**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**WASHINGTON, D.C. 20549

 **Form 10-K**

 **x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended February 28, 2003OR****o TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**For the transition period from _____ to _____Commission File Number:  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        |
| Securities registered pursuant to Section 12(b) of the Act:  NONESecurities registered pursuant to Section 12(g) of the Act: |
|-----------------------------------------------------------------------------------------------------------------------------------|

 
| Title of each class                                       | Name of each exchange on  which registered |
|-----------------------------------------------------------|--------------------------------------------|
| **Common  Stock, $.01 par value**                         | **The  NASDAQ Stock Market**               |
| **10 1/2%  Convertible Subordinated Debentures Due 2007** | ** **                                 |

             Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x         No o

             Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of the registrant's knowledge, in definitiveproxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to this Form 10-K.  x

             Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b2 of the Act).          Yes o   No x

          The aggregate market value of the Common Stock, $.01par value, held by non-affiliates of the Registrant based upon the last priceat which the common stock was sold as of August 30, 2002, as reported on TheNASDAQ Stock Market, was approximately $4,871,147.  Shares of Common Stock held by each officerand director and by each person who owns 5% or more of the outstanding CommonStock have been excluded in that such persons may be deemed to beaffiliates.  This determination ofaffiliate status is not necessarily a conclusive determination for otherpurposes.

          Number of shares of common stock outstanding as ofMay 27, 2003:  2,099,908.

----

 **DOCUMENTS INCORPORATED BYREFERENCE**

**               **Theinformation required by Part III of this Report, to the extent not set forthherein, is incorporated herein by reference from the registrant's definitive ProxyStatement to be filed pursuant to Regulation 14A under the Securities andExchange Act of 1934 for the Annual Meeting of stockholders to be held on June20,2003, which definitive Proxy Statement shall be filed with the Securities andExchange Commission within 120 days after the end of the fiscal year to whichthis Report relates.

----

**INDEX TO ANNUAL REPORT ON FORM 10-K**Year Ended February 28, 2003

 

 

Page

 

 

Number

**PART I**

 

 

Item 1.

Business
1
Item 2.

Properties
4
Item 3.

Legal Proceedings
4
Item 4.

Submission of Matters to a Vote of Security Holders
4
 

 

 

**PART II**

 

 

Item 5.

Market for Registrant's Common Equity and Related  Stockholder Matters  
5
Item 6.

Selected Financial Data
5
Item 7.

Management's Discussion and Analysis of Financial  Condition and Results of Operations
6
Item 7a.

Quantitative and Qualitative Disclosure about Market  Risk
12
Item 8.

Consolidated Financial Statements and Supplementary  Data
13
Item 9.

Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure
13
 

 

 

**PART III**

 

 

Item 10.

Directors and Executive Officers of the Registrant
13
Item 11.

Executive Compensation
13
Item 12.

Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters
13
Item 13.

Certain Relationships and Related Transactions
14
Item 14.

Controls and Procedures
14
** **

 

 

**PART IV**

 

 

Item 15.

Exhibits, Financial Statement Schedules and Reports  on Form 8-K
16
 

Signatures
18
 

Certifications
19

**PART I****ITEM 1.  BUSINESS**

Statement Regarding Forward Looking Disclosure and Risk FactorsCertain sections of this Annual Report on Form 10-K, including "Item 1.Business" and "Item 7. Management's Discussion and Analysis ofFinancial Condition and Results of Operations", may contain variousforward looking statements within the meaning of Section 27A of the SecuritiesAct of 1933, as amended (the "Securities Act"), and Section 21E ofthe Securities Exchange Act of 1934, as amended (the "Exchange Act"),which represent the Company's expectations or beliefs concerning future events.Forward-looking statements include statements that are predictive in nature,which depend upon or refer to future events or conditions, which include wordssuch as "believes," "plans," "anticipates," "estimates,""expects" or similar expressions. In addition, any statements concerning future financial performance,ongoing business strategies or prospects, and possible future actions, whichmay be provided by the Company , are also forward-looking statements.  Forward-looking statements are based oncurrent expectations and projections about future events and are subject torisks, uncertainties, and assumptions about the Company, economic and marketfactors and the industry in which the Company does business, among otherthings.  These statements are notguarantees of future performance and the Company undertakes no obligation topublicly update any forward-looking statements, whether as a result of newinformation, future events or otherwise. Actual events and results may differ materially from those expressed orforecasted in forward-looking statements due to a number of factors.  Factors that could cause the Company actualperformance and future events and actions to differ materially from suchforward-looking statements, include, but are not limited to those discussedbelow and elsewhere in this Annual Report on Form 10-K.GeneralAndersen Group, Inc. (referred to herein as the "Company") is acorporation which was incorporated under the laws of the State of Connecticut in1951.  In April 1998, the Companyre-incorporated to the State of Delaware. As used herein, "FY03", "FY02" and "FY01"reference the fiscal years ended February 28, 2003, 2002 and 2001,respectively.  Other February fiscal yearend references are similarly referred to with the appropriate "FY"designation.From February 1991 to March 22, 2002, the Company's activities have beenprincipally conducted in the areas of manufacturing and investments.  Subsequent thereto, the Company sold theoperating assets of its manufacturing subsidiary, The J.M. Ney Company ("JMNey"), and has focused its activities on the acquisition of ZAO ComCor-TV("CCTV").Since April 2000, the Company has had an indirect investment in CCTV throughits 25% equity position in ABC Moscow Broadband Communication Limited ("MBC"),a Cyprus-based limited liability company. Since April 2000, MBC has owned 50% of CCTV, or had 50% voting control overCCTV with CCTV's other shareholder, Moscow Telecommunications Corporation ("COMCOR").  CCTV is a start-up provider of cabletelevision, high speed data transmission and Internet access services that islicensed to provide these services as well as IP telephony to 1,500,000 homesand businesses in Moscow, Russia.  CCTVutilizes COMCOR's Moscow Fiber Optic Network ("MFON") to deliversignals to its "last mile" network to its customers' homes andbusinesses.  This use of the MFON issubject to the terms of a 50-year agreement which expires in 2050.In April 2002, as amended in August and September 2002, the Company enteredinto agreements under which, subject to, among other things, shareholderapproval, the Company agreed to acquire 100% of the outstanding stock of CCTVthrough the i) contribution of cash into CCTV; ii) the issuance of between4,000,000 shares and 4,560,000 shares of its common stock to Asinio CommercialLimited ("ACL") a Cyrus limited liability company, in exchange forshares of CCTV presently held by COMCOR that were to be acquired by ACL in aseparate transaction, and iii) the issuance of 2,250,000 shares of its commonstock in exchange for the 75% of MBC that the Company does not presentlyown.  Pursuant to these agreements, inMay 2002, MBC made a $5,000,000 cash investment into CCTV, and COMCOR investedoperating assets and shares of the Institute for Automated Systems ("IAS")with an aggregate recorded value of approximately $17,374,000.  IAS is a Moscow-based telecommunicationscompany, approximately 41.7% of which is presently owned by CCTV directly, andless than 2% of which is owned by MBC.In April 2003, the Company and ACL agreed to terminate the agreements betweenthe parties. 

Concurrent with the termination of such agreements, the Company enteredinto agreements with COMCOR pursuant to which the Company will issue 4,220,879shares of its common stock to COMCOR in exchange for the equity of CCTV to beheld by COMCOR, including the equity of CCTV to be acquired by COMCOR inexchange for the extinguishment of approximately $1,380,500 of amounts owed orto be owed to COMCOR from CCTV. Consummation of this transaction is subject toamong other things, i) the approval of the Company's stockholders, and ii) theCompany's acquisition of substantially all of the shares of MBC's common stockthat it does not currently own.

1
In connection with the agreements, the Company committed to making i) a$3.5 million investment into CCTV within 20 days, ii) a $1.0 million investmentin CCTV within 20 days of the closing of the acquisition of the CCTV shares andiii) $1.5 million investment into CCTV at the earlier of the closing of arights offering or August 31, 2004.  Theagreements also provide for an additional $5,829,000 of capital contributions to CCTV from the Company prior to March 31,2005. To the extent such contributions arenot made, then the Company will be obligated to issue up to 477,994 additionalshares of its common stock to COMCOR.

Pursuant to the agreements signed, effectiveApril 1, 2003,  COMCOR also agreed to eliminate the fee it chargedCCTV for transportation network services from CCTV's utilization of the MFONthat had been charged at the rate of 10% of CCTV's television service revenues.Pursuant to theagreements signed, COMCOR agreed to allow CCTV to limit the payments of theinvoices for the lease of secondary nodes, which are at the monthly rate of $350per secondary node, to the lesser of the invoiced amount or 20% of the televisionservice revenues generated through such secondary nodes through December 2005.  TheCompany will have the option of settling up to $1,500,000 of any of suchinvoiced amounts that have not been paid pursuant to the agreement through theissuance of shares of its common stock, the number of which will be determinedbased on a price of $6.25 per share.  At May 20, 2003, CCTV was leasing 234of COMCOR's secondary nodes.  CCTV has plans to reduce the use of up to 63 ofthese nodes within the next six months, and lease an additional approximately 68secondary nodes from COMCOR as further build-out of its access network occurs.
Concurrent with the closing of theproposed acquisition of CCTV equity from COMCOR, the Company intends to acquirethe 75% of MBC equity that it does not currently own in exchange for 2,250,000shares of Company common stock. To partially satisfy its additional funding requirementsdiscussed above, after the closing of the acquisition, the Company intends tocontribute approximately $1,250,000 to CCTV, which is comprised of MBC's loans andadvances to CCTV,4,402 shares ofthe stock of the Institute for Automated Systems and the extinguishmentof a $138,144 liability of CCTV through the issuance of approximately 33,427shares of the Company's common stock. Such contribution would reduce the numberof shares of the Company's common stock that the Company would be obligatedto issue to COMCOR, in the absence of any other qualifying contributionsmade by the Company to CCTV, from 477,994 to 374,941."> Inaddition, the potential issuance of shares of the Company's common stock to satisfy any cumulativeunderpayment to COMCOR of fees for the lease of secondary nodes may be appliedagainst the $5,829,000 funding requirement to further reduce the number ofshares that may be issued to COMCOR.  The agreementsfurther call for the Company to maintain the right to name four of the sevenmembers of the Company's Board of Directors and for COMCOR to name theremaining three.  Voting Agreements amongCOMCOR, Oliver R. Grace, Jr., the Company's President, and Francis E. Baker,the Company's Chairman, were entered into to support the continuation of theCompany's control over the corporate governance of the Company for a two-yearperiod.The Company also has made investments in the common stocks of financialinstitutions, primarily through the subscription for shares of the commonstocks of mutual savings banks as part of their de-mutualization process.  Prior to FY01, the Company had also madeinvestments in the stock of companies in emerging countries such as Russia, theUkraine and Poland.The Company's manufacturing operations had been represented by the activitiesof JM Ney, which up until the sale of its operating assets effective March 22,2002, consisted of the manufacture and sale of precious metal alloys, stampedparts and insert-molded parts which were sold to manufacturing anddistributioncustomers in the automotive, medical and industrial electronicsindustries.  The activities of JM Ney hadcomprised the Company's Electronics segment.  Financial Information about SegmentsSince March 22, 2002, the Company has operated as one segment.  In recent prior years, the Company'soperations included JM Ney which comprised the Electronics Segment. With the saleof JM Ney's operating assets effective March 22, 2002 and the subsequentliquidation of substantially all the net current assets of JM Ney not sold, theresults of JM Ney's operations are now reflected in the Company's consolidatedfinancial statements as discontinued operations.  Information with respect to JM Ney's resultsof operations and the sale of its operating assets is contained in note 3 tothe Company's consolidated financial statements which are included herein underItem 8 "Financial Statements and Supplementary Data".Until the Company can complete its proposed acquisition of CCTV, its activitiesprimarily comprise the management of a trading portfolio of common stock,renting the real estate property in Bloomfield, CT from which J.M. Ney operatedand from which the purchaser of J.M. Ney's operating assets now operates itsbusiness, and the activities surrounding the proposed acquisition of CCTV,including the monitoring of its operations, and general corporate andadministrative functions.Trading PortfolioAt February 28, 2003, the Company's trading portfolio was valued at $1,809,000.  It was comprised of the common stocks of fivefinancial institutions with an aggregate reported value of  $1,804,000 and one Ukraine common stock with areported value of $5,000.  During FY03,the Company invested a total of $960,000 in this portfolio, and receivedproceeds of approximately $141,000 from the sale of stocks which had a costbasis of $100,000.
2
Real EstatePursuant to the sale of JM Ney's net operating assets, the Company enteredinto an eight year lease of JM Ney's manufacturing facility for which itreceives rental income at an annual rate of $290,000, with annual increases inthe annual rate of $5800 in each monthly payment.ABC Moscow Broadband Communication Ltd.Since February 2000, the Company has held a 25% equity interest in MBC,which in turn, since April 2000 has held a 50% ownership interest in, or 50%voting control over, CCTV.  Officers anddirectors of the Company and their affiliates taken as a whole have beneficialinterest in or voting control of over approximately 46.9% of MBC, excluding the 25%directly held by the Company.Through MBC, the Company has monitored the start-up operations of CCTV.  However, during FY02 and FY03 once initialdiscussions and agreements had been reached pursuant to which the Companyintends to acquire 100% control of CCTV, the Company has directly focused its attentionon activities to complete the transaction, obtain additional capital for theCompany to support its and CCTV's activities after the acquisition, and toprovide management assistance to CCTV.COMCOR-TVThe Company's current investment in MBC and its future business planscenter around CCTV.  CCTV is in theprocess of building out its "last mile" coaxial fiber access networkfrom COMCOR's MFON which it leases on an exclusive basis for its products andmarkets.  In accordance with agreementsreached in 2000 and subsequently amended, COMCOR had charged CCTV 10% of CCTV'scable television service revenues as a MFON utilization charge, as well ascharging for data return service provided to CCTV's Internet customers.  Beginning in August 2002, COMCOR also begancharging CCTV $350 per month per node for the lease of secondary nodes, whichare switching stations for the transfer of signals from the MFON to CCTV'snetwork.  Theagreements signed in May 2003 convert certain unpaid fees for these servicesinto CCTV equity and provide for flexible payment terms through 2004.CCTV is licensed to provide access to up to 1,500,000 homes andbusinesses.  At January 1, 2002, it hadaccess to 89,078 homes and businesses.  During2002, network construction activity increased the number of "homes passed"to 107,491, and as of April 14, 2003, it had constructed its network to reach atotal of 126,251 homes and businesses. Construction of the network in 2002 and early 2003 was concentratedprimarily in the regions of Tverskoy, Meschanskiy and Tagansky in the Central AdministrativeDistrict of Moscow, although there was some additional  buildout in Chertanovoand Khamovniki.Once a home or business is accessed, CCTV markets its services to its potentialcustomers.  CCTV's services currentlyinclude a basic terrestrial television package which gives the subscriber 16television channels.  CCTV also offerstwo levels of pay television packages which give the subscriber 15 and 31additional channels respectively.  Adultcontent channels are available to pay television subscribers for an additionalcharge.  CCTV has plans to expand itstelevision offerings by the addition of additional channels and introducing digitaltelevision technology that will allow for interactive services such as video ondemand and other pay-per-view television services.CCTV also provides high speed data transmission and Internet access servicesthrough its network.  It offers theseservices to its customers through programs that allow the customer varyinglevels of traffic volume, above which additional usage will result inadditional charges to the customer.  AtDecember 31, 2002, CCTV had approximately 42,101 subscribers for its televisionservices, of which 2,752, or 6.5%, had signed up for premium televisionservices.  This represents an averagemarket penetration of 39.2% of homes passed for the terrestrial services,although many of the additional homes had been available to market for lessthan three months.  Premium televisionsubscriber penetration was 2.8% of homes passed or 7.2% of all subscribers.  However, CCTV has generally experienced morefavorable premium television penetration in regions within the Central AdministrativeDistrict of Moscow than it has in Chertanovo, which as of December 31, 2002comprised 71% of the homes passed.  AtDecember 31, 2002, CCTV's premium television subscribers as a percent of totalsubscribers was approximately 5.2% in Chertanovo, while it was approximately14.8% in the other regions CCTV had accessed as of that date.Subscribers for CCTV's Internet access services, which totaled 4,869 as ofDecember 31, 2002, represented 4.5% of homes passed.  Internet subscribers in Chertanovo representedapproximately 9.9% of total customers, as compared to the other regions inwhich Internet customers were 17.4% of total customers.CCTV believes that the demographics for many of the newly accessed homes andthe areas it has plans to access in 2003 will be more conducive to increasedacceptance of the premium priced services of pay television and Internetaccess.Compliance with Environmental Protection LawsManagement of the Company believes that the Company and its subsidiariesare in material compliance with applicable federal, state and localenvironmental regulations. Compliance with these regulations has not in thepast had any material effect on the Company's capital expenditures,consolidated statements of operations and financial position or competitiveposition, nor does the Company anticipate that compliance with existingregulations will have any such effect in the near future.
3
 

EmployeesAs of May 21, 2003, the Company, including all majority-ownedsubsidiaries, had five full-time employees. This excludes the employees of CCTV, in which the Company indirectlyholds a minority equity interest through its investment in MBC.  CCTV employs approximately 218 people inMoscow, Russia and also subcontracts most of its network buildout to outsidefirms.Executive Officers of the CompanyThe Executive Officers of the Company are as follows:

**Name**

**Age**

**Position**

**Officer Since**

Francis E. Baker

73

Chairman and Secretary

1959

Oliver R. Grace, Jr.

49

President and Chief Executive Officer

1990

Andrew M. O'Shea

44

Chief Financial Officer

1995

Executive officers hold their offices at the pleasure of the Board ofDirectors.  Each of the Company's officershas been associated with the Company in their present positions for more thanthe past five years. Mr. Grace, Jr. has been a Director of the Company since 1986 and President andChief Executive Officer since June 1, 1997. Mr. Grace, Jr. was Chairman of the Company from March 1990 to May 1997.  Mr. Grace, Jr. has also been President of AGInvestors, Inc., one of the Company's subsidiaries, since 1992.  Mr. Grace Jr. is also Chairman of MBC.  Mr. Grace, Jr. is a General Partner of TheAnglo American Security Fund L.P.  Mr.Grace, Jr., is the brother of John S. Grace, a member of the Company's Board ofDirectors. Mr. Baker became Chairman on June 1, 1997. He has been a Director of the Company since 1959 and was President andChief Executive Officer from 1959 until May 1997.  Mr. Baker is also the Secretary of theCompany, a position he has held since May 1997. Mr. Baker is also President of MBC.Mr. O'Shea joined the Company in December 1995 as the Treasurer and ChiefFinancial Officer of JM Ney.  In November1997 he was also appointed JM Ney's Secretary, and in December 1999, he wasappointed as the Company's Chief Financial Officer. Mr. O'Shea is also ChiefFinancial Officer of MBC. **ITEM 2.  PROPERTIES.**The Company's principal executive offices are located in leasedoffice space in New York, New York.  TheCompany also leases office space in Windsor, Connecticut to support certainadministrative activities.  The Companybelieves these facilities are adequate for its current and foreseeableoperations.Andersen Land Corp. (formerly JM Ney) owns a 98,000 square foot facilitylocated on 18.4 acres of land within an industrial park in Bloomfield,Connecticut, which, since March 22, 2002, has been leased to the buyer of JMNey's operating assets under terms of an eight-year lease entered into inconnection with the JM Ney asset sale.

**ITEM 3.  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 of futureliability for 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.  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.**ITEM 4.  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS.**During the three months ended February 28, 2003, no matters weresubmitted to a vote of the security holders of the Company.  

4
**PART II**

** ITEM 5.  MARKETFOR REGISTRANT'S COMMON EQUITY  ANDRELATED STOCKHOLDER MATTERS.**

The Registrant's Common Stock is traded on The NASDAQ Stock Market ("NASDAQ")under the symbol (ANDR) with quotes supplied by the National Market System ofthe National Association of Securities Dealers, Inc. The approximate number of record holders of the Registrant's Common Stock on April1, 2003 was 415.  The Company's high, lowand closing sales prices for the common equity, for each full quarterly periodwithin the two most recent fiscal years, are included below.  The stock prices shown, which were obtainedfrom NASDAQ, represent prices between dealers and do not include retailmarkups, markdowns or commissions and may not necessarily represent actualtransactions. 

**Year ended February 28, 2003**

**High**

**Low**

**Close**

First Quarter

$9.59

$7.22

$7.41

Second Quarter

$8.28

$3.61

$4.50

Third Quarter

$5.00

$2.36

$3.00

Fourth Quarter

$6.50

$2.01

$3.70

 

**Year ended February 28, 2002**

**High**

**Low**

**Close**

First Quarter

$10.13

$6.88

$8.63

Second Quarter

$  9.48

$7.10

$8.35

Third Quarter

$11.26

$7.45

$9.00

Fourth Quarter

$13.00

$7.75

$8.04

The Company has not paid dividends on its common stock since the fiscalyear ended February 28, 1993, and it does not anticipate paying any dividendsin the foreseeable future.The declaration and payment of future dividends are at the sole discretion ofthe Board of Directors and will depend upon profitability, financial condition,cash requirements, future prospects and other factors deemed relevant by theBoard of Directors. **ITEM 6.  SELECTEDFINANCIAL DATA.**The following table summarizes certain financial data withrespect to the Company and is qualified in its entirety by the ConsolidatedFinancial Statements of the Company contained in Item 8 herein and by Management'sDiscussion and Analysis of Financial Condition and Results of Operations inItem 7 herein. Amounts below are in thousands, except per share data. 

**Years  Ended February 28/29**

**2003**

2002

2001

2000

1999

Interest income and  other income (loss)1

**$914 **

$590 

$698 

$1,262 

$(3,237)

Loss from continuing  operations1

**(2,050)**

(1,700)

(1,860)

(990)

(4,173)

Net (loss) income

**(446)**

528 

(1,623)

(987)

(3,080)

(Loss) income applicable  to common  shareholders

**(728)**

242 

(1,927)

(1,349)

(3,465)

Income (loss) from  continuing operations per  common share, basic and diluted

**(1.11)**

  0.93 

  (1.06)

  (0.70)

  ($2.16) 

 (Loss) income per common share, basic and   diluted

**(0.35)**

0.12 

(0.94)

(0.70)

(1.80)

Depreciation,  amortization and interest accretion

**293 **

1,581 

1,589 

1,466 

1,434 

Total assets

**19,045 **

25,269 

33,076 

37,118 

37,119 

Total debt

**2,081 **

4,959 

13,247 

15,056 

13,857 

Stockholders' equity

**13,102 **

13,751 

13,448 

15,262 

16,429 

Book value per common share

**$4.57 **

4.90 

4.70 

5.59 

6.18 

1Interest income and other income/loss, and losses fromcontinuing operations exclude the results of operations of the Company's Electronicsegment as a result of its sale in March 2002.   

5
**ITEM 7.  MANAGEMENT'S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**.

 **RESULTS OF OPERATIONS**OverviewThe Company is a holding company which holds a 25% ownership interest in MBCwhich in turn holds 50% voting control over CCTV, a Russian company thatdelivers cable television, high speed data transmission and Internet servicesto its customers.  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 equity interestof CCTV to be held by COMCOR, and for the 75% of MBC not presently owned by theCompany.The Company also has a trading portfolio of equity investments of domestic andforeign-based companies.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 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 sale of JM Ney, the followingdiscussion and analysis of the results of operations and the financialcondition of the Company will not be indicative of the Company's expectationsof its future results of operations.Critical Accounting Policies and EstimatesManagement's Discussion and Analysis of Financial Condition and Results ofOperations discusses the Company's consolidated financial statements, whichhave been prepared in accordance with accounting principles generally acceptedin the United States.  The preparation ofthese financial statements requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities and thedisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  On an on-going basis,management evaluates its estimates and judgments, including those related tobad debts, investments, income taxes, financing operations, retirementbenefits, contingencies and litigation. Management bases its estimates and judgments on historical experienceand on various other factors that are believed to be reasonable under thecircumstances, the results of which form the basis for making judgments aboutthe carrying values of assets and liabilities that are not readily apparentfrom other sources.  Actual results maydiffer from these estimates under different assumptions or conditions.Management believes the following critical accounting policies, among others,affect its more significant judgments and estimates used in the preparation ofits consolidated financial statements.  Revenue Recognition> 

Investment incomeand other income is recognized when earned and is based on changes in the fairvalue of marketable securities and realized gains and losses.  Rental incomefrom the lease of JM Ney's real estate is recognized on a straight line basisover the term of the lease.Doubtful AccountsThe Company maintains allowances for doubtful accounts for estimated lossesresulting from the inability of the Company to collect amounts due from others,including balances due from JM Ney's former customers.Deferred Tax AssetsThe Company records a valuation allowance to reduce its deferred tax assetsto the amount that it believes is more likely than not to be realized. TheCompany considers future taxable income and ongoing prudent and feasible taxplanning 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.
6
 

Investment in Moscow BroadbandThe Company records its investment in MBC using the equity method whichalso requires that the carrying value of the investment be evaluated forimpairment.    

Prepaid Pension Expense

The Company accounts for its defined benefit pension plan in accordancewith SFAS No. 87, "Employers' Accounting for Pension Plans" whichprovides for the delayed recognition of actuarial gains and losses that arisefrom differences between actual results of the plan from the actuariallycalculated results based on several factors including employee mortality andturnover, investment return on plan assets and the discount rates used torecord the present value of the obligations of the plan.  To the extent that unrecognized gains orlosses exceed 10% of the greater of the plans projected benefit obligation orthe market value of its assets, such excess is amortized over the estimatedremaining service period of active employees.  The Company considers and adjusts the variousassumptions, such as the discount rate, future compensation growth rate and thelong term rate of return on plan assets, utilized in the calculations as marketconditions warrant.

**FY03 VS. FY02**During FY03, the Company reported a net loss applicable tocommon shareholders of $728,000, or $0.35 per share, basic and diluted, ascompared to net income applicable to common shareholders of $242,000, or $0.12per share, basic and diluted, reported for FY02.  The results of FY03 were comprised of a netloss from continuing operations of $2,332,000 or $1.11 per share, basic anddiluted; a gain from the sale of JM Ney's discontinued operations of $1,472,000,or $0.70 per share, basic and diluted and income from JM Ney's discontinuedoperations of $132,000, or $0.06 per share, basic and diluted.  For FY02, the Company's reported totals werecomprised of a loss from continuing operation of $1,939,000, or $0.93 per share,basic and diluted; income from discontinued operations of $2,228,000, or $1.07per share, basic and diluted; and a cumulative effect type accounting loss of $47,000 or $0.22 pershare, basic and diluted, which relates to losses on derivative securities.
General and Administrative ExpensesGeneral and administrative expenses from continuing operations of $2,531,000during FY03 represented an increase of 29.4% from the $1,956,000 of theseexpenses incurred during FY02.  Increasedlegal and consulting costs associated with the Company's proposed acquisitionof CCTV contributed to the increase in these expenses and were partially offsetby $265,000 of actuarially determined pension income from the Company's definedbenefit pension plan, which in prior fiscal years had been accounted for withinthe operations of JM Ney, and a gain of $142,000 from the settlement ofpost-retirement health obligations.Interest ExpenseInterest expense from continuing operations during FY03 of $256,000 representeda decrease of 31.6% from the $374,000 of interest expense incurred duringFY02.  The decrease was lower averageoutstanding debt primarily the result of the annual principal payment of theCompany's 10.5% subordinated notes.

Investment and Other IncomeInvestment income and other income for FY03 and FY02 werecomprised as follows (in thousands):

 

**FY03**

FY02 

Rental income

**$291 **

$272 

Net gain from domestic trading portfolio

**536 **

172 

Net loss from Eastern European trading portfolio

**- **

(34)

Ultrasonic royalty revenue

**51 **

210 

Interest and dividends

**131 **

34 

Other, net

**   (95)**

  (64)

 

**$914 **

$590 

Rental income during FY03 was earned from the lease of JM Ney's real estate tothe purchaser of its net operating assets pursuant to an eight-year lease ofthis property which was entered into in connection with the JM Ney assetsale.  Rental income during FY02 wasearned from the rental of office space in the Company's office building whichthe Company sold in December 2001.Gains from theCompany's domestic trading portfolio increased by 211.6% in FY03 primarily as aresult of both realized and unrealized gains from new investments made duringFY03.  Ultrasonic royalty revenue decreased by 75.7% in FY03 due to the buyer ofthe Company's former Ultrasonics segment however experienced lower levels ofsales of products incorporating the technology which the Company  sold in FY98.
7
Interest and dividend income increased in FY03 primarily from the investment ofthe proceeds from the sale of JM Ney's operating assets into short-termdeposits and money market funds.Other investment income (losses) primarily comprise the investment results ofretirement trust accounts established for two executives for which there is anequal and offsetting affect on general and administrative expense. During FY03,these accounts declined in value as a result of the  investment performance of the trusts.

Equity in Loss of Moscow Broadband Communication Ltd.During FY03, the Company reported $712,000 as its equity in MBC's lossesfor the year ended December 31, 2002, as compared to an equity loss of $671,000for FY02 which represents the Company's 25% equity in MBC's losses for the yearended December 31, 2001.  MBC's resultsof operations for the years ended December 31, 2002 and 2001 and the Company'sequity interest therein are summarized as follows (in thousands).

 

**2002**

****2001

Interest income

**$       68 **

$     311 

Administrative expenses

**  487 **

   1,144 

Net loss before equity in losses of CCTV

**(419)**

(833)

Equity in losses of CCTV

**(2,429)**

(1,852)

Net loss

**$(2,848)**

$(2,685)

Andersen Group's 25% equity interest

**$   (712)**

$   (671)

MBC's interest income was lower in 2002 than 2001's due to lower cash balancesand lower short-term interest rates. Administrative expenses were lower in 2002 than in 2001 because theCompany did not allocate any administrative expenses to MBC in 2002, as most ofthe Company's activities relating to MBC and CCTV centered around the Company'splan to acquire both CCTV and MBC.  MBCincurred lower legal costs and consulting costs, as the activities generatingthese costs were curtailed.MBC's results of operations include its 50% equity in the losses of CCTV.  CCTV's summarized results of operations forthe years ended December 31, 2002 and 2001 are as follows:

 

**2002**

****2001

Revenues

**$  1,941 **

$  1,200 

Cost of revenues

**$(3,691)**

$(3,099)

Loss from operations

**$(4,960)**

$(5,101)

Net loss

**  $(4,858)**

  $(3,704)

MBC's 50% equity interest

**$(2,429)**

$(1,852)

During 2002, CCTV's television subscribers total increased 74.6% from 24,111 to42,101, and its Internet customer base increased 141.3% from 2,018 to 4,869.  As a result, CCTV experienced revenue growthof 61.8%.  However, increaseddepreciation relating to certain of the assets contributed to CCTV by COMCORduring 2002, and charges from COMCOR for the lease of secondary nodesresulted in higher costs of sales and operating expenses which prevented anysignificant improvement in CCTV's operating results.  In 2001, CCTV benefited from a larger incometax benefit, so its 2002 net loss was larger than the prior year's loss.

Income TaxesAn income tax benefit relating to continuing operations of $535,000 wasrecorded in FY03 which represents an effective tax rate of 20.7%, as comparedto an income tax benefit relating to continuing operations of $955,000 in FY02,which represents an effective tax rate of 36.6%.  The loss of certain state tax creditscontributed to the lower effective tax benefit rate in FY03.

8
Income From Discontinued OperationsDuring FY03, JM Ney's operations produced an after tax profit of $132,000,as compared to its net income from these operations  of $2,228,000, in FY02.  The results are not comparablebecause the Company operated JM Ney for less than one month during FY03 priorto its sale.  JM Ney's results ofoperations for FY03 and FY02 are summarized as follows (in thousands): 

 

**FY03                       **

FY02

Sales and revenue

**$1,298 **

$27,894 

Cost of sales

**(744)**

(18,690)

Operating expenses

**(333)**

(4,884)

Interest expense

**(9)**

(726)

Income tax expense

**(80)**

(1,366)

 

**$  132                          **

$ 2,228 

Preferred DividendsPreferred dividends totaled $282,000 during FY03, as comparedto $286,000 during FY02.  Conversion ofpreferred stock into common stock during both FY02 led to the decrease. 

**FY02 VS. FY01**During FY02, the Company reported net income applicable tocommon shareholders of $242,000, or $0.12 per share, basic and diluted, ascompared to the net loss of $1,927,000, or $0.94 per share, basic and diluted,which the Company incurred during FY01. During FY02, the discontinued operation of JM Ney produced income net ofincome taxes of $2,228,000, or $1.07 per share, basic and diluted, as comparedto JM Ney's FY01 net income losses of $237,000, or $0.12 per share, basic anddiluted.  Net loss fromcontinuing operations for FY02 was $1,939,000 or $0.93 per share, basic anddiluted, as compared to the FY01 net loss from continuing operations of$2,164,000, or $1.06 per share, basic and diluted.

General and Administrative ExpensesGeneral and administrative expenses from continuing operations of$1,956,000 during FY02 represented an increase of 8.4% from the $1,805,000 ofthese expenses incurred during FY01. Lower administrative costs and depreciation as a result of the sale ofthe Company's real estate in December 2001 were more than offset by higherprofessional fees incurred in connection with the negotiation and preparationof agreements relating to the Company's planned acquisition of CCTV.Loss on Sale of PropertyIn December 2001, the Company sold its real estate property in Bloomfield,CT for a contract price of $1,900,000 before expenses of the transaction.  After considering all expenses relating tothis sale, and the carrying value of the assets sold and liabilities assumedthe Company recorded a loss of $197,000.Interest ExpenseInterest expense from continuing operations during FY02 of $374,000represented a decrease of 16.9% from the $450,000 of interest expense incurredduring FY01.  The decrease was the resultof the annual principal payment of the Company's 10.5% subordinated notes andto the full repayment of all amounts due to an officer under a secured noteagreement.Investment and Other IncomeInvestment income and other income for FY02 and FY01 werecomprised as follows (in thousands):

 

**FY02 **

FY01 

Rental income

**$272 **

$445 

Net gain from domestic trading portfolio

**172 **

- 

Net (loss) gain from Eastern European trading  portfolio

**(34)**

172 

Ultrasonic royalty revenue

**210 **

95 

Other, net

**  (30)**

  (14)

 

**$590 **

$698* *

The decrease in investment income and other income of $86,000 in FY02 was dueprimarily to decreases in rental income and losses from the Eastern Europeanportfolio.  Rental income decreased$173,000 in FY02, primarily due to the sale of an office building in December2001.  Accordingly, the results for FY02include less than ten months of rental income. Net investment income from the  portfolio of common stocks of Eastern Europeanbased companies decreased$206,000 in FY02 due to the sale of substantially all of the portfolio duringFY01.  Also, the Company wrote down itssole remaining Eastern European investment by $34,000 during FY02.

9
The losses above were offset by gains in the Company's domestic investmentportfolio and increased royalty revenue.  Gains from the Company's domesticportfolio increased $172,000 in FY02 as a result of the positive performance ofinvestments in the equity securities of savings bank institutions made duringFY02. Royalty revenues increased $115,000 in FY02 due to the buyer of the Company'sformer Ultrasonics segment however experienced increased sales of productsincorporating the technology which the Company sold in FY98.Equity in Loss of Moscow Broadband Communication Ltd.During FY02, the Company reported $671,000 as its equity in MBC's lossesfor the year ended December 31, 2001, as compared to an equity loss of $730,000for FY01 which represents the Company's 25% equity in MBC's loss for the yearended December 31, 2000.  MBC's resultsof operations for the years ended December 31, 2001 and 2000 and the Company'sequity interest therein are summarized as follows (in thousands).

 

2001

2000

Interest income

$    311 

$     499 

Administrative expenses

1,144 

1,603 

Net loss before equity in losses of CCTV

(833)

(1,104)

Equity in losses of CCTV

(1,852)

(1,814)

Net loss

$(2,685)

$(2,918)

Andersen Group's 25% equity interest

$   (671)

$   (730)

During 2001, MBC had less funds to investthan in 2001 and interest rates were lower, which resulted in higher interest incomein 2001.  However, 2001 expenses were lower than 2000primarily due to lower legal costs due to the documentation requirements in2000 to close the transaction that resulted in MBC obtaining a 50% equityinterest in CCTV.MBC's results of operations include its 50% equity in the losses of CCTV.  CCTV's summarized results of operations forthe years ended December 31, 2001 and 2000 are as follows:

 

2001

2000 

Revenues

$ 1,200 

$   359 

Cost of revenues

  (3,099)

 (1,611)

Loss from operations

   5,094 

 (3,574)

Net loss

  (3,704)

 (3,599)

MBC's 50% equity interest

$(1,852)

$(1,814 )

CCTV results for 2001 comprise 12 months of operations during which time itssubscriber base increased from approximately 5,800 to 24,111, while its 2000results included approximately eight months of operations.  Thus, the average monthly operating lossdeclined from approximately $446,000 per month in 2000 to $424,000 in2001.  2001 results benefited from adecrease in Russian income tax rates which allowed CCTV to reduce the deferredincome tax liability relating to an intangible asset recorded in 2000.Income TaxesAn income tax benefit relating to continuing operations of $955,000 wasrecorded in FY02 which represents an effective tax rate of 36.6%, as comparedto an income tax benefit relating to continuing operations of $427,000 in FY01,which represents an effective tax rate of 18.7%.  During FY02, the Company recorded a smallervaluation allowance particularly relating to unrealized security losses.Income From Discontinued OperationsDuring FY02, JM Ney's operations produced an after tax profit of $2,181,000,as compared to JM Ney's net income of $237,000, or $0.12 per share, basic anddiluted.  During FY02, JM Ney recordedhigher gross margins and lower sales volume due to gains from liquidatinginventory levels with a lower cost basis. In addition, expense reduction measures instituted in FY01 were in fulleffect during FY01.  Interest expense forJM Ney in FY02 was $795,000 or 52% lower than in FY01 due to pay downs of highcost debt from the reduction of inventory and accounts receivables.  JM Ney's results of operations for FY02 andFY01 are summarized as follows (in thousands): 

 

**FY02 **

FY01 

Sales and revenue

**$27,894 **

$39,460 

Cost of sales

**(18,690)**

(30,679)

Operating expenses

**(4,884)**

(6,877)

Interest expense

**(726)**

(1,521)

Income tax expense

**(1,366)**

(146)

Cumulative effect-type accounting adjustment

**      (47)**

          - 

 

**$ 2,181 **

$   237 

10
Preferred DividendsPreferred dividends totaled $286,000 during FY02, as comparedto $304,000 during FY01.  Conversion ofpreferred stock into common stock during both FY02 and FY01 led to thedecrease.**LIQUIDITY AND CAPITAL RESOURCES**At February 28, 2003, consolidated cash and marketable securitiestotaled $8,088,000, as compared to $1,607,000 at February 28, 2002. Theincrease is  attributable to the cashgenerated from the Company's sale of the operating assets of JM Ney, whichprovided $9,218,000 of cash.  During FY03,the Company used $796,000 of cash in its operating activities, including a netincrease of $1,354,000 in its short-term trading portfolio, and it used $3,286,000of cash in financing activities, primarily from the repayment of short-term borrowingsand term debt, and the payment of preferred dividends.This increase in cash and short-term investments is expected to be invested into CCTV's operations to support its network build-out and operations, as well asto meet the Company's own operating and debt service requirements. In May2003, the Company entered into agreements under  which it will acquire 100% of the equityinterests of CCTV.  Pursuant to theseagreements, the Company committed to investing $3.5 million into CCTV within 20days of the signing of the Agreements.  Subject to shareholderapproval, the acquisition is proposed to be effected through the issuance ofthe Company's common stock in exchange for the investment in CCTV held by COMCOR,including additional equity in CCTV to be acquired by COMCOR in exchange forboth the extinguishment of liabilities from CCTV to COMCOR as of December 31, 2002and for the estimated value of services to be provided by COMCOR to CCTV during2003 and through the acquisition of the 75% of MBC not presently owned by theCompany. The agreements governing the Company's proposed purchase of COMCOR's shares of CCTValso require the Company to invest an additional $1,000,000 within 20 days ofthe closing of such transaction and $1,500,000 no later than August 31, 2004.  The agreements also provide for an additional$5,829,000 of capital contributions to CCTV from the Company within 120 daysafter the closing of the proposed acquisition. If such contributions are notmade, then the Company will be obligated to issue up to 477,994 additionalshares of its common stock to COMCOR. The Company does not expect to havesufficient resources to meet the full amount of the funding needed to be madeto avoid this dilution, although it expects to contribute loans and advancesfrom MBC to CCTV and additional shares of IAS presently owned by MBC, once it acquiresMBC as part of the proposed transaction which would reduce the number of sharesto common stock that the Company would be obligated to issue to COMCOR, in theabsence of  any other contribution madeby the Company to CCTV from 477,994 to an estimated 374,941.  Accordingly, the Company expects to either raisecapital through the issuance of its common stock to meet some or all of thefunding requirement, or to issue some amount of shares of its common stock to COMCORas a result of a potential funding shortfall. Except for rental income from the lease of JM Ney's manufacturing facility, theCompany has limited sources of incoming cash to meet its operating expense and debt servicerequirements. Accordingly, there can be no assurance that the existingresources, including the planned proceeds from a $2,000,000 mortgage loan onthe JM Ney property which is expected to close in June 2003, will be sufficientto meet these requirements, or the funding requirements of the CCTV acquisitionagreements or other cash needs that CCTV may have in the future.  A condition of the sale of JM Ney's operating assets required that$600,000 of the proceeds be held in escrow until September 2003 to settle anypotential claim relating to the Company's representations and warranties to thebuyer of the assets, and to address payment for certain components of theinventory specifically identified by the parties.  Although the Company expects to realize asignificant portion of the escrowed funds, there can be no assurances as to theamount, if any, of funds it will receive at the termination of the escrowperiod.CCTV currently is dependent upon outside sources of cash. The Company expectsthat the cash it will provide to CCTV as required in the May 2003 agreements,and may in the future provide CCTV, together with the settlement of certain of CCTV's present and future obligations to COMCOR through their conversion intoCCTV equity and, at the closing of the proposed acquisition into shares of   Companycommon stock, and expected increases in revenue from CCTV's operations will besufficient to meet CCTV's operating requirements for the foreseeable future,although there can be no assurances that these expectations will be met. As of February 28, 2003, the Company does not expect to have to makeany contributions to fund the obligations of its defined benefit pensionplan.  At February 28, 2003, the recordedvalue of the prepaid expense relating to this plan was $4,591,000, or $184,000lower than the prior year's amount. Under the actuarial calculations, the plan is overfunded by $1,357,000,a decrease of $969,000 from the prior year. In accordance with SFAS 87, the Company has not recognized net actuariallosses and post service costs totaling $3,234,000.  Such losses have arisen from changes in theactuarially assumed discount rate to value the plan's obligations, and frominvestment performance in the most recent year which did not meet theactuarially assumed levels.  During thefiscal year ending February 29, 2004, the Company expects to amortizeapproximately $106,000 of these unrecognized losses into its results ofoperations as part of overall pension accounting, although there cannot be anyassurances that further actuarial losses will not occur during that period.

11
The following table presents the Company's contractual obligations as ofFebruary 28, 2003.

******Total**
**Less Than     1 Year**
**1-3 Years**
**4-5 Years
**After 5 Years**
Long-term debt
$2,081
$407
$1,293
$381
-
Operating leases
123
123
-
-
-
Total contractual cash obligations
$2,204
 $530
$1,293
$381

RECENTLY ISSUED ACCOUNTING STANDARDS 

In July 2001, the Financial Accounting Standards Board issued StatementNo. 143, "Accounting for Asset Retirement Obligations" (FAS 143).This standard requires us to record the fair value of a liability for an assetretirement obligation in the period in which it is incurred and effective forour fiscal year 2003. The Company does not expect the impact, if any, arisingfrom adoption of this standard to be material to its financial position. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASBStatements No. 4, 44 and 64, "Amendment of FASB Statement No. 13 andTechnical Corrections". SFAS 145 concludes that debt extinguishment usedas part of a company's risk management strategy should not be classified as anextraordinary item. SFAS 145 also requires sale-leaseback accounting forcertain lease modifications that have economic effects that are similar tosale-leaseback transactions. The Company believes that adoption of thisstandard will not have a significant impact, if any, to its financial position.In December 2002, the FASB issued SFAS No. 148, "Accounting forStock-Based Compensation-Transition and Disclosure". SFAS 148 amends SFASNo. 123 "Accounting for Stock-Based Compensation", to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,this Statement amends the disclosure requirements of Statement 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect of themethod used on reported results.  TheCompany adapted the provisions of this new standard in FY03.  The adoption of SFAS 148 did not have amaterial effect on our financial position or results of operations. Theadoption of SFAS 148 did result in a modification of disclosure in ourfinancial statements.In November 2002, the FASB issued FASB Interpretation, "Guarantor'sAccounting and Disclosure Requirements, Including Indirect Guarantees ofIndebtedness of Others" ("FIN 45") . FIN 45 clarifies that a guarantoris required to recognize, at the inception of a guarantee, a liability for thefair value of the obligation undertaken in issuing certain guarantees. FIN 45also expands the disclosure to be made by a guarantor in its financialstatements about its obligations under certain guarantees that it has issued.The provisions of FIN 45 are applicable on a prospective basis to guaranteesissued or modified after December 31, 2002. The disclosure requirements of FIN45 are effective for the Company in 2003. The Company believes that FIN 45 willnot have a significant impact, if any, to its financial position or results ofoperations. OFF-BALANCE SHEET ARRANGEMENTS

The Company has a contingent liability with respect to a $386,000 letter ofcredit used by its bank to secure performance bonds issued in connection withan unresolved state income tax matter. The Company believes that its accrualsare sufficient to meet any obligations that may arise from this matter.The Company is also party to certain operating leases which will require $123,000of payments to be made during FY04.**ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK.**

The Company is exposed to market risk from changes in equity security prices,interest rates and from factors that impact equity and operational investmentsin Russia.Foreign Investment RiskThe Company's investment in MBC and its subsequent direct investment intoCCTV are subject to currency fluctuations, illiquid markets and political risksassociated with Russia. The Company has not entered into any derivativeinstruments to hedge the risks associated with these investments. Theseinvestments also bear the risk of CCTV's ability to increase its revenuesthrough the addition of subscribers for its cable television, high speed datatransmission and Internet services. The subscriber growth is largely dependentupon CCTV's ability to build-out its access network from the MFON which itleases from COMCOR, which is largely dependent upon it receiving a sufficientamount of capital to pay for the equipment and construction costs.
12
 

Equity RiskAt February 28, 2003, the Company held common stocks totaling $1,809,000,most of which are the stocks of financial institutions. The Company bears therisk of the fluctuations of the market prices of these companies.Interest Rate RiskAt February 28, 2003, the Company had no variable rate financingarrangements, and accordingly, its exposure to interest rate risk was limitedto the interest rates it receives on its invested cash, a substantial portionof which has since been invested into CCTV. **ITEM 8.              FINANCIALSTATEMENTS AND SUPPLEMENTARY DATA.**

 The consolidated Financial Statements are filed as part of this Report. 

**ITEM 9.              CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE.**

 None.

**PART III**

**ITEM 10.              DIRECTORSAND EXECUTIVE OFFICERS OF THE REGISTRANT.** 

The information required by this Item with respect to the identity andbusiness experience of our executive officers is set forth on page 7 in Item Iof this report under the caption "Executive Officers of the Company".The other information required by this Item is incorporated herein byreference to the definitive Proxy Statement to be filed pursuant to Regulation14A under the Securities and Exchange Act of 1934 for the Annual Meeting ofShareholders scheduled to be held June 20, 2003.**ITEM 11.              EXECUTIVECOMPENSATION.**

The information required by this Item is incorporated herein byreference to the definitive Proxy Statement to be filed pursuant to Regulation14A under the Securities and Exchange Act of 1934 for the Annual Meeting ofShareholders scheduled to be held June 20, 2003 under the caption "ExecutiveCompensation".

**ITEM 12.               SECURITYOWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.**

*Equity Compensation Plan Information*The Company adopted a stock incentive plan to provide incentivesto attract and retain officers, directors and key employees.  Our incentive stock option plan expiredduring FY01, and accordingly, as of February 28, 2003, we are not able to issuenew grants pursuant to a plan approved by our shareholders.  At February 28, 2003, the outstanding optionsand warrants relate to options issued pursuant to the expired plan, optionsgranted to a director during FY01 that were issued without a plan and warrantsissued in connection with a loan from an officer/director.  The following table sets forth a descriptionof our equity compensation plan as of February 28, 2003: 

 

**Equity Compensation  Plan Information**

** **

**Plan category**

** **

**Number of securities to  be issued upon exercise of outstanding options, warrants and rights         (a)**

** **

**Weighted-average exercise price of outstanding options, warrants and rights (b)**

** **

**Number of securities remaining available for future  issuance under equity compensation plans (excluding securities reflected in  column (a))    (c)**

Equity compensation plans approved by security  holders

 

  48,500

 

  $  5.25

 

  0

 

 

 

 

 

 

 

Equity compensation plans not approved by security  holders

 

  25,393

 

  $13.00

 

        0      

Total

 

73,893

 

$  7.91

 

       0      

13
Equity compensation issued pursuant toplans not approved by security holders includes 20,000 non-qualified stockoptions issued during the fiscal year ended February 29, 2001 and warrantsissued in connection with a loan received from an officer.  The loan wasrepaid in full with interest, and the warrants subsequently expired withoutbeing exercised.

Additional information required by thisItem is incorporated herein by reference to the definitive Proxy Statement to befiled pursuant to Regulation 14A under the Securities and Exchange Act of 1934for the Annual Meeting of Shareholders scheduled to be held on June 20, 2003under the captions "Election of Directors", and "Equity Security Ownership".

 **ITEM 13.               CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS.**

The information required by this Item is incorporated herein byreference to the definitive Proxy Statement to be filed pursuant to Regulation14A under the Securities and Exchange Act of 1934 for the Annual Meeting of Shareholdersscheduled to be held on June 20, 2003 under the caption "CertainRelationships and Related Transactions".**ITEM 14.               CONTROLSAND PROCEDURES.Disclosure Controls and Internal Controls**The Company's disclosure controls and procedures (as defined inRule 13a-14(c) under the Exchange Act) ("Disclosure Controls")are procedures that are designed with the objective of ensuring thatinformation required to be disclosed in the Company's reports filed under theExchange Act, such as this annual report, is recorded, processed, summarizedand reported within the time periods specified in the SEC's rules andforms.  Disclosure Controls are alsodesigned with the objective of ensuring that this information is accumulatedand communicated to the Company's management, including its Chief ExecutiveOfficer and Chief Financial Officer, as appropriate to allow timely decisionsregarding required disclosure.  Internalcontrols and procedures for financial reporting ("Internal Controls")are procedures that are designed with the objective of providing reasonableassurance that: 
- the Company's     transactions are properly authorized;
- assets are     safeguarded against unauthorized or improper use; and 
- transactions     are properly recorded and reported, 

in each case all to permit the preparation of the Company's financialstatements in conformity with U.S. generally accepted accounting principles.

**Limitations on the Effectiveness of Controls**The Company's management, including its Chief Executive Officer and ChiefFinancial Officer, does not expect that our Disclosure Controls or InternalControls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met.  Further, the design of acontrol system must reflect the fact that there are resource constraints, andthe benefits of controls must be considered relative to their costs.  Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the Company have beendetected.  These inherent limitationsinclude the realities that judgments in decision-making can be faulty, and thatbreakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented bythe individual acts of some persons, by collusion of two or more people or bymanagement override of the control.  Thedesign of any system of controls is also based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that any controlwill succeed in achieving its stated goals under all potential futureconditions. Over time, a control may become inadequate because of changes inconditions, or the degree of compliance with the policies or procedures relatedto the control may deteriorate.  Becauseof the inherent limitations in a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.**Annual Evaluation of the Company's DisclosureControls and Internal Controls**Within the 90-day period prior to the filing of this annual report,an evaluation was carried out under the supervision and with the participationof Company management, including the Chief Executive Officer and ChiefFinancial Officer, of the effectiveness of the design and operation of theCompany's Disclosure Controls.  Basedupon that evaluation, the Company's Chief Executive Officer and Chief FinancialOfficer concluded, subject to the limitations noted above, that:  
- the design     and operation of the Company's Disclosure Controls were effective to ensure     that material information related to the Company's company which is     required to be disclosed in reports filed under the Securities Exchange     Act of 1934 is recorded processed, summarized and reported within the time     periods specified in SEC rules and forms; and 
- the Company's     Internal Controls are effective to provide reasonable assurance that the     Company's financial statements are fairly presented in conformity with     U.S. generally accepted accounting principles.  

14
No significant changes were made to theCompany's Internal Controls or in other factors that could significantly affectthese controls subsequent to the date of their evaluation.   

 15
 

**PART IV**

**ITEM. 15.              EXHIBITS,FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. **

(a)(1)       ConsolidatedFinancial Statements applicable to the Registrant are contained in Item 8 aswell as the financial statements of its unconsolidated subsidiary MBC and thoseof MBC's unconsolidated subsidiary, CCTV.

(a)(2)    Consolidated Financial Statement Schedules

Schedules

II Valuation and Qualifying Accounts

Note:  Schedules other than those listed above, are omitted as notapplicable, not required, or the information is included in the ConsolidatedFinancial Statements or notes thereto.

 (a)(3) Exhibits required by Item 601 of Regulation S-K: 

** Exhibit No.**
**Description**
3.1

Certificate of Incorporation of the Registrant    incorporated herein by reference to Exhibit 3.1 to the Registrant's Annual    Report on Form 10-K for the year ended February 28, 2002 (Commission File    No. 0-1460).

    3.2

    By-laws of the Registrant for the State of Delaware incorporated herein by    reference to Exhibit 3 (II) to the Registrant's Annual Report on Form 10-K    for the year ended February 28, 1999 (Commission File No. 0-1460).

    4.1

    Indenture, dated as of February 26, 1998, between the Registrant and The    Chase Manhattan Bank, as Trustee, in respect of $4,311,000, aggregate    principal amount, 10 1/2%.

 

 

10.1

Convertible Subordinated Debentures Due 2007    incorporated herein by reference to Exhibit 4.1 to the Registrant's Annual    Report on Form 10-K for the year ended February 28, 1998 (Commission File    No. 0-1460).

 

 

10.2

Andersen Group, Inc. Incentive Stock Option Plan    incorporated herein by reference to Appendix A to the Registrant's    Post-Effective Amendment No. 1 to Form S-8 (File No. 333-17659) filed    February 27, 1997.

 

 

10.3

Andersen Group, Inc. Incentive and Non-Qualified    Stock Option Plan incorporated herein by reference to Appendix B to the    Registrant's Post-Effective Amendment No. 1 to Form S-8 (File No.    333-17659) filed February 27, 1997.

 

 

10.4

Deferred Compensation Agreement, entered into as    of September 30, 1992, by and between the Registrant and Francis E. Baker,    incorporated herein by reference to Exhibit 10.26 of the Registrant's    Annual Report on Form 10-K for the year ended February 28, 1995 (Commission    File No. 0-1460).

 

 

10.5

Amendment to Revolving Credit and Deferred Payment    Sales Agreement by and among The J. M. Ney Company, BankBoston and Rhode    Island Hospital Trust National Bank dated December 29, 1997 Delaware    incorporated herein by reference to Exhibit 10.12 to the Registrant's    Annual Report on Form 10-K for the year ended February 28, 1998 (Commission    File No. 0-1460).

 

 

10.6

Asset Purchase Agreement by and among Deringer    Acquisition Corp., Deringer Mfg. Company, The J.M. Ney Company and Andersen    Group, Inc. dated as of November 8, 2001, incorporated by reference to the    Registrant's definitive proxy on Form 14A filed on February 25, 2002.

 

 

10.7

Lease Agreement between The J.M. Ney Company as    Landlord and Deringer Mfg. Company as Tenant dated March 26, 2002,    incorporated by reference to the Registrant's filing on Form 8-K filed on    April 5, 2002.

 

 
10.8Termination Agreement between Andersen    Group, Inc. and Asinio Commercial Limited dated May 23, 2003 incorporated by    reference to the Registrant's filing on Form 8-K filed on May 28, 2003.          
10.9

Stock Subscription Agreement between Andersen    Group, Inc. and Moskovskaya Telecommunikatsionnaya Corporatsiya,    incorporated by reference to the Registrant's filing on Form 8-K filed on    May 28, 2003.

 

21.

Subsidiaries of the Registrant, incorporated by    reference to the Registrant's Annual Report on Form 10-K for the year ended    February 28, 2002 (Commission File No. 0-1460).

 

 

23.1

Consent of Independent Accountants.*

 

 

99.1

Factors Affecting Future Financial Results.*

 

 

99.5

Certification of CEO and CFO pursuant to 18 U.S.C.    Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act    of 2002.*

 

 

(b)

Reports on Form 8-K.

                              During the three months ended February 28, 2003,    the Company did not file any reports on Form  8-K. 

*Filed herein. 

17

 
**SIGNATURES**Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1924, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized on May 28, 2003.

 

ANDERSEN GROUP, INC.

ANDERSEN GROUP, INC.

Registrant

Registrant

 

 

/s/ Oliver R. Grace, Jr.

/s/ Andrew M. O'Shea

Oliver R. Grace, Jr.

Andrew M. O'Shea

Principal Executive Officer

Chief Financial Officer

 

(Principal Accounting Officer)

 

 

 Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed below by the following persons on behalf of theRegistrant and in the capacities and on the dates indicated.

 

**NAME**

**TITLE**

**DATE**

 

 

 

/s/ Francis E. Baker

Chairman, Secretary and Director

May 28, 2003

Francis E. Baker

 

 

 

 

 

/s/ Oliver R. Grace, Jr.

President, Chief Executive Officer and Director

May 28, 2003

Oliver R. Grace, Jr.

 

 

 

 

 

/s/ Peter N. Bennett

Director

May 28, 2003

Peter N. Bennett

 

 

 

 

 

/s/ John S. Grace

Director

May 28, 2003

John S. Grace

 

 

 

 

 

/s/ Louis A. Lubrano

Director

May 28, 2003

Louis A. Lubrano

 

 

 

 

 

/s/ Thomas McPartland

Director

May 28, 2003

Thomas McPartland

 

 

 

 

 

/s/ James J. Pinto

Director

May 28, 2003

James J. Pinto

 

 

 18
 

**CERTIFICATIONSPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002**

 

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

 
- I have     reviewed this annual report on Form 10-K of Andersen Group, Inc.;
- Based on my     knowledge, this annual 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 annual report;
- Based on my     knowledge, the financial statements, and other financial information     included in this annual 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 annual 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)      designed such disclosure controlsand procedures to ensure that material information relating to the         registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

            b)      evaluated the effectiveness of theregistrant's disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the "Evaluation Date");and 

            c)      presented in this annual report our conclusionsabout the effectiveness of the disclosure controls and procedures based on ourevaluation as of the Evaluation Date;
- 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)      all significant deficiencies inthe design or operation of internal controls which could adversely affect theregistrant's ability to record, process, summarize and report financial dataand have identified for the registrant's auditors any material weaknesses ininternal controls; and 

          b)      any fraud, whether or notmaterial, that involves management or other employees who have a significantrole in the registrant's internal controls; and
- The     registrant's other certifying officer and I have indicated in this annual     report 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: May 28, 2003

/s/ Oliver R. Grace, Jr.

Oliver R. Grace, Jr.

President and Chief Executive Officer

19 

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

 
- I have     reviewed this annual report on Form 10-K of Andersen Group, Inc.;
- Based on my     knowledge, this annual 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     annual report;
- Based on my     knowledge, the financial statements, and other financial information     included in this annual 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 annual 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)      designed such disclosure controlsand procedures to ensure that material information relating to the registrant,including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this annual report isbeing prepared;

        b)      evaluated the effectiveness of theregistrant's disclosure controls and procedures as of a date within 90 daysprior to the filing date of this annual report (the "Evaluation Date");and 

        c)      presented in this annual reportour conclusions about the effectiveness of the disclosure controls andprocedures based on our evaluation as of the Evaluation Date;
- 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)      all significant deficiencies inthe design or operation of internal controls which could adversely  

        affectthe registrant's ability to record, process, summarize and report financialdata and have identified forthe registrant's auditors any material weaknesses 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 annual report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

Date: May 28, 2003

/s/ Andrew M. O'Shea 

Andrew M. O'Shea

Chief Financial Officer

 20 

 

Andersen Group, Inc.

 

 

 

Consolidated Balance Sheets as of February 28, 2003  and 2002

 22

 

 

Consolidated Statement of Operations for the years  ended February 28, 2003, February 28, 2002 and February 28, 2001

 23

 

 

Consolidated statements of Changes in Stockholders'  Equity for the years ended February 28, 2003, February 28, 2002 and February  28, 2001

 24

 

 

Consolidated Statements of Cash Flow for the years  ended February 28, 2003, February 28, 2002 and February 28, 2001

 25

 

 

Notes to Consolidated Financial Statements

 26

 

 

Report of Independent Accountants

 40

 

 

ABC Moscow Broadband Communication Limited

 

 

 

Report of Independent Accountants

 41

 

 

Balance Sheets as of December 31, 2002, 2001 and  2000

 42

 

 

Statements of Operations for the years ended  December 31, 2002, 2001 and 2000

 43

 

 

Statement of Changes in Shareholders' Equity  (Deficit) for the years ended December 31, 2002, 2001 and 2000

 44

 

 

Statements of Cash Flows for the years ended  December 31, 2002, 2001 and 2000

 45

 

 

Notes to Financial Statements

 46

 

 

Closed Joint-Stock Company ComCor-TV

 

 

 

Report of Independent Accountants

 47

 

 

Consolidated Balance Sheet as of December 31, 2003  and 2002

 48

 

 

Consolidated Statement of Operations for the years  ended December 31, 2003, December 31, 2002 and December 31, 2001

 49

 

 

Consolidated Statement of Cash Flows for the years  ended December 31, 2003, December 31, 2002 and December 31, 2001

 50

 

 

Consolidated Statements of Shareholders' Equity for  the years ended December 31, 2003, December 31, 2002 and December 31, 2001

 51

 

 

Notes to Consolidated Financial Statements

 52

 

 

(a)(2) Consolidated Financial Statement Schedules

 60

Note:  Schedules other than thoselisted above, are omitted as not applicable, not required, or the informationis included in the Consolidated Financial Statements or notes thereto.

 21 

**ANDERSEN GROUP, INC.Consolidated Balance Sheets**February 28, 2003 and February 28, 2002(in thousands, except per share data) 

 

**2003**

2002

Assets

 

 

Current assets:

 

 

Cash and cash equivalents

**$  6,279 **

$  1,152 

Marketable securities

**1,809 **

455 

Accounts and other receivables, less allowance for  doubtful accounts of $25 in 2003 and $96 in 2002

**48 **

  3,820 

Inventories

**- **

23 

Prepaid expenses and other current assets

**242 **

648 

Net assets held for sale

**- **

6,974 

Total current assets

**8,378 **

13,072 

Property, plant and equipment, net

**3,403 **

3,632 

Prepaid pension expense

**4,591 **

4,775 

Investment in Moscow Broadband Communication Ltd.

**1,971 **

2,683 

Other assets

**702 **

913 

 

**$19,045 **

$25,075 

Liabilities and Stockholders' Equity

** **

 

Current liabilities:

** **

 

Current maturities of long-term debt

**$     407 **

$     435 

Short-term borrowings

**- **

2,366 

Accounts payable

**288 **

1,041 

Accrued liabilities

**907 **

1,712 

Deferred income taxes

**132 **

156 
   
Total current liabilities

**1,734 **

5,710 

Long-term debt, less current maturities

**1,674 **

2,158 

Other long-term obligations

**867 **

1,842 

Deferred income taxes

**1,668 **

1,614 

Total liabilities

**5,943 **

11,324 

Commitments and contingencies (See notes 18 and 22)

** **

 

Stockholders' equity:

** **

 

Cumulative convertible preferred stock, no par  value; authorized 800,000 shares;  188,006 shares issued and outstanding  in 2003 and 2002; liquidation preference $18.75 per share

**3,497 **

   3,497 

Common stock, $.01 par value; authorized 6,000,000  shares; issued and outstanding  2,099,908 and 2,094,158 shares in 2003  and 2002, respectively

**21 **

  21 

Additional paid-in capital

**6,653 **

6,574 

Retained earnings

**2,931 **

3,659 

Total stockholders' equity

**13,102 **

13,751 

 

**$19,045 **

$25,075 

The accompanying notes are an integral part of these consolidated financialstatements.

22

 
**ANDERSEN GROUP, INC.Consolidated Statements of Operations**Years ended February 28, 2003, February 28, 2002 and February28, 2001(in thousands, except per share data)

 

**2003**

2002

2001

Revenues

**$   - **

$      - 

$          - 

 

** **

 

 

Costs and expenses:

** **

 

 

General and administrative

**2,531 **

1,956 

1,805 

Loss on sale of real estate

**- **

197 

- 

Interest expense

**256 **

374 

450 

 

**2,787 **

2,527 

2,255 

Investment income and other income

**914 **

590 

698 

Loss from continuing operations before equity in  losses  of unconsolidated subsidiary, income  taxes and  cumulative effect-type accounting  adjustment

**(1,873)**

  (1,937)

  (1,557)

Equity in losses of Moscow Broadband Communication  Ltd.

**(712)**

(671)

(730)

Loss from continuing operations before income taxes  and cumulative effect-type accounting  adjustment

**(2,585)**

  (2,608)

  (2,287)

Income tax benefit

**(535)**

(955)

(427)

Net loss from continuing operations before  cumulative  effect-type accounting adjustment

**(2,050)**

  (1,653)

  (1,860)

Cumulative effect-type accounting adjustment - loss  on derivative securities, net of income tax

**- **

  (47)

  - 

Net loss from continuing operations

**(2,050)**

(1,700)

(1,860)

Net income from discontinued operations, net of  income taxes of $80; $1,366 and $146, respectively

**132 **

  2,228 

  237 

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

**1,472 **

  - 

  - 

Net loss

**(446)**

528 

(1,623)

Preferred dividends

**(282)**

(286)

(304)

(Loss) income applicable to common shareholders

**$(728)**

$      242 

$   (1,927)

Income (loss) per common share:

** **

 

 

*BASIC AND DILUTED:*

** **

 

 

Net income (loss) from continuing operations before     cumulative  effect-type accounting adjustments

**$(1.11)**

  $    (0.93)

  $     (1.06)

Cumulative effect-type accounting adjustment

**- **

(0.02)

- 

Income from discontinued operations

**.06 **

1.07 

0.12 

Gain on sale of discontinued segment

**.70 **

- 

- 

 

**$(0.35)**

$     0.12 

$     (0.94)

 The accompanying notes are an integral part of these consolidatedfinancial statements.

 

 

23

 
**ANDERSEN GROUP, INC.Consolidated Statements of Changes in Stockholders' Equity**Years ended February 28, 2003, February 28, 2002 and February28, 2001(in thousands, except per share data)

 

**2003**

2002

2001

 

**Outstanding**

** **

Outstanding

 

Outstanding

 

 

**Shares**

**Amount**

Shares

Amount

Shares

Amount

Preferred Stock

** **

** **

 

 

 

 

 Beginning balance

**188,006 **

**$  3,497 **

201,201 

$   3,742 

216,864 

$   4,033 

 Shares tendered for conversion to    common stock

**- **

**- **

  (13,195)

  (245)

  (15,663)

  (291)

 

**188,006 **

**$  3,497 **

188,006 

$   3,497 

201,201 

$   3,742 

Common Stock

** **

** **

 

 

 

 

 Beginning balance

**2,094,158 **

**$       21 **

2,065,811 

$        21 

2,035,364 

$        20 

 Conversion of preferred stock

**- **

**- **

25,650 

- 

30,447 

1 

 Conversion of 10 1/2% notes

**- **

**- **

247 

- 

- 

- 

 Exercise of stock options

**5,750 **

**- **

2,450 

- 

- 

- 

 

**2,099,908 **

**$        21 **

2,094,158 

$        21 

2,065,811 

$        21 

Additional Paid-In Capital

** **

** **

 

 

 

 

 Beginning balance

** **

**$   6,574 **

 

$   6,315 

 

$   6,141 

 Conversion of preferred stock

** **

**- **

 

245 

 

290 

 Conversion of 10 1/2% notes

** **

**- **

 

4 

 

- 

 Exercise of stock options

** **

**34 **

 

10 

 

- 

 Gain on purchase of subsidiary options

** **

**45 **

 

- 

 

- 

 Net loss on sales of treasury shares and     subsidiary transactions

** **

**- **

 

  - 

 

  (134)

 

** **

**$   6,653 **

 

$   6,574 

 

$   6,315 

Retained Earnings

** **

** **

 

 

 

 

 Beginning balance

** **

**$   3,659 **

 

$   3,417 

 

$   5,344 

 Net (loss) income

** **

**(446)**

 

528 

 

(1,623)

 Preferred stock dividends

** **

**(282)**

 

(286)

 

(304)

 

** **

**$   2,931 **

 

$   3,659 

 

$   3,417 

Accumulated Other Comprehensive    Income (Loss)

** **

** **

 

 

 

 

  Beginning balance

** **

**$          - **

 

$      (47)

 

$          - 

  Change in unrealized losses on      precious metals hedging, net of      income benefit of $27

** **

**- **

 

  47 

 

  (47)

 

** **

**$          - **

 

$          - 

 

$      (47)

Treasury Stock

** **

** **

 

 

 

 

 Beginning balance

**- **

**$          - **

- 

$          - 

28,002 

$    (276)

 Shares sold

**- **

**- **

- 

- 

(28,002)

276 

 

**- **

**$          - **

- 

$          - 

- 

$          - 

Total stockholders' equity

** **

**$13,102 **

 

$13,751 

 

$13,448 

Other Comprehensive Loss:

** **

** **

 

 

 

 

 (Loss) income applicable to common     shareholders

****

**$  (728)**

 

  $     242 

 

  $(1,927)

 Other comprehensive gain (loss)

** **

**- **

 

47 

 

(47)

Total comprehensive (loss) income

** **

**$  (728)**

 

$     289 

 

$(1,974)

 The accompanying notes are an integral part of these consolidatedfinancial statements.

24

**ANDERSEN GROUP, INC.Consolidated Statements of Cash Flows**Years ended February 28, 2003, February 28, 2002 and February28, 2001(in thousands)

 

**2003**

2002

2001

Cash flows from operating activities:

 

 

 

Net Income (loss)

**$(446)**

$     528 

$ (1,623)

*Adjustments to reconcile net income (loss) to net  cash provided by (used in) operating activities:*

** **

 

 

Equity in losses of Moscow Broadband Communication  Ltd.

**712 **

671 

730 

Depreciation, amortization and interest accretion

**293 **

1,581 

1,589 

Gain on sale of J.M. Ney's operating assets

**(1,472)**

- 

- 

Gain on settlement of healthcare liability

**(142)**

- 

- 

Deferred income taxes

**2 **

(22)

(346)

Gains from securities and investments

**(535)**

(100)

(172)

Purchases of securities

**(960)**

(278)

- 

Proceeds from sales of marketable securities

**141 **

19 

1,002 

Pension (income) expense

**(265)**

34 

108 

Loss on disposal of property, plant and equipment

**- **

197 

31 

 

** **

 

 

*Changes in operating assets and liabilities net  of changes from the sale of J.M. Ney's net assets:*

** **

 

 

Accounts and other receivables

**3,772 **

1,655 

(818)

Inventories

**(419)**

2,447 

1,405 

Prepaid expenses and other assets

**723 **

50 

(67)

Accounts payable

**(753)**

208 

(182)

Accrued liabilities and other long-term obligations

**(1,447)**

117 

106 

Net cash (used in) provided by operating activities

**(796)**

7,107 

1,763 

Cash flows from investing activities:

** **

 

 

Purchase of property, plant and equipment

**(9)**

(216)

(358)

Proceeds from the sale of net operating assets of JM  Ney, net of expenses

**9,218 **

- 

- 

Proceeds from sale of real estate, net

**- **

1,692 

- 

Net cash provided by (used in) investing activities

**9,209 **

1,476 

(358)

Cash flows from financing activities:

** **

 

 

Principal payments on long-term debt

**(512)**

(8,034)

(523)

(Repayments of) proceeds from issuance of  collateralized note to officer

**- **

(1,200)

200 

(Payment of) proceeds from short-term borrowings,  net

**(2,366)**

866 

(1,554)

Purchase of subsidiary warrants

**(160)**

- 

- 

Stock options exercised

**34 **

10 

50 

Treasury shares sold, net

**- **

- 

92 

Preferred dividends paid

**(282)**

(290)

(307)

Net cash used in financing activities

**(3,286)**

(8,648)

(2,042)

Net increase (decrease) in cash and cash equivalents

**5,127 **

(65)

(637)

Cash and cash equivalents, beginning of year

**1,152 **

1,217 

1,854 

Cash and cash equivalents, end of year

**$6,279 **

$   1,152 

$  1,217 

The accompanying notes are an integral part of these consolidated financialstatements.

25

**ANDERSEN GROUP, INC.Notes to Consolidated Financial Statements**Years ended February 28, 2003 and February 28, 2002 

(1)           Nature ofBusinessAndersen Group, Inc. ("the Company") is a diversified holding companywhich has an indirect investment in ZAO CCTV ("CCTV"), aMoscow-Russia based provider of cable television, high speed data transmissionand Internet access services.  TheCompany expects to acquire 100% of CCTV pursuant to agreements it entered intoin May 2003, which replaced earlier agreements it had signed in April 2002, and subsequently amended in August 2002and  September 2002.  See Notes 6 and 23 for descriptionsof the transaction and the most recent terms. The Company also invests in both marketable and other securities ofdomestic and foreign-based companies.  InMarch 2002, the Company sold the operating assets of its principal operatingsubsidiary, The J.M. Ney Company ("JM Ney") which was a manufacturerof electronic connectors, components and precious metal materials for sale tothe automotive, telecommunications, defense, semiconductor, and medical anddental markets.

(2)           Summary of SignificantAccounting Policies*Use of Estimates*The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period.  Actual results could differ from thoseestimates.*Principles of Consolidation*The Company's financial statements include the accounts of theCompany and its wholly-owned subsidiaries. All significant intercompanytransactions and balances have been eliminated in consolidation.*Cash and Cash Equivalents*Cash and cash equivalents include funds held in investments with anoriginal maturity of three months or less. *Marketable Securities*The Company's common stock investments are carried as tradingsecurities at market value in accordance with Statement of Financial AccountingStandards No. 115, "Accounting for Certain Investments in Debt and EquitySecurities" (SFAS 115). Any changes in the valuation of the portfolio arereflected in the accompanying Consolidated Statements of Operations asinvestment income or losses. *Inventories*Inventories were stated at the lower of cost or market.  Cost was determined using the last-in,first-out ("LIFO") method for precious metals, and at standard costswhich approximate the first-in, first-out ("FIFO") method for thebalance of the inventories.  *Property, Plant and Equipment*Property, plant and equipment are stated at cost and depreciatedusing the straight-line method over the estimated useful life of the respectiveassets, as follows:

Buildings and improvements

  10-30 years

Furniture and fixtures

3-10 years 

When fixed assets are sold or retired the cost andaccumulated depreciation are eliminated and the resulting gains or losses arereflected in income.*Investment in Moscow Broadband CommunicationLimited*The Company has a 25% ownership interest in ABC Moscow BroadbandCommunication Limited ("MBC"), a Cyprus based limited liabilitycompany which in turn has a 50% equity interest in CCTV. This investment bearscurrency, economic and political risks relating to Russia in addition to otherbusiness risks associated with a venture capital investment.  This investment is recorded using the equitymethod of accounting.  MBC has a December31 year end, and as a result, the Company's equity in MBC's results is reportedon a two-month lag.*Debt Discounts*Unamortized discounts on subordinated notes payable and notespayable to officer are being amortized over the term of the notes using theeffective interest method. 

26
*Deferred Compensation*The Company has established irrevocable trusts to fund the deferredcompensation of certain executives.  Theassets of the trusts are owned by the Company and subject to the claims of itsgeneral creditors, and are reported on the Company's consolidated balance sheetin accordance with the consensus in EITF 97-14. Income and changes in the value of the trusts' assets are reportedwithin Investment and Other Income with corresponding adjustments to thedeferred compensation obligation and compensation expense.*Revenue*Investment income and other income is recognized when earned and isbased on changes in the fair value of marketable securities and realized gainsand losses.  Rental income from the lease of JM Ney's real estate isrecognized on a straight line basis over the terms of the lease.*Income Taxes*Income taxes are determined using the asset and liabilityapproach.  This method gives considerationto the future tax consequences of temporary differences between the carryingamounts and the tax basis of assets and liabilities at currently enacted taxrates.*Earnings Per Share*In accordance with Statement of Financial Accounting Standards No.128 "Earnings Per Share" ("SFAS 128"), basic earnings pershare is computed based upon the weighted average number of common sharesoutstanding during the period.  Dilutedearnings per share is computed based upon the weighted average number of commonshares plus the assumed issuance of common shares for all potentially dilutivesecurities.  See Note 12 for additionalinformation and a reconciliation of the basic and diluted earnings per sharecomputations.*Recently Issued Accounting Standards*In July 2001, the Financial Accounting Standards Board issuedStatement No. 143, "Accounting for Asset Retirement Obligations" (FAS143). This standard requires us to record the fair value of a liability for anasset retirement obligation in the period in which it is incurred and effectivefor our fiscal year 2003. The Company does not expect the impact, if any,arising from adoption of this standard to be material to its financialposition. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB StatementsNo. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".SFAS 145 concludes that debt extinguishment used as part of a company's riskmanagement strategy should not be classified as an extraordinary item. SFAS 145also requires sale-leaseback accounting for certain lease modifications thathave economic effects that are similar to sale-leaseback transactions. TheCompany believes that adoption of this standard will not have a significantimpact, if any, to its financial position. In December 2002, the FASB issued SFAS No. 148, "Accounting forStock-Based Compensation-Transition and Disclosure". SFAS 148 amends SFASNo. 123 "Accounting for Stock-Based Compensation", to providealternative methods of transition for a voluntary change to the fair valuebased method of accounting for stock-based employee compensation. In addition,this Statement amends the disclosure requirements of Statement 123 to requireprominent disclosures in both annual and interim financial statements about themethod of accounting for stock-based employee compensation and the effect ofthe method used on reported results.  TheCompany adopted the provisions of this new standard in FY03.In November 2002, the FASB issued FASB Interpretation, "Guarantor'sAccounting and Disclosure Requirements, Including Indirect Guarantees ofIndebtedness of Others" ("FIN 45") . FIN 45 clarifies that aguarantor is required to recognize, at the inception of a guarantee, a liabilityfor the fair value of the obligation undertaken in issuing certain guarantees.FIN 45 also expands the disclosure to be made by a guarantor in its financialstatements about its obligations under certain guarantees that it has issued.The provisions of FIN 45 are applicable on a prospective basis to guaranteesissued or modified after December 31, 2002. The disclosure requirements of FIN45 are effective for the Company in 2003. The Company believes that FIN 45 willnot have a significant impact, if any, to its financial position or results ofoperations. *Reclassification*Certain reclassifications have been made to the prior years'financial statements to reflect the assets of JM Ney as held for sale and theresults of its operations as discontinued in order to conform with the currentyear presentation.

27

(3)           Discontinued Operations -Sale of Assets of JM Ney

Effective March 22, 2002, the Company sold the operating assets of JMNey to Deringer Mfg. Company ("Deringer") for which it received approximately$10,990,000, of which $600,000 was placed in an escrow account to satisfypotential claims relating to inventory and representations made by the Companyto Deringer.  The Company has recorded again of $1,472,000 from this sale, after income taxes of $686,000. Thefollowing summarizes 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 

 Transaction expenses related to the sale of JM Ney are as follows (inthousands):

Settlement of JM Ney stock options

$    275 

Severance and bonuses

750 

Legal and accounting

365 

Other

    150 

Total transaction expenses

$1,540 

For the years ended February 28, 2003 ("FY03"), February 28, 2002 ("FY02")and February 28, 2001 ("FY01"), JM Ney's summarized results ofoperations were as follows (in thousands):

 

**FY03**

FY02

FY01

Net sales and other revenues

**$1,298 **

$ 27,894 

$39,460 

Cost of sales

**(744)**

(18,690)

(30,679)

Operating expenses

**   (333)**

  (4,884)

  (6,877)

Operating income

**221 **

4,320 

1,904 

Interest expense

**       (9)**

     (726)

  (1,521)

Net income before income taxes

**212 **

3,594 

383 

Income tax expense

**     (80)**

     (1,366)

    (146)

Net income 

**132 **

2,228 

237 

 The February 28, 2002 consolidated balance sheet has been reclassifiedto reflect the net assets of JM Ney which were held for sale, as follows (inthousands):

Inventory

$4,144 

Prepaid expenses and other current assets

182 

Property, plant and equipment, net

2,732 

Other assets

110 

Other current liabilities

   (194)

Total

$6,974 

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 rental payments at the annual rate of $290,000 withannual increases of the annual lease rate of $5,800. 

28
(4)           InventoriesInventories consist of the following (in thousands): 

 

**February 28, 2002**

Raw materials

**$   485 **

Work in process

**1,547 **

Finished goods

**4,134 **

Metals held on consignment

**(932)**

 

**5,234 **

LIFO reserve

**(1,067)**

Subtotal

**4,167 **

Less:  Amount  held for sale

**(4,144)**

 

**$     23 **

 The Company's precious metal inventory records are maintained on afirst-in, first-out (FIFO) basis, which values the inventory equivalent tomarket or replacement cost.  The Companyrecords a LIFO reserve, which represents the excess of replacement cost overthe historical LIFO value of the precious metal content of inventories.At February 28, 2002, inventories valued at LIFO cost comprised 44% of totalinventories.  At February 28, 2002, theprecious metal components of inventories before the LIFO reserve consisted of2,708 troy ounces of gold recorded at $298 per ounce; 3,975 troy ounces of silverrecorded at $4.50 per ounce; 1,380 troy ounces of platinum recorded at $475 perounce, and 3,759 troy ounces of palladium recorded at $380 per troy ounce.  Such quantities of precious metals excludeprecious metals held by JM Ney on consignment subject to leasing arrangementswith JM Ney's primary bank or for the benefit of its customers.  (5)           Property, Plant andEquipmentProperty, plant and equipment consist of the following (in thousands): 

 

**February 28, 2003**

February 28, 2002

Land and improvements

**$    401 **

$     401 

Buildings and improvements

**5,993 **

5,993 

Machinery and equipment

**47 **

12,393 

Furniture and fixtures

**6 **

749 

 

**6,447 **

19,536 

Less accumulated depreciation and  amortization

**(3,044)**

  (13,172)

Subtotal

**3,403 **

6,364 

Less:  Amount  held for sale

**- **

(2,732)

 

**$ 3,403 **

$  3,632 

 During FY02, Andersen Realty, Inc., a wholly-owned subsidiary of theCompany, sold a 108,000 square foot office building located in Bloomfield,Connecticut to a private buyer for proceeds of $1,692,000, net of transactioncosts of $209,000.  The buyer alsoassumed a sewer lien on the property of approximately $56,000.  The Company recorded a loss on the sale of$197,000.  The Company recorded rentalincome related to the building of $272,000 and $445,000 for FY02 and FY01. 

29
(6)           Investment in MoscowBroadband Communication LimitedAt each of February 28, 2003 and February 28, 2002, the Company had a 25%ownership interest in MBC which was accounted for using the equity method ofaccounting.  In April 2002 the Companyentered into agreements pursuant to which the Company will acquire 100% of CCTVin exchange for the issuance of Company common stock for COMCOR's equityinterest in CCTV and for the 75% of MBC that the Company does not presentlyown.  In April 2003 these agreements wereterminated and new agreements were entered into, the execution of which willalso result in the Company acquiring 100% of CCTV.  See note 22 for further details of theamended terms. During FY01, MBC entered into an agreement with Moscow TelecommunicationsCorporation ("COMCOR") under which COMCOR and MBC would fund theoperations of CCTV and maintain joint and equal control over CCTV. CCTV isdeveloping a network to deliver cable television, high speed data transmissionand Internet access, and IP telephony to up to 1,500,000 homes and businessesthroughout the Moscow region. On April 24, 2000, pursuant to the Joint VentureAgreement, MBC contributed $8,500,000 in cash, 10,722 shares of the Institutefor Automated Systems ("IAS"), a Moscow-based telecommunicationscompany, and agreed to contribute an additional $500,000 in cash during theyear ending December 31, 2000. In return, MBC received a 50% ownership in CCTV.MBC accounts for its investment in CCTV using the equity method of accounting. The following presents summarized financial information for MBC as of December31, 2002 and 2001, and for the years ended December 31, 2002, 2001 and 2000 (inthousands):

 

**                        December 31,**

 

 

**2002**

2001

** **

Balance Sheet Data:

 

 

 

  Current assets

**$     557 **

$  4,353 

 

   Noncurrent assets

**    8,903 **

    8,040 

 

   Total assets

**$9,460 **

$12,393 

 

   Accounts  payable and accrued liabilities

**$       52 **

$     137 

 

   Shareholders'  equity

** 9,408 **

  12,256 

 

 

**$9,460 **

$12,393 

 

 

**                   Years Ended December 31,**

 

**2002**

**2001**

**2000**

Statement of Operations Data:

 

 

 

   Net loss  before equity in losses of CCTV

**$   (419)**

$   (833)

$(1,104)

   Equity in  losses of CCTV

**  (2,429)**

(1,852)

  (1,814)

   Net loss

**$(2,848)**

$(2,685)

$(2,918)

The following presentssummarized financial information for CCTV as of, and for the years endedDecember 31, 2002 and 2001 (in thousands): 

 

                           **               December  31,**

 

**2002 **

2001 

** **

Balance Sheet Data:

 

 

 

  Current  assets

**$6,014 **

$  2,930 

 

   Noncurrent  assets

**28,496 **

    14,850 

 

   Total  assets

**$34,510 **

$17,780 

 

   Current  liabilities

**$3,124 **

$  3,631 

 

   Non-current  liabilities and minority interest

**1,844 **

2,124 

 

   Stockholders'  equity

**29,542 **

  12,025 

 

 

**$34,510 **

$17,780 

 

 

 

      **           Years Ended December 31,**

 

**2002**

2001

2000

Statement of Operations Data:

** **

 

 

   Revenues

**$  1,941 **

$  1,200 

$     359 

   Cost of  revenues, including amortization of      intangibles

**$(3,691)**

  $(3,099)

  $(1,611)

   Loss from  operations

**$(4,960)**

$(5,094)

$(3,574)

   Net loss

**$(4,858)**

$(3,704)

$(3,599)

MBC has a December 31 year end and, as a result, the Company's equityin MBC 's results is reported on a two-month lag. For the two-month periodsended February 28, 2003 and 2002, MBC's net loss was $464,000 (unaudited) and $386,000(unaudited), respectively.At February 28, 2003, the reported value of the Company's investment in MBC was$1,971,000 and the Company's 25% equity in the net assets of MBC as of December31, 2002 was approximately $2,352,000. The $381,000 difference is attributed toa non-depreciable asset that was transferred to CCTV and will not result in theCompany accreting the difference into its consolidated results of operations.(7)           Short-term Borrowings

JM Ney had an $8.0 million revolving credit and deferred payment salesagreement with a commercial bank which was collateralized by substantially allof JM Ney's assets.  Borrowings underthis agreement were repaid with the proceeds of the sale of JM Ney's operatingassets and the agreement was terminated.(8)           Accrued Liabilities andOther Long-Term Obligations Accrued liabilities and other long term obligations consist of thefollowing (in thousands): 

 

**February 28, 2003**

February 28, 2002

Accrued liabilities:

 

 

 Employee  compensation

**$  36 **

$   531 

 Accrued  preferred dividends

**71 **

71 

 Income taxes

**466 **

650 

 Accrued  interest

**82 **

102 

 Other

**252 **

552 

Subtotal

**907 **

1,906 

Less:  amount  held for sale

**- **

(194)

 

**$907 **

$1,712 

Other long-term obligations liabilities:

** **

 

 Post  retirement health benefit   obligations

**- **

  $   674 

 Deferred  compensation

**$530 **

633 

 Other

**337 **

535 

 

**$867 **

$1,842 

31
 (9)           Long-term Debtand Subordinated Notes PayableLong-term debt and subordinated notes payable consist of the following (inthousands):

 

**February 28, 2003**

February 28, 2002

Convertible subordinated debentures, due October  2007; interest at 10.5%  payable  semi-annually; annual   principal  payments through maturity,   unsecured

**$2,081 **

  $2,584 

Other

**- **

9 

 

**2,081 **

2,593 

Less current maturities

**(407)**

(435)

 

**$1,674 **

$2,158 

 The terms of the 2007 convertible subordinated debentures call for theannual redemption of approximately $431,000 of principal.  The debentures are convertible into commonstock of the Company at any time prior to maturity at $16.17 per share, subjectto adjustment under certain conditions. At February 28, 2003, 128,695 shares of common stock were reserved forconversion.Maturities of long-term debt for each of the next five fiscal years as ofFebruary 28, 2003 are as follows (in thousands): FY04- $407; FY05 - $431; FY06- $431; FY07 - $431 and FY08 - $381.(10)         Income Taxes  For FY03, FY02 and FY01, income tax expense (benefit) consists of thefollowing (in thousands): 

 

**2003**

2002

2001

Current Federal

**$   25 **

$  373 

$     5 

Current State

**177 **

60 

60 

Deferred Federal

**(28)**

55 

(237)

Deferred State

**57 **

(77)

(109)

 

**231 **

411 

(281)

Less amount relating to discontinued operations

**766 **

1,366 

(146)

Income tax benefit from continuing operations

**$(535)**

$(955)

$(427)

The difference between the actual income tax expense(benefit) and the income tax expense (benefit) computed by applying thestatutory Federal income tax rate of 34% to income (loss) before income taxesis attributable to the following (in thousands):   

 

**2003**

2002

2001

Income tax expense (benefit), at statutory rates

**$(74)**

$334 

$(647)

State income taxes, net of Federal impact

**185 **

(17)

(32)

Tax credits

**(70)**

- 

- 

Valuation allowance

**160 **

96 

402 

Other

**30 **

(2)

(4)

Income tax expense (benefit)

**$231 **

$411 

$(281)

 
 
32
The principal components of the netdeferred tax assets (liability) as of February 28, 2002 and 2001 are as follows(in thousands): 

 

**February 28, 2003**

February 28, 2002

*Deferred tax liabilities:*

** **

 

Fixed asset basis differences

**$  (288)**

$  (337)

Inventory

**- **

(351)

Pension

**(1,627)**

(1,658)

Unrealized gains on marketable securities, net

**(231)**

(62)

Total deferred tax liabilities

**(2,146)**

(2,408)

*Deferred tax assets:*

 
   
Post-retirement benefits other than pensions

**- **

249 

Equity in losses of Moscow Broadband

**1,202**

909 

Allowance for uncollectible receivables

**10 **

35 

Accrued vacation

**8 **

6 

Federal and State credit carry-forwards

**196 **

184 

Capital loss carry forwards

**- **

193 

Valuation allowance

**(1,181)**

(1,021)

Other

**111 **

83 

Total deferred tax assets

**346 **

638 

Net deferred tax liabilities

**$(1,800)**

$(1,770)

At February 28, 2003, the Company had $196,000 of Federal alternativeminimum tax credit carry-forwards that have no expiration date.   A valuation allowance of $1,181,000 has beenestablished at February 28, 2003 against the equity in losses of MoscowBroadband to theextent it is more likely than not that these items will not be realized. 

 (11)         Series ACumulative Convertible Preferred StockThe Company's Series A Cumulative Convertible Preferred Stock (Preferred Stock)has an annual dividend rate of $1.50 per share, that is paid quarterly.  The Preferred Stock is convertible into theCompany's common stock at any time at a rate of 1.946 shares of common stockfor each share of Preferred Stock, subject to certain adjustments. At February28, 2003, 365,859 shares of common stock have been reserved for conversion.During FY02 and FY01, 13,195, and 15,663 shares of the Preferred Stock wereconverted into 25,650 and 30,447 shares, respectively, of the Company's commonstock.Holders of the convertible preferred stock have no voting rights, except asrequired by applicable law and except when among other things, accrued andunpaid dividends on the convertible preferred stock are equal to or exceed theequivalent of six quarterly dividends payable on the convertible preferredstock such holders will be entitled to elect one director to the Company'sboard of directors until the dividend arrearage has been paid or amounts havebeen set apart for such payment.  Theconvertible preferred stock is senior to the common stock with respect todividends and liquidation events.(12)         Income (Loss) PerShare

The computation of basic and dilutedincome (loss) per share is as follows (in thousands, except per share amounts): 

 

**2003**

2002

2001

Numerator for basic and diluted  earnings per share:

** **

 

 

(Loss) income applicable to  common shareholders

**$(728)**

$  242 

$(1,927)

Denominator for basic earnings  per share:  Weighted average shares

**2,099 **

  2,082 

  2,048 

Effect of dilutive securities 

**- **

- 

- 

Denominator for diluted  earnings per share

**2,099 **

2,082 

2,048 

Basic and diluted (loss) income  per share

**$(0.35)**

$ 0.12 

$  (0.94)

33

For FY03, FY02 and FY01, the net addition of 6,532; 22,050 and 28,078common share equivalents, respectively, from the assumed exercise of stockoptions using the treasury method have been excluded, because of theirantidilutive effects.For each of FY03, FY02 and FY01, the effects of the assumed conversion of thePreferred Stock and  the 10 1/2%Convertible Subordinated Debentures have been excluded because the impacts ofsuch conversions would have been antidilutive. 
(13)         Stock Option PlansThe Company's and JM Ney's incentive stock option plans provided for optiongrants to directors and key employees at prices equal to at least 100% of thestock's fair market value at date of grant. Options generally vest over threeyears and have a maximum term of ten years. No stock options were granted during FY03 or FY02.  All options granted during FY01  had an exercise price equal to the fairmarket value as of the date of grant. The per share weighted average fair value of stock options grantedduring FY01 under the Company plan was $8.18 using the Black Scholes optionpricing model with the following weighted average assumptions: expecteddividend yield of 0%, risk-free interest rate of 6%, expected life of fiveyears, and expected volatility of 80%.Grants of options in FY01 under the JM Ney plan had a fair value of $7.61 pershare, based upon an expected dividend yield of 0%, risk-free interest rate of6%, expected life of five years, and expected volatility of 33%.The Company has adopted the disclosure provisions of SFAS No. 123, "Accountingfor Stock-Based Compensation". Accordingly, no compensation expense has been recognized for the stockoption plans.  Had compensation cost forthe Company's stock option plans, including the JM Ney plan, been determinedbased on the fair value on the grant date for awards made in FY01 and consistentwith the provisions of SFAS No. 123, the Company's net income (loss) applicableto common shares, and the income (loss) per share would have adjusted to thepro forma amounts indicated below (amounts in thousands, except per sharedata):
 
**2003**

2002

2001

Income (loss) applicable to  common shareholders:

** **

 

 

 As reported

**$ (728)**

$ 242 

$(1,927)

 Deduct total stock based employee  compensation expense   determined under fair value method

**(40)**

  (69)

  39 

 Pro forma

**$  (768)**

$ 173 

$(1,966)

Income (loss) per share - basic  and diluted:

** **

 

 

 As reported

**$(0.35)**

$0.12 

$  (0.94)

 Pro forma

**$(0.37)**

$0.08 

$  (0.96)

The Company has reserved 68,500 shares of common stock for the exerciseof stock options. The Company's plan expired during FY01, and accordingly, nofuture options can be granted under the Plan. Activity under the Company's plan was as follows: 
 
**Number**

**Weighted  Average**

**Range  of**

**Outstanding Options**

**of  Shares**

**Exercise  Price**

**Exercise  Prices**

Balance as of February 29, 2000

80,700 

$  5.23 

$  3.81 - $  8.38 

Granted

40,000 

$12.00 

$10.50 -  $13.50 

Exercised

(18,000)

$  4.08 

$  3.81 - $  6.25 

Balance as of February 28, 2001

102,700 

$  8.06 

$3.81   - $13.50 

Canceled

(6,000)

$  8.38 

$  8.38 

Exercised

(2,450)

$  3.81 

$  3.81 

Balance as of February 28, 2002

94,250 

$  8.16 

$3.81   - $13.50 

Canceled

(20,000)

$10.50 

$10.50 

Exercised

(5,750)

$  5.93 

$3.81  -  $  6.25 

**Balance as of February 28, 2003**

**68,500 **

**$  7.66 **

**$3.81   - $13.50 **

34
 At February 28, 2003, the range of exercise prices and the weightedaverage remaining contractual life of the options was as follows:
 Options Outstanding Options ExercisableRange of     Exercise PricesNumber OutstandingWeighted Average Exercise PriceWeighted Average Remaining Contractual LifeNumber ExercisableWeighted Average Exercise Price      $13.5020,000$13.507.1 years20,000$13.50$6.13 - $6.2529,000$6.214.6 years29,000$6.21$3.8119,500$3.813.1 years19,500$3.81 68,500$7.664.9 years68,500$7.66
35
During FY01, options to purchase 2,000 shares of JM Ney, at an average exercise price of $11.17 per share wereissued.  During FY02 and FY01, options toacquire 750 and 500 shares, respectively, of JM Ney were forfeited.  During FY02 and FY01, options to acquire250,  and 21,000 shares, respectively,were exercised, and the resultant shares were simultaneously repurchased by JMNey for net consideration of $100 and $24,000, respectively. In FY03, subsequentto the sale of JM Ney's assets, as discussed in Note 3, the Company purchased 106,050options which represented all of the outstanding JM Ney options from theholders thereof for total consideration of $304,000.(14)         Retirement PlansThe Company maintains a noncontributory defined benefit plan and a definedcontribution plan, which collectively cover substantially all full-timeemployees.  The defined contribution planis funded through employee contributions and employer matching contributions.Pension expense for the Company's defined contribution plan totaled $43,000, $213,000and $223,000, in FY03, FY02 and FY01, respectively.  The defined benefit plan held 12,250 sharesof the Company's stock at both February 28, 2003 and 2002.The following table sets forth the changes in benefit obligations, changes infair value of plan assets, funded status and net amounts recognized for thedefined benefit plan (in thousands).  Such amounts are reported on a two month lag to coincide with theDecember 31 fiscal year end of the plan. 

* *

**February  28, 2003**

February  28,2002

February  28, 2001

*Changes in Benefit Obligations*

** **

 

 

Benefit obligation at beginning  of year

**$13,354 **

$12,304 

$11,001 

Service cost

**100 **

299 

261 

Interest cost

**841 **

888 

864 

Experience loss

**324 **

339 

232 

Distributions

**(1,485)**

(873)

(1,010)

Effect of curtailment 

**(1,431)**

- 

(178)

Impact of medical liability  transfer

**525 **

- 

- 

Effect of assumption changes

**698 **

397 

1,134 

Benefit obligation end of year

**12,926 **

13,354 

12,304 

*Change in Fair Value of  Plan  Assets*

** **

 

 

Fair value of plan assets at  beginning of  year

**15,680 **

15,324 

14,069 

Actual return on assets

**88 **

1,229 

2,265 

Benefits paid

**(1,485)**

(873)

(1,010)

Fair value of plan assets at  end of year

**14,283 **

15,680 

15,324 

Funded status

**1,357 **

2,326 

3,020 

Unrecognized net actuarial  loss  

**3,237 **

2,530 

1,886 

Unrecognized past service cost

**(3)**

(81)

(97)

Prepaid pension expense

**$ 4,591 **

$ 4,775 

$ 4,809 

Experience losses are comprised primarily of variances in employee turnover,the amount of salary increases and the Plan's mortality experience.  The effect of assumption changes is primarilycomprised of changes in the discount rate used to calculate the projectedbenefit obligations.

During FY03, the Company amended the Planto provide for enhanced pension benefits to a group of retirees as settlement ofpost-retirement health benefits being provided by the Company as discussed inNote 15.

36
For FY03, FY02 and FY01, the projectedbenefit obligations and pension expense were determined using the followingassumptions:

** **

**2003**

2002

2001

Discount rate

**6.50%**

7.00%

7.25%

Future compensation growth rate

**5.00%**

5.00%

5.00%

Long-term rate of return on  plan assets

**8.00%**

8.00%

8.00%

Net pension expense for the Company's funded defined benefit plan in FY03,FY02 and FY01 includes the following components (in thousands): 

** **

**2003**

2002

2001

Service cost of benefits  accrued

**$   100 **

$   299 

$    261 

Interest cost on projected  benefit obligations

**841 **

888 

864 

Expected return on plan assets

**(1,220)**

(1,192)

(1,086)

Unrecognized net gain

**14 **

39 

69 

Pension expense 

**$  (265)**

$     34 

$   108 

36
 (15)         Post-retirementBenefit ObligationsAt February 28, 2002, the accumulated benefit obligation for an unfundedretiree health care plan was approximately $674,000.  As discussed in note 14, during FY03, theCompany amended its defined benefit retirement plan to provide enhanced pensionbenefits to the group of retirees who had been receiving this benefit from theCompany.  The implementation of this planresulted in the liability being assumed by the pension plan and a net gain of$142,000 being recorded by the Company from the settlement of this obligation,which has been recorded as a reduction of general and administrative expenses.(16)         Business Segments andExport SalesDuring FY03, the Company operated in one continuing segment which includesthe Company's investment, real estate and corporate administrative activities. (17)         Estimated Fair Value ofFinancial InstrumentsThe carrying amount of cash and cash equivalents, accounts receivable,short term borrowings, accounts payable and other accrued liabilities arereasonable estimates of their fair value based upon their currentmaturities.  The carrying value ofmarketable securities approximates fair value as determined by quoted marketprices less any reserves for liquidity and volatility concerns. The carrying values of long-term debt issued by banks and capital leaseobligations approximate fair value based on interest rate and repayment terms,and the extent to which the individual debts are collateralized.  At February 28, 2003 the fair value of theCompany's 10.5% convertible debentures was approximately $1,980,000 based on theCompany's negotiated purchases of these bonds.(18)         LitigationThe Company is involved in various legal proceedings generally incidentalto its business.  The outcome of anylitigation or regulatory issues contains an element of uncertainty.  Given the legal and factual issues thatremain outstanding related to the Company's litigation, the Company currentlyhas no basis to ascertain the range of loss, should any occur, with respect toan outcome that may be considered unfavorable.

 (19)        Commitments andContingencies

The Company has a contingent liability with respect to a $386,000letter of credit used by its bank to secure performance bonds issued inconnection with an unresolved state income tax matter. The Company believesthat its accruals are sufficient to meet any obligations that may arise fromthis matter.The Company is also party to certain operating leases which will require $123,000of payments to be made during FY04.(20)         Supplemental Disclosure ofCash Flow InformationThe information below supplements the cash flow data presented in theCompany's Consolidated Statements of Cash Flows (in thousands): 

 

**2003**

2002

2001

Cash paid (received) for:

** **

 

 

                Interest

**$278 **

$1,038 

$1,898 

                Income taxes, net

**$385 **

$    (13)

$  (140)

During FY02 and FY01, the Company issued 25,650 and 30,447 shares,respectively, of its common stock from the conversion of preferred stock; andduring FY02 it issued 247 shares of its common stock from conversion of 10 1/2%convertible notes.(21)         Related Party TransactionsDuring FY02 and FY01, the Company allocated approximately $125,000 and$204,000 of expenses to Moscow Broadband for administrative servicesprovided.  No costs were allocated duringFY03. 

37
(22)         Quarterly Financial Data(unaudited) 

**2003 Quarterly Financial Data**

**May 31**

**August 31**

**November 30**

**February 28**

Investment income and other income continuing  operations

  $196 

  $   90 

  $  322 

  $  306 

Net loss from continuing operations before  equity in losses of unconsolidated  subsidiary   and income taxes

  (419)

  (727)

  (436)

  (291)

Equity in losses of unconsolidated subsidiary

(168)

(172)

(172)

(200)

Net loss from continuing operations

(434)

(636)

(473)

(507)

Net income (loss)

1,170 

(636)

(473)

(507)

Income (loss) applicable to common shares

1,099 

(706)

(544)

(577)

**Earnings (Loss) Per Common Share-Basic:**

$0.52 

$(0.34)

$(0.26)

$(0.27)

**                                                                    -Diluted:**

$0.52 

$(0.34)

$(0.26)

$(0.27)

  

**2002 Quarterly Financial Data**

**May 31**

**August 31**

**November 30**

**February 28**

Net sales and revenues from continuing operations

$290 

$101 

$76 

$123 

Net (loss) from continuing operations before  equity in losses of unconsolidated  subsidiary   and income taxes

  (354)

  (322)

  (654)

  (607) 

Equity in losses of unconsolidated subsidiary

(207)

(204)

(183)

(77)

Net loss from continuing operations

(460)

(444)

(562)

(234)

Net income (loss)

384 

(579)

(279)

1,002 

Income (loss) applicable to common shares

311 

(652)

(349)

932 

**Earnings (Loss) Per Common Share-Basic:**

$0.15 

$(0.31)

$(0.17)

$0.45 

**                                                                    -Diluted:**

$0.15 

$(0.31)

$(0.17)

$0.40 

 (23)         CCTV and MBCProposed Acquisitions In April 2002, as amended in August and September 2002, the Company enteredinto agreements under which, subject to, among other things, shareholderapproval, the Company agreed to acquire 100% of the outstanding stock of CCTVthrough the i) contribution of cash into CCTV; ii) the issuance of between4,000,000 shares and 4,560,000 shares of its common stock to Asinio CommercialLimited ("ACL") a Cyrus limited liability company, in exchange forshares of CCTV presently held by COMCOR that were to be acquired by ACL in aseparate transaction, and iii) the issuance of 2,250,000 shares of its commonstock in exchange for the 75% of MBC that the Company does not presently own.  Pursuant to these agreements, in May 2002,MBC made a $5,000,000 cash investment into CCTV, and COMCOR invested operatingassets and shares of the Institute for Automated Systems ("IAS") withan aggregate recorded value of approximately $17,374,000.  IAS is a Moscow-based telecommunicationscompany, approximately 41.7% of which is presently owned by CCTV directly, andless than 2% of which is owned by MBC.In May 2003, the Company and ACL agreed to terminate the agreements betweenthe parties. 

38
Concurrent with the termination of such agreements, the Company enteredinto agreements with COMCOR pursuant to which the Company will issue 4,220,879shares of its common stock to COMCOR in exchange for the equity of CCTV to beheld by COMCOR, including the equity of CCTV to be acquired by COMCOR inexchange for the extinguishment of approximately $1,380,500 of amounts owed orexpected to be owed to COMCOR from CCTV. Consummation of this transaction is subject toamong other things, i) the approval of the Company's stockholders, and ii) theCompany's acquisition of substantially all of the shares of MBC's common stockthat it does not currently own.

In connection with the agreements, the Company committed to making i) a$3.5 million investment into CCTV within 20 days, ii) a $1.0 million investmentin CCTV within 20 days of the closing of the acquisition of the CCTV shares andiii) $1.5 million investment into CCTV at the earlier of the closing of arights offering or August 31, 2004.  Theagreements also provide for an additional $5,829,000 of capital contributions to CCTV from the Company prior to March 31,2006. If such contributions arenot made, then the Company will be obligated to issue up to 477,994 additionalshares of its common stock to COMCOR.

Pursuant to the agreements signed, effectiveApril 1, 2003,  COMCOR also agreed to eliminate the fee itcharged CCTV for transportation network services from CCTV's utilization of theMFON that had been charged at the rate of 10% of CCTV's television servicerevenue. COMCOR also agreed to limit CCTV's payment obligations for the lease ofsecondary node switching stations to the lesser of i) $350 per secondary nodeper month and ii) 20% of CCTV's television service revenues, calculated on a cumulativebasis beginning January 1,  2003. AtMay 20, 2003, CCTV was leasing 234 secondary nodes from COMCOR  CCTV plansto reduce the use of up to 63 of these nodes within the next six months, andlease an additional approximately 68 nodes from COMCOR as further buildout ofits access network occurs.

Concurrent with the closing of theproposed acquisition of CCTV equity from COMCOR, the Company intends to acquirethe 75% of 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 acquisition, the Companyintends to contribute approximately $1,250,000 to CCTV which is comprised of MBC's loansand advances to CCTV, 4,402 shares of the stock of the Institute for AutomatedSystems and the extinguishment of a $138,144 liability of CCTV through theissuance of approximately 33,427 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 bythe Company to CCTV, from 477,994 to 374,941. The agreementsfurther call for the Company to maintain the right to name four of the sevenmembers of the Company's Board of Directors and for COMCOR to name theremaining three.  Voting Agreements amongCOMCOR, Oliver R. Grace, Jr., the Company's President, and Francis E. Baker,the Company's Chairman, were entered into to support the continuation of theCompany's control over the corporate governance of the Company for a two-yearperiod. 

39
 

 

 

 

**ZAO PricewaterhouseCoopers Audit**Kosmodamianskaya Nab. 52, Bld. 5115054 MoscowRussiaTelephone +7 (095) 967 6000Facsimile +7 (095) 967 6001

 

 Report of Independent AccountantsTo theStockholders and Board of DirectorsAndersen Group, Inc.:In our opinion, the accompanying consolidated balance sheets and the relatedconsolidated statements of operations, of changes in stockholders' equity andcash flows present fairly, in all material respects, the financial position ofAndersen Group, Inc. and its subsidiaries at February 28, 2003 and 2002, andthe results of their operations and their cash flows for the three years in theperiod ended February 28, 2003 in conformity with accounting principlesgenerally accepted in the United States of America.  These financial statements are theresponsibility of the Company's management; our responsibility is to express anopinion on these financial statements based on our audits.  We conducted our audits of these statementsin accordance with auditing standards generally accepted in the United Statesof America, which require that we plan and perform the audits to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.  /s/ ZAO PricewaterhouseCoopers AuditMoscow, RussiaMay 23, 2003

 

40
 

 

** **

** **

** **

**ZAO PricewaterhouseCoopers Audit**Kosmodamianskaya Nab. 52, Bld. 5115054 MoscowRussiaTelephone +7 (095) 967 6000Facsimile +7 (095) 967 6001

 Report of Independent Accountants****

To the Board of Directors andShareholders of ABC Moscow Broadband Communication Limited:

In our opinion, the accompanying balance sheets and the relatedstatements of operations, of changes in shareholders' equity and cash flowspresent fairly, in all material respects, the financial position of ABC MoscowBroadband Communication Limited at December 31, 2002 and December 31, 2001, andthe results of their operations and their cash flows for the three years in theperiod ended December 31, 2002 in conformity with accounting principlesgenerally accepted in the United States of America.  These financial statements are theresponsibility of the Company's management; our responsibility is to express anopinion on these financial statements based on our audits.  We conducted our audits of these statementsin accordance with auditing standards generally accepted in the United Statesof America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

**/s/ ZAO PricewaterhouseCoopers Audit**

Moscow, RussiaMay 23 , 2003

 

 

41

**ABCMoscow Broadband Communication LimitedBalance SheetsDecember 31, 2002 and 2001(in thousands, except share data)**

 

**2002 **

2001 

**Assets**

 

 

Current assets

 

 

   Cash and cash equivalents

**$      557 **

$   4,344 

   Prepaid expenses and other current assets

**            - **

            9 

          Total current assets

**557 **

4,353 

 

** **

 

   Investment in ComCor-TV (Note 3)

**8,036 **

5,465 

   Notes and accounts receivable from  ComCor-TV

**819 **

2,527 

   Investment in Institute for Automated  Systems (Note 3)

**         48 **

         48 

          Total assets

**$   9,460 **

$ 12,393 

**Liabilities and Shareholders'  Equity**

** **

 

   Accounts payable

**$        30 **

$          2 

   Accrued expenses

**22 **

129 

   Payable to Andersen Group, Inc. (Note 5)

**            - **

            6 

          Total liabilities

**         52 **

        137 

Commitments and  contingencies

** **

 

 

** **

 

Shareholders' equity

** **

 

   Common  stock, Series A, 1 Cyprus Pound (US $2.20) par value;     1,000 shares authorized, issued and  outstanding in 2002 and 2001 (Note 4)

**2 **

  2 

   Common  stock, Series B, $1,000 par value; 19,000 shares authorized,     issued and outstanding in 2002 and  2001,    respectively (Note 4)

**19,000 **

  19,000 

   Additional paid-in capital

**1,409 **

1,409 

   Accumulated deficit

** (11,003)**

(8,155)

          Total shareholders' equity

**   9,408 **

  12,256 

           Total liabilities and shareholders'  equity

** $    9,460 **

$ 12,393 

The accompanying notes are an integral part of these financialstatements.

42

**ABC Moscow BroadbandCommunication LimitedStatements of OperationsFor the Years Ended December 31, 2002, 2001 and 2000(in thousands)**

 

 

**Year Ended   December 31, 2002**

Year Ended December 31, 2001

Year Ended December 31, 2000

Interest income

**$      68 **

$    311 

$    499 

Expenses

** **

 

 

   Salaries

**265 **

254 

246 

   Legal and  consulting

**188 **

589 

912 

   Allocations  from Andersen Group, Inc.

**- **

158 

212 

   Travel and  other

**        34 **

      143 

       233 

Total operating expenses

**      487 **

   1,144 

    1,603 

Net loss before equity in losses of    unconsolidated subsidiary

**(419)**

  (833)

  (1,104)

Equity in losses of ComCor-TV

**  (2,429)**

  (1,852)

  (1,814)

Net loss

**$(2,848)**

$(2,685)

$(2,918)

 The accompanying notes are an integral part of these financialstatements.

43

 
**ABC Moscow BroadbandCommunication LimitedStatement of Changes in Shareholders' Equity (Deficit)For the Years Ended December 31, 2002, 2001 and 2000(in thousands, except share data)**

 

 

** **

** **

** **

** **

**Additional**

** **

** **

 

**Class A Common Stock**

**Class B Common Stock**

**Paid-in**

**Accumulated**

** **

 

**Shares**

**Par  Value**

**Shares**

**Par Value**

**Capital**

**Deficit**

**Total**

Balance at December 31, 1999 (unaudited)

  1,000 

  $  2 

  - 

  $        - 

  $ 1,516 

  $(2,552)

  $(1,034)

Issuance of common stock  Class B, net of issuance   costs of $107,000

 

- 

 

- 

  17,450 

  17,450 

  (107)

  - 

  17,343 

Conversion of shareholders'  payable to common stock   Class B (Note 4)

  - 

  - 

  1,000 

  1,000 

  - 

  - 

  1,000 

Net loss

       - 

    - 

         - 

         - 

         - 

  (2,918)

(2,918)

Balance at December 31, 2000

  1,000 

  2 

  18,450 

  18,450 

  1,409 

  (5,740)

  14,391 

Issuance of common stock  Class B

  - 

  - 

  550 

  550 

  - 

  - 

  550 

Net loss

       - 

    - 

         - 

          - 

         - 

(2,685)

(2,685)

Balance at December 31,  2001

  1,000 

  2 

  19,000 

  19,000 

  1,409 

  (8,155)

  12,256 

Net loss

       - 

    - 

         - 

           - 

         - 

(2,848)

(2,848)

**Balance at December 31,  2002**

**1,000 **

**$  2 **

**19,000 **

**$19,000 **

**$1,409 **

**$(11,003)**

**$9,408 **

The accompanying notes are an integral part of these financial statements.

44

**ABC Moscow BroadbandCommunication LimitedStatement of Cash FlowsFor the Years Ended December 31, 2002, 2001 and 2000(in thousands)**

 

 

**Year Ended December 31, 2002**

Year Ended December 31, 2001 

Year Ended    December 31, 2000

**Cash flows from operating activities**

 

 

 

   Net loss

**$ (2,848)**

$ (2,685)

$ (2,918)

   Equity in  losses of ComCor-TV

**2,429 **

1,852 

1,814 

   Change in  prepaid expenses and other current assets

**9 **

(9)

- 

   Change in  accounts payable and accrued liabilities

**(79)**

(123)

4 

   Change in  payable to Andersen Group, Inc.

**         (6)**

          (9)

      (17)

                Net  cash used in operating activities

**     (495)**

      (974)

 (1,117)

**Cash flow from investing activities**

** **

 

 

   Purchase of  investment in ComCor-TV

**(5,000)**

8 

(9,020)

   Notes  receivable from ComCor-TV

**    1,708 **

 (2,527)

           - 

                Net  cash used in investing activities

**  (3,292)**

 (2,519)

 (9,020)

**Cash flows from financing activities**

** **

 

 

   Cash  received from issuance of Class B shares,     net of offering expenses

**- **

  - 

  17,343 

   Cash  received for common stock subscribed (Note 4)

**            - **

           - 

      550 

Net cash provided by financing activities

**            - **

           - 

 17,893 

Net (decrease) increase in cash

**(3,787)**

(3,493)

7,756 

Cash at beginning of year

**    4,344 **

   7,837 

       81 

Cash at end of year

**$     557 **

$ 4,344 

$ 7,837 

The accompanying notes are an integral part of these financialstatements.

45

 
**ABC Moscow BroadbandCommunication LimitedNotes to Financial StatementsFor the Years Ended December 31, 2002, 2001 and 2000**

** **

**1.             Nature of the Business**ABC Moscow Broadband Communication Limited ("MoscowBroadband" or the "Company") is a Cyprus-based associationformed in 1995 as Treglos Investments Limited to act as a holding company forinvestments in Russian companies.  From1995 to early 2000, its primary investment had been an approximately 6%interest in The Institute for Automated Systems ("IAS"), a Moscow-basedtelecommunications company.  In June2000, the Company changed its name from Treglos Investments Limited to ABCMoscow Broadband Communication Limited. In January 2000, Moscow Broadband entered into an agreement (the "JointVenture Agreement") with Moscow Telecommunications Corporation ("COMCOR")under which COMCOR and Moscow Broadband would fund the operations of ZAOComCor-TV ("ComCor-TV") and maintain joint and equal control overComCor-TV.  In April 2000 pursuant tothis agreement, the Company and COMCOR each provided capital to ComCor-TV inexchange for equal ownership of ComCor-TV's equity.  ComCor-TV is developing and operating anetwork to deliver cable television, high speed data transmission and Internetaccess, and IP telephony to up to 1,500,000 homes and businesses throughout theMoscow region. 

**2.             Summaryof Significant Accounting Policies**

**Use of Estimates**The preparation of financial statements in conformity withaccounting principles generally accepted in the United States of Americarequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period.  Actual results could differ from thoseestimates.

**Cash and Cash Equivalents**The Company considers all highly liquid investments with an originalor remaining maturity of three months or less at the date of purchase to becash equivalents.  

**Interest Income**Interest income on bank deposits and loans toComCor-TV is recognized as earned.

**Income Taxes**Deferred taxes are determined based on the difference between thefinancial statement and tax basis of assets and liabilities using enacted taxrates in effect in the years in which the differences are expected toreverse.  Valuation allowances areprovided if, based upon the weight of available evidence, it is more likelythan not that some or all of the deferred tax assets will not be realized.

**3.             Investments**

The Company's investments in ComCor-TV and the IAS are subject to the risks anduncertainties of the economy of the Russian Federation.  This economy continues to displaycharacteristics of an emerging market. These characteristics include, but are not limited to, the existence ofthe following:  a currency that is notfreely convertible outside of the country; extensive currency controls; a lowlevel of liquidity in the public and private debt and equity markets; and highinflation.The prospects for future stability in the Russian Federation are largelydependent upon the effectiveness of economic measures undertaken by thegovernment, together with legal, regulatory and political developments.

**Financial Instruments**The carryingamounts of the Company's financial instruments, which include cash and cashequivalents, accounts payable, accrued expenses, and notes receivable,approximate their fair value at December 31, 2002 and 2001 due to their shortmaturities.

46
**Investment in IAS**The investment in IAS is carried at historical cost,adjusted for other than temporary declines in fair value.  Moscow Broadband invested $1,000,000 for thepurchase of shares of IAS in 1996. During the year ended December 31, 1998, the Company recorded an$833,000 impairment loss to reflect an other than temporary decline in itsvalue relating to the financial crisis in Russia at that time.  During the year ended December 31, 2001,10,722 shares of IAS with an adjusted cost basis of $119,000 were contributedto ComCor-TV as discussed below.  Suchshares were recorded by ComCor-TV at a fair value of $634,000 in accordancewith joint venture accounting.  As of December31, 2002 and 2001, the Company owned 4,402 shares which represent approximately1.8% of IAS.

**Investment in ComCor-TV**In April 2000, pursuant to the Joint VentureAgreement, the Company contributed $8,500,000 in cash to ComCor-TV, 10,722shares of IAS, and also contributed an additional $500,000 in cash during theyear ended December 31, 2001.  In return,the Company received a 50% equity ownership in ComCor-TV.  In accordance with the Joint VentureAgreement, the Company will share in half the profits and losses of ComCor-TVand is permitted to appoint half the directors to the ComCor-TV Board ofDirectors.  The Company shares jointcontrol over ComCor-TV with COMCOR and, as a result, the investment is beingaccounted for under the equity method.  In May 2002, the Company invested an additional $5,000,000 of cash into ComCor-TVpursuant to agreements under which both ComCor-TV and the Company would becomecontrolled subsidiaries of Andersen Group, Inc. ("Andersen"), a USpublicly traded company which currently owns 25% of the outstanding stock ofthe Company.  These agreements alsocalled for COMCOR to contribute operating assets and additional shares of IASwith an aggregate agreed-upon value of $17,478,000.At December 31, 2002, the reported value of the Company's investment inComCor-TV was $8,036,000 which equals 27.2% of the recorded value of ComCor-TV'snet assets.  The Company continues torecord a 50% equity interest in ComCor-TV's results of operations becausecapital contributions made into ComCor-TV by the Company and COMCOR were madepursuant to agreements signed that, if consummated, will result in both theCompany and ComCor-TV becoming 100% owned subsidiaries of Andersen Group, Inc.("Andersen"), a U.S. publicly traded company which owns 25% of theoutstanding stock of the Company.  Untilthese transactions are finalized, the Company and COMCOR equally share votingpower with respect to ComCor-TV's matters which require shareholder approval.During 2001 and 2002, the Company provided advances and loans to ComCor-TVsubject to various lending agreements. At December 31, 2001, the advances and loans totaled $2,527,162.  In April 2002, the Company advanced ComCor-TVan additional $250,000.  With theproceeds of the Company's $5,000,000 capital investment in May 2002, ComCor-TVrepaid $2,509,742 of the loans and advances along with accrued interestthereon.  From September 2002 throughDecember 2002, the Company loaned a net of $550,000 additional pursuant to asecured loan agreement.  At December 31,2002, the total of loans and advances to ComCor-TV was $819,047, which includes$1,627 of accrued interest receivable. As a result of the agreements reached in April 2003, as described inNote 7, realization of this amount is more reasonably assured, and accordingly,no provision for uncollectibility has been recorded.During 2002 and 2001, the Company recognized $28,115 and $6,521, respectively,of interest income from loans to ComCor-TV.

 The following presents ComCor-TV's summarizedfinancial information as of and for the years ended December 31, 2002 and 2001(in thousands): 

 

**2002**

2001

** **

**Consolidated Balance Sheet**

 

 

 

   Current assets

**$  6,014 **

$    2,930  

 

   Non-current assets

**  28,496 **

14,850  

 

          Total assets

**$34,510 **

$  17,780 

 

   Current liabilities

**$ 3,124 **

$    3,631  

 

   Non-current liabilities

**   1,816 **

2,099  

 

          Total liabilities

**   4,940 **

5,730  

 

  Minority interest

**28 **

25  

 

   Shareholders' equity

**  29,542 **

12,025  

 

 

**$34,510 **

$  17,780  

 
      
   
**         Years Ended December 31,**
** **

**2002**

2001

2000

**Consolidated Statement of Operations**

 

 

 

   Revenues

**$ 1,941 **

$   1,200   

359 

   Cost of revenues

**$(3,691)**

$  (2,004)

$(1,611)

   Loss from operations

**$(4,960)**

$  (5,101)

$(3,574)

   Net loss

**$(4,858)**

$  (3,704)

$(3,599)

 **4.             Common Stock**

The Company was originally capitalized with 1,000 shares of Class A commonstock, which has a par value of one Cyprus pound per share (US $2.20).  During 2000, the Company's Board of Directorsauthorized the creation of a separate class of common stock, Class B commonstock.  The Company is authorized toissue up to 19,000 shares of Class B common stock with a par value ofUS$1,000.  Each class of stock has equalrights with respect to voting, dividends and preference in liquidation. 

During 2000, the Companycompleted a private placement of 19,000 shares of its Class B common stock at aprice of $1,000 each.  As of December 31,2000, two investors in the private placement had not been issued stockcertificates for their 550 shares of Class B common stock pending foreign bankcitizenship approval.  Accordingly, the$550,000 of proceeds relating to these shares was classified as common stocksubscribed.  During the year endedDecember 31, 2001, all 550 shares of Class B common stock were issued to theseinvestors.   

At the time of theprivate placement, the Company was indebted to certain of the holders of theClass A common stock in the aggregate amount of $1,000,000 for expensesincurred on the Company's behalf from 1995 through December 1999.  Concurrent with the private placement, theseshareholders elected to convert this liability into equity through thesubscription of Class B shares.  Costsrelating to the private placement, and issuance of the shares, were charged toadditional paid-in capital. 

**5.             Related Party Transactions**

At December 31, 2002, the Company had only onecompensated officer, and it does not have its own facilities.  Accordingly, it relies on Andersen for allits administrative and operational activities. In connection therewith, Andersen charged $158,000 and $212,000 ofadministrative expenses to the Company during the years ended December 31, 2001and 2000, respectively.  Due to theincreased level of activities in 2002 being related to Andersen's plannedacquisition of ComCor-TV and the Company, Andersen did not allocate anyexpenses to the Company during 2002. 

The President of the Company is compensated directlyby the Company and is also the Chairman of Andersen.  The President and Chief Financial Officer ofAndersen also are Chairman and Chief Financial Officer, respectively, of theCompany.  

47
 **6.             Income Taxes**

 Theprincipal components of the deferred tax balances are as follows: 

 

**December 31, 2002**

December 31, 2001

Net operating loss carryforwards

**$ 879 **

$  268 

Deferred tax asset valuation allowance 

**(879)**

  (268)

Net deferred tax assets 

**$     - **

$      - 

 The Company is subject to incometax in Cyprus at the rate of 4.25%. There is no tax liability for the year because of the lossesincurred.  The losses can be carriedforward and utilized against the profits of the five years following the yearin which they were incurred.

 TheCompany has provided a valuation allowance for the full amount of its netdeferred tax assets since realization of any future benefit from deductible temporarydifferences and net operating loss and tax credit carryforwards cannot besufficiently assured at December 31, 2002. 

**7.             Subsequent Event**

 In May 2003, Andersen and COMCOR entered into agreements under which Andersen wouldacquire COMCOR's equity interest in ComCor-TV, including equity interests to bereceived from the conversion of amounts owed by ComCor-TV to COMCOR forservices provided during 2002 and estimated amounts to be provided in2003.  Pursuant to these agreements,Andersen committed to investing $3.5 million in cash into ComCor-TV within 20days of the signing of the agreements and committed to invest an additional $2.5 million into ComCor-TV atdefined periods through no later than August 31, 2004. 

Theagreements between COMCOR and Andersen require that Andersen also acquiresubstantially all of the equity interests of the Company to enable Andersen toown substantially all of the equity interests of ComCor-TV.  Concurrent with the closing of itsacquisition of COMCOR's equity holdings in ComCor-TV, Andersen intends to issue150 shares of its common stock for each Class A or Class B common share of theCompany that it does not already own to holders of such shares who accept itsexchange offer

48
********* ***
**ZAO PricewaterhouseCoopers Audit**Kosmodamianskaya Nab. 52, Bld. 5115054 MoscowRussiaTelephone +7 (095) 967 6000Facsimile +7 (095) 967 6001

 
 
 

 Report of Independent Accountants

 

To the Board of Directors and Shareholders of ClosedJoint Stock Company COMCOR-TV

In our opinion, the accompanyingconsolidated balance sheets andthe related consolidated statements of operations, of changes in shareholders'equity and cash flows present fairly, in all material respects, the financialposition of Closed Joint Stock Company COMCOR-TV and its subsidiaries atDecember 31, 2002 and 2001, and the results of their operations and their cash flows for the three years in the periodended December 31, 2002 then ended inconformity with accounting principles generally accepted in the United Statesof America.  These financial statementsare the responsibility of the Company's management; our responsibility is toexpress an opinion on these financial statements based on our audits.  We conducted our audits of these statementsin accordance with auditing standards generally accepted in the United Statesof America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, and evaluating the overall financialstatement presentation.  We believe thatour audits provide a reasonable basis for our opinion.

 

 

/s/ ZAOPricewaterhouseCoopers Audit Moscow, RussiaMay 23, 2003
****48

**CLOSED JOINT STOCK COMPANY "COMCOR-TV"CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2002 and 2001(In thousands of US Dollars, except per share information)**

** **

**Notes**

**2002**

2001

 

**ASSETS**

 

 

** **

 

** **

 

 

** **

 

 
**Current assets**

** **

** **

** **

** **

 
Cash  and cash equivalents

 

4 

**$     91 **

$1,188 

 
Trade  accounts receivable 

 

 

**60 **

35 

 
Inventories

 

8 

**3,768 **

810 

 
Prepaid  expenses

 

 

**605 **

81 

 
Taxes  recoverable

 

5 

**1,154 **

770 

 
Other current assets

 

 

**336 **

46 
 
 
**Total  current assets**

 

 

**6,014 **

2,930 

 
 
**Non-current assets**

 

 

** **

 

 
Property,  plant and equipment, net

 

6 

**13,374 **

1,733 

 
Advances  for network construction and design

 

7 

**915 **

1,362 

 
Intangible  assets, net

 

9 

**7,916 **

8,987 

 
Investment  in Institute for Automated Systems 

 

10 

**6,291 **

2,768 
 
 
**Total  non-current assets**

 

 

**28,496 **

14,850 
 
 
**Total  assets**

 

 

**$34,510 **

$17,780 

      

 
**LIABILITIES  AND SHAREHOLDERS' EQUITY**

 

 

 

 
                
 
**Current  liabilities**

 

 

 

 

 
Trade  accounts payables

 

 

**$    299 **

$    44 

 
Accounts  payable to a related party

 

3 

**1,343 **

570 

 
Loan from related party

 

3 

**552 **

2,266 

 
Accrued expenses

 

11 

**610 **

605 

 
Other current liabilities

 

 

**320 **

146 
 
 
**Total  current liabilities**

 

 

**3,124 **

3,631 

 
 Deferred tax liability

 

13 

**1,816 **

2,099 
 
 
**Total  liabilities**

 

 

**4,940 **

5,730 
 
 
**Commitments and contingent  liabilities**

 

14 

** **

 

 
**Minority  interest**

 

 

**28 **

25 
 
 
**Shareholders'  equity**

 

 

** **

 

 
Preferred stock

 

 

**3 **

- 

 
Ordinary shares, RR 10  par value; 61,810 shares authorised and outstanding in 2002;  43,642 authorised  and outstanding in 2001

 

12 

**40 **

34 

 
Additional paid-in  capital

 

12 

**42,307 **

19,941 

 
Accumulated deficit

 

 

**(12,808)**

(7,950)
 
 
**Total  shareholders' equity**

 

 

**29,542 **

**12,025 **

 
 
**Total  liabilities and shareholders' equity**

 

 

**$34,510 **

**$17,780 **

 
The accompanying notes  are an integral part of these financial statements. 

 

49

 
**CLOSED JOINT STOCK COMPANY "COMCOR-TV"  CONSOLIDATED STATEMENT OF OPERATIONS   YEARS ENDED DECEMBER 31, 2002, 2001 and 2000  (In thousands of US Dollars)**

 

 
** **

** **

** **

 
** **

**2002**

2001 

2000 

**Revenues**

** **

 

 

Subscription fees

**$1,365 **

$    663 

$    90 

Connection fees and  equipment sales

**481 **

472 

248 

Other

**95 **

65 

21 

Total revenue

**1,941 **

1,200 

359 

**Cost of  revenue**

** **

 

 

Cost of CATV and  Internet from related party

**883 **

547 

267 

Equipment and  connection costs

**386 **

355 

177 

Wages, salaries,  benefits and payroll taxes

**788 **

786 

370 

Amortization of  intangibles

**1,071 **

1,095 

721 

Other

**563 **

316 

76 

Total cost of  revenue 

**3,691 **

3,099 

1,611 

**Operating  expenses**

** **

 

 

Wages, salaries,  benefits and payroll taxes

**1,488 **

1,582 

1,034 

Depreciation of  property, plant and equipment

**680 **

271 

41 

Lease of facilities  from a related party

**507 **

542 

237 

General and  administrative

**535 **

807 

1,010 

Total operating  expenses

**3,210 **

3,202 

2,322 

**Loss  from operations**

**(4,960)**

(5,101)

(3,574)

Interest expense

**(27)**

(7)

- 

Foreign exchange loss 

**(56)**

(29)

35 

Equity in losses of unconsolidated  subsidiary

**(95)**

- 

- 

Other (expense) income,  net

**- **

58 

192 

**Loss  before income taxes and minority interest**

**(5,138)**

(5,079)

(3,347)

Income tax benefit  (expense)

**283 **

1,367 

(252)

**Loss  before  minority interest**

**(4,855)**

(3,712)

(3,599)

Minority  interest

**(3)**

8 

- 

Net loss 

**$(4,858)**

$(3,704)

$(3,599)

The accompanying notesare an integral part of these financial statements.

 

 

50

 
**CLOSED JOINT STOCK COMPANY "COMCOR-TV"CONSOLIDATED STATEMENT OF CASH FLOWSYEARS ENDED DECEMBER 31, 2002, 2001 AND 2000** 
   **2002**20012000  
Cash flows from operating activities:

** **

 

 

 
Net loss

**$(4,858)**

$(3,704)

(3,599)

 
Equity in losses of unconsolidated subsidiary

**95 **

- 

- 

 
Deferred tax (benefit)/provision

**(283)**

(1,367)

252 

 
Depreciation and amortization

**1,751 **

1,365 

762 

 
Provision for inventory obsolescence

**240 **

- 

- 

 
Expenses paid for by a shareholder as part of  charter capital   contribution

**- **

  - 

  418 

 
  Changes in  working capital assets and liabilities:

** **

 

 

 
  (Decrease)  increase in inventories  

**280 **

(612)

(198)

 
  Increase in  taxes recoverable 

**(384)**

(351)

(419)

 
   Decrease/(increase) in other current assets

**(839)**

161 

(307)

 
Increase in accounts payable and accrued liabilities

**1,206 **

703 

661 

 
 
Net cash used by operating activities:

**(2,792)**

(3,805)

(2,430)

 
 
Cash flows from investing activities

** **

 

 

 
Acquisition of property and equipment

**(2,042)**

(809)

(1,240)

 
Advances for network construction and design

**447 **

(483)

(880)

  
Net cash used by investing activities

**(1,595)**

(1,292)

(2,120)

 
 
Cash flows from financing activities:

** **

 

 

 
Capital contributions

**5,000 **

- 

9,217 

 
Loan repayments

**(2,610)**

- 

(685)

 
Loan from shareholder

**900 **

2,260 

- 

  
 
Net cash provided by financing activities

**3,290 **

2,260 

8,532 

  
Effect of exchange rates movements on cash

**- **

- 

(5)

  
Net (decrease)/ increase in cash and cash  equivalents

**(1,097)**

2,837 

(3,977)

 
 

** **

 

 

 
Cash and cash equivalents at beginning of year

**1,188 **

4,025 

48 

 
 
Cash and cash equivalents at end of year

**$     91 **

$1,188 

$4,025 

 
 
Supplemental cash flow information

** **

 

 

  
Interest paid

**$      34**

-

-

  
Profit tax paid

**-**

-

-

 
The accompanying notes are an integral part of these financialstatements.

51

**CLOSED JOINT STOCK COMPANY "COMCOR-TV"CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITYYEARS ENDED DECEMBER 31, 2002, 2001 AND 2000(In thousands of US Dollars)**

 

 

**Preferred  stock**

**Capital  stock**

**Additional  paid in capital**

**Accumulated  deficit**

**Total  shareholders'  (deficit)/equity**

**Balance at December 31, 1999**

$  - 

$22 

$         - 

$    (647)

$    (625)

Capital contribution

- 

12 

19,941 

- 

19,953 

Net  loss

- 

- 

- 

(3,599)

(3,599)

**Balance at December 31, 2000**

$  - 

$34 

$19,941 

$(4,246)

$15,729 

Net loss

- 

- 

- 

(3,704)

(3,704)

**Balance at December 31, 2001**

$  - 

$34 

$19,941 

$(7,950)

$12,025 

Capital contributions

3 

6 

22,366 

- 

22,375 

Net loss

- 

- 

- 

(4,858)

(4,858)

**Balance at December 31, 2002**

**$ 3 **

**$40 **

**$42,307 **

**$(12,808)**

**$29,542 **

 The accompanying notesare an integral part of these financial statements.

 

 

52

 
**CLOSED JOINT- STOCK COMPANY "COMCOR-TV"****NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2002 AND FOR THE YEAR THEN ENDED****(Inthousands of US Dollars, except per share amounts)**

** Note 1:NATURE OF OPERATIONS AND BASIS OF PRESENTATION**

** (a) Operations of the Company**

 Closed Joint Stock Company COMCOR-TV (the "Company")was established on July 15, 1995 as a closed joint stock company underthe laws of the Russian Federation. The Company is engaged in provision ofcable television services and high speed internet access in Moscow. The Company'soperations are subject to licenses for cable television broadcasting and datatransmitting. The current licenses granted by the State Committee of the RussianFederation on Telecommunications are valid until 2004. The numberof subscribers is limited by the terms of the license for cable televisionbroadcasting at 1,500,000.

As at December 31, 2002, the Company has installed service capacity forup to 107,026 homes in Moscow. In  2003,the Company expects to continue the construction of networks, increase itssales of services, and implement new broadband services.

 **(b) Ownership, subsidiaries, associates**

 The shareholders of the Company are Joint Stock Company MoscowTelecommunication Corporation COMCOR ("COMCOR") and ABC MoscowBroadband Communication Ltd. ("MBC").

 The entities, included in these consolidated financial statementsinclude:

 

***Name***

**Principle  activities**

**Ownership interest**

 

 

**December 31, 2002**

December 31,  2001

 
 
LLC  Persey-Service ("Persey")

Broadcasting and  publishing

**51%**

51%

 
Open Joint Stock  Company Institute for Automated Systems ("IAS")

Data transfer  and telecommunication services

**42%**

  19%

 
 
Persey also acts as a sales representative of the Company.

Since August 2002 the Company has owned 41.7% of IAS as a result of thereceipt of additional shares as noted below, and has subsequently included itsequity interest in IAS's results of operations in its statement of operations. 

 **(c) Issue of shares**

In 2002, the Company made two additional issues ofshares: 10,910 preference shares were purchased by MBC for US $ 5,000 in cashand 18,168 ordinary shares were sold to COMCOR. COMCOR contributed coaxialnetworks for 89,000 subscribers in Chertanovo and Khamovniki, internetequipment, inventory, valued at  US$13,755, and 55,675 shares of IAS valued at US $3,618. 

** (d) Basis of presentation**

The Company maintains its accounting records and prepares statutoryaccounting reports in accordance with local accounting regulations. Theaccompanying consolidated financial statements are based on the statutoryrecords of each entity, which are maintained in Russian rubles ("roubles"),the official currency of the Russian Federation, and are recorded under thehistorical cost convention, except for the revaluations of property, plant andequipment, intangible assets and inventory. They have been adjusted in order to present the financialposition and the results of operations in U.S. Dollars ("US$" or "$")and in accordance with US GAAP.

53
The Company has experienced net losses since inception and expects toincur additional operating losses in the future as the Company continues toexpand its service offerings and customer base and to construct its ownnetwork.  As a result, the Company'smanagement believes that additional financing will be required to support itsplanned expenditures. The agreements signed in May 2003 under which AndersenGroup, Inc. ("Andersen"), a public U.S. company that currently owns25% of the equity interests of MBC, proposes to acquire the outstanding equityof the Company provide for additional capital contributions, including $6.0million in cash to be invested by Andersen, of which $3.5 million will becontributed  in May 2003. In addition, the agreements provide for $1,143 of liabilities of theCompany to COMCOR as of December 31, 2002 and a portion of charges forvarious services in 2003 from COMCOR to be converted into equity of theCompany. The agreements also provide for the elimination of certain fees toCOMCOR from the Company's utilization of its Moscow Fiber Optic Network, andfor a limitation of payments of fees charged for the lease of COMCOR's secondarynodes.  The Company expects that suchsources of capital will be adequate to allowit to meet its operating requirements for the foreseeable future.

**Note 2: SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

***Use of estimates.*** Thepreparation of financial statements in conformity with US GAAP requiresmanagement to make estimates and assumptions that affect the reported amount ofassets and liabilities and the reported amount of revenues and expenses duringthe reporting period. The most significant estimates relate to recoverabilityand useful lives of property, plant and equipment and intangible assets andvaluation of investments. Actual results could differ from these estimates.** **

***Principles of consolidation.***The consolidatedfinancial statements of the Company are based on the financial statements ofthe entities presented in Note 1 "Nature of operations and basis ofpresentation".  

Subsidiary undertakings, which are those entities in which the Companyhas an interest of more than one half of the voting rights, or otherwise haspower to exercise control over the operations, are consolidated. Subsidiariesare consolidated from the date on which control is transferred to the Companyand are no longer consolidated from the date that control ceases. Allintercompany transactions, balances and unrealised gains on transactionsbetween group companies are eliminated; unrealised losses are also eliminatedunless cost cannot be recovered.  

Minority interest at the balance sheet date represents the minorityshareholders' portion of the pre-acquisition carrying amounts of theidentifiable assets and liabilities of the subsidiary at the acquisition date,and the minorities' portion of movements in equity since the date of theconsolidation. Minority interest is presented separately from liabilities andshareholders' equity. 

Investments in associated undertakings are accounted for by the equitymethod of accounting. These are undertakings over which the Company generallyhas between 20% and 50% of the voting rights, or otherwise the Company hassignificant influence, but which it does not control. Unrealised gains ontransactions between the Group and its associated undertakings are eliminatedto the extent of the Company's interest in the associated undertakings;unrealised losses are also eliminated unless the transaction provides evidenceof an impairment of the asset transferred.** **

***Foreign currency translation****.*The Russian economy ishyperinflationary. The US$ is the reporting and the functional currency for thepurpose of these financial statements. Accordingly, transactions not alreadymeasured in US$ have been remeasured into US$ in accordance with the relevantprovisions of Statement of Financial Accounting Standards ("SFAS")No. 52, "Foreign Currency Translation".** **

Monetary assets and liabilities of the consolidated entities have beentranslated at the rate prevailing at the balance sheet date. Non-monetaryassets and liabilities have been translated at historic rates and adjusted forimpairment as necessary. Revenues, expenses and cash flows have been translatedat the exchange rate  on the date of thetransaction. Translation gains and losses from the remeasurement of assets andliabilities that are not denominated in US$ are credited or charged to theconsolidated statement of income.  

Exchange restrictions and controls exist relating to converting the rouble into other currencies. At present, the rouble isnot convertible outside of Russia and, further, consolidated entities arerequired to convert 50% of their hard currency earnings into roubles. Futuremovements in the exchange rates between the rouble and the US$ will affect thecarrying value of the Company's rouble denominated monetary assets andliabilities. Such movements may also affect the Company's ability to realisenon-monetary assets represented in US$ in these consolidated financial statements.Accordingly, any translation of local currencies to US$ should not be construedas a representation that such amounts have been, could be, or will in thefuture be converted into US$ at the exchange rate shown or at any otherexchange rate.  

The official rate of exchange, as determined by the Central Bank of theRussian Federation, between the Russian Rouble and the US Dollar at December31, 2002 was 31.7844 for US$ 1 (30.14 at December 31, 2001).  

***Cash and cash equivalents.***The Company considersonly those short-term, highly liquid investments with original maturity of 90days or less to be cash equivalents net of any restricted cash amounts. 

54

***Accounts receivable.***Accounts receivable arepresented net of any provision for bad and doubtful debts. 

***Revenuerecognition.***Revenue is primarily derived from the saleof cable television and Internet services to subscribers and is recognized inthe period the related services are provided. Under SAB 101 the Company defersconnection fees, set-box sales and related costs, and recognizes them over afive year period, which represents the estimated customer relationship period.Company follows the guidance of FASB 51 in recognizing initial connectionrevenues and direct selling costs.  Allrevenue figures are recorded net of VAT.** **

***Inventories.***Carrying amounts of inventory are determined on an average cost basis,including the contributed values of inventories contributed by COMCOR, and arestated at the lower of cost or market. Inventory is reviewed for obsolescenceat each reporting date.  

***Property, plant and equipment***. Property, plantand equipment is stated at cost less accumulated depreciation. Depreciation ofproperty, plant and equipment is applied on a straight-line basis over thefollowing estimated useful lives: 

Broadcasting equipment

 10 to 15 years

Other network equipment

  5 years

Other           

   3 to 5 years

In accordance with Statement of Financial Accounting Standards No. 144 "Accountingfor the Impairment and of Long-Lived Assets" ("SFAS 144"), property,plant and equipment held and used by the Company are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amountof an asset may not be recoverable. For the purpose of evaluating therecoverability of property, plant and equipment, the recoverability test isperformed using undiscounted net cash flows. 

***Financial instruments.***The fair value offinancial instruments (primarily cash and cash equivalents, accounts receivableand accounts payable) is determined with reference to various marketinformation and other valuation methods as considered appropriate. At December31, 2002, the fair values of financial instruments held by the Company did notmaterially differ from their recorded book values due to their shortmaturities. 

***Capital contributions from the shareholders.***Thenon-cash assets contributed by the shareholders have been recorded at theirestimated fair values determined by reference to cash contributions made at thesame time and in accordance with a plan of contributions to the charter capitalof the Company (see also Note 15 "Subsequent events"). 

***Comprehensiveincome*.**SFAS No. 130, "Reporting ComprehensiveIncome", requires disclosure of all changes in equity during a periodexcept those resulting from investments by and distributions to the Company'sshareholders. The Company's comprehensive loss for the year ended December 31,2002 did not differ from the reported net loss. 

***Income taxes.***Deferred tax assets and liabilitiesare calculated in respect to temporary differences in accordance with Statementof Financial Accounting Standards No. 109 "Accounting for Income Taxes"("SFAS 109"). SFAS 109 requires the recognition of deferredincome tax assets and liabilities for future tax consequences attributable todifferences between the financial statement carrying amounts of existing assetsand liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates in the years in which thesetemporary differences are expected to reverse. Valuation allowances areprovided for deferred income tax assets to the extent that it is more likelythan not that the assets will not be realized. 

***Value-Added Taxes.*** Value-Added Taxes ("VAT")related to sales are payable to the tax authorities at the time of the sale.VAT on purchases is reclaimable against sales VAT upon payment forpurchases.  The tax authorities permitthe settlement of VAT on a net basis. VAT related to sales and purchase transactions, which have not beensettled at the balance sheet date, are recognized in the balance sheet on agross basis. 

***Unified Social Tax.*** Chapter 24 of the Tax Code ofthe Russian Federation "Unified Social Tax" came into effect fromJanuary 1, 2001. This tax replaced payments to the pension, medical insurance,employment and social insurance funds. Average rate of this tax was 25.9%. TheCompany has no obligation to provide pensions to any of its management or staffand, accordingly, no provision for future pension costs is recorded. 

***Advertising expenses.***Advertising expenses arecharged to the Income Statement as incurred.*** ***

***Recently issued accounting standards***. In June2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, "Accountingfor Asset Retirement Obligations." This statement establishes standardsfor accounting for obligations associated with the retirement of tangiblelong-lived assets.   SFAS No. 143 iseffective for fiscal years beginning after June 15, 2002.  The adoption of this standard will not have amaterial impact on the Company's financial condition or results of operations. 

55

In April 2002, the Financial Accounting Standards Board issued SFAS No.145 "Rescission of FASB Statements No.4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". TheStatement eliminates an inconsistency between the required accounting forsale-leaseback transactions and the required accounting for certain leasemodifications that have economic effects that are similar to sale-leasebacktransactions.  This Statement also amendsother existing authoritative pronouncements to make various technicalcorrections, clarify meanings, or describe their applicability under changedconditions. The Company believes that the adoption of this standard will haveno material impact on its consolidated financial statements. 

In June 2002, the FASB issued SFAS No. 146, "Accounting for CostsAssociated with Exit or Disposal Activities." SFAS No. 146 nullifiesEmerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognitionfor Certain Employee Termination Benefits and Other Costs to Exit an Activity,"under which a liability for an exit cost was recognized at the date of anentity's commitment to an exit plan. SFAS No. 146 requires that a liability fora cost associated with an exit or disposal activity be recognized at fair valuewhen the liability is incurred. The provisions of this statement are effectivefor exit or disposal activities that are initiated after December 31, 2002. 

***Risks and concentrations.***The Company's businessis subject to risks and uncertainties common to growing technology-basedcompanies, including rapid technological change, growth and commercialacceptance of broadband services in Russia, dependence on third-partytechnology, new service introductions and other activities of competitors,significant financing requirements, dependence on key personnel and limitedoperating history. 

**Note3: RELATED PARTY TRANSACTIONS **

The Company receives signal delivery services and data network servicesfrom COMCOR. In addition, the Company pays COMCOR for Internet traffic. Theamount of such expenses, charged to the income statement for the year endedDecember 31, 2002, was US$ 883 (December 31, 2001: US$546), and the amountpayable to COMCOR at December 31, 2002 was US $1,143 (December 31, 2001: US$570). At December 31, 2002, the Company had pledged its assets (Khamovnikicoaxial network and IAS shares) to COMCOR as security for this payable. Thepledge and carrying value of those assets was US$ 8,549 and US$ 8,489 atDecember 31, 2002.  

During 2001 and 2002, the Company received short-term loans from MBC inthe amount of US$ 2,260 and US $ 900 respectively. All loans carry interest atLIBOR+1%. The Company repaid the 2001 loan and US$ 350 of the 2002 loans withaccrued interest. Total accrued interest expense paid or accrued on these loansduring 2002 was US$ 28. Amount payable to MBC for the loan at December 31, 2002was US$ 550 and interest payable was US $2. At December 31, 2002 the Company haspledged its assets (Chertanovo coaxial networks and other equipment) to MBC assecurity for this loan. The value pledge and carrying value of those assets wasUS$ 10,032 and US$ 9,019 at December 31, 2002. 

The Company leases its primary office facilities from IAS. The amountcharged to operations for the year ended December 31, 2001, was US$ 498 (2001;US$ 534), and the amount payable to IAS as at December 31, 2002 was US $ 194. 

**Note 4: CASH AND CASHEQUIVALENTS** 

 

**December 31, 2002**

December 31, 2001

Cash at bank (denominated in Roubles)

**$86 **

$   103 

Cash at bank (denominated in US Dollars)

**5 **

1,085 

Total cash and cash equivalents

**$91 **

$1,188 

**Note 5: TAXES RECOVERABLE** 

 

**December 31, 2002**

December 31, 2001

VAT recoverable

**$1,128 **

$743 

Income tax recoverable

**26 **

27 

Total taxes recoverable

**$1,154 **

$770 

56

 

**Note 6: PROPERTY, PLANT ANDEQUIPMENT** 

At December 31, 2002 and December 31, 2001, property, plant andequipment comprised:  
 **December 31, 2002**December 31, 2001Construction in progress**$2,408 **$963 Motor vehicles**278 **274 Computer equipment**459 **429 Office furniture and fixtures**447 **379 Network equipment**9,995 **- Internet equipment**507 **- Other**273 **- Total cost**14,367 **2,045 Accumulated depreciation**(993)**(312)Property, plant and equipment, net**$13,374 **$1,733 
56
**Note 7: ADVANCES FORNETWORK CONSTRUCTION AND DESIGN** 

 

**December 31, 2002**

December 31, 2001

Advance payments made to contractors

**$570 **

$1,136 

Internal project costs

**345 **

226 

Total advances for network construction and design

**$915 **

$1,362 

**Note 8: INVENTORY** 

 

**December 31, 2002**

December 31, 2001

Materials for construction

**$2,608  **

$322 

Cable 

**422 **

49 

Installation equipment and suppliers

**710 **

330 

Other

**268 **

109 

Reserve for obsolescence

**(240)**

- 

Total inventory

**$3,768 **

$810 

 **Note 9:INTANGIBLE ASSETS **

Intangible assets comprise: 
- A license for     provision of cable television broadcasting services to 1.5 million     subscribers. This license was contributed by COMCOR as consideration for     the shares issued on April 24, 2000.      The gross book value of the license of US$ 10,714 is being     amortized over a ten-year period.      The license term ends in September 2004 but the Company does not     foresee any problems with complying with the requirements of the renewal.     The license is required to provide services and management expects to     renew it at no significant cost, after the first five years of its     operation. Accumulated amortization as at December 31, 2002 is US$ 2,857. 
- Goodwill on     acquisition of Persey in July 2000 with carrying value of US$ 59 net.

 57
 

**Note 10:INVESTMENT IN INSTITUTE FOR AUTOMATED SYSTEMS **

IAS is a Russiantelecommunications company that has a data communications network in Russia.From April 2000 to July 2002, the Company had a 19% equity interest in IAS. AtJuly 31 2002, the Company received additional 55,675 shares of IAS from COMCORrepresenting approximately 23% of IAS, thus increasing the Company's equityinterest to 41.7%. During the period from August 2002 through December 2002,the Company recorded US$ 95 as its equity in the losses of IAS. 

At December 31, 2002, the Company's investment inIAS was recorded at US$ 6,291 and its proportionate share of IAS's equity wasUS$ 3,377. The difference is attributable to the fair market value of the IAScontribution at the dates of contributions, as determined by the Company'sshareholders in negotiation of contributions to the Company's equity tomaintain ultimate parity of ownership. The following presents the summarizedfinancial condition of IAS as of December 31, 2002 and the results of itsoperations for the five month period ended December 31, 2002 (unaudited). 

Balance Sheet

**December  31, 2002**

 Current assets

**$1,151 **

 Noncurrent assets

**9,596 **

     Total assets

**$10,747 **

 

** **

 Current liabilities

**$1,566 **

 Noncurrent liabilities

**1,082 **

     Total liabilities

**2,648 **

 

** **

     Shareholders' equity

**8,099 **

 

**$10,747 **

 

Statement  of Operations

**Five Months ended December 31, 2002**

Revenues

**$1,884 **

Cost  of revenue

**(1,385)**

Operating  expenses

**(869)**

Loss  from operations

**(370)**

Non  operating income

**144 **

Income  tax expense

**(2)**

Net  loss

**$ 228 **

** Note 11: ACCRUED EXPENSES **

** **

**December 31, 2002**

December 31, 2001

Salaries

**$227 **

$227 

Consulting services

**312 **

312 

Other accrued expenses

**71 **

66 
Total accrued expenses
**$610 **
$605 
58** **Note 12:SHAREHOLDERS' EQUITY **

The Company's chartercapital consists of 61,810 issued and fully paid ordinary shares with nominalvalue of US$ 40 and 10,910 preferred common stock shares with nominal value ofUS$3. Additional paid-in capital represents difference between the nominalvalue of the issued shares and the amounts contributed by the shareholders.Preference shares do not carry voting rights. No dividends were declared forthe previous years.** **

In October 2002 the Company registered new issue of additional 18,168ordinary shares which are intended to be sold to Andersen pursuant to theagreements signed in April 2003.  (Seealso Note 16 "Subsequent events").  

**Note 13: INCOME TAXES **

Deferred income taxes reflect the impact of temporary differencesbetween the amounts of assets and liabilities recognized for financialreporting purposes under US GAAP and such amounts recognized for statutory taxpurposes The significant components of the net deferred tax liability are asfollows:** **

 

**December 31, 2002**

December 31, 2001

Deferred tax assets:

** **

    Tax loss carry forward

**$  759 **

$  778 

    Property, plant and equipment

**127 **

44 

    Other

**17 **

- 

    Valuation allowance

**(759)**

(778)

Total deferred tax assets, net  of valuation allowance 

**144 **

44 

 Deferred tax liabilities:

** **

    Intangible assets

**(1,886)**

(2,143)

    Deferred costs 

**(74)**

- 

Total deferred tax liabilities 

**(1,960)**

(2,143)

Net deferred tax liability

**$(1,816)**

$(2,099)

** **The difference between income tax expense provided in the financialstatements and the expected income tax benefit at the statutory rate isreconciled as follows:**  **

 

**December  31, 2002**

December  31, 2001

Loss  before income taxes and minority interest

**$5,138 **

$  5,079 

Statutory  income tax rate

**24%**

35%

Income  tax benefit at the statutory rate 

**(1,233)**

(1,778)

(Increase)/decrease  due to:

** **

 

Expenses  not deductible for tax purposes

**158 **

350 

Taxable  losses not qualifying for carry forward 

**792 **

502 

Effect  of the change in statutory income tax rate

**- **

(625)

Movement  in valuation allowance on tax losses carry  forward

**- **

184 

**Income tax benefit**

**$(283)**

**$(1,367)**

 Russian tax losses can generally be used tooffset future taxable profits for the subsequent 10 years. The maximum offsetin each year is limited to 30% of the total taxable profit of the year. ** **

59
**Note 14: COMMITMENTS AND CONTINGENCIES  **

**Operating environment**

The economy of the Russian Federation continuesto display the characteristics of an emerging market. These characteristicsinclude, but are not limited to, the existence of a currency that is not freelyconvertible outside of the country, currency controls, a low level of liquidityin the public and private debt and equity markets and high inflation. 

The prospects for future economic stability arelargely dependent upon the effectiveness of economic measures undertaken by thegovernment, together with legal, regulatory, and political developments. 

**Taxation** 

Russian tax legislation is subject to varyinginterpretations and constant changes, which may be retroactive. Furthermore,the interpretation of tax legislation by tax authorities as applied to thetransactions and activity of the Company may not coincide with that ofManagement. As a result, transactions may be challenged by tax authorities andthe Company may be assessed additional taxes, penalties and interest, which canbe significant.  The tax years remainopen to review by tax authorities for three years.** **

**Political environment** 

The operations and earnings of the Company areaffected by political, legislative, fiscal and regulatory developments,including those related to environmental protection. Because of thecapital-intensive nature of the industry, the Company is also subject to physicalrisks of various kinds. The nature and frequency of these developments andevents associated with these risks, which generally are not covered byinsurance, as well as their effect on future operations and earnings, are notpredictable. ** **

**Note 15: SUBSEQUENT EVENTS **

In May  2003, COMCOR and Andersen entered into agreements, pursuant towhich Andersen will acquire all of the equity interests of the Company.  The agreements require that Andersen makeequity investments totaling US $6 million, of which US $3.5 million has beencommitted to be made within 20 days of the signing of the agreements.Additional investments by Andersen into the Company are also required within 20days of Andersen's acquisition of COMCOR's equity interests in the Company, and nolater than August 31, 2004.  Theagreements allow, but do not require, Andersen to make further equityinvestments into the Company in the aggregate total of US $5,828. The Companyexpects Andersen to contribute amounts owned by the Company to MBC, additionalshares of IAS and the value of amounts owed by the Company to others whichAndersen has agreed to settle as part of this additionally allowed investment. 

The agreements also provide for the conversion of $1,381 of liabilitiesand future liabilities of the Company to COMCOR  into shares of the Company.  Additionally, in the agreements, COMCORagreed to discontinue a fee of 10% of the Company's television service revenuesfor the Company's utilization of COMCOR's Moscow Fiber Optic Network and tolimit the payment for charges for the Company lease of COMCOR's secondary node switchingequipment to the lesser of $350 per month per secondary node or 20% of theCompany's television service networks as calculated on a cumulative basiseffective with January 2003 through December 2005. 

The agreement further requires Andersen to acquire substantially all ofthe shares of stock of MBC which it does not presently own.

60
 
**ANDERSEN GROUP, INC.Schedule II - Valuation and Qualifying Accounts**(Amounts in thousands)

 

 

 

Additions

 

 

 

 

 

 

 

 

 

 

Charged

 

 

 

 

Balance at

(credited) to

Charged to

 

 

 

beginning

costs and

to other

 

Balance at

Description

of year

expenses

accounts

Deductions

end of year

February 28, 2003

 

 

 

 

 

Allowance for doubtful accounts 

$96 

(19)

 

$(52)

$25 

Reserve for returns

$70 

- 

(44)b

$(26)

- 

February 28, 2002

 

 

 

 

 

Allowance for doubtful accounts

$77 

$20 

- 

$(1)

$96 

Reserve for returns

$70 

- 

- 

- 

$70 

February 28, 2001

 

 

 

 

 

Allowance for doubtful accounts

$111 

$(7)

- 

(27)

$77 

Reserve for returns

$80 

(10)

- 

- 

$70 

 

(a)    Write offs, net of recoveries

Represents value of settlements of transition balances with buyer of JMNey's operating assets.

EXHIBIT INDEX 

Exhibit No.

Description

Page

 

 

 

 

 

 

23.1

Consent of PricewaterhouseCoopers LLP

 

 

 

 

99.1

Factors Affecting Future Results

 

 

 

 

99.5

Certification of CEO and CFO pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002

 

 

61

Exhibit 23.1

 

**CONSENT OF INDEPENDENT ACCOUNTANTS**

We hereby consent to the incorporation by reference in theRegistration Statement on Form S-8 (No.333-17659) of Andersen Group, Inc. of our report dated May 23, 2003 relatingto the financial statements and financial statement schedule which appear in this Form 10-K.

  

/s/  ZAO PricewaterhouseCoopersAuditMoscow, RussiaMay 23, 2003

 

62
 
**EXHIBIT 99.1**

**FACTORS AFFECTING FUTURE FINANCIAL RESULTS** 

This Form 10-K, Andersen Group, Inc.'s (the "Company") AnnualReport to Shareholders, any Form 10-Q or Form 8-K or any other written or oralstatements made by or on the Company's behalf include forward-lookingstatements that reflect the Company's current views with respect to futureevents and financial performance.  Theforward-looking statements are subject to certain risks and uncertainties,including those discussed below, that could cause actual results to differmaterially from historical results or anticipated results.  The Company undertakes no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.Following the  initial and subsequentinvestments into ZAO ComCor-TV ("CCTV") as committed to underagreements which the Company signed in April 2003, substantially all of thevalue of the Company's assets will depend on CCTV's financial condition andresults of operations. Accordingly, the following discussion relates primarilyto the risks and uncertainties that affect CCTV. The following factors couldcause the Company's actual results to differ materially from historical resultsor anticipated results:Risks Related to the Moscow Broadband Share Acquisition and CCTV ShareAcquisition*The Company may experience liquidity difficulties.*The agreements signed in April 2003 pursuant to which the Companyplans to increase its ownership of CCTV through the issuance of shares for the50% of CCTV presently owned by Moscow Broadband Telecommunications (the "CCTVShare Acquisition") and for the 75% of ABC Moscow Broadband CommunicationLimited ("Moscow Broadband") that it does not presently own (the "MoscowBroadband Share Acquisition"), require the Company to make cash capitalcontributions into CCTV totaling $6,000,000, of which $3,500,000 is required tobe made in May 20, 2003.  In order to meetthese payment obligations, and to continue to meet its own operatingrequirements, the Company expects to have to raise funds through obtaining amortgage loan against JM Ney's real estate, by selling certain short terminvestments, or by issuing shares of its stock in a public or private offering.The Company may also reduce its obligation by arranging for direct equityinvestments into CCTV, which if successful, would result in the dilution of theCompany's planned ownership of CCTV. However, depending on market conditions, such sources of cash may stillbe inadequate to meet the scheduled payments into CCTV and still provide theCompany with sufficient liquidity to meet its administrative expenses and debtservice obligations. In the event that such liquidity needs are not met, CCTV'sbusiness plans, and possibly even its on-going viability as a going concern maybe put at risk.*If the Company does not consummate the MoscowBroadband Share Acquisition and the CCTV Share Acquisition, the Company'sfuture business strategy will be uncertain.*The CCTV Share Acquisition and the Moscow Broadband ShareAcquisition (together the "Acquisitions") cannot be consummatedunless certain conditions to the closing of the Acquisitions are fulfilled,including approval by the stockholders of the Company for the issuance of theCompany's common stock as consideration in the Acquisitions as well as certainRussian regulatory approvals.  TheCompany cannot assure you that the conditions to the consummation of the Acquisitionswill be fulfilled.The Company does not currently have an alternate business strategy in the eventthe Acquisitions are not consummated.  Inaddition, the continuing operation of CCTV is, to a large extent, contingent onthe funding anticipated pursuant to the terms of the Acquisitions; therefore,the Company's failure to consummate the Acquisitions would also have a materialadverse affect on CCTV's operations. 

Risks Related to the Operation of CCTVRisks Related to CCTV's Business*Because CCTV has had a limited operating history,its future performance is difficult to predict.*CCTV's business strategy has been implemented recently and to date CCTV'srevenue growth has not been adequate to have it reach profitability or achievepositive cash flow from operations.  Thegrowth of CCTV depends on the appeal of the services it provides to Russianconsumers. CCTV's ability to establish itself in the Russian market will beaffected by several factors, including the ability of CCTV to fund itsoperations and capital expenditures and the willingness of CCTV's competitorsto offer their services on terms with which CCTV is unable to compete. There isno assurance that CCTV will be successful in effectively implementing itsbusiness strategy and, because CCTV has had a limited operating history,investors have limited operating and financial information about CCTV uponwhich to base an evaluation of its performance and an investment in its commonstock. 

63
*CCTV will need additional capital and may not beable to raise it.*CCTV will need additional capital in order to continue itsoperations.  In addition CCTV may need orwant to acquire additional capital for a variety of reasons, such as: 
- financing its     subscriber growth strategy;
- enhancing its     service and subscriber support; 
- complying     with regulatory requirements or developments; 
- taking     advantage of new business opportunities; and
- implementing     changes in its business strategy.

Due to a variety of factors, including perceived risks related to CCTV'soperational performance, regulatory developments or deterioration in theRussian economy, CCTV may not be able to raise additional capital on acceptableterms. CCTV may have to sell stock at prices lower than those paid by itscurrent shareholders, leading to dilution, or it may have to sell stock or debtinstruments with rights superior to those of holders of CCTV's commonstock.  If CCTV cannot obtain adequatefinancing on acceptable terms, it may be unable to take advantage ofopportunities or to meet unexpected financial requirements.  This could cause CCTV to delay or abandonanticipated expenditures or otherwise limit operations, which could adverselyaffect CCTV's business. *The Company cannot assure you that a market for CCTV'sfuture services will develop or that CCTV can satisfy subscriber expectations.*CCTV currently offers its subscribers a number of value-addedservices, such as high-speed Internet access, IP-based telephony and webhosting. CCTV may not be successful in creating or competing in a market forthese value-added services. In particular, the Company cannot assure you that CCTVcan: 
- enhance its     current services;
- develop new     services that meet changing subscriber needs; 
- generate     significant demand for its new services through successful advertising and     marketing initiatives; 
- satisfy     subscriber expectations with respect to value-added services; 
- provide its     new services in a profitable manner; and 
- continue to     offer value-added services in the event of adverse changes in economic     conditions. 

**Risks Related to Russia**

*Economic instability in Russia could adverselyaffect CCTV's business.*Since the end of communism in the early 1990s, Russia'seconomy has been undergoing a rapid transformation from a one party state witha centrally-planned economy to a pluralist democracy with a market-oriented economy.This transformation has been marked by periods of significant instability.  In particular, the Russian government'sdecision to temporarily stop supporting the ruble in August 1998 caused thecurrency to collapse. At the same time, the Russian government defaulted onmuch of its short-term domestic debt and imposed a 90-day moratorium on foreigndebt payments by Russian companies.  TheRussian government subsequently entered into protracted negotiations with itscreditors to reschedule the terms of its domestic and foreign debt. Thus far,these negotiations have not yielded terms favorable to Western creditors.  It is possible that Russia may default on itsdomestic or foreign debt in the future or take other actions that couldadversely affect its financial stability. In addition, the Russian government's failure to maintain access tofunding from the International Monetary Fund ("IMF") could causefurther financial strain and negatively impact the Company's business. If noIMF financing is made available or if no agreement is reached with the ParisClub of sovereign creditors, the Russian government may not receive furtherfinancial support from other international organizations and foreigngovernments and may not be able to repay its debts.  This is anticipated to be a particularconcern in 2003, when a significant increase will occur in the amount due to berepaid by the Russian government. Operating in such an economic environmentmakes it more difficult for CCTV to obtain and maintain credit facilities,access international capital markets and obtain other financing to satisfy CCTV'sfuture capital needs. The August 1998 financial crisis marked the beginning of an economic downturnthat affected the entire Russian economy and resulted in Russia's equity marketbeing the worst performing equity market in the world for 1998.  Future downturns in the Russian economy arepossible and could diminish demand for CCTV's services and CCTV's ability toretain existing subscribers and collect payments from them.  Future downturns in the Russian economy couldalso prevent CCTV from executing its growth strategy, which could cause itsbusiness to suffer. *Fluctuations in the global economy may adverselyaffect Russia's economy and CCTV's business.*Russia's economy is vulnerable to market downturns and economicslowdowns elsewhere in the world.  As hashappened in the past, financial problems or an increase in the perceived risksassociated with investing in emerging economies could dampen foreign investmentin Russia and adversely affect the Russian economy.  In addition, a steep decline in the worldprice of oil could slow or disrupt the Russian economy because Russia producesand exports large amounts of oil.  Thesedevelopments could severely limit CCTV's access to capital and could adverselyaffect the purchasing power of CCTV's customers and, consequently, CCTV'sbusiness.  *Sustained periods of high inflation may adverselyaffect CCTV's business.*Russia has experienced high levels of inflation since the early1990s.  Inflation increased dramaticallyfollowing the August 1998 financial crisis. The government's history of printing money to pay back wages, pensionsand some of its debt has prompted concerns of hyperinflation. Due to high inflationand other economic and political pressures, the ruble lost significant valueagainst the U.S. dollar and other foreign currencies in 1998 and 1999. CCTV'soperating results could suffer if it is unable to sufficiently increase itsprices to offset increased inflation, which may become more difficult as CCTVattracts more mass market subscribers and its subscriber base becomes moreprice-sensitive. *Social instability in Russia could lead toincreased support for centralized authority and a rise in nationalism, whichcould restrict the manner in which CCTV operates its business.*Social instability in Russia, coupled with difficult economicconditions, could lead to increased support for centralized authority and arise in nationalism.  These sentimentscould lead to restrictions on foreign ownership of Russian companies in thedata communications industry or large-scale nationalization or expropriation offoreign-owned assets or businesses. Although the Company does not anticipatethe nationalization or expropriation of CCTV's assets, the concept of propertyrights is not well developed in Russian law and there is not a great deal ofexperience in enforcing legislation enacted to protect private property againstnationalization and expropriation. As a result, the Company may not be able toobtain proper redress in the courts, and CCTV may not receive adequatecompensation if in the future the Russian government decides to nationalize orexpropriate some or all of its assets. If this occurs, the Company's businesscould be harmed. 

64
**EXHIBIT 99.5**

**CERTIFICATION OF CEO AND CFO PURSUANT TO 18 U.S.C.SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002** 

In connection with the Annual Report on Form 10-K of Andersen Group, Inc.for the fiscal year ended February 28, 2003 as filed with the Securities andExchange Commission on the date hereof (the "Report"), pursuant to 18U.S.C. § as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, OliverR. Grace, Jr., President and Chief Executive Officer, and Andrew M. O'Shea,Chief Financial Officer, each hereby certifies, that, to the best of hisknowledge: 

(1)                The Report fully complies with therequirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;and 

(2)                The Information contained in theReport fairly presents, in all material respects, the financial condition andresults of operations of Andersen Group, Inc. 

 
May 28, 2003

/s/    Oliver R. Grace, Jr.

 
 

Oliver R. Grace, Jr.

 
 

President and Chief Executive Officer

 
 

 

 
May 28, 2003

/s/    Andrew M. O'Shea

 

Andrew M. O'Shea

 

Chief Financial Officer

 

 

This certification accompanies the Report pursuant to § 906 of theSarbanes-Oxley Act of 2002 and shall not, except to the extent required by theSarbanes-Oxley Act of 2002, be deemed filed for purposes of § 18 of theSecurities Exchange Act of 1934, as amended.

65

 ********