MORGAN GROUP HOLDING CO - Quarter Report: 2023 March (Form 10-Q)

UNITED STATES

SECURITIES & EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2023

 

or

 

For the transition period from ___ to ___

Commission File No. 333-73996

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No  ☒

 

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.

 

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MORGAN GROUP HOLDING CO. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

See accompanying notes.

MORGAN GROUP HOLDING CO. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

		Three months ended March 31,
		2023				2022
Cash flows from operating activities:
Net loss		$	(276,437	)		$	(347,113	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation			2,572				2,735
(Increase)/decrease in assets:
Receivables from brokers and clearing organizations			(50,361	)			(52,413	)
Receivables from affiliates			56				3,798
Income taxes receivable			271,835				-
Other assets			44,831				530,593
Increase/(decrease) in liabilities:
Payable to affiliates			37,921				58
Income taxes payable			(44,951	)
Compensation payable			3,788				(256,555	)
Accrued expenses and other liabilities			76,070				154,638
Total adjustments			341,761				382,854
Net cash provided by (used in) operating activities			65,324				35,741
Net increase (decrease) in cash and cash equivalents and restricted cash			65,324				35,741
Cash, cash equivalents, and restricted cash at beginning of period			2,635,501				3,238,897
Cash, cash equivalents, and restricted cash at end of period		$	2,700,825			$	3,274,638
Reconciliation to cash, cash equivalents, and restricted cash
Cash and cash equivalents		$	2,350,825			$	2,924,638
Restricted cash: deposits from clearing organizations			350,000				350,000
Cash, cash equivalents, and restricted cash		$	2,700,825			$	3,274,638

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Unless indicated otherwise, or the context otherwise requires, references in this report to the “Company,” “Morgan Group,” “Morgan,” “we,” “us,” and “our” or similar terms are to Morgan Group Holding Co. and its subsidiary.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Our disclosure and analysis in this Form 10-Q contains some forward-looking statements. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “will,” “should,” “may,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results. Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.

OVERVIEW

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in Part I, Item 1 of this Form 10-Q. This discussion contains forward-looking statements and involves numerous risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking statements as discussed under “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-Q.

Morgan Group (OTC Pink®: MGHL), through G.research, acts as an underwriter and provides institutional research services. Institutional research services revenues consist of brokerage commissions derived from securities transactions executed on an agency basis or direct payments from institutional clients as well as underwriting profits, selling concessions and management fees associated with underwriting activities. Commission revenues vary directly with the perceived value of the research provided, as well as account activity and new account generation.

 

RESULTS OF OPERATIONS

The following table (in thousands, except per share data) and discussion of our results of operations are based upon data derived from the Condensed Consolidated Statements of Income contained in our condensed consolidated financial statements and should be read in conjunction with those statements included in Part I, Item 1 of this Form 10-Q:

		Three Months Ended March 31,
		2023				2022
Revenues
Commissions		$	467			$	504
Principal transactions			(2	)			(0	)
Dividends and interest			31				5
Other revenues			1				0
Total revenues			497				509
Expenses
Compensation and related costs			291				328
Clearing charges			217				230
General and administrative			221				225
Occupancy and equipment			45				73
Total expenses			774				856
Loss before income tax benefit			(276	)			(347	)
Income tax benefit			-				-
Net loss		$	(276	)		$	(347	)
Net loss per share
Basic and diluted		$	(0.46	)		$	(0.58	)

Three Months Ended March 31, 2023 as Compared to the Three Months Ended March 31, 2022

Revenues

Institutional research services revenues by revenue component, excluding principal transactions and dividends and interest, were as follows (dollars in thousands):

		Three Months Ended March 31,								Increase (Decrease)
		2023				2022								$	%
Commissions		$	442			$	460			$	(18	)			(3.9%	)
Hard dollar payments			25				44				(19	)			(42.5%	)
Total		$	467			$	504			$	(36	)			(7.2%	)

Institutional research service revenues were $.5 million for three months ended March 31, 2023 and March 31, 2022, respectively. For the three months ended March 31, 2023 and 2022, respectively, G.research earned $0.3 million and $0.3 million, or approximately 70% and 55%, of its commission revenue from transactions executed on behalf of funds advised by Gabelli Funds, LLC (“Gabelli Funds”) and clients advised by GAMCO Asset Management Inc. (“GAMCO Asset”).

Principal Transactions

During the three months ended March 31, 2023 and 2022, net losses from principal transactions were negligible.

Interest and dividend income was $31 thousand for the three months ended March 31, 2023 an increase of $26 thousand from $5 thousand for the three months ended March 31, 2022 due to a sharp increase in short-term interest rates during the same period.

Expenses

Total expenses were $.8 million for the three months ended March 31, 2023, a decrease of $0.1 million, or 9.6%, from $.9 million in the 2022 period. The decrease results primarily from lower compensation costs and a reduction of expenses across all categories.

Compensation costs, which includes salaries, bonuses, and benefits, were $0.3 million for the three months ended March 31, 2023 and March 31, 2022, respectively.

Income Tax Benefit

We recorded an income tax provision of $0.0 million and $0 for the three months ended March 31, 2023 and 2022, respectively. The effective tax rate was (0.9)% and 0% for the periods ended March 31, 2023 and 2022, respectively.

Net Loss

Net loss for the three months ended March 31, 2023 was $0.3 million versus $0.3 million for the three months ended March 31, 2022.

LIQUIDITY AND CAPITAL RESOURCES

Our principal assets are highly liquid in nature and consist of cash and cash equivalents, comprised primarily of a 100% U.S. Treasury money market fund, The Gabelli U.S. Treasury Money Market Fund, advised by Gabelli Funds, LLC, which is an affiliate of the Company. Summary cash flow data for the first three months of 2023 and 2022 was as follows (in thousands):

		Three Months Ended March 31,
		2023				2022
Cash flows provided by (used in):
Operating activities		$	65			$	36
Net increase (decrease) in cash and cash equivalents			65				36
Cash and cash equivalents at beginning of period			2,635				3,239
Cash and cash equivalents at end of period		$	2,700			$	3,275

Net cash provided by operating activities was $0.07 million for the three months ended March 31, 2023, resulting from a net loss of $0.3 million and net increase in operating liabilities of $0.1 million offset by and a decrease in operating assets of $0.3 million. Net cash provided by operating activities was less than $0.1 million for the three months ended March 31, 2022, resulting from a net loss of $0.3 million less a net decrease in operating liabilities of $0.1 million offset by a net decrease in operating assets of $0.5 million.

 

Critical Accounting Policies

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods presented. Actual results could differ significantly from those estimates. See Note B in Part II, Item 8, Financial Statements and Supplementary Data, and the Company’s Critical Accounting Policies in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Morgan Group’s 2022 annual report on Form 10-K filed with the SEC on March 31, 2023 for details on Critical Accounting Policies.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Smaller reporting companies are not required to provide the information required by this item.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

The Company maintains a system of disclosure controls and procedures that is designed to provide reasonable assurance that information, which is required to be timely disclosed, is recorded, processed, summarized, and reported to management within the time periods specified in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. The Company’s principal executive officer and principal financial officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures (as defined in the Exchange Act) as of the end of the period covered by this report, have concluded that the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

There have been no changes in our internal control over financial reporting, as defined by Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II: OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

From time to time, the Company may be named in legal actions and proceedings. These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief. The Company is also subject to governmental or regulatory examinations or investigations. The examinations or investigations could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief. For any such matters, the condensed consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable. Furthermore, the Company evaluates whether there exist losses which may be reasonably possible and will, if material, make the necessary disclosures. However, management believes such amounts, both those that are probable and those that are reasonably possible, are not material to the Company’s financial condition, results of operations, or cash flows at March 31, 2023. See also Note 9, Guarantees, Contingencies, and Commitments, to the condensed consolidated financial statements in Part I, Item I of this Form 10-Q.

 

ITEM 1A.

RISK FACTORS

 

Smaller reporting companies are not required to provide the information required by this item.

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

MORGAN GROUP HOLDING CO.

(Registrant)

By: /s/ Joseph L. Fernandez

Name: Joseph L. Fernandez

Title:   Executive Vice President - Finance

Date: May 15, 2023

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