$                  34,510 

 7
 

 

 
Three months  ended June 30,

 

Six months ended  June 30,
      
2003

2002

 

2003

2002
      
Statement of Operations Data:

 

 

 

 

 

   Subscription fees

$             614 

$             323 

 

$          1,136 

$             612 

  Connection  fees and    equipment and other sales

  230 

  107 

 

  428     

  253 

 

  Total  revenues

$             844 

$             430 

 

$          1,564 

$             865 
      
  Cost of  revenues, including       amortization of intangibles

  $        (1,450)

  $           (862)

 

  $        (2,312)

  $          1,653 

 

  Loss from  operations

$        (1,213)

$        (1,072)

 

$        (2,285)

$        (2,224)

 

  Net loss

$         (1,038)

$         (1,047)

 

$         (2,293)

$         (2,160)

 (4)           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 (i) thepurchase of CCTV equity held and to be acquired by COMCOR and (ii) theacquisition of the 75% of Moscow Broadband which the Company does not currentlyown.  These agreements replace earlieragreements entered into with Asinio Commercial Limited ("ACL") whichwere terminated in May 2003.  Theagreements with COMCOR call for the Company to issue 4,220,879 shares of itscommon stock to COMCOR in exchange for the equity of CCTV to be held by COMCOR,including the equity of CCTV to be acquired by COMCOR in exchange for theextinguishment of approximately $1,380,500 of amounts owed or expected to beowed to COMCOR from CCTV. Consummation of this transaction is subject to, amongother things, i) the approval of the Company's stockholders, and ii) theCompany's acquisition of substantially all of the shares of Moscow Broadband'scommon stock that it does not currently own. On October 13, 2003, the Company mailed its proxy statement for theSpecial Meeting of Stockholders to be held October 27, 2003 to obtain theapproval of the Company's stockholders. 

In connection with the COMCOR agreements, the Company committed tomaking i) a $3.5 million investment into CCTV, which was made on May 30, 2003;ii) a $1.0 million investment in CCTV within 20 days of the closing of theacquisition of the CCTV shares; and iii) a $1.5 million investment into CCTV atthe 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. 

Pursuant to agreements signed effective April 1, 2003, COMCOR alsoagreed to eliminate the fee it charged CCTV for transportation network servicesfrom CCTV's utilization of the Moscow Fiber Optic Network that had been chargedat the rate of 10% of CCTV's television service revenue. COMCOR also agreed tolimit CCTV's payment obligations for the lease of secondary node switchingstations to the lesser of i) $350 per secondary node per month as invoiced byCOMCOR and ii) 20% ofCCTV's television service revenues, calculated on a cumulative basis beginningJanuary 1, 2003. At September 30, 2003, CCTV was utilizing 225 of COMCOR'ssecondary nodes.  To make this existingnetwork more cost efficient, CCTV plans to reduce the use of up to 37 of thesenodes within the next four months.  CCTValso plans to lease an additional approximately 51 secondary nodes from COMCORas 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 the MBC equity that it does not currently own in exchange for 2,250,000shares of 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 (i) the contribution of Moscow Broadband's loans and advances toCCTV; (ii) 4,402 shares of the stock of the Institute for Automated Systems; and(iii) the extinguishment of a $138,144 liability of CCTV through the issuance of33,427 

8
shares of the Company's common stock. Suchcontributions would reduce the number of shares of the Company's common stockthat the Company would be obligated to issue to COMCOR, in the absence of anyother qualifying contributions made by the Company to CCTV, from 477,994 to374,941. 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 pursuant to the terms of a Voting Agreement among COMCOR,Oliver R. Grace, Jr., the Company's President, and Francis E. Baker, theCompany's Chairman, entered into to support the continuation of the Company'scontrol over the corporate governance of the Company for an 18-month period. 

(5)          Mortgage Loan  

In June 2003, AndersenLand Corp. ("Andersen Land"), a wholly-owned subsidiary of theCompany 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.  Andersen Landintends to provide the proceeds of this loan to the Company to assist theCompany in meeting its cash flow obligations.

(6)           Income Taxes 

Income tax benefitrepresents 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 and the extent of the Company's ability to utilize current yearlosses to recover previously paid taxes. 

(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 into commonstock at the later of the beginning of the year or date of issuance, unlessantidilutive.   For the three and sixmonths periods ended August 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 August  31,

 

Six months ended August 31,
      
2003

2002

 

2003

2002
      
Calculation of  basic earnings per share

 

 

 

 

 

 

Numerator for basic and  diluted earnings per  share:

 

Net (loss) income

$                (727)

$             (706)

 

$           (1,211)

$            393 

 

Denominator for basic  earnings per share:

 

 

 

 

 

Weighted average number  of shares outstanding  during the period

  2,100 

  2,100 

 

  2,100 

  2,100 

Effect of dilutive  securities (a)

- 

- 

 

- 

- 

 

Denominator for diluted  earnings per share

2,100 

2,100 

 

2,100 

2,100 

 

Basic (loss) earnings  per share

$               (0.35)

$            (0.34)

 

$             (0.58)

$           0.18 

 

Diluted (loss) earnings  per share

$               (0.35)

$            (0.34)

 

$             (0.58)

$           0.18 

 

(a) During each of thethree and six month periods ended August 31, 2003 and August 31, 2002, theeffect of outstanding stock options, or the assumed conversion of subordinatedconvertible notes or cumulative preferred stock, were anti-dilutive based uponthe effects that the inclusion of the common stock equivalents would have hadon the Company's reported per share results from continuing operations.  

 9
**Item 2.  Management'sDiscussion and Analysis of Financial Condition and Results of Operations** 

The accompanyingManagement's Discussion and Analysis of Financial Condition and Results ofOperations ("MD&A") should be read in conjunction with theMD&A in the Company's Report on Form 10-K for the year ended February 28,2003. 

OverviewThe Company is a holding company which holds a 25% ownership interestin Moscow Broadband which in turn holds 50% voting control over CCTV, a Russiancompany that delivers cable television, high speed data transmission andInternet services to its customers in Moscow, Russia.  CCTV is a start-up business that is currently expanding itsnetwork and attempting to increase its customer 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.  On October 13, 2003, theCompany mailed its proxy statement for the Special Meeting of Stockholdersto be held October 27, 2003 to obtain  theapproval of the Company's stockholders. These agreements call for the issuanceof between 6,470,879 shares and 6,948,873 shares of the Company's common stockin exchange for the equity interest of CCTV to be held by COMCOR, and for the75% of Moscow Broadband not presently owned by the Company.The Company also has a trading portfolio of equity investments of domestic andforeign-based companies, which at August 31, 2003 was valued at $2,493,000.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 were substantiallyliquidated.  The Company retainedownership of JM Ney's facility which it leases to the buyer of JM Ney'soperating assets under terms of an eight-year lease which was negotiated inconnection with the sale of JM Ney'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 is not indicative of the Company'sexpectations of its future results of operations.

Critical AccountingPolicies and EstimatesThe 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 and litigation.  Management bases its estimates and judgmentson historical experience and on various other factors that are believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying values of assets and liabilities that arenot readily apparent from other sources. Actual results may differ from these estimates under differentassumptions 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:   

Deferred Tax AssetsThe Company records a valuation allowanceto reduce its deferred tax assets to the amount that it believes is more likelythan not to be realized. The Company considers future taxable income and ongoingprudent and feasible tax planning strategies in assessing the need for thevaluation allowance.  When the Company determines that it may not be ableto realize all or part of its net deferred tax assets, a valuation allowance toreduce the deferred tax assets to estimated recoverable amounts is charged toincome in the period such determination is made.  Likewise, should theCompany determine that it would be able to realize its deferred tax assets inthe future in excess of its net recorded

10
 amount, areduction in the valuation allowance would increase income in the period suchdetermination is made.  

Investment in Moscow BroadbandThe Company records its investment in Moscow Broadband using the equitymethod which also requires that the carrying value of the investment beevaluated for impairment.   TheAgreements which the Company entered into in May 2003 and the related $3.5 millioncash investment into CCTV have contributed to supporting the reported values asof August 31, 2003.  The ability for theCompany to consummate the proposed transactions and CCTV's future operatingresults will be determining factors in continuing impairment evaluations.

RESULTS OF OPERATIONS -THREE AND SIX MONTHS ENDED AUGUST 31, 2003 VS. THREE AND SIX MONTHS ENDEDAUGUST 31, 2002 

For the six months endedAugust 31, 2003 and 2002, the Company reported net (loss) income applicable tocommon shareholders as follows (in thousands, except per share amounts):

           August 31, 2003
   
               August 31, 2002
      
Amount

Per Share

Amount

Per Share

Net loss from  continuing operations

$          (1,211)

$            (0.58)
   
$             (1,211)

$           (0.58)

Net income from  discontinued operations

- 

- 

132 

0.06 

Gain on sale of JM Ney

- 

- 
   
1,472 

0.70 
   
$           (1,211)

$             (0.58)

$                   393 

$              0.18 
   
 General andAdministrative ExpensesGeneral andadministrative expenses for the three months ended August 31, 2003 decreased22.0% to $585,000 from the $750,000 of such expenses incurred during threemonths ended August 31, 2002.  For thesix month period ended August 31, 2003, general and administrative expenses of$1,471,000 were 13.5% higher than the $1,296,000 of such expenses incurredduring the first six months of the prior fiscal year.  Higher professional fees incurred in connection with the proposedacquisition of CCTV, and the non-recurrence of the prior year $142,000 gainfrom the settlement of retiree health care obligations through an amendment tothe Company's deferred benefit pension plan, contributed to the increasedyear-to-date costs.  The three monthtotal, which represents a 34% decline from the first quarter of the current fiscalyear, reflects lower legal and professional costs incurred in connection withthe negotiation of agreements for the Company to acquire CCTV. 

Interest ExpenseInterest expense fromcontinuing operations for the three months ended August 31, 2003 decreased 6.0%to $63,000 from $67,000 during the comparable period in the prior fiscalyear.  For the six months ended August31, 2003, interest expense of $119,000 is 12.5% lower than the $136,000 ofinterest expense incurred during the first six months of the prior fiscalyear.  The annual sinking fund paymentof the Company's 10 1/2% convertible subordinated debenture lowered averagedebt levels which contributed to the decrease in this expense, while intereston a mortgage loan obtained in June 2003 offset some of this decrease in thesecond fiscal quarter. 

Investment Income andOther Income For the six months endedAugust 31, 2003, investment income and other income totaled $945,000 ascompared to $286,000 in the comparable period in the prior fiscal year.  For the three months ended August 31, 2003,investment income and other income totaled $335,000 as compared to $90,000 inthe comparable period in the prior fiscal year.  Significant components of investment income and other income areas follows (in thousands): 

11
Six Months Ended

 

Three Months Ended
      
August 31, 2003

August 31, 2002

 

August 31, 2003

August 31, 2002
      
Net gains from domestic   trading portfolio

  $                  684

  $                  105 

 

  $                   228

  $                         22 

Rental income

155 

136 

 

79

77 

Interest and dividends

26 

69 

 

6

52 

Ultrasonic royalties

35 

24 

 

22

10 

Change in deferred  compensation accounts

45 

(48)

 

-

(71)
      
        $               945 

$                    286

 

$                   335

$                         90 
      
Equity in Losses ofMoscow BroadbandThe Company's equity inthe losses of Moscow Broadband decreased 17.4% to $142,000 for the three monthsended August 31, 2003 from $172,000 in the comparable period of the prior fiscalyear, and decreased 5.6% to $321,000 for the six months then ended from$340,000 recorded in the prior fiscal year. These represent the Company's equity in MBC's results of operations forthe three and six month periods ended June 30, 2003 and 2002, as follows (inthousands):   

Three months ended June 30,

 

Six months ended June 30,
      
2003

2002

 

2003

2002
      
MBC's operating losses

$                (67)

$              (166)

 

$           (136)

$           (281)

MBC's equity in CCTV's  losses

(519)

(523)

 

(1,146)

(1,080)
      
  Total MBC loss

$               (586)

$               (689)

 

$         (1,282)

$         (1,361)
      
Andersen equity portion  - 25%

$               (147)

$               (172)

 

$            (321)

$            (340)
      
 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.  MBC'sequity in the losses of CCTV for the three months ended June 30, 2003 weresubstantially unchanged from the prior year's second quarter and wereapproximately 6.0% higher for the six month period from the prior year'scomparable period. 

 

12
CCTV's results ofoperations for the three and six months ended June 30, 2003 and 2002, and MBC'sequity in these results were comprised as follows (in thousands): 

Three months ended June  30,

 

Six months ended June  30,
      
2003

2002

 

2003

2002
      
Subscription fees

$               614 

$                323 

 

$         1,136 

$           612 

Connection fees,  equipment and other  revenue

  230 

  107 

 

  438 

  253 
      
  Total revenues

844 

430 

 

1,564 

865 

Cost of sales

1,133 

862 

 

2,312

1,653
      
Gross margin

(289)

(434)

 

(748)

(789)

Operating expenses

740 

638 

 

1,537 

1,431 
      
Loss from operations

(1,029)

(1,072)

 

(2,285)

(2,224)

Equity in losses of  unconsolidated  subsidiary

  (39)

  - 

 

  (84)

  - 
      
Other non-operating  items, net

(39)

(40)

 

(62)

(65)

Net loss before income  taxes

(1,107)

(1,112)

 

(2,431)

(2,289)

Income tax benefit

(69)

(65)

 

(138)

(129)
      
 

 

 

 

 

Net loss

$            (1,038)

$            (1,047)

 

$         (2,293)

$         (2,160)
      
 

 

 

 

 

MBC equity portion -  50%

$               (519)

$               (523)

 

$         (1,146)

$         (1,080)
      
 CCTV's subscription feesfor television and Internet access services for the three months ended June 30,2003 increased by 90.0% over the comparable period in the prior year as aresult of increased subscription levels both from increased market penetrationin areas which it had access to in the prior year, and from new subscribers inareas to which it has expanded in the last year.  Year to date, such revenues were 85.6% higher than the prior yearfor the same reasons. 

At June 30, 2003, CCTVreported that it had 48,672 subscribers from its broadcasting and premiumtelevision services and 6,895 subscribers for its Internet accessservices.  These represent increases of38.3% and 88.2% respectively over the number of subscribers it had reported asof June 30, 2002.  As a result, subscriptionfees during the quarter have increased 41.8% and 107.2% for the television andInternet access services, respectively, from the prior year's first quarter. 

CCTV's cost of sales forthe three and six months ended June 30, 2003, increased 31.4% and 39.9%,respectively over the comparable periods in the prior year primarily as aresult of utilization fees and lease of secondary node fees from COMCOR whichwere not present in the prior year until August 2002 and to increaseddepreciation expense relating to assets contributed by COMCOR in July2002.  Prior to that time, COMCORcharged CCTV access network charges for the rental of the networks inChertanovo and Khamovniki, which in total were approximately $261,000 lowerthan the utilization fees and lease of secondary node fees charged in thecurrent year. 

CCTV's general andadministrative expenses for the three and six month periods ended June 30, 2003increased 16.0%  and 7.4% respective inover the comparable year period due to higher sales commissions associated withsubscriber growth, increased professional fees and increases in asset-basedtaxes. 

Income TaxesIncome taxes 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 and the extent ofthe Company's ability to utilize current year losses to recover previously paidtaxes.  During the three months endedAugust 31, 2003, an income tax expense of $197,000 was recorded which reflectsan increase of approximately $211,000 in the valuation allowance relating tothe recoverability of certain deferred tax receivables.  Year to date, more tax expense for the sixmonths ended August 31, 2003, reflects the increase in the valuation allowanceand a net tax benefit from operations at an estimated effective tax rate ofapproximately 11.1%. 

 

13
Income from DiscontinuedOperationsDuring the three monthperiod ended May 31, 2002, the Company owned JM Ney for only 22 days until itssale effective March 22, 2002.  JM Ney'sresults for that period produced net income of $132,000 after incometaxes.   

Gain on Sale of JM NeyThe 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 ofthe selling 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 August 31, 2003,consolidated cash and marketable securities totaled $5,489,000 as compared to$8,088,000 as of February 28, 2003.  Thedecrease of $2,599,000 is primarily attributable to the use of cash to fund theCompany's $3,500,000 investment in CCTV and from the use of $1,538,000 of cashin its operating activities.  Inaddition, $1,797,000 of cash was provided by financing activities from theproceeds of a mortgage loan less principal payments of this loan and thepayment of $141,000 of preferred dividends. Unrealized appreciation of the Company's trading portfolio of commonstock totaling $684,000 during the six months increased the marketablesecurities balance. 

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

The Company's presentresources, including a trading portfolio of equity securities, are not expectedto be adequate for the Company to meet the CCTV funding requirements and itscontinuing operating expense, debt service and preferred dividend paymentobligations for more than 12 months.   

The agreements enteredinto with COMCOR contemplate 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 Companyhas plans to undertake capital raising activities, but there can be noassurance that such activities will be successful.  If such activities are not successful, it is more likely than notthat the additional investment into CCTV will not be made, or will be made inan amount that is materially lower than provided for in the acquisitionagreements. 

At June 30, 2003, CCTVhad approximately $1,874,000 in cash and current liabilities of approximately$3,563,000.  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 its access network by an additionalapproximately 70,000 homes, which will require capital expenditures estimatedto be in excess of $3,000,000. Accordingly, CCTV will remain dependent upon outside sources of cash, includingthe planned capital contributions to be made by the Company.  The Company's ability to make suchcontributions cannot be guaranteed. In addition, the adequacy of suchadditional cash contribution into CCTV, if made, to meet CCTV's planned cashflow obligations cannot be assured. 

The following tablepresents the Company's contractual obligations as of August 31, 2003: 

Payments Due By  Period

  Contractual Obligation

  Total

Less Than   One Year

  1-3 Years

  4-5 Years

  After 5 Years

Long term debt

$             4,053

$                598

$             1,195

$             1,195

$             1,065

Operating leases

63

63

-

-

-
   
 

 

 

 

 

$              4,116

$                 661

$              1,195

$              1,195

$              1,065
   
14
 *Effect of New Accounting Pronouncements*

In April 2003, theFinancial Accounting Standards Board ("FASB") issued Statement ofFinancial Accounting Standards No. 149 ("SFAS 149"), "Amendmentof Statement 133 on Derivative Instruments and Hedging Activities."  SFAS 149 amends Statement of FinancialAccounting Standards No. 133 to provide clarification on the financialaccounting and reporting of derivative instruments and hedging activities andrequires that contracts with similar characteristics be accounted for on acomparable basis.  The provisions ofSFAS 149 are effective for contracts entered into or modified after June 30,2003, and for hedging relationships designated after June 30, 2003.  The Company is currently evaluating theeffects this statement may have on its consolidated financial statements. 

In May 2003, the FASBissued Statement of Financial Accounting Standards No. 150 ("SFAS150"), "Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity."  SFAS 150 establishes standards on the classification and measurementof certain financial instruments with characteristics of both liabilities andequity.  The provisions of SFAS 150 areeffective for financial instruments entered into or modified after May 31, 2003and to all other instruments that exist as of the beginning of the firstinterim financial reporting period beginning after June 15, 2003 (our thirdquarter of fiscal 2004).  The Company iscurrently evaluating the effects this statement may have on its consolidated financialstatements. 

OFF BALANCE SHEET ARRANGEMENTSThe 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.**Item3.  Quantitative and QualitativeDisclosures About 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 RISKAt August 31, 2003, the Companyhas equity risk with respect to $2,493,000 of investments in U.S. basedpublicly traded financial institutions held in its trading portfolio and oneUkranian-based company.   

FOREIGN INVESTMENT RISKThe Company hasinvestments in CCTV and Moscow Broadband with a combined carrying value of$5,297,000.  Moscow Broadband's primaryasset is an investment in CCTV, a Moscow, Russia based broadband cable operatorlicensed to provide video, Internet and telephony to up to 1.5 million homesand businesses in Moscow. Accordingly, these investments bear the specificeconomic, currency and 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 the capital riskassociated with a start-up company which is experiencing operating losses andrequires the commitment of funds to meet the capital expenditure needs of itsbusiness plan.  Such transactions arealso expected to significantly reduce the Company's liquidity as discussed inthe Liquidity and Capital Resource section of Item 2 of this report. 

INTEREST RATE RISK At August 31, 2003,Andersen Land Corp, a wholly-owned subsidiary of the Company, was obligatedunder a mortgage note which bears interest at 2.25% above the London InterbankOffered Rate (LIBOR), which will expose it to interest rate risk at eachperiodic renewal of the rate, the first of which will be in March 2004.  If the LIBOR rate increases from the currentannual rate of 3.284% by 1% at renewal, the Company estimates that the interestcost of this obligation would increase by approximately $17,000 for the fiscalyear ending February 28, 2005. 

15
**Item 4.  Controls andProcedures**As required by Rule 13a-15 under the Securities Exchange Actof 1934, as amended (the "Exchange Act"), the Company carried out anevaluation of the effectiveness of the design and operation of the Company'sdisclosure  

controls and procedures as of the end of the fiscal quarter. Thisevaluation was carried out under the supervision and with the participation ofthe Company's management, including the Company's President and Chief ExecutiveOfficer and the Company's Chief Financial Officer. Based upon that evaluation,the Company's President and Chief Executive Officer and the Company's ChiefFinancial Officer concluded that the Company's disclosure controls andprocedures are effective. There have been no significant changes in theCompany's internal control over financial reporting which have materiallyaffected or are reasonably likely to materially affect internal control overfinancial reporting that occurred during the fiscal quarter. Disclosure controls and procedures are controls and other procedures that aredesigned to ensure that information required to be disclosed in the Company'sreports filed or submitted under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the Securities andExchange Commission's rules and forms. Disclosure controls and proceduresinclude, without limitation, controls and procedures designed to ensure thatinformation required to be disclosed in the Company's reports filed orsubmitted under the Exchange Act is accumulated and communicated to management,including the Company's Chief Executive Officer and Chief Financial Officer, asappropriate to allow timely decisions regarding required disclosure.

**Part II.  OtherInformation** 

**Item 1.  LegalProceedings** 

*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 subsequentlyconsolidated, were filed under the Comprehensive Environmental ResourceCompensation and Liability Act ("CERCLA"), the Resource Conservationand Recovery Act, the New Jersey Spill Act and New Jersey common law, allegingthat the defendants (over 100 companies, including JM Ney) were generators ofcertain wastes allegedly processed at the Site.  The lawsuits seek recovery of costs incurred and a declaration offuture liability for costs to be incurred by the owners and operators in studyingand remediating 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 plaintiffsreinstate the case, given the legal and factual issues that remain outstanding,the Company currently has no basis to ascertain the range of loss, should anyoccur, with respect to an outcome that may be considered unfavorable.  This contingent liability was not assumed bythe buyer of JM Ney's net assets.

**Item 4.  Submission of Matters to a Vote of Security Holders** 

During the three monthsended August 31, 2003, the Company held a combined 2002 and 2003 Annual Meetingat which the existing 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

 

16
 OnSeptember 16, 2003, John S. Grace resigned from the Company's Board ofDirectors.  There were no disagreementswith the Company cited in Mr. Grace's resignation letter to the Company.** **

**Item 6.  Exhibits andReports on Form 8-K** 

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

Exhibit                                    Description

Exhibit 31.1                            Certification of  CEO pursuant to Section 302 of Sarbanes-Oxley Act                         Exhibit 31.2                            Certification  of CFO pursuant to Section 302 of Sarbanes-Oxley Act  Exhibit 32                               Certification  of CEO and CFO Pursuant to 18 U.S.C. Section 1350 

  

(b)  Reports on Form 8-K

 On June 6, 2003,the Company filed a Form 8-K under Item 9 to report that it had issued a pressrelease in which the Company announced that a rights offering by its 25%-ownedaffiliate, Moscow Broadband Communication Limited, had been canceled.  The Company also announced that the agreementsreached with COMCOR to acquire control of CCTV includes a provision for theCompany to use its commercially reasonable best efforts to have its own rightsoffering of its common stock prior to August 2004; however, the terms of anysuch offering have not been determined. 

On July 3, 2003,the Company filed a Form 8-K under Item 9 to report that it had received aNasdaq Staff Determination Letter indicating that the Company fails to complywith the market value of publicly-held shares requirement for continuedlisting, and that the Company had requested a hearing before a NasdaqQualification Listing Panel to review this determination. 

On July 8, 2003,the Company filed a Form 8-K under Item 12 to report its results for the threemonths ended May 31, 2003. 

On July 24, 2003,the Company filed a Form 8-K under Item 9 to report that it had receivednotification from the Nasdaq Staff that it had evidenced compliance with themarket value of publicly-held shares requirement and that the delistingproceedings had been withdrawn.

17
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.

 ANDERSEN GROUP, INC. 

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

                Oliver R. Grace, Jr.

                President and Chief Executive Officer

Date:       October 15, 2003

 

By:          /s/ Andrew M. O'Shea

                Andrew M. O'Shea

                Chief Financial Officer

Date:       October 15, 2003

 18